<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1997
Registration No. 333-33397
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NRG ENERGY, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 4911 41-1724239
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
(612) 373-5300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MICHAEL J. YOUNG
CORPORATE SECRETARY
NRG ENERGY, INC.
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403
(612) 373-5300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copy to:
STACY J. KANTER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed basis or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE PRICE(1) FEE
- --------------------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
7 1/2% Senior Notes due
2007 ...................... $250,000,000 100% $250,000,000 $75,758(2)
- --------------------------- -------------- -------------- --------------- --------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Estimated in accordance with Rule 457 (c) of the Securities Act, solely
for the purpose of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1997
PROSPECTUS
GRAPHIC OMITTED
OFFER FOR ALL OUTSTANDING
71/2% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
71/2% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
NRG ENERGY, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , , 1997,
UNLESS EXTENDED
NRG Energy, Inc., a Delaware corporation ("NRG"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (as the same
may be amended or supplemented from time to time, the "Prospectus") and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange an aggregate principal amount of up to $250,000,000 of 7
1/2% Senior Notes due 2007 which have been registered under the Securities
Act of 1933 (the "New Notes") of NRG for a like principal amount of the
issued and outstanding 7 1/2% Senior Notes due 2007 (the "Old Notes" and,
with the New Notes, the "Notes") of NRG from the holders (the "Holders")
thereof. The terms of the New Notes are identical in all material respects to
the terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes.
The Notes are redeemable at any time, at the option of NRG at a redemption
price equal to the principal amount thereof plus accrued interest plus a
Make-Whole Premium (as defined herein). See "Description of Notes -- Optional
Redemption." Upon a Change of Control (as defined herein), NRG may be
required to purchase the Notes at a redemption price equal to 101% of the
principal amount thereof plus accrued interest. See "Description of Notes --
Change of Control." The Notes are senior unsecured obligations of NRG, which
conducts substantially all of its business through numerous project
subsidiaries and project affiliates. As a result, all existing and future
liabilities of the direct and indirect subsidiaries and affiliates of NRG
will be effectively senior to the Notes. Because substantially all of the
operations of NRG are conducted by its project subsidiaries and project
affiliates, NRG's cash flow and its ability to service its indebtedness,
including its ability to pay the interest on and principal of the Notes when
due, are dependent upon cash dividends and distributions or other transfers
from its project and other subsidiaries and project affiliates to NRG. As of
June 30, 1997, NRG's project subsidiaries and project affiliates had total
assets of $8.0 billion, total indebtedness of $4.3 billion and an aggregate
debt-to-total capitalization ratio of approximately 54%. See "Risk Factors --
Holding Company Structure." The Indenture under which the Notes will be
issued does not restrict the incurrence of additional indebtedness by NRG or
its subsidiaries and affiliates.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on
the Old Notes, from June 17, 1997. Accordingly, registered Holders of New
Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from June 17, 1997. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of accrued interest on such
Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of NRG contained in the Registration Rights Agreement, dated as
of June 12, 1997 (the "Registration Rights Agreement"), among NRG and the
other signatories thereto. Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission") issued to third
parties, New Notes issued pursuant to the Exchange Offer in exchange for the
Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of NRG
within the meaning of Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act")), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the
distribution of such New Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any Holder is an affiliate of NRG or is engaged
in or intends to engage in or has any arrangement with any person to
participate in the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, including the delivery of a
prospectus which contains the information with respect to any selling holder
required by the Securities Act. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must represent to NRG that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. NRG has
agreed that, starting on the Expiration Date (as defined herein) and ending
on the close of business on the 90th day following the Expiration Date, it
will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
NRG will not receive any proceeds from this Exchange Offer. NRG has agreed to
bear the expenses of this Exchange Offer. Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
In the event NRG terminates the Exchange Offer and does not accept for
exchange any Old Notes, NRG will promptly return the Old Notes to the Holders
thereof. See "The Exchange Offer."
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the New Notes. NRG does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the New
Notes will develop. To the extent that a market for the New Notes does
develop, the New Notes could trade at a discount from their principal amount.
See "Risk Factors -- Lack of a Public Market for the Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN RISKS
WHICH HOLDERS WHO TENDER THEIR OLD NOTES SHOULD CONSIDER IN CONNECTION WITH
THIS EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
AVAILABLE INFORMATION
NRG has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the New Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to NRG and the
New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits thereto and the financial statements, notes and
schedules filed as a part thereof. Upon the effectiveness of the Registration
Statement, NRG will become subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Registration Statement (and the exhibits and schedules thereto), as well as
the periodic reports and other information filed by NRG with the Commission,
may be inspected and copied at the Public Reference Section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade
Center, 15th Floor, Suite 1300, New York, New York 10048 and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois at the prescribed rates. Such
information may also be accessed electronically by means of the Commission's
home page on the Internet (http://www.sec.gov). Any statements contained in
this Prospectus as to the contents of any contract or document filed as an
exhibit to the Registration Statement are not necessarily complete, and each
such statement is qualified in all respects by such reference.
In addition, NRG has agreed to furnish or cause to be furnished to
registered holders (and, at the request thereof, owners of beneficial
interests in the Notes) annual consolidated financial statements of NRG
prepared in accordance with United States generally accepted accounting
principles ("GAAP") (together with notes thereto, a report thereon by an
independent accountant of established national reputation and a management's
discussion and analysis of financial condition and results of operations),
such statements to be so furnished within 120 days after the end of the
fiscal year covered thereby. In addition, NRG will furnish or cause to be
furnished to registered holders (and, at the request thereof owners of
beneficial interests in the Notes) unaudited condensed consolidated balance
sheets and statements of income and cash flows of NRG for each of the first
three fiscal quarters of each fiscal year and the corresponding quarter of
the prior year, such statements to be so furnished within 90 days after the
end of the fiscal quarter covered thereby.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by and should be read
in conjunction with the more detailed information and the consolidated
financial statements of NRG, including the notes thereto, appearing elsewhere
in this Prospectus. Unless the context otherwise requires, references herein
to NRG mean NRG Energy, Inc. and its direct and indirect subsidiaries. The
subsidiaries of NRG that are engaged in the acquisition, development and
operation of, and ownership of interests in, power generation and thermal
energy production and transmission facilities and other facilities described
herein are sometimes referred to individually as a "project subsidiary" and
collectively as NRG's "project subsidiaries." In circumstances in which NRG
owns less than a majority of the interests in the joint venture, partnership
or other entity that owns or leases a facility, directly or indirectly, such
joint venture, partnership or other entity is referred to individually as a
"project affiliate" and collectively as the "project affiliates." References
herein to ownership by NRG or one of its project subsidiaries of interests in
a project or facility refer to ownership of interests in such project
affiliates.
THE COMPANY
NRG is one of the leading participants in the independent power generation
industry. Established in 1989 and wholly-owned by Northern States Power
Company ("NSP"), NRG is principally engaged in the acquisition, development
and operation of, and ownership of interests in, independent power production
and cogeneration facilities, thermal energy production and transmission
facilities and resource recovery facilities. The power generation facilities
in which NRG had interests as of October 1, 1997 (including those under
construction) had a total design capacity of 7,193 megawatts ("MW"), of which
NRG had or will have operational responsibility for 4,750 MW and net
ownership of or leasehold interests in 2,201 MW. In addition, NRG has
substantial interests in district heating and cooling systems and steam
generation and transmission operations; at December 31, 1996, these thermal
businesses had a steam capacity of approximately 3,550 million British
thermal units ("mmBtus"). NRG's refuse-derived fuel ("RDF") plants processed
more than 808,000 tons of municipal solid waste into approximately 644,000
tons of RDF in 1996.
NRG has experienced significant growth in the last three years, expanding
from 33 MW net ownership as of December 31, 1993 to 2,201 MW net ownership as
of October 1, 1997. This growth resulted primarily from a number of domestic
and international investments and acquisitions, principally the Gladstone
Power Station in Australia ("GPS" or "Gladstone"), the Mitteldeutsche
Braunkohlengesellschaft mbH ("MIBRAG") and Schkopau ("Schkopau") Projects in
Germany, the Minneapolis Energy Center ("MEC") and NRG Generating (U.S.) Inc.
("NRGG"), all as described below. NRG's total operating revenues and equity
in earnings of projects increased from $91.1 million and $27.2 million,
respectively, in 1994 to $104.5 million and $32.8 million, respectively, in
1996. In evaluating and acquiring its project interests, NRG has a flexible,
multi-disciplinary team approach that draws on its facility operations and
engineering expertise, fuel procurement and management skills, environmental
experience, labor and government relations expertise and legal and financial
skills.
As of October 1, 1997, NRG had direct and indirect interests in 27 power
generation facilities worldwide (not including those facilities in which its
wholly-owned subsidiary, NEO Corporation ("NEO"), has an interest), including
projects under construction. Of these facilities, 12 are located in the
United States (648 MW design capacity, with NRG holding 243 MW net
ownership), 4 are located in Germany (1,160 MW design capacity, with NRG
holding 267 MW net ownership), 4 are located in Australia (4,065 MW design
capacity, with NRG holding 1,245 MW net ownership), two are located in
Colombia (299 MW design capacity, with NRG holding 16 MW net ownership), and
one is located in each of the Czech Republic (382 MW design capacity, with
NRG holding 214 MW net ownership), Jamaica (74 MW design capacity, with NRG
holding 7 MW net ownership), Peru (155 MW design capacity, with NRG holding
5.5 MW net ownership), Honduras (80 MW design capacity, with NRG holding 6 MW
net ownership), and Bolivia (218 MW design capacity with NRG holding 126 MW
net ownership). In December 1996, NRG and Nordic Power Invest AB of Sweden
acquired 96.6% of the outstanding common shares of Compania
3
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Boliviana de Energia Electrica SA -- Bolivian Power Company Limited
("COBEE"), the second largest electric utility company in Bolivia, which will
have a design capacity of 218 MW after a 65 MW expansion in 1998. In
addition, through its wholly-owned project subsidiary, NEO, NRG had interests
on October 1, 1997 in 39 small hydroelectric and landfill gas-fired power
generation facilities located in the United States with total design capacity
of 113 MW, of which NRG has net ownership of 55 MW.
In May 1997, NRG consummated the largest acquisition in its history,
acquiring a 25.37% interest in the assets of a 2,000 MW brown coal fired
thermal power station and adjacent coal mine located in Victoria, Australia
and known as Loy Yang A. The State of Victoria sold the Loy Yang A assets as
part of its privatization program to a partnership formed by affiliates of
NRG and of CMS Generation (a wholly-owned subsidiary of CMS Enterprises),
together with Horizon Energy Investment Limited (an investment vehicle of
Macquarie Bank), for a total price of approximately AUS$4.7 billion (or
US$3.7 billion as of May 12, 1997). While most of the purchase price was
raised through project-financed loans and leveraged leases that are
non-recourse to the sponsors, NRG's equity investment was approximately
US$257 million. NRG funded its investment and related financing costs from a
bridge loan arranged by Salomon Loan Fund Inc (the "Bridge Financing"),
together with an equity investment by NSP and cash on hand.
In June 1997, NRG closed the financing for the refurbishment and expansion
of the Energy Center Kladno plant in Kladno, the Czech Republic ("Kladno").
NRG owns a 34% interest in the existing 28 MW coal-fired project, which also
supplies thermal energy. Non-recourse project financing was provided by a
consortium of Czech banks, the International Finance Corporation, Nissho Iwai
and ABB. This financing will fund the refurbishment of the existing facility
as well as the construction of a new 354 MW expansion project. NRG holds a
57.85% interest in the expansion project, and El Paso Energy International
and Stredoceska Energeticka ("STE"), the regional Czech electric distribution
company, hold the balance. NRG's total equity commitment in this project is
approximately $53 million.
In April 1996, NRG acquired a 41.86% equity interest in O'Brien
Environmental Energy, Inc. ("O'Brien"), which emerged from bankruptcy and was
renamed NRG Generating (U.S.) Inc. ("NRGG"). NRG holds 41.86% of the common
stock of NRGG, and NRG employees serve as NRG's designees on the board of
directors of NRGG. The remaining 58.14% of the common stock of NRGG remained
with the then-existing equity holders in O'Brien and is now publicly traded.
NRGG is a public company and its shares are listed in the NASDAQ small cap
issues under the symbol "NRGG." NRGG has interests in three domestic
operating projects with an aggregate capacity of approximately 196 MW. These
are: (i) sole ownership of the 52 MW Newark Boxboard Project, a gas-fired
cogeneration facility that sells electricity to Jersey Central Power and
Light Company ("JCP&L") and steam to Newark Boxboard Company; (ii) sole
ownership of the 122 MW E.I. du Pont Parlin Project, a gas-fired cogeneration
facility that sells electricity to JCP&L and steam to E.I. du Pont de Nemours
and Company; and (iii) an 83% interest in a 22 MW standby/peak sharing
facility which provides electricity and standby capabilities for the
Philadelphia Cogen. In addition, NRGG has a 33.33% interest in the 150 MW
Grays Ferry Project, a gas-fired cogeneration project which is under
construction in Philadelphia, Pennsylvania.
In connection with the financing of the Grays Ferry Project, NRGG granted
NRG an option to purchase 396,255 shares of NRGG common stock upon certain
terms and conditions. On August 28, NRG exercised such option and, upon NRGG
Board approval, the 396,255 shares will be issued to NRG. NRG will then be
the owner of 45.21% of the common stock of NRGG.
In addition to power generation, NRG has interests in four district
heating and cooling systems, located in Minneapolis, San Francisco,
Pittsburgh and San Diego, that provide steam for heating and chilled water
for cooling. NRG acquired the San Diego facility in June 1997. NRG also owns
or operates two steam transmission facilities and two resource recovery/RDF
facilities, all located in Minnesota.
At any time, NRG has a number of projects under consideration or in
development and is in various stages of negotiations regarding other
potential projects in the United States and abroad. NRG is currently
developing a number of significant domestic and international projects. These
include a 45%
4
<PAGE>
interest in the West Java Project, a 400 MW coal-fired project in Indonesia
in partnership with Ansaldo Energia and P.T. Kiani Metra; a 27.75% interest
in the 390 MW Alto Cachapoal greenfield hydroelectric complex in central
Chile in partnership with Nordic Power Invest AB and Construtora Andrade
Gutierrez S.A.; and a 50% interest in the Enfield Energy Centre, a 350 MW
power project under development in Enfield, England. In addition, NRG and two
partners have filed a plan in federal bankruptcy court to acquire the
fossil-fueled generating assets of Cajun Electric Power Cooperative of Baton
Rouge, Louisiana ("Cajun"). Also, in 1996 NRG purchased, at a substantial
discount, the senior secured debt of Mid-Continent Power Company, Inc.
("MCPC"). On June 18, 1997, MCPC filed a Chapter 11 petition in federal
bankruptcy court in Tulsa, Oklahoma and concurrently filed a plan of
reorganization proposing to transfer ownership of all of MCPC's assets to NRG
in exchange for forgiveness of debt. Because of the many complexities
inherent in the development, financing and acquisition of such projects,
there can be no assurance that any of these transactions will be consummated.
NRG's headquarters and principal executive offices are located at 1221
Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403. Its telephone number
is (612) 373-5300.
STRATEGY
NRG intends to continue to grow through a combination of acquisitions and
greenfield development of power generation and thermal energy production and
transmission facilities and related assets in the United States and abroad.
In the United States, NRG's near-term focus will be primarily on the
acquisition of existing power generation capacity and thermal energy
production and transmission facilities, particularly in situations in which
its expertise can be applied to improve the operating and financial
performance of the facilities. NRG is also working with several industrial
companies to develop energy projects that would provide both electricity and
steam for their production facilities. In addition, to the extent that the
replacement of aging power generating capacity or growth in demand creates
the need for new power generation facilities in the United States, NRG
intends to pursue opportunities to participate in the development of such
facilities. NRG is also studying the opportunities that may be created by the
current restructuring of the domestic electric utility industry, particularly
the divestiture by some utility companies of their generating assets.
In the international market, NRG will continue to pursue development and
acquisition opportunities in those countries in which it believes that the
legal, political and economic environment is conducive to increased foreign
investment. NRG intends to continue to capitalize on opportunities created by
the privatization of existing government-owned power generating capacity. In
addition, due to the significant existing demand for new power generating
capacity in the international market, NRG intends to engage in the
development of international "greenfield" projects, which are projects that
are developed, permitted, financed and constructed by the developer.
Although NRG exercises flexibility in structuring its investments in
projects, NRG's goal is to own a 20% to 50% equity interest in, and to have
operating control or influence over, the projects in which it invests. Where
appropriate, NRG will include a local or host country partner, in order to
enhance its knowledge of the region or country and to leverage its human and
financial resources. NRG currently holds no interest in, and has no present
intention of investing in, any nuclear generating facility.
As part of NRG's global tax strategy, NRG intends to maintain its earnings
from foreign investments offshore, for permanent reinvestment in other
foreign projects. For this reason, NRG intends to utilize the cash in its
domestic operations to make the payments with respect to the Notes. This cash
is expected to include payments of interest and principal to be received from
its wholly-owned Dutch subsidiary, NRGenerating International BV ("NRGBV"),
with respect to loans from NRG to that company.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer ............ NRG is offering to exchange up to
$250,000,000 aggregate principal amount of
7-1/2% Senior Notes due 2007 (the "New
Notes") for a like principal amount of its
7-1/2% Senior Notes due 2007 (the "Old
Notes" and, collectively with the New Notes,
the "Notes") that are properly tendered and
accepted. The terms of the New Notes and the
Old Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights
relating to the Old Notes described below
under " --Summary Description of the New
Notes."
Tenders; Expiration Date;
Withdrawal ................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997, or
such later date and time to which it is
extended. The tender of Old Notes pursuant
to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any
Old Note not accepted for exchange for any
reason will be returned without expense to
the tendering Holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer -- Terms of the Exchange
Offer; Period for Tendering Old Notes," and
"Withdrawal of Tenders."
Procedures for Tendering Old
Notes ........................ Certain brokers, dealers, commercial banks,
trust companies and other nominees who hold
Old Notes through the Depositary Trust
Company (the "Book-Entry Transfer Facility")
must effect tenders by book-entry through
the Book-Entry Transfer Facility's automated
tender offer program ("ATOP"). Tendering
Holders of Old Notes wishing to accept the
Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile together with either certificates
for such Old Notes or, if tendering through
ATOP, a Book-Entry Confirmation (as defined
herein) of such Old Notes into the
Book-Entry Transfer Facility, if such
procedure is available, and any other
required documentation to the exchange agent
(the "Exchange Agent") at the address set
forth herein. Tendering holders of Old Notes
that use ATOP will, by so doing, acknowledge
that they are bound by the terms of the
Letter of Transmittal. See "The Exchange
Offer--Book-Entry Transfer." By executing
the Letter of Transmittal, each Holder will
represent to NRG, among other things, that
(i) the New Notes acquired pursuant to the
Exchange Offer by the Holder and any other
person are being obtained in the ordinary
course of business of the person receiving
such New Notes, (ii) neither the Holder nor
such other person is participating in,
intends to participate in or has an
arrangement or understanding with any person
to participate in the distribution of such
New Notes and (iii) neither the Holder nor
such other person is an "affiliate," as
defined under Rule 405 of the Securities
Act, of NRG. Each broker-dealer that
6
<PAGE>
receives New Notes for its own account in
exchange for Old Notes, where such Old Notes
were acquired by such broker or dealer as a
result of market-making activities or other
trading activities, must acknowledge that it
will deliver a prospectus in connection with
any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging
and by delivering a prospectus, a broker or
dealer will not be deemed to admit that it
is an "underwriter" within the meaning of
the Securities Act. See "The Exchange Offer
-- Procedures for Tendering Old Notes" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners ............ Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered Holder promptly and
instruct such registered Holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered Holder. The
transfer of registered ownership may take
considerable time. See "The Exchange Offer
-- Procedures for Tendering Old Notes."
Guaranteed Delivery
Procedures ................... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who can not deliver
their Old Notes or any other documents
required by the Letter of Transmittal to the
Exchange Agent must tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Federal Income Tax
Consequences ................. The exchange pursuant to the Exchange Offer
should not result in any income, gain or
loss to the Holders or NRG for federal
income tax purposes. See "Certain Federal
Income Tax Considerations."
Use of Proceeds ............... NRG will not receive any proceeds from this
Exchange Offer.
Exchange Agent ................ Norwest Bank Minnesota, National Association
is serving as the exchange agent (the
"Exchange Agent") in connection with the
Exchange Offer.
7
<PAGE>
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. NRG does not currently
anticipate that it will register Old Notes under the Securities Act. See
"Description of Notes -- Registration Rights." Based on interpretations by
the staff of the Commission issued to third parties, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any
such Holder which is an "affiliate" of NRG within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the
distribution of such New Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any Holder is an affiliate of NRG or is engaged
in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. NRG has agreed that, starting on the Expiration Date and ending
on the close of business on the 90th day following the Expiration Date, it
will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution." However, to
comply with the securities laws of certain jurisdictions, if applicable, the
New Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. NRG does not currently
intend to register or qualify the sale of the New Notes in any such
jurisdictions. See "The Exchange Offer -- Consequences of Failure to Exchange
Old Notes."
8
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes. The New Notes will bear interest from the most
recent date to which interest has been paid on the Old Notes or, if no
interest has been paid on the Old Notes, from June 17, 1997. Accordingly,
registered Holders of New Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has
been paid or, if no interest has been paid, from June 17, 1997. Old Notes
accepted for exchange will cease to accrue interest from and after the date
of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes
are accepted for exchange will not receive any payment in respect of interest
on such Old Notes otherwise payable on any interest payment date the record
date for which occurs on or after consummation of the Exchange Offer. In the
event of a registration default under the Registration Rights Agreement, NRG
will pay special interest ("Special Interest") to each Holder of Transfer
Restricted Securities (as defined herein). See "Description of Notes --
Special Interest."
Notes Offered ................. Up to $250,000,000 principal amount of
7-1/2% Senior Notes due 2007.
Maturity Date ................. June 15, 2007.
Interest Payment Dates ........ June 15 and December 15, commencing December
15, 1997.
Ranking ....................... The New Notes will be senior unsecured
obligations of NRG and will rank pari passu
with all other senior unsecured indebtedness
of NRG. See "Description of Notes." All
existing and future liabilities of the
direct and indirect subsidiaries and
affiliates of NRG will be effectively senior
to the Notes.
Ratings ....................... The Old Notes have been assigned ratings of
"BBB-" by Standard & Poor's Ratings Group
and "Baa3" by Moody's Investors Service,
Inc. NRG expects that the New Notes would be
assigned the same ratings as the Old Notes.
See "Ratings."
Optional Redemption ........... The New Notes may be redeemed at the option
of NRG at any time, in whole or in part, on
not less than 30 nor more than 60 days
notice, at a redemption price equal to the
principal amount thereof plus accrued
interest plus a Make-Whole Premium. See
"Description of Notes -- Optional
Redemption."
Sinking Fund .................. None.
Change of Control ............. Upon a Change of Control, each holder of New
Notes will have the right, subject to
certain conditions, to require NRG to
repurchase such holder's New Notes, in whole
or in part, at 101% of the principal amount
thereof, plus accrued interest, if any, to
the date of purchase in accordance with the
procedures set forth in the Indenture
pursuant to which the New Notes will be
issued (the "Indenture"). A Change of
Control will not be deemed to have occurred
if, after giving effect thereto, the Senior
Notes are rated BBB-or better by Standard &
Poor's
9
<PAGE>
Ratings Group and Baa3 or better by Moody's
Investors Service, Inc. See "Description of
Notes -- Change of Control."
Exchange Offer; Registration
Rights ....................... Holders of New Notes (other than as set
forth below) are not entitled to any
registration rights with respect to the New
Notes. Pursuant to the Registration Rights
Agreement, NRG agreed, for the benefit of
the Holders of Old Notes, to file an
Exchange Offer Registration Statement (as
defined). The Registration Statement of
which this Prospectus is a part constitutes
the Exchange Offer Registration Statement.
Under certain circumstances, certain Holders
of Notes (including Holders who may not
participate in the Exchange Offer or who may
not freely resell New Notes received in the
Exchange Offer) may require NRG to file, and
cause to become effective, a shelf
registration statement under the Securities
Act, which would cover resales of Notes by
such Holders. See "Description of Notes --
Registration Rights."
Use of Proceeds ............... NRG will not receive any proceeds from this
Exchange Offer. The net proceeds to NRG from
the offering of the Old Notes (the
"Offering"), after deducting discounts and
expenses, were approximately $246.0 million.
NRG used such net proceeds to repay
outstanding debt under the Bridge Financing
and for other general corporate purposes.
See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial
Condition and Results of Operations --
Liquidity and Capital Resources."
RISK FACTORS
Holders of the Old Notes should consider carefully the information set
forth under the caption "Risk Factors" and all other information set forth in
this Prospectus before making a decision to tender their Old Notes in the
Exchange Offer.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below as of December 31,
1993, 1994, 1995 and 1996, and for the years then ended, have been derived
from NRG's audited consolidated financial statements. The summary
consolidated financial data set forth below as of June 30, 1996 and 1997, and
for the six-month periods then ended, and as of December 31, 1992 and for the
year then ended, have been derived from NRG's unaudited consolidated
financial statements. Certain financial information for the years ended
December 31, 1993 and 1994 have been reclassified to conform to the financial
presentation for the year ended December 31, 1995. Interim results and the
results for 1992, in the opinion of management of NRG, include all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial information for such periods; however, such
interim results are not necessarily indicative of the results that may be
expected for any other interim period or for a full year. The following data
should be read in conjunction with the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned
operations(1) .................. $39,647 $48,529 $63,970 $64,180 $ 71,649 $35,367 $ 42,685
Equity in operating earnings of
unconsolidated affiliates(2)(3) 1,321 2,695 27,155 23,639 32,815 11,914 13,846
---------- --------- --------- --------- ---------- --------- ----------
Total operating revenues ...... 40,968 51,224 91,125 87,819 104,464 47,281 56,531
OPERATING COSTS AND EXPENSES
Cost of operations--wholly-owned
operations ..................... 22,870 27,122 34,861 32,535 36,562 18,104 22,696
Depreciation and amortization .. 5,060 6,475 8,675 8,283 8,378 4,161 4,544
General, administrative, and
development .................... 14,930 11,448 19,993 34,647 39,248 18,280 18,039
---------- --------- --------- --------- ---------- --------- ----------
Total operating costs and
expenses ...................... 42,860 45,045 63,529 75,465 84,188 40,545 45,279
---------- --------- --------- --------- ---------- --------- ----------
OPERATING INCOME (LOSS) .......... (1,892) 6,179 27,596 12,354 20,276 6,736 11,252
OTHER INCOME (EXPENSE)
Equity in gain from project
termination settlements(4) .... -- -- 9,685 29,850 -- -- --
Other income (expense), net .... (1,753) 1,028 1,411 4,896 9,477 4,255 6,267
Interest expense ................ (1,662) (2,679) (6,682) (7,089) (15,430) (7,277) (11,182)
---------- --------- --------- --------- ---------- --------- ----------
Total other income (expense) .. (3,415) (1,651) 4,414 27,657 (5,953) (3,022) (4,915)
---------- --------- --------- --------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES............................. (5,307) 4,528 32,010 40,011 14,323 3,714 6,337
INCOME (BENEFIT) TAXES(5) ........ (2,187) 1,905 2,472 8,810 (5,655) (2,793) (5,652)
---------- --------- --------- --------- ---------- --------- ----------
NET INCOME (LOSS) ................ $(3,120) $ 2,623 $29,538 $31,201 $ 19,978 $ 6,507 $ 11,989
========== ========= ========= ========= ========== ========= ==========
</TABLE>
- ------------
(1) All of these revenues are from 100% owned operations. In accordance
with its strategy described herein, when NRG does not own 100% of a
project, it owns 50% or less in all cases except COBEE and Kladno.
(2) NRG accounts for its investments in projects where ownership is
between 20% and 50%, and where there is no effective and legal
control, using the equity method of accounting; COBEE and Kladno are
also accounted for using the equity method of accounting even though
NRG currently owns more than a 50% interest in both projects because
NRG intends to sell down below the 50% level. Equity in earnings of
unconsolidated project affiliates includes NRG's proportionate share
of all net income or losses attributable to project investments
accounted for using the equity method.
(3) Includes pretax charges of $5.0 million, $5.0 million and $1.5
million in the years 1994, 1995 and 1996, respectively, to write-down
the carrying value of certain energy projects.
(4) In 1994, NRG and its partner in the Michigan Cogeneration Partners
Limited Partnership agreed to terminate a power sales contract with
Consumers Power Company. The contract related to a 65 MW cogeneration
facility being developed in Michigan. Due to the agreement to
terminate the contract, NRG recorded a one-time pre tax-gain of $9.7
million in 1994.
Equity in gain from project termination settlements in 1995 included
a one-time pre-tax gain of $29.9 million related to the settlement
and termination of the San Joaquin Valley power purchase agreements
with PG&E. See "Business--Independent Power Production and
Cogeneration--Domestic Projects--San Joaquin."
(5) NRG is included in the consolidated federal income tax and state
franchise tax returns of NSP. NRG calculates its tax position on a
separate company basis under a tax sharing agreement with NSP and
receives payment from NSP for tax benefits and pays NSP for tax
liabilities.
11
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------------------------------------------------- ---------------------------
1992 1993 1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net property, plant
and equipment ..... $46,694 $108,934 $107,634 $111,919 $129,649 $113,389 $141,059
Net equity
investments in
projects .......... 16,400 20,046 164,863 221,129 365,749 251,107 638,780
Long-term debt,
including current
maturities......... 10,499 93,451(1) 93,339(1) 90,034(1) 212,141(1) 213,888(1) 463,614(1)
Stockholder's
equity ............ 40,267 97,722 234,722 319,764 421,914 352,199 496,926
</TABLE>
- ------------
(1) Includes debt relating to MEC and NRG San Diego, including current
maturities, which is non-recourse to NRG. As of June 30, 1997 this
debt was $78.5 million.
OTHER DATA (UNAUDITED):
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
NRG's net power generating
capacity(MW) ................. 33 33 992 999 1,326 1,213 2,080
NRG's net thermal energy
generating capacity:
mmBtus per hour .............. 695 1,865 1,961 2,318 2,654 2,654 2,693
MWt equivalent ............... 204 547 575 679 822 822 833
Consolidated EBITDA (1) ...... $1,415 $13,682 $47,367 $55,383 $38,131 $15,152 $22,063
Consolidated interest expense . $1,662 $ 2,679 $ 6,682 $ 7,089 $15,430 $ 7,277 $11,182
Consolidated interest expense
coverage ratio (2) ........... 0.85x 5.11x 7.09x 7.81x 2.47x 2.08x 1.97x
Consolidated debt service (3) $2,562 $ 4,272 $ 9,169 $10,394 $18,323 $ 8,423 $12,409
Consolidated debt service
coverage ratio (4) ........... 0.55x 3.20x 5.17x 5.33x 2.08x 1.80x 1.78x
Consolidated ratio of earnings
to fixed charges(5)........... (6) 2.32x 2.98x 1.56x(8) 1.75x(9) 3.52x (7)
</TABLE>
- ------------
(1) EBITDA equals the sum of income (loss) before income taxes, interest
expense (net of capitalized interest) and depreciation and
amortization expense. Management believes that some investors
consider EBITDA an accepted indicator of a company's ability to
service debt. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered
in isolation or as a substitute for net income, cash flows from
operations or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity. In addition, EBITDA may not be
comparable to similarly titled measures presented by other companies
and could be misleading unless all companies and analysts calculate
them in the same fashion. See Statements of Cash Flows in the
Consolidated Financial Statements included elsewhere in this
Prospectus.
(2) The interest expense coverage ratio equals EBITDA divided by interest
expense.
(3) Debt service consists of interest expense and principal payments on
long-term debt.
(4) The debt service coverage ratio equals EBITDA divided by debt
service.
(5) The ratio of earnings to fixed charges is calculated by dividing
earnings by fixed charges. For this purpose "earnings" means income
(loss) before income taxes less undistributed equity in operating
earnings of unconsolidated affiliates less equity in gain from
project termination settlements plus cash distributions from project
termination settlements plus fixed charges. "Fixed charges" means
interest expense plus interest capitalized plus amortization of debt
issuance costs plus a reasonable approximation of the interest factor
of rental expense.
(6) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(7) Due primarily to undistributed equity earnings exceeding income
before income taxes, NRG was unable to fully cover fixed charges.
Earnings did not cover fixed charges by $6,620.
(8) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
(9) The 1996 ratio of earnings to fixed charges calculation includes the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would
have been unable to fully cover fixed charges and earnings would not
have covered fixed charges by $3,504 for the year ended December 31,
1996.
12
<PAGE>
SUMMARY PRO FORMA CONDENSED FINANCIAL DATA
The unaudited pro forma condensed financial data set forth below give
effect to (i) the acquisition by NRG of a 25.37% equity interest in Loy Yang
A and the financing thereof and (ii) the offering of the Old Notes (the
"Offering"). The pro forma statement of income data for the year ended
December 31, 1996 and the six months ended June 30, 1997 give effect to such
transactions as if they had occurred at the beginning of the periods
presented. As the Loy Yang acquisition and the Offering were consummated
prior to June 30, 1997, no pro forma balance sheet data is provided. The pro
forma condensed financial data do not purport to be indicative of the
combined financial position or results of operations of future periods or
indicative of the results that would have occurred had the transactions
referred to above been consummated on the dates indicated. The following data
should be read in conjunction with, and are qualified in their entirety by,
the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 71,649 -- $ 71,649
Equity in earnings of unconsolidated affiliates 32,815 $ 9,460 (1) 42,275
Operating costs and expenses .................... (84,188) -- (84,188)
Other income (expense) .......................... 9,477 -- 9,477
Interest expense ................................ (15,430) (18,750) (2) (34,180)
Income taxes .................................... 5,655 4,373 (3) 10,028
------------ ------------- -----------
Net Income....................................... $ 19,978 $ (4,917) $ 15,061
============ ============= ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang A for twelve
months based upon historical data adjusted for differences due to
acquisition accounting primarily depreciation charges, finance charges
and adjustments to income tax expense.
(2) Represents accrued interest on $250 million principal amount of the
Old Notes for twelve months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
13
<PAGE>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 42,685 $ -- $ 42,685
Equity in earnings of unconsolidated affiliates 13,846 410 (1) 14,256
Operating costs and expenses .................... (45,279) -- (45,279)
Other income and (expense) ...................... 6,267 -- 6,267
Interest expense ................................ (11,182) (6,883)(2) (18,065)
Income taxes .................................... 5,652 1,605 (3) 7,257
------------ ------------- -----------
Net Income....................................... $ 11,989 $(4,868) $ 7,121
============ ============= ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang A until May 14,
1997, based upon historical data adjusted for differences due to
acquisition accounting primarily depreciation charges, finance charges
and adjustments to income tax expense. Equity earnings of Loy Yang A
from May 15 until June 30 were $1,061. This amount is summarized in
the Historical column of Equity in earnings of unconsolidated
affiliates.
(2) Represents interest expense on $250 million principal amount of the
Old Notes until May 14 at a rate of 7.5% per annum. Interest of
$2,414 on the Old Notes from May 15 until June 30 is in the
Historical column.
(3) Net tax benefit derived from interest expense on the Old Notes.
14
<PAGE>
RISK FACTORS
Holders of Old Notes should consider carefully the following risk factors
as well as the other information contained in this Prospectus in evaluating
an investment in the New Notes, although the risk factors set forth below
(other than "--Consequences of Failure to Exchange Old Notes") are generally
applicable to the Old Notes as well as the New Notes.
RISKS INVOLVED IN MAKING MINORITY INVESTMENTS IN PROJECTS
NRG conducts its business primarily through direct and indirect
subsidiaries and joint ventures. Most of NRG's current project investments
consist of minority interests in project affiliates (i.e., where NRG
beneficially owns 50% or less of the ownership interests). A substantial
portion of future investments in projects also may take the form of minority
interests. See "Business -- Strategy." As a result, NRG's ability to control
the development, construction, acquisition or operation of such projects may
be limited. The Indenture does not contain any limitations on the ability of
NRG to make minority investments.
Although NRG seeks to exert a degree of influence with respect to the
management and operation of projects in which it is a minority investor by
negotiating to receive certain limited governance rights (such as rights to
veto significant actions or to obtain positions on management committees),
NRG may not always succeed in such negotiations. See "Business -- Operating
Arrangements." NRG may be dependent on its co-venturers to construct and
operate such projects. There can be no assurance that such co-venturers would
have the same level of experience, technical expertise, human resources
management and other attributes that NRG possesses. Any such co-venturer may
have conflicts of interest, including those relating to its status as a
provider of goods or services to the project. The approval of co-venturers
also may be required for distributions of funds from projects to NRG.
UNCERTAINTY OF ACCESS TO CAPITAL FOR FUTURE PROJECTS
Any projects that NRG develops in the future and any projects that it may
seek to acquire generally will require substantial capital investment.
Continued access to debt capital from outside sources on acceptable terms is
necessary to assure the success of future projects and acquisitions. NRG's
ability to arrange financing on a substantially non-recourse basis and the
costs of such capital are dependent on numerous factors, including general
economic and capital market conditions, credit availability from banks and
other financial institutions, investor confidence in NRG, its partners and in
the local independent power market, the success of current projects, the
perceived quality of new projects and provisions of tax and securities laws
that are conducive to raising capital in this manner. In order to access
capital on a substantially non-recourse basis in the future, NRG may have to
make larger equity investments in, or provide more financial support for, its
project subsidiaries. To date, NRG's equity capital for its projects has been
provided by equity contributions from NSP and, to a lesser extent,
internally-generated cash flow from its projects. There can be no assurance
that NRG will be successful in structuring the financing for its projects on
a substantially non-recourse basis or that NRG will obtain sufficient
additional equity capital from NSP, project cash flow or additional
borrowings by NRG to enable it to fund the equity commitments required for
future projects.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. NRG does not currently
anticipate that it will register Old Notes under the Securities Act. See
"Description of Notes -- Registration Rights." Based on interpretations by
the staff of the Commission issued to third parties, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any
such Holder which is an "affiliate" of NRG within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the
distribution of such New Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and
15
<PAGE>
does not intend to engage in, a distribution of New Notes. If any Holder is
an affiliate of NRG or is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. NRG has agreed that, starting on the
Expiration Date and ending on the close of business on the 90th day following
the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied
with. NRG does not currently intend to register or qualify the sale of the
New Notes in any such jurisdiction. See "The Exchange Offer -- Consequences
of Failure to Exchange Old Notes."
HOLDING COMPANY STRUCTURE; ABILITY TO SERVICE INDEBTEDNESS
The Notes will be exclusively the obligations of NRG and not of any of its
project subsidiaries or project affiliates. As a result, all existing and
future liabilities of the direct and indirect subsidiaries and affiliates of
NRG will be effectively senior to the Notes. Because substantially all of the
operations of NRG are conducted by its project subsidiaries and project
affiliates, NRG's cash flow and its ability to service its indebtedness,
including its ability to pay the interest on and principal of the Notes when
due, are dependent upon cash dividends and distributions or other transfers
from its project and other subsidiaries and project affiliates to NRG. As of
June 30, 1997, NRG's project subsidiaries and project affiliates had total
assets of $8.0 billion, total indebtedness of $4.3 billion and an aggregate
debt-to-total capitalization ratio of approximately 54%. The debt agreements
of NRG's project and other subsidiaries and project affiliates generally
restrict their ability to pay dividends, make distributions or otherwise
transfer funds to NRG. The restrictions in such agreements generally require
that, prior to and after giving effect to the payment of dividends,
distributions or other transfers, (i) such subsidiaries or project affiliates
meet certain financial performance or coverage ratios, (ii) no default or
event of default shall have occurred, and (iii) the subsidiary or project
affiliate proposing to pay the dividend, distribution or other transfer must
provide for the payment of other current or prospective obligations,
including operating expenses, debt service and reserves. See "Business --
Project Financing." NRG's subsidiaries and project affiliates are separate
and distinct legal entities that have no obligation, contingent or otherwise,
to pay any amounts due pursuant to the Notes or to make any funds available
therefor, whether by dividends, loans or other payments, and do not guarantee
the payment of interest on, or principal of, the Notes. NRG owns a minority
interest in most of its international and domestic projects, and therefore is
unable unilaterally to cause dividends or distributions to be made to NRG
from these operations.
Any right of NRG to receive any assets of any of its subsidiaries or
project affiliates upon any liquidation or reorganization of such
subsidiaries or project affiliates (and the consequent right of holders of
the Senior Notes to participate in the distribution of, or to realize
proceeds from, those assets) will be effectively subordinated to the claims
of any such subsidiary's or project affiliate's creditors (including trade
creditors and holders of debt issued by such subsidiary or project
affiliate).
The Indenture imposes no limitations on the ability of subsidiaries or
project affiliates to incur additional indebtedness or to permit contractual
restrictions on the distribution of cash from NRG's subsidiaries or project
affiliates to NRG. As part of NRG's global tax strategy, NRG intends to
maintain its earnings from foreign investments offshore, for permanent
reinvestment in other foreign projects. For this reason, NRG intends to
utilize the cash from its domestic operations including principal and
interest received from loans made by NRG to its foreign affiliates to make
the payments with respect to the Notes.
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Although NRG expects that the cash available from its domestic operations and
the repayment of the loans made to its foreign affiliates will be sufficient
to make the payments under the Notes, there can be no assurance that these
funds will be sufficient to make these payments as and when due. If NRG
elects to repatriate earnings from its foreign operations to make these
payments in case of such a shortfall, then NRG may incur United States taxes
(net of any available foreign tax credits) on the repatriation of such
foreign earnings. As a result of these additional taxes, there can be no
assurance that the foreign earnings would be sufficient to make the payments
on the Notes as and when due.
LEVERAGE
As of June 30, 1997, NRG had total indebtedness of $463.6 million at the
corporate holding company level which results in a total
debt-to-capitalization ratio of 48%; the Indenture imposes no limitations on
the ability of NRG to incur additional indebtedness at this level. The
substantial amount of debt at the level of the corporate holding company and
at the levels of the project subsidiaries and project affiliates presents the
risk that NRG might not generate sufficient cash to service its indebtedness,
including the Notes, or that its leveraged capital structure could limit its
ability to finance the acquisition and development of additional projects, to
compete effectively or to operate successfully under adverse economic
conditions. See "Capitalization," "Selected Consolidated Financial Data" and
"Selected Pro Forma Condensed Financial Data."
In addition, under certain of the instruments governing NRG's debt,
including the credit facility described below and the 7.625% Senior Notes due
2006, such debt may be accelerated upon certain events of default under the
Indenture or a change of control of NRG. As a result, if any such event were
to occur, NRG may not have sufficient capital to fully pay Holders the amount
due under the Notes or to redeem any Notes tendered pursuant to the Change of
Control Offer described under "Description of Notes -- Change of Control."
See "Certain Indebtedness."
NRG has entered into a $175 million revolving credit facility with a
syndicate of banks led by ABN AMRO Bank ("ABN AMRO"), which matures on March
17, 2000. It imposes certain requirements on NRG, including requirements as
to the maintenance of (i) a minimum level of consolidated tangible net worth
and (ii) a minimum ratio of consolidated tangible net worth to consolidated
capitalization.
DEPENDENCE ON, AND CONTROL BY, NORTHERN STATES POWER
NSP is NRG's sole stockholder. Since NRG's formation, NSP has provided all
NRG's equity funding for its business and operations. NRG's only other source
of funding has been its borrowings and internally-generated cash flow from
NRG's existing projects and investments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance that NSP will contribute
additional equity capital to NRG in the future. In the absence of continued
equity contributions, there can be no assurance that NRG will have access to
sufficient capital to fund its obligations with respect to its existing
projects or to undertake new acquisition and development projects.
As NRG's sole stockholder, NSP has the power to control the election of
the directors and all other matters submitted for stockholder approval and
may be deemed to have control over the management and affairs of NRG.
Currently, there are no outside directors on NRG's board of directors. In
circumstances involving a conflict of interest between NSP, as the sole
stockholder (and, with respect to certain projects, a significant customer of
and supplier to NRG, see, "Certain Transactions"), on the one hand, and the
holders of the Notes as creditors of NRG on the other, there can be no
assurance that NSP would not exercise its power to control NRG in a manner
that would benefit NSP to the detriment of the holders of the Notes. NSP has
policies in place, pursuant to applicable law, to ensure that its ratepayers
are protected from affiliate transactions that may be adverse to the
ratepayers' interests. The Indenture imposes no limitations on NRG's ability
to pay dividends or to make other payments to NSP or on NRG's ability to
enter into transactions with NSP or other affiliates of NRG.
In addition, NSP is an important customer of, and supplier to, certain of
NRG's businesses in the United States. See "Certain Transactions -- Operating
Agreements." NRG purchases steam production
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services from NSP for its Rock-Tenn and Washco steam transmission lines and
sells RDF to NSP from its Newport resource recovery facility. NRG provides
management, operation and maintenance services for the Elk River resource
recovery facility and disposes of the Elk River facility's RDF ash at NSP's
Becker ash landfill. See "Certain Transactions." The failure of NSP to comply
with its obligations to NRG under the agreements governing such sales and
services could have a material adverse effect on NRG's revenues from these
projects.
RISKS OF DOING BUSINESS OUTSIDE THE UNITED STATES
A key component of NRG's business strategy is the development or
acquisition of projects outside the United States. See "Business --
Strategy." The economic and political conditions in certain countries where
NRG has interests or in which it is or could be exploring development or
acquisition opportunities present risks of delays in permitting and
licensing, construction delays and interruption of business, as well as risks
of war, expropriation, nationalization, renegotiation or nullification of
existing contracts and changes in law or tax policy, that are greater than in
the United States. The uncertainty of the legal environment in certain
foreign countries in which NRG may develop or acquire projects could make it
more difficult to obtain non-recourse project financing on suitable terms and
could impair NRG's ability to enforce its rights under agreements relating to
such projects.
Operations in foreign countries also can present currency exchange,
inflation, convertibility and repatriation risks. See "Business -- Strategy."
In certain countries in which NRG may develop or acquire projects in the
future, economic and monetary conditions and other factors could affect NRG's
ability to convert its earnings to United States dollars or other hard
currencies or to move funds offshore from such countries. Furthermore, the
central bank of any such country may have the authority in certain
circumstances to suspend, restrict or otherwise impose conditions on foreign
exchange transactions or to approve distributions to foreign investors.
Although NRG generally seeks to structure its power purchase agreements and
other project revenue agreements to provide for payments to be made in, or
indexed to, United States dollars or a currency freely convertible into
United States dollars, there can be no assurance that NRG will be able to
achieve this structure in all cases or that a power purchaser or other
customer will be able to obtain sufficient dollars or other hard currency to
pay such obligations.
As part of privatizations or other acquisition opportunities, NRG may make
investments in ancillary businesses not directly related to power generation,
thermal energy production and transmission or resource recovery and in which
NRG management may not have had prior experience. In such cases, NRG's policy
is to attract partners with the necessary expertise. However, no assurance
can be given that such persons will be available as co-venturers in every
case. In addition, as a condition to participating in privatizations and
refurbishments of formerly state-owned businesses, NRG may be required to
undertake transitional obligations relating to union contracts, employment
levels and benefits obligations for employees, which could prevent or delay
the achievement of desirable operating efficiencies and financial
performance.
ACQUISITION AND DEVELOPMENT UNCERTAINTIES
The development projects and acquisitions in which NRG may invest in the
future, including those described herein, may be large and complex, and NRG
may not be able to complete the development or acquisition of any such
project. Development projects and acquisitions require NRG to expend
significant sums for engineering, permitting, legal, financial advisory and
other expenses in preparation for competitive bids that NRG may not win or
before it can be determined whether a project is feasible, economically
attractive or capable of being financed. There can be no assurance that the
projects that NRG pursues, and on which it may spend significant sums, will
prove to be desirable project investments, or that NRG will be able to win
any such competitive bids, obtain new power purchase agreements, overcome any
local opposition, and obtain the necessary agreements, contracts, licenses,
certifications and permits necessary for the successful development of new
projects and acquisition of interests in existing projects. Even if NRG is
successful in the development or acquisition of an interest in a project, NRG
may require substantial additional debt or equity financing for such
projects, which additional financing may not be available on acceptable
terms, if at all. Most acquisition agreements and
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power purchase agreements permit the seller or customer, respectively, to
terminate the agreement or impose penalties if the acquisition or operation
of the project (as the case may be) is not achieved by a specified date. NRG
may fail to acquire or develop projects despite having incurred significant
expenses.
COMPETITION
The independent power industry is characterized by numerous strong and
capable competitors, some of which have more extensive developmental or
operating experience, more extensive experience in the acquisition and
development of power generation capacity, larger staffs and greater financial
resources than NRG. Further, in recent years, the domestic independent power
industry has been characterized by strong and increasing competition which
has contributed to a reduction in prices offered by utilities for power
produced by independent power producers and has resulted in lower returns to
project investors. See "Risk Factors -- Effects of Ongoing Changes in the
U.S. Utility Industry" and "Business -- Competition."
Many of NRG's competitors also are seeking attractive acquisition
opportunities, both in the United States and abroad. This competition may
adversely affect NRG's ability to make investments or acquisitions on terms
favorable to NRG. Many foreign and domestic utilities are now engaging in
"competitive bid" solicitations for new capacity demands or acquisitions.
CONSTRUCTION AND START-UP RISKS; INADEQUATE INSURANCE, WARRANTIES AND
PERFORMANCE GUARANTEES
As with any major industrial construction effort, the construction,
expansion or refurbishment of a power generation, thermal energy production
and transmission facility or resource recovery facility involves many risks,
including supply interruptions, work stoppages, labor disputes, weather
interferences, unforeseen engineering, environmental and geological problems
and unanticipated cost overruns. The commencement of operation of such
newly-constructed, expanded or refurbished facilities also involves many
risks, including the breakdown or failure of equipment or processes and test
performance below expected levels of output or efficiency. New plants may
employ recently developed and technologically complex equipment, especially
in the case of newer environmental emission control technology. While
insurance is maintained to protect against certain risks, warranties are
obtained from vendors for limited periods and contractors are obligated to
meet certain performance levels, the proceeds of such insurance, warranties
or performance guarantees may not be adequate to cover lost revenues,
increased expenses or liquidated damages payments. As a result, a project may
operate at a loss and be unable to fund principal and interest payments under
its project financing agreements, which may allow the affected lenders to
accelerate such debt.
In addition, many power and thermal energy purchase agreements permit the
customer to terminate the agreement, retain security posted by the developer
as liquidated damages or change the payments to be made to the project
subsidiary or the project affiliate in the event certain milestones, such as
commencing commercial operation of the project, are not met by specified
dates. In the event such a termination right is exercised, a project may not
commence generating revenues, the default provisions in a financing agreement
may be triggered (rendering such debt immediately due and payable) and the
project may be rendered insolvent as a result.
OPERATING RISKS; INADEQUATE INSURANCE, WARRANTIES AND PERFORMANCE GUARANTEES
The operation of a power generation facility, thermal energy production
and transmission facility, resource recovery facility or mining facility
involves many risks, including the breakdown or failure of generation
equipment or other equipment or processes, labor disputes, fuel interruption
and operating performance below expected levels. Operation below expected
capacity levels may result in lost revenues or increased expenses, including
higher maintenance costs and penalties. As a result, a facility may be unable
to perform its obligations under its purchase agreements, triggering the
default provisions in a financing agreement (rendering such debt immediately
due and payable) and the project may be rendered insolvent as a result.
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Certain power purchase agreements of NRG's project subsidiaries or project
affiliates permit the purchaser to terminate the agreement, modify the
payments required under the agreement, recover payments previously made under
the agreement or require such project subsidiaries or project affiliates to
pay liquidated damages under the agreement in certain circumstances. See
"Business -- Independent Power Production and Cogeneration." While insurance
is maintained to protect against certain risks, warranties are obtained from
vendors for limited periods and contractors are obligated to meet certain
performance levels, the proceeds of such insurance, warranties or performance
guarantees may not be adequate to cover lost revenues, increased expenses or
liquidated damages payments. As a result, default provisions in the project
subsidiary's or project affiliate's financing agreements may be triggered,
which might allow the affected lenders to accelerate such debt.
DEPENDENCE ON PROJECT AFFILIATES
Payments under power purchase agreements for domestic projects that
satisfy the requirements for "qualifying facility" status under the Public
Utility Regulatory Policies Act ("PURPA") and that are based upon actual
short-run (as opposed to forecasted long-run) "avoided cost" (or the cost
that would otherwise have been paid for power from the purchasing utility's
highest-cost generating facility, see "Business"), are subject to significant
variations based upon a number of factors outside of the control of the
owners of such facilities, including weather, economic conditions, and the
particular operating profile and generating capacity position of the
purchasing utility. A project affiliate of NRG owns a 50% interest in a joint
venture that owns the Sunnyside waste coal-fired power generation facility in
Carbon County, Utah. The Sunnyside facility has experienced a shortfall in
project cash flow attributable primarily to decreased revenues due to avoided
energy rates being significantly lower than originally forecasted. In the
absence of a restructuring of the project's debt, a debt service reserve
fund, which has been used to make up cash shortfalls, is expected to be
depleted within twelve months. There can be no assurance as to the actions
the partnership which owns the Sunnyside facility may take at that time. See
"Business -- Independent Power Production and Cogeneration -- Sunnyside."
NRG has provided guarantees relating to certain equity and operating
obligations of its project subsidiaries. One example is NRG's guarantee of
the obligations of its project subsidiary that operates the Gladstone
facility for up to AUS$25 million, indexed to the Australian consumer price
index ("ACPI") (US$20.6 million, based on exchange rates and ACPI in effect
at June 30, 1997), under the project subsidiary's operating and maintenance
agreement with the owners of the facility. If NRG were required to satisfy
all these guarantees and other obligations, such event would have a material
adverse effect on NRG's condition, financial and otherwise. See "Business --
Description of NRG's Projects" and "Business -- Independent Power Production
and Cogeneration -- Gladstone Power Station."
DEPENDENCE ON CERTAIN CUSTOMERS AND PROJECTS
A power generation, thermal energy production and transmission or resource
recovery facility typically relies on a single supplier each for the
provision of fuel, water and other services required for operation of the
facility and on a single customer or a few customers to purchase all of the
facility's output, in each case under long-term agreements that provide the
support for any project debt used to finance such facilities. The failure of
any one customer or supplier to fulfill its contractual obligations to the
facility could have a material adverse effect on such facility's financial
results. As a result, the financial performance of such facilities is
dependent on the continued performance by customers and suppliers of their
obligations under such long-term agreements and, in particular, on the credit
quality of the project's customers. Each of the Rock-Tenn and Newport
projects produced more than ten percent of NRG's net revenues for 1996. See
"Business -- Principal Customers of Operating Subsidiaries." In addition, on
a pro forma basis Loy Yang A would have produced more than ten percent of
NRG's net revenues for 1996.
GOVERNMENTAL REGULATION
NRG is subject to a number of complex and stringent environmental and
other laws and regulations affecting many aspects of its present and future
operations, including the disposal of various forms of
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waste and the construction or permitting of new facilities. See "Regulation."
Such laws and regulations generally require NRG to obtain and comply with a
wide variety of licenses, permits and other approvals, and may in some cases
be enforced by both public officials and private individuals. There can be no
assurance that existing laws or regulations will not be revised or that new
laws or regulations will not be adopted or become applicable to NRG which
could have an adverse impact on its operations. There can be no assurance
that NRG will be able to recover all or any increased costs of compliance
from its customers or that its business and financial condition will not be
materially and adversely affected by future changes in environmental laws or
regulations. In addition, regulatory compliance for the construction of new
facilities is a costly and time-consuming process, and intricate and rapidly
changing environmental regulations may require major expenditures for
permitting and create the risk of expensive delays or material impairment of
project value if projects cannot function as planned due to changing
regulatory requirements or local opposition.
PURPA and the Public Utility Holding Company Act of 1935, as amended
("PUHCA"), are two of the laws (including the regulations thereunder) that
affect NRG's operations. PURPA provides to qualifying facilities ("QFs")
certain exemptions from federal and state laws and regulations, including
organizational, rate and financial regulation. PUHCA regulates public utility
holding companies and their subsidiaries. NRG is not and will not be subject
to regulation as a holding company under PUHCA as long as the domestic power
plants it owns are QFs under PURPA or are exempted as exempt wholesale
generators ("EWGs"), and so long as its foreign utility operations are
exempted as EWGs or foreign utility companies or are otherwise exempted under
PUHCA. QF status is conditioned on meeting certain criteria, and could be
jeopardized, for example, by the loss of a steam customer or reduction of
steam purchases below the amount required by PURPA. See "Regulation."
CHANGES IN STATE MUNICIPAL SOLID WASTE ("MSW") FLOW CONTROL LAWS
RDF projects, such as NRG's Newport facility and NSP's Elk River facility,
which is operated by NRG, historically were assured an adequate supply of MSW
through state and local flow control legislation, which directed that MSW be
disposed of in certain facilities. In May 1994, the United States Supreme
Court held that MSW is a commodity in interstate commerce and, accordingly,
that flow control legislation that prohibited shipment of MSW out of state is
unconstitutional. Since this Supreme Court holding, the RDF facilities owned
or operated by NRG have faced increased competition from landfills in
surrounding states. As a result of such competition, MSW processed at the
Newport facility decreased approximately 5% in 1995, from approximately
378,000 tons in 1994 to 360,000 tons in 1995. In 1996, however, due to
assistance from NRG and a reduction of tipping fees under contracts entered
into between haulers and the Ramsey and Washington Counties, waste deliveries
reversed their downward trend. However, in the absence of valid flow control
legislation, there can be no assurance that this improved trend will
continue. See "Business -- Resource Recover Facilities."
EFFECTS OF ONGOING CHANGES IN THE U.S. UTILITY INDUSTRY
The U.S. electric utility industry currently is experiencing increasing
competitive pressures, primarily in wholesale markets, as a result of
consumer demands, technological advances, greater availability of natural gas
and other factors. The Federal Energy Regulatory Commission ("FERC") has
proposed regulatory changes to increase access to the nationwide transmission
grid by utility and non-utility purchasers and sellers of electricity. A
number of states are considering or implementing methods to introduce and
promote retail competition. Proposals have been introduced in Congress to
repeal PURPA and PUHCA, and the FERC has publicly indicated support for the
PUHCA repeal effort. Additionally, some utilities have brought litigation
aimed at forcing the renegotiation or termination of contracts requiring
payments to owners of qualifying facilities based upon past estimates of
avoided cost that are now substantially in excess of market prices. There can
be no assurance that, in the future, utilities, with the approval of state
public utility commissions, will not seek to abrogate their existing power
purchase agreements. See "Regulation."
If the repeal of PURPA or PUHCA occurs, either separately or as part of
legislation designed to encourage the broader introduction of wholesale and
retail competition, the significant competitive
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advantages that independent power producers currently enjoy over certain
regulated utility companies would be eliminated or sharply curtailed, and the
ability of regulated utility companies to compete more directly with
independent power companies would be increased. To the extent competitive
pressures increase and the pricing and sale of electricity assumes more
characteristics of a commodity business, the economics of domestic
independent power generation projects may come under increasing pressure, and
the availability of long-term power purchase agreements, which can serve as
the basis for project financings, may decrease. Deregulation may not only
continue to fuel the current trend toward consolidation among domestic
utilities but may also encourage the disaggregation of vertically-integrated
utilities into separate generation, transmission and distribution businesses.
As a result, additional significant competitors could become active in the
independent power industry. In addition, independent power producers may find
it increasingly difficult to negotiate long-term power sales agreements with
solvent utilities, which may affect the profitability and financial stability
of independent power projects.
LACK OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued in June 1997 to a small number of institutional investors
and are eligible for trading in the Private Offering, Resale, and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screenbased, automated market for trading of securities
eligible for resale under Rule 144A. The New Notes are new securities for
which there currently is no market. Although the Initial Purchasers (as
defined herein) have informed NRG that they currently intend to make a market
in the New Notes, they are not obligated to do so and any such market making
may be discontinued at any time without notice. NRG does not intend to list
the New Notes or the Old Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no
assurance as to the development or liquidity of any market for the New Notes
or the Old Notes.
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Offering Memorandum Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Offering Memorandum
constitute "forward-looking statements." Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of NRG to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions; industry
capacity; demographic changes; competition; changes in technology; changes in
political, social and economic conditions; changes in local laws and
regulations; changes in electricity usage patterns and practices; changes in
fuel pricing, including coal, oil and oil products and natural gas; and
various other factors beyond NRG's control.
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange Offer --
Conditions to the Exchange Offer," issuance of the New Notes in exchange for
Old Notes pursuant to the Exchange Offer will be made only after a timely
receipt by NRG of (i) a book-entry confirmation (as defined below) evidencing
the tender of such Old Notes through ATOP or (ii) certificates representing
such Old Notes, a properly completed and duly executed Letter of Transmittal,
with any required signature guarantees, and all other required documents. See
"The Exchange Offer -- Acceptance for Exchange and Issuance of Capital
Securities" and "-- Procedures for Tendering Original Capital Securities."
Therefore, holders of the Old Notes desiring to tender such Old Notes in
exchange for New Notes should allow sufficient time to ensure timely
delivery. NRG is under no duty to give notification of defects or
irregularities with respect to the tenders of Old Notes for exchange.
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USE OF PROCEEDS
NRG will not receive any proceeds from the issuance of the New Notes
offered pursuant to the Exchange Offer. In consideration for issuing the New
Notes as contemplated in this Prospectus, NRG will receive in exchange Old
Notes in like principal amount, the terms of which are identical in all
material respects to the New Notes except for certain transfer restrictions
and registration rights. The Old Notes surrendered in exchange for New Notes
will be retired and cancelled and cannot be reissued. Accordingly, issuance
of the New Notes will not result in any increase in the indebtedness of NRG.
The net proceeds to NRG from the offering of the Old Notes, after
deducting discounts and expenses, were approximately $246.0 million. NRG used
those net proceeds to repay outstanding debt under the Bridge Financing and
for other general corporate purposes. The Bridge Financing was used for the
acquisition of NRG's interest in the Loy Yang Project. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Certain Indebtedness."
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The Old Notes were sold by NRG on June 17, 1997 (the "Closing Date") to
Salomon Brothers Inc, ABN AMRO Chicago Corporation and Chase Securities Inc.
(the "Initial Purchasers") pursuant to a Purchase Agreement, dated June 12,
1997, entered into by and among NRG and the Initial Purchasers (the "Purchase
Agreement"). Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), NRG will accept for exchange Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time on , 1997; provided, however, that if NRG, in its
sole discretion, has extended the period of time for which the Exchange Offer
is open, the term "Expiration Date" means the latest time and date to which
the Exchange Offer is extended.
As of the date of this Prospectus, $250,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all Holders of
Old Notes known to NRG. NRG's obligation to accept Old Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "--Conditions to the Exchange Offer" below.
NRG expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by NRG. Any
Old Notes not accepted for exchange for any reason will be returned without
expense to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
NRG expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Conditions to the Exchange Offer." NRG will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release
or other public announcement no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING
The tender to NRG of Old Notes by a Holder thereof as set forth below and
the acceptance thereof by NRG will constitute a binding agreement between the
tendering Holder and NRG upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a Holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to Norwest Bank Minnesota, National
Association (the "Exchange Agent") at one of the addresses set forth below
under "--Exchange Agent" for receipt on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) if using ATOP, a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depositary Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
Holder must comply with the guaranteed delivery procedures described below.
24
<PAGE>
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO NRG.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered Holder promptly and instruct
such registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's name or obtain a properly
completed bond power from the registered Holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
as described below (see "--Guaranteed Delivery Procedures") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder who
has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures of a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be made by a
financial institution (including most banks, savings and loan associations
and brokerage houses) that is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (collectively, "Eligible Institutions").
If Old Notes are registered in the name of a person other than a signer of
the Letter of Transmittal, the Old Notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by NRG, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be determined by NRG in
its sole discretion, which determination will be final and binding. NRG
reserves the absolute right to reject any and all tenders of any particular
Old Notes not properly tendered or to not accept any particular Old Note if
acceptance would, in the judgment of NRG or its counsel, be unlawful. NRG
also reserves the absolute right to waive any defects, irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any Holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including
the Letter of Transmittal and the instructions thereto) by NRG will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as NRG may determine. None of NRG, the Exchange
Agent or any other person will be under any duty to give notification of any
defect or irregularity with respect to any tender of Old Notes for exchange,
nor will any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Old Notes.
If the Letter of Transmittal or any Old Note or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
NRG, proper evidence satisfactory to NRG of their authority to so act must be
submitted with the Letter of Transmittal.
25
<PAGE>
By tendering, each Holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution
of New Notes. If any Holder is an affiliate of NRG, is engaged in or intends
to engage in or has any arrangement with any person to participate in the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff
of the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction, including the delivery of a prospectus which contains the
information with respect to any selling holder required by the Securities
Act. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must represent to NRG that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, NRG will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, NRG will be deemed to have accepted properly tendered
Old Notes for exchange, when, as and if NRG has given oral or written notice
thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a new Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from June 17,
1997. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders of Old Notes
whose Old Notes are accepted for exchange will not receive any payment in
respect of accrued interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after
consummation of the Exchange Offer. In the event of a Registration Default
under and as defined in the Registration Rights Agreement, NRG will pay
Special Interest to each Holder of Transfer Restricted Securities (as defined
herein). See "Description of Notes -- Special Interest."
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or, if using
ATOP, a timely Book-Entry Confirmation of such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Holder desires to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering
Holder thereof (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of
the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this
Prospectus, and any tendering financial institution that is a participant in
the Book-Entry Transfer Facility's systems must make book-entry delivery of
Old Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
in accordance with the Book-Entry Transfer Facility's ATOP procedures for
transfer. Such holder of Old Notes using ATOP should transmit its acceptance
to the Book-Entry Transfer Facility
26
<PAGE>
on or prior to the Expiration Date (or comply with the guaranteed delivery
procedures set forth below). The Book-Entry Transfer Facility will verify
such acceptance, execute a book-entry transfer of the tendered Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility and then
send to the Exchange Agent confirmation of such book-entry transfer,
including an Agent's Message confirming that the Book-Entry Transfer Facility
has received an express acknowledgement from such holder that such holder has
received and agrees to be bound by this Letter of Transmittal and that NRG
may enforce this Letter of Transmittal against such Holder (a "Book-Entry
Confirmation").
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by NRG (by
telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the Holder of Old Notes and the principal
amount of Old Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within three New York Stock Exchange, Inc. ("NYSE")
trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of its addresses set forth below under
"--Exchange Agent" prior to the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the principal amount of such Old Notes), and (iii)
(where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the
withdrawing Holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of
such certificates the withdrawing Holder must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
Holder is an Eligible Institution. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by NRG, whose determination shall be final and binding on
all parties. Any Old Note so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old
Note which has been tendered for exchange but which is not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder
(or, in the case of Old Notes tendered by book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
27
<PAGE>
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, NRG will not be
required to accept for exchange, or issue New Notes in exchange for, any Old
Notes and may terminate or amend the Exchange Offer if at any time before the
acceptance of such Old Notes for exchange or the exchange of the New Notes
for such Old Notes, any of the following events occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in
the ability of NRG to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer, or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government or governmental
authority, agency or court, domestic or foreign, that in the reasonable
judgment of NRG might directly or indirectly result in any of the
consequences referred to in clauses (i) or (ii) above or, in the
reasonable judgment of NRG, might result in the Holders of New Notes
having obligations with respect to resales and transfers of New Notes
which are greater than those described in the interpretation of the
Commission referred to on the cover page of this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of NRG to complete the transactions contemplated by the Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension of
credit or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States,
or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of NRG and its subsidiaries taken as a whole that, in the
reasonable judgment of NRG, is or may be adverse to NRG, or NRG shall have
become aware of facts that, in the reasonable judgment of NRG, have or may
have adverse significance with respect to the value of the Old Notes or
the New Notes;
which, in the reasonable judgment of NRG in any case, and regardless of the
circumstances (including any action by NRG) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of NRG and may be
asserted by NRG regardless of the circumstances giving rise to any such
condition or may be waived by NRG in whole or in part at any time and from
time to time in its sole discretion. The failure by NRG at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, NRG will not accept for exchange any Old Note tendered, and
no New Notes will be issued in exchange for any such Old Note, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
28
<PAGE>
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as the
Exchange Agent of the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
<S> <C>
By Registered or Certified Mail: By Hand Delivery:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota National Association
P.O. Box 1517 Northstar East 12th Floor
Minneapolis, Minnesota 55480-1517 608 2nd Avenue
Attention: Corporate Trust Operations Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Operations
By Overnight Delivery: By Facsimile:
Norwest Bank Minnesota National Association (612) 667-4927
Norwest Center Confirm by Telephone:
6th and Marquette Avenue (612) 667-9764
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Operations
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE
A VALID DELIVERY.
FEES AND EXPENSES
NRG will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by NRG and are estimated in the aggregate to be $400,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer tax in connection therewith, except that Holders who
instruct NRG to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering Holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. NRG does not currently anticipate that it will register Old
Notes under the Securities Act. See "Description of Notes -- Registration
Rights." Based on interpretations by the staff of the Commission issued to
third parties,
29
<PAGE>
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may
be offered for resale, resold or otherwise transferred by Holders thereof
(other than any Holder which is an "affiliate" of NRG within the meaning of
Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such Holders' business and
such Holders have no arrangement with any person to participate in the
distribution of such New Notes. Each Holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any Holder is an affiliate of NRG, is engaged
in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that
such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied
with. NRG does not currently intend to register or qualify the sale of the
New Notes in any such jurisdictions.
30
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization
of NRG as of June 30, 1997.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
(DOLLARS IN
THOUSANDS)
(UNAUDITED)
<S> <C>
Long-term debt:
Existing funded debt(1)........................................ $463,614
Notes ......................................................... --
--------------------
Total long-term debt.......................................... 463,614
--------------------
Stockholder's equity:
Common stock; $1 par value; 1,000 shares authorized; 1,000
shares issued and outstanding ................................ 1
Additional paid-in capital(2) ................................. 432,480
Retained earnings ............................................. 78,290
Currency translation adjustments .............................. (13,845)
--------------------
Total stockholder's equity ................................... 496,926
--------------------
Total capitalization ........................................ $960,540
====================
</TABLE>
- ------------
(1) Includes $5.3 million of current portion of long-term debt and $78.5
million of debt relating to MEC and NRG San Diego, including current
maturities, which is non-recourse to NRG.
(2) Includes the $60.9 million contribution by NSP in connection with the
acquisition of Loy Yang A.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December
31, 1993, 1994, 1995 and 1996 and for the years then ended, have been derived
from the audited consolidated financial statements of NRG. Certain financial
information for the years ended December 31, 1993 and 1994 have been
reclassified to conform to the financial presentation for the year ended
December 31, 1995. The selected consolidated financial data set forth below
as of June 30, 1996 and 1997, and for the six-month periods then ended, and
as of December 31, 1992 and for the year then ended, have been derived from
the unaudited consolidated financial statements of NRG. Interim results and
the results for 1992, in the opinion of management of NRG, include all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial information for such periods; however, such
interim results are not necessarily indicative of the results that may be
expected for any other interim period or for a full year. The following data
should be read in conjunction with the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
CONSOLIDATED STATEMENTS OF INCOME DATA:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Revenues from wholly-owned operations(1) . $39,647 $48,529 $63,970 $64,180 $ 71,649 $35,367 $ 42,685
Equity in operating earnings of
unconsolidated affiliates(2)(3).......... 1,321 2,695 27,155 23,639 32,815 11,914 13,846
---------- --------- --------- --------- ---------- --------- ----------
Total operating revenues ................ 40,968 51,224 91,125 87,819 104,464 47,281 56,531
OPERATING COSTS AND EXPENSES
Cost of operations--wholly-owned
operations .............................. 22,870 27,122 34,861 32,535 36,562 18,104 22,696
Depreciation and amortization ............ 5,060 6,475 8,675 8,283 8,378 4,161 4,544
General, administrative, and development 14,930 11,448 19,993 34,647 39,248 18,280 18,039
---------- --------- --------- --------- ---------- --------- ----------
Total operating costs and expenses ..... 42,860 45,045 63,529 75,465 84,188 40,545 45,279
---------- --------- --------- --------- ---------- --------- ----------
OPERATING INCOME (LOSS) ................... (1,892) 6,179 27,596 12,354 20,276 6,736 11,252
OTHER INCOME (EXPENSE)
Equity in gain from project termination
settlements(4) .......................... -- -- 9,685 29,850 -- -- --
Other income (expense), net .............. (1,753) 1,028 1,411 4,896 9,477 4,255 6,267
Interest expense ......................... (1,662) (2,679) (6,682) (7,089) (15,430) (7,277) (11,182)
---------- --------- --------- --------- ---------- --------- ----------
Total other income (expense) ............ (3,415) (1,651) 4,414 27,657 (5,953) (3,022) (4,915)
---------- --------- --------- --------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAXES ........ (5,307) 4,528 32,010 40,011 14,323 3,714 6,337
INCOME (BENEFIT)TAXES(5) .................. (2,187) 1,905 2,472 8,810 (5,655) (2,793) (5,652)
---------- --------- --------- --------- ---------- --------- ----------
NET INCOME (LOSS).......................... $(3,120) $ 2,623 $29,538 $31,201 $ 19,978 $ 6,507 $ 11,989
========== ========= ========= ========= ========== ========= ==========
</TABLE>
<PAGE>
- ------------
(1) All of these revenues are from 100% owned operations. In accordance
with its strategy described herein, when NRG does not own 100% of a
project, it owns 50% or less in all cases except COBEE and Kladno.
(2) NRG accounts for its investments in projects where ownership is between
20% and 50%, and where there is no effective and legal control, using
the equity method of accounting; COBEE and Kladno are also accounted
for using the equity method of accounting even though NRG currently
owns more than a 50% interest in both projects because NRG intends to
sell down below the 50% level. Equity in earnings of unconsolidated
project affiliates includes NRG's proportionate share of all net income
or losses attributable to project investments accounted for using the
equity method.
(3) Includes pretax charges of $5.0 million, $5.0 million and $1.5 million
in the years 1994, 1995 and 1996, respectively, to write-down the
carrying value of certain energy projects.
(4) In 1994, NRG and its partner in the Michigan Cogeneration Partners
Limited Partnership agreed to terminate a power sales contract with
Consumers Power Company. The contract related to a 65 MW cogeneration
facility being developed in Michigan. Due to the agreement to terminate
the contract, NRG recorded a one-time pre tax-gain of $9.7 million in
1994.
Equity in gain from project termination settlements in 1995 included a
one-time pre-tax gain of $29.9 million related to the settlement and
termination of the San Joaquin Valley power purchase agreements with
PG&E. See "Business -- Independent Power Production and
Cogeneration--Domestic Projects --San Joaquin."
(5) NRG is included in the consolidated federal income tax and state
franchise tax returns of NSP. NRG calculates its tax position on a
separate company basis under a tax sharing agreement with NSP and
receives payment from NSP for tax benefits and pays NSP for tax
liabilities.
32
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net property, plant and
equipment ............... $46,694 $108,934 $107,634 $111,919 $129,649 $113,389 $141,059
Net equity investments in
projects ................ 16,400 20,046 164,863 221,129 365,749 251,107 638,780
Long-term debt, including
current maturities ...... 10,499 93,451(1) 93,339(1) 90,034(1) 212,141(1) 213,888(1) 463,614(1)
Stockholder's equity ..... 40,267 97,722 234,722 319,764 421,914 352,199 496,926
</TABLE>
- ------------
(1) Includes debt relating to MEC and NRG San Diego, including current
maturities, which is non-recourse to NRG. As of June 30, 1997 this debt
was $78.5 million.
OTHER DATA (UNAUDITED):
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
NRG's net power generating
capacity (MW).......................... 33 33 992 999 1,326 1,213 2,080
NRG's net thermal energy generating
capacity:
mmBtus per hour ....................... 695 1,865 1,961 2,318 2,654 2,654 2,693
MWt ................................... 204 547 575 679 822 822 833
Consolidated EBITDA (1) ................ $1,415 $13,682 $47,367 $55,383 $38,131 $15,152 $22,063
Consolidated interest expense .......... 1,662 2,679 6,682 7,089 15,430 7,277 11,182
Consolidated interest expense coverage
ratio (2) ............................. 0.85x 5.11x 7.09x 7.81x 2.47x 2.08x 1.97x
Consolidated debt service (3) .......... $2,562 4,272 9,169 10,394 18,323 8,423 12,409
Consolidated debt service coverage
ratio (4) ............................. 0.55x 3.20x 5.17x 5.33x 2.08x 1.80x 1.78x
Consolidated ratio of earnings to fixed
charges (5)............................ (6) 2.32x 2.98x 1.56x(8) 1.75x(9) 3.52x (7)
</TABLE>
- ------------
(1) EBITDA equals the sum of income (loss) before income taxes, interest
expense (net of capitalized interest) and depreciation and amortization
expense. Management believes that some investors consider EBITDA an
accepted indicator of a company's ability to service debt. EBITDA is
not a measure of financial performance under generally accepted
accounting principles and should not be considered in isolation or as a
substitute for net income, cash flows from operations or other income
or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, EBITDA may not be comparable to similarly
titled measures presented by other companies and could be misleading
unless all companies and analysts calculate them in the same fashion.
See Statements of Cash Flows in the Consolidated Financial Statements
included elsewhere in this Prospectus.
(2) The interest expense coverage ratio equals EBITDA divided by interest
expense.
(3) Debt service consists of the previous twelve months of interest expense
and principal payments on long-term debt.
(4) The debt service coverage ratio equals EBITDA divided by debt service.
(5) The ratio of earnings to fixed charges is calculated by dividing
earnings by fixed charges. For this purpose "earnings" means income
(loss) before income taxes less undistributed equity in operating
earnings of unconsolidated affiliates less equity in gain from project
termination settlements plus cash distributions from project
termination settlements plus fixed charges. "Fixed charges" means
interest expense plus interest capitalized plus amortization of debt
issuance costs plus a reasonable approximation of the interest factor
of rental expense.
(6) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(7) Due primarily to undistributed equity earnings exceeding income before
income taxes, NRG was unable to fully cover fixed charges. Earnings did
not cover fixed charges by $6,620.
(8) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
(9) The 1996 ratio of earnings to fixed charges calculation includes the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would have
been unable to fully cover fixed charges and earnings would not have
covered fixed charges by $3,504 for the year ended December 31, 1996.
33
<PAGE>
SELECTED PRO FORMA CONDENSED FINANCIAL DATA
The unaudited pro forma condensed financial data set forth below give
effect to (i) the acquisition by NRG of a 25.37% equity interest in Loy Yang
A and the financing thereof and (ii) the Offering. The pro forma statement of
income data for the year ended December 31, 1996 and the six months ended
June 30, 1997 gives effect to such transactions as if they had occurred at
the beginning of the periods presented. As the Loy Yang acquisition and the
Offering were consummated prior to June 30, 1997, no pro forma balance sheet
data is provided. The pro forma condensed financial data do not purport to be
indicative of the combined financial position or results of operations of
future periods or indicative of the results that would have occurred had the
transactions referred to above been consummated on the dates indicated. The
following data should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 71,649 -- $ 71,649
Equity in earnings of unconsolidated affiliates 32,815 $ 9,460 (1) 42,275
Operating costs and expenses .................... (84,188) -- (84,188)
Other income (expense) .......................... 9,477 -- 9,477
Interest expense ................................ (15,430) (18,750) (2) (34,180)
Income taxes .................................... 5,655 4,373 (3) 10,028
------------ ------------- -----------
Net Income....................................... $ 19,978 $ (4,917) $ 15,061
============ ============= ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang A for twelve months
based upon historical data adjusted for differences due to acquisition
accounting primarily depreciation charges, finance charges and
adjustments to income tax expense.
(2) Represents accrued interest on $250 million principal amount of the Old
Notes for twelve months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues from wholly-owned operations ........... $ 42,685 $ -- $ 42,685
Equity in earnings of unconsolidated affiliates 13,846 410 (1) 14,256
Operating costs and expenses .................... (45,279) -- (45,279)
Other income and (expense) ...................... 6,267 -- 6,267
Interest expense ................................ (11,182) (7,950) (18,065)
Income taxes .................................... 5,652 3,180 (3) 7,257
------------ ------------- -----------
Net Income....................................... $ 11,989 $(4,868) $ 7,121
============ ============= ===========
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang A until May 14,
1997, based upon historical data adjusted for differences due to
acquisition accounting primarily depreciation charges, finance charges
and adjustments to income tax expense. Equity earnings of Loy Yang A
from May 15 until June 30 were $1,061. This amount is summarized in the
Historical column of Equity in earnings of unconsolidated affiliates.
(2) Represents interest expense on $250 million principal amount of the Old
Notes until May 14 at a rate of 7.5% per annum. Interest of $2,414 on
the Old Notes from May 15 until June 30 is in the Historical column.
(3) Net tax benefit derived from interest expense on the Old Notes.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with NRG's
consolidated financial statements appearing elsewhere in this Offering
Memorandum. In addition, as a result of the recent Loy Yang acquisition,
NRG's future results could differ significantly from NRG's historical
results. See "Selected Pro Forma Condensed Financial Data" and "Business."
GENERAL
NRG has developed a complex organizational structure involving foreign
holding companies, corporations, partnerships and joint ventures through
which NRG holds interests in its international projects. These entities are
organized to maximize available cash flows (by reducing and deferring foreign
and U.S. taxes) and to reduce current and deferred taxes. As part of NRG's
global tax strategy, NRG intends to maintain offshore, for permanent
reinvestment in other projects, its dividends and distributions from foreign
investments, except to the limited extent required to make payments of
interest or principal on loans from NRG. Any repatriation of dividends from
foreign investments may result in adverse U.S. income tax consequences.
NRG's policy is to pay for offshore development expenses from available
offshore cash. NRG generally funds offshore investments as equity, which can
come from a variety of sources, including capital infusions from NSP,
borrowings by NRG and internal cash generation. In certain circumstances, a
portion of project equity funding is treated as a loan by NRG to the project
subsidiary or affiliate on market-based interest rate and repayment terms.
In light of NRG's global tax policy as described above, cash flows from
ongoing domestic operations and repayments of principal and interest by
foreign project subsidiaries and project affiliates to NRG are expected to be
the primary source of cash to service NRG's corporate obligations, including
with respect to the Notes. To date, NRG's consolidated operating revenues
from domestic operations have been derived primarily from the production and
transmission of thermal energy (steam and chilled water) and from the
operation of resource recovery facilities that process MSW into RDF. Other
operating revenues arose from fees earned in providing management and
engineering services to a number of operating facilities. NRG's operating
expenses also are largely attributable to domestic activities except for
general, administrative and development expenses, which in 1994, 1995 and
1996 were incurred primarily in pursuit of international investment and
acquisition activities.
NRG accounts for investments in projects where ownership is between 20%
and 50%, and where there is no effective and legal control, using the equity
method of accounting. Under the equity method, NRG's investment in an entity
is recorded on the balance sheet at cost and is adjusted to recognize NRG's
proportional share of all earnings or losses of the entity. Distributions
received reduce the carrying amount of NRG's investment in the entity. For
income statement purposes, NRG records as equity in earnings its proportional
share of net income or losses which are attributable to those projects that
are accounted for using the equity method. Certain reclassifications have
been made to the 1994 financial data included herein to conform to the 1995
and 1996 presentation. These reclassifications had no effect on net income or
stockholder's equity as previously reported.
The costs of developing a project are expensed until the project meets the
major milestones of (1) a signed power purchase agreement or the equivalent
and (2) approval by the Board of Directors of NRG. There were several
projects under development at June 30, 1997 that met NRG's policy for
capitalization of development costs. At June 30, 1997, NRG had a total of
$12.4 million in capitalized costs related to Alto Cachopoal ($0.7 million),
Collinsville ($1.1 million), Kladno ($8.7 million), Millenium-Morris ($0.1
million) and West Java ($1.9 million).
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
For the six months ended June 30, 1997, NRG had operating revenues of
$56.5 million, compared to operating revenues of $47.3 million for the six
months ended June 30, 1996, an increase of 19%.
35
<PAGE>
NRG's operating revenues from wholly-owned operations for the period ended
June 30, 1997 were $42.7 million, an increase of $7.3 million, or 21%, over
the same period in 1996. The increase was primarily attributable to increases
in MEC sales volume, rates charged to customers and pass-through fuel costs,
management fee and cost reimbursement revenue from NRG wholly-owned service
subsidiaries, and reduced gas curtailment at Grand Forks AFB. Revenues from
the thermal business increased $3.0 million and the RDF business increased
$2.2 million, due to increases in MSW deliveries at the Newport Facility. For
the six months ended June 30, 1997, revenues from wholly-owned operations
consisted primarily of revenue from district heating and cooling (40%),
resource recovery activities (34%), other thermal projects (18%) and NEO
(2%).
Equity in earnings of unconsolidated project affiliates was $13.8 million
for the six months ended June 30, 1997 compared to $11.9 million for the six
months ended June 30, 1996, an increase of 16%. New revenue sources from Loy
Yang, NRGG and COBEE provided equity earnings of $1.1 million, $1.7 million
and $0.8 million, respectively, for the period ended June 30, 1997.
Additionally, new equity investments in Latin Power and NEO contributed an
additional $2.1 million in equity income in the first half of 1997.
Cost of operations in wholly-owned operations was $22.7 million for the
six months ended June 30, 1997, an increase of $4.6 million, or 25%, over the
same period in 1996, due primarily to increased MEC sales volume, service
labor costs and fuel costs. Cost of operations as a percentage of revenues
from wholly-owned operations increased to 53% from 51% primarily because of
higher fuel and labor costs.
General, administrative and development costs were $18.0 million for the
six months ended June 30, 1997, compared to $18.3 million for the six months
ended June 30, 1996, nearly unchanged. Included in this category are business
development and corporate costs.
Interest expense for the six months ended June 30, 1997, as compared with
the same period in 1996, increased by $3.9 million, from $7.3 million to
$11.2 million. This increase primarily was due to the issuance of $125
million aggregate principal amount of 7.625% Senior Notes Due 2006 (the "1996
Senior Notes") at the end of January 1996. The 1996 Senior Notes were
outstanding the entire half of 1997 compared to five months in 1996. In
addition, interest associated with the issuance of the 7 1/2% Senior Notes
due 2007 was $1.5 million.
Net income for the six months ended June 30, 1997, was $12.0 million, an
increase of $5.5 million, or 84%, compared to net income of $6.5 million in
the same period in 1996. This increase was due to the factors described
above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, NRG had operating revenues of $104.5
million, compared to operating revenues of $87.8 million in 1995, an increase
of 19%. NRG's operating revenues from wholly-owned operations for the year
ended December 31, 1996 were $71.6 million, an increase of $7.5 million, or
12%, over the prior year. The increase was primarily attributable to
continued expansion of NEO's methane gas business and increased revenues from
MEC. For the year ended December 31, 1996, revenues from wholly-owned
operations consisted primarily of revenue from district heating and cooling
(39%), resource recovery activities (33%), other thermal projects (19%) and
NEO (5%).
Equity in earnings of unconsolidated project affiliates, excluding gains
on project termination settlements, was $32.8 million for the year ended
December 31, 1996, compared to $23.6 million for the year ended December 31,
1995, an increase of 39%. In 1996, new revenue sources from the Schkopau and
NRGG projects provided equity earnings of $6.4 million and $2.3 million,
respectively. Additionally, Latin Power provided $1.6 million of increased
equity earnings in 1996 as compared to 1995 because of the startup of a new
project. These were offset by an expected decrease in equity earnings of $9.2
million for the MIBRAG mining and power generation project, primarily due to
expected decreases in coal and briquette sales. Equity in earnings of
Gladstone was $10.8 million in 1996, down slightly from 1995 earnings of
$11.2 million. Equity in earnings in 1996 and 1995 reflect an investment
write-down of $1.5 million and $5.0 million, respectively, relating to the
enhanced coal project of NRG's wholly-owned subsidiary, Scoria, Inc.
("Scoria"). On December 31, 1996, NRG's investment balance in the Scoria
36
<PAGE>
project was reduced to zero. Scoria Incorporated and Western SynCoal Co., a
subsidiary of Montana Power Co., completed construction in January 1992 of a
demonstration coal conversion plant designed to improve the heating value of
coal by removing moisture, sulfur and ash. The plant, located in Montana, has
the ability to produce 300,000 tons of clean coal annually which, when
burned, produces emissions in compliance with the Clean Air Act. The fuel may
be an alternative to scrubbers for some energy companies. Testing of the
plant ended in August 1993 and commercial operations began at that time.
NRG's net capitalized investment in the Scoria coal project was written down
by $3.5 million in 1994, $5.0 million in 1995 and final write-off of $1.5
million in 1996. The write-downs were due to reductions in expected future
operating cash flows from the project and an overall economic assessment of
the project. On August 31, 1997, Scoria's 50% interest in the project was
liquidated by the project partnership in exchange for a liquidation payment
of $100.
Cost of operations in wholly-owned operations was $36.6 million in 1996,
an increase of $4.1 million, or 12.6%, compared to 1995, due primarily to
increased fuel costs resulting from increased MEC sales volume and per unit
fuel prices. Cost of operations as a percentage of revenues from wholly-owned
operations remained constant at 51% for 1995 and 1996.
General, administrative and development costs were $39.2 million in 1996,
compared to $34.6 million in 1995, an increase of $4.6 million, or 12.9%. The
majority of the increase from 1995 to 1996 was due to additional general and
administrative expenses incurred in the growth and development of NEO
totaling $5.8 million, in contrast with NEO's general and administrative
expenses of $1.8 million for the prior year. Business development expenses
for the year ended December 31, 1996 totaled $19.4 million, as compared with
$17.6 million for the same period in 1995.
Other income, net increased by $4.6 million in 1996 due primarily to
additional interest income earned from investing the proceeds of the 1996
Senior Note Offering, which was completed in January 1996.
The effective tax rate (benefit) for the year ended December 31, 1996 was
(39.5%), as compared to 22% for the same period ended December 31, 1995. The
decrease in the effective tax rate in 1996 was due to a change in NRG's
income sources, with more earnings derived from U.S. operations in 1995,
primarily the $29.9 million pre-tax gain on the disposition of the San
Joaquin power purchase agreements. Because of NRG's intention to reinvest
earnings of foreign operations offshore, no provision was recorded for income
taxes due upon repatriation.
Net income for the year ended December 31, 1996 was $20.0 million, a
decrease of $11.2 million, or 36%, compared to net income of $31.2 million in
1995. This decrease was due to the fact that $29.9 million of that 1995 net
income was attributable to the one-time payment for the buy-out of the San
Joaquin power sales contract in that year, as well as to the other factors
described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
For the year ended December 31, 1995, NRG had operating revenues of $87.8
million, compared to operating revenues of $91.1 million in 1994, a decrease
of 4%. NRG's operating revenues from wholly-owned operations for the year
ended December 31, 1995, were $64.2 million, essentially unchanged from $64.0
million in the prior year. Revenues from wholly-owned operations consisted
primarily of revenue from district heating and cooling (39%), resource
recovery activities (36%), other thermal projects (21%) and NEO (1%).
Equity in earnings of unconsolidated project affiliates was $23.6 million
for the year ended December 31, 1995, compared to $27.2 million for the year
ended December 31, 1994, a decrease of 13%. Equity in earnings of $22.2
million from the MIBRAG mining and power generation project increased $2.8
million in 1995 primarily due to increased power and coal sales. Equity in
earnings of Gladstone was $11.2 million in 1995 as compared to $7.7 million
for the prior year, due to the inclusion of a full year's earnings in 1995
compared to nine months of the prior year. San Joaquin Cogeneration earnings
decreased from $6.1 million in 1994 to $2.0 million in equity earnings in
1995 because of the shutdown of the facilities at the end of February 1995,
and the termination of the power purchase agreements with Pacific Gas &
Electric ("PG&E"). The Sunnyside waste coal facility acquired in late
37
<PAGE>
1994 experienced initial operating problems, a six-week shutdown for major
repairs and refurbishments, and a reduction in power revenue due to lower
than anticipated avoided costs of the power purchaser, PacifiCorp, resulting
in a loss of $2.7 million in 1995 equity in earnings. Finally, equity in
earnings in 1995 reflects an investment write-down of $5.0 million related to
Scoria while 1994 equity in earnings reflects investment write-downs of $3.5
million for Scoria and $1.5 million related to the proposed Louisiana Energy
Services ("LES") uranium enrichment facility in which NRG owns a 6.73%
interest. NRG's investment in LES has been reduced to zero.
Cost of operations in wholly-owned operations was $32.5 million in 1995, a
decrease of $2.3 million, or 6.7%, compared to 1994, due primarily to lower
resource recovery landfill charges and reduced district heating fuel costs.
Cost of operations as a percentage of revenues from wholly-owned operations
decreased to 51% in 1995 from 55% in 1994.
General, administrative and development costs were $34.6 million in 1995,
as compared to $20.0 million in 1994, an increase of $14.6 million, or 73.0%.
Business development expenses made up approximately $8.8 million of this
increase. The balance of the increase was attributable to establishing and
maintaining NRG's foreign offices and domestic support functions. In 1995,
NRG aggressively expanded staff and activity in seeking new projects. Project
development activity was redirected and expanded in 1995 as NRG completed its
initial investments in the MIBRAG, Gladstone and Schkopau projects in 1994.
During 1994, some development costs were capitalized in these projects until
financial close was achieved. Conversely, during 1995, NRG expensed the costs
of pursuing a number of projects requiring the payment of significant upfront
fees and expenses, including an investment opportunity that required
expenditure of significant legal fees to submit a competing plan of
reorganization in the bankruptcy court proceeding for O'Brien Energy (in
which NRG acquired a 41.86% interest in 1996). Most of these costs were
expensed because these projects did not meet NRG's requirements for
capitalization.
Equity in gain from project termination settlements in 1995 included a
one-time pre-tax gain of $29.9 million related to the settlement and
termination of the San Joaquin Valley power purchase agreements with PG&E. In
1994, NRG and its partner in the Michigan Cogeneration Partners Limited
Partnership agreed to terminate a power sales contract with Consumers Power
Company. The contract related to a 65 MW cogeneration facility being
developed in Michigan. Due to the agreement to terminate the contract, NRG
recorded a one-time pre-tax gain of $9.7 million in 1994.
Other income, net increased $3.5 million in 1995 due primarily to
additional interest income from project notes receivable and short-term
investments.
The effective tax rate for the year ended December 31, 1995 was 22%, as
compared to 7.7% for the same period ended December 31, 1994. This increase
from 1994 to 1995 was primarily due to the fact that a greater portion of
NRG's income was derived from United States sources in 1995, primarily as a
result of the $29.9 million pre-tax gain on the disposition of the San
Joaquin power purchase agreements. Because of NRG's intent to reinvest
earnings of foreign operations offshore, no provision was recorded for income
taxes that would be due on repatriation.
Net income for the year ended December 31, 1995, was $31.2 million, an
increase of $1.7 million, or 6%, compared to net income of $29.5 million in
1994. This increase was due to the factors described above.
38
<PAGE>
FINANCIAL RESULTS OF INVESTMENTS IN PRINCIPAL PROJECTS
The following sets forth certain information with respect to the results
of investments in principal projects. For a description of these projects,
see "Business -- Description of NRG's Projects."
<TABLE>
<CAPTION>
EQUITY IN EARNINGS
----------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------
(DOLLARS IN MILLIONS)
PERCENTAGE
OWNERSHIP
PROJECT 1994 1995 1996 1996 1997 INTEREST
- -------------- --------- --------- --------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
MIBRAG (1) .... $19.4 $22.2 $13.1 $4.9 $4.5 33.3
Gladstone ..... 7.7 (2) 11.2 10.8 5.5 6.4 37.5
Schkopau ...... 0.0 0.0 (3) 6.4 1.7 3.1 20.6
Kladno (4) .... * 0.0 (0.3) 0.1 (.3) 34.0
Latin Power .. (0.3) 0.0 1.6 1.1 0 4-9
COBEE ......... * * 0.1 (5) 0.0 .8 58.0
NRGG .......... * * 2.3 * 1.7 41.9
NEO ........... (0.2) (0.1) (0.5) 0.1 2.3 50-100
</TABLE>
- ------------
* Not owned during this period.
(1) Earnings are expected to decrease in 1997 and 1998 due to mine
refurbishment and reduced coal sales. However, in 1999, coal sales are
expected to increase with the expected startup of the first of two 800
MW generating units being constructed nearby at Lippendorf. Contracts
to supply coal to new Lippendorf facility have been executed as part of
the MIBRAG transaction.
(2) Purchased in March 1994.
(3) Earnings commenced in the first quarter of 1996 when the first unit was
brought on-line.
(4) In 1994, NRG acquired a 26.5% ownership interest in a 28 MW facility.
NRG's ownership interest increased to 34% in May 1997.
(5) Based on twelve days of ownership and operation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.1 million for the six
months ended June 30, 1997, as compared to $3.3 million for the same period
of 1996, a change of $1.8 million. The primary differences between the first
half of 1997 and the same period in 1996 were increased net income of $5.5
million and changes in deferred income taxes, investment tax credits, and
working capital items of $9.5 million, which were offset by an increase in
undistributed equity in operating earnings of $13.1 million.
Net cash flow from operating activities was $4.1 million in 1996.
Principal components of cash flow from operating activities were net income
of $20.0 million, depreciation and amortization of $8.4 million and changes
in working capital of ($4.3) million. Non-cash adjustments that reduced cash
flow from operating activities consisted primarily of $17.8 million of
undistributed equity in operating earnings of unconsolidated project
affiliates.
Net cash flow used by operating activities was $5.1 million in 1995.
Principal components of cash flow from operating activities were net income
of $31.2 million, depreciation and amortization of $8.3 million and changes
in working capital items of $9.0 million. Non-cash adjustments that reduced
cash flow from operating activities consisted primarily of $29.9 million of
undistributed equity in gain from the San Joaquin project termination
settlement.
Net cash flow from operating activities was $12.4 million in 1994.
Principal components of cash flow from operating activities were net income
of $29.5 million, depreciation and amortization of $8.7 million and changes
in working capital items of ($6.1) million. Other adjustments that reduced
cash flow from operating activities consisted primarily of $18.5 million of
undistributed equity in operating earnings of unconsolidated project
affiliates and $1.1 million of cash related to deferred taxes and cash used
by changes in other assets.
Net cash used for investing activities for the six months ended June 30,
1997 was $325.3 million as compared to $144.7 million for the same period in
1996. $279.1 million was invested in projects in the first half of 1997, as
compared to $48.2 million in the same period in 1996. NRG's project
investments
39
<PAGE>
in the first half of 1997 included $257.1 million in Loy Yang, $6.2 million
in NRG San Diego, $3.4 million in NEO, $7.5 million in Energy Development
Limited ("EDL"), $2.0 million in Latin Power, and $2.0 million in Kladno. NRG
also increased its outstanding loans to international projects (a $4.4
million note to Enfield and $31.7 million in notes related to COBEE) creating
a cash flow use of $35.8 million in the first half of 1997 as compared to a
$97.6 million in the same period in 1996. Capital expenditures totalled $15.1
million for the six months ended June 30, 1997, as compared to $4.9 million
in the same period one year earlier. This amount is primarily attributable to
capital investments in Neo of $12.0 million, in the MEC Fairview Plant and
the MEC Federal Reserve Plant of $3.1 million. At June 30, 1997, NRG's
restricted cash balance was $.3 million, while at June 30, 1996, it was $19.5
million. The decline in restricted cash is due to the change in the market
value of the company's foreign exchange swaps, and the posting of an $8
million Letter of Credit which replaced the collateral requirement. The
restricted cash balance change for the periods ended June 30, 1997 and 1996
impacted cash flow by $17.3 million and ($9.7) million, respectively. For the
period ended June 30, 1997, NRG received $6.7 million from its sale of a
portion of its investment in COBEE. For the same period in 1996, NRG received
$15.7 million of proceeds related to the termination of the SJVEP Facilities
(as hereinafter defined) power purchase agreement. The change in the Currency
Transactions is due to decline in the value of the Australian dollar and the
German Mark as compared with the U.S. dollar.
Cash used for investing activities in 1996 included $140.6 million in
equity investments in projects, $36.6 million in loans to projects, and $24.6
million in capital expenditures related to wholly-owned operations. The
primary components of NRG's 1996 project investments include $81.8 million
for its investment in COBEE, $28.8 million for the 41.86% investment in NRGG
and $7.5 million for the purchase of certain biomass assets from O'Brien
(subsequently NRGG). NRG's net increase in loans to projects of $36.6 million
was primarily due to a loan to NRGG of $14.4 million and the purchase of the
senior debt of MCPC. NRG made total capital expenditures in 1996 of $24.6
million and expects to make capital expenditures of approximately $10 million
in 1997, $7.7 million of which were made in the three months ended March 31,
1997. Additionally, cash flows from investing activities in 1996 included
$15.7 million of cash distributed from SJVEP related to the project
termination settlement. The project termination resulted in a pre-tax gain of
$29.9 million in 1995, at which time NRG received a $14.2 million
distribution. All other cash distributions from the project are included in
operating cash flow, while the distributions from project termination are
included as cash flow from investing activities.
Cash used for investing activities in 1995 included $25.8 million in
equity investments in projects, $35.4 million in loans to projects, and $11.0
million in capital expenditures related to wholly-owned operations. In 1995
NRG invested $25.8 million in several projects, including $11.0 million in
the Schkopau project, $4.1 million in the Latin Power Project, $3.8 million
in the Kladno project, and $3.3 million in the North America Thermal project.
In addition, NRG loaned additional funds of $35.4 million to operating
projects, including a $27.9 million loan to the Schkopau project.
Cash used for investing activities in 1994 included $102.1 million in
equity investments in projects and $4.4 million in loans to projects, and
$5.8 million in capital expenditures related to wholly-owned operations. In
1994, NRG invested this $102.1 million in several projects including, $64.9
million in the Gladstone project, $18.2 million in the Schkopau project,
$11.5 million in the Sunnyside project, and $10.6 million in the MIBRAG
project. In addition, NRG provided $13.8 million of restricted cash deposits
to collateralize foreign currency hedging activities and letters of credit
issued in connection with competitive bids.
Net cash flows from financing activities for the six months ended June 30,
1997 were $330.6 million, which was primarily made up of the $81.5 million
equity investment by NRG's parent company, NSP, to fund NRG's investment in
Energy Developments Limited ("EDL") and Loy Yang. This compares to $25
million received during the same period one year earlier. Proceeds from the
issuance of long-term debt, primarily the 1997 Senior Notes, totalled $250.3
million as compared to $122.7 million in cash proceeds from the issuance of
the 1996 Senior Notes. NRG incurred $2.2 million and $2.4 million in
financing costs in connection with the 1997 Senior Notes and the 1996 Senior
Notes, respectively; which NRG is capitalizing and amortizing over the
ten-year life of the notes. For the balance of 1996, cash flows from
financing activities included an $80 million equity contribution from NSP to
NRG for the purchase of COBEE. In 1994, cash flows from financing included an
investment of $103.9 million from NSP. The proceeds of the capital infusion
were used for investments in Gladstone ($64.9 million), Schkopau ($18.2
million), MIBRAG ($10.6 million) and Sunnyside ($11.5 million).
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On January 29, 1996, NRG issued the 1996 Senior Notes in a transaction
exempt from registration under the Securities Act. The 1996 Senior Notes were
issued to fund some or all of NRG's equity investments in Schkopau and Latin
Power, to pay a portion of the consideration for NRG's acquisition of
interests in Collinsville and in O'Brien (for reorganization as NRGG), to
make equity investments in Kladno and West Java, and for general corporate
purposes, including investments in new projects. The 1996 Senior Notes are
senior unsecured obligations of NRG and rank pari passu with all other senior
unsecured indebtedness of NRG, including the Notes. The 1996 Senior Notes
have terms similar to the New Notes. See "Certain Indebtedness" and
"Description of Notes."
As of June 30, 1997, NRG's consolidated financial statements contained
long-term debt (excluding current maturities) of $458.3 million, $125 million
of which is represented by the 1996 Senior Notes. The 1996 Senior Notes have
terms substantially similar to the Notes, except the maturity date is in
January 2006. The $248.3 million increase from the same period one year
earlier is due to $250.3 million of new debt issuance less $2.0 million of
debt reclassed to short-term. As of June 30, 1997, annual maturities of
long-term debt ranged from $3.9 million to $5.0 million in the five-year
period ending December 31, 2001. See "Certain Indebtedness" and "Description
of Notes."
NRG is committed to additional equity investments of approximately $214
million for 1997-2001, approximately $49 million of which is committed for
1997, for various international power generation projects. In addition, in
1996, NRG provided a $10 million loan commitment to a wholly-owned project
subsidiary of NRGG, in order for the NRGG project subsidiary to fund its
capital contribution to Grays Ferry, a cogeneration project currently under
construction. As of August 31, 1997, NRG lent Grays Ferry $4.5 million as
part of its loan commitment. As part of the 1996 loan agreement, NRG was
granted the option to convert $3 million of the loan into common equity of
NRGG. NRG exercised this option on September 19, 1997. Also in 1996, NRG
executed an agreement whereby NRG is obligated to provide NRGG power
generation investment opportunities in the United States over a three-year
period. These projects, over the three-year term, must have an aggregate
equity value of at least $60 million or a minimum of 150 net MW. In addition,
NRG has committed to finance NRGG's investment in these projects to the
extent funds are not available to NRGG on comparable terms from other
sources. (See Note 13 of Notes to Consolidated Financial Statements for
further discussion of NRG's commitments.) NRG expects to meet these cash
requirements with proceeds from the issuance of debt or equity, including
equity contributions from NSP, and internally generated cash.
In May 1997, NRG acquired a 25.37% equity interest in Loy Yang A. See
"Business -- Loy Yang Power." In order to finance its equity investment in
this acquisition and related financing costs, NRG borrowed $200 million in
short-term debt pursuant to the Bridge Financing, which it used together with
an investment of $60.9 million from NSP and cash on hand. The net proceeds
from the Offering were used to refinance the Bridge Financing. See "Use of
Proceeds."
NRG has entered into a $175 million revolving credit facility with a
syndicate of banks led by ABN AMRO, which matures on March 17, 2000. Proceeds
from the facility will be used for general corporate purposes, including
letters of credit and interim funding for NRG project investments.
The facility allows for LIBOR and Base rate borrowing depending upon the
days notice required and the term of drawing. The applicable margin is based
upon the rate option selected and the assigned ratings of NRG. Pursuant to
the terms of the agreement, NRG is restricted from creating liens on its
assets, is prohibited from merging except under certain circumstances and
must maintain a specified minimum net worth. Failure to comply with these
restrictive covenants could result in an event of default. Other events of
default include nonpayment of principal or interest, NSP's failure to own
majority of outstanding voting stock of NRG, certain cross-defaults, and
certain events of bankruptcy.
NRG Energy Center, Inc. ("NRG Energy Center") expects to enter into a
master shelf agreement during October 1997, pursuant to which NRG Energy
Center may issue $30 million in term notes with maturities no later than June
2017. The master shelf revolving credit facility could also provide for up to
$5 million of short-term borrowings. This facility is expected to be recourse
only to NRG Energy Center and is intended to provide financing for MEC.
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As part of NRG's global tax strategy, NRG intends to maintain offshore,
for permanent reinvestment in other foreign projects, earnings from foreign
investments. For this reason, NRG intends to utilize the earnings in its
domestic operations to make the payments of principal and interest on the
Senior Notes. These earnings will include payments of interest and principal
to be received from its wholly-owned Dutch project subsidiary, NRGenerating
International, B.V., with respect to loans from NRG. Although dividends and
management fees to NRG and its subsidiaries from partnerships in which NRG
invests are subject to restrictions in some cases, NRG currently expects that
cash generated internally and funds from borrowings described above will
provide sufficient funds for operating activities. However, there can be no
assurance that available funds will be sufficient for such purposes. Because
substantially all of the operations of NRG are conducted by its project
subsidiaries and project affiliates, NRG's cash flow and its ability to
service its indebtedness, including its ability to pay the interest on and
principal of the Senior Notes when due, are dependent upon cash dividends and
distributions or other transfers from its project and other subsidiaries and
project affiliates to NRG.
IMPACT OF INFLATION, INTEREST RATES, EXCHANGE RATES AND ENERGY PRICES
NRG attempts, whenever practicable, to hedge certain aspects of its
international project investments against the effects of inflation and
fluctuations in interest rates and energy prices. To date, NRG has generally
structured the energy payments of its power purchase agreements to adjust
with the same price indices as contained in its contracts with the fuel
suppliers for the corresponding projects. In some cases, a portion of
revenues is associated with operation and maintenance and is indexed to
adjust with inflation.
As of June 30, 1997, NRG had $463.5 million of foreign currency
denominated assets that were hedged by seven forward foreign currency
exchange contracts with a notional value of $182 million, including $83
million of Australian dollar hedges and $94 million of German mark hedges,
with maturities ranging from two to ten years. In connection with these
forward foreign currency exchange contracts, cash collateral of $7.5 million
was required at June 30, 1997. In July 1997, NRG changed its policy of
hedging foreign currency denominated investments as they were made, to a
policy of hedging foreign currency denominated cash flows, over a projected
12-month period. As a result of this change in hedging policy, NRG terminated
the seven foreign currency swap agreements on July 29, 1997. Such
terminations resulted in cash payments to NRG without any earnings impact.
Consistent with prior policies, NRG is not hedging future earnings and does
not speculate in foreign currencies.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," was issued. In addition, in June 1997 SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued. As both SFAS No. 130 and No. 131 are effective
for fiscal years beginning after December 15, 1997, NRG's 1998 annual report
to shareholders will include the disclosures required by these new standards.
Management believes the adoption of SFAS No. 130 and SFAS No. 131 will not
have a material effect on NRG's financial statements.
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BUSINESS
INTRODUCTION
NRG is one of the leading participants in the independent power generation
industry. Established in 1989 and wholly-owned by Northern States Power
Company ("NSP"), NRG is principally engaged in the acquisition, development
and operation of, and ownership of interests in, independent power production
and cogeneration facilities, thermal energy production and transmission
facilities and resource recovery facilities. The power generation facilities
in which NRG currently has interests (including those under construction and
Loy Yang A) as of October 1, 1997 have a total design capacity of 7,193
megawatts ("MW"), of which NRG has or will have operational responsibility
for 4,750 MW and net ownership of or leasehold interests in 2,201 MW. In
addition, NRG has substantial interests in district heating and cooling
systems and steam generation and transmission operations; as of December 31,
1996, these thermal businesses had a steam capacity of approximately 3,550
million British thermal units ("mmBtus"). NRG's refuse-derived fuel ("RDF")
plants processed more than 808,000 tons of municipal solid waste into
approximately 644,000 tons of RDF in 1996.
STRATEGY
NRG intends to continue to grow through a combination of acquisitions and
greenfield development of power generation and thermal energy production and
transmission facilities and related assets in the United States and abroad.
NRG believes that its facility operations and engineering expertise, fuel and
environmental strategies, labor and government relations expertise and legal
and financial skills give NRG a competitive advantage in the independent
power market. NRG also believes that its policy of meeting or exceeding
applicable environmental regulatory standards and its environmental
compliance record will give it an advantage as regulators continue to impose
increasingly stringent environmental requirements on the operation of power
generation facilities. In addition, NRG continues to have access to technical
and administrative support from NSP on a contract basis to augment its own
expertise. NRG believes the knowledge and expertise it has gained in the
financial and legal restructuring of its existing facilities, as well as its
reputation with respect to environmental compliance and labor relations, can
be effectively employed in the development of both domestic and international
greenfield projects.
In the United States, NRG's near-term focus will be primarily on the
acquisition of existing power generation capacity and thermal energy
production and transmission facilities, particularly in situations in which
its expertise can be applied to improve the operating and financial
performance of the facilities. NRG intends to focus its domestic development
activities primarily on the acquisition or development of facilities in
excess of 100 MW and to pursue smaller projects when it has the opportunity
to combine several smaller projects into a larger transaction. NRG is also
working with several industrial companies to develop energy projects that
would provide both electricity and steam for their production facilities. In
addition, to the extent that the replacement of aging power generating
capacity or growth in demand creates the need for new power generation
facilities in the United States, NRG intends to pursue opportunities to
participate in the development of such facilities. NRG is also studying the
opportunities that may be created by the current restructuring of the
domestic electric utility industry, particularly the divestiture by some
utility companies of their generating assets.
In the international market, NRG will continue to pursue development and
acquisition opportunities in those countries in which it believes that the
legal, political and economic environment is conducive to increased foreign
investment. Once it has developed one project in a country, NRG uses that as
a base to develop other projects in that same country or region, leveraging
its experience and knowledge to enhance its likelihood of success in the
area. NRG intends to continue to capitalize on opportunities created by the
privatization of existing government-owned generating capacity. In addition,
due to the significant existing demand for new power generating capacity in
the international market, NRG intends to engage in the development of
international greenfield projects. NRG intends to focus its international
development activities primarily on the acquisition or development of
facilities with capacity in excess of 100 MW and to pursue smaller projects
when it has the opportunity to combine several smaller projects into a larger
transaction. NRG believes that the global market will continue to provide
attractive
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investment opportunities to NRG as the countries that have initiated the
privatization of their power generation capacity and have solicited bids from
private companies to purchase existing facilities or to develop new capacity
continue their privatization programs and other countries begin similar
privatization efforts.
NRG's acquisition and development strategy is based upon the pursuit of
opportunities located in countries that are expected to meet certain
project-specific and market criteria. These criteria include fuel type,
facility size, form of ownership or control, type of transaction
(privatization or greenfield) and committed capacity compared to projected
market demand. The evaluation process also incorporates political and
business climate criteria that include a favorable legal and regulatory
environment, ability to attract financing and economic outlook. NRG's goal is
to focus on countries that provide a combination of need for additional
generation capacity and positive political, business and economic factors.
NRG expects to acquire or develop most domestic and international projects
on a joint venture basis. Where appropriate, NRG will include a local or host
country partner or a partner with substantial experience in or connections to
the area. By doing so, NRG expects to gain a number of advantages, including
technical expertise possessed by others, greater knowledge of and experience
with the political, economic, cultural and social conditions and commercial
practices of the region or country where the project is being developed, and
the ability to leverage NRG's human and financial resources. A local partner
also may, among other things, assist in obtaining financing from local
capital markets as well as building political and community support for the
project. NRG expects such joint ventures will enable it to share the risks
associated with the acquisition and development of larger projects. Joint
acquisition and development of future projects also should further reduce
NRG's financial risk by building a more diversified portfolio of projects.
Although NRG exercises flexibility in structuring its investments in
projects, NRG's goal is to own a 20% to 50% equity interest in, and have
operating control or influence over, the projects in which it invests.
However, NRG may in some instances be willing to modify these targets for a
particular project if it determines that strategic considerations and
anticipated returns, when combined with other factors, such as the ability to
exercise "negative control" (i.e., the ability to control material project
decisions by exercising a veto right) or the ability to exercise oversight
authority in the development or operation of a project, justify an investment
in that project. Alternatively, NRG may consider investments or projects in
which it is the sole or a majority owner or in which it owns less than a 20%
equity interest. See "Risk Factors -- Risks Involved in Making Minority
Investments in Projects."
NRG intends to pursue the acquisition and development of natural gas-fired
power generation facilities where appropriate, to complement its existing and
anticipated future investments in coal and other solid fuel-fired facilities.
NRG currently holds no interest in, and has no present intention of investing
in, any nuclear generating facility.
As part of NRG's global tax strategy, NRG intends to maintain its earnings
from foreign investments offshore, for permanent reinvestment in other
foreign projects. For this reason, NRG intends to utilize the earnings in its
domestic operations to make the payments with respect to the Notes. These
earnings are expected to include payments of interest and principal to be
received from its wholly-owned Dutch subsidiary, NRGenerating International,
B.V. ("NRGBV") with respect to loans from NRG to that company.
COMPETITION
The demand for power in the United States traditionally has been met by
utilities constructing large-scale electric generating plants under
cost-of-service based regulation. The enactment of PURPA in 1978 spawned the
growth of the independent power industry which expanded rapidly in the 1980s.
The initial independent power producers to enter the market were an
entrepreneurial group of cogenerators and small power producers who
recognized the business opportunities offered by PURPA. This initial group of
independent power producers was later joined by larger, better capitalized
companies, such as subsidiaries of fuel supply companies, engineering
companies, equipment manufacturers and affiliates of other industrial
companies. In addition, a number of regulated utilities
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created subsidiaries (such as NRG) which compete with the independent power
producers. Some independent power producers specialize in market niches, such
as a specific technology or fuel (for example, gas-fired cogeneration,
waste-to-energy, hydropower, geothermal, wind, solar, wood, coal and
conservation) or a specific region of the country where they believe they
have a market advantage.
Although NRG is one of the leading participants in the independent power
industry, certain other independent power producers and utility affiliates
have significantly larger capital resources available to them on a
stand-alone basis than NRG. NRG's competitors are major international
independent power producers worldwide, which include, among others,
CalEnergy, CMS Generation Co., Cogentrix Energy, Inc., Dominion Energy, Enron
Development Corp., Edison Mission, Inc., National Power plc, PowerGen plc,
Southern Electric International, Inc. and The AES Corporation. Such
competitors compete with NRG with regard to pricing terms, quality of service
and experience.
PENDING ACQUISITIONS AND PROJECTS UNDER DEVELOPMENT
NRG has a number of projects in development and is in various stages of
negotiations for the acquisition of power and steam generating capacity in
the United States and abroad. There can be no assurance that the acquisition
or development of any or all of these projects will in fact be consummated,
or if consummated, that the projects will remain in the form or occur in the
manner described in this Prospectus.
WEST JAVA
A joint venture among NRG, Ansaldo Energia SpA, a major Italian industrial
company ("Ansaldo"), and P.T. Kiani Metra, an Indonesian industrial company
("PTKM"), is developing a 400 MW coal-fired power generation facility in West
Java, Indonesia through P.T. Dayalistrik Pratama ("PTDP"), a limited
liability company created by the joint venturers. Each of NRG and Ansaldo
have an ownership interest of 45% in PTDP and PTKM has an ownership interest
of 10%.
PTDP signed a Power Purchase Agreement (the "PPA") with P.T. PLN (Persero)
("P.T. PLN"), an instrumentality of the Government of Indonesia, on November
13, 1996. Under the PPA, PTDP must close and draw on construction financing
no later than January 12, 1998 or be subject to termination. Furthermore, in
certain circumstances of default the PPA gives P.T. PLN an option to purchase
the project prior to commercial operation at a price designed to give NRG and
its partners a fixed rate of return on their committed equity investments
and, after commercial operation, at a price based on the net present value of
future project cash flows.
PTDP has executed construction contracts pursuant to which Ansaldo will
construct the project for a fixed price on a fixed schedule (subject to
customary adjustments). Ansaldo is liable for liquidated damages in the event
of certain construction delays or defaults. An NRG affiliate will be the
operator of the project pursuant to an 18 year operating and maintenance
agreement, which provides for reimbursement of the actual operating costs and
payment of an annual fee. NRG will guarantee the operator's obligations under
this agreement. In June 1997, PTDP signed a coal supply agreement for the
project and acquired the land for the plant site.
NRG expects that, upon closing of financing, its total committed equity in
PTDP will be approximately $65 million. As of September 15, 1997, NRG has
made capital infusions into PDTP totalling $5.63 million. The total project
cost is approximately $560 million, which is to be financed by a combination
of equity investments, commercial bank debt and capital markets funding. The
project is currently expected to be ready for financial closing by the end of
1997, however, in September 1997 the Government of Indonesia announced that
the project had been "postponed" and there can be no assurance as to when or
whether the Government will allow the project to go forward.
ENFIELD
In December 1996, NRG reached agreement with Indeck Energy Services
(Europe) ("Indeck") to take a 50% interest in the Enfield Energy Centre, a
350 MW gas-fired power project in the North London
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borough of Enfield. The power station is planned to begin commercial
operations in the end of 1999 and is being jointly developed by NRG and
Indeck. This power station, like Loy Yang A, will not have a long-term power
sales contract, which is no longer available under the current United Kingdom
regulatory system. Instead, it will sell its output to the U.K. grid. NRG
expects that upon closing of financing, its total committed equity in the
Enfield Energy Centre will be approximately GBP 17 million.
ESTONIA
On December 20, 1996 representatives of the Estonian Government, the
state-owned Eesti Energia ("EE"), and NRG signed a Development and
Cooperation Agreement ("DCA"). The DCA defines the terms under which the
parties are to establish a plan to develop and refurbish the Balti and Eesti
Power Plants. Pursuant to the DCA, a business plan for the joint project was
submitted in June, 1997. NRG has stated its willingness to invest up to
$67.25 million of equity in this project and to assist the joint project in
obtaining non-recourse debt in an amount necessary to fund the required
capital improvements to the Balti and Eesti Power Plants. Recently the
Estonian government announced that it had rejected the business plan of NRG
and EE.
ALTO CACHAPOAL
NRG owns a 27.75% interest in the Alto Cachapoal greenfield hydroelectric
complex that is under development in central Chile. Alto Cachapoal is a
two-stage 390 MW project. In the first 195 MW stage, Alto Cachapoal will sell
all of its firm energy to Codelco-El Teniente, the world's largest
underground copper mine, pursuant to a 20-year power sales contract.
Financial closing for the first stage is expected in 1997. NRG expects that
upon closing of financing, its total committed equity in Alto Cachapoal will
be approximately $46 million. NRG's partners in the Alto Cachapoal facility
are Nordic Power Invest AB (27.75%) and Construtora Andrade Gutierrez S.A.
(44.5%).
CAJUN
NRG, together with two other parties, and the Chapter 11 trustee has filed
a plan with the United States Bankruptcy Court for the Middle District of
Louisiana, to acquire the fossil generating assets of Cajun Electric Power
Cooperative of Baton Rouge, Louisiana ("Cajun") for approximately $1.1
billion. The NRG consortium has the support of the Chapter 11 trustee and
Cajun's secured creditors. The Court has also received two other competing
plans of reorganization for Cajun. All three plans of reorganization are the
subject of a confirmation hearing which began on December 15, 1996. NRG
expects the confirmation process to conclude in 1997. Under the plan filed
with the Court, NRG would hold a 30% equity interest in Louisiana Generating
LLC, which would acquire Cajun's 1760 MW of non-nuclear generating assets.
NRG's plan of reorganization for Cajun includes an equity investment from NRG
of approximately $55 million.
MCPC
In September 1996, through its subsidiary, Oklahoma Loan Acquisition Corp.
("OLAC"), NRG acquired all right, title and interest in the existing senior
secured debt of Mid-Continent Power Company, Inc. ("MCPC") from Barclays Bank
and The Nippon Credit Bank, at a substantial discount. On June 18, 1997, MCPC
filed a Chapter 11 petition in federal bankruptcy court in Tulsa, Oklahoma,
and concurrently filed a plan of reorganization proposing to transfer
ownership of substantially all of MCPC's assets to OLAC in exchange for
forgiveness of debt. NRG is currently engaged in discussions with MCPC and
its major customers concerning the proposed plan and a confirmation hearing
has been scheduled for late October 1997. NRG is not obligated to make any
further investments in MCPC. The project is a gas-fired cogeneration plant
with a rated capacity of 110 MW, located in Pryor, Oklahoma. The project
sells steam to several industrial customers located in the Mid-America
Industrial Park and sells electricity to two Oklahoma utilities.
MILLENIUM
On September 19, 1997, NRG (Morris) Cogen, LLC ("NRGM"), an NRG affiliate,
entered into a Construction and Term Loan Agreement with The Chase Manhattan
Bank to finance the construction of
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a 117 MW cogeneration plant in Morris, Illinois. The project is being
developed pursuant to a 25 year Energy Services Agreement between NRGM and
Millennium Petrochemicals Inc. ("Millennium") pursuant to which NRGM will
supply all of the external steam requirements and substantially all of the
electricity requirements for Millennium's polyethylene manufacturing facility
in Morris. Millennium has the right to buy out the cogeneration plant for
fair market value at certain defined points in the contract term. The project
is being constructed by Kiewit Industrial, Co. and is projected to be
completed by December 1, 1998. In connection with the financing of this
project, NRG has entered into a $22 million equity commitment and a $1.2
million guaranty of certain obligations of NRG Morris Operations, Inc., an
NRG affiliate which will operate the project.
DESCRIPTION OF NRG'S PROJECTS
NRG owns interests in power generation and thermal generation projects and
other facilities described herein either directly or through project
subsidiaries or project affiliates. Each project is located on a site that is
owned or leased on a long-term basis by NRG, a project subsidiary or a
project affiliate. The ownership or leasehold interest generally is mortgaged
to secure project financing obligations, and, in certain instances, to secure
the project subsidiary's or project affiliate's obligations under its power
purchase agreement.
PROJECT AGREEMENTS
In the past, virtually all of NRG's operating power generation facilities
have sold electricity under long-term power purchase agreements. A facility's
revenue from a power purchase agreement usually consists of two components:
energy payments and capacity payments. Energy payments, which are intended to
cover the variable costs of electric generation (such as fuel costs and
variable operation and maintenance expense), are normally based on a
facility's net electrical output measured in kilowatt hours, with payment
rates either fixed or indexed to the fuel costs of the power purchaser.
Capacity payments, which are generally intended to provide funds for the
fixed costs incurred by the project subsidiary or project affiliate (such as
debt service on the project financing and the equity return), are normally
calculated based on the net electrical output or the declared capacity of a
facility and its availability.
The power purchase agreements for NRG's international projects generally
require that payments under such agreements be made in or indexed to United
States dollars or a currency freely convertible to United States dollars,
such as the Australian dollar or the German mark. NRG currently does not have
political risk or currency convertibility and repatriation risk insurance
coverage with respect to any of its existing project interests (other than
Latin Power project investments). However, where appropriate and if available
at reasonable premiums with respect to future project investments, NRG
intends to procure insurance against currency inconvertibility and
repatriation risks for its equity interests in projects.
A number of the more recent projects in which NRG has acquired or is
acquiring an interest do not have long-term power purchase agreements. For
example, Loy Yang A does not have such agreements because under the new
Australian regulatory scheme, all generators must sell their output to a
grid, where the price is established by a neutral regulator based on the
market prices during each defined period. The same will be true of Enfield,
since the United Kingdom has adopted a similar regulatory scheme. Similarly,
the SJVEP Facilities accepted a buy-out of their long-term contracts, so if
they recommence operations, it is anticipated that they will be merchant
plants. In the case of the Kladno project, where there is a long-term
agreement, the energy price is tied to the market price of electricity rather
than to the costs incurred by the project, so the contract does not provide
the traditional level of certainty and protection. While these "merchant"
projects introduce new risks and uncertainties, and require careful advance
analysis of the local power markets, NRG believes that they are becoming
increasingly accepted in the independent power market.
Generally, NRG's project subsidiaries and project affiliates that own
operating power generation or steam generation facilities purchase fuel under
long-term supply agreements or have ownership interests in the fuel source.
Of the power generation projects in which NRG has an ownership interest,
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ten are fueled with coal or waste coal, four are fueled with biomass, three
are fueled with oil, eight are fueled with natural gas, one is fueled with
hydro-power and one is fueled with landfill gas and coal seam methane.
Through NEO, NRG also has interests in 39 small hydroelectric or landfill
gas-fired power generation facilities.
PROJECT FINANCING
As with its existing facilities, NRG expects to finance most of its future
projects with some type of debt as well as equity. Leveraged financing
permits the development of projects with a limited equity base but also
increases the risk that a reduction in revenues could adversely affect a
particular project's ability to meet its debt or lease obligations.
NRG has financed its principal power generation facilities (other than
Schkopau) primarily with non-recourse debt that is repaid solely from the
project's revenues and generally is secured by interests in the physical
assets, major project contracts and agreements, cash accounts and, in certain
cases, the ownership interest, in that project subsidiary. This type of
financing is referred to as "project financing." True project financing is
not available for all projects, including some assets purchased out of
bankruptcy (such as NRGG), some merchant plants, some purchases of minority
stock positions in publicly traded companies (such as EDL) and plants in
certain countries that lack a sufficiently well-developed legal system. But
even in those instances, NRG may be able to finance a smaller proportion of
the total project cost with project financing or may employ debt that is
either raised or supported at the corporate level.
Project financing transactions generally are structured so that all
revenues of a project are deposited directly with a bank or other financial
institution acting as escrow or security deposit agent. These funds then are
payable in a specified order of priority set forth in the financing documents
to ensure that, to the extent available, they are used first to pay operating
expenses, senior debt service and taxes and to fund reserve accounts.
Thereafter, subject to satisfying debt service coverage ratios and certain
other conditions, available funds may be disbursed for management fees or
dividends or, where there are subordinated lenders, to the payment of
subordinated debt service.
In the event of a foreclosure after a default, NRG's project subsidiary or
project affiliate owning the facility would only retain an interest in the
assets, if any, remaining after all debts and obligations were paid. In
addition, the debt of each operating project may reduce the liquidity of
NRG's equity interest in that project because the interest is typically
subject both to a pledge securing the project's debt and to transfer
restrictions set forth in the relevant financing agreements. Also, NRG's
ability to transfer or sell its interest in certain projects is restricted by
certain purchase options or rights of first refusal in favor of its partners
or the project's power and steam purchasers and certain change of control
restrictions in the project financing documents.
These project financing structures are designed to prevent the lenders
from looking to NRG or its other projects for repayment (that is, they are
"non-recourse" to NRG and its other project subsidiaries and project
affiliates not involved in the project), unless NRG or another project
subsidiary or project affiliate expressly agrees to undertake liability. NRG
has agreed to undertake limited financial support for certain of its project
subsidiaries in the form of certain limited obligations and contingent
liabilities. These obligations and contingent liabilities take the form of
guarantees of certain specified obligations, indemnities, capital infusions
and agreements to pay certain debt service deficiencies. To the extent NRG
becomes liable under such guarantees and other agreements in respect of a
particular project, distributions received by NRG from other projects may be
used by NRG to satisfy these obligations. To the extent of these obligations,
creditors of a project financing may have recourse to NRG. The project
financing structures therefore generally are described throughout this
Offering Memorandum as being "substantially non-recourse" to NRG and its
other projects.
NRG's facilities are insured in accordance with covenants in each
project's debt financing agreements (if any) and in accordance with NRG's
risk management policies. Coverage for each facility generally include
workers' compensation, commercial general liability supplemented by primary
and excess umbrella liability, and a master property insurance program
including property, boiler and machinery (at replacement cost) and business
interruption.
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OPERATING ARRANGEMENTS
NRG operates each of the projects that it wholly owns or controls. Where
NRG has only a minority interest and is not the operator of a project, NRG
generally seeks the ability to exert a degree of influence with respect to
operation of the project through its joint venture or similar agreement with
its partners.
As a condition to participating in privatizations and refurbishments of
formerly state-owned businesses, NRG may be required to undertake
transitional obligations relating to union contracts, employment levels and
benefits obligations for employees, which could delay the achievement of
desirable operating efficiencies and financial performance.
SUMMARY OF NRG PROJECTS
As of October 1, 1997, NRG had interests in 27 operating power generation
facilities worldwide (not including NEO), including projects under
construction. Of these facilities, 12 are located in the United States (648
MW design capacity, with NRG holding 243 MW net ownership), 4 are located in
Germany (1,160 MW design capacity, with NRG holding 267 MW net ownership ), 4
are located in Australia (4,065 MW design capacity, with NRG holding 1,262 MW
net ownership), and two are located in Colombia (299 MW design capacity, with
NRG holding 16 MW net ownership), and one is located in each of the Czech
Republic (382 MW design capacity, with NRG holding 214 MW net ownership),
Jamaica (74 MW design capacity, with NRG holding 7 MW net ownership), Peru
(155 MW design capacity, with NRG holding 5.5 MW net ownership), Honduras (80
MW design capacity, with NRG holding 6 MW net ownership) and Bolivia (218 MW
design capacity, with NRG holding 126 MW net ownership). In December 1996,
NRG and Nordic Power Invest AB acquired 96.6% of the outstanding common
shares of Compania Boliviana de Energia Electrica SA -- Boliviana Power
Company Limited ("COBEE"), the second largest electric utility company in
Bolivia, which will have a design capacity of 218 MW after a 65 MW expansion
in 1998. In addition, through its wholly-owned project subsidiary, NEO
Corporation ("NEO"), NRG also had interests on October 1, 1997 in 39 small
hydroelectric and landfill gas-fired power generation facilities located in
the United States with total design capacity of 113 MW, of which NRG has net
ownership of 55 MW.
In addition to power generation, NRG has interests in four district
heating and cooling systems, located in Minneapolis, San Francisco,
Pittsburgh and San Diego, that provide steam for heating and chilled water
for cooling. NRG also owns or operates two steam transmission facilities and
two resource recovery/RDF facilities, all located in Minnesota. NRG also owns
or leases interests in lignite mines in Germany estimated to contain reserves
of approximately 789 million metric tons and in Australia estimated to
contain resources equal to 2 billion tons.
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Set forth in the two tables and the text below are descriptions of NRG's
facilities in operation or under construction as of October 1, 1997.
INDEPENDENT POWER PRODUCTION AND COGENERATION FACILITIES(1)
<TABLE>
<CAPTION>
NRG'S TOTAL FACILITY
LATER OF DATE OF PERCENTAGE COST(3)
NAME AND LOCATION DESIGN POWER ACQUISITION OR DATE OF OWNERSHIP (IN $
OF FACILITY CAPACITY(MW)(2) PURCHASER COMMERCIAL OPERATION INTEREST MILLIONS)
- -------------------------- ------------- ---------------------- ---------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Loy Yang Power(4),
Australia ................ 2000 Victorian Pool 1997 25.37 3,700(5)
Gladstone Power Station,
Australia ................ 1680 QTSC; BSL 1994 37.50 532.0(6)
Collinsville,
Australia ................ 189 QTSC 1998 50.00 154.0
Energy Development
Limited,
Australia ................ 196 Various 1997 19.97 Listed company
Kladno Czech Republic,
existing project ......... 28 STE/Industrials 1994 34.00 NA(7)
expansion project ........ 354 STE 1999 57.85 401.0
Schkopau Power Station,
Germany .................. 960 VEAG 1996 20.55 1,094.0(6)
MIBRAG mbH(4), (Mumsdorf)
Germany .................. 100 WESAG 1994 33.33 468.0(4)(8)
MIBRAG mbH(4), (Deuben)
Germany .................. 60 WESAG 1994 33.33 (8)
MIBRAG mbH(4), (Wahlitz)
Germany .................. 40 WESAG 1994 33.33 (8)
COBEE,
Bolivia .................. 218 (9) Electropaz/ELF 1996 57.96 174.6
Latin Power (Mamonal),
Colombia ................. 100 Proelectrica 1994 6.45 71.0
Latin Power (Termovalle),
Colombia ................. 199 EPSA 1998 4.88 145.6
Latin Power (ELCOSA), Empresa Nacional de
Honduras ................ 80 Energia Electrica 1994 7.65 93.0
Latin Power (Dr. Bird), Jamaica Public Service
Jamaica .................. 74 Company, Ltd. 1995 8.78 98.0
Latin Power (Aguaytia), Central Peruvian
Peru .................... 155 Electricity Grid 1998 3.63 256.0
NRGG (Parlin), Jersey Central
New Jersey ............... 122 Power & Light 1996 41.86 Listed company
Company
NRGG (Newark), Jersey Central
New Jersey ............... 52 Power & Light 1996 41.86 Listed company
Company
NRGG (Grays Ferry), PECO Energy
Pennsylvania ............. 150 Company 1996 13.95 Listed company
NRGG (Philadelphia Cogen), Philadelphia
Pennsylvania ............. 22 Municipal 1996 34.74 Listed company
Authority
San Joaquin Valley
(Madera),
California ............... 23 NA(10)(11) 1992 45.00 45.8
San Joaquin Valley
(Chowchilla II),
California ............... 10 NA(10)(11) 1992 45.00
San Joaquin Valley (El
Nido),
California ............... 10 NA(10)(11) 1992 45.00
Jackson Valley Energy
Partners,
California(12) ........... 16 PG&E 1991 50.00 28.0
Sunnyside Cogeneration
Associates,
Utah ..................... 58 PacifiCorp 1994 50.00 139.4
Artesia, Southern
California ............... 34 California 1996 2.96 40.0
Edison
Cadillac Renewable Energy, Consumers
Michigan ................. 34 Energy 1997 50.00 5.0(13)
Millenium
Morris Cogen, Petrochemicals,
Illinois ................ 117 Inc. 1998 50.00 91.0
</TABLE>
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<PAGE>
- ------------
(1) Does not include the small hydroelectric and landfill gas-fired power
generation facilities owned by NEO with an aggregate capacity of 72 MW,
of which NEO has net ownership of 35 MW. In addition, NEO has landfill
gas projects under construction with an aggregate capacity of 23.5 MW,
of which NEO has net ownership of 11.8 MW.
(2) Design capacity is without deduction for internally consumed power.
(3) Except as otherwise indicated, total facility cost includes the total
acquisition cost (purchase price plus assumed debt) where NRG has
acquired an interest in an existing facility or the total construction
cost where NRG has acquired an interest in a facility under
construction.
(4) Each of Loy Yang and MIBRAG also owns coal mines which sell coal both
to its respective power plant and to third parties.
(5) Figures based on an acquisition cost of AUS$4.7 billion, converted at
an exchange rate of 0.7767.
(6) Based on exchange rates in effect at the time of acquisition.
(7) The existing Kladno facility was constructed over a number of years in
former Czechoslovakia and no meaningful cost data are available.
(8) This figure represents the total cost for the 3 generation facilities
and the lignite mine reserves owned by MIBRAG. The purchase price
includes a commitment to contribute DM 1 billion of additional capital
made by MIBRAG at the time of the acquisition. In addition to the price
stated above, MIBRAG is required to pay premiums to the German
government based on the quantity of lignite and briquettes sold.
(9) Includes the Zongo 65 MW expansion which will be operational in 1998.
(10) Operations suspended following buy-out of power purchase contracts and
pending negotiation of new power purchase agreements or sale of such
facilities.
(11) PG&E has agreed to a buy-out of related power purchase agreements, but
retains a right of first refusal with respect to output of facilities.
(12) Operations were suspended during 1995 and 1996 pursuant to a
restructuring of the power purchase agreement. Operations restarted on
May 1, 1997.
(13) In addition, NRG pays GE Credit Corporation rent under an operating
lease for the facility.
51
<PAGE>
THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
AND RESOURCE RECOVERY FACILITIES
<TABLE>
<CAPTION>
NRG'S TOTAL
PERCENTAGE FACILITY
NAME AND LOCATION THERMAL ENERGY DATE OF OWNERSHIP COST(2)
OF FACILITY DESIGN CAPACITY(1) PURCHASER/MSW SUPPLIER ACQUISITION INTEREST (IN $ MILLIONS)
- ------------------------ ----------------------------- -------------------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Thermal Energy
Production
and Transmission
Facilities
Minneapolis Energy Steam: 1,323 Approximately 90 steam 1993 100.00 110.0
Center (MEC), mmBtu/hr. (388 MWt) customers and 30 chilled
Minnesota.............. Chilled water: 35,550 water customers
tons/hr.
North American Thermal Pittsburgh: steam-- Approximately 24 customers 1995 49.40(3) 6.8
Systems (NATS), 240 mmBtu/hr. in Pittsburgh and 210
Pennsylvania; (70 MWt) customers in San Francisco
California............. chilled water--
10,180 tons/hr.
San Francisco: steam--
490 mmBtu/hr.
(144 MWt)
San Diego Power & Chilled Water: 5,250 tons/hr. Approximately 14 customers 1997 100.00 6.7
Cooling................
Rock-Tenn Steam: Rock-Tenn Company 1992 100.00 14.2
Minnesota.............. 430 mmBtu/hr.
(126 MWt)
Washco, 160 mmBtu/hr. Andersen Corporation 1992 100.00 5.2
Minnesota.............. (47 MWt) Minnesota Correctional
Facility
Grand Forks Air Force 105 mmBtu/hr. Grand Forks Air Force Base 1992 100.00 2.2
Base,
North Dakota........... (31 MWt)
Energy Center Kladno, 512 mmBtu/hr. City of Kladno 1994 34.00 NA(4)
Czech Republic(4) ..... (150 MWt)
Resource Recovery
Facilities
Newport, MSW: 1,500 tons/day Ramsey and Washington 1993 100.00 17.1
Minnesota.............. Counties
Elk River, MSW: 1,500 tons/day Anoka, Hennepin, and NA(6) 0.00 NA(5)
Minnesota(5)........... Sherburne Counties;
Tri-County Solid Waste
Management Commission
</TABLE>
- ------------
(1) Thermal production and transmission capacity is based on 1,000 Btus per
pound of steam production or transmission capacity. The unit mmBtu is
equal to one million Btus.
(2) Total facility cost includes the total acquisition cost (purchase price
plus assumed debt).
(3) Includes 0.5% general partnership interests in each of PTLP and SFTLP.
(4) Kladno also is included in the Independent Power Production and
Cogeneration Facilities table on the preceding page.
(5) NRG operates the Elk River resource recovery facility on behalf of NSP.
(6) Not owned during this period.
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<PAGE>
INDEPENDENT POWER PRODUCTION AND COGENERATION
INTERNATIONAL PROJECTS
LOY YANG POWER
In May 1997, NRG consummated the largest acquisition in its history,
acquiring a 25.37% interest in the assets of a 2,000 MW brown coal fired
thermal power station and adjacent coal mine located in Victoria, Australia
and known as Loy Yang A. The State of Victoria sold the Loy Yang A assets as
part of its privatization program to a partnership called Horizon Energy
Partnership ("HEP"), formed by affiliates of NRG and of CMS Generation (a
wholly-owned subsidiary of CMS Enterprises), together with Horizon Energy
Investment Limited (an investment vehicle of Macquarie Bank). NRG has a
25.37% interest in HEP through its wholly-owned project subsidiary,
NRGenerating Holdings (No.4) B.V.
HEP purchased the Loy Yang A assets for a total price of approximately
AUS$4.7 billion (US$3.7 billion, as of May 12, 1997). While most of that
amount was raised through project-financed loans and leveraged leases that
are non-recourse to the sponsors, NRG's equity investment was approximately
US$257 million. NRG provided that amount and related financing costs from the
Bridge Financing, the equity investment by NSP and cash on hand. After the
acquisition, HEP changed its name to "Loy Yang Power" ("Loy Yang").
Loy Yang owns and operates a 2,000 MW brown coal fired thermal power
station (the "Power Station") and the adjacent Loy Yang coal mine (the
"Mine") located in the Latrobe Valley, Victoria, Australia. The Power Station
has four generating units, each with a 500 MW boiler and turbo generator,
which commenced commercial operation between July 1984 and December 1988. In
addition, Loy Yang manages the common infrastructure facilities which are
located on the Loy Yang site, which service not only the Power Station, but
also the adjacent Loy Yang B 1000 MW power station ("Loy Yang B"), a
pulverized dried brown coal ("PDBC") plant, and several other nearby power
stations.
The Loy Yang Power Station has generally achieved high capacity factor
performance since commencing commercial operation, as compared to other brown
coal generators in the same region of Australia. In the fiscal years ending
June 30, 1995 and 1996, the capacity factor has been 94.3% and 91.2%,
respectively, which were the best years of capacity factor performance in the
project's history. The Power Station has also improved unit reliability,
measured both in terms of trip rate and in terms of equivalent forced outage
rate, over the last 5 years. The trip rates (per 1000 service hours) were
just 1.2 and 0.7 for the 1995 and 1996 fiscal years, respectively. The
equivalent forced outage rates for the same periods were 2.07% and 2.72%. The
Trip Rate is a ratio that measures the total number of unit trips or
disconnections from the grid, regardless of the amount of time of the outage.
The Forced Outage Rate is the total number of hours the unit is disconnected
from the grid due to forced outages during specified period of time, which in
this case is a year.
Loy Yang is required by law to sell its entire output of electricity
(subject to certain narrow exemptions, including output used in the Power
Station and the Mine) through the competitive wholesale market for
electricity operated and administered by the Victorian Power Exchange (the
"Pool"). There are two components to the wholesale electricity market in
Victoria. The first is the Pool. The second is the price hedging contracts,
known as Contracts for Differences (or "CFDs"), that are entered into between
electricity sellers and buyers in lieu of traditional power purchase
agreements, which are not available in Victoria because of the Pool system.
Under the Victorian regulatory system, all electricity generated in
Victoria must be sold and purchased through the Pool. All licensed generators
and suppliers, including Loy Yang, are signatories to a pooling and
settlement agreement, which governs the constitution and operation of the
Pool and the calculation of payments due to and from generators and
suppliers. The Pool also provides centralized settlement of accounts and
clearing. Prices for electricity are set by the Pool daily for each half-hour
of the following day based on the bids of the generators and a complex set of
calculations matching supply and demand and taking account of system
stability, security and other costs. Under a new national electricity market,
the grid in Victoria has been interconnected with that of New South Wales and
limited
53
<PAGE>
trading is already taking place between those states. Over the long term,
there are plans for the interconnection of the eastern seaboard states to
establish what will be known as a national power pool. There can be no
assurance that NRG's assumptions concerning future market pricing will in
fact be realized under this new system.
In a Pool system, it is not possible for a generator such as Loy Yang to
enter into traditional power purchase agreements. In order to provide a hedge
against Pool price volatility and also to support their financings, most of
the Victorian generators have entered into CFDs with the Victorian
distribution companies, Victorian government entities and industrial users
("customers"). These CFDs are financial hedging instruments which have the
effect of fixing the price for a specified quantity of electricity for a
particular seller and purchaser over a defined period. They establish a
"strike price" for a certain volume of electricity purchased by the user
during a specified period; differences between that "strike price" and the
actual price set by the Pool give rise to "difference payments" between the
parties at the end of the period. Even if Loy Yang is producing less than its
contracted quantity it will still be required to make and will be entitled to
receive difference payments for the amounts set forth in its CFDs.
Loy Yang's current CFDs with the Victorian distribution companies and
other Victorian government entities in respect of regulated customer load
(which are called its "vesting contracts") cover approximately 73% of Loy
Yang's forecast revenue from generation in the year ending June 30, 1997,
thus providing considerable stability in its income over that period. Loy
Yang also enters into CFDs with its unregulated or "contestable" customers;
these CFDs are known as "hedging contracts" and, together with the vesting
contracts with the regulated customers, they cover approximately 93% of Loy
Yang's forecast load for the year ending June 30, 1997. Each of the vesting
contracts expires at the end of the franchise period (December 31, 2000), by
which time all retail customers will have become "contestable customers" by
operation of law. Loy Yang's hedging contracts are generally for a term of
one to two years, and the volume of load covered will increase as retail
customers progressively become contestable. Loy Yang's goal is to cover 85%
of its forecast load with these hedging contracts.
Loy Yang and the State Electricity Commission of Victoria (the "SECV")
have been issued with a joint mining license for the Mine. Under the terms of
the privatization, Loy Yang is required to mine coal to supply not only its
own Power Station but also the neighboring Loy Yang B, a nearby PDBC plant,
and an additional future power station that could be developed on a nearby
site. This requirement extends to 2027, but may be extended for an additional
30 years at the SECV's option. Loy Yang receives a fixed capacity charge and
a variable energy charge for these services, coupled with a system of
initiatives and penalties. Loy Yang has over 70 years of economically viable
coal supply at current usage rates within its mine license area, even
assuming that it is required to continue supplying coal to the other parties
beyond 2026.
As noted above, Loy Yang also manages certain common infrastructure
facilities located on Loy Yang's site that service not only Loy Yang, but
also Loy Yang B, the PDBC plant, and several other nearby power plants. These
services provided include the supply of high quality water, low quality
water, ash and waste disposal, drainage and steam.
GLADSTONE POWER STATION
Gladstone is a 1,680 MW coal-fired power generation facility located in
Gladstone, Australia. NRG acquired a 37.5% ownership interest in Gladstone
when the facility was privatized in March 1994. The other participants in
this acquisition are subsidiaries or affiliates of Comalco Limited, Marubeni
Corporation, Sumitomo Corporation and Sumitomo Light Metal Industries,
Mitsubishi Corporation and Mitsubishi Materials Corporation, and Yoshida
Kogyo (the "Participants"). NRG Gladstone Operating Services Pty. Ltd.,
another wholly-owned subsidiary of NRG ("NRG Gladstone"), operates the
Gladstone Power Station under an operations and maintenance agreement
expiring in 2011.
Gladstone sells electricity to the Queensland Transmission and Supply
Corporation ("QTSC") and also to the Boyne Smelters Limited located at Boyne
Island, Queensland ("Smelter"). Pursuant to an Interconnection and Power
Pooling Agreement (the "IPPA"), the Participants have the right to
interconnect Gladstone to the QTSC system and QTSC is obligated to accept all
electricity generated by
54
<PAGE>
the facility (subject to merit order dispatch), for an initial term of 35
years. QTSC also has agreed under the IPPA to permit the Smelter to
interconnect to the QTSC system and to provide sufficient generating capacity
on its system in order to provide an uninterrupted supply of power to the
Smelter in most circumstances. The Participants are obligated to maintain a
35% reserve margin for the Smelter design load, but the QTSC is obligated to
provide capacity support to the Participants to make up any shortfall between
the available capacity from the GPS and the Smelter demand at any given time.
The QTSC also entered into a 35-year Capacity Purchase Agreement (a "CPA")
with each of the Participants for its percentage of the capacity of
Gladstone, excluding that sold directly to the Smelter. Under the CPAs, the
Participants are paid both a capacity and an energy charge by the QTSC. The
capacity charge is designed to cover the projected fixed costs allocable to
the QTSC, including debt service and an equity return, and is adjusted to
reflect variations in interest rates. A capacity bonus is also available if
the Equivalent Availability Factor exceeds 88% on a rolling average basis,
and damages are payable by the Participants if it is less than 82% on that
same basis. As of June 30, 1997, the two-year average Equivalent Availability
Factor was 86.0%. The QTSC also pays an energy charge, which is intended to
cover fuel costs.
The owners of the Smelter ("BSL") have also entered into a Block A PPA
with each Participant, providing for the sale and purchase of such
Participant's percentage share of capacity allocated to the existing Smelter.
BSL has also entered into a Block B PPA with each Participant, providing for
the sale and purchase of such Participant's percentage share of capacity
allocated to the third production line of the Smelter which is currently
being commissioned. The term of each of these PPAs is 35 years. BSL is
obligated to pay to each Participant a demand charge that is intended to
cover the fixed costs of supplying capacity to the existing Smelter and the
Smelter expansion, including debt service and return on equity. BSL also is
obligated to pay an energy charge based on the fuel cost associated with the
production of energy from the facility. NRG anticipates that the Smelter
expansion will result in an increase in Gladstone capacity utilization from
approximately 41% in 1994 to an estimated 70% in 1998.
NRG Gladstone is responsible for operation and maintenance of Gladstone
pursuant to a 17-year Operation and Maintenance Agreement that commenced in
1994. NRG Gladstone is entitled to a base fee of AUS$1.25 million per year
indexed in accordance with Australian CPI (approximately $1.1 million, based
on exchange rates and ACPI in effect at June 30, 1997), and an annual bonus
based on the capacity bonuses to which the Participants are entitled under
the CPAs. NRG Gladstone is obligated to pay liquidated damages for shortfalls
in availability in an amount calculated by reference to the liquidated
damages payable by the Participants under the CPAs and the PPAs. NRG
Gladstone's obligations under the Operation and Maintenance Agreement are
unconditionally guaranteed by NRG, subject to an aggregate liability cap of
AUS$25 million indexed in accordance with ACPI (approximately $20.6 million,
based on exchange rates and ACPI in effect at June 30, 1997).
In the event the Gladstone facility fails to deliver sufficient power for
the Smelter and no back up power is available from the QTSC, molten aluminum
in the Smelter can solidify, resulting in a shutdown of the Smelter for a
substantial period of time. If the failure to deliver power to the Smelter is
caused by the willful default of QTSC or the Participants (but not NRG
Gladstone), the Participants may become liable to pay liquidated damages,
including compensation to BSL for lost profits, which are not capped. QTSC
has agreed to indemnify NRG's project subsidiaries and the other Participants
for any liability to the owners of the Smelter arising as the result of a
willful default by QTSC with regard to its obligations to deliver power to
the Smelter, subject to certain mitigation obligations of NRG's project
subsidiaries and the other Participants. If such failure is due to the
willful default of NRG Gladstone, NRG may become liable, under its guarantee
of NRG Gladstone's obligations, to pay liquidated damages up to AUS$25
million indexed in accordance with ACPI (approximately $20.6 million, based
on exchange rates and ACPI in effect at June 30, 1997). In addition, in the
event NRG Gladstone is terminated for cause under the Operation and
Maintenance Agreement, the other Participants can require a sale of NRG's
equity interest.
Coal costs for operation of Gladstone generally are passed through to QTSC
and BSL via the energy charges under the IPPA and the BSL Power Purchase
Agreements. Until 2005, coal will be supplied to
55
<PAGE>
Gladstone by QTSC through on-sale agreements between QTSC and the
Participants. An umbrella coal haulage agreement between the Participants and
Queensland Railways provides for the transportation of coal by rail from the
existing sources and from future coal sources for 30 years, with rail freight
costs generally being passed through to QTSC and BSL via the energy charge
payable to the Participants. The Participants have arranged for ash disposal
from the facility pursuant to an ash management agreement with the Gladstone
Port Authority, the City of Gladstone and Queensland Railways.
The acquisition of the GPS by the Participants was financed pursuant to an
AUS$625 million (US$443 million at exchange rates in effect at the time)
secured term loan and letter of credit facility provided by a consortium of
international banks arranged by Barclay's Bank plc. The debt is non-recourse
to NRG and the other owners of the Participants.
Queensland is in the process of converting its electricity generation
system in order to participate in the national power pool under development
in Australia. In connection with that conversion, the Participants have
engaged in discussions with BSL and various Queensland governmental entities
regarding a restructuring of the project to make it more compatible with the
new electricity market. Those negotiations are in an intermediary stage, and
NRG expects the restructuring to take several months. Meanwhile, NRG, the
Participants and BSL have agreed on certain principles regarding
restructuring, including the following principles: (a) none of the parties
will be any worse off as a result of the restructuring, taking into account
all risk and financial perspectives; (b) it is preferable to have
restructuring outcomes that are consistent with the operation of the new
electricity market, rather than outcomes that are exceptions; (c) where
opportunities arise in the restructuring, the benefits from superior
management of risk will be recognized; and (d) benefits arising from the
restructuring will be shared equitably after taking into account any
reallocation of risk.
NRG's equity in earnings from its 37.5% interest in the GPS was $7.7
million for the nine months of ownership in 1994. Equity in earnings for the
twelve months ended December 30, 1995, was $11.2 million, and for the same
period in 1996 was $10.8 million. For the first half of 1997, equity in
earnings was $6.4 million and for the same period in 1996 was $5.5 million.
COLLINSVILLE POWER STATION
The Collinsville Power Station ("Collinsville") is a 189 MW coal-fired
power generation facility located in Collinsville, Australia. In March 1996,
NRG acquired a 50% ownership interest in Collinsville when the facility was
privatized by the Queensland State government. NRG's partner in this
acquisition is Transfield Holdings Pty Ltd, an Australian infrastructure
contractor, with which NRG formed an unincorporated joint venture to
refurbish this plant. The operation and maintenance of the facility will be
undertaken by Collinsville Operations Pty Ltd, a 50% owned subsidiary of NRG
which has entered into a technical services agreement with NRG for some
staffing and assistance with certain operational and maintenance functions.
Both NRG and Transfield have entered into an 18-year PPA with the QTSC,
each agreeing to make available and sell to the QTSC its respective
proportion of the capacity of Collinsville. Under the PPA, NRG is paid both a
capacity and an energy charge by the QTSC. The capacity charge is designed to
cover the projected fixed costs allocable to the QTSC, including debt
service, permitted capital costs incurred by NRG in carrying out additional
works on the facility and an equity return. The capacity charge is adjusted
to reflect variations in interest rates. A capacity bonus is also available.
The QTSC also pays NRG an energy charge, which is intended to cover fuel
costs. Further, in accordance with its take-or-pay obligations, the QTSC must
pay NRG its energy charges for an annual minimum quantity of energy in each
year, less energy taken by the QTSC in that relevant year.
As of September 1997, the refurbishment of the Collinsville Project is on
schedule and within the budget. For each day the capacity test of the
facility is delayed past March 1, 1998, NRG and Transfield must pay
liquidated damages to the QTSC. Liquidated damages will also be payable if
the capacity of the power plant is determined to be less than 177.25 MW.
Total liquidated damages which NRG and Transfield can be required to pay to
the QTSC under the PPA are limited to AUS$5 million (indexed in April 1995
dollars).
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The refurbishment of the Collinsville Power Station has been financed with
nonrecourse commercial project financed bank debt. NRG has guaranteed to the
QTSC that its Collinsville project subsidiary will satisfy its equity
contribution obligations to the project lenders.This $13.4 million equity
contribution is expected to be made in the second quarter of 1998.
ENERGY DEVELOPMENTS LIMITED
On February 6, 1997, NRG, through its wholly-owned subsidiary NRG Victoria
III Pty Ltd., signed a subscription agreement with EDL to acquire up to 20%
of EDL's common stock at AUS$2.20 (US$1.71 as of May 22, 1997) per share, and
was granted an option to acquire 16.8 million convertible non-voting
preference shares at AUS$2.20 per share. The preference shares do not become
convertible into EDL's common stock unless a takeover bid is made for EDL by
a person who is not an affiliate of the owner of the preference shares and
such person is, or becomes, entitled to purchase more than 35% of EDL's
outstanding common stock. In such event, if EDL fails to comply with an
obligation to appoint directors nominated by the owner of the preference
shares, the preference shares convert at the option of the owner to common
shares of EDL on a share-for-share basis. On February 11, 1997, NRG made an
initial purchase of 7.2% (4.5 million shares) of EDL's common stock for
AUS$9.9 million (US$7.9 million on that date). On September 24, 1997, NRG
purchased an additional 10,109,670 shares of common stock of EDL for an
aggregate purchase price of AUS$22.2 million (US$16.1 million on that date),
bringing NRG's ownership level to 20% of the outstanding shares of EDL.
EDL, an Australian company, is engaged in independent power generation
from landfill gas, coal seam methane, and natural gas (including projects
that utilize the latest combined cycle technology). EDL currently owns
approximately 149 MW of operating projects and operates over 200 MW of
generation capacity across five states and territories of Australia. EDL has
commenced the development of new projects in the United Kingdom, Asia and New
Zealand. EDL is a publicly traded company listed on the Australian Stock
Exchange. Its share price as of September 24, 1997 was AUS$3.15 (US$2.28 as
of September 24, 1997).
SCHKOPAU POWER STATION
In 1993, NRG and PowerGen plc of the United Kingdom each acquired a 50%
interest in a German limited liability company, Saale Energie GmbH ("Saale").
Saale then acquired a 41.1% interest in a 960 MW coal-fired power plant that
was under construction in Schkopau, which is located in the former East
Germany. A German energy company, VEBA Kraftwerke Ruhr AG ("VKR"), owns the
remaining 58.9% interest in Schkopau and operates the plant. The partnership
of Saale and VKR that owns the plant is called Kraftwerk Schkopau GbR ("KS").
The first 425 MW unit of the Schkopau plant began operation in January
1996, the 110 MW turbine went into commercial operation in February 1996, and
the second 425 MW unit came on line in July 1996. Acceptance testing of all
of the individual pieces of equipment has been completed. The plant has
generally experienced good availability since the beginning of commercial
operation and is expected to continue meeting its design reliability and
efficiency requirements.
VKR operates and maintains the Schkopau facility under an operation and
maintenance contract with Kraftwerk Schkopau Betriebsgesellschaft mbH, a
German limited liability company ("KSB"), in which Saale and VKR hold
interests of 44.4% and 55.6% respectively, and which is responsible for the
operation and maintenance of the facility pursuant to certain agreements with
each of Saale and VKR. VKR is paid a management fee for such services made up
of several variable components that will be adjusted according to changes in,
among other things, labor costs, producer prices for light fuel oil and
prices for electricity. Pursuant to the KSB partnership agreement between
Saale and VKR and the Saale shareholders agreement between NRG and PowerGen,
NRG has the right to participate in the oversight of facility operations and
in the approval and oversight of facility budgets and policies.
The plant is fueled by brown coal (lignite) which will be provided under a
long-term contract by MIBRAG's Profen lignite mine. For a description of the
coal supply agreement between MIBRAG and the Schkopau project, see "MIBRAG",
below.
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Pursuant to the KS partnership agreement between Saale and VKR, each
partner has been allocated a share of capacity and energy generated by the
facility. Saale sells its allocated 400 MW portion of the plant's capacity
under a 25-year contract with VEAG, a major German utility which controls the
high-voltage transmission of electricity in the former East Germany. VEAG
pays a price that is made up of three components, the first of which is
designed to recover installation and capital costs, the second to recover
operating and other variable costs, and the third to cover fuel supply and
transportation costs. NRG receives 50% of the net profits from these VEAG
payments through its ownership interest in Saale.
The construction of the Schkopau facility was financed through a
combination of capital contributions from Saale and VKR, and borrowings by KS
from VKR and from third party lenders, which are non-recourse to NRG. Saale
financed a portion of its capital contributions through a line of credit from
VKR. Saale's interests in KS and the facility are pledged as security for,
among other obligations, the repayment of these borrowings by Saale from VKR.
As of June 30, 1997, KS had borrowed an aggregate of DM 1.5 billion
(approximately $836.4 million, based on exchange rates in effect as of June
30, 1997) and Saale had borrowed an aggregate of DM 34.2 million
(approximately $18.6 million, based on exchange rates in effect as of June
30, 1997).
NRG, PowerGen and VKR have also entered into a cooperation agreement
concerning the participation of VKR in the acquisition or construction of
certain large power station projects involving NRG and/or PowerGen in the
Federal Republic of Germany.
Earnings from the Schkopau facility commenced in the first quarter of 1996
when the first unit was brought on-line. Equity in Schkopau earnings was $6.4
million for the year ended December 31, 1996 and $3.1 million for the six
months ended June 30, 1997.
MIBRAG
In 1994, NRG, Morrison Knudsen Corporation and PowerGen plc each acquired
a 33% interest in a Dutch holding company which then acquired the equity of
Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG") which owns the coal
mining, power generation and associated operations of MIBRAG, all of which
are located south of Leipzig, Germany. The German government retained a 1%
interest in MIBRAG until December 1996, when each of the three original
investor parties were permitted to purchase one third of that interest. The
investor partners began operating MIBRAG effective January 1, 1994, and the
legal closing occurred August 11, 1994.
MIBRAG is a corporation formed by the German government following the
reunification of East and West Germany, to hold two open-cast brown coal
(lignite) mining operations, a lease on an additional mine, three
lignite-fired industrial cogeneration facilities and briquette manufacturing
and coal dust plants, all located in the former East Germany. In connection
with the acquisition, NRG and its partners agreed to invest (from cash flow
from MIBRAG operations) in excess of DM 1 billion (US$573 million based on
the exchange rate as of June 30, 1997) by December 31, 2004 to modernize the
existing mines and power generation facilities and to develop new open-pit
mines. The German government is obligated to provide certain guarantees of
bank loans to MIBRAG relating to capital improvements to the Schleenhain
mine. MIBRAG also agreed to operate the three power generation facilities
until 2005, to operate the briquette plants in accordance with market demand
until 2005, and to operate the lignite mines until continued operation of the
mines is no longer economically justifiable. In addition, MIBRAG has made
certain employee retention commitments until 2000. Under the provisions of
the sale and purchase agreement, NRG and its partners agreed to make a
deferred payment of DM 40 million to the German government in the year 2009.
This obligation will be reduced by certain costs incurred by MIBRAG. The
remaining obligation at June 30, 1997 was DM 25.0 million (or US$14.3 million
based on the exchange rate on June 30, 1997). NRG expects the entire
obligation will be offset by ongoing costs prior to the year 2009.
MIBRAG's cogeneration operations consist of the 100 MW Mumsdorf facility,
the 60 MW Deuben facility and the 40 MW Wahlitz facility. These facilities
provide power and thermal energy for MIBRAG's coal mining operations and its
briquette manufacturing plants. All power not consumed by MIBRAG's internal
operations is sold under an eight-year power purchase agreement with
Westsachsische Energie
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Aktiengesellschaft ("WESAG"), a recently privatized German electric utility.
NRG and PowerGen jointly, through Saale, provide consulting services for a
fee for the operation of the MIBRAG steam and power generation facilities,
the associated electrical and thermal transmission and distribution system
and the briquette manufacturing plants, under a power consultancy agreement
with MIBRAG for the life of the facilities. After some retrofitting was
completed by MIBRAG, all three of these cogeneration facilities now satisfy
the current European Union environmental regulations. MIBRAG leases these
cogeneration facilities under a 13-year lease pursuant to which MIBRAG has
operating control of and a 1% interest in the facilities.
MIBRAG's lignite mine operations include Profen, Zwenkau and Schleenhain
(which is under construction but has not yet commenced operations), with
total estimated reserves of 776 million metric tons. Morrison Knudsen, an
international mining company, provides consulting services to mines under a
consultancy agreement with MIBRAG for the life of the mines. In addition to
providing approximately 3 million tons of lignite per year for MIBRAG's three
cogeneration facilities and one briquette facility, output from these mines
supply lignite to the Schkopau power station and other facilities. The total
output of the new Schleenhain mine will be dedicated to the new 1600 MW
Lippendorf power station. MIBRAG is currently supplying coal for the existing
Lippendorf and Thierbach power generation facilities, but they are expected
to close in 1999 when the new Lippendorf facility is scheduled to commence
operations.
In addition to its power generation and coal mining operations, MIBRAG
owns and operates two briquette manufacturing plants and a coal dust plant.
Operations at the Deuben briquette plant were phased out as anticipated in
1996 due to reduced market demand for briquettes. MIBRAG also partially owns
and is the principal customer of a transportation company, an insurance
brokerage firm, a briquette marketer, a waste disposal and management
company, a ground water consulting company and an environmental consulting
company.
MIBRAG is restricted from selling or transferring certain assets without
the consent of the German government, generally for a period ending not
earlier than January 2004. Even if consent is obtained, MIBRAG is obligated
to pay a portion of the proceeds of any sale or transfer of such assets
consummated before January 2004 to the German government.
To the extent liabilities arise with respect to environmental conditions
existing at the time of the acquisition, MIBRAG is indemnified by the German
government, subject to certain limitations. The German government has also
agreed to indemnify MIBRAG in respect of certain liabilities arising from
claims for the restitution of property allocated to MIBRAG.
MIBRAG has entered into several long-term loan agreements with the
Kreditanstalt fur Wiederaufbau ("KfW"), which is the German government
economic development bank. Approximately DM 126.7 million ($72.6 million as
of June 30, 1997) of these loans relate to the construction of the Wahlitz
power station and were assumed as part of the MIBRAG acquisition on January
1, 1994. In January 1996, MIBRAG borrowed an additional DM 94.5 million
($54.1 million as of June 30, 1997) from KfW and DM 198.0 million ($113.4
million as of June 30, 1997) from a group of private investors. The proceeds
from these loans are being used in respect of the refurbishment of the
Schleenhain mine. These loans are payable out of project revenues over a
period of 13 years and are non-recourse to the three sponsors. Additional
acquisition payments are due to the German government in the form of premiums
based on the quantity of lignite and briquettes sold. MIBRAG has also
borrowed an additional DM 90 million ($51.6 million as of June 30, 1997) from
the KfW to partially finance the modernization and refurbishment of the
Deuben and Mumsdorf plants, particulary the cost of bringing them into
compliance with environmental requirements. This loan is also non-recourse to
the sponsors.
NRG's equity in earnings from its interest in MIBRAG was $19.4 million in
the year ended December 31, 1994 (reflecting a full twelve months of
operations). NRG's equity in earnings in MIBRAG for the twelve months ended
December 31, 1995, was $22.2 million, and for the same period in 1996 was
$13.0 million. Similarly, equity in earnings for the first half of 1997 was
$4.5 million, while the first half of 1996 was $4.9 million. Earnings from
MIBRAG decreased in 1996 and are expected to continue to decrease in 1997 and
1998 due to mine refurbishments and reduced coal sales. However, in 1999,
coal sales are expected to increase substantially with the scheduled startup
of the first of two 800 MW Lippendorf generating units.
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MIBRAG's results of operations, which are reported under German accounting
rules, are adjusted for purposes of NRG's financial statements to reflect
GAAP. Such adjustments include, among others, adjustments for differences in
reporting of depreciation expense, mining reserves, vacation reserves and
maintenance reserves.
The following chart represents the ownership structure of MIBRAG and
Schkopau:
GRAPHIC OMITTED
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COBEE
In December 1996, NRG acquired an interest in Compa|fnia Boliviana de
Energia Electrica S.A. -- Bolivian Power Company Limited ("COBEE"), the
second largest generator of electricity in Bolivia. The acquisition was
consummated through a Netherlands corporation, Tosli Investments B.V.
("Tosli"), which is jointly owned by subsidiaries of NRG (60%) and Vattenfall
AB of Sweden (40%). On December 19, 1996, Tosli completed a successful tender
offer for the shares of COBEE, which were listed on the New York Stock
Exchange, acquiring 96.6% of COBEE's outstanding common shares for a total of
$175 million. COBEE shares were delisted in January 1997.
Tosli financed its acquisition of COBEE in part using the proceeds of a
$49.6 million bridge loan arranged by Morgan Grenfell & Co. Limited, as
administrative agent. The unpaid principal amount of that loan of $30 million
was repaid in full on June 19, 1997 using the proceeds of a loan from NRG to
Tosli. On August 13, 1997, COBEE entered into a Credit Agreement with
Corporacion Andina de Fomento (the "CAF Financing") for $75 million to fund
the completion of the Zongo Project, as described below. Upon funding of the
CAF Financing, COBEE will declare and pay a dividend to Tosli and COBEE's
minority shareholders. The dividend received by Tosli will be used to pay the
amounts due on the NRG loan.
Upon Tosli's acquisition of COBEE, the COBEE board of directors was
reconstituted to include nine members, including four designees of NRG, three
designees of Vattenfall and two outside directors. In addition, in December
1996, the Chief Executive Officer of NRG was elected as chairman of the board
of directors and chief executive officer of COBEE.
COBEE generates and transmits electricity in La Paz and Oruro, Bolivia,
and owns 14 generating facilities representing an installed capacity of
approximately 153 MW. These facilities consist of 136 MW of hydroelectric
capacity and 17 MW of gas peaking capacity. During 1996, COBEE had
electricity sales of $20 million. In 1996, two distribution companies,
Electropaz and ELF, accounted for approximately 69% and 16%, respectively, of
COBEE's revenues. The remaining COBEE revenues are derived from sales on the
spot market.
COBEE has entered into an Electricity Supply Contract with Electropaz
which provides that COBEE shall supply Electropaz with all of the electricity
that COBEE can supply, up to the maximum amount of electricity required by
Electropaz to supply the requirements of its distribution concession. This
Electricity Supply Contract expires in December 2008. COBEE has entered into
a substantially similar contract with ELF. Electropaz and ELF are both
wholly-owned subsidiaries of Ibedrola S.A., a Spanish utility company. All
payments by Electropaz and ELF are in local currency, tied to the value of
the U.S. dollar.
COBEE operates its electric generation business under a 40-year Concession
granted by the Government of Bolivia in 1990, as most recently amended in
March 1995. Under this Concession, COBEE is entitled to earn a return of 9%
after all operating expenses, depreciation, taxes and interest expense,
calculated on its U.S. dollar rate base, consisting of net fixed assets at
historical cost in U.S. dollars and working capital and materials up to
certain limits. The Bolivian Electricity Code also provides for the
adjustment of rates to compensate COBEE for any shortfall or to recapture any
excess in COBEE's actual rate of return during the previous year. COBEE
periodically applies to the Superintendent of Electricity for rate increases
sufficient to provide its 9% rate of return based on COBEE's current
operating results and its projection of future revenues and expenses.
Its Concession also obligates COBEE to expand its hydroelectric generation
capacity. As a result, COBEE has an additional 65 MW of new hydroelectric
facilities under construction in the Zongo Valley. This expansion, which
COBEE refers to as the "Zongo Project," consists of adding new generation
facilities and modernizing existing facilities in the Zongo Valley and
constructing transmission lines to transmit the increased generation
capacity. The Zongo Project is scheduled to be completed in 1998 and is
expected to add a total of 65 MW to COBEE's generating capacity.
Under the terms of the Concession, COBEE also has the right to expand its
facilities in the Miguillas Basin (the "Miguillas Project") which, if
completed, would add over 200 MW of generation capacity. In accordance with
its obligations under the Concession, in late 1995 COBEE presented to the
Government
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a technical-economic feasibility study. COBEE fully expects to proceed with
the construction of Miguillas in accordance with a proposal and schedule
submitted to the Bolivian government in December 1996. COBEE's proposal still
awaits regulatory approval from the Superintendent of Electricity in Bolivia.
There can be no assurance that any or all of the projects under
development by COBEE will be completed.
Equity in earnings from COBEE were $0.1 million for the twelve days ended
December 31, 1996 and $0.8 million for the six months ended June 30, 1997.
For the period ended June 30, 1997, NRG received $6.7 million from its sale
of a portion of its investment in COBEE. NRG intends to sell down its
ownership in COBEE to less than 50%.
KLADNO
The Energy Center Kladno project, located in Kladno, the Czech Republic,
consists of two distinct phases. In 1994, NRG acquired an interest in the
existing coal-fired electricity and thermal energy generation facility that
can supply 28 MW of electrical energy and 150 MWt of steam and heated water.
This plant has historically supplied electrical energy to a nearby industrial
complex which includes the Poldi Steel works (which is currently shut down
and undergoing reorganization), and to Stredoceska Energeticka ("STE"), the
local regional electric distribution company. In addition, the existing plant
supplies steam and heated water to the industrial complex and to the City of
Kladno. NRG's interest in the existing project is 34%.
The second phase is the expansion of the existing project by the addition
of 354 MW of new capacity, 282 MW of which will be coal-fired and 72 MW of
which will be gas-fired. As a part of this effort, the existing plant will be
refurbished.
The existing project is owned by a company called Energy Center Kladno
("ECK"), in which NRG owns 34%, El Paso Energy International Company ("El
Paso") owns 19% and local partners own the balance of 47%. The expansion
project is held separately through ECK Generating ("ECKG"), a Czech limited
liability company of which 89% is owned by a Netherlands company called Matra
Powerplant Holding B.V. ("Matra") and 11% is owned by STE. NRG owns 65% of
Matra and El Paso owns the remaining 35%. As a result, NRG has a net
ownership interest in the expansion plant of 57.85%. Each of NRG and El Paso
has granted Nations Energy (a subsidiary of Tucson Electric) an option to
acquire 15% of Matra at any time before May 1998. If Nations Energy does not
exercise its option with NRG, NRG intends to sell down its interest in Matra
until its ownership interest in ECKG is less than 50%.
ECK has leased all of the existing power generation facilities to ECKG
pursuant to a 40-year lease. NRG, through a wholly-owned subsidiary, has
responsibility for operating both the ECK assets and the new facilities.
During construction ECKG will continue to service ECK's existing customers.
When the new facilities are built ECKG will sell the additional capacity to
STE under a 20 year power sales agreement, at a price tied to STE's cost of
purchasing power from CEZ, the state-owned power generation entity.
Construction of the new facilities started in early 1997, and in May 1997
ECKG signed loan documents to provide financing for the project. Construction
is currently scheduled to be completed in 1999.
As of June 30, 1997, capitalized development costs for the Kladno project
were $8.7 million. In addition, the purchase price paid by NRG for the
acquisition of its interest in ECK has been capitalized to investments in
projects.
LATIN POWER
Latin Power is an investment fund that was formed in July 1993 to make
equity investments in independent power projects in Latin America and the
Caribbean. NRG, the International Finance Corporation (a member of the World
Bank Group), Corporation Andina de Fomento (a multilateral institution for
the Andean region headquartered in Caracas, Venezuela) and CMS Generation Co.
(the
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independent power subsidiary of CMS Energy) are the four lead investors in
Latin Power. Each of the four lead investors has committed $25 million to
Latin Power and has designated Scudder, Stevens & Clark, Inc. ("Scudder") as
the investment manager of the fund.
As of June 30, 1997, NRG had invested $14.7 million of its $25 million
commitment in Latin Power portfolio project investments. NRG has also
committed to fund projects in Peru and Colombia, which will be drawn down
during 1997 and 1998. For the balance of the $25 million the Latin Power
project committee recently approved two investments in power generation
facilities in Guatemala and Brazil. NRG's proportional investments in these
projects, which have not yet commenced construction, will be approximately
$1.9 million and $550,000 respectively.
Latin Power generally makes equity investments in private sector
independent power projects located in Latin America and the Caribbean that
sell power under long-term contracts to industrial users or to distribution
and transmission companies. The fund also may invest in transmission,
distribution or related operations. Latin Power currently holds investments
in five projects. The Mamonal project is a 100 MW combined-cycle natural
gas-fired power generation facility plant operating near Cartagena, Colombia.
The facility is owned by K&M Engineering and Consulting, Bank of Boston,
Rockefeller Group and Latin Power, which purchased a limited partnership
interest in the partnership that owns the facility in 1994 for $7.6 million.
Total project debt is $57 million, which is non-recourse to the facility
owners. The Overseas Private Investment Corporation ("OPIC") insurance covers
certain political and currency risks.
In November 1994, Latin Power purchased a 31% interest in the ELCOSA power
generation facility in Puerto Cortes, Honduras. ELCOSA is an oil-fired
facility with 80 MW of generating capacity, which the facility sells pursuant
to a 15-year power purchase agreement to Empresa Nacional de Energia
Electrica. The Honduran government has guaranteed the utility's obligations
under the power purchase agreement. The Multilateral Investment Guarantee
Association is providing insurance for Latin Power's equity investment
against expropriation, political violence and certain currency risks.
In December 1995, Latin Power purchased a 35.1% interest in Jamaica Energy
Partners, which owns the 74 MW Dr. Bird floating diesel-fired power
generation facility. The facility is installed and operating at Old Harbour
on the southern coast of Jamaica near Kingston. Jamaica Public Service
Company, Ltd. has signed a 20-year power purchase agreement with Jamaica
Energy Partners.
In July 1996, Latin Power assumed a 14.5% ownership interest in the
Aguaytia power project in Peru which, when constructed, will be a 155 MW
gas-fired power plant. When completed, Aguaytia will sell its output to the
Peruvian power pool.
In October 1996, Latin Power purchased a 19.5% limited partnership
interest in the 199 MW combined cycle Termovalle project near Cali, Colombia.
Commercial operation of Phase I (130 MW simple cycle) is expected in August
1997 and of Phase II (199 MW combined cycle) in May 1998. Empresa de Energia
del Pacifico (EPSA), a state-owned generation, transmission and distribution
company, has entered into a PPA for 160 MW of generating capacity from the
project. Industrial purchasers in the Cali area have committed to purchase
the remaining power capacity.
In late 1996, NRG expressed an interest in making an additional investment
in Latin Power II, a new Latin Power fund. Assuming NRG formally commits to
the Latin Power II investment, NRG's aggregate commitment in Latin Power from
$25 million to $32.5 million.
NRG's equity in earnings from its interest in Latin Power was $1.6 million
for the year ended December 31, 1996. For the first half of 1997, these
equity in earnings decreased from $1.1 million from the first half of 1996 to
$.1 million.
DOMESTIC PROJECTS
NRG GENERATING (U.S.) INC. ("NRGG")
On January 18, 1996, the U.S. Bankruptcy Court for the District of New
Jersey awarded NRG the right to acquire a 41.86% equity interest in O'Brien
Environmental Energy, Inc. ("O'Brien"), which
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emerged from bankruptcy on April 30, 1996 and was renamed NRGG. NRG holds
41.86% of the common stock of NRGG. The remaining 58.14% of the common stock
continues to be held publicly. NRGG has interests in three domestic operating
projects with an aggregate capacity of approximately 196 MW. NRGG's principal
operating projects include: (a) the 52 MW Newark Boxboard Project (which is
owned 100% by a wholly-owned project subsidiary of NRGG), a gas-fired
cogeneration facility that sells electricity to JCP&L and steam to Newark
Group Industries, Inc.; (b) the 122 MW E.I. du Pont Parlin Project (which is
owned 100% by a wholly-owned project subsidiary of NRGG), a gas-fired
cogeneration facility that sells electricity to JCP&L and steam to E.I. du
Pont de Nemours and Company ("E.I. du Pont"); and (c) an 83% interest in a 22
MW standby/peak sharing facility which provides electricity and standby
capabilities for the Philadelphia Municipal Authority. In addition, NRGG has
a 33.33% interest in the 150 MW Grays Ferry Project, a gas-fired cogeneration
project which is under construction in Philadelphia, Pennsylvania.
NRG provides NRGG with management and administrative services in
connection with day-to-day operations. NRG employees serve as NRG's designees
on the board of directors of NRGG. NRG and NRGG also entered into a
"Co-Investment Agreement," pursuant to which NRG grants NRGG a right of first
offer to acquire from NRG each energy development project first developed or
acquired by NRG for which a co-investor is required because of federal or
state regulatory restrictions on NRG's ownership. NRG has agreed that, within
the three-year period following the closing date of the acquisition of NRGG,
a minimum of one or more such projects, having an aggregate equity value of
at least $60 million or a minimum power generation capacity of 150 MW, will
be so offered. To facilitate NRGG's ability to acquire projects under the
Co-Investment Agreement, NRG is obligated to provide financing to NRGG to the
extent that NRGG is unable to obtain funds on comparable terms from other
sources.
NRG has also agreed to certain provisions designed to protect the rights
of the holders of the equity in NRGG that is not owned by NRG. These
provisions include super-majority voting requirements with respect to a
merger or sale of all or substantially all of NRGG's assets and certain
additional issuances of NRGG stock, the creation of an independent committee
of the board of directors of NRGG with authority to, among other things,
determine whether NRGG will exercise its right of first offer under the
Co-Investment Agreement and a commitment that, for a seven-year period
following NRG's investment in NRGG, NRG will not remove or vote against the
re-election to NRGG's board of directors of any of the three directors
(appointed by Wexford Management Corp. and the Committee of Equity Security
Holders) who constitute the independent directors committee.
NRGG and NRG have entered into various loan agreements. At December 31,
1996, the loan balance due to NRG was $14,388,000 with a maturity date of
April 30, 2001.
NRGG is listed under the symbol "NRGG" in the OTC market. NRGG's closing
share price as of September 30, 1997 was $20.75.
Newark. The 52 MW Newark project, which commenced operation in November
1990, is 100%-owned by NRG Generating (Newark) Cogeneration Inc. ("NRGGN"), a
wholly-owned project subsidiary of NRGG. NRGGN is designed to operate
continuously and to provide up to 75,000 lbs./hr. of steam to a recycled
paper boxboard manufacturing plant owned by Newark Boxboard Company, a
subsidiary of Newark Group Industries, Inc., and 52 MW of electricity to
JCP&L, each under agreements extending into the year 2015. The power contract
provides fixed on-peak and off-peak energy and capacity payments for the base
electrical power and fixed capital, fixed operation and maintenance and
variable operation and maintenance payments for the dispatchable power. The
facility availability in 1996 was in excess of 95%.
Natural gas for the project is supplied and paid for by JCP&L as a part of
its obligations under the terms of the power purchase agreement.
Parlin. The 122 MW Parlin project, which commenced operation in June 1991,
is 100% owned by NRG Generating (Parlin) Cogeneration Inc. ("NRGGP"), a
wholly-owned project subsidiary of NRGG. NRGGP provides up to 120,000
lbs./hr. of steam to a manufacturing plant in Parlin, New Jersey owned by
E.I. du Pont, under an agreement extending until 2021. In addition, the
project sells 41 MW of base
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electric power and up to 73 MW of dispatchable power to JCP&L, under an
agreement with an initial term until 2011. The power contract provides fixed
on-peak and off-peak energy and capacity payments for the base electrical
power and fixed capital, fixed operation and maintenance and variable
operation and maintenance payments for the dispatchable power. Finally, the
projects sells up to 9 MW of power to NRG Parlin, Inc. ("NPI"), a
wholly-owned subsidiary of NRG Energy, Inc. NPI resells this power at retail
to E.I. du Pont under an agreement extending until 2011. The facility
availability in 1996 was in excess of 95%.
Natural gas for the project is supplied and paid for by JCP&L as part of
its obligations under the terms of the power purchase agreement.
Both the Newark and the Parlin projects are being operated by Power
Operations, Inc., a wholly-owned subsidiary of NRG which assumed the
operations and maintenance responsibilities on December 31, 1996, under a
six-year operating agreement providing for reimbursement of the operator's
costs plus a fee.
Financing for Newark and Parlin. On May 17, 1996, NRGG's wholly-owned
project subsidiaries, NRGGN and NRGGP entered into a Credit Agreement (the
"Credit Agreement") with Credit Suisse. The Credit Agreement established
provisions for a $155,000,000 15-year loan and a $5,000,000 five-year debt
service reserve line of credit. Pursuant to borrowings in May and July of
1996, NRGGN and NRGGP drew the full $155,000,000 available under the Credit
Agreement, which is a joint and several liability of NRGGN and NRGGP and will
be amortized over a 15-year period as specified under the terms of the Credit
Agreement.
Grays Ferry. NRGG has a 33.3% interest in the 150 MW Grays Ferry Project,
which is currently under construction and will, when completed, sell
electricity to PECO Energy Company ("PECO") and district heating steam to
Trigen-Philadelphia Energy Corporation ("Trigen"). The Grays Ferry Project is
being constructed by Westinghouse Electric Corporation ("WEC") pursuant to a
fixed price turnkey construction contract. WEC has also made available $15
million in subordinated debt to the project, payable semi-annually after
commercial operation and to be repaid in full no later than March 2005. The
project is scheduled to go into commercial operation in December 1997. Once
in operation, it will be operated by an affiliate of Trigen pursuant to a
25-year operating agreement providing for reimbursement of the operator's
costs plus a fee.
PECO will purchase energy and capacity from the project pursuant to two
energy purchase agreements and two capacity purchase agreements, each having
a term of 20 years. Gas for the Project will be provided by Aquila Energy
Marketing Corporation. The gas sales agreement is tailored so that the
project's fuel expenses will track its revenues from sales of electricity. To
the extent the actual cost of fuel exceeds revenues received, a tracking
account has been established which is payable by the project out of
distributable cash flow.
Construction and term loan project financing for the project and certain
letters of credit to support project agreements were provided by The Chase
Manhattan Bank, N.A., as agent. This financing is non-recourse to NRG. The
maturity date for the term loan is the earlier of March 6, 2013 or the
fifteenth anniversary of the term loan conversion date.
NRG has agreed to fund NRGG's $10 million equity obligation for the Grays
Ferry Project. As of October 1, 1997, $4.9 million had been advanced to NRGG
by NRG for the Grays Ferry Project. In addition, on August 28, 1997, NRG gave
notice of intent to convert $3 million of its loan to NRGG into 396,255
shares of NRGG common stock. Upon the issuance of such shares, NRG will be
the owner of 45.21% of the common stock of NRGG.
NEO CORPORATION
NEO is a wholly-owned project subsidiary of NRG that was formed to develop
small power generation facilities, ranging in size from 1 to 50 MW, in the
United States. NEO is currently focusing on the development and acquisition
of landfill gas projects and the acquisition of hydroelectric projects.
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Through the investment vehicle Northbrook Energy, L.L.C. ("Northbrook"),
NEO presently has a 50% interest in nineteen small operating hydroelectric
projects, ranging in size from 1 MW to 6 MW and having a total capacity of
39.3 MW. As of March 31, 1997, NEO's total investment in these projects is
$4.0 million. NEO also has loaned $3.7 million to Omega Energy Partners,
L.L.C. ("Omega") to fund Omega's 50% equity interest in Northbrook. This loan
is secured by Omega's project ownership interest.
NEO also has a 50% interest in twelve operating landfill gas projects, as
of September 1, 1997, ranging in size from 1 MW to 8.4 MW and having a total
capacity of 40 MW. As of June 30, 1997, NEO's investment in these projects
totals $1.9 million. In addition, NEO has ten landfill gas projects in
varying phases of development: these projects will range in size from 1 MW to
10 MW and will have a total capacity of approximately 60 MW that is expected
to go into commercial operation in 1997 and 1998. NEO expects its total
equity requirements for these development projects to be approximately $55
million. NEO also has twenty-one other landfill gas projects in development
that it expects to go into commercial operation in 1998. There can be no
assurance that the development of any or all of these projects will in fact
be successfully completed.
On September 24, 1997, certain affiliates of NEO entered into a
Construction, Acquisition and Term Loan Agreement with Lyon Credit
Corporation ("Lyon") for $92 million to fund the construction of the landfill
gas collection system and generation facility for certain NEO landfill gas
projects in development. The construction loan for each project will convert
to a term loan containing a maximum maturity date of ten (10) years. NRG has
agreed to provide Lyon with a guarantee during the construction loan period.
In addition, NRG has agreed to guarantee the monetization and use of the
Section 29 tax credits generated from the landfill gas projects financed by
Lyon through the year 2007.
An important factor in the after tax return of the landfill gas projects
is the eligibility of these projects for Section 29 tax credits. The Section
29 tax credit is available only to projects that produce gas from biomass or
synthetic fuels from coal. Landfill gas is produced from biomass for purposes
of the Section 29 credit. To qualify for the credit, the facility for
producing gas must be placed in service no later than June 30, 1998.
NEO generated after tax losses of $520,000 in 1996, reflecting heavy
development activity. For the six months ended June 30, 1997, NEO has
generated after tax earnings of $2.3 million as compared to $75,000 for the
same six month period in 1996.
CADILLAC RENEWABLE ENERGY
In July 1997, NRG, together with its partner, Decker Energy International,
Inc. ("Decker"), acquired a 34 MW wood-fired steam turbine power plant,
located in Cadillac, Wexford County, Michigan ("Cadillac"). NRG and Decker
acquired the facility and certain other assets from Beaver Michigan
Associates Limited Partnership. Electricity from the plant is sold to
Consumers Energy under a long-term power purchase agreement. NRG immediately
assumed operation of the 20-employee plant, now named Cadillac Renewable
Energy, through a wholly-owned subsidiary.
SUNNYSIDE
The Sunnyside facility, located in Carbon County, Utah, is a 58 MW waste
coal-fired facility that utilizes circulating fluidized bed technology. The
Sunnyside facility is owned by Sunnyside Cogeneration Associates ("SCA"), a
Utah joint venture, 50% of which is owned by NRG Sunnyside Inc. and 50% of
which is owned by B&W Sunnyside L.P., an affiliate of Babcock & Wilcox.
Sunnyside Operations Associates, in which affiliates of NRG and Babcock &
Wilcox each hold 50% of the partnership interests, performs operations and
maintenance services on behalf of SCA. As of December 31, 1996, NRG's
investment in SCA was $12.5 million.
PacifiCorp purchases the energy and capacity generated by the Sunnyside
facility pursuant to a power purchase agreement with an initial term expiring
in 2023. PacifiCorp is obligated to pay for energy at prices based on
PacifiCorp's avoided cost. PacifiCorp is obligated to pay for base capacity,
up to 45 MW, at a levelized fixed price, and for additional capacity up to 53
MW, at escalating fixed prices. The
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Sunnyside facility has experienced a shortfall in project cash flow
attributable primarily to decreased revenues due to avoided energy rates
being significantly lower than originally forecasted. In addition, higher
fuel costs than originally forecasted may be incurred in the future.
These changes in the economic performance of the Sunnyside project have
caused NRG to explore options for restoring the Sunnyside project to
financial health. In particular, SCA has negotiated with PacifiCorp regarding
a potential restructuring of payments under the power purchase agreement, and
SCA has discussed a restructuring of the project debt with its bondholders.
In the absence of a restructuring of the project's debt, a debt service
reserve fund, which has been used to make up cash shortfalls, is expected to
be depleted at the end of 1997. There can be no assurances that either
PacifiCorp or the bondholders will agree to any restructuring, nor can there
be any assurances as to the actions SCA may take when and if the debt service
reserve fund is depleted.
JACKSON VALLEY
The Jackson Valley cogeneration facility ("Jackson Valley"), located near
Ione, California is a 16 MW fluidized bed power generation facility fueled by
waste lignite. The Jackson Valley facility is owned and operated by Jackson
Valley Energy Partners, L.P., a California limited partnership ("JVEP") in
which NRG owns a 2% general partnership interest and a 48% limited
partnership interest. The remaining 2% general partnership interest and 48%
limited partnership interest are owned by partnerships formed by two
individuals. The facility began operation in 1987 and has had a lifetime
operating availability in excess of 90%. NRG acquired its interest in Jackson
Valley in July 1991.
Jackson Valley has a long-term power sales agreement with PG&E through to
2016. On April 1, 1995, JVEP reached an agreement with PG&E regarding the
partial buy-out of the capacity payments under the PPA. The plant, which had
been idle since that date, restarted operations on May 1, 1997, at which time
the sale of energy to PG&E recommenced under the amended PPA.
In connection with its acquisition of the Jackson Valley facility in July
1991, JVEP also acquired a montan wax manufacturing plant, three mineral
leases and rights to mine lignite on property near the facility. During the
period while the JVEP facility was down, the montan wax plant maintained
production by receiving its power requirements from an auxiliary boiler.
Litigation is pending with respect to defining the nature and extent of
JVEP's rights to waste lignite from one of the several mines that supplies
the project with fuel but recent negotiations appear to favor a settlement.
However, since the plant is currently receiving and will for the forseeable
future receive its waste lignite from several other mines, management
believes that it is unlikely that this litigation will have a material
adverse effect on the JVEP Partnership.
JVEP's acquisition of the power generation facility, the montan wax plant
and the mineral rights was financed partially through the assumption of
indebtedness under a financing facility that was outstanding at the time of
the acquisition. The financing facility, which was restructured in 1995 in
connection with the partial buyout, and the obligations of JVEP under the
PPA, are non-recourse to NRG. The project debt was again restructured in
September 1997, providing additional project capital for permitting,
litigation and restart expenditures.
SAN JOAQUIN
NRG holds a 2% general partnership interest and a 43% limited partnership
interest in San Joaquin Valley Energy Partners I L.P. and San Joaquin Energy
Partners IV L.P. (together, the "SJVEP Partnerships"). The SJVEP Partnerships
separately own the Chowchilla I, Chowchilla II, El Nido and Madera power
generation facilities (the "SJVEP Facilities").
The PPAs with PG&E in respect of the SJVEP Facilities were bought-out by
PG&E as part of its program of trying to end long-term power purchase
agreements that impose above-market costs. The SJVEP contracts and many
others like them were entered into at rates established by the California
Public Utilities Commission in the early 1980's, which by 1995 were
substantially above the market cost of power. PG&E has tried to buy-out a
number of these contracts in order to save money for its
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ratepayers; the price of each buy-out has been negotiated based on the
savings that PG&E will realize from terminating that contract. The SJVEP
Partnerships agreed to terminate these power purchase contracts in exchange
for the payment by PG&E of approximately $116 million. NRG received total
pre-tax cash distributions of $41.8 million in 1995 and 1996 after retiring
debt on the Facilities and making appropriate reserves. The project
termination agreement resulted in a pretax gain of $29.9 million in 1995, at
which time NRG received a $14.2 million distribution. An additional $15.7
million of cash was received in 1996. PG&E also paid the Facilities' on-going
operating expenses during the time that the buyout was in progress, which
accounted for $4.7 million of the total $29.9 million gain in 1995. The
distributions to NRG of $14.2 million and $15.7 million were included as cash
flow from investing activities in 1995 and 1996, respectively, while all
other cash distributions from the project were included in operating cash
flow. Litigation is pending regarding the termination of a bio-fuel supply
contract in connection with the buy-out. Appropriate reserves have been made
and management believes that it is unlikely that this litigation will have a
material adverse effect on the SJVEP Partnerships.
As a result of this buy-out, the SJVEP Facilities have been taken out of
service. On December 31, 1996, a contractor for a NEO project purchased the
mechanical equipment from the Chowchilla I power generation facility. The
SJVEP Partnerships' objective with respect to the other Facilities is to
enter into replacement PPAs for the sale of energy and capacity and to resume
operation by the end of 1997 or to sell the remaining SJVEP Facilities. No
assurance can be given as to whether replacement agreements will be obtained
or, if obtained, whether such agreements will be on terms favorable to the
SJVEP Partnerships, or if purchasers for the SJVEP Facilities can be secured,
or, if secured, whether the terms of their purchases will be favorable to the
SJVEP Partnerships.
STEAM AND CHILLED WATER PRODUCTION, TRANSMISSION AND RELATED SERVICES
MINNEAPOLIS ENERGY CENTER ("MEC")
MEC provides steam and chilled water to customers in downtown Minneapolis,
Minnesota. MEC currently provides 90 customers with 1.5 billion pounds of
steam per year and 30 customers with 37.0 million ton hours of chilled water
per year. NRG, through its wholly-owned project subsidiary NRG Energy Center,
Inc. ("NRG Energy Center"), acquired MEC in August 1993 for approximately
$110 million. MEC's assets include two steam and chilled water plants, three
chilled water plants, two steam plants, six miles of steam and two miles of
chilled water distribution lines. The MEC plants have a combined steam
capacity of 1,323 mmBtus per hour (388 MWt) and cooling capacity of 35,550
tons per hour.
MEC provides steam and chilled water to its customers pursuant to energy
supply agreements which expire at varying dates from December 1997 to March
2017. Historically, MEC has renewed its energy supply agreements as they near
expiration. With minor exceptions, these agreements are standard form
contracts providing for a uniform rate structure consisting of three
components: a demand charge designed to recover MEC's fixed capital costs, a
consumption charge designed to provide a per unit margin, and an operating
charge designed to pass through to customers all fuel, labor, maintenance,
electricity and other operating costs. The demand and consumption charges are
adjusted in accordance with the Consumer Price Index ("CPI") every five
years.
NRG Energy Center's acquisition of MEC was financed pursuant to an $84
million senior secured note facility. The notes are 7.31% fixed rate
obligations due in 2013, with the principal amortized over the life of the
loan and paid quarterly. NRG Energy Center is in the process of renewing and
increasing its $10 million master shelf revolving credit facility, which it
expects to have in place by the end of October 1997, pursuant to which NRG
Energy Center may issue term notes with maturities no later than June 2013.
The master shelf revolving credit facility could also provide for up to $5
million of short-term (i.e., less than one year) borrowings. These facilities
are recourse only to NRG Energy Center.
On January 9, 1996, two NRG employees were killed in an accident at MEC
that occurred while two steam pipes were being connected. NRG believes that
any liability relating to this accident will be adequately covered by
insurance policies (which contain customary deductibles).
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NATS
In August 1995, NRG purchased from Thermal Ventures, Inc. ("TVI"), a 49%
limited partnership interest in each of two district heating and cooling
projects, one in San Francisco (San Francisco Thermal Limited Partnership or
"SFTLP") and the other in Pittsburgh (Pittsburgh Thermal Limited Partnership
or "PTLP"). NRG and TVI then established North American Thermal Systems LLC
("NATS") for the purpose of jointly owning their respective general
partnership interests in these two district heating and cooling companies. In
1996, NRG paid $2.8 million to the owners of TVI and made a capital
contribution of $500,000 to NATS in exchange for the sale of the 1% general
partnership interests in each of PTLP and SFTLP to NATS. NRG and TVI
participate equally in SFTLP and in PTLP and each owns 50% of the membership
interests in NATS. As of June 1997, NRG's investment in PTLP was $3.9 million
and NRG's investment in SFTLP was $5.1 million.
PTLP and SFTLP are both regulated utilities that operate under tariffs and
are rate-regulated. PTLP owns and operates a district heating and cooling
system that serves part of downtown Pittsburgh and has peak steam capacity of
240 mmBtus per hour (70 MWt) and 10,180 tons of chilled water per year. PTLP
serves 24 customers with 300 million pounds of steam per year and 21 million
ton hours of chilled water per year. SFTLP is the sole supplier of steam to
downtown San Francisco, which it serves through its district heating system
that has steam capacity of 490 mmBtu per hour (144 MWt). SFTLP serves
approximately 210 customers with approximately 700 million pounds of steam
per year that is used primarily for space and domestic heating and absorption
air-conditioning.
NATS is currently considering the acquisition of several other district
heating and cooling companies. NRG has agreed to make additional payments to
the principals of TVI of up to an aggregate of $7 million until January 1,
2003 for reaching performance benchmarks of current and future NATS operating
entities. There is no assurance that NATS will consummate any additional
acquisition.
SAN DIEGO POWER & COOLING
NRG purchased the San Diego Power & Cooling Company ("SDPC") on June 25,
1997. The purchase price was $6.7 million, including a note from the seller
for $2.7 million, payable over 72 months. The remaining amount, with the
exception of a $50,000 contingency, was paid in cash. SDPC serves the cooling
needs of fourteen major customers in the downtown San Diego central business
district through an underground piping system. SDPC's chilled water capacity
is 5,250 tons/hour.
ROCK-TENN
Rock-Tenn process steam operation, which is owned and operated by NRG,
consists of a five-mile closed-loop steam/condensate line that delivers steam
to the Rock-Tenn Company (formerly Waldorf Corporation), a paper manufacturer
in St. Paul, Minnesota and has a peak steam capacity of 430 mmBtus per hour
(126 MWt). Upon settlement of a 1987 dispute between NORENCO Corporation (a
predecessor of NRG) and Waldorf, Waldorf elected to prepay revenues for
future steam service. As of June 30, 1997, deferred revenues remaining were
$5.4 million. Rock-Tenn's corrugated medium operations are on 24 hour a day,
7 day a week schedule. The corrugated medium operations represent
approximately 40% of normal steam sales.
NRG delivers steam to Rock-Tenn pursuant to a steam sales agreement which
expires in 2007. Under the agreement Rock-Tenn is obligated to purchase its
total energy needs for its St. Paul, Minnesota facility through June 30,
2007. The agreement does not obligate Rock-Tenn to purchase a minimum
quantity of energy. Instead, Rock-Tenn's failure to acquire a certain
quantity of energy during a given contract year triggers an NRG right to
terminate the agreement, unless Rock-Tenn elects to compensate NRG for the
deficit energy usage amount.
All project debt incurred with respect to the Rock-Tenn line has been
repaid. NRG maintains a $1.5 million performance bond with respect to the
Rock-Tenn steam line.
WASHCO
NRG's Washco steam operation consists primarily of two steam lines and a
back-up boiler facility, which were placed in service in 1986. The system has
a peak steam capacity of 160 mmBtus per hour (47 MWt).
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Andersen Corporation, a window manufacturer based in Bayport, Minnesota
("Andersen"), purchases approximately 200,000 mmBtus of thermal energy
annually pursuant to a new ten-year agreement that expires in April 2007.
Andersen is obligated to take or pay for an annual quantity of steam equal to
60% of its total of purchased and self-generated steam, on a cost plus fixed
fee basis. The Minnesota Correctional Facility ("MCF"), located at Oak Park
Heights, Minnesota, purchases approximately 130,000 mmBtus of thermal energy
annually pursuant to an agreement that expires in December 2006. MCF
purchases steam based on a fixed facility charge plus an energy charge that
escalates annually in accordance with an NSP coal fuel and labor index.
GRAND FORKS
NRG's Grand Forks boiler plant facility consists of seven boilers located
in Grand Forks, North Dakota that were acquired from NSP in 1990. The system
has a peak steam capacity of 105 mmBtus per hour (31 MWt).
The Grand Forks facility provides approximately 400,000 mmBtus of high
temperature water annually to the Grand Forks Air Force Base pursuant to an
agreement that expires in September 2000. NRG is paid a fixed capacity price
component, a variable price component adjusted annually based on changes in
CPI and a fuel component that is a pass-through of the facility's fuel costs
for high temperature water sold under the agreement.
RESOURCE RECOVERY FACILITIES
RDF projects, such as NRG's Newport facility and NSP's Elk River facility,
historically were assured adequate supply of waste through state and local
flow control legislation, which directed that waste be disposed of in certain
facilities. In May 1994, the United States Supreme Court held that such waste
was a commodity in interstate commerce and, accordingly, that flow control
legislation that prohibited shipment of waste out of state was
unconstitutional. Since this ruling, the RDF facilities owned or operated by
NRG have faced increased competition from landfills in surrounding states. As
a result of such competition, MSW processed at the Newport facility decreased
by approximately 5% in 1995, from approximately 378,000 tons in 1994 to
360,000 tons in 1995. In 1996, however, due to assistance from NRG and a
reduction in tipping fees under contracts entered into between haulers and
Ramsey and Washington Counties (the "Counties"), waste deliveries reversed
their downward trend. In the absence of valid flow control legislation, there
can be no assurance that this improved trend will continue. Various
legislative proposals have been considered, including legislation that would
provide relief to existing RDF facilities. No assurance can be given that
such legislation will be adopted.
NEWPORT
NRG's Newport resource recovery facility, located in Newport, Minnesota,
can process over 1,500 tons of MSW per day, 92% of which is recovered as RDF
or other recyclables and reused in power generation facilities in Red Wing
and Mankato, Minnesota. The Newport facility, which was originally
constructed and operated by NSP, was transferred to NRG in 1994. NRG owns
100% of and operates and maintains the Newport facility.
The construction of the Newport facility was financed through the issuance
by the Counties of tax exempt variable rate resource recovery revenue bonds,
which have subsequently been converted to fixed rate resource recovery
revenue bonds with annual maturities each December through to 2006. The
proceeds of such bond issuance were loaned by the Counties to NSP, which
agreed to pay to the Counties amounts sufficient to pay the debt service on
the bonds. NRG issued a separate note to NSP in an original principal amount
of approximately $10 million as part of the consideration for the purchase of
the facility from NSP. As of June 30, 1997, $19.8 million was outstanding on
the Counties' loan to NSP and $8.4 million was outstanding under NRG's note
to NSP.
Pursuant to service agreements with the Counties, which expire in 2007,
NRG processes a minimum of 280,800 tons of MSW per year and receives service
fees based on the amount of waste
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processed, pass-through costs and certain other factors. NRG is also entitled
to an operation and maintenance fee, which is designed to recover fixed costs
and to provide NRG a guaranteed amount for operating and maintaining the
facility for the processing of 750 tons per day of MSW, whether or not the
Counties deliver such waste for processing.
To increase MSW flows and improve facility competitiveness, the Counties
reduced tipping fees charged to haulers under long-term delivery contracts.
The tip fee reduction became effective as of June 1, 1996 and is effective
under those contracts until the end of 1998. MSW deliveries for the six
months ended June 30, 1997 were 17% higher than the same period in 1996.
Minnesota Waste Processors L.L.C. ("Minnesota Waste Processors"), a
limited liability company which is 50% owned by each of NRG and LJP
Enterprises, Inc., collects MSW from several cities in southern Minnesota for
processing at the Newport facility. NRG also uses Minnesota Waste Processors'
primary asset, a large warehouse, as a temporary RDF storage facility to
enable more efficient utilization of RDF as a feedstock to NSP's Wilmarth
generating plant. The $2 million storage and transfer warehouse owned by
Minnesota Waste Processors has been financed through a loan from NRG to
Minnesota Waste Processors. In the event of a default on such loan, NRG's
recourse likely would be limited to foreclosure on the warehouse.
ELK RIVER
Since 1989, NRG has operated the Elk River resource recovery facility
located in Elk River, Minnesota, which can process over 1,500 tons of MSW per
day, 90% of which is recovered as RDF or other recyclables and reused in
power generation facilities in Elk River and Mankato, Minnesota. NSP owns 85%
of the Elk River facility, and United Power Association owns the remaining
15%.
Pursuant to service agreements between NSP and each of Anoka County,
Hennepin County, Sherburne County in Minnesota and the Tri-County Solid Waste
Management Commission in Minnesota (the "NSP Service Counties"), all of which
expire in 2009, NSP is obligated to process a maximum of 450,000 tons of MSW
per year and is entitled to receive service fees based on the amount of waste
processed, pass-through costs, revenues credited to the NSP Service Counties
and certain other factors. NSP is also entitled to an operation and
maintenance fee, which is designed to recover fixed costs and to provide NSP
a guaranteed amount for operating and maintaining the facility for the
processing of 214,900 tons of waste, whether or not the NSP Service Counties
deliver such waste for processing.
NRG also provides ash storage and disposal for the Elk River facility at
NSP's Becker ash disposal facility, an approved ash deposit site adjacent to
NSP's Sherburne County generating facility near Becker, Minnesota. NRG
operates the Becker facility on behalf of NSP. Pursuant to an ash management
services agreement between NSP and the NSP Service Counties, the NSP Service
Counties pay an ash disposal fee based on the amount of ash disposal,
pass-through costs and certain other factors.
Prior to 1996, NRG managed Elk River and Becker Ash on behalf of NSP under
a cost reimbursement arrangement. NRG did not earn a profit with respect to
providing such services. As of January 1, 1996, NRG entered into an operation
and maintenance agreement with NSP with respect to the Elk River Facilities,
under which NRG receives a base management fee and is reimbursed for costs it
has incurred. The operation and maintenance agreement also provides for a
management incentive fee payable to NRG, based upon the financial performance
of the Elk River Facilities.
In 1996 NRG earned a total management fee of $1.5 million, in addition to
reimbursed expenses. Management fees for the six months ended June 30, 1997,
totalled $633,000 compared to $508,000 for the same period in 1996.
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PRINCIPAL CUSTOMERS OF OPERATING SUBSIDIARIES
Customers accounting for more than 10% of NRG's operating revenues (which
exclude equity in earnings of projects) in each of the last two fiscal years
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Ramsey and Washington Counties,
Minnesota (Resource Recovery) ...... $20.6 $20.8
Waldorf Corporation (Thermal Energy) 10.0 10.1
</TABLE>
PROPERTIES
In addition to NRG's properties listed under the heading "Business --
Description of NRG's Projects," NRG leases its offices at 1221 Nicollet Mall,
Suite 700, Minneapolis, Minnesota 55403, under a five-year lease that expires
in June 2002.
NRG believes that its facilities and properties have been satisfactorily
maintained, are in good condition, and are suitable for NRG's operations.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
NRG experiences routine litigation in the course of its business.
Management is of the opinion that none of this routine litigation will have a
material adverse effect on the consolidated financial condition of NRG.
EMPLOYEES
At June 30, 1997, NRG employed 842 people, approximately 307 of whom are
employed directly by NRG and approximately 535 of whom are employed by its
wholly-owned subsidiaries. Approximately 550 employees are covered by
collective bargaining agreements.
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REGULATION
NRG is subject to a broad range of federal, state and local energy and
environmental laws and regulations applicable to the development, ownership
and operation of its United States and international projects. These laws and
regulations generally require that a wide variety of permits and other
approvals be obtained before construction or operation of a power plant
commences and that, after completion, the facility operate in compliance with
their requirements. NRG strives to comply with the terms of all such laws,
regulations, permits and licenses and believes that all of its operating
plants are in material compliance with all such applicable requirements. No
assurance can be given, however, that in the future all necessary permits and
approvals will be obtained and all applicable statutes and regulations
complied with. In addition, regulatory compliance for the construction of new
facilities is a costly and time-consuming process, and intricate and rapidly
changing environmental regulations may require major expenditures for
permitting and create the risk of expensive delays or material impairment of
project value if projects cannot function as planned due to changing
regulatory requirements or local opposition. Furthermore, there can be no
assurance that existing regulations will not be revised or that new
regulations will not be adopted or become applicable to NRG which could have
an adverse impact on its operations.
In particular, the independent power market in the United States,
Australia and other countries is dependent on the existing regulatory and
ownership structure, and while NRG strives to take advantage of the
opportunities created by such changes, it is impossible to predict the impact
of those changes on NRG's operations. Further, NRG believes that the level of
environmental awareness and enforcement is growing in most countries,
including most of the countries in which NRG intends to develop and operate
new projects. Therefore, based on current trends, NRG believes that the
nature and level of environmental regulation to which it is subject will
become increasingly stringent. NRG's policy is therefore to operate its
projects in accordance with environmental guidelines adopted by the World
Bank and applicable local law.
ENERGY REGULATION IN THE UNITED STATES
The enactment of PURPA in 1978 provided incentives for the development of
Qualifying Facilities or "QFs", which were basically cogeneration facilities
and small power production facilities that utilized certain alternative or
renewable fuels. The passage of the Energy Policy Act in 1992 further
encouraged independent power production by providing certain exemptions from
regulation for EWGs and "foreign utility companies" ("FUCOs").
All of NRG's domestic projects are currently Qualifying Facilities under
PURPA, except for Parlin which is an EWG. These QF projects are as follows:
Sunnyside, Jackson Valley, Artesia, all of the NRGG Facilities (except for
Parlin) and all of the NEO Facilities. QF status conveys two primary
benefits. First, regulations under PURPA exempt Qualifying Facilities from
PUHCA, most provisions of the Federal Power Act and the state laws concerning
rates of electric utilities, and financial and organizational regulations of
electric utilities. Second, FERC's regulations under PURPA require that (1)
electric utilities purchase electricity generated by QFs at a price based on
the purchasing utility's full avoided cost of producing power, (2) the
electric utilities must sell back-up, interruptible, maintenance and
supplemental power to the QF on a non-discriminatory basis, and (3) the
electric utilities must interconnect with any QF in its service territory,
and if required transmit power if they do not purchase it.
NRG endeavors to acquire, develop and operate its domestic plants, monitor
regulatory compliance by such plants and choose its customers in a manner
that minimizes the risk of those plants losing their QF status. However, the
occurrence of events outside NRG's control, such as loss of a cogeneration
plant's steam customer, could jeopardize QF status. While a plant usually
would be able to react in a manner to avoid the loss of QF status by, for
example, replacing the steam customer or finding another use for the steam
which meets PURPA's requirements, there is no certainty that such action, if
possible, would be practicable or economic. In the alternative, NRG could
attempt to avoid regulation under PUHCA by qualifying the project as an EWG,
as is the case with the NRGG Parlin cogeneration facility. However, this
change may not be permitted under the terms of the applicable power purchase
agreement, and even if it were, the plant would then be subject to rate
approval from the FERC.
73
<PAGE>
While it is unlikely that one of NRG's plants would actually lose its
status as a QF and not become an EWG, if that did occur, NRG would in all
likelihood have to cease operation of that plant or sell the plant to an
unaffiliated third party if NRG could not restore QF status after a
reasonable cure period. If it continued to operate, the project subsidiary
holding that plant would lose the exemptions outlined above and would become
an electric utility or EWG. This could result in NRG inadvertently becoming a
"public utility holding company" under PUHCA by owning more than 10% of the
voting securities of an electric utility. Loss of QF status on a retroactive
basis could also lead to, among other things, fines and penalties being
levied against NRG and its project subsidiaries, defaults under the power
purchase agreement and resulting claims by the utility customer for the
refund of previous payments, and defaults under financing agreements.
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
QFs at prices based on the purchasing utility's avoided cost. NRG does not
know whether such legislation will be passed or what form it may take. NRG
believes that if any such legislation is passed, it would apply to new
projects only and thus, although potentially impacting NRG's ability to
develop new domestic QF projects, it would not affect NRG's existing QF
projects. There can be no assurance, however, that any legislation passed
would not adversely impact NRG's existing domestic projects.
In any case, NRG anticipates that most of its future domestic development
activities will focus on the development of EWGs rather than QFs. An EWG is
an entity that is exclusively engaged, directly or indirectly, in the
business of owning or operating facilities which are exclusively engaged in
generating and selling electric energy at wholesale. An EWG will not be
regulated under PUHCA, but is subject to FERC and state public utility
commission regulatory reviews, including rate approval.
In its future development and acquisition of domestic projects, NRG may
also be subject to regulation by the FERC if NRG wheels electricity to
purchasers other than the local utility to which the plant is interconnected.
Although wheeling arrangements are generally voluntary, the FERC regulates
the rates, terms and conditions for electricity transmission in interstate
commerce. Currently, none of NRG's projects requires the wheeling of
electricity over power lines owned by others.
If it develops or acquires domestic EWGs rather than QF's in the future,
NRG may also be subject to some regulation by state public utility
commissions ("PUCs"), because EWGs do not enjoy the same statutory and
regulatory exemptions from state regulation as was granted to QF's. In fact,
however, since EWGs are only allowed to sell power at wholesale, their rates
must receive initial approval from the FERC rather than the states. But in
areas outside of rate regulation (such as financial or organizational
regulation), some state utility laws may give their PUCs broad jurisdiction
over non-QF independent power projects that sell power in their service
territories, including EWGs. The actual scope of that jurisdiction over
independent power projects varies significantly from state to state,
depending on the law of that state. In addition, many states are implementing
or considering regulatory initiatives designed to increase competition in the
domestic power generating industry and increase access to electric utilities'
transmission and distribution systems for independent power producers and
electricity consumers. At the same time, electric utility companies
themselves are considering a variety of restructuring proposals, including
mergers, acquisitions and divestitures of one or more lines of business. NRG
believes that the training and experience of many of its employees in the
electric utility industry have prepared it to take advantage of these many
changes in the industry. However, NRG cannot predict the final form or timing
of these changes in the domestic utility industry or the results of these
changes on its operations.
ENVIRONMENTAL REGULATIONS -- UNITED STATES
The construction and operation of power projects are subject to extensive
environmental protection and land use regulation in the United States. These
laws and regulations often require a lengthy and complex process of obtaining
licenses, permits and approvals from federal, state and local agencies. If
such laws and regulations are changed and NRG's facilities are not
grandfathered, extensive modifications to project technologies and facilities
could be required.
74
<PAGE>
Based on current trends, NRG expects that environmental and land use
regulation will continue to be stringent. Accordingly, NRG plans to continue
a strong emphasis on the development and use of "best-available" control
technology, as required under the Clean Air Act and Clean Water Act, to
minimize the environmental impact of its operations.
All of NRG's domestic facilities perform at levels equal to or better than
applicable federal performance standards mandated for such plants under the
Clean Air Act. NRG believes that technology currently installed at NRG's
projects should uniformly meet or exceed reasonably available control
technology (RACT). In addition, all of NRG's current domestic operating
plants are by statute generally exempt from or unaffected by the provision of
the 1990 amendments to the Clean Air Act (the "1990 Amendments"), which
require most power plants to purchase sulphur dioxide allowances. In the
future, the plants NRG expects to develop in the United States will continue
to rely on "clean (low sulfur) coal," sulphur dioxide removal technology or
natural gas technology. Accordingly, NRG believes that the additional costs
of obtaining the number of allowances needed for future projects should not
materially affect NRG's ability to develop such projects.
The 1990 Amendments also provide an extensive new operating permit program
for existing sources. Because all of the existing NRG facilities (with the
exception of the NATS facilities) were permitted under the Prevention of
Significant Deterioration or other New Source Review program, NRG currently
expects that the permitting impact under the 1990 Amendments to be minimal.
NATS currently is evaluating whether any of its facilities will require
modification. NRG anticipates that the costs of applying for and obtaining
operating air permits will not be material. NRG may need to upgrade
continuous emission monitoring systems at some plants, however, and permit
fees will increase operating expenses.
The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities, such as NRG's plants. Until
studies of the emissions from such facilities are completed and Congress
either amends the Clean Air Act further or the EPA promulgates regulations in
connection therewith, the nature and extent of federal hazardous air
pollutants emissions restrictions which will be applied to NRG's plants and
other electric steam generating facilities will remain uncertain.
NRG has received notices of violation and fines totaling approximately
$250,000 from the New Jersey Department of Environmental Protection ("NJDEP")
in connection with certain technical and record keeping violations under the
Clean Air Act at the former O'Brien Energy facilities in New Jersey. NRG
detected and voluntarily disclosed these violations to the NJDEP shortly
after NRG's acquisition of its interest in the O'Brien facilities. Because
NRG did not receive any economic advantage from these violations and
disclosed them promptly and voluntarily, NRG has recently filed
administrative proceedings seeking forgiveness of the fines. In addition, NRG
believes that the former operator of these facilities is contractually
responsible for payment of any fines that are assessed, because the
violations occurred during a time when that third-party operator managed the
facilities.
Existing NRG facilities are also subject to a variety of state and federal
regulations governing existing and potential water/wastewater discharges from
the facilities. Generally, federal regulations promulgated through the Clean
Water Act govern overall water/wastewater discharges, through NPDES permits.
Under current provisions of the Clean Water Act, existing permits must be
renewed every five years, at which time permit limits are extensively
reviewed and can be modified to account for changes in regulations. In
addition, the permits have re-opener clauses which the federal government can
use to modify a permit at any time. NRG does not anticipate, however, that
any change in permit limits pursuant to these provisions of the Clean Water
Act would affect significantly the profitability of NRG's facilities.
Congress is considering whether to re-authorize the Clean Water Act, with
reauthorization focusing on toxic discharges, receiving water body biological
monitoring requirements, bioassay requirements, additional controls on
stormwater runoff, and water quality standards and enforcement provisions. It
is uncertain whether the Clean Water Act will become more or less stringent
after re-authorization. If the Clean Water Act becomes more stringent, NRG
facilities may be required to retrofit existing wastewater treatment
facilities for metals removal and to budget for additional monitoring
requirements and toxicity reduction evaluations. NRG does not expect the
impact of these additional expenses to affect significantly the profitability
of the facilities.
75
<PAGE>
There can be no assurance that existing laws and regulations will not be
revised or that new regulations will not be adopted or become applicable to
NRG which could have an adverse impact on its operations.
ENVIRONMENTAL REGULATIONS -- INTERNATIONAL
Although the type of environmental laws and regulations applicable to
independent power producers and developers varies widely from country to
country, many foreign countries have laws and regulations relating to the
protection of the environment and land use which are similar to those found
in the United States. Laws applicable to the construction and operation of
electric power generation facilities in foreign countries generally regulate
discharges and emissions into water and air, and also regulate noise levels.
Air pollution laws in foreign jurisdictions often limit the emissions of
particles, dust, smoke, carbon monoxide, sulfur dioxide, nitrogen oxides and
other pollutants. Water pollution laws in foreign countries generally limit
wastewater discharges into municipal sewer systems and require treatment of
wastewater so that it meets established standards. New projects and
modifications to existing projects are also subject, in many cases, to land
use and zoning restrictions imposed in the foreign country. In addition to
the requirements currently imposed by a particular country, certain lenders
to international development projects may impose their own requirements
relating to the protection of the environment.
NRG believes that the level of environmental awareness and enforcement is
growing in most countries, including most of the countries in which NRG
intends to develop and operate new projects. Therefore, based on current
trends, NRG believes that the nature and level of environmental regulation to
which it is subject will become increasingly stringent. NRG's policy is to
operate its projects at least in accordance with environmental guidelines
adopted by the World Bank and applicable local law.
GERMAN REGULATIONS
Both the Schkopau Power Station and MIBRAG are subject to the energy and
environmental laws and regulations of Germany. German environmental laws
conform to European Union standards. In addition, MIBRAG is governed by
German mining laws and regulations.
ENVIRONMENTAL REGULATIONS
The Schkopau facility is designed to comply with all applicable German
laws and regulations, including, without limitation, environmental and land
use laws and regulations. The power purchase agreement between Saale Energie
and VEAG provides that any future changes in law that may affect the cost of
providing the contracted capacity will lead to adjustment of the price.
In the case of existing power generating facilities located in eastern
Germany, current German environmental laws and regulations are being
phased-in in a manner that provides for a gradual step-up of the
environmental standards applicable to such facilities. All east German power
generating facilities were required to be in full compliance with German
environmental laws and regulations by July 1, 1996. MIBRAG's W|f3hlitz,
Mumsdorf and Deuben facilities have been retrofitted and are presently in
full compliance with these laws and regulations The power purchase agreement
between MIBRAG and WESAG provides that any future changes in the law that may
materially affect the cost of generating power will reopen the price.
ENERGY REGULATIONS
The Schkopau facility and all three power generating facilities of MIBRAG
are permitted to generate and sell energy to their present customers pursuant
to current German energy laws and regulations. Should the Schkopau facility
or any of the MIBRAG power generating facilities wish to sell to additional
customers, this would require further regulatory approval.
The German government currently is considering substantially amending the
German Energy Resources Act of 1936. The bill currently before the German
Parliament will not affect the regulatory status of the Schkopau or MIBRAG
facilities. However, it is not possible at present to determine whether the
bill will be enacted in its current form or whether an amendment, if enacted,
would have an adverse effect on the regulatory status of those facilities.
76
<PAGE>
The current German government has dismissed plans to enact an energy
related tax or other surcharge. However, certain political factions in
Germany and within the European Union continue to press for such a tax or
surcharge. There can be no assurance that such a tax or surcharge will not be
enacted in the future.
MINING REGULATIONS
MIBRAG owns the mining rights to the Profen and Schleenhain mines and
leases mining rights to the Zwenkau mine. MIBRAG currently is operating all
three of its mines in compliance with current German mining regulations.
AUSTRALIAN REGULATIONS
The electricity sector in Queensland is regulated primarily under the
Electricity Act. The Electricity Act was recently amended to provide for
independent generation and the licensing of independent generators by the
Regulator General. Pursuant to the Electricity Act, the State Minister for
Energy and the Regulator General have the authority to promulgate regulations
governing the Queensland electricity industry.
In Victoria, the primary laws providing for the economic regulation of the
Victorian electricity industry are the Electricity Industry Act 1993 (Vic)
and the Office of the Regulator-General Act 1994 (Vic). The ongoing
regulation of the Victorian electricity industry is the responsibility of the
Office of the Regulator-General, an independent regulatory body established
under the Office of the Regulator-General Act.
Environmental management in Victoria is primarily governed by the
Environment Protection Act 1970 (Vic). The primary control instruments under
the EPA are licenses issued by the Environment Protection Authority (the
environmental regulatory agency established under the EPA). The EPA was
amended in 1990 and now provides for severe penalties for company directors,
managers and employees in cases of gross environmental misconduct.
Although discussed in Victoria, it is considered unlikely that a carbon
tax will be introduced in the foreseeable future. Even if one is introduced,
the tax would have to operate at very high levels before it could
significantly affect Loy Yang's competitiveness in the wholesale electricity
market.
77
<PAGE>
MANAGEMENT
The name, age and title of each of the directors and executive officers of
NRG as of October 1, 1997 are as set forth below.
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------- ----- --------------------------------------------------------
<S> <C> <C>
David H. Peterson ... 56 Chairman of the Board, President, Chief Executive
Officer
and Director
Gary R. Johnson ...... 50 Director
Cynthia L. Lesher ... 49 Director
Edward J. McIntyre .. 46 Director
John A. Noer.......... 51 Director
Leonard A. Bluhm .... 51 Executive Vice President and Chief Financial Officer
James J. Bender ...... 40 Vice President and General Counsel
Valorie A. Knudsen .. 41 Vice President, Finance
Craig A. Mataczynski 37 Vice President, U.S. Business Development
Robert McClenachan .. 46 Vice President, International Business Development
Louise T. Routhe .... 41 Vice President, Human Resources and Administration
Ronald J. Will ....... 57 Vice President, Operations and Engineering
Brian B. Bird......... 35 Treasurer
David E. Ripka ....... 48 Controller
Michael J. Young .... 40 Corporate Secretary
</TABLE>
David H. Peterson has been Chairman of the Board of NRG since January
1994, Chief Executive Officer since November 1993, President since 1989 and a
Director since 1989. Mr. Peterson was also Chief Operating Officer of NRG
from June 1992 to November 1993. Prior to joining NRG, Mr. Peterson was Vice
President, Non-Regulated Generation for NSP, and he has served in various
other management positions with NSP during the last 20 years.
Cynthia L. Lesher has been a Director of NRG since July 1996 and became
President of NSP Gas in July 1997. Prior to July 1997, Ms. Lesher was Vice
President-Human Resources of NSP since March 1992 after serving as Director
of Power Supply-Human Resources since 1991. Ms. Lesher became Area Manager,
Electric Utility Operations, in 1990, and previously served as Manager, Metro
Credit, and Manager, Occupational Health and Safety. Prior to joining NSP,
Ms. Lesher was a training and development consultant at the Center for
Continuing Education in Minneapolis. From 1970 to 1977, she held a variety of
positions with Multi Resource Centers, Inc., also in Minneapolis.
Gary R. Johnson has been a Director of NRG since February 1993, Corporate
Secretary of NSP since April 1994 and Vice President and General Counsel of
NSP since October 1991. Prior to October 1991, Mr. Johnson was Vice
President-Law of NSP from December 1988, acting Vice President from September
1988 and Director of Law from February 1987.
Edward J. McIntyre has been a Director of NRG since May 1992 and Vice
President and Chief Financial Officer of NSP since January 1993. Mr. McIntyre
has also been a director of NSP subsidiaries Viking Gas Transmission Company
since June 1993, Eloigne Company since August 1993 and First Midwest Auto
Park, Inc. since September 1993, and Cenerprise since September 1994, where
he served as Chairman from 1994 to 1996. Mr. McIntyre served as President and
Chief Executive Officer of NSP-Wisconsin, a wholly owned subsidiary of NSP,
from July 1990 to December 1992, and he has served in various other
management positions with NSP during the last 20 years.
John A. Noer has been a director of NRG since June 1997 and President and
CEO of NSP Wisconsin, a wholly owned subsidiary of NSP, since January 1993.
Prior to joining NSP Wisconsin, Mr. Noer was President of Cypress Energy
Partners, a wholly-owned project subsidiary of NRG, from March 1992 to
January 1993. Prior to joining Cypress Energy Partners, Mr. Noer held various
management positions with NSP since joining the company in September 1968.
Leonard A. Bluhm has been Executive Vice President and Chief Financial
Officer of NRG since January 1997. Immediately prior to that, he served as
the first President and Chief Executive Officer of NRGG, of which he is now
Chairman. Mr. Bluhm was Vice President of NRG from January 1993 and Chief
Financial Officer May 1993 until assuming his NRGG position. Mr. Bluhm was
Chief Financial
78
<PAGE>
Officer of Cypress Energy Partners, a wholly-owned project subsidiary of NRG,
from April 1992 to January 1993, prior to which he was Director,
International Operations and Manager, Acquisitions and Special Projects of
NRG from 1991. Mr. Bluhm previously served for over 20 years in various
financial positions with NSP.
James J. Bender has been Vice President and General Counsel of NRG since
June 1997. He served as the General Counsel of the Polymers Division of
Allied Signal Inc. from May 1996 until June 1997. From June 1994 to May 1996
Mr. Bender was employed at NRG, acting as Senior Counsel until December 1994
and as Assistant General Counsel and Corporate Secretary from December 1994
to May 1996. Prior to joining NRG in 1994, Mr. Bender was a partner at the
Minneapolis law firm of Leonard, Street and Deinard from April 1993 to June
1994 and he served as Corporate Counsel for Pfizer Inc. from August 1989 to
April 1993.
Valorie A. Knudsen has been Vice President, Finance since April 1996,
prior to which she served as Controller since August 1993. Prior to joining
NRG, Ms. Knudsen served in various managerial accounting positions from
November 1987 to July 1993 with Carlson Companies, Inc., where she was
responsible for various types of accounting and reporting.
Craig A. Mataczynski has been Vice President, U.S. Business Development of
NRG since December 1994. Mr. Mataczynski served as President of NEO
Corporation, NRG's wholly-owned subsidiary that develops small electric
generation projects within the United States, from May 1993 to January 1995.
Prior to joining NRG, Mr. Mataczynski worked for NSP from 1982 to 1994 in
various positions, including Director, Strategy and Development and Director,
Power Supply Finance.
Robert McClenachan has been Vice President, International Business
Development of NRG since September 1995, prior to which he was Managing
Director, Business Development from June 1992 to September 1995. Mr.
McClenachan was also President of NRG Australia, a wholly-owned project
subsidiary of NRG, from April 1993 to October 1995. Prior to joining NRG, Mr.
McClenachan served as Development Director for Bonneville Pacific
Corporation, an independent power production company in Salt Lake City, Utah,
from January 1991 to December 1991, and he worked from 1983 to 1991 in
various positions for Central Vermont Public Service Corporation, including
Vice President, Corporate Development.
Louise T. Routhe has been Vice President, Human Resources and
Administration of NRG since June 1992, prior to which she served as Human
Resources Director from January 1992. Prior to joining NRG, Ms. Routhe was
self-employed as a Human Resources and Management Consultant from December
1990 to January 1992 and worked as Vice President, Human Resources with First
Trust Company, a wholly-owned subsidiary of First Bank System, Inc., from
1987 to 1990. Ms Routhe held various other Human Resources management
positions at First Bank System from 1979 to 1987.
Ronald J. Will has been Vice President, Operations and Engineering of NRG
since March 1994, prior to which he served as Vice President, Operations from
June 1992. Prior to joining NRG, he served as President and Chief Executive
Officer of NRG Thermal, a wholly-owned subsidiary of NRG that provides
customers with thermal services, from February 1991 to June 1993. Prior to
February 1991, Mr. Will served in a variety of positions with Norenco, a
wholly-owned thermal services subsidiary of NRG, including Vice President and
General Manager from August 1989 to February 1991.
Brian B. Bird has been Treasurer of NRG since June 1997, prior to which he
was Director of Corporate Finance for Deluxe Corporation in Shoreview,
Minnesota from September 1994 to May 1997. Mr. Bird was Manager of Finance
for the Minnesota Vikings Professional Football Team from March 1993 to
September 1994. Mr. Bird held several financial management positions with
Northwest Airlines in Minneapolis, Minnesota from 1988 to March 1993.
David E. Ripka has been Controller of NRG since March 3, 1997. Prior to
joining NRG, Mr. Ripka held a variety of positions with NSP for over 20
years, including Assistant Controller and General Manager of Accounting
Operations and Director of Audit Services.
Michael J. Young has been Corporate Secretary of NRG since June 1996, and
also holds the position of Senior Counsel. Prior to joining NRG in May of
1995, Mr. Young was an attorney at Cargill, Incorporated for five years, and
an associate at Lindquist & Vennum for three years.
79
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation. The following table sets forth the compensation paid or
awarded to David H. Peterson, Chairman, President and Chief Executive Officer
of NRG, and the other four most highly compensated executive officers of NRG
during the last fiscal year (collectively, the "Named Executives") for
services rendered in all capacities for the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (2)
- ----------------------------- ------ --------- -------- -------------- ------------ --------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
David H. Peterson
Chairman, President & Chief
Executive Officer ........... 1996 250,000 81,000 3,637
Leonard A. Bluhm (3)
Executive Vice President &
CFO ......................... 1996 152,333 53,630 105,000(4) 2,712
Robert McClenachan
Vice President,
International
Business Development ........ 1996 150,000 36,201 37,410 2,712
Ronald J. Will
Vice President, Operations &
Engineering ................. 1996 147,000 38,667 2,712
Craig A. Mataczynski
Vice President, U.S.
Business Development ........ 1996 145,000 40,343 2,712
</TABLE>
- ------------
(1) The amount shown in this column for Mr. McClenachan includes a
relocation and foreign assignment premium bonus ($19,616) and the value
of the personal use of a company-provided automobile ($7,986).
(2) This column consists of the amounts contributed by NRG to the NSP
Retirement Savings Plan ($900) and the Employee Stock Ownership Plan
($1,812.89) for each Named Executive. The column also reflects the
value to Mr. Peterson of the remainder of insurance premiums paid under
the NSP Officer Survivor Benefit Plan by NRG ($925).
(3) Mr. Bluhm's salary and bonus include amounts paid for his service with
NRGG.
(4) These options relate to NRGG common stock. See "Option Grants in Last
Fiscal Year."
The following table sets forth information concerning the exercise of
stock options and stock appreciation rights during fiscal 1996 by each of the
Named Executives and the fiscal year-end value of unexercised options. Prior
to the existence of the NRG Equity Plan, NRG executives participated in the
NSP Executive Stock Option program. The following table reflects the Named
Executive's participation in the NSP Executive Stock Option Program.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR VALUE (1)
- --------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS/SARS AT FY-END VALUE OF UNEXERCISED IN-THE-MONEY
(#) OPTIONS/SARS AT FY-END ($)(2)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ------------------- ------------------------------------ ---------------------------------
<S> <C> <C>
David H. Peterson . 8,415/0 44,213/0
Leonard A. Bluhm .. 2,840/0 18,117/0
0/105,000(3) 0/610,313(3)
Robert McClenachan 859/0 2,048/0
Ronald J. Will ..... 2,723/0 17,839/0
</TABLE>
- ------------
(1) These options to acquire NSP Stock were granted to the Named Executives
for services rendered to NRG and its subsidiaries.
(2) NSP's share price on December 31, 1996 was $45.875.
(3) These options relate to NRGG common stock. The options were granted at
an exercise price of $5.4375. The price per share of NRGG common stock
on December 31, 1996 was $11.25. 75,000 of these options were cancelled
in January, 1997. See "Option Grants in Last Fiscal Year."
80
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR (1)
- --------------------------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF APPRECIATION
SECURITIES FOR OPTION TERM
UNDERLYING % OF TOTAL OPTIONS -------------------
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION 5% 10%
NAME GRANTED FISCAL YEAR ($/SH) DATE ($)(3) ($)(3)
- ---------------- ------------ ----------------------- -------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard A.
Bluhm........... 105,000(2) 26 5.4375 10/21/2006 359,100 909,930
</TABLE>
- ------------
(1) These options relate to NRGG common stock. Options were granted to Mr.
Bluhm under the NRG Generating (U.S.) Inc. 1996 Stock Option Plan. The
options vest one-third annually on each of the first, second and third
anniversaries of grant.
(2) By agreement with NRGG, options to acquire 75,000 of these shares were
withdrawn in January, 1997.
(3) Amounts set forth in these columns reflect rates of appreciation
required by Securities and Exchange Commission rules and are not
intended to predict the future value of NRGG common stock.
PENSION PLAN TABLE
The following table illustrates the approximate retirement benefits
payable to employees retiring at the normal retirement age of 65 years:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
AVERAGE ------------------------------------------------------------
YEARS OF SERVICE
COMPENSATION ------------------------------------------------------------
(4 YEARS) 5 10 15 20 25 30
- -------------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 ...... $ 3,500 $ 7,000 $ 10,500 $ 14,000 $ 18,000 $ 21,500
100,000 ...... 7,500 15,500 23,000 30,500 38,000 46,000
150,000 ...... 11,500 23,500 35,000 47,000 58,500 70,500
200,000 ...... 16,000 31,500 47,500 63,000 79,000 95,000
250,000 ...... 20,000 40,000 59,500 79,500 99,500 119,500
300,000 ...... 24,000 48,000 72,000 96,000 120,000 144,000
350,000 ...... 28,000 56,000 84,000 112,500 140,500 168,500
400,000 ...... 32,000 64,500 96,500 128,500 160,500 193,000
450,000 ...... 36,000 72,500 108,500 145,000 181,000 217,500
wage base: $62,700
</TABLE>
- ------------
After an employee has reached 30 years of service, no additional years are
used in determining pension benefits. The annual compensation used to
calculate the average compensation shown in this table is based on the
participant's base salary for the year (as shown on the Summary Compensation
Table) and bonus compensation paid in that same year (as shown on the Summary
Compensation Table). The benefit amounts shown are amounts computed in the
form of a straight-life annuity. The amounts are not subject to offset for
social security or otherwise.
As of June 30, 1997, each of the Named Executives had the following credited
service: Mr. Peterson, 33.42 years, Mr. Bluhm, 26 years, Mr. McClenachan, 5
years, Mr. Will, 37.17 years, Mr. Mataczynski, 15 years.
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LONG-TERM INCENTIVE PLAN COMPENSATION
The following table sets forth information concerning awards during fiscal
1996 to each of the Named Executives under the NRG Equity Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
PERFORMANCE OR OTHER
NUMBER OF SHARES, UNITS PERIOD UNTIL MATURATION
NAME OR OTHER RIGHTS (#) OR PAYOUT(2)
- -------------------- ----------------------- -----------------------
<S> <C> <C>
David H. Peterson ... 5,500(3) 7 years
18,200(4) 7 years
Leonard A. Bluhm .... 1,300(3) 7 years
1,700(4) 7 years
Robert McClenachan .. 3,400(3) 7 years
4,500(4) 7 years
Ronald J. Will....... 3,600(3) 7 years
4,800(4) 7 years
Craig A. 3,800(3) 7 years
Mataczynski......... 5,000(4) 7 years
</TABLE>
- ------------
(1) Participants in the NRG Equity Plan are granted Equity Units, each of
which is assigned a "Grant Price" at the discretion of the Chief
Executive Officer and the Compensation Committee of the Board. Equity
Units are valued upon vesting under a formula which takes into account
the Company's cash flow, revenue growth, total debt and equity
investment, among others. The amount of payment (if any) with respect
to an Equity Unit is determined by the extent to which the value of the
Equity Unit exceeds the Grant Price. The NRG Equity Plan does not
contain threshold levels of performance or maximum payment amounts (or
equivalent items).
(2) Equity Units vest annually in 20% increments, beginning on the third
anniversary of the grant date of the Equity Unit. Participants are paid
the value (if any) of Equity Units as soon as practicable following the
end of year in which the Equity Unit vests.
(3) These Equity Units were granted at a Grant Price equal to the valuation
of the Equity Unit on the date of grant. Such Equity Units will have
value to the holders upon any increase in the valuation of the Equity
Unit.
(4) These Equity Units were granted at a premium Grant Price (greater than
the valuation of the Equity Unit on the date of grant). Such Equity
Units will only have value to the holder after the valuation of the
Equity Unit reaches the premium Grant Price.
Compensation of Directors.
Directors receive no compensation for service as directors.
Employment Contracts.
NRG has entered into an employment agreement with Mr. Peterson providing
that Mr. Peterson will be employed as the highest level executive officer of
NRG. The term of the agreement expires June 27, 2000. During the term of the
agreement, Mr. Peterson's base salary will be reviewed at least annually by
the Compensation Committee of the Board for possible increase. The agreement
provides that Mr. Peterson will receive retirement and welfare benefits no
less favorable than those provided to any other officer of NRG. In addition,
the employment agreement provides for participation in a supplemental
executive retirement plan such that the aggregate value of the retirement
benefits that Mr. Peterson and his spouse will receive at the end of the term
of the agreement under all the defined benefit pension plans of NRG and its
affiliates will not be less than the aggregate value of the benefits he would
have received had he continued, through the end of the term of the agreement,
to participate in the NSP Deferred Compensation Plan, the NSP Excess Benefit
Plan and the NSP Pension Plan, including amounts to compensate Mr. Peterson
for the monthly defined benefit payments he would have received during the
term of the employment agreement and prior to the date of his termination of
employment if monthly benefit payments had commenced following the month in
which he first became eligible for early retirement under the NSP Pension
Plan. The employment agreement also provides for certain additional
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benefits to be paid upon Mr. Peterson's death. If Mr. Peterson's employment
is terminated by the company without Cause or by Mr. Peterson with Good
Reason (in each case as defined in the employment agreement), Mr. Peterson
will continue to receive his salary, bonus (at greater of target bonus and
actual bonus for the last plan year prior to termination), incentive
compensation (with cash replacing equity based awards) and benefits under the
agreement as if he had remained employed until the end of the term of the
employment agreement and then retired (at which time he will be treated as
eligible for retiree welfare benefits and other benefits provided to the
retired senior executives).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is comprised of Ms. Lesher and Mr. McIntyre.
There are no compensation committee interlocks and no insider participation.
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OWNERSHIP OF CAPITAL STOCK
Northern States Power Company, 414 Nicollet Mall, Minneapolis, Minnesota
55401, owns all of the outstanding capital stock of NRG.
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CERTAIN TRANSACTIONS
The transactions described or referred to below were entered into between
related parties prior to the offering of the Senior Notes and were not the
result of arms-length negotiations. Accordingly, the terms of these
transactions may be more or less favorable to NRG than if they had been
entered into on an arms-length basis.
As NRG's sole stockholder, NSP has the power to control the election of
the directors and all other matters submitted for stockholder approval and
may be deemed to have control over the management and affairs of NRG.
Currently, there are no outside directors on NRG's board of directors. In
circumstances involving a conflict of interest between NSP, as the sole
stockholder and a significant customer of and supplier to NRG, and the
holders of the Senior Notes as creditors of NRG, there can be no assurance
that NSP would not exercise its power to control NRG in a manner that would
benefit NSP to the detriment of the holders of the Senior Notes. NSP has
policies in place, pursuant to applicable law, to ensure that its ratepayers
are protected from affiliate transactions that may be adverse to the
ratepayers' interests. The Indenture imposes no limitations on NRG's ability
to pay dividends or to make other payments to NSP or on NRG's ability to
enter into transactions with NSP or other affiliates of NRG.
OPERATING AGREEMENTS
NRG has two agreements with NSP for the purchase of thermal energy. Under
the terms of the agreements, NSP charges NRG for certain incremental costs
(fuel, labor, plant maintenance and auxiliary power) incurred by NSP to
produce the thermal energy. NRG paid NSP $6 million in 1996, $3.7 million in
1995 and $6.6 million in 1994 under these agreements; NRG has paid $2.2
million under them in the first six months of 1997.
NRG has a renewable 10-year agreement with NSP, expiring on December 31,
2001, whereby NSP agrees to purchase RDF for use in certain of its boilers
and NRG agrees to pay NSP an incentive fee to use RDF. Under this agreement,
NRG received $1.9 million and $1.7 million from NSP and paid $2.3 million and
$2.2 million to NSP in 1995 and 1994, respectively. In 1996, NRG received
$1.5 million and paid $2.2 million. In the first six months of 1997, NRG
received $1.3 million and paid $1.3 million.
As of January 1, 1996, NRG entered into an operation and maintenance
agreement with NSP with respect to the Elk River Facilities, under which NRG
receives a base management fee and is reimbursed for costs it has incurred.
The operation and maintenance agreement also provides for a management
incentive fee payable to NRG, based upon the financial performance of the Elk
River Facilities. In 1996 NRG earned a total management fee of $1.5 million,
in addition to reimbursed expenses. Management fees for the six months ended
June 30, 1997, totalled $633,000 compared to $508,000 for the same period in
1996.
ADMINISTRATIVE SERVICES AGREEMENT
NRG and NSP have entered into an agreement to provide for the
reimbursement of actual administrative services provided to each other, an
allocation of NSP administrative costs and a working capital fee. Services
provided by NSP to NRG are principally for cash management, accounting,
employee relations and engineering. In addition, NRG employees participate in
certain employee benefit plans of NSP. Also, in 1993 NSP employees assisted
in operating certain NRG facilities for which NRG reimbursed NSP for gross
wages plus an amount to cover employee benefits. During 1995 and 1994, NRG
paid NSP $6.8 million and $6.2 million, respectively, as reimbursement for
the cost of services provided. In 1996, NRG paid $7.2 million and in the
first six months of 1997, NRG paid $4.7 million for these services.
Allocation is on a direct charge, actual cost basis where possible. When this
is not possible, an allocation is made based upon employee headcounts,
operating revenues and investment in fixed assets. Management believes that
"allocated" costs approximate expenses that would be incurred on a stand
alone basis.
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TAX SHARING AGREEMENT
NRG is included in the consolidated federal income tax and state franchise
tax returns of NSP. NRG calculates its tax position on a separate company
basis under a tax sharing agreement with NSP and receives payment from NSP
for tax benefits and pays NSP for tax liabilities.
LONG-TERM DEBT
The construction cost of the Newport facility was financed through tax
exempt variable rate resource recovery revenue bonds issued by the Counties,
which have subsequently been converted to fixed rate resource recovery
revenue bonds with an effective interest rate of 6.57% per annum and annual
maturities each December through 2006. The proceeds of such bond issuance
were loaned by the counties to NSP, which agreed under a loan agreement to
pay to the counties amounts sufficient to pay debt service on the bonds. NRG
issued a separate note to NSP in an original principal amount of
approximately $10 million as part of the consideration for the purchase of
the facility from NSP.
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CERTAIN INDEBTEDNESS
NRG has funded investments and intends to fund future investments from
certain outside sources, including those described below.
1996 SENIOR NOTES
On January 29, 1996, NRG issued the 1996 Senior Notes in a transaction
exempt from registration under the Securities Act. The 1996 Senior Notes were
issued to fund some or all of NRG's equity investments in Schkopau and Latin
Power, to pay a portion of the consideration for NRG's acquisition of
interests in Collinsville and in O'Brien (for reorganization as NRGG), to
make equity investments in Kladno and West Java, and for general corporate
purposes, including investments in new projects. The 1996 Senior Notes are
senior unsecured obligations of NRG and rank pari passu with all other senior
unsecured indebtedness of NRG, including the Notes. The 1996 Senior Notes
were assigned ratings of BBB-by S&P's Rating Group and Baa3 by Moody's.
Redemption of the 1996 Senior Notes is not permitted prior to February 1,
2001. However, upon a change of control of NRG, each holder of the 1996
Senior Notes will have the right to require NRG to repurchase such holder's
1996 Senior Notes. Pursuant to the Indenture (the "1996 Indenture") under
which the 1996 Senior Notes were issued, NRG is restricted from creating
liens on its assets, is prohibited from merging except under certain
circumstances and must maintain a specified minimum net worth. Failure to
comply with these restrictive covenants could result in an event of default
under the Indenture. Other events of default include nonpayment of principal
or interest, certain cross-defaults, judgment decrees aggregating over $20
million and certain events of bankruptcy.
REVOLVER
NRG has entered into a $175 million revolving credit facility with a
syndicate of banks led by ABN AMRO, which matures on March 17, 2000. Proceeds
from the facility will be used for general corporate purposes, including
letters of credit and interim funding for NRG project investments.
The facility allows for LIBOR and Base rate borrowing depending upon the
days notice required and the term of drawing. The applicable margin is based
upon the rate option selected and the assigned ratings of NRG. Pursuant to
the terms of the agreement, NRG is restricted from creating liens on its
assets, is prohibited from merging except under certain circumstances and
must maintain a specified minimum net worth. Failure to comply with these
restrictive covenants could result in an event of default. Other events of
default include nonpayment of principal or interest, NSP's failure to own
majority of outstanding voting stock of NRG, certain cross-defaults, and
certain events of bankruptcy.
MASTER SHELF AGREEMENT
NRG Energy Center expects to enter into a master shelf agreement during
October 1997, pursuant to which NRG Energy Center may issue $30 million in
term notes with maturities no later than June 2017. The master shelf
revolving credit facility could also provide for up to $5 million of
short-term borrowings. The facility is expected to be recourse only to NRG
Energy Center and is intended to provide financing for MEC.
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were issued, and the New Notes will be issued, under an
Indenture, dated as of June 1, 1997 (the "Indenture"), between NRG and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The
following summaries of the material provisions of the Notes and the Indenture
do not purport to be complete and are subject, and qualified in their
entirety by reference, to all of the provisions of the Notes and the
Indenture, including the definitions of certain terms therein. The
definitions of certain capitalized terms used in the following summary are
set forth below under " -- Certain Definitions." As used in this section,
unless otherwise indicated, "NRG" refers solely to NRG Energy, Inc. and does
not include any of its subsidiaries or affiliates.
The Notes are senior unsecured obligations of NRG, which conducts
substantially all of its business through numerous subsidiaries and
affiliates. As a result, all existing and future liabilities of the direct
and indirect subsidiaries and affiliates of NRG will be effectively senior to
the Notes. The Notes will not be guaranteed by, or otherwise be obligations
of, NRG's project subsidiaries and project affiliates, NRG's other direct and
indirect subsidiaries and affiliates or NSP.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $250,000,000 and
will mature on June 15, 2007. Interest is payable on the Notes semiannually
on June 15 and December 15 of each year, commencing December 15, 1997, until
the principal is paid or made available for payment. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Payment of principal of the Notes will be made against surrender of such
Notes at the office or agency of the Trustee in the Borough of Manhattan, The
City of New York. Payment of interest on the Notes will be made to the person
in whose name such Notes are registered at the close of business on the June
1 or December 1 immediately preceding the relevant interest payment date. For
so long as the Notes are issued in book-entry form, payments of principal and
interest shall be made in immediately available funds by wire transfer to DTC
or its nominee. If the Notes are issued in certificated form to a Holder (as
defined below) other than DTC, payments of principal and interest shall be
made by check mailed to such Holder at such Holder's registered address or,
upon written application by a Holder of $1,000,000 or more in aggregate
principal amount of Notes to the Trustee in accordance with the terms of the
Indenture, by wire transfer of immediately available funds to an account
maintained by such Holder with a bank. Defaulted interest will be paid in the
same manner to Holders as of a special record date established in accordance
with the Indenture.
All amounts paid by NRG to the Trustee for the payment of principal of,
premium, if any, or interest on any Notes that remain unclaimed at the end of
two years after such payment has become due and payable will be repaid to NRG
and the Holders of such Notes will thereafter look only to NRG for payment
thereof.
OPTIONAL REDEMPTION
NRG at its option, at any time, may redeem the Notes, in whole or in part
(if in part, by lot or by such other method as the Trustee shall deem fair or
appropriate) at the redemption price of 100% of principal amount of such
Notes, plus accrued interest on the principal amount of such Notes, if any,
to the redemption date, plus the applicable Make-Whole Premium.
To determine the applicable Make-Whole Premium for any Note, an
independent investment banking institution of national standing selected by
NRG (the "Investment Banker") will compute, as of the third Business Day
prior to the redemption date, the sum of the present values of all of the
remaining scheduled payments of principal and interest from the redemption
date to maturity on such Note
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computed on a semiannual basis by discounting such payments (assuming a
360-day year consisting of twelve 30-day months) using a rate equal to the
Treasury Rate plus 25 basis points. If the sum of these present values of the
remaining payments as computed above exceeds the aggregate unpaid principal
amount of the Note to be redeemed plus any accrued but unpaid interest
thereon, the difference will be payable as a premium upon redemption of such
Note. If the sum is equal to or less than such principal amount plus accrued
interest, there will be no premium payable with respect to such Note.
CERTAIN COVENANTS
RESTRICTIONS ON LIENS
So long as any of the Notes are outstanding, NRG has agreed not to pledge,
mortgage, hypothecate or permit to exist any mortgage, pledge or other lien
upon any property at any time directly owned by NRG to secure any
indebtedness for money borrowed which is incurred, issued, assumed or
guaranteed by NRG ("Indebtedness"), without making effective provisions
whereby the Notes shall be equally and ratably secured with any and all such
Indebtedness and with any other Indebtedness similarly entitled to be equally
and ratably secured; provided, however, that this restriction shall not apply
to or prevent the creation or existence of: (i) liens existing at the
original date of issuance of the Notes; (ii) purchase money liens which do
not exceed the cost or value of the purchased property; (iii) other liens not
to exceed 10% of Consolidated Net Tangible Assets and (iv) liens granted in
connection with extending, renewing, replacing or refinancing in whole or in
part the Indebtedness (including, without limitation, increasing the
principal amount of such Indebtedness) secured by liens described in the
foregoing clauses (i) through (iii).
In the event that NRG shall propose to pledge, mortgage or hypothecate any
property at any time directly owned by it to secure any Indebtedness, other
than as permitted by clauses (i) through (iv) of the previous paragraph, NRG
has agreed to give prior written notice thereof to the Trustee, who shall
give notice to the Holders, and NRG has agreed, prior to or simultaneously
with such pledge, mortgage or hypothecation, effectively to secure all the
Notes equally and ratably with such Indebtedness.
The foregoing covenant does not restrict the ability of NRG's subsidiaries
and affiliates to pledge, mortgage, hypothecate or permit to exist any
mortgage, pledge or lien upon their assets, in connection with project
financings or otherwise.
CONSOLIDATION, MERGER, SALE OF ASSETS
Without the consent of any Holder, NRG may consolidate with or merge into
any other person, or convey, transfer or lease its properties and assets
substantially as an entirety to any person, or permit any person to merge
into or consolidate with NRG, if (i) NRG is the surviving or continuing
corporation or the surviving or continuing corporation or purchaser or lessee
is a corporation incorporated under the laws of the United States of America
or Canada and assumes NRG's obligations under the Notes and under the
Indenture and (ii) immediately before and after such transaction, no Event of
Default (as defined herein) shall have occurred and be continuing.
Except for a sale of the assets of NRG substantially as an entirety as
provided above, and other than assets required to be sold to conform with
governmental regulations, the Indenture provides that NRG may not sell or
otherwise dispose of any assets (other than short-term, readily marketable
investments purchased for cash management purposes with funds not
representing the proceeds of other asset sales) if on a pro forma basis, the
aggregate net book value of all such sales during the most recent 12-month
period would exceed 10% of Consolidated Net Tangible Assets computed as of
the end of the most recent quarter preceding such sale; provided, however,
that any such sales shall be disregarded for purposes of this 10% limitation
if the proceeds are invested in assets in similar or related lines of
business of NRG and, provided further, that NRG may sell or otherwise dispose
of assets in excess of such 10% if the proceeds from such sales or
dispositions, which are not reinvested as provided above, are retained by NRG
as cash or cash equivalents or are used to purchase and retire Notes or 1996
Notes.
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CHANGE OF CONTROL
Upon a Change of Control, each Holder shall have the right to require that
NRG repurchase such Holder's Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued interest, if any, to the
date of repurchase. A Change of Control shall not be deemed to have occurred
if, after giving effect thereto, the Notes are rated BBB-or better by
Standard & Poor's Ratings Group and Baa3 or better by Moody's Investors
Service, Inc.
The Change of Control provisions may not be waived by the Trustee or the
Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not only afford
protection to holders of Notes, including protection against an adverse
effect on the value of the Notes, in the event that NRG or its subsidiaries
and affiliates incur additional Indebtedness, whether through
recapitalizations or otherwise. Moreover, no assurance can be given that NRG
would have sufficient liquidity to effectuate any required repurchase of
Notes upon a Change of Control.
Within 30 days following any Change of Control, NRG will be required to
mail a notice to each Holder (with a copy to the Trustee) stating (1) that a
Change of Control has occurred and that such Holder has the right to require
NRG to repurchase such Holder's Notes at a repurchase price in cash equal to
101% of the principal amount thereof plus accrued interest, if any, to the
date of repurchase (the "Change of Control Offer"); (2) the circumstances and
relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); (3) the repurchase date (which
shall be a Business Day and be not earlier than 30 days or later than 60 days
from the date such notice is mailed (the "Repurchase Date"); (4) that
interest on any Senior Note tendered will continue to accrue; (5) that
interest on any Senior Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue after the Repurchase Date; (6) that
Holders electing to have a Senior Note purchased pursuant to a Change of
Control Offer will be required to surrender the Senior Note, with the form
entitled "Option to Elect Purchase" on the reverse of the Senior Note
completed, to the Trustee at the address specified in the notice prior to the
close of business on the Repurchase Date; (7) that Holders will be entitled
to withdraw their election if the Trustee receives, not later than the close
of business on the third Business Day (or such shorter periods as may be
required by applicable law) preceding the Repurchase Date, a telegram, telex,
facsimile or letter setting forth the name of the Holder, the principal
amount of Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing its election to have such Notes purchased; and (8) that
Holders that elect to have their Notes purchased only in part will be issued
new Notes in a principal amount equal to the unpurchased portion of the Notes
surrendered.
For so long as the Notes are in global form, upon a Change of Control NRG
will be required to deliver to DTC, for re-transmittal to its participants, a
notice substantially to the effect specified in clauses (1) through (5) and
(7) of the previous paragraph. Such notice shall also specify the required
procedures for holders of interests in the Global Notes to tender the Notes
(including the DTC Repayment Option Procedures to the extent applicable).
On the Repurchase Date, NRG shall (i) accept for payment such surrendered
Notes or portions thereof tendered pursuant to the Change of Control and (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so tendered. NRG will publicly announce the result
of the Change of Control Offer as soon as practicable after the Repurchase
Date.
NRG has agreed to comply with all applicable tender offer rules,
including, without limitation, Rule 14e-1 under the Exchange Act in
connection with a Change of Control Offer.
REPORTING OBLIGATIONS
NRG has agreed to furnish or cause to be furnished to Holders (and, at the
request thereof, beneficial holders of Notes) annual consolidated financial
statements of NRG prepared in accordance with GAAP (together with notes
thereto, a report thereon by an independent accountant of established
national reputation and a management's discussion and analysis of financial
condition and results of operations). In addition, NRG will furnish or cause
to be furnished to Holders (and, at the request thereof,
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beneficial holders of Notes) unaudited condensed consolidated comparative
balance sheets and statements of income and cash flows of NRG for each of the
first three fiscal quarters of each fiscal year and the corresponding quarter
of the prior year, such statements to be furnished within 90 days after the
end of the fiscal quarter covered thereby.
CERTAIN DEFINITIONS
"Business Day" means a day which is neither a legal holiday or a day on
which banking institutions (including, without limitation, the Federal
Reserve System) are authorized or required by law or regulation to close in
The City of New York or Minneapolis, Minnesota.
"Change of Control" means the occurrence of one or more of the following
events: (a) NSP (or its successors) ceases to own a majority of NRG's
outstanding voting stock, (b) at any time following the occurrence of the
event described in clause (a) above, a person or group of persons (other than
NSP) becomes the beneficial owner, directly or indirectly, or has the
absolute power to direct the vote of more than 35% of NRG's voting stock or
(c) during any one year period, individuals who at the beginning of such
period constitute NRG's Board of Directors cease to be a majority of the
Board of Directors (unless approved by a majority of the current directors
then in office who were either directors at the beginning of such period or
who were previously so approved). A Change of Control shall be deemed not to
have occurred if, following such an event described above, the Notes are
rated BBB-or better by Standard & Poor's Ratings Group and Baa3 or better by
Moody's Investors Service, Inc.
"Consolidated Net Tangible Assets" means, as of the date of any
determination thereof, the total amount of all assets of NRG determined on a
consolidated basis in accordance with GAAP as of such date less the sum of
(a) the consolidated current liabilities of NRG determined in accordance with
GAAP and (b) assets properly classified as Intangible Assets.
"Holder" means a registered holder of a Senior Note.
"Intangible Assets" means, as of the date of any determination thereof,
with respect to any person, all assets properly classified as intangible
assets in accordance with GAAP.
"Treasury Rate" means, with respect to each Note to be redeemed, a per
annum rate (expressed as a semiannual equivalent and as a decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined by the Investment Banker to be the per annum rate equal to the
semiannual yield to maturity of United States Treasury securities maturing on
the Average Life Date (as defined below) of such Note, as determined by
interpolation between the most recent weekly average yields to maturity for
two series of Treasury securities, (A) one maturing as close as possible to,
but earlier than, the Average Life Date of such Note and (B) the other
maturing as close as possible to, but later than, the Average Life Date of
such Note, in each case as published in the most recent H.15(519) (or, if a
weekly average yield to maturity for United States Treasury securities
maturing on the Average Life Date of such Note is reported in the most recent
H.15(519), as published in H.15(519)). "H.15(519)" means "Statistical Release
H.15(519), Selected Interest Rates," or any successor publication, published
by the Board of Governors of the Federal Reserve System. The "most recent
H.15(519)" means the latest H.15(519) which is published prior to the close
of business on the third Business Day prior to the applicable redemption
date. The "Average Life Date" for any Note to be redeemed shall be the date
which follows the redemption date by a period equal to the Remaining Weighted
Average Life of such Note. The "Remaining Weighted Average Life" of such Note
with respect to the redemption of such Note is the number of days equal to
the quotient obtained by dividing (A) the sum of the products obtained by
multiplying (1) the amount of each remaining principal payment on such Note
by (2) the number of days from and including the redemption date, to but
excluding the scheduled payment date of such principal payment by (B) the
unpaid principal amount of such Note.
EVENTS OF DEFAULT
The following constitute Events of Default under the Notes:
(a) failure to pay any interest on any Senior Note when due, which
failure continues for 30 days;
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(b) failure to pay principal or premium (including in connection with a
Change of Control) when due;
(c) failure of NRG to perform any other covenant in the Notes or the
Indenture for a period of 30 days after written notice to NRG by the
Trustee or by the Holders of at least 25% in aggregate principal amount of
the Notes;
(d) an event of default occurring under any instrument of NRG under which
there may be issued, or by which there may be secured or evidenced, any
indebtedness for money borrowed that has resulted in the acceleration of
such indebtedness, or any default occurring in payment of any such
indebtedness at final maturity (and after the expiration of any applicable
grace periods), other than (i) indebtedness which is payable solely out of
the property or assets of a partnership, joint venture or similar entity
of which NRG or any of its subsidiaries or affiliates is a participant, or
which is secured by a lien on the property or assets owned or held by such
entity, without further recourse to NRG or (ii) such indebtedness of NRG
not exceeding $20,000,000;
(e) one or more final judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or similar
entity for the payment of money aggregating more than $20,000,000 shall be
rendered against NRG (excluding the amount thereof covered by insurance)
and shall remain undischarged, unvacated and unstayed for more than 90
days, except while being contested in good faith by appropriate
proceedings; and
(f) certain events of bankruptcy, insolvency or reorganization in respect
of NRG.
The Indenture provides that if an Event of Default (other than an Event of
Default based on an event of bankruptcy, insolvency or reorganization of NRG)
shall occur and be continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Notes may, by written notice to
NRG (and to the Trustee if given by Holders), declare the principal of all
Notes to be immediately due and payable, but upon certain conditions such
declaration may be annulled and past defaults (except, unless theretofore
cured, a default in payment of principal, premium or interest) may be waived
by the Holders of a majority in aggregate principal amount of Notes then
outstanding. Notwithstanding the foregoing, any Holder shall have the right
to institute suit to enforcement of any overdue payment owing to such Holder
pursuant to the Notes. If an Event of Default due to the bankruptcy,
insolvency or reorganization of NRG occurs, all unpaid principal, premium, if
any, and interest in respect of the Notes will automatically become due and
payable. Pursuant to the Indenture NRG is required to provide an annual
statement of compliance with the terms of the Indenture.
The Holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee under the
Indenture, provided that the Holders shall have offered to the Trustee
reasonable indemnity against expenses and liabilities. Notwithstanding the
foregoing, the Trustee shall have the right to decline to follow any such
direction if the Trustee and its counsel shall determine that the action
requested is unlawful, would involve the Trustee in personal liability or
will be unduly prejudicial to the interests of Holders not joining in the
giving of such direction.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting NRG and the Trustee, with the
consent of the Holders of not less than a majority in principal amount of the
Notes then outstanding, to modify the Indenture or the rights of the Holders,
except that no such modification may, without the consent of each Holder, (i)
extend the final maturity of any of the Notes or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any amount payable on redemption thereof, or impair or
affect the right of any Holder to institute suit for the payment thereof or
make any change in the covenant regarding a Change of Control or (ii) reduce
the percentage of Notes, the consent of the Holders of which is required for
any such modification.
NRG and the Trustee without the consent of any Holder may amend the
Indenture and the Notes for the purpose of curing any ambiguity, or of
curing, correcting or supplementing any defective provision
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thereof, or in any manner which NRG and the Trustee may determine is not
inconsistent with the Notes and will not adversely affect the interest of any
Holder.
DEFEASANCE AND COVENANT DEFEASANCE
DEFEASANCE
The Indenture provides that NRG will be deemed to have paid and will be
discharged from any and all obligations in respect of the Notes, on the 123rd
day after the deposit referred to below has been made, and the provisions of
the Indenture will cease to be applicable with respect to the Notes (except
for, among other matters, certain obligations to register the transfer of or
exchange of the Notes, to replace stolen, lost or mutilated Notes, to
maintain paying agencies and to hold funds for payment in trust) if (A) NRG
has deposited with the Trustee, in trust, money and/or U.S. Government
Obligations (as defined in the Indenture) that, through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Notes, at the time such payments are due in
accordance with the terms of the Indenture, (B) NRG has delivered to the
Trustee (i) an opinion of counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
NRG's exercise of its option under the defeasance provisions of the Indenture
and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which opinion of counsel must be
based upon a ruling of the Internal Revenue Service to the same effect or a
change in applicable federal income tax law or related treasury regulations
after the date of the Indenture and (ii) an opinion of counsel to the effect
that the defeasance trust does not constitute an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, and after the
passage of 123 days following the deposit, the trust fund will not be subject
to the effect of Section 547 of the U.S. Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law, (C) immediately after giving effect to such
deposit, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which NRG is a party or by which NRG is bound and
(D) if at such time the Notes are listed on a national securities exchange,
NRG has delivered to the Trustee an opinion of counsel to the effect that the
Notes will not be delisted as a result of such deposit and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
The Indenture further provides that the provisions of the Indenture will
cease to be applicable with respect to (i) the covenants described under
"Certain Covenants -- Restrictions on Liens" and "Change of Control" and (ii)
clause (c) under "Events of Default" with respect to such covenants and
clauses (d) and (e) under "--Events of Default" upon the deposit with the
Trustee, in trust, of money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the Notes, the satisfaction of
the conditions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by NRG to the Trustee of an opinion of counsel to
the effect that, among other things, the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
If NRG exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable,
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the amount of money and/or U.S. Government Obligations on deposit with the
Trustee will be sufficient to pay amounts due on the Notes at the time of
their stated maturity, but may not be sufficient to pay amounts due on the
Notes at the time of acceleration resulting from such Event of Default. NRG
shall remain liable for such payments.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Old Notes were initially represented by two Notes in registered,
global form (collectively, the "Old Global Notes"). The Old Global Notes were
deposited upon issuance with the Trustee as custodian for DTC and registered
in the name of Cede & Co., DTC's nominee, for credit to any account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
or in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Senior Notes in certificated forms except in the limited circumstances
described under "--Exchange of Book-Entry Notes for Certificated Notes"
below.
DEPOSITARY PROCEDURES
DTC has advised NRG that DTC is a limited-purpose trust company created to
hold securities for its Participants and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of the Participants. The
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchase of each security
held by or on behalf of DTC are recorded on the records of the Participants
and Indirect Participants.
DTC has also advised NRG that, pursuant to procedures established by it,
(i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a
Global Note may be subject to the procedures and requirements of DTC. The
laws of some states require that certain persons take physical delivery in
certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons will be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in a Global Note to pledge
such interest to persons that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "--Exchange of
Book-Entry Notes for Certificated Notes" below.
Except as described below, owners of interests in the Global Notes will
not have Notes registered in their name, will not receive physical delivery
of Notes in certificated form and will not be considered the registered
owners of holders thereof under the Indenture for any purpose.
Payments in respect of the Global Note registered in the name of DTC or
its nominee will be payable by the Trustee to DTC in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Trustee will treat the persons in whose names the Notes, including the Global
Notes,
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are registered as the owners thereof for the purpose of receiving such
payments and for any and all purposes whatsoever. Consequently, neither the
Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership interests
in the Global Note or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised NRG that its current practice, upon receipt of any payment in respect
of securities such as the Notes, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate
to their respective holdings in principal amount of beneficial interests in
the relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of DTC, the Trustee or NRG. Neither NRG nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Notes, and NRG and the Trustee may
conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
DTC has advised NRG that it will take any action permitted to be taken by
a holder of Notes only at the direction of one or more Participants to whose
account with DTC interests in the Global Notes are credited and only in
respect of such portion of the Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Declaration, DTC reserves the right to exchange the
Global Notes for Notes in certificated form and to distribute such Notes to
its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that NRG believes to be reliable, but NRG has
not independently determined the accuracy thereof. NRG will not have any
responsibility for the performance by DTC or its Participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for Notes in registered certificated form if
(i) DTC notifies NRG that it is unwilling or unable to continue as clearing
agency for the Global Note or has ceased to be a clearing agency registered
under the Exchange Act and NRG thereupon fails to appoint a successor
clearing agency within 90 days, (ii) NRG in its sole discretion elects to
cause the issuance of definitive certificated Notes or (iii) there has
occurred and is continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default under the
Indenture. In addition, beneficial interests in a Global Note may be
exchanged for certificated Notes upon request but only upon at least 20 days,
prior written notice given to the Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases certificated Notes
delivered in exchange for any Global Note or beneficial interest therein will
be registered in the names, and issued in denominations of $100,000 and
integral multiples of $1,000 in excess thereof, requested by or on behalf of
the clearing agency (in accordance with its customary procedures).
THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
Indenture. NRG and its affiliates also maintain banking and other commercial
relationships with the Trustee and its affiliates in the ordinary course of
business.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
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REGISTRATION RIGHTS
Holders of New Notes (other than as set forth below) are not entitled to
any registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Notes are entitled to certain
registration rights. Under the Registration Rights Agreement, NRG has agreed,
for the benefit of the Holders of the Old Notes, that it will, at its cost,
(i) file a registration statement with the Commission with respect to the
Exchange Offer within 60 days after the Closing Date (or if the 60th day is
not a business day, the first business day thereafter) and (ii) use its best
efforts to cause such registration statement to be declared effective under
the Securities Act within 180 days after the Closing Date (or if the 180th
day is not a business day, the first business day thereafter). The
Registration Statement of which this Prospectus is a part constitutes the
Exchange Offer Registration Statement.
In the event that any Holder shall notify NRG that (A) such Holder is not
eligible to participate in the Exchange Offer or (B) such Holder may not
resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales
by such Holder or (C) such Holder is a broker-dealer and holds Old Notes that
are part of an unsold allotment from the original sale of the Old Notes, NRG
will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities
by such Holders who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. NRG will use
its best efforts to cause the Shelf Registration Statement, if applicable, to
be declared effective on or prior to 215 days after the date on which NRG
becomes obligated to file the Shelf Registration Statement or receives
certain notices from holders of the Old Notes and will use its best efforts
to keep the Shelf Registration Statement continuously effective until the
earlier of (i) two years after the effective date thereof, (ii) the date on
which all Transfer Restricted Securities registered thereunder are disposed
of in accordance therewith and (iii) one year after the effective date
thereof if such Shelf Registration Statement is filed at the request of an
Initial Purchaser. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note until the earliest to occur of (i) the date
on which such Old Note has been exchanged for a New Note in the Exchange
Offer, (ii) the date on which such Old Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) the date on which such Old Note is
distributed to the public pursuant to Rule 144 under the Securities Act.
A Holder of Old Notes who sells such Old Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Rights Agreement that are applicable to
such a Holder (including certain indemnification obligations).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration
Rights Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
SPECIAL INTEREST
In the event that either the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to any Transfer Restricted Securities is
not declared effective on or prior to the 215th day following the date of
original issuance of any Transfer Restricted Securities (or if the 215th day
is not a business day, the first business day thereafter), interest will
accrue (in addition to stated interest on the Securities) from and including
the next day following such 215-day period. In each case such additional
interest (the "Special Interest") will be payable in cash semiannually in
arrears each June 15, and December 15, commencing December 15, 1997, at a
rate per annum equal to 0.25% of the principal amount of such Transfer
Restricted Securities. The aggregate amount of Special Interest payable
pursuant to the above provisions will in no event exceed 0.25% per annum of
the principal amount of any Transfer Restricted Securities. Upon the
consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, after the 215-day period described above, the Special
Interest payable on
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such Transfer Restricted Securities from the date of such effectiveness or
consummation, as the case may be, will cease to accrue and all accrued and
unpaid Special Interest shall be paid to the holders of such Transfer
Restricted Securities.
In the event that a Shelf Registration Statement is declared effective
pursuant to the preceding paragraph, if the Company fails to keep such
Registration Statement continuously effective for the period required by this
Agreement, then from such time as the Shelf Registration Statement is no
longer effective until the earlier of (i) the date that the Shelf
Registration Statement is again deemed effective, (ii) the date that is the
second anniversary of the Closing Date or (iii) the date as of which all of
the Securities are sold pursuant to the Shelf Registration Statement, Special
Interest shall accrue at a rate per annum equal to 0.25% of the principal
amount of the Securities and shall be payable in cash semiannually in arrears
each June 15 and December 15, commencing December 15, 1997.
The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will
eliminate all rights of the Holders of Old Notes eligible to participate in
the Exchange Offer to receive Special Interest that would have been payable
if such actions had not occurred.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain United States Federal income tax
considerations associated with the exchange of Old Notes for New Notes and
the ownership and disposition of the New Notes by Holders who acquire the New
Notes pursuant to the Exchange Offer. This discussion is based upon existing
United States Federal income tax law, which is subject to change, possibly
retroactively. This discussion does not describe all aspects of United States
Federal income taxation which may be important to particular Holders in light
of their individual investment circumstances or certain types of Holders
subject to special tax rules (e.g., financial institutions, insurance
companies, broker-dealers, or tax-exempt organizations) or to persons that
hold or will hold the Notes as a position in a "straddle" or as part of a
"hedging" or "conversion" transaction, all of whom may be subject to tax
rules that differ significantly from those described below. In addition, this
discussion does not described any foreign, state, or local tax
considerations. This discussion deals only with Old Notes and New Notes held
by initial purchasers of Old Notes as "capital assets" (generally, property
held for investment) under the United States Internal Revenue Code.
The consummation of the Exchange Offer will not be a taxable event for
United States Federal income tax purposes. Accordingly, a Holder receiving
New Notes pursuant to the terms of the Exchange Offer will have the same
adjusted tax basis and holding period in New Notes, for United States Federal
income tax purposes, as such Holder had in the Old Notes tendered in exchange
therefor.
Interest payable on the New Notes will be includible in the income of a
Holder in accordance with such Holder's normal method of accounting.
Except in the case of an Old Note purchased at a discount to its original
issue price, a Holder will recognize capital gain or loss upon the sale or
other disposition of a New Note in an amount equal to the difference between
the amount realized from such disposition and his tax basis in the New Note.
Such gain or loss will be long-term if the New Note is held for more than one
year.
In the case of a Holder who has purchased a New Note at a discount to its
original issue price in excess of a statutorily defined de minimis amount and
has not elected to include such discount in income on a current basis, (i)
any gain recognized on the disposition of a New Note will be subject to tax
as ordinary income, rather than capital gain, to the extent of accrued market
discount and (ii) a portion of the interest expense on indebtedness incurred
or maintained to purchase or carry such note may not be deducted until the
note is disposed of in a taxable transaction.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAXADVISORS
CONCERNING THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S OLD
NOTES FOR THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
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RATINGS
Standard & Poor's Ratings Group and Moody's Investors Service, Inc. have
given the Old Notes the ratings set forth under "Summary -- Summary
Description of the New Notes." NRG expects that the New Notes would be
assigned the same ratings as the Old Notes. Such ratings reflect only the
views of these organizations, and an explanation of the significance of each
such rating may be obtained from Standard & Poor's Corporation, 25 Broadway,
New York, New York 10004 and Moody's Investors Service, Inc., 99 Church
Street, New York, New York 10007. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely by such rating agencies or either of them if,
in their judgment, circumstances so warrant. A downward change in or
withdrawal of such ratings or either of them may have an adverse effect on
the market price of the Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. NRG has agreed that, starting on the Expiration
Date and ending on the close of business on the 90th day following the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997 (90 days from the date of this Prospectus), all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
NRG will not receive any proceeds from any sale of New Notes by
broker-dealers or any other persons. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold form time to
time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or purchasers of
any such New Notes. Any broker-dealer that resells New Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, NRG will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. NRG has agreed to pay all expenses incident to NRG's performance
of, or compliance with, the Registration Rights Agreement and will indemnify
the Holders (including any broker-dealers) and certain parties related to the
Holders against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes will
be passed upon for NRG by Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements of NRG as of December 31, 1995 and
1996 and for each of the two years in the period ended December 31, 1996
included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of NRG as of December 31, 1994 included in this
Prospectus have been so included in reliance on the report of Deloitte &
Touche LLP, independent auditors, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Sunshine State Power BV and Sunshine State
Power (No. 2) BV as of December 31, 1996, 1995 and 1994 and for each of the
three years in the period ended December 31, 1996 included in this Prospectus
have been so included in reliance on the reports of Price Waterhouse
Netherland BV, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The balance sheets as of December 31, 1995 and 1994 of San Joaquin Valley
Energy Partners I, L.P. (the Partnership), and the statements of income,
partners' equity and cash flows for each of the two years in the period ended
December 31, 1995, included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
which report includes an explanatory paragraph disclosing that the
Partnership entered into an agreement during 1995 whereby the Partnership's
power purchase contracts were transferred back to Pacific Gas & Electric,
given on the authority of that firm as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Audited Financial Statements
Report of Independent Accountants......................................................... F-3
Consolidated Balance Sheets of NRG Energy, Inc. and Subsidiaries as of December 31, 1995
and 1996................................................................................. F-4
Consolidated Statements of Income of NRG Energy, Inc. and Subsidiaries for the years
ended December 31, 1995 and 1996......................................................... F-6
Consolidated Statements of Cash Flows of NRG Energy, Inc. and Subsidiaries for the years
ended December 31, 1995 and 1996......................................................... F-7
Consolidated Statements of Stockholder's Equity of NRG Energy, Inc. and Subsidiaries for
the years ended December 31, 1995 and 1996............................................... F-8
Notes to Consolidated Financial Statements ............................................... F-9
Report of Independent Auditors ........................................................... F-24
Consolidated Balance Sheet of NRG Energy, Inc. and Subsidiaries as of December 31, 1994 .. F-25
Consolidated Statement of Income of NRG Energy, Inc. and Subsidiaries for the year
ended December 31, 1994.................................................................. F-27
Consolidated Statement of Cash Flows of NRG Energy, Inc. and Subsidiaries for the year
ended December 31, 1994.................................................................. F-28
Consolidated Statement of Stockholder's Equity of NRG Energy, Inc. and Subsidiaries for
the year ended December 31, 1994 ........................................................ F-29
Notes to Consolidated Financial Statements ............................................... F-30
Unaudited Financial Statements
Consolidated Balance Sheets of NRG Energy, Inc. and Subsidiaries as of June 30, 1996 and
1997..................................................................................... F-41
Consolidated Statements of Income of NRG Energy, Inc. and Subsidiaries for the six month
periods ended June 30, 1996 and 1997..................................................... F-43
Consolidated Statements of Cash Flows of NRG Energy, Inc. and Subsidiaries for the six
month period ended June 30, 1996 and 1997................................................ F-44
Notes to Consolidated Financial Statements................................................ F-45
Unaudited Pro Forma Combined Financial Statements
Unaudited Pro Forma Consolidated Statement of Income of NRG Energy, Inc. and Subsidiaries
for the year ended December 31, 1996..................................................... F-48
Unaudited Pro Forma Consolidated Statement of Income of NRG Energy, Income of NRG Energy,
Inc. and Subsidiaries for the six month period ended June 30, 1997 ...................... F-49
Audited Significant Subsidiary Financial Statements
Sunshine State Power BV
Auditors Report........................................................................... F-50
F-1
<PAGE>
PAGE
---------
Balance Sheet as of December 31, 1996, 1995 and 1994...................................... F-51
Statement of Income for the years ended December 31, 1996, 1995 and 1994 ................. F-52
Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994 ............. F-53
Notes to Annual Accounts.................................................................. F-54
Sunshine State Power (No. 2) BV
Auditors Report........................................................................... F-61
Balance Sheet as of December 31, 1996, 1995 and 1994...................................... F-62
Statement of Income for the years ended December 31, 1996 and 1995 and period ended
December 31, 1994........................................................................ F-63
Statement of Cash Flows for the years ended December 31, 1996 and 1995 and period ended
December 31, 1994........................................................................ F-64
Notes to Annual Accounts.................................................................. F-65
San Joaquin Valley Energy Partners I, L.P.
Report of Independent Accountants......................................................... F-72
Balance Sheets as of December 31, 1995 and 1994........................................... F-73
Statements of Income for the years ended December 31, 1995 and 1994....................... F-74
Statements of Partners' Equity for the years ended December 31, 1995 and 1994 ............ F-75
Statements of Cash Flows for the years ended December 31, 1995 and 1994 .................. F-76
Notes to Financial Statements............................................................. F-77
Loy Yang Power Limited
Profit and Loss Statement for the Year Ended 30 June 1996................................. F-83
Balance Sheet as at 30 June 1996.......................................................... F-84
Statement of Cash Flows for the Year Ended 30 June 1996................................... F-85
Notes to and forming part of the Financial Statements..................................... F-86
Directors' Statement...................................................................... F-103
Auditor-General's Report.................................................................. F-104
Profit and Loss Statement for the half-year ended 31 December 1996........................ F-105
Balance Sheet as at 31 December 1996...................................................... F-106
Statement of Cash Flows for the half-year ended 31 December 1996.......................... F-107
Notes to and forming part of the Financial Statements..................................... F-108
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
NRG Energy, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholder's equity, and of
cash flows present fairly, in all material respects, the financial position
of NRG Energy, Inc. (a wholly-owned subsidiary of Northern States Power
Company) and its subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of NRG's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Minneapolis, Minnesota
April 8, 1997
F-3
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 12,438 $ 7,039
Restricted cash..................................................... 17,688 9,773
Accounts receivable--trade, less allowance for doubtful accounts of
$143 and $103...................................................... 12,061 9,333
Accounts receivable-affiliates...................................... 6,708 4,640
Current portion of notes receivable-affiliates...................... 3,601 5,267
Current portion of notes receivable................................. 5,985 2,791
Inventory........................................................... 2,312 1,811
Prepayments and other current assets................................ 4,644 1,744
---------- ----------
TOTAL CURRENT ASSETS................................................. 65,437 42,398
---------- ----------
Property, Plant and Equipment, at Original Cost:
In service.......................................................... 176,072 170,253
Under construction.................................................. 24,683 5,914
---------- ----------
200,755 176,167
Less accumulated depreciation....................................... (71,106) (64,248)
---------- ----------
Net property, plant and equipment.................................. 129,649 111,919
---------- ----------
Other Assets:
Investments in projects............................................. 365,749 221,129
Capitalized project costs........................................... 9,267 4,185
Notes receivable, less current portion-affiliates................... 58,169 32,389
Notes receivable, less current portion.............................. 9,309 --
Intangible assets, net of accumulated amortization of $5,647 and
$4,127............................................................. 40,476 41,996
Debt issuance costs, net of accumulated amortization of $338 and
$189............................................................... 2,753 573
---------- ----------
Total other assets................................................. 485,723 300,272
---------- ----------
TOTAL ASSETS......................................................... $680,809 $454,589
========== ==========
</TABLE>
See accompanying notes
F-4
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 4,848 $ 3,762
Accounts payable-trade.......................................... 4,443 6,208
Note payable-affiliates......................................... 3,867 1,185
Accrued income taxes............................................ 1,930 7,366
Accrued property and sales taxes................................ 2,159 1,895
Accrued salaries, benefits and related costs.................... 6,559 5,178
Accrued interest................................................ 4,726 824
Other current liabilities....................................... 4,424 1,578
---------- ---------
TOTAL CURRENT LIABILITIES........................................ 32,956 27,996
---------- ---------
Long-term debt, less current portion............................ 207,293 86,272
Deferred revenues............................................... 6,340 7,726
Deferred income taxes........................................... 8,606 9,166
Deferred investment tax credits................................. 1,853 2,069
Deferred compensation........................................... 1,847 1,596
---------- ---------
TOTAL LIABILITIES................................................ 258,895 134,825
---------- ---------
Commitments and Contingencies (Note 13)
Stockholder's Equity:
Common stock; $1 par value; 1,000 shares authorized; 1,000
shares issued and outstanding.................................. 1 1
Additional paid-in capital...................................... 351,013 271,013
Retained earnings............................................... 66,301 46,323
Currency translation adjustments................................ 4,599 2,427
---------- ---------
TOTAL STOCKHOLDER'S EQUITY....................................... 421,914 319,764
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY....................... $680,809 $454,589
========== =========
</TABLE>
See accompanying notes
F-5
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Operating revenues:
Revenues from wholly-owned operations................... $ 71,649 $64,180
Equity in operating earnings of unconsolidated
affiliates............................................. 32,815 23,639
---------- ---------
Total operating revenues................................. 104,464 87,819
---------- ---------
Operating costs and expenses:
Cost of wholly-owned operations......................... 36,562 32,535
Depreciation and amortization........................... 8,378 8,283
General, administrative and development expenses ....... 39,248 34,647
---------- ---------
Total operating costs and expenses....................... 84,188 75,465
---------- ---------
Operating income......................................... 20,276 12,354
Other income (expense):
Equity in gain from project termination settlements .... -- 29,850
Other income, net....................................... 9,477 4,896
Interest expense........................................ (15,430) (7,089)
---------- ---------
Total other income (expense)............................. (5,953) 27,657
---------- ---------
Income before income taxes............................... 14,323 40,011
---------- ---------
Income (benefit) taxes................................... (5,655) 8,810
---------- ---------
Net Income............................................... $ 19,978 $31,201
========== =========
</TABLE>
See accompanying notes
F-6
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 19,978 $ 31,201
Adjustments to reconcile net income to net cash provided (used) by
operating activities ................................................
Undistributed equity in operating earnings of unconsolidated
affiliates.......................................................... (17,827) (20,074)
Depreciation and amortization........................................ 8,378 8,283
Deferred income taxes and investment tax credits..................... (776) (2,608)
Cash provided (used) by changes in certain working capital items
Accounts receivable................................................. (2,728) 1,102
Accounts receivable-affiliates...................................... (2,068) (2,889)
Accrued income taxes................................................ (5,436) 9,808
Inventory........................................................... (501) (107)
Prepayments and other current assets................................ (2,900) (571)
Accounts payable-trade.............................................. (1,765) 1,009
Accounts payable-affiliates......................................... 2,682 (3,037)
Accrued property and sales taxes.................................... 264 (396)
Accrued salaried, benefits and related costs........................ 1,381 2,427
Accrued interest.................................................... 3,902 553
Other current liabilities........................................... 2,846 1,094
Cash (used) by changes in other assets and liabilities .............. (1,284) (1,004)
Equity in gain from project termination settlement................... -- (29,850)
----------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES....................... 4,146 (5,059)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects............................................... (140,590) (25,776)
Loans to projects..................................................... (36,617) (35,411)
Capital expenditures.................................................. (24,588) (11,036)
Cash distribution from project termination settlement................. 15,671 14,179
(Increase) decrease in restricted cash................................ (7,915) 4,044
Other, net............................................................ (4,486) (3,104)
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES.................................. (198,525) (57,104)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent..................................... 80,000 55,000
Proceeds from issuance of long-term debt.............................. 122,671 --
Principal payments on long-term debt.................................. (2,893) (3,305)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............................. 199,778 51,695
=========== ==========
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 5,399 (10,468)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 7,039 17,507
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 12,438 $ 7,039
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized)............................. $ 11,527 $ 6,536
Income taxes paid..................................................... 1,164 1,447
</TABLE>
See accompanying notes.
F-7
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
-------- ------------ ---------- ------------- ---------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 .... $1 $216,013 $15,122 $ 3,586 $234,722
Net income........................ 31,201 31,201
Capital contributions from
parent........................... 55,000 55,000
Currency translation adjustments . (1,159) (1,159)
-------- ------------ ---------- ------------- ---------------
Balances at December 31, 1995 .... 1 271,013 46,323 2,427 319,764
Net income........................ 19,978 19,978
Capital contributions from
parent........................... 80,000 80,000
Currency translation adjustments . 2,172 2,172
-------- ------------ ---------- ------------- ---------------
Balances at December 31, 1996 .... $1 $351,013 $66,301 $ 4,599 $421,914
======== ============ ========== ============= ===============
</TABLE>
See accompanying notes
F-8
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
NRG Energy, Inc., a Delaware corporation, was incorporated on May 29,
1992, as a wholly-owned subsidiary of Northern States Power Company (NSP).
Beginning in 1989, NRG was doing business through its predecessor companies,
NRG Energy, Inc. and NRG Group, Inc., Minnesota corporations which were
merged into NRG subsequent to its incorporation. NRG and its subsidiaries and
affiliates develop, build, acquire, own and operate nonregulated
energy-related businesses.
2. PRINCIPLES OF CONSOLIDATION
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of NRG and its
subsidiaries (referred to collectively herein as NRG). All significant
intercompany transactions and balances have been eliminated in consolidation.
As discussed in Note 5, NRG has investments in partnerships, joint ventures
and projects for which the equity method of accounting is applied. Earnings
from equity in international investments are recorded net of foreign income
taxes.
Cash Equivalents
Cash equivalents include highly liquid investments (primarily commercial
paper) with a remaining maturity of three months or less at the time of
purchase.
Restricted Cash
Restricted cash consists primarily of cash collateral required in
connection with foreign currency hedging activities (see Note 12) and cash
collateral for letters of credit issued in relation to project development
activities.
Inventory
Inventory is valued at the lower of average cost or market and consists
principally of spare parts and raw materials used to generate steam.
Property, Plant and Equipment
Property, plant and equipment are capitalized at original cost.
Significant additions or improvements extending asset lives are capitalized,
while repairs and maintenance are charged to expense as incurred.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Facilities and improvements.......... 20-45 years
Machinery and equipment.............. 7-30 years
Office furnishings and equipment .... 3- 5 years
</TABLE>
Capitalized Interest
Interest incurred on funds borrowed to finance projects expected to
require more than three months to complete is capitalized. Capitalization of
interest is discontinued when the project is completed and considered
operational. Capitalized interest is amortized using the straight line method
over the useful life of the related project. Capitalized interest was
$364,000 and $253,000 in 1996 and 1995, respectively.
Development Costs and Capitalized Project Costs
These costs include professional services, dedicated employee salaries,
permits, and other costs which are incurred incidental to a particular
project. Such costs are expensed as incurred until a sales
F-9
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPLES OF CONSOLIDATION (Continued)
agreement or letter of intent is signed and the project has been approved by
NRG's Board of Directors. Additional costs incurred after this point are
capitalized. When project operations begin, previously capitalized project
costs are reclassified to investment in projects and amortized on a
straight-line basis over the lesser of the life of the project's related
assets or revenue contract period.
Debt Issuance Costs
Costs to issue long-term debt have been capitalized and are being
amortized over the terms of the related debt.
Intangibles
Intangibles consist principally of service agreements and the excess of
the cost of investment in subsidiaries over the underlying fair value of the
net assets acquired and are being amortized using the straight-line method
over 30 years. NRG periodically evaluates the recovery of goodwill and other
intangibles based on an analysis of estimated undiscounted future cash flows.
Service agreement intangibles relate solely to the 1993 acquisition of the
Minneapolis Energy Center. The 30-year amortization period is based on
customer energy service agreements having a 20-year term, and that
historically these customer agreements have largely been renewed for
additional 20-year terms.
Income Taxes
NRG is included in the consolidated tax returns of NSP. NRG calculates its
income tax provision on a separate return basis under a tax sharing agreement
with NSP as discussed in Note 9. Current federal and state income taxes are
payable to or receivable from NSP. NRG records income taxes using the
liability method. Income taxes are deferred on all temporary differences
between pretax financial and taxable income and between the book and tax
bases of assets and liabilities. Deferred taxes are recorded using the tax
rates scheduled by law to be in effect when the temporary differences
reverse. Investment tax credits are deferred and amortized over the estimated
lives of the related property. NRG's policy for income taxes related to
international operations is discussed in Note 9.
Revenue Recognition
Under fixed-price contracts, revenues are recognized as deliveries of
products or services are made. Revenues and related costs under cost
reimbursable contract provisions are recorded as costs are incurred.
Anticipated future losses on contracts are charged against income when
identified.
Deferred revenues relate to a 1988 legal settlement with a major thermal
customer. Settlement proceeds were deferred when received and are reflected
in operating income on a straight-line basis over the life of the related
steam contract which expires in 2001.
Foreign Currency Translation
The local currencies are generally the functional currency of NRG's
foreign operations. Foreign currency denominated assets and liabilities are
translated at end-of-period rates of exchange. The resulting currency
adjustments are accumulated and reported as a separate component of
stockholder's equity. Income, expense and cash flows are translated at
weighted-average rates of exchange for the period.
Exchange gains and losses that result from foreign currency transactions
(e.g., converting cash distributions made in one currency to another
currency) are included in the results of operations as a
F-10
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRINCIPLES OF CONSOLIDATION (Continued)
component of equity in earnings of unconsolidated affiliates. Through
December 31, 1996, NRG has not experienced any material translation gains or
losses from foreign currency transactions that have occurred since the
respective foreign investment dates.
Derivative Financial Instruments
NRG's policy is to hedge foreign currency denominated investments as they
are made to preserve their U.S. dollar value, where appropriate hedging
vehicles are available. NRG has entered into currency hedging transactions
through the use of forward foreign currency exchange agreements. Gains and
losses on these agreements offset the effect of foreign currency exchange
rate fluctuations on the valuation of the investments underlying the hedges.
Hedging gains and losses, net of income tax effects, are reported with other
currency translation adjustments as a separate component of stockholder's
equity. NRG is not hedging currency translation adjustments related to future
operating results. NRG does not speculate in foreign currencies. None of
these derivative financial instruments are reflected in NRG's balance sheet.
Use of Estimates
In recording transactions and balances resulting from business operations,
NRG uses estimates based on the best information available. Estimates are
used for such items as plant depreciable lives, tax provisions, uncollectible
accounts and actuarially determined benefit costs. As better information
becomes available (or actual amounts are determinable), the recorded
estimates are revised. Consequently, operating results can be affected by
revisions to prior accounting estimates.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation. These reclassifications had no effect on
net income or stockholder's equity as previously reported.
3. BUSINESS ACQUISITIONS
In March 1996, a joint venture between NRG and Transfield signed an
18-year power purchase agreement and an agreement for the acquisition and
refurbishment of the 180 MW Collinsville coal-fired power generation facility
in Queensland, Australia. NRG would own a 50% interest and operate the
facility in conjunction with Transfield.
In April 1996, NRG, through bankruptcy proceedings, purchased a 41.86%
interest in O'Brien Environmental Energy, Inc. that has been renamed as NRG
Generating (U.S.) Inc. (NRGG). In addition to an equity interest in NRGG, NRG
acquired certain landfill gas projects in the purchase which were transferred
to NEO and a cogeneration facility.
On December 19, 1996 NRG and Nordic Power Invest AB purchased 96.6% of
Bolivian Power Company Limited. NRG's ownership is 58%, however it is NRG's
intent to reduce its holding to 50% or less.
NEO, a wholly-owned subsidiary, owns a 50% interest in Minnesota Methane
LLC. In 1996, Minnesota Methane LLC acquired a 12 MW project in West Covina,
California and acquired six projects as part of the NRGG acquisition. Of the
projects acquired, four were operating facilities and two were projects under
development and construction. In 1994, NEO acquired a 50% interest in
Northbrook Energy. In 1996, Northbrook Energy acquired seven additional
hydroelectric plants.
The total acquisition investments in these projects through December 31,
1996, including capitalized development costs, was approximately $121.5
million. Earnings from equity interests in these NRG projects acquired in
1996 contributed $2.7 million to NRG's 1996 earnings.
F-11
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Facilities and equipment, including construction work in
progress
of $24,683 and $5,914........................................... $187,014 $163,099
Land and improvements............................................ 10,397 10,397
Office furnishings and equipment................................. 3,344 2,671
---------- ----------
Total property, plant and equipment.............................. 200,755 176,167
Accumulated depreciation......................................... (71,106) (64,248)
---------- ----------
Net property, plant and equipment................................ $129,649 $111,919
========== ==========
</TABLE>
5. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
NRG has investments in various international and domestic energy projects.
The equity method of accounting is applied to such investments in affiliates,
which include joint ventures and partnerships, because the ownership
structure prevents NRG from exercising a controlling influence over operating
and financial policies of the projects. Under this method, equity in pretax
income or losses of domestic partnerships and in the net income or losses of
international projects are reflected as equity in earnings of unconsolidated
affiliates.
A summary of NRG's significant equity-method investments which were in
operation at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
PURCHASED
GEOGRAPHIC ECONOMIC OR PLACED
NAME AREA INTEREST IN SERVICE
- ------------------------------------------------ ----------------- ------------ ---------------------------
<S> <C> <C> <C>
MIBRAG Mining and Power Generation .............. Germany 33.3% January 1994
Gladstone Power Station ......................... Australia 37.5% March 1994
Schkopau Power Station........................... Germany 20.6% January and July 1996
Scudder Latin American Trust for Independent
Power Energy Project............................ Latin America 25.0% June 1993
Collinsville Electric Generation ................ Australia 50.0% March 1996
COBEE ........................................... Bolivia 58.0% December 1996
NRG Generating................................... USA 41.9% April 1996
Various Independent Power Production Facilities . USA 45%-50% July 1991-December 1996
Rosebud Syncoal Partnership...................... USA 50.0% August 1993
</TABLE>
F-12
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD (Continued)
Summarized financial information for investments in unconsolidated
affiliates accounted for under the equity method as of and for the year ended
December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Operating revenues........... $ 886,947 $ 776,612
Costs and expenses........... 794,255 615,696
------------ ------------
Net income.................. $ 92,692 $ 160,916
============ ============
Current assets............... $ 647,213 $ 757,124
Noncurrent assets............ 3,420,950 2,557,992
------------ ------------
Total assets................ $4,068,163 $3,315,116
============ ============
Current liabilities.......... $ 365,905 $ 290,805
Noncurrent liabilities....... 2,732,922 2,236,919
Equity....................... 969,336 787,392
------------ ------------
Total liabilities and
equity..................... $4,068,163 $3,315,116
============ ============
NRG's share of equity........ $ 365,749 $ 221,129
NRG's share of income........ 32,815 23,639
</TABLE>
In June 1995, a power sales contract between a California energy project,
in which NRG is a 45% investor, and an unaffiliated utility company was
terminated. A pretax gain of $29.9 million was recognized by NRG for its
share of the termination settlement.
NRG recorded pretax charges of $1.5 million in 1996 and $5.0 million in
1995 to write down the carrying value of certain energy projects.
6. RELATED PARTY TRANSACTIONS.
Operating Agreements
NRG has two agreements with NSP for the purchase of thermal energy. Under
the terms of the agreements, NSP charges NRG for certain costs (fuel, labor,
plant maintenance, and auxiliary power) incurred by NSP to produce the
thermal energy. NRG paid NSP $6.0 million in 1996 and $3.7 million in 1995
under these agreements.
NRG has a renewable 10-year agreement with NSP, expiring on December 31,
2001, whereby NSP agrees to purchase refuse-derived fuel for use in certain
of its boilers and NRG agrees to pay NSP a burn incentive. NRG has an
agreement expiring in 1997 to sell wood by-product obtained from a thermal
customer to NSP for use as fuel. Under these agreements, NRG received $1.5
million and $1.9 million from NSP, and paid $2.2 million and $2.3 million to
NSP in 1996 and 1995, respectively.
Administrative Services and Other Costs
NRG and NSP have entered into an agreement to provide for the
reimbursement of actual administrative services provided to each other, an
allocation of NSP administrative costs and a working capital fee. Services
provided by NSP to NRG are principally cash management, legal, accounting,
employee relations and engineering. In addition, NRG employees participate in
certain employee benefit plans of NSP as discussed in Note 10. During 1996
and 1995, NRG paid NSP $7.2 million and $6.8 million, respectively, as
reimbursement under this agreement.
Allocation is on a direct charge, actual cost basis where possible. When
this is not possible, an allocation is made based upon employee headcounts,
operating revenues and investment in fixed assets. Management believes that
"allocated" costs approximate expenses that would be incurred on a stand
alone basis.
F-13
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS. (Continued)
In 1996, NRG and NSP entered into an agreement for NRG to provide
operations and maintenance services for NSP's Elk River resource recovery
facility and Becker ash landfill. During 1996, NSP paid NRG $1.5 million as
reimbursement under this agreement.
7. NOTES RECEIVABLE
Notes receivable consist primarily of fixed and variable rate notes
secured by equity interests in partnerships and joint ventures. The interest
rate on the notes ranged from 7.0% to 12.5% at December 31, 1996 and 1995.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
NRG Energy Center, Inc. Senior Secured Notes Series due
June 15, 2013, 7.31%................................... $ 76,986 $79,326
Note payable to NSP, due December 1, 1995-2006
5.40%-6.75%............................................ 8,405 8,958
NRG Sunnyside, Inc. note payable, due December 31,
1997, 10.00%........................................... 1,750 1,750
NRG Energy Senior Notes, due February 1, 2006, 7.625% .. 125,000 --
---------- ---------
212,141 90,034
Less current maturities................................. (4,848) (3,762)
---------- ---------
Total.................................................. $207,293 $86,272
========== =========
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by long-term
assets of the Minneapolis Energy Center (MEC). In accordance with the terms
of the note agreements, MEC is required to maintain compliance with certain
financial covenants primarily related to incurring debt, disposing of MEC
assets, and affiliate transactions. MEC was in compliance with these
covenants at December 31, 1996.
The note payable to NSP relates to long-term debt assumed by NRG in
connection with the transfer of ownership of an RDF processing plant by NSP
to NRG in 1993.
The NRG Sunnyside, Inc. note payable was issued in connection with the
purchase of an equity interest in a waste-coal project in 1994.
The NRG Energy Senior Notes were issued in January 1996, are unsecured and
require semi-annual interest payments on February 1 and August 1.
F-14
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (Continued)
Annual maturities of long-term debt for the years ending after December
31, 1996 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1997......... $ 4,848
1998......... 3,335
1999......... 3,581
2000......... 3,841
2001......... 4,160
Thereafter .. 192,376
--------------------
Total...... $212,141
====================
</TABLE>
NRG has revolving-credit agreements which allow for Letters of Credit
which may not exceed $63.9 million. There were $18.4 million and $0
outstanding letters of credit under the credit agreements at December 31,
1996 and 1995, respectively.
9. INCOME TAXES
NRG and its parent, NSP, have entered into a federal and state income tax
sharing agreement relative to the filing of consolidated federal and state
income tax returns. The agreement provides, among other things, that (1) if
NRG, along with its subsidiaries, is in a taxable income position, NRG will
be currently charged with an amount equivalent to its federal and state
income tax computed as if the group had actually filed separate federal and
state returns, and (2) if NRG, along with its subsidiaries, is in a tax loss
position, NRG will be currently reimbursed to the extent its combined losses
are utilized in a consolidated return, and (3) If NRG, along with its
subsidiaries, generates tax credits, NRG will be currently reimbursed to the
extent its tax credits are utilized in a consolidated return.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Current
Federal........................... $ 633 $ 9,965
State............................. 253 3,268
Foreign........................... 616 233
---------- ---------
1,502 13,466
Deferred
Federal........................... (3,655) (1,592)
State............................. (1,498) (1,012)
---------- ---------
(5,153) (2,604)
Tax credits recognized............. (2,004) (2,052)
---------- ---------
Total income tax (benefit)
expense........................... $(5,655) $ 8,810
========== =========
</TABLE>
F-15
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (Continued)
The components of the net deferred income tax liability at December 31
were:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred tax liabilities
Differences between book and tax bases of property ...... $16,606 $16,364
Investments in projects.................................. 2,988 1,226
Goodwill................................................. 2,974 444
Other.................................................... 2,646 112
--------- ---------
Total deferred tax liabilities.......................... 25,214 18,146
Deferred tax assets
Deferred revenue......................................... 3,043 3,099
Development costs........................................ 5,581 --
Deferred investment tax credits.......................... 766 856
Deferred compensation, accrued vacation and other
reserves................................................ 1,536 1,412
Steam capacity rights.................................... 1,043 1,109
Other.................................................... 4,639 2,504
--------- ---------
Total deferred tax assets................................ 16,608 8,980
--------- ---------
Net deferred tax liability............................... $ 8,606 $ 9,166
========= =========
</TABLE>
Rate Reconciliation
At December 31, 1996, the effective income tax rate (benefit) of (39.5)%
differs from the statutory federal income tax rate of 35% primarily due to
the fact that NRG generated a domestic tax loss of $15 million for the year.
For the year ended December 31, 1995, NRG had a domestic tax income of $9.2
million with the change between 1996 and 1995 primarily attributable to a
$29.9 million gain from the sale of a power agreement at SJVEP.
Income before income taxes includes net foreign equity income of $28
million and $32 million in 1996 and 1995, respectively. NRG's management
intends to reinvest the earnings of foreign operations indefinitely.
Accordingly, U.S. income taxes and foreign withholding taxes have not been
provided on the earnings of foreign subsidiary companies. The cumulative
amount of undistributed earnings of foreign subsidiaries upon which no U.S.
income taxes or foreign withholding taxes have been provided is approximately
$87.3 million at December 31, 1996. The additional U.S. income tax and
foreign withholding tax on the unremitted foreign earnings, if repatriated,
would be offset in whole or in part by Foreign tax credits. Thus, it is
impracticable to estimate the amount of tax that might be payable.
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Benefits
NRG participates in NSP's noncontributory, defined benefit pension plan
that covers the majority of all U.S. employees. Benefits are based on a
combination of years of service, the employee's highest average pay for 48
consecutive months, and Social Security benefits. Net annual periodic pension
cost includes the following components:
F-16
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Service cost-benefits earned during the
period........................................ $ 1,115 $ 688
Interest cost on projected benefit obligation . 1,013 525
Actual return on assets........................ (1,983) (1,542)
Net amortization and deferral.................. 1,258 1,147
--------- ---------
Net periodic pension cost...................... $ 1,403 $ 818
========= =========
</TABLE>
NRG's funding policy is to contribute to NSP the full actuarial pension
cost accrued, less future tax benefits to be realized from such costs. Plan
assets consist principally of common stock of public companies, corporate
bonds and U.S. government securities. The funded status of the pension plan
in which NRG employees participate is as follows at December 31, 1996 and
1995:
NSP Plan -- 1996
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligation ...................
Vested.......................................................... $ 660,920 $ 6,464
Nonvested....................................................... 147,278 3,422
----------- ---------
Accumulated benefit obligation.................................. $ 808,198 $ 9,886
=========== =========
Projected benefit obligation..................................... $ 993,821 $14,253
Plan assets at fair value........................................ 1,634,696 12,986
----------- ---------
Plan assets (in excess of) less than projected benefit
obligation...................................................... (640,875) 1,267
Unrecognized prior service cost.................................. (19,734) (86)
Unrecognized net actuarial gain (loss)........................... 651,368 256
Unrecognized net transitional asset.............................. 539 --
----------- ---------
Net pension (prepaid) liability recorded....................... $ (8,702) $ 1,437
=========== =========
</TABLE>
NSP Plan -- 1995
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
------------ ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligation
Vested.......................................................... $ 686,403 $ 3,050
Nonvested....................................................... 155,177 1,520
------------ ---------
Accumulated benefit obligation.................................. $ 841,580 $ 4,570
============ =========
Projected benefit obligation..................................... $1,039,981 $ 8,828
Plan assets at fair value........................................ 1,456,530 6,657
------------ ---------
Plan assets (in excess of) less than projected benefit
obligation...................................................... (416,549) 2,171
Unrecognized prior service cost.................................. (20,805) (91)
Unrecognized net actuarial gain (loss)........................... 452,699 (1,388)
Unrecognized net transitional asset.............................. 615 --
------------ ---------
Net pension liability recorded................................. $ 15,960 $ 692
============ =========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% in 1996 and 7% in
1995. The rate of increase in future compensation levels
F-17
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
used in determining the actuarial present value of the projected obligation
was 5% in 1996 and in 1995. The assumed long-term rate of return on assets
used for cost determinations was 9% for 1996 and 8% for 1995. Changes in
actuarial assumptions increased 1996 pension costs by $284,000 and are
expected to decrease 1997 costs by $150,000.
Postretirement Health Care
NRG participates in NSP's contributory health and welfare benefit plan
that provides health care and death benefits to the majority of all U.S.
employees after their retirement. The plan is intended to provide for sharing
of costs of retiree health care between NRG and retirees. For employees
retiring after January 1, 1994, a six-year cost-sharing strategy was
implemented with retirees paying 15% of the total cost of health care in
1994, increasing to a total of 40% in 1999.
Postretirement health care benefits for NRG are determined and recorded
under the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires the
actuarially determined obligation for postretirement health care and death
benefits to be fully accrued by the date employees attain full eligibility
for such benefits, which is generally when they reach retirement age. In
conjunction with the adoption of SFAS No. 106 in 1993, NRG elected to
amortize on a straight-line basis over 20 years the unrecognized accumulated
postretirement benefit obligation (APBO) of $1.4 million for current and
future retirees.
Plan assets as of December 31, 1996, consisted of investments in equity
mutual funds and cash equivalents. NRG's funding policy is to contribute to
NSP benefits actually paid under the plan. The following table sets forth the
funded status of the health care plan in which NRG employees participate at
December 31, 1996 and 1995:
NSP Plan -- 1996
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
APBO
Retirees.............................. $ 144,180 $ 323
Fully eligible plan participants ..... 23,438 619
Other active plan participants ....... 101,065 2,269
----------- ---------
Total APBO............................ 268,683 3,211
Plan assets at fair value.............. (15,514) --
----------- ---------
APBO in excess of plan assets.......... 253,169 3,211
Unrecognized net actuarial loss ....... (12,467) (366)
Unrecognized net transition
obligation............................ (172,480) (1,133)
----------- ---------
Net benefit obligation recorded ...... $ 68,222 $ 1,712
=========== =========
</TABLE>
F-18
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
NSP Plan -- 1995
<TABLE>
<CAPTION>
NRG
TOTAL PORTION
----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
APBO
Retirees.............................. $ 145,800 $ 67
Fully eligible plan participants ..... 24,400 518
Other active plan participants ....... 116,800 2,239
----------- ---------
Total APBO............................ 287,000 2,824
Plan assets at fair value.............. (11,600) --
----------- ---------
APBO in excess of plan assets.......... 275,400 2,824
Unrecognized net actuarial loss ....... (40,400) (510)
Unrecognized net transition
obligation............................ (183,200) (1,203)
----------- ---------
Net benefit obligation recorded ...... $ 51,800 $ 1,111
=========== =========
</TABLE>
The assumed health care cost trend rates used in measuring the APBO at
December 31, 1996 and 1995, were 9.8% and 10.4% for those under age 65, and
7.1% and 7.3% for those over age 65, respectively. The assumed cost trends
are expected to decrease each year until they reach 5.5% for both age groups
in the year 2004, after which they are assumed to remain constant. A 1%
increase in the assumed health care cost trend rate for each year would
increase the APBO by approximately 14% as of December 31, 1996. Service and
interest cost components of the net periodic postretirement cost would
increase by approximately 17% with a similar one percent increase in the
assumed health care cost trend rate. The assumed discount rate used in
determining the APBO was 7.5% for December 31, 1996 and 7% for December 31,
1995, compounded annually. The assumed long-term rate of return on assets
used for cost determinations under SFAS No. 106 was 8% for 1996 and 1995.
Changes in actuarial assumptions had an immaterial impact on 1996 costs and
are not expected to materially impact 1997 costs.
The net annual periodic postretirement benefit cost recorded for 1996 and
1995 consists of the following components:
<TABLE>
<CAPTION>
1996 1995
------ ------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Service cost-benefits earned during the
year........................................ $257 $171
Interest cost on APBO........................ 233 171
Amortization of transition obligation ....... 70 70
Net amortization and deferral................ 26 --
------ ------
Net periodic postretirement health care
cost....................................... $586 $412
====== ======
</TABLE>
NRG Equity Plan
Employees are eligible to participate in the NRG Equity Plan (the Plan), a
long term incentive plan. The Plan grants phantom equity units to employees
based upon performance and job grade. NRG's equity units are valued based
upon NRG's growth and financial performance. The primary financial measures
used in determining the equity units' value are revenue growth, return on
investment and cash flow from operations. The units are awarded to employees
annually at the respective years calculated share price (grant price). The
Plan provides employees with a cash payout for the appreciation in equity
unit value over the vesting period. The Plan has a seven year vesting
schedule with actual payments beginning after the end of the third year and
continuing at 20% each year for the subsequent five years. The Plan includes
a change of control provision, which allow all shares to vest if the
ownership of NRG
F-19
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFITS PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
were to change. Phantom equity units outstanding at December 31, 1996 and
1995 were 1,380,990 and 1,164,090, respectively. The cost of the phantom
equity units is expensed over the vesting period from the date of issuance
($452,000 and $422,000 in 1996 and 1995, respectively).
Deferred Compensation
Certain employees of NRG are eligible to participate in a deferred
compensation program. The employee can elect to defer a portion of their
compensation until retirement. Earnings on the amounts deferred are equal to
the return on the Fixed Income Option of the NSP Retirement Savings Plan.
Earnings will be compounded annually and credited monthly. Payouts begin upon
retirement with payments made over 180 equal monthly installments (or a
minimum of $500 per month until their account balance is zero.)
11. SALES TO SIGNIFICANT CUSTOMERS
NRG and the Ramsey/Washington Resource Recovery Project have a service
agreement for waste disposal which expires in 2006. Approximately 29.1% in
1996 and 32.1% in 1995 of NRG's revenues from wholly-owned operations were
recognized under this contract. In addition, sales to one thermal customer
amounted to 14.1% and 15.6% of revenues from wholly-owned operations in 1996
and 1995, respectively.
12. FINANCIAL INSTRUMENTS
The estimated December 31 fair values of recorded financial instruments
are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- ---------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $ 12,438 $ 12,438 $ 7,039 $ 7,039
Restricted cash............................. 17,688 17,688 9,773 9,773
Notes receivable, including current portion. 77,064 77,064 40,447 40,447
Long-term debt, including current portion .. 212,141 200,875 90,034 91,682
</TABLE>
For cash, cash equivalents and restricted cash, the carrying amount
approximates fair value because of the short-term maturity of those
instruments. The fair value of notes receivable is based on expected future
cash flows discounted at market interest rates. The fair value of long term
debt is estimated based on the quoted market prices for the same or similar
issues.
Derivatives
NRG has entered into seven forward foreign currency exchange contracts
with counterparties to hedge exposure to currency fluctuations to the extent
permissible by hedge accounting requirements. Pursuant to these contracts,
transactions have been executed that are designed to protect the economic
value in U.S. dollars of NRG's equity investments and retained earnings,
denominated in Australian dollars and German deutsche marks (DM). As of
December 31, 1996, NRG had $132 million of foreign currency denominated
assets that were hedged by forward foreign currency exchange contracts with a
notional value of $123 million. In addition, NRG had approximately $82
million of foreign currency denominated retained earnings from foreign
projects that were hedged by forward foreign currency exchange contracts with
a notional value of $59 million. Because the effects of both currency
translation adjustments to foreign investments and currency hedge instrument
gains and losses are recorded on a
F-20
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FINANCIAL INSTRUMENTS (Continued)
net basis in stockholders' equity (not earnings), the impact of significant
changes in currency exchange rates on these items would have an immaterial
effect on NRG's financial condition and results of operations. In connection
with the forward foreign currency exchange contracts, cash collateral of $16
million was required at December 31, 1996, which is reflected as restricted
cash on NRG's balance sheet. The forward foreign currency exchange contracts
terminate in 1998 through 2006 and require foreign currency interest payments
by either party during each year of the contract. If the contracts had been
terminated at December 31, 1996, $13.3 million would have been payable by NRG
for currency exchange rate changes to date. Management believes NRG's
exposure to credit risk due to non-performance by the counterparties to its
forward exchange contracts is not significant, based on the investment grade
rating of the counterparties.
13. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
NRG leases certain of its facilities and equipment under operating leases,
some of which include escalation clauses, expiring on various dates through
2010. Rental expense under these operating leases was $741,000 in 1996 and
$796,000 in 1995. Future minimum lease commitments under these leases for the
years ending after December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1997......... $ 1,050
1998......... 936
1999......... 956
2000......... 982
2001......... 1,008
Thereafter .. 5,349
--------------------
Total...... $10,281
====================
</TABLE>
Capital Commitments -- International
NRG signed a Joint Development Agreement for the acquisition, upgrading,
expansion and development of Energy Center Kladno in Kladno, Czech Republic.
The acquisition of the existing facility is the first phase of a development
project that will include upgrading the existing plant and developing a new
power generation facility. NRG has a $44 million commitment for the
additional facilities.
NRG together with its partners, signed a power contract with PT Perusahaan
Listrik Negara, the state-owned Indonesian electric company, to build, own
and operate a 400 MW coal-fired power station in Cilegon, West Java,
Indonesia. NRG has a $65 million commitment for the facility.
NRG is contractually committed to additional equity investments of $14
million for Scudder Latin American Power I and $7 million to Scudder Latin
American Power II as of December 31, 1996.
NRG reached agreement to purchase a 50% equity interest in the Enfield
Energy Centre, a 350 MW power project located in the North London borough of
Enfield, England. NRG has a $62 million commitment.
NRG and Transfield signed an acquisition agreement for the acquisition and
refurbishment of the 180 MW Collinsville coal-fired power generation facility
in Queensland, Australia. NRG has a $9 million commitment.
F-21
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (Continued)
Future capital commitments related to international projects are as
follows:
<TABLE>
<CAPTION>
(MILLIONS OF
DOLLARS)
<S> <C>
1997 ...................... $ 37
1998 ...................... 75
1999 ...................... 52
2000 ...................... 29
2001 ...................... 8
-----------------
Total ................... $201
=================
</TABLE>
Capital Commitments -- Domestic
In 1996 NRG has provided a $10 million loan commitment to a wholly-owned
subsidiary of NRG Generating (U.S.) Inc. (NRGG). The purpose of the loan is
to allow NRGG to fund its capital contribution to a cogeneration project
currently under construction. NRG anticipates funding the loan in 1997.
Also in 1996, NRG has committed to provide NRGG power generation
investment opportunities in the United States over a period of three years.
The projects must have an aggregate, over the three year term, equity value
of at least $60 million or a minimum of 150 net megawatts. In addition, NRG
has committed to finance these projects to the extent funds are not available
to NRGG on comparable terms from other sources.
Claims and Litigation
In normal course of business, NRG is a party to routine claims and
litigation arising from current and prior operations. NRG is actively
defending these matters and does not believe the outcome of such matters
would materially impact the results of operations or financial position.
14. SEGMENT REPORTING
NRG conducts its business within one industry segment--independent power
generation. Operations in the United States include wholly-owned operations
and investments in various domestic energy projects. International operations
include investments in various international energy projects. See Note 5 for
significant equity method investments.
<TABLE>
<CAPTION>
ASIA OTHER CORPORATE/
1996 U.S. EUROPE PACIFIC AMERICAS OTHER TOTAL
- ------------------------------- --------- --------- --------- ---------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations..................... $ 71,649 $ 71,649
Equity in operating earnings
(losses) of unconsolidated
affiliates..................... 1,473 $ 17,385 $11,155 $ 967 $ 1,835 32,815
--------- --------- --------- ---------- ------------- ---------
Total operating revenues........ 73,122 17,385 11,155 967 1,835 104,464
Net income...................... 28,182 17,385 11,155 967 (37,711)(1) 19,978
Assets reported on a
consolidated basis............. 148,666 42,159 (2) 190,825
Equity investments and loans to
affiliates..................... 130,786 210,587 97,988 50,623 489,984
--------- --------- --------- ---------- ------------- ---------
Total assets.................... 279,452 210,587 97,988 50,623 42,159 680,809
</TABLE>
F-22
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT REPORTING (Continued)
<TABLE>
<CAPTION>
ASIA OTHER CORPORATE/
1995 U.S. EUROPE PACIFIC AMERICAS OTHER TOTAL
- ------------------------------- ---------- ---------- --------- ---------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations..................... 64,180 64,180
Equity in operating earnings
(losses) of unconsolidated
affiliates..................... (2,398) 22,143 11,451 29 (7,586) 23,639
---------- ---------- --------- ---------- ------------- ---------
Total operating revenues........ 61,782 22,143 11,451 29 (7,586) 87,819
Net income...................... 50,813 22,143 11,451 29 (53,235)(1) 31,201
Assets reported on a
consolidated basis............. 124,807 21,569 (2) 146,376
Equity investments and loans to
affiliates..................... 118,220 106,809 78,303 4,881 308,213
---------- ---------- --------- ---------- ------------- ---------
Total assets.................... $243,027 $106,809 $78,303 $4,881 $ 21,569 $454,589
</TABLE>
- ------------
(1) Includes all expenses not allocated to either consolidated operations
or equity investments. This includes general, administrative and
development expenses as well as other income (net), interest expense
and taxes.
(2) Includes cash, debt issuance costs and other items not directly related
to specific asset groups.
15. SUBSEQUENT EVENT
On February 6,1997, NRG signed a subscription agreement with Energy
Developments Limited (EDL) to acquire up to 20% of common stock, and an
additional 15% of preference shares at AUS$2.20 per share. EDL is an
Australian company engaged exclusively in independent power generation from
landfill gas, coal seam methane and natural gas (including latest technology
combined cycle projects). EDL is the largest generator of power from coal
seam methane in the world. The company currently operates over 200 MW of
generation across five states and territories of Australia and has commenced
the development of new projects in the United Kingdom, Asia and New Zealand.
The current equity megawatt ownership held by EDL is approximately I70 MW.
EDL is a publicly traded company with its securities listed on the Australian
Stock Exchange. On February 11, 1997 NRG made an initial purchase of 7.2%
(4.5 million shares) of common stock for AUS$9.9 million (US$7.9 million).
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
NRG ENERGY, INC. AND SUBSIDIARIES
To the Board of Directors and Stockholder
NRG Energy, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of NRG Energy,
Inc. (the Company) (a wholly-owned subsidiary of Northern States Power
Company) as of December 31, 1994 and the related consolidated statements of
income, stockholder's equity, and cash flows for the year ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
1994 financial statements of Sunshine State Power BV and Sunshine State Power
(No. 2) BV, the Company's investments in which are accounted for by use of
the equity method. These investments represent 19% of total assets as of
December 31, 1994 and the equity in earnings represents 32% of equity in
earnings of projects for the year ended December 31, 1994. The financial
statements of Sunshine State Power BV and Sunshine State Power (No. 2) BV
were audited by other auditors whose reports have been furnished to us, and
our opinion, insofar as it relates to the amounts included for such entities,
is based solely on the reports of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994, and
the results of its operations and its cash flows for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
March 24, 1995
F-24
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 17,507
Restricted cash.................................................... 13,817
Accounts receivable--trade, less allowance for doubtful accounts
of $185........................................................... 11,576
Accounts receivable--affiliates.................................... 610
Income taxes receivable............................................ 2,442
Current portion of notes receivable................................ 3,115
Inventory.......................................................... 1,704
Prepayments and other current assets............................... 1,173
--------------------
TOTAL CURRENT ASSETS................................................ 51,944
--------------------
Property, Plant and Equipment, at Original Cost:
In service......................................................... 163,438
Under construction................................................. 2,289
--------------------
165,727
Less accumulated depreciation...................................... (58,093)
--------------------
Net property, plant and equipment................................. 107,634
--------------------
Other Assets:
Investments in projects............................................ 164,863
Capitalized project costs.......................................... 3,030
Notes receivable, less current portion-affiliates................ 3,687
Intangible assets, net of accumulated amortization of $2,549 ...... 44,798
Debt issuance costs, net of accumulated amortization of $148 ...... 614
--------------------
Total other assets................................................ 216,992
--------------------
TOTAL ASSETS........................................................ $376,570
====================
</TABLE>
See accompanying notes
F-25
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 3,306
Accounts payable--trade......................................... 5,199
Note payable--affiliates........................................ 3,037
Accrued property and sales taxes................................ 2,291
Accrued salaries, benefits and related costs.................... 2,751
Other current liabilities....................................... 11,021
--------------------
TOTAL CURRENT LIABILITIES........................................ 27,605
--------------------
Long-term debt, less current portion............................ 90,033
Deferred revenues............................................... 8,811
Deferred income taxes........................................... 11,519
Deferred investment tax credits................................. 2,324
Deferred compensation........................................... 1,556
--------------------
TOTAL LIABILITIES................................................ 141,848
--------------------
Commitments and Contingencies (Note 13)
Stockholder's Equity:
Common stock; $1 par value; 1,000 shares authorized; 1,000
shares issued and outstanding.................................. 1
Additional paid-in capital...................................... 216,013
Retained earnings............................................... 15,122
Currency translation adjustments................................ 3,586
--------------------
TOTAL STOCKHOLDER'S EQUITY....................................... 234,722
--------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY....................... $376,570
====================
</TABLE>
See accompanying notes
F-26
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
(THOUSANDS OF DOLLARS)
<S> <C>
Operating revenues:
Revenues from wholly-owned operations................... $63,970
Equity in operating earnings of unconsolidated
affiliates............................................. 27,155
----------------------------
Total operating revenues................................. 91,125
----------------------------
Operating costs and expenses:
Cost of wholly-owned operations......................... 34,861
Depreciation and amortization........................... 8,675
General, administrative and development expenses ....... 19,993
----------------------------
Total operating costs and expenses....................... 63,529
----------------------------
Operating income......................................... 27,596
Other income (expense):
Equity in gain from project termination settlements .... 9,685
Other income, net....................................... 1,411
Interest expense........................................ (6,682)
----------------------------
Total other income ...................................... 4,414
----------------------------
Income before income taxes............................... 32,010
----------------------------
Income taxes............................................. 2,472
----------------------------
Net Income............................................... $29,538
============================
</TABLE>
See accompanying notes
F-27
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------
(THOUSANDS OF DOLLARS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 29,538
Adjustments to reconcile net income to net cash provided (used) by
operating activities ................................................
Undistributed equity in operating earnings of unconsolidated
affiliates.......................................................... (18,511)
Depreciation and amortization........................................ 8,675
Deferred income taxes and investment tax credits..................... (523)
Cash (used) provided by changes in certain working capital items .... (6,138)
Cash (used) by changes in other assets and liabilities .............. (615)
----------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES....................... 12,426
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects............................................... (102,119)
Loans to projects..................................................... (4,415)
Capital expenditures.................................................. (5,750)
(Increase) decrease in restricted cash................................ (13,817)
Other, net............................................................ 2,255
----------------------------
NET CASH USED BY INVESTING ACTIVITIES.................................. (123,846)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent..................................... 103,885
Dividends and other distributions paid to parent...................... (9)
Proceeds from issuance of long-term debt.............................. 2,375
Principal payments on long-term debt.................................. (2,487)
----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............................. 103,764
============================
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (7,656)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 25,163
----------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 17,507
============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized)............................. $ 6,808
Income tax benefits received, net of taxes paid....................... (1,939)
</TABLE>
See accompanying notes
F-28
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CURRENCY TOTAL
COMMON PAID-IN EARNINGS TRANSLATION STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) ADJUSTMENTS EQUITY
-------- ------------ ----------- ------------- ---------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ....... $1 $112,128 $(14,407) $ 97,722
Net income........................... 29,538 29,538
Dividends and other distributions to
parent.............................. (9) (9)
Capital contributions from parent ... 103,885 103,885
Currency translation adjustments .... $3,586 3,586
-------- ------------ ----------- ------------- ---------------
Balances at December 31, 1994 ....... $1 $216,013 $ 15,122 $3,586 $234,722
======== ============ =========== ============= ===============
</TABLE>
See accompanying notes
F-29
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
NRG Energy, Inc. (the Company), a Delaware Corporation, was incorporated
on May 29, 1992, as a wholly-owned subsidiary of Northern States Power
Company (NSP). Beginning in 1989, the Company was doing business through its
predecessor companies. NRG Energy, Inc. and NRG Group, Inc. Minnesota
corporations which were merged into the Company subsequent to its
incorporation. The Company and its subsidiaries and affiliates develop,
build, acquire, own and operate nonregulated energy-related businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries (referred to collectively herein as NRG).
All significant intercompany transactions have been eliminated. Investments
in partnerships, joint ventures and projects representing ownership of more
than 20%, but not in excess of 50%, are accounted for on the equity method.
Cash equivalents
Cash equivalents include highly liquid investments (primarily commercial
paper) with a remaining maturity of three months or less at the time of
purchase.
Restricted cash
Restricted cash consists primarily of cash collateral required in
connection with foreign currency hedging activities (see Note 12) and cash
collateral for letters of credit issued in relation to project development
activities.
Inventory
Inventory is valued at the lower of average cost or market and consists
principally of spare parts and raw materials used to generate steam.
Property, plant and equipment
Property, plant and equipment are capitalized at original cost.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements......... 20-45 years
Machinery and equipment............ 7-30 years
Office furniture and equipment .... 3-5 years
</TABLE>
Capitalized interest
Interest incurred on funds borrowed to finance projects expected to
require more than three months to complete is capitalized. Capitalization of
interest is discontinued when the project is completed and considered
operational. Capitalized interest is amortized using the straight-line method
over the useful life of the related project. Capitalized interest was $45,000
in 1994.
Development and capitalized project costs
These costs include professional services, dedicated employee salaries,
permits, and other costs which are incurred incidental to a particular
project. Such costs are expensed as incurred until a sales agreement or
letter of intent is signed, after which time they are capitalized. When
project operations begin, previously capitalized project costs are amortized
on a straight-line basis over the lesser of the life of the project's related
assets or revenue contract period.
F-30
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Debt issuance costs
Costs to issue long-term debt have been capitalized and are being
amortized over the terms of the related debt.
Intangibles
Intangibles consist principally of service agreements and the excess of
the cost of investment in subsidiaries over the underlying fair value of the
net assets acquired and are being amortized using the straight-line method
over 30 years. Intangibles also include patents which are being amortized
using the straight-line method over 17 years. The Company periodically
evaluates the recovery of goodwill and other intangibles based on an analysis
of the estimated undiscounted future cash flows.
Income taxes
The Company is included in the consolidated tax returns of NSP. NRG
calculates its income tax provision on a separate return basis under a tax
sharing arrangement with NSP. Current federal and state income taxes are
payable to or receivable from NSP. NRG records income taxes in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting
for Income Taxes." Under the liability method required by SFAS No.109, income
taxes are deferred on all temporary differences between pretax financial and
taxable income and between the book and tax bases of assets and liabilities.
Deferred taxes are recorded using the tax rates scheduled by law to be in
effect when the temporary differences reverse. Investment tax credits are
deferred and amortized over the estimated lives of the related property.
Revenue recognition
Under fixed-price contracts, revenues are recognized as deliveries of
products or services are made. Revenues and related costs under cost
reimbursable contract provisions are recorded as costs are incurred.
Anticipated future losses on contracts are charged against income when
identified.
Deferred revenues related to a 1988 legal settlement with a major thermal
customer. Settlement proceeds were deferred when received and are reflected
in operating income on a straight-line basis over the life of the related
steam contract which expires in 2001.
Foreign currency translation
The local currencies are generally the functional currency of NRG's
foreign operations. Foreign currency denominated assets and liabilities are
translated at end-of-period rates of exchange. Income, expense and cash flows
are translated at weighted-average rates of exchange for the period. The
resulting currency translation adjustments are accumulated and reported as a
separate component of stockholder's equity.
Exchange gains and losses that result from foreign currency transactions
(e.g., converting cash distributions made in one currency to another
currency) are included in the results of operations. Through December 31,
1994, NRG has not experienced any material translation gains or losses from
foreign currency transactions.
Derivative financial instruments
NRG's policy is to hedge financial currency denominated investments as
they are made to preserve their U.S. dollar value. NRG has entered into
currency hedging transactions through the use of forward
F-31
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
foreign currency exchange agreements. Gains and losses on these contracts
offset the effect of foreign currency exchange rate fluctuations on the
valuation of the investments underlying the hedges. The effect of hedging
gains and losses, net of income taxes, is reported with other currency
translation adjustments as a separate component of stockholder's equity. The
Company is not hedging currency translation adjustments related to operating
results. NRG does not speculate in foreign currencies.
Accounting change
In 1994, the Company adopted SFAS No. 112, "Employers' Accounting for
Postretirement Benefits." SFAS No. 112 requires the accrual of certain
employee costs (such as injury compensation or severance) to be paid in
future periods. The adoption of this new accounting standard did not have a
material effect on NRG's results of operations or financial condition.
3. BUSINESS ACQUISITIONS
Through its subsidiaries, NRG purchased equity interests during 1994 in
three significant international projects, two in Germany and one in
Australia. One of the investments is a 33% interest in Mitteldeutsche
Braunkohlengesellschaft mbH (MIBRAG), a German corporation. MIBRAG was formed
by the German government to operate mines, electric power plants and other
energy-related facilities. The other German investment is a 50% interest in
Saale Energie GmbH (Saale), also a German corporation. Saale owns a 400
megawatt share of a 900 megawatt power plant currently under construction
near Schkopau, Germany. The Australian investment is a 37.5% interest (held
by wholly-owned NRG subsidiaries Sunshine State Power BV and Sunshine State
Power (No. 2) BV) in a joint venture that acquired a 1,680 megawatt
coal-fired power plant in Gladstone, Queensland, Australia, which is operated
by an NRG subsidiary. The total acquisition investments in these three
projects through 1994, including capitalized developments costs, was
approximately $100 million. Earnings from equity interests in these NRG
international projects acquired in 1994 contributed $25.6 million to NRG's
1994 earnings.
On December 31, 1994, NRG, through a wholly-owned subsidiary, purchased a
50% partnership interest in Sunnyside Cogeneration Associates, a Utah joint
venture (partnership) which owns and operates a 51 megawatt waste coal plant
in Utah. The acquisition investment by NRG was $11.5 million. The waste coal
plant is currently being operated by a 50%-owned NRG partnership.
In August 1993, NRG Energy Center, Inc., a wholly-owned subsidiary of NRG,
acquired the assets of the Minneapolis Energy Center (MEC), a district
heating and cooling system in downtown Minneapolis, Minnesota. The system
uses steam and chilled water generating facilities to heat and cool buildings
for about 90 heating and 30 cooling customers. The acquisition was reflected
in the financial statements under the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed in the acquisition
have been recorded at their fair values. The purchase price was $110 million,
$84 million of which was financed by project debt. The purchase price
primarily included facilities, long-term service agreements and goodwill. The
results of operations of MEC since August 1993 have been included in the
consolidated financial statements.
F-32
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Facilities and equipment, including construction work in progress of $2,289 $153,221
Land and improvements....................................................... 10,397
Office furnishings and equipment............................................ 2,109
--------------------
Total property, plant and equipment ........................................ 165,727
Accumulated depreciation.................................................... (58,093)
--------------------
Net property, plant and equipment........................................... $107,634
====================
</TABLE>
5. INVESTMENTS ACCOUNTED FOR BY EQUITY METHOD
A summary of NRG's significant equity-method investments which were in
operation at December 31, 1994 is as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC ECONOMIC PURCHASED OR PLACED
NAME AREA INTEREST IN SERVICE
- ---------------------------------------- ----------------- -------------- --------------------------
<S> <C> <C> <C>
Various Independent Power Production
Facilities.............................. U.S.A. 45%-50% July 1991-December 1994
Rosebud Syncoal Partnership.............. U.S.A. 50% August 1993
MIBRAG................................... Europe 33% January 1994
Gladstone Power Station.................. Australia 37.5% March 1994
Schkopau Power Station................... Europe 20.6% Under Construction
Scudder Latin American Trust for
Independent Power Energy Projects ...... Latin America 6.3%-12.5% April-December 1994
</TABLE>
Summarized financial information for investments in projects accounted for
under the equity method as of and for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Operating revenues............ $ 731,308
Costs and expenses............ 604,428
--------------------
Net income................... $ 126,880
====================
Current assets................ $ 452,651
Noncurrent assets............. 1,787,089
--------------------
Total assets................. $2,239,740
====================
Current liabilities........... $ 159,840
Noncurrent liabilities........ 1,757,057
Equity........................ 322,843
--------------------
Total liabilities and
equity....................... $2,239,740
====================
NRG's share of equity......... $ 164,863
NRG's share of income......... $ 27,155
</TABLE>
F-33
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS ACCOUNTED FOR BY EQUITY METHOD (Continued)
In July 1994, Michigan Cogeneration Partners Limited Partnership (MCP), a
partnership between subsidiaries of NRG and Cogentrix, Inc., reached an
agreement with Consumers Power Company (Consumers), an electric utility
headquartered in Jackson, Michigan, to terminate the power sales contract
related to a 65 megawatt cogeneration facility being developed by MCP in
Parchment, Michigan. The agreement to terminate the contract required
Consumers to make payment to MCP of $29.8 million. As a result, NRG recorded
in Other Income. A net pretax gain from the termination of this contract of
$9.7 million in 1994.
In 1994, the Company recorded a pretax charge of $5.0 million to write
down the carrying value of two energy projects. The charge was determined
based on estimated discounted future cash flows, and is recorded in Other
Income, Net.
6. RELATED PARTY TRANSACTIONS
Operating Agreements
NRG has two agreements with NSP for the purchase of thermal energy. Under
the terms of the agreements, NSP charges NRG for certain incremental costs
(fuel, labor, plant maintenance, and auxiliary power) incurred by NSP to
produce the thermal energy. NRG paid NSP $6.6 million in 1994 under these
agreements.
NRG has a renewable 10-year agreement with NSP, expiring on December 31,
2001, whereby NSP agrees to purchase refuse-derived fuel for use in certain
of its boilers and NRG agrees to pay NSP a burn incentive. NRG has an
agreement expiring in 2006 to sell wood by-products obtained from a thermal
customer to NSP for use as fuel. Under these agreements, NRG received $1.7
million from NSP and paid $2.2 million to NSP in 1994.
Administrative Services and Other Costs
NRG and NSP have entered into an agreement to provide for the
reimbursement of actual administrative services provided to each other, an
allocation of NSP administrative costs and a working capital fee. Services
provided by NSP to NRG are principally cash management, legal, accounting,
employee relations and engineering. In addition, NRG employees participate in
operating certain employee benefit plans of NSP. During 1994, NRG paid NSP
$6.2 million as reimbursement for the cost of services provided.
Allocation is on a direct charge, actual cost basis where possible. When
this is not possible, an allocation is made based upon employee headcounts,
operating revenues and investment in fixed assets. Management believes that
"allocated" costs approximate expenses that would be incurred on a stand
alone basis.
7. NOTES RECEIVABLE
Notes receivable consist primarily of fixed and variable rate notes
secured by equity interests in partnerships and joint ventures. The weighted
average interest rate on the notes was 11.2% at December 31, 1994.
F-34
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
NRG Energy Center, Inc. Senior Secured Notes Series due June
15, 2013, 7.31% ............................................... $81,498
Note payable to NSP, due December 1, 1995-2006, 5.40%-6.75% .... 9,466
NRG Sunnyside Inc. note payable, due December 31, 1997, 10.00% . 2,375
--------------------
93,339
Less current maturities......................................... (3,306)
--------------------
$90,033
====================
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by MEC's
long-term assets. In accordance with the terms of the note agreements, the
Company is required to maintain compliance with certain financial covenants
primarily related to incurring debt, disposing of Company assets, and
affiliate transactions. The Company was in compliance with these covenants at
December 31, 1994.
The Note Payable to NSP relates to long-term debt assumed by the Company
in connection with the transfer of ownership of an RDF processing plant by
NSP to the Company during 1993.
The NRG Sunnyside, Inc. note payable was issued in connection with the
purchase of an equity interest in a waste-coal project during 1994.
Annual maturities of long-term debt for the years ending after December
31, 1994 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1995.......... $ 3,306
1996.......... 3,762
1997.......... 3,979
1998.......... 3,335
1999.......... 3,581
Thereafter .. 75,376
--------------------
Total........ $93,339
====================
</TABLE>
The Company has a revolving-credit agreement which may not exceed $5.0
million. At December 31, 1994, there were no borrowings under the credit
agreement.
F-35
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Current
Federal................. $ 1,694
State................... 737
Foreign................. 219
--------------------
2,650
Deferred
Federal................. 1,280
State................... 369
--------------------
1,649
Tax credits recognized .. (1,827)
--------------------
Total income tax
expense.................. $ 2,472
====================
</TABLE>
The components of the net deferred income tax liability at December 31
were:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Deferred tax liabilities
Differences between book and tax bases of property ..... $13,269
Investments in projects.................................. 6,168
Goodwill................................................. 256
Other.................................................... 930
--------------------
Total deferred tax liabilities........................... 20,623
Deferred tax assets
Deferred revenue......................................... 3,645
Development costs........................................ 2,047
Deferred investment tax credits.......................... 978
Deferred compensation, accrued vacation and other
reserves................................................ 992
Steam capacity rights.................................... 1,175
Other.................................................... 267
--------------------
Total deferred tax assets............................... 9,104
--------------------
Net deferred tax liability............................... $11,519
====================
</TABLE>
Actual income tax expense recorded differs from the statutory federal
income tax rate of 35% due to state income taxes, varying tax treatment of
foreign income and expenses and tax credits recognized.
Income before income taxes includes foreign income of $25.6 million in
1994. NRG's management intends to reinvest in earnings of foreign operations
indefinitely. Accordingly, U.S. income taxes and foreign withholding taxes
have not been provided on the earnings of foreign subsidiary companies. The
cumulative amount of undistributed pre-tax earnings of foreign subsidiaries
upon which no U.S. income taxes or foreign withholding taxes have been
provided is approximately $25.6 million at December 31, 1994. The additional
U.S. income tax and foreign withholding tax on the unremitted foreign
earnings, if repatriated, would be offset in whole or in part by foreign tax
credits. Thus, it is impracticable to estimate the amount of tax that might
be payable.
F-36
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Benefits
NRG participates in NSP's noncontributory, defined benefit pension plan
that covers substantially all employees. Benefits are based on a combination
of year of service, the employee's highest average pay for 48 consecutive
months, and Social Security benefits. Pension costs for NRG are determined
and recorded under the provisions of SFAS No. 87, "Employers' Accounting for
Pensions." Net annual periodic pension cost includes the following
components:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Service cost-benefits earned during the
period....................................... $ 654
Interest cost on projected benefit
obligation................................... 354
Actual return on assets....................... (58)
Net amortization and deferral ................ (262)
--------------------
Net periodic pension cost .................... $ 688
====================
</TABLE>
The funded status of the pension plan in which NRG employees participate
is as follows at December 31:
<TABLE>
<CAPTION>
NSP PLAN-1994
--------------------------
TOTAL NSP NRG PORTION
----------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligation
Vested.............................................. $ 571,254 $ 563
Nonvested........................................... 120,420 1,016
----------- -------------
Accumulated benefit obligation...................... $ 691,674 $1,579
=========== =============
Projected benefit obligation......................... $ 836,957 $4,228
Plan assets at fair value............................ 1,165,584 5,170
----------- -------------
Plan asset in excess of projected benefit
obligation.......................................... (328,627) (942)
Unrecognized prior service costs..................... (21,538) (96)
Unrecognized net actuarial gain ..................... 370,289 1,038
Unrecognized net transitional asset ................. 691 --
----------- -------------
Net pension liability recorded ..................... $ 20,815 $ --
=========== =============
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8% in 1994. The rate of
increase in future compensation levels used in determining the actuarial
present value of the projected obligation was 5% in 1994. The assumed
long-term rate of return on assets used for cost determinations under SFAS
No. 87 was 8% for 1994. Plan assets consist principally of common stock of
public companies and U.S. Government securities.
Postretirement Health Care
Effective January 1, 1993, NRG adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS
No. 106 requires the actuarial determined obligation for postretirement
health care and death benefits be fully accrued by the date employees attain
full eligibility for such benefits, which is generally when they reach
retirement age. In conjunction with the adoption of SFAS No. 106, NRG elected
to amortize on a straight-line basis over 20 years the unrecognized
accumulated postretirement benefit obligation (APBO) of $1.4 million for
current and future
F-37
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
retirees. This obligation considered 1994 plan design changes not in effect
in 1993, including Medicare integration, increased retiree cost sharing, and
managed indemnity measures.
The following table sets forth the funded status of the health care plan
in which NRG employees participate at December 31:
<TABLE>
<CAPTION>
NSP PLAN-1994
--------------------------
TOTAL NSP NRG PORTION
----------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
APBO
Retirees.............................. $ 132,200 $ 34
Fully eligible plan participants...... 21,500 359
Other active plan participants........ 79,400 1,319
----------- -------------
Total APBO.......................... 233,100 1,712
Plan assets at fair value............ 8,000 --
----------- -------------
APBO in excess of plan assets........ 225,100 1,712
Unrecognized net actuarial gain...... 2,300 265
Unrecognized net transition
obligation......................... (194,000) (1,273)
----------- -------------
Net benefit obligation recorded...... $ 33,400 $ 704
=========== =============
</TABLE>
The assumed health care cost trend rates used in measuring the APBO at
December 31, 1994 were 11.0% for those under age 65, and 7.5% for those over
age 65. The assumed cost trends are expected to decrease each year until they
reach 5.5% for both age groups in the year 2004, after which they are assumed
to remain constant. A one percent increase in the assumed health care cost
trend rate for each year would increase the APBO by approximately 13% as of
December 31, 1994. Service and interest cost components of the net periodic
postretirement cost would increase by approximately 16% with a similar one
percent increase in the assumed health care cost trend rate. The assumed
discount rate used in determining the APBO was 8% for December 31, 1994,
compounded annually. The assumed long-term rate of return on assets used for
cost determinations under SFAS No. 106 was 8% for 1994. The net annual
periodic postretirement benefit cost recorded for 1994 consists of the
following components:
<TABLE>
<CAPTION>
1994
--------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Service cost--benefits earned during the year . $140
Interest cost on APBO.......................... 126
Amortization of transition obligation ......... 70
Net amortization and deferral.................. --
--------------------
Net periodic postretirement health care
costs......................................... $336
====================
</TABLE>
11. SALES TO SIGNIFICANT CUSTOMERS
NRG and the Ramsey/Washington Resource Recovery Project have a service
agreement for waste disposal which expires in 2006. Approximately 35.5% in
1994 of the Company's operating revenues from wholly-owned operations were
recognized under this contract. In addition, sales to one thermal customer
amounted to 16.6% of operating revenues from wholly-owned operations in 1994.
F-38
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FINANCIAL INSTRUMENTS
The estimated December 31 fair values of NRG's recorded financial
instruments are as follows:
<TABLE>
<CAPTION>
1994
---------------------
CARRYING FAIR
AMOUNT VALUE
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Cash and cash equivalents................... $17,507 $17,507
Restricted cash............................. 13,817 13,817
Notes receivable, including current portion. 6,802 6,802
Long-term debt, including current portion .. 93,339 82,694
</TABLE>
For cash, cash equivalents and restricted cash, the carrying amount
approximates fair value because of the short-term maturity of those
instruments. The fair value of notes receivable is based on expected future
cash flows discounted at market interest rates. The fair value of long-term
debt is estimated based on the quoted market prices for the same or similar
issues.
NRG has entered into three forward foreign currency exchange contracts
with a counterparty to hedge exposure to currency fluctuations to the extent
permissible by hedge accounting requirements. Pursuant to these contracts,
transactions have been executed that are designed to protect the economic
value in U.S. dollars of NRG's equity investments, denominated in Australian
dollars and German deutsche marks (DM). NRG's forward currency exchange
contracts, in the notional amount of $93 million, hedge approximately $94
million of foreign currency denominated investments at December 31, 1994.
These foreign currency exchange contracts are not reflected in NRG's balance
sheet. The contracts do require cash collateral which was $6.7 million at
December 31, 1994 and is included in restricted cash on NRG's balance sheet.
The contracts terminate in 2004 and require foreign currency interest
payments by either party during each year of the contract. If the contracts
had been terminated at December 31, 1994, $4.3 million would have been
payable by NRG for currency exchange rate changes to date. Management
believes NRG's exposure to credit risk due to nonperformance by the
counterparty to its forward exchange contracts is not significant, based on
the investment grade rating of the counterparty.
13. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company has noncancelable operating leases for office space. The
leases require the company to pay certain annual operating costs, including
maintenance, insurance and real estate taxes. Rental expense under these
operating leases was $178 in 1994 (thousands of dollars). Future minimum
lease commitments under these leases for the years ended after December 31,
1994 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1995..... $221
1996..... 246
1997..... 131
--------------------
Total... $598
====================
</TABLE>
Financial Guarantees
Certain of the partnerships in which NRG is an equity investor have loan
agreements and debt outstanding which contain restrictive covenants. In the
event that certain covenants are not met, NRG has guaranteed the contribution
of $3.8 million of additional equity. No contributions of additional equity
were necessary during 1994.
F-39
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (Continued)
Capital Commitments
NRG is contractually committed to additional equity investments in an
existing German energy project. Such commitments are for approximately DM 36
million in 1995 and DM 35 million in 1996. The 1995 and 1996 commitments
would be approximately $23 million each year, based on exchange rates in
effect at December 31, 1994.
In addition, NRG is contractually committed to additional equity
investments of $20.6 million in the Scudder Latin American Trust for
Independent Power Energy Projects as of December 31, 1994.
14. SEGMENT REPORTING
NRG conducts its business within one industry segment--independent power
generation. Operations in the United States include wholly-owned operations
and investments in various domestic energy projects. International operations
include investments in various international energy projects. See Note 5 for
significant equity method investments.
<TABLE>
<CAPTION>
ASIA OTHER CORPORATE/
1994 U.S. EUROPE PACIFIC AMERICAS OTHER TOTAL
- ------------------------------- ---------- --------- --------- ---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from wholly-owned
operations..................... $ 63,970 $ 63,970
Equity in operating earnings
(losses) of unconsolidated
affiliates..................... (766) $19,340 $ 8,581 27,155
---------- --------- --------- ---------- -------------- ---------
Total operating revenues........ 63,204 19,340 8,581 91,125
Net income...................... 19,668 19,340 8,581 $(18,051)(1) 29,538
Assets reported on a
consolidated basis............. 122,087 34,380 (2) 156,467
Equity investments and loans to
affiliates..................... 116,073 33,389 70,641 220,103
---------- --------- --------- ---------- -------------- ---------
Total assets.................... $238,160 $33,389 $70,641 $ 34,380 $376,570
</TABLE>
- ------------
(1) Includes all expenses not allocated to either consolidated operations
or equity investments. This includes general, administrative and
development expenses as well as other income (net), interest expense
and taxes.
(2) Includes cash, debt issuance costs and other items not directly related
to specific asset groups.
15. SUBSEQUENT EVENT
NRG, through wholly-owned subsidiaries, owns 45% of the San Joaquin Valley
Energy Partnership (SJVEP), which owns four plants located near Fresno,
California with a total capacity of 55 megawatts. Through February 1995, the
plants operated under long-term Standard Offer 4 (SO4) power sales contracts
with Pacific Gas and Electric (PG&E) which expire in 2017. On February 28,
1995, PG&E reached basic agreements with SJVEP to acquire the SO4 contracts.
The parties entered into a bridging agreement to cover the period until all
regulatory approvals are received for the transaction. The bridging agreement
required SJVEP to cease power deliveries to PG&E as of February 28, 1995. The
negotiated agreements will result in cost savings for PG&E customers as well
as economic benefits for SJVEP. The final impact of this transaction on the
financial results of NRG will not be known until the agreements have been
approved and all costs associated with the idling of the facilities are
known. It is expected that a one-time gain from the transaction will be
recorded in the first half of 1995. SJVEP will continue to own and maintain
the facilities and will explore all available options.
F-40
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 22,815 $ 12,208
Restricted cash ............................................... 347 19,493
Accounts receivable-trade, less allowance for doubtful
accounts ..................................................... 13,951 10,400
Accounts receivable-affiliates ................................ 9,956 --
Current portion of notes receivable--affiliates ............... 48,555 --
Current portion of notes receivable ........................... 15,139 105,678
Income taxes receivable ....................................... 7,074 2,732
Inventory ..................................................... 2,484 2,401
Prepayments and other current assets .......................... 2,380 1,109
------------ ----------
TOTAL CURRENT ASSETS ........................................... 122,701 154,021
------------ ----------
Property, Plant and Equipment, at Original Cost:
In service .................................................... 198,989 170,509
Under construction ............................................ 16,809 10,529
------------ ----------
215,798 181,038
Less accumulated depreciation ................................. (74,739) (67,649)
------------ ----------
Net property, plant and equipment............................. 141,059 113,389
------------ ----------
Other Assets:
Investments in projects ....................................... 638,780 251,107
Capitalized project costs ..................................... 16,858 7,422
Notes receivable, less current portion--affiliates ........... 55,136 32,389
Notes receivable, less current portion ........................ -- --
Intangible assets, net of accumulated amortization ........... 40,171 41,236
Debt issuance costs, net of accumulated amortization ......... 4,965 2,850
------------ ----------
Total other assets ........................................... 755,910 335,004
------------ ----------
TOTAL ASSETS ................................................... $1,019,670 $602,414
============ ==========
</TABLE>
See accompanying notes
F-41
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1997 1996
------------ ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt ................. $ 5,312 $ 3,848
Accounts payable--trade ........................... 2,282 3,062
Notes payable--affiliates ......................... 43 2,075
Accrued income taxes .............................. 11,809 --
Accrued property and sales taxes .................. 2,199 2,236
Accrued salaries, benefits and related costs ..... 7,446 5,050
Accrued interest .................................. 1,870 --
Other current liabilities ......................... 5,637 6,121
------------ ---------
TOTAL CURRENT LIABILITIES .......................... 36,598 22,392
------------ ---------
Long-term debt, less current portion ............... 458,302 210,040
Deferred revenues .................................. 12,180 7,033
Deferred income taxes .............................. 11,680 7,138
Deferred investment tax credits .................... 1,725 1,980
Deferred compensation .............................. 2,259 1,632
------------ ---------
TOTAL LIABILITIES................................... 522,744 250,215
------------ ---------
Stockholder's Equity:
Common stock; $1 par value; 1,000 shares
authorized; 1,000 shares issued and outstanding .. 1 1
Additional paid-in capital ........................ 432,480 296,024
Retained earnings ................................. 78,290 52,830
Currency translation adjustments .................. (13,845) 3,344
------------ ---------
TOTAL STOCKHOLDER'S EQUITY ......................... 496,926 352,199
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ........ $1,019,670 $602,414
============ =========
</TABLE>
See accompanying notes
F-42
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Operating revenues:
Revenues from wholly-owned operations ................... $ 42,685 $35,367
Equity in operating earnings of unconsolidated
affiliates ............................................. 13,846 11,914
---------- ---------
Total operating revenues ................................. 56,531 47,281
Operating costs and expenses:
Cost of operations--wholly-owned operations ............. 22,696 18,104
Depreciation and amortization ........................... 4,544 4,161
General, administrative, and development ................ 18,039 18,280
---------- ---------
Total operating costs and expenses ....................... 45,279 40,545
---------- ---------
Operating income ......................................... 11,252 6,736
---------- ---------
Other income (expense):
Other income, net ....................................... 6,267 4,255
Interest expense ........................................ (11,182) (7,277)
---------- ---------
Total other income (expense) ............................. (4,915) (3,022)
---------- ---------
Income before income taxes ............................... 6,337 3,714
---------- ---------
Income (benefit) taxes ................................... (5,652) (2,793)
---------- ---------
Net Income................................................ $ 11,989 $ 6,507
========== =========
</TABLE>
See accompanying notes
F-43
<PAGE>
NRG ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 11,989 $ 6,507
Adjustments to reconcile net income to net cash provided by
operating activities .........................................
Undistributed equity in operating
earnings of unconsolidated affiliates........................ (12,957) 204
Depreciation and amortization ................................ 4,544 4,161
Deferred income taxes and investment tax credits.............. 2,946 (2,117)
Cash provided (used) by changes in certain working capital
items
Accounts receivable.......................................... (13,951) 74
Accounts receivable-affiliates............................... 2,105 3,499
Accrued income taxes......................................... 8,790 (10,098)
Inventory.................................................... (172) (590)
Prepayments and other current assets......................... 2,264 635
Accounts payable-trade....................................... (2,161) (3,146)
Accounts payable-affiliates.................................. -- 2,075
Accrued property and sales taxes............................. 40 341
Accrued salaried, benefits and related costs................. 887 (128)
Accrued interest............................................. (2,856) --
Other current liabilities.................................... 1,213 2,534
Cash (used) by changes in other assets and liabilities ...... 2,469 (605)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ........... 5,150 3,346
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in projects ....................................... (279,127) (48,173)
Changes in notes receivable ................................... (35,809) (97,620)
Capital expenditures .......................................... (15,077) (4,871)
Decrease (increase) in restricted cash ........................ 17,341 (9,720)
Cash distribution from project termination settlement ........ -- 15,671
Cash from sale of project investment .......................... 6,724 --
Currency translation........................................... (18,444) --
Other, net .................................................... (946) --
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES ....................... (325,338) (144,713)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent ............................. 81,467 25,011
Proceeds from issuance of long-term debt ...................... 250,325 122,671
Principal payments on long-term debt .......................... (1,227) (1,146)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ........... 330,565 146,536
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 10,377 5,169
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............ 12,438 7,039
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 22,815 $ 12,208
=========== ===========
</TABLE>
See accompanying notes
F-44
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
NRG Energy, Inc. (the Company), a Delaware Corporation, was incorporated
on May 29, 1992, as a wholly-owned subsidiary of Northern States Power
Company (NSP). Beginning in 1989, the Company was doing business through its
predecessor companies, NRG Energy, Inc. and NRG Group, Inc., Minnesota
corporations which were merged into the Company subsequent to its
incorporation. The Company and its subsidiaries and affiliates develop,
build, acquire, own and operate nonregulated energy-related businesses.
In the opinion of management, the unaudited interim consolidated financial
information of the Company contains all adjustments, consisting of only those
of a recurring nature, necessary to present fairly the Company's financial
position and results of operations. All significant inter-company accounts,
transactions, and profits have been eliminated. These financial statements
are for interim periods and do not include all information normally provided
in annual financial statements and notes thereto for the year ended December
31, 1996 and should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1996, contained
in the Company's 1996 Annual Report. The results of operation for the interim
periods are not necessarily indicative of the results that may be expected
for the full year.
2. RESTRICTED CASH
Restricted cash consists primarily of cash collateral required in
connection with foreign currency hedging activities and cash collateral for
letters of credit issued in relation to project development activities. At
June 30, 1997, the required levels of restricted cash were lower than the
same period in 1996 due to the change in the market value of the Company's
exchange swaps and the posting of an $8 million letter of credit which
replaced the collateral requirement.
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at June 30 were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Facilities and equipment, including construction work in progress
of $16,809 and $10,529 ............................................ $201,681 $167,813
Land and improvements .............................................. 10,397 10,397
Office furnishings and equipment ................................... 3,720 2,828
---------- ----------
Total property, plant and equipment .............................. 215,798 181,038
Accumulated depreciation ........................................... (74,739) (67,649)
---------- ----------
Net property, plant and equipment ................................ $141,059 $113,389
========== ==========
</TABLE>
The primary contributors to the increased facilities and equipment is due
to increased work in process at NEO for the construction of its landfill gas
projects ($17 million), and investments in NRG's thermal projects ($10
million).
4. BUSINESS ACQUISITIONS
On February 6, 1997, NRG signed a subscription agreement with Energy
Development Limited (EDL) to acquire up to 20% of common stock , and an
additional 15% of preference shares at AUS$2.20
F-45
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. BUSINESS ACQUISITIONS (CONTINUED)
per share. EDL is an Australian company engaged exclusively in independent
power generation from landfill gas, coal seam methane and natural gas
(including latest technology combined cycle projects). EDL is the largest
generator of power from coal seam methane in the world. The company currently
operates over 200 MW of generation across five states and territories in of
Australia and has commenced the development of new projects in the United
Kingdom, Asia and New Zealand. On February 11, 1997 NRG made an initial
purchase of 7.2% (4.5 million shares) of common stock for AUS$9.9 million
(US$7.9 million).
On December 19, 1996 NRG and Nordic Power Invest AB purchased 96.6% of
Bolivian Power Company Limited. NRG's ownership percentage is 58%, however,
it is NRG's intent to reduce its holdings to 50% or less.
In May 1997, the Company acquired a 25.37% interest in Loy Yang A for
approximately $257 million. Loy Yang A is a 2,000 MW brown coal fired thermal
power station and adjacent coal mine located in Victoria, Australia which the
State of Victoria sold as part of its privatization program. The power
station has four generating units, each with a 500 MW boiler and turbo
generator, which commenced commercial operation between July 1984 and
December 1988. In addition, the Company through its Loy Yang affiliate
manages the common infrastructure facilities that are located on the Loy Yang
site, the adjacent Loy Yang B 1,000 MW power station and several other nearby
power stations.
5. LONG-TERM DEBT
Long-term debt consists of the following at June 30:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
NRG Energy Center, Inc. Senior Secured Notes Series
due June 15, 2013, 7.31% ............................. $ 75,759 $ 78,180
Note payable to NSP, due December 1, 1995-2006
5.40%-6.75% .......................................... 8,405 8,958
NRG Sunnyside, Inc. note payable, due December 31,
1997 10.00% .......................................... 1,750 1,750
NRG San Diego, Inc., due June 25, 2003
8.0% ................................................. 2,700 --
NRG Energy Senior Notes, due February 1, 2006
7.625% ............................................... 125,000 125,000
NRG Energy Senior Notes, due 2007
7.5% ................................................. 250,000 --
---------- ---------
463,614 213,888
Less current maturities ............................... (5,312) (3,848)
---------- ---------
Total ............................................... $458,302 $210,040
========== =========
</TABLE>
The NRG Energy Center, Inc. notes are secured principally by long-term
assets of the Minneapolis Energy Center (MEC). In accordance with the terms
of the note agreements, MEC is required to maintain compliance with certain
financial covenants primarily related to incurring debt, disposing of MEC
assets, and affiliate transactions. MEC was in compliance with these
covenants at March 31, 1997.
The note payable to NSP relates to long-term debt assumed by the Company
in connection with the transfer of ownership of an RDF processing plant by
NSP to the Company in 1993.
The NRG Sunnyside, Inc. note payable was issued in connection with the
purchase of an equity interest in a waste-coal project in 1994.
F-46
<PAGE>
NRG ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (Continued)
The NRG Energy Senior Notes due 2006, were issued in January 1996, are
unsecured and require semi-annual interest payments on February 1 and August
1.
The NRG Energy Center Notes due 2007 were issued in June 1997, are
unsecured and require semi-annual interest payments on June 15 and December
15.
The NRG San Diego, Inc. Note was issued in June 1997 in conjunction with
the acquisition of San Diego Power and Cooling Company.
Annual maturities of long-term debt for the years ending after June 30,
1997 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
<S> <C>
1997 remaining $ 5,312
1998 ........... 3,903
1999 ........... 4,149
2000 ........... 4,409
2001 ........... 4,728
2002 ........... 5,023
Thereafter ..... 436,090
--------------------
Total ........ $463,614
====================
</TABLE>
6. INCOME TAXES
NRG and its parent, NSP, have entered into a federal and state income tax
sharing agreement relative to the filing of consolidated federal and state
income tax returns. The agreement provides, among other things, that (1) if
NRG, along with its subsidiaries, is in a taxable income position, NRG will
be currently charged with an amount equivalent to its federal and state
income tax computed as if the group had actually filed separate federal and
state returns, and (2) if NRG, along with its subsidiaries, is in a tax loss
position, NRG will be currently reimbursed to the extent its combined losses
are utilized in a consolidated return, and (3) if NRG, along with its
subsidiaries, generates tax credits, NRG will be currently reimbursed to the
extent its tax credits are utilized in a consolidated return.
7. ADDITIONAL PAID IN CAPITAL
NSP provided NRG with additional capital contributions of $80 million in
December 1996 (for use in the Cobee acquisition), $20 million in February
1997 (for investment in various projects including EDL), and $60.9 in May
1997 (for the Loy Yang acquisition).
F-47
<PAGE>
NRG ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
The unaudited pro forma condensed financial data set forth below give
effect to (i) the acquisition by NRG of a 25.37% equity interest in Loy Yang
A and the financing thereof and (ii) the offering of the Old Notes (the
"Offering"). The pro forma statement of income data for the year ended
December 31, 1996 and the six months ended June 30, 1997 give effect to such
transactions as if they had occurred at the beginning of the periods
presented. As the Loy Yang acquisition and the Offering were consummated
prior to June 30, 1997, no pro forma balance sheet data is provided. The pro
forma condensed financial data do not purport to be indicative of the
combined financial position or results of operations of future periods or
indicative of the results that would have occurred had the transactions
referred to above been consummated on the dates indicated. The following data
should be read in conjunction with, and are qualified in their entirety by,
the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 ADJUSTMENTS 1996
-------------- ------------- --------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Revenues:
Revenues from wholly-owned operations ....... $ 71,649 $ -- $ 71,649
Equity in operating earnings of
unconsolidated affiliates ................... 32,815 9,460 (1) 42,275
-------------- ------------- --------------
Total operating revenues .................... 104,464 9,460 113,924
-------------- ------------- --------------
Operating Costs and Expenses:
Cost of operations--wholly-owned operations . 36,562 -- 36,562
Depreciation and amortization ................ 8,378 -- 8,378
General, administrative, and development .... 39,248 -- 39,248
-------------- ------------- --------------
Total operating costs and expenses ......... 84,188 84,188
-------------- ------------- --------------
Operating Income .............................. 20,276 9,460 29,736
-------------- ------------- --------------
Other Income (Expense):
Other income, net ............................ 9,477 -- 9,477
Interest expense ............................. (15,430) (18,750) (2) (34,180)
-------------- ------------- --------------
Total other income (expense) .................. (5,953) (18,750) (24,703)
-------------- ------------- --------------
Income before Income Taxes (Benefit) ......... 14,323 (9,290) 5,033
-------------- ------------- --------------
Income Taxes .................................. (5,655) (4,373) (3) (10,028)
-------------- ------------- --------------
Net Income .................................... $ 19,978 $ (4,917) $ 15,061
============== ============= ==============
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang project for twelve
months based upon historical data adjusted for differences due to
acquisition accounting primarily depreciation charges, finance charges
and adjustments to income tax expense.
(2) Amount represents accrued interest on $250 million principal amount of
the Old Notes for twelve months at a rate of 7.5% per annum.
(3) Net tax benefit derived from interest expense on the Old Notes.
F-48
<PAGE>
NRG ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 ADJUSTMENTS 1997
----------- ------------- ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating Revenues:
Revenues from wholly-owned operations ....... $ 42,685 $ -- $ 42,685
Equity in operating earnings of
unconsolidated affiliates ................... 13,846 410 (1) 14,256
----------- ------------- ------------
Total operating revenues .................... 56,531 410 59,941
----------- ------------- ------------
Operating Costs and Expenses ..................
Cost of operations--wholly-owned operations . 22,696 -- 22,696
Depreciation and amortization ................ 4,544 -- 4,544
General, administrative, and development .... 18,039 -- 18,039
----------- ------------- ------------
Total operating costs and expenses ......... 45,279 -- 45,279
----------- ------------- ------------
Operating Income .............................. 11,252 410 11,662
----------- ------------- ------------
Other Income (Expense).........................
Other income, net ............................ 6,267 -- 6,267
Interest expense ............................. (11,182) (6,883) (2) (18,065)
----------- ------------- ------------
Total other income (expense) .................. (4,915) (6,883) (11,798)
----------- ------------- ------------
Income before Income Taxes .................... 6,337 (6,473) 136
----------- ------------- ------------
Income Taxes .................................. (5,652) (1,605) (3) (7,257)
----------- ------------- ------------
Net Income .................................... $ 11,989 $ (4,868) $ 7,121
=========== ============= ============
</TABLE>
- ------------
(1) Represents estimated equity earnings from Loy Yang project until May
14, 1997 based upon historical data adjusted for differences due to
acquisition accounting primarily depreciation charges, finance charges
and adjustments to income tax expense. Equity earnings of Loy Yang A
from May 15 until June 30 were $1,061. This amount is summarized in the
Historical column of Equity in earnings of unconsolidated affiliates.
(2) Represents accrued interest on $250 million principal amount of the Old
Notes until May 14 at a rate of 7.5% per annum. Interest of $2,414 on
the Old Notes from May 15 until June 30 is in the Historical column.
(3) Net tax benefit derived from expense on the Old Notes.
F-49
<PAGE>
TO THE SHAREHOLDERS OF SUNSHINE STATE POWER BV
AUDITORS' REPORT
We have audited the accompanying balance sheet of Sunshine State Power BV as
of December 31, 1996, 1995 and 1994, and the related statements of income and
of cash flows for each of the years in the three year period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of December 31, 1996, 1995 and 1994 and
of the results for the years then ended in accordance with accounting
principles generally accepted in the Netherlands and comply with the
financial reporting requirements included in Part 9, Book 2 of the
Netherlands Civil Code.
PRICE WATERHOUSE NEDERLAND BV
March 21, 1997
Amsterdam, Netherlands
F-50
<PAGE>
SUNSHINE STATE POWER BV
BALANCE SHEET AT DECEMBER 31, 1996, 1995 AND 1994
(BEFORE APPROPRIATION OF THE RESULT FOR THE YEAR)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
AUD'000 AUD'000 AUD'000
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
FIXED ASSETS
Intangible fixed assets ............ 8,397 8,868 9,338
Tangible fixed assets .............. 165,173 161,355 153,662
--------- --------- ---------
173,570 170,223 163,000
CURRENT ASSETS
Stocks.............................. 3,536 1,851 1,845
Receivables ........................ 4,877 5,835 4,366
Cash and bank balances ............. 11,898 11,460 10,425
--------- --------- ---------
20,311 19,146 16,636
--------- --------- ---------
TOTAL ASSETS ....................... 193,881 189,369 179,636
--------- --------- ---------
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
Issued share capital ............... 30 30 30
Retained earnings .................. 15,014 7,712 --
Result for the year................. 9,133 7,302 7,712
--------- --------- ---------
24,177 15,044 7,742
--------- --------- ---------
Provisions ......................... 14,618 9,309 4,496
Long-term liabilities .............. 146,817 156,097 158,814
Current liabilities ................ 8,269 8,919 8,584
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY
AND LIABILITIES ................... 193,881 189,369 179,636
--------- --------- ---------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
F-51
<PAGE>
SUNSHINE STATE POWER BV
STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
AUD'000 AUD'000 AUD'000
--------- --------- ---------
<S> <C> <C> <C>
Net turnover
Queensland Transmission & Supply Corporation .. 31,245 33,250 23,725
Boyne Smelters Limited ......................... 21,548 21,378 13,544
--------- --------- ---------
TOTAL ........................................... 52,793 54,628 37,269
Cost of turnover
Non-fuel ....................................... 9,179 8,163 6,803
Fuel ........................................... 14,562 14,851 11,345
--------- --------- ---------
TOTAL ........................................... 23,741 23,014 18,148
--------- --------- ---------
GROSS PROFIT ON TURNOVER ........................ 29,052 31,614 19,121
--------- --------- ---------
Operating expenses ............................. 1,719 3,000 741
Depreciation and amortization expense ......... 6,041 5,539 3,854
--------- --------- ---------
TOTAL EXPENSES .................................. 7,760 8,539 4,595
--------- --------- ---------
NET PROFIT ON TURNOVER .......................... 21,292 23,075 14,526
--------- --------- ---------
Interest expense ................................ 10,233 11,100 6,518
Interest income ................................. (770) (718) (514)
Foreign exchange (gain)/loss .................... (2,527) 744 (2,989)
Disposal of assets loss ......................... 86 --
--------- --------- ---------
NET FINANCIAL EXPENSE ........................... 7,022 11,126 3,015
Result from ordinary operations before taxation 14,270 11,949 11,511
Taxation ........................................ 5,137 4,647 3,799
--------- --------- ---------
NET RESULT ...................................... 9,133 7,302 7,712
--------- --------- ---------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
F-52
<PAGE>
SUNSHINE STATE POWER BV
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
AUD'000 AUD'000 AUD'000
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net result ....................................... 9,133 7,302 7,712
Adjustments to reconcile net result to net cash
provided by operating activities:
Depreciation and amortization ................... 6,041 5,539 3,854
Deferred income taxes ........................... 5,137 4,647 3,799
Foreign exchange loss/(gain) .................... (2,527) 744 (2,989)
Loss on sale of fixed assets..................... 86 --
Changes in operating assets and liabilities:
Stocks .......................................... (1,685) (6) 484
Receivables ..................................... 958 (1,469) (4,338)
Provisions ...................................... 172 166 125
Current liabilities ............................. (1,088) (102) 4,546
--------- ---------- -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 16,227 16,821 13,193
--------- ---------- -----------
Cash flows from investing activities
Purchases of tangible fixed assets .............. (9,495) (12,762) (306)
Proceeds from sale of fixed assets .............. 21 -- --
Acquisition of 20% of the Gladstone Power
Station......................................... -- -- (168,332)
--------- ---------- -----------
NET CASH FLOWS USED BY INVESTING ACTIVITIES .... (9,474) (12,762) (168,638)
Cash flows from financing activities
Proceeds (repayments) of notes payable ......... (1,840) 1,014 172,933
Proceeds from issuance of share capital ........ 30
Repayments of long-term debt .................... (4,475) (4,038) (7,093)
--------- ---------- -----------
NET CASH FLOWS (USED) PROVIDED BY FINANCING
ACTIVITIES ..................................... (6,315) (3,024) 165,870
--------- ---------- -----------
NET INCREASE IN CASH AND BANK BALANCES ........... 438 1,035 10,425
--------- ---------- -----------
Cash and bank balances
Beginning of year ................................ 11,460 10,425 --
--------- ---------- -----------
End of year ...................................... 11,898 11,460 10,425
--------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR
INTEREST ....................................... 10,382 11,043 5,617
--------- ---------- -----------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
F-53
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
1. GENERAL
ACTIVITIES
Sunshine State Power BV (the Company) was incorporated on November 11,
1993. The Company's principal operating activity is the ownership of 20% of
the Gladstone Power Station Joint Venture. The Gladstone Power Station Joint
Venture owns and operates the Gladstone Power Station located in Queensland,
Australia which it acquired on March 30, 1994. The Gladstone Power Station
Joint Venture is an unincorporated joint venture and therefore not a separate
legal entity. Accordingly, the Gladstone Power Station Joint Venture owners
act as tenants in common owning their proportionate shares of the
unincorporated joint venture's assets, liabilities and results of operations.
The accounts have been prepared for the years ended December 31, 1996, 1995
and 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Unless otherwise stated assets and liabilities are carried at nominal
value.
BASIS OF PREPARATION
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles in the Netherlands (Netherland GAAP)
which may differ in certain respects from generally accepted accounting
principles in the United States (US GAAP). With regard to the Company's
statements, there are no material differences between Netherlands GAAP and US
GAAP.
FOREIGN CURRENCIES
Assets and liabilities at year-end and transactions during the period
denominated in a foreign currency are translated into the Company's local
currency (Australian $) at the exchange rates ruling at year-end and at the
time of the transaction, respectively. Exchange adjustments are taken to the
statement of income.
INTANGIBLE FIXED ASSETS
Project Development Expenditures -Project development expenditures
represent the Company's share of project development expenditures incurred by
the Gladstone Power Station Joint Venture to organize the acquisition of the
Gladstone Power Station and operate it subsequent to the acquisition.
Capitalized development expenditures are being amortized over the term of
the Gladstone Power Station Power sales agreements (35 years), commencing
from the date the investment in the project was consummated. The carrying
values of capitalized development expenditures and the amortization periods
are reviewed annually and any necessary write down is charged against income.
Research expenditures and expenditures on development of existing projects
are charged against income in the year in which they are incurred.
Financing Costs -Financing costs represent the Company's share of the
costs incurred by the Gladstone Power Station Joint Venture to acquire the
long-term debt used to finance the acquisition of the Gladstone Power
Station. Capitalized financing costs are being amortized over a ten year
period, which represents the timeframe until the Company expects the
long-term debt will be refinanced.
F-54
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 -- (CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
TANGIBLE FIXED ASSETS
All tangible fixed assets are stated at cost. The Company has not had any
revaluations performed on its tangible fixed assets. Tangible fixed assets,
with the exception of land, are depreciated over their estimated useful lives
or over the life of the power purchase agreement by the straight line method.
Ordinary maintenance and repairs are expensed as incurred; replacements and
improvements are capitalized.
The estimated useful lives are:
<TABLE>
<CAPTION>
<S> <C>
Site roads and preparation ........ 35 years
Generators, systems, stacks, etc. . 35 years
Coal handling plant ............... 10-35 years
Other operating fixed assets ...... 3-10 years
</TABLE>
STOCKS
Stocks are carried at the lower of cost (principally by the FIFO method or
another method which approximates FIFO) and net realizable value. In valuing
stocks, appropriate allowance is made for obsolete or slow-moving items.
TRADE DEBTORS
Trade debtors are stated at nominal value.
PROVISIONS
Employee Provisions -Provisions are made for amounts expected to be paid
to the operator of the Gladstone Power Station in respect of its employees
for the pro rata entitlements for long service and annual leave. These
amounts are accrued at actual pay rates having regard to experience of
employee's departure and period of service. The provisions are divided into
current (expected to be paid in the ensuing twelve months) and non-current
portions.
Deferred Tax -Provisions for deferred taxes have been set up where items
entering into the determination of accounting profit for one period are
recognized for taxation purposes in another. The principal difference arises
in connection with the depreciation of fixed assets. In calculating the
provision, current tax rates are applied. During 1995, Australian income tax
rates increased from 33% to 36%. In 1995, the prior year deferred tax balance
was increased to reflect the increase in tax rates with the adjustment being
recorded in taxation in the statement of income.
COMPANY INCOME TAX
Company income tax is based upon the results reported in the statement of
income as adjusted for permanent differences. Current Australian tax rates
are applied.
F-55
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 -- (CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
3. INTANGIBLE FIXED ASSETS
The movements in the intangible fixed assets are summarized as follows:
<TABLE>
<CAPTION>
PROJECT
DEVELOPMENT FINANCING
EXPENDITURES COSTS TOTAL
AUD'000 AUD'000 AUD'000
-------------- ----------- ---------
<S> <C> <C> <C>
COST
Balance at December 31, 1993 .............................. -- -- --
Company's share of fixed assets acquired with the
Gladstone Power Station acquisition ...................... 6,984 2,707 9,691
-------------- ----------- ---------
Balance at December 31, 1994 .............................. 6,984 2,707 9,691
Additions for the year ended December 31, 1995 ........... -- -- --
-------------- ----------- ---------
Balance at December 31, 1995 .............................. 6,984 2,707 9,691
Additions for the year ended December 31, 1996 ........... -- -- --
-------------- ----------- ---------
Balance at December 31, 1996 .............................. 6,984 2,707 9,691
ACCUMULATED AMORTIZATION
Balance at December 31, 1993 .............................. -- -- --
Amortization for the year ended December 31, 1994 ........ (150) (203) (353)
Amortization for the year ended December 31, 1995 ........ (199) (271) (470)
Amortization for the year ended December 31, 1996 ........ (200) (271) (471)
-------------- ----------- ---------
Balance at December 31, 1996 .............................. (549) (745) (1,294)
-------------- ----------- ---------
Net book value at December 31, 1996 ....................... 6,435 1,962 8,397
-------------- ----------- ---------
</TABLE>
F-56
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 -- (CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
4. TANGIBLE FIXED ASSETS
The movements in the tangible fixed assets are summarized as follows:
<TABLE>
<CAPTION>
OTHER
SITE ROADS GENERATORS, COAL OPERATING
AND SYSTEMS, HANDING FIXED
LAND PREPARATION STACKS PLANT ASSETS TOTAL
--------- ------------- ------------- --------- ----------- ----------
AUD'000 AUD'000 AUD'000 AUD'000 AUD'000 AUD'000
<S> <C> <C> <C> <C> <C> <C>
COST
Balance at November 11, 1993 ........... -- -- -- -- -- --
Company's share of assets acquired with
Gladstone Power Station acquisition .. 211 2,443 141,118 6,294 1,613 151,679
Additions ............................. -- -- 7 -- 299 306
--------- ------------- ------------- --------- ----------- ----------
Balance at December 31, 1994 ........... 211 2,443 141,125 6,294 1,912 151,985
Additions ............................. -- 146 8,943 2,036 721 11,846
Disposals ............................. -- -- (1) -- (10) (11)
--------- ------------- ------------- --------- ----------- ----------
Balance at December 31, 1995 ........... 211 2,589 150,067 8,330 2,623 163,820
Additions ............................. 5 209 11,988 1,334 111 13,647
Disposals ............................. -- -- (88) -- (19) (107)
--------- ------------- ------------- --------- ----------- ----------
Balance at December 31, 1996 ........... 216 2,798 161,967 9,664 2,715 177,360
--------- ------------- ------------- --------- ----------- ----------
ACCUMULATED DEPRECIATION
Balance at November 11, 1993 ........... -- -- -- -- -- --
Charge for the period .................. -- (53) (2,940) (331) (177) (3,501)
--------- ------------- ------------- --------- ----------- ----------
Balance at December 31, 1994 ........... -- (53) (2,940) (331) (177) (3,501)
Charge for the year .................... -- (72) (4,304) (452) (353) (5,181)
--------- ------------- ------------- --------- ----------- ----------
Balance at December 31, 1995 ........... -- (125) (7,244) (783) (530) (8,682)
Charge for the year .................... -- (79) (4,497) (601) (393) (5,570)
--------- ------------- ------------- --------- ----------- ----------
Balance at December 31, 1996 ........... -- (204) (11,741) (1,384) (923) (14,252)
--------- ------------- ------------- --------- ----------- ----------
Net book value at December 31, 1996 ... 216 2,594 150,226 8,280 1,792 163,108
--------- ------------- ------------- --------- ----------- ----------
Construction in progress at
December 31, 1996 (construction in
progress at December 31, 1995 and 1994
was $6,217 and $5,178, respectively) . 2,065
----------
Net tangible fixed assets at
December 31, 1996 .................... 165,173
----------
</TABLE>
5. STOCKS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Coal ................... 2,318 656 774
Fuel oils .............. 154 202 120
Chemicals .............. 12 13 26
Spares and consumables 1,052 980 925
-------------- -------------- --------------
3,536 1,851 1,845
-------------- -------------- --------------
</TABLE>
F-57
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 -- (CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
6. RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Trade debtors 4,605 5,501 4,003
Prepayments .. 272 334 363
-------------- -------------- --------------
4,877 5,835 4,366
-------------- -------------- --------------
</TABLE>
All receivables are due in less than one year.
7. CASH AND BANK BALANCES
All cash and bank balances are held by banks and include investments with
maturities of three months or less which are readily convertible to cash. The
Company's long-term debt agreement places restrictions on the amount of cash
and bank balances which must be maintained. At December 31, 1996, 1995 and
1994, the restricted cash and bank balances totaled $7,000,000, $7,500,000
and $6,300,000, respectively.
8. ISSUED SHARE CAPITAL
The authorized share capital consists of 2 000 shares each having a
nominal value of 30 Australian dollars (40 Dutch Guilders), of which 1 000
shares have been issued and fully paid up at December 31, 1996 and 1995. The
Company's shares are owned by NRGenerating International BV (990) and Gunwale
BV (10). Both NRGenerating International BV and Gunwale BV are wholly owned
by NRG Energy, Inc., which is incorporated in the United States of America.
9. RETAINED EARNINGS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
AUD'000 AUD'000
<S> <C> <C>
Balance at January 1 ................ 7,712 --
Appropriation of prior years result 7,302 7,712
--------- ---------
Balance at December 31 .............. 15,014 7,712
--------- ---------
</TABLE>
10. RESULT FOR THE PERIOD
<TABLE>
<CAPTION>
AUD'000
<S> <C>
Balance at November 11, 1993 ...................... --
Net result for the period ended December 31, 1994 7,712
1994 net result appropriated to retained earnings (7,712)
Net result for the year ended December 31, 1995 .. 7,302
1995 net result appropriated to retained earnings (7,302)
Net result for the year ended December 31, 1996 .. 9,133
---------
Balance at December 31, 1996 ...................... 9,133
---------
</TABLE>
F-58
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 -- (CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
11. PROVISIONS
<TABLE>
<CAPTION>
EMPLOYEE DEFERRED
PROVISIONS TAX TOTAL
------------ ---------- ---------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Balance at November 11, 1993 ....... -- -- --
Company's share assumed with the
Gladstone Power Station acquisition 572 -- 572
Charged/(released) to income ....... 125 3,799 3,924
------------ ---------- ---------
Balance at December 31, 1994 ....... 697 3,799 4,496
Charged/(released) to income ....... 166 4,647 4,813
------------ ---------- ---------
Balance at December 31, 1995 ....... 863 8,446 9,309
Charged/(released) to income ....... 172 5,137 5,309
------------ ---------- ---------
Balance at December 31, 1996 ....... 1,035 13,583 14,618
------------ ---------- ---------
</TABLE>
Approximately $ 618 (AUD'000) of the employee provisions are current and
expected to be paid during 1997.
12. LONG-TERM LIABILITIES
Secured long-term debt due to third parties
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Secured -with banks . 108,821 113,733 118,208
-------------- -------------- --------------
</TABLE>
Current installments of bank long-term debt are included under current
liabilities. The interest rate for long-term debt is variable based on an
average of the bid rates quoted by the banks plus a margin of 1.4% at
December 31, 1996.
The bank long-term debt is repayable as follows (in AUD'000):
<TABLE>
<CAPTION>
<S> <C>
1997 ......... 4,913
1998 ......... 5,437
1999 ......... 5,975
2000 ......... 6,600
2001 ......... 7,275
Thereafter .. 83,534
--------
113,734
--------
</TABLE>
The bank long-term debt is secured by the Company's ownership interest in
the Gladstone Power Station Joint Venture.
Unsecured Subordinated Notes Payable (AUD'000)
On March 25, 1994 the Company received loans from NRGenerating
International BV and Gunwale BV, the primary shareholders of the Company, in
the amounts of $ 48,312 and $488 respectively. The notes payable are
subordinated to all other liabilities of the Company, bear no interest and
are to be repaid in U.S. dollars. During 1996, the Company repaid $1,822 and
$18 to NRGenerating International BV and Gunwale BV, respectively. There were
no repayments made during 1995. During 1994, the Company repaid $5,152 and
$53 to NRGenerating International BV and Gunwale BV, respectively.
F-59
<PAGE>
SUNSHINE STATE POWER BV
NOTES TO THE ANNUAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 -- (CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
Repayments on the notes payable are at the discretion of the Company, unless
certain events of termination occur, as defined, and then the entire balance
of the notes becomes due. The note balances, as adjusted for current period
activity and foreign exchange fluctuations, were $37,616 and $380 to
NRGenerating International BV and Gunwale BV at December 31, 1996,
respectively and $41,940 and $424 to NRGenerating International BV and
Gunwale BV at December 31, 1995, respectively.
13. CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Current installments of bank long-term debt 4,913 4,475 4,038
Trade creditors/suppliers ................... 776 1,579 1,370
Accrued coal/rail costs ..................... 1,152 1,712 1,984
Accrued interest ............................ 800 959 901
Other accrued expenses ...................... 628 194 291
-------------- -------------- --------------
8,269 8,919 8,584
-------------- -------------- --------------
</TABLE>
14. RELATED PARTIES
An affiliate of the Company, Sunshine State Power (No. 2) BV owns 17.5% of
the Gladstone Power Station Joint Venture. Sunshine State Power (No. 2) BV is
owned by the owners of the Company.
The Gladstone Power Station is operated by NRG Gladstone Operating
Services Ply Ltd, which is ultimately a wholly-owned subsidiary of NRG Energy
Inc. NRG Gladstone Operating Services Ply Ltd operates the Gladstone Power
Station under the terms of the Operation and Maintenance Agreement with the
Gladstone Power Station Joint Venture. During the periods ended December 31,
1996, 1995 and 1994, the Company paid NRG Gladstone Operating Services Pty
Ltd approximately $288, $331 and $194 (AUD'000) respectively in operators
fees under the terms of the Operation and Maintenance Agreement.
15. NUMBER OF EMPLOYEES
The average number of persons employed at the Gladstone Power Station
during 1966 was approximately 471. These individuals are primarily employed
in the operations and maintenance areas of the station. The Company is
responsible for 20% of the related costs for these employees. The Company
itself has no employees.
16. REMUNERATION OF DIRECTORS
During the periods ended December 31, 1996, 1995 and 1994, none of the
directors received remuneration for their services as directors of the
Company.
F-60
<PAGE>
TO THE SHAREHOLDERS OF SUNSHINE STATE POWER (NO. 2) BV
AUDITORS' REPORT
We have audited the accompanying balance sheet of Sunshine State Power (No.
2) BV as of December 31, 1996, 1995 and 1994, and the related statements of
income and of cash flows for each of the years in the three year period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of December 31, 1996, 1995 and 1994 and
of the results for the years then ended in accordance with accounting
principles generally accepted in the Netherlands and comply with the
financial reporting requirements included in Part 9, Book 2 of the
Netherlands Civil Code.
PRICE WATERHOUSE NEDERLAND BV
March 21, 1997
Amsterdam, Netherlands
F-61
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
BALANCE SHEET AT DECEMBER 31, 1996, 1995 AND 1994
(BEFORE APPROPRIATION OF THE RESULT FOR THE YEAR)
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
AUD'000 AUD'000 AUD'000
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
FIXED ASSETS
Intangible fixed assets ............ 7,348 7,759 8,171
Tangible fixed assets............... 144,524 141,183 134,452
--------- --------- ---------
151,872 148,942 142,623
CURRENT ASSETS
Stocks ............................. 3,093 1,620 1,614
Receivables ........................ 4,267 5,106 3,869
Cash and bank balances ............. 10,416 9,953 9,055
--------- --------- ---------
17,776 16,679 14,538
--------- --------- ---------
TOTAL ASSETS ....................... 169,648 165,621 157,161
SHAREHOLDERS' EQUITY AND
LIABILITIES
SHAREHOLDERS' EQUITY
Issued share capital ............... 30 30 30
Retained earnings .................. 13,158 6,748 --
Result for the year ................ 7,950 6,410 6,748
--------- --------- ---------
21,138 13,188 6,778
--------- --------- ---------
Provisions ......................... 12,779 8,155 3,933
Long-term liabilities .............. 128,472 136,515 138,939
Current liabilities ................ 7,259 7,763 7,511
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES ....................... 169,648 165,621 157,161
========= ========= =========
</TABLE>
The accompanying notes form an integral part of the annual accounts.
F-62
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD ENDED DECEMBER 31, 1994
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
AUD'000 AUD'000 AUD'000
--------- --------- ---------
<S> <C> <C> <C>
Net turnover
Queensland Electricity Commission .............. 27,340 29,094 20,759
Boyne Smelters Limited ......................... 18,854 18,706 11,851
--------- --------- ---------
TOTAL ........................................... 46,194 47,800 32,610
Cost of turnover
Non-fuel ....................................... 8,031 7,143 5,953
Fuel ........................................... 12,742 12,995 9,926
--------- --------- ---------
TOTAL ........................................... 20,773 20,138 15,879
--------- --------- ---------
GROSS PROFIT ON TURNOVER ........................ 25,421 27,662 16,731
Operating expenses .............................. 1,509 2,632 646
Depreciation and amortization expense ........... 5,285 4,846 3,373
--------- --------- ---------
TOTAL EXPENSES .................................. 6,794 7,478 4,019
--------- --------- ---------
NET PROFIT ON TURNOVER .......................... 18,627 20,184 12,712
Interest expense ................................ 8,954 9,713 5,704
Interest income ................................. (668) (626) (449)
Foreign exchange (gain)/loss .................... (2,157) 609 (2,614)
Disposal of assets loss ......................... 76 --
--------- --------- ---------
NET FINANCIAL EXPENSE ........................... 6,205 9,696 2,641
--------- --------- ---------
Result from ordinary operations before taxation 12,422 10,488 10,071
Taxation ........................................ 4,472 4,078 3,323
--------- --------- ---------
NET RESULT ...................................... 7,950 6,410 6,748
--------- --------- ---------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
F-63
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND PERIOD ENDED DECEMBER 31, 1994
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
AUD'000 AUD'000 AUD'000
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net result ................................................ 7,950 6,410 6,748
Adjustments to reconcile net result to net cash provided
by operating activities:
Depreciation and amortization ............................ 5,285 4,846 3,373
Deferred income taxes .................................... 4,472 4,078 3,323
Foreign exchange loss/(gain) ............................. (2,157) 609 (2,614)
Loss on sale of fixed assets.............................. 76 --
Changes in operating assets and liabilities:
Stocks ................................................... (1,473) (6) 423
Receivables .............................................. 839 (1,237) (3,845)
Provisions ............................................... 152 144 110
Current liabilities ...................................... (886) (131) 3,978
--------- ---------- -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ......... 14,258 14,713 11,496
--------- ---------- -----------
Cash flows from investing activities:
Purchases of tangible fixed assets ....................... (8,308) (11,165) (268)
Proceeds from sale of fixed assets ....................... 17 -- --
--------- ---------- -----------
Acquisition of 20% of the Gladstone Power Station ....... -- -- (147,288)
NET CASH FLOWS USED BY INVESTING ACTIVITIES............... (8,291) (11,165) (147,556)
--------- ---------- -----------
Cash flows from financing activities:
Proceeds (repayments) of notes payable ................... (1,588) 883 151,316
Proceeds from issuance of share capital .................. 30
Repayments of long-term debt ............................. (3,916) (3,533) (6,231)
--------- ---------- -----------
NET CASH FLOWS (USED) BY FINANCING ACTIVITIES ........... (5,504) (2,650) 145,115
--------- ---------- -----------
NET INCREASE IN CASH AND BANK BALANCES .................... 463 898 9,055
--------- ---------- -----------
Cash and bank balances
Beginning of year ......................................... 9,953 9,055 --
--------- ---------- -----------
End of year ............................................... 10,416 9,953 9,055
--------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR INTEREST ....... 9,084 9,667 4,916
--------- ---------- -----------
</TABLE>
The accompanying notes form an integral part of the annual accounts.
F-64
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994
(AMOUNTS EXPRESSED IN THOUSANDS OF AUSTRALIAN DOLLARS)
1. GENERAL
ACTIVITIES
Sunshine State Power (No. 2) BV (the Company) was incorporated on February
24, 1994. The Company's principal operating activity is the ownership of
17.5% of the Gladstone Power Station Joint Venture. The Gladstone Power
Station Joint Venture owns and operates the Gladstone Power Station located
in Queensland, Australia, which it acquired on March 30, 1994. The Gladstone
Power Station Joint Venture is an unincorporated joint venture and therefore
not a separate legal entity. Accordingly, the Gladstone Power Station Joint
Venture owners act as tenants in common owning their proportionate shares of
the unincorporated joint venture's assets, liabilities and results of
operations. The accounts have been prepared for the years ended December 31,
1996 and 1995 and period ended December 31, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Unless otherwise stated assets and liabilities are carried at nominal
value.
BASIS OF PREPARATION
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles in the Netherlands (Netherland GAAP)
which may differ in certain respects from generally accepted accounting
principles in the United States (US GAAP). With regard to the Company's
statements, there are no material differences between Netherlands GAAP and US
GAAP.
FOREIGN CURRENCIES
Assets and liabilities at year-end and transactions during the period
denominated in a foreign currency are translated into the Company's local
currency (Australian $) at the exchange rates ruling at year-end and at the
time of the transaction, respectively. Exchange adjustments are taken to the
statement of income.
INTANGIBLE FIXED ASSETS
Project development expenditures -Project development expenditures
represent the Company's share of project development expenditures incurred by
the Gladstone Power Station Joint Venture to organize the acquisition of the
Gladstone Power Station and operate it subsequent to the acquisition.
Capitalized development expenditures are being amortized over the term of
the Gladstone Power Station Power sales agreements (35 years), commencing
from the date the investment in the project was consummated. The carrying
values of capitalized development expenditures and the amortization periods
are reviewed annually and any necessary write down is charged against income.
Research expenditures and expenditures on development of existing projects
are charged against income in the year in which they are incurred.
Financing costs -Financing costs represent the Company's share of the
costs incurred by the Gladstone Power Station Joint Venture to acquire the
long-term debt used to finance the acquisition of the Gladstone Power
Station. Capitalized financing costs are being amortized over a ten year
period, which represents the timeframe until the Company expects the
long-term debt will be refinanced.
F-65
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994 -- (CONTINUED)
TANGIBLE FIXED ASSETS
All tangible fixed assets are stated at cost. The Company has not had any
revaluations performed on its tangible fixed assets. Tangible fixed assets,
with the exception of land, are depreciated over their estimated useful lives
by the straight line method. Ordinary maintenance and repairs are expensed as
incurred; replacements and improvements are capitalized.
The estimated useful lives are:
<TABLE>
<CAPTION>
<S> <C>
Site roads and preparation ............ 35 years
Generators, systems, stacks, etc. .... 35 years
Coal handling plant ................... 10-35 years
Other operating fixed assets .......... 3-10 years
</TABLE>
STOCKS
Stocks are carried at the lower of cost (principally by the FIFO method or
another method which approximates FIFO) and net realizable value. In valuing
stocks, appropriate allowance is made for obsolete or slow-moving items.
TRADE DEBTORS
Trade debtors are stated at nominal value.
PROVISIONS
Employee provisions -Provisions are made for amounts expected to be paid
to the operator of the Gladstone Power Station in respect of its employees
for the pro rata entitlements for long service and annual leave. These
amounts are accrued at actual pay rates having regard to experience of
employee's departure and period of service. The provisions are divided into
current (expected to be paid in the ensuing twelve months) and non-current
portions.
Deferred tax -Provisions for deferred taxes have been set up where items
entering into the determination of accounting profit for one period are
recognized for taxation purposes in another. The principal difference arises
in connection with the depreciation of fixed assets. In calculating the
provision, current tax rates are applied. During 1995 Australian income tax
rates increased from 33% to 36%. In 1995 the prior year deferred tax balance
was increased to reflect the increase in tax rates with the adjustment being
recorded in taxation in the statement of income.
COMPANY INCOME TAX
Company income tax is based upon the results reported in the statement of
income as adjusted for permanent differences. Current Australian tax rates
are applied.
F-66
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994 -- (CONTINUED)
3. INTANGIBLE FIXED ASSETS
The movements in the intangible fixed assets are summarized as follows:
<TABLE>
<CAPTION>
PROJECT
DEVELOPMENT FINANCING
EXPENDITURES COSTS TOTAL
-------------- ----------- ---------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
COST
Balance at February 24, 1994 ...................... -- -- --
Company's share of fixed assets acquired with
Gladstone Power Station acquisition .............. 6,111 2,369 8,480
-------------- ----------- ---------
Balance at December 31, 1994 ...................... 6,111 2,369 8,480
Additions for the year ended December 31, 1995 ... -- -- --
-------------- ----------- ---------
Balance at December 31, 1995 ...................... 6,111 2,369 8,480
Additions for the year ended December 31, 1996 ... -- -- --
Balance at December 31, 1996 ...................... 6,111 2,369 8,480
-------------- ----------- ---------
ACCUMULATED AMORTIZATION
Balance at February 24, 1994....................... -- -- --
Amortization for the period ended December 31,
1994 ............................................. (131) (178) (309)
Amortization for the year ended December 31, 1995 (175) (237) (412)
Amortization for the year ended December 31, 1996 (174) (237) (411)
-------------- ----------- ---------
Balance at December 31, 1996 ...................... (480) (652) (1,132)
-------------- ----------- ---------
Net book value at December 31, 1996 ............... 5,631 1,717 7,348
-------------- ----------- ---------
</TABLE>
F-67
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994 -- (CONTINUED)
4. TANGIBLE FIXED ASSETS
The movements in the tangible fixed assets are summarized as follows:
<TABLE>
<CAPTION>
OTHER
SITE ROADS GENERATORS, COAL OPERATING
AND SYSTEMS, HANDLING FIXED
LAND PREPARATION STACKS PLANT ASSETS TOTAL
--------- ------------- ------------- ---------- ----------- ----------
AUD'000 AUD'000 AUD'000 AUD'000 AUD'000 AUD'000
<S> <C> <C> <C> <C> <C> <C>
COST
Balance at February 24, 1994 ............. -- -- -- -- -- --
Company's share of assets
acquired with Gladstone Power
Station acquisition ..................... 184 2,138 123,476 5,508 1,411 132,717
Other additions .......................... -- -- 6 -- 262 268
--------- ------------- ------------- ---------- ----------- ----------
Balance at December 31, 1994 ............. 184 2,138 123,482 5,508 1,673 132,985
Additions ................................ -- 128 7,827 1,781 631 10,367
Disposals ................................ -- (1) -- (9) (10)
--------- ------------- ------------- ---------- ----------- ----------
Balance at December 31, 1995 ............. 184 2,266 131,308 7,289 2,295 143,342
Additions ................................ 5 182 10,489 1,168 97 11,941
Disposals ................................ -- -- (77) -- (16) (93)
--------- ------------- ------------- ---------- ----------- ----------
Balance at December 31, 1996 ............. 189 2,448 141,720 8,457 2,376 155,190
ACCUMULATED DEPRECIATION
Balance at February 24, 1994 ............. -- -- -- -- --
Charge for the period .................... (46) (2,571) (292) (155) (3,064)
------------- ------------- ---------- ----------- ----------
Balance at December 31, 1994 ............. (46) (2,571) (292) (155) (3,064)
Charge for the year ...................... (63) (3,767) (396) (309) (4,535)
------------- ------------- ---------- ----------- ----------
Balance at December 31, 1995 ............. (109) (6,338) (688) (464) (7,599)
Charge for the year ...................... (69) (3,935) (526) (344) (4,874)
------------- ------------- ---------- ----------- ----------
Balance at December 31, 1996 ............. (178) (10,273) (1,214) (808) (12,473)
------------- ------------- ---------- ----------- ----------
Net book value at December 31, 1996 ..... 189 2,270 131,447 7,243 1,568 142,717
Construction in progress at December 31,
1996 (construction in progress at
December 31, 1995 and 1994 was $5,440
and $4,531, respectively) ............... 1,807
----------
Net tangible fixed assets at December 31,
1996 .................................... 144,524
----------
</TABLE>
5. STOCKS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Coal ................... 2,028 574 678
Fuel oils .............. 135 177 105
Chemicals .............. 10 11 23
Spares and consumables 920 858 808
-------------- -------------- --------------
3,093 1,620 1,614
-------------- -------------- --------------
</TABLE>
F-68
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994 -- (CONTINUED)
6. RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Trade debtors 4,030 4,814 3,503
Prepayments .. 237 292 366
-------------- -------------- --------------
4,267 5,106 3,869
-------------- -------------- --------------
</TABLE>
All receivables are due in less than one year.
7. CASH AND BANK BALANCES
All cash and bank balances are held by banks and include investments with
maturities of three months or less which are readily convertible to cash. The
Company's long-term debt agreement places restrictions on the amount of cash
and bank balances which must be maintained. At December 31, 1996, 1995 and
1994, the restricted cash and bank balances totaled $6,100,000, $6,500,000
and $5,500,000, respectively.
8. ISSUED SHARE CAPITAL
The authorized share capital consists of 2,000 shares each having a
nominal value of 75 Australian dollars (100 Dutch Guilders), of which 400
shares have been issued and fully paid up at December 31, 1996 and 1995. The
Company's shares are owned by NRGenerating International BV (396) and Gunwale
BV (4). Both NRGenerating International BV and Gunwale BV are wholly owned by
NRG Energy, Inc., which is incorporated in the United States of America.
9. RETAINED EARNINGS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
AUD'000 AUD'000
<S> <C> <C>
Balance at January 1 ................ 6,748 --
Appropriation of prior years result 6,410 6,748
--------- ---------
Balance at December 31 .............. 13,158 6,748
--------- ---------
</TABLE>
10. RESULT FOR THE PERIOD
<TABLE>
<CAPTION>
AUD'000
---------
<S> <C>
Balance at February 24, 1994 ...................... --
Net result for the period ended December 31, 1994 6,748
1994 net result appropriated to retained earnings (6,748)
Net result for the year ended December 31, 1995 .. 6,410
1995 net result appropriated to retained earnings (6,410)
Net result for the year ended December 31, 1996 .. 7,950
---------
Balance at December 31, 1996 ...................... 7,950
---------
</TABLE>
F-69
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994 -- (CONTINUED)
11. PROVISIONS
<TABLE>
<CAPTION>
EMPLOYEE PROVISIONS DEFERRED TAX TOTAL
------------------- -------------- ---------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Balance at February 24, 1994 .............. -- -- --
Company's share assumed with the Gladstone
Power Station acquisition ................ 500 -- 500
Charged/(released) to income .............. 110 3,323 3,433
------------------- -------------- ---------
Balance at December 31, 1994 .............. 610 3,323 3,933
Charged/(released) to income .............. 144 4,078 4,222
------------------- -------------- ---------
Balance at December 31, 1995 .............. 754 7,401 8,155
Charged/(released) to income .............. 152 4,472 4,624
------------------- -------------- ---------
Balance at December 31, 1996 .............. 906 11,873 12,779
------------------- -------------- ---------
</TABLE>
Approximately $541 (AUD'000) of the employee provisions are current and
expected to be paid during 1997.
12. LONG-TERM LIABILITIES
Secured long-term debt due to third parties
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Secured--with banks . 95,218 99,516 103,432
-------------- -------------- --------------
</TABLE>
Current installments of bank long-term debt are included under current
liabilities. The interest rate for long-term debt is variable based on an
average of the bid rates quoted by the banks plus a margin of 1.4% at
December 31, 1996.
The bank long-term debt is repayable as follows (in AUD'000):
<TABLE>
<CAPTION>
<S> <C>
1997 ......... 4,298
1998 ......... 4,758
1999 ......... 5,228
2000 ......... 5,775
2001 ......... 6,366
Thereafter .. 73,091
--------
99,516
--------
</TABLE>
The bank long-term debt is secured by the Company's ownership interest in
the Gladstone Power Station Joint Venture.
Unsecured subordinated note payable (AUD'000)
On March 25, 1994 the Company received loans from NRGenerating
International BV and Gunwale BV, the primary shareholders of the Company, in
the amount of $42,273 and $427, respectively. The notes payable are
subordinated to all other liabilities of the Company, bear no interest and
are to be repaid in US dollars. During 1996, the Company repaid $1,572 and
$16 to NRGenerating International BV and Gunwale BV, respectively. There were
no repayments made during 1995. During 1994, the
F-70
<PAGE>
SUNSHINE STATE POWER (NO. 2) BV
NOTES TO THE ANNUAL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995 AND PERIOD ENDED DECEMBER 31, 1994 -- (CONTINUED)
Company repaid $4,533 and $46 to NRGenerating International BV and Gunwale
BV, respectively. Repayments on the notes payable are at the discretion of
the Company, unless certain events of termination occur, as defined, and then
the entire balance of the notes becomes due. The note balances, as adjusted
for current period activity and foreign exchange fluctuations, were $32,922
and $332 to NRGenerating International BV and Gunwale BV at December 31, 1996
respectively and $36,629 and $370 to NRGenerating International BV and
Gunwale BV at December 31, 1995, respectively.
13. CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
-------------- -------------- --------------
AUD'000 AUD'000 AUD'000
<S> <C> <C> <C>
Current installments of bank long-term debt 4,298 3,916 3,533
Trade creditors/suppliers ................... 696 1,345 1,199
Accrued coal/rail costs ..................... 1,008 1,498 1,736
Accrued interest ............................ 700 834 788
Other accrued expenses ...................... 557 170 255
-------------- -------------- --------------
7,259 7,763 7,511
-------------- -------------- --------------
</TABLE>
14. RELATED PARTIES
An affiliate of the Company, Sunshine State Power BV owns 20% of the
Gladstone Power Station Joint Venture. Sunshine State Power BV is owned by
the owners of the Company.
The Gladstone Power Station is operated by NRG Gladstone Operating
Services Ply Ltd, which is ultimately a wholly-owned subsidiary of NRG Energy
Inc. NRG Gladstone Operating Services Ply Ltd operates the Gladstone Power
Station under the terms of the Operation and Maintenance Agreement with the
Gladstone Power Station Joint Venture. During the periods ended December 31,
1996, 1995 and 1994, the Company paid NRG Gladstone Operating Services Pty
Ltd approximately $252, $289 and $170 (A$S'000) respectively in operators
fees under the terms of the Operation and Maintenance Agreement.
15. NUMBER OF EMPLOYEES
The average number of persons employed at the Gladstone Power Station
during 1996 was approximately 471. These individuals are primarily employed
in the operations and maintenance areas of the station. The Company is
responsible for 17.5% of the related costs for these employees. The Company
itself has no employees.
16. REMUNERATION OF DIRECTORS
During the periods ended December 31, 1996, 1995 and 1994, none of the
directors received remuneration for their services as directors of the
Company.
F-71
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee of
San Joaquin Valley Energy Partners I, L.P.
We have audited the accompanying balance sheets of San Joaquin Valley
Energy Partners I, L.P., a California limited partnership (the Partnership)
as of December 31, 1995 and 1994, and the related statements of income,
partners' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of San Joaquin Valley Energy
Partners I, L.P. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 6 to the financial statements, during 1995, the
Partnership entered into an agreement whereby the Partnership's power
purchase contracts were transferred back to Pacific Gas & Electric.
/s/ Coopers & Lybrand L.L.P.
Sacramento, California
February 29, 1996
F-72
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Short-term investments .............................. $ 3,756,078 $ --
Restricted cash...................................... -- 13,710,534
Receivable from PG&E................................. 52,050,216 --
Accounts receivable.................................. 62,318 3,657,340
Fuel inventory....................................... 124,029 1,660,162
Receivable from affiliates........................... 28,636 217,748
Other................................................ 132,885 225,075
------------- -------------
Total current assets................................ 56,154,162 19,470,859
Property, plant, and equipment, net................... 4,964,030 29,519,412
Organization and debt issue costs, net of accumulated
amortization of $828,565 at December 31, 1994 ....... -- 1,753,268
Notes receivable from partners and affiliates ........ -- 1,600,000
------------- -------------
$61,118,192 $52,343,539
============= =============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Book overdraft....................................... $ 21,473 $ --
Accounts payable..................................... 44,120 1,130,659
Accrued liabilities.................................. 8,319,056 1,608,285
Long-term debt, current portion...................... 184,163 5,455,695
------------- -------------
Total current liabilities........................... 8,568,812 8,194,639
Long-term debt, net of current portion................ 414,288 24,077,127
------------- -------------
Total liabilities................................... 8,983,100 32,271,766
Commitments (Note 7)
Partners' equity...................................... 52,135,092 20,071,773
------------- -------------
$61,118,192 $52,343,539
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-73
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Revenue:
Electricity sales............................... $ 6,107,863 $38,957,267
------------- -------------
Costs and expenses:
Operating....................................... 3,814,238 18,879,930
Depreciation and amortization................... 450,997 2,599,187
General and administrative...................... 198,431 1,134,205
------------- -------------
Total costs and expenses....................... 4,463,666 22,613,322
------------- -------------
Operating income............................... 1,644,197 16,343,945
Other income (expense):
Interest and bank agency fees................... (525,598) (2,702,966)
Interest income................................. 541,537 388,481
Other........................................... 141,900 3,810
------------- -------------
Income before extraordinary item............... 1,802,036 14,033,270
Extraordinary item (Note 6):
Net gain on transfer of power purchase
contracts...................................... 58,468,139 --
------------- -------------
Net income..................................... $60,270,175 $14,033,270
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-74
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C>
Partners' equity, December 31, 1993........................... $ 11,484,304
Net income for the year ended December 31, 1994............... 14,033,270
Partnership distributions for the year ended December 31,
1994......................................................... (5,445,801)
--------------
Partners' equity, December 31, 1994........................... 20,071,773
Net income for the year ended December 31, 1995............... 60,270,175
Partnership distributions for the year ended December 31,
1995......................................................... (28,206,856)
--------------
Partners' equity, December 31, 1995........................... $ 52,135,092
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-75
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 60,270,175 $ 14,033,270
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 450,997 2,599,187
Impairment of assets ........................... 26,861,778 --
Change in assets and liabilities:
Decrease (increase) in accounts receivable ... 3,595,022 (800,190)
Increase in receivable from PG&E .............. (52,050,216) --
Decrease in inventory ......................... 826,682 164,807
Decrease (increase) in other assets .......... 92,190 (1,373)
Decrease (increase) in due from affiliates ... 189,112 (16,642)
Decrease in accounts payable .................. (1,086,539) (1,163,127)
Increase in accrued liabilities ............... 6,416,097 7,968
-------------- --------------
Net cash provided by operating activities ........ 45,565,298 14,823,900
-------------- --------------
Cash flows from investing activities:
Purchases of property, plant and equipment ...... -- (2,065,289)
Purchase of short-term investments ............... (3,756,078) --
-------------- --------------
Net cash used in investing activities ............. (3,756,078) (2,065,289)
-------------- --------------
Cash Flows from financing activities:
Increase in book overdraft ....................... 21,473 --
Decrease (increase) in restricted cash .......... 13,710,534 (1,861,694)
Principal payments on long-term debt ............. (28,934,371) (5,451,116)
Proceeds from note receivable .................... 1,600,000 --
Partnership distributions ........................ (28,206,856) (5,445,801)
-------------- --------------
Net cash used in financing activities ............. (41,809,220) (12,758,611)
-------------- --------------
Net change in cash and cash equivalents .......... -- --
Cash at beginning of period ....................... -- --
Cash and cash equivalents at December 31 ......... $ $
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest ........................................ $ 1,633,204 $ 2,566,348
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-76
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATION:
San Joaquin Valley Energy Partners I, L.P. (Partnership), a California
limited partnership, was formed on July 31, 1992, to purchase and operate
three biomass power plant facilities in Madera and Merced Counties,
California.
The Partnership sold electricity to Pacific Gas & Electric (PG&E) until
February 28, 1995, when the plants ceased operations in anticipation of the
transfer of the Partnership's power purchase agreements (PPA's) back to PG&E.
The General Partners are San Joaquin Valley Energy I, Inc., a California
corporation (SJVE I), and Power Partners II, a California general
partnership. The Limited Partners are NRG Jackson Valley II, Inc., a
California corporation (NRG II); Donovan D. Bohn, an individual; and
Volkar/Coombs Partners, a California general partnership (VCP). The
Partnership agreement stipulates that the term of the Partnership shall
continue for a period ending the earlier of December 31, 2030, or the date on
which the Partnership is dissolved by law or by mutual agreement of the
Partners.
SJVE I and NRG II are wholly owned subsidiaries of NRG Energy, Inc., a
Delaware corporation.
The Partners of Power Partners II are Power Joint Ventures II, Inc., and
P&W Ventures II, Inc., both California corporations. VH Energy, L.L.C., an
Illinois limited liability company, and Roland S. Coombs, an individual, are
the Partners of VCP. Patrick J. Volkar is the sole shareholder of Power Joint
Ventures II, Inc., and Roland S. Coombs is the sole shareholder of P&W
Ventures II, Inc. Patrick J. Volkar and Sandra A. Hunt are the members of VH
Energy, L.L.C.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents
include cash and all investment instruments purchased with a maturity of
three months or less.
Cash and Restricted Cash
At December 31, 1994, cash balances totalling $13,710,534 were restricted
as to use under the terms of various agreements. There were no such
restrictions at December 31, 1995. The restrictions related to the following:
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Receipt account ............. $ 8,076,401
Operating account ........... 572,543
Debt service account ........ 4,650,938
Maintenance reserve account 410,652
------------
$13,710,534
============
</TABLE>
The Partnership invests its cash and restricted cash in time deposits,
money market accounts, and short term investment mutual funds, most of which
are not federally insured. The Partnership has not experienced any losses on
these deposits.
Accounts Receivable
Management believes that there are no uncollectible accounts receivable;
therefore, there is no allowance for doubtful accounts at December 31, 1995.
F-77
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Fuel Inventory
Fuel inventory consists of unburned fuel char, urban wood waste, wood
chips, nut hulls and other biomass, and is stated at the lower of average
cost or market.
At December 31, 1995, the Partnership has entered into commitments to sell
the entire balance of its inventory recorded as of year end.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, reduced to fair value in
1995. Major additions are capitalized, and repairs and maintenance costs are
expensed as incurred. Depreciation of the biomass power plants was calculated
on a straight-line basis over the terms of the respective power purchase
agreements (PPA's). Depreciation on the other assets was calculated on a
straight-line basis over their estimated useful lives, ranging from three to
eight years. Depreciation has been suspended effective February 28, 1995.
Gains or losses from disposals are reflected in current earnings.
Organization and Debt Issue Costs
Organization and debt issue costs were stated at cost, and were being
amortized until 1995 when deemed to be fully impaired and unrealizable, and
consequently were written off in connection with the transfer of PPA's back
to PG&E.
Impairment of Long-Lived Assets
The Partnership has adopted Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of (SFAS 121), as of December 31, 1995.
Under SFAS 121, the Partnership's assets have been impaired as a result of
the transfer of power purchase contracts back to PG&E. Accordingly, an
impairment loss of $26,861,778, to reduce the carrying value of the assets to
their fair value, has been included in the net gain on transfer of PPA. Fair
value has been estimated by management using salvage and sales values for
similar plants and related components. The amount the Partnership might
ultimately realize could differ materially in the near term from the amount
assumed in estimating fair value.
Environmental Restoration Costs
The Partnership has estimated the cost of environmental restoration of its
plant sites. Estimated costs relate to evaporation ponds and other plant site
restoration. Total accrued environmental restoration costs total $4,850,000
at December 31, 1995. The amount the Partnership might ultimately incur could
differ materially in the near term from the amount accrued.
Income Taxes
The net income or loss of the Partnership for income tax purposes, along
with any associated tax credits, is included in the tax returns of the
individual partners. Accordingly, no provision has been made for federal or
state income taxes in the accompanying financial statements.
The allocation of taxable income, gains, losses and credits to the
partners is specified in the Partnership agreement.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-78
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. NOTES RECEIVABLE FROM PARTNERS AND AFFILIATES:
Notes receivable at December 31 consist of:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Notes receivable from partners and affiliates, floating
rate interest (weighted average interest rate 6.88% at
December 31, 1994) ........................................ $ -- $1,600,000
=========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Power plants ................. $4,700,000 $32,898,035
Land ......................... 264,030 264,030
Equipment and other .......... -- 932,274
------------ -------------
4,964,030 34,094,339
Less acumulated depreciation -- (4,574,927)
------------ -------------
$4,964,030 $29,519,412
============ =============
</TABLE>
In accordance with SFAS 121, as a result of the PPA transfer, property,
plant and equipment has been written down to its estimated fair value at
December 31, 1995.
5. LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -------------
<S> <C> <C>
Note payable to a financial institution, floating-rate
interest (weighted average interest rate 6.88% at
December 31, 1994) ..................................... $ -- $28,746,665
Payable to an unaffiliated partnership, without
interest, payable in annual installments of $142,850
through August 1, 1999; uncollateralized ............... 592,138 695,709
Equipment contracts ..................................... 6,313 90,448
----------- -------------
598,451 29,532,822
Less current portion .................................... (184,163) (5,455,695)
----------- -------------
$ 414,288 $24,077,127
=========== =============
</TABLE>
The Partnership entered into interest rate swap agreements with a notional
amount of $28,746,665 at December 31, 1994, to reduce the impact of changes
in interest rates on its floating-rate notes payable. These agreements, which
effectively capped interest rates, involve the exchange of floating-rate for
fixed interest payment obligations and resulted in a weighted average fixed
interest rate of 5.87% at December 31, 1994, on the Partnership's
floating-rate debt.
F-79
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The aggregate maturities for the long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------
<S> <C>
1996........... $184,163
1997........... 142,850
1998........... 142,850
1999........... 128,588
----------
$598,451
==========
</TABLE>
6. POWER PURCHASE CONTRACTS:
The Partnership had agreements (PPA's) to sell Pacific Gas & Electric
(PG&E) all electricity produced by the plants through the years 2019-2020.
The Partnership also received capacity payments throughout the terms of the
PPA's when it operated the plants above specified production levels. The
PPA's provided for guaranteed rates ending in years 1998-2000, after which
the rates were to be based on PG&E's avoided cost as defined by the PPA's.
During 1994 the Partnership entered into a curtailment agreement with PG&E
to limit the output of the power plants during certain off-peak hours. The
Partnership received curtailment payments of $1,968,491 and $8,091,462 during
1995 and 1994 respectively.
During 1995, the Partnership entered into negotiations regarding an
agreement whereby PG&E would compensate the Partnership to transfer back to
PG&E its existing PPA's. Effective February 28, 1995, the Partnership entered
into a bridging agreement with PG&E whereby the Partnership shutdown its
power plants and received payments while a final agreement was being
negotiated to transfer the PPA's back to PG&E. Such bridging payments were
then deducted from the total compensation received for the transfer of the
PPA's.
The final PPA transfer agreement was finalized on July 10, 1995, and
provided for the transfer of all of the Partnership's rights under the
existing PPA's in exchange for total compensation of $99,212,716, $47,162,500
of which was received at closing and through bridging payments, and
$52,050,216 of which was received on March 1, 1996.
A net gain on transfer of PPA's of $58,468,139 has been recognized in
1995, and consists of:
<TABLE>
<CAPTION>
<S> <C>
Total consideration from PG&E ......................... $99,212,716
Less:
Impairment of assets ................................. 26,861,778
Operating and maintenance costs during bridging
period .............................................. 1,170,291
Loan, agency and prepayment fees ..................... 1,960,894
Estimated environmental restoration costs ............ 4,850,000
Severance, fuel contract settlement and other costs . 5,901,614
-------------
Net gain on transfer of PPA's ......................... $58,468,139
=============
</TABLE>
7. COMMITMENTS:
The Partnership has entered into contractual agreements to purchase
specified quantities of biomass fuels from various vendors, and the
Partnership has agreed to assume a fuel purchase commitment of San Joaquin
Valley Energy Partners IV, L.P. (SJVEP IV). The purchase price of the fuels
is a specified amount above the market cost per bone dry ton. The periods
covered by the contracts range from one to eight years with the longest
expiring in the year 1999. Under these contracts, the Partnership purchased
fuel totaling $--in 1995 and $8,217,550 in 1994.
F-80
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Since agreeing to transfer its PPA's back to PG&E, the Partnership has
sought to terminate all of its fuel purchase commitments. Management believes
the Partnership will not incur any additional loss on termination.
8. EMPLOYEE BENEFIT PLAN:
The Partnership established a 401(k) retirement savings plan (Plan)
effective January 1, 1994, that covered all employees. The Partnership
contributed approximately $74,000 during 1994 to the Plan. During 1995, the
Plan was terminated at no cost to the Partnership.
9. TRANSACTIONS WITH AFFILIATES:
At December 31, 1995 and 1994, the receivable from affiliates related
through common ownership consists of:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Due from affiliates relating to the purchase of Biomass fuel
and charges for administration, insurance, and workers'
compensation costs, consisting of:
BioConversion Partners, L.P. ................................. $ 2,648 $ 7,963
San Joaquin Valley Energy Partners IV, L.P. (SJVEP IV) ...... 25,988 37,715
Due from the owners of SJVEP IV relating to interest on notes
receivable .................................................... $ -- $282,221
Due from BioConversion Partners, L.P. relating to the purchase
of unburned fuel .............................................. -- 110,152
</TABLE>
The Partnership has an agreement with BioConversion Partners, L.P.,
(BioConversion) to purchase unburned fuel (Char). The sales price of the char
is based on the BTU heat value of the char applied to the average cost per
BTU paid by BioConversion for its biomass fuel. The total amount of char
purchased by the Partnership was $123,417 and $871,951 in 1995 and 1994,
respectively.
The Partnership has an agreement with BioConversion to purchase or sell
excess biomass fuel at cost. The total amount of biomass fuel sold to
BioConversion was $-0-and $182,601 in 1995 and 1994, respectively. The
Partnership purchased excess biomass fuel of $-0-and $138,102 during 1995 and
1994, respectively.
The Partnership has service agreements to provide general and
administrative services to BioConversion and SJVEP IV. The total amount of
management fees earned in 1995 and 1994 was $42,474 and $34,147 respectively.
The Partnership also purchases insurance for BioConversion and SJVEP IV which
is then charged back to each of the entities based upon the fair value of
their plant assets. The total amount of insurance expense charged to
BioConversion was $32,152 and $48,421 and to SJVEP IV was $75,021 and
$112,984 in 1995 and 1994, respectively.
The Partnership incurred approximately $26,000 and $43,000 in 1995 and
1994, respectively, for administration and management services provided by
Jackson Valley Energy Partners, L.P. (JVEP), a partnership affiliated through
common ownership.
F-81
<PAGE>
SAN JOAQUIN VALLEY ENERGY PARTNERS I, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The Partnership paid approximately $37,000 in 1994 to a partner for
consulting services, of which approximately $31,000 was paid on behalf of
JVEP. During 1995, the Partnership received payment in full from JVEP for
these services.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, short term investments,
receivable from PG&E and book overdraft approximates fair value because of
the short term maturity of these instruments. The carrying amount of
long-term debt is not materially different than its estimated fair value
based on the fair value of debt with similar terms.
F-82
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
NOTES $'000 $'000
------- ------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE........................... 2 574,009 244,275
------------- -------------
Operating Profit before Income Tax.......... 3 185,233 79,579
Income Tax Attributable to Operating
Profit..................................... 4 67,547 29,861
------------- -------------
OPERATING PROFIT AFTER INCOME TAX........... 117,686 50,618
------------- -------------
Retained Profits at beginning of year ...... 13 50,618 0
Dividends Paid or Payable................... 117,686 0
------------- -------------
Retained Profits at End of Year............. 50,618 50,618
------------- -------------
</TABLE>
This Profit and Loss Statement should be read in conjunction with the Notes
to and forming part of the Financial Statements.
F-83
<PAGE>
FINANCIAL STATEMENTS 1995/96
BALANCE SHEET AS AT 30 JUNE 1996
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
NOTES $'000 $'000
------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash.......................... 14.1 658 1,015
Receivables................... 5 73,048 100,577
Inventories................... 6 3,560 4,043
Other assets.................. 7 1,715 4,155
------------- -------------
TOTAL CURRENT ASSETS.......... 78,981 109,790
NON-CURRENT ASSETS
Receivables................... 5 1,575 3,132
Inventories................... 6 13,176 20,101
Other assets.................. 7 5,663 0
Investments................... 8 0 128
Property, plant and
equipment.................... 9 3,159,102 3,245,997
------------- -------------
TOTAL NON-CURRENT ASSETS ..... 3,179,516 3,269,358
------------- -------------
TOTAL ASSETS.................. 3,258,497 3,379,148
------------- -------------
CURRENT LIABILITIES
Creditors and borrowings ..... 10 2,039,619 2,113,681
Provisions.................... 11 9,110 15,060
------------- -------------
TOTAL CURRENT LIABILITIES .... 2,048,729 2,128,741
NON-CURRENT LIABILITIES
Creditors and borrowings ..... 10 1,057,833 1,164,699
Provisions.................... 11 101,317 35,090
------------- -------------
TOTAL NON-CURRENT
LIABILITIES.................. 1,159,150 1,199,789
------------- -------------
TOTAL LIABILITIES............. 3,207,879 3,328,530
------------- -------------
NET ASSETS.................... 50,618 50,618
------------- -------------
EQUITY
Share capital................. 12 0 0
Retained earnings............. 13 50,618 50,618
------------- -------------
TOTAL EQUITY.................. 50,618 50,618
------------- -------------
</TABLE>
This Balance Sheet should be read in conjunction with the Notes to and
forming part of the Financial Statements.
F-84
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
NOTES $'000 $'000
------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers............................... 661,857 262,004
Payments to suppliers and employees................... (252,601) (98,270)
------------- -------------
NET CASH FLOW FROM OPERATING ACTIVITIES .............. 14.2 409,256 163,734
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and equipment .... (8,356) (5,447)
Proceeds from sale of property, plant and equipment .. 34 117
Proceeds from sale of investments..................... 223 0
Dividends received.................................... 127 0
Net cash allocated.................................... 0 (629)
------------- -------------
NET CASH FLOW USED IN INVESTING ACTIVITIES............ (7,972) (5,959)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Interest and other items of a similar nature
received............................................. 1,907 832
Interest and other costs of finance paid.............. (115,063) (70,817)
Hedging receipts associated with borrowings .......... 20,765 10,980
Hedging payments associated with borrowings .......... (30,861) (15,490)
Buyback of swaps...................................... (7,905) 0
Proceeds from borrowings.............................. 86,056 49,706
Repayment of borrowings............................... (36,221) (47,170)
Buyback of borrowings................................. (264,282) (85,458)
Dividends paid........................................ (56,000) 0
------------- -------------
NET CASH FLOW USED IN FINANCING ACTIVITIES............ (401,604) (157,417)
------------- -------------
NET INCREASE/(DECREASE) IN CASH HELD.................. (320) 358
------------- -------------
CASH AT BEGINNING OF YEAR............................. 358 0
------------- -------------
CASH AT END OF YEAR................................... 14.1 38 358
------------- -------------
</TABLE>
This Statement of Cash Flows should be read in conjunction with the Notes to
and forming part of the Financial Statements.
F-85
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 BASIS OF ACCOUNTING
The financial report is a general purpose financial report which has been
prepared in accordance with the requirements of the Corporations Law which
include disclosures required by Schedule S and applicable Accounting
Standards. Other mandatory professional reporting requirements (Urgent Issues
Group Consensus Views) have also been complied with.
The report is prepared in accordance with the historical cost convention,
except for certain assets which, as noted, are at valuation. The accounting
policies are consistent with those of the previous year.
1.2 PRIOR PERIOD COMPARISONS
Loy Yang Power Ltd. was incorporated for the twelve months ended 30 June
1995, however the company did not commence trading in its principal
activities until 1 February 1995 when substantially all the assets and
liabilities of the business were vested in the company pursuant to an
Allocation Statement made under the Electricity Industry (Further Amendment)
Act 1994.
As a result, comparative profit and loss and cash flow figures reflect
five months trading from 1 February 1995 to 30 June 1995.
Comparative information is reclassified where appropriate, to enhance
comparability.
1.3 PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are carried at cost.
DEPRECIATION AND AMORTISATION
Depreciation or amortisation is provided for all fixed assets other than
freehold land. The majority of assets are depreciated using the straight line
method to write off the cost of assets over their expected service lives. The
expenditure associated with mine development costs is amortised on a units of
production basis. Depreciation or amortisation for all assets commences on
the first day of the month closest to the in-service date.
Changes in depreciation rates and/or depreciable amounts are dealt with on
a prospective basis.
1.4 RECOVERABLE AMOUNTS
Non-current assets values do not exceed their recoverable amount. Where
carrying values exceed their recoverable amount, assets are revalued
downwards to the lower value. The expected net cash flows included in
determining the recoverable amounts of non-current assets have been
discounted to their present value using a market determined risk adjusted
discount rate.
1.5 INVENTORIES
Costs are assigned to inventories using the average cost method. Inventories
are valued at lower of cost and net realisable value. As estimate of items
which are likely to be utilised in the next twelve months is classified as
current.
F-86
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1.6 ACCOUNTING FOR INCOME TAX
Loy Yang Power Ltd. is subject to the Victorian State Government Tax
Equivalent System pursuant to Section 88 of the State Owned Enterprises Act
1992.
Loy Yang Power Ltd. has adopted the liability method of tax-effect
accounting whereby income tax is regarded as an expense and is managed with
the accounting profit after allowing for permanent differences.
To the extent that timing differences occur between the time items are
recognised in the accounts and when these are taken into account in
determining taxable income, the net related taxation benefit or liability is
disclosed as a future income tax benefit or a provision for deferred income
tax. These account balances are calculated with reference to the rates of
income tax which are expected to apply when those timing differences reverse.
Future income tax benefits are not brought to account unless realisation
of the asset is assured beyond reasonable doubt. The future income tax
benefit arising from tax losses is only carried forward as an asset when the
benefit is virtually certain of being realised.
1.7 DOUBTFUL DEBTS
The value of estimated doubtful debts is reviewed annually on an individual
debtor basis, and appropriate provision is made where necessary.
1.8 NEGOTIABLE SECURITIES
Where interest is paid in advance on negotiable securities the interest is
recognised as an asset and progressively charged to the Profit and Loss
Statement over the applicable interest period. Interest payable in arrears is
progressively charged to the Profit and Loss Statement over the applicable
interest period and recognised as a liability.
Discounts and premiums on face value on the issue of negotiable securities
are recognised as variations of the liability to which they relate. The
variations are amortised over the term of the issue, using the effective
yield method.
Changes in the capital value of the outstanding liability on index linked
securities are recognised as variations in the book value of the liability
and are charged to the Profit and Loss Statement.
Any gains or losses arising from the buyback of negotiable securities
issued by Loy Yang Power Ltd. are charged to the Profit and Loss Statement as
incurred or earned.
1.9 DERIVATIVES
Loy Yang Power Ltd. is exposed to changes in interest rates and commodity
prices from its activities. It is Loy Yang Power Ltd.'s policy to use
derivative financial instruments to hedge these risks. Loy Yang Power Ltd.
does not enter, hold or issue derivative financial instruments for reading or
speculative purposes.
Derivative financial instruments include forward rate agreements, futures,
options, interest rate swaps and their Treasury Corporation of Victoria
equivalents.
Gains and losses arising from the early termination of general hedges are
amortised over the period of the hedge. The exception to this is bond futures
where gains and losses are amortised over the average term to maturity of
existing fixed debt.
Gains and losses arising from the early termination of specific hedges are
amortised over the shorter of the period of the borrowing being hedged or the
period of the hedge.
F-87
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1.10 EMPLOYEE ENTITLEMENTS
WAGES, SALARIES AND LEAVE
Provision is made for employee entitlement benefits accumulated as a result
of employees rendering services up to the reporting date. These benefits
include wages and salaries, annual leave and associated oncosts.
Liabilities arising in respect of wages and salaries, annual leave and any
other employee entitlements expected to be settled within twelve months of
the reporting date are measured at their nominal amounts. All other employee
entitlement liabilities are measured at the present value of their estimated
future cash outflows to be made in respect of services provided by employees
up to the reporting date. In determining the present value of future cash
outflows, the interest rates attaching to Federal Government Guaranteed
Securities which have terms to maturity approximating the terms of the
related liability are used.
Employee entitlement expenses are revenues arising in respect of the
following categories:
o wages and salaries, non-monetary benefits, annual leave, long service
leave, sick leave and other leave entitlements; and
o other types of employee entitlements;
are charged to the Profit and Loss Statement on a net basis in their
respective categories.
SUPERANNUATION
Loy Yang Power Ltd. contributes towards the Victorian Electricity Industry
(VEI) Superannuation Fund on behalf of its employees. These contributions are
charged to the Profit and Loss Statement as the liability arises (refer note
17.2).
1.11 PROVISION FOR SITE RESTORATION: POWER STATION AND MINE
Recognition of a liability for the cost of restoring the power station and
mine sites to an acceptable environmental standard at the end of their useful
lives has been provided for in these accounts (refer notes 11 and 16). This
liability includes costs of reclamation, plant closure and dismantling, and
waste site closure.
The liability is recognised on a gradual basis and is calculated by
discounting the estimated future site restoration costs to their net present
value. Annual increments to the liability for each site are charged to the
Profit and Loss Statement over the estimated remaining life of each site.
Expected future payments for site restoration are discounted using
interest rates attaching, as at the reporting date, to Federal Government
Guaranteed Securities with terms to maturity that match, as closely as
possible, the estimated future cash outflows.
Cost estimates are based on the assumption that current legal requirements
and/or technologies will not change significantly over the life of the power
station and mine sites.
Changes in estimates are dealt with on a prospective basis.
1.12 CASH
For the purpose of the Statement of Cash Flows, cash includes cash on hand
and in banks, investments in money market instruments and short-term deposits
and securities, net of outstanding overdrafts.
F-88
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
2 OPERATING REVENUE COMPRISES
Sales revenue............................................. 557,500 238,468
Interest revenue (refer note 25.5) ....................... 1,845 637
Proceeds from the sale of non-current assets.............. 587 117
Dividend revenue.......................................... 127 0
Other revenue............................................. 13,950 5,053
-------------- --------------
574,009 244,275
============== ==============
- -----------------------------------------------------------------------------------------
3 OPERATING PROFIT
The operating profit before income tax is arrived at
after charging/(crediting) the following items:
DEPRECIATION, AMORTISATION AND DIMINUTION
Plant and equipment....................................... 96,219 40,255
Development of mine (amortisation)........................ 1,058 427
Leased plant and equipment (amortisation)................. 8,678 3,637
Buildings................................................. 320 137
Diminution in value of inventories........................ 0 727
-------------- --------------
TOTAL DEPRECIATION, AMORTISATION AND DIMINUTION .......... 106,275 45,183
============== ==============
AMOUNTS SET ASIDE TO PROVISIONS
Bad and doubtful debts.................................... 0 0
Employee entitlements..................................... 4,492 1,170
Site restoration--power station........................... 486 430
Site restoration--mine ................................... 247 356
--------------
TOTAL AMOUNT SET ASIDE TO PROVISIONS ..................... 5,225 1,956
============== ==============
INTEREST EXPENSE (REFER NOTE 25.5)........................ 126,711 59,145
GOVERNMENT MINING ROYALTIES INCURRED...................... 9,242 3,654
ENERGY CONSUMPTION LEVY................................... 30 7
SUPERANNUATION CONTRIBUTIONS.............................. 2,697 1,194
RENTAL OPERATING LEASES................................... 419 233
PROFIT/(LOSS) ON SALE OF NON-CURRENT ASSETS............... 51 (16)
RESEARCH AND DEVELOPMENT EXPENDITURE...................... 519 0
</TABLE>
F-89
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
4 INCOME TAX
4.1 INCOME TAX EXPENSE
The prima facie tax on operating profit differs from the income tax
provided in the accounts as follows:
Prima facie income tax expense calculated at 36% (1995: 33%) on the
operating profit....................................................... 66,684 26,261
Increase in income tax expense due to permanent differences
Depreciation on buildings............................................. 448 281
Tax on provisions not carried forward................................. 621 280
Provisions for restoration--non-deductible ........................... 175 142
Entertainment and other non-deductible items ......................... 31 444
Decrease in income tax expense due to permanent differences
Tax exempt income..................................................... (293) 0
Research and development concession................................... (94) 0
General investment allowance.......................................... (25) 0
Depreciation on buildings............................................. 0 (328)
Add: Restatement of deferred tax balances due to change in income tax
rate................................................................... 0 1,881
-------------- --------------
TOTAL INCOME TAX EXPENSE ATTRIBUTABLE TO OPERATING PROFIT ............ 67,547 28,961
============== ==============
Total income tax expense is made up of:
Deferred income tax provision......................................... 85,298 51,107
Less: future income tax benefit....................................... 17,751 22,146
-------------- --------------
67,547 28,961
============== ==============
4.2 ANALYSIS OF TAX BALANCES CARRIED FORWARD
CURRENT
Future income tax benefit, balance at end of year...................... 1,019 3,505
Less: provision for deferred income tax, balance at end of year ....... 450 360
-------------- --------------
NET FUTURE INCOME TAX BENEFIT (REFER NOTE 7)........................... 569 3,145
============== ==============
NON-CURRENT
Provision for deferred income tax, balance at end of year ............. 135,955 50,747
Less: future income tax benefit, balance at end of year................ 45,267 25,030
-------------- --------------
NET PROVISION FOR DEFERRED INCOME TAX (REFER NOTE 11) ................. 90,688 25,717
============== ==============
The future income tax benefit will only be obtained if:
(a) future assessable income is derived of a nature and of an amount
sufficient to enable the benefit to be realised;
(b) the conditions for deductibility imposed by tax legislation continue
to be complied with; and
(c) no changes in tax legislation adversely affect Loy Yang Power Ltd.
in realising the benefit.
- ------------------------------------------------------------------------------------------------------
5 RECEIVABLES
CURRENT
Trade debtors (refer note 25.6)........................................ 69,684 97,843
Other debtors (refer note 25.6)........................................ 3,364 2,734
-------------- --------------
73,048 100,577
============== ==============
NON-CURRENT
Trade debtors (refer note 25.6)........................................ 1,575 3,132
Other debtors (refer note 25.6)........................................ 0 0
-------------- --------------
1,575 3,132
============== ==============
</TABLE>
F-90
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE, 1996 30 JUNE, 1995
$'000 $'000
-------------- ---------------
<S> <C> <C>
6 INVENTORIES
CURRENT
General purpose and maintenance stocks at cost........................ 3,560 4,043
Less: inventory diminution............................................ 0 0
-------------- ---------------
3,560 4,043
============== ===============
NON-CURRENT
General purpose and maintenance stocks at cost........................ 13,664 20,828
Less: inventory diminution............................................ 488 727
-------------- ---------------
13,176 20,101
-------------- ---------------
A review undertaken during the year identified 57.6 million of items
that should correctly be identified as depreciable spares. This
amount has been transferred to property, plant and equipment.
- ------------------------------------------------------------------------------------------------------
7 OTHER ASSETS
Current
Prepayments........................................................... 1,146 1,010
Future income tax benefit (refer note 4.2)............................ 569 3,145
-------------- ---------------
1,715 4,155
-------------- ---------------
NON-CURRENT
Unamortized interest rate swap termination losses..................... 4,828 0
Unamortized futures termination losses................................ 835 0
-------------- ---------------
5,663 0
-------------- ---------------
- ------------------------------------------------------------------------------------------------------
8 INVESTMENTS
8.1 NON-CURRENT INVESTMENTS AT COST COMPRISE:
Unlisted shares....................................................... 0 128
Unlisted shares in associated companies............................... 0 0
-------------- ---------------
0 128
-------------- ---------------
8.2 NON-CURRENT INVESTMENTS IN UNLISTED ASSOCIATED COMPANIES
PowerWorks Pty. Ltd. .................................................
PowerWorks Pty. Ltd's principal activity is to promote the
electricity industry to the public
Ownership interest.................................................... 33.3% 33.3%
Investment carrying amount............................................ 0.1 0.1
The above investment is held by Loy Yang Power Ltd. and is comprised
of interest in the ordinary share capital of the associate.
The balance date of the associate is 30 June, and the associate is
incorporated in Australia.
There are no material post-balance day events or dissimilar
accounting policies.
During the period, unlisted shares held at cost were sold for
$223,296
</TABLE>
F-91
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
------------- --------------
<S> <C> <C>
9 PROPERTY, PLANT AND EQUIPMENT AT COST
Land at cost........................................................... 1,589 1,589
------------- --------------
1,589 1,589
Buildings at cost 8,237 8,237
Less: accumulated depreciation......................................... 457 137
------------- --------------
7,780 8,100
Plant and equipment at cost............................................ 2,986,003 2,966,792
Less: accumulated depreciation......................................... 136,300 40,250
------------- --------------
2,849,703 2,926,542
Plant and equipment under lease at cost (refer note 15.3) ............. 274,988 274,988
Less: accumulated amortisation......................................... 12,315 3,637
------------- --------------
262,673 271,351
Mine development at cost............................................... 38,842 38,842
Less: accumulated amortisation......................................... 1,485 427
------------- --------------
37,357 38,415
Total Fixed Assets at Cost............................................. 3,309,659 3,290,448
Total Accumulated Depreciation/Amortisation............................ 150,557 44,451
------------- --------------
Total Written Down Amount.............................................. 3,159,102 3,245,997
------------- --------------
- -----------------------------------------------------------------------------------------------------
10 CREDITORS AND BORROWINGS
CURRENT
Trade creditors (refer note 25.6)...................................... 35,138 61,047
Bank overdraft (refer note 14.1)....................................... 620 657
Shareholder loan*...................................................... 1,917,492 1,917,492
Interest accrued (refer note 25.6)..................................... 23,765 30,819
Dividend payable (refer note 25.6)..................................... 61,686 0
Other loans (refer note 20)............................................ 49 102,091
Other liabilities (refer note 25.6).................................... 869 1,580
------------- --------------
2,039,619 2,113,681
------------- --------------
NON-CURRENT
Loans (refer note 20).................................................. 1,057,833 1,164,699
------------- --------------
1,057,833 1,164,699
------------- --------------
</TABLE>
There are no guarantees or securities over assets with respect to borrowings.
* In accordance with the Electricity Industry (Further Amendment) Act 1994
section 153F and the Electricity Industry (Amendment) Act 1995 section 153W,
the shareholder loan is an amount owing to the State Electricity Commission of
Victoria and, whilst the loan holds a legal obligation, it holds no interest
payable and no term is specified for repayment. Loy Yang Power Ltd., however,
will be making repayments against the shareholder loan in 1996/97.
F-92
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
11 PROVISIONS
CURRENT
Employee entitlements (refer note 17)............ 7,476 7,587
Uninsured losses................................. 0 75
Site restoration--mine (refer note 16)........... 140 60
Redundancies..................................... 1,494 7,338
-------------- --------------
9,110 15,060
-------------- --------------
NON-CURRENT
Employee entitlements (refer note 17)............ 5,927 5,219
Site restoration--power station (refer note 16) . 3,734 3,248
Site restoration--mine (refer note 16)........... 968 906
Deferred income tax (refer note 4.2)............. 90,688 25,717
-------------- --------------
101,317 35,090
-------------- --------------
- --------------------------------------------------------------------------------
12 SHARE CAPITAL
AUTHORISED CAPITAL
500,000,000 Ordinary Shares of $1.00 each ....... 500,000 500,000
ISSUED AND PAID UP CAPITAL
15 ordinary shares of $1.00 each, fully paid .... 0 0
(Balance not shown due to rounding)
- --------------------------------------------------------------------------------
13 RETAINED EARNINGS
Balance at Beginning of Year..................... 50,618 0
Transfer from profit and loss.................... 117,686 50,618
-------------- --------------
Total available for appropriation................ 168,304 50,618
Interim dividend paid............................ 56,000 0
Final dividend payable........................... 61,686 0
-------------- --------------
BALANCE AT END OF YEAR........................... 50,618 50,618
-------------- --------------
</TABLE>
F-93
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
14 STATEMENT OF CASH FLOWS
14.1 RECONCILIATION OF CASH
Cash at the end of the financial year as shown in the Statement of
Cash Flows is reconciled to the related items in the Balance Sheet as
follows:
CASH
Cash on hand........................................................... 8 8
Short term deposits and securities..................................... 650 1,007
-------------- --------------
658 1,015
OVERDRAFT
Bank overdraft......................................................... (620) (657)
-------------- --------------
(620) (657)
-------------- --------------
38 358
-------------- --------------
Loy Yang Power Ltd. has a bank overdraft facility of $5 million (1995:
$10 million) arranged with the National Australia Bank. $4.4 million
of the facility is available at 30 June 1996.
14.2 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit after income tax...................................... 117,686 50,618
-------------- --------------
Non-cash revenues and expenses, and revenues and expenses associated
with financing or investing activities:
Depreciation and amortisation expense.................................. 106,275 44,456
Income tax expense..................................................... 67,547 28,961
Interest revenue received.............................................. (1,845) (912)
Finance charges........................................................ 126,711 59,145
Dividend revenue received.............................................. (127) 0
Loss/(profit) on sold and scrapped non-current assets.................. (51) 16
-------------- --------------
298,510 131,666
ADJUST FOR MOVEMENTS IN ASSETS AND LIABILITIES
Increase/(decrease) in operating expenditure accruals.................. (30,126) 29,572
Increase/(decrease) in provisions...................................... (4,694) (8,343)
Increase/(decrease) in trust funds and deposits........................ (711) 1,308
Decrease/(increase) in accounts receivable/accrued revenue ............ 28,954 (41,753)
Decrease/(increase) in prepayments..................................... (136) 1,474
Decrease/(increase) in inventory....................................... (227) (808)
-------------- --------------
(6,940) (18,550)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 409,256 163,734
-------------- --------------
</TABLE>
F-94
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
15 EXPENDITURE COMMITMENTS
15.1 CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for capital expenditure
contracted for at balance date but not provided for comprises
the following:
Payable not later than one year.................................. 946 596
-------------- --------------
946 596
-------------- --------------
15.2 NON-CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for non-capital expenditure
contracted for at balance date but not provided for comprises
the following:
Payable not later than one year.................................. 6,524 3,938
Payable greater than one and less than two years................. 1,566 0
-------------- --------------
8,090 3,938
-------------- --------------
15.3 LEASE EXPENDITURE COMMITMENTS
Outstanding operating lease (non-cancellable) commitments at
balance date but not provided for comprises the following:
Payable not later than one year.................................. 138 0
Payable greater than one and less than two years................. 145 0
Payable greater than two and less than five years................ 169 0
-------------- --------------
452 0
-------------- --------------
</TABLE>
Loy Yang Power Ltd. holds $263 million of plant disclosed as leased assets in
note 9. The leases for these assets have not yet been novated to Loy Yang
Power Ltd., and they remain with the current lessees being either the State
Electricity Commission of Victoria or Generation Victoria. As a consequence
Loy Yang Power Ltd. has no lease liability in respect to these leases. Loy
Yang Power Ltd. and the State Electricity Commission of Victoria are
progressing issues to achieve their formal novation to Loy Yang Power Ltd.
The lessors have given their conditional consent for Loy Yang Power Ltd. to
use the assets until such time as the leases are formally novated.
Included in the above is a lease relating to an individual asset valued at
$67.7 million (written down value) which has an expiry date of 31 December
1999 unless not renewed by the lessor with effect from 30 June 1996. The
renewal option is yet to be exercised. The lessor's consent for Loy Yang
Power Ltd. to use the asset continues.
16 SITE RESTORATION COSTS--POWER STATION AND MINE
Provision for site restoration of the power station and mine sites of
$4.8 million has been provided for in the accounts as at 30 June 1996.
The total net present value of estimated future cash outflows for site
restoration is $26 million.
F-95
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
17 EMPLOYEE ENTITLEMENTS
17.1 AGGREGATE EMPLOYEE ENTITLEMENT
Wages and salaries................................................ 185 219
Recreation leave.................................................. 6,663 6,176
Long service leave................................................ 6,740 6,630
Redundancies...................................................... 1,494 7,338
-------------- --------------
15,082 20,363
-------------- --------------
The amounts for long service leave are measured at their present
values. The following assumptions were adopted in measuring the
present values of the entitlements which are not expected to be
paid or settled within 12 months of balance date.
LONG SERVICE LEAVE
Weighted average rates of increase in annual employee
entitlements to settlement of the liabilities .................... 2.9% 4.0%
Weighted average discount rates .................................. 8.7% 8.8%
Weighted average terms to settlement of the liabilities ......... 11 years 11 years
</TABLE>
17.2 SUPERANNUATION FUND
All permanent and directly hired casual employees of Loy Yang Power Ltd.
are entitled to benefits on termination from the Victorian Electricity
Industry Superannuation Fund. All casual and permanent employees engaged
after 3 October 1994 are members of an accumulation fund, Division D or other
external accumulation funds. All other permanent employees are members of
Division B or C of the Fund which provide defined benefits in the form of
pensions (Division B) or lump sums (Division C). Both defined benefit schemes
are closed to new members. During July 1995 the company contributed to the
Fund at the rate of 10% for the defined benefit schemes, and thereafter at a
rate of 9.75%. Contributions in excess of those required by the Superannuation
Guarantee Charge Act 1992 (6%) are not legally enforceable.
F-96
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
17 EMPLOYEE ENTITLEMENTS (CONTINUED)
17.2 SUPERANNUATION FUND (CONTINUED)
The effective date of the most recent detailed valuation of the Fund
was 30 June 1996. The review was undertaken by William M. Mercer Pty
Ltd. Based on that assessment, the situation for the company as at 30
June 1996 was:
Present value of employees accrued benefits............................ 54,100* 45,800
Net market value of assets held by the fund to meet future benefit
payments............................................................... 54,600* 47,500
Excess/(deficit) of present value of employees' benefits over assets
held to meet future benefit payments................................... 500* 1,700
Vested benefits........................................................ 49,300* 45,700
The present value of employees' accrued benefits is equal to the past
membership liability calculated in accordance with Australian
Accounting Standard AAS25 "Financial Reporting by Superannuation
Plans". (Vested benefits are those benefits which would have been paid
on voluntary termination from the Fund.)
Employer contributions to the fund..................................... 2,697 1,194
Additional contributions to the fund to compensate for differences
between the resignation and retrenchment benefit, in relation to
voluntary retrenchments................................................ 1,228 1,140
*Note: Asset and benefit figures are unaudited at the time of signing
this report. The last full audit was conducted at 30 June 1995.
- ------------------------------------------------------------------------------------------------------
18 CONTINGENT EVENTS
18.1 Loy Yang Power Ltd. was allocated its assets and liabilities from
Generation Victoria through an allocation statement in accordance with
the Electricity Industry (Further Amendment) Act 1994. Under section
153B of this Act, the allocation statement may be amended at any time
at the direction of the Victorian Government Treasurer and relevant
Minister.
18.2 Upon the disaggregation of the State Electricity Commission of
Victoria (SECV) on 3 January 1994, Generation Victoria entered into a
contract with the SECV to meet the SECV's obligations under its
contracts for the supply of coal and infrastructure services to the
Loy Yang B Joint Venture in consideration of receipt of all SECV's
revenues under those contracts. Upon the disaggregation of Generation
Victoria on 31 January 1995, Generation Victoria's rights and
obligations were allocated to Loy Yang Power Ltd.
Under the contract Loy Yang Power Ltd. is directly liable to the SECV
to use its "best endeavours", backed by an indemnity in favour of the
SECV for performance of these obligations, subject only to force
majeure relief. A failure by Loy Yang Power Ltd. to use its "best
endeavours" may result in liabilities being imposed on Loy Yang Power
Ltd. At the time of preparation of this report, Loy Yang Power Ltd. is
not aware of any breaches of performance obligations on its part.
The SECV remains the contracting party under the contracts with the
Loy Yang B Joint Venture.
</TABLE>
F-97
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
19 TREASURY
19.1 LOY YANG POWER LTD. DERIVATIVES
Loy Yang Power Ltd.'s derivative products are dealt through Treasury
Corporation of Victoria (TCV). The only derivative products
outstanding as at 30 June 1996 were Interest Rate Swaps.
INTEREST RATE SWAPS
Under these swaps, Loy Yang Power Ltd. agrees with the counterpart to
exchange, at specified intervals, the difference between the
fixed-rate and floating-rate interest amounts calculated by reference
to an agreed notional amount. The notional principal amounts are not
exchanged by the parties.
The maturity profile of these swaps in notional principal terms is:
Later than two years and not later than five years.................... 25,000 33,744
Later than five years................................................. 195,000 245,000
-------------- --------------
220,000 278,744
-------------- --------------
The following table indicates the type of swaps held by Loy Yang Power
Ltd. and their weighted average interest rates.
Pay-fixed swaps: notional principal amount............................ 220,000 278,744
Average pay rate: Loy Yang Power Ltd. specific cost................... 12.6% 12.5%
Average receive rate.................................................. 7.6% 7.7%
Loy Yang Power Ltd.'s credit exposures on these swaps is nil as the
counterpart in each case is TCV.
VIC INTEREST RATE FORWARDS & VIC HOTSTOCK FORWARDS
The maturity profile in notional principal amount terms, of these
Interest Rate and Hotstock Forwards is:
Not Later than one year............................................... 0 90,000
-------------- --------------
0 90,000
-------------- --------------
Both Vic Interest Rate Forwards and Vic Hotstock Forwards were created
by TCV for use by their Participating Authorities following the State
Treasurer's instructions that TCV Participating Authorities were to no
longer deal in derivative products directly with the financial markets
from 1 July 1995.
Vic Interest Rate Forwards are similar to Bill Futures except that
there are no initial and variation margins to be paid by either
counterpart. Vic Hotstock Forwards are similar to Bond Futures except
the maturity dates are specific to TCV's physical hotstocks.
</TABLE>
F-98
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
20 LOANS (refer note 25.6)
20.1 LOAN COMPONENTS
CURRENT LOANS
Premium/(discount) on loans................................. 0 1,782
Fixed interest loans........................................ 49 88
Fixed interest bonds........................................ 0 100,221
-------------- --------------
49 102,091
NON-CURRENT LOANS
Premium/(discount) on loans ................................ 38,899 39,055
Floating rate notes ........................................ 249,745 334,746
Fixed interest bonds ....................................... 626,695 654,895
Capital indexed bonds ...................................... 142,429 135,890
Fixed interest loans ....................................... 65 113
-------------- --------------
1,057,833 1,164,699
-------------- --------------
1,057,882 1,266,790
-------------- --------------
Liabilities in years of maturity, at face value are:
Not later than one year.................................... 49 100,309
Later than one year and not later than two years .......... 353,784 21,249
Later than two years and not later than five years ....... 327,721 813,505
Later than five years...................................... 337,429 290,890
-------------- --------------
1,018,983 1,225,953
-------------- --------------
Plus unamortised adjustments to face value (refer note 20.2) 38,899 40,837
-------------- --------------
1,057,882 1,266,790
-------------- --------------
20.2 ADJUSTMENTS TO FACE VALUE OF LOANS
Current (discount)/premium.................................. 0 1,782
Non-Current (discount)/premium.............................. 38,899 39,055
-------------- --------------
38,899 40,837
-------------- --------------
</TABLE>
F-99
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
20 LOANS (CONTINUED)
20.3 SECURITY--LOANS
All loan funding for Loy Yang Power Ltd. is arranged via Treasury Corporation
of Victoria (TCV). Legal inability to the end investor for Loy Yang Power
Ltd. loans rests with TCV.
These loans are guaranteed by the State Government of Victoria. In return Loy
Yang Power Ltd. pays a financial accommodation levy to the State Government
which increases the cost of debt to reflect market rates, based on an
assessment of credit risk.
For debt novated to TCV, back-to-back loans have been established between Loy
Yang Power Ltd. and TCV. Pursuant to Section 36D of the Treasury Corporation
of Victoria (Debt Centralisation) Act 1993, Loy Yang Power Ltd. will
reimburse TCV for all settlement amounts relating to these loans.
- -------------------------------------------------------------------------------------------------------------
21 AUDITORS' REMUNERATION
Amounts received, or due and receivable, by the Auditor-General for auditing
the financial statements:
Total amount payable for annual audit fee ................................... 52 62
- -------------------------------------------------------------------------------------------------------------
22 DIRECTORS' REMUNERATION
Amounts received, or due and receivable, by the directors of
Loy Yang Power Ltd. ......................................................... 162 56
The number of directors of Loy Yang Power Ltd. whose annual remuneration
(including superannuation contributions) falls within the following bands:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
$ Band levels Directors Directors
- --------------------------------------------------------------------------------- ------------- -------------
$30,000 -$39,999 ................................................................ 3 3
$60,000 -$69,999 ................................................................ 1 1
During the year Loy Yang Power Ltd. paid premiums for the indemnification and
insurance of all directors and officers of Loy Yang Power Ltd. to the full extent
permitted by Corporations Law.
The directors have applied ASC Class Order 95/741 in the disclosure of directors'
remuneration.
- ---------------------------------------------------------------------------------------------------------------
23 EXECUTIVES' REMUNERATION
The number of executives of Loy Yang Power Ltd. whose remuneration falls within
the following bands is set out below:
</TABLE>
<TABLE>
<CAPTION>
$ BAND LEVELS EXECUTIVES EXECUTIVES
- ------------------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
$100,000 -$109,999 ........................................................... 0 1
$110,000 -$119,999 ........................................................... 2 4
$120,000 -$129,999 ........................................................... 1 0
$130,000 -$139,999 ........................................................... 3 1
$200,000 -$209,999 ........................................................... 0 1
$210,000 -$219,999 ........................................................... 1 0
Total remuneration received, or due and receivable, from Loy Yang Power Ltd.
or related entities by executive officers of Loy Yang Power Ltd. whose
remuneration exceeds $100,000: ............................................... 974 890
</TABLE>
1994/95 amounts represent annual equivalents.
1995/96 amounts represent 12 months actual.
F-100
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
24 SEGMENTS
Loy Yang Power Ltd. operated entirely in Australia in the production and sale
of electricity and coal.
- -----------------------------------------------------------------------------
25 RELATED PARTY DISCLOSURES
25.1 DIRECTORS OF LOY YANG POWER LTD.
Directors of Loy Yang Power Ltd. during the financial year were:
Mr. C. Little
Mr. D. Swan
Mr. J. C. Richards
Mr. J. S. Grigg
All directors are non executive.
25.2 TRANSACTIONS WITH DIRECTOR-RELATED ENTITIES
There were no transactions with director-related entities.
25.3 WHOLLY OWNED GROUP
The wholly owned group comprises the ultimate holding entity of Loy Yang
Power Ltd., the Victorian State Government, and therefore all Victorian State
Government Departments, Statutory Corporations and any other corporate
entities owned by the Victorian State Government are related parties.
25.4 RELATED PARTY TRANSACTION CATEGORIES
The following types of related party transactions were transacted during the
year, on normal commercial terms:
Electricity purchases
Electricity transmission costs
Electricity pool costs
Council rates
Auditing services
Brown Coal Royalties
Technical services
Payroll tax
Briquette purchases
Electricity sales revenue
Coal sales revenue
Water purchases and waste water disposals
Loans from shareholder
Land leases
Provision of loan facilities
Gas purchases
Superannuation payments
F-101
<PAGE>
FINANCIAL STATEMENTS 1995/96
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
30 JUNE 1996 30 JUNE 1995
$'000 $'000
-------------- --------------
<S> <C> <C>
25 RELATED PARTY DISCLOSURES (continued)
25.5 OPERATING PROFIT AND LOSS TRANSACTIONS WITH RELATED PARTIES
Interest revenue.............................................................. 1,164 371
Dividend revenue.............................................................. 127 0
Interest expense ............................................................. 126,711 58,707
25.6 RECEIVABLE AND PAYABLES AT BALANCE DATE
AGGREGATE RELATED PARTY RECEIVABLES AT BALANCE DATE
Current ...................................................................... 57,508 99,469
Non-current................................................................... 1,566 3,132
-------------- --------------
59,074 102,601
-------------- --------------
AGGREGATE RELATED PARTY PAYABLES AT BALANCE DATE
Current ...................................................................... 1,994,185 2,097,008
Non-current................................................................... 1,058,296 1,164,997
-------------- --------------
3,052,481 3,262,005
-------------- --------------
25.7 INTERESTS HELD
There are no interests held in any related party other than those disclosed
as investments in note 8.
</TABLE>
F-102
<PAGE>
FINANCIAL STATEMENTS 1995/96
DIRECTORS' STATEMENT
In accordance with a resolution of the directors of Loy Yang Power Ltd., we
state that:
In the opinion of the directors:
o The profit and loss statement is drawn up so as to give a true and fair
view of the profit of the entity for the financial year ended 30 June
1996;
o The balance sheet is drawn up so as to give a true and fair view of the
state of affairs of the entity as at 30 June 1996;
o At the date of signing this statement there are no circumstances which
would render any particulars in the financial statements to be
misleading or inaccurate; and
o At the date of this statement there are reasonable grounds to believe
that the entity will be able to pay its debts as and when they fall due.
Arrangements for repayment of the shareholder loan are such that they
will not jeopardise the companies ability to pay its debts as and when
they fall due.
The financial statements are drawn up in accordance with Divisions 4, 4A and
4B of Part 3.6 of the Corporations Law.
On behalf of the Board
/s/ C. Little
C. Little
Chairman
/s/ John S. Grigg
J.S. Grigg
Director
Melbourne, 29 August 1996
F-103
<PAGE>
LOY YANG POWER ANNUAL REPORT 1995/96
AUDITOR-GENERAL'S REPORT
AUDIT SCOPE
The accompanying financial statements of Loy Yang Power Limited for the year
ended 30 June 1996, comprising a profit and loss statement, balance sheet,
statement of cash flows and notes to the financial statements, have been
audited. The company's directors are responsible for the preparation and
presentation of the financial statements and the information they contain. An
independent audit of these financial statements has been carried out in order
to express an opinion on them to the manager of the company, as required by
the Corporations Law and Audit Act of 1996.
The audit has been conducted in accordance with Australian Auditing Standards
to provide reasonable assurance as to whether the financial statements are
free of material misstatement. The audit procedures included an examination,
on a test basis, of evidence supporting the amounts and other disclosures in
the financial statements, and the evaluation of accounting policies and
significant accounting estimates. These procedures have been undertaken to
form an opinion as to whether, in all material respects, the financial
statements are presented fairly in accordance with the basis on which the
accounts have been prepared, namely applicable Accounting Standards, other
mandatory professional reporting requirements and comply with the
Corporations Law, so as to present a view which is consistent with my
understanding of the company's financial position and the results of its
operations and its cash flows.
The audit opinion expressed in the financial statements has been formed on
the above basis.
AUDIT OPINION
In my opinion, the financial statements of Loy Yang Power Limited are
properly drawn up:
a) so as to give a true and fair view of:
i) the company's state of affairs as at 30 June 1996 and of its profit
and cash flows for the financial year ended on that date; and
ii) the other matters required by Divisions 1, 4A and 4B of Part 3.6 of
the Corporations Law to be dealt with in the financial statements,
b) in accordance with the Corporations Law, and
c) in accordance with applicable Accounting Standards and other mandatory
professional reporting requirements.
/s/ C.A. Baragwanath
C.A. Baragwanath
Auditor-General
Melbourne, 29 August 1996
End of Audited Financial Statements
F-104
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
PROFIT AND LOSS STATEMENT
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
31 DEC 1996
NOTES $'000
------- -------------
<S> <C> <C>
OPERATING REVENUE........................... 2 283,881
-------------
Operating Profit before Income Tax.......... 3 90,623
Income Tax Attributable to Operating Profit. 4 33,043
-------------
OPERATING PROFIT AFTER INCOME TAX........... 57,580
-------------
Retained Profits at Beginning of Period .... 13 50,618
Dividends Paid or Payable................... 43,185
-------------
RETAINED PROFITS AT END OF PERIOD........... 85,013
-------------
</TABLE>
This Profit and Loss Statement should be read in conjunction with the Notes
To
And Forming Part of the Financial Statements
F-105
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
BALANCE SHEET
AS AT 31 DECEMBER 1996
<TABLE>
<CAPTION>
31 DEC 1996 30 JUNE 1995
NOTES $'000 $'000
------- ------------- --------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash......................... 14.1 74,578 658
Receivables................. 5 41,253 73,048
Inventories................. 6 4,876 3,560
Other assets................ 7 8,720 1,715
------------- --------------
TOTAL CURRENT ASSETS.......... 127,426 78,981
NON-CURRENT ASSETS
Receivables................. 5 1,575 1,575
Inventories................. 6 13,133 13,176
Other assets................ 7 5,048 5,663
Investments................. 8 0 0
Property, plant and
equipment................... 9 3,112,297 3,159,102
------------- --------------
TOTAL NON-CURRENT ASSETS ..... 3,132,048 3,179,516
------------- --------------
TOTAL ASSETS.................. 3,269,474 3,258,497
------------- --------------
CURRENT LIABILITIES
Creditors and borrowings.... 10 2,136,844 2,039,619
Provisions.................. 11 9,470 9,110
------------- --------------
TOTAL CURRENT LIABILITIES .... 2,146,314 2,048,729
NON-CURRENT LIABILITIES
Creditors and borrowings.... 10 912,404 1,057,833
Provisions.................. 11 135,743 101,317
------------- --------------
TOTAL NON-CURRENT
LIABILITIES................... 1,048,147 1,159,150
------------- --------------
TOTAL LIABILITIES............. 3,184,451 3,207,879
------------- --------------
NET ASSETS.................... 65,013 50,618
------------- --------------
EQUITY
Share capital............... 12 0 0
Retained earnings........... 13 65,013 50,618
------------- --------------
TOTAL EQUITY.................. 65,013 50,618
------------- --------------
</TABLE>
This Balance Sheet should be read in conjunction with the Notes To
And Forming Part of the Financial Statements
F-106
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
STATEMENT OF CASH FLOWS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
31 DEC 1996
NOTES $'000
------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers.............................. 327,238
Payments to suppliers and employees................. (114,028)
-------------
NET CASH FLOW FROM OPERATING ACTIVITIES............... 14.2 213,210
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and equipment... (8,788)
Proceeds from sale of property, plant and equipment. 0
Proceeds from sale of investments................... 0
Dividends received.................................. 0
-------------
NET CASH FLOW USED IN INVESTING ACTIVITIES............ (8,788)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Interest and other items of a similar nature
received............................................ 2,223
Interest and other costs of finance paid............ (43,273)
Hedging receipts associated with borrowings......... 8,013
Hedging payments associated with borrowings......... (12,304)
Proceeds from borrowings............................ 93,980
Repayment of borrowings............................. (24)
Repayment of shareholder loan....................... (21,600)
Buyback of borrowings............................... (96,364)
Dividends paid...................................... (61,686)
-------------
NET CASH FLOW USED IN FINANCING ACTIVITIES............ (131,035)
-------------
NET INCREASE/(DECREASE) IN CASH HELD.................. 73,387
-------------
CASH AT BEGINNING OF PERIOD........................... 38
-------------
CASH AT END OF PERIOD................................. 14.1 73,425
-------------
</TABLE>
This Statement of Cashflows should be read in conjunction with the Notes To
And Forming Part of the Financial Statements
F-107
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 BASIS OF ACCOUNTING
The half-year financial statements are a special purpose financial
report which has been prepared for the Due Diligence Committee in
connection with the sale of Loy Yang Power Ltd. in compiling the
accounts, Loy Yang Power has adopted the disclosure requirements of
AASB 1029, "Half Year Accounts and Consolidated Accounts". The
accounting policies adopted by the company in the preparation of this
report are consistent with those used in the preparation of the
statutory financial statements for the year ended 30 June 1996.
It is recommended that these half-year financial statements and reports
be read in conjunction with the 30 June 1996 Annual Financial
Statements.
The special purpose report has been prepared on the basis of historical
costs and except where stated, does not take into account changing
money values or current valuations of non-current assets.
For the purpose of preparing the half-year financial statements, the
half-year has been treated as a discrete reporting period.
1.2 PRIOR PERIOD COMPARISONS
Full comparative information has not been disclosed as the December
1995 half-year statements for Loy Yang Power Ltd. were not subject to
audit review.
1.3 PROPERTY, PLANT AND EQUIPMENT
COST AND VALUATION
Property, plant and equipment are carried at cost.
DEPRECIATION AND AMORTISATION
Depreciation or amortisation is provided for all fixed assets other
than freehold land. The majority of assets are depreciated using the
straight line method to write off the cost of assets over their
expected service lives. The expenditure associated with mine
development costs is amortised on a units of production basis.
Depreciation or amortisation for all assets commences on the first day
of the month closest to the in-service date.
Changes in depreciation rates and/or depreciable amounts are dealt with
on a prospective basis.
1.4 RECOVERABLE AMOUNTS
Non-current assets values do not exceed their recoverable amount. Where
carrying values exceed their recoverable amount, assets are revalued
downwards to the lower value. The expected net cash flows included in
determining the recoverable amounts of non-current assets have been
discounted to their present value using a market determined risk
adjusted discount rate.
1.5 INVENTORIES
Costs are assigned to inventories using the average cost method.
Inventories are valued at lower of cost and net realisable value. An
estimate of items which are likely to be utilised in the next twelve
months is classified as current.
F-108
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
1.6 ACCOUNTING FOR INCOME TAX
Loy Yang Power Ltd. is subject to the Victorian State Government Tax
Equivalent System pursuant to Section 88 of the State Owned Enterprises
Act 1992.
Loy Yang Power Ltd. has adopted the liability method of tax-effect
accounting whereby income tax is regarded as an expense and is matched
with the acounting profit after allowing for permanent differences.
To the extent that timing differences occur between the time items are
recognised in the accounts and when items are taken into account in
determining taxable income, the net related taxation benefit or
liability is disclosed as a future income tax benefit or a provision
for deferred income tax. These account balances are calculated with
reference to the rates of income tax which are expected to apply when
those timing differences reverse.
Future income tax benefits are not brought to account unless
realisation of the asset is assured beyond reasonable doubt. The future
income tax benefit arising from tax losses is only carried forward as
an asset when the benefit is virtually certain of being realised.
1.7 DOUBTFUL DEBTS
The value of estimated doubtful debts is reviewed annually on an
individual debtor basis, and appropriate provision is made where
necessary.
1.8 NEGOTIABLE SECURITIES
Where interest is paid in advance on negotiable securities the interest
is recognised as an asset and progressively charged to the Profit and
Loss Statement over the applicable interest period. Interest payable in
arrears is progressively charged to the Profit and Loss Statement over
the applicable interest period and recognised as a liability.
Discounts and premiums on face value on the issue of negotiable
securities are recognised as variations of the liability to which they
relate. The variations are amortised over the term of the issue, using
the effective yield method.
Changes in the capital value of the outstanding liability on index
linked securities are recognised as variations in the book value of the
liability and are charged to the Profit and Loss Statement.
Any gains or losses arising from the buyback of negotiable securities
issued by Loy Yang Power Ltd. are charged to the Profit and Loss
Statement as incurred or earned.
1.9 DERIVATIVES
Loy Yang Power Ltd. is exposed to changes in interest rates and
commodity prices from its activities. It is Loy Yang Power Ltd.'s
policy to use derivative financial instruments to hedge these risks.
Loy Yang Power Ltd. does not enter, hold or issue derivative financial
instruments for trading or speculative purposes.
Derivative financial instruments include forward rate agreements,
futures, options, interest rate swaps and their Treasury Corporation of
Victoria equivalents.
Gains and losses arising from the early termination of general hedges
are amortised over the period of the hedge. The exception to this is
bond futures where gains and losses are amortised over the average term
to maturity of existing fixed debt.
F-109
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
1.9 DERIVATIVES (CONTINUED)
Gains and losses arising from the early termination of specific hedges
are amortised over the shorter of the period of the borrowing being
hedged or the period of the hedge.
1.10 EMPLOYEE ENTITLEMENTS
WAGES, SALARIES AND LEAVE
Provision is made for employee entitlement benefits accumulated as a
result of employees rendering services up to the reporting date. These
benefits include wages and salaries, annual leave and associated
oncosts.
Liabilities arising in respect of wages and salaries, annual leave and
any other employee entitlements expected to be settled within twelve
months of the reporting date are measured at their nominal amounts. All
other employee entitlement liabilities are measured at the present
value of their estimated future cash outflows to be made in respect of
services provided by employees up to the reporting date. In determining
the present value of future cash outflows, the interest rates attaching
to Federal Government Guaranteed Securities which have terms to
maturity approximating the terms of the related liability are used.
Employee entitlement expenses and revenues arising in respect of the
following categories:
o wages and salaries, non-monetary benefits, annual leave, long
service leave, sick leave and other leave entitlements; and
o other types of employee entitlements,
are charged to the Profit and Loss Statement on a net basis in their
respective categories.
SUPERANNUATION
Loy Yang Power Ltd. contributes towards the Victorian Electricity
Industry (VEI) Superannuation Fund on behalf of its employees. These
contributions are charged to the Profit and Loss Statement as the
liability arises. As at the last completed audit (June 1996) the fund
had a surplus of assets over accrued benefits of $0.4 million.
1.11 PROVISION FOR SITE RESTORATION -- POWER STATION AND MINE
Recognition of a liability for the cost of restoring the power station
and mine sites to an acceptable environmental standard at the end of
their useful lives has been provided for in these accounts (refer notes
11 and 16). This liability includes cost of reclamation, plant closure
and dismantling, and waste site closure.
The liability is recognised on a gradual basis and is calculated by
discounting the estimated future site restoration costs to their net
present value. Annual increments to the liability for each site are
charged to the Profit and Loss Statement over the estimated remaining
life of each site.
Expected future payments for site restoration are discounted using
interest rates attaching, as at the reporting date, to Federal
Government Guaranteed Securities with terms to maturity that match, as
closely as possible, the estimated future cash outflows.
Cost estimates are based on the assumption that current legal
requirements and/or technologies will not change significantly over the
life of the power station and mine sites.
Changes in estimates are dealt with on a prospective basis.
F-110
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1.12 CASH
For the purpose of the Statement of Cash Flows, cash includes cash on
hand and in banks, investments in money market instruments and
short-term deposits and securities, net of outstanding overdrafts.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
<S> <C> <C>
2 OPERATING REVENUE COMPRISES
Sales revenue ........................................................................... 272,788
Interest revenue......................................................................... 2,398
Proceeds from the sale of non-current assets............................................. 471
Other revenue............................................................................ 8,223
----------------
283,881
================
- -----------------------------------------------------------------------------------------------------------------
3 OPERATING PROFIT
The operating profit before income tax is arrived at after charging/(crediting) the
following items:
Depreciation, Amortisation and Diminution
Plant and equipment...................................................................... 47,990
Development of mine (amortisation)....................................................... 576
Leased plant and equipment (amortisation)................................................ 4,339
Buildings................................................................................ 188
----------------
Total Depreciation, Amortisation and Diminution........................................ 53,073
================
Amounts Set Aside to Provisions
Employee entitlements.................................................................... 2,839
Site restoration--power station.......................................................... 427
Site restoration--mine................................................................... 180
----------------
Total Amount Set Aside to Provisions................................................... 3,446
================
Interest Expense......................................................................... 58,958
Government Mining Royalties Incurred..................................................... 4,934
Energy Consumption Levy ................................................................. 10
Superannuation Contributions............................................................. 1,371
Rental Operating Leases.................................................................. 146
Profit/(Loss) on Sale of Non-Current Assets.............................................. 2
Research and Development Expenditure..................................................... 261
F-111
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
4 INCOME TAX
4.1 INCOME TAX EXPENSE
The prima facia tax on operating profit differs from the income tax provided in the
accounts as follows:
Prima facie income tax expense calculated at 36%........................................ 32,624
Increase in income tax expense due to permanent differences
Provisions for employee entitlements-non-deductible................................... 421
Provisions for restoration--non-deductible............................................ 154
Tax exempt income..................................................................... 257
Entertainment and other non-deductible items.......................................... 2
Decrease in income tax expense due to permanent differences
Tax exempt income ....................................................................
Research and development concession................................................... (36)
Depreciation on buildings............................................................. (380)
Add: Restatement of deferred tax balances due to change in income tax rate ............ 0
----------------
TOTAL INCOME TAX EXPENSE ATTRIBUTABLE TO OPERATING PROFIT............................... 33,043
================
Total income tax expense is made up of: ....................................................
Deferred income tax provision......................................................... 40,083
Less: future income tax benefit....................................................... 7,020
----------------
33,043
================
4.2 ANALYSIS OF TAX BALANCES CARRIED FORWARD
CURRENT
Future income tax benefit, balance at end of period..................................... 1,010 1,019
Less: provision for deferred income tax, balance at end of period..................... 271 450
---------------- ------------
NET FUTURE INCOME TAX BENEFIT (REFER NOTE 7)............................................ 739 569
================ ============
NON-CURRENT
Provision for deferred income tax, balance at end of period............................. 176,146 135,955
Less: future income tax benefit, balance at end of period............................... 52,244 45,267
---------------- ------------
NET PROVISION FOR DEFERRED INCOME TAX (REFER NOTE 11)................................... 123,902 90,888
================ ============
The future income tax benefit will only be oftained if:
a) future assessable income is derived of a nature and of an amount sufficient to enable
the benefit to be realised;
b) the conditions for deductibility imposed by tax legislation continue to be complied
with, and
c) no changes in tax legislation adversely affect Loy Yang Power Ltd. in realising the
benefit.
F-112
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
5 RECEIVABLES
CURRENT
Trade debtors............................................................................ 39,468 69,664
Other debtors............................................................................ 1,785 3,384
---------------- ------------
41,253 73,048
================ ============
NON-CURRENT
Trade debtors............................................................................ 1,675 1,575
Other debtors............................................................................ 0 0
---------------- ------------
1,675 1,575
================ ============
- -----------------------------------------------------------------------------------------------------------------
6 INVENTORIES
CURRENT
General purpose and maintenance stocks at cost........................................... 4,875 3,560
Less: Inventory diminution............................................................... 0 0
---------------- ------------
4,875 3,560
---------------- ------------
NON-CURRENT
General purpose and maintenance stocks at cost........................................... 13,621 13,664
Less: Inventory diminution............................................................... 488 488
---------------- ------------
13,133 13,176
================ ============
- -----------------------------------------------------------------------------------------------------------------
7 OTHER ASSETS
CURRENT
Prepayments.............................................................................. 5,981 1,146
Future income tax benefit (refer note 4.2)............................................... 739 569
---------------- ------------
5,720 1,715
================ ============
NON-CURRENT
Unamortised interest rate swap termination losses........................................ 4,307 4,828
Unamortized futures termination losses................................................... 741 835
---------------- ------------
5,048 5,663
================ ============
- -----------------------------------------------------------------------------------------------------------------
8 INVESTMENTS
8.1 NON-CURRENT INVESTMENTS AT COST COMPRISE:
Unlisted share ........................................................................ 0 0
Unlested shares in associated companies.................................................. 0 0
---------------- ------------
0 0
F-113
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
8 INVESTMENTS (CONTINUED)
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
8.2 NON-CURRENT INVESTMENTS IN UNILATED ASSOCIATED COMPANIES
PowerWorks Pty. Ltd.
PowerWorks Pty. Ltd.'s principal activity is to promote the electricity industry to
the public .........................................................................
Ownership interest................................................................... 33.3% 33.3%
Investment carrying amount........................................................... 0.1 0.1
The above investment is held by Loy Yang Power Ltd. and is comprised of interest in the
ordinary share capital of the associate.
The balance date of the associate is 30 June, and the associate is incorporated in
Australia. .............................................................................
There are no material post-balance day events or dissimilar accounting policies.
- -----------------------------------------------------------------------------------------------------------------
9 PROPERTY, PLANT AND EQUIPMENT AT COST
Land at cost........................................................................... 1,589 1,589
------------ ------------
1,589 1,589
Buildings at cost...................................................................... 8,333 8,237
Less: Accumulated depreciation......................................................... 625 457
------------ ------------
7,708 7,780
Plant and equipment at cost............................................................ 2,992,174 2,986,003
Less: accumulated depreciation......................................................... 184,294 136,300
------------ ------------
2,807,880 2,849,703
Plant and equipment under lease at cost (refer note 15.3).............................. 274,988 274,988
Less: accumulated amortisation......................................................... 18,654 12,315
------------ ------------
258,334 282,673
Mine development at cost............................................................... 38,842 38,842
Less: accumulated amortisation......................................................... 2,061 1,485
------------ ------------
38,781 37,357
TOTAL FIXED ASSETS AT COST............................................................. 3,315,928 3,309,059
TOTAL ACCUMULATED DEPRECIATION/AMORTISATION............................................ 203,534 150,557
------------ ------------
TOTAL WRITTEN DOWN AMOUNT.............................................................. 3,112,292 3,159,102
============ ============
10 CREDITORS AND BORROWINGS
CURRENT
Trade creditors ........................................................................ 19,423 35,138
Bank overdraft (refer note 14.1) ....................................................... 1,163 620
Shareholder loan* ...................................................................... 1,895,891 1,917,492
Interest accrued ....................................................................... 30,116 23,765
Dividend payable ....................................................................... 43,185 61,686
Other loans (refer note 21) ............................................................ 148,165 49
F-114
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
10 CREDITS AND BORROWINGS (CONTINUED)
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
Other liabilities....................................................................... 911 869
------------ ------------
2,138,844 2,039,819
------------ ------------
NON-CURRENT
Loans (refer note 21) .................................................................. 912,404 1,057,833
------------ ------------
912,404 1,057,833
------------ ------------
There are no guarantees or securities over assets with respect to borrowings.
* In accordance with the Electricity Industry (Further Amendment) Act 1994 section 153F and
the Electricity Industry (Amendment) Act 1995 section 153W, the shareholder loan is an
amount owing to the State Electricity Commission of Victoria and, whilst the loan holds a
legal obligation, it holds no interest payable and no term is specified for repayment.
Loy Yang Power Ltd., however, has made repayments against the shareholder loan in the
half-year to 31 December 1996.
- -----------------------------------------------------------------------------------------------------------------
11 PROVISIONS
CURRENT
Employee entitlements (refer note 17) .................................................. 8,023 7,478
Site restoration--mine (refer note 18) ................................................. 140 140
Redundancies ........................................................................... 1,307 1,494
------------ ------------
9,470 9,110
------------ ------------
NON-CURRENT
Employee entitlements (refer note 17) .................................................. 8,532 5,927
Site restoration--power station (refer note 16) ........................................ 4,181 3,734
Site restoration--mine (refer note 16) ................................................. 1,148 968
Deferred income tax (refer note 4.2) ................................................... 123,902 90,688
------------ ------------
135,743 101,317
------------ ------------
- -----------------------------------------------------------------------------------------------------------------
12 SHARE CAPITAL
AUTHORISED CAPITAL:
500,000,000 Ordinary Shares of $1.00 each .............................................. 500,000 500,000
Issued and Paid up Capital: 0 0
15 ordinary shares of $1.00 each, fully paid
(Balance not shown due to rounding)
13 RETAINED EARNINGS
Balance at beginning of period ......................................................... 50,618 50,618
F-115
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
13 RETAINED EARNINGS (CONTINUED)
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
Transfer from profit and loss........................................................... 57,580 117,888
------------ ------------
Total available for appropriation ...................................................... 108,198 168,304
Interim dividend payable ............................................................... 43,185 58,000
Final dividend payable ................................................................. 0 61,888
------------ ------------
Balance at End of Period ............................................................... 65,013 60,618
------------ ------------
14.1 RECONCILIATION OF CASH
Cash at the end of the period as shown in the Statement of Cash Flows is reconciled to
the related items in the Balance Sheet as follows:
CASH
Cash on hand ......................................................................... 8 8
Short term deposits and securities ................................................... 74,570 650
------------ ------------
74,578 658
OVERDRAFT
Bank overdraft ....................................................................... (1,163) (620)
------------ ------------
(1,163) (620)
------------ ------------
73,425 38
------------ ------------
Loy Yang Power Ltd. has a bank overdraft facility of $5 million arranged with the
National Australia Bank. $3.8 million of the facility is available at 31 December 1996.
14.2 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit after income tax ...................................................... 57,580
------------
NON-CASH REVENUES AND EXPENSES, AND REVENUES AND EXPENSES ASSOCIATED WITH FINANCING OR
INVESTING ACTIVITIES:
Depreciation and amortisation expense .................................................. 53,073
Income tax expense ..................................................................... 33,043
Interest revenue received .............................................................. (2,398)
Finance charges ........................................................................ 56,966
Dividend revenue received .............................................................. 0
Loss/(profit) on sold and scrapped non-current assets .................................. (2)
------------
140,674
ADJUST FOR MOVEMENTS IN ASSETS AND LIABILITIES
Increase/(decrease) in operating expenditure accruals .................................. (12,479)
Increase/(decrease) in provisions ...................................................... 1,572
Increase/(decrease) in trust funds and deposits ........................................ 43
Decrease/(increase) in accounts receivable/accrued revenue ............................. 31,971
F-116
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
14 STATEMENT OF CASH FLOWS (CONTINUED)
14.2 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
Decrease/(increase) in prepayments...................................................... (4,836)
Decrease/(increase) in inventory ....................................................... (1,316)
------------
14,956
------------
NON CASH PROVIDED BY OPERATING ACTIVITIES .............................................. 213,210
------------
-----------------------------------------------------------------------------------------------------------------
15 EXPENDITURE COMMITMENTS
15.1 CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for capital expenditure contracted for at balance date
but not provided for comprises the following:
Payable not later than one year ........................................................ 6,607 946
------------ ------------
6,607 946
------------ ------------
15.2 NON-CAPITAL EXPENDITURE COMMITMENTS
Outstanding contract commitments for non-capital expenditure contracted for at balance
date but not provided for comprises the following:
Payable not later than one year ........................................................ 12,959 6,524
Payable greater than one and less than two years ....................................... 766 1,566
Payable greater than two and less than five years ...................................... 75
------------ ------------
13,800 8,090
------------ ------------
15.3 LEASE EXPENDITURE COMMITMENTS
Outstanding operating lease (non-cancellable) commitments at balance date but not
provided for comprises the following:
Payable not later than one year ........................................................ 62 138
Payable greater than one and less than two years ....................................... 19 145
Payable greater than two and less than five years ...................................... 17 169
------------ ------------
98 452
------------ ------------
F-117
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
15 EXPENDITURE COMMITMENTS (CONTINUED)
15.3 LEASE EXPENDITURE COMMITMENTS (CONTINUED)
31 DECEMBER 1996 30 JUNE 1996
$'000 $'000
---------------- ------------
Loy Yang Power Ltd. holds $258 million of plant disclosed as leased assets in note 9.
The leases for these assets have not yet been novated to Loy Yang Power Ltd., and they
remain with the current lessees being either the State Electricity Commission of
Victoria or Generation Victoria. As a consequence Loy Yang Power Ltd. has no lease
liability in respect to these leases. Loy Yang Power Ltd. and the State Electricity
Commission of Victoria are progressing Issues to ensure Loy Yang Power Ltd's. ongoing
right to use the assets. The lessors have given their conditional consent for Loy Yang
Power Ltd. to use the assets.
16 SITE RESTORATION COSTS--POWER STATION AND MINE
Provision for site restoration of the power station and mine sites of $5.4 million has
been provided for in the accounts as at 31 December 1996. The total net present value
of estimated future cash outflows for site restoration is $40 million.
- -----------------------------------------------------------------------------------------------------------------
17 EMPLOYEE ENTITLEMENTS
17.1 AGGREGATE EMPLOYEE ENTITLEMENT
Wages and salaries ..................................................................... 211 185
Recreation leave ....................................................................... 7,196 6,663
Long service leave ..................................................................... 7,359 6,740
Redundancies ........................................................................... 1,307 1,494
------------ ------------
16,073 15,082
------------ ------------
The amounts for long service leave are measured at their present values. The following
assumptions were adopted in measuring the present values of the entitlements which are
not expected to be paid or settled within 12 months of balance date.
Long Service Leave:
Weighted average rates of increase in annual employee entitlements to settlement of the
liabilities ............................................................................ 2.9% 2.9%
Weighted average discount rates ........................................................ 7.2% 6.7%
Weighted average terms to settlement of the liabilities ................................ 10 Years 11 Years
F-118
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
31 DECEMBER 1996 30 JUNE 1995
$'000 $'000
---------------- --------------
18 CONTINGENT EVENTS
18.1 Loy Yang Power Ltd. was allocated its assets and liabilities from
Generation Victoria through an allocation statement in accordance with
the Electricity Industry (Further Amendment) Act 1994. Under section
153B of this Act, the allocation statement may be amended at any time
at the direction of the Victorian Government Treasurer and relevant
Minister.
18.2 Upon the disaggregation of the State Electricity Commission of Victoria
(SECV) on 3 January 1994, Generation Victoria entered into a contract
with the SECV to meet the SECV's obligations under its contracts for
the supply of coal and infrastructure services to the Loy Yang B Joint
Venture in consideration of receipt of all SECV's revenues under those
contracts. Upon the disaggregation of Generation Victoria on 31 January
1995, Generation Victoria's rights and obligations were allocated to
Loy Yang Power Ltd.
Under the contract Loy Yang Power Ltd. is directly liable to the SECV
to use its "best endeavours", backed by an indemnity in favour of the
SECV for performance of these obligations, subject only to force
majeure relief. A failure by Loy Yang Power Ltd. to use its "best
endeavours" may result in liabilities being imposed on Loy Yang Power
Ltd. At the time of preparation of this report, Loy Yang Power Ltd. is
not aware of any breaches of performance obligations on its part.
The SECV remains the contracting party under the contracts with the Loy
Yang B Joint Venture.
18.3 On 10 December 1996 the State Government of Victoria announced its
intention to privatise Loy Yang Power Ltd.
- ----------------------------------------------------------------------------------------------------------------
19 CONTINGENT LIABILITIES
Loy Yang Power Ltd. is liable for early contract termination penalties
with some site contractors. The estimated value of this liability is
$325 thousand.
F-119
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
31 DECEMBER 1996 30 JUNE 1995
$'000 $'000
---------------- --------------
20 TREASURY
20.1 LOY YANG POWER LTD. DERIVATIVES
Loy Yang Power Ltd.'s derivative products are dealt through Treasury
Corporation of Victoria (TCV). The only derivative products outstanding
as at 31 December 1996 were Interest Rate Swaps.
INTEREST RATE SWAPS
Under these swaps, Loy Yang Power Ltd. agrees with the counterpart to
exchange, at specified intervals, the difference between the fixed-rate
and floating-rate interest amounts calculated by reference to an agreed
notional amount. The notional principal amounts are not exchanged by
the parties.
The maturity profile of these swaps in notional principal terms is:
Later than two years and not later than five years .................. 25,000 25,000
Later than five years ............................................... 195,000 195,000
---------------- --------------
220,000 220,000
---------------- --------------
The following table indicates the type of swaps held by Loy Yang Power
Ltd. and their weighted average interest rates.
Pay-fixed swaps--notional principal amount ............................. 220,000 220,000
Average pay rate--Loy Yang Power Ltd. specific cost .................... 10.6% 12.6%
Average receive rate ................................................... 6.1% 7.6%
Loy Yang Power Ltd.'s credit exposures on these swaps is nil as the
counterpart in each case is TCV.
- ----------------------------------------------------------------------------------------------------------------
21 LOANS
21.1 LOAN COMPONENTS
CURRENT LOANS
Premium/(discount) on loans ............................................ 7,279 0
Fixed interest loans ................................................... 54,886 49
Fixed interest bonds ................................................... 84,000 0
---------------- --------------
146,165 49
F-120
<PAGE>
LOY YANG POWER LTD. SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 DECEMBER 1996
21 LOANS (CONTINUED)
21.1 LOAN COMPONENTS (CONTINUED)
31 DECEMBER 1996 30 JUNE 1995
$'000 $'000
---------------- --------------
NON-CURRENT LOANS
Premium/(discount) on loans ............................................ 4,770 38,899
Floating rate notes .................................................... 144,745 249,745
Fixed interest bonds ................................................... 515,695 626,895
Capital indexed bonds .................................................. 177,130 142,829
Fixed interest loans ................................................... 70,064 65
---------------- --------------
912,404 1,057,833
---------------- --------------
1,058,559 1,057,882
---------------- --------------
Liabilities in years of maturity, at face value are:
Not later than one year ................................................ 138,887 49
Later than one year and not later than two years ....................... 177,916 353,784
Later than two years and not later than five years ..................... 585,733 327,721
Later than five years .................................................. 143,984 337,429
---------------- --------------
1,046,520 1,018,883
Plus unamortised adjustments to face value (refer note 21.2) .......... 12,049 38,868
---------------- --------------
1,058,569 1,057,882
---------------- --------------
21.2 ADJUSTMENTS TO FACE VALUE OF LOANS
Current (discount)/premium ............................................. 7,279 0
Non-Current (discount)/premium ......................................... 4,770 38,899
---------------- --------------
12,049 38,899
---------------- --------------
21.3 SECURITY--LOANS
All loan funding for Loy Yang Power Ltd. is arranged via Treasury
Corporation of Victoria (TCV).
Legal liability to the end investor for Loy Yang Power Ltd. loans rest
with TCV.
These loans are guaranteed by the State Government of Victoria. In
return Loy Yang Power Ltd. pays a financial accommodation levy to the
State Government which increases the cost of debt to reflect market
rates, based on an assessment of credit risk.
For debt novated to TCV, back-to-back loans have been established
between Loy Yang Power Ltd. and TCV. Pursuant to Section 36D of the
Treasury Corporation of Victoria (Debt Centralisation) Act 1993, Loy
Yang Power Ltd. will reimburse TCV for all settlement amounts relating
to these loans.
</TABLE>
F-121
<PAGE>
<PAGE>
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NRG. THE INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF
AND SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. DELIVERY OF
THIS PROSPECTUS AT ANY TIME SHALL NOT CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF NRG
SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Summary................................. 3
Risk Factors............................ 15
Use of Proceeds ........................ 23
The Exchange Offer ..................... 24
Capitalization ......................... 31
Selected Consolidated Financial Data .. 32
Selected Pro Forma Condensed Financial
Data .................................. 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 35
Business ............................... 43
Regulation ............................. 73
Management ............................. 78
Ownership of Capital Stock ............. 84
Certain Transactions ................... 85
Certain Indebtedness ................... 87
Description of Notes ................... 88
Certain Federal Income Tax
Considerations ........................ 98
Ratings ................................ 99
Plan of Distribution ................... 100
Legal Matters .......................... 101
Experts ................................ 101
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
$250,000,000
NRG ENERGY INC.
7 1/2% SENIOR NOTES
DUE 2007
GRAPHIC OMITTED
PROSPECTUS
DATED , 1997
44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an estimate of all expenses in connection with the
issuance and distribution of the securities being registered hereby:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.......................... $ 75,758
Accountants' fees and expenses................ 100,000
Attorney's fees and expenses.................. 150,000
Printing expenses............................. 100,000
Miscellaneous................................. 19,242
---------
Total......................................... $445,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 145 of the General Corporation Law of the State
of Delaware, each director and officer of NRG may be indemnified by NRG
against expenses (including attorney's fees, judgments, fines and amounts
paid in settlement) actually and reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed legal
proceedings in which he is involved by reason of the fact that he is or was a
director or officer of NRG if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of NRG and,
with respect to any criminal action or proceeding, if he had no reasonable
cause to believe that his conduct was unlawful. However, if the legal
proceeding is by or in the right of NRG, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he shall
have been adjudged to be liable for negligence or misconduct in the
performance of his duty to NRG unless a court determines otherwise.
In addition, Article VI of NRG's By-Laws provides that NRG shall indemnify
and hold harmless, to the fullest extent permitted by applicable law, any
person who was or is made or is threatened to be made a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or
was a director, officer, employee or agent of NRG or is or was serving at the
request of NRG as a director, officer, employee or agent of another company
or of a partnership, joint venture, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person.
NRG shall be required to indemnify a person in connection with a Proceeding
initiated by such person only if the Proceeding was authorized by the Board
of Directors of NRG.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 12, 1997, NRG sold $250,000,000 aggregate principal amount of its
7-1/2% Senior Notes Due 2007 (the "Old Notes") to Salomon Brothers Inc, ABN
AMRO Chicago Corporation and Chase Securities Inc. (the "Initial Purchasers")
for $250,000,000 less the aggregate discount to Initial Purchasers of
$1,625,000. Such transaction was exempt from the registration requirements of
the Securities Act of 1933, in reliance on Section 4(2) of the Securities Act
on the basis that such transactions did not involve a public offering. In
accordance with the agreement pursuant to which the Initial Purchasers
purchased the Old Notes, such Initial Purchasers agreed to offer and sell the
Old Notes only to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) and pursuant to offers and sales that occur outside
the United States within the meaning of Regulation S under the Securities
Act.
On January 29, 1996, NRG sold $125,000,000 aggregate principal amount of
its 7.625% Senior Notes Due 2006 (the "1996 Notes") to Bear, Stearns & Co.
Inc. and Merrill Lynch & Co. (the "1996 Note Initial Purchasers") for
$125,000,000 less the aggregate discount to 1996 Note Initial Purchasers of
II-1
<PAGE>
$812,500. Such transaction was exempt from the registration requirements of
the Securities Act of 1933, in reliance on Section 4(2) of the Securities Act
on the basis that such transactions did not involve a public offering. In
accordance with the agreement pursuant to which the 1996 Note Initial
Purchasers purchased the 1996 Notes, such 1996 Note Initial Purchasers agreed
to offer and sell the 1996 Notes only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) and pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
- -----------
<S> <C>
3.1 Certificate of Incorporation of NRG.*
3.2 By-Laws of NRG.*
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest Bank Minnesota, National Association.
4.2 Form of Exchange Notes.*
4.3 Registration Rights Agreement, dated as of June 12, 1997, by and among NRG, Salomon Brothers Inc, ABN
AMRO Chicago Corporation and Chase Securities Inc.*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to legality of the Exchange Notes to
be issued by NRG.
10.1 Employment Contract, dated as of June 28, 1995, between NRG and David H. Peterson.*
10.2 Indenture, dated as of January 31, 1996, between NRG and Norwest Bank Minnesota, National Association,
as Trustee.*
10.3 Revolving Credit Agreement, dated as of March 17, 1997, among NRG, the banks party thereto and ABN AMRO
Bank, N.V. as Agent.*
10.4 Note Agreement, dated August 20, 1993, among NRG Energy Center, Inc. and each of the purchasers named
therein.
10.5 Master Shelf and Revolving Credit Agreement, dated August 20, 1993 among NRG Energy Center, Inc., The
Prudential Insurance Company of America and each Prudential Affiliate which becomes party thereto.
10.6 Energy Agreement, dated February 12, 1988 between NRG (formerly known as Norenco Corporation) and
Waldorf Corporation (the "Energy Agreement").
10.7 First Amendment to the Energy Agreement, dated August 27, 1993.
10.8 Second Amendment to the Energy Agreement, dated January 31, 1996.
10.9 Third Amendment to the Energy Agreement, dated August 25, 1997.
10.10 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and among NEO Landfill
Gas, Inc., as Borrower, the lenders named on the signature pages, Credit Lyonnais New York Branch, as
Construction/Acquisition Agent and Lyon Credit Corporation, as Term Agent.
10.11 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York Branch as agent for the
Construction/Acquisition Lenders.
10.12 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and among Minnesota
Methane LLC, as Borrower, the lenders named on the signature pages, Credit Lyonnais New York Branch, as
Construction/Acquisition Agent and Lyon Credit Corporation, as Term Agent.
10.13 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York Branch as agent for the
Construction/Acquisition Lenders.
10.14 Non Operating Interest Acquisition Agreement, dated as of September 12, 1997, by and among NRG and NEO
Corporation.
12.1 Computation of ratio of earnings to fixed charges.*
21 Subsidiaries of NRG.*
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Price Waterhouse Netherland BV.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
24 Power of Attorney of certain officers and directors of NRG.*
25 Form T-1 Statement of Eligibility of Norwest Bank Minnesota, National Association to act as trustee
under the Indenture.*
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- ------------
* Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by the controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NRG Energy,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-1 and has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis, in the State of
Minnesota, on the 9th day of October, 1997.
NRG Energy, Inc.
By: /s/ David H. Peterson
-------------------------------
David H. Peterson
Chairman of the Board,
President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ---------------------- ---------------------------- -------------------
* Chairman of the Board,
---------------------- President and Chief
David H. Peterson Executive Officer October 9, 1997
/s/ Leonard A. Bluhm
---------------------- Executive Vice President and
Leonard A. Bluhm Chief Financial Officer October 9, 1997
*
----------------------
Gary R. Johnson Director October 9, 1997
*
----------------------
Cynthia L. Lesher Director October 9, 1997
*
----------------------
Edward J. McIntyre Director October 9, 1997
*
----------------------
John A. Noer Director October 9, 1997
*By: /s/ Leonard A. Bluhm
---------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------------ ------------
<S> <C> <C>
3.1 Certificate of Incorporation of NRG.*
3.2 By-Laws of NRG.*
4.1 Indenture, dated as of June 1, 1997, between NRG and Norwest Bank Minnesota,
National Association.*
4.2 Form of Exchange Notes.*
4.3 Registration Rights Agreement, dated as of June 12, 1997, by and among NRG, Salomon
Brothers Inc, ABN AMRO Chicago Corporation and Chase Securities Inc.*
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to legality of
the Exchange Notes to be issued by NRG.
10.1 Employment Contract, dated as of June 28, 1995, between NRG and David H. Peterson.*
10.2 Indenture, dated as of January 31, 1996, between NRG and Norwest Bank Minnesota,
National Association, as Trustee.*
10.3 Revolving Credit Agreement, dated as of March 17, 1997, among NRG, the banks party
thereto and ABN AMRO Bank, N.V. as Agent.*
10.4 Note Agreement, dated August 20, 1993, among NRG Energy Center, Inc. and each of the
purchasers named therein.
10.5 Master Shelf and Revolving Credit Agreement, dated August 20, 1993 among NRG Energy
Center, Inc., The Prudential Insurance Company of America and each Prudential
Affiliate which becomes party thereto.
10.6 Energy Agreement, dated February 12, 1988 between NRG (formerly known as Norenco
Corporation) and Waldorf Corporation (the "Energy Agreement").
10.7 First Amendment to the Energy Agreement, dated August 27, 1993.
10.8 Second Amendment to the Energy Agreement, dated January 31, 1996.
10.9 Third Amendment to the Energy Agreement, dated August 25, 1997.
10.10 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and
among NEO Landfill Gas, Inc., as Borrower, the lenders named on the signature pages,
Credit Lyonnais New York Branch, as Construction/Acquisition Agent and Lyon Credit
Corporation, as Term Agent.
10.11 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York
Branch as agent for the Construction/Acquisition Lenders.
10.12 Construction, Acquisition and Term Loan Agreement, dated September 2, 1997 by and
among Minnesota Methane LLC, as Borrower, the lenders named on the signature pages,
Credit Lyonnais New York Branch, as Construction/Acquisition Agent and Lyon Credit
Corporation, as Term Agent.
10.13 Guaranty, dated September 12, 1997 by NRG in favor of Credit Lyonnais New York
Branch as agent for the Construction/Acquisition Lenders.
10.14 Non Operating Interest Acquisition Agreement, dated as of September 12, 1997, by and
among NRG and NEO Corporation.
12.1 Computation of ratio of earnings to fixed charges.
21 Subsidiaries of NRG.*
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Price Waterhouse Netherland BV.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1).
24 Power of Attorney of certain officers and directors of NRG.*
25 Form T-1 Statement of Eligibility of Norwest Bank Minnesota, National Association to
act as trustee under the Indenture.*
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- ------------
* Previously filed.
II-1
<PAGE>
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
FAX (212) 735-2000
October 9, 1997
NRG Energy, Inc.
1221 Nicollet Mall, Suite 700
Minneapolis, Minnesota 55403
Re: NRG Energy, Inc.
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to NRG Energy, Inc., a
Delaware corporation ("NRG"), in connection with the issuance by NRG of
$250,000,000 aggregate principal amount of NRG's 7-1/2% Senior Notes due 2007
(the "New Notes") to be issued under the Indenture, dated as of June 1, 1997
(the "Indenture"), between NRG and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee"), in exchange for a like principal
amount of NRG's existing 7-1/2% Senior Notes due 2007 (the "Old Notes").
This opinion is being furnished in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of
1933, as amended (the "Act").
In connection with this opinion, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-1 (File No. 33-33397) as filed with the
Securities and Exchange Commission (the "Commission") on August 12, 1997 under
the Act, and Amendment No. 1 with which this opinion is being filed (such
Registration
<PAGE>
NRG Energy, Inc.
October 9, 1997
Page 2
Statement, as so amended, being hereinafter referred to as the "Registration
Statement"); (ii) an executed copy of the Indenture; (iii) the form of the New
Notes; (iv) the Form T-1 Statement of Eligibility of the Trustee filed as an
exhibit to the Registration Statement; (v) the Certificate of Incorporation of
NRG, as presently in effect; (vi) the By-Laws of NRG, as presently in effect;
and (vii) certain resolutions of the Board of Directors of NRG and the Pricing
Committee of the Board of Directors of NRG in each case relating to the
issuance and sale of the Old Notes and the issuance and exchange of the Old
Notes for the New Notes and related matters. We have also examined originals
or copies, certified or otherwise identified to our satisfaction, of such
records of NRG and such agreements, certificates of public officials,
certificates of officers or other representatives of NRG and others, and such
other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of
all natural persons, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such latter
documents. In making our examination of documents executed or to be executed
by parties other than NRG, we have assumed that such parties had or will have
the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite
action, corporate or other, and execution and delivery by such parties of such
documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of NRG and others.
Members of our firm are admitted to the bar in the State of
New York, and we do not express any opinion as to the laws of any other
jurisdiction other than the Delaware General Corporation Law (the "DGCL").
2
<PAGE>
NRG Energy, Inc.
October 9, 1997
Page 3
Based upon and subject to the foregoing, we are of the
opinion that when (i) the Registration Statement becomes effective under the
Act and the Indenture has been qualified under the Trust Indenture Act of
1939, as amended; (ii) the New Notes, upon consummation of the exchange offer
described in the Registration Statement (the "Exchange Offer"), have been duly
executed and authenticated in accordance with the terms of the Indenture; and
(iii) the New Notes issuable upon consummation of the Exchange Offer have been
duly delivered against receipt of Old Notes surrendered in exchange therefor
pursuant to the terms of the Exchange Offer, the New Notes issuable upon
consummation of the Exchange Offer will constitute valid and binding
obligations of NRG entitled to the benefits of the Indenture and enforceable
against NRG in accordance with their terms, except to the extent that
enforcement thereof may be limited by (1) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (2) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity).
In rendering our opinion set forth above, we have assumed
that the execution and delivery by NRG of the Indenture and the New Notes and
the performance by NRG of its obligations thereunder do not and will not
violate, conflict with or constitute a default under (i) any agreement or
instrument to which NRG or any of its properties is subject (except that we do
not make the assumption set forth in this clause (i) with respect to the
Certificate of Incorporation or By-laws of NRG), (ii) any law, rule or
regulation to which NRG is subject (except that we do not make the assumption
set forth in this clause (ii) with respect to the DGCL and those laws, rules
and regulations (other than securities and antifraud laws) of the State of New
York which, in our experience, are normally applicable to transactions of the
type contemplated by the Indenture, but without our having made any special
investigation concerning any other laws, rules or regulations), (iii) any
judicial or regulatory order or decree of any governmental authority or (iv)
any consent, approval, license, authorization or validation of, or filing,
recording or registration with any governmental authority.
3
<PAGE>
NRG Energy, Inc.
October 9, 1997
Page 4
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not thereby admit that we are
included in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
4
<PAGE>
EXHIBIT 10.4
MASTER SHELF AND
REVOLVING CREDIT AGREEMENT
<PAGE>
- -----------------------------------------------------------------------------
NRG ENERGY CENTER, INC.
MASTER SHELF AND
REVOLVING CREDIT AGREEMENT
DATED AUGUST 20, 1993
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Term Note Shelf Facility 1
lA. Authorization of Issue of Term Notes 1
1B. Facility 1
1C. Issuance Period 1
1D. Periodic Spread Information 2
1E. Request for Purchase 2
1F. Rate Quotes 2
1G. Acceptance 3
1H. Market Disruption 3
1I. Closing 3
1J. Delayed Delivery Fee 4
1K. Cancellation Fee 4
1L. Term Note Prepayments 4
1L(1). Optional Prepayment With Yield-Maintenance Amount 5
1L(2). Notice of Optional Prepayment 5
1L(3). Application of Prepayments 5
1L(4). Retirement of Term Notes 5
2. Revolving Credit Facility 5
2A. The Revolving Loans 5
2B. Prepayments of Revolving Notes 6
2B(1). Prepayment at the Company's Option 6
2B(2). Prepayment Under Paragraph 5 or the Mortgage 6
2C. Manner of Borrowings 6
2D. Non-Usage Fee 7
2E. Cancellation of Commitment 7
2F. Interest and Non-Usage Fee Payments 7
2G. Extension of Revolving Loans Termination Date 7
2H. Illegality 7
3. Conditions Precedent 7
3A. Conditions to Availability of Facility and Revolving Commitment 7
3A(1). Opinion of Purchasers' Special Counsel 7
3A(2). Opinion of Company's Counsel 7
3A(3). Purchase of Assets 8
3A(4). Management Agreement 8
3A(5). Security 8
3A(6). Capitalization 8
3A(7). Reports of Consultants 8
3A(8). Title Insurance 8
3A(9). Other Insurance 8
3A(10). Estoppel Certificates 8
3A(11). Lien Searches 9
3A(12). Proceedings 9
3A(13). Existing Indebtedness 9
3A(14). Note Agreement 9
3B. Conditions of Each Term Note Closing 9
3B(1). Term Notes 9
3B(2). Representations and Warranties; No Default 9
3B(3). Purchase Permitted by Applicable Laws 10
i
<PAGE>
3B(4). Legal Matters 10
3B(5). Proceedings 10
3B(6). Change in the Company's Condition 10
3B(7). Subsequent Opinions, etc. 10
3C. Conditions Precedent to Each Revolving Loan 10
3C(1). Revolving Notes 11
3C(2). Representations and Warranties; No Default 11
3C(3). Revolving Loan Permitted by Applicable Laws 11
3C(4). Legal Matters 12
3C(5). Proceedings 12
3C(6). Change in the Company's Condition 12
3C(7). Subsequent Opinions, etc. 12
4. [INTENTIONALLY OMITTED] 12
5. Affirmative Covenants 12
5A. Financial Statements 12
5B. Information Required by Rule 144A 13
5C. Inspection of Property 13
5D. Agreement Assuming Liability on Notes 13
5E. Maintenance of Insurance 14
5F. Payment if Control Changes 14
5G. Rights Under Purchase Documents 14
5H. Notice of Defaults and Violations 14
5H(1). Defaults 14
5H(2). Violations 14
5I. Maintenance of Licenses, Permits and Registrations 14
5J. Action Regarding Licenses, Etc. and Environmental Matters 14
6. Negative Covenants 14
6A. Fees Limitation 14
6B. Lien, Debt and Other Restrictions 15
6B(1). Liens 15
6B(2). Debt 15
6B(3). Loans, Advances, Investments and Contingent
Liabilities 16
6B(4). Merger and Sale of Assets 16
6B(5). Lease Rentals 16
6B(6). Sale or Discount of Receivables 17
6B(7). Certain Contracts 17
6B(8). Sale and Lease-Back 17
6B(9). Transactions With Affiliates 17
6C. Amendment of Management Agreement 17
6D. Maintenance of Present Business 17
7. Events of Default 17
7A. Acceleration 17
7B. Rescission of Acceleration 20
7C. Notice of Acceleration or Rescission 20
7D. Other Remedies 20
7D(1). Exercise 20
7D(2). Agency 20
ii
<PAGE>
8. Representations, Covenants and Warranties 20
8A. Organization 20
8B. Financial Statements 21
8B(1). Financial Statements of ECPLP 21
8B(2). Pro Forma Financial Statements of the Company 21
8C. Actions Pending 21
8D. Outstanding Debt 21
8E. Title to Properties 21
8F. Taxes 22
8G. Conflicting Agreements and Other Matters 22
8H. Offering of Notes 22
8I. Use of Proceeds 22
8J. ERISA 22
8K. Governmental Consent 23
8L. Utility Status 23
8M. Investment Company Status 23
8N. Licenses, Permits and Registrations 23
8O. Purchase Agreement Representations 24
8P. Sufficiency and Condition of Acquired Assets 24
8Q. No Defaults 24
8R. Assignability of Permits 24
8S. Environmental Matters; Wells 24
8T. Hostile Tender Offers 25
8U. Disclosure 25
9. Representations of the Purchasers 25
9A. Nature of Purchase 25
9B. Source of Funds 25
10. Definitions 25
10A. Yield-Maintenance Terms 25
10B. Other Terms 26
10C. Accounting Principles, Terms and Determinations 32
11. Miscellaneous 32
11A. Note Payments 33
11B. Expenses 33
11C. Consent to Amendments 33
11D. Form, Registration, Transfer and Exchange of Notes; Lost
Notes 34
11E. Persons Deemed Owners; Participations 34
11F. Survival of Representations and Warranties; Entire Agreement 34
11G. Successors and Assigns 35
11H. Disclosure to Other Persons 35
11I. Notices 35
11J. Payments Due on Non-Business Days 35
11K. Satisfaction Requirement 36
11L. Governing Law 36
11M. Severability 36
11N. Descriptive Headings 36
11O. Counterparts 36
11P. Binding Agreement 36
</TABLE>
iii
<PAGE>
INFORMATION SCHEDULE
EXHIBIT A -- FORM OF TERM NOTE
EXHIBIT B -- FORM OF REQUEST FOR PURCHASE
EXHIBIT C -- FORM OF CONFIRMATION OF ACCEPTANCE
EXHIBIT D -- FORM OF REVOLVING NOTE
EXHIBIT E-1 -- FORM OF OPINION -- BRIGGS AND MORGAN
EXHIBIT E-2 -- FORM OF OPINION -- JOSEPH D. BIZZANO, JR.
EXHIBIT F -- MORTGAGE
EXHIBIT G -- COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT
EXHIBIT H -- TITLE INSURANCE COMMITMENT
EXHIBIT I -- FORM OF SUBSEQUENT OPINION OF COMPANY'S COUNSEL
EXHIBIT J -- DISCLOSURE SCHEDULE
iv
<PAGE>
NRG ENERGY CENTER, INC.
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403-2445
August 20, 1993
The Prudential Insurance Company
of America (herein called "PRUDENTIAL")
Each Prudential Affiliate which becomes
bound hereby
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Gentlemen:
The undersigned, NRG Energy Center, Inc. (herein called the "COMPANY"),
hereby agrees with you as follows:
1. TERM NOTE SHELF FACILITY.
1A. AUTHORIZATION OF ISSUE OF TERM NOTES. The Company will authorize
the issue of its senior secured term notes (herein called the "Term Notes")
in the aggregate principal amount of $10,000,000, to be dated the date of
issue thereof, to mature, in the case of each Term Note so issued, no less
than three years and no more than twenty years after the date of original
issuance thereof (but in no event with a maturity subsequent to June 15,
2013), to bear interest on the unpaid balance thereof from the date thereof
at the rate per annum, and to have such other particular terms, as shall be
set forth, in the case of each Term Note so issued, in the Confirmation of
Acceptance with respect to such Term Note delivered pursuant to paragraph 1G,
and to be substantially in the form of Exhibit A attached hereto. The term
"Term Notes" as used herein shall include each Term Note delivered pursuant
to any provision of this Agreement and each Term Note delivered in
substitution or exchange for any such Term Note pursuant to any such
provision. Term Notes which have (i) the same final maturity, (ii) the same
installment payment dates, (iii) the same installment payment amounts (as a
percentage of the original principal amount of each Term Note), (iv) the same
interest rate, and (v) the same interest payment periods, are herein called a
"SERIES" OF TERM NOTES.
1B. FACILITY. Prudential is willing to consider, in its sole discretion
and within limits which may be authorized for purchase by Prudential and
Prudential Affiliates from time to time, the purchase of Term Notes pursuant
to this Agreement. The willingness of Prudential to consider such purchase of
Term Notes is herein called the "FACILITY". At any time, the aggregate
principal amount of Term Notes stated in paragraph 1A, minus the aggregate
principal amount of Term Notes purchased and sold pursuant to this Agreement
prior to such time, minus the aggregate principal amount of Accepted Notes
(as hereinafter defined) which have not yet been purchased and sold hereunder
prior to such time is herein called the "AVAILABLE FACILITY AMOUNT" at such
time. Notwithstanding the willingness of Prudential to consider purchases of
Term Notes, this Agreement is entered into on the express understanding that
neither Prudential nor any Prudential Affiliate shall be obligated to make or
accept offers to purchase Term Notes, or to quote rates, spreads or other
terms with respect to specific purchases of Term Notes, and the Facility
shall in no way be construed as a capital commitment by Prudential or any
Prudential Affiliate.
1C. ISSUANCE PERIOD. Subject to and upon the terms and conditions
herein set forth, Term Notes may be issued and sold pursuant to this
Agreement from time to time on any Business Day during the period from the
date hereof to the earlier to occur of (i) the date on which (A) the Company
pays (other than pursuant to paragraph 2B(1)) in their entirety any Notes
issued under this Agreement or any 1993 Notes, (B) Prudential or any
Prudential Affiliate exercises its option to require prepayment in their
<PAGE>
entirety of any Notes issued under this Agreement or any 1993 Notes, or (c)
any Notes issued under this Agreement or any 1993 Notes are otherwise prepaid
in their entirety or required to be so prepaid, including without limitation
by automatic acceleration, demand for payment or pursuant to the Mortgage,
(ii) June 15, 1996 (or if such date is not a Business Day, the Business Day
next preceding such date) and (iii) the thirtieth day after Prudential shall
have given to the Company, or the Company shall have given to Prudential, a
notice stating that it elects to terminate the issuance and sale of Term
Notes pursuant to this Agreement (or if such thirtieth day is not a Business
Day, the Business Day next preceding such thirtieth day). The period during
which Term Notes may be issued and sold pursuant to this Agreement is herein
called the "Issuance Period".
1D. PERIODIC SPREAD INFORMATION. Not later than 9:30 A.M. (New York
City local time) on a Business Day during the Issuance Period if there is an
Available Facility Amount on such Business Day, the Company may request by
telecopier or telephone, and within a reasonable time after such request,
Prudential will, to the extent reasonably practicable, provide to the Company
on such Business Day (or, if such request is received after 9:30 A.M. (New
York City local time) on such Business Day, on the following Business Day),
information (by telecopier or telephone) with respect to various spreads at
which Prudential or Prudential Affiliates might be interested in purchasing
Term Notes of different average lives; provided, however, that the Company
may not make such requests more frequently than once in every five Business
Days or such other period as shall be mutually agreed to by the Company and
Prudential. The amount and content of information so provided shall be in the
sole discretion of Prudential but it is the intent of Prudential to provide
information which will be of use to the Company in determining whether to
initiate procedures for use of the Facility. Information so provided shall
not constitute an offer to purchase Term Notes, and neither Prudential nor
any Prudential Affiliate shall be obligated to purchase Term Notes at the
spreads specified. Information so provided shall be representative of
potential interest only for the period commencing on the day such information
is provided and ending on the earlier of the fifth Business Day after such
day and the first day after such day on which further spread information is
provided. Prudential may suspend or terminate providing information pursuant
to this paragraph 1D if, in its sole discretion, it determines that there has
been an adverse change in the credit quality of the Company after the date of
this Agreement.
1E. REQUEST FOR PURCHASE. The Company may from time to time during the
Issuance Period make requests for purchases of Term Notes (each such request
being herein called a "Request for Purchase"). Each Request for Purchase
shall be made to Prudential by telecopier and confirmed by nationwide
overnight delivery service, and shall (i) specify the aggregate principal
amount of Term Notes covered thereby, which shall not be less than $2,500,000
(or, if the then Available Facility Amount is less than $2,500,000, but at
least $1,000,000, such Request for Purchase may be for the Available Facility
Amount) and not be greater than the Available Facility Amount at the time
such Request for Purchase is made, (ii) specify the principal amounts, final
maturities, installment payment dates and amounts and interest payment period
(which interest payment period shall be quarterly in arrears) of the Term
Notes covered thereby, (iii) specify the use of proceeds of such Term Notes,
(iv) specify the proposed day for the closing of the purchase and sale of
such Term Notes, which shall be a Business Day during the Issuance Period not
less than 10 days and not more than 25 days after the making of such Request
for Purchase, (v) specify the number of the account and the name and address
of the depository institution to which the purchase prices of such Term Notes
are to be transferred on the Closing Day for such purchase and sale, (vi)
certify that the representations and warranties contained in paragraph 8 and
contemplated by paragraph 3B(2) hereof are true on and as of the date of such
Request for Purchase, except to the extent of changes caused by the
transactions herein contemplated and to the extent such representations and
warranties by their express terms relate solely to an earlier date, and that
there exists on the date of such Request for Purchase no Event of Default or
Default, and (vii) be substantially in the form of Exhibit B attached hereto.
Each Request for Purchase shall be in writing and shall be deemed made when
received by Prudential.
1F. RATE QUOTES. Not later than five Business Days after the Company
shall have given Prudential a Request for Purchase pursuant to paragraph 1E,
Prudential may (but shall not be obligated to) provide (by telephone promptly
thereafter confirmed by telecopier, in each case no earlier than
2
<PAGE>
9:30 A.M. and no later than 1:00 P.M. New York City local time) interest rate
quotes for the several principal amounts, maturities, installment payment
schedules, and interest payment periods of Term Notes specified in such
Request for Purchase. Each quote shall represent the interest rate per annum
payable on the outstanding principal balance of such Term Notes until such
balance shall have become due and payable, at which Prudential or a
Prudential Affiliate would be willing to purchase such Term Notes at 100% of
the principal amount thereof.
1G. ACCEPTANCE. Within 30 minutes after Prudential shall have provided
any interest rate quotes pursuant to paragraph 1F or in the event that due to
conditions in the market place it shall not be feasible to hold such interest
rate quotes open 30 minutes, such shorter period as Prudential may specify to
the Company (such period herein called the "ACCEPTANCE WINDOW"), the Company
may, subject to paragraph 1H, elect to accept such interest rate quotes as to
not less than $2,500,000 aggregate principal amount of the Term Notes
specified in the related Request for Purchase, unless the Available Facility
Amount at such time is less than $2,500,000, in which case the Company may
elect to accept such interest rate quotes as to the then Available Facility
Amount. Such election shall be made by an Authorized Officer of the Company
notifying Prudential by telephone or telecopier within the Acceptance Window
(but not earlier than 9:30 A.M. or later than 2:00 P.M., New York City local
time) that the Company elects to accept such interest rate quotes, specifying
the Term Notes (each such Term Note being herein called an "ACCEPTED NOTE")
as to which such acceptance (herein called an "ACCEPTANCE") relates. The day
the Company notifies an Acceptance with respect to any Accepted Notes is
herein called the "ACCEPTANCE DAY" for such Accepted Notes. Any interest rate
quotes as to which Prudential does not receive an Acceptance within the
Acceptance Window shall expire, and no purchase or sale of Term Notes
hereunder shall be made based on such expired interest rate quotes. Subject
to paragraph 1H and the other terms and conditions hereof, the Company agrees
to sell to Prudential or a Prudential Affiliate, and Prudential agrees to
purchase, or to cause the purchase by a Prudential Affiliate of, the Accepted
Notes at 100% of the principal amount thereof. Prior to the close of business
on the Business Day next following the Acceptance Day, the Company,
Prudential and each Prudential Affiliate which is to purchase any such
Accepted Notes will execute a confirmation of such Acceptance substantially
in the form of Exhibit C attached hereto (herein called a "CONFIRMATION OF
ACCEPTANCE").
1H. MARKET DISRUPTION. Notwithstanding the provisions of paragraph 1G,
if Prudential shall have provided interest rate quotes pursuant to paragraph
1F and thereafter prior to the time an Acceptance with respect to such quotes
shall have been notified to Prudential in accordance with paragraph 1G there
shall occur a general suspension, material limitation, or significant
disruption of trading in securities generally on the New York Stock Exchange
or in the market for U.S. Treasury securities and other financial
instruments, then such interest rate quotes shall expire, and no purchase or
sale of Term Notes hereunder shall be made based on such expired interest
rate quotes. If the Company thereafter notifies Prudential of the Acceptance
of any such interest rate quotes, such Acceptance shall be ineffective for
all purposes of this Agreement, and Prudential shall promptly notify the
Company that the provisions of this paragraph 1H are applicable with respect
to such Acceptance.
1I. CLOSING. Not later than 11:30 A.M. (New York City local time) on
the Closing Day for any Accepted Notes, the Company will deliver to each
Purchaser listed in the Confirmation of Acceptance relating thereto at the
Chicago offices of Prudential Capital Group, the Term Notes to be purchased
by such Purchaser in the form of a single Accepted Note for the Accepted
Notes which have exactly the same terms (or such greater number of Term Notes
in authorized denominations as such Purchaser may request) dated the Closing
Day and registered in such Purchaser's name (or in the name of its nominee),
against payment of the purchase price thereof by transfer of immediately
available funds for credit to the Company's account specified in the Request
for Purchase of such Term Notes. If the Company fails to tender to any
Purchaser the Accepted Notes to be purchased by such Purchaser on the
scheduled Closing Day for such Accepted Notes as provided above in this
paragraph 1I, or any of the conditions specified in paragraph 3B shall not
have been fulfilled by the time required on such scheduled Closing Day, the
Company shall, prior to 1:00 P.M., New York City local time, on such
scheduled Closing Day notify such Purchaser in writing whether (x) such
closing is to be rescheduled (such rescheduled date to be a Business Day
during the Issuance Period not less than one Business Day and not more than
3
<PAGE>
30 Business Days after such scheduled Closing Day (the "RESCHEDULED CLOSING
DAY") and certify to such Purchaser that the Company reasonably believes that
it will be able to comply with the conditions set forth in paragraph 3B on
such Rescheduled Closing Day and that the Company will pay the Delayed
Delivery Fee in accordance with paragraph 1J or (y) such closing is to be
canceled as provided in paragraph 1K. In the event that the Company shall
fail to give such notice referred to in the preceding sentence, such
Purchaser may at its election, at any time after 1:00 P.M., New York City
local time, on such scheduled Closing Day, notify the Company in writing that
such closing is to be canceled as provided in paragraph 1K.
1J. DELAYED DELIVERY FEE. If the closing of the purchase and sale of
any Accepted Note is delayed for any reason beyond the original Closing Day
for such Accepted Note, the Company will pay to Prudential on the last
Business Day of each calendar month, commencing with the first such day to
occur more than 30 days after the Acceptance Day for such Accepted Note and
ending with the last such day to occur prior to the Cancellation Date or the
actual closing date of such purchase and sale, and on the Cancellation Date
or actual closing date of such purchase and sale (if such Cancellation Date
or closing date occurs more than 30 days after the Acceptance Day for such
Accepted Note), a fee (herein called the "DELAYED DELIVERY FEE") calculated
as follows:
(BEY -MMY) x DTS/360 x PA
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note, "MMY" means Money Market Yield, i.e., the yield
per annum on an alternative investment selected by Prudential on the date
Prudential receives notice of the delay in the closing for such Accepted
Notes having a maturity date or dates the same as, or closest to, the
Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from
and including the thirty-first day after the Acceptance Day for such Accepted
Note (in the case of the first such payment with respect to such Accepted
Note) or from and including the date of the next preceding payment (in the
case of any subsequent delayed delivery fee payment with respect to such
Accepted Note) to but excluding the date of such payment; and "PA" means
Principal Amount, i.e., the principal amount of the Accepted Note for which
such calculation is being made. In no case shall the Delayed Delivery Fee be
less than zero. Nothing contained herein shall obligate any Purchaser to
purchase any Accepted Note on any day other than the Closing Day for such
Accepted Note, as the same may be rescheduled from time to time in compliance
with paragraph 1I.
1K. CANCELLATION FEE. If the Company at any time notifies Prudential in
writing that the Company is canceling the closing of the purchase and sale of
any Accepted Note, or if Prudential notifies the Company in writing under the
circumstances set forth in the last sentence of paragraph 1I that the closing
of the purchase and sale of such Accepted Note is to be canceled, or if the
closing of the purchase and sale of such Accepted Note is not consummated on
or prior to the last day of the Issuance Period (the date of any such
notification, or the last day of the Issuance Period, as the case may be,
being herein called the "CANCELLATION DATE"), the Company will pay Prudential
in immediately available funds an amount (the "CANCELLATION FEE") calculated
as follows:
PI x PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the
bid price (as determined by Prudential) of the Hedge Treasury Notes(s) on the
Acceptance Day for such Accepted Note by (b) such bid price. The foregoing
bid and ask prices shall be as reported by Telerate Systems, Inc. (or, if
such data for any reason ceases to be available through Telerate Systems,
Inc., any publicly available source of similar market data). Each price shall
be based on a U.S. Treasury security having a par value of $100.00 and shall
be rounded to the second decimal place. In no case shall the Cancellation Fee
be less than zero.
1L. TERM NOTE PREPAYMENTS. The Term Notes shall be subject to
prepayment with respect to the required prepayments specified therein and
also (i) in whole as provided in paragraph 5F hereof,
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(ii) in whole or in part as provided in the Mortgage, it being contemplated
that the Terms Notes shall upon issuance be secured thereby, and (iii) at the
option of the Company as provided in paragraph lL(1). In the event pursuant
to the Mortgage proceeds from any insurance policy or taking or condemnation
awards with respect to the Mortgaged Property (as defined in the Mortgage)
shall be distributed to the holders of the Term Notes as a prepayment of the
Term Notes, the Company shall pay interest on each Term Note on the amount so
distributed with respect to such Term Note to the date of such distribution,
together with the Yield-Maintenance Amount, if any, with respect to each Term
Note. Any such distribution constituting a partial prepayment of the Term
Notes shall be applied in proportion to the respective unpaid principal
amounts thereof in satisfaction of required payments of principal in inverse
order of their scheduled due dates.
1L(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. Each Series of
Term Notes shall be subject to prepayment, in whole at any time or from time
to time in part (in integral multiples of $100,000, and in the minimum amount
of $1,000,000 per prepayment), at the option of the Company, at 100% of the
principal amount so prepaid plus interest thereon to the prepayment date and
the Yield-Maintenance Amount, if any, with respect to each Term Note of such
Series. The amounts so prepaid on each outstanding Term Note of such Series
so prepaid shall be applied in satisfaction of required payments of principal
in inverse order of their scheduled due dates.
1L(2). NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder
of each Term Note to be prepaid pursuant to paragraph 1L(1) irrevocable
written notice of such prepayment not less than 30 days prior to the
prepayment date, specifying such prepayment date, specifying the aggregate
principal amount of the Term Notes of the same Series as such Term Note to be
prepaid on such date, identifying each Term Note held by such holder, and the
principal amount of each such Term Note, to be prepaid on such date and
stating that such prepayment is to be made pursuant to paragraph 1L(1).
Notice of prepayment having been given as aforesaid, the principal amount of
the Term Notes specified in such notice, together with interest thereon to
the prepayment date and together with the Yield-Maintenance Amount, if any,
herein provided, shall become due and payable on such prepayment date. The
Company shall, on or before the day on which it gives written notice of any
prepayment pursuant to paragraph 1L( 1), give telephonic notice of the
principal amount of the Term Notes to be prepaid and the prepayment date to
each Significant Holder which shall have designated a recipient for such
notices in the Information Schedule attached hereto or by notice in writing
to the Company.
1L(3). APPLICATION OF PREPAYMENTS. In the case of each prepayment of less
than the entire unpaid principal amount of all outstanding Term Notes of any
Series, the amount to be prepaid shall be allocated to all outstanding Term
Notes of such Series (including, for the purpose of this paragraph 1L(3)
only, all Term Notes of such Series prepaid or otherwise retired or purchased
or otherwise acquired by the Company or any of its Subsidiaries or Affiliates
other than by payment of installments as stated therein or prepayment
pursuant to the Mortgage, paragraph 1L(1) or paragraph 5F) in proportion to
the respective unpaid principal amounts thereof.
1L(4). RETIREMENT OF TERM NOTES. The Company shall not, and shall not
permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire
in whole or in part prior to their stated installments (other than by
prepayment pursuant to the Mortgage, paragraph 1L(1), paragraph 5F or upon
acceleration of such final maturity pursuant to paragraph 7A), or purchase or
otherwise acquire, directly or indirectly, Term Notes held by any holder,
unless the Company or such Subsidiary or Affiliate shall have offered to
prepay or otherwise retire or purchase or otherwise acquire, as the case may
be, the same proportion of the aggregate principal amount of Term Notes of
the same Series held by each other holder of Term Notes at the time
outstanding upon the same terms and conditions. Any Term Notes so prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 1L(3).
2. REVOLVING CREDIT FACILITY.
2A. THE REVOLVING LOANS. Subject to and upon the terms and conditions
herein set forth, Prudential shall lend to the Company from time to time on
any Business Day during the period from the
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date hereof to the earlier to occur of (i) the date on which (A) the Company
pays (other than pursuant to paragraph 2B(1)) in their entirety any Notes
issued under this Agreement or any 1993 Notes, (B) Prudential or any
Prudential Affiliate exercises its option to require prepayment in their
entirety of any Notes issued under this Agreement or any 1993 Notes, or (c)
any Notes issued under this Agreement or any 1993 Notes are otherwise prepaid
in their entirety or required to be so prepaid, including without limitation
by automatic acceleration, demand for payment or pursuant to the Mortgage,
and (ii) June 15, 2000, or such later date or dates as Prudential and the
Company shall agree pursuant to paragraph 2G (the "REVOLVING LOANS
TERMINATION DATE") sums (each a "REVOLVING LOAN" and collectively the
"REVOLVING LOANS") which in the aggregate principal amount outstanding shall
not exceed at any one time $5,000,000 (such maximum aggregate amount being
herein referred to as the "REVOLVING COMMITMENT"). Within the limits of the
Revolving Commitment and subject to the terms and conditions herein set
forth, the Company may borrow, prepay pursuant to paragraph 2B and reborrow
under paragraph 2C.
The principal amount of each Revolving Loan shall be $100,000 or an
integral multiple thereof. Revolving Loans shall be evidenced by an original
senior secured revolving note of the Company or a replacement therefor as
provided for herein in the form of Exhibit D hereto (each a "REVOLVING NOTE",
collectively the "REVOLVING NOTES" and, together with the Term Notes, the
"NOTES"). Each Revolving Note shall (i) be dated the date of this Agreement,
(ii) be in a principal amount equal to the Revolving Commitment, (iii) bear
interest with respect to the principal amount from time to time outstanding
(x) from the date thereof until the principal thereof shall have become due
and payable (whether by acceleration or otherwise) at the LIBOR Rate
calculated as specified in paragraph 2F and (y) after such date until paid at
a rate per annum which shall be the greater of 2% per annum in excess of the
LIBOR Rate or 2% per annum in excess of the rate of interest publicly
announced from time to time by Morgan Guaranty Trust Company of New York as
its "prime rate", in each case calculated as provided in paragraph 2F and (v)
be payable on or before the Revolving Loans Termination Date. Prudential
shall maintain internal records showing each Revolving Loan made by
Prudential hereunder and each principal payment thereon and shall note such
information on the reverse side of the Revolving Note prior to any transfer
thereof. If necessary to evidence any change in the provisions of this
Agreement relating to the Revolving Note and agreed to in writing by
Prudential and the Company, the Company shall furnish a replacement Revolving
Note to Prudential in substitution for, but not in discharge of the liability
evidenced by, the prior Revolving Note. Upon issuance of such replacement
Revolving Note by the Company, Prudential shall return the previously
outstanding Revolving Note to the Company.
2B. PREPAYMENTS OF REVOLVING NOTES.
2B(1). PREPAYMENT AT THE COMPANY'S OPTION. The Company shall have the
right, upon at least two Business Days' prior written notice, to prepay in
whole or in part, in amounts of $100,000 or integral multiples thereof,
without premium, prior to the express maturity date thereof, any Revolving
Note on any Business Day. Each notice of a prepayment under this paragraph
2B(1) shall specify the date and the principal amount of the prepayment.
2B(2). PREPAYMENT UNDER PARAGRAPH 5 OR THE MORTGAGE. The Revolving Notes
shall be subject to prepayment (i) in whole as provided in paragraph 5
hereof, and (ii) in whole or in part as provided in the Mortgage. In the
event pursuant to the Mortgage proceeds from any insurance policy or taking
or condemnation awards with respect to the Mortgaged Property (as defined in
the Mortgage) shall be distributed as a prepayment of the Revolving Notes,
the Company shall pay interest on each Revolving Note on the amount to be
distributed with respect to such Note to the date of such distribution.
2C. MANNER OF BORROWINGS. Unless otherwise specifically provided in
this Agreement, Prudential shall receive from the Company at least three
Business Days' prior written, telex, telecopier or telegraphic notice of its
intention to borrow hereunder, specifying the date on which it proposes to
borrow (which shall be a LIBOR Business Day) and the principal amount of the
proposed Revolving Loan. No later than 11:00 A.M. (New York City local time)
on the Business Day prior to the date of the proposed Loan, the Company will
deliver to Prudential a Revolving Note (unless an appropriate Revolving Note
has been previously delivered), together with such other documents and papers
as are
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required under this Agreement, which materials shall be delivered to the
address set forth on the Information Schedule (or to such other place or in
such other manner as Prudential may by written notice to the Company
designate from time to time). Upon receipt of such Revolving Note (if
required), the notice provided for hereinabove, an Officer's Certificate as
provided for in paragraph 3B and such other documentation as may be required,
in form and substance satisfactory to Prudential, Prudential shall make the
proceeds of such Revolving Loan available to the Company on the date of the
proposed Revolving Loan designated in said notice by wire transfer for credit
to the Company's account #6355002280 at Norwest Bank Minnesota, National
Association, Norwest Center, 6th and Marquette, Minneapolis, Minnesota
55479-0069, ABA #091-000-019, or to such other account or place as the
Company may hereafter designate by written notice to Prudential.
2D. NON-USAGE FEE. The Company shall pay to Prudential a non-usage fee
on the amount, if any, by which the average daily outstanding balance of
Revolving Loans during any full or partial calendar month from the date of
this Agreement to and including the Revolving Loans Termination Date is less
than the average daily amount of the Revolving Commitment during such month,
at the rate of 1/2 of 1% per annum.
2E. CANCELLATION OF COMMITMENT. At any time on or after June 15, 1994,
the Company shall have the right, upon at least 90 days' prior written notice
and upon prepayment of all Revolving Loans, to cancel the Revolving
Commitment. Upon such cancellation, no further Revolving Loans shall be made
pursuant to paragraph 2A and no further non-usage fees shall be payable
pursuant to paragraph 2D.
2F. INTEREST AND NON-USAGE FEE PAYMENTS. Interest and non-usage fees
in connection with the Revolving Loans for any month shall be payable in
arrears on the first Business Day of the following month and shall be
calculated on the basis of actual days outstanding during the month
(exclusive of any days for which payment was made in the preceding payment)
plus the number of days after such period to but not including the payment
day and on the basis of a year of 360 days. If any interest or non-usage fee
on any Revolving Loan is not paid when due, interest thereon at the default
rate applicable to such Revolving Loan specified in paragraph 2A shall be
payable from and including the due date until paid.
2G. EXTENSION OF REVOLVING LOANS TERMINATION DATE. If agreed in writing
by Prudential and the Company prior to one year in advance of the Revolving
Loans Termination Date or any extension thereof, the Revolving Loans
Termination Date shall be extended for one year. No Revolving Loans shall be
made after the Revolving Loans Termination Date.
2H. ILLEGALITY. If it shall become unlawful for United States banks to
obtain funds in the London interbank market, or if Prudential is otherwise
unable to make or maintain Revolving Loans hereunder utilizing the LIBOR
Rate, upon at least five Business Days' notice by Prudential to the Company
the rate of interest per annum on all Revolving Loans shall be the Adjusted
Commercial Paper Rate.
3. CONDITIONS PRECEDENT.
3A. CONDITIONS TO AVAILABILITY OF FACILITY AND REVOLVING
COMMITMENT. The availability of the Facility pursuant to paragraph 1, and the
obligation of Prudential to make Revolving Loans available to the Company
pursuant to paragraph 2, are subject to the satisfaction of the following
conditions on the date of this Agreement:
3A(1). OPINION OF PURCHASERS' SPECIAL COUNSEL. Prudential shall have
received from Faegre & Benson, who are acting as special counsel for
Prudential in connection with this transaction, a favorable opinion
satisfactory to Prudential as to such matters incident to the matters herein
contemplated as it may reasonably request.
3A(2). OPINION OF COMPANY'S COUNSEL. Prudential shall have received (i)
from Briggs and Morgan, special counsel for the Company, a favorable opinion
satisfactory to Prudential and substantially in the form of Exhibit E-1
attached hereto, and (ii) from Joseph D. Bizzano, Jr., General Counsel to the
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Company and counsel to Manager, a favorable opinion satisfactory to
Prudential and substantially in the form of Exhibit B-2 attached hereto. The
Company hereby directs each such counsel to deliver such opinion, agrees that
the delivery by the Company of an appropriate Revolving Note or Revolving
Notes will constitute a reconfirmation of such direction, and understands and
agrees that Prudential will and is hereby authorized to rely on each such
opinion.
3A(3). PURCHASE OF ASSETS. The Company shall have acquired the Project
from ECPLP pursuant to the terms and conditions of the Master Purchase
Agreement, a copy of which has been delivered to Prudential. All counsel
rendering opinions to the Company pursuant to the Master Purchase Agreement
shall have named Prudential as an additional addressee of such opinions or
shall have otherwise consented to reliance thereon by Prudential.
3A(4). MANAGEMENT AGREEMENT. The Company shall have entered into a
management agreement (the "Management Agreement") with Manager in form and
substance acceptable to Prudential.
3A(5). SECURITY.
(i) The Company shall have executed and delivered to the Collateral
Agent, as security for the Revolving Note or Revolving Notes, a
Combination Mortgage, Security Agreement and Fixture Financing
Statement substantially in the form of Exhibit F hereto
attached (as from time to time amended, the "Mortgage").
(ii) Prudential, the holders of the 1993 Notes and the Collateral
Agent shall have executed and delivered a Collateral Agency and
Intercreditor Agreement (as from time to time amended to add
additional parties thereto and as otherwise amended from time
to time, the "Collateral Agency Agreement"), and the Company
shall have executed and delivered an Acknowledgment and
Agreement to be appended thereto (the "Acknowledgment"), all
substantially in the form of Exhibit G hereto attached.
3A(6). CAPITALIZATION. The capital structure of the Company shall be
acceptable to Prudential. Without limiting the generality of the foregoing,
the Company shall have (i) received on or prior to the date of closing cash
contributions to its capital in an aggregate amount not less than the greater
of (1) $20,000,000, or (2) an amount equal to 20% of Total Capitalization,
and (ii) delivered to Prudential an Officer's Certificate, dated the date of
this Agreement, to such effect.
3A(7). REPORTS OF CONSULTANTS. The Company shall have received a report
or reports in form and substance satisfactory to Prudential from (i) the
Engineer, as to matters described in The Scope of Services Agreement for
Engineering Services appended to the letter agreement dated March 15, 1993 by
the Engineer in favor of NRG and such other matters as the Engineer shall
have been engaged to address, and (ii) Twin City, as to certain storage tank
matters. Each of the Consultants shall have named Prudential as an additional
addressee of such reports or shall have otherwise consented to reliance
thereon by Prudential.
3A(8). TITLE INSURANCE. The Collateral Agent shall have received from
Commonwealth a policy of mortgagee's title insurance in an amount not less
than $89,000,000, which insurance (i) shall designate the Collateral Agent as
insured, (ii) shall be substantially in conformity with Exhibit H (the "Title
Insurance Commitment") and (iii) shall be underwritten with reinsurance in a
manner and to an extent satisfactory to Prudential.
3A(9). OTHER INSURANCE. Prudential shall have been provided with
certificates and such other evidence as Prudential may reasonably request
indicating that the Company is in compliance with the requirements of
paragraph 5E, including without limitation the insurance consultant's
certificate required pursuant to paragraph 9 of the Mortgage.
3A(10). ESTOPPEL CERTIFICATES. The Company shall have obtained estoppel
certificates in form and substance satisfactory to Prudential with respect to
(i) any of the existing Service Contracts as to which Prudential may require
such an estoppel certificate, (ii) the building lease covering the Soo Line
facility, (iii) the ground lease covering the Convention Center facility,
(iv) the air rights lease covering the
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Target Arena facility, and (v) the agreement covering the Baker Plant. The
estoppel certificates referred to in the foregoing clauses (ii) through and
including (v) shall contain an express consent to the collateral assignment
thereof contained in the Mortgage, and the estoppel certificate referred to
in the foregoing clause (ii) shall contain the consent of the lessor's
mortgagee.
3A(11). LIEN SEARCHES. Prudential shall have received such Uniform
Commercial Code, tax lien, judgment and bankruptcy searches and real estate
title reports against the Company and ECPLP as Prudential may request,
certified by reporting services satisfactory to Prudential, and disclosing no
security interests, liens or other encumbrances other than those permitted
under paragraph 6B(l).
3A(12). PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and by the
Master Purchase Agreement and all documents incident thereto shall be
satisfactory in substance and form to Prudential, and Prudential shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
3A(13). EXISTING INDEBTEDNESS. The Indebtedness of ECPLP evidenced by
promissory notes issued pursuant to the Existing Loan Agreements shall have
been paid in whole in accordance with the terms of the Existing Loan
Agreements or on other terms acceptable to the holders of such notes.
3A(14). NOTE AGREEMENT. The Company shall have entered into a Note
Agreement (as from time to time amended, the "Note Agreement") with
Prudential, Connecticut General Life Insurance Company, The North Atlantic
Life Insurance Company of America, Northwestern National Life Insurance
Company, Allegiance Insurance Company, and Connecticut General Life Insurance
Company, on behalf of one or more separate accounts, in form and substance
acceptable to Prudential.
3B. CONDITIONS OF EACH TERM NOTE CLOSING. The obligation of any
Purchaser to purchase and pay for any Accepted Notes is subject to the
satisfaction, on or before the Closing Day for such Accepted Notes, of the
following conditions:
3B(1). TERM NOTES. There shall have been delivered to such Purchaser an
appropriate Term Note or Term Notes duly completed and executed.
3B(2). REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 8 shall be true on and as of such
Closing Day, except to the extent of changes caused by the transactions
herein contemplated and to the extent such representations and warranties by
their express terms relate solely to an earlier date; there shall exist on
such Closing Day no Event of Default or Default; and the Company shall have
delivered to such Purchaser an Officer's Certificate, dated such Closing Day,
to both such effects. In addition to the foregoing, the Company shall include
in the Officer's Certificate delivered pursuant to the next preceding
sentence further representations and warranties to the following effects:
(i) the latest financial statements delivered by the Company
pursuant to paragraphs 5A(i) and 5A(ii) (including any related
schedules and/or notes) are true and correct in all material
respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been
prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods
involved and show all liabilities, direct and contingent, of
the Company required to be shown in accordance with such
principles; the balance sheets fairly present the condition of
the Company as of the dates thereof, and the statements of
income, stockholders' equity and cash flows fairly present the
results of operations of the Company and its cash flows for the
periods indicated; and there has been no material adverse
change in the business, property or assets, condition
(financial or otherwise) or operations of the Company or the
Project since the date of the most recent balance sheet
furnished pursuant to paragraph 5A(i) or 5A(ii);
(ii) there is no action, suit, investigation or proceeding pending
or, to the knowledge of the Company, threatened against the
Company or the Project, or any properties or rights of the
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Company or the Project, by or before any court, arbitrator or
administrative or governmental body which might result in any
material adverse change in the business, property or assets,
condition (financial or otherwise) or operations of the Company
or the Project;
(iii) the Company has filed all federal, state and other income tax
returns which, to the knowledge of the officers of the Company,
are required to be filed, and has paid all taxes shown on such
returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with
generally accepted accounting principles;
(iv) each of the Company and Manager has procured and is in
possession of all licenses, permits or registrations required
by federal, state or local laws for the ownership, operation
and maintenance of the Project, as the case may be;
(v) the Company and all of its properties and facilities (including
without limitation the Project) have complied at all times and
in all respect with all Environmental Laws except, in any such
case, where failure to comply would not result in a material
adverse effect on the business, properties or assets, condition
(financial or otherwise) or operations of the Company or the
Project; and
(vi) in accordance with the provisions of the Collateral Agency
Agreement, all actions required to subject such Accepted Notes
and the holders thereof thereto and to cause such Accepted
Notes to be secured by the Mortgage have been taken.
3B(3). PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Accepted Notes to be purchased by such Purchaser on the terms and
conditions herein provided (including the use of the proceeds of the Accepted
Notes by the Company) shall not violate any applicable law or governmental
regulation (including, without limitation, Section 5 of the Securities Act or
Regulation G, T or X of the Board of Governors of the Federal Reserve System)
and shall not subject such Purchaser to any tax, penalty, liability or other
onerous condition under or pursuant to any applicable law or governmental
regulation, and such Purchaser shall have received such certificates or other
evidence as it may request to establish compliance with this condition.
3B(4). LEGAL MATTERS. Counsel for such Purchaser, including any special
counsel for the Purchasers retained in connection with the purchase and sale
of such Accepted Notes, shall be satisfied as to all legal matters relating
to such purchase and sale, and such Purchaser shall have received from such
counsel favorable opinions as to such legal matters as it may request.
3B(5). PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form to
such Purchaser, and it shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
3B(6). CHANGE IN THE COMPANY'S CONDITION. There shall not have occurred
or be threatened (i) a material and adverse change in the Company's financial
position, or (ii) any condition, event or act which would materially and
adversely affect the Project, the Company's business or its ability to repay
any Accepted Note.
3B(7). SUBSEQUENT OPINIONS, ETC. Such Purchaser shall have received (i)
from Briggs and Morgan, special counsel for the Company (or such other
counsel as shall be acceptable to such Purchaser), a favorable opinion in
form and substance satisfactory to such Purchaser, which opinion shall be
substantially in the form of Exhibit I hereto as to the matters covered
thereby and shall cover such additional matters incident to the purchase of
such Accepted Note and the transactions contemplated by this Agreement as
such Purchaser shall reasonably specify, and (ii) such other approvals or
documents as such Purchaser may reasonably request.
3C. CONDITIONS PRECEDENT TO EACH REVOLVING LOAN. Prudential's
obligation to make each Revolving Loan to the Company is subject to the
satisfaction of the following conditions:
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3C(1). REVOLVING NOTES. There shall have been delivered to Prudential an
appropriate Revolving Note or Revolving Notes duly completed and executed.
3C(2). REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 8 shall be true on and as of the date
of such Revolving Loan, except to the extent of changes caused by the
transactions herein contemplated and to the extent such representations and
warranties by their express terms relate solely to an earlier date; there
shall exist on the date of such Revolving Loan no Event of Default or
Default; and the Company shall have delivered to Prudential an Officer's
Certificate, dated the date of such Revolving Loan, to both such effects. In
addition to the foregoing, the Company shall further include in the Officer's
Certificate delivered pursuant to the next preceding sentence further
representations and warranties to the following effects:
(i) the latest financial statements delivered by the Company
pursuant to paragraphs 5A(i) and 5A(ii) (including any related
schedules and/or notes) are true and correct in all material
respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been
prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods
involved and show all liabilities, direct and contingent, of
the Company required to be shown in accordance with such
principles; the balance sheets fairly present the condition of
the Company as of the dates thereof, and the statements of
income, stockholders' equity and cash flows fairly present the
results of operations of the Company and its cash flows for the
periods indicated; and there has been no material adverse
change in the business, property or assets, condition
(financial or otherwise) or operations of the Company or the
Project since the date of the most recent balance sheet
furnished pursuant to paragraph 5A(i) or 5A(ii);
(ii) there is no action, suit, investigation or proceeding pending
or, to the knowledge of the Company, threatened against the
Company or the Project, or any properties or rights of the
Company or the Project, by or before any court, arbitrator or
administrative or governmental body which might result in any
material adverse change in the business, property or assets,
condition (financial or otherwise) or operations of the Company
or the Project;
(iii) the Company has filed all federal, state and other income tax
returns which, to the knowledge of the officers of the Company,
are required to be filed, and has paid all taxes shown on such
returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with
generally accepted accounting principles;
(iv) each of the Company and Manager has procured and is in
possession of all licenses, permits or registrations required
by federal, state or local laws for the ownership, operation
and maintenance of the Project, as the case may be; and
(v) the Company and all of its properties and facilities (including
without limitation the Project) have complied at all times and
in all respects with all Environmental Laws except, in any such
case, where failure to comply would not result in a material
adverse effect on the business, properties or assets, condition
(financial or otherwise) or operations of the Company or the
Project.
Each of the giving of the applicable notice of borrowings pursuant to
paragraph 2C and the acceptance by the Company of the proceeds of such
Revolving Loan shall constitute a representation and warranty by the Company
to all such effects on the date of such Revolving Loan.
3C(3). REVOLVING LOAN PERMITTED BY APPLICABLE LAWS. The Revolving Loan
(including the use of the proceeds of such Revolving Loan by the Company)
shall not violate any applicable law or governmental regulation (including,
without limitation, section 5 of the Securities Act or Regulation G, T or X
of the Board of Governors of the Federal Reserve System) and shall not
subject Prudential to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and
Prudential shall have received such certificates or other evidence as it may
request to establish compliance with this condition.
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3C(4). LEGAL MATTERS. Prior to the initial Revolving Loan hereunder,
Prudential's counsel, including any special counsel retained by it in
connection with the purchase and sale of the Revolving Notes, shall be
satisfied as to all legal matters relating to such purchase and sale, and
Prudential shall have received from such counsel favorable opinions as to
such legal matters as it may request.
3C(5). PROCEEDINGS. Prior to the initial Revolving Loan hereunder, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in substance and form to Prudential, and Prudential shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
3C(6). CHANGE IN THE COMPANY'S CONDITION. There shall not have occurred
or be threatened (i) a material and adverse change in the Company's financial
position, or (ii) any condition, event or act which would materially and
adversely affect the Project, the Company's business or its ability to repay
any Revolving Loan.
3C(7). SUBSEQUENT OPINIONS, ETC. If Prudential so requires as a condition
precedent to the making of any Revolving Loan, Prudential shall have received
(i) from Briggs and Morgan, special counsel for the Company (or such other
counsel as shall be acceptable to Prudential), a favorable opinion in form
and substance satisfactory to Prudential covering such matters incident to
such Revolving Loan and the transactions contemplated by this Agreement as
Prudential shall reasonably specify, and (ii) such other approvals or
documents as Prudential may reasonably request.
4. [INTENTIONALLY OMITTED]
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 45 days after
the end of each quarterly period in each fiscal year (including
the fourth quarterly period), statements of income,
stockholders' equity and cash flows of the Company for the
period from the beginning of the current fiscal year to the end
of such quarterly period, and a balance sheet of the Company as
at the end of such quarterly period, setting forth in each case
in comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail and
satisfactory in form to the Required Holder(s) of the Revolving
Notes and the Term Notes of each Series and certified by an
authorized financial officer of the Company, subject to changes
resulting from year-end adjustments and, in the case of the
fourth quarterly period only, a detailed financial budget for,
at minimum, the then current fiscal year;
(ii) as soon as practicable and in any event within 120 days after
the end of each fiscal year, statements of income and cash
flows and a statement of stockholders' equity of the Company
for such year, and a balance sheet of the Company as at the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Required
Holder(s) of the Revolving Notes and of the Term Notes of each
Series and reported on by independent public accountants of
recognized national standing selected by the Company whose
report shall be without limitation as to scope of the audit and
satisfactory in substance to the Required Holder(s) of the
Revolving Notes and of the Term Notes of each Series;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as
it shall send to its public stockholders and copies of all
registration statements (without exhibits) and all reports
which it files with the Securities and Exchange Commission (or
any governmental body or agency succeeding to the functions of
the Securities and Exchange Commission);
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(iv) promptly upon receipt thereof, a copy of each other report
submitted to the Company by independent accountants in
connection with any annual, interim or special audit made by
them of the books of the Company; and
(v) with reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clause (i)
above, the Company will deliver to each Significant Holder (A) a copy of each
Service Agreement or renewal thereof entered into by the Company during the
quarterly period to which such financial statements relate, and (B) an
Officer's Certificate identifying each Service Contract which terminated and
was not renewed during such quarterly period. Together with each delivery of
financial statements required by clauses (i) and (ii) above, the Company will
deliver to each Significant Holder an Officer's Certificate demonstrating
(with computations in reasonable detail) compliance by the Company with the
provisions of paragraphs 6B(2) and 6B(5), and stating that there exists no
Event of Default or Default, or, if any Event of Default or Default exists,
specifying the nature and period of existence thereof and what action the
Company proposes to take with respect thereto. Together with each delivery of
financial statements required by clause (ii) above, the Company will deliver
to each Significant Holder (A) a schedule of Service Contracts in force as of
the end of the fiscal year to which such financial statements relate (which
schedule shall specify the termination date of each such Service Contract and
the actual demand for and consumption of services pursuant to each such
Service Contract during such fiscal year in terms of aggregate amounts paid
by the customer therefor and aggregate volume per customer), and (B) a
certificate of the accountants reporting on such financial statements stating
that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or
Default, or, if they have obtained knowledge of any Event of Default or
Default, specifying the nature and period of existence thereof. Such
accountants, however, shall not be liable to anyone by reason of their
failure to obtain knowledge of any Event of Default or Default which would
not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards. The Company also covenants that
immediately after any Responsible Officer obtains knowledge of an Event of
Default or Default, it will deliver to each Significant Holder an Officer's
Certificate specifying the nature and period of existence thereof and what
action the Company proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and
any qualified institutional buyer designated by such holder, such financial
and other information as such holder may reasonably determine to be necessary
in order to permit compliance with the information requirements of Rule l44A
under the Securities Act in connection with the resale of Notes, except at
such times as the Company is subject to the reporting requirements of section
13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the
term "qualified institutional buyer" shall have the meaning specified in Rule
144A under the Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit
any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and inspect any of the properties of
the Company, to examine the corporate books and financial records of the
Company and make copies thereof or extracts therefrom and to discuss the
affairs, finances and accounts of the Company with the principal officers of
the Company and its independent public accountants, all at such reasonable
times and as often as such Significant Holder may reasonably request, it
being understood that such Significant Holder shall direct such Person to use
its best efforts to hold in confidence and not disclose any Confidential
Information except to such Significant Holder or to any party to which such
Significant Holder would be permitted to disclose such Confidential
Information pursuant to paragraph 11H.
5D. AGREEMENT ASSUMING LIABILITY ON NOTES. The Company covenants that,
if at any time any Person should become liable (as co-obligor, endorser,
guarantor or surety) on any other obligation of the Company for borrowed
money, the Company will, at the same time, cause such Person to deliver to
each holder of Notes an agreement pursuant to which such Person becomes
similarly liable on the Notes.
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5E. MAINTENANCE OF INSURANCE. The Company covenants that it will
maintain the insurance required to be maintained pursuant to the Mortgage,
and together with each delivery of financial statements under clause (ii) of
paragraph 5A, it will, upon the request of any Significant Holder, deliver to
each Significant Holder an Officer's Certificate specifying the details of
such insurance in effect.
5F. PAYMENT IF CONTROL CHANGES. The Company covenants that, in the
event that at any time (i) NRG shall directly own less than a Controlling
Interest in the Company or the Manager, and as a result thereof the Company
or the Manager shall become subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, or the Federal Power Act, as
amended, or otherwise as a public utility under federal law or the law of the
State of Minnesota, or (ii) NSP shall own, directly or indirectly, less than
a Controlling Interest in NRG, the Company or the Manager, then in either
case the Company will promptly give to each holder of a Note written notice
thereof and will, upon the demand of the Required Holder(s) of the Term Notes
of any Series or of the Revolving Notes in writing given to the Company
within 30 days after such notice, prepay the Term Notes of such Series or the
Revolving Notes (as the case may be) in whole together with interest accrued
thereon to the prepayment date, non-usage fees in connection therewith (in
the case of the Revolving Notes) and together with the Yield-Maintenance
Amount, if any, with respect to each Term Note of such Series (in the case of
Term Notes), on the date specified in such demand, which shall be not less
than 30 days after such demand.
5G. RIGHTS UNDER PURCHASE DOCUMENTS. The Company covenants that it will
enforce all material rights under the Purchase Documents, including but not
limited to its indemnification rights.
5H. NOTICE OF DEFAULTS AND VIOLATIONS. The Company covenants that it
will give each holder of a Note written notice within seven (7) Business Days
of:
5H(1). DEFAULTS. Receipt by the Company of (i) oral or written notice of
breach or default by the Company or Manager under the Management Agreement,
(ii) written notice of default by the Company under any agreement for the
sale of steam, hot water and/or chilled water produced by the Project,
whether now existing or entered into after the date hereof (such agreements
being referred to herein as "Service Contracts"), including without
limitation the Service Agreements (as defined in the Personal Property
Agreement), (iii) written notice of material default by the Company under, or
termination or revocation of any easements, permits, supply contracts, leases
or similar agreements comprising part of or benefiting the Project, whether
now existing or created after the date hereof, including without limitation
the Easements (as referred to in the Real Property Agreement), the
Environmental Permits, the Encroachment Permits, the Miscellaneous Permits,
the Supply Contracts and the Leases (each such capitalized term as defined in
the Personal Property Agreement), including the building lease covering the
500 Line facility, the ground lease covering the Convention Center facility,
the air rights lease covering the Target Arena facility, and the agreement
covering the Baker Plant.
5H(2). VIOLATIONS. Receipt by the Company of oral or written notice of
any material violation by the Company or Manager, in connection with the
ownership, operation and maintenance of the Project, of (i) the terms or
conditions of any license, permit or registration required by federal, state
or local laws for the ownership, operation and maintenance of the Project, or
(ii) any Environmental Laws.
5I. MAINTENANCE OF LICENSES, PERMITS AND REGISTRATIONS. The Company
covenants that it will take, and will require Manager to take all action to
maintain all licenses, permits and registrations required by federal, state
or local laws for the ownership, operation and maintenance of the Project.
5J. ACTION REGARDING LICENSES, ETC. AND ENVIRONMENTAL MATTERS. With
respect to any license, permit, exemption or registration in respect of which
further action is hereafter appropriate (as reflected in paragraph 8N), the
Company covenants that it will use its best efforts to accomplish such action
as promptly hereafter as practicable. With respect to any environmental
matter in respect of which remedial or other action is required (as reflected
in paragraph 8S), the Company covenants that it will use its best efforts to
accomplish such action as promptly hereafter as practicable.
6. NEGATIVE COVENANTS.
6A. FEES LIMITATION. The Company covenants (i) that the Management Fee
shall be the sole compensation payable by the Company to Manager for the
services rendered by Manager pursuant
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to the Management Agreement, and (ii) that the Management Fee shall not be
paid except out of Operating Income remaining after payment of (A) accrued
interest on the Notes and the other Debt permitted by paragraph 6B(2), and
(B) required prepayments of principal of the Notes and the other Debt
permitted by paragraph 6B(2). Nothing herein contained shall prohibit the
payment of such fees during the course of the year pending the determination
of Operating Income, subject to the repayment obligations of Manager
contained in the Management Agreement.
6B. LIEN, DEBT AND OTHER RESTRICTIONS. The Company covenants that it
will not
6B(1). LIENS. Create, assume or suffer to exist any Lien upon any of its
property or assets, whether now owned or hereafter acquired, except:
(i) Liens under the Mortgage in the favor of the Collateral Agent,
which Liens shall secure equally and ratably the 1993 Notes and
the Debt permitted by the provisions of clauses (ii) and (iii)
of paragraph 6B(2);
(ii) existing Liens which were not incurred in connection with the
borrowing of money or the obtaining of advances of credit and
which are listed in Schedule B to the Title Insurance
Commitment or in Exhibit B to the Mortgage;
(iii) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings; and
(iv) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not or are not
incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the
aggregate materially detract from the value of its property or
assets or materially impair the use thereof in the operation of
its business.
6B(2). DEBT. Create, incur, assume or suffer to exist any Funded Debt or
Current Debt, except:
(i) Funded Debt represented by the 1993 Notes;
(ii) additional Funded Debt, including without limitation Funded
Debt represented by Term Notes, provided that the Company shall
not create, incur or assume any such Funded Debt unless (A) as
of the end of the fiscal quarter most recently completed at the
time such Funded Debt is proposed to be created, incurred or
assumed, and as of the end of each of the eleven consecutive
fiscal quarters completed immediately prior thereto, Operating
Income Available for Debt Expense for the immediately preceding
twelve-month period shall have been not less than 125 % of Debt
Expense for such twelve-month period, (B) upon giving effect
thereto and the application of the proceeds thereof, on a pro
forma projected basis (such projections to fairly present the
Company's proposed business plans and the Company's good faith
estimate as to matters projected therein based on reasonable
business assumptions, and to be reasonably based on such
assumptions and the best information available to the officers
of the Company) as of the end of each fiscal year thereafter
ending through and including the fiscal year ending December
3.1, 2013, Operating Income Available for Debt Expense for the
immediately preceding twelve-month period shall be projected to
be not less than 135% of Debt Expense for such twelve-month
period, (C) the proceeds of such Funded Debt shall be used
exclusively to acquire assets which will constitute part of the
Project and the amount of such Funded Debt shall not exceed 80%
of the lesser of the cost or the fair value of the assets to be
acquired with the proceeds thereof, such fair value to be
reasonably established by the board of directors of the
Company, (D) the terms of such Funded Debt shall (1) with
respect to Funded Debt other than Funded Debt represented by
Term Notes, include a maturity date which shall be on or after
June 15, 2013, (2) require payment in equal quarterly
installments of principal and interest from incurrence through
maturity (i.e., quarterly mortgage-style amortization) and (3)
not be amended after issuance with respect to interest rate or
payment terms without the consent of the Required Holder(s),
and (E) in accordance with the provisions
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of the Collateral Agency Agreement, such Funded Debt shall
become subject thereto and secured by Liens under the Mortgage
in favor of the Collateral Agent and any holder of such Funded
Debt not already a party thereto shall become a party thereto;
and
(iii) Current Debt evidenced by the Revolving Note or Revolving
Notes, provided that the Company shall be free of all such
Current Debt for a period of 60 consecutive days in each
calendar year commencing with the calendar year ending December
31,1994.
6B(3). LOANS, ADVANCES, INVESTMENTS AND CONTINGENT LIABILITIES. Make or
permit to remain outstanding any loan or advance to, or guarantee, endorse or
otherwise be or become contingently liable, directly or indirectly, in
connection with the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any Person (including any corporation
proposed to be acquired or created as a Subsidiary), except that the Company
may
(i) own, purchase or acquire (x) prime taxable and tax-exempt
commercial paper rated "P-1" or better by Moody's Investors
Service, Inc. or "A-1" or better by Standard & Poor Corporation
and certificates of deposit in United States commercial banks
having capital resources in excess of $250,000,000 and (y)
obligations of the United States Government or any agency
thereof in each case due within one year from the date of
purchase;
(ii) own, purchase or acquire shares of mutual funds that invest
exclusively in commercial paper, certificates of deposit and
obligations of the type described in the foregoing clause (i)
or other readily marketed corporate debt due within one year
from the date of purchase, provided such investments are rated
"Aa3" or better by Moody's Investors Service, Inc. or "AA-" or
better by Standard & Poor Corporation;
(iii) endorse negotiable instruments for collection in the ordinary
course of business;
(iv) make or permit to remain outstanding travel and other like
advances to officers and employees in the ordinary course of
business; and
(v) make or permit to remain outstanding loans or advances to, or
own, purchase or acquire stock, obligations or securities of,
any other Person (other than any corporation or other Person
proposed to be acquired or created as a Subsidiary, it being
understood that the acquisition or creation of any such
Subsidiary by the Company is expressly prohibited hereby),
provided that the aggregate principal amount of such loans and
advances, plus the aggregate amount of the investment (at
original cost) in such stock, obligations and securities, shall
not exceed $2,500,000 at any time outstanding.
6B(4). MERGER AND SALE OF ASSETS. Merge or consolidate with any other
corporation or sell, lease or transfer or otherwise dispose of all or a
substantial part (i.e., assets which individually or taken as a whole (i) are
an integral part of the Project, (ii) constitute more than 10% of the assets
of the Company, or (iii) have contributed more than 10% of Operating Income
of the Company or ECPLP for any of the three fiscal years then most recently
ended) of its assets to any Person.
6B(5). LEASE RENTALS. Enter into, or permit to remain in effect, any
agreements to rent or lease (as lessee) any real or personal property, for
initial terms (including options to renew or extend any term, whether or not
exercised) of more than one year providing for payments by the Company to
lessors during any period of 12 consecutive calendar months in excess of the
following aggregate amounts per annum:
(i) through and including December 31, 1993, $500,000 (the initial
"Rent Limit"); and
(ii) thereafter, and through and including December 31 of each year
thereafter, an amount equal to the product of the Rent Limit
for the immediately preceding twelve-month period multiplied by
a fraction, the numerator of which shall be the CPI for the
last month of such immediately preceding twelve-month period
and the denominator of which shall be the CPI for the month
immediately preceding such twelve-month period.
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6B(6). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or discount
or otherwise sell for less than the face value thereof, any of its notes or
accounts receivable.
6B(7). CERTAIN CONTRACTS. Enter into or be a party to any contract for
the purchase of materials, supplies or other property or services if such
contract (or any related document) requires that payment for such materials,
supplies or other property or services shall be made regardless of whether or
not delivery of such materials, supplies or other property or services is
ever made or tendered, except that the Company may enter into "take or pay"
contracts with Persons not affiliated with the Company for the purchase of
oil or natural gas to be consumed in the operation of the Project, provided
that (i) no such contract has a term exceeding five years and (ii) the
aggregate purchase obligations under all such contracts for any twelve-month
period do not exceed 100% of the estimated fuel consumption for such period.
6B(8). SALE AND LEASE-BACK. Enter into any arrangement with any lender or
investor or to which such lender or investor is a party providing for the
leasing by the Company of real or personal property which has been or is to
be sold or transferred by the Company to such lender or investor or to any
Person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or rental obligations of the
Company.
6B(9). TRANSACTIONS WITH AFFILIATES. Except on terms no less favorable to
the Company than would be obtainable if no such relationship existed, and
except with respect to the Management Agreement and to tax-sharing
arrangements between the Company and any of its Affiliates (provided that
giving effect to such tax-sharing arrangements the Company shall not be
required to pay taxes in an amount in excess of that for which it would be
liable, assuming the application of the highest marginal tax rate paid by the
Company and its Affiliates on a consolidated basis, if it were to file its
own separate tax returns), directly or indirectly, purchase, acquire or lease
any property from, or sell, transfer or lease any property to, or otherwise
deal with, in the ordinary course of business or otherwise, any Affiliate.
6C. AMENDMENT OF MANAGEMENT AGREEMENT. The Company covenants that it
will not, without the prior written consent of the Required Holder(s) of the
Revolving Notes and of the Term Notes of each Series, amend or waive
enforcement of any provision of the Management Agreement, terminate or permit
the Management Agreement to be terminated, assign its rights and obligations
under the Management Agreement, or permit Manager to assign its rights and
obligations under the Management Agreement.
6D. MAINTENANCE OF PRESENT BUSINESS. The Company covenants that it will
not, without the prior written consent of the Required Holder(s) of the
Revolving Notes and of the Term Notes of each Series, engage in any business
other than the ownership, operation and maintenance of the Project.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield-Maintenance Amount payable with respect to any Note when
the same shall become due, either by the terms thereof or
otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any Note
or any non-usage fee for more than 10 days after the date due;
or
(iii) the Company defaults (whether as primary obligor or as
guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any
Capital Lease Obligation, any obligation under a conditional
sale or other title retention agreement, any obligation issued
or assumed as full or partial payment for property whether or
not secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions
of credit) beyond any period of grace provided with respect
thereto, or the Company fails to perform or observe any other
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agreement, term or condition contained in any agreement under
which any such obligation is created (or if any other event
thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to
cause, or to permit the holder or holders of such obligation
(or a trustee on behalf of such holder or holders) to cause,
any such obligations in an aggregate principal amount exceeding
$500,000 to become due (or to be repurchased by the Company)
prior to the stated maturity thereof; or
(iv) any representation or warranty made by the Company herein or in
the Notes, the Mortgage or the Acknowledgment or by the Company
or any of its officers in any writing furnished in connection
with or pursuant to this Agreement, the Notes, the Mortgage or
the Acknowledgment shall be false in any material respect on
the date as of which made (it being understood that,
notwithstanding that certain representations and warranties of
the Company set out in paragraphs 8B(1), 8Q and 8S hereof are
qualified as to the knowledge of the Company, such
representations and warranties shall be deemed to have been
made without such qualification for purposes of this clause
iv)); or
(v) the Company fails to perform or observe the agreements
contained in paragraphs 5D, 5F, 5H or 5I or any agreement
contained in paragraph 6; or
(vi) the Company fails to perform or observe any other agreement,
term or condition contained herein or in the Notes, the
Mortgage or the Acknowledgment and such failure shall not be
remedied within 30 days after any Responsible Officer obtains
actual knowledge thereof; or
(vii) the Company makes an assignment for the benefit of creditors or
is generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the Company is
entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect
(herein called the "BANKRUPTCY LAW"), of any jurisdiction; or
(ix) the Company petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of
the Company, or of any substantial part of the assets of the
Company, or commences a voluntary case under the Bankruptcy Law
of the United States or any proceedings relating to the Company
under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company and the Company
by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in
any such proceedings, and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company
and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company decreeing a split-up of the Company which
requires the divestiture of assets representing a substantial
part of the assets of the Company (determined in accordance
with generally accepted accounting principles) or which
requires the divestiture of assets which shall have contributed
a substantial part of the net income of the Company or ECPLP
(determined in accordance with generally accepted accounting
principles) for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
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(xiii) a final judgment in an amount in excess of $250,000 is rendered
against the Company and, within 60 days after entry thereof,
such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after the expiration of any
such stay, such judgment is not discharged; or
(xiv) the Company, in its capacity as an employer under a
Multiemployer Plan, makes a complete or partial withdrawal from
such Multiemployer Plan resulting in the incurrence by the
Company of a withdrawal liability in an amount exceeding
$500,000, or any ERISA Affiliate, in its capacity as an
employer under a Multiemployer Plan, makes a complete or
partial withdrawal from such Multiemployer Plan resulting in
the incurrence by such ERISA Affiliate of a withdrawal
liability in an amount exceeding $10,000, if the incurrence by
such ERISA Affiliate of such withdrawal liability has a
material and adverse effect on the business, property or
assets, condition (financial or otherwise) or operations of the
Company or the Project; or
(xv) there shall occur any other "Event of Default" under the
Mortgage, as such term is defined therein; or
(xvi) there shall occur any other "Event of Default" under the Note
Agreement, as such term is defined therein;
then (a) if such event is an Event of Default specified in clause (i) or (ii)
of this paragraph 7A, any holder of any Note with respect to which payment
has not been made (other than the Company or any if its Affiliates) may at
its option, during the continuance of such Event of Default, by notice in
writing to the Company, declare all of the Notes held by such holder to be,
and all of the Notes held by such holder shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
non-usage fees in connection therewith (in the case of Revolving Notes), and
together with the Yield-Maintenance Amount, if any, with respect to each such
Note (in the case of Term Notes), without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (viii), (ix) or (x) of
this paragraph 7A, all of the Notes at the time outstanding shall
automatically become immediately due and payable at par together with
interest accrued thereon, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Company, (c) if such event is
any other Event of Default, the Required Holder(s) of the Term Notes of any
Series or of the Revolving Notes may at its or their option during the
continuance of such Event of Default, by notice in writing to the Company,
declare all of the Term Notes of such Series or of the Revolving Notes (as
the case may be) to be, and all of the Term Notes of such Series or of the
Revolving Notes (as the case may be) shall thereupon be and become,
immediately due and payable together with interest accrued thereon, non-usage
fees in connection therewith (in the case of Revolving Notes) and together
with the Yield-Maintenance Amount, if any, with respect to each Term Note of
such Series (in the case of Term Notes), without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, and (d)
if any Note shall have been declared to be due and payable pursuant to clause
(c) above (and such declaration shall not have been rescinded pursuant to
paragraph 7B), any holder of any other Note may at any time thereafter,
regardless of whether any Event of Default shall at such time be continuing,
by notice in writing to the Company, declare all of the Notes held by such
holder to be, and all of the Notes held by such holder shall thereupon be and
become, immediately due and payable together with interest accrued thereon,
non-usage fees in connection therewith (in the case of Revolving Notes) and
together with the Yield-Maintenance Amount, if any, with respect to each such
Note (in the case of Term Notes), without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, provided
that the Yield-Maintenance Amount, if any, with respect to each Term Note
shall be due and payable upon any declaration pursuant to this paragraph 7A
only if (x) the event whose occurrence permits such declaration is an Event
of Default specified in any of clauses (i) to (vi), inclusive, of this
paragraph 7A, (y) the Required Holder(s) of the Term Notes of any Series
(whether or not of the same Series as the Term Notes the maturity of which
shall have been accelerated by such declaration) shall have given to the
Company, at least 10 Business Days before such declaration, written notice
stating its or their intention to declare or join in declaring the Notes held
by such Required Holder(s) (or all of the
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Notes of such Series) to be immediately due and payable and identifying one
or more such Events of Default whose occurrence on or before the date of such
notice permits such declaration, and (z) one or more of the Events of Default
so identified shall be continuing at the time of such declaration.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Term Notes of any Series or of the Revolving Notes (as the case may be) shall
have been declared immediately due and payable pursuant to paragraph 7A, the
Required Holder(s) of the Term Notes of such Series or of the Revolving Notes
(as the case may be) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have
paid all overdue interest and non-usage fees, if any, on the Term Notes of
such Series or of the Revolving Notes (as the case may be), the principal of
and Yield-Maintenance Amount, if any, payable with respect to any Term Notes
of such Series or of the Revolving Notes (as the case may be) which have
become due otherwise than by reason of such declaration, and interest on such
overdue interest, non-usage fee and overdue principal and Yield-Maintenance
Amount at the rate specified in the Term Notes of such Series or of the
Revolving Notes (as the case may be), (ii) the Company shall not have paid
any amounts which have become due solely by reason of such declaration, (iii)
all Events of Default and Defaults, other than non-payment of amounts which
have become due solely by reason of such declaration, shall have been cured
or waived pursuant to paragraph 11C, (iv) no judgment or decree shall have
been entered for the payment of any amounts due pursuant to the Term Notes of
such Series, the Revolving Notes or this Agreement, and (v) no action shall
have been taken by the Collateral Agent to foreclose upon the Mortgaged
Property (as defined in the Mortgage) or to exercise any other rights with
respect to the Mortgaged Property pursuant to the Mortgage. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each
Note at the time outstanding other than any such holder as shall have
participated in such acceleration or rescission, as the case may be.
7D. OTHER REMEDIES.
7D(1). EXERCISE. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by
suit in equity or by action at law, or both, whether for specific performance
of any covenant or other agreement contained in this Agreement, the Mortgage
or the Acknowledgment, as the case may be, or in aid of the exercise of any
power granted in this Agreement, the Mortgage, or the Acknowledgment, as the
case may be. No remedy conferred in this Agreement, the Mortgage or the
Acknowledgment upon the holder of any Note or upon the Collateral Agent for
the benefit of such holder, as the case may be, is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to every other remedy conferred herein or in the
Mortgage or the Acknowledgment or now or hereafter existing at law or in
equity or by statute or otherwise.
7D(2). AGENCY. The Company hereby acknowledges that the Lien of the
Mortgage has been granted to the Collateral Agent solely in its capacity as
collateral agent for Prudential, among other parties, and that all rights of
the Collateral Agent thereunder have been granted for the benefit of such
parties. Without limiting the generality of the foregoing, the Company
further acknowledges and agrees that each and every obligation of the Company
under the Mortgage to the Collateral Agent shall benefit Prudential and each
other party for which the Collateral Agent from time to time acts as
collateral agent pursuant to the Collateral Agency Agreement, including
without limitation each Purchaser.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants, on and as of the date hereof, as follows:
8A. ORGANIZATION.
(i) The Company is a corporation duly organized and existing in
good standing under the laws
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of the State of Minnesota and has the corporate power to own
its property and assets and to conduct its business in the
manner and in the places in which it is now being and is
presently proposed to be conducted and to perform its
obligation under this Agreement, the Notes, the Mortgage and
the Acknowledgment.
(ii) The Company is not required to be qualified as a foreign
corporation in any other jurisdiction.
(iii) The Company has no Subsidiaries, and the Company does not own,
directly or indirectly, capital stock of any class of any
corporation or any other equity or other interest in any
Person. Both the Company and the Manager are wholly-owned
subsidiaries of NRG, which is a wholly-owned subsidiary of NSP.
(iv) The Company has taken all action which may be required by its
articles of incorporation, its bylaws, the laws of the State of
Minnesota and all other applicable laws to authorize the
execution and delivery and performance of this Agreement, the
Notes, the Mortgage and the Acknowledgment.
8B. FINANCIAL STATEMENTS.
8B(1). FINANCIAL STATEMENTS OF ECPLP. The Company has furnished each
Purchaser with the financial statements of ECPLP (the "ECPLP Financial
Statements") received by the Company pursuant to the Master Purchase
Agreement, including without limitation such financial statements as are
referred to in Section 4.4 thereto. To the knowledge of the Company, the
ECPLP Financial Statements fairly present the financial position, results of
operations and retained earnings of ECPLP's business as of the dates and for
the periods set forth in each case in accordance with generally accepted
accounting principles consistently applied on the same basis as in the prior
year. To the knowledge of the Company, there has been no material adverse
change in the business, condition (financial or otherwise) or operations of
the Project since December 31, 1992.
8B(2). PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY. The Company has
furnished each Purchaser a pro forma balance sheet of the Company as of the
date hereof, giving effect to the transactions contemplated by the Master
Purchase Agreement and this Agreement. The Company has also furnished each
Purchaser with pro forma projections of operating cash flow, net cash flow
and net income, senior debt coverage and capital expenditures of the Company
for the fiscal year ending on December 31 in each of the years 1993 through
2013. Said pro forma financial statements fairly present the Company's
proposed business plans and the Company's good faith estimates as to matters
projected therein based on reasonable business assumptions. Such projections
are reasonably based on such assumptions and the best information available
to the officers of the Company. No event has occurred which would make such
projections materially inaccurate or misleading. Without limiting the
generality of the foregoing, such financial statements of the Company reflect
reasonable assumptions regarding capital expenditures required to maintain
the Project or to bring the Project into compliance with existing
Environmental Laws (whether such laws have immediate or future effective
dates).
8C. ACTIONS PENDING. Except as set forth in Exhibit J hereto, there is
no action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any properties or rights of
the Company, ECPLP or the Project, by or before any court, arbitrator or
administrative or governmental body. No action, suit, investigation or
proceeding described in Exhibit J, if decided adversely to the Company, ECPLP
or the Project, would involve the possibility of any material adverse change
in the business, property or assets, condition (financial or otherwise) or
operations of the Company or the Project.
8D. OUTSTANDING DEBT. The Company does not have outstanding any Debt
other than as permitted by paragraph 6B(2). There exists no default under the
provisions of any instrument evidencing such Debt or of any agreement
relating thereto.
8E. TITLE TO PROPERTIES. The Company has good and indefeasible title to
its real properties (other than properties which it leases) and good title to
all of its other properties and assets, including
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without limitation all properties and assets comprising the Project and
reflected in the most recent audited balance sheet of the Company delivered
by the Company pursuant to paragraph 5A (or, if no audited balance sheet has
been delivered, the most recent unaudited balance sheet of the Company
delivered by the Company pursuant to paragraph 5A, or, if no unaudited
balance sheet has been delivered, the pro forma balance sheet as of the date
hereof referred to in paragraph 8B(2)), subject to no Lien of any kind except
Liens permitted by paragraph 6B(1). All leases necessary in any material
respect for the conduct of the business of the Company are valid and
subsisting and are in full force and effect.
8F. TAXES. The Company has a fiscal year ending December 31 for
reporting and tax purposes and has no tax liability for fiscal years prior to
1993. The Company has not filed and has not been required to file any
federal, state and other income tax returns as of the date of this Agreement.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. The Company is not a
party to any contract or agreement or subject to any restriction in its
articles of incorporation or other corporate restriction which materially and
adversely affects the business, property or assets, condition (financial or
otherwise) or operations of the Company or the Project. Neither the execution
nor delivery of this Agreement, the Notes, the Mortgage, or the
Acknowledgment, nor the offering, issuance and sale of the Notes or making of
any Revolving Loan, nor fulfillment of nor compliance with the terms and
provisions of this Agreement, the Notes, the Mortgage or the Acknowledgment
will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of,
or result in the creation of any Lien (other than the Mortgage) upon any of
the properties or assets of the Company pursuant to, the articles of
incorporation or by-laws of the Company, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company is
subject. The Company is not a party to, or otherwise subject to any provision
contained in, any instrument evidencing indebtedness of the Company, any
agreement relating thereto or any other contract or agreement (including its
articles of incorporation) which limits the amount of, or otherwise imposes
restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Notes, except the Note Agreement.
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security
of the Company for sale to, or solicited any offers to buy the Notes or any
similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than institutional investors, and
neither the Company nor any agent acting on its behalf has taken or will take
any action which would subject the issuance or sale of the Notes to the
provisions of Section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any "margin stock" as defined in Regulation G (12 CFR
Part 207) of the Board of Governors of the Federal Reserve System (herein
called "margin stock"). None of the proceeds of any Revolving Loan or of the
sale of any Term Notes will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any
margin stock or for the purpose of maintaining, reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any stock
that is then currently a margin stock or for any other purpose which might
constitute the making of such Revolving Loan or the purchase of such Term
Notes a "purpose credit" within the meaning of such Regulation G, unless the
Company shall have delivered to Prudential or such Purchaser which is
purchasing such Term Notes (as the case may be), on the date funds are
advanced in connection therewith, an opinion of counsel satisfactory to
Prudential or such Purchaser stating that the Revolving Loan or purchase of
such Term Notes (as the case may be) does not constitute a violation of such
Regulation G. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement, the Notes or
any Revolving Loan to violate Regulation G, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act, in each case as in effect now or as the same may
hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a
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Multiemployer Plan). No liability to the Pension Benefit Guaranty Corporation
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company or
any ERISA Affiliate which is or would be materially adverse to the business,
property or assets, condition (financial or otherwise) or operations of the
Company or the Project. Neither the Company nor any ERISA Affiliate has
incurred or presently expects to incur any withdrawal liability under Title
IV of ERISA with respect to any Multiemployer Plan which is or would be
materially adverse to the business, property or assets, condition (financial
or otherwise) or operations of the Company or the Project. The execution and
delivery of this Agreement, the issuance and sale of each Note and each
Revolving Loan will be exempt from or will not involve any transaction which
is subject to, the prohibitions of section 406 of ERISA and will not involve
any transaction in connection with which a penalty could be imposed under
section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of
the Code. The representation by the Company in the next preceding sentence is
made in reliance upon and subject to the accuracy of the representation of
Prudential and each Purchaser in paragraph 9B as to the source of funds to be
used by it to purchase any Notes and make Revolving Loans.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company, nor any of
its business or properties, including without limitation ownership, operation
and maintenance of the Project, nor any relationship between the Company and
any other Person, nor any circumstance in connection with the execution and
delivery of this Agreement, the offering, issuance, sale or delivery of the
Notes or the making of Revolving Loans, the execution and delivery of the
Mortgage or the Acknowledgment, or the purchase of the Project pursuant to
the Master Purchase Agreement is such as to require any authorization,
consent, approval, exemption or any action by or notice to or filing with any
court or administrative or governmental body (other than (i) notification to
the Federal Trade Commission and the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which has been
accomplished, and expiration of the waiting period thereunder, which has
occurred, (ii) such as otherwise have been obtained on or prior to the date
hereof, (iii) routine filings after the Closing Day for any Notes with the
Securities and Exchange Commission and/or state Blue Sky authorities, and
(iv) as otherwise set forth in Exhibit J hereto) in connection with the
execution and delivery of this Agreement, the offering, issuance, sale or
delivery of the Notes, the fulfillment of or compliance with the terms and
provisions hereof or of the Notes, the Mortgage, or the Acknowledgment, or
the purchase of the Project pursuant to the Master Purchase Agreement.
8L. UTILITY STATUS. NSP is a "holding company" as such term is defined
in the Public Utility Holding Company Act of 1935, as amended, but is exempt
from all provisions of such Act, except Section 9(a)(2) thereof (relating to
the acquisition of securities of a "public utility company"), because of its
status as predominantly an operating company whose utility operations are
confined to the state of its incorporation and states contiguous thereto and
its filing with the Securities and Exchange Commission of all required forms
in connection therewith. Neither NRG, the Company nor the Manager is (i) a
"holding company", or, in each case with the exception of its relationship
with NSP, a "subsidiary company" of a "holding company," an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended,
(ii) a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or the Federal Power Act, as amended, or
(iii) otherwise subject to regulation as a public utility under federal law
or the law of the State of Minnesota.
8M. INVESTMENT COMPANY STATUS. The Company is not an "investment
Company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended or an "investment
adviser" within the meaning of the Investment Advisers Act of 1940, as
amended.
8N. LICENSES, PERMITS AND REGISTRATIONS. Except as set forth in Exhibit
J hereto, each of the Company and Manager has procured and is in possession
of all licenses, permits, exemptions or registrations required by federal,
state or local laws for the ownership, operation and maintenance of the
Project, as the case may be. With respect to any license, permit, exemption
or registration that either (i) is currently required under applicable law,
but is not currently in effect or has not been obtained as required, or (ii)
must be amended or transferred after the closing, the Company reasonably
expects that
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such license, permit or registration will be obtained, amended or transferred
in the ordinary course of business after the closing without any material
expense to the Company (except as reflected in the Company's pro forma
financial statements referred to in paragraph 8B(2)) or any material change
in the operation of the Project.
8O. PURCHASE AGREEMENT REPRESENTATIONS. The Master Purchase Agreement
and the other Purchase Documents have been duly executed and delivered by the
parties thereto and are in full force and effect. All representations and
warranties made by the Company in the Purchase Documents, and, to the best
knowledge of the Company, all representatives and warranties made by ECPLP in
the Purchase Documents are true and correct in all material respects.
8P. SUFFICIENCY AND CONDITION OF ACQUIRED ASSETS. The Acquired Assets
(as defined in the Master Purchase Agreement), as the same exist on the date
of this Agreement, are in all respects sufficient and adequate to enable the
Company to carry on the business of the Project at its normal level of
operations as such business was carried on by ECPLP in the ordinary course
prior to the date hereof, except as set forth in Exhibit J, and the items of
tangible property constituting Acquired Assets have been properly maintained
and are in good condition, ordinary wear and tear excepted.
8Q. NO DEFAULTS. As of the date of this Agreement, except as set forth
in Schedule 4.11 to the Master Purchase Agreement, to the knowledge of the
Company:
(a) ECPLP has performed all obligations and satisfied all liabilities
required to be performed or satisfied by ECPLP under all Service
Agreements;
(b) no other party to any Service Agreement is in default and no event or
condition exists or has occurred which, after notice or lapse of time, or
both, would constitute a default thereunder, where such default, event or
condition would have an adverse effect on the Project taken as a whole;
(c) ECPLP has complied in all material respects with the requirements and
conditions upon which all Encroachment Permits, Environmental Permits,
Miscellaneous Permits and Easements were issued or granted; and
(d) neither ECPLP nor MECI, which is the current manager of the Project,
has received from any governmental authority or any other person written
notice of contemplated, threatened or pending rescission, cancellation or
non-renewal of any of the Environmental Permits, Encroachment Permits,
Miscellaneous Permits or Easements, or that any other permits,
authorizations or easements are required for the occupancy or operation of
the Project.
8R. ASSIGNABILITY OF PERMITS. Any provision of this Agreement to the
contrary notwith-standing, no representation or warranty is made by the
Company with respect to the transferability of any permit, including any
Encroachment Permit, Environmental Permit or Miscellaneous Permit.
8S. ENVIRONMENTAL MATTERS; WELLS. As of the date of this Agreement,
except as set forth in Schedule 4.13 to the Master Purchase Agreement, to the
knowledge of the Company:
(a) ECPLP is in compliance with all federal, state and local
environmental laws and regulations and neither ECPLP nor MECI has received
any notices or warnings with respect to any violation or suspected
violation of any such laws from any federal, state or local regulatory
authority; and
(b) the only well located on the tracts and parcels constituting Real
Property (as defined in the Real Property Agreement) is as described in
the Well Disclosure Statement attached as Exhibit E to the Master Purchase
Agreement, except for wells which have been sealed in accordance with the
requirements of Minn. Stat. ch. 103I and as to which a Sealed Well
Certificate has been delivered to the Minnesota Department of Health.
With respect to any remedial or other action that is required for the matters
listed in Schedule 4.13 to the Master Purchase Agreement, the Company
reasonably expects that such remedial or other action will be accomplished in
the ordinary course of business after the closing without any material
expense to the Company (except as reflected in the Company's pro forma
financial statements referred to in paragraph 8B(2)) or any material change
in the operation of the Project.
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8T. HOSTILE TENDER OFFERS. None of the proceeds of any Revolving Loan
or the sale of any Term Notes will be used to finance a Hostile Tender Offer.
8U. DISCLOSURE. Neither this Agreement, the Notes, the Mortgage, the
Acknowledgment nor any other document, certificate or statement furnished to
Prudential or any Purchaser by or on behalf of the Company in connection
herewith or therewith contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Company or the Project which materially adversely affects or in the future
may (so far as the Company can now foresee) materially adversely affect the
business, property or assets, condition (financial or otherwise) or
operations of the Company or the Project and which has not been set forth in
this Agreement, the Mortgage or the Acknowledgment or in the other documents,
certificates and statements furnished to Prudential or any Purchaser by or on
behalf of the Company prior to the date hereof in connection with the
transactions contemplated hereby.
9. REPRESENTATIONS OF THE PURCHASERS.
Prudential and each Purchaser represents as follows:
9A. NATURE OF PURCHASE. It is acquiring the Notes to be purchased by it
hereunder for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act, provided that the disposition of its property shall at all times be and
remain within its control.
9B. SOURCE OF FUNDS. No part of the funds used by it to pay the
purchase price of the Notes purchased by it hereunder constitutes assets
allocated to any separate account maintained by it in which any employee
benefit plan, other than employee benefit plans identified on a list which
has been furnished by it to the Company, participates to the extent of 10% or
more. For the purpose of this paragraph 9B, the terms "separate account" and
"employee benefit plan" shall have the respective meanings specified in
section 3 of ERISA.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined
in the text of any paragraph shall have the respective meanings specified
therein, and the following terms shall have the meanings specified with
respect thereto below:
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to the Mortgage, paragraph 1L(1) or
paragraph 5F or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor (applied
on the same periodic basis as that on which interest on such Note is payable)
equal to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, 0.5% over the yield to maturity implied by (a) the yields reported,
as of 10:00 A.M. (New York City local time) on the Business Day next
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or such other
display as may replace page 678 on the Telerate Service) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or if such yields
shall not be reported as of such time or the yields reported as of such time
shall not be ascertainable, (b) the Treasury Constant Maturity Series yields
reported, for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
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Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (x) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (y) interpolating linearly between yields reported for various
maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Scheduled Payment of such
Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or alter the Settlement Date with respect to
such Called Principal if no payment of such Called Principal were made prior
to its scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
the Mortgage, paragraph 1L(1) or paragraph 5F or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context
requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal
of such Note over the sum of (i) such Called Principal plus (ii) interest
accrued thereon as of (including interest due on) the Settlement Date with
respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10B. OTHER TERMS.
"ACCEPTANCE" shall have the meaning set forth in paragraph 1G.
"ACCEPTANCE DAY" shall have the meaning set forth in paragraph 1G.
"ACCEPTANCE WINDOW" shall have the meaning set forth in paragraph 1G.
"ACCEPTED NOTE" shall have the meaning set forth in paragraph 1G.
"ACKNOWLEDGMENT" shall have the meaning set forth in paragraph 3A(5).
"ADJUSTED COMMERCIAL PAPER RATE" shall mean a rate per annum equal to the
sum of (a) 2% plus (b) the yield-adjusted rate (i.e., the nominal rate
increased by the cost of any discount) charged or quoted to Prudential
Funding Corporation for dealer-placed, 30-day promissory notes issued by
Prudential Funding Corporation on the Rate Day.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary (the acquisition or creation of which is expressly
prohibited pursuant to paragraph 6B(3)). A Person shall be deemed to control
a corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract
or otherwise.
"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its
President, Vice President, Treasurer or Secretary or any other officer of the
Company designated as an "Authorized Officer" of the Company for the purpose
of this Agreement in an Officer's Certificate executed by the Company's
President and delivered to Prudential, and (ii) in the case of Prudential,
any officer of Prudential designated as an "Authorized Officer" in the
Information Schedule or any officer of Prudential designated as an
"Authorized Officer" for the purpose of this Agreement in a certificate
executed by one of its Authorized Officers. Any action taken under this
Agreement on behalf of the Company by any individual who on or after the date
of this Agreement shall have been an Authorized Officer of the Company and
whom Prudential in good faith believes to be an Authorized Officer of the
Company at the time of such action shall be binding on the Company even
though such individual shall have ceased to be an Authorized Officer of the
Company, and any action taken under this Agreement on behalf of Prudential
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by any individual who on or after the date of this Agreement shall have been
an Authorized Officer of Prudential and whom the Company in good faith
believes to be an Authorized Officer of Prudential at the time of such action
shall be binding on Prudential even though such individual shall have ceased
to be an Authorized Officer of Prudential.
"AVAILABLE FACILITY AMOUNT" shall have the meaning set forth in paragraph
1B.
"BANKRUPTCY LAW" shall have the meaning set forth in clause (viii) of
paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday,
(ii) a day on which commercial banks in New York City are required or
authorized to be closed and (iii) for purposes of paragraph 1C hereof only, a
day on which The Prudential Insurance Company of America is not open for
business.
"CANCELLATION DATE" shall have the meaning set forth in paragraph 1K.
"CANCELLATION FEE" shall have the meaning set forth in paragraph 1K.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under generally accepted accounting principles, would be required to be
capitalized on the books of the Company, taken at the amount thereof
accounted for as indebtedness (net of interest expenses) in accordance with
such principles.
"CLOSING DAY" for any Accepted Note shall mean the Business Day specified
for the closing of the purchase and sale of such Note in the Request for
Purchase of such Note, provided that (i) if the Acceptance Day for such
Accepted Note is less than five Business Days after the Company shall have
made such Request for Purchase and the Company and the Purchaser which is
obligated to purchase such Note agree on an earlier Business Day for such
closing, the "CLOSING DAY" for such Accepted Note shall be such earlier
Business Day, and (ii) if the closing of the purchase and sale of such
Accepted Note is rescheduled pursuant to paragraph 1I, the Closing Day for
such Accepted Note, for all purposes of this Agreement except paragraph 1K,
shall mean the Rescheduled Closing Day with respect to such Closing.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLATERAL AGENCY AGREEMENT" shall have the meaning set forth in
paragraph 3A(5).
"COLLATERAL AGENT" shall mean Norwest Bank Minnesota, National
Association, until a successor collateral agent is appointed in accordance
with the terms of the Collateral Agency Agreement, and thereafter such
successor.
"COMMONWEALTH" shall mean Commonwealth Land Title Insurance Company.
"CONFIDENTIAL INFORMATION" shall mean any written information delivered or
made available by or on behalf of the Company, either directly or through any
Person referred to in paragraph 5C, to Prudential, a Purchaser or a
Transferee pursuant to this Agreement which is clearly marked or labeled as
being confidential information, but in no event shall include information (i)
which was publicly known or otherwise known to Prudential or such Purchaser
or Transferee at the time of disclosure, (ii) which subsequently becomes
publicly known through no act or omission by Prudential, such Purchaser or
Transferee, or (iii) which otherwise becomes known to Prudential, such
Purchaser or Transferee, other than through disclosure by or on behalf of the
Company.
"CONFIRMATION OF ACCEPTANCE" shall have the meaning set forth in paragraph
1G.
"CONSULTANTS" shall mean, collectively, the Engineer and Twin City.
"CONTROLLING INTEREST" shall mean a percentage of the outstanding Voting
Stock or other equity securities of any Person sufficient to permit or
require that, under generally accepted accounting principles, the financial
statements of such Person be consolidated with those of the owner of such
equity securities, but in no event less than a majority of the total combined
voting power of all classes of Voting Stock of such Person.
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"CPI" shall mean (i) the Consumer Price Index for Urban Consumers (Base
1982 = 100), or (ii) if at any time such Consumer Price Index is no longer
published or issued or is changed from its present form or the bases used for
the calculation thereof shall be changed from the present form, such other
measures of relative purchasing power as then shall be recognized and
accepted generally for similar use or purpose as such Consumer Price Index.
"CURRENT DEBT" shall mean, with respect to any Person, all Indebtedness of
such Person for borrowed money which by its terms or by the terms of any
instrument or agreement relating thereto matures on demand or within one year
from the date of the creation thereof and is not directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year from the date of the creation thereof, provided that Indebtedness for
borrowed money outstanding under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit over a period of more
than one year shall constitute Funded Debt and not Current Debt, even though
such Indebtedness by its terms matures on demand or within one year from the
date of the creation thereof and, provided further, in the case of the
Company, all outstanding Indebtedness evidenced by the Revolving Notes shall
be deemed Current Debt, and not Funded Debt, hereunder.
"DEBT" shall mean Current Debt and Funded Debt.
"DEBT EXPENSE" shall mean, for any period, the sum of (i) the aggregate
amount of principal and interest payments (including lease payments under
Capitalized Lease Obligations) of the Company and/or of ECPLP, as the case
may be, determined in accordance with generally accepted accounting
principles, and (ii) the amount of principal and interest payable with
respect to the Funded Debt proposed to be created, incurred or assumed.
"DELAYED DELIVERY FEE" shall have the meaning set forth in paragraph 1J.
"EASEMENTS" shall have the meaning set forth in paragraph 5H(1).
"ECPLP" shall mean ENERGY CENTER PARTNERS, A LIMITED PARTNERSHIP, a
Minnesota limited partnership.
"ENGINEER" shall mean HDR Engineering, Inc.
"ENVIRONMENTAL LAWS" shall mean, collectively, all federal, state, local
and regional statutes, laws, ordinances and judicial or administrative
orders, judgments, rulings and regulations relating to protection of the
environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control
with the Company within the meaning of section 414(c) of the Code.
"ESCROW AGREEMENT" shall mean the Security (Pledge) and Escrow Agreement
of even date herewith among the Company, ECPLP and First Trust National
Association executed pursuant to the Master Purchase Agreement.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXISTING LOAN AGREEMENTS" shall mean, collectively (i) the Note
Agreements dated July 27, 1984 between ECPLP and each of Prudential
Interfunding Corp., Northwestern National Life Insurance Company, Northern
Life Insurance Company and The North Atlantic Life Insurance Company of
America, as amended, (ii) the Note Agreement dated August 1, 1986 between
ECPLP and Prudential, as amended, (iii) the Note Agreement dated December
30,1988 between ECPLP and Pruco Life Insurance Company, as amended, and (iv)
the Note Agreement dated September 28, 1990 between ECPLP and Prudential, as
amended.
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"FACILITY" shall have the meaning set forth in paragraph 1B.
"FUNDED DEBT" shall mean, with respect to any Person, all Indebtedness of
such Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than
one year from, or is directly or indirectly renewable, or extendible at the
option of the debtor to a date more than one year (including an option of
debtor under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year) from, the date
of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect
of which such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of
the obligor of such obligation, or to make payment for any products,
materials or supplies or for any transportation or service, regardless of the
non-delivery or non-furnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against loss
in respect thereof. The amount of any Guarantee shall be equal to the
outstanding principal amount of the obligation guaranteed or such lesser
amount to which the maximum exposure of the guarantor shall have been
specifically limited.
"HEDGE TREASURY NOTE(S)" shall mean, with respect to any Accepted Note,
the United States Treasury Note or Notes whose duration (as determined by
Prudential) most closely matches the duration of such Accepted Note.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of
any Note or Revolving Loan, any offer to purchase, or any purchase of, shares
of capital stock of any corporation or equity interests in any other entity,
or securities convertible into or representing the beneficial ownership of,
or rights to acquire, any such shares or equity interests, if such shares,
equity interests, securities or rights are of a class which is publicly
traded on any securities exchange or in any over-the-counter market, other
than purchases of such shares, equity interests, securities or rights
representing less than 5% of the equity interests or beneficial ownership of
such corporation or other entity for portfolio investment purposes, and such
offer or purchase has not been duly approved by the board of directors of
such corporation or the equivalent governing body of such other entity prior
to the date on which the Company makes the Request for Purchase of such Note
or the borrowing request with respect to such Revolving Loan pursuant to
paragraph 2C, as the case may be.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items (including Capitalized Lease Obligations but
excluding reserves for deferred income taxes and other reserves to the extent
that such reserves do not constitute an obligation) which in accordance with
generally accepted accounting principles would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as of the date on which Indebtedness is to be determined, (ii) all
indebtedness secured by any Lien on any property or asset owned or held by
such Person subject thereto, whether or not the indebtedness secured thereby
shall have been assumed, and (iii) all indebtedness of others with respect to
which such Person has become liable by way of a Guarantee.
"INSTITUTIONAL INVESTOR" shall mean Prudential, any Prudential Affiliate
and any bank, bank affiliate, financial institution, insurance company,
pension fund, mutual fund, endowment or other organization which regularly
acquires debt instruments for investment.
"ISSUANCE PERIOD" shall have the meaning set forth in paragraph lC.
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"LIBOR BUSINESS DAY" shall mean a day of the year on which dealings are
carried on in the London interbank market and banks are open for business in
London and not required or authorized to close in New York City.
"LIBOR RATE" shall mean, for any Rate Period, for any Revolving Loan
outstanding during such Rate Period, the sum of 2% plus the One Month London
Interbank Offered Rate, at 11:00 A.M. (London Time) two LIBOR Business Days
prior to Rate Day, for U.S. dollar deposits in the London interbank market as
such rate is reported on page 3750 by Telerate -The Financial Information
Network published by Telerate Systems Incorporated (Telerate), or its
successor company. If Telerate shall cease to report such rates on a regular
basis, the LIBOR Rate shall mean, for any Rate Period, the sum of 2% plus the
rate determined by Prudential to be the arithmetic average (rounded upwards,
if necessary, to the nearest 1/16 of 1 %) of the rates quoted to Prudential
by the Reference Banks two LIBOR Business Days prior to Rate Day, for U.S.
dollar deposits in the London interbank market.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise) or charge of any kind (including any agreement
to give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MANAGEMENT AGREEMENT" shall have the meaning set forth in paragraph
3A(4).
"MANAGEMENT FEE" shall mean a monthly fee equal to 4% of the steam, hot
water and chilled water gross revenues of the Company collected during the
immediately preceeding month, payable in arrears by the Company to Manager
for the services rendered by Manager during such month pursuant to the
Management Agreement.
"MANAGER" shall mean NRG Operating Services, Inc., a Delaware corporation.
"MASTER PURCHASE AGREEMENT" shall mean the Master Purchase Agreement of
even date herewith between ECPLP and the Company.
"MECI" shall mean Minneapolis Energy Center Inc.
"MISCELLANEOUS PERMITS" shall have the meaning set forth in paragraph
5H(1).
"MORTGAGE" shall have the meaning set forth in paragraph 3A(5).
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA.
"1993 NOTES" shall mean the notes issued by the Company pursuant to the
Note Agreement.
"NOTE AGREEMENT" shall have the meaning set forth in paragraph 3A(14).
"NOTES" shall have the meaning set forth in paragraph 2A.
"NRG" shall mean NRG Energy, Inc., a Delaware corporation.
"NSP" shall mean Northern States Power Company, a Minnesota corporation.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by an Authorized Officer of the Company.
"OPERATING INCOME" shall mean, for any period, (i) the sum of (A) the net
earnings (or loss) of the Company and/or of ECPLP, as the case may be, for
such period, (B) any net loss, net of applicable tax effect, realized (1) in
connection with extraordinary items or transactions of a non-recurring or
non-operating and material nature or (2) upon disposition of capital assets
or the discontinuance of capital assets or the discontinuance of operations
for such period, (C) tax expense for such period, and (D) interest expense
(including the interest component of Capitatized Lease Obligations) for such
period, less (ii) the sum of (A) any net gain, net of applicable tax effect,
realized (1) in connection with
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extraordinary items or transactions of a non-recurring or non-operating and
material nature or (2) upon disposition of capital assets or the
discontinuance of operations for such period and (B) income attributable to
sources other than operations for such period, including without limitation
interest income, in each case determined in accordance with generally
accepted accounting principles.
"OPERATING INCOME AVAILABLE FOR DEBT EXPENSE" shall mean, for any period,
the sum of (i) Operating Income of the Company and/or of ECPLP, as the case
may be, for such period, (ii) depreciation and amortization for such period
determined in accordance with generally accepted accounting principles, and
(iii) the aggregate amount of the Management Fee accrued for such period.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PERSONAL PROPERTY AGREEMENT" shall mean the Purchase Agreement of even
date herewith between ECPLC and the Company executed pursuant to the Master
Purchase Agreement.
"PLAN" shall mean any employee pension benefit plan (as such term is
defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any ERISA Affiliate.
"PROJECT" shall mean, collectively, the steam, hot water and chilled water
plant, parking structure and commercial space located in Minneapolis,
Minnesota and known as the Minneapolis Energy Center, satellite steam and
chilled water generation facilities, and other offsite property located on
the property of others, all in Minneapolis, Minnesota and now or hereafter
comprising the assets, properties and rights of the business of and known as
the Minneapolis Energy Center, including without limitation all developments
and improvements relating to the expansion of the productive capacity of any
component thereof.
"PRUDENTIAL" shall mean The Prudential Insurance Company of America.
"PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all of
the Voting Stock (or equivalent voting securities or interests) of which is
owned by Prudential either directly or through Prudential Affiliates.
"PURCHASE AGREEMENTS" shall mean, collectively, the Master Purchase
Agreement, the Personal Property Agreement and the Real Property Agreement.
"PURCHASE DOCUMENTS" shall mean, collectively, the Purchase Agreements,
the Escrow Agreement, and all other agreements, documents and instruments
executed in connection with the transactions contemplated by the Master
Purchase Agreement.
"PURCHASERS" shall mean, with respect to any Accepted Notes, the Persons
(which shall be Prudential and/or Prudential Affiliate(s)) which propose to
purchase such Accepted Notes.
"RATE DAY" shall mean for each Rate Period the first day of each calendar
month of such Rate Period; provided, however, that if such day is not a LIBOR
Business Day, then on the next LIBOR Business Day succeeding the first day of
such calendar month.
"RATE PERIOD" shall mean the period during which the LIBOR Rate remains in
effect and unchanged. For purposes of this Agreement, the Rate Period shall
begin on the first day of each calendar month and shall end on the last day
of such calendar month.
"REAL PROPERTY AGREEMENT" shall mean the Real Property Purchase Agreement
of even date herewith between ECPLP and the Company executed pursuant to the
Master Purchase Agreement.
"RENT LIMIT" shall have the meaning set forth in paragraph 6B(5).
"REFERENCE BANKS" shall mean Morgan Guaranty Trust Company of New York,
Citibank, N.A. and Chase Manhattan Bank, N.A.
"REQUEST FOR PURCHASE" shall have the meaning set forth in paragraph 1E.
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"REQUIRED HOLDER(S)" shall mean, with respect to the Revolving Notes and
the Term Notes of any Series, at any time, the holder or holders of at least
66 2/3% of the aggregate principal amount of the Revolving Notes or the Term
Notes of such Series (as the case may be) outstanding at such time.
"RESCHEDULED CLOSING DAY" shall have the meaning set forth in paragraph
1I.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"REVOLVING COMMITMENT" shall have the meaning set forth in paragraph 2A.
"REVOLVING LOAN" and "REVOLVING LOANS" shall have the meanings set forth
in paragraph 2A.
"REVOLVING LOANS TERMINATION DATE" shall have the meaning set forth in
paragraph 2A.
"REVOLVING NOTE" and "REVOLVING NOTES" shall have the meaning set forth in
paragraph 2A.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES" shall have the meaning set forth in paragraph 1A.
"SERVICE AGREEMENTS" shall have the meaning set forth in paragraph 5H(1).
"SERVICE CONTRACTS" shall have the meaning set forth in paragraph 5H(1).
"SIGNIFICANT HOLDER" shall mean (i) in the case of the Term Notes (a) each
Purchaser, so long as such Purchaser shall hold (or be committed under this
Agreement to purchase) any Term Note and (b) any other holder of at least 5%
of any Series of Term Notes from time to time outstanding, and (ii) in the
case of the Revolving Notes, (x) Prudential and (y) any other holder of at
least 5% of the Revolving Notes from time to time outstanding.
"SUBSIDIARY" shall mean any corporation or other Person in which, at the
time of which any determination is being made, the Company owns a Controlling
Interest either directly or through Subsidiaries.
"TERM NOTES" shall have the meaning set forth in paragraph 1A.
"TITLE INSURANCE COMMITMENT" shall have the meaning set forth in paragraph
3A(8).
"TOTAL CAPITALIZATION" shall mean the sum of stockholders' equity and
Funded Debt of the Company.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased under this Agreement.
"TWIN CITY" shall mean Twin City Testing Corporation.
"VOTING STOCK" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in
this Agreement to "generally accepted accounting principles" shall be deemed
to refer to generally accepted accounting principles in effect in the United
States at the time of application thereof. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations
with respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with
the most recent audited financial statements of the Company delivered
pursuant to clause (ii) of paragraph 5A or, if no such statements have been
so delivered, the pro forma financial statements referred to in paragraph
8B(2).
11. MISCELLANEOUS.
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11A. NOTE PAYMENTS. The Company agrees that, so long as Prudential or
any Purchaser shall hold any Note, it will make payments of principal of,
interest on, and any Yield-Maintenance Amount and non-usage fee payable with
respect to, such Note, which comply with the terms of this Agreement, by wire
transfer of immediately available funds for credit (not later than 12:00
noon, New York City local time, on the date due) to the applicable account or
accounts of Prudential or such Purchaser, if any, as are specified in the
Information Schedule attached hereto, or, in the case of any Purchaser not
named in the Information Schedule or Prudential or any Purchaser wishing to
change the account specified for it right the Information Schedule, such
account or accounts in the United States as it may from time to time
designate in writing, notwithstanding any contrary provision herein or in any
Note with respect to the place of payment. Prudential and each Purchaser
agree that, before disposing of any Note, it will make a notation thereon (or
on a schedule attached thereto) of all principal payments previously made
thereon and of the date to which interest thereon has been paid. The Company
agrees to afford the benefits of this paragraph 11A to any Transferee which
shall have made the same agreement as Prudential and the Purchasers have made
in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save Prudential, each
Purchaser, the Collateral Agent, and, to the extent provided herein, any
Transferee harmless against liability for the payment of all out-of-pocket
expenses arising in connection with such transactions, including (i) all
reasonable document production and duplication charges and the fees and
expenses of any special counsel engaged by Prudential, the Purchasers, or the
Collateral Agent in connection with this Agreement, the Mortgage, the
Collateral Agency Agreement, the Acknowledgment or the Notes or the
transactions contemplated hereby and thereby, (ii) all reasonable document
production and duplication charges and fees and expenses of any special
counsel engaged by the holder of any Note in connection with any subsequent
proposed modification of, or proposed consent under, or proposed notice,
instruction or direction given pursuant to this Agreement, the Mortgage, the
Collateral Agency Agreement, the Acknowledgment or the Notes, whether or not
such proposed modification shall be effected, proposed consent granted, or
proposed notice, instruction or direction given, (iii) the costs and
expenses, including attorneys' fees, incurred by the holder of any Note, or
(with respect to the Mortgage) by the Collateral Agent on behalf of any
holder of any Note, in enforcing (or determining whether or how to enforce)
any rights under this Agreement, the Mortgage, the Acknowledgment or the
Notes, and (iv) the costs and expenses, including attorneys' fees, incurred
by Prudential, any Purchaser or any Transferee in responding to any subpoena
or other legal process or informal investigative demand issued in connection
with this Agreement, the Mortgage, the Collateral Agency Agreement, the
Acknowledgment or the Notes or the transactions contemplated hereby or
thereby or by reason of Prudential's or any Purchaser's or any Transferee's
having acquired any Note, including without limitation costs and expenses
incurred in any bankruptcy case. The obligations of the Company under this
paragraph 11B shall survive the transfer of any Note or portion thereof or
interest therein by Prudential, any Purchaser or any Transferee and the
payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Required
Holder(s) of the Revolving Notes and of the Term Notes of each Series except
that, (i) with the written consent of the holders of all Revolving Notes or
Term Notes of a particular Series, and if an Event of Default shall have
occurred and be continuing, of the holders of all Notes at the time
outstanding (and not without such written consents), the Revolving Notes or
Term Notes of such Series (as the case may be) may be amended or the
provisions thereof waived to change the maturity thereof, to change or affect
the principal thereof, or to change or affect the rate or time of payment of
interest on or any non-usage fee or Yield-Maintenance Amount payable with
respect to the Revolving Notes or Term Notes of such Series (as the case may
be), (ii) without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to or waiver of the provisions of this
Agreement shall change or affect the provisions of paragraph 7A or this
paragraph 11C insofar as such provisions relate to proportions of the
principal amount of the Notes, or the rights of any individual holder of
Notes, required with respect to any declaration of Notes to be due and
payable or with respect to any consent, amendment, waiver or declaration,
(iii) with the written consent of Prudential (and not without the written
consent of
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Prudential) the provisions of paragraph 1, 2 and 3C may be amended or waived
(except insofar as any such amendment or waiver would affect any rights or
obligations with respect to the purchase and sale of Term Notes which shall
have become Accepted Notes prior to such amendment or waiver), and (iv) with
the written consent of all of the Purchasers which shall have become
obligated to purchase Accepted Notes of any Series (and not without the
written consent of all such Purchasers), any of the provisions of paragraphs
1 and 3B may be amended or waived insofar as such amendment or waiver would
affect only rights or obligations with respect to the purchase and sale of
the Accepted Notes of such Series or the terms and provisions of such
Accepted Notes. Each holder of any Note at the time or thereafter outstanding
shall be bound by any consent authorized by this paragraph 11C, whether or
not such Note shall have been marked to indicate such consent, but any Notes
issued thereafter may bear a notation referring to any such consent. No
course of dealing between the Company and the holder of any Note nor any
delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein and in the
Notes, the term "this Agreement" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons in denominations of at
least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal
office a register in which the Company shall provide for the registration of
Notes and of transfers of Notes. Upon surrender for registration of transfer
of any Note at the principal office of the Company, the Company shall, at its
expense, execute and deliver one or more new Notes of like tenor and of a
like aggregate principal amount, registered in the name of such transferee or
transferees. At the option of the holder of any Note, such Note may be
exchanged for other Notes of like tenor and of any authorized denominations,
of a like aggregate principal amount, upon surrender of the Note to be
exchanged at the principal office of the Company. Whenever any Notes are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to
receive. Every Note surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Note or such holder's attorney duly
authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were claimed by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any
such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
Notwithstanding to the contrary herein, each Prudential and Purchaser agrees,
and each Transferee by its acceptance of an interest in a Note agrees, that
no Note (or any interest therein) shall be transferred to any Person which is
not an Institutional Investor.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on, and any Yield-Maintenance
Amount and non-usage fee payable with respect to such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the
Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Note may from time to time grant
participations in all or any part of such Note to any Person on such terms
and conditions as may be determined by such holder in its sole and absolute
discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or in the Notes, the Mortgage
or the Acknowledgment or made in writing by or on behalf of the Company in
connection herewith shall survive the execution and delivery of this
Agreement, the Notes, the Mortgage and the Acknowledgment, the transfer by
Prudential or any Purchaser of any Note or portion thereof or interest
therein and the payment of any Note, and may be relied upon by any
Transferee, regardless of any investigation made at any time by or on behalf
of Prudential, any Purchaser or any Transferee. Subject to the preceding
sentence, this Agreement, the
34
<PAGE>
Notes, the Mortgage and the Acknowledgment embody the entire agreement and
understanding between the parties hereto (the Collateral Agency Agreement
being among Prudential, the holders of the 1993 Notes and the Collateral
Agent only) with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement made by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed
or not.
11H. DISCLOSURE TO OTHER PERSONS. Each of Prudential and each Purchaser
agrees, and each Transferee by its acceptance of an interest in any Note
agrees, to use its best efforts to hold in confidence and not disclose any
Confidential Information; provided that nothing herein shall prevent
Prudential, a Purchaser or a Transferee from delivery or disclosing (and the
Company acknowledges that Prudential, each Purchaser and each Transferee may
deliver or disclose) any financial statements and other documents delivered
to it, and any other information disclosed to it (including, but not limited
to, Confidential Information), by or on behalf of the Company, either
directly or through any Person referred to in paragraph 5C, in connection
with or pursuant to this Agreement to (i) its directors, officers, employees,
agents and professional consultants, (ii) any other holder of any Note, (iii)
any Person to which it offers to sell such Note or any part thereof, (iv) any
Person to which it sells or offers to sell a participation in all or any part
of such Note, (v) any Person from which it offers to purchase any security of
the Company, (vi) any federal or state regulatory authority having
jurisdiction over it, (vii) the National Association of Insurance
Commissioners or any similar organization or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (a) to effect
compliance with any law, rule, regulation or order applicable to it, (b) in
response to any subpoena or other legal process or informal investigative
demand, (c) in connection with any litigation to which it is a party or (d)
in order to protect its investment in any Note.
11I. NOTICES. All written communications provided for hereunder shall
be sent by first class mail or nationwide overnight delivery service (except
as provided in paragraph 1 or 2) with charges prepaid and (i) if to any
Person listed in the Information Schedule attached hereto, addressed to it at
the address specified for such communications in such Information Schedule,
or at such other address as it shall have specified in writing to the Person
sending such communication, (ii) if to any Purchaser or holder of any Note
which is not a Person listed in such Information Schedule, addressed to it at
such address as it shall have specified in writing to the Person sending such
communication or, if any such holder shall not have so specified an address,
then addressed to such holder in care of the last holder of such Note which
shall have so specified an address to the Person sending such communication,
and (iii) if to the Company, addressed to it at 1221 Nicollet Mall, Suite
700, Minneapolis, Minnesota 55403-2445, Attention: President, or at such
other address as the Company shall have specified to the holder of each Note
in writing, provided; however, that any such communication to the Company may
also, at the option of the Person sending such communication, be delivered by
any other means either to the Company at its address specified above or to
any Authorized Officer of the Company. Any communication pursuant to
paragraph 1 or 2 shall be made by the method specified for such communication
therein, and shall be effective to create any rights or obligations under
this Agreement only if, in the case of a telephone communication, an
Authorized Officer of the party conveying the information and of the party
receiving the information are parties to the telephone call, and in the case
of a telecopier communication, the communication is signed by an Authorized
Officer of the party conveying the information, addressed to the attention of
an Authorized Officer of the party receiving the information, and in fact
received at the telecopier terminal the number of which is listed for the
party receiving the communication in the Information Schedule or at such
other telecopier terminal as the party receiving the information shall have
specified in writing to the party sending such information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on, or Yield-Maintenance Amount or non-usage fee payable with
respect to, any Note that is due on a date other than a Business Day shall
35
<PAGE>
be made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be included in the computation
of the interest payable on such Business Day.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to Prudential or any Purchaser, to any
holder of Notes or to the Required Holder(s), the determination of such
satisfaction shall be made by Prudential, such Purchaser, such holder or the
Required Holder(s), as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.
11L. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law
of the State of Minnesota.
11M. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11P. BINDING AGREEMENT. When this Agreement is executed and delivered
by the Company and Prudential, it shall become a binding agreement between
the Company and Prudential. This Agreement shall also inure to the benefit of
each Purchaser which shall have executed and delivered a Confirmation of
Acceptance, and each such Purchaser shall be bound by this Agreement to the
extent provided in such Confirmation of Acceptance.
Very truly yours,
NRG ENERGY CENTER, INC.
By: /s/ Ronald J. Will
-------------------------------
Title: President
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By /s/ P. Scott von Fischer, Jr.
-------------------------------------
Vice President
36
<PAGE>
INFORMATION SCHEDULE
Authorized Officers for Prudential
Mark A. Hoffmeister Leonard H. Lillard IV
Vice President Vice President
Prudential Capital Group Prudential Capital Group
Two Prudential Plaza Two Prudential Plaza
Suite 5600 Suite 5600
Chicago, Illinois 60601 Chicago, Illinois 60601
Telephone: (312) 540-4215 Telephone: (312) 540-4216
Facsimile: (312) 540-4222 Facsimile: (312) 540-4222
P. Scott von Fischer Allen A. Weaver
Senior Vice President Managing Director
Prudential Capital Group Prudential Capital Group
Two Prudential Plaza Two Prudential Plaza
Suite 5600 Suite 5600
Chicago, Illinois 60601 Chicago, Illinois 60601
Telephone: (312) 540-4225 Telephone: (312) 540-4211
Facsimile: (312) 540-4222 Facsimile: (312) 540-4222
Senior Vice President
Central Credit
Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Telephone: (201) 802-6429
Facsimile: (201) 624-6432
Revolving Credit Facility Payments to Prudential
Payments of principal of and interest on the Revolving Notes, and of
non-usage fees due pursuant to the Agreement, shall be made by wire transfer
of immediate funds for credit to: Account No. 050-54-526, Morgan Guaranty
Trust Company of New York, 23 Wall Street, New York, NY 10015, ABA No.
021-000-238. Each such wire transfer shall set forth the name of the Company,
a reference to "Revolving Note due June 15, 2000" and the due date and
application (as among principal, interest and non-usage fees) of the payment
being made.
<PAGE>
EXHIBIT A
[FORM OF TERM NOTE]
NRG ENERGY CENTER, INC.
SENIOR SBCURED SERIES TERM NOTE
[DATE]
No. R-
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL INSTALLMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, NRG ENERGY CENTER, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Minnesota, hereby promises to pay to
, or registered assigns, the principal sum of
DOLLARS ($ ) [on the Final Maturity Date
specified above] [, payable in installments on the Principal Installment
Dates and in the amounts specified above, and on the Final Maturity Date
specified above in an amount equal to the unpaid balance of the principal
hereof,] with interest (computed on the basis of a 360-day year--30-day
month) (a) on the unpaid balance thereof at the Interest Rate per annum
specified above, payable on each Interest Payment Date specified above and on
the Final Maturity Date specified above, commencing with the Interest Payment
Date next succeeding the date hereof, until the principal hereof shall have
become due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest, and any overdue
payment of any Yield-Maintenance Amount (as defined in the Agreement referred
to below), payable on each Interest Payment Date as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) %* or (ii) 2% over the rate of
interest publicly announced from time to time by Morgan Guaranty Trust
Company of New York as its "prime rate".
Payments of principal of, and interest on, and any Yield-Maintenance
Amount payable with respect to, this Note are to be made at the main office
of Morgan Guaranty Trust Company of New York in New York City or at such
other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
This Note is one of a series of Term Notes (herein called the "Notes")
issued pursuant to a Master Shelf and Revolving Credit Agreement, dated
August , 1993 (herein called the "Agreement"), between the Company and The
Prudential Insurance Company of America and is entitled to the benefits
thereof. As provided in the Agreement, this Note is secured by the Mortgage
referred to therein.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and in the Company shall not be affected by any
notice to the contrary.
- ------------
* 2% plus coupon rate.
<PAGE>
This Note is subject to optional prepayment, in whole or from time to time
in part, on the terms specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur and
be continuing, the principal of this Note may be declared or otherwise become
due and payable in the manner and with the effect provided in the Agreement.
The Company agrees to pay, and save the holder hereof harmless against any
liability for expenses arising in connection with the enforcement by such
holder of any of its rights with respect to this Note or the Agreement, the
Acknowledgement referred to therein or the Mortgage.
This Note is intended to be performed in the State of Minnesota and shall
be construed and enforced in accordance with the law of such State.
NRG ENERGY CENTER, INC.
By: _________________________
Its: ________________________
<PAGE>
EXHIBIT B
[FORM OF REQUEST FOR PURCHASE]
NRG ENERGY CENTER, INC.
Reference is made to the Master Shelf and Revolving Credit Agreement (the
"Agreement"), dated August ,1993, between NRG Energy Center, Inc. (the
"Company") and The Prudential Insurance Company of America. All terms used
herein that are defined in the Agreement have the respective meanings
specified in the Agreement.
Pursuant to Paragraph 1E of the Agreement, the Company hereby makes the
following Request for Purchase:
1. Aggregate principal amount of the Term Notes covered hereby (the "Term
Notes")
$___________
2. Individual speciflcations of the Term Notes :
<TABLE>
<CAPTION>
PRINCIPAL
INSTALLMENT
PRINCIPAL FINAL MATURITY DATES AND INTEREST
AMOUNT* DATE AMOUNTS PAYMENT PERIOD
------------- --------------- ------------- ----------------
<S> <C> <C> <C>
Quarterly
</TABLE>
3. Use of proceeds of the Term Notes:
4. Proposed day for the closing of the purchase and sale of the Term Notes:
5. The purchase price of the Term Notes is to be transferred to:
<TABLE>
<CAPTION>
NAME AND TELEPHONE
NAME AND ADDRESS NUMBER OF BANK
OF BANK NUMBER OF ACCOUNT OFFICER
- -------------------- --------------------- ----------------------
<S> <C> <C>
</TABLE>
6. The Company certifies (a) that the representations and warranties
contained in paragraph 8 of the Agreement are true on and as of the date
of this Request for Purchase except to the extent of changes caused by the
transactions contemplated in the Agreement and to the extent such
representations and warranties by their express terms relate solely to an
earlier date, and (b) that there exists on the date of this Request for
Purchase no Event of Default or Default.
Dated: NRG ENERGY CENTER, INC.
By:
____________________________
Authorized Officer
- ------------
* Minimum principal amount of $2,500,000, except as otherwise provided in
paragraph 1E of the Agreement.
<PAGE>
EXHIBIT C
[FORM OF CONFIRMATION OF ACCEPTANCE]
NRG ENERGY CENTER, INC.
Reference is made to the Master Shelf and Revolving Credit Agreement (the
"Agreement"), dated August , 1993, between NRG Energy Center, Inc. (the
"Company") and The Prudential Insurance Company of America. All terms used
herein that are defined in the Agreement have the respective meanings
specified in the Agreement.
Each of the undersigned institutions which is named below as a Purchaser
of any Accepted Notes hereby confirms the representations as to such Accepted
Notes set forth in paragraph 9 of the Agreement, and agrees to be bound by
the provisions of paragraphs 1G and 1I of the Agreement relating to the
purchase and sale of such Accepted Notes.
Pursuant to paragraph 1G of the Agreement, an Acceptance with respect to
the following Accepted Notes is hereby confirmed:
I. Aggregate principal amount $_________
(A) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal installment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(B) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal installment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
[(C), (D)...: same information as to any other Purchaser]
II. Closing Day:
Dated: NRG ENNRGY CENTER, INC.
By:___________________________
Title:
[THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA]
By:___________________________
Vice President
[Signature block for each
named Purchaser other than
Prudential]
<PAGE>
EXHIBIT D
NRG ENERGY CENTER, INC.
SENIOR SECURED REVOLVING NOTE
No. R-1 August , 1993
$5,000,000
FOR VALUE RECEIVED, the undersigned, NRG ENERGY CENTER, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Minnesota, hereby promises to pay to The Prudential Insurance
Company of America (herein called the "Lender"), or registered assigns, the
principal sum of FIVE MILLION DOLLARS ($5,000,000) or, if less, the aggregate
principal amount of all Revolving Loans made by Lender to the Company
pursuant to the Agreement referred to below, in lawful money of the United
States of America, on or before the Revolving Loans Termination Date (as
defined in the Agreement).
The Company also promises to pay to Lender interest monthly, computed on
the basis of actual days outstanding during the month (but excluding any days
for which payment of interest was made in the preceding payment) plus the
number of days after such month but not including the payment day, a year of
360 days and on the first Business Day (as defined in the Agreement) of the
following month, on the unpaid principal balance outstanding hereunder, in
like money at such office (i) from the date hereof until maturity (whether by
acceleration or otherwise) at the rate per annum specified in the Agreement,
such interest rate to change when and as provided therein, and (ii) from such
maturity until paid, at a rate per annum which shall be the lesser of (a) the
highest interest rate permitted by law and (b) the higher of 2% in excess of
the rate per annum specified in the foregoing clause (i) and 2% in excess of
the rate of interest publicly announced from time to time by Morgan Guaranty
Trust Company of New York as its "prime rate".
Payments of principal, interest and non-usage fees are to be made at
Morgan Guaranty Trust Company of New York, 23 Wall Street, New York, New York
10015 (ABA No.: 021-000-238), Account No. 050-54-526, or at such place or
other account as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
This Note is one of the Notes issued pursuant to a Master Shelf and
Revolving Credit Agreement, of even date herewith (herein called the
"Agreement"), between the Company and The Prudential Insurance Company of
America and is entitled to the benefits thereof. As provided in the
Agreement, this Note is secured by the Mortgage referred to therein.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to time
in part, on the terms specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur and
be continuing, the principal of this Note may be declared or otherwise become
due and payable in the manner and with the effect provided in the Agreement.
The Company agrees to pay, and save the holder hereof harmless against any
liability for expenses arising in connection with the enforcement by such
holder of any of its rights with respect to this Note or the Agreement, the
Acknowledgment referred to therein or the Mortgage.
This Note is intended to be performed in the State of Minnesota and shall
be construed and enforced in accordance with the law of such State.
NRG ENERGY CENTER, INC.
By ________________________________
President
<PAGE>
EXHIBIT 10.5
NOTE AGREEMENT
<PAGE>
- -----------------------------------------------------------------------------
NRG ENERGY CENTER, INC.
$84,000,000 7.31% SENIOR SECURED NOTES DUE JUNE 15, 2013
--------------
NOTE AGREEMENT
--------------
DATED AUGUST 20, 1993
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Authorization of Issue of Notes 1
2. Purchase and Sale of Notes 1
3. Conditions of Closing 1
3A. Opinion of Purchasers' Special Counsel 1
3B. Opinion of Company's Counsel 1
3C. Representations and Warranties; No Default 2
3D. Purchase of Assets 2
3E. Management Agreement 2
3F. Security 2
3G. Capitalization 2
3H. Reports of Consultants 2
3I. Title Insurance 2
3J. Other Insurance 2
3K. Estoppel Certificates 2
3L. Purchase Permitted By Applicable Laws 3
3M. Lien Searches 3
3N. Proceedings 3
3O. Sale of Notes to Other Purchasers 3
3P. Credit Facility 3
3Q. Structuring Fee 3
3R. Existing Indebtedness 3
4. Prepayments 3
4A. Required Prepayments 3
4B. Prepayment Under Paragraph 5 3
4C. Prepayment At the Company's Option With Yield-Maintenance Amount 4
4D. Notice of Optional Prepayment 4
4E. Partial Payments Pro Rata 4
4F. Retirement of Notes 4
5. Affirmative Covenants 4
5A. Financial Statements 4
5B. Information Required by Rule 144A 5
5C. Inspection of Property 5
5D. Agreement Assuming Liability on Notes 6
5E. Maintenance of Insurance 6
5F. Payment if Control Changes 6
5G. Rights Under Purchase Documents 6
5H. Notice of Defaults and Violations 6
5H(l). Defaults 6
5H(2). Violations 6
5I. Maintenance of Licenses, Permits and Registrations 7
5J. Post-Closing Action Regarding Licenses, Etc. and Environmental
Matters 7
6. Negative Covenants 7
6A. Fees Limitation 7
6B. Lien, Debt and Other Restrictions 7
i
<PAGE>
6B(1). Liens 7
6B(2). Debt 7
6B(3). Loans, Advances, Investments and Contingent Liabilities 8
6B(4). Merger and Sale of Assets 8
6B(5). Lease Rentals 8
6B(6). Sale or Discount of Receivables 9
6B(7). Certain Contracts 9
6B(8). Sale and Lease-Back 9
6B(9). Transactions With Affiliates 9
6C. Amendment of Management Agreement 9
6D. Maintenance of Present Business 9
7. Events of Default 9
7A. Acceleration 9
7B. Rescission of Acceleration 11
7C. Notice of Acceleration or Rescission 12
7D. Other Remedies 12
8. Representations, Covenants and Warranties 12
8A. Organization 12
8B. Financial Statements 13
8B(1). Financial Statements of ECPLP 13
8B(2). Pro Forma Financial Statements of the Company 13
8C. Actions Pending 13
8D. Outstanding Debt 13
8E. Title to Properties 13
8F. Taxes 13
8G. Conflicting Agreements and Other Matters 13
8H. Offering of Notes 14
8I. Use of Proceeds 14
8J. ERISA 14
8K. Governmental Consent 14
8L. Utility Status 15
8M. Investment Company Status 15
8N. Licenses, Permits and Registrations 15
8O. Purchase Agreement Representations 15
8P. Sufficiency and Condition of Acquired Assets 15
8Q. No Defaults 15
8R. Assignability of Permits 16
8S. Environmental Matters; Wells 16
8T. Disclosure 16
9. Representations of Each Purchaser 16
9A. Nature of Purchase 16
9B. Source of Funds 16
10. Definitions 17
10A. Yield-Maintenance Terms 17
10B. Other Terms 17
10C. Accounting Principles, Terms and Determinations 22
ii
<PAGE>
11. Miscellaneous 22
11A. Note Payments 22
11B. Expenses 22
11C. Consent to Amendments 23
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes 23
11E. Persons Deemed Owners; Participations 24
11F. Survival of Representations and Warranties; Entire Agreement 24
11G. Successors and Assigns 24
11H. Disclosure to Other Persons 24
11I. Notices 24
11J. Payments Due on Non-Business Days 25
11K. Satisfaction Requirement 25
11L. Governing Law 25
11M. Severability 25
11N. Descriptive Headings 25
11O. Counterparts 25
11P. Severalty of Obligations 25
11Q. Relationship Among Holders 25
</TABLE>
iii
<PAGE>
PURCHASER SCHEDULE
AMORTIZATION SCHEDULE
EXHIBITS
- --------
EXHIBIT A -- FORM OF NOTE
EXHIBIT B-1 -- FORM OF OPINION--BRIGGS AND MORGAN
EXHIBIT B-2 -- FORM OF OPINION--JOSEPH D. BIZZANO, JR.
EXHIBIT C -- FORM OF MORTGAGE
EXHIBIT D -- FORM OF COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT,
WITH ACKNOWLEDGMENT AND AGREEMENT
EXHIBIT E -- TITLE INSURANCE COMMITMENT
EXHIBIT F -- DISCLOSURE SCHEDULE
iv
<PAGE>
NRG ENERGY CENTER, INC.
1221 NICOLLET MALL, SUITE 700
MINNEAPOLIS, MINNESOTA 55403-2445
AUGUST 20, 1993
To Each of the Purchasers Named in the
Purchaser Schedule Attached Hereto
Ladies and Gentlemen:
The undersigned, NRG Energy Center, Inc. (herein called the "Company"),
hereby agrees with the purchasers named in the Purchaser Schedule attached
hereto (herein called the "Purchasers") as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the
issue of its senior secured promissory notes in the aggregate principal
amount of $84,000,000 to be dated the date of issue thereof, to mature June
15, 2013, to bear interest on the unpaid balance thereof from the date
thereof until the principal thereof shall have become due and payable at the
rate of 7.31% per annum and on overdue payments at the rate specified
therein, and to be substantially in the form of Exhibit A hereto. The term
"Notes" as used herein shall include each such senior secured promissory note
delivered pursuant to any provision of this Agreement and each such senior
secured promissory note delivered in substitution or exchange for any other
Note pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to
each Purchaser and, subject to the terms and conditions herein set forth,
each Purchaser agrees to purchase from the Company the aggregate principal
amount of Notes set forth opposite such Purchaser's name in the Purchaser
Schedule attached hereto at 100% of such aggregate principal amount. The
Company will deliver to each Purchaser, at the offices of Faegre & Benson at
2200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota
55402-3901, one or more Notes registered in the name of such Purchaser, or,
at such Purchaser's Option, in the name of its nominee, evidencing the
aggregate principal amount of Notes to be purchased by such Purchaser and in
the denomination or denominations specified with respect to such Purchaser in
the Purchaser Schedule against payment of the purchase price thereof by
transfer of immediately available funds for credit to the Company's account
#6355002280 at Norwest Bank Minnesota, National Association, Norwest Center,
6th and Marquette, Minneapolis, Minnesota 55479-0069, ABA #091-000-019 on the
date of closing, which shall be the date hereof, or any other date on or
before August 31, 1993 upon which the Company and the Purchasers may mutually
agree (herein called the "closing" or the "date of closing").
3. CONDITIONS OF CLOSING. Each Purchaser's obligation to purchase and
pay for the Notes to be purchased by such Purchaser hereunder is subject to
the satisfaction, on or before the date of closing, of the following
conditions:
3A. OPINION OF PURCHASERS' SPECIAL COUNSEL. Such Purchaser shall have
received from Faegre & Benson, who are acting as special counsel for the
Purchasers in connection with this transaction, a favorable opinion
satisfactory to such Purchaser as to such matters incident to the matters
herein contemplated as it may reasonably request.
3B. OPINION OF COMPANY'S COUNSEL. Such Purchaser shall have received (i)
from Briggs and Morgan, special counsel for the Company, a favorable opinion
satisfactory to such Purchaser and substantially in the form of Exhibit B-1
attached hereto, and (ii) from Joseph D. Bizzano, Jr., General Counsel to the
Company and counsel to Manager, a favorable opinion satisfactory to such
Purchaser and substantially in the form of Exhibit B-2 attached hereto. The
Company hereby directs each such counsel to deliver its respective opinion,
agrees that the issuance and sale of the Notes will constitute a
reconfirmation of such direction, and understands and agrees that the
Purchasers will and are hereby authorized to rely on each such opinion.
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3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of the date of
closing; there shall exist on the date of closing no Event of Default or
Default; the Company shall have delivered to such Purchaser an Officer's
Certificate, dated the date of closing, to both such effects; and there shall
have been no material adverse change in the business, property or assets,
condition (financial or otherwise) or operations of the Company or the
Project since December 31, 1992.
3D. PURCHASE OF ASSETS. Concurrently with or prior to the purchase of
the Notes to be purchased by such Purchaser, the Company shall have acquired
the Project from ECPLP pursuant to the terms and conditions of the Master
Purchase Agreement, a copy of which has been delivered to such Purchaser. All
counsel rendering opinions to the Company pursuant to the Master Purchase
Agreement shall have named such Purchaser as an additional addressee of such
opinions or shall have otherwise consented to reliance thereon by such
Purchaser.
3E. MANAGEMENT AGREEMENT. Concurrently with or prior to the purchase of
the Notes to be purchased by such Purchaser, the Company shall have entered
into a management agreement (the "Management Agreement") with Manager in form
and substance acceptable to such Purchaser.
3F. SECURITY.
(i) The Company shall have executed and delivered to the Collateral
Agent, as security for the Notes, a Combination Mortgage,
Security Agreement and Fixture Financing Statement
substantially in the form of Exhibit C hereto attached (as from
time to time amended, the "Mortgage").
(ii) The Purchasers, Prudential and the Collateral Agent shall have
executed and delivered a Collateral Agency and Intercreditor
Agreement (as from time to time amended to add additional
parties thereto and as otherwise amended from time to time, the
"Collateral Agency Agreement"), and the Company shall have
executed and delivered an Acknowledgment and Agreement to be
appended thereto (the "Acknowledgment"), all substantially in
the form of Exhibit D hereto attached.
3G. CAPITALIZATION. The capital structure of the Company shall be
acceptable to such Purchaser. Without limiting the generality of the
foregoing, the Company shall have (i) received on or prior to the date of
closing cash contributions to its capital in an aggregate amount not less
than the greater of (1) $20,000,000, or (2) an amount equal to 20% of Total
Capitalization, and (ii) delivered to such Purchaser an Officer's
Certificate, dated the date of closing, to such effect.
3H. REPORTS OF CONSULTANTS. The Company shall have received a report or
reports in form and substance satisfactory to such Purchaser from (i) the
Engineer, as to matters described in The Scope of Services Agreement for
Engineering Services appended to the letter agreement dated March 15, 1993 by
the Engineer in favor of NRG and such other matters as the Engineer shall
have been engaged to address, and (ii) Twin City, as to certain storage tank
matters. Each of the Consultants shall have named such Purchaser as an
additional addressee of such reports or shall have otherwise consented to
reliance thereon by such Purchaser.
31. TITLE INSURANCE. The Collateral Agent shall have received from
Commonwealth a policy of mortgagee's title insurance in an amount not less
than $89,000,000, which insurance (i) shall designate the Collateral Agent as
insured, (li) shall be substantially in conformity with Exhibit E (the "Title
Insurance Commitment") and (iii) shall be underwritten with reinsurance in a
manner and to an extent satisfactory to such Purchaser.
3J. OTHER INSURANCE. Such Purchaser shall have been provided with
certificates and such other evidence as such Purchaser may reasonably request
indicating that the Company is in compliance with the requirements of
paragraph 5E, including without limitation the insurance consultant's
certificate required pursuant to paragraph 9 of the Mortgage.
3K. ESTOPPEL CERTIFICATES. The Company shall have obtained estoppel
certificates in form and substance satisfactory to such Purchaser with
respect to (i) any of the existing Service Contracts as
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to which such Purchaser may require such an estoppel certificate, (ii) the
building lease covering the Soo Line facility, (iii) the ground lease
covering the Convention Center facility, (iv) the air rights lease covering
the Target Arena facility, and (v) the agreement covering the Baker Plant.
The estoppel certificates referred to in the foregoing clauses (li) through
and including (v) shall contain an express consent to the collateral
assignment thereof contained in the Mortgage, and the estoppel certificate
referred to in the foregoing clause (ii) shall contain the consent of the
lessor's mortgagee.
3L. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Notes to be purchased by such Purchaser on the date of closing on the
terms and conditions herein provided (including the use of the proceeds of
such Notes by the Company) shall not violate any applicable law or
governmental regulation (including, without limitation, section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the
Federal Reserve System) and shall not subject such Purchaser to any tax,
penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and such Purchaser shall have
received such certificates or other evidence as it may request to establish
compliance with this condition.
3M. LIEN SEARCHES. Such Purchaser shall have received such Uniform
Commercial Code, tax lien, judgment and bankruptcy searches and real estate
title reports against the Company and ECPLP as such Purchaser may request,
certified by reporting services satisfactory to such Purchaser, and
disclosing no security interests, liens or other encumbrances other than
those permitted under paragraph 6B(l).
3N. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and by the
Master Purchase Agreement and all documents incident thereto shall be
satisfactory in substance and form to such Purchaser, and such Purchaser
shall have received all such counterpart originals or certified or other
copies of such documents as it may reasonably request.
3O. SALE OF NOTES TO OTHER PURCHASERS. The Company shall concurrently
sell to the other Purchasers the Notes to be purchased by them at the closing
and shall concurrently receive payment in full therefor.
3P. CREDIT FACILITY. Concurrently with or prior to the purchase of the
Notes to be purchased by such Purchaser, the Company shall have entered into
a Master Shelf and Revolving Credit Agreement (as from time to time amended,
the "Credit Agreement") with Prudential in form and substance acceptable to
such Purchaser.
3Q. STRUCTURING FEE. The Company shall have paid to Prudential the
amount of $150,000 as and for a non-refundable structuring fee for the
transactions contemplated by this Agreement.
3R. EXISTING INDEBTEDNESS. The Indebtedness of ECPLP evidenced by
promissory notes issued pursuant to the Existing Loan Agreements shall have
been paid in whole in accordance with the terms of the Existing Loan
Agreements or on other terms acceptable to the holders of such notes.
4. PREPAYMENTS. The Notes shall be subject to prepayment with respect
to the required prepayments specified in paragraph 4A and also under any one
or more of the circumstances referred to in paragraphs 4B and 4C.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the principal prepayment of the Notes, without
premium, on each of the dates in each of the years set forth in the
Amortization Schedule attached hereto, the sum computed in accordance with
the Amortization Schedule, and such principal amounts of the Notes, together
with accrued interest thereon to the prepayment dates, shall become due on
such prepayment dates.
4B. PREPAYMENT UNDER PARAGRAPH 5 OR THE MORTGAGE. The Notes shall be
subject to prepayment (i) in whole as provided in paragraph 5F hereof, and
(ii) in whole or in part as provided in the Mortgage. In the event pursuant
to the Mortgage proceeds from any insurance policy or taking or condemnation
awards with respect to the Mortgaged Property (as defined in the Mortgage)
shall be distributed to the holders of the Notes as a prepayment of the
Notes, the Company shall pay interest on
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each Note on the amount so distributed with respect to such Note to the date
of such distribution, together with the Yield-Maintenance Amount, if any,
with respect to each Note. Any such distribution constituting a partial
prepayment of the Notes shall be applied in proportion to the respective
unpaid principal amounts thereof in satisfaction of required payments of
principal in inverse order of their scheduled due dates.
4C. PREPAYMENT AT THE COMPANY'S OPTION. With Yield-Maintenance Amount.
The Notes shall be subject to prepayment, in whole at any time or from time
to time in part (in integral multiples of $500,000, and in the minimum amount
of $1,000,000 per prepayment), at the option of the Company, at 100% of the
principal amount so prepaid plus interest thereon to the prepayment date and
the Yield Maintenance Amount, if any, with respect to each Note. Any partial
prepayment of the Notes pursuant to this paragraph 4C shall be applied in
satisfaction of required payments of principal in inverse order of their
scheduled due dates.
4D. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of
each Note irrevocable written notice of any prepayment pursuant to paragraph
4C not less than 30 days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes held
by such holder, to be prepaid on such date and stating that such prepayment
is to be made pursuant to paragraph 4C. Notice of prepayment having been
given as aforesaid, the principal amount of the Notes specified in such
notice, together with interest thereon to the prepayment date and together
with the Yield-Maintenance Amount, if any, with respect thereto, shall become
due and payable on such prepayment date. The Company shall, on or before the
day on which it gives written notice of any prepayment pursuant to paragraph
4C, give telephonic notice of the principal amount of the Notes to be prepaid
and the prepayment date to each Significant Holder which shall have
designated a recipient of such notices in the Purchaser Schedule attached
hereto or by notice in writing to the Company.
4E. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Notes
pursuant to paragraph 4A, 4B or 4C, the principal amount so prepaid shall be
allocated to all Notes at the time outstanding (including, for the purpose of
this paragraph 4E only, all Notes prepaid or otherwise retired or purchased
or otherwise acquired by the Company or any of its Subsidiaries or Affiliates
other than by prepayment pursuant to paragraph 4A, 4B or 4C) in proportion to
the respective outstanding principal amounts thereof.
4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole
or in part prior to their stated final maturity (other than by prepayment
pursuant to paragraph 4A, 4B or 4C or upon acceleration of such final
maturity pursuant to paragraph 7A), or purchase or otherwise acquire,
directly or indirectly, Notes held by any holder unless the Company or such
Subsidiary or Affiliate shall have offered to prepay or otherwise retire or
purchase or otherwise acquire, as the case may be, the same proportion of the
aggregate principal amount of Notes held by each other holder of Notes at the
time outstanding upon the same terms and conditions. Any Notes so prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 4E.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 45 days after the end
of each quarterly period in each fiscal year (including the fourth
quarterly period), statements of income, stockholders' equity and cash
flows of the Company for the period from the beginning of the current
fiscal year to the end of such quarterly period, and a balance sheet of
the Company at the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail and satisfactory in form
to the Required Holder(s) and certified by an authorized financial officer
of the Company, subject to changes resulting from year-end adjustments
and, in the case of the fourth quarterly period only, a detailed financial
budget for, at minimum, the then current fiscal year;
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(ii) as soon as practicable and in any event within 120 days after the
end of each fiscal year, statements of income and cash flows and a
statement of stockholders ' equity of the Company for such year, and a
balance sheet of the Company as at the end of such year, setting forth in
each case in comparative form corresponding figures from the preceding
annual audit, all in reasonable detail and satisfactory in form to the
Required Holder(s) and reported on by independent public accountants of
recognized national standing selected by the Company whose report shall be
without limitation as to the scope of the audit and satisfactory in
substance to the Required Holder(s);
(iii) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its
public stockholders and copies of all registration statements (without
exhibits) and all reports which it files with the Securities and Exchange
Commission (or any governmental body or agency succeeding to the functions
of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report submitted
to the Company by independent accountants in connection with any annual,
interim or special audit made by them of the books of the Company; and
(v) with reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clause (i)
above, the Company will deliver to each Significant Holder (A) a copy of each
Service Contract or renewal thereof entered into by the Company during the
quarterly period to which such financial statements relate, and (B) an
Officer's Certificate identifying each Service Contract which terminated and
was not renewed during such quarterly period. Together with each delivery of
financial statements required by clauses (i) and (ii) above, the Company will
deliver to each Significant Holder an Officer's Certificate demonstrating
(with computations in reasonable detail) compliance by the Company with the
provisions of paragraphs 6B(2) 6B(5) and stating that there exists no Event
of Default or Default, or, if any Event of Default or Default exists,
specifying the nature and period of existence thereof and what action the
Company proposes to take with respect thereto. Together with each delivery of
financial statements required by clause (ii) above, the Company will deliver
to each Significant Holder (A) a schedule of Service Contracts in force as of
the end of the fiscal year to which such financial statements relate (which
schedule shall specify the termination date of each such Service Contract and
the actual demand for and consumption of services pursuant to each such
Service Contract during such fiscal year in terms of aggregate amounts paid
by the customer therefor and aggregate volume per customer), and (B) a
certificate of the accountants reporting on such financial statements stating
that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or
Default, or, if they have obtained knowledge of any Event of Default or
Default, specifying the nature and period of existence thereof. Such
accountants, however, shall not be liable to anyone by reason of their
failure to obtain knowledge of any Event of Default or Default which would
not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards. The Company also covenants that
immediately after any Responsible Officer obtains knowledge of an Event of
Default or Default, it will deliver to each Significant Holder an Officer's
Certificate specifying the nature and period of existence thereof and what
action the Company proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and
any qualified institutional buyer designated by such holder, such financial
and other information as such holder may reasonably determine to be necessary
in order to permit compliance with the information requirements of Rule 144A
under the Securities Act in connection with the resale of Notes, except at
such times as the Company is subject to the reporting requirements of section
13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the
term "qualified institutional buyer" shall have the meaning specified in Rule
144A under the Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit
any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and inspect any
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of the properties of the Company, to examine the corporate books and
financial records of the Company and make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of the Company
with the principal officers of the Company and its independent public
accountants, all at such reasonable times and as often as such Significant
Holder may reasonably request, it being understood that such Significant
Holder shall direct such Person to use its best efforts to hold in confidence
and not disclose any Confidential Information except to such Significant
Holder or to any party to which such Significant Holder would be permitted to
disclose such Confidential Information pursuant to paragraph 11H.
5D. AGREEMENT ASSUMING LIABILITY ON NOTES. The Company covenants that,
if at any time any Person should become liable (as co-obligor, endorser,
guarantor or surety) on any other obligation of the Company for borrowed
money, the Company will, at the same time, cause such Person to deliver to
each holder of Notes an agreement pursuant to which such Person becomes
similarly liable on the Notes.
5E. MAINTENANCE OF INSURANCE. The Company covenants that it will
maintain the insurance required to be maintained pursuant to the Mortgage,
and together with each delivery of financial statements under clause (ii) of
paragraph 5A, it will, upon the request of any Significant Holder, deliver to
each Significant Holder an Officer's Certificate specifying the details of
such insurance in effect.
5F. PAYMENT IF CONTROL CHANGES. The Company covenants that, in the
event that at any time (i) NRG shall directly own less than a Controlling
Interest in the Company or the Manager, and as a result thereof the Company
or the Manager shall become subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, or the Federal Power Act, as
amended, or otherwise as a public utility under federal law or the law of the
State of Minnesota, or (ii) NSP shall own, directly or indirectly, less than
a Controlling Interest in NRG, the Company or the Manager, then in either
case the Company will promptly give to each holder of a Note written notice
thereof and will, upon the demand of the Required Holder(s) in writing given
to the Company within 30 days after such notice, prepay the Notes in whole
together with interest accrued thereon to the prepayment date, and together
with the Yield-Maintenance Amount, if any, with respect to the Notes, on the
date specified in such demand, which shall be not less than 30 days after
such demand.
5G. RIGHTS UNDER PURCHASE DOCUMENTS. The Company covenants that it will
enforce all material rights under the Purchase Documents, including but not
limited to its indemnification rights.
5H. NOTICE OF DEFAULTS AND VIOLATIONS. The Company covenants that it
will give each holder of a Note written notice within seven (7) Business Days
of:
5H(1). DEFAULTS. Receipt by the Company of (i) oral or written notice of
breach or default by the Company or Manager under the Management Agreement,
(ii) written notice of default by the Company under any agreement for the
sale of steam, hot water and/or chilled water produced by the Project,
whether now existing or entered into after the date hereof (such agreements
being referred to herein as "Service Contracts"), including without
limitation the Service Agreements (as defined in the Personal Property
Agreement), (iii) written notice of material default by the Company under, or
termination or revocation of any easements, permits, supply contracts, leases
or similar agreements comprising part of or benefitting the Project, whether
now existing or created after the date hereof, including without limitation
the Easements (as referred to in the Real Property Agreement), the
Environmental Permits, the Encroachment Permits, the Miscellaneous Permits,
the Supply Contracts and the Leases (each such capitalized term as defined in
the Personal Property Agreement), including the building lease covering the
Soo Line facility, the ground lease covering the Convention Center facility,
the air rights lease covering the Target Arena facility, and the agreement
covering the Baker Plant.
5H(2). VIOLATIONS. Receipt by the Company of oral or written notice of
any material violation by the Company or Manager, in connection with the
ownership, operation and maintenance of the Project, of (i) the terms or
conditions of any license, permit or registration required by federal, state
or local laws for the ownership, operation and maintenance of the Project, or
(ii) any Environmental Laws.
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5I. MAINTENANCE OF LICENSES, PERMITS AND REGISTRATIONS. The Company
covenants that it will take, and will require Manager to take all action to
maintain all licenses, permits and registrations required by federal, state
or local laws for the ownership, operation and maintenance of the Project.
5J. POST-CLOSING ACTION REGARDING LICENSES, ETC. AND ENVIRONMENTAL
MATTERS. With respect to any license, permit, exemption or registration in
respect of which further action is appropriate after the closing (as
reflected in paragraph 8N), the Company covenants that it will use its best
efforts to accomplish such action as promptly as practicable following the
closing. With respect to any environmental matter in respect of which
remedial or other action is required (as reflected in paragraph 8S), the
Company covenants that it will use its best efforts to accomplish such action
as promptly as practicable following the closing.
6. NEGATIVE COVENANTS.
6A. FEES LIMITATION. The Company covenants (i) that the Management Fee
shall be the sole compensation payable by the Company to Manager for the
services rendered by Manager pursuant to the Management Agreement, and (ii)
that the Management Fee shall not be paid except out of Operating income
remaining after payment of (A) accrued interest on the Notes and the other
Debt permitted by paragraph 6B(2), and (B) prepayment of principal of the
Notes pursuant to paragraph 4A and required prepayment of principal of the
other Debt permitted by paragraph 6B(2). Nothing herein contained shall
prohibit the payment of such fees during the course of the year pending the
determination of Operating Income, subject to the repayment obligations of
Manager contained in the Management Agreement.
6B. LIEN, DEBT AND OTHER RESTRICTIONS. The Company covenants that it
will not
6B(1). LIENS. Create, assume or suffer to exist any Lien upon any of its
property or assets, whether now owned or hereafter acquired, except:
(i) Liens under the Mortgage in the favor of the Collateral Agent, which
Liens shall secure equally and ratably the Notes and the Debt permitted by
the provisions of clauses (ii) and (iii) of paragraph 6B(2);
(ii) existing Liens which were not incurred in connection with the
borrowing of money or the obtaining of advances of credit and which are
listed in Schedule B to the Title Insurance Commitment or in Exhibit B to
the Mortgage;
(iii) Liens for taxes not yet due or which are being actively contested
in good faith by appropriate proceedings; and
(iv) other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not or are not incurred in
connection with the borrowing of money or the obtaining of advances or
credit, and which do not in the aggregate materially detract from the
value of its property or assets or materially impair the use thereof in
the operation of its business.
6B(2). DEBT. Create, incur, assume or suffer to exist any Funded Debt or
Current Debt, except:
(i) Funded Debt represented by the Notes;
(ii) additional Funded Debt, including without limitation Funded Debt
represented by Shelf Notes, provided that the Company shall not create,
incur or assume any such Funded Debt unless (A) as of the end of the
fiscal quarter most recently completed at the time such Funded Debt is
proposed to be created, incurred or assumed, and as of the end of each of
the eleven consecutive fiscal quarters completed immediately prior
thereto, Operating Income Available for Debt Expense for the immediately
preceding twelve-month period shall have been not less than 125% of Debt
Expense for such twelve-month period, (B) upon giving effect thereto and
the application of the proceeds thereof, on a pro forma projected basis
(such projections to fairly present the Company's proposed business plans
and the Company's good faith estimate as to matters projected therein
based on reasonable business assumptions, and to be reasonably based on
such assumptions and the best information available to the officers of the
Company) as of the end of each fiscal year thereafter ending through and
including the fiscal year ending December 31, 2013, Operating
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Income Available for Debt Expense for the immediately preceding
twelve-month period shall be projected to be not less than 135% of Debt
Expense for such twelve-month period, (C) the proceeds of such Funded Debt
shall be used exclusively to acquire assets which will constitute part of
the Project and the amount of such Funded Debt shall not exceed 80% of the
lesser of the cost or the fair value of the assets to be acquired with the
proceeds thereof, such fair value to be reasonably established by the
board of directors of the Company, (D) the terms of such Funded Debt shall
(1) with respect to Funded Debt other than Funded Debt represented by
Shelf Notes, include a maturity date which shall be on or after June 15,
2013, (2) require payment in equal quarterly installments of principal and
interest from incurrence through maturity (i.e., quarterly mortgage-style
amortization) and (3) not be amended after issuance with respect to
interest rate or payment terms without the consent of the Required
Holder(s), and (E) in accordance with the provisions of the Collateral
Agency Agreement, such Funded Debt shall become subject thereto and
secured by Liens under the Mortgage in favor of the Collateral Agent and
any holder of such Funded Debt not already a party thereto shall become a
party thereto; and
(iii) Current Debt not in excess of an aggregate principal amount of
$5,000,000 at any time outstanding and evidenced by Revolving Notes (the
"Revolving Notes") issued pursuant to the Credit Agreement, provided that
the Company shall be free of all such Current Debt for a period of 60
consecutive days in each calendar year commencing with the calendar year
ending December 31, 1994.
6B(3). LOANS, ADVANCES, INVESTMENTS AND CONTINGENT LIABILITIES. Make or
permit to remain outstanding any loan or advance to, or guarantee, endorse or
otherwise be or become contingently liable, directly or indirectly, in
connection with the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any Person (including any corporation
proposed to be acquired or created as a Subsidiary), except that the Company
may
(i) own, purchase or acquire (x) prime taxable and tax-exempt commercial
paper rated "P-1" or better by Moody's Investors Service, Inc. or "A-1" or
better by Standard & Poor Corporation and certificates of deposit in
United States commercial banks having capital resources in excess of
$250,000,000 and (y) obligations of the United States Government or any
agency thereof in each case due within one year from the date of purchase;
(ii) own, purchase or acquire shares of mutual funds that invest
exclusively in commercial paper, certificates of deposit and obligations
of the type described in the foregoing clause (i) or other readily
marketed corporate debt due within one year from the date of purchase,
provided such investments are rated "Aa3" or better by Moody's Investors
Service, Inc. or "AA-" or better by Standard & Poor Corporation;
(iii) endorse negotiable instruments for collection in the ordinary
course of business;
(iv) make or permit to remain outstanding travel and other like advances
to officers and employees in the ordinary course of business; and
(v) make or permit to remain outstanding loans or advances to, or own,
purchase or acquire stock, obligations or securities of, any other Person
(other than any corporation or other Person proposed to be acquired or
created as a Subsidiary, it being understood that the acquisition or
creation of any such Subsidiary by the Company is expressly prohibited
hereby), provided that the aggregate principal amount of such loans and
advances, plus the aggregate amount of the investment (at original cost)
in such stock. obligations and securities, shall not exceed $2;500,000 at
any time outstanding.
6B(4). MERGER AND SALE OF ASSETS. Merge or consolidate with any other
corporation or sell, lease or transfer or otherwise dispose of all or a
substantial part (i.e., assets which individually or taken as a whole (i) are
an integral part of the Project, (ii) constitute more than 10% of the assets
of the Company, or (iii) have contributed more than 10% of Operating Income
of the Company or ECPLP for any of the three fiscal years then most recently
ended) of its assets to any Person.
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6B(5). LEASE RENTALS. Enter into, or permit to remain in effect, any
agreements to rent or lease (as lessee) any real or personal property, for
initial terms (including options to renew or extend any term, whether or not
exercised) of more than one year providing for payments by the Company to
lessors during any period of 12 consecutive calendar months in excess of the
following aggregate amounts per annum:
(i) through and including December 31, 1993, $500,000 (the initial "Rent
Limit"); and
(ii) thereafter, and through and including December 31, of each year
thereafter, an amount equal to the product of the Rent Limit for the
immediately preceding twelve-month period multiplied by a fraction, the
numerator of which shall be the CPI for the last month of such immediately
preceding twelve-month period and the denominator of which shall be the
CPI for the month immediately preceding such twelve-month period.
63(6). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or discount or
otherwise sell for less than the face value thereof, any of its notes or
accounts receivable.
6B(7). CERTAIN CONTRACTS. Enter into or be a party to any contract for the
purchase of materials, supplies or other property or services if such
contract (or any related document) requires that payment for such materials,
supplies or other property or services shall be made regardless of whether or
not delivery of such materials, supplies or other property or services is
ever made or tendered, except that the Company may enter into "take or pay"
contracts with Persons not affiliated with the Company for the purchase of
oil or natural gas to be consumed in the operation of the Project, provided
that (i) no such contract has a term exceeding five years and (ii) the
aggregate purchase obligations under all such contracts for any twelve-month
period do not exceed 100% of the estimated fuel consumption for such period.
63(8). SALE AND LEASE-BACK. Enter into any arrangement with any lender or
investor or to which such lender or investor is a party providing for the
leasing by the Company of real or personal property which has been or is to
be sold or transferred by the Company to such lender or investor or to any
Person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or rental obligations of the
Company.
63(9). TRANSACTIONS WITH AFFILIATES. Except on terms no less favorable to
the Company than would be obtainable if no such relationship existed, and
except with respect to the Management Agreement and to tax-sharing
arrangements between the Company and any of its Affiliates (provided that
giving effect to such tax-sharing arrangements the Company shall not be
required to pay taxes in an amount in excess of that for which it would be
liable, assuming the application of the highest marginal tax rate paid by the
Company and its Affiliates on a consolidated basis, if it were to file its
own separate tax returns), directly or indirectly, purchase, acquire or lease
any property from, or sell, transfer or lease any property to, or otherwise
deal with, in the ordinary course of business or otherwise, any Affiliate.
6C. AMENDMENT OF MANAGEMENT AGREEMENT. Company covenants that it will
not, without the prior written consent of the Required Holder(s), amend or
waive enforcement of any provision of the Management Agreement, terminate or
permit the Management Agreement to be terminated, assign it rights and
obligations under the Management Agreement, or permit Manager to assign its
rights and obligations under the Management Agreement.
6D. MAINTENANCE OF PRESENT BUSINESS. The Company covenants that it will
not, without the prior written consent of the Required Holder(s), engage in
any business other than the ownership, operation and maintenance of the
Project.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield-Maintenance Amount payable with respect to any Note when the same
shall become due, either by the terms thereof or otherwise as herein
provided; or
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(ii) the Company defaults in the payment of any interest on any Note for
more than 10 days after the date due; or
(iii) the Company defaults (whether as primary obligor or as guarantor or
other surety) in any payment of principal of or interest on any other
obligation for money borrowed (or any Capitalized Lease Obligation, any
obligation under a conditional sale or other title retention agreement,
any obligation issued or assumed as full or partial payment for property
whether or not secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions of credit)
beyond any period of grace provided with respect thereto, or the Company
fails to perform or observe any other agreement, term or condition
contained in any agreement under which any such obligation is created (or
if any other event thereunder or under any such agreement shall occur and
be continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, any such obligations in an
aggregate principal amount exceeding $500,000 to become due (or to be
repurchased by the Company) prior to the stated maturity thereof; or
(iv) any representation or warranty made by the Company herein or in the
Notes, the Mortgage or the Acknowledgment or by the Company or any of its
officers in any writing furnished in connection with or pursuant to this
Agreement, the Notes, the Mortgage or the Acknowledgment shall he false in
any material respect on the date as of which made (it being understood
that, notwithstanding that certain representations and warranties of the
Company set out in paragraphs 8B(1), 8Q and 8S hereof are qualified as to
the knowledge of the Company, such representations and warranties shall be
deemed to have been made without such qualification for purposes of this
clause (iv)); or
(v) the Company fails to perform or observe the agreements contained
paragraphs 5D, SP, 5H, 5I or any agreement contained in paragraph 6; or
(vi) the Company fails to perform or observe any other agreement, term or
condition contained herein or in the Notes, the Mortgage or the
Acknowledgment and such failure shall not be remedied within 30 days after
any Responsible Officer obtains actual knowledge thereof; or
(vii) the Company makes an assignment for the benefit of creditors or is
generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the Company is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law, whether now or hereafter in effect (herein called the "Bankruptcy
Law"), of any jurisdiction; or
(ix) the Company petitions or applies to any tribunal for, or consents
to. the appointment of, or taking possession by, a trustee, receiver,
custodian, liquidator or similar official of the Company, or of any
substantial part of the assets of the Company, or commences a voluntary
case under the Bankruptcy Law of the United States or any proceedings
relating to the Company under the Bankruptcy Law of any other
jurisdiction; or
(x) any such petition or application is filed, or any such proceedings
are commenced, against the Company and the Company by any act indicates
its approval thereof, consent thereto or acquiescence therein, or an
order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings, and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings against
the Company decreeing the dissolution of the Company and such order,
judgment or decree remains unstayed and in effect for more than 60 days;
or
(xii) any order, judgment or decree is entered in any proceedings against
the Company decreeing a split-up of the Company which requires the
divestiture of assets representing a substantial part of the assets of the
Company (determined in accordance with generally accepted
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accounting principles) or which requires the divestiture of assets which
shall have contributed a substantial part of the net income of the Company
or of ECPLP (determined in accordance with generally accepted accounting
principles) for any of the three fiscal years then most recently ended,
and such order, judgment or decree remains unstayed and in effect for more
than 60 days; or
(xiii) a final judgment in an amount in excess of $250,000 is rendered
against the Company and, within 60 days after entry thereof, such judgment
is not discharged or execution thereof stayed pendinig appeal, or within
60 days after the expiration of any such stay, such judgment is not
discharged; or
(xiv) the Company, in its capacity as an employer under a Multiemployer
Plan, makes a complete or partial withdrawal from such Multiemployer Plan
resulting in the incurrence by the Company of a withdrawal liability in an
amount exceeding $500,000, or any ERISA Affiliate, in its capacity as an
employer under a Multiemployer Plan makes a complete or partial withdrawal
from such Multiemployer Plan resulting in the incurrence by such ERISA
Affiliate of a withdrawal liability in an amount exceeding $10,000,000, if
the incurrence by such ERISA Affiliate of such withdrawal liability has a
material and adverse effect on the business, property or assets, condition
(financial or otherwise) or operations of the Company or the Project; or
(xv) there shall occur any other "Event of Default" under the Mortgage,
as such term is defined therein; or
(xvi) there shall occur any other "Event of Default" under the Credit
Agreement, as such term is defined therein;
then (a) if such event is an Event of Default specified in clause (i) or (ii)
of this paragraph 7A, any holder of any Note with respect to which payment
has not been made (other than the Company or any of its Subsidiaries or
Affiliates) may at its option, during the continuance of such Event of
Default, by notice in writing to the Company, declare all of the Notes held
by such holder to be, and all of the Notes held by such holder shall
thereupon be and become, immediately due and payable at par together with
interest accrued thereon, and together with the Yield-Maintenance Amount, if
any, with respect to each such Note, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (viii), (ix) or (x) of
this paragraph 7A, all of the Notes at the time outstanding shall
automatically become immediately due and payable at par together with
interest accrued thereon, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Company, and (c) if such
event is any other Event of Default. the Required Holder(s) may at its or
their option during the continuance of such Event of Default, by notice in
writing to the Company, declare all of the Notes to be, and all of the Notes
shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Amount, if
any, with respect to each Note, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, provided
that the Yield-Maintenance Amount, if any, witl0 respect to each Note shall
be due and payable upon any declaration pursuant to this paragraph 7A only if
(x) the event whose occurrence permits such declaration is an Event of
Default specified in any of clauses (i) to (vi), inclusive, of this paragraph
7A, (y) the Required Holder(s) shall have given to the Company, at least 10
Business Days before such declaration, written notice stating its or their
intention so to declare the Notes to be immediately due and payable and
identifying one or more such Events of Default whose occurrence on or before
the date of such notice permits such declaration, and (z) one or more of the
Events of Default so identified shall be continuing at the time of such
declaration.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to
paragraph 7A, the Required Holder(s) may, by notice in writing to the
Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on the Notes, the principal of
and Yield-Maintenance Amount, if any, payable with respect to any Notes which
have become due otherwise than by reason of such declaration, and interest on
such overdue interest and overdue principal and Yield-Maintenance Amount at
the rate specified in the Notes, (ii) the Company shall not have paid any
amounts which have become due solely
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by reason of such declaration, (iii) all Events of Default and Defaults other
than non-payment of amounts which have become due solely by reason of such
declaration, have been cured or waived pursuant to paragraph 11C, (iv) no
judgment or decree shall have entered for the payment of any amounts due
pursuant to the Notes or this Agreement, and (v) no action shall have been
taken by the Collateral Agent to foreclose upon the Mortgaged Property (as
defined in the Mortgage) or to exercise any other rights with respect to the
Mortgage Property pursuant to the Mortgage. No such rescission or annulment
shall extend to or affect any subsequent Event of Default or Default or
impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall b rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each
Note at the time outstanding other than any such holder as shall have been a
Required Holder with respect thereof.
7D. OTHER REMEDIES.
7D(1) EXERCISE. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by
suit in equity or by action at law, or both, whether for specific performance
of any covenant or other agreement contained in this Agreement, the Mortgage,
or the Acknowledgement, as the case may be, or in aid of the exercise of any
power granted in this Agreement, the Mortgage, or the Acknowledgement, as the
case may be. No remedy conferred in this Agreement, the Mortgage or the
Acknowledgement upon the holder of any Note or upon the Collateral Agent for
the benefit of such holder, as the case may be, is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to every other remedy conferred herein or in the
Mortgage or the Acknowledgement or now or hereafter existing at law or in
equity or by statute or otherwise.
7D(2) AGENCY. The Company hereby acknowledges that the Lien of the
Mortgage has been granted to the Collateral Agent solely in its capacity as
collateral agent for the holders of the Notes, among other parties, and that
all rights of the Collateral Agent thereunder have been granted for the
benefit of such parties. Without limiting the generality of the foregoing,
the Company further acknowledges and agrees that each and every obligation of
the Company under the Mortgage to the Collateral Agent shall benefit the
holders of the Notes and each other party for which the Collateral Agent from
time to time acts as collateral agent pursuant to the Collateral Agency
Agreement.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows:
8A. ORGANIZATION AND AUTHORITY.
(i) The Company is a corporation duly organized and existing in good
standing under the laws of the State of Minnesota and has the corporate
power to own its property and assets and to conduct its business in the
manner and in the places in which it is now being and is presently
proposed to be conducted and to perform its obligations under this
Agreement, the Notes, the Mortgage and the Acknowledgment.
(ii) The Company is not required to be qualified as a foreign corporation
in any other jurisdiction.
(iii) The Company has no Subsidiaries, and the Company does not own,
directly or indirectly, capital stock of any class of any corporation or
any other equity or other interest in any Person. Both the Company and the
Manager are wholly-owned subsidiaries of NRG, which is a wholly-owned
subsidiary of NSP.
(iv) The Company has taken all action which may be required by its
articles of incorporation, its bylaws, the laws of the State of Minnesota
and all other applicable laws to authorize the execution, delivery and
performance of this Agreement, the Notes, the Mortgage and the
Acknowledgment.
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8B. FINANCIAL STATEMENTS.
8B(1). FINANCIAL STATEMENTS OF ECPLP. The Company has furnished each
Purchaser with the financial statements of ECPLP (the "ECPLP Financial
Statements") received by the Company pursuant to the Master Purchase
Agreement, including without limitation such financial statements as are
referred to in Section 4.4 thereto. To the knowledge of the Company, the
ECPLP Financial Statements fairly present the financial position, results of
operations and retained earnings of ECPLP's business as of the dates and for
the periods set forth in each case in accordance with generally accepted
accounting principles consistently applied on the same basis as in the prior
year. To the knowledge of the Company, there has been no material adverse
change in the business, condition (financial or otherwise) or operations of
the Project since December 31, 1992.
8B(2). PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY. The Company has
furnished each Purchaser a pro forma balance sheet of the Company as of the
date of closing, giving effect to the transactions contemplated by the Master
Purchase Agreement and this Agreement. The Company has also furnished each
Purchaser with pro forma projections of operating cash flow, net cash flow
and net income, senior debt coverage and capital expenditures of the Company
for the fiscal year ending on December 31 in each of the years 1993 through
2013. Said pro forma financial statements fairly present the Company's
proposed business plans and the Company's good faith estimates as to matters
projected therein based on reasonable business assumptions. Such projections
are reasonably based on such assumptions and the best information available
to the officers of the Company. No event has occurred which would make such
projections materially inaccurate or misleading. Witl0otlt limiting the
generality of the foregoing, such financial statements of the Company reflect
reasonable assumptions regarding capital expenditures required to maintain
the Project or to bring the Project into compliance with existing
Environmental Laws (whether such laws have immediate or future effective
dates).
8C. ACTIONS PENDING. Except as set forth in Exhibit F hereto, there is
no action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company, ECPLP or the Project or any
properties or rights of the Company, ECPLP or the Project, by or before any
court, arbitrator or administrative or governmental body. No action, suit,
investigation or proceeding described in Exhibit F, if decided adversely to
the Company, ECPLP or the Project, would involve the possibility of any
material adverse change in the business, property or assets, condition
(financial or otherwise) or operations of the Company or the Project.
8D. OUTSTANDING DEBT. The Company does not have outstanding any Debt.
8E. TITLE TO PROPERTIES. The Company has good and indefeasible title to
its real properties (other than properties which it leases) and good title to
all of its other properties and assets, including without limitation all
properties and assets comprising the Project and reflected in the pro forma
balance sheet as of the date of closing referred to in paragraph 8B(2),
subject to no Lien of any kind except Liens permitted by paragraph 6B(1). All
leases necessary in any material respect for the operation of the Project are
valid and subsisting and are in full force and effect.
8F. TAXES. The Company has a fiscal year ending December 31 for
reporting and tax purposes and has no tax liability for fiscal years prior to
1993. The Company has not filed and has not been required to file any
federal, state and other income tax returns.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. The Company is not a party
to any contract or agreement or subject to any restriction in its articles of
incorporation or other corporate restriction which materially and adversely
affects the business, property or assets, or condition (financial or
otherwise) or operations of the Company or the Project. Neither the execution
nor delivery of this Agreement, the Notes, the Mortgage or the
Acknowledgment, nor the offering, issuance and sale of the Notes, nor
fulfillment of nor compliance with the terms and provisions of this
Agreement, the Notes, the Mortgage or the Acknowledgment will conflict with,
or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien (other than the Mortgage) upon any of the properties or
assets of the Company pursuant to, the articles of incorporation or by-laws
of the Company, any award of any arbitrator or any agreement (including any
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agreement with stockholders), instrument, order, judgment, decree, statute,
law, rule or regulation to which the Company is subject. The Company is not a
party to, or otherwise subject to any provision contained in, any instrument
evidencing Indebtedness of the Company, any agreement relating thereto or any
other contract or agreement (including its articles of incorporation) which
limits the amount of, or otherwise imposes restrictions on the incurring of,
Debt of the Company of the type to be evidenced by the Notes, except the
Credit Agreement
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security
of the Company for sale to, or solicited any offers to buy the Notes or any
similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than institutional investors, and
neither the Company nor any agent acting on its behalf has taken or will take
any action which would subject the issuance or sale of the Notes to the
provisions of section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any "margin stock" as defined in Regulation G (12 CFR
Part 207) of the Board of Governors of the Federal Reserve System (herein
called "margin stock"). The proceeds of sale of the Notes will be used to
consummate the transactions contemplated by the Master Purchase Agreement.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying any
margin stock or for the purpose of maintaining, reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any stock
that is currently a margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of such
Regulation G. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement or the Notes
to violate Regulation G, Regulation T or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act, in
each case as in effect now or as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the
Pension Benefit Guaranty Corporation has been or is expected by the Company
or any ERISA Affiliate to be incurred with respect to any Plan (other than a
Multiemployer Plan) by the Company or any ERISA Affiliate which is or would
be materially adverse to the business, property or assets, condition
(financial or otherwise) or operations of the Company or the Project. Neither
the Company nor any ERISA Affiliate has incurred or presently expects to
incur any withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan which is or would be materially adverse to the business,
property or assets, condition (financial or otherwise) or operations of the
Company or the Project. The execution and delivery of this Agreement and the
issuance and sale of the Notes will be exempt from, or will not involve any
transaction which is subject to, the prohibitions of section 406 of ERISA and
will not involve any transaction in connection with which a penalty could be
imposed under section 502(i) of ERISA or a tax could be imposed pursuant to
section 4975 of the Code. The representation of the Company in the next
preceding sentence is made in reliance upon and subject to the accuracy of
each Purchaser's representation in paragraph 9B as to the source of funds to
be used by it to purchase any Notes.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company, nor any of
its businesses or properties, including without limitation ownership,
operation and maintenance of the Project, nor any relationship between the
Company and any other Person, nor any circumstance in connection with the
execution and delivery of this Agreement, the offering, issuance, sale or
delivery of the Notes, the execution and delivery of the Mortgage or the
Acknowledgment, or the purchase of the Project pursuant to the Master
Purchase Agreement is such as to require any authorization, consent,
approval, exemption or other action by or notice to or filing with any court
or administrative or governmental body (other than (i) notification to the
Federal Trade Commission and the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which has been
accomplished, and expiration of the waiting period thereunder, which has
occurred, (ii) such as otherwise have been made or obtained on or prior to
the date hereof, (iii) routine filings after the date of closing with the
Securities Exchange Commission
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and/or state Blue Sky authority and (iv) as otherwise set forth in Exhibit F
hereto) in connection with the execution and delivery of this Agreement, the
offering, issuance, sale or delivery of the Notes, the execution and delivery
of the Mortgage or the Acknowledgment, the fulfiliment of or compliance with
the terms and provisions hereof or of the Notes, the Mortgage or the
Acknowledgment, or the purchase of the Project pursuant to the Master
Purchase Agreement.
8L. UTILITY STATUS. NSP is a "holding company" as such term is defined
in the Public Utility Holding Company Act of 1935, as amended, but is exempt
from all provisions of such Act, except Section 9(a)(2) thereof (relating to
the acquisition of securities of a "public utility company"), because of its
status as predominantly an operating company whose utility operations are
confined to the state of its incorporation and states contiguous thereto and
its filing with the Securities and Exchange Commission of all required forms
in connection therewith. Neither NRG, the Company nor the Manager is (i) a
"holding company", or, in each case with the exception of its relationship
with NSP, a "subsidiary company" of a "holding company," an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended,
(ii) a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or the Federal Power Act, as amended, or
(iii) otherwise subject to regulation as a public utility under federal law
or the law of the State of Minnesota.
8M. INVESTMENT COMPANY STATUS. The Company is not an "investment
Company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended or an "investment
adviser" within the meaning of the Investment Advisers Act of 1940, as
amended.
8N. LICENSES, PERMITS AND REGISTRATIONS. Except as set forth in Exhibit
F hereto, each of the Company and Manager has procured and is in possession
of all licenses, permits, exemptions or registrations required by federal,
state or local laws for the ownership, operation and maintenance of the
Project, as the case may be. With respect to any license, permit, exemption
or registration that either (i) is currently required under applicable law,
but is not currently in effect or has not been obtained as required, or (ii)
must be amended or transferred after the closing, the Company reasonably
expects that such license, permit or registration will be obtained, amended
or transferred in the ordinary course of business after the closing without
any material expense to the Company (except as reflected in the Company's pro
forma financial statements referred to in paragraph 8B(2)) or any material
change in the operation of the Project.
8O. PURCHASE AGREEMENT REPRESENTATIONS. The Master Purchase Agreement
and the other Purchase Documents have been duly executed and delivered by the
parties thereto and are in full force and effect. All representations and
warranties made by the Company in the Purchase Documents, and, to the best
knowledge of the Company, all representatives and warranties made by ECPLP in
the Purchase Documents are true and correct in all material respects.
8P. SUFFICIENCY AND CONDITION OF ACQUIRED ASSETS. The Acquired Assets
(as defined in the Master Purchase Agreement), as the same exist on the
closing date, are in all respects sufficient and adequate to enable the
Company to carry on the business of the Project at its normal level of
operations as such business was carried on by ECPLP in the ordinary course
prior to the date hereof, except as set forth in Exhibit F, and the items of
tangible property constituting Acquired Assets have been properly maintained
and are in good condition, ordinary wear and tear excepted.
8Q. NO DEFAULTS. Except as set forth in Schedule 4.11 to the Master
Purchase Agreement, to the knowledge of the Company:
(a) ECPLP has performed all obligations and satisfied all liabilities
required to be performed or satisfied by ECPLP under all Service Agreements;
(b) no other party to any Service Agreement is in default and no event or
condition exists or has occurred which, after notice or lapse of time, or
both, would constitute a default thereunder, where such default, event or
condition would have an adverse effect on the Project taken as a whole;
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(c) ECPLP has complied in all material respects with the requirements and
conditions upon which all Encroachment Permits, Environmental Permits,
Miscellaneous Permits and Easements were issued or granted; and
(d) neither ECPLP nor MECI, which is the current manager of the Project,
has received from any governmental authority or any other person written
notice of contemplated, threatened or pending rescission, cancellation or
non-renewal of any of the Environmental Permits, Encroachment Permits,
Miscellaneous Permits or Easements, or that any other permits, authorizations
or easements are required for the occupancy or operation of the Project.
8R. ASSIGNABILITY OF PERMITS. Any provision of this Agreement to the
contrary notwithstanding, no representation or warranty is made by the
Company with respect to the transferability of any permit, including any
Encroachment Permit, Environmental Permit or Miscellaneous Permit.
8S. ENVIRONMENTAL MATTERS; WELLS. Except as set forth in Schedule 4.13
to the Master Purchase Agreement, to the knowledge of the Company:
(a) ECPLP is in compliance with all federal, state and local environmental
laws and regulations and neither ECPLP nor MECI has received any notices or
warnings with respect to any violation or suspected violation of any such
laws from any federal, state or local regulatory authority; and
(b) the only well located on the tracts and parcels constituting Real
Property (as defined in the Real Property Agreements) is as described in the
Well Disclosure Statement attached as Exhibit E to the Master Purchase
Agreement, except for wells which have been sealed in accordance with the
requirements of Minn. Stat. ch. 103I and as to which a Sealed Well
Certificate has been delivered to the Minnesota Department of Health.
With respect to any remedial or other action that is required for the matters
listed in Schedule 4.13 to the Master Purchase Agreement, the Company
reasonably expects that such remedial or other action will be accomplished in
the ordinary course of business after the closing without any material
expense to the Company (except as reflected in the Company's pro forma
financial statements referred to in paragraph 8B(2)) or any material change
in the operation of the Project.
8T. DISCLOSURE. Neither this Agreement, the Notes, the Mortgage, the
Acknowledgment nor any other document, certificate or statement furnished to
any Purchaser by or on behalf of the Company in connection herewith or
therewith contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact peculiar to the Company or the
Project which materially adversely affects or in the future may (so far as
the Company can now foresee) materially adversely affect the business,
property or assets, condition (financial or otherwise) or operations of the
Company or the Project and which has not been set forth in this Agreement,
the Mortgage or the Acknowledgment or in the other documents, certificates
and statements furnished to each Purchaser by or on behalf of the Company
prior to the date hereof in connection with the transactions contemplated
hereby.
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as
follows:
9A. NATURE OF PURCHASE. Such Purchaser is acquiring the Notes to be
purchased by it hereunder for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof within the meaning
of the Securities Act, provided that the disposition of such Purchaser's
property shall at all times be and remain within its control.
9B. SOURCE OF FUNDS. No part of the funds being used by such Purchaser
to pay the purchase price of the Notes being purchased by such Purchaser
hereunder constitutes assets allocated to any separate account maintained by
such Purchaser in which any employee benefit plan, other than employee
benefit plans identified on a list which has been furnished by such Purchaser
to the Company, participates to the extent of 10% or more. For the purpose of
this paragraph 9B, the terms "separate account" and "employee benefit plan"
shall have the respective meanings specified in section 3 of ERISA.
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10. DEFINITIONS. For the purpose of this Agreement, the terms defined
in the text of any paragraph shall have the respective meanings specified
therein, and the following terms shall have the meanings specified with
respect thereto below:
10A. YIELD-MAINTENANCE TERMS.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day
on which commercial banks in New York City are required or authorized to be
closed.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B, 4C or 5F or is
declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor (applied
on the same periodic basis as that on which interest on the Notes is payable)
equal to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, 0.5% over the yield to maturity implied by (i) the yields reported,
as of 10:00 a.m. (New York City time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display
designated as "Page 678" on the Telerate Service (or such other display as
may replace Page 678 on the Telerate Service) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields shall not
be reported as of such time or the yields reported as of such time shall not
be ascertainable, (ii) the Treasury Constant Maturity Series yields reported,
for the latest day for which such yields shall have been so reported as of
the Business Day next preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H. 15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date. Such implied yield shall be
determined, if necessary, by (a) converting U.S. Treasury bill quotations to
bond-equivalent yields in accordance with accepted financial practice and (b)
interpolating linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Scheduled Payment of such
Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to
such Called Principal if no payment of such Called Principal were made prior
to its scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B, 4C or 5F or is declared to be immediately due and payable
pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal
of such Note over the sum of (i) such Called Principal plus (ii) interest
accrued thereon as of (including interest due on) the Settlement Date with
respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10B. OTHER TERMS.
"ACKNOWLEDGMENT" shall have the meaning set forth in paragraph 3F.
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"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary (the acquisition or creation of which is expressly
prohibited pursuant to paragraph 6B(3)). A Person shall be deemed to control
a corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract
or otherwise.
"BANKRUPTCY LAW" shall have the meaning set forth in clause (viii) of
paragraph 7A.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under generally accepted accounting principles, would be required to be
capitalized on the books of the Company, taken at the amount thereof
accounted for as indebtedness (net of interest expense) in accordance with
such principles.
"CLOSING" and "DATE OF CLOSING" shall have the meaning set forth in
paragraph 2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLATERAL AGENCY AGREEMENT" shall have the meaning set forth in
paragraph 3F.
"COLLATERAL AGENT" shall mean Norwest Bank Minnesota, National
Association, until a successor collateral agent is appointed in accordance
with the terms of the Collateral Agency Agreement, and thereafter such
successor.
"COMMONWEALTH" shall mean Commonwealth Land Title Insurance Company.
"CONFIDENTIAL INFORMATION" shall mean any written information delivered or
made available by or on behalf of the Company, either directly or through any
Person referred to in paragraph 5C, to a Purchaser or a Transferee pursuant
to this Agreement which is clearly marked or labeled as being confidential
information, but in no event shall include information (i) which was publicly
known or otherwise known to such Purchaser or Transferee at the time of
disclosure, (ii) which subsequently becomes publicly known through no act or
omission by such Purchaser or Transferee, or (iii) which otherwise becomes
known to such Purchaser or Transferee, other than through disclosure by or on
behalf of the Company.
"CONSULTANTS" shall mean, collectively, the Engineer and Twin City.
"CONTROLLING INTEREST" shall mean a percentage of the outstanding Voting
Stock or other equity securities of any Person sufficient to permit or
require that, under generally accepted accounting principles, the financial
statements of such Person be consolidated with those of the owner of such
equity securities, but in no event less than a majority of the total combined
voting power of all classes of Voting Stock of such Person.
"CPI" shall mean (i) the Consumer Price Index for Urban Consumers (Base
1982 = 100), or (ii) if at any time such Consumer Price Index is no longer
published or issued or is changed from its present form or the bases used for
the calculation thereof shall be changed from the present form, such other
measures of relative purchasing power as then shall be recognized and
accepted generally for similar use or purpose as such Consumer Price Index.
"CREDIT AGREEMENT" shall have the meaning set forth in paragraph 3P.
"CURRENT DEBT" shall mean, with respect to any Person, all Indebtedness of
such Person for borrowed money which by its terms or by the terms of any
instrument or agreement relating thereto matures on demand or within one year
from the date of the creation thereof and is not directly or indirectly
renewable or extendible at the option of the debtor to a date more than one
year from the date of the creation thereof, provided that Indebtedness for
borrowed money outstanding under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit over a period of more
than one year shall constitute Funded Debt and not Current Debt, even though
such Indebtedness by its terms matures on demand or within one year from the
date of the creation thereof and, provided further, in the case of the
Company, all outstanding Indebtedness evidenced by the Revolving Notes shall
be deemed Current Debt, and not Funded Debt, hereunder.
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"DEBT" shall mean Current Debt and Funded Debt.
"DEBT EXPENSE" shall mean, for any period, the sum of (i) the aggregate
amount of principal and interest payments (including lease payments under
Capitalized Lease Obligations) of the Company and/or of ECPLP, as the case
may be, determined in accordance with generally accepted accounting
principles, and (ii) the amount of principal and interest payable with
respect to the Funded Debt proposed to be created, incurred or assumed.
"EASEMENTS" shall have the meaning set forth in paragraph 5H(1).
"ECPLP" shall mean ENERGY CENTER PARTNERS, A LIMITED PARTNERSHIP, a
Minnesota limited partnership.
"ENCROACHMENT PERMITS" shall have the meaning set forth in paragraph
5H(1).
"ENGINEER" shall mean HDR Engineering, Inc.
"ENVIRONMENTAL LAWS" shall mean, collectively, all federal, state, local
and regional statutes, laws, ordinances and judicial or administrative
orders, judgments, rulings and regulations relating to protection of the
environment.
"ENVIRONMENTAL PERMITS"shall have the meaning set forth in paragraph
5H(1).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control
with the Company within the meaning of section 414(c) of the Code.
"ESCROW AGREEMENT" shall mean the Security (Pledge) and Escrow Agreement
of even date herewith among the Company, ECPLP and First Trust National
Association executed pursuant to the Master Purchase Agreement.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A,
provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXISTING LOAN AGREEMENTS" shall mean, collectively (i) the Note
Agreements dated July 27, 1984 between ECPLP and each of Prudential
Interfunding Corp., Northwestern National Life Insurance Company, Northern
Life Insurance Company and The North Atlantic Life Insurance Company of
America, as amended, (ii) the Note Agreement dated August 1, 1986 between
ECPLP and Prudential, as amended, (iii) the Note Agreement dated December 30,
1988 between ECPLP and Pruco Life Insurance Company, as amended, and (iv) the
Note Agreement dated September 28, 1990 between ECPLP and Prudential, as
amended.
"FUNDED DEBT" shall mean, with respect to any Person, all Indebtedness of
such Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than
one year from, or is directly or indirectly renewable or extendible at the
option of the debtor to a date more than one year (including an option of the
debtor under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year) from, the date
of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect
of which such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such Person
through any
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agreement (contingent or otherwise) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of
the obligor of such obligation, or to make payment for any products,
materials or supplies or for any transportation or services regardless of the
non-delivery or non-furnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against loss
in respect thereof. The amount of any Guarantee shall be equal to the
outstanding principal amount of the obligation guaranteed or such lesser
amount to which the maximum exposure of the guarantor shall have been
specifically limited.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items (including Capitalized Lease Obligations but
excluding reserves for deferred income taxes and other reserves to the extent
that such reserves do not constitute an obligation) which in accordance with
generally accepted accounting principles would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as of the date on which Indebtedness is to be determined, (ii) all
indebtedness secured by any Lien on any property or asset owned or held by
such Person subject thereto, whether or not the indebtedness secured thereby
shall have been assumed, and (iii) all indebtedness of others with respect to
which such Person has become liable by way of a Guarantee.
"INSTITUTIONAL INVESTOR" shall mean Prudential, any Prudential Affiliate
and any bank, bank affiliate, financial institution, insurance company,
pension fund, mutual fund, endowment or other organization which regularly
acquires debt instruments for investment.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise) or charge of any kind (including any agreement
to give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MANAGEMENT AGREEMENT" shall have the meaning set forth in paragraph 3E.
"MANAGEMENT FEE" shall mean a monthly fee equal to 4% of the steam, hot
water and chilled water gross revenues of the Company collected during the
immediately preceding month, payable in arrears by the Company to Manager for
the services rendered by Manager during such month pursuant to the Management
Agreement.
"MANAGER" shall mean NRG Operating Services, Inc., a Delaware corporation.
"MASTER PURCHASE AGREEMENT" shall mean the Master Purchase Agreement of
even date herewith between ECPLP and the Company.
"MECI" shall mean Minneapolis Energy Center Inc.
"MISCELLANEOUS PERMITS" shall have the meaning set forth in paragraph
5H(1).
"MORTGAGE" shall have the meaning set forth in paragraph 3F.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NRG" shall mean NRG Energy, Inc., a Delaware corporation.
"NSP" shall mean Northern States Power Company, a Minnesota corporation.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by its President, one of its Vice Presidents or its Treasurer.
"OPERATING INCOME" shall mean, for any period, (i) the sum of (A) the net
earnings (or loss) of the Company and/or of ECPLP, as the case may be, for
such period, (B) any net loss, net of applicable tax
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effect, realized (1) in connection with extraordinary items or transactions
of a non-recurring or non-operating and material nature or (2) upon
disposition of capital assets or the discontinuance of capital assets or the
discontinuance of operations for such period, (C) tax expense for such
period, and (D) interest expense (including the interest component of
Capitalized Lease Obligations) for such period, less (ii) the sum of (A) any
net gain, net of applicable tax effect, realized (1) in connection with
extraordinary items or transactions of a non-recurring or non-operating and
material nature or (2) upon disposition of capital assets or the
discontinuance of capital assets or the discontinuance of operations for such
period and (B) income attributable to sources other than operations for such
period, including without limitation interest income, in each case determined
in accordance with generally accepted accounting principles.
"OPERATING INCOME AVAILABLE FOR DEBT EXPENSE" shall mean, for any period,
the sum of (i) Operating Income of the Company and/or of ECPLP, as the case
may be, for such period, (ii) depreciation and amortization for such period
determined in accordance with generally accepted accounting principles, and
(iii) the aggregate amount of the Management Fee accrued for such period.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PERSONAL PROPERTY AGREEMENT" shall mean the Purchase Agreement of even
date herewith between ECPLP and the Company executed pursuant to the Master
Purchase Agreement.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any ERISA Affiliate.
"PROJECT" shall mean, collectively, the steam, hot water and chilled water
plant, parking structure and commercial space located in Minneapolis,
Minnesota and known as the Minneapolis Energy Center, satellite steam and
chilled water generation facilities, and other offsite property located on
the property of others, all in Minneapolis, Minnesota and now or hereafter
comprising the assets, properties and rights of the business of and known as
the Minneapolis Energy Center, including without limitation all developments
and improvements relating to the expansion of the productive capacity of any
components thereof.
"PRUDENTIAL" shall mean The Prudential Insurance Company of America.
"PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all of
the Voting Stock (or equivalent voting securities or interests) of which is
owned by Prudential either directly or through Prudential Affiliates.
"PURCHASE AGREEMENTS" shall mean, collectively, the Master Purchase
Agreement, the Personal Property Agreement and the Real Property Agreement.
"PURCHASE DOCUMENTS" shall mean, collectively, the Purchase Agreements,
the Escrow Agreement, and all other agreements, documents and instruments
executed in connection with the transactions contemplated by the Master
Purchase Agreement.
"REAL PROPERTY AGREEMENT" shall mean the Real Property Purchase Agreement
of even date herewith between ECPLP and the Company executed pursuant to the
Master Purchase Agreement.
"RENT LIMIT" shall have the meaning set forth in paragraph 6B(5).
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 66 2/3%
of the aggregate principal amount of the Notes from time to time outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"REVOLVING NOTES" shall have the meaning set forth in paragraph
6B(2)(iii).
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERVICE AGREEMENTS" shall have the meaning set forth in paragraph 5H(1).
"SERVICE CONTRACTS" shall have the meaning set forth in paragraph 5H(1).
"SHELF NOTES" shall mean, collectively, Term Notes from time to time
issued pursuant to the Credit Agreement in an aggregate principal amount not
to exceed $10,000,000.
"SIGNIFICANT HOLDER" shall mean (i) each Purchaser, so long as such
Purchaser shall hold (or be committed under this Agreement to purchase) any
Note, or (ii) any other holder of at least 5% of the aggregate principal
amount of the Notes from time to time outstanding.
"SUBSIDIARY" shall mean any corporation or other Person in which, at the
time as of which any determination is being made, the Company owns a
Controlling Interest either directly or through Subsidiaries.
"TITLE INSURANCE COMMITMENT" shall have the meaning set forth in paragraph
3I.
"TOTAL CAPITALIZATION" shall mean the sum of stockholders' equity and
Funded Debt of the Company.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased by any Purchaser under this Agreement.
"TWIN CITY" shall mean Twin City Testing Corporation.
"VOTING STOCK" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in
this Agreement to "generally accepted accounting principles" shall be deemed
to refer to generally accepted accounting principles in effect in the United
States at the time of application thereof. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations
with respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles, applied on a basis consistent with
the most recent audited financial statements of the Company delivered
pursuant to clause (ii) of paragraph 5A or, if no such statements have been
so delivered, the pro forma financial statements referred to in paragraph
8B(2).
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on and
any Yield-Maintenance Amount payable with respect to such Note, which comply
with the terms of this Agreement, by wire transfer of immediately available
funds for credit (not later than 12:00 noon, New York City time, on the date
due) to such Purchaser's account or accounts as specified in the Purchaser
Schedule attached hereto, or such other account or accounts in the United
States as such Purchaser may from time to time designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to
the place of payment. Each Purchaser agrees that, before disposing of any
Note, such Purchaser will make a notation thereon (or on a schedule attached
thereto) of all principal payments previously made thereon and of the date to
which interest thereon has been paid. The Company agrees to afford the
benefits of this paragraph 11A to any Transferee which shall have made the
same agreement as each Purchaser has made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser,
the Collateral Agent, and, to the extent provided herein, any Transferee
harmless against liability for the payment of, all out-of-pocket expenses
arising in connection with such transactions, including (i) all reasonable
document production and
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duplication charges and the fees and expenses of any special counsel engaged
by such Purchaser or the Collateral Agent in connection with this Agreement,
the Mortgage, the Collateral Agency Agreement, th Acknowledgment or the Notes
or the transactions contemplated hereby or thereby, (ii) all reasonable
document production and duplication charges and fees and expenses of any
special counsel engaged by the holder of any Note in connection with any
subsequent proposed modification of, or proposed consent under, or proposed
notice, instruction or direction given pursuant to this Agreement, the
Mortgage, the Collateral Agency Agreement, the Acknowledgment or the Notes,
whether or not such proposed modification shall be effected, or proposed
consent granted, or proposed notice, instruction or direction given, (iii)
the costs and expenses, including attorneys' fees, incurred by the holder of
any Note, or (with respect to the Mortgage) by the Collateral Agent on behalf
of any holder of any Note, in enforcing (or determining whether or how to
enforce) any rights under this Agreement, the Mortgage, the Acknowledgment or
the Notes, and (iv) the costs and expenses, including attorneys' fees,
incurred by any Purchaser or any Transferee in responding to any subpoena or
other legal process or informal investigative demand issued in connection
with this Agreement, the Mortgage, the Collateral Agency Agreement, the
Acknowledgment or the Notes or the transactions contemplated hereby or
thereby or by reason of such Purchaser's or such Transferee's having acquired
any Note, including without limitation costs and expenses incurred in any
bankruptcy case. The obligations of the Company under this paragraph 11B
shall survive the transfer of any Note or portion thereof or interest therein
by any Purchaser or any Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Required
Holder(s) except that, without the written consent of the holder or holders
of all Notes at the time outstanding, no amendment to this Agreement shall
change the maturity of any Note, or change the principal of, or the rate or
time of payment of interest on or any Yield-Maintenance Amount payable with
respect to any Note, or affect the time, amount or allocation of any
prepayments, or change the proportion of the principal amount of the Notes
required with respect to any consent, amendment, waiver or declaration. Each
holder of any Note at the time or thereafter outstanding shall be bound by
any consent authorized by this paragraph 11C, whether or not such Note shall
have been marked to indicate such consent, but any Notes issued thereafter
may bear a notation referring to any such consent. No course of dealing
between the Company and the holder of any Note nor any delay in exercising
any rights hereunder or under any Note shall operate as a waiver of any
rights of any holder of such Note. As used herein and in the Notes, the term
"this Agreement" and references thereto shall mean this Agreement as it may
from time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons in denominations of at
least $1,000,000, except as may be necessary to reflect any principal amount
not evenly divisible by $1,000,000. The Company shall keep at its principal
office a register in which the Company shall provide for the registration of
Notes and of transfers of Notes. Upon surrender for registration of transfer
of any Note at the principal office of the Company, the Company shall, at its
expense, execute and deliver one or more new Notes of like tenor and of a
like aggregate principal amount, registered in the name of such transferee or
transferees. At the option of the holder of any Note, such Note may be
exchanged for other Notes of like tenor and of any authorized denominations,
of a like aggregate principal amount, upon surrender of the Note to be
exchanged at the principal office of the Company. Whenever any Notes are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to
receive. Every Note surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Note or such holder's attorney duly
authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any
such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon
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surrender and cancellation of such Note, the Company will make and deliver a
new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Note. Notwithstanding anything to the contrary herein, each Purchaser agrees,
and each Transferee by its acceptance of an interest in a Note agrees, that
no Note (or any interest therein) shall be transferred to any Person which is
not an Institutional Investor.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance
Amount payable with respect to such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and the Company shall
not be affected by notice to the contrary. Subject to the preceding sentence,
the holder of any Note may from time to time grant participations in all or
any part of such Note to any Person on such terms and conditions as may be
determined by such holder in its sole and absolute discretion, provided that
any such participation shall be in a principal amount of at least $1,000,000.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or in the Notes, the Mortgage
or the Acknowledgment or made in writing by or on behalf of the Company in
connection herewith shall survive the execution and delivery of this
Agreement, the Notes, the Mortgage and the Acknowledgment, the transfer by
any Purchaser of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any Transferee, regardless of
any investigation made at any time by or on behalf of any Purchaser or any
Transferee. Subject to the preceding sentence, this Agreement, the Notes, the
Mortgage and the Acknowledgment embody the entire agreement and understanding
between the Purchasers and the Company (the Collateral Agency Agreement being
among the Lenders and the Collateral Agent only) and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement made by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee), and, with respect to
any Purchaser or Transferee, any nominee thereof, whether so expressed or
not.
11H. DISCLOSURE TO OTHER PERSONS. Each Purchaser agrees, and each
Transferee by its acceptance of an interest in any Note agrees, to use its
best efforts to hold in confidence and not disclose any Confidential
Information; provided that nothing herein shall prevent a Purchaser or a
Transferee from delivering or disclosing (and the Company acknowledges that
each Purchaser and Transferee may deliver or disclose) any financial
statements and other documents delivered to it, and any other information
disclosed to it (including, but not limited to, Confidential Information), by
or on behalf of the Company, either directly or through any Person referred
to in paragraph 5C, in connection with or pursuant to this Agreement to (i)
its directors, officers, employees, agents and professional consultants, (ii)
any other holder of any Note, (iii) any Person to which it offers to sell any
Note or any part thereof, (iv) any Person to which it sells or offers to sell
a participation in all or any part of any Note, (v) any Person from which it
offers to purchase any security of the Company, (vi) any federal or state
regulatory authority having jurisdiction over it, (vii) the National
Association of Insurance Commissioners or any similar organization or (viii)
any other Person to which such delivery or disclosure may be necessary or
appropriate (a) to effect compliance with any law, rule, regulation or order
applicable to it, (b) in response to any subpoena or other legal process or
informal investigative demand, (c) in connection with any litigation to which
it is a party, or (d) in order to protect its investment in any Note.
11I. NOTICES. All written communications provided for hereunder shall be
sent by first class mail or nationwide overnight delivery service with
charges prepaid and (i) if to any Purchaser, addressed to such Purchaser at
the address specified for such communications in the Purchaser Schedule
attached hereto, or at such other address as such Purchaser shall have
specified to the Company in writing, (ii) if to any other holder of any Note,
addressed to such other holder at such address as such other holder shall
have specified to the Company in writing or, if any such other holder shall
not have so specified an address to the Company, then addressed to such other
holder in care of the last holder of such Note which shall have so specified
an address to the Company, and (iii) if to the Company, addressed to it at
24
<PAGE>
1221 Nicollet Mall, Suite 700, Minneapolis, Minnesota 55403-2445, Attention:
President, or at such other address as the Company shall have specified to
the holder of each Note in writing; provided, however, that any such
communication to the Company may also, at the option of the holder of any
Note, be delivered by any other means either to the Company at its address
specified above or to any officer of the Company.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on, or Yield-Maintenance Amount payable with respect to, any Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day. If the date for any payment is extended to the next
succeeding Business Day by reason of the preceding sentence, the period of
such extension shall be included in the computation of the interest payable
on such Business Day.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser, or any holder of
Notes or to the Required Holder(s), the determination of such satisfaction
shall be made by such Purchaser, such holder or the Required Holder(s), as
the case may be, in the sole and exclusive judgment (exercised in good faith)
of the Person or Persons making such determination.
11L. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law
of the State of Minnesota.
11M. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together
shall constitute one instrument.
11P. SEVERALTY OF OBLIGATIONS. The sales of Notes to the Purchasers are
to be several sales, and the obligations of the Purchasers under this
Agreement are several obligations. Except as provided in paragraph 3O, no
failure by any Purchaser to perform its obligations under this Agreement
shall relieve any other Purchaser or the Company of any of its obligations
hereunder, and no Purchaser shall be responsible for the obligations of, or
any action taken or omitted by, any other Purchaser hereunder.
11Q. RELATIONSHIP AMONG HOLDERS. No holder of a Note shall have by reason
of this Agreement, the Mortgage, the Collateral Agency Agreement or the Notes
a fiduciary relationship in respect of any other holder. Nothing in this
Agreement, the Mortgage, the Collateral Agency Agreement or the Notes,
express or implied, is intended to or shall be construed to impose upon any
holder any obligation in respect of this Agreement, the Mortgage, the
Collateral Agency Agreement or the Notes except as expressly set forth herein
or therein. Each holder has made its own independent investigation of the
financial condition and affairs of the Company and the Project in connection
with its purchase of the Notes and no holder shall have any duty or
responsibility, either initially or on a continuing basis, to provide any
other holder with any credit or other information.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchasers.
Very truly yours,
NRG ENERGY CENTER, INC.
By /s/ Ronald J. Will
-----------------------------
Title: President
25
<PAGE>
The foregoing Agreement is hereby accepted as of the date first above
written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By /s/ P. Scott von Fischer
------------------------------
Vice President
26
<PAGE>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA Investments, Inc.
By: /s/ Name
-----------------------------
Managing Director
ALLEGIANCE INSURANCE COMPANY
By CIGNA Investments, Inc.
By: /s/ Name
------------------------------
Managing Director
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
on behalf of one or more separate accounts
By CIGNA Investments, Inc.
By: /s/ Name
-----------------------------
Managing Director
27
<PAGE>
THE NORTH ATLANTIC LIFE INSURANCE COMPANY OF AMERICA
By: /s/ Mark S. Jordahl
------------------------------
Title: Mark S. Jordahl
Assistant Treasurer
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY
By: /s/ Mark S. Jordahl
-----------------------------
Title: Mark S. Jordahl
Authorized Representative
28
<PAGE>
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $72,000,000 $64.551,538.82
$ 7,448,461.18
(1) All payments on account of Notes held by such purchaser
shall be made by wire transfer of immediately available
funds for credit to:
Account No. 050-54-526 (in the case of payments on
account of Note originally issued in the principal amount
of $64,551,538.82) [GENERAL ACCOUNT]
Account No. 000-01-159 (in the case of payments on
account of the Note originally issued in the principal
amount of $7,448,461.18) [PRIVEST]
Morgan Guaranty Trust Company of New York
23 Wall Street
New York, New York 10015
(ABA No.: 021-000-238)
Each such wire transfer shall set forth the name of the
Company, a reference to "7.31% Senior Secured Note due
June 15, 2013, Security No. INV*, and the due date and
application (as among principal, interest and
Yield-Mainten-ance Amount for each of the Notes with
respect to which payment is being made) of the payment
being made.
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Three Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Investment Administration Unit
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601-6716
Attention: Managing Director
(4) Recipient of telephonic prepayment notices:
Manager, Asset Management Unit (201) 802-6429
(5) Tax Identification No.: 22-1211670
29
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
CONNECTICUT GENERAL LIFE INSURANCE COMPANY $5,000,000 $5,000,000
(To be issued
to CIG & Co.
as nominee)
(1) All payments on account of Notes held on behalf of such
purchaser by its nominee, CIG & Co., shall be made by
wire transfer of immediately available funds for credit
to:
Fed ABA #021000021 CHASE
NYC/CTR/BNF = CIGNA PRIVATE
PLACEMENTS/AC = 9009001802
Each such wire transfer shall set forth the name of the
Company, a reference to "OBI = 7.31% Senior Secured Notes
due June 15, 2013, Security No. INV*," and the due date
and application (as among principal, interest and
Yield-Maintenance Amount) of the payment being made.
NOTE: Purchaser requires notice of each payment to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508, Bowling Green Station
New York, New York 10081
Attention: CIGNA Private Placements
FAX: 212-552-3107/1005
(2) Address for all notices relating to payments:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Securities Accounting
Department (S-206)
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities
Division (S-307)
NOTE: For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT 06152".
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
(3) Address for all other communications and notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
NOTE: For notices sent by overnight courier, express mall
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT 06152."
(4) Recipient of telephonic prepayment notices:
James G. Schelling
(203) 726-6314
(5) Tax Identification No.: 13-3574027
THE NORTH ATLANTIC LIFE INSURANCE COMPANY S3,000,000 $3,000,000
OF AMERICA
(1) All payments on account of Notes held by such purchaser
shall be made by wire transfer of immediately available
funds for credit to:
Account No.: 5186041000
Northern Trust Company
(ABA No.: 071-000-152)
Attention: MBS Department
Each such wire transfer shall set forth the name of the
Company, a reference to "7.31% Senior Secured Notes due
June 15, 2013, Security No. INV*," the due date and
application (as among principal, interest and
Yield-Maintenance Amount) of the payment being made, and
"Ref: 26-67303, private placement."
(2) Address for all notices relating to payments:
The North Atlantic Life Insurance Company of America
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis. Minnesota 55401-2147
Attention: James Wittich
(3) Address for all other communications and notices:
Northwestern National Life Insurance Company
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2147
Attention: James Wittich
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
(4) Recipient of telephonic prepayment notices:
James Wittich
(612) 342-3553
(5) Tax Identification No.: 11-1983132
NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY $2,000,000 $2,000,000
(1) All payments on account of Notes held by such purchaser
shall be made by wire transfer of immediately available
funds for credit to:
Account No. 1102-4001-4461
First National Bank N. A./Mpls
601 2nd Avenue South
Minneapolis, Minnesota
(ABA No.: 091-000-022)
Attention: Securities Accounting
Each such wire transfer shall set forth the name of the
Company, a reference to "7.31% Senior Secured Notes due
June 15, 2013, Security No. INV*," and the due date and
application (as among principal, interest and
Yield-Maintenance Amount) of the payment being made.
(2) Address for all notices relating to payments:
Northwestern National Life Insurance Company
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2147
Attention: James Wittich
(3) Address for all other communications and notices:
Northwestern National Life Insurance Company
c/o Washington Square Capital, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2147
Attention: James Wittich
(4) Recipient of telephonic prepayment notices:
James Wittich
(612) 342-3553
(5) Tax Identification No.: 41-0451140
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
ALLEGIANCE INSURANCE C0MPANY $1,000,000 $1.000,000
(To be issued
to Zande & Co.
as nominee)
(1) All payments on account of Notes held on behalf of such
purchaser by its nominee, Zande & Co., shall be made by
wire transfer of immediately available funds for credit
to:
Morgan Guaranty Trust Company of New York
(ABA No.: 021-000-238)
BTR/BNF = CUSTZ/AC-99999024/Z
ATTN: CUST. SVC. ALLEGIANCE INSURANCE COMPANY
a/c 36637
Each such wire transfer shall set forth the name of the
Company, a reference to "7.31% Senior Secured Notes due
June 15, 2013, Security No. INV*," and the due date and
application (as among principal, interest and
Yield-Maintenance Amount) of the payment being made.
(2) Address for all notices relating to payments:
Zande & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Securities Accounting Department (S-206)
Zande & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
NOTE: For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT 06152."
(3) Address for all other communications and notices:
Zande & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
NOTE: For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT 06152."
(4) Recipient of telephonic prepayment notices:
James G. Scheiling
(203) 726-6314
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
(5) Tax Identification No.: 13-6020804
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, $1,000,000 $1,000,000
on behalf of one or more separate accounts (to be issued to
CIG & Co.
as nominee)
(1) All payments on account of Notes held on behalf of such
purchaser by its nominee, CIG & Co., shall be made by
wire transfer of immediately available funds for credit
to:
Fed ABA #021000021 CHASE
NYC/CTR/BNF = CIGNA PRIVATE
PLACEMENTS/AC = 9009001802
Each such wire transfer shall set forth the name of the
Company, a reference to "OBI = 7.31% Senior Secured Notes
due June 15, 2013, Security No. INV*," and the due date
and application (as among principal, interest and
Yield-Maintenance Amount) of the payment being made.
NOTE: Purchaser requires notice of each payment to:
Chase Manhattan Bank, N.A.
Private Placement Servicing
P.O. Box 1508, Bowling Green Station
New York. New York 10081
Attention: CIGNA Private Placements
FAX: 212-552-3107/1005
(2) Address for all notices relating to payments:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention:Securities Accounting Department (S-206)
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
NOTE: For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road,
Bloomfield, CT 06002" in place of "Hartford, CT 06152,"
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL
AMOUNT
OF NOTES NOTE
PURCHASER TO BE PURCHASED DENOMINATION(S)
- ---------- -------------- --------------
<S> <C> <C>
(3) Address for all other communications and notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division (S-307)
NOTE: For notices sent by overnight courier, express mail
or messenger, substitute "900 Cottage Grove Road.
Bloomfield, CT 06002" in place of "Hartford, CT 06152."
(4) Recipient of telephonic prepayment notices:
James G. Schelling
(203) 726-6314
(5) Tax Identification No.: 13-3574027
</TABLE>
35
<PAGE>
AMORTIZATION SCHEDULE
(BASED UPON $1,000,000 OF PRINCIPAL)
[SEE ATTACHED SCHEDULE I]
36
<PAGE>
SCHEDULE I
NRG ENERGY CENTER, INC. -PAYMENT SCHEDULE
AMOUNTS EXPRESSED ARE PER $1,000,000 OF OUTSTANDING PRINCIPAL
<TABLE>
<CAPTION>
PRINCIPAL
DATE PRINCIPAL DUE OUTSTANDING
- ------------ --------------- --------------
<S> <C> <C>
09/15/93 1,000,000.00
12/15/93 $ 5,743.98 994,256.02
03/15/94 5,818.95 988,407.06
06/15/94 5,955.84 982,451.22
09/15/94 6,064.69 976,386.53
12/15/94 6,175.52 970,211.01
03/15/94 6,288.38 963,922.63
06/15/95 6,403.30 957,519.33
09/15/95 6,520.32 950,999.02
12/15/95 6,639.48 944,359.54
03/15/96 6,760.81 937,598.73
06/15/96 6,884.37 930,714.36
09/15/96 7,010.18 923,704.18
12/15/96 7,138.29 916,565.89
03/15/97 7,268.74 909,297.15
06/15/97 7,401.58 901,895.57
09/15/97 7,536.84 894,358.73
12/15/97 7,674.58 886,684.15
03/15/98 7,814.83 878,869.32
06/15/98 7,957.65 870,911.67
09/15/98 8,103.07 862,808.60
12/15/98 8,251.16 854,557.45
03/15/99 8,401.95 846,155.50
06/15/99 8,555.49 837,600.01
09/15/99 8,711.84 828,888.16
12/15/99 8,871.05 820,017.11
03/15/2000 9,033.17 810,983.94
06/15/2000 9,198.25 801,785.69
09/15/2000 9,366.35 792,419.34
12/15/2000 9,537.52 782,881.82
03/15/2001 9,711.82 773,170.00
06/15/2001 9,889.30 763,280.70
09/15/2001 10,070.03 753,210.67
12/15/2001 10,254.06 742,956.61
03/15/2002 10,441.45 732,515.16
06/15/2002 10,632.27 721,882.89
09/15/2002 10,826.57 711,056,32
12/15/2002 11,024.43 700,031.89
03/15/2003 11,225.90 688,805.99
06/15/2003 11,431.05 677,374.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
DATE PRINCIPAL DUE OUTSTANDING
- ------------ --------------- -------------
<S> <C> <C>
09/15/2003 11,639.96 665,734.97
12/15/2003 11,852.65 653,882.30
03/15/2004 12,069.28 641,813.01
06/15/2004 12,289.85 629,523.16
09/15/2004 12,514.45 617,005.71
12/15/2004 12,743.15 604,265.57
03/15/2005 12,976.03 591,259.53
06/15/2005 13,213.17 578,076.37
09/15/2005 13,454.64 564,621.73
12/15/2005 13,700.52 550,921.21
03/15/2006 13,950.90 536,970.31
06/15/2006 14,205.85 522,764.46
09/15/2006 14,465.46 505,298.99
12/15/2006 14,729.82 493,569.15
03/15/2007 14,999.01 478,570.17
06/15/2007 15,273.11 463,297.05
09/15/2007 15,552.23 447,744.82
12/15/2007 15,836.45 431,908.38
03/15/2008 16,125.86 415,782.52
06/15/2008 16,420.56 399,361.96
09/15/2008 16,720.64 382,641.32
12/15/2008 17,026.21 365,615.10
03/15/2009 17,337.37 348,277.74
06/15/2009 17,654.21 330,623.53
09/15/2009 17,976.84 312,646.69
12/15/2009 18,305.37 294,341.32
03/15/2010 18,639.90 275,701.43
06/15/2010 18,980.54 256,720.89
09/15/2010 19,327.41 237,393.48
12/15/2010 19,680.62 217,712.86
03/15/2011 20,040.25 197,672.55
06/15/2011 20,406.52 177,266.06
09/15/2011 20,779.45 156,486.62
12/15/2011 21,159.19 135,327.43
03/15/2012 21,545.87 113,781.55
06/15/2012 21,939.63 91,841.93
09/15/2012 22,340.57 69,501.35
12/15/2012 22,748.85 46,752.51
03/15/2013 23,164.58 23,557.93
06/15/2013 23,587.93 (0.00)
</TABLE>
37
<PAGE>
CIGNA INVESTMENT
MANAGEMENT
PRIVATE SECURITIES
June 9, 1994
900 Cottage Grove Road
Bloomfield, CT
06152-2307
Telephone (203)
726-3723
Facsimile (203)
726-7203
Mr. Thomas Guglielmi
Chief Financial Officer
MINNEAPOLIS ENERGY CENTER
1060 IDS Center
80 South Street
Minneapolis, MN 55402
Dear Mr. Guglielmi:
Your inquiry June 6 to Jim Schelling has been passed on to me. Please
understand that the transfer and re-registration of NRG Energy Center, Inc.,
7.31% Senior Secured Notes due 06/15/2013 is an internal transfer with CIGNA
Investments, Inc. and does not constitute a change in beneficial ownership.
Unfortunately, we split our custodial services between two banks, Chase
Manhattan in New York (nominee registration of CIG & Co.) and Morgan Guaranty
Trust Company of New York (nominee registration of ZANDE & Co.) The split is
based on the internal CIGNA portfolio's bank account. Due to this internal
transfer, we have had to ask you to assist us with such re-registration from
ZANDE & Co. to CIG & Co. I have thus endosed wiring instructions for CIG &
Co.
We sincerely apologize for any inconvenience caused to you and thank you
for your cooperation in this matter. If you should have any questions
regarding this re-registration or on other operational issues with CIGNA,
please do not hesitate to call me.
/s/
- -----------------------------
Approval: James G. Schelling
Managing Director
Sincerely,
Aija Zigmunds
Information Systems Analyst
cc: J.G. Schelling
38
<PAGE>
PAYMENT INSTRUCTIONS
CIG & CO.
TAX I.D. #13-3574027
Wire all payments to: FED ABA 021000021
CHASE NYC/CTR
BNF = CIGNA PRIVATE PLACEMENTS/AC=9009001802
OBI = (PPN) (MAT) (COUPON)
P=$ I=$
All information pertaining to this transfer must be in the "OBI" field of the
fed message. You must include in this field issuer name, unique private
placement number (PPN), rate and maturity date, as noted above, followed by
principal and interest split, if applicable; otherwise the payment cannot be
processed. With the exception of the principal and interest split, all fields
describing the payment are constant. Once you implement this new format, you
will only need to input the new dollar amounts for the principal, interest or
prepayment amounts. Please remember that this format should be used for each
private placement issue (each PPN), i.e. one wire payment per issue for all
securities of that issue for all securities of that issue registered in the
name of CIG & Co. Also, please include any other information necessary to
identify the payment, including the payable date, contact name and telephone
number. In all cases of remittance advices, especially those related to asset
pools or other notices with respect to payments, the information must be
received at the time the wire is initiated. A transmission of such remittance
advice or notice is required.
<TABLE>
<CAPTION>
<S> <C>
Send originals to: Send duplicate copies to:
CIG & CO. CHASE MANHATTAN BANK, N.A.
C/O CIGNA INVESTMENTS, INC. PRIVATE PLACEMENT SERVICING
ATTN: SECURITIES PROCESSING S-206 P. O. BOX 1508
HARTFORD, CT 06152-2206 ATTN: CIGNA PRIVATE PLACEMENTS
BOWLING GEEEN STATION, NY 10081
FAX: (203) 726-4552 FAX: (212) 552-3107/1005
</TABLE>
In case of all other communications, mail to:
CIG & CO.
C/O CIGNA INVESTMENTS, INC.,
ATTN: PRIVATE SECURITIES DIVISION, S-307
HARTFORD, CT 06152-2307
In the event that notices/communications to CIGNA Investments, Inc. are
SENT BY COURIER (e.g., Federal Express, Airborne) or express mail rather than
by regular U.S. Postal Service, please use the following address:
CIG & CO.
C/O CIGNA INVESTMENTS, INC.
ATTN: PRIVATE SECURITIES DIVISION, S-307
900 COTTAGE GROVE ROAD
BLOOMFIELD, CT 06002
39
<PAGE>
NRG ENERGY CENTER, INC. (D/B/A MINNEAPOLIS ENERGY CENTER)
7.31% SENIOR SECURED NOTE DUE JUNE 15, 2013
PRINCIPAL AND INTEREST PAYMENT AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
DATE OF PRINCIPAL INTEREST TOTAL PRINCIPAL
PAYMENT PAYMENT PAYMENT PAYMENT BALANCE
- --------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Aug 20, 1993 84,000,000.00
Sep 15, 1993 -- 426,416.67 426,416.67 84,000,000.00
Dec 15, 1993 482,494.63 1,535,100.00 2,017,594.63 83,517,505.37
--------------- --------------- --------------
1993 ACTIVITY 482,494.63 1,961,516.67 2,444,011.30 83,517,505.37
--------------- --------------- -------------- ---------------
Mar 15, 1994 491,312.22 1,526,282.41 2,017,594.63 83,026,193.15
Jun 15, 1994 500,290.95 1,517,303.68 2,017,594.63 82,525,902.20
Sep 15, 1994 509,433.77 1,508,160.86 2,017,594.63 82,016,468.43
Dec 15, 1994 518,743.67 1,498,850.96 2,017,594.63 81,497,724.76
--------------- --------------- --------------
1994 ACTIVITY 2,019,780.61 6,050,597.91 8,070,378.52 81,497,724.76
--------------- --------------- -------------- ---------------
Mar 15, 1995 528,223.71 1,489,370.92 2,017,594.63 80,969,501.05
Jun 15, 1995 537,877.00 1,479,717.63 2,017,594.63 80,431,624.05
Sep 15, 1995 547,706.70 1,469,887.93 2,017,594.63 79,883,917.35
Dec 15, 1995 557,716.04 1,459,878.59 2,017,594.63 79,326,201.31
--------------- --------------- --------------
1995 ACTIVITY 2,171,523.45 5,898,855.07 8,070,378.52 79,326,201.31
--------------- --------------- -------------- ---------------
Mar 15, 1996 567,908.30 1,449,686.33 2,017,594.63 78,758,293.01
Jun 15, 1996 578,286.83 1,439,307.80 2,017,594.63 78,180,006.18
Sep 15, 1996 588,855.02 1,428,739.61 2,017,594.63 77,591,151.16
Dec 15, 1996 599,616.34 1,417,978.29 2,017,594.63 76,991,534.82
--------------- --------------- --------------
1996 ACTIVITY 2,334,666.49 5,735,712.03 8,070,378.52 76,991,534.82
--------------- --------------- -------------- ---------------
Mar 15, 1997 610,574.33 1,407,020.30 2,017,594.63 76,380,960.49
Jun 15, 1997 621,732.58 1,395,862.05 2,017,594.63 75,759,227.91
Sep 15, 1997 633,094.74 1,384,499.89 2,017,594.63 75,126,133.17
Dec 15, 1997 644,664.55 1,372,930.08 2,017,594.63 74,481,468.62
--------------- --------------- --------------
1997 ACTIVITY 2,510,066.20 5,560,312.32 8,070,378.52 74,481,468.62
--------------- --------------- -------------- ---------------
Mar 15, 1998 656,445.79 1,361,148.84 2,017,594.63 73,825,022.83
Jun 15, 1998 668,442.34 1,349,152.29 2,017,594.63 73,156,580.49
Sep 15, 1998 680,658.12 1,336,936.51 2,017,594.63 72,475,922.37
Dec 15, 1998 693,097.15 1,324,497.48 2,017,594.63 71,782,825.22
--------------- --------------- --------------
1998 ACTIVITY 2,698,643.40 5,371,735.12 8,070,378.52 71,782,825.22
--------------- --------------- -------------- ---------------
</TABLE>
40
<PAGE>
NRG ENERGY CENTER, INC. (D/B/A MINNEAPOLIS ENERGY CENTER)
7.31% SENIOR SECURED NOTE DUE JUNE 15, 2013
PRINCIPAL AND INTEREST PAYMENT AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
DATE OF PRINCIPAL INTEREST TOTAL PRINCIPAL
PAYMENT PAYMENT PAYMENT PAYMENT BALANCE
- --------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Mar 15, 1999 705,763.50 1,311,831.13 2,017,594.63 71,077,061.72
Jun 15, 1999 718,661.33 1,298,933.30 2,017,594.63 70,358,400.39
Sep 15, 1999 731,794.86 1,285,799.77 2,017,594.63 69,626,605.53
Dec 15, 1999 745,168.41 1,272,426.22 2,017,594.63 68,881,437.12
--------------- --------------- --------------
1999 ACTIVITY 2,901,388.10 5,168,990.42 8,070,378.52 68,881,437.12
--------------- --------------- -------------- ---------------
Mar 15, 2000 758,786.37 1,258,808.26 2,017,594.63 68,122,650.75
Jun 15, 2000 772,653.19 1,244,941.44 2,017,594.63 67,349,997.56
Sep 15, 2000 786,773.42 1,230,821.21 2,017,594.63 66,563,224.14
Dec 15, 2000 801,151.71 1,216,442.92 2,017,594.63 65,762,072.43
--------------- --------------- --------------
2000 ACTIVITY 3,119,364.69 4,951,013.83 8,070,378.52 65,762,072.43
--------------- --------------- -------------- ---------------
Mar 15, 2001 815,792.76 1,201,801.87 2,017,594.63 64,946,279.67
Jun 15, 2001 830,701.37 1,186,893.26 2,017,594.63 64,115,578.30
Sep 15, 2001 845,882.44 1,171,712.19 2,017,594.63 63,269,695.86
Dec 15, 2001 861,340.94 1,156,253.69 2,017,594.63 62,408,354.92
--------------- --------------- --------------
2001 ACTIVITY 3,353,717.51 4,716,661.01 8,070,378.52 62,408,354.92
--------------- --------------- -------------- ---------------
Mar 15, 2002 877,081.94 1,140,512.69 2,017,594.63 61,531,272.98
Jun 15, 2002 893,110.62 1,124,484.01 2,017,594.63 60,638,162.36
Sep 15, 2002 909,432.21 1,108,162.42 2,017,594.63 59,728,730.15
Dec 15, 2002 926,052.09 1,091,542.54 2,017,594.63 58,802,678.06
--------------- --------------- --------------
2002 ACTIVITY 3,605,676.86 4,464,701.66 8,070,378.52 58,802,678.06
--------------- --------------- -------------- ---------------
Mar 15, 2003 942,975.69 1,074,618.94 2,017,594.63 57,859,702.37
Jun 15, 2003 960,208.57 1,057,386.06 2,017,594.63 56,899,493.80
Sep 15, 2003 977,756.38 1,039,838.25 2,017,594.63 55,921,737.42
Dec 15, 2003 995,624.88 1,021,969.75 2,017,594.63 54,926,112.54
--------------- --------------- --------------
2003 ACTIVITY 3,876,565.52 4,193,813.00 8,070,378.52 54,926,112.54
--------------- --------------- -------------- ---------------
Mar 15, 2004 1,013,819.92 1,003,774.71 2,017,594.63 53,912,292.62
Jun 15, 2004 1,032,347.48 985,247.15 2,017,594.63 52,879,945.14
Sep 15, 2004 1,051,213.63 966,381.00 2,017,594.63 51,828,731.51
Dec 15, 2004 1,070,424.56 947,170.07 2,017,594.63 50,758,306.95
--------------- --------------- --------------
2004 ACTIVITY 4,167,805.59 3,902,572.93 8,070,378.52 50,758,306.95
--------------- --------------- -------------- ---------------
</TABLE>
41
<PAGE>
NRG ENERGY CENTER, INC. (D/B/A MINNEAPOLIS ENERGY CENTER)
7.31% SENIOR SECURED NOTE DUE JUNE 15, 2013
PRINCIPAL AND INTEREST PAYMENT AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
DATE OF PRINCIPAL INTEREST TOTAL PRINCIPAL
PAYMENT PAYMENT PAYMENT PAYMENT BALANCE
- --------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Mar 15, 2005 1,089,986.57 927,608.06 2,017,594.63 49,668,320.38
Jun 15, 2005 1,109,906.08 907,688.55 2,017,594.63 48,558,414.30
Sep 15, 2005 1,130,189.61 887,405.02 2,017,594.63 47,428,224.69
Dec 15, 2005 1,150,843.82 866,750.81 2,017,594.63 46,277,380.87
--------------- --------------- --------------
2005 ACTIVITY 4,480,926.08 3,589,452.44 8,070,378.52 46,277,380.87
--------------- --------------- -------------- ---------------
Mar 15, 2006 1,171,875.49 845,719.14 2,017,594.63 45,105,505.38
Jun 15, 2006 1,193,291.52 824,303.11 2,017,594.63 43,912,213.86
Sep 15, 2006 1,215,098.92 802,495.71 2,017,594.63 42,697,114.94
Dec 15, 2006 1,237,304.85 780,289.78 2,017,594.63 41,459,810.09
--------------- --------------- --------------
2006 ACTIVITY 4,817,570.78 3,252,807.74 8,070,378.52 41,459,810.09
--------------- --------------- -------------- ---------------
Mar 15, 2007 1,259,916.60 757,678.03 2,017,594.63 40,199,893.49
Jun 15, 2007 1,282,941.58 734,653.05 2,017,594.63 38,916,951.91
Sep 15, 2007 1,306,387.33 711,207.30 2,017,594.63 37,610,564.58
Dec 15, 2007 1,330,261.56 687,333.07 2,017,594.63 36,280,303.02
--------------- --------------- --------------
2007 ACTIVITY 5,179,507.07 2,890,871.45 8,070,378.52 36,280,303.02
--------------- --------------- -------------- ---------------
Mar 15, 2008 1,354,572.09 663,022.54 2,017,594.63 34,925,730.93
Jun 15, 2008 1,379,326.90 638,267.73 2,017,594.63 33,546,404.03
Sep 15, 2008 1,404,534.10 613,060.53 2,017,594.63 32,141,869.93
Dec 15, 2008 1,430,201.96 587,392.67 2,017,594.63 30,711,667.97
--------------- --------------- --------------
2008 ACTIVITY 5,568,635.05 2,501,743.47 8,070,378.52 30,711,667.97
--------------- --------------- -------------- ---------------
Mar 15, 2009 1,456,338.90 561,255.73 2,017,594.63 29,255,329.07
Jun 15, 2009 1,482,953.49 534,641.14 2,017,594.63 27,772,375.58
Sep 15, 2009 1,510,054.47 507,540.16 2,017,594.63 26,262,321.11
Dec 15, 2009 1,537,650.71 479,943.92 2,017,594.63 24,724,670.40
--------------- --------------- --------------
2009 ACTIVITY 5,986,997.57 2,083,380.95 8,070,378.52 24,724,670.40
--------------- --------------- -------------- ---------------
Mar 15, 2010 1,565,751.28 451,843.35 2,017,594.63 23,158,919.12
Jun 15, 2010 1,594,365.38 423,229.25 2,017,594.63 21,564,553.74
Sep 15, 2010 1,623,502.41 394,092.22 2,017,594.63 19,941,051.33
Dec 15, 2010 1,653,171.92 364,422.71 2,017,594.63 18,287,879.41
--------------- --------------- --------------
2010 ACTIVITY 6,436,790.99 1,633,587.53 8,070,378.52 18,287,879.41
--------------- --------------- -------------- ---------------
</TABLE>
42
<PAGE>
NRG ENERGY CENTER, INC. (D/B/A MINNEAPOLIS ENERGY CENTER)
7.31% SENIOR SECURED NOTE DUE JUNE 15, 2013
PRINCIPAL AND INTEREST PAYMENT AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
DATE OF PRINCIPAL INTEREST TOTAL PRINCIPAL
PAYMENT PAYMENT PAYMENT PAYMENT BALANCE
- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Mar 15, 2011 1,683,383.63 334,211.00 2,017,594.63 16,604,495.78
Jun 15, 2011 1,714,147.47 303,447.16 2,017,594.63 14,890,348.31
Sep 15, 2011 1,745,473.51 272,121.12 2,017,594.63 13,144,874.80
Dec 15, 2011 1,777,372.04 240,222.59 2,017,594.63 11,367,502.76
--------------- --------------- --------------- ---------------
2011 ACTIVITY 6,920,376.65 1,150,001.87 8,070,378.52 11,367,502.76
--------------- --------------- --------------- ---------------
Mar 15, 2012 1,809,853.52 207,741.11 2,017,594.63 9,557,649.24
Jun 15, 2012 1,842,928.59 174,666.04 2,017,594.63 7,714,720.65
Sep 15, 2012 1,876,608.11 140,986.52 2,017,594.63 5,838,112.54
Dec 15, 2012 1,910,903.12 106,691.51 2,017,594.63 3,927,209.42
--------------- --------------- --------------- ---------------
2012 ACTIVITY 7,440,293.34 630,085.18 8,070,378.52 3,927,209.42
--------------- --------------- --------------- ---------------
Mar 15, 2013 1,945,824.88 71,769.75 2,017,594.63 1,981,384.54
Jun 15, 2013 1,981,384.54 36,209.80 2,017,594.34 --
--------------- --------------- --------------- ---------------
2013 ACTIVITY 3,927,209.42 107,979.55 4,035,188.97 --
--------------- --------------- --------------- ---------------
LOAN TOTAL 84,000,000.00 75,816,392.15 159,816,392.15
=============== =============== ===============
</TABLE>
43
<PAGE>
[NRG LOGO]
January 20, 1997
TO: File
FROM: James Evans
SUBJECT: MINNEAPOLIS ENERGY CENTER DEBT REQUIREMENTS
I. Their are 3 binders
A. Loan Documentation (the actual agreement)
B. Principal and interest payment calculations and the Wire Transfer
Confirmations (items used for quarterly payments)
C. Financial Statements (items sent independently of the quarterly
payments)
II. Payments
A. Due every March, June, September and December 15th
B. Open file Excel spreadsheet (e.g. l296pay.xls)
C. Update all yellow text
D. Make sure none of the banks have changed
1. This happens occasionally, their should be a letter from the bank
stating the change
E. Make sure payment calculation ties to the bond amortization schedule
F. Have thermal accounting manager approve and give Treasury a copy to set
up wire transfer
G. A letter used to be sent to the note holders, but Tom G. stopped this
process
H. File a copy of the payment calculation and the wire confirmations
III. Financials & Debt Compliance
A. Quarterly unaudited financials include--due 45 days after each quarter
(includes 4th quarter which also is reported with audited financials at
a later date)
1. Send in triplicate
2. Cover letter signed by an officer of the company (i.e. Val K.)
3. Income statement
4. Balance sheet
a) Items may be shifted between assets and liabilities as compared to
internal reporting (e.g. intercompanys)
5. Statement of cash flows
6. Rent limit calculation schedule
7. Income available for debt service schedule
B. Year-end Audited financials are due 120 days after year-end
1. Send in triplicate
2. Cover letter
3. Audit letter for financial audit & audited financials & notes to
financial statements from auditors
4. Audit letter for the OCC
5. Schedule of active steam and chilled water contracts
6. The new years financial budget
44
<PAGE>
Exhibit 10.6
INDEX
SECTION PAGE #
- ------- ------
RECITALS ......................................... 1
1. Definitions .................................. 2
Adjusted Base Price .................... 2
Alternate Fuel ......................... 3
Alternate Fuel Price ................... 3
Annual Maximum ......................... 7
Associated Equipment ................... 7
Base Price ............................. 7
BTU .................................... 8
Buyer .................................. 8
Buyer's Actual Efficiency Rate ......... 8
Buyer's Initial Efficiency Rate ........ 9
Buyer's Facility ....................... 9
Buyer's Metering Station ............... 9
Buyer's Requirements ................... 10
Capital Costs .......................... 11
City ................................... 12
Commencement Date ...................... 12
Condensate ............................. 13
Consumer Price Index ................... 14
Contract Year .......................... 15
CPI Adjustment ......................... 15
Down Time .............................. 16
Down Time Charges ...................... 16
Down Time Price ........................ 17
Energy Charge .......................... 17
Force Majeure .......................... 18
Fuel Oil ............................... 19
Generating Equipment ................... 21
High Bridge ............................ 21
High Bridge Life Extension Outage ...... 21
Interruption ........................... 22
License Renewal Fees ................... 23
Line Maintenance Costs ................. 24
MCF .................................... 24
Metering Station ....................... 24
MMBTU .................................. 25
-1-
<PAGE>
Net MMBTU's of Steam ................... 25
NORENCO ................................ 26
NSP .................................... 26
Natural Gas ............................ 26
Ordinance Fee .......................... 26
Reference Rate ......................... 26
Seller ................................. 27
Seller's Energy Sources ................ 27
Seller's Metering Station .............. 27
Seller's Total Costs ................... 27
Snelling/Marshall Bridge Work .......... 28
Supply Line ............................ 28
Term ................................... 29
Useable Steam .......................... 29
2. Construction; Ownership; Operation ........... 30
3. Term ......................................... 32
4. Quantity ..................................... 32
5. Condensate Return ............................ 37
6. Metering ..................................... 38
7. Billing ...................................... 40
8. Costs and Charges ............................ 42
9. Default; Remedies; Liquidated Damages ........ 46
10. Indemnity .................................... 54
11. Representations .............................. 58
12. Miscellaneous ................................ 61
-2-
<PAGE>
2/12/88
ENERGY AGREEMENT
----------------
This Energy Agreement ("Agreement") is made and entered into this 12th
day of February, 1988, by and between NORENCO CORPORATION, a Minnesota
corporation ("Seller"); and WALDORF CORPORATION, a Delaware corporation
("Buyer").
WITNESSETH THAT:
WHEREAS, Buyer owns and operates a recycled paperboard mill and
folding carton plant located in the City of St. Paul, Minnesota ("Buyer's
Facility"); and
WHEREAS, Buyer has requirements for energy to conduct its operation
and desires to contract for a long-term, uninterruptible energy source and
further desires that the primary source of such energy be in the form of steam;
and
WHEREAS, Seller's parent, Northern States Power Company ("NSP") owns
and operates an electric generating facility located in the City of St. Paul,
Minnesota (the "High Bridge Plant"), which produces steam; and
WHEREAS, Seller owns a steam line which runs from the High Bridge
Plant to Buyer's Facility and has a contract to purchase steam from NSP and,
accordingly, is in the position to and desires to provide Buyer with its
requirements for energy, as hereinafter described.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements herein contained and other good
-1-
<PAGE>
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, the parties hereto hereby agree as
follows.
1. DEFINITIONS.
1.1 For purposes of this Agreement, the following terms shall
have the following definitions:
1.1.1 "Adjusted Base Price" shall mean the amount to be paid by
Buyer to Seller per BTU's of steam energy delivered
to Buyer hereunder, at Buyer's Metering Station, from July 1,
1990 until the termination of this Agreement. During such
period, the Adjusted Base Price shall be computed as follows:
During each Contract Year commencing July 1, 1990 through the
life of this Agreement, the Adjusted Base Prices (both the
"Standard Adjusted Base Price" and the "Premium Adjusted Base
Price") shall be computed for the ensuing Contract Year by
using the Base Prices or Adjusted Base Prices for the
Contract Year having just ended, and increasing or decreasing
such Base Prices or Adjusted Base Prices by a percentage
equal to the corresponding percentage increase or decrease,
as the case may be, between Seller's Total Costs for each of
the two immediately preceding Contract Years; provided,
however, that
-2-
<PAGE>
regardless of any increase or decrease in Seller's Total
Cost, the Adjusted Base Price for the Contract Year
commencing July 1, 1990 and ending June 30, 1991 shall not be
less than $ per MMBTU (herein sometimes referred to as
"Standard Adjusted Base Price"); and provided further that,
if the average usage during any twelve (12) hour period
during the Contract Year commencing July 1, 1990 and ending
June 30, 1991 is less than pounds of Useable Steam per
hour, the Adjusted Base Price for any such twelve (12) hour
period shall be not less than $ per MMBTU (herein
sometimes referred to as "Premium Adjusted Base Price").
1.1.2 "Alternate Fuel" shall mean Natural Gas or Fuel Oil.
1.1.3 "Alternate Fuel Price" shall mean:
1.1.3.1 An amount equal to NSP's actual cost of the
Alternate Fuel, plus fifteen percent (15%) thereof
if:
o Alternate Fuel is supplied because the High
Bridge Plant is permanently removed from service or
the Supply Line is permanently removed from service
as pursuant to Section 9.3.1
-3-
<PAGE>
or Section 9.3.2.1, but not Section 9.3.2.2,
o during any days when Alternate Fuel is used which,
when added to all other days of Alternate Fuel use
in the then current Contract Year, do not exceed
sixty (60) days in such Contract Year,
o during the Snelling/Marshall Bridge Work,
o during outages caused by Force Majeure, or
o after Buyer has collected the Liquidated Damages
as set forth in Section 9.2 or 9.3.
1.1.3.2 Notwithstanding Section 1.1.3.1, if Natural Gas is
the Alternate Fuel supplied, and if the Alternate
Fuel Price set forth in Section 1.1.3.1 is more or
less than NSP can legally charge, (including all
local, state or federal taxes, franchise or gross
earnings fees or other charges required to be
included in or added to the public utility bill
pursuant to its tariffs or other requirements)
-4-
<PAGE>
under any applicable law or regulation, then the
Alternate Fuel Price shall be adjusted so as to
comply with such law or regulation. Whenever
feasible, transportation and/or agency service
Natural Gas will be made available if conditions
warrant such service and costs of such service would
benefit Buyer.
1.1.3.3 For purposes of Section 1.1.3.1, if Fuel Oil is the
Alternate Fuel supplied, Seller's actual cost shall
include delivery to the tanks on Buyer's premises,
including transportation, unloading and heating or
pre-heating.
1.1.3.4 Where Alternate Fuel is supplied after the sixtieth
(60th) day of Alternate Fuel use in the then current
Contract Year, and is not otherwise provided for in
1.1.3.1, the Alternate Fuel Price shall be
calculated as follows: For each twelve (12) hours of
usage after the sixtieth (60th) day of Alternate
Fuel in the then current Contract Year, Buyer's
Initial
-5-
<PAGE>
Efficiency Rate shall be divided by Buyer's Actual
Efficiency Rate. The quotient shall be multiplied by
the applicable Base Price or the applicable Adjusted
Base Price, as the case may be. The product shall
be the Alternate Fuel Price for the twelve (12)
hours of useage and shall be multiplied by the Net
MMBTU's of Steam generated by Buyer to calculate the
amount of the payment by Buyer for that twelve (12)
hour period to Seller for Alternate Fuel useage.
Notwithstanding the foregoing, if the Energy Charge
as calculated with the prices established under
Sections 1.1.3.1, 1.1.3.2 and 1.1.3.3 would be less
than the Energy Charge calculated with the Alternate
Fuel Price as described in this subsection, then the
Energy Charge shall be calculated with the Alternate
Fuel Price as established in Sections 1.1.3.1,
1.1.3.2 and 1.1.3.3.
1.1.3.5 For the purpose of this Agreement, any partial day
in which Alternate Fuel is
-6-
<PAGE>
used shall be deemed to be a full day.
1.1.4 "Annual Maximum" shall mean a quantity of energy equal to
3,500,000 MMBTU's per Contract Year.
1.1.5 "Associated Equipment" shall mean all equipment which
constitutes an integral part of the Generating Equipment or
the Supply Line, or which is associated with the Generating
Equipment or the Supply Line, and which is owned by the Buyer
and located at Buyer's Facility.
1.1.6 "Base Price" shall mean:
1.1.6.1 Where the average usage during any twelve (12) hour
period is equal to or greater than pounds of
Useable Steam per hour, an amount equal to $
per MMBTU for all Useable Steam provided during such
twelve (12) hour period, measured at Buyer's
Metering Station (herein sometimes referred to as
the "Standard Base Price"); or
1.1.6.2 Where the average useage during any twelve (12) hour
period is less than pounds of Useable Steam per
hour, an amount equal to $ per MMBTU for all
Useable Steam provided
-7-
<PAGE>
during such twelve (12) hour period, measured at
Buyer's Metering Station (herein sometimes referred
to as the "Premium Base Price").
1.1.6.3 The twelve (12) hour periods during which average
useage is calculated shall be the "a.m." period
from 12:00 midnight until 12:00 o'clock noon, and
the "p.m." period from 12:00 noon until 12:00
o'clock midnight. Such time intervals may be changed
from time to time as Buyer and Seller determine and
set forth in a standard operating plan. The Base
Price shall not be adjusted during the period from
the date hereof through June 30, 1990.
1.1.7 "BTU" shall mean British thermal unit, being the quantity of
heat required to raise one pound of water one degree
Fahrenheit under standard conditions.
1.1.8 "Buyer" shall mean Waldorf Corporation, a Delaware
corporation, which is the owner of Buyer's Facility.
1.1.9 "Buyer's Actual Efficiency Rate" shall be the actual steam
generated by the boilers at Buyer's Facility measured in
BTU's divided by
-8-
<PAGE>
the actual Alternate Fuel input to the boilers at Buyer's
Facility measured in BTU's to produce this steam for the same
time period.
1.1.10 "Buyer's Initial Efficiency Rate" shall mean the percentage
of efficiency at which Buyer's boilers and equipment generate
steam from Alternate Fuels. Seller will cause a test to be
conducted and costs will be shared 50/50 between Buyer and
Seller using ASME Test PTC41. Buyer's boilers shall be tested
to establish an efficiency rate for both Natural Gas and Fuel
Oil operation. Once determined and agreed to by Buyer and
Seller, Buyer's Initial Efficiency Rate shall continue in
effect throughout the Term of this Agreement.
1.1.11 "Buyer's Facility" shall mean the recycled paperboard mill,
folding carton plant, general offices and other facilities
owned by Buyer and located in St. Paul, Minnesota, as the
same shall exist from time to time.
1.1.12 "Buyer's Metering Station" shall mean the Metering Station
installed by Buyer at a location within Buyer's Facility
which will allow measurement of all Useable Steam delivered
from Seller and all Useable Steam generated at Buyer's
Facility. Buyer's
-9-
<PAGE>
Metering Station shall be maintained by Buyer. The accuracy
of Buyer's Metering Station shall be at least equivalent in
quality and performance to that existing at Seller's Metering
Station.
1.1.13 "Buyer's Requirements" shall mean the total needs of Buyer
for energy at Buyer's Facility, including, but not limited
to, energy for processing, space heating, and electrical
generating; and Natural Gas for drying processes; provided,
however, that "Buyer's Requirements" shall be deemed not to
include the purchase of electricity.
1.1.13.1 Buyer has advised Seller of Buyer's contract with
the Housing and Redevelopment Authority of the City
of St. Paul, Minnesota (hereinafter "HRA") dated
December 5, 1985. Buyer and Seller hereby agree that
Buyer shall, before it transfers steam to HRA
pursuant to the HRA contract, certify in writing to
Seller that it has steam generating capacity
available at Buyer's Facility sufficient to serve
HRA's needs as well as Buyer's needs.
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Buyer shall further be obligated to maintain the
steam generating capacity at Buyer's Facility with
sufficient capacity to serve HRA's needs as well as
Buyer's needs and shall renew such written
certification on an annual basis. Certifications by
Buyer are subject to verification by Seller at
Seller's expense. Buyer and Seller further agree
that Seller shall have no obligation to supply
Useable Steam or Alternate Fuels for HRA's benefit
or the benefit of HRA's customers beyond the Term of
this Agreement. Buyer hereby undertakes to advise
HRA of the conditions of this section. Subject to
these conditions precedent, Seller agrees that
Buyer's Requirements may include steam for HRA,
subject to flows, quantities and conditions of
service specified in this Agreement.
1.1.14 "Capital Costs" shall mean all costs incurred in replacing,
restoring or improving the Supply Line which are required by
law to be
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capitalized for tax purposes under the Internal Revenue Code
as existing and in effect on the date such costs are
incurred, and shall include the costs of the
Snelling/Marshall Bridge Work, right-of-way relocations, and
other items which are required by law to be capitalized for
tax purposes.
1.1.15 "City" shall mean the City of St. Paul, Minnesota.
1.1.16 "Commencement Date" shall mean the first day upon which
Useable Steam is transported by Seller to Buyer through the
Supply Line and used by Buyer to meet Buyer's Requirements of
energy. The Commencement Date shall not occur until (1) the
Supply Line has been repaired, restored and thoroughly tested
and has been placed in continuous operation meeting
specifications under this Agreement at a minimum of
pounds per hour for twelve (12) hours immediately preceding
the Commencement Date, (2) a standard operating plan
consistent with the intent of this Agreement has been
prepared, approved and implemented by Buyer and Seller;
provided, however, that this requirement for a standard
operating plan may be unilaterally waived by
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Buyer if the parties are unable to agree on the contents of
such standard operating plan, and (3) Seller has given Buyer
at least twenty-four (24) hours' advance notice of the
Commencement Date, which notice Buyer may waive. In the event
the Commencement Date has not occurred by July 1, 1988,
subject to delays caused by Force Majeure, this Agreement, at
the sole option of Buyer shall commence on a date specified
by Buyer to Seller in writing given not less than ten (10)
days prior to such Commencement Date, and Seller shall
deliver Alternate Fuel to Buyer on the date so designated as
the Commencement Date.
1.1.17 "Condensate" shall mean steam condensate return water for the
High Bridge Plant. "Acceptable Condensate" returned shall not
have been in contact with the Buyer's process and shall not
contain minerals in quantities greater than the following:
(1) Dissolved oxygen -- (measured before oxygen
scavenger addition): .007 mg/L as oxygen
(2) Iron -- .05 mg/L as iron
(3) Copper -- .020 mg/L as copper
(4) Hardness -- .020 mg/L
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(5) Total organic carbon -- 0.3 mg/L as carbon
(6) Conductivity -- 10 micro Mho's
(7) Silica -- 0.2 mg/L as silica
(8) Sodium -- 0.4 mg/L as sodium
As to items (1) through (8), the above-described maximum
limits shall not be exceeded for periods of more than eight
(8) consecutive hours. The pH factor shall not be less than
7.5 nor greater than 9.2.
1.1.18 "Consumer Price Index" shall mean the Consumer Price Index
average for "all items" shown on the "U.S. city average for
urban wage earners and clerical workers (including single
workers), all items, groups, subgroups and special groups of
items" as promulgated by the Bureau of Labor Statistics of
the U.S. Department of Labor, using the year 1967 as a base
of 100. In the event that the Consumer Price Index
hereinabove referred to ceases to incorporate a significant
number of the relevant items now incorporated in the
Consumer Price Index, or if a substantial change is made in
the method of establishing the Consumer Price Index, then the
Consumer Price Index shall be adjusted to the figure which
would
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have resulted had no change occurred in the manner of
computing the Consumer Price Index. In the event that the
Consumer Price Index (or a successor or substitute index) is
not available, a reliable governmental or other non-partisan
publication evaluating the information theretofore used in
determining the Consumer Price Index shall be used in lieu of
the Consumer Price Index.
1.1.19 "Contract Year" shall mean a period of twelve (12) months
beginning on July 1 and ending on June 30; provided, however,
the first Contract Year shall begin on the Commencement Date
and run through June 30, 1989.
1.1.20 "CPI Adjustment" shall mean the product arrived at by
multiplying the amount in effect of the item being adjusted
on June 30 of the immediately preceding Contract Year by the
percentage by which the Consumer Price Index for the month of
June during the immediately preceding Contract Year exceeds
or is less than the Consumer Price Index for the month of
June in the Contract Year prior to the immediately preceding
Contract Year. The first CPI Adjustment under this Agreement
shall occur on July 1, 1990.
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1.1.21 "Down Time" shall mean any and all periods of time during
which Buyer is unable to operate its paper machine or
machines at normal operating speeds by reason of an
Interruption in the supply of Useable Steam with less than
twelve (12) hours' notice, or by reason of Seller's failure
to supply Alternate Fuels; provided, however, that
Interruptions caused by Force Majeure shall not be included
within "Down Time."
1.1.22 "Down Time Charge" shall mean an amount equal to the product
of the Down Time Price multiplied by the number of hours of
Down Time per paper machine affected whenever Seller has not
provided Buyer with at least twelve (12) hours' advance oral
notice of Down Time with written confirmation thereof within
two (2) business days thereafter; provided, however, in no
event shall the total Down Time Charge for any single
Interruption exceed as adjusted annually, commencing
July 1, 1990, by the CPI Adjustment. For the purpose of
computing the Down Time Charge Buyer shall notify Seller in
writing within two (2) business days of the Down Time
duration and the number of machines affected. Any partial
hour,
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other than the first hour, equal to or greater than
thirty-one (31) minutes shall be deemed to be a full hour.
Any partial hour that is the first hour of Down Time shall be
deemed to be a full hour. At the time of execution of this
Agreement, Buyer's Facility contained four (4) operable paper
machines.
1.1.23 "Down Time Price" shall mean the amount of $ as adjusted
annually, commencing July 1, 1990, by the CPI Adjustment.
1.1.24 "Energy Charge" shall mean the amount to be paid by Buyer to
Seller hereunder for the products (including Useable Steam,
Natural Gas, and Fuel Oil) furnished by Seller to Buyer under
the terms of this Agreement, which Energy Charge shall be
measured at Buyer's Metering Station, and which, for any
given month, shall, for all Useable Steam, be equal to the
product of the applicable Base Price or applicable Adjusted
Base Price multiplied by the Net MMBTU's of Useable Steam
delivered by Seller to Buyer during such month, and shall,
for all Alternate Fuel, be equal (1) to the product of the
applicable Alternate Fuel Price multiplied by the quantity of
Alternate Fuel delivered by Seller to Buyer during such
month, if the
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conditions specified in Section 1.1.3.1 exist or (2) to the
amount as calculated under Section 1.1.3.4.
1.1.25 "Force Majeure" shall mean acts of God, war, civil commotion,
fire, explosions, the elements or other casualty, labor
strikes or disputes, action or orders of governmental
agencies or institutions or the courts, or other causes
beyond the reasonable control of the parties hereto which
preclude or materially impair the operation of the Generating
Equipment, the High Bridge Plant, the Supply Line or the
boilers at Buyer's Facility, or shut down or materially
impair the sources or means of energy supply, or preclude or
materially impair Buyer from accepting delivery of energy;
provided, however, that energy price considerations shall not
be deemed to be a Force Majeure; and provided further that
failure to timely contract for any energy supply shall not be
deemed to be a Force Majeure; and provided further that
overload or excess demand not caused by any of the foregoing
(including demand caused by extremes in temperature or
prolonged periods of high or low temperatures) shall not be
deemed to be a Force Majeure; and
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provided further, that if any Force Majeure conditions
relating to the Supply Line can be corrected by the
expenditure of funds (net of Buyer's contribution under
Section 8.5.2 and any insurance proceeds received by Seller)
which, for each occurrence, are less than $ or
of the amount of the Liquidated Damages set forth in Section
9.5 for that same Contract Year, whichever amount is greater,
and if Seller elects not to expend the funds necessary to
cure such Force Majeure conditions in a timely manner, then
such conditions shall not be deemed to be a Force Majeure.
1.1.26 "Fuel Oil" shall mean No. 6 low sulphur (less than 1-1/2%)
petroleum based fuel oil, which oil shall at all times have
the characteristics and specifications with the following:
(1) Gravity, (degrees) API -3 min, +15 max
(2) Viscosity, SUS at 100(degrees)F 8,000 max
(3) Sulfur, Wt. % ............... 1.5% max
(4) BTU/gallon .................. 150,000 min
(5) Sediment, Wt. % ............. 1% max
(6) BS & W Total, Vol. % ........ 2% max
(7) Flash Point ................. 190(degrees)F max
140(degrees)F min
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(8) Vanadium .................... 55 ppm max
and shall at all times equal or exceed the minimum
specifications established from time to time by any
governmental agency or unit. Provided, however, if the Buyer
and Seller shall, subsequent to the execution of this
Agreement, agree in writing that No. 2 fuel oil can and shall
be a useable Alternate Fuel, then such Agreement shall be
deemed to be part of this Agreement and "Fuel Oil" shall then
mean the lowest cost petroleum based fuel oil commercially
available in the Twin City Greater Metropolitan Area which
satisfies the current standard operating plan and which oil
shall at all times have characteristics and specifications
within the following guidelines:
(1) Gravity, (degrees) API -3 min, +35 max
(2) Viscosity, SUS at 100(degrees)F 8,000 max
(3) Sulfur, Wt. % ............... 1.5% max
(4) BTU/gallon .................. 125,000 min
(5) Sediment, Wt. % ............. 1% max
(6) BS & W Total, Vol. % ........ 2% max
(7) Flash Point ................. 190(degrees)F max
140(degrees)F min
(8) Vanadium .................... 55 ppm max
and shall at all times equal or exceed the
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minimum specifications established from time to time by any
governmental agency or unit. Buyer shall not unreasonably
withhold agreement on use of No. 2 fuel oil.
1.1.27 "Generating Equipment" shall mean all boilers, pipes, valves,
meters, controls, coal handling and storage systems,
buildings, yards, tracks, pollution control systems and all
other equipment and machinery located at the High Bridge
Plant necessary to produce Useable Steam in the quantity
required by this Agreement.
1.1.28 "High Bridge" or "High Bridge Plant" shall mean the facility
commonly known as the High Bridge Plant, now owned by NSP and
located in St. Paul, Minnesota, which is used by NSP to
produce steam for purposes of generating and supplying
electricity to its customers, and which has steam capacity
sufficient to provide Buyer with Buyer's Requirements of
Useable Steam as described in this Agreement.
1.1.29 "High Bridge Life Extension Outage" shall mean a voluntary,
once-during-the-Term-hereof shutdown of fewer than one
hundred eighty-one (181) days of the High Bridge Plant for
the purpose of repairing, improving and modernizing High
Bridge, so as to extend its operable life.
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The High Bridge Life Extension Outage shall not exceed one
hundred eighty (180) days in duration. Buyer, with written
consent of the Seller, shall have the right to supply its own
energy sources during any portion or all of the period of a
Useable Steam outage to accomplish this work. Such consent
shall not be unreasonably withheld. In the event such consent
is given, then the MMBTU's of steam gene rated by the energy
provided by Buyer for its own use shall be counted as part of
the requirement of MMBTU's for the Contract Year as set
forth in Section 4.1.2.
1.1.30 "Interruption" shall mean, with respect to Useable Steam, a
reduction in the flow of Useable Steam to Buyer's Facility to
a level which is insufficient to satisfy Buyer's
Requirements, and with respect to Natural Gas and Fuel Oil, a
rate of flow or delivery of such energy sources which is
insufficient to satisfy Buyer's Requirements. Provided,
however, that it shall not be deemed to be an Interruption if
Buyer's Requirements are in excess of pounds of Useable Steam
per hour and Seller is unable to deliver more than
pounds of Useable Steam per hour, or if
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Seller is unable to deliver Alternate Fuels in sufficient
quantities to permit Buyer to produce Useable Steam at a rate
greater than pounds per hour.
1.1.31 "License Renewal Fees" shall mean those fees required to be
paid to Chicago, Milwaukee, St. Paul and Pacific Railroad
Company and to Chicago and Northwestern Transportation
Company, their successors and assigns, to maintain, renew or
extend the rights, privileges and licenses granted under:
(1) that certain License Agreement dated November 22,
1982, by and between Richard B. Ogilvie, as Trustee
of the property of the Chicago, Milwaukee, St. Paul
and Pacific Railroad Company and NSP, as amended
March 29, 1983, and further amended October 24,
1984;
(2) that certain License Agreement dated April 14, 1983,
by and between Chicago and Northwestern
Transportation Company and NORENCO; and
(3) that certain License Agreement dated November 18,
1983, by and between Chicago and Northwestern
Transportation Company and NORENCO;
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and any other fees excluding Ordinance Fees to the City which
may hereafter be required to be paid to any party for the
right, privilege or license to use the right-of-way on, under
and over which the Supply Line is now or hereafter located.
1.1.32 "Line Maintenance Costs" shall mean all costs incurred to
third parties (including NSP) for labor and materials used in
maintaining the Supply Line, which costs may be expensed
rather than capitalized for tax purposes.
1.1.33 "MCF" shall mean 1,000 cubic feet of Natural Gas as defined
in the tariff of the gas utility providing Natural Gas
service.
1.1.34 "Metering Station" shall mean the sampling, measuring and
recording devices used to analyze steam and condensate data,
and, in connection with Buyer's Metering Station, the
sampling, measuring and recording devices used to analyze
steam, Condensate, oil and gas data, all of which devices, on
the last day of each calendar quarter during the Term of this
Agreement, shall be calibrated and certified to be accurate
within plus or minus one percent (1%) of the manufacturer's
standards by Seller at Seller's Metering Station and by Buyer
at
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Buyer's Metering Station. Reports, so certified, shall be
furnished by Buyer to Seller, and by Seller to Buyer, within
thirty (30) days after completion of such measurement.
1.1.35 "MMBTU" shall mean one million BTU's.
1.1.36 "Net MMBTU's of Steam" shall mean the total of the BTU
content per pound of all Useable Steam produced and delivered
by Seller to Buyer during a month (measured at Buyer's
Metering Station) times the number of pounds of steam,
reduced by the BTU content per pound of all Acceptable
Condensate delivered by Buyer to Seller during such month
times the number of Acceptable Condensate pounds (measured at
Seller's Metering Station), divided by one million, or in any
month Buyer produces steam at its own Facility, the BTU
content per pound of all steam generated at Buyer's Facility
(measured at Buyer's Metering Station) times the number of
pounds of steam reduced by the BTU content per pound of all
Acceptable Condensate delivered by Buyer to boilers in
Buyer's Facility during such month times the number of
Acceptable Condensate pounds (measured at Buyer's Metering
Station) divided by one million. If, in any given month,
Seller
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delivers Useable Steam and Buyer also generates steam, the
two amounts shall be totalled.
1.1.37 "NORENCO" shall mean NORENCO Corporation, a corporation
organized under the laws of the State of Minnesota, which is
a wholly-owned subsidiary of NSP and the owner and operator
of the Supply Line.
1.1.38 "NSP" shall mean Northern States Power Company, a corporation
organized under the laws of the State of Minnesota, which is
the owner/operator of the High Bridge Plant, the supplier of
the Natural Gas and Fuel Oil and the parent corporation of
NORENCO.
1.1.39 "Natural Gas" shall mean the natural gas purchased from time
to time for delivery by Seller to Buyer as an energy source,
which gas shall at all times meet the commercial standards
otherwise required of a regulated utility.
1.1.40 "Ordinance Fee" shall mean the fee required to be paid
pursuant to Section 2(n) of the City Council Resolution No.
280088 adopted by the City Council of the City on April 14,
1983, or any amendments thereto which may hereafter be
adopted.
1.1.41 "Reference Rate" shall mean the rate of
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interest from time to time publicly announced by First Bank
Minneapolis as its reference rate.
1.1.42 "Seller" shall mean NORENCO.
1.1.43 "Seller's Energy Sources" shall mean Useable Steam, Natural
Gas or Fuel Oil, supplied or caused to be supplied by Seller.
1.1.44 "Seller's Metering Station" shall mean the Metering Station
installed and maintained by Seller at a location in the High
Bridge Plant which will allow measurement of all condensate
delivered from Buyer to Seller.
1.1.45 "Seller's Total Costs" shall mean total incremental costs
incurred by Seller pursuant to and accounted for under
Article IV and Table 1 of that certain NSP/NORENCO Amended
Agreement dated May 18, 1983, and filed May 19, 1983 with the
Public Utilities Commission. Any modification or amendment to
said NSP/NORENCO Amended Agreement made subsequent hereto
shall not affect the definition of "Seller's Total Costs,"
unless such modification or amendment is initiated and
required or ordered by the Public Utilities Commission and is
not in response to a request initiated by NSP or Seller
wherein Buyer would be adversely
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affected by increased costs resulting from such modification
or amendment; and Seller agrees to resist in good faith any
such orders. Buyer reserves the right to participate in
proceedings before the Public Utilities Commission to protect
its own interests.
1.1.46 "Snelling/Marshall Bridge Work" shall mean all work required
to be performed to the Supply Line by or under the direction
of Seller, because of the reconstruction of the intersection
of Snelling and Marshall avenues and the underpass associated
therewith. Buyer, with the written consent of Seller, shall
have the right to supply its own energy sources during any
portion or all of the period of the Snelling/Marshall Bridge
Work. Such consent shall not be unreasonably withheld. In
the event such consent is given, then the MMBTU's of steam
generated by the energy provided by Buyer for its own use
shall be counted as part of the requirement of MMBTU's
for the Contract Year as set forth in Section 4.1.2.
1.1.47 "Supply Line" shall mean the transmission system, including
all pipes, pumps, valves, meters, controls, wires, insulation
and other equipment necessary to:
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(1) Transport Useable Steam from the Generating
Equipment at the High Bridge Plant to Buyer's
Metering Station;
(2) Transport Condensate in the quantity required by
this Agreement from Buyer's Facility to Seller's
Metering Station; and
(3) Provide for control of steam and communications
between the High Bridge Plant and Buyer's Facility.
1.1.48 "Term" shall mean the period of time beginning on the
Commencement Date and continuing through June 30, 2001,
unless this Agreement is sooner terminated as hereinafter
provided.
1.1.49 "Useable Steam" shall mean the product produced by the
Generating Equipment at the High Bridge Plant and delivered
to Buyer's Facility in the form of superheated steam having
the following characteristics and specifications at Buyer's
Facility when taken by Buyer at a flow of not less than
pounds per hour, nor more than pounds per hour:
(1) Temperature -- not less than 700 degrees Fahrenheit,
nor more than 760 degrees Fahrenheit;
(2) Pressure -- not less than pounds per
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square inch, nor more than pounds per
square inch;
(3) If Buyer takes less than pounds per hour, Useable
Steam shall mean the product produced by the High
Bridge Plant and delivered to Buyer's Facility in an
"as is" condition.
2. CONSTRUCTION; OWNERSHIP; OPERATION.
2.1 Seller, at its cost, shall make or cause NSP to make all
modifications, adjustments and additions to the Generating Equipment and Supply
Line which are necessary to produce Useable Steam and transport it in the
quantity and quality required by this Agreement, including all modifications,
adjustments and repairs to the Generating Equipment and the Supply Line which
are or may be caused by the inactive state of the Supply Line.
2.2 Subject to the provisions of Sections 8.2, 8.4, and 8.6,
throughout the Term of this Agreement, Seller shall obtain, renew and maintain
all franchises, licenses, permits, rights-of-way, easements, and other private
or governmental authorizations necessary to furnish steam through the Supply
Line. Seller shall contest, within reasonable limits, rules, regulations, laws
or ordinances which would impair or prevent Seller from furnishing steam
hereunder in the quantities and quality required hereby.
2.3 Throughout the Term of this Agreement, Seller
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shall own, operate, maintain, repair and adjust the Supply Line, and shall
cause NSP to maintain, adjust and repair the Generating Equipment. Buyer shall
own, maintain and repair all Associated Equipment. Seller shall have the right
to enter Buyer's Facility for the purpose of maintaining and repairing the
Supply Line, and to the extent Buyer does not adequately and timely maintain
the Associated Equipment, enter Buyer's Facility for the purpose of maintaining
and repairing the Associated Equipment including all modifications,
adjustments, replacements and additions which have heretofore or may hereafter
be made to Buyer's Facility and shall be reimbursed by Buyer for such
maintenance repair, modification, adjustment, replacement and additions.
2.4 Buyer shall not, by reason of this Agreement or the
termination of this Agreement or the payments made pursuant to this Agreement,
acquire title or ownership in or to the Generating Equipment or the Supply
Line, and Seller shall not acquire title or ownership in or to the Associated
Equipment.
2.5 Any portion of the Supply Line (except the Associated
Equipment) heretofore or hereafter placed at Buyer's Facility by Seller for the
purpose of furnishing steam hereunder shall be and remain the property of
Seller, and Buyer shall exercise reasonable care to protect the Supply Line
from loss or damage.
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3. TERM.
3.1 This Agreement shall commence on the Commencement Date and
shall continue through June 30, 2001, unless sooner terminated, as hereinafter
provided.
4. QUANTITY.
4.1 Seller shall produce and deliver to Buyer, and Buyer shall
purchase and accept from Seller all of Buyer's Requirements for energy during
the Term hereof; provided, however
4.1.1 Seller shall not be required to produce and deliver more than
the Annual Maximum in any Contract Year;
4.1.2 There shall be no mandatory minimum quantity of energy to be
produced and delivered or purchased and accepted under this
Agreement each Contract Year; provided, however, that Seller
shall have the right to terminate this Agreement by written
notice to Buyer if Buyer purchases and accepts, in the
aggregate, less than MMBTU's of energy during any given
Contract Year. If Seller elects to terminate this Agreement
pursuant to this Section 4.1.2, Seller shall do so by serving
written notice of its election to terminate on Buyer within
sixty (60) days after the expiration of the Contract Year.
The effective date of the termination shall be the last day
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of the tenth (10th) full calendar month after service of
notice of termination, or such earlier date as Buyer shall
determine and notify Seller pursuant to thirty (30) days'
advance written notice to Seller.
4.1.3 Notwithstanding the provisions of Section 4.1.2, Seller shall
not be entitled to terminate this Agreement if Buyer, having
failed to purchase and accept MMBTU's of energy in any
given Contract Year, nevertheless pays to Seller an amount
equal to the Energy Charge for the difference between the
amount of energy actually purchased and accepted and
MMBTU's. Such payment shall be made within thirty (30) days
after receipt of Seller's notice of termination, and upon
payment, such notice shall be null and void and all right to
terminate shall cease. For the purpose of calculating the
Energy Charge for any unused steam pursuant to this Section
4.1.3, the Standard Base Price (or Standard Adjusted Base
Price, as the case may be), shall be used.
4.1.4 For purposes of this paragraph 4.1 only, for calculating the
number of MMBTU's purchased and accepted by Buyer in any
given Contract Year,
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Buyer shall be given credit for all Down Time, and for all
such Down Time, the flow of Useable Steam shall be deemed to
have been at pounds per hour, Buyer shall also be given
credit for Interruptions and all other periods where Buyer
has provided its own fuel as allowed in this Agreement.
4.1.5 Except as provided in Section 4.1.2 and Section 9.11, this
Agreement is not terminable by Seller, and the delivery of
energy sources (either in the form of Useable Steam or
Alternate Fuels) shall be noninterruptible for the full Term
hereof.
4.1.6 The Annual Maximum quantity of energy required to be
produced, delivered and purchased hereunder and the minimum
quantity set forth in Section 4.1.2 permitting Seller to
terminate shall be apportioned for any partial Contract Year.
4.1.7 In the event Buyer requires and uses less than pounds of
Useable Steam per hour, Buyer shall accept such steam in its
"as is" condition and without warranty as to temperature or
pressure. Buyer understands that if Useable Steam is
delivered at less than pounds per hour, the risk of
damage to
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Buyer's machinery and equipment is increased, and Buyer
hereby agrees to assume all such risk when, as a result of
Buyer's requirement and use, the flow of steam drops below
pounds per hour. If, as a result of Buyer's requirement and
use, the flow of steam in the Supply Line drops below
pounds per hour, the Supply Line shall be shut down, and an
Alternate Fuel shall be used. Such a shut down of the Supply
Line shall not be deemed to be an Interruption, nor shall it
be counted as part of the sixty (60) days of Alternate Fuel
Use set forth in Section 4.1.9 but will be priced according
to the Alternate Fuel price specified in Section 1.1.3.1.
4.1.8 Seller and Buyer shall use their best efforts to coordinate
inspections, maintenance and repairs to their respective
facilities.
4.1.9 Of Seller's Energy Sources, the primary energy source to be
delivered to Buyer hereunder shall be Useable Steam, and
Seller shall use all reasonable efforts to deliver Useable
Steam. In the event that Seller is unable to provide Useable
Steam to Buyer, and Seller provides at least twelve (12)
hours' advance notice to Buyer of such event, Seller shall be
permitted
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to satisfy its obligation to satisfy Buyer's Requirements by
causing NSP to deliver Natural Gas to Buyer. In the event
that Seller is unable to provide Useable Steam or Natural Gas
to Buyer, Seller shall be permitted to satisfy Buyer's
Requirements by delivering Fuel Oil to Buyer. Notwithstanding
the foregoing, Seller shall be in default under the terms of
this Agreement if Interruptions to the flow of Useable Steam
exist on all or part of more than sixty (60) days (in the
aggregate) during any Contract Year for any reasons other
than (1) Force Majeure, (2) High Bridge Life Extension
Outage, (3) Snelling/Marshall Bridge Work, or (4) Seller does
not provide Alternate Fuel at Useable Steam pricing then in
effect.
4.1.10 In the event that an Interruption occurs, Buyer shall have
the unrestricted right to supply its own energy sources
during the period such condition continues. During such
periods of Interruption, and all other periods when Buyer
provides its own energy sources, such MMBTU's of steam
generated shall be included as part of the MMBTU per
Contract Year requirement set forth under Section 4.1.2.
4.1.11 In any event in which it is foreseeable that
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the flow of Useable Steam will be interrupted for a period of
time exceeding fourteen (14) days, Buyer may request consent
to supply its own Alternate Fuel. Seller shall not
unreasonably withhold consent, provided, however, that
Seller's withholding of consent shall not be deemed
unreasonable if Seller has already incurred commitments for
the supply of Alternate Fuels for the relevant period.
4.1.12 Prior to the commencement of the first Contract Year, and
quarterly thereafter, Buyer shall provide Seller with an
estimate of Buyer's Requirements for the next twelve (12)
calendar months; provided, however, that each of such
estimates is intended to serve only as an aid to planning,
and shall not constitute or create any obligation on the part
of Buyer to purchase energy hereunder in the amounts
predicted.
5. CONDENSATE RETURN.
5.1 During each Contract Year of the Term, Buyer shall deliver to
Seller all of Buyer's Condensate for use in producing Buyer's steam at the High
Bridge Plant. (Seller shall, however, provide the water to initiate steam
production.)
5.2 Should the quality of Condensate returned fail to meet the
specifications herein set forth for Acceptable Condensate due to contamination
caused by Buyer, and Seller
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records and maintains records of such contamination, such Condensate may be
dumped and service may be curtailed after on-site make up storage volumes are
depleted. Seller will use its best efforts to provide additional make-up to the
extent possible from NSP's equipment to mitigate curtailment of steam delivery.
Any curtailment which shall occur beyond such best efforts by Seller shall not
be deemed an Interruption or Down Time. Buyer will be billed for the reasonable
documented costs of disposing of and replacing such Condensate, which costs
Buyer agrees to pay. Buyer will not receive credit for the difference in BTU's
between the dumped Condensate and the make-up.
6. METERING.
6.1 Metering of Seller's Useable Steam and Condensate will be
maintained at Seller's Metering Station at the expense of Seller; and will, to
the extent not now existing for Useable Steam, Condensate and Alternate Fuels,
be installed and maintained at Buyer's Metering Station at the expense of the
Buyer. Such meters and metering equipment shall be at least equivalent in
quality and performance to those existing at the Seller's Metering Station and
will consist of temperature and pressure recording instruments and steam flow
meters in the Supply Line, temperature compensated flow meters and a
temperature recording instrument in the Condensate return line, flow meters
which measure MCF's of gas and flow meters which measure gallons of oil to
provide the basis for determination of the amount of energy delivered to Buyer.
To the extent not now
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existing, conductivity and pH monitoring and sampling devices will be installed
at the expense of Buyer and maintained by Seller in the Condensate return line
to monitor the characteristics of Condensate. All meters, instruments, and
related equipment installed by Buyer shall be approved by Seller as to design
and propriety of installation and shall be available for inspection as provided
in Section 6.2.
6.2 Meters and all meter readings and/or charges shall be
accessible at all reasonable times to inspection and examination by Buyer and
Seller and each such meter (other than oil meters) shall be calibrated at least
once each ninety (90) days by and at the expense of the owner of such, who
shall give the other party notice of such calibration test in sufficient time
to enable such other party, if it so chooses, to have its representative
present. In the event any test shows meter error in excess of plus or minus one
percent (1%), Seller shall make an adjustment of the bills for service during
the period of inaccuracy if determinable, otherwise for one-half of the period
between the date of discovery of the meter error and the preceding meter
calibration test. The expenses of any unscheduled meter test requested by the
nonowner will be borne by the nonowner unless such a test shows the meter to be
in error by more than plus or minus one percent (1%). Oil meters shall be
maintained by Buyer, at Buyer's expense.
6.3 For billing purposes, recordings at Buyer's Metering Station
will govern for all measurements except
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Acceptable Condensate from Useable Steam; recordings at Seller's Metering
Station will govern for Acceptable Condensate from Useable Steam. Redundant
meterings will be used as backup and for quality control for primary metering.
In the event that meter tickets from delivery by truck or rail differ from
Buyer's metered results, meter tickets shall govern.
7. BILLING.
7.1 Seller shall submit a bill following the end of each month of
the Term which shall include:
(1) The number of MMBTU's of Useable Steam delivered and the
number of MMBTU's of steam generated at Buyer's Facility with
Alternate Fuels and Condensate returned during the preceding
month;
(2) the Net MMBTU's of Steam received by Buyer during the
preceding month;
(3) the amount of the applicable Base Price or the applicable
Adjusted Base Price;
(4) the nature, amount and price of any Alternate Fuel delivered
by Seller during the preceding month;
(5) the Energy Charge;
(6) Interruptions and Down Time (number, length, and
consequence);
(7) the amount of the Ordinance Fee; and
(8) other charges as applicable.
7.2 Buyer shall pay Seller within thirty (30) days
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following receipt of each monthly bill the amount billed and computed pursuant
to this Agreement.
7.3 Within thirty (30) days after the end of each Contract Year,
Seller shall submit an annual statement to Buyer which shall include the total
average annual cost of each of Seller's Energy Sources delivered by Seller
during the preceding Contract Year.
7.4 Any monthly bill or statement presented by Seller to Buyer
which is past due as specified herein shall accrue interest from the due date
at a rate per annum equal to one percent (1%) in excess of the Reference Rate,
until such past due amount is paid by Buyer. This late payment charge shall not
constitute a waiver of any remedy Seller may otherwise pursue in the event of
default.
7.5 It is the obligation of Seller to prepare accurate monthly
bills and annual statements. It is the obligation of both parties to review
such bills and statements and raise any questions or point out any mistakes
promptly. No bill or statement may be adjusted to correct errors or mistakes in
measurements, computations or otherwise unless either party objects to such
bill or statement within six (6) months after it is received by Buyer.
7.6 All payments required to be made by Buyer to Seller pursuant
to this Agreement shall be made by wire transfer to Seller's designated account
at the First Bank Minneapolis.
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8 COSTS AND CHARGES.
8.1 For each month of the Term, Buyer shall be obligated to pay
Seller an Energy Charge, based upon the bills received from Seller according to
Section 7.1 above, and Buyer shall pay such other amounts as are otherwise
required pursuant to this Article 8.
8.2 Buyer shall pay or reimburse Seller for its payment of the
Ordinance Fee related to Useable Steam. Seller shall bear and pay any and all
ad valorem property taxes and assessments levied on the construction or
ownership of the Supply Line and any and all franchise fees associated with the
delivery of Useable Steam hereunder and shall cause NSP to pay such taxes and
assessments levied on the Generating Equipment, without reimbursement from
Buyer.
8.3 Buyer shall reimburse Seller for times the documented Line
Maintenance Costs incurred by Seller, up to a maximum amount which shall not
exceed the sum of $ per Contract Year as adjusted annually, commencing
July 1, 1990 by the CPI Adjustment.
8.4 Seller shall obtain the extensions of the License Agreements
referred to in Section 1.1.31 hereof. Buyer shall pay to Seller an amount equal
to ninety percent (90%) of all License Renewal Fees hereafter paid by Seller
during the Term; provided, however, that (1) such payment by Buyer hereunder
shall not exceed the aggregate maximum amount of $ ; (2) Seller shall
pay the balance of License Renewal Fees, if any, in excess
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of said aggregate maximum amount; and (3) Seller shall confer with and Buyer
shall provide its best efforts to assist Seller in achieving the lowest License
Renewal Fees acceptable to Buyer and Seller.
8.5 Capital Costs shall be paid as follows:
8.5.1 Seller shall pay, without contribution or reimbursement by
Buyer, all Capital Costs exclusive of normal maintenance
incurred during the Term hereof which are necessary to insure
an efficient utilization of the Supply Line through June 30,
2001 and which are not the result of Force Majeure or are not
related to the performance of the Snelling/Marshall Bridge
Work.
8.5.2 In the event Capital Costs are incurred because of a Force
Majeure affecting the Supply Line (but not the High Bridge
Plant or the Generating Equipment), or because of the
Snelling/Marshall Bridge Work, Buyer shall pay to Seller an
amount equal to ninety percent (90%) of such Capital Costs;
provided, however, that (1) such payment by Buyer hereunder
shall not exceed the aggregate maximum sum of $ for the
Snelling/Marshall Bridge Work or $ for any other single
occurrence or project; (2) Seller shall pay the
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balance of all Capital Costs, (3) all Capital Costs so
expended are reasonable and necessary; and (4) except in the
case of an emergency, Seller shall give Buyer an estimate of
the anticipated amount of such Capital Costs prior to
commencement of the work. Buyer shall make progress payments
which shall be included with the monthly energy bill as each
one-fourth (1/4) of each project is completed.
8.5.3 In the event that the License Renewal Fees hereafter paid
during the Term total less than the aggregate amount of $
Buyer shall receive a credit reducing the aggregate maximum
amount for the Snelling/Marshall Bridge Work established in
Section 8.5.2 by an amount equal to the difference between $
and the License Renewal Fees paid; provided, however, such
credit shall not exceed $ . Accordingly, the aggregate
maximum amount for the Snelling/Marshall Bridge Work
established in Section 8.5.2 may not be reduced to a total
lower than $ .
8.5.4 It is anticipated that the Snelling/Marshall Bridge Work will
be a lengthy construction project and that the Supply Line
will be shut down an extended period of time during such
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construction thereby requiring the parties to use Alternate
Fuel. It is possible, however, to construct the project in
such a manner so as to cause the Supply Line to be shut down
fewer than fifteen (15) days (herein called the "Immediate
Resumption Procedure"), but such Immediate Resumption
Procedure is anticipated to be substantially more expensive
than the normal construction procedure contemplated in
Section 8.5.2 (the "Normal Construction Procedure"). If
Buyer, at Buyer's sole election, authorizes Seller to
implement the Immediate Resumption Procedure, Buyer shall pay
to Seller an amount equal to ninety percent (90%) of the
Capital Costs of performing the Snelling/Marshall Bridge Work
utilizing the Immediate Resumption Procedure and all of the
conditions of Section 8.5.2 shall apply, except that Buyer's
aggregate maximum cost shall be $ rather than $ .
If Buyer fails to notify Seller in a timely manner of Buyer's
election to implement the Immediate Resumption Procedure,
Buyer shall be deemed to have elected the Normal Construction
Procedure.
8.5.5 The aggregate maximum amounts of $ and/or $
and/or $ to be paid
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by Buyer under this Section 8.5 shall be adjusted annually
commencing July 1, 1990, by the CPI Adjustment.
8.5.6 Seller shall pay, or cause NSP to pay, all Capital Costs of
whatever nature relating to the High Bridge Plant and the
Generating Equipment.
8.6 Except as expressly set forth in this Article 8 to the
contrary, the parties shall each bear their respective responsibility for all
current and future taxes pursuant to applicable statutes and ordinances. Buyer
shall pay applicable sales tax.
8.7 Failure by either party to pay its respective costs and
charges set forth in this Article 8 shall constitute an event of default and
shall give rise to the remedies set forth in Article 9 hereof, including,
without limiting, the payment by Seller of the Liquidated Damages.
9. DEFAULT; REMEDIES; LIQUIDATED DAMAGES.
9.1 Buyer and Seller agree that this Agreement represents a
mutual, long-term commitment. Seller acknowledges that if either the High
Bridge Plant or the Supply Line is permanently removed from service, Buyer is
likely to sustain an economic loss which will be difficult to quantify even if
Seller provides Alternate Fuels for the remaining Term of the Agreement. Buyer
acknowledges that future contingencies or policies might reasonably cause NSP
to shut down or mothball the High Bridge
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Plant or cause Seller to shut down and remove from service the Supply Line, and
Buyer acknowledges that NSP or Seller may make such decisions, so long as Buyer
receives reasonable compensation for the loss it expects to Sustain as a
result. Both Buyer and Seller have an interest in certainty and in avoiding
disputes about quantification of contingent, future damages or losses that are
likely to occur but are difficult to quantify. In order to promote certainty
and avoid future disputes, Buyer and Seller have mutually agreed upon Sections
9.2 and 9.3 which define Conditions under which Liquidated Damages shall be
paid, and Buyer and Seller have mutually agreed upon the Schedule of Liquidated
Damages specified in Section 9.5.
9.2 If the High Bridge Plant is permanently removed from service,
Buyer shall have the right either to terminate this Agreement or to affirm and
enforce this Agreement and, if necessary, to maintain a Suit for specific
performance. In either case, Buyer shall have the right to collect the
Liquidated Damages set forth in Section 9.5. In the event Buyer elects to
affirm and enforce this Agreement after the permanent removal from service of
the High Bridge Plant, Seller shall provide Alternate Fuels with the billings
under Section 7.1 to be governed by Sections 1.1.3.1, 1.1.3.2, and 1.1.3.3,
and Seller shall have no further Obligation to Supply Useable Steam to Buyer.
9.3 Removal of the Supply Line from service for non-Force Majeure
conditions shall be treated in the following
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manner:
9.3.1 If Seller could continue operation of the Supply Line only
with the expenditure of an amount in excess of the maximum
aggregate sum of five million dollars ($5,000,000) cumulative
over the Term of this Agreement, exclusive of Line
Maintenance Costs and if Seller elects to remove permanently
the Supply Line from service in order to avoid such an
expenditure, Buyer shall have the right either to terminate
this Agreement to affirm and enforce this Agreement and,
if necessary, to maintain a suit for specific performance.
In either case, Buyer shall have the right to collect the
Liquidated Damages set forth in Section 9.5. In the event
Buyer elects to affirm and enforce this Agreement after the
permanent removal of the Supply Line pursuant to this Section
9.3.1, Seller shall provide Alternate Fuels with the billings
under Section 7.1 to be governed by Sections 1.1.3.1, 1.1.3.2
and 1.1.3.3. Seller shall have no further obligation to
supply Useable Steam to Buyer.
9.3.2 In the event that Seller elects to remove permanently the
Supply Line from service for any reason other than to avoid
an expenditure
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of an amount in excess of the maximum aggregate
sum of five million dollars ($5,000,000) cumulative
over the Term of this Agreement, exclusive of Line
Maintenance Costs, Buyer shall have the right either to
terminate this Agreement or to affirm and enforce this
Agreement and, if necessary, to maintain a suit for specific
performance. In either case, Buyer shall have the right, but
not the obligation, to collect the Liquidated Damages set
forth in Section 9.5.
9.3.2.1 In a situation governed by Section 9.3.2, if Buyer
elects to affirm and enforce this Agreement and to
collect the Liquidated Damages after the permanent
removal from service of the Supply Line, Seller
shall provide Alternate Fuels with the billings
under Section 7.1 to be governed by Sections
1.1.3.1, 1.1.3.2 and 1.1.3.3. Seller shall have no
further obligation to supply Useable Steam to Buyer.
9.3.2.2 In a situation governed by Section 9.3.2, if Buyer
elects to affirm and enforce this Agreement after
the
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permanent removal from service of the Supply Line,
and if Buyer elects to waive the Liquidated Damages,
Seller's obligation hereunder shall be limited to
the obligation to provide Alternate Fuels with the
billings under Section 7.1 to be governed by Section
1.1.3.4 for the remaining Term hereof. If Buyer
elects to waive the Liquidated Damages, there shall
be no further liability on the part of Seller for
Liquidated Damages for any future conditions under
any section of this Agreement, and Seller shall have
no further obligation to supply Useable Steam to
Buyer.
9.4 If the conditions described in Sections 9.2 or 9.3 result from
Force Majeure, neither Seller nor NSP shall be deemed to be in default
hereunder or under the Guaranty, and Buyer shall have no right to terminate the
Agreement, sue for specific performance or collect the Liquidated Damages.
9.5 Upon the occurrence of any one of the conditions giving rise
to the payment of the Liquidated Damages, as specified in Sections 9.2 or 9.3,
unless excused as specified in Section 9.4, the amount of Liquidated Damages to
be paid shall be as follows:
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Contract Year Amount
------------- ------
Commencement to June 30, 1990 $
July 1, 1990 to June 30, 1991
July 1, 1991 to June 30, 1992
July 1, 1992 to June 30, 1993
July 1, 1993 to June 30, 1994
July 1, 1994 to June 30, 1995
July 1, 1995 to June 30, 1996
July 1, 1996 to June 30, 1997
July 1, 1997 to June 30, 1998
July 1, 1998 to June 30, 1999
July 1, 1999 to June 30, 2000
9.6 It is explicitly understood and agreed that if, for any
condition specified in Sections 9.2 or 9.3, Buyer has elected to affirm and
enforce this Agreement and, in addition, to collect the Liquidated Damages set
forth in Section 9.5, Seller shall have no further obligation to pay additional
Liquidated Damages. The payment of Liquidated Damages shall occur, if at all,
not more than once.
9.7 The Liquidated Damages shall be paid in cash by Seller to
Buyer within thirty (30) days after demand therefor. In the event they are not
paid within said thirty-day period, interest at the rate per annum equal to one
percent (1%) in excess of the Reference Rate shall accrue from and after the
due date and shall be paid simultaneously with the Liquidated Damages. The
amount of the Liquidated Damages set forth above shall not be adjusted by the
CPI Adjustment or otherwise increased or decreased.
9.8 The Contract Year which shall be applied to determine the
amount of the Liquidated Damages shall be the Contract Year in which the first
day of the condition giving rise
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to the Liquidated Damages occurred.
9.9 If, during the Term of this Agreement, for any reason other
than Force Majeure, Seller fails to deliver at least one of the energy sources
provided for in this Agreement, either Useable Steam or Alternate Fuels,
sufficient to meet Buyer's Requirements up to the limits provided in Article 4,
Seller shall be deemed to be in default hereunder, and if Seller fails to
correct such condition of default within thirty (30) days after delivery of
written notice from Buyer, Buyer shall have the right either to terminate this
Agreement for default, or to affirm and enforce this Agreement and, if
necessary, to maintain a suit for specific performance. In either case, Buyer
shall also have the right to maintain an action for damages, if any.
9.10 If there is a cessation or outage in the flow of Useable Steam
for more than one hundred eighty (180) consecutive days, and during the one
hundred eighty (180) day period Seller fails to notify Buyer that the flow of
Useable Steam will be resumed within one year after the first day of the
outage, or if such notice is timely given, but the flow of Useable Steam is not
resumed within one year after the first day of the outage, then Buyer shall
have the right at any time thereafter prior to the resumption of the flow of
Useable Steam either to terminate this Agreement for default or to affirm the
Agreement and, if necessary, to maintain a suit for specific performance. It is
understood and agreed that if the cause of the cessation or outage is
attributable to Force Majeure or Snelling/Marshall
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Bridge Work, there shall be no default and Buyer shall have no right to
terminate this Agreement, so long as Seller is supplying Alternate Fuels.
9.11 If for any reason Buyer fails or refuses to pay the costs and
charges specified in this Agreement, as they become due, then in addition to
the late payment charge provided in Section 7.4 hereof, Seller may terminate
this Agreement for default if Buyer has not corrected such delinquency within
thirty (30) days after delivery of written notice from Seller, and Seller shall
have no further obligations hereunder for damages or otherwise; provided,
however, that Buyer shall have the right to contest the obligation to pay any
such costs or charges by depositing in escrow (either in the form of cash or an
irrevocable letter of credit) with an independent third party institution or
with a court of competent jurisdiction, the amount Seller claims is due and
owing from Buyer.
9.12 In the event that Seller defaults in its obligations under
this Agreement, then Buyer may maintain an action for specific performance, and
for damages, if any, but Buyer may not demand or recover Liquidated Damages. It
is understood that the conditions described in Sections 9.2 and 9.3 are not
conditions of default.
9.13 In the event that Buyer defaults on its obligations under this
Agreement, but the default is not specified in Section 7.4 or 9.9, then Seller
may maintain an action for specific performance or for damages, if any, but
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Seller may not terminate this Agreement and Seller's obligations hereunder
shall not be terminated.
9.14 If Seller is unable to perform its obligations hereunder as a
result of Force Majeure, neither Seller nor NSP shall be deemed to be default
hereunder or the Guaranty and Buyer shall have no right to terminate the
Agreement, sue for specific performance or sue for damages.
10. INDEMNITY.
10.1 Seller shall indemnify, defend and hold Buyer harmless from
and against all costs, liabilities, claims and damages, whether on account of
bodily injury or death, and/or property damage sustained by any person or
thing, including employees and property of Seller and any other person or
entity or his or its property, which is caused or contributed to by the design,
construction, installation, modification, repair or use of the Generating
Equipment or the Supply Line or by the escape of steam or Alternate Fuel at any
place before it reaches the delivery point at Buyer's Facility; and Seller
shall, at its sole expense, defend any and all actions based thereon, and pay
all reasonable attorneys' fees, costs and expenses including settlements
arising therefrom. Buyer shall tender to Seller the defense of any action
arising under this Section. However, Seller is not required to defend and
indemnify Buyer under the foregoing provision against:
(1) Claims of injury or damages to Buyer's own personnel, plant
and equipment; or
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(2) Claims of injury or damages resulting from an act or omission
of Buyer which was done with a wrongful intent to cause the
injury or damage sustained.
With respect to Section 10.1(1) above, Buyer will provide Seller with
all appropriate waivers of subrogation as to the risks insured by the insurance
policies required in Section 10.3.
10.2 Buyer shall indemnify, defend and hold Seller harmless from
and against all costs, liabilities, claims and damages, whether on account of
bodily injury or death and/or property damage sustained by any person or thing
including employees and property of Buyer and any other person or entity or his
or its property, which is caused or contributed to by the steam or Alternate
Fuels or their use after they reach the delivery point at Buyer's Facility; or
by the maintenance, repair, or use of any machinery, boilers or equipment at
Buyer's Facility, or the interruption of steam to the boilers at Buyer's
Facility, and Buyer shall, at its sole expense, defend any and all actions
based thereon and pay all reasonable attorneys' fees, costs and expenses
including settlements arising therefrom. Seller shall tender to Buyer the
defense of any action arising under this Section. However, Buyer is not
required to defend and indemnify Seller under the foregoing provisions against:
(1) Claims of injury or damage to Seller's own personnel, plant
and equipment; or
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(2) Claims of injury or damages resulting from an act or omission
of Seller which was done with a wrongful intent to cause the
injury or damage sustained.
With respect to Subsection 10.2(1) above, Seller will provide Buyer
with all appropriate waivers of subrogation as to the risks insured by the
insurance policies required in Section 10.3.
10.3 At all times from and after the commencement of this Agreement
until it expires or is terminated, each party shall maintain policies of
insurance (unless qualified as a self-insurer under Minnesota law) having the
following minimum limits:
(1) Worker's Compensation and Occupational Diseases according to
statutory limits;
(2) Employer's Liability in the amount of $ .
(3) Comprehensive General Liability - Single limit per
occurrence for combined bodily injury and property damage
liability:
(a) $ per occurrence, and
(b) $ per aggregate including among other risks
normally covered: coverage for liability arising
from explosion, collapse and underground damage;
independent contractors; broad-form property damage
liability; personal injury coverage; coverage for
products
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and completed operations for an additional period
equal to the total length of the construction phase
of this Agreement.
10.4 Seller and Buyer shall be responsible for assuring that each
of their contractors and their subcontractors carry appropriate insurance.
10.5 Copies of all insurance policies or certificates thereof
provided in Section 10.3 above or certification thereof shall be furnished each
party hereto by the other party, together with all amendments and replacements.
10.6 The provisions set forth in Sections 10.3, 10.4 and 10.5 shall
not relieve or excuse either party from any of its other obligations under this
Agreement, including its obligation to indemnify the other party hereunder in
the manner and to the extent provided in its indemnification provision above.
10.7 Except as provided in Section 12.5 hereof, no provision of
this Agreement shall in any way inure to the benefit of any third person
(including the public at large) so as to constitute any such person a third
party beneficiary of this Agreement or of any one or more of the terms hereof,
or otherwise give rise to any cause of action in any person not a party hereto.
10.8 The provisions of this Article 10 shall apply notwithstanding
any other provisions of this Agreement or of any other agreement.
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10.9 The provisions of this Article 10 and any other article of
this Agreement providing for limitation of or protection against liability of
Seller and Buyer and their suppliers or subcontractors shall apply to the full
extent permitted by law and regardless of fault, and shall survive the
expiration or termination of this Agreement.
11. REPRESENTATIONS.
11.1 Seller hereby represents on behalf of itself:
(1) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota and
has corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(2) The execution, delivery, and performance by Seller of this
Agreement have been duly authorized by all necessary
corporate action on the part of Seller, do not contravene any
law, or any government rule, regulation, or order, applicable
to Seller or its properties, or the Articles of Incorporation
or By-Laws of Seller, and do not and will not contravene the
provisions of, or constitute a default under, any indenture,
mortgage, contract, or other instrument to which Seller is a
party or by which it is bound, and this Agreement constitutes
a legal, valid, and
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binding obligation of Seller enforceable in accordance with
its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, or similar laws at the time in
effect.
(3) There are no actions, suits, or proceedings pending or to
Seller's knowledge threatened against or affecting Seller
before any court or administrative body or agency which might
materially adversely affect the ability of Seller to perform
its obligations under this Agreement.
11.2 Buyer hereby represents on behalf of itself:
(1) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and
has corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(2) The execution, delivery, and performance by Buyer of this
Agreement have been duly authorized by all necessary
corporate action on the part of Buyer, do not contravene any
law, or any governmental rule, regulation, or order,
applicable to Buyer or its properties, or the Articles of
Incorporation or By-Laws of Buyer, and do not and will not
contravene the provisions of, or constitute a default
under, any indenture,
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mortgage, contract or other instrument to which Buyer is a
party or by which Buyer is bound, and this
Agreement constitutes a legal, valid and binding obligation
of Buyer enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization,
or similar laws at the time in effect.
(3) There are no actions, suits or proceedings pending or to
Buyer's knowledge threatened against or affecting Buyer
before any court or administrative body or agency which might
materially affect the ability of Buyer to perform its
obligations under this Agreement.
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12. MISCELLANEOUS.
12.1 Each party hereto will do, execute, acknowledge and deliver
all such further acts, conveyances and instruments as the other reasonably shall
require for accomplishing the purpose of this Agreement.
12.2 No forbearance on the part of either party in enforcing its
rights under this Agreement shall constitute a waiver of any terms of this
Agreement, or a forfeiture of any such rights.
12.3 All notices, requests, demands and other communications
required by or necessary to this Agreement shall be in writing. Notice shall be
deemed to have been given when delivered by hand or deposited in the United
States mail, certified with return receipt requested, postage paid, addressed
to the appropriate party at its respective mailing address as set forth
immediately below:
If to Seller: NORENCO Corporation
Plaza VII - Suite 3140
45 South Seventh Street
Minneapolis, Minnesota 55402
Attention: President
With a copy to: Northern States Power Company
414 Nicollet Mall
Minneapolis, Minnesota 55401
Attention: Senior Vice President
- Power Supply
If to Buyer: Waldorf Corporation
2250 Wabash Avenue
St Paul, Minnesota, 55114
Attention: Senior Vice President
of Mill Operations
Either party to this Agreement, by notice to the other party given as
required above not less than ten (10) days prior
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to the effective date of the change, may change its address for the purpose of
all future communications.
12.4 Each party hereto shall have the right at its option and at
its sole cost and expense, to perform or cause its public accountant to perform
during normal business hours, an audit of the costs, expenses and other
determinations arising, incurred or made hereunder, or to otherwise confirm
such costs, expenses or determinations, Seller's Total Costs, the cost of coal
and other fuels used as a basis for the calculation of Seller's Total Costs,
Line Maintenance Costs and Capital Costs.
12.5 This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the parties hereto. Each party may assign this
Agreement with written notice to the other party, provided, however, such
assignment shall not relieve the assignor of its obligations hereunder.
12.6 It is agreed that without regard for the place where this
Agreement was made it shall be governed by and construed, in all respects, in
accordance with the laws of the State of Minnesota applicable to sales
contracts made and to be performed in said state. Venue for any and all actions
commenced in connection with this Agreement shall be Hennepin County,
Minnesota.
12.7 This Agreement contains all of the understandings of the
parties hereto and supersedes and replaces all prior written or oral agreements
between them relating to the subject matter herein. This Agreement may not be
amended or modified
-62-
<PAGE>
except in writing signed by an authorized officer of each of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date and year first
above written.
WALDORF CORPORATION
By
-----------------------------
Its
-----------------------------
NORENCO CORPORATION
By
-----------------------------
Its
-----------------------------
-63-
<PAGE>
[NRG Energy, Inc. Letterhead]
1221 Nicollet Mall
Suite 700
Minneapolis, MN 55403-2445
Telephone (612) 373-5333
Fax (612) 373-5346
August 27, 1993
Bruce Wilson
Manager Transportation and Procurement
Waldorf Corporation
2250 Wabash Ave.
St. Paul, MN 55164
Dear Bruce,
Please find following NRG's understanding of the agreements reached during our
August 25, 1993 meeting in your office.
In previous meetings, we had discussed that NRG has experienced an abnormal
year where some costs have increased at a much greater rate than expected. If
the "Sellers Total Cost" method on a per MMBTU basis were used this year to
set the new steam rates for contract year #6, as previously agreed to, and as
set forth in sections 1.1.1 and 1.1.45 of the Energy Agreement between NRG
Energy and Waldorf Corporation, the increase would be %.
It was agreed by both NRG and Waldorf that an increase of this magnitude would
be unacceptable. It was further agreed that the parties would depart from the
provisions of the Energy Agreement and establish a mutually acceptable
increase for contract year #6 (1993-94), and then, starting with contract year
#7 (1994-95), the parties would revert back to the "Sellers Total Cost" method
for all subsequent contract years.
For the 1993-94 rate calculation the parties agreed to modify the "Sellers
Total Costs" spreadsheet by simulating a % increase in operating labor, both
straight and overtime, which would result in increase in rates retroactive to
7/1/93 of %. The calculation is as follows:
X = $ Standard Rate
X = $ Premium Rate
For contract year #7 (1994-95), the calculation will revert back to the actual
costs incurred by NRG, with the exception the actual operating labor costs
(straight time and overtime) for July 1992 will be replaced with average
actual costs incurred over the 11 months from August 1992 to June 1993. This
will negate the unusual change in NRG's
<PAGE>
labor costs which occurred in August 1992.
The parties again confirmed that the increased steam rates for contract year
#6, i.e., $ Standard Rate and $ Premium Rate, would be retroactive
to July 1, 1993.
It was further agreed that this letter as executed by the parties would be
included as an addendum to the Energy Agreement dated between NRG and Waldorf.
If you agree with NRG's understanding of the agreement between the parties as
explained above, please indicate your acceptance in the space provided. Please
let me know if you've any questions or if NRG can be of further service to
Waldorf.
Sincerely,
/s/ Ronald J. Will
Ronald J. Will
RJW/jrw
c: File
Law Department
G. Johnson
D. Walker
Accepted
By: /s/ Jack B. Greenshields
Its: Senior Vice President
Date: October 26, 1993
<PAGE>
Exhibit 10.8
SECOND AMENDMENT TO ENERGY AGREEMENT
This Second Amendment to the Energy Agreement Between Norenco Corporation
and Waldorf Corporation ("Second Amendment") is made and entered into this
31st day of January, 1996 by and between NRG ENERGY, INC., a Delaware
Corporation, formerly known as Norenco Corporation ("NRG" or "Seller") and
WALDORF CORPORATION, a Delaware Corporation ("Waldorf" or "Buyer").
WITNESSETH THAT:
WHEREAS, Buyer owns and operates a recycled paperboard mill and folding
carton plant located in the City of St. Paul, Minnesota ("Buyer's Facility");
and
WHEREAS, Seller's parent, Northern States Power Company ("NSP") owns and
operates an electric generating facility located in the City of St. Paul,
Minnesota (the "High Bridge Plant"), which produces steam that Buyer purchases
through the Energy Agreement, as hereinafter defined; and
WHEREAS, Seller owns a steam line which runs from the High Bridge Plant
to Buyer's Facility and has a contract to purchase steam from NSP and,
accordingly, sells to Buyer steam pursuant to the Energy Agreement, as
hereinafter defined; and
<PAGE>
WHEREAS, Buyer, pursuant to the Energy Agreement entered into between
Buyer and Norenco Corporation on February 12, 1988 ("Energy Agreement"),
currently purchases all of its non-electrical requirements for energy to
conduct its operations at Buyer's Facility from Seller in the form of steam
and is obligated to purchase such requirements from Seller through June 30,
2001; and
WHEREAS, Buyer and Seller entered the First Amendment to the Energy
Agreement on October 26, 1993; and
WHEREAS, Buyer and Seller desire to extend the duration of the Energy
Agreement through June 30, 2007 provided that Seller undertakes certain
obligations, some of which are currently performed by Buyer pursuant to the
Energy Agreement; and
WHEREAS, Seller desires to assume and perform the additional obligations,
as hereinafter described.
NOW THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the
parties hereto, the parties hereby agree as follows:
2
<PAGE>
GENERAL
All of the terms and conditions set forth in the Energy Agreement, as
amended on October 26, 1993, shall remain in full force and effect, except to
the extent that such terms and conditions are modified by or in conflict with
this Second Amendment, in which case this Second Amendment shall prevail.
Subject to the foregoing, Buyer and Seller deem this Second Amendment and the
Energy Agreement, as amended on October 26, 1993, as one in the same document
(hereinafter collectively referred to as "this Agreement").
1. DEFINITIONS
1.1.1 "ADJUSTED BASE PRICE" shall mean the amount to be paid by Buyer
to Seller per BTU's of steam energy delivered to Buyer
hereunder, at Buyer's Metering Station, from July 1, 1990
until the termination of this Agreement. During such period,
the Adjusted Base Price shall be computed as follows: During
each Contract Year commencing July 1, 1990 through the life of
this Agreement, the Adjusted Base Prices (both the "Standard
Adjusted Base Price" and the "Premium Adjusted Base Price")
shall be computed for the ensuing Contract Year by using the
Base Prices or Adjusted Base
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Prices for the Contract Year having just ended, and increasing
or decreasing such Base Prices or Adjusted Base Prices by a
percentage equal to the corresponding percentage increase or
decrease, as the case may be, between Seller's Total Costs for
each of the two immediately preceding Contract Years;
provided, however, that regardless of any, increase or
decrease in Seller's Total Cost, the Adjusted Base Price for
the Contract Year commencing July 1, 1990 and ending June 30,
1991 shall not be less than $ per MMBTU (herein sometimes
referred to as "Standard Adjusted Base Price"); and provided
further that, if the average usage during any twelve (12) hour
period during the Contract Year commencing July 1, 1990 and
ending June 30, 1991 is less than pounds of Useable Steam per
hour for reasons other than Buyer's Scheduled Maintenance, the
Adjusted Base Price for any such twelve (12) hour period shall
be not less than $ per MMBTU (herein sometimes referred to
as "Premium Adjusted Base Price").
1.1.6 "BASE PRICE" shall mean:
1.1.6.1 Where the average usage during any twelve (12) hour
period is equal to or greater
4
<PAGE>
than pounds of Usable Steam per hour during the months of
September through June, or pounds of Usable Steam per hour
during the months of July and August, or less than these
thresholds due to Buyer's Scheduled Maintenance, an amount
equal to $ per MMBTU for all Usable Steam provided during
such twelve (12) hour period, measured at Buyer's Metering
Station (herein sometimes referred to as the "Standard Base
Price"); or
1.1.6.2 Where the average usage during any twelve (12) hour period is less
than pounds of Usable Steam per hour during the months of
September through June, or than pounds of Usable Steam per hour
during the months of July and August, for reasons other than
Buyer's Scheduled Maintenance, an amount equal to $ per MMBTU for
all Usable Steam provided during such twelve (12) hour period,
measured at Buyer's Metering station (herein sometimes referred to
as the "Premium Base Price").
5
<PAGE>
1.1.6.3 The twelve (12) hour periods during which average usage
is calculated shall be the "a.m." period from 12:00
midnight until 12:00 o'clock noon, and the "p.m." period
from 12:00 noon until 12:00 o'clock midnight. Such time
intervals may be changed from time to time as Buyer and
Seller determine and set forth in a standard operating
plan. The Base Price shall not be adjusted during the
period from the date hereof through June 30, 1990.
1.1.13A "BUYER'S SCHEDULED MAINTENANCE" shall mean any Buyer's facility
maintenance that requires Buyer's average usage during any twelve
(12) hour period to fall below pounds of Useable Steam per hour
and for which Buyer has provided Seller notice at least two (2)
days prior to such maintenance.
1.1.14 "CAPITAL COSTS" shall mean all costs, which costs are required by
law to be capitalized for tax purposes under the Internal Revenue
Code as existing and in effect on the date such costs are incurred,
and which are incurred in a) replacing, restoring or improving the
Supply Line, including
6
<PAGE>
the costs of the Snelling/Marshall Bridge Work, and
right-of-way relocations, and b) constructing, developing and
establishing a Make Up Water System including, without
limitation, all costs incurred by purchasing, installing and
integrating a reverse osmosis system and constructing and
drilling a water well at the High Bridge Plant and installing
any necessary equipment at the High Bridge Plant and Buyer's
Facility.
1.1.17 "CONDENSATE" shall mean steam condensate return water for the
High Bridge Plant. "ACCEPTABLE CONDENSATE" returned shall not
have been in contact with the Buyer's process.
1.1.25 "FORCE MAJEURE" shall mean acts of God, war, civil commotion,
fire, explosions, the elements or other casualty, labor
strikes or disputes, action or orders of governmental agencies
or institutions or the courts, or other causes beyond the
reasonable control of a party hereto (which shall expressly
include NRG's inability, despite NRG's reasonable efforts, to
obtain an extension to St. Paul Ordinance #17567, dated March
30, 1988, which expires on June 30, 2001 and permits NRG to
deliver Useable Steam to Buyer) which preclude or
7
<PAGE>
materially impair the operation of the Generating
Equipment, the High Bridge Plant, the Supply Line or the boilers
at Buyer's Facility, or shut down or materially impair the
sources or means of energy supply, or preclude or materially
impair Buyer from accepting delivery of energy; provided,
however, that energy price considerations shall not be deemed to
be a Force Majeure; and provided further that failure to timely
contract for any energy supply shall not be deemed to be a Force
Majeure; and provided further that overload or excess demand not
caused by any of the foregoing (including demand caused by
extremes in temperature or prolonged periods of high or low
temperatures) shall not be deemed to be a Force Majeure; and
provided further, that if any Force Majeure conditions relating
to the Supply Line can be corrected by the expenditure of funds
(net of Buyer's contribution under Section 8.5.2 and any
insurance proceeds received by Seller) which, for each
occurrence, are less than $ or 50% of the amount of the
Liquidated Damages set forth in Section 9.5 for that same
Contract Year, whichever amount is greater, and if Seller elects
not to expend the funds necessary to cure such Force Majeure
conditions in a timely manner, then such
8
<PAGE>
conditions shall not be deemed to be a Force Majeure.
1.l.30A "LAY UP SERVICES" shall mean all services necessary to lay up
Buyer's present boiler system and demineralization system, in
wet storage and in a state of readiness that would allow for
light off and full operation in less than twenty four hours.
1.l.32A "MAKE UP WATER" shall mean all water to be added by Seller to
Acceptable Condensate in the amount and form necessary to
provide Buyer Useable Steam under this Agreement.
1.1.32B "MAKE UP WATER CHARGE" shall mean the monthly amount of $
that Buyer agrees to pay Seller for providing Make Up Water.
The Make Up Water Charge of $ per month is based in part
upon Seller's represented estimate that the Make Up Water
System will cost Seller $ to construct and
install. The Make Up Water System cost consists of
improvements of $ at the NSP High Bridge Plant and $
at Buyer's facility. If the costs to construct and install the
improvements at Buyer's facility exceed $ the
parties shall agree either to adjust
9
<PAGE>
the Make Up Water Charge to reflect, or to have Buyer
reimburse Seller for, the actual costs in excess of $ .
1.1.32C "MAKE UP WATER COMMENCEMENT DATE" shall mean the first day
the Make Up Water System is used to provide Make Up Water.
The Make Up Water Commencement Date shall not occur until (1)
the Make Up Water System has been constructed, thoroughly
tested and placed in continuous operation meeting
specifications under this Agreement to produce Useable Steam
for twelve hours immediately preceding the Make Up Water
Commencement Date, (2) the standard operating plan for the
Energy Agreement has been revised, approved and implemented by
Buyer and Seller to account for the Make Up Water System;
provided, however, that Buyer may waive this requirement for a
revised standard operating plan if the parties are unable to
agree on the contents of such revised standard operating plan,
and (3) Seller has given Buyer at least twenty-four (24) hours
advance notice of the Make Up Water Commencement Date, which
notice Buyer may waive. Seller shall use all reasonable
efforts to cause the Make Up Water Commencement Date to occur
on or before July 1, 1996.
10
<PAGE>
l.1.32D "MAKE UP WATER SYSTEM" shall mean the entire system necessary for
Seller to provide and deliver Make Up Water.
1.l.39A "NRG" shall mean NRG ENERGY, INC. a corporation organized under the
laws of the State of Delaware, which is a wholly-owned subsidiary
of NSP, was formerly known as NORENCO Corporation, and is the owner
and operator of the Supply Line and the Make Up Water System.
l.l.40A "OPERATIONS AND MAINTENANCE SERVICES" shall mean all services
necessary to operate and maintain the Make Up Water System.
1.1.42 "SELLER" shall mean NRG.
1.1.48 "TERM" shall mean the period of time beginning on the Commencement
Date and continuing through June 30, 2007, subject to the
occurrence of the Condition Precedent contained in Section 2.6, or
unless sooner terminated as provided under this Agreement.
1.1.50 "VERIFIABLE COSTS" shall mean all reasonable and necessary
incremental costs actually incurred by
11
<PAGE>
Seller in providing Lay Up Services and Operations and
Maintenance Services, broken out for each category but shall not
include any Capital Costs. The types of Verifiable Costs are
listed on Second Amendment Exhibit I attached hereto. Buyer
shall have the right to have an independent third party,
knowledgeable as to Seller's operations and systems, audit
Seller's records to verify the amount, reasonableness and
necessity of Seller's actual costs incurred that support
Seller's reported Verifiable Costs. In order to exercise its
right to audit a particular fiscal year, Buyer must notify
Seller within ninety days after the end of Seller's fiscal year,
except that prior years may also be audited if the audit for
such fiscal year reveaols variation in excess of five (5)
percent from Seller's reported Verifiable Costs. If Seller's
reported Verifiable Costs for any Contract Year exceed the
actual amount of reasonable and necessary costs determined by
Buyer's third party auditor by more than one (1) percent, Seller
shall refund to Buyer any amount overcollected and if said
amount is more than five (5) percent Seller shall also pay all
fees and costs of Buyer's third party auditor. Seller shall
12
<PAGE>
make available all records reasonably required by the third
party auditor.
1.1.51 "VERIFIABLE COSTS CHARGE" shall mean the Verifiable Costs
incurred by NRG each month, commencing July 1 of each year
beginning on July 1, 1996, plus fifteen percent (15%), until
such time that the cumulative total of Verifiable Costs
exceed $ as adjusted annually by the CPI
Adjustment. At the point that the cumulative total of
Verifiable Costs for the period beginning July 1 exceeds $
as adjusted annually by the CPI Adjustment, the Verifiable
Cost Charge for the month in which the $ cumulative
total is exceeded and thereafter shall mean the Verifiable
Costs incurred by NRG during the applicable month(s).
If, however, the cumulative total of Verifiable Costs for the
period beginning July 1 exceed $ as adjusted annually
by the CPI Adjustment the Verifiable Costs Charge for the
month in which the $ cumulative total is exceeded
shall mean the Verifiable Costs incurred by NRG during the
applicable month, less fifty percent (50%) of the amount by
which the total of Verifiable Costs exceeds $ .
Thereafter, for the remaining months until June 30, the
Verifiable
13
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Cost Charge shall mean fifty percent (50%) of the applicable
month's Verifiable Costs.
2. CONSTRUCTION; OWNERSHIP; OPERATION; SERVICES.
2.1 In addition to the provisions of Section 2.1 of the Energy
Agreement, Seller, at its cost, shall construct, develop and
establish a Make Up Water System by, without limitation,
purchasing, installing and integrating a reverse osmosis system and
drilling a water well at the High Bridge Plant and installing any
necessary equipment at both the High Bridge Plant and Buyer's
Facility.
2.2 In addition to the provisions of Section 2.2 of the Energy
Agreement, Seller shall, at its cost, obtain all licenses or
permits to construct, develop, establish and operate the Make Up
Water System.
2.3 Section 2.3 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Throughout the Term of this Agreement, Seller shall own,
operate, maintain, repair and adjust the Supply Line and the
Make Up Water System, and shall cause NSP to maintain, adjust
and repair the Generating Equipment.
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<PAGE>
Buyer shall own, maintain and repair all Associated Equipment.
Seller shall have the right to enter Buyer's Facility for the
purpose of maintaining and repairing the Supply Line and any
part of the Make Up Water System located there, and to the
extent Buyer does not adequately and timely maintain the
Associated Equipment, enter Buyer's Facility for the purpose
of maintaining and repairing the Associated Equipment
including all modifications, adjustments, replacements and
additions which have heretofore or may hereafter be made to
Buyer's Facility and shall be reimbursed by Buyer for such
maintenance repair, modification, adjustment, replacement and
additions.
2.4 Section 2.4 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Buyer shall not, by reason of this Agreement or the
termination of this Agreement or the payments made pursuant to
this Agreement, acquire title or ownership in or to the
Generating Equipment, the Supply Line or the Make Up Water
System, and Seller shall not
15
<PAGE>
acquire title or ownership in or to the Associated Equipment.
2.5 Section 2.5 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Any portion of the Supply Line or the Make Up Water
System (except the Associated Equipment) heretofore or
hereafter placed at Buyer's Facility by Seller for the purpose
of furnishing steam or Make Up Water hereunder shall be and
remain the property of Seller, and Buyer shall exercise
reasonable care to protect such portion of the Supply Line or
the Make Up Water System from loss or damage.
2.6 The parties acknowledge that this Second Amendment to the Energy
Agreement will be signed in advance of the required Minnesota
Public Utility Commission approval of a certain Amendment to the
Amended Agreement for the Sale of Thermal Energy between Norenco
Corporation and NSP dated May 17, 1993 (the "NSP Agreement"),
which amendment shall, among other things, extend the term of the
NSP Agreement to December 31, 2008 (such approval hereinafter
referred to as the "Condition Precedent"). The extension of the
Energy Agreement Term through June 30, 2007 is subject to
occurrence of the Condition Precedent. If,
16
<PAGE>
for any reason, this Condition Precedent does not occur, then
the Term of the Energy Agreement shall run through its
original Term, June 30, 2001.
3. TERM.
3.1 Section 3.1 is hereby deleted and replaced in its entirety with
the following:
This Agreement shall continue through June 30, 2007, subject
to the occurrence of the Condition Precedent contained in
Section 2.6, unless sooner terminated as provided under this
Agreement.
4. QUANTITY.
4.1.13 In addition to the provisions of Sections 4.1.1 through 4.1.12
of the Energy Agreement, in the event an Interruption occurs,
Seller shall advise Buyer whether Seller can repair the
malfunction in a timely and efficient manner to justify a
delay in starting up Buyer's boiler and demineralization
systems.
5. CONDENSATE RETURN.
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5.1 Section 5.1 of the Energy Agreement is deleted in its entirety and
replaced with the following:
During each Contract Year of the Term, Buyer shall deliver to
Seller all of Buyer's Condensate, except for nominal amounts
used by Buyer from time to time, for use in producing Buyer's
steam at the High Bridge Plant. Seller shall provide the water
to initiate steam production and all Make Up Water.
5.3 During each contract year of the Term after the Make Up Water
Commencement Date, Seller shall temper and sewer Condensate.
However, from time to time, to facilitate Condensate return line
maintenance by Seller, Seller may request, and Buyer shall use all
reasonable efforts to comply, that Buyer temper and sewer
Condensate. For any Condensate tempered and sewered by Buyer
hereunder, Seller shall credit Buyer for the BTU content of the
Condensate tempered, measured at Buyer's Metering Station,
reasonable documented costs of tempering and sewering the
Condensate plus fifteen percent (15%) (such costs hereinafter
"Buyer's Condensate Credit").
7. BILLING.
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7.1 Section 7.1 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Seller shall submit a bill following the end of each month of the
Term which shall include:
(1) the number of MMBTUs of Useable Steam delivered and the
number of MMBTUs of steam generated at Buyer's Facility with
Alternate Fuels and Condensate returned during the preceding month;
(2) the Net MMBTUs of Steam received by Buyer during the
preceding month;
(3) the amount of the applicable Base Price or the applicable
Adjusted Base Price;
(4) the nature, amount and price of any Alternate Fuel
delivered by Seller during the preceding month;
(5) the Energy Charge;
(6) Interruptions and Down Time (number, length, and
consequence);
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(7) the amount of the Ordinance Fee;
(8) beginning on the Make Up Water Commencement Date,
(a) the Make Up Water Charge;
(b) Verifiable Costs Charge; and
(c) the Buyer's Condensate Credit; and
(9) other charges as applicable.
8. COSTS AND CHARGES.
8.1 Section 8.1 of the Energy Agreement is deleted in its entirety and
replaced with the following:
For each month of the Term, Buyer shall be obligated to pay
Seller an Energy Charge, a Make Up Water Charge, and
Verifiable Cost Charge, based upon the bills received from
Seller according to Section 7.1 above but subject to any third
party audit Buyer may conduct, and Buyer shall pay such other
amounts as are otherwise required pursuant to Article 8 of
this Agreement.
20
<PAGE>
8.2 Section 8.2 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Buyer shall pay or reimburse Seller for its payment of the
Ordinance Fee related to Useable Steam. Seller shall obtain an
amendment to any applicable ordinance necessary to deliver Useable
Steam throughout the Term. Seller shall bear and pay any and all ad
valorem property taxes and assessments levied on the construction
or ownership of the Supply Line and any and all franchise fees
associated with the delivery of Useable Steam hereunder and shall
cause NSP to pay such taxes and assessments levied on the
Generating Equipment, without reimbursement from Buyer.
8.5.1 Section 8.5.1 of the Energy Agreement is deleted in its entirety
and replaced with the following:
Seller shall pay, without contribution or reimbursement by Buyer,
all Capital Costs exclusive of normal maintenance incurred during
the Term hereof which are necessary to ensure an efficient
utilization of the Supply Line through June 30, 2007, and which are
not the result of Force Majeure
21
<PAGE>
or are not related to the performance of the Snelling/Marshall
Bridge Work.
10. INDEMNITY.
10.1 Section 10.1 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Seller shall indemnify, defend and hold Buyer harmless from
and against all costs, liabilities, claims and damages,
whether on account of bodily injury or death, and/or property
damage sustained by any person or thing, including employees
and property of Seller and any other person or entity or his
or its property, which is caused or contributed to by the
design, construction, installation, modification, repair or
use of the Generating Equipment or the Supply Line or the Make
Up Water System or by the escape of steam or Alternate fuel at
any place before it reaches the delivery point at Buyer's
Facility; and Seller shall, at its sole expense, defend any
and all actions based thereon, and pay all reasonable
attorneys' fees, costs and expenses including settlement
arising therefrom. Buyer shall tender to Seller the defense of
any action arising under this Section. However, Seller is not
required to
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<PAGE>
defend and indemnify Buyer under the foregoing
provision against:
(1) Claims of injury or damages to Buyer's own personnel,
plant and equipment; or
(2) Claims of injury or damages resulting from an act or
omission of Buyer which was done with a wrongful intent to
cause the injury or damage sustained.
With respect to Section 10.1(1) above, Buyer will provide Seller
with all appropriate waiver of subrogation as to the risks insured
by the insurance policies required in Section 10.3.
11. REPRESENTATIONS.
11.1 Section 11.1 of the Energy Agreement is deleted in its entirety and
replaced with the following:
Seller hereby represents on behalf of itself:
(1) Seller is a corporation duly organized validly existing
and in good standing under the laws of the State of Delaware
and has corporate power and
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<PAGE>
authority to execute and deliver this Agreement and to perform
its obligations hereunder.
(2) The execution, delivery, and performance by Seller of this
Agreement have been duly authorized by all necessary corporate
action on the part of Seller, do not contravene any law, or
any government rule, regulation, or order, applicable to
Seller or its properties, or the Articles of Incorporation or
By-Laws of Seller, and do not and will not contravene the
provisions of, or constitute a default under, any indenture,
mortgage, contract, or other instrument to which Seller is a
party or by which it is bound, and this Agreement constitutes
a legal, valid, and binding obligation of Seller enforceable
in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, or similar laws at the
time in effect.
(3) There are no actions, suits, or proceedings pending or to
Seller's knowledge threatened against or affecting Seller
before any court or administrative body or agency which might
materially adversely affect the ability of Seller to perform
its obligations under this Agreement.
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(4) Seller has received an estimate from HDR Engineering that
the construction and installation of the Make Up Water System
shall, after adjusting for inflation, cost approximately $
12. MISCELLANEOUS.
12.3 Section 12.3 of the Energy Agreement in deleted in its entirety and
replaced with the following:
All notices, requests, demands and other communications
required by or necessary to this Agreement shall be in
writing. Notice shall be deemed to have been given when
delivered by hand or deposited in the United States mail,
certified with return receipt requested, postage paid,
addressed to the appropriate party at its respective mailing
address as set forth immediately below:
If to Seller: NRG Energy, Inc.
Suite 700
1221 Nicollet Mall
Minneapolis, Minnesota 55403-2445
Attention: Vice President
Operations and Engineering
With a copy to: Northern States Power Company
414 Nicollet Mall
Minneapolis, Minnesota 55401
Attention: Senior Vice
President - Power Supply
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<PAGE>
If to Buyer: Waldorf Corporation
2250 Wabash Avenue
St. Paul, Minnesota 55114
Attention: Senior Vice
President of Mill Operations
Either party to this Agreement, by notice to other party given
as required above not less than ten (10) days prior to the
effective date of the change, may change its address for the
purpose of all future communications.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date and year first
above-written.
26
<PAGE>
WALDORF CORPORATION
By /s/ Jack B. Greenshields
-------------------------------
Its Senior Vice President
Mill Business Group
NRG ENERGY, INC.
By /s/ Ronald J. Will
--------------------------
Its
-------------------------
27
<PAGE>
Second Amendment Exhibit 1
Labor
Miscellaneous Maintenance Cleaning I&C, etc.
Resin Replacement
Cation
Anion
Reverse Osmosis Membrane Replacement
Reverse Osmosis Membrane Cleaning
Chemical, D.I. Regen
Auxiliary Power - Reverse Osmosis System
Auxiliary Power - Well
Well Maintenance
Sewer Costs - Reject
Sewer Costs Neutralization
Anti-scale and Acid Feed
Water for Demineralization Lay Up Procedure
Salt
Weekly Monitoring for Demineralization System
Nitrogen
Ground Water Fees
City Water Fees
Other Reasonable Miscellaneous Costs
28
<PAGE>
Exhibit 10.9
[NRG ENERGY, INC. LETTERHEAD]
1221 Nicollet Mall
Suite 700
Minneapolis, MN 55403-2445 August 25, 1997
Telephone (612) 373-5300
Fax (612) 373-5346
Mr. Michael D. Henderson
Mill Controller
Rock Tenn Company
2250 Wabash Avenue
St. Paul, Minnesota 55114
Dear Mike:
Please find following NRG's understanding of the agreements reached during our
meeting in your office.
In contract year 1996-1997, the price increase of % was agreed to be spread
over two years. On an actual cost basis, this would have resulted in a price
increase of % for the contract year 1997-98.
It was agreed by both NRG and Waldorf that an increase of this magnitude would
be unacceptable. It was further agreed that the parties would depart from
the provisions of the Energy Agreement and establish a mutually acceptable
increase for contract year #10 (1997-98), and then, starting with contract
year #11 (1998-99), the parties would revert back to the "Sellers Total Cost"
method for all subsequent contract years.
For the 1997-98 rate calculation the parties agreed to modify the Sellers
Total Costs" spreadsheet by simulating a % overall increase, which would
result in an increase in rates retroactive to 7/1/96 of %. The calculation
is as follows:
x = $ Standard Rate
x = $ Premium Rate
For contract year #11 (1998-99), the calculation will revert back to the
actual costs incurred by NRG.
The parties again confirmed that the increased steam rates for contract year
#10, i.e., Standard Rate and Premium Rate, would be retroactive to July 1,
1997.
It was further agreed that this letter, as executed by the parties, would be
included as an addendum to the Energy Agreement dated between NRG and Waldorf.
<PAGE>
Earlier this year, it was agreed that the cold iron outage would be moved from
fall, 1997, to spring, 1997. Since NRG had budgeted the cold iron outage for
fall, this decision impacted the project budget. At that time, Rock Tenn agreed
to allow NRG to complete $ of repairs to the condensate line and bill those
services for payment after July 1, 1997. This charge will appear on the August,
1997 bill.
If you agree with NRG's understanding of the agreement between the parties as
explained above, please indicate your acceptance in the space provided. Please
let me know if you have any questions or if NRG can be of further service to
Waldorf.
Sincerely,
NRG ENERGY, INC.
Michael R. Carroll
Managing Director-Thermal Operations
Cc: Christie Johns
Gary Johnson
Mike Muonio
Accepted
By: /s/ Michael Henderson
-------------------------------------
Its: Mill Controller
-------------------------------------
Date: September 3, 1997
------------------------------------
<PAGE>
CONSTRUCTION, ACQUISITION AND TERM LOAN AGREEMENT
dated September 12, 1997
by and among
NEO LANDFILL GAS INC.
as Borrower,
the Lenders Named on the Signature Pages
to this Agreement,
CREDIT LYONNAIS NEW YORK BRANCH
as Construction/Acquisition Agent,
and
LYON CREDIT CORPORATION,
as Term Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS .................................................................................. 1
ARTICLE II THE LOANS .................................................................................. 2
Section 2.1 Commitments....................................................................... 2
Section 2.2 Funding of the Loans.............................................................. 2
Section 2.3 Interest ......................................................................... 8
Section 2.4 Notes ............................................................................10
Section 2.5 Fees .............................................................................11
Section 2.6 Security .........................................................................11
Section 2.7 Use of Proceeds...................................................................11
Section 2.8 Repayment of Principal............................................................12
Section 2.9 Payments .........................................................................14
Section 2.10 Increased Costs and Unavailability...............................................16
ARTICLE III CONDITIONS PRECEDENT........................................................................21
Section 3.1 Conditions Precedent to the Closing Date..........................................21
Section 3.2 Conditions Precedent to the Funding of Each Construction/Acquisition Loan.........25
Section 3.3 Conditions Precedent to each Term Loan Conversion Date............................32
Section 3.4 Additional Conditions Precedent for Certain Term Loans............................38
Section 3.5 No Waiver ........................................................................38
Section 3.6 Location of Closings..............................................................38
ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................................38
Section 4.1 Representations and Warranties....................................................38
Section 4.2 Survival .........................................................................47
ARTICLE V COVENANTS ....................................................................................47
Section 5.1 Affirmative Covenants.............................................................47
Section 5.2 Negative Covenants................................................................58
ARTICLE VI EVENTS OF DEFAULT............................................................................65
<PAGE>
Section 6.1 Events of Default.................................................................65
Section 6.2 Remedies .........................................................................67
Section 6.3 Right to Complete.................................................................68
ARTICLE VII THE AGENTS .................................................................................69
Section 7.1 Authorization and Action..........................................................69
Section 7.2 Delegation of Duties..............................................................70
Section 7.3 Agents' Reliance..................................................................70
Section 7.4 Notice of Default.................................................................71
Section 7.5 Agents as Lenders.................................................................71
Section 7.6 Credit Decisions..................................................................72
Section 7.7 Indemnification...................................................................72
Section 7.8 Successor Agents..................................................................73
Section 7.9 Agents Together and Separately....................................................74
Section 7.10 Term Agent as Beneficiary of Security Documents and Pledgee of Collateral........74
ARTICLE VIII GENERAL PROVISIONS.........................................................................75
Section 8.1 Counterparts......................................................................75
Section 8.2 Integration.......................................................................75
Section 8.3 Severability......................................................................75
Section 8.4 Further Assurances................................................................75
Section 8.5 Amendments and Waivers............................................................75
Section 8.6 No Waiver; Remedies Cumulative....................................................76
Section 8.7 Successors and Assigns............................................................77
Section 8.8 No Agency ........................................................................78
Section 8.9 No Third Party Beneficiaries......................................................78
Section 8.10 Nonrecourse......................................................................78
Section 8.11 Costs, Expenses and Taxes........................................................78
Section 8.12 Indemnity .......................................................................79
Section 8.13 Right of Set-off.................................................................80
Section 8.14 Sharing of Payments..............................................................81
Section 8.15 Governing Law....................................................................81
Section 8.16 Waiver of Presentment, Demand, Protest and Notice................................81
Section 8.17 Waiver of Immunity...............................................................81
Section 8.18 Waiver of Jury Trial.............................................................82
Section 8.19 Consent to Jurisdiction..........................................................82
Section 8.20 Confidentiality..................................................................83
Section 8.21 Notices .........................................................................83
Section 8.22 Legal Representation of the Parties..............................................84
</TABLE>
<PAGE>
SCHEDULE X Definitions and Rules of Construction
SCHEDULE I Descriptions of the Projects and Project Documents
SCHEDULE II Additional Conditions Precedent
SCHEDULE III Engineer's Action Items
EXHIBIT 2.2 Form of Notice of Borrowing
EXHIBIT 2.4(a) Form of Construction/Acquisition Loan Note
EXHIBIT 2.4(b) Form of Term Loan Note
EXHIBIT 3.1(a)(vi) Form of Opinion of Borrower's Counsel
EXHIBIT 3.1(g) Closing Pro Forma
EXHIBIT 3.1(i) Required Insurance
EXHIBIT 3.2(a)(ix) Form of Mortgage
EXHIBIT 4.1(c) Organizational Charts
EXHIBIT 4.1(g) Required Approvals
EXHIBIT 4.1(h)(iii) Legal Description of the Sites
EXHIBIT 5.1(l)(iii) Form of Monthly Construction Report
EXHIBIT 5.1(l)(iv) Form of Quarterly Report and Certificate
EXHIBIT 5.1(l)(v) Form of Annual Report and Certificate
EXHIBIT 8.7(c) Form of Commitment Transfer Supplement
<PAGE>
CONSTRUCTION, ACQUISITION AND TERM LOAN AGREEMENT
This CONSTRUCTION, ACQUISITION AND TERM LOAN AGREEMENT, dated
September 12, 1997 (this "Agreement"), is by and among NEO LANDFILL GAS, INC.,
a Delaware corporation ("Borrower"), the lenders named on the signature pages
to this Agreement (the "Lenders"), CREDIT LYONNAIS NEW YORK BRANCH, as agent
for the Lenders identified as Construction/Acquisition Lenders on the signature
pages to this Agreement (together with its successors and assigns in such
capacity, the "Construction/Acquisition Agent") and LYON CREDIT CORPORATION, a
Delaware corporation, as agent for the Lenders identified as Term Lenders on
the signature pages to this Agreement (together with its successors and assigns
in such capacity, the "Term Agent").
RECITALS:
WHEREAS, Borrower owns 99% of the outstanding equity of
seventeen Gascos (as defined below) and 97% of the outstanding equity of one
other remaining Gasco, each of which owns, or upon the construction or
acquisition thereof will own, the gas collection and production assets relating
to a Project (as defined below); and
WHEREAS, Borrower has requested that the Lenders provide a
portion of the financing for the construction or acquisition of the Projects
and the Lenders are willing to do so on the terms and subject to the conditions
set forth in this Agreement;
NOW, THEREFORE, in order to induce the Lenders to provide
such financing, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used and not otherwise defined in this
Agreement have the meanings given to those terms in Schedule X hereto, and the
rules of construction set forth in Schedule X govern this Agreement.
<PAGE>
ARTICLE II
THE LOANS
Section 2.1 Commitments.
(a) Construction/Acquisition Loan Commitments and Term
Loan Commitments. On the terms and subject to the conditions of this Agreement,
and in reliance upon the representations, warranties and covenants contained
herein, (i) each Construction/Acquisition Lender severally agrees to make the
Construction/Acquisition Loans to Borrower in an aggregate amount not to exceed
its Pro Rata Share of the Aggregate Construction/Acquisition Loan Commitment
and (ii) each Term Lender severally agrees to make the Term Loans to Borrower
in an aggregate amount not to exceed its Pro Rata Share of the Aggregate Term
Loan Commitment.
(b) Separate Obligations. Each Lender will fund its Pro
Rata Share of the Construction/Acquisition Loans and of the Term Loans
simultaneously with the other Lenders at the times designated by the applicable
Agent pursuant to Section 2.2(d); provided, that the failure of any Lender to
fund its Pro Rata Share of a Loan will not affect the obligation of any other
Lender to fund its Pro Rata Share of such Loan. No Lender will be responsible
for a default by any other Lender in funding its Pro Rata Share of a Loan nor
will any Commitment of any Lender be increased or decreased by reason of any
such default.
(c) Lender Assurances. Notwithstanding any provision to
the contrary contained in Section 2.1(b), Lyon Credit Corporation, in its
capacity as a Term Lender, agrees, upon any failure by any other Term Lender to
fund such Term Lender's Pro Rata Share of a Term Loan pursuant to Section
2.2(d), to fund such other Term Lender's Pro Rata Share of a Term Loan and, if
necessary, Lyon Credit Corporation's Commitment will be deemed to have been
increased to accommodate such funding, but not in such an amount as to exceed
the Aggregate Term Loan Commitment.
Section 2.2 Funding of the Loans.
(a) The Construction/Acquisition Loans.
(i) Borrower may request one or more
Construction/Acquisition Loans relating to one or more Projects to be
made on a Construction/Acquisition Loan Date by complying with the
following procedure:
<PAGE>
(A) First, Borrower will give the
Construction/Acquisition Agent at least fifteen (15) Business
Days' prior written notice of Borrower's intent to borrow one
or more Construction/Acquisition Loans. Such notice will not
be binding on Borrower and will (1) specify the proposed
Funding Date (which must be a Construction/Acquisition Loan
Date), (2) specify the amount and uses of each requested
Loan, which shall be in accordance with Section 2.7, and (3)
include the certificate and report of the Engineer required
by Sections 3.2(a)(iii) and 3.2(a)(ix) and copies of
all documents necessary to satisfy the other conditions
precedent contained in Section 3.2.
(B) Second, if the Construction/Acquisition
Agent does not notify Borrower within ten (10) Business Days
after its receipt of the notice given to it pursuant to
Section 2.2(a)(i)(A) that a condition precedent contained in
Section 3.2 has not been satisfied, then Borrower may deliver
to the Construction/Acquisition Agent a Notice of Borrowing,
which will be binding on Borrower and will (1) specify the
Funding Date (which must be a Construction/Acquisition Loan
Date and will be at least five (5) Business Days following
the Construction/Acquisition Agent's receipt of the Notice of
Borrowing or such shorter time period as the
Construction/Acquisition Agent may permit in its sole
discretion) and (2) specify the Interest Period for the
requested Construction/Acquisition Loans. Borrower may
specify only one Interest Period for Construction/Acquisition
Loans that are made on a Funding Date and such Interest
Period may be one (1), two (2), three (3), six (6), nine (9)
or twelve (12) months in duration; provided, that no Interest
Period may extend after October 30, 1998.
(ii) Each Construction/Acquisition Loan will be in
an initial principal amount not greater than ninety percent (90%) of
the aggregate amount of the Qualified Project Construction Costs or
Qualified Project Acquisition Costs, as applicable, relating to a
Project and evidenced by the invoices delivered to the Engineer
pursuant to Sections 3.2(a)(ii) and (iii). Each
Construction/Acquisition Loan will mature on its respective
Construction/Acquisition Loan Maturity Date, unless payment thereof is
due prior to such date by acceleration, mandatory prepayment or
otherwise and unless payment of a portion thereof is agreed to be due
on October 30, 1998 pursuant to Section 2.2(g).
(b) Construction/Acquisition Loans to Pay Interest, Fees
and Expenses. On each Business Day during the Construction/Acquisition Loan
<PAGE>
Period on which interest, fees or expenses are due and payable and are not
otherwise paid or provided for, Borrower hereby irrevocably authorizes the
Construction/Acquisition Lenders, in their sole discretion, to make
Construction/Acquisition Loans to Borrower in the aggregate amount of all
interest, fees and expenses then due and payable and hereby irrevocably
authorizes the Construction/Acquisition Agent to apply the proceeds of such
Loans to the payment of such interest, fees and expenses. The
Construction/Acquisition Lenders have no obligation to make a Loan for the
purposes stated in this Section 2.2(b). No Loan will be made pursuant to this
Section 2.2(b) if an Event of Default has occurred and is continuing.
(c) The Term Loans.
(i) Borrower may request one or more Term Loans
relating to one or more Projects to be made by complying with the
following procedure:
(A) First, Borrower will notify in writing
the Construction/Acquisition Agent, the Term Agent and the
Engineer at least fifteen (15) days prior to the commencement
of the performance tests required to achieve Completion of
each Project that is the subject of a proposed Term Loan;
provided, that Borrower may not give more than one such
notification per calendar month.
(B) Second, following the successful
completion of the tests described in Section 2.2(c)(i)(A),
Borrower will give the Construction/Acquisition Agent and the
Term Agent at least twenty (20) Business Days' prior written
notice of Borrower's intent to borrow one or more Term Loans
relating to the completed Project or Projects. Such notice
will not be binding on Borrower and will (1) specify the
proposed Funding Date, (2) specify the amount and uses of
each requested Term Loan, which shall be in accordance with
Section 2.7, and (3) include the report of the Engineer
required by Section 3.3(a)(x) and copies of all documents
necessary to satisfy the other conditions precedent contained
in Section 3.3 and, if appropriate, Section 3.4.
(C) Third, within ten (10) Business Days of
its receipt of the notice and documents described in Section
2.2(c)(i)(B), the Term Agent will notify Borrower in writing
of the satisfaction (or waiver) of the conditions precedent
to the making of the requested Term Loan or Loans contained
in Section 3.3 or, if such conditions precedent have not been
satisfied (or waived),
<PAGE>
the Term Agent will notify Borrower of the deficiencies. If
the conditions precedent have not been satisfied (or
waived), Borrower may provide such information and
documentation as is necessary to satisfy such conditions
precedent and the Term Agent will promptly review such
information and documentation and notify Borrower in writing
of its determination.
(D) Fourth, after receiving notification
from the Term Agent that the conditions precedent to the
requested Term Loans have been satisfied or waived, Borrower
may deliver to the Term Agent a Notice of Borrowing, which
will be binding on Borrower and will (1) specify the Funding
Date (which will be at least five (5) Business Days following
the Term Agent's receipt of the Notice of Borrowing) and (2)
specify the Construction/Acquisition Loan or Loans that are
to be converted.
(ii) Irrespective of the aggregate principal amount
of the Construction/Acquisition Loan or Loans relating to a single
Project that a Term Loan replaces, the initial principal amount of a
Term Loan will not be greater than the least of (x) an amount equal to
the present value (discounted at the Interest Rate applicable to such
Term Loan for a period not to exceed ten (10) years) of two-thirds
(66.7%) of the Net Operating Cash projected by the Closing Pro Forma
(as updated in preparation for the making of the Term Loan based upon
the results of the performance testing of the relevant Project and the
information contained in the report of the Engineer) to be produced by
the Project corresponding to such Term Loan, (y) an amount equal to
seventy percent (70%) of the sum of the cost to construct or acquire
such Project, actual reimbursed development expenses, interest on the
corresponding Construction/Acquisition Loan, related Closing Costs and
all other reasonable costs of Borrower and the Affiliates associated
with the acquisition or construction and financing of the Project
corresponding to such Term Loan and (z) an amount equal to the
remaining amount available under the Aggregate Term Loan Commitment.
(iii) Each Term Loan will mature on its respective
Term Loan Maturity Date, unless payment thereof is due prior to such
date by acceleration, mandatory prepayment or otherwise.
(d) Funding Procedure. Promptly after receipt of a
Notice of Borrowing relating to a Construction/Acquisition Loan or a Term Loan,
the applicable Agent will notify each applicable Lender of the proposed Loan or
Loans and of such Lender's Pro Rata Share thereof, and each applicable Lender
will make available to the applicable Agent at such Agent's main office in
<PAGE>
Stamford, Connecticut, or New York Branch, as the case may be, such Lender's
Pro Rata Share of the proposed Loan or Loans in immediately available funds no
later than 10:00 a.m., New York City time, on the Funding Date. Upon
satisfaction or waiver of the applicable conditions precedent set forth in
Article III, the applicable Agent will disburse all such amounts made
available to it by the Lenders to or for the benefit of Borrower; provided,
that in the case of the funding of a Construction/Acquisition Loan, the
Construction/Acquisition Agent will disburse to or for the benefit of Borrower
only ninety percent (90%) of the requested Loan amount and will retain the
remaining ten percent (10%) (the "Construction/Acquisition Holdback Amount")
as Collateral to be released to Borrower upon the Term Loan Conversion Date
relating to such Construction/Acquisition Loan after payment to the
Construction/Acquisition Lenders of accrued interest on such
Construction/Acquisition Loan; provided, further, that the proceeds of a Term
Loan that results from the conversion of a Construction/Acquisition Loan will
be paid first to the Construction/Acquisition Agent in the amount of the
aggregate of all unpaid principal and interest of, and fees corresponding to,
the Construction/Acquisition Loans that are being converted, and the balance
of the proceeds of such Term Loan, if any, will be paid to or for the benefit
of Borrower; provided, further, that if pursuant to the restrictions on the
initial principal amount of a Term Loan contained in Section 2.2(c)(ii), the
principal amount of the Term Loan replacing a Construction/Acquisition Loan is
not sufficient to pay in full the outstanding principal amount of the
Construction/Acquisition Loan, then the Construction/Acquisition Agent shall
apply the Construction/Acquisition Holdback Amount to pay the remaining
balance of the Construction/Acquisition Loan in full and then shall release
the remaining portion, if any, of the Construction/Acquisition Holdback Amount
to Borrower in accordance with the first proviso of this sentence. Unless a
Lender has notified the applicable Agent prior to the Funding Date of a Loan
that such Lender does not intend to make available its Pro Rata Share of such
Loan, the Agent may assume that such Lender has made such amount available to
the Agent on the Funding Date and the Agent may, in its sole discretion, make
available to Borrower a corresponding amount on the Funding Date; provided,
that the Agent has no obligation to make available to Borrower any amount not
actually received from the Lenders. If an Agent makes available to Borrower
any Loan amount not received from a Lender, the Agent will be entitled to
recover such amount on demand from such Lender, together with interest thereon
for each day from the Funding Date that such amount remains unpaid at the
customary rate set by the Agent for the correction of errors among banks. If
the defaulting Lender does not pay such amount forthwith upon demand by the
Agent, the Agent will promptly notify Borrower and Borrower will immediately
pay such amount to the Agent, together with interest on such amount at the
applicable Interest Rate for each day from the Funding Date that such
<PAGE>
amount remains unpaid. Any such payment by Borrower will not be deemed a
prepayment for purposes of Section 2.8. Each Lender agrees that if it fails to
make available or to reimburse an Agent for any amount made available by the
Agent on its behalf, it will have no interest in such amount and hereby
assigns all of its right, title and interest in such amount to any assignee
designated by the Agent. Nothing in this paragraph will be deemed to relieve
any Lender of its obligation to fulfill its Commitments hereunder or prejudice
any right Borrower may have against any Lender as a result of any default by
such Lender.
(e) Continuation of Construction/Acquisition Loans. At
least five (5) Business Days prior to the end of each Interest Period of each
Construction/Acquisition Loan, Borrower may request in a written notice
delivered to the Construction/Acquisition Agent that a Construction/Acquisition
Loan be continued with an Interest Period specified by Borrower; provided, that
no Interest Period may extend beyond October 30, 1998. Such written notice will
specify (i) the proposed date of continuation, (ii) the
Construction/Acquisition Loan or Loans being continued and (iii) the new
Interest Period for each Construction/Acquisition Loan being continued. A
Construction/Acquisition Loan may be continued or converted only at the end of
its Interest Period. If Borrower does not deliver such a request to the
Construction/Acquisition Agent, the Construction/Acquisition Agent will
continue each Construction/Acquisition Loan with the same Interest Period;
provided, that if such same Interest Period would extend beyond October 30,
1998, then the Construction/Acquisition Agent will continue the
Construction/Acquisition Loan with the longest possible Interest Period that
does not extend beyond October 30, 1998.
(f) Notices of Borrowing. Each Notice of Borrowing will
be irrevocable.
(g) Option to Extend Maturity Date of Portion of
Construction/Acquisition Loan. If, pursuant to the restrictions on the initial
principal amount of a Term Loan contained in Section 2.2(c)(ii), the principal
amount of a Term Loan replacing a Construction/Acquisition Loan, plus the
amount of the Construction/Acquisition Holdback Amount applied pursuant to
Section 2.2(d) is not sufficient to pay in full the outstanding principal
amount of the Construction/Acquisition Loan, and provided that the long-term
unsecured debt of Guarantor is rated BBB - or higher by Standard & Poor's, then
Borrower may at its option choose to extend the maturity date of such unpaid
principal amount of the Construction/Acquisition Loan until October 30, 1998
with one or more Interest Periods (not extending beyond October 30, 1998)
chosen by Borrower in accordance with Section 2.2(e) and 2.3(b).
<PAGE>
Section 2.3 Interest.
(a) Interest Rates.
(i) Each Loan will bear interest on the unpaid
principal amount thereof from the date made to but excluding maturity
(whether at stated maturity, by acceleration, because of mandatory
prepayment or otherwise) at the following rates:
(A) each Construction/Acquisition Loan will
bear interest during each Interest Period applicable thereto
at a rate per annum equal to LIBOR as determined for such
Interest Period plus one hundred (100) basis points, computed
on each date on which interest is due on any
Construction/Acquisition Loan on the basis of a year of 360
days for the actual number of days elapsed; and
(B) subject to adjustment pursuant to
Section 2.3(a)(iv), each Term Loan will bear interest at a
fixed rate per annum equal to nine and thirty-five
one-hundredths percent (9.35%), payable on the basis of a
year of 360 days for the actual number of days elapsed.
(ii) LIBOR during a particular Interest Period will
be determined by the Construction/Acquisition Agent on the Interest
Rate Determination Date with respect to such Loan on the basis of the
Interest Period and the amount of the Loan.
(iii) Each determination by an Agent of the Interest
Rate applicable to any Loan pursuant to this Section 2.3(a) will be
conclusive and binding on the parties absent manifest error, in which
case the Interest Rate will be corrected and all payments of Borrower
affected by the incorrect Interest Rate determination will be
appropriately adjusted.
(iv) The Interest Rate applicable to each Term Loan
will be increased as necessary as of October 30, 1998, to reflect any
increased cost to the Term Agent and the Term Lenders resulting from
any variation between the actual Funding Dates of the Term Loans and
the projected Funding Dates of the Term Loans contained in the
Closing Pro Forma as of the Closing Date. The Interest Rate will be
increased in an amount sufficient to reimburse the Term Agent and the
Term Lenders for any increased cost to any of them arising from the
contracts or other arrangements entered into by the Term Agent and
the Term Lenders with Credit Lyonnais New York Branch or any other
Person to provide a fixed rate of interest on the Term Loans. Should
Borrower and the Term Lenders
<PAGE>
be unable to agree on the increase in the Interest Rate, then Borrower
and the Term Lenders shall appoint a firm of independent certified
public accountants (which shall be a "Big 6" firm and which shall not
at the time have an accounting relationship with any of Borrower, the
Term Agent and the Term Lenders) to determine the appropriate increase
in the Interest Rate, and the fees of such accounting firm shall be
paid one-half by Borrower and one-half by the Term Lenders.
(b) Interest Periods.
(i) Each Interest Period with respect to a
Construction/Acquisition Loan (A) will begin on and include the day on
which such Loan is made, or the day on which such Loan is continued
(which will be the day after the last day of the Interest Period of
the continued Loan) and (B) will not extend beyond October 30, 1998.
(ii) Subject to Section 2.3(b)(i), (A) Borrower may
select an Interest Period of one (1), two (2), three (3), six (6),
nine (9) or twelve (12) months, (B) an Interest Period that would
otherwise end on a day that is not a LIBOR Business Day will end on
the next succeeding LIBOR Business Day, unless such day falls in the
next calendar month, in which case such Interest Period will end on
the next preceding LIBOR Business Day, and (C) an Interest Period that
begins on the last LIBOR Business Day of a calendar month or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, will end on the last LIBOR
Business Day of the calendar month at the end of such Interest Period.
(c) Interest Payment Dates. Interest will be payable as
follows:
(i) all accrued and unpaid interest on all
outstanding Construction/Acquisition Loans will be payable in arrears
on the last day of the Interest Period with respect to such Loan.
(ii) all accrued and unpaid interest on all
outstanding Term Loans will be payable in arrears on each January 31,
April 30, July 31 and October 31, commencing on the first such date
following the Funding Date of the first Term Loan;
(iii) all accrued and unpaid interest due on any
Loan will be payable in full upon the maturity (whether at stated
maturity, by acceleration, because of mandatory prepayment or
otherwise) or prepayment of such Loan; and
<PAGE>
(iv) after maturity (whether at stated maturity, by
acceleration, because of mandatory prepayment or otherwise), interest
on any Loan will be payable upon demand.
(d) Default Interest. Overdue principal and overdue
interest in respect of any Loan and any other amount payable hereunder or
under any other Credit Document by Borrower or any Affiliate that is overdue
will bear interest at a rate per annum (the "Default Rate") equal to two
percent (2%) in excess of the rate of interest then-applicable to such Loan
or, if no rate of interest is applicable to such overdue amount, the highest
rate of interest applicable to any outstanding Loan. Upon the occurrence and
during the continuance of an Event of Default, all Loans and all other amounts
owing by Borrower and the Affiliates will bear interest at the Default Rate.
(e) Limitation. Notwithstanding any other provision of
the Credit Documents, if the rate of interest on any obligation of Borrower or
any Affiliate under any Credit Document at any time exceeds the highest rate
permitted by Applicable Law, the rate of interest on such obligation will be
deemed to be the highest rate permitted by Applicable Law.
Section 2.4 Notes. Borrower will execute and deliver to
each Construction Lender on the Closing Date a Construction/Acquisition Loan
Note substantially in the form of Exhibit 2.4(a) and to each Term Lender on
each Term Loan Conversion Date a Term Loan Note substantially in the form of
Exhibit 2.4(b). Each Construction/Acquisition Loan Note will be dated the
Closing Date, will be in the principal amount of such Construction Lender's
Construction/Acquisition Loan Commitment and will evidence such Construction
Lender's Pro Rata Share of the Construction/Acquisition Loans made hereunder.
Each Term Loan Note will be dated the applicable Term Loan Conversion Date,
will be in the principal amount of such Term Lender's Term Loan Commitment and
will evidence such Term Lender's Pro Rata Share of the Term Loans made
hereunder. Each Note will have other appropriate insertions and will be subject
to and entitled to the benefits of the Credit Documents. On each Funding Date
relating to a Construction/Acquisition Loan, each Construction/Acquisition
Lender is authorized to make a notation on the schedule attached to the
relevant Note indicating the date, the amount of such Lender's Pro Rata Share
of such Loan and the interest rate of such Loan. The information set forth in
such schedule will be prima facie evidence of the outstanding principal amount
of such Note and of the interest due thereon. Failure to make any such notation
will not limit or affect the obligations of Borrower under the Notes or any
other Credit Document.
Section 2.5 Fees. Borrower will pay to the Agents
and the Lenders fees at the times and in the amounts separately agreed among
them.
<PAGE>
Section 2.6 Security. The Loans and all other amounts
payable by Borrower and the Affiliates under this Agreement and the other
Credit Documents are secured by the Collateral and are entitled to the benefits
of the Security Documents.
Section 2.7 Use of Proceeds.
(a) Construction/Acquisition Loans. The proceeds of the
Construction/Acquisition Loans may be used only to pay (i) Qualified Project
Construction Costs and Qualified Project Acquisition Costs actually incurred in
strict compliance with the Construction/Acquisition Budgets and the Credit
Documents and evidenced by the invoices therefor delivered to the Engineer
pursuant to Sections 3.2(a)(ii) and (iii), and (ii) interest, fees and other
expenses payable pursuant to Section 2.2(b), Section 2.5 and Section 8.11.
(b) Term Loans. The proceeds of each Term Loan may be
used only to (i) repay the outstanding principal of and interest on all
Construction/Acquisition Loans made with respect to the Project that is the
subject of the Term Loan, (ii) fund the Debt Service Reserve Account to the
level then-required by the Disbursement Agreement, (iii) pay fees payable to a
Lender or an Agent pursuant to Section 2.5 and (iv) pay Closing Costs relating
to such Term Loan, and, to the extent such proceeds are not sufficient to pay
in full all of the amounts described in the preceding clauses (i) through (iv),
such proceeds will be applied first to the amounts described in clause (i),
second to the amounts described in clause (ii), third to the amounts described
in clause (iii) and fourth to the amounts described in clause (iv) until all of
such proceeds have been disbursed. Any amount described in clauses (i) through
(iv) of the preceding sentence not paid with the proceeds of a Term Loan will
continue to be obligations of Borrower hereunder that mature on October 30,
1998 and will be payable in accordance with the terms of this Loan Agreement.
(c) No Working Capital. Borrower may not use any portion
of any Loan for working capital, to provide working capital to any other Person
or for distributions to officers or shareholders of Borrower or any other
Person.
Section 2.8 Repayment of Principal.
(a) Generally. Borrower shall make principal payments on
the dates and in the amounts listed in Schedule I attached to each Term Loan
Note. The Loans are not revolving in nature and any amount repaid or prepaid
may not be reborrowed and will reduce the amount of the relevant Commitment.
(b) Optional Prepayments. Borrower has the right on any
date on which interest or principal is due under this Agreement to prepay any
Term Loan
<PAGE>
in whole or in part; provided, that (i) Borrower must give the Term Agent at
least thirty (30) days' prior irrevocable notice of any such prepayment
specifying the date of prepayment, the aggregate principal amount being
prepaid and the specific Term Loan or Loans being prepaid and in what
principal amounts, (ii) Borrower must also pay all accrued interest on all
amounts being prepaid, (iii) any partial prepayment of a Term Loan must be in
a minimum principal amount of two million Dollars ($2,000,000) and integral
multiples of five hundred thousand Dollars ($500,000) in excess of such amount
and (iv) Borrower must pay to the Term Lenders the prepayment fee described in
Section 2.8(d). Borrower has no right to voluntarily prepay a
Construction/Acquisition Loan.
(c) Mandatory Repayments.
(i) The entire principal amount of all outstanding
Loans will be immediately due and payable upon maturity (whether at
stated maturity, by acceleration or otherwise).
(ii) Borrower and the Affiliates will use all Delay
Damages with respect to a Project received prior to the Term Loan
Conversion Date corresponding to such Project to pay Qualified Project
Construction Costs or Qualified Project Acquisition Costs for such
Project (or, if no further Qualified Project Construction Costs or
Qualified Project Acquisition Costs are incurred by such Project, for
any other Project) prior to the funding of any further
Construction/Acquisition Loan. Borrower will apply all Delay Damages
remaining after the payment of all Qualified Project Construction
Costs and Qualified Project Acquisition Costs with respect to all
Projects in the manner provided in Section 2.9(c).
(iii) Immediately upon receipt by Borrower or any
Affiliate of any distribution of (A) Net Insurance Proceeds with
respect to a Project and either (1) such Net Insurance Proceeds exceed
the five percent (5%) threshold contained in Section 5.1(p)(vi) or (2)
such Net Insurance Proceeds do not exceed the five percent (5%)
threshold but are not permitted to be retained by Borrower for
application in accordance with Section 5.1(p)(vi) or Borrower
determines not to apply such Net Insurance Proceeds in a manner
permitted by Section 5.1(p)(vi), or (B) the proceeds of any sale,
transfer or disposition of any Project or any Project asset not
specifically permitted by Section 5.2(b), Borrower will prepay the
then-outstanding Loans relating to such Project in an amount equal to
(x) the entire outstanding principal amount of the
Construction/Acquisition Loans attributable to such Project as
indicated on Schedule I to the Construction/Acquisition Loan Note or
(y) the entire outstanding principal amount of the Term Loan Note
relating to such Project, as the case may be,
<PAGE>
and such prepayment will be applied in the manner provided in Section
2.9(c).
(iv) In addition, if any Project Document is
amended or terminated in a manner that results in a cash payment of
ten thousand Dollars ($10,000) or more to Borrower or any Affiliate,
then Borrower will prepay the then-outstanding Loans relating to such
Project in the amount of such proceeds and such prepayment shall be
applied in the manner provided in Section 2.9(c).
(v) In addition, if Borrower or any Affiliate ceases
to be a controlling person of any Project, then Borrower will prepay
the then-outstanding Loans relating to such Project in an amount equal
to (A) the entire outstanding principal amount of the
Construction/Acquisition Loans attributable to such Project as
indicated on Schedule I to the Construction/Acquisition Loan Note or
(B) the entire outstanding principal amount of the Term Loan Note
relating to such Project, as the case may be and such prepayment shall
be applied in the manner provided in Section 2.9(c).
(d) Prepayment Fee. In connection with (i) any voluntary
prepayment, (ii) any mandatory prepayment pursuant to Section 2.8(c)(iii), (iv)
or (v), or (iii) any payment of a Loan resulting from any exercise of remedies
by any Agent or Lender under any Credit Document following the occurrence of an
Event of Default, Borrower shall pay to the applicable Agent a prepayment fee
equal to the greater of the Reinvestment Loss Amount and the amount determined
pursuant to the following table as liquidated damages and compensation for the
costs of the Lenders (and the applicable Agent will distribute such prepayment
fee according to the Pro Rata Shares of the applicable Lenders):
Penalty as a % of
Date of Prepayment Prepaid Principal Amount
- ------------------ ------------------------
From the Closing Date or the applicable Term 2%
Loan Conversion Date, as the case may be, until
the first anniversary thereof
From the first to the second anniversary of the 1%
Closing Date or the applicable Term Loan
Conversion Date, as the case may be
<PAGE>
Notwithstanding the foregoing, if the Reinvestment Loss Amount is negative,
then such negative amount will be subtracted from the prepayment penalty
calculated pursuant to the above table.
Section 2.9 Payments.
(a) Method of Payment.
(i) All payments by Borrower or any Affiliate under
any Credit Document will be made in immediately available funds in
U.S. Dollars to the applicable Agent at its main office in Stamford,
Connecticut, or its New York Branch, as the case may be, for its
account or for the accounts of the applicable Lenders, as the case may
be. Borrower must give the applicable Agent telephone notice of any
payment to be made hereunder by noon, New York, New York, time and all
such payments must be received no later than 1:00 p.m., New York, New
York, time, on the date due and must be made in full without defense,
set-off or counterclaim of any kind and without any requirement of
presentment, notice or demand. In the absence of timely notice and
receipt, such payment shall be deemed to have been made on the next
succeeding Business Day. Subject to the requirements of Section
2.3(c), whenever any payment to be made hereunder or under any other
Credit Document is stated to be due on a day that is not a Business
Day, the due date of such payment will be extended to the next
succeeding Business Day and such extension of time will be included in
the computation of such payment.
(ii) Notwithstanding the provisions of Section
2.9(a)(i) to the contrary, for so long as the Disbursement Agreement
remains in full force and effect and provided sufficient funds are
available for application in accordance with the terms and conditions
hereof and thereof, Borrower authorizes and consents to make, and the
Agents and the Lenders agree to receive, any and all payments required
to be made hereunder through operation of the relevant provisions of
the Disbursement Agreement.
(b) Currency of Payment. All payments under the Credit
Documents must be made in U.S. Dollars and no payment obligation will be deemed
to have been novated, satisfied or discharged by the tender of any currency
other than U.S. Dollars or recovery under a judgment expressed in a currency
other than U.S. Dollars unless such tender or recovery will result in the
effective payment in full of such obligation in U.S. Dollars at the place
indicated in Section 2.9(a). The amount, if any, by which any tender or
recovery fails to result in such payment in full will remain due and payable
hereunder as a separate
<PAGE>
obligation of Borrower or the applicable Affiliate, unaffected by any action
of Borrower or any Affiliate or judgment obtained.
(c) Application of Payments. All payments received by
the Agents and the Lenders pursuant to Section 2.8(b) or (c) will be
applied in the following order of priority:
(i) to the payment of all accrued interest on
the Loan that is to be prepaid;
(ii) to the payment or reimbursement of all
costs, expenses, Taxes and other amounts payable pursuant to Sections
2.10, 8.11 and 8.12;
(iii) to the payment of all fees payable pursuant
to Section 2.5;
(iv) to the payment of the principal of the Loan
designated for prepayment in the inverse order of maturity; and
(v) to the payment or reimbursement of all
other amounts due to either Agent or any Lender hereunder or under any
other Credit Document.
All payments applied to interest on or principal of any Loan will be paid to
the Lenders in proportion to their respective Pro Rata Shares of such Loan. All
payments applied to any other category of obligation set forth above will be
paid to the various payees within such category in proportion to the respective
amounts due to them.
Section 2.10 Increased Costs and Unavailability.
(a) Taxes.
(i) All payments made by Borrower and the Affiliates
under the Credit Documents will be made free and clear of, and without
deduction or withholding for, any present or future Tax, and Borrower
will pay, either directly (with respect to Taxes of which Borrower has
independent knowledge) or through reimbursement pursuant to Section
2.10(a)(ii), all Taxes in respect of payments under the Credit
Documents other than Lender Income Taxes (collectively, "Reimbursable
Taxes"), and all costs and liabilities incurred by each Agent and each
Lender (each, an "Affected Party") in connection therewith.
<PAGE>
(ii) Borrower will reimburse each Affected Party, on
demand given pursuant to Section 2.10(g)(i), for any Reimbursable Tax
paid by such Affected Party on an after-tax basis so that such
Affected Party (A) receives the full amount payable to it under the
Credit Documents and (B) is made whole after taking into account all
income taxes it will owe on the reimbursement payment (assuming that
such payment is subject to taxation at the highest marginal rate
applicable to such Affected Party). Each Affected Party will have the
absolute right to arrange its tax affairs in whatever manner it deems
appropriate and no Affected Party will be obligated to claim any
particular deduction, credit or other benefit.
(iii) If Borrower is prohibited or prevented (by
Law or otherwise) from making any payment to an Affected Party
required under Section 2.10(a)(ii), then the amount of the payment
due to such Affected Party under the Credit Documents will be
increased by the amount necessary to insure that such Affected Party
will receive the full amount payable to it under the Credit
Documents.
(iv) Within thirty (30) days after the date on which
any Reimbursable Tax (of which Borrower has independent knowledge or
has become aware of by a notice from an Affected Party delivered in
accordance with Section 2.10(g)(i)) is due, Borrower will furnish to
the applicable Affected Parties official receipts or notarized copies
thereof evidencing payment of such Reimbursable Tax.
(v) Each of the Agents and the Lenders agrees to
deliver to Borrower all forms and documents necessary to establish any
exemption from withholding for Taxes to which it is entitled. Any
Person that becomes the successor holder of a Note will deliver the
forms and documents required under this Section 2.10(a)(v).
(b) Capital Adequacy, Reserve Requirements. If a Lender
determines that any Law enacted or effective after the Closing Date, any change
in Law effective after the Closing Date, any change in the interpretation or
administration of any Law effective after the Closing Date, or compliance with
any directive, guideline or request from any Government Instrumentality
effective after the Closing Date (whether or not having the force of Law) has
the effect of (i) requiring an increase in the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender or (ii) imposing or modifying any reserve, special deposit, compulsory
loan or similar requirement relating to any loan, extension of credit or other
asset of, or any deposit with or other liability of, such Lender, and such
Lender determines that such increase, imposition or modification is based, in
whole or in part, upon its
<PAGE>
obligations hereunder, Borrower will either (x) pay to such Lender an amount
certified by such Lender to be the amount necessary to preserve the return on
equity originally anticipated to be realized by such Lender as a result of the
Loans made hereunder or (y) prepay the Loans made by such Lender in the
aggregate amount certified by such Lender to be the amount necessary to
prevent such Lender from being subject to such increase, imposition or
modification. Any prepayment pursuant to this Section 2.10(b) will not cause
Borrower to owe a prepayment fee pursuant to Section 2.8(d) or otherwise, but
such prepayment shall be applied in the manner provided in Section 2.9(c).
(c) Increased Costs. Borrower will pay to each
Lender, upon demand, such amounts as such Lender from time to time determines
to be necessary to compensate such Lender for any cost incurred by such Lender
or any reduction in the amount received or receivable by such Lender under the
Credit Documents, resulting from any Law enacted or effective after the
Closing Date, any change in Law effective after the Closing Date, any change
in the interpretation or administration of any Law effective after the Closing
Date, or compliance with any directive, guideline or request from any
Government Instrumentality effective after the Closing Date (whether or not
having the force of Law) that:
(i) subjects such Lender to any Tax (other than
Lender Income Taxes or Taxes applicable either (A) solely to such
Lender and no other Person or (B) solely to lenders active in the
project finance market) or changes the basis of taxation of any amount
payable to such Lender under the Credit Documents (other than with
respect to Lender Income Taxes); or
(ii) imposes any other cost or condition affecting
the cost of making a Loan or maintaining a Commitment; provided, that
Borrower's obligation under this Section 2.10(c) shall not affect the
obligations of the Affected Parties under Sections 2.10(g)(ii) and
(iii).
(d) Funding Losses. Borrower will compensate each
Lender, upon demand, for any loss, cost or liability (including interest paid
by such Lender on funds borrowed to make, continue or convert a Loan and losses
sustained in liquidating deposits and in the re-employment of funds) incurred
as a result of:
(i) repayment (including repayment due to
acceleration) of a Loan on a date other than the last day of an
Interest Period (in the case of a Construction/Acquisition Loan) or
the applicable Term Loan Maturity Date (in the case of a Term Loan);
(ii) failure of Borrower to borrow a Loan on the
Funding Date therefor notified to the applicable Agent in a Notice of
Borrowing; or
<PAGE>
(iii) failure of Borrower to repay a Loan when due
(whether at stated maturity, by acceleration, because of mandatory
prepayment or otherwise) or on the date specified therefor in a notice
delivered pursuant to Section 2.8(b).
(e) Unavailability. In the event that on or before any
Interest Rate Determination Date a Construction/Acquisition Lender determines
that:
(i) U.S. Dollar deposits are not being
generally offered in the London interbank market,
(ii) adequate and fair means do not exist for
ascertaining interest rates by reference to LIBOR, or
(iii) LIBOR does not represent the cost to such
Construction/Acquisition Lender of funding or maintaining a requested
Construction/Acquisition Loan or effective pricing to such
Construction/Acquisition Lender for a requested
Construction/Acquisition Loan,
then such Construction/Acquisition Lender will give prompt notice of such fact
to Borrower and the Construction/Acquisition Agent and Borrower and such
Construction/Acquisition Lender will promptly enter into good-faith discussions
to determine an alternate reference interest rate and margin that will as
nearly as possible duplicate the economic terms of this Agreement and the
monetary benefit to such Lender of the Loans made and to be made by it
hereunder. If Borrower and such Construction/Acquisition Lender are, after a
reasonable time, unable to agree on an alternate reference interest rate and
margin, then, at the election of such Construction/Acquisition Lender, such
Construction/Acquisition Lender's obligation to make Construction/Acquisition
Loans will be immediately suspended.
(f) Illegality. If a Lender determines that any Law
enacted or effective after the Closing Date, any change in Law effective after
the Closing Date, any change in the interpretation or administration of any Law
effective after the Closing Date, or compliance by such Lender with any
directive, guideline or request (whether or not having the force of Law) of any
Government Instrumentality effective after the Closing Date makes it unlawful
or impossible for such Lender to fund or maintain Loans, then upon notice to
Borrower by such Lender the obligation of such Lender to fund Loans will be
suspended. In addition, the outstanding principal amount of such Lender's
portion of all Loans, together with interest accrued thereon and all other
amounts payable with respect thereto, will be repaid immediately upon demand of
such Lender if such Lender determines that immediate repayment is required or,
if such Lender determines that
<PAGE>
immediate repayment is not required, in the case of Construction/Acquisition
Loans, at the end of the respective Interest Periods of such
Construction/Acquisition Loans. In the event of repayment of a
Construction/Acquisition Loan pursuant to this Section 2.10(f) prior to the
end of its Interest Period, Borrower will compensate the
Construction/Acquisition Lenders for all losses, costs and liabilities
described in Section 2.10(d). Any prepayment pursuant to this Section 2.10(f)
will not cause Borrower to owe a prepayment fee pursuant to Section 2.8(d) or
otherwise, but such prepayment shall be applied in the manner provided in
Section 2.9(c). Notwithstanding the foregoing, prior to demanding prepayment
of a Loan pursuant to this Section 2.10(f), each Lender affected by the
conditions described in this Section 2.10(f) agrees to work in good faith with
Borrower to restructure their respective obligations under this Agreement in
such a manner as to preserve such Lender's economic return and to eliminate or
minimize the need for a Loan to be prepaid.
(g) Notice and Mitigation; Return of Fees.
(i) Upon the occurrence of an event that entitles
an Affected Party to compensation, reimbursement or indemnification
pursuant to this Section 2.10, such Affected Party will give Borrower
prompt notice of such event and, if applicable, the date compliance
with this Section 2.10 is required.
(ii) Except as specifically provided in this Section
2.10, each Affected Party will take reasonable measures to avoid the
need for, or reduce the amount of, compensation, reimbursement or
indemnification pursuant to this Section 2.10; provided, that no
Affected Party will be required to take any measure that, in its
judgment, would be disadvantageous to it, contrary to its policies or
inconsistent with its legal and regulatory position.
(iii) If any Tax or other charge of a type not
generally imposed on lenders making loans of the types contemplated by
this Agreement is imposed on payments to any Lender and Borrower is
obligated hereunder to compensate such Lender for such Tax or other
charge, Borrower may, within ten (10) days after receipt of notice of
such Tax or other charge, request that such Lender assign its portion
of the affected Loan or Loans to another Person acceptable to such
Lender, and such Lender will use reasonable efforts to negotiate such
an assignment.
(iv) The Term Agent hereby agrees with Borrower
that, upon any demand for repayment of all of the Loans and payment of
such Loans and other amounts in accordance with Section 2.10(f), if
such
<PAGE>
repayment occurs prior to the first anniversary of the Closing
Date, the Term Agent will return to Borrower a portion of the total
fees paid by Borrower to the Term Agent on the Closing Date pursuant
to Section 2.5, such portion to be calculated by multiplying the
aggregate amount of such fees by a fraction, not less than zero, the
numerator of which is (x) 12 less (y) the number of whole or partial
calendar months that have elapsed since the Closing Date and the
denominator of which is 12. Notwithstanding the foregoing, if a
repayment described in the preceding sentence occurs solely due to the
gross negligence or willful misconduct of the Term Agent at any time
during the term of this Agreement, then the Term Agent will return to
Borrower a portion of the initial fee (but not the agency fee) paid by
Borrower to the Term Agent on the Closing Date, such portion to be
calculated by multiplying the amount of such initial fee by a fraction
(not less than zero), the numerator of which is (x) 10 less (y) the
number of whole or partial calendar years that have elapsed since the
Closing Date and the denominator of which is 10.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to the Closing Date. The
obligation of each Lender to make available its respective Commitment is
subject to the satisfaction of each of the following conditions precedent:
(a) The Agents and the Lenders have received each of the
following, in each case in form and substance satisfactory to the Agents and
the Lenders:
(i) each Credit Document required by the
Lenders in their sole discretion to be delivered on the Closing Date,
executed and delivered by each of the parties thereto;
(ii) judgment lien, tax lien and UCC searches, and
such other searches of the records of Government Instrumentalities as
the Lenders may require, performed with respect to Borrower and the
Affiliates in all relevant jurisdictions;
(iii) the legal opinion of Borrower's Counsel in
the form of Exhibit 3.1(a)(iii);
(iv) the legal opinion of Lenders' Counsel;
<PAGE>
(v) such other legal opinions as the Agents or
the Lenders may require;
(vi) certified copies of:
(A) the Organizational Documents of
Guarantor, NEO, Borrower and the Affiliates;
(B) good standing certificates with respect
to Guarantor, NEO, Borrower and the Affiliates dated no
earlier than thirty (30) days before the Closing Date;
(C) incumbency certificates for the
signatories of Guarantor, NEO, Borrower and the Affiliates
and resolutions of Guarantor, NEO, Borrower and the
Affiliates approving the Documents and the transactions
contemplated thereby;
(D) unaudited financial statements of NEO
for the fiscal year ended December 31, 1996 and all
subsequent quarterly financial statements available on the
Closing Date, audited financial statements of Borrower for
the fiscal year ended December 31, 1996 and all subsequent
quarterly financial statements available on the Closing Date,
and pro forma balance sheets of the Affiliates as of the
Closing Date; and
(E) all Project Documents in effect on
the Closing Date and which are listed in Schedule I as having
been executed;
(vii) certificates of officers of Guarantor, NEO,
Borrower and each Affiliate certifying that:
(A) all Documents executed by such
Person on or prior to the Closing Date are in full force and
effect, such Person and, to the best knowledge of such Person
after due inquiry, the Project Parties are in compliance with
all covenants and provisions thereof, and no breach or event
of default (or any event that would become a breach or event
of default with the giving of notice or passage of time or
both) has occurred and is continuing under any such Document;
(B) all representations and warranties
of such Person contained in the Documents are true, correct
and complete;
<PAGE>
(C) all financial statements and
information relating to such Person provided to the Lenders,
taken as a whole, are true, correct and complete; each
balance sheet fairly presents the financial position of the
Person to which it relates as at the date indicated and was
prepared in accordance with GAAP except as specifically noted
therein; no material adverse change in the condition or
operation, financial or otherwise, of such Person has
occurred since July 31, 1997; and the financial statements
(including any notes thereto) provided to the Lenders
disclose all liabilities, contingent or otherwise, of such
Person; and
(D) no act, event or circumstance has
occurred with respect to the Projects or such Person or, to
the best knowledge of such Person after due inquiry, the
Project Parties which has had or could have a Material
Adverse Effect or a material adverse effect on the
availability or pricing of financing for the Projects;
(viii) [RESERVED]
(ix) copies of all Required Approvals obtained
on or prior to the Closing Date by or on behalf of Borrower or the
Affiliates;
(x) a written report of the Engineer opining
favorably, to the best of the Engineer's knowledge and except as
otherwise noted in such report, on the relevant technical aspects of
the Projects, except as otherwise noted in the report, including
without limitation historical and projected Project availability and
useful life, projected operation and maintenance costs (including,
that the costs of operation and maintenance of the Projects, as
detailed in the Closing Pro Forma are consistent with market
practice), maintenance plans and schedules, terms of the Project
Documents, Required Approvals, expected landfill gas production,
expected availability, net capacity degradation (if any), the ability
of the Projects to comply with all conditions contained in the
Required Approvals, that there is no event or anticipated event that
could reasonably be expected to cause any Project not to be completed
by the date contemplated in the Construction and Draw Schedules and
landfill gas collection efficiencies;
(xi) the favorable written report of the Energy
Consultant confirming the energy price and capacity payment
assumptions contained in the Closing Pro Forma; and
(xii) the favorable written report of the Insurance
Consultant confirming compliance by Borrower and the Affiliates,
except
<PAGE>
as noted therein, with all requirements relating to Required
Insurance contained in this Agreement.
(b) No act, event or circumstance has occurred (i) with
respect to the Projects, Guarantor, NEO, Borrower or the Affiliates, (ii) in
the international financial markets or (iii) otherwise which has had or could
reasonably be expected to have a material adverse effect on the availability or
pricing of financing for the Projects.
(c) All Taxes, fees and expenses required to be paid by
Borrower and the Affiliates on or before the Closing Date have been paid.
(d) Guarantor, NEO, Borrower and the Affiliates have
appointed the Process Agent to serve as process agent until the Term Loan
Maturity Date and the Process Agent has accepted such appointment in writing,
and a copy of such acceptance has been delivered to the Agent.
(e) The Lenders have prepared and analyzed the Closing
Pro Forma incorporating the results of the Lenders' due diligence based on
information provided by Borrower and the reports of the Lenders' counsel, the
Engineer and the Energy Consultant and the terms and conditions imposed by the
Project Documents, showing annual Net Operating Cash available for debt service
on the Term Loans sufficient (in the Lenders' sole determination) to produce an
annual debt service coverage ratio of at least 1.5 to 1 (on a per Project basis
as well as for all Projects taken together) and for Borrower to comply with the
financial covenants of this Agreement, including maintenance of the Minimum
Coverage Ratio.
(f) The Organizational Documents of Borrower and the
Affiliates contain bankruptcy-remote provisions satisfactory to the Lenders.
(g) All Documents executed by Guarantor, NEO, Borrower
and the Affiliates on or prior to the Closing Date are in full force and
effect, Guarantor, NEO, Borrower, the Affiliates and the Project Parties are in
full compliance with all covenants and provisions thereof, and no breach or
event of default (or any event that could become a breach or event of default
with the giving of notice or passage of time or both) has occurred and is
continuing under any such Document.
(h) All representations and warranties of Guarantor,
NEO, Borrower and the Affiliates contained in the Documents are true, correct
and complete.
<PAGE>
(i) There is no pending or threatened litigation,
investigation or other proceeding (i) relating to any Project (including
without limitation relating to the release of any Hazardous Substance or any
contingent liability of Borrower, the Affiliates, the Project Parties or the
Projects in connection with the release of any Hazardous Substance) or (ii)
that could materially adversely affect the condition (financial or otherwise)
of Guarantor, NEO, Borrower, the Affiliates or the Project Parties or their
ability to perform under the documents, other than the bankruptcy proceedings
relating to the EPC Contractor of the Edgeboro Project and the pre-petition
liens relating thereto.
(j) A First-Priority security interest in the Collateral
that is the subject of the Security Documents in effect as of the Closing Date
has been created and perfected, and will continue to be perfected, in favor of
the Lenders in all relevant jurisdictions, and there are no Liens on the
Collateral other than Permitted Liens. The Term Agent has received all items of
Collateral in which a security interest is perfected by possession, including
stock certificates and stock powers relating thereto.
(k) No Project has suffered a material loss (unless such
Loss has been remedied to the satisfaction of the Lenders) or is subject to
pending or threatened condemnation or appropriation proceedings.
(l) The operations of Borrower, the Projects and the
Affiliates comply and will comply, in all respects deemed material by the
Lenders (including without limitation that the Projects will be able to meet
the financial and construction progress projections contained in the Closing
Pro Forma), with all Applicable Laws and Required Approvals.
(m) No order, judgment or decree of any Government
Instrumentality enjoins or restrains any Agent or any Lender from entering into
and performing its obligations under this Agreement.
Section 3.2 Conditions Precedent to the Funding of Each
Construction/Acquisition Loan. The obligation of the Construction/Acquisition
Lenders to fund any Construction/Acquisition Loan is subject to the
satisfaction of each of the following conditions precedent:
(a) The Construction/Acquisition Agent and the
Construction/Acquisition Lenders have received each of the following, in each
case in form and substance satisfactory to the Construction/Acquisition Agent
and the Construction/Acquisition Lenders:
(i) a Notice of Borrowing, with all attachments
thereto, sent in compliance with Section 2.2(a)(i);
<PAGE>
(ii) copies of all invoices, applications for
payment, payment receipts and lien waivers and releases received from
the EPC Contractor and other Project Parties of the Project that is
the subject of the requested Loan and all major subcontractors as
reasonably requested by the Construction/Acquisition Agent;
(iii) a certificate of the Engineer certifying that,
to the best of its knowledge after due inquiry and review:
(A) that all invoices, applications for
payments, receipts, lien waivers and releases submitted by
Borrowers in connection with the Notice of Borrowing with
respect to such Loan are, genuine and correct and in
conformity and compliance with the applicable
Construction/Acquisition Budget, Construction and Draw
Schedule and EPC Contract and with the requirements of the
Credit Documents and are sufficient to document the services
and materials for which the Loan is being requested;
(B) that construction of the Projects is on
or ahead of the schedules contained in the Construction and
Draw Schedules and that all Qualified Project Construction
Expenses are consistent with the Construction and Draw
Schedules. If project schedule slippages are anticipated,
updated schedules with corrective action, or revised
scheduled completion dates are provided, and update budget to
reflect such changes;
(C) that sufficient funds remain available
under the Construction Draw Schedules to complete the
Projects;
(D) that Required Approvals capable of
being obtained as of the Funding Date have been obtained and
that other Required Approvals that are not possible to obtain
as of such date are likely to be obtained as needed in the
future in the opinion of the Engineer;
(E) that the Engineer is not aware of any
event that has occurred or is anticipated to occur that
could cause a Project not to be completed on or before the
projected date contained in the Construction and Draw
Schedules;
(F) with respect to the first
Construction/Acquisition Loan requested for a Project, that
each Action Item listed in Schedule III relating to the
Project that is the
<PAGE>
subject of the requested Construction/Acquisition Loan has
been performed or accomplished to the Engineer's
satisfaction;
(iv) copies of all Required Approvals obtained by or
on behalf of Borrower, the Affiliates, the EPC Contractors or the
Operators, and all Project Documents, to the extent not previously
provided to the Lenders;
(v) with respect to the first
Construction/Acquisition Loan requested for a Project, binders,
certificates or other evidence indicating that the Lenders will
immediately following the Funding Date of the requested Loan be named
as (i) loss payee with respect to the property insurance and business
interruption insurance policies relating to the Project that is the
subject of the requested Loan and (ii) additional insureds on the
general and umbrella liability insurance policies maintained by
Borrower and the Affiliates, together with a letter from the Insurance
Consultant certifying that the insurance maintained by Borrower and
the Affiliates is adequate and consistent with industry practice;
(vi) (A) with respect to the first
Construction/Acquisition Loan requested for a Project, a title report
(with copies of all documents and instruments affecting title to such
Site or Sites) and an ALTA prepaid policy of title insurance for the
Site or Sites of the Project that is the subject of the requested
Construction/Acquisition Loan issued by the Title Insurer in favor of
the Lenders and insuring the First-Priority of the Lien of the
Mortgage relating to such Site or Sites in an aggregate amount equal
to the maximum aggregate principal amount of the
Construction/Acquisition Loans anticipated to be made to such Project
(as reflected in the Closing Pro Forma) (the "Title Policy"). The
Title Policy shall be marked "premium paid," shall be issued subject
only to Permitted Liens and shall contain modifications to the
standard exceptions and such affirmative insurance and endorsements as
the Construction/Acquisition Agent may require, and (B) with respect
to any drawing other than the first Construction/Acquisition Loan
requested for a Project, a continuation of title, pending
disbursements endorsement or other suitable title endorsement issued
by the Title Insurer for each Title Policy or Title Policies relating
to the Project in respect of which such Construction/Acquisition Loan
is requested;
(vii) an Environmental Review of the Site or Sites
(consisting of a review of data from State and Federal environmental
databases as reported by a third-party vendor, and any reports of
non-
<PAGE>
compliance obtained from State environmental staff) affirming or
stating that, to the best knowledge of the Engineer after due inquiry
and review:
(A) No material expenditure will need to be
made by Borrower, the applicable Affiliates, or the Project
for response to any release of a Hazardous Substance,
(B) None of Borrower, the applicable
Affiliates, or the Project are subject to any material
contingent liabilities in connection with the release of any
Hazardous Substance,
(C) contacts with State environmental staff
did not identify any non compliant conditions, and
(D) site visit observations did not
identify areas of concern.
(viii) with respect to the first
Construction/Acquisition Loan requested for a Project, one or more
Mortgages, executed by the Affiliate that is the owner of the Project
that is the subject of the requested Construction/Acquisition Loan in
favor of the Construction/Acquisition Agent and the Term Agent
granting a First-Priority Lien on the Site of the Project that is the
subject of the requested Construction/Acquisition Loan, together with
an opinion of counsel to Borrower reasonably acceptable to the
Construction/Acquisition Agent confirming (A) the enforceability of
such Mortgages, (B) that such Mortgages are in due form for filing
with the appropriate Government Instrumentality, (C) that the Site may
be used for the purpose of constructing and operating the Project
Improvements in accordance with any applicable subdivision, zoning and
other land-use Laws, and (D) otherwise in form and substance
reasonably satisfactory to the Construction/Acquisition Lenders;
(ix) with respect to the first
Construction/Acquisition Loan requested for a Project, certified
copies of the Construction/Acquisition Budget, Construction and Draw
Schedule and descriptive memorandum for the Project that is the
subject of the requested Construction/Acquisition Loan;
(x) certified copies of all Project Documents not
previously delivered to the Construction/Acquisition Agent;
(xi) certificates of officers of Borrower and the
Affiliate that owns the Project that is the subject of the requested
<PAGE>
Construction/Acquisition Loan, duly executed as of the Funding Date,
certifying that:
(A) all Documents executed by such Person
on or prior to the Funding Date are in full force and effect,
such Person and, to the best knowledge of such Person after
due inquiry, the Project Parties, are in compliance with all
covenants and provisions thereof, and no breach or event of
default (including any Event of Default) (or any event that
would become a breach or event of default with the giving of
notice or the passage of time or both) has occurred and is
continuing under any such Document; and
(B) all representations and warranties
of such Person contained in the Documents are true, correct
and complete;
(xii) with respect to the first
Construction/Acquisition Loan requested for a Project, a site plan
(the "Site Plan") for the Project that is the subject of the requested
Construction/Acquisition Loan identifying the Site for such Project
and showing (A) the location of all existing improvements and the
intended locations of the improvements to be constructed thereon
(collectively, the "Project Improvements") and (B) that the Project
Improvements for such Project are or will be located within the
boundaries of the Site for such Project;
(xiii) with respect to the first
Construction/Acquisition Loan requested for a Project, all documents
and instruments evidencing that the Affiliate that is the owner of the
Project has valid and subsisting real property interests in and to the
Site for the Project that is the subject of the requested
Construction/Acquisition Loan (collectively, the "Real Property
Documents");
(xiv) to the extent not listed above, all Credit
Documents required by the Construction/Acquisition Lenders in their
sole discretion to be delivered on the Funding Date, executed and
delivered by each of the parties thereto; and
(xv) such other assurances, instruments or
undertakings as the Construction/Acquisition Agent or any
Construction/Acquisition Lender may reasonably request.
(b) Such Loan is in conformity with the Construction and
Draw Schedule for such Project.
<PAGE>
(c) The Project Documents executed by Borrower and the
Affiliates on or prior to the Funding Date of the requested Loan include all
agreements required for the acquisition, development, construction, ownership
and operation, as appropriate, of the Project that is the subject of the
requested Loan, other than those agreements that the Construction/Acquisition
Lenders do not require to be in place on such Funding Date and that the
Construction/Acquisition Lenders are satisfied, on the basis of evidence
provided by Borrower, will be obtainable in the ordinary course of business
prior to the time required, and such Project Documents conform in all material
respects with the Closing Pro Forma and are sufficient to permit the Project to
operate in a manner that will neither violate the Required Approvals or the
manufacturer's normal operating parameters and such that the Project will be
able to achieve the net operating revenue projected in the Closing Pro Forma.
(d) All Documents executed by Guarantor, NEO, Borrower
and the Affiliates on or prior to the Funding Date of the requested Loan are in
full force and effect, Guarantor, NEO, Borrower, the Project Parties and the
Affiliates are in compliance with all covenants and provisions thereof, and no
breach or event of default (or any event that would become a breach or event of
default with the giving of notice or passage of time or both) has occurred and
is continuing under any such Document.
(e) All representations and warranties of Guarantor,
NEO, Borrower and the Affiliates contained in the Documents are true, correct
and complete.
(f) No act, event or circumstance has occurred (i) with
respect to the Projects, Guarantor, NEO, Borrower or the Affiliates, (ii) in
the international financial markets or (iii) otherwise, including without
limitation any amendment or any proposed amendment to permitting, licensing or
other regulatory requirements or any Project Document, which has had or could
have a Material Adverse Effect.
(g) There is no pending or threatened litigation,
investigation or other proceeding (i) relating to any Project (including
without limitation relating to the release of any Hazardous Substance or any
contingent liability of Borrower, the Affiliates, the Project Parties or the
Projects in connection with the release of any Hazardous Substance), (ii) that
could materially adversely affect the condition (financial or otherwise) of
Guarantor, NEO, Borrower and the Affiliates or (iii) that could materially
adversely affect the ability of the Project Parties to perform under the
Documents.
(h) All Required Approvals have been obtained except for
those that are obtainable only at a later stage and which the
Construction/Acquisition
<PAGE>
Lenders are satisfied, on the basis of evidence provided by Borrower, will be
obtainable in the ordinary course of business prior to the time required, and
all obtained Required Approvals are in full force and effect, not subject to
any onerous or unusual condition and satisfactory to the
Construction/Acquisition Lenders in their sole discretion.
(i) All Required Insurance has been obtained, all
Required Insurance is in full force and effect and is not subject to
cancellation and no Person other than Guarantor, NEO, Borrower, the Affiliates
and the Lenders has any right or interest in, to or under any Required
Insurance other than pursuant to the Project Documents.
(j) A First-Priority security interest in the Collateral
has been created and perfected, and will continue to be perfected, in favor of
the Lenders in all relevant jurisdictions, and there are no Liens on the
Collateral other than Permitted Liens.
(k) Borrower and the Affiliates have made all Equity
Contributions required to be made at or before the date of such Loan and all of
such Equity Contributions has been expended for Qualified Project Construction
Costs or Qualified Project Acquisition Costs, as the case may be.
(l) No Project has suffered a material Loss (unless such
Loss has been remedied to the satisfaction of the Construction/Acquisition
Lenders) or is subject to pending or threatened condemnation or appropriation
proceedings.
(m) The operations of Borrower, the Projects and the
Affiliates comply and will comply, in all respects deemed material by the
Construction/Acquisition Lenders (including without limitation that the
Projects will be able to meet the projections contained in the Closing Pro
Forma), with all Applicable Laws and Required Approvals.
(n) No order, judgment or decree of any Government
Instrumentality enjoins or restrains any Construction/Acquisition Lender from
making the requested Loan.
(o) Each condition precedent set forth in Schedule II
relating to each Project that is the subject of a requested
Construction/Acquisition Loan has been satisfied to the satisfaction of the
Construction/Acquisition Agent and the Construction/Acquisition Lenders in
consultation with the Engineer.
(p) The Construction/Acquisition Agent has received
evidence satisfactory to it that any primary customer of each Project that is
the subject of a requested Construction/Acquisition Loan, or any parent
company thereof, has
<PAGE>
qualified for debt financing and is able to draw on such debt financing on
terms and in amounts that the Construction/Acquisition Agent deems sufficient
in its sole discretion.
(q) All Taxes, fees and expenses required to be paid by
Borrower and the Affiliates on or before the Funding Date have been paid.
(r) Each of the Real Property Documents pertaining to
the Site or Sites of the Project that is the subject of the requested
Construction/Acquisition Loan (or memoranda thereof), the Mortgages and the
Financing Statements shall have been duly recorded, published, registered and
filed (or arrangements for such recording, publishing, registering and filing
shall have been made), in such manner and in such places as are necessary or
appropriate to publish notice thereof and protect the validity and
effectiveness thereof and to establish, create, perfect, preserve and protect
the rights of the parties thereto and their respective successors and assigns,
and all Taxes, fees and other charges in connection with such recording,
publishing, registration and filing of such documents or any memoranda thereof
and any financing statements shall have been paid, or caused to be paid, by
Borrower.
(s) The Site for the Project that is the subject of the
requested Construction/Acquisition Loan constitutes all the real property
interests necessary to construct, maintain and operate such Project in
accordance with its respective Project Documents.
Section 3.3 Conditions Precedent to each Term Loan Conversion
Date. The obligation of the Term Lenders to fund any Term Loan is subject to
the satisfaction of each of the following conditions precedent:
(a) The Term Agent and the Term Lenders have received
each of the following, in each case in form and substance satisfactory to the
Term Agent and the Term Lenders:
(i) a Notice of Borrowing sent in compliance
with Section 2.2(c)(i);
(ii) the Term Note relating to such Term Loan,
executed and delivered by Borrower;
(iii) a new lender's policy of title insurance,
continuation of title or other suitable title endorsement (issued by
the Title Insurer and including, without limitation, an updated survey
endorsement) for each Title Policy or Title Policies relating to the
Project in respect of which such Term Loan is requested) confirming
that the Mortgage(s) have a First-
<PAGE>
Priority Lien on the Site securing one hundred percent (100%) of the
maximum Aggregate Term Loan Commitment without any additional Liens
(other than Permitted Liens);
(iv) an "as-built" survey of the Site or Sites of
the Project that is the subject of the requested Term Loan showing
(A) the location of the Project Improvements, (B) that the Project
Improvements for each Project are located within the boundaries of
the Site for such Project (without encroachments on any right-of-way,
easement or other interest that could adversely affect the continued
operation of such Project), (C) that such Site is not located in a
flood zone (or, to the extent that any portion of such Site may be in
a flood zone, delineating the portions thereof in such flood zone),
and (D) all easements, encroachments and other survey matters
required by the Term Agent. The "as-built" Survey shall be dated
within 30 days of date of the requested Term Loan, be in form and
substance satisfactory to the Term Agent, be prepared by licensed
surveyors acceptable to the Term Agent, and be certified to the Term
Agent and the Title Insurer;
(v) a legal opinion of Borrower's Counsel in form
and substance satisfactory to the Term Agent;
(vi) the legal opinion of Lenders' Counsel;
(vii) such other legal opinions as the Term Lenders
may request;
(viii) good standing certificates with respect to
NRG, NEO, Borrower and the Affiliate that is the owner of the Project
that is the subject of the requested Term Loan dated no earlier than
thirty (30) days before the Term Loan Conversion Date;
(ix) certificates of officers of NRG, NEO, Borrower
and the Affiliates corresponding to the Project that is the subject of
the requested Term Loan certifying that:
(A) all Documents executed by such Person
on or prior to the applicable Term Loan Conversion Date are
in full force and effect, such Person and, to the best
knowledge of such Person, after due inquiry, the Project
Parties, are in compliance with all covenants and provisions
thereof, and no breach or event of default (including an
Event of Default) (or any event which would become a breach
or event of default with the giving of notice or passage of
<PAGE>
time or both) has occurred and is continuing under any such
Document;
(B) all representations and warranties of
such Person contained in the Documents are true, correct and
complete in all material respects;
(C) there has occurred no material adverse
change in the financial position of such Person since the
date of the most recent balance sheet of such Person provided
to the Term Lenders; and
(D) no act, event or circumstance has
occurred with respect to any Project, such Person or, to the
best of such Person's knowledge after due inquiry, any
Project Party which has had or could have a Material
Adverse Effect;
(x) to the best of the Engineer's knowledge, and
except as otherwise noted in its report, the report of the Engineer
certifying that, as appropriate,
(A) the Project that is the subject of the
requested Term Loan has been completed in accordance with the
corresponding EPC Contract (other than Punch List Items, the
completion of which will not interfere with the commercial
operation of the Project or cause it to operate at levels
material different than those forming the basis of the
projections in the Closing Pro Forma),
(B) all tests required for Final
Performance Acceptance under the corresponding EPC Contract
have been successfully completed,
(C) with respect to each Project, has
commenced Commercial Operation under the corresponding Power
Purchase Agreement and/or Gas Sale Agreement,
(D) that Performance Tests for each
Project's Gasco and Genco are completed in accordance with
the approved test program,
(E) the Project appears to be capable of
achieving the operating revenue as projected in the Closing
Pro Forma,
<PAGE>
(F) all Permit Approvals required to
commission and operate the Project are in full force and
effect, and
(G) all necessary Fuel and utility services
are available for the Project,
(H) with respect to each Term Loan
Conversion requested for a Project, that each Action Item
relating to the Project that is the subject of the requested
term loan has been performed or accomplished to the
Engineer's satisfaction.
(xi) an Operating Plan and Budget for the Project
that is the subject of the requested Term Loan for the current
calendar year and the subsequent calendar year;
(xii) copies of all Required Approvals obtained by
or on behalf of Borrower, the Affiliates, the EPC Contractors or the
Operators and certified copies of all Project Documents to the extent
not previously provided to the Term Lenders; and
(xiii) such other assurances, instruments or
undertakings as the Term Agent or any Term Lender may reasonably
request.
(b) The Project Documents (including the Operation and
Maintenance Agreements) executed by Borrower and the Affiliates on or prior to
the Term Loan Conversion Date include all agreements required for the ownership
and operation of the Project that is the subject of the requested Term Loan
(including without limitation that the operation and maintenance expenses of
the Project conform with the projection of the operation and maintenance
expenses contained in the Closing Pro Forma) other than those agreements that
the Term Lenders do not require to be in place on the Term Loan Conversion Date
and which the Term Lenders are satisfied, on the basis of evidence provided by
Borrower, will be obtainable in the ordinary course of business prior to the
time required.
(c) All Documents executed by NRG, NEO, Borrower and the
Affiliates on or prior to the Term Loan Conversion Date are in full force and
effect, NRG, NEO, Borrower, the Affiliates and all Project Parties are in
compliance with all covenants and provisions thereof, and no breach or event of
default (or any event which would become a breach or event of default with the
giving of notice or passage of time or both) has occurred and is continuing
under any such Document.
<PAGE>
(d) All representations and warranties of NRG, NEO,
Borrower and the Affiliates contained in the Documents are true, correct and
complete.
(e) No act, event or circumstance has occurred (i) with
respect to the Projects, Borrower or the Affiliates, (ii) in the international
financial markets or (iii) otherwise, including without limitation any
amendment or any proposed amendment to permitting, licensing or other
regulatory requirements or any Project Document, which has had or could
reasonably be expected to have a Material Adverse Effect.
(f) There is no pending or threatened litigation,
investigation or other proceeding (i) relating to any Project or (ii) that
could materially adversely affect the condition (financial or otherwise) of
NRG, NEO, Borrower or the Affiliates or (iii) that could materially adversely
affect the ability of the Project Parties to perform under the Documents.
(g) All Required Approvals have been obtained except for
those which are obtainable only at a later stage and which the Term Lenders are
satisfied, on the basis of evidence provided by Borrower, will be obtained in
the ordinary course of business prior to the time required, all Required
Approvals obtained are in full force and effect and not subject to any onerous
or unusual condition, and the Term Agent shall have received confirmation of
the accuracy of this representation from counsel to Borrower or an independent
engineer acceptable to the Term Agent.
(h) All Required Insurance has been obtained and all
Required Insurance is in full force and effect and not subject to cancellation
and no Person other than Guarantor, NEO, Borrower, the Affiliates and the
Lenders has any right or interest in, to or under any Required Insurance other
than pursuant to the Project Documents.
(i) A First-Priority security interest in the Collateral
has been created and perfected, and will continue to be perfected, in favor of
the Lenders in all relevant jurisdictions, and there are no Liens on the
Collateral other than Permitted Liens.
(j) No Project has suffered a material loss (unless such
Loss has been remedied to the satisfaction of the Term Lenders) or is subject
to pending or threatened condemnation or appropriation proceedings.
(k) All Construction/Acquisition Loans that correspond
to the Project that is the subject of the requested Term Loan, together with
all accrued and unpaid interest thereon and all other amounts due and payable
under the
<PAGE>
Credit Documents, will be paid concurrently with the funding of the requested
Term Loan.
(l) The Debt Service Reserve Fund will be fully funded
at or prior to the funding of the requested Term Loan.
(m) All Qualified Project Construction Costs or
Qualified Project Acquisition Costs of the Project that is the subject of the
requested Term Loan have been paid in full, or an amount deemed sufficient by
the Engineer to pay all unpaid costs has been deposited in an account under the
control of the Term Agent for such purpose.
(n) Borrower and the Affiliates have made all Equity
Contributions required to be made on or before the Term Loan Conversion Date.
(o) The Project that is the subject of the requested
Term Loan has achieved Final Performance Acceptance under the corresponding EPC
Contract and commenced Commercial Operation under the corresponding Power
Purchase Agreement and/or the Gas Sales Agreement.
(p) No order, judgment or decree of any Government
Instrumentality enjoins or restrains any Term Lender from making the requested
Term Loan.
(q) The Organizational Documents of Borrower and the
Affiliates contain bankruptcy-remote provisions satisfactory to the Term
Lenders.
(r) Each condition precedent set forth in Schedule II
relating to the Project that is the subject of the requested Term Loan has been
satisfied to the satisfaction of the Term Agents and the Term Lenders.
(s) The Term Agent has received evidence satisfactory to
it that any primary customer of each Project that is the subject of a requested
Term Loan, or any parent company thereof, has qualified for debt financing and
is able to draw on such debt financing on terms and in amounts that the Term
Agent deems sufficient in its sole discretion.
(t) All Taxes, fees and expenses required to be paid by
Borrower or any Affiliate on or before the Term Loan Conversion Date have been
paid.
(u) The operations of Borrower, the Projects and the
Affiliates comply and will comply, in all respects deemed material by the Term
Lenders (including without limitation that the Projects will be able to meet
the projections
<PAGE>
contained in the Closing Pro Forma), with all Applicable Laws and Required
Approvals.
(v) If appropriate, the conditions precedent set forth
in Section 3.4 have been satisfied.
Section 3.4 Additional Conditions Precedent for Certain Term
Loans. If Borrower requests a Term Loan for a Project that was not previously
the subject of a Construction/Acquisition Loan, then the conditions precedent
set forth in Sections 3.2(a)(iv), (v), (vi), (vii), (viii), (ix) and (xv) shall
also be satisfied to the satisfaction of the Term Agent and the Term Lenders.
Section 3.5 No Waiver. The failure of the Agent or any
Lender to require satisfaction of any condition precedent set forth in this
Article III, or the funding of any Loan despite the failure of Borrower to
satisfy any such condition precedent, will not constitute a waiver of such
condition precedent unless the Lenders so state in writing. A waiver by the
Lenders of any condition precedent in connection with the funding of any Loan
will not affect the applicability of such condition precedent to the funding of
subsequent Loans.
Section 3.6 Location of Closings. The various closings of the
loan transactions contemplated hereunder shall take place at the office of the
Lenders' Counsel in Washington, D.C., or the offices of the Term Agent in
Stamford, Connecticut, at the election of the Agents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties. Borrower
represents and warrants to the Agents and the Lenders on and as of each date on
which such representations and warranties are required to be made pursuant to
Article III as follows:
(a) Existence; Authority. It is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which such qualification is necessary
or desirable in view of its current or proposed business and operations or the
ownership of its properties. It has all necessary rights, franchises and
privileges and full power and authority to execute, deliver and perform the
Documents to which it is a party, to design, construct, own and operate the
Projects and to conduct its business as currently conducted and as proposed to
be conducted. It has taken all necessary action to execute, deliver and perform
the Documents to which it is a party and such
<PAGE>
Documents have been duly executed and delivered by it and constitute the
legally valid and binding obligations of it, enforceable in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar Laws relating to or limiting
creditors' rights generally or by general principles of equity.
(b) Ownership and Affiliates. Each Affiliate is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the Laws of the State of its
organization and is duly qualified to do business as a foreign corporation or
limited liability company and is in good standing in each jurisdiction in which
such qualification is necessary or desirable in view of its current or proposed
business and operations or the ownership of its properties. Each Affiliate has
all necessary rights, franchises and privileges and full power and authority to
execute, deliver and perform the Documents to which it is a party and to
conduct its business as currently conducted and as proposed to be conducted.
Each Affiliate has taken all necessary action to execute, deliver and perform
the Documents to which it is a party and such Documents have been duly executed
and delivered by such Affiliate and constitute the legally valid and binding
obligations of such Affiliate, enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Laws relating to or limiting creditors'
rights generally or by general principles of equity.
(c) Capitalization. The respective ownership interests
in Borrower and the Affiliates are as set forth in the Organizational
Documents provided to the Agents and the Lenders pursuant to Article III and
as described in the organizational charts attached as Exhibit 4.1(c). All of
such ownership interests are duly and validly issued and are subject to no
Liens other than the Liens in favor of the Agents and the Lenders created by
the Pledge Agreements. There are no other ownership or equity interests in
Borrower or the Affiliates, rights to acquire or subscribe for any such
interests or securities or instruments convertible into or exchangeable or
exercisable for any such interests.
(d) Business and Contractual Obligations. Borrower and
each Project Owner is a single purpose entity formed for the sole purpose of
acquiring or designing and constructing, owning and operating, directly or
indirectly, landfill gas projects and performing its obligations under the
Documents. None of Borrower or the Affiliates has engaged in any business or
activity or incurred any liability or expense to any Person except for those
contemplated by the Documents. Except for the Documents, none of Borrower or
the Affiliates is party or subject to any Contractual Obligation with respect
to any of the Collateral. None of Borrower or the Affiliates has assumed,
guaranteed, endorsed or otherwise become directly or contingently liable for
(including, without limitation,
<PAGE>
liable by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss) the indebtedness or obligations
of any other Person except pursuant to a Credit Document. None of Borrower or
the Affiliates has made any loan or advance to any Person or owns or holds the
capital stock, securities, debt (other than debt subject to the Subordination
Agreement or otherwise explicitly subordinated to the Loans), assets or
obligations of, or any interest in, any Person (other than its ownership
interest in another Affiliate).
(e) Name, Address and Records. The name of Borrower set
forth in the first paragraph of this Agreement is the true, correct and
complete name of Borrower, and Borrower does not conduct business under any
other name or tradestyle. The legal address of Borrower and the address of the
principal place of business and chief executive office of Borrower is 1221
Nicollet Mall, Suite 700, Minneapolis, Minnesota, 55403-2445. Borrower keeps
all of its records and all documents evidencing or relating to its Contractual
Obligations at such address. Borrower has no property or other assets at any
other address other than as listed in the Security Agreements.
(f) No Violations, Defaults or Liens.
(i) None of Borrower or the Affiliates (A) is in
violation of any Law (including Environmental Laws), (B) is in
violation of or default under its Organizational Documents or (C) is
in violation of or default under any Document or other Contractual
Obligation. None of Borrower or the Affiliates is party to or affected
by any charter, bylaw, partnership agreement or other constituent
document or any Contractual Obligation that could have a Material
Adverse Effect.
(ii) To the best knowledge of Borrower, except as
previously disclosed to the Agents, no Project Party (A) is in
violation of any Law (including Environmental Laws), (B) is in
violation of or default under its charter, bylaws, partnership
agreement or other constituent documents or (C) is in violation of or
default under any Project Document or any other Contractual
Obligation.
(iii) No Event of Default has occurred and is
continuing and no material Loss has occurred that has not been cured
to the satisfaction of the Lenders.
(iv) Borrower and the Affiliates, and NEO with
respect to the Miramar Project, are the legal and beneficial owners
of, and have good, marketable and valid title to, the Collateral. None
of the Collateral is subject to any Lien other than Permitted Liens.
No effective mortgage,
<PAGE>
deed of trust, financing statement, security agreement or other
instrument similar in effect which is not a Security Document is on
file or of record in the office of any Government Instrumentality
with respect to any Collateral other than with respect to Permitted
Liens.
(v) The execution, delivery and performance of the
Documents to which any of Borrower and the Affiliates is a party do
not and will not (A) violate any Law (including Environmental Laws),
(B) violate, or result in a default under, the Organizational
Documents of such Person, (C) violate, or result in a default under,
any Document or any other Contractual Obligation subject to the
obtaining of consents to assignment from certain Project Parties, (D)
result in or require the creation or imposition of any Lien (other
than Permitted Liens) on the Collateral or other property of Borrower
and the Affiliates or (E) require an Approval from any Person that has
not been obtained.
(g) Required Approvals. All Required Approvals obtained
on or before the date hereof are listed and described in Schedule 4.1(g) and
such list and descriptions are true, correct and complete. Borrower and the
Affiliates have obtained all Required Approvals required to be obtained at or
prior to the time of this representation and warranty in order for the Projects
and Borrower, the Affiliates, the Agents and the Lenders and their respective
activities to be in compliance with Applicable Law, and none of Borrower or the
Affiliates has any reason to believe that any of the Required Approvals not yet
obtained cannot or will not be obtained in the normal course of business as and
when required and without significant expense. Borrower has provided the Agents
and the Lenders with a true, correct and complete copy of each Required
Approval required to be obtained at or prior to the time of this representation
and warranty. All Required Approvals obtained by Borrower and the Affiliates
(i) are validly issued, (ii) are in full force and effect, (iii) are free from
any condition or requirement that cannot be met or that could have an adverse
effect on the Projects and (iv) are not the subject of a current challenge and
are not subject to any onerous or unusual conditions. No proceeding or other
action is pending or threatened with respect to any Required Approval and all
information provided in connection with each Required Approval was on the date
provided and is on the date hereof true, correct and complete. The Agents will
be entitled, without undue expense or delay, to the benefit of each Required
Approval upon the exercise of their remedies under the Security Documents.
(h) Project Documents.
(i) The Project Documents include all agreements
required for the acquisition, design, construction, ownership,
operation and
<PAGE>
maintenance of the Projects as contemplated by the Documents. Except
for Project Documents which are obtainable only at a later stage and
which will be obtainable in the ordinary course of business prior to
the time required, all Project Documents have been duly and validly
executed and delivered by the parties thereto, are in full force and
effect and have not been amended, modified, supplemented or
terminated. The copies of all Project Documents provided to the
Agents and the Lenders by Borrower are true, correct and complete.
Borrower and the Affiliates have enforceable agreements or other
satisfactory arrangements that ensure the availability, on
commercially reasonable terms, of all utilities, transportation,
facilities, infrastructure, interconnections, pipelines, materials
and services necessary for the acquisition, design, construction,
ownership, operation and maintenance of the Projects as contemplated
by the Documents.
(ii) The Projects, if acquired or constructed and
operated in accordance with the Project Documents, will comply with
all Applicable Laws, all Required Approvals and prudent utility
practices.
(iii) The legal descriptions of the Sites set forth
in Exhibit 4.1(h)(iii) are true and correct. The Affiliates have good
title to all easements and other property interests necessary for the
acquisition, design, construction, ownership, operation and
maintenance of the Projects as contemplated by the Documents,
including all rights of access, ingress, egress and interconnection.
(iv) Borrower is not aware of any existing fact or
circumstance that would prevent the conversion of all
Construction/Acquisition Loans to Term Loans in accordance with this
Agreement on or before October 30, 1998.
(i) Patents. Borrower and the Affiliates own, or are
licensed to use, all patents, trademarks, service marks, licenses, franchises,
trade names, tradestyles, copyrights, technology, formulas, know-how and
processes used in, to be used in or necessary for the acquisition, design,
construction, ownership or operation of the Projects or for the current or
proposed conduct of their businesses. The use of such patents, trademarks,
trade names, tradestyles, copyrights, technology, know-how and processes by
Borrower and the Affiliates does not and will not injure or infringe upon the
rights of any Person. Borrower and the Affiliates have obtained all required
licenses for and consents to the transactions contemplated by the Documents
from all Persons with rights in or to any of such patents, trademarks, service
marks, licenses, franchises, trade names, tradestyles, copyrights, technology,
formulas, know-how or processes.
<PAGE>
(j) Taxes. Borrower and each Affiliate have filed in a
timely manner or after having obtained an extension all Tax returns required by
Law and have paid when due all Taxes imposed on them or on their respective
properties, other than Taxes being contested in good faith by appropriate
proceedings with proper reserves established in accordance with GAAP.
(k) Financial Statements.
(i) All financial statements of Borrower and the
Affiliates (as well as all notes and schedules thereto) furnished to
the Agents and the Lenders are true, complete and correct in all
material respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been prepared in
accordance with GAAP (except as otherwise stated therein) and show all
liabilities, direct and contingent, of the Person indicated required
to be shown under GAAP. Each balance sheet fairly presents the
financial condition of the Person indicated as at the dates thereof,
and each profit and loss and surplus (deficit) statement fairly
presents the results of the operations of the Person indicated for the
periods indicated. Except with respect to matters previously disclosed
to the Agents, there has been no material adverse change in the
business, condition or operations (financial or otherwise) of Borrower
or any Affiliate since July 31, 1997, and Borrower knows of no
reasonable basis for the assertion against it or any Affiliate of any
obligation or liability that is not fully reflected in the financial
statements furnished to the Agents and the Lenders.
(ii) The Pro Forma Balance Sheets for Borrower and
the Affiliates are true, correct and complete in all material respects
and fairly present the information contained therein as at the Closing
Date and Borrower's or the applicable Affiliate's good faith estimate
of the information contained therein as at the date of such Balance
Sheets. None of Borrower or the Affiliates has any material liability,
contingent or otherwise, including any liability for Taxes, or any
unusual forward or long-term commitment which is not disclosed by, or
reserved against in, the Pro Forma Balance Sheets or in the notes
thereto which under GAAP is of a nature and an amount required to be
so disclosed or reserved. There are no unrealized or anticipated
losses from any unfavorable commitments of Borrower or the Affiliates
that could reasonably be expected to have a material adverse effect
on the business, condition or operations (financial or otherwise) of
Borrower or such Affiliate.
(l) Construction/Acquisition Budgets. Each
Construction/Acquisition Budget (i) has been prepared with due care, (ii) is
<PAGE>
complete in all material respects and fairly presents Borrower's good faith
expectations as at the date of such document as to the matters covered thereby,
(iii) is based on reasonable assumptions as to the factual and legal matters
material to the estimates therein and (iv) is consistent with the Documents.
The Construction/Acquisition Budgets accurately specify and describe all
Qualified Project Construction Costs and Qualified Project Acquisition Costs.
(m) No Proceedings. Except with respect to matters
previously disclosed to the Agents, there is no pending or threatened action,
suit, litigation, investigation, arbitration or other proceeding involving or
affecting Borrower, any Affiliate or any of their respective properties or
assets or, to the best knowledge of Borrower after due inquiry, any Project
Party or any of their respective properties or assets, before any Government
Instrumentality which could reasonably be expected to have a Material Adverse
Effect. None of Borrower, the Affiliates or any of their respective properties
or assets or, to the best knowledge of Borrower after due inquiry, any Project
Party or any of their respective properties or assets, is subject to any order,
writ or injunction which prohibits, enjoins or limits any aspect of the
transactions contemplated by the Documents or which could reasonably be
expected to have a Material Adverse Effect.
(n) No Broker's Fees. Borrower has no obligation
(direct, indirect, contingent or otherwise) to pay any fee, commission or
compensation to any broker, finder or intermediary with respect to or as a
result of any transaction contemplated by the Documents.
(o) Environmental Matters. The Projects, Borrower, the
Affiliates and, to the best knowledge of Borrower after due inquiry, the
Project Parties (in respect of their obligations under the Documents) are in
compliance with all Environmental Laws. None of Borrower, any Affiliate, and,
to the best knowledge of Borrower after due inquiry, any Project Party has
transported any Hazardous Substance to or from the Projects or used, generated,
manufactured, handled, processed, stored, released, transported, removed,
disposed of or cleaned up any Hazardous Substance on, from, under or about the
Projects in violation of any Environmental Law, and there has occurred no
release or threatened release of any Hazardous Substance on, under, onto,
adjacent to or from the Projects in violation of any Environmental Law. There
are no past, current, pending or threatened Environmental Claims in any way
relating to Borrower, any Affiliate, the Projects or, to the best knowledge of
Borrower after due inquiry, any Project Party.
(p) No Adverse Events. No portion of any Project or Site
is subject to a pending or threatened condemnation or appropriation proceeding
that could reasonably be expected to have a Material Adverse Effect.
<PAGE>
(q) Public Utility Status.
(i) None of Borrower or the Affiliates is, nor by
reason of the ownership or operation of any Project or any other
transaction contemplated by the Documents will be, subject to
financial, organizational or rate regulation as an "electric utility,"
"electric utility company," "electric corporation," "electrical
company," "public utility," "public service corporation," "gas
utility," "natural gas company" (transporting gas in interstate
commerce), "public service company," "public utility holding company,"
"electric utility holding company," "holding company" or "subsidiary
company" of a holding company, or other similar entity under any Law.
(ii) None of the Agents or the Lenders will, solely
by reason of (A) the ownership or operation of the Projects by the
Affiliates, (B) the Loans, (C) the Liens of the Security Documents or
(D) any other transaction or relationship contemplated by the
Documents, be deemed by any Government Instrumentality to be, or to be
subject to regulation as, an "electric utility," "electric utility
company," "electric corporation," "electrical company," "public
utility," "natural gas company" (transporting gas in interstate
commerce), "gas utility," "public service company," "public utility
holding company," "electric utility holding company," "holding
company" or "subsidiary company" of a holding company, or other
similar entity, or a subsidiary or affiliate of any of the foregoing,
under any Law.
(r) ERISA. None of Borrower or the ERISA Affiliates of
Borrower sponsors, maintains, administers, contributes to, participates in or
has any obligation to contribute to or any liability under any Plan.
(s) Labor Matters. There are no collective bargaining
agreements or Multiemployer Plans covering any employees of Borrower or the
Affiliates and none of Borrower, the Affiliates or, to the best knowledge of
Borrower, any Project Party has experienced any strike, walkout, work stoppage
or other labor action or disturbance during the past five years.
(t) Investment Company Act. None of Borrower or the
Affiliates is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
<PAGE>
(u) Use of Proceeds.
(i) The proceeds of the Loans have been and will be
used only for the purposes described in Section 2.7 and in accordance
with the requirements and conditions of this Agreement.
(ii) Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G, T, U or X issued by the
Board of Governors of the Federal Reserve System) and no proceeds of
any Loan will be used, directly or indirectly, to purchase or carry
margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock.
(iii) No proceeds of any Loan will be used to
acquire any security in any transaction which is subject to Section 13
or 14 of the Securities Exchange Act of 1934, as amended.
(v) Bank Accounts. Borrower and the Affiliates do not
maintain any account or deposit with any bank or other depository institution
other than the accounts created under the Disbursement Agreement.
(w) Enforceability; No Immunity.
(i) The descriptions of the Collateral contained in
the Security Documents are true, correct and complete and are
sufficient to describe the Collateral and to create, attach and
perfect the Liens intended to be created by the Security Documents.
All necessary and appropriate deliveries, notices, recordings, filings
and registrations have been effected to perfect First-Priority Liens
on the Collateral in favor of the Term Agent as agent for the Lenders
in all relevant jurisdictions, and the Term Agent as agent for the
Lenders has and will continue to have until the Lenders have been paid
in full and released their Liens duly and validly created, attached,
perfected and enforceable First-Priority Liens on the Collateral in
all relevant jurisdictions.
(ii) None of Borrower or the Affiliates, nor any of
their respective properties, has any immunity from the jurisdiction of
any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution
or otherwise).
(x) Full Disclosure. No information, exhibit or report
furnished to the Agents and the Lenders by Borrower or the Affiliates contains
any material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not misleading.
<PAGE>
(y) Insurance. Each of Borrower and the Affiliates is in
compliance, to the extent applicable to it, with all requirements set forth in
the Documents to maintain insurance, including Required Insurance.
Section 4.2 Survival. The representations and warranties of
Borrower and the Affiliates contained in the Documents or made by Borrower or
any Affiliate in any certificate, notice or report delivered pursuant to any
Document will survive the Closing Date, the making and repayment of the Loans
and any transfer or assignment of Notes.
ARTICLE V
COVENANTS
Section 5.1 Affirmative Covenants. Each Borrower covenants
and agrees that, for so long as any Lender has any Commitment hereunder and
until the indefeasible payment in full of the Notes and all amounts payable by
Borrower and the Affiliates under the Credit Documents, it will perform and
observe each of the following covenants, unless (and then only to the extent)
compliance with such covenant has been waived pursuant to Section 8.5:
(a) Existence. It will preserve and maintain its
corporate existence, rights, franchises and privileges and remain in good
standing in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary or desirable in view of its current or
proposed business and operations or the ownership of its properties.
(b) Affiliates. It will cause each Affiliate to preserve
and maintain its corporate or limited liability company existence, rights,
franchises and privileges and to remain in good standing in the jurisdiction of
its incorporation or formation, and to qualify and remain qualified as a
foreign corporation or limited liability company in good standing in each
jurisdiction in which such qualification is necessary or desirable in view of
its current or proposed business and operations or the ownership of its
properties.
(c) Compliance with Laws, Approvals and Obligations. It
will, and will cause the Affiliates to, comply with, and will cause the
Projects to be acquired, constructed and operated safely and in compliance
with, all Applicable Laws, all Required Approvals, the Documents, its and their
other Contractual Obligations and prudent utility practices. It will, and will
cause the Affiliates to, perform its and their obligations under the Documents
and each of its other Contractual Obligations and will diligently enforce all
of its and their rights under the Project Documents and under all guarantees,
warranties and indemnities in its
<PAGE>
and their favor or relating to the Projects or any component thereof. It will,
and will cause each Affiliate to, satisfy before the same become delinquent
all Claims (including all Claims for labor, services, materials and supplies
and other amounts due under its and their Contractual Obligations) other than
Claims being contested in good faith by appropriate proceedings with proper
reserves established which do not result in the imposition of a Lien
prohibited by Section 5.2(f). It will, and will cause each Affiliate to,
obtain and maintain in full force and effect all Required Approvals required
from time to time and at any time for the execution, delivery, performance,
admission into evidence or enforcement of the Documents or the acquisition,
development, construction, ownership or operation of the Projects as
contemplated under the Documents. It will, and will cause each Affiliate to,
furnish the Agents and the Lenders with true, correct and complete copies of
all Required Approvals upon receipt thereof.
(d) Title. It will cause the Affiliates to maintain good
and marketable title to the Projects and it will, and will cause the Affiliates
to, maintain good and marketable title to the other Collateral and warrant and
defend the title to the Projects and the other Collateral against all Claims
that do not constitute Permitted Liens.
(e) Collateral. It will, and will cause each Affiliate
to, take all actions necessary to insure that the Term Agent has and continues
to have in all relevant jurisdictions duly and validly created, attached,
perfected and enforceable First-Priority Liens on the Collateral (including
after-acquired Collateral). It will, and will cause each Affiliate to, deliver
possession of any Collateral to the Term Agent or its designated agent
immediately upon acquiring rights therein to the extent the Term Agent is
required to perfect its interest in such Collateral by taking possession
thereof. It will also maintain the title insurance policies delivered to the
Agents pursuant to Article III.
(f) Construction.
(i) It will cause the Projects to be acquired,
constructed and completed in accordance with the Plans and
Specifications, the Construction/Acquisition Budgets and the
Construction and Draw Schedules. Only new, first-quality components
will be used in constructing and equipping the Projects except as may
be otherwise agreed by the Construction/Acquisition Agent and the Term
Agent in consultation with the Engineer. The Projects will be
constructed entirely on the Sites and in a manner so as not to injure
or encroach upon the property or rights of any other Person. All Punch
List Items for a Project will be completed, to the satisfaction of the
Engineer, within ninety (90) days after the Term Loan Conversion Date
corresponding to such Project.
<PAGE>
(ii) It will give the Construction/Acquisition Agent
and the Engineer at least ten (10) Business Days' prior written notice
of each test to be conducted under each EPC Contract, Power Purchase
Agreement or Gas Sales Agreement, and the Construction/Acquisition
Agent, the Engineer and their respective agents and representatives
will be afforded the opportunity to observe and verify each such test.
Completion will not be deemed to have been achieved until the Engineer
determines that it has been achieved. It will give the Agents and the
Engineer at least ten (10) Business Days' prior written notice of the
occurrence of Commercial Operation of any Project.
(iii) It will cause each Construction/Acquisition
Loan to be paid in accordance with this Agreement not later than
October 30, 1998.
(g) Maintenance and Operation. It will maintain and
preserve, and cause the Affiliates, the EPC Contractors and the Operators to
maintain and preserve, the Projects and all of its and their other properties
in good working order and condition, ordinary wear and tear excepted. In
addition, it will cause the Affiliates to take all reasonable steps necessary
to maintain gas production at levels consistent with those assumed, in the
aggregate, in the Closing Pro Forma. Prior to the Term Loan Conversion Date
with respect to any Project, it will develop an overhaul, maintenance and
repair plan with respect to such Project for the period from the applicable
Term Loan Conversion Date through the Term Loan Maturity Date, which must be
approved by the Engineer and the Term Agent. After such approval, it will, and
will cause the Affiliates to, fully comply with such overhaul, maintenance and
repair plan. It will, and will cause the Affiliates to, comply with all
warranties and maintenance recommendations and requirements of manufacturers
and vendors of component parts of the Projects and will make all repairs,
alterations, additions and replacements necessary for the Projects (i) to
operate safely and to meet the requirements of all Applicable Laws, all
Required Approvals, the Documents, the other Contractual Obligations of
Borrower and the Affiliates and prudent utility practices and (ii) to operate
at the operating levels set forth in the Closing Pro Forma. It will, and will
cause the Affiliates to, promptly correct any structural or other defect in a
Project or any deviation from the Plans and Specifications. It will, and will
cause the Affiliates to, maintain appropriate spare parts, inventories and
redundancies.
(h) Operating Plans and Budgets. At least sixty (60)
days prior to each January 1 occurring after the applicable Term Loan
Conversion Date, it will submit to the Term Agent for approval a proposed
Operating Plan and Budget for each Project for the three Operating Years
commencing on each such January 1, together with a reconciliation of actual
expenses versus those projected in the previously delivered Operating Plan and
Budget. The Term Agent will have the
<PAGE>
right to request revisions to each proposed Operating Plan and Budget, and
after an Operating Plan and Budget has been finalized and approved by the Term
Agent, it will, and will cause the Affiliates to, follow and comply with such
Operating Plan and Budget in all particulars. It will have the right to revise
any Operating Plan and Budget with the prior written approval of the Term
Agent. Once approved by the Term Agent, an Operating Plan and Budget or a
revised Operating Plan and Budget will supersede all prior Operating Plans and
Budgets and will continue in effect until a subsequent Operating Plan and
Budget has been approved by the Term Agent.
(i) Patents. It will, and will cause the Affiliates to,
obtain and maintain in full force and effect all patents, trademarks, service
marks, licenses, franchises, trade names, tradestyles, copyrights, technology,
formulas, know-how and processes to be used in or necessary for the design,
construction, ownership and operation of the Projects and for the current and
proposed conduct of its and their businesses, and in its and their use thereof
it will, and will cause the Affiliates to, obtain all required licenses and
consents and not injure or infringe upon the property or rights of any Person.
(j) Taxes. It will, and will cause the Affiliates to,
file all Tax returns required by Law in a timely manner (including after having
obtained an extension) and will, and will cause the Affiliates to, pay before
the same become delinquent all Taxes imposed upon them or upon their respective
properties, other than Taxes being contested in good faith by appropriate
proceedings with proper reserves established which do not result in the
imposition of a Lien prohibited by Section 5.2(f).
(k) Records and Inspection Rights. It will keep and
maintain, and will cause the Affiliates, the EPC Contractors and the Operators
to keep and maintain, true, correct and complete records and books of account,
in which complete entries will be made in accordance with GAAP and Applicable
Law, reflecting all financial transactions of the Projects, Borrower, the
Affiliates, the EPC Contractors and the Operators. It will also, and will cause
the Affiliates to, keep and maintain true, correct and complete inventories of
all Collateral and records of all transactions relating thereto. All such
records, books of account and inventories will be kept and maintained at its
principal place of business or at the Sites. At any reasonable time and from
time to time, it agrees to permit, and to cause the Affiliates, the EPC
Contractors and the Operators to permit, either Agent, the Engineer and any
agent or representative thereof, to examine and make copies of and abstracts
from such records, books of account and inventories, to visit the Projects and
the other properties of Borrower and the Affiliates and to discuss the affairs,
finances and accounts of Borrower, the Affiliates and the Projects directly
with its and their auditors and with any of its and their officers or
<PAGE>
managers; provided, that unless a Default or an Event of Default has occurred
and is continuing, all discussions with the auditors of Borrower and the
Affiliates will include a representative of Borrower, and the Agents will
provide a copy of all written correspondence with the auditors to Borrower. It
will, and will cause the Affiliates to, at all times maintain at the Sites or
at its principal place of business a complete set of the current and, if
available, as-built plans and specifications for the Projects, which will be
available for inspection by the Agents, the Engineer and their respective
agents and representatives.
(l) Reporting Requirements. It will, and will cause the
Affiliates to, furnish to the Agents and the Lenders:
(i) as soon as available and in any event within
sixty (60) days after the end of each of the first three quarters of
each fiscal year of such Person, complete unaudited financial
statements of such Person, including the balance sheet of such Person
as of the end of such quarter, and profit and loss statements and
statements of cash flows of such Person for such quarter and for the
elapsed portion of such fiscal year, in each case prepared in
accordance with GAAP (subject to normal year-end adjustments and the
absence of footnote disclosures) and setting forth in comparative form
the figures for the corresponding period of the previous fiscal year
of such Person, certified in a manner acceptable to the Agents by the
chief financial officer of such Person;
(ii) as soon as available and in any event within
one hundred and twenty (120) days after the end of each fiscal year of
such Person, complete financial statements of such Person (which, in
the case of Borrower will be audited), including the balance sheet of
such Person as of the end of such fiscal year, and a profit and loss
statement and a statement of cash flows of such Person for such fiscal
year, in each case prepared in accordance with GAAP and setting forth
in comparative form the figures for the previous fiscal year of such
Person, certified in a manner acceptable to the Agents by the chief
financial officer of such Person or, in the case of Borrower,
independent certified public accountants acceptable to the Agents;
(iii) within ten (10) days after the last day of
each calendar month during which a Construction/Acquisition Loan is
outstanding, a Monthly Construction Report for each Project with
respect to which a Construction/Acquisition Loan is outstanding in the
form of Exhibit 5.1(l)(iii);
<PAGE>
(iv) within sixty (60) days after the end of each
fiscal quarter of such Person, a Quarterly Report and Certificate in
the form of Exhibit 5.1(l)(iv);
(v) within one hundred and twenty (120) days after
the end of each fiscal year of such Person, an Annual Report and
Certificate in the form of Exhibit 5.1(l)(v);
(vi) promptly after the sending, filing or receipt
thereof, a copy of each material report, notice, certificate,
application, demand, request or other communication that such Person
sends to, files with or receives from any Government Instrumentality
or Project Party or sends or receives pursuant to any Document that
relates to any matter that could reasonably be expected to have a
Material Adverse Effect;
(vii) promptly after receipt thereof, copies of each
Required Approval; and
(viii) such other information respecting the
operations or condition (financial or otherwise) of such Person or the
Projects or the other Collateral as an Agent may from time to time
reasonably request.
(m) Notice Requirements. It will, and will cause the
Affiliates to, give the Agents and the Lenders prompt written notice of the
occurrence of any of the following:
(i) any Default or Event of Default;
(ii) any default, breach or violation or any
potential default, breach or violation under any Contractual
Obligation of such Person;
(iii) any actual, proposed or threatened
termination, rescission or amendment of, waiver under or Claim with
respect to any Project Document;
(iv) any material Loss;
(v) any Material Adverse Effect or any event or
circumstance that could reasonably be expected to have a Material
Adverse Effect;
(vi) any pending or threatened Claim, action,
attachment, proceeding, suit, litigation, investigation or arbitration
involving or affecting such Person, any Project Party or any of their
respective
<PAGE>
properties or assets (including without limitation the Projects and
the other Collateral) by any Person or before any Government
Instrumentality that could reasonably be expected to have a Material
Adverse Effect;
(vii) any termination, revocation, suspension or
modification of any Required Approval or any action or proceeding that
could reasonably be expected to result in any of the foregoing;
(viii) the receipt of any management letter or
similar communication from such Person's auditors, or the resignation,
discharge or change of such Person's auditors;
(ix) any Environmental Claim or any fact,
circumstance or condition (including any release or spill of any
Hazardous Substance) that could form the basis of an Environmental
Claim with respect to such Person, any Project Party (in connection
with its obligations under the Documents) or any Project or any
portion thereof or that could reasonably be expected to have a
Material Adverse Effect;
(x) any pending or threatened condemnation or
appropriation proceeding affecting any Project or any portion thereof
that could reasonably be expected to have a Material Adverse Effect;
(xi) any material dispute involving such Person or
any Project Party on the one hand and any Government Instrumentality
or Project Party on the other hand (provided, that no notice need be
given of a dispute between a Project Party and a Government
Instrumentality unless such dispute could reasonably be expected to
result in a Material Adverse Effect);
(xii) any event or claim of force majeure under any
Project Document;
(xiii) any forced outage with respect to any Project
that could reasonably be expected to result in a Material Adverse
Effect;
(xiv) such Person's or any ERISA Affiliate's
adoption of or participation in any Plan, or intention to adopt or
participate in any Plan; or
(xv) any Internal Revenue Service ruling (other than
a private letter or other non-public ruling not addressed to NRG, NEO,
Borrower or any Affiliate) or any change in Law that could adversely
affect the amount or availability to Guarantor, NEO or the Affiliates
of the
<PAGE>
Section 29 tax credits or the validity or enforceability of the
Non-Operating Interest Acquisition Agreement.
Each notice delivered pursuant to this Section 5.1(m) must include reasonable
details concerning the occurrence that is the subject of such notice as well as
Borrower's and the Affiliates' proposed course of action, if any. Delivery of a
notice pursuant to this Section 5.1(m) will not affect Borrower's and the
Affiliates' obligations under any other provision of the Credit Documents.
(n) Reserves. It will establish the Debt Service Reserve
Account and maintain the balance therein required by the Disbursement
Agreement.
(o) [RESERVED]
(p) Insurance.
(i) It will maintain, and will cause the Affiliates,
the EPC Contractors and the Operators to maintain, all Required
Insurance and, on each anniversary of the Closing Date, will cause the
Insurance Consultant to provide a letter to the Agents certifying that
the insurance maintained by Borrower and the Affiliates is adequate
and consistent with industry standards. All Required Insurance will be
provided by financially sound and reputable insurance companies or
associations rated "A-" or better (and a minimum size rating of IX) by
Best's Insurance Guide and Key Ratings (or an equivalent rating by
another nationally recognized insurance rating agency of similar
standing if Best's Insurance Guide and Key Ratings is no longer
published) or other insurance companies of recognized responsibility
satisfactory to the Agents, including AEGIS. Borrower may fulfill its
obligations under this Section 5.1(p) under a corporate ("master")
program or through Contractor / Operator programs of insurance,
subject to the prior approval of the Agents.
(ii) All Required Insurance will provide for waivers
of subrogation in favor of the Agents and the Lenders, will not be
cancelable without at least sixty (60) days' prior written notice to
the Agents (except for 10 days for non-payment of premium), and all
third party liability policies will name the Agents and the Lenders as
additional insureds (except in the case of workers compensation
insurances). Insurance protecting Project assets and revenues
(property, boiler, business interruption, etc.) shall contain a
standard Lender's Loss Payable endorsement, acceptable to the Agents,
and name the Lenders or their assignee as first loss payee/mortgagee
as respects mortgaged property. Property-related policies shall
provide that any payment thereunder for loss or damage with respect to
the mortgaged property shall be made to the
<PAGE>
Project Revenue Account. Such property policies shall provide that
any payment of less than $100,000 made in respect of any single
casualty or other occurrence may be paid to Borrower, unless the
Agents have notified the respective insurer that an Event of Default
has occurred and is continuing. Insurance supplied by Borrower shall
be primary as respects any other insurance carried by or on behalf of
the Agents or the Lenders. The interests of the Agents and the
Lenders shall not be invalidated by any action or inaction of any
Person or by any breach or violation by any Person of any warranties,
declarations or conditions in such policies. All liability insurance
will provide a severability of interest or cross liability clause.
(iii) All Required Insurance maintained by the EPC
Contractors and the Operators will provide for waivers of subrogation
in favor of Borrower, the Affiliates, the Agents and the Lenders, will
not be cancelable without at least sixty (60) days' prior written
notice to the Agents (except 10 days for non-payment of premium), and
all third party liability policies will name Borrower, the Affiliates,
the Agents and the Lenders as additional insureds (except in the case
of worker's compensation insurance). Insurance protecting Project
assets and revenue (property, boiler, business interruption, etc.)
will name the Agents as the first loss payee/mortgagee as respects
mortgaged properties. All liability insurance maintained by the EPC
Contractors and the Operators will provide a severability of interest
or cross liability clause and will be primary and not excess to or
contributing with any insurance or self-insurance maintained by
Borrower, the Affiliates, the Agents or the Lenders.
(iv) On the Closing Date and on each anniversary
thereof, Borrower will furnish to the Agents evidence of insurance, in
the form of binders, cover notes or certificates of insurance
evidencing all coverages in place and certify (A) that all premiums
are paid or current to date and (B) that Borrower is in compliance
with all provisions in this Agreement relating to Required Insurance.
Borrower will provide the Agents with copies of all insurance policies
and certificates and other information that the Agents may reasonably
request in writing with respect to the Required Insurance or the
providers thereof and, without any requirement of request by an Agent,
will provide the Agents with copies of all replacement policies within
15 days of receipt of such policies by Borrower.
(v) Borrower will, and will cause the Affiliates to,
collaterally assign to the Term Agent and grant the Term Agent a Lien
upon all insurance proceeds from the Projects obtained by such Persons
or in which such Persons have any rights or interests (whether or not
complying
<PAGE>
with or described by this Section 5.1(p), and the Term Agent will
have the right to make, settle, compromise and liquidate any and all
Claims thereunder, without prejudice to its other rights and remedies
under the Documents, the Required Insurance or Applicable Law.
(vi) In the event of a Loss (or a series of Losses
arising from a related causal factor or occurring within a period of
five (5) Business Days) of less than five percent (5%) of the total
Qualified Project Construction Expenses or Qualified Project
Acquisition Expenses (as projected in the Closing Pro Forma as of the
Closing Date), as the case may be, of a Project in the aggregate,
Borrower and the Affiliates will have the right to apply the insurance
proceeds, if any, from such Loss to the restoration of the affected
Project if such proceeds are sufficient, in the opinion of the
Engineer, to pay the cost of restoration and cover Debt Service on
the Term Loan corresponding to such Project during any period during
which the revenues of the Project are reduced due to the restoration.
(vii) In the event that any policy is written on a
"claims made" basis and is approved by the Agents and such policy is
not renewed or the retroactive date of such policy is changed,
Borrower shall obtain for each such policy or policies the broadest
basic and supplemental extended reporting period coverage or "tail"
reasonably available in the commercial insurance market for each such
policy or policies and shall provide the Agents with proof that such
basic and supplemental extended reporting period coverage or "tail"
has been obtained.
(viii) In the event any insurance (including limits
or deductibles thereof) hereby required to be maintained, other than
insurance required by law to be maintained and the builder's risk
insurance, described in Exhibit 3.1(i), shall not be available and
commercially feasible in the commercial insurance market the Agents
with the approval of the Insurance Consultant, shall not unreasonably
withhold their agreement to waive such requirement to the extent the
maintenance thereof is not so available; provided, that (A) Borrower
shall first request any such waiver in writing which request shall be
accompanied by written reports prepared by an independent insurance
advisor of recognized national standing certifying that such insurance
is not reasonably available and commercially feasible in the
commercial insurance market for plants of similar type and capacity
(and, in any case where the required amount is not so available,
certifying as the maximum amount which is so available) and explaining
in detail the basis for such conclusions, such insurance advisers and
the form and substance of such reports to be reasonably acceptable to
the Agents; (B) at any time after the granting of any such waiver the
Agent may request (but
<PAGE>
no more than once every 180 days) and Borrower shall furnish to the
Agents within 30 days after such request, supplemental reports
reasonably acceptable to the Agents from such insurance advisers
updating their prior reports and reaffirming such conclusions; and
(C) any such waiver shall be effective only so long as such insurance
shall not be available and commercially feasible in the commercial
insurance market it being understood that the failure of Borrower to
timely furnish any such supplemental report shall be conclusive
evidence that such waiver is no longer effective because such
condition no longer exists, but that such failure is not the only way
to establish such non-existence.
(q) Litigation. In any action, suit, litigation,
investigation, arbitration or other proceeding involving Borrower, the
Affiliates or any Project, Borrower will, and will cause the Affiliates to,
make all filings and responses in a timely manner, pursue all remedies and
appeals, defend their rights and properties with diligence and take all lawful
action to avoid a Material Adverse Effect. Borrower and the Affiliates will
promptly pay any valid, final judgment rendered against it or any Project.
(r) Minimum Coverage Ratio. Borrower will maintain a
Minimum Coverage Ratio of not less than 1.3 to 1 for the twelve (12) month
period ending on the last day of the next preceding month and for the projected
subsequent two (2) twelve (12) month periods as forecast in the Operating Plans
and Budgets. The first such test shall be performed as of the first anniversary
of the Closing Date and thereafter as of the end of each fiscal quarter of
Borrower.
Section 5.2 Negative Covenants. Each Borrower covenants and
agrees that, for so long as any Lender has any Commitment hereunder and until
the indefeasible payment in full of the Notes and all amounts payable by
Borrower and the Affiliates under the Credit Documents, it will perform and
observe each of the following covenants, unless (and then only to the extent)
compliance with such covenant has been waived pursuant to Section 8.5:
(a) Business. It will not, and will not permit any
Affiliate to, make any material change in the nature of its business or engage
in any business or activity not contemplated by the Documents. It will not, and
will not permit any Affiliate to, change its name, its legal address, the
address of its principal place of business or chief executive office or the
location of its books, records and contracts, or store or maintain Collateral
at any location other than the Sites and such principal place of business,
without the prior written consent of the Agents. It will not, and will not
permit any Affiliate to, adopt or change any trade name or fictitious business
name. It will not, and will not permit any Affiliate to, form or have any
subsidiaries other than other Affiliates and will not, and will not permit
<PAGE>
any Affiliate to, own or hold the capital stock, securities, debt, assets or
obligations of, or any interest in, any Person other than Borrower and the
Affiliates. It will not, and will not permit any Affiliate to, enter into any
partnership, joint venture, royalty agreement or profit-sharing or similar
arrangement.
(b) Mergers and Sales of Assets. It will not, and will
not permit any Affiliate to, merge or consolidate with any Person, or liquidate
or dissolve. It will not, and will not permit any Affiliate to, sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) any asset except (i) in the ordinary course of business
(including such sales from one Affiliate to another Affiliate), (ii) in
connection with the replacement of such asset with a replacement that is
appropriate and complies with all requirements of the Documents or (iii) in an
instance in which the proceeds of such sale, assignment, lease or other
disposition do not exceed fifty thousand Dollars ($50,000) in each instance and
five percent (5%) of the total Qualified Project Construction Expenses or
Qualified Project Acquisition Expenses (as projected in the Closing Pro
Forma), as the case may be, of the Project from which such asset is being
sold, assigned, leased or otherwise disposed of in the aggregate and, in every
instance, such sale, assignment, lease or other disposition has no material
impact on the operating cash flow of the relevant Project. The sale of gas,
electric or thermal energy pursuant to a Power Purchase Agreement, a Gas Sales
Agreement or any other Project Document will not violate this Section 5.2(b).
(c) Contractual Obligations.
(i) It will not, and will not permit any Affiliate
to, enter into any material Contractual Obligation. If requested by an
Agent, it will, and will cause an Affiliate to, collaterally assign
any Contractual Obligation to the Term Agent and will deliver to the
Term Agent the written consent to assignment of the other party or
parties to such Contractual Obligation and a satisfactory opinion of
Borrowers' Counsel confirming the validity and enforceability of such
assignment and consent. It will not, and will not permit any Affiliate
to, pledge or assign any Contractual Obligation to any Person other
than the Term Agent.
(ii) It will not, and will not permit any Affiliate
to, amend, suspend, terminate or grant a waiver under any Project
Document, or take, or fail to take, any action that could result in
the termination of, or the impairment of any right of such Person,
either Agent or any Lender under, any Project Document or any other
contract, arrangement or agreement material to the Projects.
Notwithstanding the foregoing, Borrower and the Affiliates may approve
change orders under the EPC Contracts without the
<PAGE>
Agents' or the Lenders' consent; provided, that the work covered by
such change orders does not exceed twenty-five thousand Dollars
($25,000) in the case of any single change order or fifty thousand
Dollars ($50,000) in the aggregate per Project over any twelve-month
period, and provided, further, that none of such change orders
materially affects the character of the Projects or the ability of
Borrower and the Affiliates to fulfill their obligations under the
Documents. Notwithstanding the foregoing, it will not, and will not
permit any Affiliate to, change, or approve a change order which
would change the design, scope or nature of any Project, the Plans
and Specifications of any Project, the Construction and Draw Schedule
of any Project or the performance or availability guarantees or
tests.
(iii) The Organizational Documents of Borrower and
the Affiliates may not be amended or any provision thereof waived.
(iv) None of Borrower or the Affiliates will declare
Final Performance Acceptance or Completion without the approval of the
Agents (in consultation with the Engineer), which shall not be
unreasonably withheld.
(v) It will, and will cause the Affiliates to,
promptly deliver to the Agent copies of (A) all material Contractual
Obligations, (B) all amendments, suspensions, termination and waivers
of any material Contractual Obligation and (C) all change orders
approved or entered into after the date of this Agreement.
(d) Guaranties. Other than pursuant to a Credit
Document, it will not, and will not permit any Affiliate to, assume, guarantee,
endorse or otherwise become directly or contingently liable for (including
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss) the indebtedness or obligation
of any other Person, except for guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(e) Investments. It will not, and will not permit any
Affiliate to, make any loan or advance to any Person except for loans that are
expressly subordinated to the Loans pursuant to the Project Documents. Except
for Permitted Investments made in compliance with the Disbursement Agreement,
it will not, and will not permit any Affiliate to, purchase or otherwise
acquire the capital stock, securities, debt, assets or obligations of, or any
interest in, any Person other than Borrower and the Affiliates.
<PAGE>
(f) Liens. It will not, and will not permit any other
Person to, create, incur, assume or suffer to exist, any Lien upon or with
respect to any of the Collateral or any of the other property of it or the
Affiliates, now owned or hereafter acquired, or assign or otherwise convey, or
permit any Person to assign or otherwise convey, any right to receive income or
revenues from or of any Project, except that the foregoing restrictions will
not apply to the following (collectively, "Permitted Liens"):
(i) the Security Document Liens;
(ii) Liens for Taxes, if such Taxes (A) are not at
the time delinquent and thereafter can be paid without penalty or (B)
are being contested in good faith by appropriate proceedings with
reserves established in accordance with GAAP and such Liens have been
bonded over and do not involve any risk that a significant interest in
or right to any Collateral may be sold, lost or forfeited or that any
Security Document Lien may be impaired;
(iii) carriers', warehousemen's, materialmen's and
mechanics' Liens and other similar Liens imposed by Law and arising in
the ordinary course of business in connection with the construction or
operation of the Projects, if such Liens have been bonded over and
either (A) are not filed of record and are not delinquent or (B) are
being contested in good faith by appropriate proceedings with proper
reserves established, have not proceeded to judgment and do not
involve any risk that a significant interest in or right to any
Collateral may be sold, lost or forfeited or that any Security
Document Lien may be impaired;
(iv) Liens arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits or similar legislation
(other than Liens imposed by ERISA);
(v) purchase money security interests in discrete
items of equipment not comprising an integral part of a Project when
the obligation secured is incurred for the purchase of such equipment
and does not exceed one hundred percent (100%) of the lesser of cost
or fair market value thereof at the time of acquisition, and the
security interest does not extend beyond the equipment involved;
provided, that such Liens and the amount of materials, equipment and
fixtures supplied or purchased pursuant to this clause (v) will not,
taken together, at any time exceed the maximum aggregate amount of two
hundred thousand Dollars ($200,000);
<PAGE>
(vi) the exceptions to the titles of the Sites set
forth in the title reports delivered pursuant to Article III;
(vii) Liens arising from debt permitted pursuant to
Section 5.2(g);
(viii) Liens securing the right of the City of San
Diego to purchase the Miramar Project in form and substance acceptable
to the Agents; and
(ix) Liens of the construction subcontractors on the
Edgeboro Project existing by reason of a failure by the EPC Contractor
for the Edgeboro Project to pay pre-petition claims relating to its
bankruptcy proceedings (provided, that the Liens described in this
clause (ix) shall cease to be Permitted Liens upon the first funding
of a Construction/Acquisition Loan relating to the Edgeboro Project).
If foreclosure or enforcement of any Lien upon a Project, any part thereof or
any other Collateral is at any time initiated, the Agents will have the right,
but not the obligation, to take any action they deem appropriate, including
payment of the obligation secured by such Lien, and Borrower will immediately
upon demand reimburse the Agents for all sums expended by the Agents in taking
any such action. Any amount not reimbursed upon demand will bear interest at
the Default Rate and will be an obligation secured by the Security Document
Liens.
(g) Indebtedness. It will not, and will not permit any
Affiliate to, create, incur, assume or suffer to exist any Indebtedness,
except:
(i) Indebtedness of Borrower and the Affiliates
under the Notes and the other Credit Documents;
(ii) Indebtedness of Borrower and the Affiliates
subject to the Subordination Agreement or otherwise expressly
subordinated pursuant to the Documents to the Loans; and
(iii) Indebtedness of Borrower and the Affiliates
not to exceed, in the aggregate, one hundred thousand Dollars
($100,000) at any one time outstanding, secured by Liens permitted by
Section 5.2(f)(v).
(h) Lease Obligations. It will not, and will not permit
any Affiliate to, create or suffer to exist any obligation for the payment of
rental for any property under leases or agreements to lease having a term of
one year or more, other than the Project Documents.
<PAGE>
(i) Distributions. It will not, and will not permit any
Affiliate to, make, declare or pay any distribution, dividend or return of
capital, or purchase, redeem or otherwise acquire for value any ownership
interest now or hereafter outstanding, or make any distribution of assets or
property to any other Person except for distributions made in compliance with
the Disbursement Agreement. It will not, and will not permit any Affiliate to,
pay any salary, commission, bonus or fee to any Affiliate unless such salary,
commission, bonus or fee is expressly contemplated by and permitted under the
Budgets then in effect.
(j) Changes in Control. It will not, and will not permit
any Affiliate to, effect or permit any sale, transfer or encumbrance of any
ownership interest in Borrower or any Affiliate or any change of control of
Borrower or any Affiliate.
(k) Transactions with Affiliates and Third Parties. It
will not, and will not permit any Affiliate to, directly or indirectly, conduct
any business or enter into any transaction with any Affiliate unless the
details of such business or transaction have been fully disclosed to the Agents
and the Agents have given their prior written consent. It will not, and will
not permit any Affiliate to, enter into any transaction with any Person other
than in the ordinary course of business and on an arm's-length basis and will
not enter into any sole or exclusive business relationships.
(l) Environmental Compliance.
(i) It will not, and will not authorize any other
Person to, use, generate, manufacture, handle, process, store,
release, transport, remove, dispose of or clean up any Hazardous
Substance on, under or from any Project, or onto any other property,
in violation of any Environmental Law or in a manner that could lead
to any Environmental Claim or pose a material risk to human health or
the environment. It will comply fully, and will cause all other
Persons authorized or suffered to be present by Borrower or any
Affiliate at a Project to comply fully, with all Environmental Laws.
(ii) It will, and will cause the Affiliates to,
promptly take all actions and pay all costs necessary to comply with
all Environmental Laws, to remove and dispose of all Hazardous
Substances and to clean-up the Projects and any other property
affected by any Project or the activities of Borrower, the Affiliates,
the Project Parties or their respective agents or for which Borrower
and the Affiliates are otherwise responsible. If Borrower or the
Affiliates fail to take the actions or pay the costs required under
this Section 5.2(l), the Agents may, but have no obligation to, take
<PAGE>
such actions or pay such costs, and all amounts so expended will be
obligations of Borrower to the Lenders under the Credit Documents
payable upon demand and secured by the Liens of the Security
Documents. Nothing in this Section 5.2(l) will impose any obligation
or liability whatsoever on the Agents or the Lenders.
(iii) From time to time and at any time, the Agents
may cause an environmental audit of a Project to be conducted to
confirm Borrower's and the Affiliates' compliance with this Section
5.2(l). It agrees, and will cause the Affiliates, to cooperate fully
with the Agents and their agents in connection with each such audit
and, not more than once every two calendar years, to pay the cost
thereof.
(m) Public Utility Status. It will not, and will not
permit any Affiliate to, either by act or omission, become, or cause any Agent
or any Lender to become, subject to financial, organizational or rate
regulation as an "electric utility," "electric utility company," "electric
corporation," "electrical company," "public utility," "public service
corporation," "gas utility," "natural gas company" (transporting gas in
interstate commerce), "public service company," "public utility holding
company," "electric utility holding company," "holding company" or "subsidiary
company" of a holding company, or other similar entity, under any Law.
(n) ERISA. Neither of Borrower nor any ERISA Affiliate
will adopt, maintain, sponsor, participate in or incur any liability or
obligation under or to any Plan or incur any obligation to provide
post-retirement benefits to any Person.
(o) Use of Proceeds. It will, and will cause the
Affiliates to, use the proceeds of the Loans only for the purposes described in
Section 2.7 and in accordance with the requirements and conditions of the
Credit Documents. It will not, and will not permit any Affiliate to, engage in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation G, T, U or X issued by the Board
of Governors of the Federal Reserve System) and no proceeds of any Loan will be
used, directly or indirectly, to purchase or carry margin stock or to extend
credit to others for the purpose of purchasing or carrying margin stock. No
proceeds of any Loan will be used to acquire any security in any transaction
which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as
amended.
(p) Bank Accounts. It will not, and will not permit any
Affiliate to, maintain any account or deposit with any bank or other depository
institution other than the accounts created under the Disbursement Agreement
and such other
<PAGE>
accounts as the Agents may approve in writing and in which the Lenders will
have a perfected, valid and enforceable First-Priority Lien. It will not, and
will not permit any Affiliate to, deposit funds into any account other than
the accounts created under the Disbursement Agreement.
(q) Auditors. It will not, and will not permit any
Affiliate to, discharge or change its auditors or change its fiscal year.
(r) Publicity. It will not, and will not permit any
Affiliate to, issue, or consent to the issuance of, any press release,
announcement or advertisement that refers to the financing contemplated by the
Credit Documents without the prior written consent of the Agents.
(s) Abandonment. It will not, and will not permit any
Affiliate to, abandon a Project or cease to operate a Project for any period of
thirty (30) consecutive days.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 Events of Default. Each of the following
constitutes an "Event of Default" under this Agreement:
(a) Any principal of any Loan is not paid within five
(5) days after such principal is due or any Equity Contribution is not paid
when due.
(b) Any interest on any Loan or any fee or other amount
payable under any Credit Document (other than amounts described in paragraph
(a) above) is not paid within five (5) days after such interest, fee or other
amount is due.
(c) Any representation or warranty made by Guarantor,
NEO, Borrower, any Affiliate or any Project Party (or any of their respective
officers or representatives) in any Document or in any certificate, financial
statement or other document furnished pursuant to or in connection with any
Document proves to have been incorrect or misleading in any material respect at
the time it was made, deemed to have been made, or confirmed; provided, that
the fact that a representation or warranty of a Project Party was incorrect or
misleading shall not be an Event of Default unless such fact could reasonably
be expected to have a Material Adverse Effect.
(d) Guarantor, NEO, Borrower or any Affiliate fails to
perform or observe any term, covenant or agreement contained in any Credit
Document (other than any term, covenant or agreement that is the basis of
another Event of Default)
<PAGE>
to be performed or observed by it and such failure remains unremedied for five
(5) days after the occurrence thereof; provided, that, if such failure can not
be remedied within such five (5) day period, and if Borrower or such other
Person is diligently seeking to remedy such failure, and if such failure is
reasonably likely to be remedied within thirty (30) days after the initial
five (5) day period, then Borrower or such other Person shall have an
additional thirty (30) days to remedy such failure.
(e) Any Project Party fails to perform or observe any
term, covenant or agreement contained in any Document (other than any term,
covenant or agreement that is the basis of another Event of Default) to be
performed or observed by it, such failure is not remedied within any applicable
grace period and such failure could reasonably be expected to have a Material
Adverse Effect.
(f) The Security Documents for any reason cease to
create perfected, valid and enforceable First-Priority Liens on the Collateral,
or NEO, Borrower or any Affiliate so states in writing; provided, that if a
perfected, valid and enforceable First-Priority Lien on the Collateral can be
created within thirty (30) days, and if Borrower is diligently seeking to do
so, then Borrower shall have thirty (30) days to create such a Lien.
(g) Any provision of any Document (i) is terminated,
repudiated or declared to be invalid by any party thereto or by any Government
Instrumentality or (ii) for any reason ceases to be valid and binding and of
full force and effect and, in either case, could reasonably be expected to have
a Material Adverse Effect.
(h) Borrower or any Affiliate fails to pay any
Indebtedness (other than Indebtedness evidenced by the Notes or arising under
the Credit Documents) or any interest or premium thereon when due; or any
other default under any agreement or instrument relating to any such
Indebtedness, or any other event, occurs and continues after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such default or event is to accelerate, or to permit the acceleration of,
the maturity of such Indebtedness or to permit the exercise of any remedy
against Borrower or any Affiliate or any of their respective properties,
whether or not such default or event is waived by the holders or trustees for
such Indebtedness; or any such Indebtedness is declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof.
(i) A final judgment or order for the payment of money
in excess of two hundred fifty thousand Dollars ($250,000) is rendered against
Borrower or any Affiliate and either (i) enforcement proceedings are commenced
by any
<PAGE>
creditor upon such judgment or order or (ii) a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, is not in
effect for any period of ten (10) consecutive days.
(j) A Bankruptcy Event occurs with respect to Guarantor,
NEO, Borrower, any Affiliate or any Project Party and, in the case of a Project
Party, such event could reasonably be expected to have a Material Adverse
Effect.
(k) (i) Any Law is enacted, (ii) any change in Law or
any change in the interpretation or administration of any Law (having the force
of Law) occurs, (iii) any Claim is asserted against a Project, Guarantor, NEO,
Borrower, any Affiliate or any Project Party or (iv) any other event or
circumstance occurs, that has or could reasonably be expected to have a
Material Adverse Effect.
(l) A Major Loss occurs.
(m) Any Governmental Instrumentality or any Person
acting or purporting to act under the authority of any Governmental
Instrumentality takes any action to condemn, seize or appropriate, or to assume
custody or control of, all or any substantial part of a Project or other
property of Borrower or any Affiliate, or takes any action to displace or
curtail the authority of the management of Borrower or any Affiliate and such
action could reasonably be expected to have a Material Adverse Effect.
(n) An "Event of Default" occurs under the Guaranty.
(o) Guarantor fails to perform or observe any term,
covenant or agreement in the Non-Operating Interest Acquisition Agreement to be
performed by it and such failure remains unremedied for five (5) days after the
occurrence thereof.
(p) An "Event of Default" occurs under any loan
agreement to which any primary customer of any Project, or any parent company
thereof, is a party.
Section 6.2 Remedies. The Agents will use reasonable
efforts to notify Borrower of an Event of Default, but any failure by the
Agents to notify Borrower of an Event of Default will not effect the rights of
the Agents and the Lender hereunder or under the other Credit Documents. Upon
the occurrence of an Event of Default described in Section 6.1(j), the
Commitments of the Lenders will forthwith terminate and the Notes, all interest
thereon and all other amounts payable under the Credit Documents will become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower. Upon the occurrence and during
<PAGE>
the continuance of any other Event of Default, the Agents will at the request,
or may with the consent, of the Majority Lenders, by notice to Borrower, (i)
declare the Commitment of each Lender to be terminated, whereupon the same
will forthwith terminate and (ii) declare the Notes, all interest thereon and
all other amounts payable under the Credit Documents to be forthwith due and
payable, whereupon the Notes, all such interest and all such amounts will
become and be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by
Borrower.
Section 6.3 Right to Complete.
(a) Upon the occurrence and during the continuance of an
Event of Default, the Agents and the Lenders, in addition to any other remedy
that they may have under the Credit Documents or by Law, will have the right
(but not the obligation) in their sole and absolute discretion:
(i) to enter upon a Site, a Project and other
property owned or leased by Borrower or any Affiliate and complete the
acquisition, construct, equip and complete a Project, at the risk,
cost and expense of Borrower;
(ii) at any and all times to discontinue any work
commenced by them in respect of a Project or to change any course of
action undertaken by them; and
(iii) to take over and use all or any part of the
labor, materials, supplies and equipment contracted for by or on
behalf of Borrower and the Affiliates, whether or not previously
incorporated into a Project; provided, that the Agents will use
reasonable efforts to provide Guarantor with draft agreements relating
to their actions taken pursuant to this Section 6.3(a) and will
provide Guarantor with reasonable opportunity to comment thereon.
The Agents may exercise the rights described in this Section 6.3 from time to
time and at any time after the occurrence and during the continuance of an
Event of Default, whether or not the Notes have become due and payable and
whether or not foreclosure has been initiated under the Security Documents. In
no event will the actions of the Agents or the Lenders constitute either Agent
or any Lender a mortgagee-in-possession, and Borrower hereby indemnifies the
Agents and the Lenders from and against any and all costs and liabilities
resulting from any such characterization or from their actions or omissions to
act pursuant to this Section 6.3.
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(b) In connection with any construction or development
of a Project undertaken by the Agents and the Lenders pursuant to the
provisions of this Section 6.3, they may:
(i) engage builders, contractors, architects,
engineers, security services and others for the purpose of furnishing
labor, material, equipment and security in connection with any
construction of a Project;
(ii) pay, settle or compromise, or cause to be paid,
settled or compromised, all claims or bills that may become Liens
against a Site or a Project, or that have been or may be incurred in
any manner in connection with the acquisition, construction,
development, completion and equipping of a Project or for the
discharge of Liens or defects in the title of a Site or a Project; and
(iii) take such other action or refrain from acting
under this Agreement as the Lenders may in their sole and absolute
discretion from time to time determine.
(c) Borrower will be liable to the Agents and the
Lenders for all sums paid or incurred for the acquisition, construction,
development, completion and equipping of a Project and all payments made or
liabilities incurred by the Agents and the Lenders under this Agreement of any
kind whatsoever will be paid by Borrower to the Agents and the Lenders upon
demand with interest to the date of payment to the Agents and the Lenders at
the Default Rate.
(d) For the purpose of carrying out the provisions and
exercising the rights, powers and privileges granted by this Section 6.3,
Borrower irrevocably constitutes and appoints the Agents, with full power of
substitution, as its true and lawful attorneys-in-fact, in its name and on its
behalf, and at its expense, to execute, acknowledge and deliver any document
and instrument and to do and perform any act such those referred to in this
Section 6.3, without notice to or the consent of Borrower. This power of
attorney is coupled with an interest and is not revocable.
ARTICLE VII
THE AGENTS
Section 7.1 Authorization and Action. Each
Construction/Acquisition Lender hereby appoints and authorizes the
Construction/Acquisition Agent, and each Term Lender hereby appoints and
authorizes the Term Agent, to take such actions as agent on its behalf and to
exercise such powers under this Agreement and the other Credit Documents as are
<PAGE>
delegated to each such Agent by the terms hereof and thereof, together with
such powers as are reasonably incidental thereto. The Agents will have no
duties, responsibilities, obligations or liabilities other than those expressly
set forth in the Credit Documents, and no additional duties, responsibilities,
obligations or liabilities will be inferred from the provisions of the Credit
Documents or imposed on the Agents. As to matters not expressly provided for by
this Agreement or the other Credit Documents (including enforcement or
collection of the Notes), the Agents will not be required to exercise any
discretion or take any action, but will be required to act or to refrain from
acting (and will be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Lenders, and such instructions will be
binding upon all the Lenders and all holders of Notes, provided that the Agents
will in no event be required to take any action which exposes them to personal
liability, which is contrary to the Credit Documents or Law or with respect to
which the Agents do not receive adequate instructions or full indemnification
from the Lenders. The provisions of this Article VII are solely for the benefit
of the Agents, their agents and their respective affiliates and the Lenders.
The Agents have no duties or relationships of trust or agency with or to
Guarantor, NEO, Borrower, the Affiliates, the Project Parties or their
respective affiliates.
Section 7.2 Delegation of Duties. The Agents may delegate any
of their responsibilities or duties under the Credit Documents to one or more
agents and will not be liable for the negligence or misconduct of any agent
selected by them with reasonable care.
Section 7.3 Agents' Reliance. None of the Agents, their
agents or any of their respective affiliates will be liable for any action
taken or omitted to be taken by any of them under or in connection with the
Documents, except that each will be liable for its own gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
Without limiting the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment or
transfer thereof signed by such payee and in a form satisfactory to
the Agent;
(b) may consult with legal counsel (including
Borrower's Counsel), independent public accountants and other experts
selected by it and will not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts;
<PAGE>
(c) makes no representation or warranty to any
Lender and will not be responsible to any Lender for any statement,
representation or warranty made in or in connection with the
Documents;
(d) will not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms,
covenants or conditions of the Documents or to inspect the Projects or
the books and records or any other property of Guarantor, NEO,
Borrower, the Affiliates or any Project Party;
(e) will not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Document or any other document or
instrument furnished pursuant thereto, or for the failure of any
Person to perform its obligations under any Document; and
(f) will incur no liability under or in respect of
this Agreement or any other Document or otherwise by acting upon any
notice, consent, waiver, certificate or other writing or instrument
(including facsimiles, telexes, telegrams and cables) believed by it
to be genuine and signed or sent by the proper Person or Persons.
Section 7.4 Notice of Default. Neither Agent will be deemed
to have knowledge or notice of any Default or Event of Default unless and until
it has received written notice from a Lender or Borrower referring to this
Agreement, describing the Default or Event of Default and stating that such
notice is a "notice of default."
Section 7.5 Agents as Lenders. With respect to their
Commitments, the Loans funded by them and the Notes issued to them, Lyon Credit
Corporation and Credit Lyonnais New York Branch will have the same rights and
powers under the Credit Documents as any other Lender and may exercise the same
as though they were not the Agents and, unless otherwise expressly indicated,
the term "Lender" or "Lenders" will include Lyon Credit Corporation and Credit
Lyonnais New York Branch in their individual capacities. Lyon Credit
Corporation, Credit Lyonnais New York Branch and their affiliates may accept
deposits from, lend money to, act as trustee under indentures of and generally
engage in any kind of business with Guarantor, NEO, Borrower and the
Affiliates, and any Person who may do business with or own securities of
Guarantor, NEO, Borrower or the Affiliates, all as if Lyon Credit Corporation
and Credit Lyonnais New York Branch were not the Agents and without any duty to
account therefor to the Lenders.
<PAGE>
Section 7.6 Credit Decisions. Each Lender acknowledges that
neither Agent nor any of their affiliates has made any representation or
warranty with respect to Guarantor, NEO, Borrower, the Affiliates, the
Projects or any other matter, and agrees that no review or other action by the
Agents or any of their affiliates will be deemed to constitute any such
representation or warranty. Each Lender acknowledges that it has,
independently and without reliance upon either Agent or any other Lender, and
based on the financial statements referred to in Section 4.1(k) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Credit
Documents to which it is party. Each Lender also acknowledges and agrees that
it will, independently and without reliance upon either Agent or any other
Lender, and based on such documents and information as it deems appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Credit Documents. The Agents will have no obligation to
provide to any Lender any information or document concerning or relating to
the Projects, Guarantor, NEO, Borrower, the Affiliates or any other Person or
matter that may come into the Agents' possession or to obtain any such
information or documents; provided, that the Agents will deliver to the
Lenders information and documents actually received by the Agents from
Guarantor, NEO, Borrower and the Affiliates pursuant to the Credit Documents
for distribution to the Lenders.
Section 7.7 Indemnification. The Lenders agree to indemnify
the Agents, their agents and their respective affiliates (to the extent not
reimbursed by Borrower), ratably according to the respective principal amounts
of the Notes then held by each of the Lenders (or if no Notes are at the time
outstanding, ratably according to the respective amounts of the Lenders'
Commitments), from and against any and all Claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against the Agents, their agents or their respective affiliates
by any Person (including any Lender) in any way relating to or arising out of:
(a) the Projects;
(b) any Document;
(c) any action taken or omitted by either Agent or
any Lender;
(d) any claim for brokerage fees or commissions in
connection with any transaction contemplated by the Documents;
<PAGE>
(e) any Claim based on any misstatement or
inaccuracy in or omission from any disclosure provided by Guarantor,
NEO, Borrower, the Affiliates or their representatives in connection
with the syndication of the Loans;
(f) the actual or alleged presence, release or
discharge of any Hazardous Substance on, from or under a Project or
the existence, use, generation, manufacture, handling, processing,
storage, release, transportation, removal, disposal or clean-up
thereof of any Hazardous Substance on or at a Project or by Borrower,
any Affiliate or any Project Party; or
(g) any Environmental Claim asserted against or
relating to a Project, Borrower, any Affiliate or any Project Party or
any actual or alleged violation of any Environmental Law by any of
such Persons; provided, that no Lender will be liable to any Person
for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Person's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
Without limiting the generality of the foregoing, each Lender
agrees to reimburse the Agents promptly upon demand for such Lender's ratable
share of any cost, expense or Tax described in Section 8.11 incurred by or
imposed on an Agent for which the Agent does not receive reimbursement from
Borrower. Payment by an indemnified party will not be a condition precedent to
the obligations of the Lenders under this indemnity. This Section 7.7 will
survive the Closing Date, the making and repayment of the Loans and any
transfer or assignment of the Notes.
Section 7.8 Successor Agents. Each Agent may resign at any
time by giving at least thirty (30) days' prior written notice thereof to the
Lenders and Borrower and may be removed at any time with or without cause by
the Majority Lenders. Upon any such resignation or removal, the Majority
Lenders will have the right to appoint a successor Agent. If within thirty (30)
days after the resignation or removal of the retiring Agent no successor Agent
accepts appointment by the Majority Lenders, the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which will be a commercial bank
organized under the Laws of the United States or of any State thereof and will
have a combined capital and surplus of at least two hundred fifty million
Dollars ($250 million). Upon the acceptance of its appointment as Agent, the
successor Agent will thereupon succeed to and be vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent will
be discharged from its
<PAGE>
duties and obligations under the Credit Documents. After any retiring Agent's
resignation or removal, the provisions of this Article VII will inure to its
benefit as to any action taken or omitted to be taken by it while it was
Agent.
Section 7.9 Agents Together and Separately. The
Construction/Acquisition Agent and the Term Agent agree to work together
throughout the term of this Agreement, notwithstanding that a
Construction/Acquisition Loan or a Term Loan is not outstanding at any time.
Except as specifically stated in this Agreement, each of the
Construction/Acquisition Agent and the Term Agent is an "Agent" for all
purposes under this Agreement and each will provide the other with copies of
all documents received by it and will take all reasonable action to share with
the other relevant information learned by it about Guarantor, NEO, Borrower,
the Affiliates, the Project Parties, the Projects and all other Collateral.
The Construction/Acquisition Agent will have primary responsibility for the
administration of the Construction/Acquisition Loans and of Borrower's
compliance with the terms thereof, and the Term Agent will have similar
responsibility for the administration of the Term Loans. In the case of any
disagreement between the Construction/Acquisition Agent and the Term Agent, to
the extent that any circumstance requires them to act together and not
separately, the Agent with the greater amount of then-outstanding Loans for
which it has administrative responsibility will control the actions of the
Agents.
Section 7.10 Term Agent as Beneficiary of Security Documents
and Pledgee of Collateral. The Term Agent is and will be the beneficiary of the
Security Documents and the pledgee of the Collateral. The Term Agent and the
Construction/Acquisition Agent agree, for their own benefit and for the benefit
of the Lenders, that, when it is a party to a Security Document, the Term Agent
is acting as the agent for all of the Lenders and that all Lenders have a pari
passu interest in the Collateral held by and pledged to the Term Agent.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Counterparts. Each of the Credit Documents may
be executed in any number of counterparts and by the different parties thereto
in separate counterparts, each of which when so executed will be deemed to be
an original and all of which taken together will constitute one and the same
instrument.
Section 8.2 Integration. The Credit Documents contain the
complete agreement among Guarantor, NEO, Borrower, the Affiliates, the Lenders
and the Agents with respect to the matters contained therein and supersede all
<PAGE>
prior commitments, agreements and understandings, whether written or oral, with
respect to the matters contained therein.
Section 8.3 Severability. Any provision of any Credit
Document that is invalid or prohibited in any jurisdiction will, as to such
jurisdiction, be ineffective and severable from the rest of such Credit
Document to the extent of such invalidity or prohibition, without impairing or
affecting in any way the validity of any other provision of such Credit
Document or of any other Credit Document, or of such provision in other
jurisdictions. The parties agree to replace any provision that is ineffective
by operation of this Section 8.3 with an effective provision which as closely
as possible corresponds to the spirit and purpose of such ineffective
provision and the affected Credit Document as a whole.
Section 8.4 Further Assurances. At any time and from time to
time upon the request of either Agent, Borrower will, and will cause NEO or the
Affiliates to, execute and deliver such further documents and instruments and
do such other acts as the Agent may reasonably request in order to effect fully
the purposes of the Credit Documents, to create, perfect, maintain and preserve
First-Priority Liens on the Collateral in favor of the Term Agent and to
provide for the payment of the Loans and the other obligations of Borrower and
the Affiliates in accordance with the terms of the Credit Documents.
Section 8.5 Amendments and Waivers. No amendment or waiver of
any provision of any Credit Document, or consent to any departure by Borrower
therefrom, will be effective unless it is in writing and signed by the Majority
Lenders; provided, that no amendment, waiver or consent will, unless in writing
and signed by all Lenders, do any of the following:
(a) waive any condition set forth in Article III;
(b) increase any Commitment or subject the Lenders
to any additional obligation;
(c) reduce the principal of, or interest on, the
Notes or any fee payable under the Credit Documents;
(d) postpone any date fixed for the payment of
principal of, or interest on, the Notes or any fees payable under the
Credit Documents;
(e) release any Collateral;
(f) amend or waive the provisions of Section 5.2(f),
5.2(g), 5.2(j), 8.5 or 8.7(b); or
<PAGE>
(g) change the definition of "Majority Lenders."
A waiver or consent granted pursuant to this Section 8.5 will
be effective only in the specific instance and for the specific purpose for
which it is given.
Section 8.6 No Waiver; Remedies Cumulative. The waiver of any
right, breach or default under any Credit Document by either Agent or any
Lender must be made specifically and in writing. No failure on the part of
either Agent or any Lender to exercise, and no forbearance or delay in
exercising, any right under any Credit Document will operate as a waiver
thereof; no single or partial exercise of any right under any Credit Document
will preclude any other or further exercise thereof or the exercise of any
other right; and no waiver of any breach of or default under any provision of
any Credit Document will constitute or be construed as a waiver of any
subsequent breach of or default under that or any other provision of any
Credit Document. No notice to or demand upon Borrower will entitle Borrower to
any further, subsequent or other notice or demand in similar or any other
circumstances. Each of the rights and remedies of the Agents and the Lenders
under the Credit Documents is cumulative and not exclusive of any other right
or remedy provided or existing by agreement or under Law.
Section 8.7 Successors and Assigns.
(a) Each Credit Document will be binding upon and inure
to the benefit of the parties thereto and all future holders of Notes and their
respective successors and permitted assigns.
(b) Borrower has no right to assign its rights or
interests, or delegate its duties or obligations, under any Credit Document
without the prior written consent of all Lenders.
(c) The Lenders may not syndicate or transfer all or any
part of their respective Commitments to other financial institutions without
the prior written consent of the Agents and at no time will there be more than
eight (8) Lenders except with the consent of Borrower. In addition, no Person
shall become a Lender hereunder the long-term unsecured debt of which, at the
time such Person becomes a Lender, is not rated at least BBB- by Standard &
Poor's. The Lenders may not syndicate or transfer their Commitments to any
other Person that would, by virtue of such Person's becoming a Lender, cause a
Project to cease to be a Qualifying Facility. Each such transfer is subject to
a minimum purchase requirement of one million Dollars ($1,000,000), and in
connection with each such transfer, the transferring Lender and its transferee
will execute and deliver a supplement to this Agreement in the form of Exhibit
8.7(c). Upon delivery of such supplement to the Agents, the transferee will
become a "Lender" under the Credit
<PAGE>
Documents with all of the attendant rights, benefits and obligations; the
respective Pro Rata Shares of the transferring Lender and its transferee will
be appropriately adjusted; and Borrower will execute and deliver to the
transferring Lender and its transferee replacement Notes reflecting their
respective Pro Rata Shares. The Note or Notes being replaced will be canceled
and returned to Borrower. Each replacement Note will have endorsed thereon the
disbursements, payments and amount outstanding thereunder. After any such
transfer, the transferring Lender will have no obligation with respect to the
portion of its Commitments transferred.
(d) The holder of any Note or Commitment will have the
right to grant participations in such Note or Commitment to any Person on such
terms and conditions as are determined by such holder in its sole and absolute
discretion; provided, that no such grant of participations will release any
Lender from its obligations hereunder or create any additional obligation on
Borrower.
(e) Each Lender has the right to assign and pledge all
or any portion of the obligations owing to it under the Credit Documents to any
Federal Reserve Bank or to the United States Department of the Treasury as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by the Federal Reserve
System; provided, that no such collateral assignment will release any Lender
from its obligations hereunder.
(f) Each Lender represents and warrants to the Agents,
each other Lender and Borrower that in making Loans hereunder such Lender will
be acquiring the Notes issued to it for the purpose of investment and not with
the view to, or for sale in connection with, any distribution in violation of
the Securities Act of 1933, as amended.
Section 8.8 No Agency. None of Borrower or either Affiliates
is the agent or representative of either Agent or any Lender or is authorized
to act on behalf of or bind either Agent or any Lender in any way.
Section 8.9 No Third Party Beneficiaries. Except as otherwise
expressly stated therein, each Credit Document is intended to be solely for the
benefit of the parties thereto and their respective successors and permitted
assigns and is not intended to and does not confer any right or benefit on any
third party.
Section 8.10 Nonrecourse. The Loans are the obligations
solely of Borrower and the Lenders will have access only to the Collateral and
the assets of Borrower for repayment. The Lenders will have recourse against
Guarantor only to the extent of its obligations under the Guaranty and any
other Document to which it is a party and against NEO or any Affiliate only (a)
to the extent of its obligations under any Document to which it is a party, (b)
in the case of fraud,
<PAGE>
misrepresentation, misappropriation of funds, gross negligence or willful
misconduct and (c) with respect to any Collateral pledged by it.
Section 8.11 Costs, Expenses and Taxes. Borrower agrees to pay
to the Agents and the Lenders on demand all costs, expenses and Reimbursable
Taxes incurred or arising in connection with the preparation, documentation,
negotiation, execution, delivery, funding, syndication (in accordance with
clause (a) of the next sentence), administration or enforcement of the Credit
Documents or the transactions contemplated thereby or effected pursuant
thereto. Such costs, expenses and Reimbursable Taxes will include (a) all
reasonable fees, costs and expenses arising or incurred in connection with the
syndication of the Loans prior to the Closing Date, but not thereafter,
including pursuant to Section 8.7(c), (b) all reasonable fees of, and expenses
incurred by, the Engineer, the Energy Consultant, Lenders' Counsel, the
Process Agent, the Title Insurer, the Insurance Consultant and all other
advisers and consultants engaged pursuant to the Credit Documents, (c) all
Taxes and all filing and recordation fees and expenses payable in order to
create, attach, perfect, continue and enforce the Liens of the Security
Documents, and the cost of the Title Policies and all endorsements thereto,
(d) all fees, costs, expenses, Taxes and insurance premiums incurred in
connection the protection, maintenance, preservation, collection, liquidation
or sale of, or foreclosure or realization upon, any Collateral, (e) all
reasonable attorneys' fees and expenses and other costs incurred in connection
with (i) complying with any subpoena or similar legal process relating in any
way to any Project, any Document, Borrower, Guarantor, NEO, any Affiliate or
any Project Party, (ii) determining the rights and responsibilities of the
Agents or the Lenders under the Credit Documents, (iii) any enforcement,
amendment or restructuring of, or waiver or consent under, under any Credit
Document, (iv) foreclosure or realization upon any Collateral or (v) any
bankruptcy, insolvency, receivership, reorganization, liquidation or similar
proceeding or any appellate proceeding involving any Project, Borrower,
Guarantor, NEO, any Affiliate or any Project Party, and (f) all costs and
expense incurred by either Agent or any Lender in connection with the payment
of any Construction/Acquisition Loan on any day other than the last day of its
Interest Period and with the borrowing of a Term Loan on any Funding Date
other than the Funding Date projected in the Closing Pro Forma as of the
Closing Date. Borrower agrees to make the payments required under this Section
8.11 regardless of whether the transactions contemplated by the Credit
Documents are consummated and hereby indemnifies the Agents and the Lenders
for all liabilities resulting from any failure or delay in making any payment
required under this Section 8.11. Borrower's obligations under this Section
8.11 constitute Obligations secured by the Security Document Liens. The Agents
will provide to Borrower, at the expense of Borrower, copies of all invoices,
receipts and other documentation relating to any amount payable pursuant to
this Section 8.11 and reasonably requested by Borrower.
<PAGE>
Section 8.12 Indemnity.
(a) Borrower agrees to indemnify the Lenders, the Agents
and their respective affiliates from and against any and all Claims,
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against them or any one or
more of them by any Person (including any Lender) in any way relating to or
arising out of (a) any Project, (b) any Document, (c) any action taken or
omitted by or any one or more of them pursuant to any Credit Document, (d) any
claim for brokerage fees or commissions in connection with any transaction
contemplated by the Documents, (e) any claim based on any misstatement or
inaccuracy in or omission in any disclosure provided by Borrower, Guarantor,
NEO or any Affiliate in connection with the syndication of the Loans, (f) the
actual or alleged presence, release or discharge of any Hazardous Substance
on, from or under any Project or the existence, use, generation, manufacture,
handling, processing, storage, release, transportation, removal, disposal or
clean-up of any Hazardous Substance on or at a Project or by Borrower, any
Affiliate or any Project Party or (g) any Environmental Claim asserted against
or relating to a Project, Borrower, any Affiliate or any Project Party or any
actual or alleged violation of any Environmental Law by any of such Persons;
provided, that Borrower will not be liable to any Person for any portion of
such Claims, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such
Person's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction or for any lost profits of any Lender arising
from any acceleration of a Loan (other than prepayment penalties specifically
provided for in this Agreement). Payment by an indemnified party will not be a
condition precedent to the obligations of Borrower under this indemnity. This
Section 8.12(a) will survive the Closing Date, the making and repayment of the
Loans and any transfer or assignment of Notes.
(b) Each Lender hereby agrees that, if the actions of
any Lender cause the conditions precedent contained in Section 3.2(n) not to be
able to be satisfied in a manner that permits Borrower to receive the requested
Construction/Acquisition Loan, then Borrower will be entitled to receive a
partial refund of the fee paid by it pursuant to Section 2.5(c) based on the
number of days for which the fee has been paid but on which the Commitments for
the Construction/Acquisition Loans are not available.
Section 8.13 Right of Set-off. Upon the occurrence and during
the continuance of an Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to Borrower (any such notice being
expressly waived by Borrower), to set off and apply any and all deposits
(general
<PAGE>
or special, time or demand) at any time held and other indebtedness at
any time owing by such Lender (at any of its offices, branches or agencies,
wherever located) to or for the credit or the account of Borrower against any
and all of the Obligations, irrespective of whether or not such Lender or
either Agent has made any demand under any Note or any other Credit Document,
and although such obligations may be continuing or unmatured. Each Lender
agrees to notify Borrower promptly after any such set-off and application;
provided, that the failure to give such notice will not affect the validity of
such set-off and application. The rights of the Lenders under this Section 8.13
are in addition to all other rights and remedies (including other rights of
set-off) the Lenders may have.
Section 8.14 Sharing of Payments. Each Lender agrees that if
as of any date it obtains any payment (whether by voluntary payment,
realization upon security, exercise of the right of set-off or banker's lien,
counterclaim or cross action or otherwise) on account of the Note or Notes held
by it in excess of its Pro Rata Share of all payments on account of the Notes
obtained by the Lenders, it will purchase for cash without recourse or warranty
from the other Lenders interests in their Notes in such amounts as will result
in a proportional participation by all of the Lenders in such excess payment.
If any of such excess payment is subsequently recovered from such purchasing
Lender, any purchases of interests in Notes will be rescinded and the purchase
prices restored to the extent of such recovery, in each case without interest.
Borrower agrees that any Lender purchasing an interest in a Note pursuant to
this Section 8.14 may exercise its rights of payment (including the right of
set-off) with respect to such interest as fully as if such Lender were the
direct creditor of Borrower in the amount of such interest. This Section 8.14
is for the sole benefit of the Lenders and does not confer any right upon
Borrower.
Section 8.15 Governing Law. EACH CREDIT DOCUMENT (OTHER THAN
CREDIT DOCUMENTS THAT SPECIFICALLY STATE OTHERWISE) WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, OTHER THAN
CONFLICT OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION,
AND EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE MANDATORILY
APPLICABLE.
Section 8.16 Waiver of Presentment, Demand, Protest an Notice.
Except as specifically stated herein or therein, Borrower irrevocably waives
presentment, demand, protest and notice of any kind in connection with any
Credit Document or any Collateral.
<PAGE>
Section 8.17 Waiver of Immunity. To the extent that Borrower
has or hereafter acquires any immunity from jurisdiction of any court or from
legal process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its properties, Borrower hereby irrevocably waives such immunity in respect
of its obligations under the Credit Documents.
Section 8.18 Waiver of Jury Trial. BORROWER, THE AGENTS AND
THE LENDERS WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED ON OR ARISING FROM ANY CREDIT DOCUMENT, ANY TRANSACTION
CONTEMPLATED THEREBY OR EFFECTED PURSUANT THERETO, ANY DEALING OR COURSE OF
DEALING BETWEEN OR AMONG THEM RELATING IN ANY WAY TO THE SUBJECT MATTER OF THE
CREDIT DOCUMENTS OR ANY STATEMENT OR ACTION OF ANY OF THEM OR THEIR
AFFILIATES. Each of the parties to this Agreement acknowledges and agrees that
this waiver is a material inducement to enter into the business relationship
contemplated by the Credit Documents and that each has relied on this waiver
in entering into the Credit Documents to which it is a party and will continue
to rely on this waiver in its future dealings with the other parties. The
scope of this waiver is intended to be all-encompassing and this waiver will
apply to all Claims of any nature whatsoever, whether deriving from contract,
arising by law, based on tort or otherwise. BORROWER, THE AGENTS AND THE
LENDERS HAVE MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY AND THIS WAIVER IS
IRREVOCABLE. THIS WAIVER WILL ALSO APPLY TO ALL AMENDMENTS, SUPPLEMENTS,
RESTATEMENTS, EXTENSIONS AND MODIFICATIONS OF ANY CREDIT DOCUMENT AS WELL AS
TO ANY CREDIT DOCUMENT ENTERED INTO AFTER THE DATE OF THIS AGREEMENT. In the
event of litigation, this agreement may be filed as a written consent to a
trial by the court.
Section 8.19 Consent to Jurisdiction. Each of Borrower, the
Agents and the Lenders hereby irrevocably submits to the jurisdiction of any
New York state or United States federal court sitting in the Borough of
Manhattan over any action or proceeding arising out of or relating to any
Claim, and each of them hereby irrevocably agrees that all Claims in respect of
such action or proceeding may be heard and determined in such New York state or
United States federal court. Each of Borrower, the Agents and the Lenders
irrevocably waives any objection that it may now or hereafter have to the
laying of venue in such forums and agrees not to plead or claim that any such
action or proceeding brought in any such New York state or United States
federal court has been brought in an inconvenient forum. Borrower hereby
irrevocably appoints the Process Agent as its agent to receive on behalf of it
and its property service of copies of the
<PAGE>
summons and complaint and any other process that may be served in any such
action or proceeding. Such service may be made by mailing or delivering a copy
of such process to Borrower in care of the Process Agent at 1633 Broadway, New
York, New York 10007 and Borrower hereby irrevocably authorizes and directs
the Process Agent to accept such service on its behalf. In addition and as an
alternative method of service, Borrower also irrevocably consents to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to Borrower at its address set forth on the
signature pages to this Agreement. Borrower agrees that a final judgment in
any such action or proceeding will be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by Law.
Nothing in this Section 8.19 will affect the right of the Agents and the
Lenders to serve legal process in any other manner permitted by Law or affect
the right of the Agents and the Lenders to bring any action or proceeding
against Borrower or its property in the courts of any other jurisdiction. If
for any reason the Process Agent ceases to be available to act as Process
Agent, Borrower agrees immediately to appoint a replacement Process Agent
satisfactory to the Agents.
Section 8.20 Confidentiality. Borrower, the Agents and the
Lenders agree to use reasonable efforts to keep confidential the Documents and
each document and all information delivered to them by another party to this
Agreement and marked "confidential." Notwithstanding the foregoing, each party
will be permitted to disclose confidential documents and information (a) to
another party, (b) to its affiliates, advisers and consultants, (c) to
prospective participants or prospective purchasers or transferees of interests
in Notes and their respective affiliates, advisers and consultants, (d) to any
Government Instrumentality having jurisdiction over such party, (e) in response
to any subpoena or other legal process or to comply with Law, (f) to the extent
reasonably required in connection with any litigation to which such party is a
party, (g) to the extent reasonably required in connection with the exercise of
its rights or remedies under any Credit Document or (h) to the extent such
documents or information already have been publicly disclosed by another
Person. Each prospective participant, purchaser and transferee and each adviser
and consultant to which confidential documents or information is disclosed will
be required to execute a confidentiality agreement containing the provisions of
this Section 8.20.
Section 8.21 Notices. All notices, consents, certificates,
waivers, documents and other communications required or permitted to be
delivered to any party, Guarantor, NEO, or any Affiliate under the terms of any
Credit Document (a) must be in writing, (b) must be personally delivered,
transmitted by an internationally recognized courier service or transmitted by
facsimile and (c) must be directed to such party at its address or facsimile
number set forth on the signature pages to this Agreement or, in the case of a
notice to Guarantor, NEO or
<PAGE>
any Affiliate, to Borrower. All notices will be deemed to have been duly given
and received on the date of delivery if delivered personally, three days after
delivery to the courier if transmitted by courier, or on the date of
transmission with confirmation if transmitted by facsimile, whichever occurs
first; provided, that notices to an Agent pursuant to Article II or VII will
not be effective until actually received by the Agent. Any party may change
its address or facsimile number for purposes hereof by notice to all other
parties.
Section 8.22 Legal Representation of the Parties. This
Agreement and other Credit Documents were negotiated by the parties with the
benefits of legal representation and any rule of construction or interpretation
otherwise requiring this Agreement or any Credit Document to be construed or
interpreted against any party shall not apply to any construction or
interpretation hereof or thereof.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Construction, Acquisition and Term Loan
Agreement to be signed on the date first above written.
NEO LANDFILL GAS, INC.
By /s/ PETER D. JONES
--------------------------------------------
Name: Peter D. Jones
Title: President
Address: c/o NEO Corporation
1221 Nicollet Mall
Suite 700
Minneapolis, Minnesota 55403
Attention: President
Facsimile No.: (612) 373-5465
With a copy to:
M. Curtis Whittaker, Esq.
Rath, Young & Pignatelli, P.A.
One Capitol Plaza
P.O. Box 1500
Concord, New Hampshire 03302
Facsimile No.: (603) 226-2700
CREDIT LYONNAIS NEW YORK BRANCH, as
Construction/Acquisition Agent
By /s/ MICHAEL F.G. PEPE
--------------------------------------------
Name: Michael F.G. Pepe
Title: Vice President
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Martin A. Cunningham
Facsimile No.: (212) 261-3421
<PAGE>
LYON CREDIT CORPORATION, as
Term Agent
By /s/ JEROME P. PETERS, JR.
--------------------------------------------
Name: Jerome P. Peters, Jr.
Title: Senior Vice President
Address: 1266 East Main Street
Stamford, Connecticut 06902
Attention: Mr. Jerome P. Peters, Jr.
Facsimile No.: (203) 328-9339
With a copy to:
Chadbourne & Parke LLP
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
Attention: Cornelius J. Golden, Jr., Esq.
Facsimile No.: (202) 974-5602
<PAGE>
CONSTRUCTION/ACQUISITION LENDERS:
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ MICHAEL F.G. PEPE
--------------------------------------------
Name: Michael F.G. Pepe
Title: Vice President
Pro Rata Share of Aggregate
Construction/Acquisition Loan
Commitment: 100.00%
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Martin A. Cunningham
Facsimile No.: (212) 261-3421
<PAGE>
TERM LENDERS:
LYON CREDIT CORPORATION
By /s/ JEROME P. PETERS, JR.
--------------------------------------------
Name: Jerome P. Peters, Jr.
Title: Senior Vice President
Pro Rata Share of Aggregate
Term Loan Commitment:
100.00%
Address: 1266 East Main Street
Stamford, Connecticut 06902
Attention: Mr. Jerome P. Peters, Jr.
Facsimile No.: (203) 328-9339
<PAGE>
GUARANTY
This GUARANTY, dated September 12, 1997 (this "Guaranty"), is
made by NRG ENERGY, INC., a Delaware corporation ("Guarantor"), in favor of
CREDIT LYONNAIS NEW YORK BRANCH, as agent for the Construction/Acquisition
Lenders (as defined below) (in such capacity, the "Construction/Acquisition
Agent"), and each lender that is or becomes a Construction/Acquisition Lender
pursuant to the Loan Agreement (as defined below) (collectively, the
"Construction/Acquisition Lenders").
RECITALS
WHEREAS, NEO Landfill Gas, Inc., a Delaware corporation
("Borrower"), the Construction/Acquisition Agent, the Construction/Acquisition
Lenders and the other parties thereto have entered into a Construction,
Acquisition and Term Loan Agreement, dated the date hereof (as the same may be
amended, modified or supplemented, the "Loan Agreement"), pursuant to which the
Construction/Acquisition Lenders have agreed to make certain loans to Borrower
for the purpose, among others, of financing the construction or acquisition of
the Projects (as defined in the Loan Agreement);
WHEREAS, Borrower is wholly-owned by NEO Corporation, a
Delaware corporation ("NEO"), and NEO is wholly-owned by Guarantor;
WHEREAS, Guarantor will benefit, directly and indirectly,
from the making of the loans by the Construction/Acquisition Lenders to
Borrower; and
WHEREAS, it is a condition precedent to the obligations of
the Construction/Acquisition Lenders under the Loan Agreement that certain
obligations of Borrower thereunder be guaranteed by Guarantor as set forth
herein;
NOW, THEREFORE, in consideration of the foregoing premises
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Guarantor, intending to be legally bound, hereby
agrees for the benefit of the Construction/Acquisition Agent and the
Construction/Acquisition Lenders as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Guaranty, the terms
defined in the preamble and recitals hereto shall have the respective meanings
<PAGE>
specified therein. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in the Loan Agreement and such meanings are
incorporated herein by reference. The
following term shall have the following meaning:
"Obligations" means all obligations and liabilities of
Borrower to the Construction/Acquisition Agent and the Construction/Acquisition
Lenders, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter incurred, which may arise under or in connection
with any Construction/Acquisition Loan made pursuant to the Loan Agreement or
any document made, delivered or given in connection therewith, including
without limitation the principal of, premium (if any) and interest on the
Construction/Acquisition Loan Note and the indebtedness represented thereby,
whether on account of principal, premium (if any), interest, reimbursement
obligations, fees (including without limitation the Construction/Acquisition
Loan Availability Fee), indemnities, costs and expenses (including without
limitation all costs and expenses required to be paid by Borrower pursuant to
Sections 2.2(b), 2.5 and 8.11 of the Loan Agreement) or otherwise (including
without limitation such interest or other charges as would have accrued on any
portion of the Obligations but for the commencement of any bankruptcy or
insolvency proceedings), it being the intention of Guarantor, the
Construction/Acquisition Agent and the Construction/Acquisition Lenders that
the Obligations that are guaranteed by Guarantor pursuant to this Guaranty be
determined without regard to any rule of law or order that may relieve Borrower
of any portion of such Obligations. Construction/Acquisition Loans that have
converted to Term Loans pursuant to the Loan Agreement are not Obligations.
ARTICLE II
GUARANTY
Section 2.1 Unconditional Guaranty. Guarantor hereby
unconditionally and irrevocably guarantees, as a primary obligor and not merely
as a surety, to the Construction/Acquisition Agent and the
Construction/Acquisition Lenders the prompt, punctual and complete payment when
due, whether at the stated maturity, on acceleration or otherwise, and the
prompt, punctual and complete performance when owing, of the Obligations,
irrespective of (a) the validity, legality or enforceability of the Obligations
or any other agreement or instrument relating thereto or (b) any other
circumstance that might otherwise constitute a defense to this Guaranty;
provided, that this Guaranty shall be limited to the maximum amount that may be
guaranteed by Guarantor without this Guaranty being rendered or deemed void or
voidable, whether for fraudulent conveyance or transfer or otherwise, under
applicable law. Each and every default
<PAGE>
in the payment or performance of the Obligations shall give rise to a separate
cause of action hereunder and separate suits may be brought hereunder as each
cause of action arises.
Section 2.2 No Subrogation. Notwithstanding any payment or
payments made by Guarantor hereunder or any set-off or application of funds of
Guarantor by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders, Guarantor hereby waives any and all rights to which it may be entitled,
by operation of law or otherwise, upon making any payment hereunder (a) to be
subrogated to any of the rights of the Construction/Acquisition Agent or the
Construction/Acquisition Lenders against Borrower or any other Person or in any
Collateral or other collateral security or guaranty or right of offset held by
the Construction/Acquisition Agent or the Construction/Acquisition Lenders for
the payment of any Obligations or (b) to seek any reimbursement or contribution
from Borrower or any other Person in respect to any payment, set-off or
application of funds made by or for the account of Guarantor hereunder.
Section 2.3 No Effect on Guaranty. The obligations of
Guarantor under this Guaranty shall not be altered, limited, impaired or
otherwise affected by:
(a) any rescission of any demand for payment or
performance of any of the Obligations or any failure by the
Construction/Acquisition Agent or the Construction/Acquisition Lenders
to make any such demand on Borrower, Guarantor or any other Person or
to collect any payment from Borrower, Guarantor or any other Person or
any release of Borrower or any other Person;
(b) any renewal, extension, modification, amendment,
acceleration, compromise, waiver, indulgence, rescission, discharge,
surrender or release, in whole or in part, of the Loan Agreement or
the Obligations or any other instrument or agreement evidencing,
relating to, securing or guaranteeing any of the Obligations, or the
liability of any party to any of the foregoing or for any part thereof
or any collateral security therefor or guaranty thereof;
(c) the validity, legality or enforceability of any
of the Obligations or of the Loan Agreement or any other instrument or
agreement evidencing, relating to, securing or guaranteeing any of the
Obligations;
(d) any failure by the Construction/Acquisition
Agent or the Construction/Acquisition Lenders to protect, secure,
perfect, record, insure or enforce any Security Document or
Collateral;
<PAGE>
(e) any act or omission of the
Construction/Acquisition Agent or the Construction/Acquisition Lenders
relating in any way to the Obligations or to Borrower, including
without limitation any failure to bring an action against any party
liable on the Obligations, or any party liable on any guaranty of the
Obligations, or any party that has furnished security for the
Obligations, or to resort to any collateral or collateral of any other
Person;
(f) any defense, set-off or counterclaim that may at
any time be available to or be asserted by or on behalf of Borrower,
Guarantor or any other Person against the Construction/Acquisition
Agent or the Construction/Acquisition Lenders or any circumstance that
constitutes, or might be construed to constitute, an equitable or
legal discharge of Borrower, Guarantor or any other Person for any of
the Obligations, in bankruptcy or in any other instance;
(g) any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization,
liquidation or arrangement of Borrower, Guarantor or any other Person
or any defense that Borrower or any other guarantor may have by reason
of the order, decree or decision of any court or administrative body
resulting from any such proceeding;
(h) any change, whether direct or indirect, in
Guarantor's relationship to Borrower, including without limitation any
such change by reason of any merger or any sale, transfer, issuance or
other disposition of any stock of, membership interest in or other
equity interest in Borrower, Guarantor or any other Person;
(i) the absence of any notice to, or knowledge by,
Guarantor of the existence or occurrence of any matter or event set
forth in this Section 2.3;
(j) any taking, exchange, release or non-perfection
or any manner of application of collateral or proceeds thereof or any
manner of sale or other disposition of collateral;
(k) any failure to pay any tax that may be payable
with respect to the payment of the Obligations by Guarantor or any
failure to obtain any authorization or approval from or other action
by, or to notify or file with, any Governmental Instrumentality
required in connection with the payment of the Obligations by
Guarantor;
<PAGE>
(l) the termination of the legal existence of
Borrower or Guarantor, or the termination of any legal obligation of
Borrower to discharge the Obligations undertaken or purported to be
undertaken by it or on its behalf (other than to the extent of payment
or performance of the Obligations by or on behalf of Borrower); or
(m) any impossibility or impracticality of
performance, illegality, force majeure, any action or nonaction of
government, or any other circumstance that might otherwise constitute
a legal or equitable defense available to or resulting in the
discharge of a surety or guarantor or any other circumstance, event or
happening whatsoever, whether foreseen or unforeseen and whether
similar or dissimilar to anything referred to above in this Section
2.3.
Section 2.4 Continuing Guaranty. Guarantor further agrees
that this Guaranty constitutes a present, absolute and continuing guaranty of
prompt, punctual and complete payment and performance when due of the
Obligations, and not of collection only, and waives any right to require that
any resort be had by the Construction/Acquisition Agent or the
Construction/Acquisition Lenders, after demand for such payment being made upon
Borrower by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders, to the Construction/Acquisition Agent's and the
Construction/Acquisition Lenders' rights against any other Person, or any other
right or remedy available to the Construction/Acquisition Agent or the
Construction/Acquisition Lenders by contract, applicable law or otherwise. The
obligations of Guarantor under this Guaranty are unconditional, direct and
completely independent of the obligations of any other Person and shall not be
conditioned or contingent upon the pursuit by the Construction/Acquisition
Agent or the Construction/Acquisition Lenders at any time of any right or
remedy against Borrower or against any other Person that may be or become
liable in respect of all or any part of the Obligations or against any
collateral security or guaranty therefor. A separate cause of action or
separate causes of action may be brought and prosecuted against Guarantor
without the necessity of joining Borrower or any other party or previously
proceeding with or exhausting any other remedy against any other Person who
might have become liable for the Obligations or any part thereof or of
realizing upon any security held by or for the benefit of the
Construction/Acquisition Agent and the Construction/Acquisition Lenders.
Section 2.5 Obligations Unconditional. The obligations of
Guarantor under this Guaranty shall be absolute and unconditional irrespective
of (i) any lack of validity of the Obligations or any other agreement or
instrument relating thereto or (ii) any other circumstance that might otherwise
constitute a defense to this Guaranty and shall remain in full force and effect
until the
<PAGE>
Obligations have been indefeasibly satisfied by payment and performance in
full, or release by the Construction/Acquisition Agent and the
Construction/Acquisition Lenders and, to the extent permitted by law, such
Obligations shall not be affected, modified, released or impaired by any state
of facts or the happening from time to time of any event whatsoever, whether or
not with notice to, or the consent of, Guarantor.
Section 2.6 Term and Reinstatement of Guaranty. This Guaranty
will terminate on the date that is the later of (i) October 30, 1998 and (ii)
the date on which all Obligations (including without limitation all default
interest thereon) have been indefeasibly paid in full. Notwithstanding the
foregoing, this Guaranty shall continue in full force and effect, or be
reinstated, as the case may be, if at any time any payment or performance
hereunder, or any part thereof, of the Obligations is subsequently invalidated,
declared to be fraudulent or preferential, avoided, rescinded, set aside or
must otherwise be restored or returned by the Construction/Acquisition Agent
or the Construction/Acquisition Lenders or any other Person to Borrower or
its representatives or to a trustee, receiver, assignee for the benefit of
creditors or any other party under any bankruptcy act or code, state or federal
law or common law or equitable doctrine, for any reason including as a result
of any insolvency, bankruptcy or reorganization proceeding with respect to
Borrower or Guarantor, all as though such payment had not been made.
Section 2.7 Financial Condition of Borrower has no Effect on
Guaranty. Borrower may borrow the Loans from the Construction/Acquisition
Lenders without notice to or authorization from Guarantor regardless of the
financial or other condition of Borrower at the time of such borrowing. None of
the Construction/Acquisition Agent or the Construction/Acquisition Lenders
shall have any obligation to disclose or discuss with Guarantor its assessment
of the financial or other condition of Borrower. Guarantor confirms that no
representation has been made to the Guarantor concerning the financial
condition of Borrower by the Construction/Acquisition Agent or the
Construction/Acquisition Lenders.
Section 2.8 No Waiver or Set-Off. No act of commission or
omission of any kind or at any time upon the part of Borrower, any of its
successors and assigns or the Construction/Acquisition Agent or the
Construction/Acquisition Lenders in respect of any matter whatsoever shall in
any way impair the rights of the Construction/Acquisition Agent and the
Construction/Acquisition Lenders to enforce any right, power or benefit under
this Guaranty, and no set-off, counterclaim, reduction or diminution of any
obligation, or any defense of a surety or guarantor that Guarantor have or may
have against Borrower, the Construction/Acquisition Agent, the
Construction/Acquisition
<PAGE>
Lenders or any assignee or successor thereof shall be available hereunder to
Guarantor.
Section 2.9 Demands for Payment; Payment. Demands by the
Construction/Acquisition Agent for payment of amounts due pursuant to Sections
2.1 and 7.1 may be made on any number of occasions and without any demand for
payment given to Borrower. Each demand shall be in writing, shall state the
amount owing and shall be effective as of the date given in accordance with
Section 7.6. Within five Business Days of giving such a demand in accordance
with Section 7.6, dated and signed by an authorized officer of the
Construction/Acquisition Agent setting forth the amount of the Obligations at
the time owing, Guarantor shall make such payment to or as directed to the
Construction/Acquisition Agent and such payment shall not be withheld for any
reason.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties. Guarantor
represents and warrants that as of the date hereof:
(a) It is a corporation duly organized, validly
existing and in good standing under the laws of State of Delaware and
has the corporate power, authority and legal right to execute, deliver
and carry out the terms and provisions of this Guaranty.
(b) The execution, delivery and performance by
Guarantor of this Guaranty have been duly authorized by all necessary
corporate action.
(c) The execution, delivery and performance by
Guarantor of this Guaranty do not and will not (i) require any consent
or approval of any shareholder of Guarantor or Government
Instrumentality that has not been obtained and which remains valid,
(ii) violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in
effect having applicability to Guarantor, or (iii) result in a breach
of or constitute a default under any material agreement binding upon
Guarantor.
(d) This Guaranty constitutes a valid and legally
binding agreement of Guarantor, enforceable in accordance with its
terms except as the enforceability of this Guaranty may be limited by
the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar
<PAGE>
laws affecting creditors' rights generally and by general principles
of equity.
(e) The audited consolidated balance sheet of
Guarantor and its subsidiaries as of December 31, 1996 and the related
audited consolidated statements of income, cash flows and changes in
stockholders' equity accounts for the fiscal year then ended and the
unaudited consolidated balance sheet of Guarantor and its subsidiaries
as of June 30, 1997 and the related unaudited consolidated statements
of income, cash flows and changes in stockholders' equity accounts for
the six months then ended, certified by the chief financial or
accounting officer of Guarantor, copies of which have been delivered
to the Construction/Acquisition Agent, fairly present, in conformity
with GAAP except as otherwise expressly noted therein and except with
respect to footnotes in all unaudited financial statements, the
consolidated financial position of Guarantor and its subsidiaries as
of such dates and their consolidated results of operations and changes
in financial position for such fiscal periods, subject (in the case of
the unaudited balance sheet and statements) to changes resulting from
audit and normal year-end adjustments.
(f) Since December 31, 1996, there has been no
material adverse change in the business, consolidated financial
position or consolidated results of operations of Guarantor and its
subsidiaries, considered as a whole.
(g) There is no action, suit or proceeding pending
against Guarantor or any of its subsidiaries, or to the knowledge of
Guarantor threatened against Guarantor or any of its subsidiaries,
before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse
decision that could materially adversely affect the business,
consolidated financial position or consolidated results of operations
of Guarantor and its subsidiaries taken as a whole or that in any
manner draws into question the validity of this Guaranty or any other
Document to which Guarantor is or will be a party.
(h) Guarantor and its subsidiaries have filed or
caused to be filed all United States federal income tax returns and
all other material domestic tax returns which to the knowledge of
Guarantor are required to be filed by them and have paid or provided
for the payment of, before the same become delinquent, all taxes due
pursuant to such returns or pursuant to any assessment received by
Guarantor or any subsidiary, other than those taxes contested in good
faith by appropriate proceedings. The charges, accruals and reserves
on the books of Guarantor and its subsidiaries in
<PAGE>
respect of taxes are, in the reasonable opinion of Guarantor, adequate
to the extent required by GAAP.
ARTICLE IV
AFFIRMATIVE COVENANTS
Section 4.1 Affirmative Covenants. Guarantor covenants and
agrees that it will, unless the Construction/Acquisition Lenders otherwise
consent in writing:
(a) Reporting Requirements. Furnish to the
Construction/Acquisition Agent and each Construction/Acquisition
Lender:
(i) (A) within 60 days after the end of
each of the first three fiscal quarters of each fiscal year
of Guarantor, a copy of Guarantor's quarterly unaudited
consolidated financial statements as of the end of and for
such quarter, and (B) within 120 days after the end of each
fiscal year of Guarantor, a copy of Guarantor's annual
audited consolidated financial statements as of the end of
and for such year;
(ii) simultaneously with the delivery of
each of the annual or quarterly reports referred to in
paragraph (i) above, a certificate of the chief financial
officer or chief accounting officer of Guarantor in a form
acceptable to the Construction/Acquisition Agent stating
whether there exists on the date of such certificate any
Event of Default or event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default,
and, if so, setting forth the details thereof and the action
which Guarantor has taken and proposes to take with respect
thereto;
(iii) as soon as possible and in any event
within five days after a change in, or issuance of, any
rating of any of the Guarantor's senior unsecured long-term
debt by Standard & Poor's Rating Services or Moody's
Investors Services, Inc., notice to the
Construction/Acquisition Agent of such change;
(iv) as soon as possible and in any event
within five days after an executive officer of Guarantor
obtaining knowledge thereof, notice of the occurrence of any
Event of Default or any event which, with the giving of
notice or lapse of time, or both, would constitute an Event
of Default, continuing on the date of such notice, and a
statement of the chief financial officer of Guarantor
<PAGE>
setting forth details of such Event of Default or event and
the action that Guarantor has taken and proposes to take with
respect thereto;
(v) such other information respecting the
condition or operations, financial or otherwise, of Guarantor
or any of its subsidiaries as any Construction/Acquisition
Lender through the Construction/Acquisition Agent may from
time to time reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause
each of its subsidiaries to comply, with all applicable laws, rules,
regulations and orders to the extent noncompliance therewith would
have a material adverse effect on Guarantor and its subsidiaries taken
as a whole, such compliance to include without limitation compliance
with Environmental Laws and the paying before the same become
delinquent of all taxes, assessments and governmental charges imposed
upon it or upon its property except to the extent contested in good
faith.
(c) Maintenance of Insurance. Maintain insurance,
and cause Borrower and the Affiliates to maintain, with responsible
and reputable insurance companies or associations in such amounts and
covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties
as Guarantor or such other Person.
(d) Preservation of Corporate Existence, Etc.
Preserve and maintain, and cause each of Borrower and the Affiliates
to preserve and maintain, its legal existence, rights and franchises;
provided, that this Section 4.1(d) shall not apply to any transaction
or matter permitted by Section 5.1(a) or (b); provided, that
Guarantor, Borrower and the Affiliates shall not be required to
preserve any right or franchise if Guarantor or such other Person
reasonably determines that the preservation thereof is no longer
desirable in the conduct of the business of Guarantor or such other
Person, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to the
Construction/Acquisition Lenders.
(e) Visitation Rights. At any reasonable time and
from time to time, after reasonable notice, permit the
Construction/Acquisition Agent or any of the Construction/Acquisition
Lenders or any agent or representative thereof to examine the records
and books of account of, and visit the properties of, Guarantor,
Borrower and the Affiliates, and to discuss the affairs, finances and
accounts of Guarantor and any of such other Persons with any of their
respective officers or directors.
<PAGE>
ARTICLE V
NEGATIVE COVENANTS
Section 5.1 Negative Covenants. Guarantor will not at any
time, without the prior written consent of the Construction/Acquisition Lenders:
(a) Mergers, Etc. Merge or consolidate with or into
any Person unless (i) Guarantor is the survivor or (ii) the surviving
Person, if not Guarantor, is organized under the laws of the United
States or a state thereof and assumes all obligations of Guarantor
under this Guaranty and executes and delivers to the
Construction/Acquisition Agent documents reasonably satisfactorily in
form and substance to the Construction/Acquisition Agent pursuant to
which such Person acknowledges and assumes all obligations of
Guarantor hereunder; provided, in each case that immediately after
giving effect to such proposed transaction, no Event of Default or
event which, with the giving of notice or the lapse of time, or both,
would constitute an Event of Default would exist or result.
(b) Disposition of Assets. Lease, sell, transfer or
otherwise dispose of, voluntarily or involuntarily, all or
substantially all of its assets.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 Events of Default. The occurrence and continuance
of any of the following events shall constitute an "Event of Default":
(a) Any representation or warranty made by Guarantor
or any of its officers under or in connection with any Document proves
to have been incorrect in any material respect when made or deemed
made.
(b) Guarantor fails to perform or observe any term,
covenant or agreement contained in Articles IV and V or fails to
perform or observe any other term, covenant or agreement contained in
any Document on its Part to be performed or observed and such failure
remains unremedied for five (5) days after the occurrence thereof;
provided, that if such failure can not be remedied within such five
(5) day period and if Guarantor is diligently seeking to remedy such
failure, and if such failure is reasonably likely to be remedied
within thirty (30) days after the initial five
<PAGE>
(5) day period, then Guarantor shall have an additional thirty
(30) days to remedy such failure.
(c) Guarantor or any of its subsidiaries fails to
pay any principal of or premium or interest on any Indebtedness which
is outstanding in the principal amount of at least $1,000,000 in the
aggregate when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
such failure continues after the applicable grace period, if any,
specified in the agreement or instrument relating to such
Indebtedness; or any other event occurs or condition exists under any
agreement or instrument relating to any such Indebtedness and
continues after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is
to accelerate the maturity of such Indebtedness; or any such
Indebtedness is declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment or as
a result of the giving of notice of a voluntary prepayment), prior to
the stated maturity thereof.
(d) Guarantor or any of its subsidiaries generally
fails to pay its debts as such debts become due, or admits in writing
its inability to pay its debts generally, or makes a general
assignment for the benefit of creditors; or any proceeding is
instituted by or against Guarantor or any of its subsidiaries seeking
to adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for the relief or the appointment
of a receiver, trustee or other similar official for it or for any
substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), remains
undismissed or unstayed for a period of 60 days; or Guarantor or any
of its subsidiaries takes any corporate action to authorize any of the
actions set forth above in this paragraph (d).
(e) Any judgment, decree or order for the payment of
money in excess of $1,000,000 is rendered against Guarantor or any of
its subsidiaries and remains unsatisfied and either (i) enforcement
proceedings have been commenced by any creditor upon such judgment,
decree or order or (ii) there shall be any period of 60 consecutive
days during which a stay of enforcement of such judgment, decree or
order, by reason of a pending appeal or otherwise, shall not be in
effect.
<PAGE>
(f) Any provision of this Guaranty for any reason is
not or ceases to be valid and binding on Guarantor or Guarantor so
states in writing.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Costs and Expenses. Except as herein otherwise
expressly provided, Guarantor covenants and agrees to pay or reimburse the
Construction/Acquisition Agent and the Construction/Acquisition Lenders upon
request for all reasonable expenses, disbursements, fees, costs and commissions
incurred or made by the Construction/Acquisition Agents or the
Construction/Acquisition Lenders (including the reasonable compensation and
expenses and disbursements of counsel and of persons not regularly in their
employ) in connection with (i) the enforcement of or attempt to enforce, or
collection of or attempt to collect any amount due under, this Guaranty or
(ii) any waiver, extension, amendment or modification of any provision of this
Guaranty.
Section 7.2 Election of Remedies. Each and every right, power
and remedy herein given to the Construction/Acquisition Agent and the
Construction/Acquisition Lenders, or otherwise existing, shall be cumulative
and not exclusive, and shall be in addition to all other rights, powers and
remedies now or hereafter granted or otherwise existing. Each and every right,
power and remedy, whether specifically herein given or otherwise existing, may
be exercised from time to time and as often and in such order as may be deemed
expedient by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders.
Section 7.3 Effect of Delay or Omission to Pursue Remedy. No
single or partial waiver by the Construction/Acquisition Agent or the
Construction/Acquisition Lenders of any right, power or remedy, or delay or
omission by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders in the exercise of any right, power or remedy shall impair any such
right, power or remedy or operate as a waiver thereof or of any other right,
power or remedy then or thereafter existing. Any waiver given by the
Construction/Acquisition Agent or the Construction/Acquisition Lenders of any
right, power or remedy in any one instance shall only be effective in that
specific instance and only for the purpose for which given, and will not be
construed as a waiver of any right, power or remedy on any future occasion.
Section 7.4 Guarantor's Waivers. Guarantor waives any and all
promptness, diligence, notice of the creation or acceptance, any other notice,
renewal, extension or accrual of any of the Obligations and notice of or proof
of
<PAGE>
reliance by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders upon this Guaranty or acceptance of this Guaranty or any action taken
or omitted in reliance hereon. The Obligations, and any of them, shall
conclusively be deemed to have been created, contracted, incurred, renewed,
extended, amended or waived in reliance upon this Guaranty and all dealings
among Guarantor, Borrower, the Construction/Acquisition Agent and the
Construction/Acquisition Lenders shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guaranty.
Guarantor further waives diligence, presentment, demand for payment or
performance, notice, any requirement that any right or power be exhausted or
any action be taken against Borrower or Guarantor or against any Collateral,
protest of all promissory notes or other instruments included in or evidencing
any of the Obligations or Collateral, and all other demands in connection with
the delivery, acceptance, performance, default or enforcement of any such
promissory note or other instrument or this Guaranty or any other requirement
that the Construction/Acquisition Agent or the Construction/Acquisition Lenders
protect, secure, perfect or insure any security interest or lien on any
property subject thereto or exhaust any right or take any action against
Borrower, Guarantor or any other Person, or any Collateral.
Section 7.5 Amendment. This Guaranty may not be modified,
amended, terminated or revoked, in whole or in part, except by an agreement in
writing signed by the Construction/Acquisition Agent and Guarantor. No waiver
of any term, covenant or provision of this Guaranty, or consent given
hereunder, shall be effective unless given in writing by the
Construction/Acquisition Agent.
Section 7.6 Notices. Unless otherwise specifically provided
herein, any notice or other communication required or permitted to be given
shall be in writing addressed to the respective party as set forth below and
may be personally served, telecopied or sent by overnight courier service or
United States mail (return receipt requested) and shall be deemed to have been
given (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if transmitted on a Business Day before
4:00 p.m. (New York, New York time) or, if not, on the next succeeding
Business Day; (c) if delivered by reputable overnight courier, two (2) days
after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four (4) Business Days after deposit in the United States mail, with postage
prepaid and properly addressed.
Notices shall be addressed as follows:
If to Guarantor:
NRG ENERGY, INC.
1221 Nicollet Mall
<PAGE>
Minneapolis, Minnesota 55403
Attention: Executive Director Finance
Telecopy: (612) 373-5336
With a copy to:
NRG ENERGY, INC.
1221 Nicollet Mall
Minneapolis, Minnesota 55403
Attention: General Counsel
Telecopy: (612) 373-5392
If to the Construction/Acquisition Agent or any
Construction/Acquisition Lender:
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, New York 10019
Attention: Mr. Martin A. Cunningham
Telecopy: (212) 261-7887
With a copy to:
CHADBOURNE & PARKE LLP
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Cornelius J. Golden, Jr., Esq.
Telecopy: (202) 974-5602
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 7.6. A notice not given as provided above shall,
if it is in writing, be deemed given if and when actually received by the
party to whom given.
Section 7.7 Successors and Assigns. This Guaranty shall be
binding upon and shall inure to the benefit of Guarantor, the
Construction/Acquisition Agent and the Construction/Acquisition Lenders and
their respective successors and permitted assigns. Notwithstanding the
foregoing, Guarantor shall have no right to assign its rights or obligations
hereunder (whether by operation of law or otherwise) without the prior written
consent of the Construction/Acquisition Agent and any purported transfer
without such prior written consent shall be void. No assignment by Guarantor of
any rights or obligations under this Guaranty shall release Guarantor therefrom
unless the
<PAGE>
Construction/Acquisition Agent has consented to such release in a writing
specifically referring to the obligation from which Guarantor is to be released.
Section 7.8 Headings. The article and section headings used
in this Guaranty are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
Section 7.9 CONSENT TO JURISDICTION. ALL LEGAL ACTIONS OR
PROCEEDINGS BROUGHT AGAINST GUARANTOR WITH RESPECT TO THIS GUARANTY MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY GUARANTOR ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES THE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS GUARANTY. GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY
ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
OR ANY SIMILAR BASIS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
CONSTRUCTION/ACQUISITION AGENT OR THE CONSTRUCTION/ACQUISITION LENDERS TO BRING
PROCEEDINGS AGAINST GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
Section 7.10 GOVERNING LAW. THIS GUARANTY WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, OTHER THAN
CONFLICT OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION,
AND EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE MANDATORILY
APPLICABLE.
Section 7.11 WAIVER OF JURY TRIAL. GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH THIS GUARANTY.
Section 7.12 AGENT FOR SERVICE OF PROCESS. GUARANTOR HEREBY
AGREES TO DESIGNATE, APPOINT AND EMPOWER CT CORPORATION SYSTEM, NEW YORK, NEW
YORK, AS ITS AUTHORIZED AGENT TO RECEIVE FOR AND ON ITS BEHALF SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY
<PAGE>
ACTION, SUIT OR PROCEEDING IN THE STATE OF NEW YORK. AS LONG AS THIS GUARANTY
REMAINS IN FORCE, GUARANTOR SHALL MAINTAIN A DULY APPOINTED AGENT FOR THE
SERVICE OF SUMMONS, COMPLAINT AND OTHER LEGAL PROCESS IN NEW YORK, NEW YORK,
FOR PURPOSES OF ANY LEGAL ACTION, SUIT OR PROCEEDING THE
CONSTRUCTION/ACQUISITION AGENT OR THE CONSTRUCTION/ACQUISITION LENDERS MAY
BRING IN RESPECT OF THIS GUARANTY. GUARANTOR SHALL KEEP THE
CONSTRUCTION/ACQUISITION AGENT ADVISED OF THE IDENTITY AND LOCATION OF SUCH
AGENT. GUARANTOR ALSO IRREVOCABLY CONSENTS, IF FOR ANY REASON GUARANTOR'S
AUTHORIZED AGENT FOR SERVICE OF PROCESS OF SUMMONS, COMPLAINT AND OTHER LEGAL
PROCESS IN ANY SUCH ACTION, SUIT OR PROCEEDING IS NOT PRESENT IN NEW YORK, NEW
YORK, THAT SERVICE OF SUCH PAPERS MAY BE MADE OUT OF THOSE COURTS BY MAILING
COPIES OF THE PAPERS BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL TO THE
ADDRESS SET FORTH IN SECTION 7.6. SERVICE IN THE MANNER PROVIDED IN THIS
SECTION 7.12 IN ANY SUCH ACTION, SUIT OR PROCEEDING WILL BE DEEMED PERSONAL
SERVICE, WILL BE ACCEPTED BY GUARANTOR AS SUCH AND WILL BE VALID AND BINDING
UPON GUARANTOR FOR ALL PURPOSES OF ANY SUCH ACTION, SUIT OR PROCEEDING.
Section 7.13 Severability. If any provision hereof or of any
promissory note or other instrument evidencing part or all of the Obligations
is invalid or unenforceable in any jurisdiction, the other provisions hereof or
thereof shall remain in full force and effect in such jurisdiction and the
remaining provisions hereof shall be liberally construed in favor of the
Construction/Acquisition Agent and the Construction/Acquisition Lenders in
order to carry out the provisions hereof. The invalidity or unenforceability of
any provision of this Guaranty in any jurisdiction shall not affect the
validity or enforceability of any such provision in any other jurisdiction.
Section 7.14 Entire Agreement. This Guaranty constitutes the
entire agreement and understanding of Guarantor with respect to the subject
matter hereof and supersedes any and all prior and contemporaneous contracts,
negotiations, agreements and understandings of Guarantor relating to the
subject matter herein contained, whether oral or written. Guarantor hereby
expressly acknowledges that it has not relied, in making this Guaranty, upon
any statement or representation, not contained herein, made by any other party,
including without limitation the Construction/Acquisition Agent, the
Construction/Acquisition Lenders and Borrower.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed and delivered on its behalf on the date first written above.
NRG ENERGY, INC.
By /s/
--------------------------------------
Name: Valorie A. Knudsen
Title: Vice President Finance
<PAGE>
CONSTRUCTION, ACQUISITION AND TERM LOAN AGREEMENT
dated September 12, 1997
by and among
MINNESOTA METHANE LLC
as Borrower,
the Lenders Named on the Signature Pages
to this Agreement,
CREDIT LYONNAIS NEW YORK BRANCH
as Construction/Acquisition Agent,
and
LYON CREDIT CORPORATION,
as Term Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS 1
ARTICLE II THE LOANS 2
Section 2.1 Commitments....................................................................... 2
Section 2.2 Funding of the Loans.............................................................. 2
Section 2.3 Interest ......................................................................... 8
Section 2.4 Notes ............................................................................10
Section 2.5 Fees .............................................................................11
Section 2.6 Security .........................................................................11
Section 2.7 Use of Proceeds...................................................................11
Section 2.8 Repayment of Principal............................................................11
Section 2.9 Payments .........................................................................14
Section 2.10 Increased Costs and Unavailability...............................................15
ARTICLE III CONDITIONS PRECEDENT........................................................................20
Section 3.1 Conditions Precedent to the Closing Date.........................................20
Section 3.2 Conditions Precedent to the Funding of Each Construction/Acquisition Loan.........24
Section 3.3 Conditions Precedent to each Term Loan Conversion Date............................31
Section 3.4 Additional Conditions Precedent for Certain Term Loans............................37
Section 3.5 No Waiver ........................................................................37
Section 3.6 Location of Closings..............................................................37
ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................................37
Section 4.1 Representations and Warranties....................................................37
Section 4.2 Survival .........................................................................46
ARTICLE V COVENANTS ....................................................................................47
Section 5.1 Affirmative Covenants.............................................................47
Section 5.2 Negative Covenants................................................................57
ARTICLE VI EVENTS OF DEFAULT............................................................................64
<PAGE>
Section 6.1 Events of Default.................................................................64
Section 6.2 Remedies .........................................................................66
Section 6.3 Right to Complete.................................................................67
ARTICLE VII THE AGENTS .................................................................................68
Section 7.1 Authorization and Action..........................................................68
Section 7.2 Delegation of Duties..............................................................69
Section 7.3 Agents' Reliance..................................................................69
Section 7.4 Notice of Default.................................................................70
Section 7.5 Agents as Lenders.................................................................70
Section 7.6 Credit Decisions..................................................................71
Section 7.7 Indemnification...................................................................71
Section 7.8 Successor Agents..................................................................72
Section 7.9 Agents Together and Separately....................................................73
Section 7.10 Term Agent as Beneficiary of Security Documents and Pledgee of Collateral........73
ARTICLE VIII GENERAL PROVISIONS.........................................................................74
Section 8.1 Counterparts......................................................................74
Section 8.2 Integration ......................................................................74
Section 8.3 Severability......................................................................74
Section 8.4 Further Assurances................................................................74
Section 8.5 Amendments and Waivers............................................................74
Section 8.6 No Waiver; Remedies Cumulative....................................................75
Section 8.7 Successors and Assigns............................................................75
Section 8.8 No Agency ........................................................................77
Section 8.9 No Third Party Beneficiaries......................................................77
Section 8.10 Nonrecourse......................................................................77
Section 8.11 Costs, Expenses and Taxes........................................................77
Section 8.12 Indemnity .......................................................................78
Section 8.13 Right of Set-off.................................................................79
Section 8.14 Sharing of Payments..............................................................79
Section 8.15 Governing Law....................................................................80
Section 8.16 Waiver of Presentment, Demand, Protest and Notice................................80
Section 8.17 Waiver of Immunity...............................................................80
Section 8.18 Waiver of Jury Trial.............................................................80
Section 8.19 Consent to Jurisdiction..........................................................81
Section 8.20 Confidentiality..................................................................82
Section 8.21 Notices .........................................................................82
Section 8.22 Legal Representation of the Parties..............................................82
</TABLE>
<PAGE>
SCHEDULE X Definitions and Rules of Construction
SCHEDULE I Descriptions of the Projects and Project Documents
SCHEDULE II Additional Conditions Precedent
SCHEDULE III Engineer's Action Items
EXHIBIT 2.2 Form of Notice of Borrowing
EXHIBIT 2.4(a) Form of Construction/Acquisition Loan Note
EXHIBIT 2.4(b) Form of Term Loan Note
EXHIBIT 3.1(a)(vi) Form of Opinion of Borrower's Counsel
EXHIBIT 3.1(g) Closing Pro Forma
EXHIBIT 3.1(i) Required Insurance
EXHIBIT 3.2(a)(ix) Form of Mortgage
EXHIBIT 4.1(c) Organizational Charts
EXHIBIT 4.1(g) Required Approvals
EXHIBIT 4.1(h)(iii) Legal Description of the Sites
EXHIBIT 5.1(l)(iii) Form of Monthly Construction Report
EXHIBIT 5.1(l)(iv) Form of Quarterly Report and Certificate
EXHIBIT 5.1(l)(v) Form of Annual Report and Certificate
EXHIBIT 8.7(c) Form of Commitment Transfer Supplement
<PAGE>
CONSTRUCTION, ACQUISITION AND TERM LOAN AGREEMENT
This CONSTRUCTION, ACQUISITION AND TERM LOAN AGREEMENT, dated
September 12, 1997 (this "Agreement"), is by and among MINNESOTA METHANE LLC, a
Wyoming limited liability company ("Borrower"), the lenders named on the
signature pages to this Agreement (the "Lenders"), CREDIT LYONNAIS NEW YORK
BRANCH, as agent for the Lenders identified as Construction/Acquisition Lenders
on the signature pages to this Agreement (together with its successors and
assigns in such capacity, the "Construction/Acquisition Agent") and LYON CREDIT
CORPORATION, a Delaware corporation, as agent for the Lenders identified as
Term Lenders on the signature pages to this Agreement (together with its
successors and assigns in such capacity, the "Term Agent").
RECITALS:
WHEREAS, Borrower owns 100% of the outstanding equity of
seventeen Gencos (as defined below), each of which owns, or upon the
construction or acquisition thereof will own, the energy generation assets
relating to a Project (as defined below); and
WHEREAS, Borrower has requested that the Lenders provide a
portion of the financing for the construction or acquisition of the Projects
and the Lenders are willing to do so on the terms and subject to the conditions
set forth in this Agreement;
NOW, THEREFORE, in order to induce the Lenders to provide
such financing, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used and not otherwise defined in this
Agreement have the meanings given to those terms in Schedule X hereto, and the
rules of construction set forth in Schedule X govern this Agreement.
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ARTICLE II
THE LOANS
Section 2.1 Commitments.
(a) Construction/Acquisition Loan Commitments and Term
Loan Commitments. On the terms and subject to the conditions of this Agreement,
and in reliance upon the representations, warranties and covenants contained
herein, (i) each Construction/Acquisition Lender severally agrees to make the
Construction/Acquisition Loans to Borrower in an aggregate amount not to exceed
its Pro Rata Share of the Aggregate Construction/Acquisition Loan Commitment
and (ii) each Term Lender severally agrees to make the Term Loans to Borrower
in an aggregate amount not to exceed its Pro Rata Share of the Aggregate Term
Loan Commitment.
(b) Separate Obligations. Each Lender will fund its Pro
Rata Share of the Construction/Acquisition Loans and of the Term Loans
simultaneously with the other Lenders at the times designated by the applicable
Agent pursuant to Section 2.2(d); provided, that the failure of any Lender to
fund its Pro Rata Share of a Loan will not affect the obligation of any other
Lender to fund its Pro Rata Share of such Loan. No Lender will be responsible
for a default by any other Lender in funding its Pro Rata Share of a Loan nor
will any Commitment of any Lender be increased or decreased by reason of any
such default.
(c) Lender Assurances. Notwithstanding any provision to
the contrary contained in Section 2.1(b), Lyon Credit Corporation, in its
capacity as a Term Lender, agrees, upon any failure by any other Term Lender to
fund such Term Lender's Pro Rata Share of a Term Loan pursuant to Section
2.2(d), to fund such other Term Lender's Pro Rata Share of a Term Loan and, if
necessary, Lyon Credit Corporation's Commitment will be deemed to have been
increased to accommodate such funding, but not in such an amount as to exceed
the Aggregate Term Loan Commitment.
Section 2.2 Funding of the Loans.
(a) The Construction/Acquisition Loans.
(i) Borrower may request one or more
Construction/Acquisition Loans relating to one or more Projects to be
made on a Construction/Acquisition Loan Date by complying with the
following procedure:
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(A) First, Borrower will give the
Construction/Acquisition Agent at least fifteen (15) Business
Days' prior written notice of Borrower's intent to borrow one
or more Construction/Acquisition Loans. Such notice will not
be binding on Borrower and will (1) specify the proposed
Funding Date (which must be a Construction/Acquisition Loan
Date), (2) specify the amount and uses of each requested
Loan, which shall be in accordance with Section 2.7, and (3)
include the certificate and report of the Engineer required
by Sections 3.2(a)(iii) and 3.2(a)(ix) and copies of all
documents necessary to satisfy the other conditions
precedent contained in Section 3.2.
(B) Second, if the Construction/Acquisition
Agent does not notify Borrower within ten (10) Business Days
after its receipt of the notice given to it pursuant to
Section 2.2(a)(i)(A) that a condition precedent contained in
Section 3.2 has not been satisfied, then Borrower may deliver
to the Construction/Acquisition Agent a Notice of Borrowing,
which will be binding on Borrower and will (1) specify the
Funding Date (which must be a Construction/Acquisition Loan
Date and will be at least five (5) Business Days following
the Construction/Acquisition Agent's receipt of the Notice of
Borrowing or such shorter time period as the
Construction/Acquisition Agent may permit in its sole
discretion) and (2) specify the Interest Period for the
requested Construction/Acquisition Loans. Borrower may
specify only one Interest Period for Construction/Acquisition
Loans that are made on a Funding Date and such Interest
Period may be one (1), two (2), three (3), six (6), nine (9)
or twelve (12) months in duration; provided, that no Interest
Period may extend after October 30, 1998.
(ii) Each Construction/Acquisition Loan will be in
an initial principal amount not greater than ninety percent (90%) of
the aggregate amount of the Qualified Project Construction Costs or
Qualified Project Acquisition Costs, as applicable, relating to a
Project and evidenced by the invoices delivered to the Engineer
pursuant to Sections 3.2(a)(ii) and (iii). Each
Construction/Acquisition Loan will mature on its respective
Construction/Acquisition Loan Maturity Date, unless payment thereof is
due prior to such date by acceleration, mandatory prepayment or
otherwise and unless payment of a portion thereof is agreed to be due
on October 30, 1998 pursuant to Section 2.2(g).
(b) Construction/Acquisition Loans to Pay Interest, Fees
and Expenses. On each Business Day during the Construction/Acquisition Loan
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Period on which interest, fees or expenses are due and payable and are not
otherwise paid or provided for, Borrower hereby irrevocably authorizes the
Construction/Acquisition Lenders, in their sole discretion, to make
Construction/Acquisition Loans to Borrower in the aggregate amount of all
interest, fees and expenses then due and payable and hereby irrevocably
authorizes the Construction/Acquisition Agent to apply the proceeds of such
Loans to the payment of such interest, fees and expenses. The
Construction/Acquisition Lenders have no obligation to make a Loan for the
purposes stated in this Section 2.2(b). No Loan will be made pursuant to this
Section 2.2(b) if an Event of Default has occurred and is continuing.
(c) The Term Loans.
(i) Borrower may request one or more Term Loans
relating to one or more Projects to be made by complying with the
following procedure:
(A) First, Borrower will notify in writing
the Construction/Acquisition Agent, the Term Agent and the
Engineer at least fifteen (15) days prior to the commencement
of the performance tests required to achieve Completion of
each Project that is the subject of a proposed Term Loan;
provided, that Borrower may not give more than one such
notification per calendar month.
(B) Second, following the successful
completion of the tests described in Section 2.2(c)(i)(A),
Borrower will give the Construction/Acquisition Agent and the
Term Agent at least twenty (20) Business Days' prior written
notice of Borrower's intent to borrow one or more Term Loans
relating to the completed Project or Projects. Such notice
will not be binding on Borrower and will (1) specify the
proposed Funding Date, (2) specify the amount and uses of
each requested Term Loan, which shall be in accordance with
Section 2.7, and (3) include the report of the Engineer
required by Section 3.3(a)(x) and copies of all documents
necessary to satisfy the other conditions precedent contained
in Section 3.3 and, if appropriate, Section 3.4.
(C) Third, within ten (10) Business Days of
its receipt of the notice and documents described in Section
2.2(c)(i)(B), the Term Agent will notify Borrower in writing
of the satisfaction (or waiver) of the conditions precedent
to the making of the requested Term Loan or Loans contained
in Section 3.3 or, if such conditions precedent have not been
satisfied (or waived), the
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Term Agent will notify Borrower of the deficiencies. If
the conditions precedent have not been satisfied (or waived),
Borrower may provide such information and documentation as
is necessary to satisfy such conditions precedent and the
Term Agent will promptly review such information and
documentation and notify Borrower in writing of its
determination.
(D) Fourth, after receiving notification
from the Term Agent that the conditions precedent to the
requested Term Loans have been satisfied or waived, Borrower
may deliver to the Term Agent a Notice of Borrowing, which
will be binding on Borrower and will (1) specify the Funding
Date (which will be at least five (5) Business Days following
the Term Agent's receipt of the Notice of Borrowing) and (2)
specify the Construction/Acquisition Loan or Loans that are
to be converted.
(ii) Irrespective of the aggregate principal amount
of the Construction/Acquisition Loan or Loans relating to a single
Project that a Term Loan replaces, the initial principal amount of a
Term Loan will not be greater than the least of (x) an amount equal to
the present value (discounted at the Interest Rate applicable to such
Term Loan for a period not to exceed ten (10) years) of two-thirds
(66.7%) of the Net Operating Cash projected by the Closing Pro Forma
(as updated in preparation for the making of the Term Loan based upon
the results of the performance testing of the relevant Project and the
information contained in the report of the Engineer) to be produced by
the Project corresponding to such Term Loan, (y) an amount equal to
seventy percent (70%) of the sum of the cost to construct or acquire
such Project, actual reimbursed development expenses, interest on the
corresponding Construction/Acquisition Loan, related Closing Costs and
all other reasonable costs of Borrower and the Affiliates associated
with the acquisition or construction and financing of the Project
corresponding to such Term Loan and (z) an amount equal to the
remaining amount available under the Aggregate Term Loan Commitment.
(iii) Each Term Loan will mature on its respective
Term Loan Maturity Date, unless payment thereof is due prior to such
date by acceleration, mandatory prepayment or otherwise.
(d) Funding Procedure. Promptly after receipt of a
Notice of Borrowing relating to a Construction/Acquisition Loan or a Term Loan,
the applicable Agent will notify each applicable Lender of the proposed Loan or
Loans and of such Lender's Pro Rata Share thereof, and each applicable Lender
will make available to the applicable Agent at such Agent's main office in
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Stamford, Connecticut, or New York Branch, as the case may be, such Lender's
Pro Rata Share of the proposed Loan or Loans in immediately available funds no
later than 10:00 a.m., New York City time, on the Funding Date. Upon
satisfaction or waiver of the applicable conditions precedent set forth in
Article III, the applicable Agent will disburse all such amounts made available
to it by the Lenders to or for the benefit of Borrower; provided, that in the
case of the funding of a Construction/Acquisition Loan, the
Construction/Acquisition Agent will disburse to or for the benefit of Borrower
only ninety percent (90%) of the requested Loan amount and will retain the
remaining ten percent (10%) (the "Construction/Acquisition Holdback Amount") as
Collateral to be released to Borrower upon the Term Loan Conversion Date
relating to such Construction/Acquisition Loan after payment to the
Construction/Acquisition Lenders of accrued interest on such
Construction/Acquisition Loan; provided, further, that the proceeds of a Term
Loan that results from the conversion of a Construction/Acquisition Loan will
be paid first to the Construction/Acquisition Agent in the amount of the
aggregate of all unpaid principal and interest of, and fees corresponding to,
the Construction/Acquisition Loans that are being converted, and the balance of
the proceeds of such Term Loan, if any, will be paid to or for the benefit of
Borrower; provided, further, that if pursuant to the restrictions on the
initial principal amount of a Term Loan contained in Section 2.2(c)(ii), the
principal amount of the Term Loan replacing a Construction/Acquisition Loan is
not sufficient to pay in full the outstanding principal amount of the
Construction/Acquisition Loan, then the Construction/Acquisition Agent shall
apply the Construction/Acquisition Holdback Amount to pay the remaining balance
of the Construction/Acquisition Loan in full and then shall release the
remaining portion, if any, of the Construction/Acquisition Holdback Amount to
Borrower in accordance with the first proviso of this sentence. Unless a Lender
has notified the applicable Agent prior to the Funding Date of a Loan that such
Lender does not intend to make available its Pro Rata Share of such Loan, the
Agent may assume that such Lender has made such amount available to the Agent
on the Funding Date and the Agent may, in its sole discretion, make available
to Borrower a corresponding amount on the Funding Date; provided, that the
Agent has no obligation to make available to Borrower any amount not actually
received from the Lenders. If an Agent makes available to Borrower any Loan
amount not received from a Lender, the Agent will be entitled to recover such
amount on demand from such Lender, together with interest thereon for each day
from the Funding Date that such amount remains unpaid at the customary rate set
by the Agent for the correction of errors among banks. If the defaulting Lender
does not pay such amount forthwith upon demand by the Agent, the Agent will
promptly notify Borrower and Borrower will immediately pay such amount to the
Agent, together with interest on such amount at the applicable Interest Rate
for each day from the Funding Date that such
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amount remains unpaid. Any such payment by Borrower will not be deemed a
prepayment for purposes of Section 2.8. Each Lender agrees that if it fails to
make available or to reimburse an Agent for any amount made available by the
Agent on its behalf, it will have no interest in such amount and hereby assigns
all of its right, title and interest in such amount to any assignee designated
by the Agent. Nothing in this paragraph will be deemed to relieve any Lender of
its obligation to fulfill its Commitments hereunder or prejudice any right
Borrower may have against any Lender as a result of any default by such Lender.
(e) Continuation of Construction/Acquisition Loans. At
least five (5) Business Days prior to the end of each Interest Period of each
Construction/Acquisition Loan, Borrower may request in a written notice
delivered to the Construction/Acquisition Agent that a Construction/Acquisition
Loan be continued with an Interest Period specified by Borrower; provided, that
no Interest Period may extend beyond October 30, 1998. Such written notice will
specify (i) the proposed date of continuation, (ii) the
Construction/Acquisition Loan or Loans being continued and (iii) the new
Interest Period for each Construction/Acquisition Loan being continued. A
Construction/Acquisition Loan may be continued or converted only at the end of
its Interest Period. If Borrower does not deliver such a request to the
Construction/Acquisition Agent, the Construction/Acquisition Agent will
continue each Construction/Acquisition Loan with the same Interest Period;
provided, that if such same Interest Period would extend beyond October 30,
1998, then the Construction/Acquisition Agent will continue the
Construction/Acquisition Loan with the longest possible Interest Period that
does not extend beyond October 30, 1998.
(f) Notices of Borrowing. Each Notice of Borrowing will
be irrevocable.
(g) Option to Extend Maturity Date of Portion of
Construction/Acquisition Loan. If, pursuant to the restrictions on the initial
principal amount of a Term Loan contained in Section 2.2(c)(ii), the principal
amount of a Term Loan replacing a Construction/Acquisition Loan, plus the
amount of the Construction/Acquisition Holdback Amount applied pursuant to
Section 2.2(d) is not sufficient to pay in full the outstanding principal
amount of the Construction/Acquisition Loan, and provided that the long-term
unsecured debt of Guarantor is rated BBB - or higher by Standard & Poor's, then
Borrower may at its option choose to extend the maturity date of such unpaid
principal amount of the Construction/Acquisition Loan until October 30, 1998
with one or more Interest Periods (not extending beyond October 30, 1998)
chosen by Borrower in accordance with Section 2.2(e) and 2.3(b).
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Section 2.3 Interest.
(a) Interest Rates.
(i) Each Loan will bear interest on the unpaid
principal amount thereof from the date made to but excluding maturity
(whether at stated maturity, by acceleration, because of mandatory
prepayment or otherwise) at the following rates:
(A) each Construction/Acquisition Loan will
bear interest during each Interest Period applicable thereto
at a rate per annum equal to LIBOR as determined for such
Interest Period plus one hundred (100) basis points, computed
on each date on which interest is due on any
Construction/Acquisition Loan on the basis of a year of 360
days for the actual number of days elapsed; and
(B) subject to adjustment pursuant to
Section 2.3(a)(iv), each Term Loan will bear interest at a
fixed rate per annum equal to nine and thirty-five
one-hundredths percent (9.35%), payable on the basis of a
year of 360 days for the actual number of days elapsed.
(ii) LIBOR during a particular Interest Period will
be determined by the Construction/Acquisition Agent on the Interest
Rate Determination Date with respect to such Loan on the basis of the
Interest Period and the amount of the Loan.
(iii) Each determination by an Agent of the Interest
Rate applicable to any Loan pursuant to this Section 2.3(a) will be
conclusive and binding on the parties absent manifest error, in which
case the Interest Rate will be corrected and all payments of Borrower
affected by the incorrect Interest Rate determination will be
appropriately adjusted.
(iv) The Interest Rate applicable to each Term Loan
will be increased as necessary as of October 30, 1998, to reflect any
increased cost to the Term Agent and the Term Lenders resulting from
any variation between the actual Funding Dates of the Term Loans and
the projected Funding Dates of the Term Loans contained in the Closing
Pro Forma as of the Closing Date. The Interest Rate will be increased
in an amount sufficient to reimburse the Term Agent and the Term
Lenders for any increased cost to any of them arising from the
contracts or other arrangements entered into by the Term Agent and the
Term Lenders with Credit Lyonnais New York Branch or any other Person
to provide a fixed rate of interest on the Term Loans. Should Borrower
and the Term Lenders
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be unable to agree on the increase in the Interest Rate, then Borrower
and the Term Lenders shall appoint a firm of independent certified
public accountants (which shall be a "Big 6" firm and which shall not
at the time have an accounting relationship with any of Borrower, the
Term Agent and the Term Lenders) to determine the appropriate
increase in the Interest Rate, and the fees of such accounting firm
shall be paid one-half by Borrower and one-half by the Term Lenders.
(b) Interest Periods.
(i) Each Interest Period with respect to a
Construction/Acquisition Loan (A) will begin on and include the day on
which such Loan is made, or the day on which such Loan is continued
(which will be the day after the last day of the Interest Period of
the continued Loan) and (B) will not extend beyond October 30, 1998.
(ii) Subject to Section 2.3(b)(i), (A) Borrower may
select an Interest Period of one (1), two (2), three (3), six (6),
nine (9) or twelve (12) months, (B) an Interest Period that would
otherwise end on a day that is not a LIBOR Business Day will end on
the next succeeding LIBOR Business Day, unless such day falls in the
next calendar month, in which case such Interest Period will end on
the next preceding LIBOR Business Day, and (C) an Interest Period that
begins on the last LIBOR Business Day of a calendar month or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, will end on the last LIBOR
Business Day of the calendar month at the end of such Interest Period.
(c) Interest Payment Dates. Interest will be payable as
follows:
(i) all accrued and unpaid interest on all
outstanding Construction/Acquisition Loans will be payable in arrears
on the last day of the Interest Period with respect to such Loan.
(ii) all accrued and unpaid interest on all
outstanding Term Loans will be payable in arrears on each January 31,
April 30, July 31 and October 31, commencing on the first such date
following the Funding Date of the first Term Loan;
(iii) all accrued and unpaid interest due on any
Loan will be payable in full upon the maturity (whether at stated
maturity, by acceleration, because of mandatory prepayment or
otherwise) or prepayment of such Loan; and
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(iv) after maturity (whether at stated maturity, by
acceleration, because of mandatory prepayment or otherwise), interest
on any Loan will be payable upon demand.
(d) Default Interest. Overdue principal and overdue
interest in respect of any Loan and any other amount payable hereunder or
under any other Credit Document by Borrower or any Affiliate that is overdue
will bear interest at a rate per annum (the "Default Rate") equal to two
percent (2%) in excess of the rate of interest then-applicable to such Loan
or, if no rate of interest is applicable to such overdue amount, the highest
rate of interest applicable to any outstanding Loan. Upon the occurrence and
during the continuance of an Event of Default, all Loans and all other amounts
owing by Borrower and the Affiliates will bear interest at the Default Rate.
(e) Limitation. Notwithstanding any other provision of
the Credit Documents, if the rate of interest on any obligation of Borrower or
any Affiliate under any Credit Document at any time exceeds the highest rate
permitted by Applicable Law, the rate of interest on such obligation will be
deemed to be the highest rate permitted by Applicable Law.
Section 2.4 Notes. Borrower will execute and deliver to
each Construction Lender on the Closing Date a Construction/Acquisition Loan
Note substantially in the form of Exhibit 2.4(a) and to each Term Lender on
each Term Loan Conversion Date a Term Loan Note substantially in the form of
Exhibit 2.4(b). Each Construction/Acquisition Loan Note will be dated the
Closing Date, will be in the principal amount of such Construction Lender's
Construction/Acquisition Loan Commitment and will evidence such Construction
Lender's Pro Rata Share of the Construction/Acquisition Loans made hereunder.
Each Term Loan Note will be dated the applicable Term Loan Conversion Date,
will be in the principal amount of such Term Lender's Term Loan Commitment and
will evidence such Term Lender's Pro Rata Share of the Term Loans made
hereunder. Each Note will have other appropriate insertions and will be subject
to and entitled to the benefits of the Credit Documents. On each Funding Date
relating to a Construction/Acquisition Loan, each Construction/Acquisition
Lender is authorized to make a notation on the schedule attached to the
relevant Note indicating the date, the amount of such Lender's Pro Rata Share
of such Loan and the interest rate of such Loan. The information set forth in
such schedule will be prima facie evidence of the outstanding principal amount
of such Note and of the interest due thereon. Failure to make any such notation
will not limit or affect the obligations of Borrower under the Notes or any
other Credit Document.
Section 2.5 Fees. Borrower will pay to the Agents
and the Lenders fees at the times and in the amounts separately agreed among
them.
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Section 2.6 Security. The Loans and all other amounts
payable by Borrower and the Affiliates under this Agreement and the other
Credit Documents are secured by the Collateral and are entitled to the benefits
of the Security Documents.
Section 2.7 Use of Proceeds.
(a) Construction/Acquisition Loans. The proceeds of the
Construction/Acquisition Loans may be used only to pay (i) Qualified Project
Construction Costs and Qualified Project Acquisition Costs actually incurred in
strict compliance with the Construction/Acquisition Budgets and the Credit
Documents and evidenced by the invoices therefor delivered to the Engineer
pursuant to Sections 3.2(a)(ii) and (iii), and (ii) interest, fees and other
expenses payable pursuant to Section 2.2(b), Section 2.5 and Section 8.11.
(b) Term Loans. The proceeds of each Term Loan may be
used only to (i) repay the outstanding principal of and interest on all
Construction/Acquisition Loans made with respect to the Project that is the
subject of the Term Loan, (ii) fund the Debt Service Reserve Account to the
level then-required by the Disbursement Agreement, (iii) pay fees payable to a
Lender or an Agent pursuant to Section 2.5 and (iv) pay Closing Costs relating
to such Term Loan, and, to the extent such proceeds are not sufficient to pay
in full all of the amounts described in the preceding clauses (i) through (iv),
such proceeds will be applied first to the amounts described in clause (i),
second to the amounts described in clause (ii), third to the amounts described
in clause (iii) and fourth to the amounts described in clause (iv) until all of
such proceeds have been disbursed. Any amount described in clauses (i) through
(iv) of the preceding sentence not paid with the proceeds of a Term Loan will
continue to be obligations of Borrower hereunder that mature on October 30,
1998 and will be payable in accordance with the terms of this Loan Agreement.
(c) No Working Capital. Borrower may not use any
portion of any Loan for working capital, to provide working capital to any
other Person or for distributions to officers or shareholders of Borrower or
any other Person.
Section 2.8 Repayment of Principal.
(a) Generally. Borrower shall make principal payments on
the dates and in the amounts listed in Schedule I attached to each Term Loan
Note. The Loans are not revolving in nature and any amount repaid or prepaid
may not be reborrowed and will reduce the amount of the relevant Commitment.
(b) Optional Prepayments. Borrower has the right on any
date on which interest or principal is due under this Agreement to prepay any
Term Loan
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in whole or in part; provided, that (i) Borrower must give the Term
Agent at least thirty (30) days' prior irrevocable notice of any such
prepayment specifying the date of prepayment, the aggregate principal amount
being prepaid and the specific Term Loan or Loans being prepaid and in what
principal amounts, (ii) Borrower must also pay all accrued interest on
all amounts being prepaid, (iii) any partial prepayment of a Term Loan must be
in a minimum principal amount of two million Dollars ($2,000,000) and integral
multiples of five hundred thousand Dollars ($500,000) in excess of such amount
and (iv) Borrower must pay to the Term Lenders the prepayment fee described in
Section 2.8(d). Borrower has no right to voluntarily prepay a
Construction/Acquisition Loan.
(c) Mandatory Repayments.
(i) The entire principal amount of all outstanding
Loans will be immediately due and payable upon maturity (whether at
stated maturity, by acceleration or otherwise).
(ii) Borrower and the Affiliates will use all Delay
Damages with respect to a Project received prior to the Term Loan
Conversion Date corresponding to such Project to pay Qualified Project
Construction Costs or Qualified Project Acquisition Costs for such
Project (or, if no further Qualified Project Construction Costs or
Qualified Project Acquisition Costs are incurred by such Project, for
any other Project) prior to the funding of any further
Construction/Acquisition Loan. Borrower will apply all Delay Damages
remaining after the payment of all Qualified Project Construction
Costs and Qualified Project Acquisition Costs with respect to all
Projects in the manner provided in Section 2.9(c).
(iii) Immediately upon receipt by Borrower or any
Affiliate of any distribution of (A) Net Insurance Proceeds with
respect to a Project and either (1) such Net Insurance Proceeds exceed
the five percent (5%) threshold contained in Section 5.1(p)(vi) or (2)
such Net Insurance Proceeds do not exceed the five percent (5%)
threshold but are not permitted to be retained by Borrower for
application in accordance with Section 5.1(p)(vi) or Borrower
determines not to apply such Net Insurance Proceeds in a manner
permitted by Section 5.1(p)(vi), or (B) the proceeds of any sale,
transfer or disposition of any Project or any Project asset not
specifically permitted by Section 5.2(b), Borrower will prepay the
then-outstanding Loans relating to such Project in an amount equal to
(x) the entire outstanding principal amount of the
Construction/Acquisition Loans attributable to such Project as
indicated on Schedule I to the Construction/Acquisition Loan Note or
(y) the entire outstanding principal amount of the Term Loan Note
relating to such Project, as the case may be,
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and such prepayment will be applied in the manner provided in Section
2.9(c).
(iv) In addition, if any Project Document is amended
or terminated in a manner that results in a cash payment of ten
thousand Dollars ($10,000) or more to Borrower or any Affiliate, then
Borrower will prepay the then-outstanding Loans relating to such
Project in the amount of such proceeds and such prepayment shall be
applied in the manner provided in Section 2.9(c).
(v) In addition, if Borrower or any Affiliate ceases
to be a controlling person of any Project, then Borrower will prepay
the then-outstanding Loans relating to such Project in an amount equal
to (A) the entire outstanding principal amount of the
Construction/Acquisition Loans attributable to such Project as
indicated on Schedule I to the Construction/Acquisition Loan Note or
(B) the entire outstanding principal amount of the Term Loan Note
relating to such Project, as the case may be and such prepayment shall
be applied in the manner provided in Section 2.9(c).
(d) Prepayment Fee. In connection with (i) any voluntary
prepayment, (ii) any mandatory prepayment pursuant to Section 2.8(c)(iii), (iv)
or (v), or (iii) any payment of a Loan resulting from any exercise of remedies
by any Agent or Lender under any Credit Document following the occurrence of an
Event of Default, Borrower shall pay to the applicable Agent a prepayment fee
equal to the greater of the Reinvestment Loss Amount and the amount determined
pursuant to the following table as liquidated damages and compensation for the
costs of the Lenders (and the applicable Agent will distribute such prepayment
fee according to the Pro Rata Shares of the applicable Lenders):
Penalty as a % of
Date of Prepayment Prepaid Principal Amount
- ------------------ ------------------------
From the Closing Date or the applicable Term 2%
Loan Conversion Date, as the case may be, until
the first anniversary thereof
From the first to the second anniversary of the 1%
Closing Date or the applicable Term Loan
Conversion Date, as the case may be
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Notwithstanding the foregoing, if the Reinvestment Loss Amount is negative,
then such negative amount will be subtracted from the prepayment penalty
calculated pursuant to the above table.
Section 2.9 Payments.
(a) Method of Payment.
(i) All payments by Borrower or any Affiliate under
any Credit Document will be made in immediately available funds in
U.S. Dollars to the applicable Agent at its main office in Stamford,
Connecticut, or its New York Branch, as the case may be, for its
account or for the accounts of the applicable Lenders, as the case may
be. Borrower must give the applicable Agent telephone notice of any
payment to be made hereunder by noon, New York, New York, time and all
such payments must be received no later than 1:00 p.m., New York, New
York, time, on the date due and must be made in full without defense,
set-off or counterclaim of any kind and without any requirement of
presentment, notice or demand. In the absence of timely notice and
receipt, such payment shall be deemed to have been made on the next
succeeding Business Day. Subject to the requirements of Section
2.3(c), whenever any payment to be made hereunder or under any other
Credit Document is stated to be due on a day that is not a Business
Day, the due date of such payment will be extended to the next
succeeding Business Day and such extension of time will be included in
the computation of such payment.
(ii) Notwithstanding the provisions of Section
2.9(a)(i) to the contrary, for so long as the Disbursement Agreement
remains in full force and effect and provided sufficient funds are
available for application in accordance with the terms and conditions
hereof and thereof, Borrower authorizes and consents to make, and the
Agents and the Lenders agree to receive, any and all payments required
to be made hereunder through operation of the relevant provisions of
the Disbursement Agreement.
(b) Currency of Payment. All payments under the Credit
Documents must be made in U.S. Dollars and no payment obligation will be deemed
to have been novated, satisfied or discharged by the tender of any currency
other than U.S. Dollars or recovery under a judgment expressed in a currency
other than U.S. Dollars unless such tender or recovery will result in the
effective payment in full of such obligation in U.S. Dollars at the place
indicated in Section 2.9(a). The amount, if any, by which any tender or
recovery fails to result in such payment in full will remain due and payable
hereunder as a separate
<PAGE>
obligation of Borrower or the applicable Affiliate, unaffected by any action
of Borrower or any Affiliate or judgment obtained.
(c) Application of Payments. All payments received by
the Agents and the Lenders pursuant to Section 2.8(b) or (c) will be applied in
the following order of priority:
(i) to the payment of all accrued interest on the
Loan that is to be prepaid;
(ii) to the payment or reimbursement of all costs,
expenses, Taxes and other amounts payable pursuant to Sections 2.10,
8.11 and 8.12;
(iii) to the payment of all fees payable pursuant to
Section 2.5;
(iv) to the payment of the principal of the Loan
designated for prepayment in the inverse order of maturity; and
(v) to the payment or reimbursement of all other
amounts due to either Agent or any Lender hereunder or under any other
Credit Document.
All payments applied to interest on or principal of any Loan will be paid to
the Lenders in proportion to their respective Pro Rata Shares of such Loan. All
payments applied to any other category of obligation set forth above will be
paid to the various payees within such category in proportion to the respective
amounts due to them.
Section 2.10 Increased Costs and Unavailability.
(a) Taxes.
(i) All payments made by Borrower and the Affiliates
under the Credit Documents will be made free and clear of, and without
deduction or withholding for, any present or future Tax, and Borrower
will pay, either directly (with respect to Taxes of which Borrower has
independent knowledge) or through reimbursement pursuant to Section
2.10(a)(ii), all Taxes in respect of payments under the Credit
Documents other than Lender Income Taxes (collectively, "Reimbursable
Taxes"), and all costs and liabilities incurred by each Agent and each
Lender (each, an "Affected Party") in connection therewith.
<PAGE>
(ii) Borrower will reimburse each Affected Party, on
demand given pursuant to Section 2.10(g)(i), for any Reimbursable Tax
paid by such Affected Party on an after-tax basis so that such
Affected Party (A) receives the full amount payable to it under the
Credit Documents and (B) is made whole after taking into account all
income taxes it will owe on the reimbursement payment (assuming that
such payment is subject to taxation at the highest marginal rate
applicable to such Affected Party). Each Affected Party will have the
absolute right to arrange its tax affairs in whatever manner it deems
appropriate and no Affected Party will be obligated to claim any
particular deduction, credit or other benefit.
(iii) If Borrower is prohibited or prevented (by Law
or otherwise) from making any payment to an Affected Party required
under Section 2.10(a)(ii), then the amount of the payment due to such
Affected Party under the Credit Documents will be increased by the
amount necessary to insure that such Affected Party will receive the
full amount payable to it under the Credit Documents.
(iv) Within thirty (30) days after the date on which
any Reimbursable Tax (of which Borrower has independent knowledge or
has become aware of by a notice from an Affected Party delivered in
accordance with Section 2.10(g)(i)) is due, Borrower will furnish to
the applicable Affected Parties official receipts or notarized copies
thereof evidencing payment of such Reimbursable Tax.
(v) Each of the Agents and the Lenders agrees to
deliver to Borrower all forms and documents necessary to establish any
exemption from withholding for Taxes to which it is entitled. Any
Person that becomes the successor holder of a Note will deliver the
forms and documents required under this Section 2.10(a)(v).
(b) Capital Adequacy, Reserve Requirements. If a Lender
determines that any Law enacted or effective after the Closing Date, any change
in Law effective after the Closing Date, any change in the interpretation or
administration of any Law effective after the Closing Date, or compliance with
any directive, guideline or request from any Government Instrumentality
effective after the Closing Date (whether or not having the force of Law) has
the effect of (i) requiring an increase in the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender or (ii) imposing or modifying any reserve, special deposit, compulsory
loan or similar requirement relating to any loan, extension of credit or other
asset of, or any deposit with or other liability of, such Lender, and such
Lender determines that such increase, imposition or modification is based, in
whole or in part, upon its
<PAGE>
obligations hereunder, Borrower will either (x) pay to such Lender an amount
certified by such Lender to be the amount necessary to preserve the return
on equity originally anticipated to be realized by such Lender as a result of
the Loans made hereunder or (y) prepay the Loans made by such Lender in the
aggregate amount certified by such Lender to be the amount necessary to
prevent such Lender from being subject to such increase, imposition or
modification. Any prepayment pursuant to this Section 2.10(b) will not cause
Borrower to owe a prepayment fee pursuant to Section 2.8(d) or otherwise, but
such prepayment shall be applied in the manner provided in Section 2.9(c).
(c) Increased Costs. Borrower will pay to each Lender,
upon demand, such amounts as such Lender from time to time determines to be
necessary to compensate such Lender for any cost incurred by such Lender or any
reduction in the amount received or receivable by such Lender under the Credit
Documents, resulting from any Law enacted or effective after the Closing Date,
any change in Law effective after the Closing Date, any change in the
interpretation or administration of any Law effective after the Closing Date,
or compliance with any directive, guideline or request from any Government
Instrumentality effective after the Closing Date (whether or not having the
force of Law) that:
(i) subjects such Lender to any Tax (other than
Lender Income Taxes or Taxes applicable either (A) solely to such
Lender and no other Person or (B) solely to lenders active in the
project finance market) or changes the basis of taxation of any amount
payable to such Lender under the Credit Documents (other than with
respect to Lender Income Taxes); or
(ii) imposes any other cost or condition affecting
the cost of making a Loan or maintaining a Commitment; provided, that
Borrower's obligation under this Section 2.10(c) shall not affect the
obligations of the Affected Parties under Sections 2.10(g)(ii) and
(iii).
(d) Funding Losses. Borrower will compensate each
Lender, upon demand, for any loss, cost or liability (including interest paid
by such Lender on funds borrowed to make, continue or convert a Loan and losses
sustained in liquidating deposits and in the re-employment of funds) incurred
as a result of:
(i) repayment (including repayment due to
acceleration) of a Loan on a date other than the last day of an
Interest Period (in the case of a Construction/Acquisition Loan) or
the applicable Term Loan Maturity Date (in the case of a Term Loan);
(ii) failure of Borrower to borrow a Loan on the
Funding Date therefor notified to the applicable Agent in a Notice of
Borrowing; or
<PAGE>
(iii) failure of Borrower to repay a Loan when due
(whether at stated maturity, by acceleration, because of mandatory
prepayment or otherwise) or on the date specified therefor in a notice
delivered pursuant to Section 2.8(b).
(e) Unavailability. In the event that on or before any
Interest Rate Determination Date a Construction/Acquisition Lender determines
that:
(i) U.S. Dollar deposits are not being generally
offered in the London interbank market,
(ii) adequate and fair means do not exist for
ascertaining interest rates by reference to LIBOR, or
(iii) LIBOR does not represent the cost to such
Construction/Acquisition Lender of funding or maintaining a requested
Construction/Acquisition Loan or effective pricing to such
Construction/Acquisition Lender for a requested
Construction/Acquisition Loan,
then such Construction/Acquisition Lender will give prompt notice of such fact
to Borrower and the Construction/Acquisition Agent and Borrower and such
Construction/Acquisition Lender will promptly enter into good-faith discussions
to determine an alternate reference interest rate and margin that will as
nearly as possible duplicate the economic terms of this Agreement and the
monetary benefit to such Lender of the Loans made and to be made by it
hereunder. If Borrower and such Construction/Acquisition Lender are, after a
reasonable time, unable to agree on an alternate reference interest rate and
margin, then, at the election of such Construction/Acquisition Lender, such
Construction/Acquisition Lender's obligation to make Construction/Acquisition
Loans will be immediately suspended.
(f) Illegality. If a Lender determines that any Law
enacted or effective after the Closing Date, any change in Law effective after
the Closing Date, any change in the interpretation or administration of any Law
effective after the Closing Date, or compliance by such Lender with any
directive, guideline or request (whether or not having the force of Law) of any
Government Instrumentality effective after the Closing Date makes it unlawful
or impossible for such Lender to fund or maintain Loans, then upon notice to
Borrower by such Lender the obligation of such Lender to fund Loans will be
suspended. In addition, the outstanding principal amount of such Lender's
portion of all Loans, together with interest accrued thereon and all other
amounts payable with respect thereto, will be repaid immediately upon demand of
such Lender if such Lender determines that immediate repayment is required or,
if such Lender determines that
<PAGE>
immediate repayment is not required, in the case of Construction/Acquisition
Loans, at the end of the respective Interest Periods of such Construction/
Acquisition Loans. In the event of repayment of a Construction/Acquisition
Loan pursuant to this Section 2.10(f) prior to the end of its Interest Period,
Borrower will compensate the Construction/Acquisition Lenders for all losses,
costs and liabilities described in Section 2.10(d). Any prepayment pursuant to
this Section 2.10(f) will not cause Borrower to owe a prepayment fee pursuant
to Section 2.8(d) or otherwise, but such prepayment shall be applied in the
manner provided in Section 2.9(c). Notwithstanding the foregoing, prior to
demanding prepayment of a Loan pursuant to this Section 2.10(f), each Lender
affected by the conditions described in this Section 2.10(f) agrees to work
in good faith with Borrower to restructure their respective obligations under
this Agreement in such a manner as to preserve such Lender's economic return
and to eliminate or minimize the need for a Loan to be prepaid.
(g) Notice and Mitigation; Return of Fees.
(i) Upon the occurrence of an event that entitles an
Affected Party to compensation, reimbursement or indemnification
pursuant to this Section 2.10, such Affected Party will give Borrower
prompt notice of such event and, if applicable, the date compliance
with this Section 2.10 is required.
(ii) Except as specifically provided in this Section
2.10, each Affected Party will take reasonable measures to avoid the
need for, or reduce the amount of, compensation, reimbursement or
indemnification pursuant to this Section 2.10; provided, that no
Affected Party will be required to take any measure that, in its
judgment, would be disadvantageous to it, contrary to its policies or
inconsistent with its legal and regulatory position.
(iii) If any Tax or other charge of a type not
generally imposed on lenders making loans of the types contemplated by
this Agreement is imposed on payments to any Lender and Borrower is
obligated hereunder to compensate such Lender for such Tax or other
charge, Borrower may, within ten (10) days after receipt of notice of
such Tax or other charge, request that such Lender assign its portion
of the affected Loan or Loans to another Person acceptable to such
Lender, and such Lender will use reasonable efforts to negotiate such
an assignment.
(iv) The Term Agent hereby agrees with Borrower
that, upon any demand for repayment of all of the Loans and payment of
such Loans and other amounts in accordance with Section 2.10(f), if
such
<PAGE>
repayment occurs prior to the first anniversary of the Closing
Date, the Term Agent will return to Borrower a portion of the total
fees paid by Borrower to the Term Agent on the Closing Date pursuant
to Section 2.5, such portion to be calculated by multiplying the
aggregate amount of such fees by a fraction, not less than zero, the
numerator of which is (x) 12 less (y) the number of whole or partial
calendar months that have elapsed since the Closing Date and the
denominator of which is 12. Notwithstanding the foregoing, if a
repayment described in the preceding sentence occurs solely due to the
gross negligence or willful misconduct of the Term Agent at any time
during the term of this Agreement, then the Term Agent will return to
Borrower a portion of the initial fee (but not the agency fee) paid by
Borrower to the Term Agent on the Closing Date, such portion to be
calculated by multiplying the amount of such initial fee by a fraction
(not less than zero), the numerator of which is (x) 10 less (y) the
number of whole or partial calendar years that have elapsed since the
Closing Date and the denominator of which is 10.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to the Closing Date. The
obligation of each Lender to make available its respective Commitment is
subject to the satisfaction of each of the following conditions precedent:
(a) The Agents and the Lenders have received each of the
following, in each case in form and substance satisfactory to the Agents and
the Lenders:
(i) each Credit Document required by the Lenders in
their sole discretion to be delivered on the Closing Date, executed
and delivered by each of the parties thereto;
(ii) judgment lien, tax lien and UCC searches, and
such other searches of the records of Government Instrumentalities as
the Lenders may require, performed with respect to Borrower and the
Affiliates in all relevant jurisdictions;
(iii) the legal opinion of Borrower's Counsel in the
form of Exhibit 3.1(a)(iii);
(iv) the legal opinion of Lenders' Counsel;
<PAGE>
(v) such other legal opinions as the Agents or the
Lenders may require;
(vi) certified copies of:
(A) the Organizational Documents of
Guarantor, NEO, Generation II Locomotives, Borrower and the
Affiliates;
(B) good standing certificates with respect
to Guarantor, NEO, Generation II Locomotives, Borrower and
the Affiliates dated no earlier than thirty (30) days before
the Closing Date;
(C) incumbency certificates for the
signatories of Guarantor, NEO, Generation II Locomotives,
Borrower and the Affiliates and resolutions of Guarantor,
NEO, Generation II Locomotives, Borrower and the Affiliates
approving the Documents and the transactions contemplated
thereby;
(D) unaudited financial statements of NEO
for the fiscal year ended December 31, 1996 and all
subsequent quarterly financial statements available on the
Closing Date, the most recent unaudited financial statements
of Borrower available on the Closing Date, and pro forma
balance sheets of the Affiliates as of the Closing Date; and
(E) all Project Documents in effect on the
Closing Date and which are listed in Schedule I as having
been executed;
(vii) certificates of officers of Guarantor, NEO,
Generation II Locomotives, Borrower and each Affiliate certifying
that:
(A) all Documents executed by such Person
on or prior to the Closing Date are in full force and effect,
such Person and, to the best knowledge of such Person after
due inquiry, the Project Parties are in compliance with all
covenants and provisions thereof, and no breach or event of
default (or any event that would become a breach or event of
default with the giving of notice or passage of time or both)
has occurred and is continuing under any such Document;
(B) all representations and warranties of
such Person contained in the Documents are true, correct and
complete;
<PAGE>
(C) all financial statements and
information relating to such Person provided to the Lenders,
taken as a whole, are true, correct and complete; each
balance sheet fairly presents the financial position of the
Person to which it relates as at the date indicated and was
prepared in accordance with GAAP except as specifically noted
therein; no material adverse change in the condition or
operation, financial or otherwise, of such Person has
occurred since July 31, 1997; and the financial statements
(including any notes thereto) provided to the Lenders
disclose all liabilities, contingent or otherwise, of such
Person; and
(D) no act, event or circumstance has
occurred with respect to the Projects or such Person or, to
the best knowledge of such Person after due inquiry, the
Project Parties which has had or could have a Material
Adverse Effect or a material adverse effect on the
availability or pricing of financing for the Projects;
(viii) copies of all Notices of Self-Certification
filed with FERC with respect to the Projects;
(ix) copies of all Required Approvals obtained on or
prior to the Closing Date by or on behalf of Borrower or the
Affiliates;
(x) a written report of the Engineer opining
favorably, to the best of the Engineer's knowledge and except as
otherwise noted in such report, on the relevant technical aspects of
the Projects, except as otherwise noted in the report, including
without limitation historical and projected Project availability and
useful life, projected operation and maintenance costs (including,
that the costs of operation and maintenance of the Projects, as
detailed in the Closing Pro Forma are consistent with market
practice), maintenance plans and schedules, terms of the Project
Documents, Required Approvals, expected landfill gas and electricity
production, expected availability, net capacity degradation (if any),
the ability of the Projects to comply with all conditions contained
in the Required Approvals, that there is no event or anticipated event
that could reasonably be expected to cause any Project not to be
completed by the date contemplated in the Construction and Draw
Schedules and landfill gas collection efficiencies;
(xi) the favorable written report of the Energy
Consultant confirming the energy price and capacity payment
assumptions contained in the Closing Pro Forma; and
(xii) the favorable written report of the Insurance
Consultant confirming compliance by Borrower and the Affiliates,
except
<PAGE>
as noted therein, with all requirements relating to Required Insurance
contained in this Agreement.
(b) No act, event or circumstance has occurred (i) with
respect to the Projects, Guarantor, NEO, Generation II Locomotives, Borrower or
the Affiliates, (ii) in the international financial markets or (iii) otherwise
which has had or could reasonably be expected to have a material adverse effect
on the availability or pricing of financing for the Projects.
(c) All Taxes, fees and expenses required to be paid by
Borrower and the Affiliates on or before the Closing Date have been paid.
(d) Guarantor, NEO, Borrower and the Affiliates have
appointed the Process Agent to serve as process agent until the Term Loan
Maturity Date and the Process Agent has accepted such appointment in writing,
and a copy of such acceptance has been delivered to the Agent.
(e) The Lenders have prepared and analyzed the Closing
Pro Forma incorporating the results of the Lenders' due diligence based on
information provided by Borrower and the reports of the Lenders' counsel, the
Engineer and the Energy Consultant and the terms and conditions imposed by the
Project Documents, showing annual Net Operating Cash available for debt service
on the Term Loans sufficient (in the Lenders' sole determination) to produce an
annual debt service coverage ratio of at least 1.5 to 1 (on a per Project basis
as well as for all Projects taken together) and for Borrower to comply with the
financial covenants of this Agreement, including maintenance of the Minimum
Coverage Ratio.
(f) The Organizational Documents of Borrower and the
Affiliates contain bankruptcy-remote provisions satisfactory to the Lenders.
(g) All Documents executed by Guarantor, NEO, Generation
II Locomotives, Borrower and the Affiliates on or prior to the Closing Date are
in full force and effect, Guarantor, NEO, Generation II Locomotives, Borrower,
the Affiliates and the Project Parties are in full compliance with all
covenants and provisions thereof, and no breach or event of default (or any
event that could become a breach or event of default with the giving of notice
or passage of time or both) has occurred and is continuing under any such
Document.
(h) All representations and warranties of Guarantor,
NEO, Generation II Locomotives, Borrower and the Affiliates contained in the
Documents are true, correct and complete.
<PAGE>
(i) There is no pending or threatened litigation,
investigation or other proceeding (i) relating to any Project (including
without limitation relating to the release of any Hazardous Substance or any
contingent liability of Borrower, the Affiliates, the Project Parties or the
Projects in connection with the release of any Hazardous Substance) or (ii)
that could materially adversely affect the condition (financial or otherwise)
of Guarantor, NEO, Generation II Locomotives, Borrower, the Affiliates or the
Project Parties or their ability to perform under the documents, other than the
bankruptcy proceedings relating to the EPC Contractor of the Edgeboro Project
and the pre-petition liens relating thereto.
(j) A First-Priority security interest in the Collateral
that is the subject of the Security Documents in effect as of the Closing Date,
has been created and perfected, and will continue to be perfected, in favor of
the Lenders in all relevant jurisdictions, and there are no Liens on the
Collateral other than Permitted Liens. The Term Agent has received all items of
Collateral in which a security interest is perfected by possession, including
stock certificates and stock powers relating thereto.
(k) No Project has suffered a material loss (unless such
Loss has been remedied to the satisfaction of the Lenders) or is subject to
pending or threatened condemnation or appropriation proceedings.
(l) The operations of Borrower, the Projects and the
Affiliates comply and will comply, in all respects deemed material by the
Lenders (including without limitation that the Projects will be able to meet
the financial and construction progress projections contained in the Closing
Pro Forma), with all Applicable Laws and Required Approvals.
(m) No order, judgment or decree of any Government
Instrumentality enjoins or restrains any Agent or any Lender from entering into
and performing its obligations under this Agreement.
Section 3.2 Conditions Precedent to the Funding of Each
Construction/Acquisition Loan. The obligation of the Construction/Acquisition
Lenders to fund any Construction/Acquisition Loan is subject to the
satisfaction of each of the following conditions precedent:
(a) The Construction/Acquisition Agent and the
Construction/Acquisition Lenders have received each of the following, in each
case in form and substance satisfactory to the Construction/Acquisition Agent
and the Construction/Acquisition Lenders:
(i) a Notice of Borrowing, with all attachments
thereto, sent in compliance with Section 2.2(a)(i);
<PAGE>
(ii) copies of all invoices, applications for
payment, payment receipts and lien waivers and releases received from
the EPC Contractor and other Project Parties of the Project that is
the subject of the requested Loan and all major subcontractors as
reasonably requested by the Construction/Acquisition Agent;
(iii) a certificate of the Engineer certifying that,
to the best of its knowledge after due inquiry and review:
(A) that all invoices, applications for
payments, receipts, lien waivers and releases submitted by
Borrowers in connection with the Notice of Borrowing with
respect to such Loan are, genuine and correct and in
conformity and compliance with the applicable
Construction/Acquisition Budget, Construction and Draw
Schedule and EPC Contract and with the requirements of the
Credit Documents and are sufficient to document the services
and materials for which the Loan is being requested;
(B) that construction of the Projects is on
or ahead of the schedules contained in the Construction and
Draw Schedules and that all Qualified Project Construction
Expenses are consistent with the Construction and Draw
Schedules. If project schedule slippages are anticipated,
updated schedules with corrective action, or revised
scheduled completion dates are provided, and update budget to
reflect such changes;
(C) that sufficient funds remain available
under the Construction Draw Schedules to complete the
Projects;
(D) that Required Approvals capable of
being obtained as of the Funding Date have been obtained and
that other Required Approvals that are not possible to obtain
as of such date are likely to be obtained as needed in the
future in the opinion of the Engineer;
(E) that the Engineer is not aware of any
event that has occurred or is anticipated to occur that could
cause a Project not to be completed on or before the
projected date contained in the Construction and Draw
Schedules;
(F) with respect to the first
Construction/Acquisition Loan requested for a Project, that
each Action Item listed in Schedule III relating to the
Project that is the
<PAGE>
subject of the requested Construction/Acquisition Loan has
been performed or accomplished to the Engineer's satisfaction;
(iv) copies of all Required Approvals obtained by or
on behalf of Borrower, the Affiliates, the EPC Contractors or the
Operators, and all Project Documents, to the extent not previously
provided to the Lenders;
(v) with respect to the first
Construction/Acquisition Loan requested for a Project, binders,
certificates or other evidence indicating that the Lenders will
immediately following the Funding Date of the requested Loan be named
as (i) loss payee with respect to the property insurance and business
interruption insurance policies relating to the Project that is the
subject of the requested Loan and (ii) additional insureds on the
general and umbrella liability insurance policies maintained by
Borrower and the Affiliates, together with a letter from the Insurance
Consultant certifying that the insurance maintained by Borrower and
the Affiliates is adequate and consistent with industry practice;
(vi) (A) with respect to the first
Construction/Acquisition Loan requested for a Project, a title report
(with copies of all documents and instruments affecting title to such
Site or Sites) and an ALTA prepaid policy of title insurance for the
Site or Sites of the Project that is the subject of the requested
Construction/Acquisition Loan issued by the Title Insurer in favor of
the Lenders and insuring the First-Priority of the Lien of the
Mortgage relating to such Site or Sites in an aggregate amount equal
to the maximum aggregate principal amount of the
Construction/Acquisition Loans anticipated to be made to such Project
(as reflected in the Closing Pro Forma) (the "Title Policy"). The
Title Policy shall be marked "premium paid," shall be issued subject
only to Permitted Liens and shall contain modifications to the
standard exceptions and such affirmative insurance and endorsements as
the Construction/Acquisition Agent may require, and (B) with respect
to any drawing other than the first Construction/Acquisition Loan
requested for a Project, a continuation of title, pending
disbursements endorsement or other suitable title endorsement issued
by the Title Insurer for each Title Policy or Title Policies relating
to the Project in respect of which such Construction/Acquisition Loan
is requested;
(vii) an Environmental Review of the Site or Sites
(consisting of a review of data from State and Federal environmental
databases as reported by a third-party vendor, and any reports of
non-
<PAGE>
compliance obtained from State environmental staff) affirming or
stating that, to the best knowledge of the Engineer after due inquiry
and review:
(A) No material expenditure will need to be
made by Borrower, the applicable Affiliates, or the Project
for response to any release of a Hazardous Substance,
(B) None of Borrower, the applicable
Affiliates, or the Project are subject to any material
contingent liabilities in connection with the release of any
Hazardous Substance,
(C) contacts with State environmental staff
did not identify any non compliant conditions, and
(D) site visit observations did not
identify areas of concern.
(viii) with respect to the first
Construction/Acquisition Loan requested for a Project, one or more
Mortgages, executed by the Affiliate that is the owner of the Project
that is the subject of the requested Construction/Acquisition Loan in
favor of the Construction/Acquisition Agent and the Term Agent
granting a First-Priority Lien on the Site of the Project that is the
subject of the requested Construction/Acquisition Loan, together with
an opinion of counsel to Borrower reasonably acceptable to the
Construction/Acquisition Agent confirming (A) the enforceability of
such Mortgages, (B) that such Mortgages are in due form for filing
with the appropriate Government Instrumentality, (C) that the Site may
be used for the purpose of constructing and operating the Project
Improvements in accordance with any applicable subdivision, zoning and
other land-use Laws, and (D) otherwise in form and substance
reasonably satisfactory to the Construction/Acquisition Lenders;
(ix) with respect to the first
Construction/Acquisition Loan requested for a Project, certified
copies of the Construction/Acquisition Budget, Construction and Draw
Schedule and descriptive memorandum for the Project that is the
subject of the requested Construction/Acquisition Loan;
(x) certified copies of all Project Documents not
previously delivered to the Construction/Acquisition Agent;
(xi) certificates of officers of Borrower and the
Affiliate that owns the Project that is the subject of the requested
<PAGE>
Construction/Acquisition Loan, duly executed as of the Funding Date,
certifying that:
(A) all Documents executed by such Person
on or prior to the Funding Date are in full force and effect,
such Person and, to the best knowledge of such Person after
due inquiry, the Project Parties, are in compliance with all
covenants and provisions thereof, and no breach or event of
default (including any Event of Default) (or any event that
would become a breach or event of default with the giving of
notice or the passage of time or both) has occurred and is
continuing under any such Document; and
(B) all representations and warranties of
such Person contained in the Documents are true, correct and
complete;
(xii) with respect to the first
Construction/Acquisition Loan requested for a Project, a site plan
(the "Site Plan") for the Project that is the subject of the requested
Construction/Acquisition Loan identifying the Site for such Project
and showing (A) the location of all existing improvements and the
intended locations of the improvements to be constructed thereon
(collectively, the "Project Improvements") and (B) that the Project
Improvements for such Project are or will be located within the
boundaries of the Site for such Project;
(xiii) with respect to the first
Construction/Acquisition Loan requested for a Project, all documents
and instruments evidencing that the Affiliate that is the owner of the
Project has valid and subsisting real property interests in and to the
Site for the Project that is the subject of the requested
Construction/Acquisition Loan (collectively, the "Real Property
Documents");
(xiv) to the extent not listed above, all Credit
Documents required by the Construction/Acquisition Lenders in their
sole discretion to be delivered on the Funding Date, executed and
delivered by each of the parties thereto; and
(xv) such other assurances, instruments or
undertakings as the Construction/Acquisition Agent or any
Construction/Acquisition Lender may reasonably request.
(b) Such Loan is in conformity with the Construction and
Draw Schedule for such Project.
<PAGE>
(c) The Project Documents executed by Borrower and the
Affiliates on or prior to the Funding Date of the requested Loan include all
agreements required for the acquisition, development, construction, ownership
and operation, as appropriate, of the Project that is the subject of the
requested Loan, other than those agreements that the Construction/Acquisition
Lenders do not require to be in place on such Funding Date and that the
Construction/Acquisition Lenders are satisfied, on the basis of evidence
provided by Borrower, will be obtainable in the ordinary course of business
prior to the time required, and such Project Documents conform in all material
respects with the Closing Pro Forma and are sufficient to permit the Project to
operate in a manner that will neither violate the Required Approvals or the
manufacturer's normal operating parameters and such that the Project will be
able to achieve the net operating revenue projected in the Closing Pro Forma.
(d) All Documents executed by Guarantor, NEO, Generation
II Locomotives, Borrower and the Affiliates on or prior to the Funding Date of
the requested Loan are in full force and effect, Guarantor, NEO, Generation II
Locomotives, Borrower, the Project Parties and the Affiliates are in compliance
with all covenants and provisions thereof, and no breach or event of default
(or any event that would become a breach or event of default with the giving of
notice or passage of time or both) has occurred and is continuing under any
such Document.
(e) All representations and warranties of Guarantor,
NEO, Generation II Locomotives, Borrower and the Affiliates contained in the
Documents are true, correct and complete.
(f) No act, event or circumstance has occurred (i) with
respect to the Projects, Guarantor, NEO, Generation II Locomotives, Borrower or
the Affiliates, (ii) in the international financial markets or (iii) otherwise,
including without limitation any amendment or any proposed amendment to
permitting, licensing or other regulatory requirements or any Project Document,
which has had or could have a Material Adverse Effect.
(g) There is no pending or threatened litigation,
investigation or other proceeding (i) relating to any Project (including
without limitation relating to the release of any Hazardous Substance or any
contingent liability of Borrower, the Affiliates, the Project Parties or the
Projects in connection with the release of any Hazardous Substance), (ii) that
could materially adversely affect the condition (financial or otherwise) of
Guarantor, NEO, Borrower and the Affiliates or (iii) that could materially
adversely affect the ability of Generation II Locomotives or the Project
Parties to perform under the Documents.
<PAGE>
(h) All Required Approvals have been obtained except for
those that are obtainable only at a later stage and which the
Construction/Acquisition Lenders are satisfied, on the basis of evidence
provided by Borrower, will be obtainable in the ordinary course of business
prior to the time required, and all obtained Required Approvals are in full
force and effect, not subject to any onerous or unusual condition and
satisfactory to the Construction/Acquisition Lenders in their sole discretion.
(i) All Required Insurance has been obtained, all
Required Insurance is in full force and effect and is not subject to
cancellation and no Person other than Guarantor, NEO, Borrower, the Affiliates
and the Lenders has any right or interest in, to or under any Required
Insurance other than pursuant to the Project Documents.
(j) A First-Priority security interest in the Collateral
has been created and perfected, and will continue to be perfected, in favor of
the Lenders in all relevant jurisdictions, and there are no Liens on the
Collateral other than Permitted Liens.
(k) Borrower and the Affiliates have made all Equity
Contributions required to be made at or before the date of such Loan and all of
such Equity Contributions has been expended for Qualified Project Construction
Costs or Qualified Project Acquisition Costs, as the case may be.
(l) No Project has suffered a material Loss (unless such
Loss has been remedied to the satisfaction of the Construction/Acquisition
Lenders) or is subject to pending or threatened condemnation or appropriation
proceedings.
(m) The operations of Borrower, the Projects and the
Affiliates comply and will comply, in all respects deemed material by the
Construction/Acquisition Lenders (including without limitation that the
Projects will be able to meet the projections contained in the Closing Pro
Forma), with all Applicable Laws and Required Approvals.
(n) No order, judgment or decree of any Government
Instrumentality enjoins or restrains any Construction/Acquisition Lender from
making the requested Loan.
(o) Each condition precedent set forth in Schedule II
relating to each Project that is the subject of a requested
Construction/Acquisition Loan has been satisfied to the satisfaction of the
Construction/Acquisition Agent and the Construction/Acquisition Lenders in
consultation with the Engineer.
<PAGE>
(p) The Construction/Acquisition Agent has received
evidence satisfactory to it that any primary fuel supplier to each Project that
is the subject of a requested Construction/Acquisition Loan, or any parent
company thereof, has qualified for debt financing and is able to draw on such
debt financing on terms and in amounts that the Construction/Acquisition Agent
deems sufficient in its sole discretion.
(q) All Taxes, fees and expenses required to be paid by
Borrower and the Affiliates on or before the Funding Date have been paid.
(r) Each of the Real Property Documents pertaining to
the Site or Sites of the Project that is the subject of the requested
Construction/Acquisition Loan (or memoranda thereof), the Mortgages and the
Financing Statements shall have been duly recorded, published, registered and
filed (or arrangements for such recording, publishing, registering and filing
shall have been made), in such manner and in such places as are necessary or
appropriate to publish notice thereof and protect the validity and
effectiveness thereof and to establish, create, perfect, preserve and protect
the rights of the parties thereto and their respective successors and assigns,
and all Taxes, fees and other charges in connection with such recording,
publishing, registration and filing of such documents or any memoranda thereof
and any financing statements shall have been paid, or caused to be paid, by
Borrower.
(s) The Site for the Project that is the subject of the
requested Construction/Acquisition Loan constitutes all the real property
interests necessary to construct, maintain and operate such Project in
accordance with its respective Project Documents.
Section3.3ConditionsPrecedenttoeachTermLoanConversionDate""2". The obligation
of the Term Lenders to fund any Term Loan is subject to the satisfaction of
each of the following conditions precedent:
(a) The Term Agent and the Term Lenders have received
each of the following, in each case in form and substance satisfactory to the
Term Agent and the Term Lenders:
(i) a Notice of Borrowing sent in compliance with
Section 2.2(c)(i);
(ii) the Term Note relating to such Term Loan,
executed and delivered by Borrower;
(iii) a new lender's policy of title insurance,
continuation of title or other suitable title endorsement (issued by
the Title Insurer and
<PAGE>
including, without limitation, an updated survey endorsement) for
each Title Policy or Title Policies relating to the Project in
respect of which such Term Loan is requested) confirming that the
Mortgage(s) have a First-Priority Lien on the Site securing one
hundred percent (100%) of the maximum Aggregate Term Loan Commitment
without any additional Liens (other than Permitted Liens);
(iv) an "as-built" survey of the Site or Sites of
the Project that is the subject of the requested Term Loan showing (A)
the location of the Project Improvements, (B) that the Project
Improvements for each Project are located within the boundaries of the
Site for such Project (without encroachments on any right-of-way,
easement or other interest that could adversely affect the continued
operation of such Project), (C) that such Site is not located in a
flood zone (or, to the extent that any portion of such Site may be in
a flood zone, delineating the portions thereof in such flood zone),
and (D) all easements, encroachments and other survey matters required
by the Term Agent. The "as-built" Survey shall be dated within 30 days
of date of the requested Term Loan, be in form and substance
satisfactory to the Term Agent, be prepared by licensed surveyors
acceptable to the Term Agent, and be certified to the Term Agent and
the Title Insurer;
(v) a legal opinion of Borrower's Counsel in form
and substance satisfactory to the Term Agent;
(vi) the legal opinion of Lenders' Counsel;
(vii) such other legal opinions as the Term Lenders
may request;
(viii) good standing certificates with respect to
NRG, NEO, Borrower and the Affiliate that is the owner of the Project
that is the subject of the requested Term Loan dated no earlier than
thirty (30) days before the Term Loan Conversion Date;
(ix) certificates of officers of NRG, NEO, Borrower
and the Affiliates corresponding to the Project that is the subject of
the requested Term Loan certifying that:
(A) all Documents executed by such Person
on or prior to the applicable Term Loan Conversion Date are
in full force and effect, such Person and, to the best
knowledge of such Person, after due inquiry, the Project
Parties, are in compliance with all covenants and provisions
thereof, and no breach or event of default
<PAGE>
(including an Event of Default) (or any event which would
become a breach or event of default with the giving of
notice or passage of time or both) has occurred and is
continuing under any such Document;
(B) all representations and warranties of
such Person contained in the Documents are true, correct and
complete in all material respects;
(C) there has occurred no material adverse
change in the financial position of such Person since the
date of the most recent balance sheet of such Person provided
to the Term Lenders; and
(D) no act, event or circumstance has
occurred with respect to any Project, such Person or, to the
best of such Person's knowledge after due inquiry, any
Project Party which has had or could have a Material Adverse
Effect;
(x) to the best of the Engineer's knowledge, and
except as otherwise noted in its report, the report of the Engineer
certifying that, as appropriate,
(A) the Project that is the subject of the
requested Term Loan has been completed in accordance with the
corresponding EPC Contract (other than Punch List Items, the
completion of which will not interfere with the commercial
operation of the Project or cause it to operate at levels
material different than those forming the basis of the
projections in the Closing Pro Forma),
(B) all tests required for Final
Performance Acceptance under the corresponding EPC Contract
have been successfully completed,
(C) with respect to each Project, has
commenced Commercial Operation under the corresponding Power
Purchase Agreement and/or Gas Sale Agreement,
(D) that Performance Tests for each
Project's Gasco and Genco are completed in accordance with
the approved test program,
(E) the Project appears to be capable of
achieving the operating revenue as projected in the Closing
Pro Forma,
<PAGE>
(F) all Permit Approvals required to
commission and operate the Project are in full force and
effect, and
(G) all necessary Fuel and utility services
are available for the Project,
(H) with respect to each Term Loan
Conversion requested for a Project, that each Action Item
relating to the Project that is the subject of the requested
term loan has been performed or accomplished to the Engineer's
satisfaction.
(xi) an Operating Plan and Budget for the Project
that is the subject of the requested Term Loan for the current
calendar year and the subsequent calendar year;
(xii) copies of all Required Approvals obtained by
or on behalf of Borrower, the Affiliates, the EPC Contractors or the
Operators and certified copies of all Project Documents to the extent
not previously provided to the Term Lenders; and
(xiii) such other assurances, instruments or
undertakings as the Term Agent or any Term Lender may reasonably
request.
(b) The Project Documents (including the Operation and
Maintenance Agreements) executed by Borrower and the Affiliates on or prior to
the Term Loan Conversion Date include all agreements required for the ownership
and operation of the Project that is the subject of the requested Term Loan
(including without limitation that the operation and maintenance expenses of
the Project conform with the projection of the operation and maintenance
expenses contained in the Closing Pro Forma) other than those agreements that
the Term Lenders do not require to be in place on the Term Loan Conversion Date
and which the Term Lenders are satisfied, on the basis of evidence provided by
Borrower, will be obtainable in the ordinary course of business prior to the
time required.
(c) All Documents executed by NRG, NEO, Generation II
Locomotives, Borrower and the Affiliates on or prior to the Term Loan
Conversion Date are in full force and effect, NRG, NEO, Generation II
Locomotives, Borrower, the Affiliates and all Project Parties are in compliance
with all covenants and provisions thereof, and no breach or event of default
(or any event which would become a breach or event of default with the giving
of notice or passage of time or both) has occurred and is continuing under any
such Document.
<PAGE>
(d) All representations and warranties of NRG, NEO,
Generation II Locomotives, Borrower and the Affiliates contained in the
Documents are true, correct and complete.
(e) No act, event or circumstance has occurred (i) with
respect to the Projects, Borrower or the Affiliates, (ii) in the international
financial markets or (iii) otherwise, including without limitation any
amendment or any proposed amendment to permitting, licensing or other
regulatory requirements or any Project Document, which has had or could
reasonably be expected to have a Material Adverse Effect.
(f) There is no pending or threatened litigation,
investigation or other proceeding (i) relating to any Project or (ii) that
could materially adversely affect the condition (financial or otherwise) of
NRG, NEO, Borrower or the Affiliates or (iii) that could materially adversely
affect the ability of Generation II Locomotives or the Project Parties to
perform under the Documents.
(g) All Required Approvals have been obtained except for
those which are obtainable only at a later stage and which the Term Lenders are
satisfied, on the basis of evidence provided by Borrower, will be obtained in
the ordinary course of business prior to the time required, all Required
Approvals obtained are in full force and effect and not subject to any onerous
or unusual condition, and the Term Agent shall have received confirmation of
the accuracy of this representation from counsel to Borrower or an independent
engineer acceptable to the Term Agent.
(h) All Required Insurance has been obtained and all
Required Insurance is in full force and effect and not subject to cancellation
and no Person other than Guarantor, NEO, Borrower, the Affiliates and the
Lenders has any right or interest in, to or under any Required Insurance other
than pursuant to the Project Documents.
(i) A First-Priority security interest in the Collateral
has been created and perfected, and will continue to be perfected, in favor of
the Lenders in all relevant jurisdictions, and there are no Liens on the
Collateral other than Permitted Liens.
(j) No Project has suffered a material loss (unless such
Loss has been remedied to the satisfaction of the Term Lenders) or is subject
to pending or threatened condemnation or appropriation proceedings.
(k) All Construction/Acquisition Loans that correspond
to the Project that is the subject of the requested Term Loan, together with
all accrued and unpaid interest thereon and all other amounts due and payable
under the
<PAGE>
Credit Documents, will be paid concurrently with the funding of the requested
Term Loan.
(l) The Debt Service Reserve Fund will be fully funded
at or prior to the funding of the requested Term Loan.
(m) All Qualified Project Construction Costs or
Qualified Project Acquisition Costs of the Project that is the subject of the
requested Term Loan have been paid in full, or an amount deemed sufficient by
the Engineer to pay all unpaid costs has been deposited in an account under the
control of the Term Agent for such purpose.
(n) Borrower and the Affiliates have made all Equity
Contributions required to be made on or before the Term Loan Conversion Date.
(o) The Project that is the subject of the requested
Term Loan has achieved Final Performance Acceptance under the corresponding EPC
Contract and commenced Commercial Operation under the corresponding Power
Purchase Agreement and/or the Gas Sales Agreement.
(p) No order, judgment or decree of any Government
Instrumentality enjoins or restrains any Term Lender from making the requested
Term Loan.
(q) The Organizational Documents of Borrower and the
Affiliates contain bankruptcy-remote provisions satisfactory to the Term
Lenders.
(r) Each condition precedent set forth in Schedule II
relating to the Project that is the subject of the requested Term Loan has been
satisfied to the satisfaction of the Term Agents and the Term Lenders.
(s) The Term Agent has received evidence satisfactory to
it that any primary fuel supplier to each Project that is the subject of a
requested Term Loan, or any parent company thereof, has qualified for debt
financing and is able to draw on such debt financing on terms and in amounts
that the Term Agent deems sufficient in its sole discretion.
(t) All Taxes, fees and expenses required to be paid by
Borrower or any Affiliate on or before the Term Loan Conversion Date have been
paid.
(u) The operations of Borrower, the Projects and the
Affiliates comply and will comply, in all respects deemed material by the Term
Lenders (including without limitation that the Projects will be able to meet
the projections
<PAGE>
contained in the Closing Pro Forma), with all Applicable Laws and Required
Approvals.
(v) If appropriate, the conditions precedent set forth
in Section 3.4 have been satisfied.
Section 3.4 Additional Conditions Precedent for Certain
Term Loans. If Borrower requests a Term Loan for a Project that was not
previously the subject of a Construction/Acquisition Loan, then the conditions
precedent set forth in Sections 3.2(a)(iv), (v), (vi), (vii), (viii), (ix) and
(xv) shall also be satisfied to the satisfaction of the Term Agent and the Term
Lenders.
Section 3.5 No Waiver. The failure of the Agent or any
Lender to require satisfaction of any condition precedent set forth in this
Article III, or the funding of any Loan despite the failure of Borrower to
satisfy any such condition precedent, will not constitute a waiver of such
condition precedent unless the Lenders so state in writing. A waiver by the
Lenders of any condition precedent in connection with the funding of any Loan
will not affect the applicability of such condition precedent to the funding
of subsequent Loans.
Section 3.6 Location of Closings. The various closings of the
loan transactions contemplated hereunder shall take place at the office of the
Lenders' Counsel in Washington, D.C., or the offices of the Term Agent in
Stamford, Connecticut, at the election of the Agents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section4.1RepresentationsandWarranties""2". Borrower
represents and warrants to the Agents and the Lenders on and as of each date on
which such representations and warranties are required to be made pursuant to
Article III as follows:
(a) Existence; Authority. It is a limited liability
company duly organized, validly existing and in good standing under the Laws of
the State of Wyoming and is duly qualified to do business as a foreign limited
liability company and is in good standing in each jurisdiction in which such
qualification is necessary or desirable in view of its current or proposed
business and operations or the ownership of its properties. It has all
necessary rights, franchises and privileges and full power and authority to
execute, deliver and perform the Documents to which it is a party, to design,
construct, own and operate the Projects and to conduct its business as
currently conducted and as proposed to be conducted. It has taken all necessary
action to execute, deliver and perform the
<PAGE>
Documents to which it is a party and such Documents have been duly executed
and delivered by it and constitute the legally valid and binding obligations
of it, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar Laws relating to or limiting creditors' rights generally
or by general principles of equity.
(b) Ownership and Affiliates. Each Affiliate is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the Laws of the State of its
organization and is duly qualified to do business as a foreign corporation or
limited liability company and is in good standing in each jurisdiction in which
such qualification is necessary or desirable in view of its current or proposed
business and operations or the ownership of its properties. Each Affiliate has
all necessary rights, franchises and privileges and full power and authority to
execute, deliver and perform the Documents to which it is a party and to
conduct its business as currently conducted and as proposed to be conducted.
Each Affiliate has taken all necessary action to execute, deliver and perform
the Documents to which it is a party and such Documents have been duly executed
and delivered by such Affiliate and constitute the legally valid and binding
obligations of such Affiliate, enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Laws relating to or limiting creditors'
rights generally or by general principles of equity.
(c) Capitalization. The respective ownership interests
in Borrower and the Affiliates are as set forth in the Organizational Documents
provided to the Agents and the Lenders pursuant to Article III and as described
in the organizational charts attached as Exhibit 4.1(c). All of such ownership
interests are duly and validly issued and are subject to no Liens other than
the Liens in favor of the Agents and the Lenders created by the Pledge
Agreements. There are no other ownership or equity interests in Borrower or the
Affiliates, rights to acquire or subscribe for any such interests or securities
or instruments convertible into or exchangeable or exercisable for any such
interests.
(d) Business and Contractual Obligations. Borrower and
each Project Owner is a single purpose entity formed for the sole purpose of
acquiring or designing and constructing, owning and operating, directly or
indirectly, landfill gas-fueled energy generation projects and performing its
obligations under the Documents. None of Borrower or the Affiliates has engaged
in any business or activity or incurred any liability or expense to any Person
except for those contemplated by the Documents. Except for the Documents, none
of Borrower or the Affiliates is party or subject to any Contractual Obligation
with respect to any of the Collateral. None of Borrower or the Affiliates has
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable for (including,
<PAGE>
without limitation, liable by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise invest
in the debtor or otherwise to assure the creditor against loss) the
indebtedness or obligations of any other Person except pursuant to a Credit
Document. None of Borrower or the Affiliates has made any loan or advance to
any Person or owns or holds the capital stock, securities, debt (other than
debt subject to the Subordination Agreement or otherwise explicitly
subordinated to the Loans), assets or obligations of, or any interest in,
any Person (other than its ownership interest in another Affiliate).
(e) Name, Address and Records. The name of Borrower set
forth in the first paragraph of this Agreement is the true, correct and
complete name of Borrower, and Borrower does not conduct business under any
other name or tradestyle. The legal address of Borrower and the address of the
principal place of business and chief executive office of Borrower is 1221
Nicollet Mall, Suite 700, Minneapolis, Minnesota, 55403-2445. Borrower keeps
all of its records and all documents evidencing or relating to its Contractual
Obligations at such address. Borrower has no property or other assets
at any other address other than as listed in the Security Agreements.
(f) No Violations, Defaults or Liens.
(i) None of Borrower or the Affiliates (A) is in
violation of any Law (including Environmental Laws), (B) is in
violation of or default under its Organizational Documents or (C) is
in violation of or default under any Document or other Contractual
Obligation. None of Borrower or the Affiliates is party to or affected
by any charter, bylaw, partnership agreement or other constituent
document or any Contractual Obligation that could have a Material
Adverse Effect.
(ii) To the best knowledge of Borrower, except as
previously disclosed to the Agents, no Project Party (A) is in
violation of any Law (including Environmental Laws), (B) is in
violation of or default under its charter, bylaws, partnership
agreement or other constituent documents or (C) is in violation of or
default under any Project Document or any other Contractual
Obligation.
(iii) No Event of Default has occurred and is
continuing and no material Loss has occurred that has not been cured
to the satisfaction of the Lenders.
(iv) Borrower and the Affiliates are the legal and
beneficial owners of, and have good, marketable and valid title to,
the Collateral. None of the Collateral is subject to any Lien other
than Permitted Liens.
<PAGE>
No effective mortgage, deed of trust, financing statement, security
agreement or other instrument similar in effect which is not a
Security Document is on file or of record in the office of any
Government Instrumentality with respect to any Collateral other
than with respect to Permitted Liens.
(v) The execution, delivery and performance of the
Documents to which any of Borrower and the Affiliates is a party do
not and will not (A) violate any Law (including Environmental Laws),
(B) violate, or result in a default under, the Organizational
Documents of such Person, (C) violate, or result in a default under,
any Document or any other Contractual Obligation subject to the
obtaining of consents to assignment from certain Project Parties, (D)
result in or require the creation or imposition of any Lien (other
than Permitted Liens) on the Collateral or other property of Borrower
and the Affiliates or (E) require an Approval from any Person that has
not been obtained.
(g) Required Approvals. All Required Approvals obtained
on or before the date hereof are listed and described in Schedule 4.1(g) and
such list and descriptions are true, correct and complete. Borrower and the
Affiliates have obtained all Required Approvals required to be obtained at or
prior to the time of this representation and warranty in order for the Projects
and Borrower, the Affiliates, the Agents and the Lenders and their respective
activities to be in compliance with Applicable Law, and none of Borrower or
the Affiliates has any reason to believe that any of the Required Approvals not
yet obtained cannot or will not be obtained in the normal course of business
as and when required and without significant expense. Borrower has provided
the Agents and the Lenders with a true, correct and complete copy of each
Required Approval required to be obtained at or prior to the time of this
representation and warranty. All Required Approvals obtained by Borrower and
the Affiliates (i) are validly issued, (ii) are in full force and effect,
(iii) are free from any condition or requirement that cannot be met or that
could have an adverse effect on the Projects and (iv) are not the subject of a
current challenge and are not subject to any onerous or unusual conditions. No
proceeding or other action is pending or threatened with respect to any
Required Approval and all information provided in connection with each
Required Approval was on the date provided and is on the date hereof true,
correct and complete. The Agents will be entitled, without undue expense or
delay, to the benefit of each Required Approval upon the exercise of their
remedies under the Security Documents.
<PAGE>
(h) Project Documents.
(i) The Project Documents include all agreements
required for the acquisition, design, construction, ownership,
operation and maintenance of the Projects as contemplated by the
Documents. Except for Project Documents which are obtainable only at a
later stage and which will be obtainable in the ordinary course of
business prior to the time required, all Project Documents have been
duly and validly executed and delivered by the parties thereto, are in
full force and effect and have not been amended, modified,
supplemented or terminated. The copies of all Project Documents
provided to the Agents and the Lenders by Borrower are true, correct
and complete. Borrower and the Affiliates have enforceable agreements
or other satisfactory arrangements that ensure the availability, on
commercially reasonable terms, of all utilities, transportation,
facilities, infrastructure, interconnections, pipelines, materials and
services necessary for the acquisition, design, construction,
ownership, operation and maintenance of the Projects as contemplated
by the Documents.
(ii) The Projects, if acquired or constructed and
operated in accordance with the Project Documents, will comply with
all Applicable Laws, all Required Approvals and prudent utility
practices.
(iii) The legal descriptions of the Sites set forth
in Exhibit 4.1(h)(iii) are true and correct. The Affiliates have good
title to all easements and other property interests necessary for the
acquisition, design, construction, ownership, operation and
maintenance of the Projects as contemplated by the Documents,
including all rights of access, ingress, egress and interconnection.
(iv) Borrower is not aware of any existing fact or
circumstance that would prevent the conversion of all
Construction/Acquisition Loans to Term Loans in accordance with this
Agreement on or before October 30, 1998.
(i) Patents. Borrower and the Affiliates own, or are
licensed to use, all patents, trademarks, service marks, licenses, franchises,
trade names, tradestyles, copyrights, technology, formulas, know-how and
processes used in, to be used in or necessary for the acquisition, design,
construction, ownership or operation of the Projects or for the current or
proposed conduct of their businesses. The use of such patents, trademarks,
trade names, tradestyles, copyrights, technology, know-how and processes by
Borrower and the Affiliates does not and will not injure or infringe upon the
rights of any Person. Borrower and the Affiliates have obtained all required
licenses for and consents to the transactions
<PAGE>
contemplated by the Documents from all Persons with rights in or to any of
such patents, trademarks, service marks, licenses, franchises, trade names,
tradestyles, copyrights, technology, formulas, know-how or processes.
(j) Taxes. Borrower and each Affiliate have filed in a
timely manner or after having obtained an extension all Tax returns required by
Law and have paid when due all Taxes imposed on them or on their respective
properties, other than Taxes being contested in good faith by appropriate
proceedings with proper reserves established in accordance with GAAP.
(k) Financial Statements.
(i) All financial statements of Borrower and the
Affiliates (as well as all notes and schedules thereto) furnished to
the Agents and the Lenders are true, complete and correct in all
material respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been prepared in
accordance with GAAP (except as otherwise stated therein) and show all
liabilities, direct and contingent, of the Person indicated required
to be shown under GAAP. Each balance sheet fairly presents the
financial condition of the Person indicated as at the dates thereof,
and each profit and loss and surplus (deficit) statement fairly
presents the results of the operations of the Person indicated for the
periods indicated. Except with respect to matters previously disclosed
to the Agents, there has been no material adverse change in the
business, condition or operations (financial or otherwise) of Borrower
or any Affiliate since July 31, 1997, and Borrower knows of no
reasonable basis for the assertion against it or any Affiliate of any
obligation or liability that is not fully reflected in the financial
statements furnished to the Agents and the Lenders.
(ii) The Pro Forma Balance Sheets for Borrower and
the Affiliates are true, correct and complete in all material respects
and fairly present the information contained therein as at the Closing
Date and Borrower's or the applicable Affiliate's good faith estimate
of the information contained therein as at the date of such Balance
Sheets. None of Borrower or the Affiliates has any material liability,
contingent or otherwise, including any liability for Taxes, or any
unusual forward or long-term commitment which is not disclosed by, or
reserved against in, the Pro Forma Balance Sheets or in the notes
thereto which under GAAP is of a nature and an amount required to be
so disclosed or reserved. There are no unrealized or anticipated
losses from any unfavorable commitments of Borrower or the Affiliates
that could reasonably be expected to have a
<PAGE>
material adverse effect on the business, condition or operations
(financial or otherwise) of Borrower or such Affiliate.
(l) Construction/Acquisition Budgets. Each
Construction/Acquisition Budget (i) has been prepared with due care, (ii) is
complete in all material respects and fairly presents Borrower's good faith
expectations as at the date of such document as to the matters covered thereby,
(iii) is based on reasonable assumptions as to the factual and legal matters
material to the estimates therein and (iv) is consistent with the Documents.
The Construction/Acquisition Budgets accurately specify and describe all
Qualified Project Construction Costs and Qualified Project Acquisition Costs.
(m) No Proceedings. Except with respect to matters
previously disclosed to the Agents, there is no pending or threatened action,
suit, litigation, investigation, arbitration or other proceeding involving or
affecting Borrower, any Affiliate or any of their respective properties or
assets or, to the best knowledge of Borrower after due inquiry, any Project
Party or any of their respective properties or assets, before any Government
Instrumentality which could reasonably be expected to have a Material Adverse
Effect. None of Borrower, the Affiliates or any of their respective properties
or assets or, to the best knowledge of Borrower after due inquiry, any Project
Party or any of their respective properties or assets, is subject to any order,
writ or injunction which prohibits, enjoins or limits any aspect of the
transactions contemplated by the Documents or which could reasonably be
expected to have a Material Adverse Effect.
(n) No Broker's Fees. Borrower has no obligation
(direct, indirect, contingent or otherwise) to pay any fee, commission or
compensation to any broker, finder or intermediary with respect to or as a
result of any transaction contemplated by the Documents.
(o) Environmental Matters. The Projects, Borrower, the
Affiliates and, to the best knowledge of Borrower after due inquiry, the
Project Parties (in respect of their obligations under the Documents) are in
compliance with all Environmental Laws. None of Borrower, any Affiliate, and,
to the best knowledge of Borrower after due inquiry, any Project Party has
transported any Hazardous Substance to or from the Projects or used, generated,
manufactured, handled, processed, stored, released, transported, removed,
disposed of or cleaned up any Hazardous Substance on, from, under or about the
Projects in violation of any Environmental Law, and there has occurred no
release or threatened release of any Hazardous Substance on, under, onto,
adjacent to or from the Projects in violation of any Environmental Law. There
are no past, current, pending or threatened Environmental Claims in any way
relating to Borrower, any Affiliate,
<PAGE>
the Projects or, to the best knowledge of Borrower after due inquiry, any
Project Party.
(p) No Adverse Events. No portion of any Project or Site
is subject to a pending or threatened condemnation or appropriation proceeding
that could reasonably be expected to have a Material Adverse Effect.
(q) Public Utility Status.
(i) None of Borrower or the Affiliates is, nor by
reason of the ownership or operation of any Project or any other
transaction contemplated by the Documents will be, subject to
financial, organizational or rate regulation as an "electric utility,"
"electric utility company," "electric corporation," "electrical
company," "public utility," "public service corporation," "gas
utility," "natural gas company" (transporting gas in interstate
commerce), "public service company," "public utility holding company,"
"electric utility holding company," "holding company" or "subsidiary
company" of a holding company, or other similar entity under any Law.
(ii) None of the Agents or the Lenders will, solely
by reason of (A) the ownership or operation of the Projects by the
Affiliates, (B) the Loans, (C) the Liens of the Security Documents or
(D) any other transaction or relationship contemplated by the
Documents, be deemed by any Government Instrumentality to be, or to be
subject to regulation as, an "electric utility," "electric utility
company," "electric corporation," "electrical company," "public
utility," "natural gas company" (transporting gas in interstate
commerce), "gas utility," "public service company," "public utility
holding company," "electric utility holding company," "holding
company" or "subsidiary company" of a holding company, or other
similar entity, or a subsidiary or affiliate of any of the foregoing,
under any Law. So long as the electric energy generating facility of
each Project remains a Qualifying Facility, none of the Agents or the
Lenders will, solely by reason of its or their ownership or operation
of the Projects upon the exercise of their remedies under the Security
Documents, be deemed by any Government Instrumentality to be subject
to financial, organizational or rate regulation as an "electric
utility," "electric corporation," "electrical company," "public
utility," "gas utility," "public service company," "public utility
holding company," "electric utility holding company," "holding
company" or "subsidiary company" of a holding company, or other
similar entity, or a subsidiary or affiliate of any of the foregoing,
under any Law.
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(iii) The electric energy generating facility of
each Project, when constructed or acquired, will constitute a
Qualifying Facility. No fact contained in any Notice of Qualifying
Facility Status relating to any Project or, from and after the date
filed with FERC, its application for certification as a Qualifying
Facility has changed, and the Plans and Specifications and the Project
Documents are consistent, in all material respects, with such Notices
of Qualifying Facility Status and, from and after the dates filed with
FERC, each Project's application for certification from FERC that it
is a Qualifying Facility.
(r) ERISA. None of Borrower or the ERISA Affiliates of
Borrower sponsors, maintains, administers, contributes to, participates in or
has any obligation to contribute to or any liability under any Plan.
(s) Labor Matters. There are no collective bargaining
agreements or Multiemployer Plans covering any employees of Borrower or the
Affiliates and none of Borrower, the Affiliates or, to the best knowledge of
Borrower, any Project Party has experienced any strike, walkout, work stoppage
or other labor action or disturbance during the past five years.
(t) Investment Company Act. None of Borrower or the
Affiliates is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(u) Use of Proceeds.
(i) The proceeds of the Loans have been and will be
used only for the purposes described in Section 2.7 and in accordance
with the requirements and conditions of this Agreement.
(ii) Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G, T, U or X issued by the
Board of Governors of the Federal Reserve System) and no proceeds of
any Loan will be used, directly or indirectly, to purchase or carry
margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock.
(iii) No proceeds of any Loan will be used to
acquire any security in any transaction which is subject to Section 13
or 14 of the Securities Exchange Act of 1934, as amended.
(v) Bank Accounts. The Affiliates do not and, commencing
thirty (30) days after the Closing Date, Borrower will not, maintain any
account or
<PAGE>
deposit with any bank or other depository institution other than the accounts
created under the Disbursement Agreement.
(w) Enforceability; No Immunity.
(i) The descriptions of the Collateral contained in
the Security Documents are true, correct and complete and are
sufficient to describe the Collateral and to create, attach and
perfect the Liens intended to be created by the Security Documents.
All necessary and appropriate deliveries, notices, recordings, filings
and registrations have been effected to perfect First-Priority Liens
on the Collateral in favor of the Term Agent as agent for the Lenders
in all relevant jurisdictions, and the Term Agent as agent for the
Lenders has and will continue to have until the Lenders have been paid
in full and released their Liens duly and validly created, attached,
perfected and enforceable First-Priority Liens on the Collateral in
all relevant jurisdictions.
(ii) None of Borrower or the Affiliates, nor any of
their respective properties, has any immunity from the jurisdiction of
any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution
or otherwise).
(x) Full Disclosure. No information, exhibit or report
furnished to the Agents and the Lenders by Borrower or the Affiliates contains
any material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not misleading.
(y) Insurance. Each of Borrower and the Affiliates is in
compliance, to the extent applicable to it, with all requirements set forth in
the Documents to maintain insurance, including Required Insurance.
Section 4.2 Survival. The representations and warranties of
Borrower and the Affiliates contained in the Documents or made by Borrower or
any Affiliate in any certificate, notice or report delivered pursuant to any
Document will survive the Closing Date, the making and repayment of the Loans
and any transfer or assignment of Notes.
ARTICLE V
COVENANTS
Section 5.1 Affirmative Covenants. Each Borrower covenants
and agrees that, for so long as any Lender has any Commitment hereunder and
until the indefeasible payment in full of the Notes and all amounts payable by
Borrower
<PAGE>
and the Affiliates under the Credit Documents, it will perform and observe
each of the following covenants, unless (and then only to the extent)
compliance with such covenant has been waived pursuant to Section 8.5:
(a) Existence. It will preserve and maintain its limited
liability company existence, rights, franchises and privileges and remain in
good standing in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign limited liability company in good standing in each
jurisdiction in which such qualification is necessary or desirable in view of
its current or proposed business and operations or the ownership of its
properties.
(b) Affiliates. It will cause each Affiliate to preserve
and maintain its corporate or limited liability company existence, rights,
franchises and privileges and to remain in good standing in the jurisdiction of
its incorporation or formation, and to qualify and remain qualified as a
foreign corporation or limited liability company in good standing in each
jurisdiction in which such qualification is necessary or desirable in view of
its current or proposed business and operations or the ownership of its
properties.
(c) Compliance with Laws, Approvals and Obligations. It
will, and will cause the Affiliates to, comply with, and will cause the
Projects to be acquired, constructed and operated safely and in compliance
with, all Applicable Laws, all Required Approvals, the Documents, its and their
other Contractual Obligations and prudent utility practices. It will, and will
cause the Affiliates to, perform its and their obligations under the Documents
and each of its other Contractual Obligations and will diligently enforce all
of its and their rights under the Project Documents and under all guarantees,
warranties and indemnities in its and their favor or relating to the Projects
or any component thereof. It will, and will cause each Affiliate to, satisfy
before the same become delinquent all Claims (including all Claims for labor,
services, materials and supplies and other amounts due under its and their
Contractual Obligations) other than Claims being contested in good faith by
appropriate proceedings with proper reserves established which do not result in
the imposition of a Lien prohibited by Section 5.2(f). It will, and will cause
each Affiliate to, obtain and maintain in full force and effect all Required
Approvals required from time to time and at any time for the execution,
delivery, performance, admission into evidence or enforcement of the Documents
or the acquisition, development, construction, ownership or operation of the
Projects as contemplated under the Documents. It will, and will cause each
Affiliate to, furnish the Agents and the Lenders with true, correct and
complete copies of all Required Approvals upon receipt thereof.
(d) Title. It will cause the Affiliates to maintain good
and marketable title to the Projects and it will, and will cause the Affiliates
to,
<PAGE>
maintain good and marketable title to the other Collateral and warrant and
defend the title to the Projects and the other Collateral against all Claims
that do not constitute Permitted Liens.
(e) Collateral. It will, and will cause each Affiliate
to, take all actions necessary to insure that the Term Agent has and continues
to have in all relevant jurisdictions duly and validly created, attached,
perfected and enforceable First-Priority Liens on the Collateral (including
after-acquired Collateral). It will, and will cause each Affiliate to, deliver
possession of any Collateral to the Term Agent or its designated agent
immediately upon acquiring rights therein to the extent the Term Agent is
required to perfect its interest in such Collateral by taking possession
thereof. It will also maintain the title insurance policies delivered to the
Agents pursuant to Article III.
(f) Construction.
(i) It will cause the Projects to be acquired,
constructed and completed in accordance with the Plans and
Specifications, the Construction/Acquisition Budgets and the
Construction and Draw Schedules. Only new, first-quality components
will be used in constructing and equipping the Projects except as may
be otherwise agreed by the Construction/Acquisition Agent and the Term
Agent in consultation with the Engineer. The Projects will be
constructed entirely on the Sites and in a manner so as not to injure
or encroach upon the property or rights of any other Person. All Punch
List Items for a Project will be completed, to the satisfaction of the
Engineer, within ninety (90) days after the Term Loan Conversion Date
corresponding to such Project.
(ii) It will give the Construction/Acquisition Agent
and the Engineer at least ten (10) Business Days' prior written notice
of each test to be conducted under each EPC Contract, Power Purchase
Agreement or Gas Sales Agreement, and the Construction/Acquisition
Agent, the Engineer and their respective agents and representatives
will be afforded the opportunity to observe and verify each such test.
Completion will not be deemed to have been achieved until the Engineer
determines that it has been achieved. It will give the Agents and the
Engineer at least ten (10) Business Days' prior written notice of the
occurrence of Commercial Operation of any Project.
(iii) It will cause each Construction/Acquisition
Loan to be paid in accordance with this Agreement not later than
October 30, 1998.
(g) Maintenance and Operation. It will maintain and
preserve, and cause the Affiliates, the EPC Contractors and the Operators to
maintain and
<PAGE>
preserve, the Projects and all of its and their other properties in good
working order and condition, ordinary wear and tear excepted. Prior to
the Term Loan Conversion Date with respect to any Project, it will develop an
overhaul, maintenance and repair plan with respect to such Project for the
period from the applicable Term Loan Conversion Date through the Term Loan
Maturity Date, which must be approved by the Engineer and the Term Agent. After
such approval, it will, and will cause the Affiliates to, fully comply with
such overhaul, maintenance and repair plan. It will, and will cause the
Affiliates to, comply with all warranties and maintenance recommendations and
requirements of manufacturers and vendors of component parts of the Projects
and will make all repairs, alterations, additions and replacements necessary
for the Projects (i) to operate safely and to meet the requirements of all
Applicable Laws, all Required Approvals, the Documents, the other Contractual
Obligations of Borrower and the Affiliates and prudent utility practices and
(ii) to operate at the operating levels set forth in the Closing Pro Forma. It
will, and will cause the Affiliates to, promptly correct any structural or
other defect in a Project or any deviation from the Plans and Specifications.
It will, and will cause the Affiliates to, maintain appropriate spare parts,
inventories and redundancies.
(h) Operating Plans and Budgets. At least sixty (60)
days prior to each January 1 occurring after the applicable Term Loan
Conversion Date, it will submit to the Term Agent for approval a proposed
Operating Plan and Budget for each Project for the three Operating Years
commencing on each such January 1, together with a reconciliation of actual
expenses versus those projected in the previously delivered Operating Plan and
Budget. The Term Agent will have the right to request revisions to each
proposed Operating Plan and Budget, and after an Operating Plan and Budget has
been finalized and approved by the Term Agent, it will, and will cause the
Affiliates to, follow and comply with such Operating Plan and Budget in all
particulars. It will have the right to revise any Operating Plan and Budget
with the prior written approval of the Term Agent. Once approved by the Term
Agent, an Operating Plan and Budget or a revised Operating Plan and Budget will
supersede all prior Operating Plans and Budgets and will continue in effect
until a subsequent Operating Plan and Budget has been approved by the Term
Agent.
(i) Patents. It will, and will cause the Affiliates to,
obtain and maintain in full force and effect all patents, trademarks, service
marks, licenses, franchises, trade names, tradestyles, copyrights, technology,
formulas, know-how and processes to be used in or necessary for the design,
construction, ownership and operation of the Projects and for the current and
proposed conduct of its and their businesses, and in its and their use
thereof it will, and will cause the Affiliates to, obtain all required licenses
and consents and not injure or infringe upon the property or rights of any
Person.
<PAGE>
(j) Taxes. It will, and will cause the Affiliates to,
file all Tax returns required by Law in a timely manner (including after having
obtained an extension) and will, and will cause the Affiliates to, pay before
the same become delinquent all Taxes imposed upon them or upon their respective
properties, other than Taxes being contested in good faith by appropriate
proceedings with proper reserves established which do not result in the
imposition of a Lien prohibited by Section 5.2(f).
(k) Records and Inspection Rights. It will keep and
maintain, and will cause the Affiliates, the EPC Contractors and the Operators
to keep and maintain, true, correct and complete records and books of account,
in which complete entries will be made in accordance with GAAP and Applicable
Law, reflecting all financial transactions of the Projects, Borrower, the
Affiliates, the EPC Contractors and the Operators. It will also, and will cause
the Affiliates to, keep and maintain true, correct and complete inventories of
all Collateral and records of all transactions relating thereto. All such
records, books of account and inventories will be kept and maintained at its
principal place of business or at the Sites. At any reasonable time and from
time to time, it agrees to permit, and to cause the Affiliates, the EPC
Contractors and the Operators to permit, either Agent, the Engineer and any
agent or representative thereof, to examine and make copies of and abstracts
from such records, books of account and inventories, to visit the Projects and
the other properties of Borrower and the Affiliates and to discuss the affairs,
finances and accounts of Borrower, the Affiliates and the Projects directly
with its and their auditors and with any of its and their officers or managers;
provided, that unless a Default or an Event of Default has occurred and is
continuing, all discussions with the auditors of Borrower and the Affiliates
will include a representative of Borrower, and the Agents will provide a copy
of all written correspondence with the auditors to Borrower. It will, and will
cause the Affiliates to, at all times maintain at the Sites or at its principal
place of business a complete set of the current and, if available, as-built
plans and specifications for the Projects, which will be available for
inspection by the Agents, the Engineer and their respective agents and
representatives.
(l) Reporting Requirements. It will, and will cause the
Affiliates to, furnish to the Agents and the Lenders:
(i) as soon as available and in any event within
sixty (60) days after the end of each of the first three quarters of
each fiscal year of such Person, complete unaudited financial
statements of such Person, including the balance sheet of such Person
as of the end of such quarter, and profit and loss statements and
statements of cash flows of such Person for such quarter and for the
elapsed portion of such fiscal year, in each case prepared in
accordance with GAAP (subject to normal year-end
<PAGE>
adjustments and the absence of footnote disclosures) and setting
forth in comparative form the figures for the corresponding period of
the previous fiscal year of such Person, certified in a manner
acceptable to the Agents by the chief financial officer of such Person;
(ii) as soon as available and in any event within
one hundred and twenty (120) days after the end of each fiscal year of
such Person, complete financial statements of such Person (which, in
the case of Borrower will be audited), including the balance sheet of
such Person as of the end of such fiscal year, and a profit and loss
statement and a statement of cash flows of such Person for such fiscal
year, in each case prepared in accordance with GAAP and setting forth
in comparative form the figures for the previous fiscal year of such
Person, certified in a manner acceptable to the Agents by the chief
financial officer of such Person or, in the case of Borrower,
independent certified public accountants acceptable to the Agents;
(iii) within ten (10) days after the last day of
each calendar month during which a Construction/Acquisition Loan is
outstanding, a Monthly Construction Report for each Project with
respect to which a Construction/Acquisition Loan is outstanding in the
form of Exhibit 5.1(l)(iii);
(iv) within sixty (60) days after the end of each
fiscal quarter of such Person, a Quarterly Report and Certificate in
the form of Exhibit 5.1(l)(iv);
(v) within one hundred and twenty (120) days after
the end of each fiscal year of such Person, an Annual Report and
Certificate in the form of Exhibit 5.1(l)(v);
(vi) promptly after the sending, filing or receipt
thereof, a copy of each material report, notice, certificate,
application, demand, request or other communication that such Person
sends to, files with or receives from any Government Instrumentality
or Project Party or sends or receives pursuant to any Document that
relates to any matter that could reasonably be expected to have a
Material Adverse Effect;
(vii) promptly after receipt thereof, copies of each
Required Approval; and
(viii) such other information respecting the
operations or condition (financial or otherwise) of such Person or the
Projects or the other Collateral as an Agent may from time to time
reasonably request.
<PAGE>
(m) Notice Requirements. It will, and will cause the
Affiliates to, give the Agents and the Lenders prompt written notice of the
occurrence of any of the following:
(i) any Default or Event of Default;
(ii) any default, breach or violation or any
potential default, breach or violation under any Contractual
Obligation of such Person;
(iii) any actual, proposed or threatened
termination, rescission or amendment of, waiver under or Claim with
respect to any Project Document;
(iv) any material Loss;
(v) any Material Adverse Effect or any event or
circumstance that could reasonably be expected to have a Material
Adverse Effect;
(vi) any pending or threatened Claim, action,
attachment, proceeding, suit, litigation, investigation or arbitration
involving or affecting such Person, any Project Party or any of their
respective properties or assets (including without limitation the
Projects and the other Collateral) by any Person or before any
Government Instrumentality that concerns the status of a Project as a
Qualifying Facility or that could reasonably be expected to have a
Material Adverse Effect;
(vii) any termination, revocation, suspension or
modification of any Required Approval or any action or proceeding that
could reasonably be expected to result in any of the foregoing;
(viii) the receipt of any management letter or
similar communication from such Person's auditors, or the resignation,
discharge or change of such Person's auditors;
(ix) any Environmental Claim or any fact,
circumstance or condition (including any release or spill of any
Hazardous Substance) that could form the basis of an Environmental
Claim with respect to such Person, any Project Party (in connection
with its obligations under the Documents) or any Project or any
portion thereof or that could reasonably be expected to have a
Material Adverse Effect;
<PAGE>
(x) any pending or threatened condemnation or
appropriation proceeding affecting any Project or any portion thereof
that could reasonably be expected to have a Material Adverse Effect;
(xi) any material dispute involving such Person or
any Project Party on the one hand and any Government Instrumentality
or Project Party on the other hand (provided, that no notice need be
given of a dispute between a Project Party and a Government
Instrumentality unless such dispute could reasonably be expected to
result in a Material Adverse Effect);
(xii) any event or claim of force majeure under any
Project Document;
(xiii) any forced outage with respect to any Project
that could reasonably be expected to result in a Material Adverse
Effect;
(xiv) such Person's or any ERISA Affiliate's
adoption of or participation in any Plan, or intention to adopt or
participate in any Plan; or
(xv) any Internal Revenue Service ruling (other than
a private letter or other non-public ruling not addressed to NRG, NEO,
Borrower or any Affiliate) or any change in Law that could adversely
affect the amount or availability to Guarantor, NEO or the Affiliates
of the Section 29 tax credits or the validity or enforceability of the
Non-Operating Interest Acquisition Agreement.
Each notice delivered pursuant to this Section 5.1(m) must include reasonable
details concerning the occurrence that is the subject of such notice as well as
Borrower's and the Affiliates' proposed course of action, if any. Delivery of a
notice pursuant to this Section 5.1(m) will not affect Borrower's and the
Affiliates' obligations under any other provision of the Credit Documents.
(n) Reserves. It will establish the Debt Service Reserve
Account and maintain the balance therein required by the Disbursement
Agreement.
(o) Qualifying Facility. It will, and will cause the
Affiliates to, maintain each Project as a Qualifying Facility.
(p) Insurance.
(i) It will maintain, and will cause the Affiliates,
the EPC Contractors and the Operators to maintain, all Required
Insurance and, on each anniversary of the Closing Date, will cause the
Insurance Consultant
<PAGE>
to provide a letter to the Agents certifying that the insurance
maintained by Borrower and the Affiliates is adequate and consistent
with industry standards. All Required Insurance will be provided by
financially sound and reputable insurance companies or associations
rated "A-" or better (and a minimum size rating of IX) by Best's
Insurance Guide and Key Ratings (or an equivalent rating by another
nationally recognized insurance rating agency of similar
standing if Best's Insurance Guide and Key Ratings is no longer
published) or other insurance companies of recognized responsibility
satisfactory to the Agents, including AEGIS. Borrower may fulfill its
obligations under this Section 5.1(p) under a corporate ("master")
program or through Contractor / Operator programs of insurance,
subject to the prior approval of the Agents.
(ii) All Required Insurance will provide for waivers
of subrogation in favor of the Agents and the Lenders, will not be
cancelable without at least sixty (60) days' prior written notice to
the Agents (except for 10 days for non-payment of premium), and all
third party liability policies will name the Agents and the Lenders as
additional insureds (except in the case of workers compensation
insurances). Insurance protecting Project assets and revenues
(property, boiler, business interruption, etc.) shall contain a
standard Lender's Loss Payable endorsement, acceptable to the Agents,
and name the Lenders or their assignee as first loss payee/mortgagee
as respects mortgaged property. Property-related policies shall
provide that any payment thereunder for loss or damage with respect to
the mortgaged property shall be made to the Project Revenue Account.
Such property policies shall provide that any payment of less than
$100,000 made in respect of any single casualty or other occurrence
may be paid to Borrower, unless the Agents have notified the
respective insurer that an Event of Default has occurred and is
continuing. Insurance supplied by Borrower shall be primary as
respects any other insurance carried by or on behalf of the Agents or
the Lenders. The interests of the Agents and the Lenders shall not be
invalidated by any action or inaction of any Person or by any breach
or violation by any Person of any warranties, declarations or
conditions in such policies. All liability insurance will provide a
severability of interest or cross liability clause.
(iii) All Required Insurance maintained by the EPC
Contractors and the Operators will provide for waivers of subrogation
in favor of Borrower, the Affiliates, the Agents and the Lenders, will
not be cancelable without at least sixty (60) days' prior written
notice to the Agents (except 10 days for non-payment of premium), and
all third party liability policies will name Borrower, the Affiliates,
the Agents and the
<PAGE>
Lenders as additional insureds (except in the case of worker's
compensation insurance). Insurance protecting Project assets and
revenue (property, boiler, business interruption, etc.) will name the
Agents as the first loss payee/mortgagee as respects mortgaged
properties. All liability insurance maintained by the EPC Contractors
and the Operators will provide a severability of interest or cross
liability clause and will be primary and not excess to or contributing
with any insurance or self-insurance maintained by Borrower, the
Affiliates, the Agents or the Lenders.
(iv) On the Closing Date and on each anniversary
thereof, Borrower will furnish to the Agents evidence of insurance, in
the form of binders, cover notes or certificates of insurance
evidencing all coverages in place and certify (A) that all premiums
are paid or current to date and (B) that Borrower is in compliance
with all provisions in this Agreement relating to Required Insurance.
Borrower will provide the Agents with copies of all insurance policies
and certificates and other information that the Agents may reasonably
request in writing with respect to the Required Insurance or the
providers thereof and, without any requirement of request by an Agent,
will provide the Agents with copies of all replacement policies within
15 days of receipt of such policies by Borrower.
(v) Borrower will, and will cause the Affiliates to,
collaterally assign to the Term Agent and grant the Term Agent a Lien
upon all insurance proceeds from the Projects obtained by such Persons
or in which such Persons have any rights or interests (whether or not
complying with or described by this Section 5.1(p), and the Term Agent
will have the right to make, settle, compromise and liquidate any and
all Claims thereunder, without prejudice to its other rights and
remedies under the Documents, the Required Insurance or Applicable
Law.
(vi) In the event of a Loss (or a series of Losses
arising from a related causal factor or occurring within a period of
five (5) Business Days) of less than five percent (5%) of the total
Qualified Project Construction Expenses or Qualified Project
Acquisition Expenses (as projected in the Closing Pro Forma as of the
Closing Date), as the case may be, of a Project in the aggregate,
Borrower and the Affiliates will have the right to apply the insurance
proceeds, if any, from such Loss to the restoration of the affected
Project if such proceeds are sufficient, in the opinion of the
Engineer, to pay the cost of restoration and cover Debt Service on the
Term Loan corresponding to such Project during any period during which
the revenues of the Project are reduced due to the restoration.
<PAGE>
(vii) In the event that any policy is written on a
"claims made" basis and is approved by the Agents and such policy is
not renewed or the retroactive date of such policy is changed,
Borrower shall obtain for each such policy or policies the broadest
basic and supplemental extended reporting period coverage or "tail"
reasonably available in the commercial insurance market for each such
policy or policies and shall provide the Agents with proof that such
basic and supplemental extended reporting period coverage or "tail"
has been obtained.
(viii) In the event any insurance (including limits
or deductibles thereof) hereby required to be maintained, other than
insurance required by law to be maintained and the builder's risk
insurance, described in Exhibit 3.1(i), shall not be available and
commercially feasible in the commercial insurance market the Agents
with the approval of the Insurance Consultant, shall not unreasonably
withhold their agreement to waive such requirement to the extent the
maintenance thereof is not so available; provided, that (A) Borrower
shall first request any such waiver in writing which request shall be
accompanied by written reports prepared by an independent insurance
advisor of recognized national standing certifying that such insurance
is not reasonably available and commercially feasible in the
commercial insurance market for plants of similar type and capacity
(and, in any case where the required amount is not so available,
certifying as the maximum amount which is so available) and explaining
in detail the basis for such conclusions, such insurance advisers and
the form and substance of such reports to be reasonably acceptable to
the Agents; (B) at any time after the granting of any such waiver the
Agent may request (but no more than once every 180 days) and Borrower
shall furnish to the Agents within 30 days after such request,
supplemental reports reasonably acceptable to the Agents from such
insurance advisers updating their prior reports and reaffirming such
conclusions; and (C) any such waiver shall be effective only so long
as such insurance shall not be available and commercially feasible in
the commercial insurance market it being understood that the failure
of Borrower to timely furnish any such supplemental report shall be
conclusive evidence that such waiver is no longer effective because
such condition no longer exists, but that such failure is not the only
way to establish such non-existence.
(q) Litigation. In any action, suit, litigation,
investigation, arbitration or other proceeding involving Borrower, the
Affiliates or any Project, Borrower will, and will cause the Affiliates to,
make all filings and responses in a timely manner, pursue all remedies and
appeals, defend their rights and properties with diligence and take all lawful
action to avoid a Material Adverse Effect.
<PAGE>
Borrower and the Affiliates will promptly pay any valid, final judgment
rendered against it or any Project.
(r) Minimum Coverage Ratio. Borrower will maintain a
Minimum Coverage Ratio of not less than 1.3 to 1 for the twelve (12) month
period ending on the last day of the next preceding month and for the projected
subsequent two (2) twelve (12) month periods as forecast in the Operating Plans
and Budgets. The first such test shall be performed as of the first anniversary
of the Closing Date and thereafter as of the end of each fiscal quarter of
Borrower.
Section 5.2 Negative Covenants. Each Borrower covenants and
agrees that, for so long as any Lender has any Commitment hereunder and until
the indefeasible payment in full of the Notes and all amounts payable by
Borrower and the Affiliates under the Credit Documents, it will perform and
observe each of the following covenants, unless (and then only to the extent)
compliance with such covenant has been waived pursuant to Section 8.5:
(a) Business. It will not, and will not permit any
Affiliate to, make any material change in the nature of its business or engage
in any business or activity not contemplated by the Documents. It will not, and
will not permit any Affiliate to, change its name, its legal address, the
address of its principal place of business or chief executive office or the
location of its books, records and contracts, or store or maintain Collateral
at any location other than the Sites and such principal place of business,
without the prior written consent of the Agents. It will not, and will not
permit any Affiliate to, adopt or change any trade name or fictitious business
name. It will not, and will not permit any Affiliate to, form or have any
subsidiaries other than other Affiliates and will not, and will not permit any
Affiliate to, own or hold the capital stock, securities, debt, assets or
obligations of, or any interest in, any Person other than Borrower and the
Affiliates. It will not, and will not permit any Affiliate to, enter into any
partnership, joint venture, royalty agreement or profit-sharing or similar
arrangement.
(b) Mergers and Sales of Assets. It will not, and will
not permit any Affiliate to, merge or consolidate with any Person, or liquidate
or dissolve. It will not, and will not permit any Affiliate to, sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) any asset except (i) in the ordinary course of business
(including such sales from one Affiliate to another Affiliate), (ii) in
connection with the replacement of such asset with a replacement that is
appropriate and complies with all requirements of the Documents or (iii) in an
instance in which the proceeds of such sale, assignment, lease or other
disposition do not exceed fifty thousand Dollars ($50,000) in each instance and
five percent (5%) of the total Qualified Project Construction
<PAGE>
Expenses or Qualified Project Acquisition Expenses (as projected in the Closing
Pro Forma), as the case may be, of the Project from which such asset is being
sold, assigned, leased or otherwise disposed of in the aggregate and, in every
instance, such sale, assignment, lease or other disposition has no material
impact on the operating cash flow of the relevant Project. The sale of gas,
electric or thermal energy pursuant to a Power Purchase Agreement, a Gas Sales
Agreement or any other Project Document will not violate this Section 5.2(b).
(c) Contractual Obligations.
(i) It will not, and will not permit any Affiliate
to, enter into any material Contractual Obligation. If requested by an
Agent, it will, and will cause an Affiliate to, collaterally assign
any Contractual Obligation to the Term Agent and will deliver to the
Term Agent the written consent to assignment of the other party or
parties to such Contractual Obligation and a satisfactory opinion of
Borrowers' Counsel confirming the validity and enforceability of such
assignment and consent. It will not, and will not permit any Affiliate
to, pledge or assign any Contractual Obligation to any Person other
than the Term Agent.
(ii) It will not, and will not permit any Affiliate
to, amend, suspend, terminate or grant a waiver under any Project
Document, or take, or fail to take, any action that could result in
the termination of, or the impairment of any right of such Person,
either Agent or any Lender under, any Project Document or any other
contract, arrangement or agreement material to the Projects.
Notwithstanding the foregoing, Borrower and the Affiliates may approve
change orders under the EPC Contracts without the Agents' or the
Lenders' consent; provided, that the work covered by such change
orders does not exceed twenty-five thousand Dollars ($25,000) in the
case of any single change order or fifty thousand Dollars ($50,000) in
the aggregate per Project over any twelve-month period, and provided,
further, that none of such change orders materially affects the
character of the Projects or the ability of Borrower and the
Affiliates to fulfill their obligations under the Documents.
Notwithstanding the foregoing, it will not, and will not permit any
Affiliate to, change, or approve a change order which would change the
design, scope or nature of any Project, the Plans and Specifications
of any Project, the Construction and Draw Schedule of any Project or
the performance or availability guarantees or tests.
(iii) The Organizational Documents of Borrower and
the Affiliates may not be amended or any provision thereof waived.
<PAGE>
(iv) None of Borrower or the Affiliates will declare
Final Performance Acceptance or Completion without the approval of the
Agents (in consultation with the Engineer), which shall not be
unreasonably withheld.
(v) It will, and will cause the Affiliates to,
promptly deliver to the Agent copies of (A) all material Contractual
Obligations, (B) all amendments, suspensions, termination and waivers
of any material Contractual Obligation and (C) all change orders
approved or entered into after the date of this Agreement.
(d) Guaranties. Other than pursuant to a Credit
Document, it will not, and will not permit any Affiliate to, assume, guarantee,
endorse or otherwise become directly or contingently liable for (including
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss) the indebtedness or obligation
of any other Person, except for guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(e) Investments. It will not, and will not permit any
Affiliate to, make any loan or advance to any Person except for loans that are
expressly subordinated to the Loans pursuant to the Project Documents. Except
for Permitted Investments made in compliance with the Disbursement Agreement,
it will not, and will not permit any Affiliate to, purchase or otherwise
acquire the capital stock, securities, debt, assets or obligations of, or any
interest in, any Person other than Borrower and the Affiliates.
(f) Liens. It will not, and will not permit any other
Person to, create, incur, assume or suffer to exist, any Lien upon or with
respect to any of the Collateral or any of the other property of it or the
Affiliates, now owned or hereafter acquired, or assign or otherwise convey, or
permit any Person to assign or otherwise convey, any right to receive income or
revenues from or of any Project, except that the foregoing restrictions will
not apply to the following (collectively, "Permitted Liens"):
(i) the Security Document Liens;
(ii) Liens for Taxes, if such Taxes (A) are not at
the time delinquent and thereafter can be paid without penalty or (B)
are being contested in good faith by appropriate proceedings with
reserves established in accordance with GAAP and such Liens have been
bonded over and do not involve any risk that a significant interest in
or right to any Collateral
<PAGE>
may be sold, lost or forfeited or that any Security Document Lien may
be impaired;
(iii) carriers', warehousemen's, materialmen's and
mechanics' Liens and other similar Liens imposed by Law and arising in
the ordinary course of business in connection with the construction or
operation of the Projects, if such Liens have been bonded over and
either (A) are not filed of record and are not delinquent or (B) are
being contested in good faith by appropriate proceedings with proper
reserves established, have not proceeded to judgment and do not
involve any risk that a significant interest in or right to any
Collateral may be sold, lost or forfeited or that any Security
Document Lien may be impaired;
(iv) Liens arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits or similar legislation
(other than Liens imposed by ERISA);
(v) purchase money security interests in discrete
items of equipment not comprising an integral part of a Project when
the obligation secured is incurred for the purchase of such equipment
and does not exceed one hundred percent (100%) of the lesser of cost
or fair market value thereof at the time of acquisition, and the
security interest does not extend beyond the equipment involved;
provided, that such Liens and the amount of materials, equipment and
fixtures supplied or purchased pursuant to this clause (v) will not,
taken together, at any time exceed the maximum aggregate amount of
two hundred thousand Dollars ($200,000);
(vi) the exceptions to the titles of the Sites set
forth in the title reports delivered pursuant to Article III;
(vii) Liens arising from debt permitted pursuant to
Section 5.2(g);
(viii) Liens securing the right of the City of San
Diego to purchase the Miramar Project in form and substance acceptable
to the Agents;
(ix) Liens of the construction subcontractors on the
Edgeboro Project existing by reason of a failure by the EPC Contractor
for the Edgeboro Project to pay pre-petition claims relating to its
bankruptcy proceedings (provided, that the Liens described in this
clause (ix) shall cease to be Permitted Liens upon the first funding
of a Construction/Acquisition Loan relating to the Edgeboro Project);
and
<PAGE>
(x) Liens provided for in the Amended and Restated
Operating Agreement of Minnesota Methane LLC dated as of April 15,
1997.
If foreclosure or enforcement of any Lien upon a Project, any part thereof or
any other Collateral is at any time initiated, the Agents will have the right,
but not the obligation, to take any action they deem appropriate, including
payment of the obligation secured by such Lien, and Borrower will immediately
upon demand reimburse the Agents for all sums expended by the Agents in taking
any such action. Any amount not reimbursed upon demand will bear interest at
the Default Rate and will be an obligation secured by the Security Document
Liens.
(g) Indebtedness. It will not, and will not permit any
Affiliate to, create, incur, assume or suffer to exist any Indebtedness,
except:
(i) Indebtedness of Borrower and the Affiliates
under the Notes and the other Credit Documents;
(ii) Indebtedness of Borrower and the Affiliates
subject to the Subordination Agreement or otherwise expressly
subordinated pursuant to the Documents to the Loans; and
(iii) Indebtedness of Borrower and the Affiliates
not to exceed, in the aggregate, one hundred thousand Dollars
($100,000) at any one time outstanding, secured by Liens permitted by
Section 5.2(f)(v).
(h) Lease Obligations. It will not, and will not permit
any Affiliate to, create or suffer to exist any obligation for the payment of
rental for any property under leases or agreements to lease having a term of
one year or more, other than the Project Documents.
(i) Distributions. It will not, and will not permit any
Affiliate to, make, declare or pay any distribution, dividend or return of
capital, or purchase, redeem or otherwise acquire for value any ownership
interest now or hereafter outstanding, or make any distribution of assets or
property to any other Person except for distributions made in compliance with
the Disbursement Agreement. It will not, and will not permit any Affiliate to,
pay any salary, commission, bonus or fee to any Affiliate unless such salary,
commission, bonus or fee is expressly contemplated by and permitted under the
Budgets then in effect.
(j) Changes in Control. It will not, and will not permit
any Affiliate to, effect or permit any sale, transfer or encumbrance of any
ownership interest in Borrower or any Affiliate or any change of control of
Borrower or any Affiliate.
<PAGE>
(k) Transactions with Affiliates and Third Parties. It
will not, and will not permit any Affiliate to, directly or indirectly, conduct
any business or enter into any transaction with any Affiliate unless the
details of such business or transaction have been fully disclosed to the Agents
and the Agents have given their prior written consent. It will not, and will
not permit any Affiliate to, enter into any transaction with any Person other
than in the ordinary course of business and on an arm's-length basis and will
not enter into any sole or exclusive business relationships.
(l) Environmental Compliance.
(i) It will not, and will not authorize any other
Person to, use, generate, manufacture, handle, process, store,
release, transport, remove, dispose of or clean up any Hazardous
Substance on, under or from any Project, or onto any other property,
in violation of any Environmental Law or in a manner that could lead
to any Environmental Claim or pose a material risk to human health or
the environment. It will comply fully, and will cause all other
Persons authorized or suffered to be present by Borrower or any
Affiliate at a Project to comply fully, with all Environmental Laws.
(ii) It will, and will cause the Affiliates to,
promptly take all actions and pay all costs necessary to comply with
all Environmental Laws, to remove and dispose of all Hazardous
Substances and to clean-up the Projects and any other property
affected by any Project or the activities of Borrower, the Affiliates,
the Project Parties or their respective agents or for which Borrower
and the Affiliates are otherwise responsible. If Borrower or the
Affiliates fail to take the actions or pay the costs required under
this Section 5.2(l), the Agents may, but have no obligation to, take
such actions or pay such costs, and all amounts so expended will be
obligations of Borrower to the Lenders under the Credit Documents
payable upon demand and secured by the Liens of the Security
Documents. Nothing in this Section 5.2(l) will impose any obligation
or liability whatsoever on the Agents or the Lenders.
(iii) From time to time and at any time, the Agents
may cause an environmental audit of a Project to be conducted to
confirm Borrower's and the Affiliates' compliance with this Section
5.2(l). It agrees, and will cause the Affiliates, to cooperate fully
with the Agents and their agents in connection with each such audit
and, not more than once every two calendar years, to pay the cost
thereof.
<PAGE>
(m) Public Utility Status.
(i) It will not, and will not permit any Affiliate
to, either by act or omission, become, or cause any Agent or any
Lender to become, subject to financial, organizational or rate
regulation as an "electric utility," "electric utility company,"
"electric corporation," "electrical company," "public utility,"
"public service corporation," "gas utility," "natural gas company"
(transporting gas in interstate commerce), "public service company,"
"public utility holding company," "electric utility holding company,"
"holding company" or "subsidiary company" of a holding company, or
other similar entity, under any Law.
(ii) It will not, and will not permit any Affiliate
to, take any action the effect of which would be for the electric
energy generating facilities of a Project to cease to be a Qualifying
Facility.
(n) ERISA. Neither of Borrower nor any ERISA Affiliate
will adopt, maintain, sponsor, participate in or incur any liability or
obligation under or to any Plan or incur any obligation to provide
post-retirement benefits to any Person.
(o) Use of Proceeds. It will, and will cause the
Affiliates to, use the proceeds of the Loans only for the purposes described in
Section 2.7 and in accordance with the requirements and conditions of the
Credit Documents. It will not, and will not permit any Affiliate to, engage in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation G, T, U or X issued by the Board
of Governors of the Federal Reserve System) and no proceeds of any Loan will
be used, directly or indirectly, to purchase or carry margin stock or to
extend credit to others for the purpose of purchasing or carrying margin
stock. No proceeds of any Loan will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Securities Exchange
Act of 1934, as amended.
(p) Bank Accounts. It will not, and will not permit any
Affiliate to, maintain any account or deposit with any bank or other depository
institution other than the accounts created under the Disbursement Agreement
and such other accounts as the Agents may approve in writing and in which the
Lenders will have a perfected, valid and enforceable First-Priority Lien. It
will not, and will not permit any Affiliate to, deposit funds into any account
other than the accounts created under the Disbursement Agreement.
(q) Auditors. It will not, and will not permit any
Affiliate to, discharge or change its auditors or change its fiscal year.
<PAGE>
(r) Publicity. It will not, and will not permit any
Affiliate to, issue, or consent to the issuance of, any press release,
announcement or advertisement that refers to the financing contemplated by the
Credit Documents without the prior written consent of the Agents.
(s) Abandonment. It will not, and will not permit any
Affiliate to, abandon a Project or cease to operate a Project for any period of
thirty (30) consecutive days.
ARTICLE VI
EVENTS OF DEFAULT
Sectio 6.1 Events of Default. Each of the following
constitutes an "Event of Default" under this Agreement:
(a) Any principal of any Loan is not paid within five
(5) days after such principal is due or any Equity Contribution is not paid
when due.
(b) Any interest on any Loan or any fee or other amount
payable under any Credit Document (other than amounts described in paragraph
(a) above) is not paid within five (5) days after such interest, fee or other
amount is due.
(c) Any representation or warranty made by Guarantor,
NEO, Borrower, any Affiliate or any Project Party (or any of their respective
officers or representatives) in any Document or in any certificate, financial
statement or other document furnished pursuant to or in connection with any
Document proves to have been incorrect or misleading in any material respect at
the time it was made, deemed to have been made, or confirmed; provided, that
the fact that a representation or warranty of a Project Party was incorrect or
misleading shall not be an Event of Default unless such fact could reasonably
be expected to have a Material Adverse Effect.
(d) Guarantor, NEO, Generation II Locomotives, Borrower
or any Affiliate fails to perform or observe any term, covenant or agreement
contained in any Credit Document (other than any term, covenant or agreement
that is the basis of another Event of Default) to be performed or observed by
it and such failure remains unremedied for five (5) days after the occurrence
thereof; provided, that, if such failure can not be remedied within such five
(5) day period, and if Borrower or such other Person is diligently seeking to
remedy such failure, and if such failure is reasonably likely to be remedied
within thirty (30) days after the initial five (5) day period, then Borrower or
such other Person shall have an additional thirty (30) days to remedy such
failure.
<PAGE>
(e) Any Project Party fails to perform or observe any
term, covenant or agreement contained in any Document (other than any term,
covenant or agreement that is the basis of another Event of Default) to be
performed or observed by it, such failure is not remedied within any applicable
grace period and such failure could reasonably be expected to have a Material
Adverse Effect.
(f) The Security Documents for any reason cease to
create perfected, valid and enforceable First-Priority Liens on the Collateral,
or NEO, Generation II Locomotives, Borrower or any Affiliate so states in
writing; provided, that if a perfected, valid and enforceable First-Priority
Lien on the Collateral can be created within thirty (30) days, and if Borrower
is diligently seeking to do so, then Borrower shall have thirty (30) days to
create such a Lien.
(g) Any provision of any Document (i) is terminated,
repudiated or declared to be invalid by any party thereto or by any Government
Instrumentality or (ii) for any reason ceases to be valid and binding and of
full force and effect and, in either case, could reasonably be expected to have
a Material Adverse Effect.
(h) Borrower or any Affiliate fails to pay any
Indebtedness (other than Indebtedness evidenced by the Notes or arising under
the Credit Documents) or any interest or premium thereon when due; or any other
default under any agreement or instrument relating to any such Indebtedness, or
any other event, occurs and continues after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such default
or event is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness or to permit the exercise of any remedy against Borrower or
any Affiliate or any of their respective properties, whether or not such
default or event is waived by the holders or trustees for such Indebtedness; or
any such Indebtedness is declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof.
(i) A final judgment or order for the payment of money
in excess of two hundred fifty thousand Dollars ($250,000) is rendered against
Borrower or any Affiliate and either (i) enforcement proceedings are commenced
by any creditor upon such judgment or order or (ii) a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, is not in
effect for any period of ten (10) consecutive days.
(j) A Bankruptcy Event occurs with respect to Guarantor,
NEO, Generation II Locomotives, Borrower, any Affiliate or any Project Party
and, in the case of a Project Party, such event could reasonably be expected to
have a Material Adverse Effect.
<PAGE>
(k) (i) Any Law is enacted, (ii) any change in Law or
any change in the interpretation or administration of any Law (having the force
of Law) occurs, (iii) any Claim is asserted against a Project, Guarantor, NEO,
Generation II Locomotives, Borrower, any Affiliate or any Project Party or (iv)
any other event or circumstance occurs, that has or could reasonably be
expected to have a Material Adverse Effect.
(l) A Major Loss occurs.
(m) Any Governmental Instrumentality or any Person
acting or purporting to act under the authority of any Governmental
Instrumentality takes any action to condemn, seize or appropriate, or to assume
custody or control of, all or any substantial part of a Project or other
property of Borrower or any Affiliate, or takes any action to displace or
curtail the authority of the management of Borrower or any Affiliate and such
action could reasonably be expected to have a Material Adverse Effect.
(n) An "Event of Default" occurs under the Guaranty.
(o) Guarantor fails to perform or observe any term,
covenant or agreement in the Non-Operating Interest Acquisition Agreement to be
performed by it and such failure remains unremedied for five (5) days after the
occurrence thereof.
(p) An "Event of Default" occurs under any loan
agreement to which any primary fuel supplier to any Project, or any parent
company thereof, is a party.
Section 6.2 Remedies. The Agents will use reasonable
efforts to notify Borrower of an Event of Default, but any failure by the
Agents to notify Borrower of an Event of Default will not effect the rights of
the Agents and the Lender hereunder or under the other Credit Documents. Upon
the occurrence of an Event of Default described in Section 6.1(j), the
Commitments of the Lenders will forthwith terminate and the Notes, all
interest thereon and all other amounts payable under the Credit Documents
will become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly
waived by Borrower. Upon the occurrence and during the continuance of any
other Event of Default, the Agents will at the request, or may with the
consent, of the Majority Lenders, by notice to Borrower, (i) declare the
Commitment of each Lender to be terminated, whereupon the same will forthwith
terminate and (ii) declare the Notes, all interest thereon and all other
amounts payable under the Credit Documents to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts will become and be
<PAGE>
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by Borrower.
Section 6.3 Right to Complete.
(a) Upon the occurrence and during the continuance of an
Event of Default, the Agents and the Lenders, in addition to any other remedy
that they may have under the Credit Documents or by Law, will have the right
(but not the obligation) in their sole and absolute discretion:
(i) to enter upon a Site, a Project and other
property owned or leased by Borrower or any Affiliate and complete the
acquisition, construct, equip and complete a Project, at the risk,
cost and expense of Borrower;
(ii) at any and all times to discontinue any work
commenced by them in respect of a Project or to change any course of
action undertaken by them; and
(iii) to take over and use all or any part of the
labor, materials, supplies and equipment contracted for by or on
behalf of Borrower and the Affiliates, whether or not previously
incorporated into a Project; provided, that the Agents will use
reasonable efforts to provide Guarantor with draft agreements relating
to their actions taken pursuant to this Section 6.3(a) and will
provide Guarantor with reasonable opportunity to comment thereon.
The Agents may exercise the rights described in this Section 6.3 from time to
time and at any time after the occurrence and during the continuance of an
Event of Default, whether or not the Notes have become due and payable and
whether or not foreclosure has been initiated under the Security Documents. In
no event will the actions of the Agents or the Lenders constitute either Agent
or any Lender a mortgagee-in-possession, and Borrower hereby indemnifies the
Agents and the Lenders from and against any and all costs and liabilities
resulting from any such characterization or from their actions or omissions to
act pursuant to this Section 6.3.
(b) In connection with any construction or development
of a Project undertaken by the Agents and the Lenders pursuant to the
provisions of this Section 6.3, they may:
(i) engage builders, contractors, architects,
engineers, security services and others for the purpose of furnishing
labor, material, equipment and security in connection with any
construction of a Project;
<PAGE>
(ii) pay, settle or compromise, or cause to be paid,
settled or compromised, all claims or bills that may become Liens
against a Site or a Project, or that have been or may be incurred in
any manner in connection with the acquisition, construction,
development, completion and equipping of a Project or for the
discharge of Liens or defects in the title of a Site or a Project; and
(iii) take such other action or refrain from acting
under this Agreement as the Lenders may in their sole and absolute
discretion from time to time determine.
(c) Borrower will be liable to the Agents and the
Lenders for all sums paid or incurred for the acquisition, construction,
development, completion and equipping of a Project and all payments made or
liabilities incurred by the Agents and the Lenders under this Agreement of any
kind whatsoever will be paid by Borrower to the Agents and the Lenders upon
demand with interest to the date of payment to the Agents and the Lenders at
the Default Rate.
(d) For the purpose of carrying out the provisions and
exercising the rights, powers and privileges granted by this Section 6.3,
Borrower irrevocably constitutes and appoints the Agents, with full power of
substitution, as its true and lawful attorneys-in-fact, in its name and on its
behalf, and at its expense, to execute, acknowledge and deliver any document
and instrument and to do and perform any act such those referred to in this
Section 6.3, without notice to or the consent of Borrower. This power of
attorney is coupled with an interest and is not revocable.
ARTICLE VII
THE AGENTS
Section 7.1 Authorization and Action. Each
Construction/Acquisition Lender hereby appoints and authorizes the
Construction/Acquisition Agent, and each Term Lender hereby appoints and
authorizes the Term Agent, to take such actions as agent on its behalf and to
exercise such powers under this Agreement and the other Credit Documents as
are delegated to each such Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto. The Agents will have
no duties, responsibilities, obligations or liabilities other than those
expressly set forth in the Credit Documents, and no additional duties,
responsibilities, obligations or liabilities will be inferred from the
provisions of the Credit Documents or imposed on the Agents. As to matters
not expressly provided for by this Agreement or the other Credit Documents
(including enforcement or collection of the Notes), the Agents will not be
required to exercise any discretion or take any action, but will
<PAGE>
be required to act or to refrain from acting (and will be fully protected in so
acting or refraining from acting) upon the instructions of the Majority
Lenders, and such instructions will be binding upon all the Lenders and all
holders of Notes, provided that the Agents will in no event be required to take
any action which exposes them to personal liability, which is contrary to the
Credit Documents or Law or with respect to which the Agents do not receive
adequate instructions or full indemnification from the Lenders. The provisions
of this Article VII are solely for the benefit of the Agents, their agents and
their respective affiliates and the Lenders. The Agents have no duties or
relationships of trust or agency with or to Guarantor, NEO, Generation II
Locomotives, Borrower, the Affiliates, the Project Parties or their respective
affiliates.
Section 7.2 Delegation of Duties. The Agents may delegate any
of their responsibilities or duties under the Credit Documents to one or more
agents and will not be liable for the negligence or misconduct of any agent
selected by them with reasonable care.
Section 7.3 Agents' Reliance. None of the Agents, their
agents or any of their respective affiliates will be liable for any action
taken or omitted to be taken by any of them under or in connection with the
Documents, except that each will be liable for its own gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
Without limiting the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment or
transfer thereof signed by such payee and in a form satisfactory to
the Agent;
(b) may consult with legal counsel (including
Borrower's Counsel), independent public accountants and other experts
selected by it and will not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts;
(c) makes no representation or warranty to any
Lender and will not be responsible to any Lender for any statement,
representation or warranty made in or in connection with the
Documents;
(d) will not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms,
covenants or conditions of the Documents or to inspect the Projects or
the books and records or any other property of Guarantor, NEO,
Generation II Locomotives, Borrower, the Affiliates or any Project
Party;
<PAGE>
(e) will not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Document or any other document or
instrument furnished pursuant thereto, or for the failure of any
Person to perform its obligations under any Document; and
(f) will incur no liability under or in respect of
this Agreement or any other Document or otherwise by acting upon any
notice, consent, waiver, certificate or other writing or instrument
(including facsimiles, telexes, telegrams and cables) believed by it
to be genuine and signed or sent by the proper Person or Persons.
Section 7.4 Notice of Default. Neither Agent will be deemed
to have knowledge or notice of any Default or Event of Default unless and until
it has received written notice from a Lender or Borrower referring to this
Agreement, describing the Default or Event of Default and stating that such
notice is a "notice of default."
Section 7.5 Agents as Lenders. With respect to their
Commitments, the Loans funded by them and the Notes issued to them, Lyon Credit
Corporation and Credit Lyonnais New York Branch will have the same rights and
powers under the Credit Documents as any other Lender and may exercise the same
as though they were not the Agents and, unless otherwise expressly indicated,
the term "Lender" or "Lenders" will include Lyon Credit Corporation and Credit
Lyonnais New York Branch in their individual capacities. Lyon Credit
Corporation, Credit Lyonnais New York Branch and their affiliates may accept
deposits from, lend money to, act as trustee under indentures of and generally
engage in any kind of business with Guarantor, NEO, Generation II Locomotives,
Borrower and the Affiliates, and any Person who may do business with or own
securities of Guarantor, NEO, Generation II Locomotives, Borrower or the
Affiliates, all as if Lyon Credit Corporation and Credit Lyonnais New York
Branch were not the Agents and without any duty to account therefor to the
Lenders.
Section 7.6 Credit Decisions. Each Lender acknowledges that
neither Agent nor any of their affiliates has made any representation or
warranty with respect to Guarantor, NEO, Generation II Locomotives, Borrower,
the Affiliates, the Projects or any other matter, and agrees that no review or
other action by the Agents or any of their affiliates will be deemed to
constitute any such representation or warranty. Each Lender acknowledges that
it has, independently and without reliance upon either Agent or any other
Lender, and based on the financial statements referred to in Section 4.1(k)
and such other documents and information as it has deemed appropriate, made
its own credit analysis and
<PAGE>
decision to enter into this Agreement and the other Credit Documents to which
it is party. Each Lender also acknowledges and agrees that it will,
independently and without reliance upon either Agent or any other Lender, and
based on such documents and information as it deems appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Documents. The Agents will have no obligation to provide to any
Lender any information or document concerning or relating to the Projects,
Guarantor, NEO, Generation II Locomotives, Borrower, the Affiliates or any
other Person or matter that may come into the Agents' possession or to obtain
any such information or documents; provided, that the Agents will deliver to
the Lenders information and documents actually received by the Agents from
Guarantor, NEO, Generation II Locomotives, Borrower and the Affiliates pursuant
to the Credit Documents for distribution to the Lenders.
Section 7.7 Indemnification. The Lenders agree to indemnify
the Agents, their agents and their respective affiliates (to the extent not
reimbursed by Borrower), ratably according to the respective principal amounts
of the Notes then held by each of the Lenders (or if no Notes are at the time
outstanding, ratably according to the respective amounts of the Lenders'
Commitments), from and against any and all Claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against the Agents, their agents or their respective affiliates
by any Person (including any Lender) in any way relating to or arising out of:
(a) the Projects;
(b) any Document;
(c) any action taken or omitted by either Agent or
any Lender;
(d) any claim for brokerage fees or commissions in
connection with any transaction contemplated by the Documents;
(e) any Claim based on any misstatement or
inaccuracy in or omission from any disclosure provided by Guarantor,
NEO, Generation II Locomotives, Borrower, the Affiliates or their
representatives in connection with the syndication of the Loans;
(f) the actual or alleged presence, release or
discharge of any Hazardous Substance on, from or under a Project or
the existence, use, generation, manufacture, handling, processing,
storage, release, transportation, removal, disposal or clean-up
thereof of any Hazardous
<PAGE>
Substance on or at a Project or by Borrower, any Affiliate or any
Project Party; or
(g) any Environmental Claim asserted against or
relating to a Project, Borrower, any Affiliate or any Project Party or
any actual or alleged violation of any Environmental Law by any of
such Persons; provided, that no Lender will be liable to any Person
for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Person's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
Without limiting the generality of the foregoing, each Lender
agrees to reimburse the Agents promptly upon demand for such Lender's ratable
share of any cost, expense or Tax described in Section 8.11 incurred by or
imposed on an Agent for which the Agent does not receive reimbursement from
Borrower. Payment by an indemnified party will not be a condition precedent to
the obligations of the Lenders under this indemnity. This Section 7.7 will
survive the Closing Date, the making and repayment of the Loans and any
transfer or assignment of the Notes.
Section 7.8 Successor Agents. Each Agent may resign at any
time by giving at least thirty (30) days' prior written notice thereof to the
Lenders and Borrower and may be removed at any time with or without cause by
the Majority Lenders. Upon any such resignation or removal, the Majority
Lenders will have the right to appoint a successor Agent. If within thirty (30)
days after the resignation or removal of the retiring Agent no successor Agent
accepts appointment by the Majority Lenders, the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent, which will be a commercial bank
organized under the Laws of the United States or of any State thereof and will
have a combined capital and surplus of at least two hundred fifty million
Dollars ($250 million). Upon the acceptance of its appointment as Agent, the
successor Agent will thereupon succeed to and be vested with all the rights,
powers, privileges and duties of the retiring Agent and the retiring Agent will
be discharged from its duties and obligations under the Credit Documents. After
any retiring Agent's resignation or removal, the provisions of this Article VII
will inure to its benefit as to any action taken or omitted to be taken by it
while it was Agent.
Section 7.9 Agents Together and Separately. The
Construction/Acquisition Agent and the Term Agent agree to work together
throughout the term of this Agreement, notwithstanding that a
Construction/Acquisition Loan or a Term Loan is not outstanding at any time.
Except as specifically stated in this Agreement, each of the
<PAGE>
Construction/Acquisition Agent and the Term Agent is an "Agent" for all
purposes under this Agreement and each will provide the other with copies of
all documents received by it and will take all reasonable action to share with
the other relevant information learned by it about Guarantor, NEO, Generation
II Locomotives, Borrower, the Affiliates, the Project Parties, the Projects and
all other Collateral. The Construction/Acquisition Agent will have primary
responsibility for the administration of the Construction/Acquisition Loans and
of Borrower's compliance with the terms thereof, and the Term Agent will have
similar responsibility for the administration of the Term Loans. In the case of
any disagreement between the Construction/Acquisition Agent and the Term Agent,
to the extent that any circumstance requires them to act together and not
separately, the Agent with the greater amount of then-outstanding Loans for
which it has administrative responsibility will control the actions of the
Agents.
Section 7.10 Term Agent as Beneficiary of Security Documents
and Pledgee of Collateral. The Term Agent is and will be the beneficiary of the
Security Documents and the pledgee of the Collateral. The Term Agent and the
Construction/Acquisition Agent agree, for their own benefit and for the benefit
of the Lenders, that, when it is a party to a Security Document, the Term Agent
is acting as the agent for all of the Lenders and that all Lenders have a pari
passu interest in the Collateral held by and pledged to the Term Agent.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Counterparts. Each of the Credit Documents may
be executed in any number of counterparts and by the different parties thereto
in separate counterparts, each of which when so executed will be deemed to be
an original and all of which taken together will constitute one and the same
instrument.
Section 8.2 Integration. The Credit Documents contain the
complete agreement among Guarantor, NEO, Generation II Locomotives, Borrower,
the Affiliates, the Lenders and the Agents with respect to the matters
contained therein and supersede all prior commitments, agreements and
understandings, whether written or oral, with respect to the matters contained
therein.
Section 8.3 Severability. Any provision of any Credit
Document that is invalid or prohibited in any jurisdiction will, as to such
jurisdiction, be ineffective and severable from the rest of such Credit
Document to the extent of such invalidity or prohibition, without impairing or
affecting in any way the validity of any other provision of such Credit
Document or of any other Credit
<PAGE>
Document, or of such provision in other jurisdictions. The parties agree to
replace any provision that is ineffective by operation of this Section 8.3
with an effective provision which as closely as possible corresponds to the
spirit and purpose of such ineffective provision and the affected Credit
Document as a whole.
Section 8.4 Further Assurances. At any time and from time to
time upon the request of either Agent, Borrower will, and will cause NEO or the
Affiliates to, execute and deliver such further documents and instruments and
do such other acts as the Agent may reasonably request in order to effect fully
the purposes of the Credit Documents, to create, perfect, maintain and preserve
First-Priority Liens on the Collateral in favor of the Term Agent and to
provide for the payment of the Loans and the other obligations of Borrower and
the Affiliates in accordance with the terms of the Credit Documents.
Section 8.5 Amendments and Waivers. No amendment or waiver of
any provision of any Credit Document, or consent to any departure by Borrower
therefrom, will be effective unless it is in writing and signed by the Majority
Lenders; provided, that no amendment, waiver or consent will, unless in writing
and signed by all Lenders, do any of the following:
(a) waive any condition set forth in Article III;
(b) increase any Commitment or subject the Lenders
to any additional obligation;
(c) reduce the principal of, or interest on, the
Notes or any fee payable under the Credit Documents;
(d) postpone any date fixed for the payment of
principal of, or interest on, the Notes or any fees payable under the
Credit Documents;
(e) release any Collateral;
(f) amend or waive the provisions of Section 5.2(f),
5.2(g), 5.2(j), 8.5 or 8.7(b); or
(g) change the definition of "Majority Lenders."
A waiver or consent granted pursuant to this Section 8.5 will
be effective only in the specific instance and for the specific purpose for
which it is given.
Section 8.6 No Waiver; Remedies Cumulative. The waiver of any
right, breach or default under any Credit Document by either Agent or any Lender
<PAGE>
must be made specifically and in writing. No failure on the part of either
Agent or any Lender to exercise, and no forbearance or delay in exercising, any
right under any Credit Document will operate as a waiver thereof; no single or
partial exercise of any right under any Credit Document will preclude any other
or further exercise thereof or the exercise of any other right; and no waiver
of any breach of or default under any provision of any Credit Document will
constitute or be construed as a waiver of any subsequent breach of or default
under that or any other provision of any Credit Document. No notice to or
demand upon Borrower will entitle Borrower to any further, subsequent or other
notice or demand in similar or any other circumstances. Each of the rights and
remedies of the Agents and the Lenders under the Credit Documents is cumulative
and not exclusive of any other right or remedy provided or existing by
agreement or under Law.
Section 8.7 Successors and Assigns.
(a) Each Credit Document will be binding upon and inure
to the benefit of the parties thereto and all future holders of Notes and their
respective successors and permitted assigns.
(b) Borrower has no right to assign its rights or
interests, or delegate its duties or obligations, under any Credit Document
without the prior written consent of all Lenders.
(c) The Lenders may not syndicate or transfer all or any
part of their respective Commitments to other financial institutions without
the prior written consent of the Agents and at no time will there be more than
eight (8) Lenders except with the consent of Borrower. In addition, no Person
shall become a Lender hereunder the long-term unsecured debt of which, at the
time such Person becomes a Lender, is not rated at least BBB- by Standard &
Poor's. The Lenders may not syndicate or transfer their Commitments to any
other Person that would, by virtue of such Person's becoming a Lender, cause a
Project to cease to be a Qualifying Facility. Each such transfer is subject to
a minimum purchase requirement of one million Dollars ($1,000,000), and in
connection with each such transfer, the transferring Lender and its transferee
will execute and deliver a supplement to this Agreement in the form of Exhibit
8.7(c). Upon delivery of such supplement to the Agents, the transferee will
become a "Lender" under the Credit Documents with all of the attendant rights,
benefits and obligations; the respective Pro Rata Shares of the transferring
Lender and its transferee will be appropriately adjusted; and Borrower will
execute and deliver to the transferring Lender and its transferee replacement
Notes reflecting their respective Pro Rata Shares. The Note or Notes being
replaced will be canceled and returned to Borrower. Each replacement Note will
have endorsed thereon the disbursements, payments and
<PAGE>
amount outstanding thereunder. After any such transfer, the transferring Lender
will have no obligation with respect to the portion of its Commitments
transferred.
(d) The holder of any Note or Commitment will have the
right to grant participations in such Note or Commitment to any Person on such
terms and conditions as are determined by such holder in its sole and absolute
discretion; provided, that no such grant of participations will release any
Lender from its obligations hereunder or create any additional obligation on
Borrower.
(e) Each Lender has the right to assign and pledge all
or any portion of the obligations owing to it under the Credit Documents to any
Federal Reserve Bank or to the United States Department of the Treasury as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by the Federal Reserve
System; provided, that no such collateral assignment will release any Lender
from its obligations hereunder.
(f) Each Lender represents and warrants to the Agents,
each other Lender and Borrower that in making Loans hereunder such Lender will
be acquiring the Notes issued to it for the purpose of investment and not with
the view to, or for sale in connection with, any distribution in violation of
the Securities Act of 1933, as amended.
Section 8.8 No Agency. None of Borrower or either Affiliates
is the agent or representative of either Agent or any Lender or is authorized
to act on behalf of or bind either Agent or any Lender in any way.
Section 8.9 No Third Party Beneficiaries. Except as otherwise
expressly stated therein, each Credit Document is intended to be solely for the
benefit of the parties thereto and their respective successors and permitted
assigns and is not intended to and does not confer any right or benefit on any
third party.
Section 8.10 Nonrecourse. The Loans are the obligations
solely of Borrower and the Lenders will have access only to the Collateral and
the assets of Borrower for repayment. The Lenders will have recourse against
Guarantor only to the extent of its obligations under the Guaranty and any
other Document to which it is a party and against NEO, Generation II
Locomotives or any Affiliate only (a) to the extent of its obligations under
any Document to which it is a party, (b) in the case of fraud,
misrepresentation, misappropriation of funds, gross negligence or willful
misconduct and (c) with respect to any Collateral pledged by it.
Section 8.11 Costs, Expenses and Taxes. Borrower agrees to pay
to the Agents and the Lenders on demand all costs, expenses and Reimbursable
<PAGE>
Taxes incurred or arising in connection with the preparation, documentation,
negotiation, execution, delivery, funding, syndication (in accordance with
clause (a) of the next sentence), administration or enforcement of the Credit
Documents or the transactions contemplated thereby or effected pursuant
thereto. Such costs, expenses and Reimbursable Taxes will include (a) all
reasonable fees, costs and expenses arising or incurred in connection with the
syndication of the Loans prior to the Closing Date, but not thereafter,
including pursuant to Section 8.7(c), (b) all reasonable fees of, and expenses
incurred by, the Engineer, the Energy Consultant, Lenders' Counsel, the Process
Agent, the Title Insurer, the Insurance Consultant and all other advisers and
consultants engaged pursuant to the Credit Documents, (c) all Taxes and all
filing and recordation fees and expenses payable in order to create, attach,
perfect, continue and enforce the Liens of the Security Documents, and the cost
of the Title Policies and all endorsements thereto, (d) all fees, costs,
expenses, Taxes and insurance premiums incurred in connection the protection,
maintenance, preservation, collection, liquidation or sale of, or foreclosure
or realization upon, any Collateral, (e) all reasonable attorneys' fees and
expenses and other costs incurred in connection with (i) complying with any
subpoena or similar legal process relating in any way to any Project, any
Document, Borrower, Guarantor, NEO, Generation II Locomotives, any Affiliate or
any Project Party, (ii) determining the rights and responsibilities of the
Agents or the Lenders under the Credit Documents, (iii) any enforcement,
amendment or restructuring of, or waiver or consent under, under any Credit
Document, (iv) foreclosure or realization upon any Collateral or (v) any
bankruptcy, insolvency, receivership, reorganization, liquidation or similar
proceeding or any appellate proceeding involving any Project, Borrower,
Guarantor, NEO, Generation II Locomotives, any Affiliate or any Project Party,
and (f) all costs and expense incurred by either Agent or any Lender in
connection with the payment of any Construction/Acquisition Loan on any day
other than the last day of its Interest Period and with the borrowing of a Term
Loan on any Funding Date other than the Funding Date projected in the Closing
Pro Forma as of the Closing Date. Borrower agrees to make the payments required
under this Section 8.11 regardless of whether the transactions contemplated by
the Credit Documents are consummated and hereby indemnifies the Agents and the
Lenders for all liabilities resulting from any failure or delay in making any
payment required under this Section 8.11. Borrower's obligations under this
Section 8.11 constitute Obligations secured by the Security Document Liens. The
Agents will provide to Borrower, at the expense of Borrower, copies of all
invoices, receipts and other documentation relating to any amount payable
pursuant to this Section 8.11 and reasonably requested by Borrower.
Section 8.12 Indemnity.
<PAGE>
(a) Borrower agrees to indemnify the Lenders, the Agents
and their respective affiliates from and against any and all Claims,
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against them or any one or more of
them by any Person (including any Lender) in any way relating to or arising out
of (a) any Project, (b) any Document, (c) any action taken or omitted by or
any one or more of them pursuant to any Credit Document, (d) any claim for
brokerage fees or commissions in connection with any transaction contemplated
by the Documents, (e) any claim based on any misstatement or inaccuracy in or
omission in any disclosure provided by Borrower, Guarantor, NEO, Generation
II Locomotives, or any Affiliate in connection with the syndication of the
Loans, (f) the actual or alleged presence, release or discharge of any
Hazardous Substance on, from or under any Project or the existence, use,
generation, manufacture, handling, processing, storage, release, transportation,
removal, disposal or clean-up of any Hazardous Substance on or at a Project or
by Borrower, any Affiliate or any Project Party or (g) any Environmental Claim
asserted against or relating to a Project, Borrower, any Affiliate or any
Project Party or any actual or alleged violation of any Environmental Law by
any of such Persons; provided, that Borrower will not be liable to any Person
for any portion of such Claims, liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Person's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction or for any lost
profits of any Lender arising from any acceleration of a Loan (other than
prepayment penalties specifically provided for in this Agreement). Payment by
an indemnified party will not be a condition precedent to the obligations
of Borrower under this indemnity. This Section 8.12(a) will survive the
Closing Date, the making and repayment of the Loans and any transfer or
assignment of Notes.
(b) Each Lender hereby agrees that, if the actions of
any Lender cause the conditions precedent contained in Section 3.2(n) not to be
able to be satisfied in a manner that permits Borrower to receive the requested
Construction/Acquisition Loan, then Borrower will be entitled to receive a
partial refund of the fee paid by it pursuant to Section 2.5(c) based on the
number of days for which the fee has been paid but on which the Commitments for
the Construction/Acquisition Loans are not available.
Section 8.13 Right of Set-off. Upon the occurrence and during
the continuance of an Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to Borrower (any such notice being
expressly waived by Borrower), to set off and apply any and all deposits
(general or special, time or demand) at any time held and other indebtedness at
any time owing by such Lender (at any of its offices, branches or agencies,
wherever
<PAGE>
located) to or for the credit or the account of Borrower against any
and all of the Obligations, irrespective of whether or not such Lender or
either Agent has made any demand under any Note or any other Credit Document,
and although such obligations may be continuing or unmatured. Each Lender
agrees to notify Borrower promptly after any such set-off and application;
provided, that the failure to give such notice will not affect the validity of
such set-off and application. The rights of the Lenders under this Section 8.13
are in addition to all other rights and remedies (including other rights of
set-off) the Lenders may have.
Section 8.14 Sharing of Payments. Each Lender agrees that if
as of any date it obtains any payment (whether by voluntary payment,
realization upon security, exercise of the right of set-off or banker's lien,
counterclaim or cross action or otherwise) on account of the Note or Notes held
by it in excess of its Pro Rata Share of all payments on account of the Notes
obtained by the Lenders, it will purchase for cash without recourse or warranty
from the other Lenders interests in their Notes in such amounts as will result
in a proportional participation by all of the Lenders in such excess payment.
If any of such excess payment is subsequently recovered from such purchasing
Lender, any purchases of interests in Notes will be rescinded and the purchase
prices restored to the extent of such recovery, in each case without interest.
Borrower agrees that any Lender purchasing an interest in a Note pursuant to
this Section 8.14 may exercise its rights of payment (including the right of
set-off) with respect to such interest as fully as if such Lender were the
direct creditor of Borrower in the amount of such interest. This Section 8.14
is for the sole benefit of the Lenders and does not confer any right upon
Borrower.
Section 8.15 Governing Law. EACH CREDIT DOCUMENT (OTHER THAN
CREDIT DOCUMENTS THAT SPECIFICALLY STATE OTHERWISE) WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, OTHER THAN
CONFLICT OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION,
AND EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE MANDATORILY
APPLICABLE.
Section 8.16 Waiver of Presentment, Demand, Protest and
Notice. Except as specifically stated herein or therein, Borrower irrevocably
waives presentment, demand, protest and notice of any kind in connection with
any Credit Document or any Collateral.
Section 8.17 Waiver of Immunity. To the extent that Borrower
has or hereafter acquires any immunity from jurisdiction of any court or from
legal process (whether through service or notice, attachment prior to judgment,
<PAGE>
attachment in aid of execution, execution or otherwise) with respect to itself
or its properties, Borrower hereby irrevocably waives such immunity in respect
of its obligations under the Credit Documents.
Section 8.18 Waiver of Jury Trial. BORROWER, THE AGENTS AND
THE LENDERS WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED ON OR ARISING FROM ANY CREDIT DOCUMENT, ANY TRANSACTION
CONTEMPLATED THEREBY OR EFFECTED PURSUANT THERETO, ANY DEALING OR COURSE OF
DEALING BETWEEN OR AMONG THEM RELATING IN ANY WAY TO THE SUBJECT MATTER OF THE
CREDIT DOCUMENTS OR ANY STATEMENT OR ACTION OF ANY OF THEM OR THEIR AFFILIATES.
Each of the parties to this Agreement acknowledges and agrees that this waiver
is a material inducement to enter into the business relationship contemplated
by the Credit Documents and that each has relied on this waiver in entering
into the Credit Documents to which it is a party and will continue to rely on
this waiver in its future dealings with the other parties. The scope of this
waiver is intended to be all-encompassing and this waiver will apply to all
Claims of any nature whatsoever, whether deriving from contract, arising by
law, based on tort or otherwise. BORROWER, THE AGENTS AND THE LENDERS HAVE
MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY AND THIS WAIVER IS IRREVOCABLE.
THIS WAIVER WILL ALSO APPLY TO ALL AMENDMENTS, SUPPLEMENTS, RESTATEMENTS,
EXTENSIONS AND MODIFICATIONS OF ANY CREDIT DOCUMENT AS WELL AS TO ANY CREDIT
DOCUMENT ENTERED INTO AFTER THE DATE OF THIS AGREEMENT. In the event of
litigation, this agreement may be filed as a written consent to a trial by the
court.
Section 8.19 Consent to Jurisdiction. Each of Borrower, the
Agents and the Lenders hereby irrevocably submits to the jurisdiction of any
New York state or United States federal court sitting in the Borough of
Manhattan over any action or proceeding arising out of or relating to any
Claim, and each of them hereby irrevocably agrees that all Claims in respect of
such action or proceeding may be heard and determined in such New York state or
United States federal court. Each of Borrower, the Agents and the Lenders
irrevocably waives any objection that it may now or hereafter have to the
laying of venue in such forums and agrees not to plead or claim that any such
action or proceeding brought in any such New York state or United States
federal court has been brought in an inconvenient forum. Borrower hereby
irrevocably appoints the Process Agent as its agent to receive on behalf of it
and its property service of copies of the summons and complaint and any other
process that may be served in any such action or proceeding. Such service may
be made by mailing or delivering a copy of such process to Borrower in care of
the Process Agent at 1633 Broadway, New
<PAGE>
York, New York 10007 and Borrower hereby irrevocably authorizes and directs
the Process Agent to accept such service on its behalf. In addition and as an
alternative method of service, Borrower also irrevocably consents to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to Borrower at its address set forth on the signature
pages to this Agreement. Borrower agrees that a final judgment in any such
action or proceeding will be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by Law.
Nothing in this Section 8.19 will affect the right of the Agents and the
Lenders to serve legal process in any other manner permitted by Law or affect
the right of the Agents and the Lenders to bring any action or proceeding
against Borrower or its property in the courts of any other jurisdiction. If
for any reason the Process Agent ceases to be available to act as Process
Agent, Borrower agrees immediately to appoint a replacement Process Agent
satisfactory to the Agents.
Section 8.20 Confidentiality. Borrower, the Agents and the
Lenders agree to use reasonable efforts to keep confidential the Documents and
each document and all information delivered to them by another party to this
Agreement and marked "confidential." Notwithstanding the foregoing, each party
will be permitted to disclose confidential documents and information (a) to
another party, (b) to its affiliates, advisers and consultants, (c) to
prospective participants or prospective purchasers or transferees of interests
in Notes and their respective affiliates, advisers and consultants, (d) to any
Government Instrumentality having jurisdiction over such party, (e) in response
to any subpoena or other legal process or to comply with Law, (f) to the extent
reasonably required in connection with any litigation to which such party is a
party, (g) to the extent reasonably required in connection with the exercise of
its rights or remedies under any Credit Document or (h) to the extent such
documents or information already have been publicly disclosed by another
Person. Each prospective participant, purchaser and transferee and each adviser
and consultant to which confidential documents or information is disclosed will
be required to execute a confidentiality agreement containing the provisions of
this Section 8.20.
Section 8.21 Notices. All notices, consents, certificates,
waivers, documents and other communications required or permitted to be
delivered to any party, Guarantor, NEO, or any Affiliate under the terms of any
Credit Document (a) must be in writing, (b) must be personally delivered,
transmitted by an internationally recognized courier service or transmitted by
facsimile and (c) must be directed to such party at its address or facsimile
number set forth on the signature pages to this Agreement or, in the case of a
notice to Guarantor, NEO or any Affiliate, to Borrower. All notices will be
deemed to have been duly given and received on the date of delivery if
delivered personally, three days after delivery to the courier if transmitted
by courier, or on the date of transmission with
<PAGE>
confirmation if transmitted by facsimile, whichever occurs first; provided,
that notices to an Agent pursuant to Article II or VII will not be effective
until actually received by the Agent. Any party may change its address or
facsimile number for purposes hereof by notice to all other parties.
Section 8.22 Legal Representation of the Parties. This
Agreement and other Credit Documents were negotiated by the parties with the
benefits of legal representation and any rule of construction or interpretation
otherwise requiring this Agreement or any Credit Document to be construed or
interpreted against any party shall not apply to any construction or
interpretation hereof or thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Construction, Acquisition and Term Loan
Agreement to be signed on the date first above written.
MINNESOTA METHANE LLC
By /s/ PETER D. JONES
----------------------------------------------
Name: Peter D. Jones
Title: Manager
Address: c/o NEO Corporation
1221 Nicollet Mall
Suite 700
Minneapolis, Minnesota 55403
Attention: President
Facsimile No.: (612) 373-5465
With a copy to:
M. Curtis Whittaker, Esq.
Rath, Young & Pignatelli, P.A.
One Capitol Plaza
P.O. Box 1500
Concord, New Hampshire 03302
Facsimile No.: (603) 226-2700
CREDIT LYONNAIS NEW YORK BRANCH, as
Construction/Acquisition Agent
By /s/ MICHAEL F.G. PEPE
----------------------------------------------
Name: Michael F.G. Pepe
Title: Vice President
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Martin A. Cunningham
Facsimile No.: (212) 261-3421
<PAGE>
LYON CREDIT CORPORATION, as
Term Agent
By /s/ JEROME P. PETERS, JR.
----------------------------------------------
Name: Jerome P. Peters, Jr.
Title: Senior Vice President
Address: 1266 East Main Street
Stamford, Connecticut 06902
Attention: Mr. Jerome P. Peters, Jr.
Facsimile No.: (203) 328-9339
With a copy to:
Chadbourne & Parke LLP
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
Attention: Cornelius J. Golden, Jr., Esq.
Facsimile No.: (202) 974-5602
<PAGE>
CONSTRUCTION/ACQUISITION LENDERS:
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ MICHAEL F.G. PEPE
----------------------------------------------
Name: Michael F.G. Pepe
Title: Vice President
Pro Rata Share of Aggregate
Construction/Acquisition Loan
Commitment: 100.00%
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Martin A. Cunningham
Facsimile No.: (212) 261-3421
<PAGE>
TERM LENDERS:
LYON CREDIT CORPORATION
By /s/ JEROME P. PETERS, JR.
----------------------------------------------
Name: Jerome P. Peters, Jr.
Title: Senior Vice President
Pro Rata Share of Aggregate
Term Loan Commitment:
100.00%
Address: 1266 East Main Street
Stamford, Connecticut 06902
Attention: Mr. Jerome P. Peters, Jr.
Facsimile No.: (203) 328-9339
<PAGE>
GUARANTY
This GUARANTY, dated September 12, 1997 (this "Guaranty"), is
made by NRG ENERGY, INC., a Delaware corporation ("Guarantor"), in favor of
CREDIT LYONNAIS NEW YORK BRANCH, as agent for the Construction/Acquisition
Lenders (as defined below) (in such capacity, the "Construction/Acquisition
Agent"), and each lender that is or becomes a Construction/Acquisition Lender
pursuant to the Loan Agreement (as defined below) (collectively, the
"Construction/Acquisition Lenders").
RECITALS
WHEREAS, Minnesota Methane, L.L.C., a Wyoming limited
liability company ("Borrower"), the Construction/Acquisition Agent, the
Construction/Acquisition Lenders and the other parties thereto have entered
into a Construction, Acquisition and Term Loan Agreement, dated the date hereof
(as the same may be amended, modified or supplemented, the "Loan Agreement"),
pursuant to which the Construction/Acquisition Lenders have agreed to make
certain loans to Borrower for the purpose, among others, of financing the
construction or acquisition of the Projects (as defined in the Loan Agreement);
WHEREAS, Borrower is one-half owned by NEO Corporation, a
Delaware corporation ("NEO"), and NEO is wholly-owned by Guarantor;
WHEREAS, Guarantor will benefit, directly and indirectly,
from the making of the loans by the Construction/Acquisition Lenders to
Borrower; and
WHEREAS, it is a condition precedent to the obligations of
the Construction/Acquisition Lenders under the Loan Agreement that certain
obligations of Borrower thereunder be guaranteed by Guarantor as set forth
herein;
NOW, THEREFORE, in consideration of the foregoing premises
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Guarantor, intending to be legally bound, hereby
agrees for the benefit of the Construction/Acquisition Agent and the
Construction/Acquisition Lenders as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Guaranty, the terms
defined in the preamble and recitals hereto shall have the respective meanings
<PAGE>
specified therein. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in the Loan Agreement and such meanings are
incorporated herein by reference. The following term shall have the following
meaning:
"Obligations" means all obligations and liabilities of
Borrower to the Construction/Acquisition Agent and the Construction/Acquisition
Lenders, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter incurred, which may arise under or in connection
with any Construction/Acquisition Loan made pursuant to the Loan Agreement or
any document made, delivered or given in connection therewith, including
without limitation the principal of, premium (if any) and interest on the
Construction/Acquisition Loan Note and the indebtedness represented thereby,
whether on account of principal, premium (if any), interest, reimbursement
obligations, fees (including without limitation the Construction/Acquisition
Loan Availability Fee), indemnities, costs and expenses (including without
limitation all costs and expenses required to be paid by Borrower pursuant to
Sections 2.2(b), 2.5 and 8.11 of the Loan Agreement) or otherwise (including
without limitation such interest or other charges as would have accrued on any
portion of the Obligations but for the commencement of any bankruptcy or
insolvency proceedings), it being the intention of Guarantor, the
Construction/Acquisition Agent and the Construction/Acquisition Lenders that
the Obligations that are guaranteed by Guarantor pursuant to this Guaranty be
determined without regard to any rule of law or order that may relieve Borrower
of any portion of such Obligations. Construction/Acquisition Loans that have
converted to Term Loans pursuant to the Loan Agreement are not Obligations.
ARTICLE II
GUARANTY
Section 2.1 Unconditional Guaranty. Guarantor hereby
unconditionally and irrevocably guarantees, as a primary obligor and not merely
as a surety, to the Construction/Acquisition Agent and the
Construction/Acquisition Lenders the prompt, punctual and complete payment when
due, whether at the stated maturity, on acceleration or otherwise, and the
prompt, punctual and complete performance when owing, of the Obligations,
irrespective of (a) the validity, legality or enforceability of the Obligations
or any other agreement or instrument relating thereto or (b) any other
circumstance that might otherwise constitute a defense to this Guaranty;
provided, that this Guaranty shall be limited to the maximum amount that may be
guaranteed by Guarantor without this Guaranty being rendered or deemed void or
voidable, whether for fraudulent conveyance or transfer or otherwise, under
applicable law. Each and every default
<PAGE>
in the payment or performance of the Obligations shall give rise to a separate
cause of action hereunder and separate suits may be brought hereunder as each
cause of action arises.
Section 2.2 No Subrogation. Notwithstanding any payment or
payments made by Guarantor hereunder or any set-off or application of funds of
Guarantor by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders, Guarantor hereby waives any and all rights to which it may be entitled,
by operation of law or otherwise, upon making any payment hereunder (a) to be
subrogated to any of the rights of the Construction/Acquisition Agent or the
Construction/Acquisition Lenders against Borrower or any other Person or in any
Collateral or other collateral security or guaranty or right of offset held by
the Construction/Acquisition Agent or the Construction/Acquisition Lenders for
the payment of any Obligations or (b) to seek any reimbursement or contribution
from Borrower or any other Person in respect to any payment, set-off or
application of funds made by or for the account of Guarantor hereunder.
Section 2.3 No Effect on Guaranty. The obligations of
Guarantor under this Guaranty shall not be altered, limited, impaired or
otherwise affected by:
(a) any rescission of any demand for payment or
performance of any of the Obligations or any failure by the
Construction/Acquisition Agent or the Construction/Acquisition Lenders
to make any such demand on Borrower, Guarantor or any other Person or
to collect any payment from Borrower, Guarantor or any other Person or
any release of Borrower or any other Person;
(b) any renewal, extension, modification, amendment,
acceleration, compromise, waiver, indulgence, rescission, discharge,
surrender or release, in whole or in part, of the Loan Agreement or
the Obligations or any other instrument or agreement evidencing,
relating to, securing or guaranteeing any of the Obligations, or the
liability of any party to any of the foregoing or for any part thereof
or any collateral security therefor or guaranty thereof;
(c) the validity, legality or enforceability of any
of the Obligations or of the Loan Agreement or any other instrument or
agreement evidencing, relating to, securing or guaranteeing any of the
Obligations;
(d) any failure by the Construction/Acquisition
Agent or the Construction/Acquisition Lenders to protect, secure,
perfect, record, insure or enforce any Security Document or
Collateral;
<PAGE>
(e) any act or omission of the
Construction/Acquisition Agent or the Construction/Acquisition Lenders
relating in any way to the Obligations or to Borrower, including
without limitation any failure to bring an action against any party
liable on the Obligations, or any party liable on any guaranty of the
Obligations, or any party that has furnished security for the
Obligations, or to resort to any collateral or collateral of any
other Person;
(f) any defense, set-off or counterclaim that may at
any time be available to or be asserted by or on behalf of Borrower,
Guarantor or any other Person against the Construction/Acquisition
Agent or the Construction/Acquisition Lenders or any circumstance that
constitutes, or might be construed to constitute, an equitable or
legal discharge of Borrower, Guarantor or any other Person for any of
the Obligations, in bankruptcy or in any other instance;
(g) any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization,
liquidation or arrangement of Borrower, Guarantor or any other Person
or any defense that Borrower or any other guarantor may have by reason
of the order, decree or decision of any court or administrative body
resulting from any such proceeding;
(h) any change, whether direct or indirect, in
Guarantor's relationship to Borrower, including without limitation any
such change by reason of any merger or any sale, transfer, issuance or
other disposition of any stock of, membership interest in or other
equity interest in Borrower, Guarantor or any other Person;
(i) the absence of any notice to, or knowledge by,
Guarantor of the existence or occurrence of any matter or event set
forth in this Section 2.3;
(j) any taking, exchange, release or non-perfection
or any manner of application of collateral or proceeds thereof or any
manner of sale or other disposition of collateral;
(k) any failure to pay any tax that may be payable
with respect to the payment of the Obligations by Guarantor or any
failure to obtain any authorization or approval from or other action
by, or to notify or file with, any Governmental Instrumentality
required in connection with the payment of the Obligations by
Guarantor;
<PAGE>
(l) the termination of the legal existence of
Borrower or Guarantor, or the termination of any legal obligation of
Borrower to discharge the Obligations undertaken or purported to be
undertaken by it or on its behalf (other than to the extent of payment
or performance of the Obligations by or on behalf of Borrower); or
(m) any impossibility or impracticality of
performance, illegality, force majeure, any action or nonaction of
government, or any other circumstance that might otherwise constitute
a legal or equitable defense available to or resulting in the discharge
of a surety or guarantor or any other circumstance, event or happening
whatsoever, whether foreseen or unforeseen and whether similar or
dissimilar to anything referred to above in this Section 2.3.
Section 2.4 Continuing Guaranty. Guarantor further agrees
that this Guaranty constitutes a present, absolute and continuing guaranty of
prompt, punctual and complete payment and performance when due of the
Obligations, and not of collection only, and waives any right to require that
any resort be had by the Construction/Acquisition Agent or the
Construction/Acquisition Lenders, after demand for such payment being made upon
Borrower by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders, to the Construction/Acquisition Agent's and the
Construction/Acquisition Lenders' rights against any other Person, or any other
right or remedy available to the Construction/Acquisition Agent or the
Construction/Acquisition Lenders by contract, applicable law or otherwise. The
obligations of Guarantor under this Guaranty are unconditional, direct and
completely independent of the obligations of any other Person and shall not be
conditioned or contingent upon the pursuit by the Construction/Acquisition
Agent or the Construction/Acquisition Lenders at any time of any right or
remedy against Borrower or against any other Person that may be or become
liable in respect of all or any part of the Obligations or against any
collateral security or guaranty therefor. A separate cause of action or
separate causes of action may be brought and prosecuted against Guarantor
without the necessity of joining Borrower or any other party or previously
proceeding with or exhausting any other remedy against any other Person who
might have become liable for the Obligations or any part thereof or of
realizing upon any security held by or for the benefit of the
Construction/Acquisition Agent and the Construction/Acquisition Lenders.
Section 2.5 Obligations Unconditional. The obligations of
Guarantor under this Guaranty shall be absolute and unconditional irrespective
of (i) any lack of validity of the Obligations or any other agreement or
instrument relating thereto or (ii) any other circumstance that might otherwise
constitute a defense to this Guaranty and shall remain in full force and effect
until the
<PAGE>
Obligations have been indefeasibly satisfied by payment and performance in
full, or release by the Construction/Acquisition Agent and the
Construction/Acquisition Lenders and, to the extent permitted by law, such
Obligations shall not be affected, modified, released or impaired by any state
of facts or the happening from time to time of any event whatsoever, whether or
not with notice to, or the consent of, Guarantor.
Section 2.6 Term and Reinstatement of Guaranty. This Guaranty
will terminate on the date that is the later of (i) October 30, 1998 and (ii)
the date on which all Obligations (including without limitation all default
interest thereon) have been indefeasibly paid in full. Notwithstanding the
foregoing, this Guaranty shall continue in full force and effect, or be
reinstated, as the case may be, if at any time any payment or performance
hereunder, or any part thereof, of the Obligations is subsequently invalidated,
declared to be fraudulent or preferential, avoided, rescinded, set aside or
must otherwise be restored or returned by the Construction/Acquisition Agent or
the Construction/Acquisition Lenders or any other Person to Borrower or its
representatives or to a trustee, receiver, assignee for the benefit of
creditors or any other party under any bankruptcy act or code, state or federal
law or common law or equitable doctrine, for any reason including as a result
of any insolvency, bankruptcy or reorganization proceeding with respect to
Borrower or Guarantor, all as though such payment had not been made.
Section 2.7 Financial Condition of Borrower has no Effect on
Guaranty. Borrower may borrow the Loans from the Construction/Acquisition
Lenders without notice to or authorization from Guarantor regardless of the
financial or other condition of Borrower at the time of such borrowing. None of
the Construction/Acquisition Agent or the Construction/Acquisition Lenders
shall have any obligation to disclose or discuss with Guarantor its assessment
of the financial or other condition of Borrower. Guarantor confirms that no
representation has been made to the Guarantor concerning the financial
condition of Borrower by the Construction/Acquisition Agent or the
Construction/Acquisition Lenders.
Section 2.8 No Waiver or Set-Off. No act of commission or
omission of any kind or at any time upon the part of Borrower, any of its
successors and assigns or the Construction/Acquisition Agent or the
Construction/Acquisition Lenders in respect of any matter whatsoever shall in
any way impair the rights of the Construction/Acquisition Agent and the
Construction/Acquisition Lenders to enforce any right, power or benefit under
this Guaranty, and no set-off, counterclaim, reduction or diminution of any
obligation, or any defense of a surety or guarantor that Guarantor have or may
have against Borrower, the Construction/Acquisition Agent, the
Construction/Acquisition
<PAGE>
Lenders or any assignee or successor thereof shall be available hereunder to
Guarantor.
Section 2.9 Demands for Payment; Payment. Demands by the
Construction/Acquisition Agent for payment of amounts due pursuant to Sections
2.1 and 7.1 may be made on any number of occasions and without any demand for
payment given to Borrower. Each demand shall be in writing, shall state the
amount owing and shall be effective as of the date given in accordance with
Section 7.6. Within five Business Days of giving such a demand in accordance
with Section 7.6, dated and signed by an authorized officer of the
Construction/Acquisition Agent setting forth the amount of the Obligations at
the time owing, Guarantor shall make such payment to or as directed to the
Construction/Acquisition Agent and such payment shall not be withheld for any
reason.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties. Guarantor
represents and warrants that as of the date hereof:
(a) It is a corporation duly organized, validly
existing and in good standing under the laws of State of Delaware and
has the corporate power, authority and legal right to execute, deliver
and carry out the terms and provisions of this Guaranty.
(b) The execution, delivery and performance by
Guarantor of this Guaranty have been duly authorized by all necessary
corporate action.
(c) The execution, delivery and performance by
Guarantor of this Guaranty do not and will not (i) require any consent
or approval of any shareholder of Guarantor or Government
Instrumentality that has not been obtained and which remains valid,
(ii) violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in
effect having applicability to Guarantor, or (iii) result in a breach
of or constitute a default under any material agreement binding upon
Guarantor.
(d) This Guaranty constitutes a valid and legally
binding agreement of Guarantor, enforceable in accordance with its
terms except as the enforceability of this Guaranty may be limited by
the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar
<PAGE>
laws affecting creditors' rights generally and by general principles
of equity.
(e) The audited consolidated balance sheet of
Guarantor and its subsidiaries as of December 31, 1996 and the related
audited consolidated statements of income, cash flows and changes in
stockholders' equity accounts for the fiscal year then ended and the
unaudited consolidated balance sheet of Guarantor and its subsidiaries
as of June 30, 1997 and the related unaudited consolidated statements
of income, cash flows and changes in stockholders' equity accounts for
the six months then ended, certified by the chief financial or
accounting officer of Guarantor, copies of which have been delivered
to the Construction/Acquisition Agent, fairly present, in conformity
with GAAP except as otherwise expressly noted therein and except with
respect to footnotes in all unaudited financial statements, the
consolidated financial position of Guarantor and its subsidiaries as
of such dates and their consolidated results of operations and changes
in financial position for such fiscal periods, subject (in the case of
the unaudited balance sheet and statements) to changes resulting from
audit and normal year-end adjustments.
(f) Since December 31, 1996, there has been no
material adverse change in the business, consolidated financial
position or consolidated results of operations of Guarantor and its
subsidiaries, considered as a whole.
(g) There is no action, suit or proceeding pending
against Guarantor or any of its subsidiaries, or to the knowledge of
Guarantor threatened against Guarantor or any of its subsidiaries,
before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse
decision that could materially adversely affect the business,
consolidated financial position or consolidated results of operations
of Guarantor and its subsidiaries taken as a whole or that in any
manner draws into question the validity of this Guaranty or any other
Document to which Guarantor is or will be a party.
(h) Guarantor and its subsidiaries have filed or
caused to be filed all United States federal income tax returns and
all other material domestic tax returns which to the knowledge of
Guarantor are required to be filed by them and have paid or provided
for the payment of, before the same become delinquent, all taxes due
pursuant to such returns or pursuant to any assessment received by
Guarantor or any subsidiary, other than those taxes contested in good
faith by appropriate proceedings. The charges, accruals and reserves
on the books of Guarantor and its subsidiaries
<PAGE>
in respect of taxes are, in the reasonable opinion of Guarantor,
adequate to the extent required by GAAP.
ARTICLE IV
AFFIRMATIVE COVENANTS
Section 4.1 Affirmative Covenants. Guarantor covenants and
agrees that it will, unless the Construction/Acquisition Lenders otherwise
consent in writing:
(a) Reporting Requirements. Furnish to the
Construction/Acquisition Agent and each Construction/Acquisition
Lender:
(i) (A) within 60 days after the end of
each of the first three fiscal quarters of each fiscal year
of Guarantor, a copy of Guarantor's quarterly unaudited
consolidated financial statements as of the end of and for
such quarter, and (B) within 120 days after the end of each
fiscal year of Guarantor, a copy of Guarantor's annual
audited consolidated financial statements as of the end of
and for such year;
(ii) simultaneously with the delivery of
each of the annual or quarterly reports referred to in
paragraph (i) above, a certificate of the chief financial
officer or chief accounting officer of Guarantor in a form
acceptable to the Construction/Acquisition Agent stating
whether there exists on the date of such certificate any
Event of Default or event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default,
and, if so, setting forth the details thereof and the action
which Guarantor has taken and proposes to take with respect
thereto;
(iii) as soon as possible and in any event
within five days after a change in, or issuance of, any
rating of any of the Guarantor's senior unsecured long-term
debt by Standard & Poor's Rating Services or Moody's
Investors Services, Inc., notice to the
Construction/Acquisition Agent of such change;
(iv) as soon as possible and in any event
within five days after an executive officer of Guarantor
obtaining knowledge thereof, notice of the occurrence of any
Event of Default or any event which, with the giving of
notice or lapse of time, or both, would constitute an Event
of Default, continuing on the date of such notice, and a
statement of the chief financial officer of Guarantor
<PAGE>
setting forth details of such Event of Default or event and
the action that Guarantor has taken and proposes to take with
respect thereto;
(v) such other information respecting the
condition or operations, financial or otherwise, of Guarantor
or any of its subsidiaries as any Construction/Acquisition
Lender through the Construction/Acquisition Agent may from
time to time reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause
each of its subsidiaries to comply, with all applicable laws, rules,
regulations and orders to the extent noncompliance therewith would
have a material adverse effect on Guarantor and its subsidiaries taken
as a whole, such compliance to include without limitation compliance
with Environmental Laws and the paying before the same become
delinquent of all taxes, assessments and governmental charges imposed
upon it or upon its property except to the extent contested in good
faith.
(c) Maintenance of Insurance. Maintain insurance,
and cause Borrower and the Affiliates to maintain, with responsible
and reputable insurance companies or associations in such amounts and
covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties as Guarantor or such
other Person.
(d) Preservation of Corporate Existence, Etc.
Preserve and maintain, and cause each of Borrower and the Affiliates
to preserve and maintain, its legal existence, rights and franchises;
provided, that this Section 4.1(d) shall not apply to any transaction
or matter permitted by Section 5.1(a) or (b); provided, that
Guarantor, Borrower and the Affiliates shall not be required to
preserve any right or franchise if Guarantor or such other Person
reasonably determines that the preservation thereof is no longer
desirable in the conduct of the business of Guarantor or such other
Person, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to the
Construction/Acquisition Lenders.
(e) Visitation Rights. At any reasonable time and
from time to time, after reasonable notice, permit the
Construction/Acquisition Agent or any of the Construction/Acquisition
Lenders or any agent or representative thereof to examine the records
and books of account of, and visit the properties of, Guarantor,
Borrower and the Affiliates, and to discuss the affairs, finances and
accounts of Guarantor and any of such other Persons with any of their
respective officers or directors.
<PAGE>
ARTICLE V
NEGATIVE COVENANTS
Section 5.1 Negative Covenants. Guarantor will not at any
time, without the prior written consent of the Construction/Acquisition Lenders:
(a) Mergers, Etc. Merge or consolidate with or into
any Person unless (i) Guarantor is the survivor or (ii) the surviving
Person, if not Guarantor, is organized under the laws of the United
States or a state thereof and assumes all obligations of Guarantor
under this Guaranty and executes and delivers to the
Construction/Acquisition Agent documents reasonably satisfactorily in
form and substance to the Construction/Acquisition Agent pursuant to
which such Person acknowledges and assumes all obligations of
Guarantor hereunder; provided, in each case that immediately after
giving effect to such proposed transaction, no Event of Default or
event which, with the giving of notice or the lapse of time, or both,
would constitute an Event of Default would exist or result.
(b) Disposition of Assets. Lease, sell, transfer or
otherwise dispose of, voluntarily or involuntarily, all or
substantially all of its assets.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 Events of Default. The occurrence and continuance
of any of the following events shall constitute an "Event of Default":
(a) Any representation or warranty made by Guarantor
or any of its officers under or in connection with any Document proves
to have been incorrect in any material respect when made or deemed
made.
(b) Guarantor fails to perform or observe any term,
covenant or agreement contained in Articles IV and V or fails to
perform or observe any other term, covenant or agreement contained in
any Document on its Part to be performed or observed and such failure
remains unremedied for five (5) days after the occurrence thereof;
provided, that if such failure can not be remedied within such five
(5) day period and if Guarantor is diligently seeking to remedy such
failure, and if such failure is reasonably likely to be remedied
within thirty (30) days after the initial five
<PAGE>
(5) day period, then Guarantor shall have an additional thirty (30)
days to remedy such failure.
(c) Guarantor or any of its subsidiaries fails to
pay any principal of or premium or interest on any Indebtedness which
is outstanding in the principal amount of at least $1,000,000 in the
aggregate when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
such failure continues after the applicable grace period, if any,
specified in the agreement or instrument relating to such
Indebtedness; or any other event occurs or condition exists under any
agreement or instrument relating to any such Indebtedness and
continues after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is
to accelerate the maturity of such Indebtedness; or any such
Indebtedness is declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment or as
a result of the giving of notice of a voluntary prepayment), prior to
the stated maturity thereof.
(d) Guarantor or any of its subsidiaries generally
fails to pay its debts as such debts become due, or admits in writing
its inability to pay its debts generally, or makes a general
assignment for the benefit of creditors; or any proceeding is
instituted by or against Guarantor or any of its subsidiaries seeking
to adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for the relief or the appointment
of a receiver, trustee or other similar official for it or for any
substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), remains
undismissed or unstayed for a period of 60 days; or Guarantor or any
of its subsidiaries takes any corporate action to authorize any of the
actions set forth above in this paragraph (d).
(e) Any judgment, decree or order for the payment of
money in excess of $1,000,000 is rendered against Guarantor or any of
its subsidiaries and remains unsatisfied and either (i) enforcement
proceedings have been commenced by any creditor upon such judgment,
decree or order or (ii) there shall be any period of 60 consecutive
days during which a stay of enforcement of such judgment, decree or
order, by reason of a pending appeal or otherwise, shall not be in
effect.
<PAGE>
(f) Any provision of this Guaranty for any reason is
not or ceases to be valid and binding on Guarantor or Guarantor so
states in writing.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Costs and Expenses. Except as herein otherwise
expressly provided, Guarantor covenants and agrees to pay or reimburse the
Construction/Acquisition Agent and the Construction/Acquisition Lenders upon
request for all reasonable expenses, disbursements, fees, costs and commissions
incurred or made by the Construction/Acquisition Agents or the
Construction/Acquisition Lenders (including the reasonable compensation and
expenses and disbursements of counsel and of persons not regularly in their
employ) in connection with (i) the enforcement of or attempt to enforce, or
collection of or attempt to collect any amount due under, this Guaranty or
(ii) any waiver, extension, amendment or modification of any provision of this
Guaranty.
Section 7.2 Election of Remedies. Each and every right,
power and remedy herein given to the Construction/Acquisition Agent and the
Construction/Acquisition Lenders, or otherwise existing, shall be cumulative
and not exclusive, and shall be in addition to all other rights, powers and
remedies now or hereafter granted or otherwise existing. Each and every right,
power and remedy, whether specifically herein given or otherwise existing, may
be exercised from time to time and as often and in such order as may be deemed
expedient by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders.
Section 7.3 Effect of Delay or Omission to Pursue Remedy. No
single or partial waiver by the Construction/Acquisition Agent or the
Construction/Acquisition Lenders of any right, power or remedy, or delay or
omission by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders in the exercise of any right, power or remedy shall impair any such
right, power or remedy or operate as a waiver thereof or of any other right,
power or remedy then or thereafter existing. Any waiver given by the
Construction/Acquisition Agent or the Construction/Acquisition Lenders of any
right, power or remedy in any one instance shall only be effective in that
specific instance and only for the purpose for which given, and will not be
construed as a waiver of any right, power or remedy on any future occasion.
Section 7.4 Guarantor's Waivers. Guarantor waives any and
all promptness, diligence, notice of the creation or acceptance, any other
notice, renewal, extension or accrual of any of the Obligations and notice of
or proof of
<PAGE>
reliance by the Construction/Acquisition Agent or the Construction/Acquisition
Lenders upon this Guaranty or acceptance of this Guaranty or any action taken
or omitted in reliance hereon. The Obligations, and any of them, shall
conclusively be deemed to have been created, contracted, incurred, renewed,
extended, amended or waived in reliance upon this Guaranty and all dealings
among Guarantor, Borrower, the Construction/Acquisition Agent and the
Construction/Acquisition Lenders shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guaranty.
Guarantor further waives diligence, presentment, demand for payment or
performance, notice, any requirement that any right or power be exhausted or
any action be taken against Borrower or Guarantor or against any Collateral,
protest of all promissory notes or other instruments included in or evidencing
any of the Obligations or Collateral, and all other demands in connection with
the delivery, acceptance, performance, default or enforcement of any such
promissory note or other instrument or this Guaranty or any other requirement
that the Construction/Acquisition Agent or the Construction/Acquisition Lenders
protect, secure, perfect or insure any security interest or lien on any
property subject thereto or exhaust any right or take any action against
Borrower, Guarantor or any other Person, or any Collateral.
Section 7.5 Amendment. This Guaranty may not be modified,
amended, terminated or revoked, in whole or in part, except by an agreement in
writing signed by the Construction/Acquisition Agent and Guarantor. No waiver
of any term, covenant or provision of this Guaranty, or consent given
hereunder, shall be effective unless given in writing by the
Construction/Acquisition Agent.
Section 7.6 Notices. Unless otherwise specifically provided
herein, any notice or other communication required or permitted to be given
shall be in writing addressed to the respective party as set forth below and
may be personally served, telecopied or sent by overnight courier service or
United States mail (return receipt requested) and shall be deemed to have been
given (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if transmitted on a Business Day before
4:00 p.m. (New York, New York time) or, if not, on the next succeeding Business
Day; (c) if delivered by reputable overnight courier, two (2) days after
delivery to such courier properly addressed; or (d) if by U.S. Mail, four (4)
Business Days after deposit in the United States mail, with postage prepaid and
properly addressed.
Notices shall be addressed as follows:
If to Guarantor:
NRG ENERGY, INC.
1221 Nicollet Mall
<PAGE>
Minneapolis, Minnesota 55403
Attention: Executive Director Finance
Telecopy: (612) 373-5336
With a copy to:
NRG ENERGY, INC.
1221 Nicollet Mall
Minneapolis, Minnesota 55403
Attention: General Counsel
Telecopy: (612) 373-5392
If to the Construction/Acquisition Agent or any
Construction/Acquisition Lender:
CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
New York, New York 10019
Attention: Mr. Martin A. Cunningham
Telecopy: (212) 261-7887
With a copy to:
CHADBOURNE & PARKE LLP
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Cornelius J. Golden, Jr., Esq.
Telecopy: (202) 974-5602
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 7.6. A notice not given as provided above shall,
if it is in writing, be deemed given if and when actually received by the
party to whom given.
Section 7.7 Successors and Assigns. This Guaranty shall be
binding upon and shall inure to the benefit of Guarantor, the
Construction/Acquisition Agent and the Construction/Acquisition Lenders and
their respective successors and permitted assigns. Notwithstanding the
foregoing, Guarantor shall have no right to assign its rights or obligations
hereunder (whether by operation of law or otherwise) without the prior written
consent of the Construction/Acquisition Agent and any purported transfer
without such prior written consent shall be void. No assignment by Guarantor of
any rights or obligations under this Guaranty shall release Guarantor therefrom
unless the
<PAGE>
Construction/Acquisition Agent has consented to such release in a writing
specifically referring to the obligation from which Guarantor is to be
released.
Section 7.8 Headings. The article and section headings used
in this Guaranty are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
Section 7.9 CONSENT TO JURISDICTION. ALL LEGAL ACTIONS OR
PROCEEDINGS BROUGHT AGAINST GUARANTOR WITH RESPECT TO THIS GUARANTY MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY GUARANTOR ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES THE JURISDICTION OF THE AFORESAID
COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS GUARANTY. GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY
ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
OR ANY SIMILAR BASIS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
CONSTRUCTION/ACQUISITION AGENT OR THE CONSTRUCTION/ACQUISITION LENDERS TO BRING
PROCEEDINGS AGAINST GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
Section 7.10 GOVERNING LAW. THIS GUARANTY WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, OTHER THAN
CONFLICT OF LAWS PRINCIPLES THAT WOULD APPLY THE LAWS OF ANOTHER JURISDICTION,
AND EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE MANDATORILY
APPLICABLE.
Section 7.11 WAIVER OF JURY TRIAL. GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH THIS GUARANTY.
Section 7.12 AGENT FOR SERVICE OF PROCESS. GUARANTOR HEREBY
AGREES TO DESIGNATE, APPOINT AND EMPOWER CT CORPORATION SYSTEM, NEW YORK, NEW
YORK, AS ITS AUTHORIZED AGENT TO RECEIVE FOR AND ON ITS BEHALF SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY
<PAGE>
ACTION, SUIT OR PROCEEDING IN THE STATE OF NEW YORK. AS LONG AS THIS GUARANTY
REMAINS IN FORCE, GUARANTOR SHALL MAINTAIN A DULY APPOINTED AGENT FOR THE
SERVICE OF SUMMONS, COMPLAINT AND OTHER LEGAL PROCESS IN NEW YORK, NEW YORK,
FOR PURPOSES OF ANY LEGAL ACTION, SUIT OR PROCEEDING THE
CONSTRUCTION/ACQUISITION AGENT OR THE CONSTRUCTION/ACQUISITION LENDERS MAY
BRING IN RESPECT OF THIS GUARANTY. GUARANTOR SHALL KEEP THE
CONSTRUCTION/ACQUISITION AGENT ADVISED OF THE IDENTITY AND LOCATION OF SUCH
AGENT. GUARANTOR ALSO IRREVOCABLY CONSENTS, IF FOR ANY REASON GUARANTOR'S
AUTHORIZED AGENT FOR SERVICE OF PROCESS OF SUMMONS, COMPLAINT AND OTHER LEGAL
PROCESS IN ANY SUCH ACTION, SUIT OR PROCEEDING IS NOT PRESENT IN NEW YORK,
NEW YORK, THAT SERVICE OF SUCH PAPERS MAY BE MADE OUT OF THOSE COURTS BY MAILING
COPIES OF THE PAPERS BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL TO THE
ADDRESS SET FORTH IN SECTION 7.6. SERVICE IN THE MANNER PROVIDED IN THIS
SECTION 7.12 IN ANY SUCH ACTION, SUIT OR PROCEEDING WILL BE DEEMED PERSONAL
SERVICE, WILL BE ACCEPTED BY GUARANTOR AS SUCH AND WILL BE VALID AND BINDING
UPON GUARANTOR FOR ALL PURPOSES OF ANY SUCH ACTION, SUIT OR PROCEEDING.
Section 7.13 Severability. If any provision hereof or of any
promissory note or other instrument evidencing part or all of the Obligations
is invalid or unenforceable in any jurisdiction, the other provisions hereof or
thereof shall remain in full force and effect in such jurisdiction and the
remaining provisions hereof shall be liberally construed in favor of the
Construction/Acquisition Agent and the Construction/Acquisition Lenders in
order to carry out the provisions hereof. The invalidity or unenforceability of
any provision of this Guaranty in any jurisdiction shall not affect the
validity or enforceability of any such provision in any other jurisdiction.
Section 7.14 Entire Agreement. This Guaranty constitutes the
entire agreement and understanding of Guarantor with respect to the subject
matter hereof and supersedes any and all prior and contemporaneous contracts,
negotiations, agreements and understandings of Guarantor relating to the
subject matter herein contained, whether oral or written. Guarantor hereby
expressly acknowledges that it has not relied, in making this Guaranty, upon
any statement or representation, not contained herein, made by any other party,
including without limitation the Construction/Acquisition Agent, the
Construction/Acquisition Lenders and Borrower.
<PAGE>
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
executed and delivered on its behalf on the date first written above.
NRG ENERGY, INC.
By /s/ VALORIE A. KNUDSEN
---------------------------------------
Name: Valorie A. Knudsen
Title: Vice President Finance
<PAGE>
NONOPERATING INTEREST ACQUISITION AGREEMENT
THIS AGREEMENT is entered into by and among NRG Energy, Inc. ("NRG"),
and NEO Corporation (the "Operator") as of September 12, 1997.
Background of this Agreement
Operator extracts, produces, and utilizes gas elements ("Landfill Gas"
or "LFG") from one or more landfills (the "Landfills"), and owns the rights
necessary to enter upon the Landfills, and construct and operate LFG gathering,
production and combustion equipment (the "Project"). Such Operator rights are
herein referred to as the "Lease." As used in this Agreement, the term "Lease
Area" means all of the lands, LFG leasehold interests and LFG interests
intended to be developed and operated for LFG production under the Lease.
Definitions not otherwise provided in this Agreement shall be as defined in the
Construction, Acquisition and Term Loan Agreement dated September 12, 1997
among NEO Landfill Gas Inc. (the "Borrower"), Lyon Credit Corporation and
Credit Lyonnais New York Branch (the "Agents") and the other parties thereto
Operator desires to convey, transfer and assign a nonoperating
interest in the LFG in exchange for payments from NRG and NRG desires to
acquire such a nonoperating interest including tax credits.
Terms of this Agreement
NOW, THEREFORE, in consideration of their mutual covenants set forth
below and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Conveyance of Nonoperating Interest in LFG.
Subject to the terms and conditions of this Agreement, Operator hereby
transfers, assigns and grants to NRG the right to receive all gross proceeds to
be realized at any time by Operator resulting from sales of LFG produced from
the Lease Area. Operator shall at all times be the operator of the Lease Area
and shall conduct and direct and have full control of all operations on the
Lease Area. Operator shall conduct all such operations in a good and
workmanlike manner, but shall have no liability as Operator to NRG for losses
sustained or liabilities incurred, except such as may result from gross
negligence or willful misconduct. Nothing contained in this Agreement shall be
deemed or construed for any purpose to establish, between Operator and NRG, a
partnership or joint venture, or a principal-agent relationship.
<PAGE>
2. Allocation of Section 29 Tax Credits to NRG.
The parties hereto acknowledge and intend that the conveyance of the
nonoperating interest in Section 1 shall result in the allocation to NRG of all
tax credits under Section 29 of the Internal Revenue Code ("Section 29")
arising from the sale of LFG produced from the Lease Area (the "Section 29 Tax
Credits").
3. Payments for Nonoperating Interest.
a. In exchange for the nonoperating interest, NRG shall pay to
Operator the Quarterly Payment Amount solely with respect to
periods ending on or before December 31, 2007. Payments with
respect to such periods shall be the sole consideration for
the nonoperating interest acquired hereunder, and no other
payments with respect to any period ending after December 31,
2007 shall be due. The "Quarterly Payment Amount" for any
calendar quarter shall mean an amount equal to the product of
(a) mmBtu of LFG produced from the Lease Area during such
calendar quarter, multiplied by (b) the Applicable Section 29
Credit Rate. The MMBTU shall be measured on a monthly basis
at the interconnection point. For any calendar quarter, the
"Applicable Section 29 Credit Rate" shall equal (x) the
product of $3 times the "inflation adjustment factor" divided
by (y) 5.8. "Inflation adjustment factor" has the same
meaning as in Section 29(d)(2)(B) of the Internal Revenue
Code as in effect on the date of this Agreement. If the
Internal Revenue Service has not yet published the inflation
adjustment factor with respect to a calendar quarter, then
the Quarterly Payment Amount shall be computed using the most
recently announced inflation adjustment factor. Upon
publication of such information, there shall be a reconciling
adjustment, upwards or downwards as the case may be, to
reflect the actual credit amount determined to be in effect
for such calendar quarters.
b. If no LFG is produced, then no Section 29 Tax Credit will
accrue for the month so measured and the Quarterly Payment
Amount will be adjusted accordingly.
c. Except as stated in Section (b) above, the Quarterly Payment
Amount shall be due in all cases, regardless of whether:
(i) NRG or any of its affiliates can utilize any of the
Section 29 Tax Credits to offset Federal income tax
liability;
(ii) The Project fails to qualify for Section 29 Tax
Credits due to problems with binding contracts,
failure to be placed in service on time, failure to
find a buyer for the LFG, failure to make LFG sales
to related persons or problems with the deal
structure;
(iii) The Project qualifies for Section 29 Tax Credits but
only through 2002, for any reason including because
the facilities that collect LFG
<PAGE>
were considered to have been originally placed in
service before 1993;
(iv) There is a reduction in Section 29 Tax Credits
allocated to NRG pursuant to Section 29(d)(3) of the
Internal Revenue Code because other persons besides
NRG are considered to have an "interest" in a
Project;
(v) There is a reduction in Section 29 Tax Credits under
Section 29(b)(3) of the Internal Revenue Code
because the Project benefited from grants,
tax-exempt financing or subsidized energy financing;
(vi) There is a phase-out of the Section 29 Tax Credits
under Section (b)(1) of the Internal Revenue Code
due to escalating oil prices; or
(vii) The Section 29 Tax Credit or the federal income tax
is repealed before 2008.
d. In the event that the Section 29 Tax Credits become
unavailable to NRG because Congress repeals Section 29 as it
applies to landfill gas facilities such as the Project, NRG
shall nonetheless continue to be obligated to make the
Quarterly Payment Amounts throughout the term of this
Agreement. With respect to any calendar year for which such a
repeal has become effective, the "Applicable Section 29
Credit Rate" shall be equal to the Applicable Section 29
Credit Rate in effect for the last year prior to the year of
such repeal without any further adjustments for inflation.
4. Quarterly Payments to Operator.
NRG shall pay the Quarterly Payment Amount to Operator in cash within
30 days after the last day of each calendar quarter.
5. No Offset.
Payments required to be made by NRG pursuant to this Agreement will be
made without offset for amounts that Operator may owe NRG.
6. Representations and Warranties of NRG.
NRG represents and warrants that as of the date hereof:
a. It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has
the corporate power,
<PAGE>
authority and legal right to execute, deliver and carry out
the terms and provisions of this Agreement;
b. The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action;
c. The execution, delivery and performance of this Agreement
will not (i) require any consent or approval of any
shareholder of NRG or Government Instrumentality that has not
been obtained, (ii) violate any provision of any of law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having
applicability to NRG, or (iii) result in a breach of or
constitute a default under any material agreement binding
upon NRG, and
d. This Agreement constitutes a valid and legally binding
agreement of NRG, enforceable in accordance with its terms
except as the enforceability of this Agreement may be limited
by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditor's rights generally and by general principles of
equity.
7. Representations and Warranties of Operator.
Operator represents and warrants that as of the date hereof:
a. It is a limited liability company or corporation duly
organized, validly existing and in good standing under the
laws of the State within which it is organized, and has the
power, authority and legal right to execute, deliver and
carry out the terms and provisions of this Agreement;
b. The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action;
c. The execution, delivery and performance of this Agreement
will not (i) require any consent or approval of any member or
shareholder of Operator or Government Instrumentality that
has not been obtained, (ii) violate any provision of any
law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having
applicability to Operator, or (iii) result in a breach of or
constitute a default under any material agreement binding
upon Operator; and
d. This Agreement constitutes a valid and legally binding
agreement of Operator, enforceable in accordance with its
terms except as the enforceability of this Agreement may be
limited by the effect of any
<PAGE>
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditor's rights
generally and by general principles of equity.
8. Other Business Activities; Disclosure; Waiver.
Each of the parties may engage in or possess any interest in any other
business venture of any nature or description independently or with others, and
the other party shall not have any right by virtue of this Agreement in and to
such business venture or the income or profits derived therefrom or to prevent
the other party from engaging in such business venture.
9. Scope of Authority; Indemnification.
Operator shall not take any action on behalf of or in the name of NRG,
or enter into any commitment or obligation purporting to be binding upon NRG,
except for actions expressly provided for in this Agreement. Operator shall
indemnify and hold harmless NRG, its partners, affiliates, shareholders,
directors and officers from and against any and all claims, demands, losses,
damages, liabilities, lawsuits and other proceedings, judgments, and awards,
and costs and expenses (including, but not limited to, reasonable attorneys'
fees) which any of them may incur or which may be claimed against any of them
by any person or entity in connection with, resulting from, or arising directly
or indirectly, in whole or in part, out of the acts or omission of Operator
with respect to the Project or the Lease or out of any breach of this Agreement
by the Operator. Notwithstanding the foregoing, any indemnification obligation
of the Operator to NRG under this Agreement shall be subordinate to the payment
in full of Operator's Obligations to the Agents and Lenders pursuant to the
terms of the Loan Agreement.
10. Term of this Agreement.
This Agreement shall commence with respect to Operator on the Term
Loan Conversion Date for the Project associated with such Operator. This
Agreement shall terminate on December 31, 2007 or the date of the indefeasible
payment in full of all Obligations under the Loan Agreement.
11. Notices and Communications.
All notices and other communications required or permitted to be given
or made hereunder shall be in writing and, shall be delivered to such address
as any party may from time to time designate in writing. Notices or
communications given as set forth herein shall be conclusively deemed to have
been received by the party to whom addressed when delivered.
<PAGE>
12. Binding Provisions.
The covenants and agreements contained in this Agreement shall be
binding upon the heirs, personal representatives, successors and permitted
assigns of the respective parties to this Agreement.
13. Severability.
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under the present or future laws effective during the terms of
this Agreement, such provision shall be fully severable, and this Agreement
will be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part of this Agreement, and the remaining
provisions of this Agreement will remain in full force and effect, and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of such illegal, invalid,
or unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms and effect to such illegal, invalid
or unenforceable provision as would be legal, valid and enforceable.
14. Entire Agreement.
This Agreement constitutes the entire understanding and agreement
among the parties with respect to the subject matter of this Agreement, and
supersedes all prior and contemporaneous agreements and understandings,
inducements, or conditions, express or implied, oral or written, except as
contained in this Agreement.
15. Applicable Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota.
16. Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which when taken together, shall constitute one
and the same instrument, binding on the parties hereto. The signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
17. Third-Party Beneficiaries.
Except as otherwise provided in this Section 17, this Agreement is
made solely and specifically among and for the benefit of the parties hereto,
and their respective successors and assigns, and no other person will have any
rights, interest, or claim hereunder or be entitled to any benefits under or on
account of this Agreement whether as a third party beneficiary or otherwise.
NRG acknowledges that Operator has collaterally
<PAGE>
assigned its right, title and interest in, to and under this Agreement to Lyon
Credit Corporation, as agent (the "Agent") for the Lenders under the Loan
Agreement. NRG intends that the Agent will be a third-party beneficiary to
this Agreement to the extent of such collateral assignment with the right to
enforce this Agreement against NRG directly. The Agent may bring an action to
enforce this Agreement against NRG directly without any requirement for notice
to the Operator and without waiting for the Operator to enforce its rights
under this Agreement. Any successors or assigns of the Agent will possess the
same rights as the Agent as a third-party beneficiary under this Agreement. In
addition, NRG has executed a Consent and Agreement dated of even date herewith,
consenting to the assignment by the Operator of all of its right, title and
interest in, to and under this Agreement to the Agent.
18. Amendment of Agreement.
This Agreement may be amended only by a writing duly executed by all
of the parties hereto; provided, however, that no amendment to this Agreement
shall be effective without the prior written consent of the Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto acknowledge that this Agreement
is their free act and that they have executed this Agreement as of the day and
year first above written.
NRG ENERGY, INC.
By: /s/ JAMES J. BENDER
Title: VP & GC
NEO CORPORATION
By: /s/ PETER D. JONES
Title: Manager
<PAGE>
NEO Albany LLC
NEO Edgeboro LLC
NEO Fitchburgh LLC
NEO Lowell LLC
Miramar Landfill Gas LLC
NEO Spokane LLC
NEO Taunton LLC
NEO Tulare LLC
NEO Tomoka Farms LLC
NEO Yolo LLC
NEO Cuyahoga LLC
NEO Hartford LLC
NEO Prima Deshecha LLC
NEO Prince William LLC
NEO Tacoma LLC
NEO West Covina LLC
NEO Hackensack LLC
NEO Lopez Canyon LLC
NEO Corporation
<PAGE>
EXHIBIT 12.1
NRG ENERGY, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---------- -------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes . $(5,307) $4,528 $ 32,010 $ 40,011 $ 14,323 $ 3,714 $ 6,337
Undistributed equity in operating
earnings of unconsolidated
affiliates ........................ (633) (874) (18,511) (20,074) (17,827) 204 (12,957)
Equity in gain from project
termination settlements ........... -- -- (9,685) (29,850) -- -- --
Cash distributions from project
termination settlements............ -- -- 9,685 14,179 15,671 15,671 --
---------- -------- ---------- ---------- ---------- --------- ----------
(5,940) 3,654 13,499 4,266 12,167 19,589 (6,620)
Interest expense ................... 1,622 2,679 6,682 7,089 15,430 7,277 11,182
Interest capitalized ............... -- -- 45 253 364 216 85
Amortization of debt issuance
costs.............................. 44 41 42 41 149 80 163
Reasonable approximation of the
interest factor of rental expense 33 50 59 265 247 211 168
---------- -------- ---------- ---------- ---------- --------- ----------
Total fixed charges ............... 1,699 2,770 6,828 7,648 16,190 7,784 11,598
Earnings ........................... $(4,241) $6,424 $ 20,327 $ 11,914 $ 28,357 $27,373 $ 4,978
========== ======== ========== ========== ========== ========= ==========
Ratio of earnings to fixed charges
(C)(D) ............................ (A) 2.32 2.98 1.56 1.75 3.52 (B)
</TABLE>
- ------------
(A) Due primarily to the loss incurred in 1992, NRG was unable to fully
cover fixed charges. Earnings did not cover fixed charges by $5,940.
(B) Due primarily to undistributed equity earnings exceeding income before
income taxes, NRG was unable to fully cover fixed charges. Earnings did
not cover fixed charges by $6,620.
(C) The 1995 ratio of earnings to fixed charges calculation includes the
effect of an equity gain and cash distribution from a project
termination settlement. If the project termination had not occurred,
NRG would have been unable to fully cover fixed charges and earnings
would not have covered fixed charges by $9,913.
(D) The 1996 ratio of earnings to fixed charges calculation includes the
effect of a cash distribution from a 1995 project termination
settlement. If the project termination had not occurred, NRG would have
been unable to fully cover fixed charges and earnings would not have
covered fixed charges by $3,504 for the year ended December 31, 1996.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 8, 1997 relating
to the financial statements of NRG Energy, Inc. for the two years ended
December 31, 1996, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
October 8, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of NRG Energy, Inc.
on Form S-1 of our report dated March 24, 1995, appearing in the Prospectus,
which is a part of this Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
October 8, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated March 21, 1997
relating to the financial statements of Sunshine State Power BV and Sunshine
State Power (No. 2) BV for the three years ended December 31, 1996, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse Netherland BV
Price Waterhouse Netherland BV
Amsterdam, The Netherlands
October 8, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration
Statement on Form S-1 (File No. 333-33397) of our report dated February 29,
1996 on our audits of the financial statements of San Joaquin Valley Energy
Partners I, L.P. We also consent to the reference of our firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Sacramento, California
October 8, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,815
<SECURITIES> 0
<RECEIVABLES> 13,951
<ALLOWANCES> 0
<INVENTORY> 2,484
<CURRENT-ASSETS> 122,701
<PP&E> 215,798
<DEPRECIATION> 74,739
<TOTAL-ASSETS> 1,019,670
<CURRENT-LIABILITIES> 36,598
<BONDS> 458,302
0
0
<COMMON> 1
<OTHER-SE> 496,925
<TOTAL-LIABILITY-AND-EQUITY> 1,019,670
<SALES> 42,685
<TOTAL-REVENUES> 13,846
<CGS> 22,696
<TOTAL-COSTS> 22,696
<OTHER-EXPENSES> 4,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,182
<INCOME-PRETAX> 6,337
<INCOME-TAX> (5,652)
<INCOME-CONTINUING> 11,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,989
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
NRG ENERGY, INC.
OFFER FOR ALL OUTSTANDING
7 1/2% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
7 1/2% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS, DATED ________, 1997
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
_________, _______, 1997, UNLESS EXTENDED (THE "EXPIRATION
DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE
- -------------------------------------------------------------------------------
Mail Delivery To: Norwest Bank Minnesota, National Association, Exchange Agent
By Registered or Certified Mail: By Hand Delivery:
Norwest Bank Minnesota, Norwest Bank Minnesota,
National Association National Association
P.O. Box 1517 Northstar East 12th Floor
Minneapolis, Minnesota 55480-1517 608 2nd Avenue
Attention: Corporate Trust Operations Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Operations
By Overnight Delivery: By Facsimile:
Norwest Bank Minnesota, (612) 667-4927
National Association Confirm by Telephone:
Norwest Center (612) 667-9764
6th and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Operations
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he has received the Prospectus, dated
_______, 1997 (the "Prospectus"), of NRG Energy, Inc., a Delaware corporation
("NRG"), and this Letter of Transmittal (the "Letter"), which together
constitute NRG's offer (the "Exchange Offer") to exchange an aggregate
principal amount of up to $250,000,000 of its 7 1/2% Senior Notes due 2007
which have been registered under the Securities Act of 1933 (the "New Notes")
of NRG for a like principal amount of the issued and outstanding 7 1/2% Senior
Notes due 2007 (the "Old Notes") of NRG from the holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes surrendered in exchange therefor or, if
no interest has been paid on the Old Notes, from June 17, 1997. If NRG fails to
comply with certain registration obligations as set forth in the Registration
Rights Agreement, dated as of June 12, 1997, NRG shall pay special interest (up
to a maximum of 0.25% of the principal amount per annum) to holders of Old
Notes affected thereby. See "Description of Notes--Exchange Offer; Special
Interest" section in the Prospectus. Holders of Old Notes accepted for exchange
will be deemed to have waived the right to receive any other payment or accrued
interest on the Old Notes. NRG reserves the right, at any time or from time to
time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. NRG shall notify the holders of the Old Notes of any
extension by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
<PAGE>
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of Old Notes, if
available, is to be made by book-entry transfer to the account maintained by
the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures for tender set forth in "The Exchange
Offer--Book Entry Transfer" section of the Prospectus. Holders who are
Book-Entry Transfer Facility participants tendering by book-entry transfer must
execute such tender through the Automated Tender Offer Program ("ATOP"). A
Holder using ATOP should transmit its acceptance to the Book- Entry Transfer
Facility on or prior to the Expiration Date. The Book-Entry Transfer Facility
will verify such acceptance, execute a book-entry transfer of the tendered Old
Notes into the Exchange Agent's account at the Book- Entry Transfer Facility,
and then send to the Exchange Agent confirmation of such book-entry transfer (a
"Book- Entry Confirmation"), including an Agent's Message confirming that the
Book-Entry Transfer Facility has received an express acknowledgement from such
Holder that such Holder has received and agrees to be bound by this Letter of
Transmittal and that NRG may enforce this Letter of Transmittal against such
Holder. The Book-Entry Confirmation must be received by the Exchange Agent in
order for the tender relating thereto to be effective. Holders of Old Notes
whose certificates are not immediately available, or who are unable to deliver
their certificates or confirmation of book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Of- fer--Guaranteed Delivery
Procedures" section of the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old
Notes represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered
hereby must be in denomination of principal amount of $1,000 or an integral multiple thereof. See
Instruction 1.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
--------------------------------------------
Account Number Transaction Code Number
-------------------- ---------------
2
<PAGE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
-------------------------------------------
Window Ticket Number (if any)
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------
Name of Institution which Guaranteed Delivery
-----------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number Transaction Code Number
--------------------- ---------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to NRG the aggregate principal amount of Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Notes tendered hereby, the undersigned hereby sells, assigns and
transfers to, or upon the order of, NRG all right, title and interest in and to
such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that when the same are accepted for exchange, NRG will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and that the Old Notes are not subject
to any adverse claim when the same are accepted by NRG. The undersigned hereby
further represents that any New Notes acquired in exchange for Old Notes
tendered hereby will have been acquired in the ordinary course of business of
the person receiving such New Notes, whether or not such person is the
undersigned, that neither the holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in
the distribution of such New Notes and that neither the holder of such Old
Notes nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act of 1933, as amended (the "Securities Act"), of NRG.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued in exchange for the Old Notes pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by holders thereof (other than any such holder that is an "affiliate" of NRG
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such New Notes. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of New Notes. If any holder is an
affiliate of NRG or is engaged in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities, it
represents to NRG that it will deliver a prospectus in connection with any
resale of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by NRG to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder will be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and will not be affected by, and will survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above at the Book-Entry Transfer
Facility. Similarly, unless otherwise indicated herein in the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes
not exchanged) to the undersigned at the address shown above in the box
entitled "Description of Old Notes."
4
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old
Notes not exchanged and/or New Notes are to be
issued in the name of and sent to someone other than
the person or persons whose signature(s) appear(s)
below on this Letter, or if Old Notes delivered by
book-entry transfer that are not accepted for exchange
are to be returned by credit to an account maintained
at the Book-Entry Transfer Facility other than the
account indicated above.
Issue: New Notes and/or Old Notes to:
Names(s)
------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-------------------------------------------------
- --------------------------------------------------------
(INCLUDE ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer
to the Book-Entry Transfer Facility account set forth below.
- --------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY)
- --------------------------------------------------------------------
- -------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old
Notes not exchanged and/or New Notes are to be
sent to someone other than the person or persons
whose signature(s) appear(s) below on this Letter or
to such person or persons at an address other than
shown in the box entitled "Description of Old Notes"
above on this Letter.
Mail: New Notes and/or Old Notes to:
Name(s)
------------------------------------------------
(PLEASE TYPE OR PRINT)
- -------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------------------------------
5
<PAGE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated ..................................................................., 1997
X ....................................................................., 1997
X ....................................................................., 1997
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number .........................................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s) ......................................................................
......................................................................
(PLEASE TYPE OR PRINT)
Capacity ......................................................................
Address ......................................................................
......................................................................
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution .......................................................
(AUTHORIZED SIGNATURE)
.............................................................................
(TITLE)
............................................................................
(NAME AND FIRM)
Dated ................................................................., 1997
- -------------------------------------------------------------------------------
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR ALL
OUTSTANDING 7 1/2% SENIOR NOTES DUE 2007
IN EXCHANGE FOR THE 7 1/2% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF NRG ENERGY, INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders who are
Book-Entry Transfer Facility participants tendering by Book-Entry transfer must
execute such tender to the Book-Entry Transfer Facility's ATOP system. A Holder
using ATOP should transmit its acceptance to the Book-Entry Transfer Facility
on or prior to the Expiration Date. The Book-Entry Transfer Facility will
verify such acceptance, execute a book-entry transfer of the tendered Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility, and then
send to the Exchange Agent confirmation of such book-entry transfer (a
"Book-Entry Confirmation"), including an Agent's Message confirming that the
Book-Entry Transfer Facility has received an express acknowledgement from such
Holder that such Holder has received and agrees to be bound by this Letter of
Transmittal and that NRG may enforce this Letter of Transmittal against such
Holder. The Book-Entry confirmation must be received by the Exchange Agent in
order for the tender relating thereto to be effective. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 or an integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not
immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis,
may tender their Old Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution, (ii) prior to Expiration Date, the Exchange Agent must
receive from such Eligible Institution a properly completed and duly executed
Letter (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by NRG (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange, Inc. ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes
in proper form for transfer, or, if using ATOP, a Book-Entry Confirmation and
any other documents required by the Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or, if using ATOP,
a Book-Entry Confirmation and all other documents required by this Letter, are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders and the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing
be made sufficiently in advance of the Expiration Date to permit delivery to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.
See "The Exchange Offer" section of the Prospectus.
7
<PAGE>
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all the Old Notes evidenced by a submitted certificate
are to be tendered, the tendering holder(s) should fill in the aggregate
principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount Tendered." In such case, a reissued
certificate representing the balance of Old Notes not tendered will be sent to
such tendering holder, unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. ALL OF THE OLD NOTES DELIVERED TO
THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
INDICATED.
3. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE
OF SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder or holders of the
Old Notes specified herein and tendered hereby, no endorsements of certificates
or separate powers of attorney are required. If, however, the New Notes are to
be issued, or any untendered Old Notes are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate powers of attorney are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder
or holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders
appear(s) on the certificate(s) and signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by NRG, proper
evidence satisfactory to NRG of their authority to so act must be submitted
with this Letter.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON POWERS OF
ATTORNEY REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FINANCIAL
INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE
HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM, THE NYSE MEDALLION SIGNATURE PROGRAM OR THE STOCK EXCHANGE MEDALLION
PROGRAM (COLLECTIVELY, "ELIGIBLE INSTITUTIONS").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THIS LETTER OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box
the name and address to which New Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Old Notes by book-entry transfer may request that
Old Notes not exchanged be
8
<PAGE>
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate hereon. If no such instructions are given, such Old Notes
not exchanged will be returned to the name or address of the person signing
this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder
whose Old Notes are accepted for exchange must provide NRG (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his
social security number. If NRG is not provided with the current TIN or an
adequate basis for an exemption, such tendering holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, delivery to such
tendering holder of New Notes may be subject to backup withholding in an amount
equal to 31% of all reportable payments made after the exchange. If withholding
results in an overpayment of taxes, a refund may be obtained.
EXEMPT HOLDERS OF OLD NOTES (INCLUDING, AMONG OTHERS, ALL CORPORATIONS
AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING
AND REPORTING REQUIREMENTS. SEE THE ENCLOSED GUIDELINES OF CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 (THE "W-9 GUIDELINES")
FOR ADDITIONAL INSTRUCTIONS.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding or (ii) the
holder has not been notified by the Internal Revenue Service that such holder
is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give NRG a completed Form W-8,
Certificate of Foreign Statutes. These forms may be obtained from the Exchange
Agent. If the Old Notes are in more than one name or are not in the name of the
actual owner, such holder should consult the W-9 Guidelines for information on
which TIN to report. If such holder does not have a TIN, such holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the
box in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its
TIN. Note: Checking this box and writing "applied for" on the form means that
such holder has already applied for a TIN or that such holder intends to apply
for one in the near future. If such holder does not provide its TIN to NRG
within 60 days, backup withholding will begin and continue until such holder
furnishes its TIN to NRG.
6. TRANSFER TAXES.
NRG will pay all transfer taxes, if any, applicable to the transfer of
Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Notes to NRG or its order pursuant to the Exchange Offer, the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WITHDRAWAL RIGHTS.
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in
the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to be
withdrawn, the aggregate principal amount of Old Notes to be withdrawn and (if
Certificates for Old Notes have been tendered) the name of the registered
holder of the Old Notes as set forth on the Certificate for the Old Notes, if
different from that of the person who
9
<PAGE>
tendered such Old Notes. If Certificates for the Old Notes have been delivered
or otherwise identified to the Exchange Agent, then prior to the physical
release of such Certificates for the Old Notes, the tendering holder must
submit the serial numbers shown on the particular Certificates for the Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in the Prospectus
under "The Exchange Offer--Procedures for Tendering Old Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawal of Old Notes, in which case a notice of withdrawal
will be effective if delivered to the Exchange Agent by written, telegraphic,
telex or facsimile transmission. Withdrawals of tenders of Old Notes may not be
rescinded. Old Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer-Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by NRG, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither NRG, any affiliates or assigns of NRG, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities
in any notice of withdrawal or incur any liability for failure to give any such
notification. Any Old Notes which have been tendered but which are withdrawn
will be returned to the holder thereof without cost to such holder promptly
after withdrawal.
8. IRREGULARITIES.
NRG will determine, in its sole discretion, all questions as to the
form of documents, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall
be final and binding on all parties. NRG reserves the absolute right to reject
any and all tenders determined by them not to be in proper form or the
acceptance of which, or exchange for which, may, in the view of counsel to NRG
be unlawful. NRG also reserves the absolute right, subject to applicable law,
to waive any of the conditions of the Exchange Offer set forth in the
Prospectus under "The Exchange Offer-Conditions to the Exchange Offer" or any
conditions or irregularity in any tender of Old Notes of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders. NRGs interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will
be final and binding. No tender of Old Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. NRG, any affiliates or assigns of NRG, the Exchange Agent, or
any other person shall not be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
9. WAIVER OF CONDITIONS.
NRG reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
10. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter (or
by book-entry transfer through ATOP), will waive any right to receive notice of
the acceptance of their Old Notes for exchange.
Neither NRG, the Exchange Agent nor any other person is obligated to
give notice to any defect or irregularity with respect to any tender of Old
Notes nor will any of them incur any liability for failure to give any such
notice.
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10
<PAGE>
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
13. INCORPORATION OF LETTER TRANSMITTAL.
This Letter shall be deemed to be incorporated in and acknowledged and
accepted by any tender through the Book-Entry Transfer Facility's ATOP
procedures by any Participant on behalf of itself and the beneficial owners of
any Old Senior Notes so tendered.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING H0LDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: NRG ENERGY, INC.
- -------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER ("TIN")
AND CERTIFICATION
- -------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT TIN
RIGHT AND CERTIFY BY SIGNING AND ----------------------------
DATING BELOW. SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
- -------------------------------------------------------------------------------
PART 2--TIN APPLIED FOR [ ]
- -------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES
OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because: (a) I am exempt
from backup withholding, or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
Signature Date
------------------------------------------- --------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
- -------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31
percent of all reportable payments made to me thereafter will be withheld until
I provide a number.
- ------------------------------------------ -----------------------------------
Signature Date
- -------------------------------------------------------------------------------
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
NRG ENERGY, INC.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of NRG Energy, Inc. ("NRG") made pursuant to the Prospectus,
dated _____________, 1997 (the "Prospectus"), if certificates for Old Notes of
NRG are not immediately available or if the procedure for book-entry transfer
cannot be completed on a timely basis or time will not permit all required
documents to reach NRG prior to 5:00 p.m., New York City time, on the
Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by telegram, telex, facsimile transmission, mail or hand delivery
to Norwest Bank Minnesota, National Association (the "Exchange Agent") as set
forth below. In addition, in order to utilize the guaranteed delivery procedure
to tender Old Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal (or facsimile thereof) must also be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the Prospectus.
Main Delivery To: Norwest Bank Minnesota, National Association, Exchange Agent
By Registered or Certified Mail:
Norwest Bank Minnesota, National Association
P.O. Box 1517
Minneapolis, Minnesota 55480-1517
Attention: Corporate Trust Operations
By Hand Delivery:
Norwest Bank Minnesota, National Association
Northstar East 12th Floor
608 2nd Avenue
Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Operations
By Overnight Delivery:
Norwest Bank Minnesota, National Association
Norwest Center
6th and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Operations
By Facsimile:
(612) 667-4927
Confirm by Telephone:
(612) 667-9764
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to NRG the
principal amount of Old Notes set forth below, pursuant to the guaranteed
delivery procedure described in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus.
Principal Amount of Old Notes
Tendered:*
$
-------------------------------
Certificate Nos. (if available) If Old Notes will be delivered by
book-entry transfer to The Depository Trust
Company, provide account number.
-------------------------------
Total Principal Amount Represented by
Old Notes Certificates(s):
$ Account Number:
------------------------------- ----------------------------
- -------------------
* Must be in denominations of principal amount of $1,000 or an integral
multiple thereof.
<PAGE>
- -------------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE
THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE
UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X
------------------------------------------------ ------------------------
X
------------------------------------------------ ------------------------
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:
--------------------------
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES) (INCLUDE ZIP CODE)
Name(s)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Capacity
-----------------------------------------------------------------
Address(es)
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
GUARANTEE
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program, hereby
guarantees that the certificates representing the principal amount of Old Notes
tendered hereby in proper form for transfer, or timely confirmation of the
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company ("Book Entry Transfer Facility") pursuant to the
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus, together with a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with any
required signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the Address set forth
above, no later than three New York Stock Exchange, Inc. trading days after the
date of execution hereof.
- -------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- -------------------------------------- -------------------------------------
Address Title
Name
- -------------------------------------- ---------------------------------
Include Zip Code (Please Type or Print)
Area Code and Tel. No. Dated
---------------- --------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
October ____, 1997
Norwest Bank Minnesota, National Association
Norwest Center
6th & Marquette Avenue
Minneapolis, Minnesota 55479-0069
Ladies and Gentlemen:
NRG Energy, Inc., a corporation formed under the laws of the State of
Delaware ("NRG") proposes to make an offer (the "Exchange Offer") to exchange
its 7 1/2% Senior Notes due 2007 (the "Old Notes") for its 7 1/2% Senior Notes
due 2007 which have been registered under the Securities Act of 1933 (the "New
Notes"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated ____, 1997 (the
"Prospectus"), to be distributed to all record holders of the Old Notes. The
Old Notes and the New Notes are collectively referred to herein as the "Notes."
NRG hereby appoints Norwest Bank Minnesota, National Association to
act as exchange agent (the "Exchange Agent") in connection with the Exchange
Offer. References hereinafter to "you" shall refer to Norwest Bank Minnesota,
National Association.
The Exchange Offer is expected to be commenced by NRG on or about
____, 1997. The Letter of Transmittal accompanying the Prospectus (or in the
case of book entry securities, the ATOP system) is to be used by the holders of
the Old Notes to accept the Exchange Offer and contains instructions with
respect to (i) the delivery of certificates for Old Notes tendered in
connection therewith and (ii) the book-entry transfer of Notes to the Exchange
Agent's account.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
_____, 1997 or on such later date or time to which NRG may extend the Exchange
Offer (the "Expiration Date"). Subject to the terms and conditions set forth in
the Prospectus, NRG expressly reserves the right to extend the Exchange Offer
from time to time by giving oral (to be confirmed in writing) or written notice
to you before 9:00 A.M., New York City time, on
<PAGE>
the business day following the previously scheduled Expiration Date.
NRG expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified in the Prospectus under the caption "The Exchange
Offer--Conditions to the Exchange Offer." NRG will give oral (confirmed in
writing) or written notice of any amendment, termination or nonacceptance of
Old Notes to you promptly after any amendment, termination or nonacceptance.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer," the Letter of Transmittal or as specifically set forth herein;
provided, however, that in no way will your general duty to act in good faith
be discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at The
Depository Trust Company (the "Book- Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's system shall make book-entry delivery of the Old Notes by causing
the Book-Entry Transfer Facility to transfer such Old Notes into your account
in accordance with the Book-Entry Transfer Facility's procedure for such
transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Old Notes (or confirmation of book-entry transfer into your
account at the Book-Entry Transfer Facility) and any other documents delivered
or mailed to you by or for holders of the Old Notes to ascertain whether: (i)
the Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein and (ii)
the Old Notes have otherwise been properly tendered. In each case where the
Letter of Transmittal or any other document has been improperly completed or
executed or any of the certificates for Old
2
<PAGE>
Notes are not in proper form for transfer or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform the presenters of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of any person designated in writing by NRG (a
"Designated Officer") (such approval, if given orally, to be confirmed in
writing) or any other party designated by any such Designated Officer in
writing, you are authorized to waive any irregularities in connection with any
tender of Old Notes pursuant to the Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange
Offer--Procedures for Tendering Old Notes," and Old Notes shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Notes which
any Designated Officer of NRG shall approve as having been properly tendered
shall be considered to be properly tendered (such approval, if given orally,
shall be confirmed in writing).
6. You shall advise NRG with respect to any Old Notes received
subsequent to the Expiration Date and accept their instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of such person's authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes
provided that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
3
<PAGE>
You shall accept partial tenders of Old Notes where so indicated and
as permitted in the Letter of Transmittal and deliver certificates for Old
Notes to the transfer agent for split-up and return any untendered Old Notes to
the holder (or such other person as may be designated in the Letter of
Transmittal) as promptly as practicable after expiration or termination of the
Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, NRG will notify you of its acceptance, promptly after the
Expiration Date, of all Old Notes properly tendered and you, on behalf of NRG,
will exchange such Old Notes for New Notes and cause such Old Notes to be
canceled. Delivery of New Notes will be made on behalf of NRG by you at the
rate of $1,000 principal amount of New Notes for each $1,000 principal amount
of the corresponding series of Old Notes tendered promptly after notice (such
notice if given orally, to be confirmed in writing) of acceptance of said Old
Notes by NRG; provided, however, that in all cases, Old Notes tendered pursuant
to the Exchange Offer will be exchanged only after timely receipt by you of
certificates for such Old Notes (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility), a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents (or an Agent's Message,
if tendering through ATOP). You shall issue New Notes only in denominations of
$1,000 or any integral multiple thereof. Old Notes may be tendered in whole or
in part in denominations of $100,000 and integral multiples of $1,000 in excess
thereof, provided that if any Old Notes are tendered for exchange in part, the
untendered principal amount thereof must be $100,000 or any integral multiple
of $1,000 in excess thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Old Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time on or prior to the Expiration Date.
10. NRG shall not be required to exchange any Old Notes tendered if
any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by
4
<PAGE>
NRG not to exchange any Old Notes tendered shall be given orally (and confirmed
in writing) or in writing by NRG to you.
11. If, pursuant to the Exchange Offer, NRG does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender,
the occurrence of certain other events set forth in the Prospectus under the
caption "The Exchange Offer--Conditions to the Exchange Offer" or otherwise,
you shall promptly after the expiration or termination of the Exchange Offer
return those certificates for unaccepted Old Notes (or effect appropriate
book-entry transfer), together with any related required documents and the
Letters of Transmittal relating thereto that are in your possession, to the
persons who deposited them.
12. All certificates for reissued Old Notes, unaccepted Old Notes or
for New Notes shall be forwarded by (a) first-class certified mail, return
receipt requested, under a blanket surety bond protecting you and NRG from loss
or liability arising out of the non-receipt or non- delivery of such
certificates, (b) by registered mail insured separately for the replacement
value of each of such certificates, or (c) by appropriate book-entry transfer.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons
or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth in the section of the Prospectus captioned "The Exchange Offer," the
Letter of Transmittal or herein or as may be subsequently agreed to in writing
by you and NRG;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any
of the certificates or the Old Notes represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
5
<PAGE>
(c) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to
be genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, agreement
or other instrument whatsoever not only as to its due execution and validity
and effectiveness of its provisions, but also as to the truth and accuracy of
any information contained therein, which you shall in good faith believe to be
genuine or to have been signed or represented by a proper person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any Designated Officer of NRG;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good
faith and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market value
or decline or appreciation in market value of any Old Notes.
15. You shall take such action as may from time to time be requested
by NRG or its counsel or any Designated Officer of NRG (and such other action
as you may reasonably deem appropriate) to furnish copies of the Prospectus,
Letter of Transmittal and the Notice of Guaranteed Delivery (as defined in the
Prospectus) or such other forms as may be approved from time to time by NRG to
all persons requesting such documents and to accept and comply with telephone
requests for information relating to the Exchange Offer, provided that such
information
6
<PAGE>
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. NRG will furnish you with copies of such documents at your
request. All other requests for information relating to the Exchange Offer
shall be directed to NRG, Attention: James J.
Bender.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to James J. Bender of NRG, and such
other person or persons as NRG may request, daily (and more frequently during
the week immediately preceding the Expiration Date and if otherwise requested)
up to and including the Expiration Date, as to the number of Old Notes which
have been tendered pursuant to the Exchange Offer and the items received by you
pursuant to this Agreement, separately reporting and giving cumulative totals
as to items properly received and items improperly received. In addition, you
will also inform, and cooperate in making available to, NRG or any such other
person or persons upon oral request made from time to time on or prior to the
Expiration Date of such other information as it or such person reasonably
requests. Such cooperation shall include, without limitation, the granting by
you to NRG and such person as NRG may request of access to those persons on
your staff who are responsible for receiving tenders, in order to ensure that
immediately prior to the Expiration Date NRG shall have received information in
sufficient detail to enable it to decide whether to extend the Exchange Offer.
You shall prepare a final list of all persons whose tenders were accepted, the
aggregate principal amount of Old Notes tendered, the aggregate principal
amount of Old Notes accepted and deliver said list to NRG promptly after the
Expiration Date.
17. Any Letters of Transmittal and Notices of Guaranteed Delivery
which are received by the Exchange Agent shall be stamped by you as to the date
and the time of receipt thereof and shall be preserved by you for a period of
time at least equal to the period of time you preserve other records pertaining
to the transfer of securities. You shall dispose of unused Letters of
Transmittal and other surplus materials by returning them to NRG at the address
set forth below for notices.
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18. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by
NRG, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange
Agent, which shall be controlled by this Agreement.
21. (a) NRG covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including reasonable attorneys' fees and expenses, arising out of or
in connection with any act, omission, delay or refusal made by you in reliance
upon any signature, endorsement, assignment, certificate, order, request,
notice, instruction or other instrument or document reasonably believed by you
to be valid, genuine and sufficient and in accepting any tender or effecting
any transfer of Old Notes reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Notes; provided, however, that NRG shall not be
liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your negligence or willful misconduct. In
no case shall NRG be liable under this indemnity with respect to any claim
against you unless NRG shall be notified by you, by letter or cable or by
facsimile confirmed by letter, of the written assertion of a claim against you
or of any other action commenced against you, promptly after you shall have
received any such written assertion or notice of commencement of action. NRG
shall be entitled to
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participate at its own expense in the defense of any such claim or other
action, and, if NRG so elects, NRG may assume the defense of any suit brought
to enforce any such claim. In the event that NRG shall assume the defense of
any such suit or threatened action in respect of which indemnification may be
sought hereunder, NRG shall not be liable for the fees and expenses of any
additional counsel thereafter retained by you so long as you consent to NRG's
retention of counsel, which consent may not be unreasonably withheld; provided
that NRG shall not be entitled to assume the defense of any such action if the
named parties to such action include both NRG and you and representation of
both parties by the same legal counsel would, in the written opinion of counsel
to you, be inappropriate due to actual or potential conflicting interests
between you and NRG. It is understood that NRG shall not be liable under this
paragraph for the fees and expenses of more than one legal counsel for you. In
the event that NRG shall assume the defense of any such suit, NRG shall not
thereafter be liable for the fees and expenses of any counsel retained by you.
(b) You agree that, without the prior written consent of NRG, you will
not settle, compromise or consent to the entry of any pending or threatened
claim, action or proceeding in respect of which indemnification could be sought
in accordance with the indemnification provisions of this Agreement (whether or
not you or NRG or any of its trustees, or controlling persons is an actual or
potential party to such claim, action or proceeding), unless such settlement,
compromise or consent includes an unconditional release of NRG and its trustees
and controlling persons from all liability arising out of such claim, action or
proceeding.
22. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the
Internal Revenue Service. NRG understands that you are required in certain
instances to deduct 31% with respect to interest paid on the New Notes and
proceeds from the sale, exchange, redemption or retirement of the New Notes
from holders who have not supplied their correct Taxpayer Identification Number
or required certification. Such funds will be turned over to the Internal
Revenue Service in accordance with applicable regulations.
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23. You shall notify NRG of the amount of any transfer taxes payable
in respect of the exchange of Old Notes and, upon receipt of written approval
from NRG, you shall deliver or cause to be delivered, in a timely manner to
each governmental authority to which any transfer taxes are payable in respect
of the exchange of Old Notes, your check in the amount of all transfer taxes so
payable, and NRG shall reimburse you for the amount of any and all transfer
taxes payable in respect of the exchange of Old Notes; provided, however, that
you shall reimburse NRG for amounts refunded to you in respect of your payment
of any such transfer taxes, at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to
the benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to
be charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or facsimile number set forth below:
If to NRG:
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NRG Energy, Inc.
1221 Nicollet Mall
Minneapolis, MN 5403
Telephone: (612) 373-5300
Facsimile: (612) 373-5392
Attention: James J. Bender
If to the Exchange Agent:
Norwest Bank Minnesota, National Association
Norwest Center
6th & Marquette Avenue
Minneapolis, Minnesota 55479-0069
Telephone:
Facsimile:
Attention:
29. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to NRG any certificates for Notes, funds or property then held by you as
Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date
hereof.
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Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
NRG ENERGY, INC.
By:
-------------------------------------
Name:
Title:
Accepted as the date first above written:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By:
--------------------------------
Name:
Title:
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NORWEST BANK MINNESOTA, N.A.
FEE SCHEDULE
EXCHANGE AGENT SERVICES
FOR
NRG ENERGY, INC.
I. Exchange Agency
A fee for the receipt of exchanged 7 1/2% Senior Notes
due 2007 of NRG Energy, Inc. will be ____________.
This fee covers examination and execution of all required
documentation, receipt of transmittal letters, reporting as required
to the Company and communication with DTC.
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