ENERGY EAST CORPORATION
(Registrant)
FORM 10-K
---------
ANNUAL REPORT
For Fiscal Year Ended December 31, 1998
To
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business
(a) General development of business. . . . . . . . . . 3
(b) Financial information about segments . . . . . . . 3
(c) Narrative description of business
Principal business. . . . . . . . . . . . . . . . 3
New product or segment. . . . . . . . . . . . . . 4
Sources and availability of raw materials . . . . 4
Franchises . . . . . . . . . . . . . . . . . . . 5
Seasonal business . . . . . . . . . . . . . . . . 5
Working capital items . . . . . . . . . . . . . . 6
Single customer . . . . . . . . . . . . . . . . . 6
Backlog of orders . . . . . . . . . . . . . . . . 6
Business subject to renegotiation . . . . . . . . 6
Competitive conditions. . . . . . . . . . . . . . 6
Research and development. . . . . . . . . . . . . 6
Environmental matters . . . . . . . . . . . . . . 6
Water quality . . . . . . . . . . . . . . . . . 6
Air quality . . . . . . . . . . . . . . . . . . 7
Waste disposal. . . . . . . . . . . . . . . . . 7
Number of employees. . . . . . . . . . . . . . . . 8
(d) Financial information about geographic areas.. . . 8
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal proceedings. . . . . . . . . . . . . . . . . . . .9
Item 4. Submission of matters to a vote of security holders. . 14
Executive officers of the Registrant . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's common equity and related
stockholder matters. . . . . . . . . . . . . . . . . 15
Item 6. Selected financial data. . . . . . . . . . . . . . . . 16
Item 7. Management's discussion and analysis of financial
condition and results of operations. . . . . . . . . 17
Item 7A. Quantitative and qualitative disclosures about
market risk. . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
TABLE OF CONTENTS (Cont'd)
Page
Item 8. Financial statements and supplementary data. . . . . . 31
Financial Statements
Consolidated Statements of Income. . . . . . . . . . 31
Consolidated Balance Sheets. . . . . . . . . . . . . 32
Consolidated Statements of Cash Flows. . . . . . . . 34
Consolidated Statements of Changes in
Common Stock Equity. . . . . . . . . . . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . 36
Report of Independent Accountants. . . . . . . . . . . 52
Financial Statement Schedules
II. Consolidated Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . . . 53
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure. . . . . . . . . 55
PART III
Item 10. Directors and executive officers of the Registrant . . 55
Item 11. Executive compensation . . . . . . . . . . . . . . . . 55
Item 12. Security ownership of certain beneficial owners
and management . . . . . . . . . . . . . . . . . . . 55
Item 13. Certain relationships and related transactions . . . . 55
PART IV
Item 14. Exhibits, financial statement schedules, and
reports on Form 8-K
(a) List of documents filed as part of this report
Financial statements . . . . . . . . . . . . . . 55
Financial statement schedules. . . . . . . . . . 55
Exhibits
Exhibits delivered with this report. . . . . . 56
Exhibits incorporated herein by reference. . . 56
(b) Reports on Form 8-K. . . . . . . . . . . . . . . . 59
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-14766.
ENERGY EAST CORPORATION
(Exact name of Registrant as specified in its charter)
New York 14-1798693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 12904, Albany, New York 12212-2904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (518) 434-3049
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock (Par Value $.01) New York Stock Exchange
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
The aggregate market value as of March 17, 1999, of the
common stock held by non-affiliates of the Registrant was
$3,355,458,885.
Common stock - 59,454,421 shares outstanding as of March 17,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
Document 10-K Part
We have incorporated by reference certain
portions of our Proxy Statement dated
March 3, 1999, which was filed with the
Commission prior to April 30, 1999. III
<PAGE>
PART I
Item 1. Business
(a) General development of business
Energy East Corporation is a holding company which was
organized under the laws of the State of New York in 1997. We are
an energy delivery, products and services company with operations
in New York, Massachusetts, Maine, New Hampshire, Vermont and New
Jersey and offices in New York and Connecticut. On May 1, 1998,
we became the parent of New York State Electric & Gas Corporation
pursuant to an Agreement and Plan of Share Exchange. Each
outstanding share of NYSEG's common stock was exchanged for one
share of our common stock. NYSEG's preferred stock and debt were
not exchanged and remain securities of NYSEG. Because Energy East
did not become the holding company for NYSEG until May 1, 1998,
the January through April 1998, the 1997 and the 1996
consolidated financial statements represent the accounts of NYSEG
on a consolidated basis as predecessor of Energy East.
The following general developments have occurred in our
business since January 1, 1998:
Regulatory and Rate Matters
(See Item 7 - Electric Business and Natural Gas Business.)
(b) Financial information about segments
(See Item 8 - Note 13 to the Consolidated Financial
Statements.)
(c) Narrative description of business
(See Item 7 - Electric Business, Natural Gas Business and
Other Operations.)
Disposition of Assets
We completed the sale of our Homer City generation assets in
March 1999 and expect to complete the sale of our remaining coal-
fired generation assets in several weeks. Required information
is filed with this report. We are actively pursuing the sale of
our 18% interest in Nine Mile Point nuclear generating unit No.
2. In January Niagara Mohawk Power Corporation, the operator and
41% owner of NMP2, announced its intention to pursue the sale of
its interest in NMP2. Together we are in active discussions
concerning the sale with a third party who recently completed due
diligence at the site. We will petition for all necessary
regulatory approvals if an agreement is reached to sell NMP2.
(See Item 7 - Electric Business, Sale of our Coal-fired
Generation Assets and Item 8 - Notes 7 and 8 to the Consolidated
Financial Statements.)
(i) Principal business
Our principal electric and natural gas business is
generating, purchasing, transmitting and distributing electricity
and purchasing, transporting and distributing natural gas in New
York. Our New York service territory, 99% of which is located
outside the corporate limits of cities, is in the central,
eastern and western parts of the State of New York. This service
territory has an area of approximately 19,900 square miles and a
population of 2,400,000. The larger cities in New York in which
we serve both electricity and natural gas are Binghamton, Elmira,
Auburn, Geneva, Ithaca and Lockport. We serve approximately
817,000 electric customers and 243,000 natural gas customers in
New York. Our service territory reflects a diversified economy,
including high-tech firms, light industry, colleges and
universities, agriculture and recreational facilities. No
customer accounts for 5% or more of either electric or natural
gas revenues. Our operating revenues derived from our electric
business were 87% in 1998, 83% in 1997 and 82% in 1996. Our
operating revenues derived from our natural gas business were 12%
in 1998, 15% in 1997 and 16% in 1996.
The 1998 peak load of 2,339 megawatts was set on December
30, 1998. This is 272 mw less than the all-time peak of 2,611 mw
set on January 19, 1994. Power supply capability to meet peak
loads is currently 2,284 mw. This is composed of 1,605 mw of
generating capacity (83% coal-fired, 13% nuclear and 4%
hydroelectric) and 1,206 mw of purchases offset by 527 mw of firm
sales. The purchases are composed of 565 mw from nonutility
generators and 641 mw from the New York Power Authority. Most
purchases from NYPA are hydroelectric power.
On December 30, 1998, we experienced our 1998 maximum peak
daily sendout for natural gas of 363,504 dekatherms. This was
49,805 dekatherms less than the previous year peak of 413,309
dekatherms set on January 18, 1997.
(ii) New product or segment
(See Item 7 - Other Operations.)
(iii) Sources and availability of raw materials
Electric
(See Item 7 - Electric Business, Sale of our Coal-fired
Generation Assets.)
In 1998 approximately 91% of our generation was coal-fired
steam electric, 7% nuclear and 2% hydroelectric power. About 42%
of our steam electric generation in 1998 was supplied from our
one-half share of the output from the Homer City Generating
Station, which was owned in common with Pennsylvania Electric
Company. An additional 30% was supplied from the Kintigh
Generating Station, and the remaining 28% was supplied from our
other generating stations which are located in New York State. We
use electricity contracts to manage our exposure to fluctuations
in the cost of electricity.
<PAGE>
Coal
Coal for the New York generating stations is obtained
primarily from Pennsylvania and West Virginia. Of the 3.6
million tons of coal purchased for the New York generating
stations in 1998, approximately 82% was purchased under
contract and the balance on the open market. Coal purchased
under contract is expected to be approximately 88% of our
coal purchases in 1999. The sale of the New York generating
stations is expected to close in several weeks.
Nuclear
In 1998 Niagara Mohawk Power Corporation, the operator
of Nine Mile Point nuclear generating unit No. 2, in which
we have an 18% interest, installed reload No. 6 into the
reactor core at NMP2. This refueling will support NMP2
operations through the spring of 2000. Reload No. 7 is
scheduled for March 2000 and will support operations through
the spring of 2002. Enrichment services are under contract
with the U.S. Enrichment Corporation for 100% of the
enrichment requirements through 2000 and 75% of the
requirements through 2002. Fuel fabrication services are
under contract through 2004. Approximately 64% of the
uranium and conversion requirements are under contract
through 2002.
Natural Gas
(See Item 7 - Natural Gas Business, Seneca Lake Natural Gas
Storage Facility.)
Our natural gas supply mix includes long-term, short-term
and spot natural gas purchases transported on both firm and
interruptible transportation contracts. During 1998, about 68%
of our natural gas supply was purchased from various suppliers
under long-term and short-term sales contracts and 32% was
purchased on the monthly spot natural gas market to maximize
natural gas cost savings. Our natural gas supply is expected to
be purchased in 1999 in a similar proportion as in 1998. We use
risk management techniques such as natural gas futures and
options contracts to manage our exposure to fluctuations in
natural gas commodity prices.
(iv) Franchises
We have, with minor exceptions, valid franchises from the
municipalities in which we render service to the public. In 1998
we obtained authorization from the Public Service Commission of
the State of New York for natural gas distribution service in the
towns of Columbia, Lyonsdale, Preble, Richfield, Richmondville
and Warren, and the village of Richfield.
(v) Seasonal business
Sales of electricity are highest during the winter months
primarily due to space heating usage and fewer daylight hours.
Sales of natural gas are highest during the winter months
primarily due to space heating usage.
<PAGE>
(vi) Working capital items
We have been granted, through the ratemaking process, an
allowance for working capital to operate our ongoing electric and
natural gas utility services.
(vii) Single customer - Not applicable
(viii) Backlog of orders - Not applicable
(ix) Business subject to renegotiation - Not applicable
(x) Competitive conditions
(See Item 7 - Electric Business, Natural Gas Business,
and Accounting Issues.)
(xi) Research and development
Expenditures on research and development were $6 million in
1998, $11 million in 1997 and $12 million in 1996, principally
for our internal research programs and for contributions to
research administered by the Electric Power Research Institute,
the Empire State Electric Energy Research Corporation, the New
York Gas Group and the New York State Energy Research and
Development Authority. These expenditures are designed to
improve existing technologies and to develop new technologies for
the production, distribution and customer use of energy.
(xii) Environmental matters
(See Item 3 - Legal proceedings, Item 7 - Electric
Business, Sale of our Coal-fired Generation Stations
and Item 8 - Notes 8, 9 and 14 to the Consolidated
Financial Statements.)
We are subject to regulation by the federal government and
by state and local governments with respect to environmental
matters and are also subject to the New York State Public Service
Law requiring environmental approval and certification of
proposed major transmission facilities.
From time to time environmental laws, regulations and
compliance programs may require changes in our operations and
facilities and may increase the cost of electric and natural gas
service. Historically, rate recovery has been authorized for
environmental compliance costs.
Capital additions to meet environmental requirements during
the three years ended December 31, 1998, were approximately $30
million. Future capital additions to meet environmental
requirements are not expected to be material.
Water quality
We are required to comply with federal and state water
quality statutes and regulations including the Clean Water Act.
The Water Act requires that generating stations be in compliance
with federally issued National Pollutant Discharge Elimination
System Permits or state issued State Pollutant Discharge
<PAGE>
Elimination System Permits, which reflect water quality
considerations for the protection of the environment. We have
SPDES Permits for our six coal-fired generating stations in New
York and NMP2.
In connection with the issuance of permits under the Water
Act, we have conducted studies of the effects of our coal pile
operations on groundwater quality at four of our New York
generating stations. New York State groundwater standards are
sometimes exceeded at certain locations at each of those stations
and remedial action is taken as required.
Air quality
We are required to comply with federal and state air quality
statutes and regulations. All stations have the required federal
or state operating permits. Stack tests and continuous emissions
monitoring indicate that the stations are generally in compliance
with permit emission limitations, although occasional opacity
exceedances occur. Efforts continue in the identification and
elimination of the causes of opacity exceedances.
The Clean Air Act Amendments of 1990 limit emissions of
sulfur dioxide and nitrogen oxides and require emissions
monitoring. The U. S. Environmental Protection Agency allocates
annual sulfur dioxide allowances to each of our coal-fired
generating stations based on statutory emissions limits. A
sulfur dioxide allowance represents an authorization to emit one
ton of sulphur dioxide during or after a specified calendar year.
The costs of controlling toxic emissions under the 1990
Amendments, if required, cannot be estimated at this time, since
the type and level of reductions that may be required is
dependent on several studies currently being performed by the
EPA. Regulations may be adopted at the state level that would
limit toxic emissions even further, at an additional cost to the
owners.
Waste disposal
We have received or applied for SPDES Permits, Solid Waste
Disposal Facilities Permits and applicable local permits for our
active ash disposal sites for our New York generating stations.
Groundwater standards have been exceeded in areas close to
portions of the Milliken and Weber ash disposal sites.
Corrective actions have been taken and studies are continuing to
monitor the effectiveness of the corrective actions.
Niagara Mohawk has contracted with the U.S. Department of
Energy for disposal of high level radioactive waste (spent fuel)
from NMP2. We are reimbursing Niagara Mohawk for our 18% share of
the costs under the contract (currently approximately $1 per
megawatt hour of net generation). The DOE's schedule for start of
operations of their high level radioactive waste repository will
be no sooner than 2010. We have been advised by Niagara Mohawk
that the NMP2 Spent Fuel Storage Pool has a capacity for spent
fuel that is adequate until 2014. If further DOE schedule
slippage should occur, construction of pre-licensed dry storage
facilities would extend the on-site storage capability for spent
fuel at NMP2 beyond 2014.
<PAGE>
(xiii) Number of employees
We had 4,027 employees as of December 31, 1998.
(d) Financial information about geographic areas
Not applicable
Item 2. Properties
(See Item 7 - Electric Business, Sale of our Coal-fired
Generation Stations.)
Our electric system includes coal-fired, nuclear,
hydroelectric and internal combustion generating stations,
substations and transmission and distribution lines, all of which
are located in the State of New York. Generating facilities are:
Name and location of station Generating
Coal-fired capability
Goudey (Johnson City, N.Y.) 127
Greenidge (Dresden, N.Y.) 108
Hickling (East Corning, N.Y.) 51
Jennison (Bainbridge, N.Y.) 66
Milliken (Lansing, N.Y.) 307
Kintigh (Somerset, N.Y.) 675
-----
Total coal-fired 1,334
Nuclear
NMP2 (Oswego, N.Y.) 205 (1)
Hydroelectric (Various - 7 locations) 59
Internal combustion (Various - 2 locations) 7
-----
Total - all stations 1,605
=====
(1) Our 18% share of the generating capability. We are actively
pursuing the sale of our 18% interest in NMP2. (See Item 8 - Note 8
to the Consolidated Financial Statements.)
We own 432 substations having an aggregate transformer
capacity of 13,444,525 kilovolt-amperes. The transmission system
consists of 4,482 circuit miles of line. The distribution system
consists of 33,858 pole miles of overhead lines and 2,109 miles of
underground lines.
Our natural gas system consists of the distribution of natural
gas through 760 miles of transmission pipelines (over 3-inch
equivalent) and 6,204 miles of distribution pipelines (under 3-inch
equivalent).
Somerset Railroad Corporation, a wholly-owned subsidiary, owns
a rail line consisting of 15 1/2 miles of track and related
property rights in Lockport, Newfane and Somerset, New York that is
used primarily to transport coal and other materials to the Kintigh
Generating Station.
NYSEG's first mortgage bond indenture constitutes a direct
first mortgage lien on substantially all of its properties.
Substantially all of the properties of SRC, other than rolling
stock, are subject to a lien of a mortgage and security agreement.
Item 3. Legal proceedings
(See Item 7 - Electric Business and Natural Gas Business.)
Since the Public Service Commission of the State of New York
has allowed us to recover in rates remediation costs for certain of
the sites referred to in the next sentence, there is a reasonable
basis to conclude that we will be permitted to recover in rates any
remediation costs that we may incur for all of the sites referred
to in the next sentence. Therefore, we believe that the ultimate
disposition of the matters referred to below in (b), (d), (e), (f),
(g), the first paragraph in (a) and the first two paragraphs in (c)
will not have a material adverse effect on our results of
operations or financial position.
(a) By letter dated June 7, 1991, the New York State Department of
Environmental Conservation notified us that we had been identified
as a potentially responsible party at the Pfohl Brothers Landfill,
an inactive hazardous waste disposal site in Cheektowaga, New York.
The Pfohl Site is listed on the National Priorities List and the
New York State Registry of Inactive Hazardous Waste Disposal Sites.
The NYSDEC informed us that if we declined to enter into
negotiations with them to undertake the investigation and remedia-
tion of the Pfohl Site, the NYSDEC would perform the necessary work
at the Pfohl Site using the Hazardous Waste Remedial Fund and would
seek recovery of its expenses from us. The expected remediation
costs at the Pfohl Site are estimated to be $37 million to $55
million. In May 1995 we agreed to participate in a process for
allocating remedial costs at the Pfohl Site with other PRPs. We
contributed $26,000 toward past costs, which sum is subject to that
allocation process. In October 1997 the PRPs agreed upon an
allocation formula under which we would be responsible for
approximately $296,000 to $440,000.
Five actions were commenced against us and approximately 24
other defendants in the New York State Supreme Court, Erie County
(State Court) (on January 17, 1995, April 7, 1995, June 14, 1995,
January 10, 1997 and October 30, 1997), by plaintiffs who allegedly
resided or worked near or engaged in recreation at the Pfohl Site,
claiming $103.5 million in damages for personal injuries, wrongful
death and loss of companionship allegedly caused by exposure to
hazardous chemicals from the Pfohl Site. On December 12, 1997, the
action commenced on October 30, 1997, was removed to the United
States District Court for the Western District of New York
(District Court). The plaintiffs allege that the defendants
disposed of hazardous and toxic materials at the Pfohl Site. We
believe that the actions against us are without merit and will
defend these actions vigorously.
On November 18, 1997, a class action was commenced in the
State Court against us and approximately 23 other defendants by
plaintiffs who allegedly resided or worked near or engaged in
recreation at the Pfohl Site, claiming unspecified damages for
medical monitoring and surveillance services for personal injuries
allegedly caused by exposure to hazardous chemicals from the Pfohl
Site. This action was transferred to the District Court on
December 22, 1997. We believe this action against us is without
merit and will defend this action vigorously.
<PAGE>
In 1995, four actions were commenced against approximately 11
defendants, and in 1996, an action was commenced against 13
defendants, by plaintiffs who allegedly resided or worked near or
engaged in recreation at the Pfohl Site for personal injuries,
wrongful death and loss of companionship allegedly caused by
exposure to hazardous chemicals from the Pfohl Site. The
plaintiffs allege that the defendants are liable for disposing of
hazardous and toxic materials at the Pfohl Site. They seek
compensatory and punitive damages. We were not named as a
defendant in those actions. However, the defendants in those
actions consequently commenced actions against us and certain other
parties in the District Court at various times in 1995 and 1996,
alleging that we and such other parties are liable for all or a
part of any damages recovered by the plaintiffs. Recovery in the
actions against us and such other parties depends on, among other
things, whether the plaintiffs recover money damages against the
defendants. We believe that the actions against us are without
merit and will defend them vigorously.
On October 8, 1998, an action was commenced against us and
approximately 24 other defendants in the State Court by plaintiffs
who allegedly reside near the Pfohl Site claiming damages due to
the lost use, value, and enjoyment of their property as a result of
contamination from the Pfohl Site. The plaintiffs allege that the
defendants created a nuisance and an abnormally dangerous condition
by disposing of hazardous and toxic materials at the Pfohl Site,
and they seek compensatory and punitive damages that total $6.4
million in the aggregate. We believe that the action against us is
without merit and we will defend it vigorously.
(b) By letter dated January 21, 1992, the NYSDEC notified us that
we had been identified as a PRP at the Peter Cooper Corporation's
Landfill Site (Peter Cooper Site) in the village of Gowanda, New
York. The Peter Cooper Site is listed on the National Priorities
List and the New York State Registry. Three other PRPs were
identified in the NYSDEC letter. We believe that remediation costs
at the Peter Cooper Site might rise to $16 million. By letter
dated May 12, 1992, we notified the NYSDEC that we believed we had
no responsibility for the alleged contamination at the Peter Cooper
Site, and we declined to conduct remediation or finance remediation
costs.
(c) By letter dated July 21, 1992, the NYSDEC notified us that we
had been identified as a PRP at the Bern Metals Removal Site in
Buffalo, New York, which the NYSDEC defined to include an adjacent
property known as the Universal Iron & Metal Site. The Bern
Metals/Universal Iron Site is listed on the New York State
Registry. The NYSDEC also identified eight other PRPs for the Bern
Metals/Universal Iron Site. By letter dated December 3, 1992, we
declined to negotiate with NYSDEC to finance or conduct a Remedial
Investigation and Feasibility Study (RI/FS) for the Bern
Metals/Universal Iron Site, because we believe we were only a very
small contributor to the Bern Metals Site and had no involvement
with the Universal Iron & Metal Site.
<PAGE>
On March 29, 1996, NYSDEC issued a decision which provided for
remedial action. The total cost of remediation is estimated to be
$2.7 million. Without admitting any liability or responsibility
and without prejudice to any defenses we might have, we, on October
9, 1997, entered into an Order on Consent with NYSDEC and four
other PRPs pursuant to which we and such PRPs will, subject to
NYSDEC approval, design the remedy for the Bern Metal/Universal
Iron Site. The NYSDEC, by letter dated December 3, 1998, to us and
15 other PRPs, inquired whether we and the other PRPs were willing
to enter into a consent order to implement the remedy. By letter
dated December 18, 1998, we and the six other PRPs, who completed
the remedial design, responded that the NYSDEC should first look to
the other PRPs who have yet to finance any work at the Bern
Metal/Universal Iron Site.
On September 11, 1996, we were named as a third-party
defendant by Niagara Frontier Transportation Authority claiming
contributions for costs that might be recovered against NFTA in an
action filed by EPA in the United States District Court for the
Western District of New York. Fifty-five other third-party
defendants were sued in addition to us. NFTA is seeking
contributions for response costs incurred by EPA at the Universal
Iron Site. We believe that the action against us is without merit
and will defend it vigorously.
(d) By letter dated April 20, 1992, the EPA notified us that the
EPA had reason to believe that we were a PRP for the Clinton-Bender
Removal Site (Clinton-Bender Site) in Buffalo, New York. Five
other PRPs have been identified by the EPA. Nine private
residential lots and one commercial property at the Clinton-Bender
Site were contaminated with lead, allegedly due to run-off from the
adjacent Bern Metals Site. The EPA ordered us to perform the
necessary removal work at the Clinton-Bender Site and we are
remediating the site with four other identified PRPs. The total
cost of the removal actions to be performed at the Clinton-Bender
Site is estimated to be $3.2 million. The removal work is
substantially complete. We along with the other participating
parties are seeking to recover from other PRPs, not participating
in the remedial action at the Clinton-Bender Site, costs that we
and other participating parties have incurred or will incur on
their behalf.
(e) By letter dated February 12, 1993, NYSDEC notified us that we
had been identified as a PRP for remediation of hazardous wastes at
the Booth Oil Site in North Tonawanda, New York. The Booth Oil
Site is listed on the New York State Registry. Nineteen other PRPs
were identified in the NYSDEC letter. According to NYSDEC, the
Booth Oil Site is contaminated with polychlorinated biphenyls,
lead, and other substances. We estimate that the present value of
costs for remedial alternatives range from $8.5 million to $21.7
million. We have been actively involved both in trying to persuade
NYSDEC to name additional PRPs and in examining the process that
led to the NYSDEC treatment alternatives.
<PAGE>
(f) On June 14, 1994, we were served with a summons and complaint
joining us as a defendant in an action that was filed in the United
States District Court for the Northern District of New York. The
plaintiffs are five companies which have been required by the EPA
to conduct remedial activities at the Rosen Brothers Site in the
City of Cortland, New York. The Rosen Site was the location of a
scrap metal processing operation and industrial waste disposal site
between approximately 1971 and 1985, and it is now allegedly
contaminated with hazardous substances including heavy metals,
solvents and PCBs. The Rosen Site is listed on the National
Priorities List and the New York State Registry. The plaintiffs
allege that we were a contributor of transformers that may have
contained PCBs.
By letter dated August 16, 1994, the EPA notified us that the
EPA had reason to believe that we were a PRP for the Rosen Site and
requested that we participate in the RI/FS then being prepared for
the Rosen Site by the other named PRPs.
We received an order from the EPA on March 11, 1998, ordering
us and 15 other parties to perform certain removal actions at the
Rosen Site. We contributed approximately $45,000 towards the
$730,000 total cost of the removal actions.
The estimated total present-worth cost of the selected remedy
is $3,140,000. The EPA also requested reimbursement of past costs
at the site of approximately $692,000, plus interest.
On September 25, 1998, we, along with approximately 12 other
parties, entered into a consent decree with the EPA under which we
and the other settling parties will perform the selected remedy and
reimburse the EPA for the requested amount of past costs. The EPA
has agreed not to sue us and to protect us from other claims with
respect to the response and remediation costs at the Rosen Brothers
Site. Our share of the remediation costs is still being
negotiated.
(g) We responded on October 3, 1995, to a request for information
by the EPA concerning alleged disposal of PCBs at facilities owned
or operated by PCB Treatment, Inc. in Kansas City, Kansas and
Kansas City, Missouri. On September 27, 1996, we entered into an
Order on Consent with the EPA under which we and at least nine
other companies will perform the first phase of remedial activity,
a Removal Site Evaluation and Engineering Evaluation/Cost Analysis,
at the two facilities operated by PCB Treatment, Inc. The cost to
us of our obligations under this Order on Consent are not expected
to exceed $96,000. By letter dated September 16, 1997, the EPA
notified 1,251 entities, including us, of their potential liability
at the two facilities and informed the recipients of additional
response activities, which the recipients may be asked to perform
or finance at a later date. Our share of remediation costs at the
two facilities is likely to be approximately $100,000 to $400,000.
<PAGE>
(h) On August 14, 1997, we were notified by the NYSDEC that they
were contemplating enforcement action against us with respect to
violations of regulations concerning opacity of air emissions at
all of our New York coal-fired stations. We are in the process of
negotiating a consent decree with NYSDEC under which we will
undertake to bring our New York coal-fired stations into compliance
with the opacity regulations. We will pay a penalty of
approximately $250,000. Future violations of these regulations
will subject the operator of the New York coal-fired stations to
stipulated penalties. We anticipate this decree will become final
before the end of the second quarter of 1999.
(i) On June 15, 1998, we commenced an action in the New York State
Supreme Court, Tompkins County against Niagara Mohawk Power
Corporation seeking an order enjoining Niagara Mohawk from
transferring operating responsibility for the Nine Mile Point
nuclear generating unit No. 2 to the New York Nuclear Operating
Company without our consent. We have an undivided 18% interest in
NMP2, which is operated by Niagara Mohawk. The lawsuit also seeks
to recover damages for funds used by Niagara Mohawk to promote the
establishment of NYNOC and the transfer of operating responsibility
for NMP2 to NYNOC. NYNOC was established for the purpose of
assuming operation of all of the nuclear generating units in New
York State. We believe that the establishment of NYNOC will not
result in either improved operational performance or reduced costs
sufficient to offset the development and implementation expenses
likely to be incurred by its creation. On July 7, 1998, we served
an amended complaint on Niagara Mohawk alleging that Niagara Mohawk
had breached its fiduciary obligation to us by engaging in
negotiations with a third party for the sale of NMP2, including our
share, without advising us of those negotiations or allowing us to
participate in the negotiations and by Niagara Mohawk conducting
the negotiations in a manner designed to limit the interest of the
third party in purchasing NMP2. On December 14, 1998, the Court
granted Niagara Mohawk's motion for summary judgment. We appealed
this decision to the New York Supreme Court, Appellate Division
(Third Department).
<PAGE>
Item 4. Submission of matters to a vote of security holders -
Not applicable.
* * * * * * * * * *
Executive officers of the Registrant
Positions, offices and
business experience -
Name Age January 1994 to date
Wesley W. von Schack 54 Chairman, President and Chief
Executive Officer, April 1998
to date; Chairman, President and
Chief Executive Officer of NYSEG,
September 1996 to date; Chairman,
President, Chief Executive Officer
and a Director of DQE, Inc. and
Duquesne Light Company to August
1996.
Michael I. German 48 Senior Vice President, April 1998 to
date; Executive Vice President and
Chief Operating Officer of NYSEG,
April 1998 to date; Executive Vice
President of NYSEG, May 1997 to April
1998; Senior Vice President-Gas
Business Unit of NYSEG, December 1994
to May 1997; Senior Vice President,
American Gas Association, Arlington,
Virginia to December 1994.
Kenneth M. Jasinski 50 Senior Vice President and General
Counsel, April 1998 to date;
Executive Vice President of NYSEG,
April 1998 to date; Partner of Huber
Lawrence & Abell (attorneys at law)
to April 1998.
Robert D. Kump 37 Treasurer, October 1998 to date;
Treasurer of NYSEG, February 1996 to
date; Director of Financial Services
of NYSEG, February 1995 to February
1996; Manager-Investor Relations of
NYSEG, to February 1995.
Robert E. Rude 46 Controller, October 1998 to date;
Executive Director, Corporate
Planning of NYSEG, October 1998 to
date; Director, Corporate Planning
and Rates of NYSEG, January 1995 to
October 1998; Manager-Strategic
Planning of NYSEG, to January 1995.
Daniel W. Farley 43 Secretary, April 1998 to date;
Vice President and Secretary of
NYSEG.
<PAGE>
We have entered into an agreement with Wesley W. von Schack
which provides for his employment as Chairman, President and
Chief Executive Officer of the company and of NYSEG for a term
ending on September 8, 2001. We have also entered into an
agreement with Michael I. German which provides for his
employment as Senior Vice President of the company and Executive
Vice President and Chief Operating Officer of NYSEG for a term
ending on February 28, 2002 and an agreement with Kenneth M.
Jasinski which provides for his employment as Senior Vice
President and General Counsel of the company and Executive Vice
President of NYSEG for a term ending on April 28, 2002. Each of
these agreements provides for automatic one-year extensions
unless either party to an agreement gives notice that such
agreement is not to be extended.
Each officer holds office for the term for which he is
elected or appointed, and until his successor shall be elected
and shall qualify. The term of office for each officer extends
to and expires at the meeting of the Board of Directors
following the next annual meeting of shareholders.
PART II
Item 5. Market for Registrant's common equity and related
stockholder matters
See Item 8 - Note 15 to the Consolidated Financial Statements.
<PAGE>
Item 6. Selected financial data
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------
(Thousands - except per share amounts)
Operating
Revenues $2,499,418 $2,170,102 $2,108,865 $2,040,895 $1,918,431
Net Income $194,205 $175,211(1) $168,711(2) $177,969 $168,698(3)
Earnings Per Share,
basic and diluted $3.02 $2.57(1) $2.37(2) $2.49 $2.37(3)
Dividends Paid
Per Share $1.55 $1.40 $1.40 $1.40 $2.00
Average Common
Shares Outstanding 64,371 68,153 71,127 71,503 71,254
Book Value Per Share
of Common Stock
(year end) $27.22 $26.71 $25.41 $24.38 $23.28
Interest
Charges, Net $125,557 $123,199 $122,729 $129,567 $136,092
Depreciation and
amortization $191,073 $201,768 $192,501 $188,367 $182,598
Other taxes $204,709 $206,446 $206,715 $210,910 $210,729
Capital Spending $137,350 $129,551 $215,731 $167,446 $282,703
Total Assets $4,883,337 $5,028,681 $5,059,681 $5,114,331 $5,230,685
Long-term obligations,
capital leases
and redeemable
preferred stock $1,460,120 $1,475,224 $1,505,814 $1,606,448 $1,776,081
(1) Includes the effect of fees related to an unsolicited tender offer that
decreased net income by $17 million and decreased earnings per share by 24
cents.
(2) Includes the effect of the writedown of the investment in EnerSoft
Corporation that decreased net income by $10 million and earnings per share
by 14 cents.
(3) Includes the effect of the 1993 production-cost penalty that decreased net
income by $8 million and decreased earnings per share by 12 cents.
<PAGE>
Item 7. Management's discussion and analysis of financial
condition and results of operations
Electric and natural gas utilities across the country continue
to transform as competition evolves. To meet the challenges and
seize the opportunities presented by competition, we, too, have
changed. In April 1998 our shareholders overwhelmingly approved the
formation of Energy East Corporation, our new holding company that
became the parent of NYSEG. We expect to complete the sale of our
remaining coal-fired generation assets in several weeks and are
actively pursuing the sale of our 18% interest in Nine Mile Point
nuclear generating unit No. 2. (See Sale of our Coal-fired
Generation Assets below and Item 8 - Note 8 to the Consolidated
Financial Statements.) We are also expanding our products and
services, including our energy distribution system in the
Northeast.
Liquidity and Capital Resources
Electric Business
Our electric business consists of electric generation,
transmission and distribution operations.
Sale of our Coal-fired Generation Assets: We placed our seven
coal-fired stations and associated assets and liabilities up for
auction in 1998. We accepted offers totaling $1.85 billion from The
AES Corporation and Edison Mission Energy in August 1998 for those
generation assets. We completed the sale of our Homer City
generation assets in March 1999 and expect to complete the sale of
our remaining coal-fired generation assets in several weeks.
All proceeds, net of taxes and transaction costs, in excess of
the net book value of the generation assets, less funded deferred
taxes, will be used to write down our 18% investment in Nine Mile
Point 2. This treatment is in accordance with our restructuring
plan approved by the Public Service Commission of the State of New
York in January 1998. The net cash received from the sales will be
used to repurchase common stock and continue expanding our products
and services, including our energy distribution network in the
Northeast.
After the sale of our remaining coal-fired generation assets,
our power requirements will be satisfied through generation from
our nuclear and hydroelectric stations and by purchases from third
parties. We have taken on the added risk of market prices that are
sometimes volatile, since we have capped the prices we can charge
our customers.
We use electricity contracts to manage our exposure to
fluctuations in the cost of electricity. Such contracts allow us to
fix margins on the majority of our retail and wholesale sales of
electricity. The cost or benefit of electricity contracts is
included in the cost of electricity purchased when the electricity
is sold.
<PAGE>
New York Power Pool Restructuring: The Federal Energy Regulatory
Commission issued Orders 888 and 889 in 1996 to foster the
development of competitive wholesale electricity markets by opening
up transmission services and to address the resulting stranded
costs. In subsequent orders, the FERC generally affirmed Orders
888 and 889. Various parties, including us, have appealed these
orders in the United States Court of Appeals for the D.C. Circuit.
In response to Order 888, the New York Power Pool submitted a
compliance filing to the FERC. Power pool members submitted
additional filings to the FERC in 1997 proposing the restructuring
of the power pool by establishing a New York Independent System
Operator, a Power Exchange and a New York State Reliability
Council. The FERC conditionally authorized the formation of the
system operator and reliability council in June 1998 and
conditionally accepted the tariff and rates applicable to
transmission service, and energy, capacity and ancillary services
in January 1999. FERC also set certain issues for hearing and
required additional filings to implement the restructuring
proposal. Power pool members filed the necessary applications to
transfer control of transmission facilities to the system operator
in February 1999 and are awaiting FERC's acceptance. We are
currently evaluating the FERC's conditional acceptance and are
unable to predict its effect on our financial position or results
of operations.
Electric Retail Access Program: Customers in certain sections of
our service territory were eligible to choose their electricity
supplier in mid-1998. All of our electric customers in New York
will be able to choose their electricity supplier by August 1,
1999. This is one of the most progressive retail access programs in
the country.
Throughout the first phase and continuing after August 1,
1999, we are responsible for delivery of our customers' electricity
on our transmission and distribution system. Rates charged for use
of our transmission system are subject to FERC approval, while
rates for the use of our distribution system are subject to PSC
approval. The PSC approved our distribution rates in January 1998.
Our transmission rate case, which was filed with the FERC in March
1997, has not yet been approved.
Petition to the FERC on NUGs: We continue to seek ways to provide
relief to our customers from the onerous NUG contracts that we were
ordered to sign by the PSC. NUG power purchases totaled $323
million in 1998, and we estimate that those purchases will total
$358 million in 1999 and $376 million in 2000 and in 2001, unless
we are able to change those contracts.
We petitioned the FERC in 1995, asking for relief from having
to pay approximately $2 billion more than our avoided costs for
power purchased over the term of two NUG contracts. The FERC
denied that petition and our subsequent request for a rehearing.
We believe that the overpayments under the two contracts violate
the Public Utility Regulatory Policies Act of 1978.
We petitioned the United States Court of Appeals for the
District of Columbia in 1995 to review the FERC's decision. The
Court of Appeals issued a decision in July 1997 stating that it
lacked jurisdiction to rule on our appeal but that we may pursue
our claim in the United States District Court.
We commenced an action in the United States District Court for
the Northern District of New York in August 1997. The complaint
asks the District Court to either reform the two NUG contracts by
reducing the price we must pay for electricity under the contracts,
or send the matter back to the FERC or to the PSC with direction
that they modify such contracts. The complaint also seeks
repayment of all monies paid above our avoided costs. The case is
still pending before the District Court.
Restructured NUG Agreement: In March 1999 we successfully
restructured our NUG contract with KES-Chateaugay Limited
Partnership. Under a new agreement, we will be required to purchase
replacement power from an energy marketer at a lower price than we
were paying for power from KES-Chateaugay.
Electric Restructuring Plan: Our restructuring plan, which included
a five-year electric rate price cap, was approved by the PSC, with
minor modifications, in January 1998. It supersedes our previous
three-year electric rate agreement, which was to expire on July 31,
1998.
The restructuring plan will save customers an estimated $725
million over five years. Specifically the plan:
- eliminates a 7% increase in electricity prices
previously approved by the PSC;
- reduces prices 5% each year in the five years of the
plan for eligible industrial, commercial and public
authority customers who are heavy users of
electricity;
- caps the overall average prices for all other
customers for four years and reduces their prices 5%
at the beginning of the fifth year; and
- allows all of our retail customers to choose their
electricity supplier by August 1, 1999.
Natural Gas Business
Our natural gas business delivers, transports and stores
natural gas in New York State.
New Franchises: We are growing our natural gas business in New
York by expanding natural gas service in existing franchise areas
and by developing new franchises. We began developing eight new
franchises during 1998.
Natural Gas Rate Agreement: We filed a natural gas rate agreement
with the PSC in May 1998. This agreement cuts prices for most
customers by reducing natural gas revenues by $25.6 million, or
2.1%, over the four-year period ending September 30, 2002. The PSC
approved the agreement in September 1998 after making certain
modifications. After seeking clarification of the modifications
from the PSC Staff, we accepted the PSC Order with the
clarifications and one modification that maintains present rates
for certain areas. The PSC accepted our clarifications and
modification and issued an order in December 1998.
Seneca Lake Natural Gas Storage Facility: Our Seneca Lake natural
gas storage facility includes a natural gas storage cavern, a
compressor station and a natural gas transmission pipeline. The
facility is located on Seneca Lake north of Watkins Glen and began
operations in 1996. We built this facility to ensure an adequate
natural gas supply to customers, to support economic growth in
southern and central New York and to increase supply flexibility.
We expanded the facility in 1997 to increase the cavern's
working capacity from 800 million to 1.45 billion cubic feet of
natural gas and the compressor station's deliverability from 80,000
to 145,000 dekatherms per day. This expansion allows for the sale
of storage capacity.
Role of Local Distribution Companies: The PSC, on November 3,
1998, issued a "Policy Statement Concerning the Future of the
Natural Gas Industry in New York State and Order Terminating
Capacity Assignment." The policy statement includes the PSC's
vision for furthering competition in the natural gas industry in
New York State. The PSC believes the most effective way to
establish a competitive gas market is for natural gas utilities to
exit the merchant function over a three to seven year period. The
PSC also established guidelines and began several proceedings
related to implementing its policy statement. We are participating
in each of the proceedings and continue to believe the competitive
marketplace should decide who will be the suppliers of natural gas.
We have not yet determined what effect the PSC Policy Statement
will have on us.
The PSC's Order requires local distribution companies,
effective April 1, 1999, to cease assigning certain capacity costs
to customers who switch from distribution service to transportation
service. The local distribution companies will be provided a
reasonable opportunity to recover any capacity costs that may be
stranded. We expect to recover all costs associated with our
customers switching to transportation service.
<PAGE>
Natural Gas Commodity Prices: We use risk management techniques
such as natural gas futures and options contracts to manage our
exposure to fluctuations in natural gas commodity prices. Such
contracts allow us to fix margins on sales of natural gas generally
expected to occur over the next 18 months. The cost or benefit of
natural gas futures and options contracts is included in the
commodity cost when the related sales commitments are fulfilled.
Gains and losses resulting from the use of those contracts for
1998, 1997 and 1996 were not material to our financial position or
results of operations.
Other Operations
XENERGY Enterprises, Inc.
XENERGY We provide energy services, information systems and energy
consulting to utilities, governmental agencies and end-use energy
consumers, primarily commercial and industrial.
Energy East Solutions We market electricity and natural gas to
end-use customers and wholesale markets in the Northeast. In
October 1998 Energy East Solutions formed a joint venture with
South Jersey Energy Company to market retail electricity and energy
management services in the mid-Atlantic region.
Cayuga Energy We will own and operate generating stations that
sell electricity to the wholesale market during periods of high
electricity demand.
Energy East Telecommunications We are building a fiber optic
communications system linking Binghamton, Ithaca and Syracuse, New
York, in a joint venture with Telergy, a Syracuse, New York-based
firm.
Energy East Enterprises, Inc.
CMP Natural Gas LLC We signed an agreement with Central Maine
Power Company in November 1997 to form a jointly-owned company to
distribute natural gas in Maine and New Hampshire to customers who
are not currently served. CMP Natural Gas expects initial service
to customers in mid-1999.
New Hampshire Gas Corporation We purchased a franchise and propane
air distribution system in Keene, New Hampshire. Our long-term
plans call for bringing natural gas to the Keene area.
Southern Vermont Natural Gas We are working with Iroquois Gas
Transmission System and Vermont Energy Park Holdings to develop a
combined natural gas supply and electric generation project that
includes an extension of a pipeline from New York to Vermont, two
combined-cycle electric generating plants, and natural gas
distribution systems.
<PAGE>
Other Matters
Accounting Issues
Statement 71: Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of Regulation, allows
companies that meet certain criteria to capitalize as regulatory
assets incurred costs that are probable of recovery in future
periods. Those companies record as regulatory liabilities
obligations to refund previously collected revenue or obligations
to spend revenue collected from customers on future costs.
Although we believe we will continue to meet the criteria of
Statement 71 for our regulated electric and natural gas operations
in New York State, we cannot predict what effect a competitive
market or future PSC actions will have on our ability to continue
to do so. If we can no longer meet the criteria of Statement 71
for all or a separable part of our regulated operations, we may
have to record as expense or revenue certain regulatory assets and
liabilities. We may also have to record as a loss an estimated $1.5
billion, on a present value basis at December 31, 1998, of above-
market costs on our power purchase contracts with NUGs. These items
are currently recovered in rates.
With approval of our restructuring plan in January 1998, we
discontinued application of Statement 71 to our coal-fired
generation operations and applied Statement of Financial Accounting
Standards No. 101, Regulated Enterprises--Accounting for the
Discontinuance of Application of FASB Statement No. 71. Application
of Statement 101 did not affect our financial position or results
of operations. (See Electric Business, Sale of our Coal-fired
Generation Assets.)
Statement 133: The FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, in June 1998. Statement 133 establishes
standards for the accounting and reporting for derivative
instruments and for hedging activities. Statement 133 requires
that all derivatives be recognized as either assets or liabilities
on a company's balance sheet at their fair market value. We plan
to adopt Statement 133 as of the beginning of the first quarter of
2000. Based on our current risk management strategies, this
adoption is not expected to have a material effect on our financial
position or results of operations.
EITF 98-10: In November 1998 the FASB's Emerging Issues Task
Force reached a consensus on Issue Number 98-10, Accounting for
Contracts Involved in Energy Trading and Risk Management
Activities. EITF 98-10 requires that energy trading activity be
measured at fair value on the balance sheet with gains and losses
recognized in current earnings. Based on our current energy
procurement strategies, the implementation of EITF 98-10 in 1999 is
not expected to have a material effect on our financial position or
results of operations.
Year 2000 Readiness Disclosure
Many of our computer systems, which include mainframe systems
and special-purpose systems, refer to years in terms of their final
two digits only. Such systems may interpret the year 2000 as the
year 1900. If not corrected, those systems could cause us to, among
other things, experience energy delivery problems, report
inaccurate data or issue inaccurate bills.
We are working diligently to address this problem by reviewing
all of our mainframe and special-purpose systems; identifying
potentially affected software, hardware, and date-sensitive
components, often referred to as embedded chips, of various
equipment; determining and taking appropriate corrective action;
and, when appropriate, testing our systems.
Our mainframe systems consist of the hardware and software
components of NYSEG's information technology systems. We believe
we have identified, taken appropriate corrective action and tested
all of our mainframe systems. We believe those systems are now
able to process year 2000 and beyond transactions.
Our special-purpose systems consist of our non-information
technology systems and the information technology systems of our
subsidiaries other than NYSEG. We have identified approximately
6,000 items in our special-purpose systems that may be affected by
the Year 2000 problem. Items identified include software, hardware
and embedded chips in systems such as those that control the
acquisition and the delivery of electricity and natural gas to
customers and those in our communication systems. We believe we
have fixed, eliminated, replaced or found no problem with over 95%
of the special-purpose items we have identified, including those in
our electric and natural gas delivery systems. We are determining
and taking appropriate corrective action for the remaining
identified items. Additional items, however, continue to be
identified as we proceed with the review of our special-purpose
systems. We expect to have reviewed, identified and determined and
taken the appropriate corrective action on all of our special-
purpose systems by the end of the second quarter of 1999.
Even though we believe we will have taken corrective action
with respect to our own Year 2000 issues, the Year 2000 issue could
adversely affect us if there are items in our mainframe or special-
purpose systems that may be affected by the Year 2000 problem and
that we have not identified in our review of those systems. The
Year 2000 issue could also adversely affect us if third parties
such as suppliers, customers, neighboring or interconnected
utilities and other entities fail to correct any of their Year 2000
problems. We have contacted key third parties to determine the
status of their Year 2000 readiness programs. Many have responded
satisfactorily, some have not responded satisfactorily and some
have not responded at all. We are developing contingency plans,
some of which are discussed below, for reasonably likely worst case
scenarios based upon an assumption that we and those third parties
will not be Year 2000 compliant.
Our Year 2000 program is progressing on schedule and we
believe we are taking all necessary steps to address this issue
successfully. Through 1998 we have spent approximately $11.4
million and expect to spend an additional $0.8 million on Year 2000
readiness. We believe this amount is adequate to address our Year
2000 issues. These amounts are being expensed as incurred and are
being financed entirely with internally generated funds. Addressing
the Year 2000 issue has not caused us to delay any significant
information system projects.
As part of our normal business practice we have plans in place
for use during emergencies, some of which could arise from Year
2000 problems. We are completing contingency plans to specifically
address reasonably likely worst case scenarios that could arise as
a result of the Year 2000 problem.
The contingency plans will address, among other scenarios, the
interruption or failure of normal business activities or operations
such as a partial electrical and/or natural gas system shutdown.
If the interruption or failure is due to embedded chips in
equipment such as automatic control devices, our contingency plan
is to implement the normal system restoration procedures that we
utilize during emergencies. If the interruption or failure is due
to telecommunications not being available, we plan to use
alternative communication devices such as satellite phones.
Another scenario is the failure of our customer information system.
Should that occur, we plan to rely on customer information
previously stored and make the appropriate adjustment to each
customer's next bill after the system is restored.
We are dependent on others for our supply of natural gas. In
the event a supplier is not able to meet our needs, we plan to
purchase the needed amount of natural gas from one of our many
other suppliers on the same transmission line. Since the sale of
our remaining coal-fired generation assets is expected to be
completed in several weeks we will be buying instead of producing
the majority of the electricity our customers need by the beginning
of the year 2000. If the electricity available in our region is
not adequate for all of the customers on our system, we plan to
operate at lower levels of power as outlined in our established
emergency procedures. Should our mainframe hardware be disabled,
we have a backup mainframe system that is capable of operating all
of our business systems. We expect to have all of our contingency
plans ready and tested by mid-1999.
The PSC issued an Order on October 30, 1998, adopting a July 1,
1999, deadline for New York utilities to complete their Year 2000
readiness programs for "mission critical" systems and for contingency
plans. Mission critical systems include those systems that control
the acquisition and the delivery of electricity and natural gas to
customers, emergency management systems and certain electric
generation plants. We believe that our Year 2000 readiness program
for mission critical systems and for contingency plans will be
completed by the PSC's July 1, 1999, deadline. The PSC requires the
filing of status reports with it regarding certain Year 2000 issues.
<PAGE>
Investing and Financing Activities
Investing Activities
Capital spending, including nuclear fuel, totaled $137 million
in 1998, $130 million in 1997 and $216 million in 1996. Capital
spending in those three years was financed entirely with internally
generated funds and was primarily for the extension of service,
necessary improvements to existing facilities and compliance with
environmental requirements.
Capital spending, including nuclear fuel, is projected to be
$140 million in 1999, $127 million in 2000 and $150 million in 2001,
and is expected to be paid for entirely with internally generated
funds.
Financing Activities
Our current financial strength provides the flexibility required
to compete in a competitive energy market and continue expanding our
products and services, including our distribution system, in the
Northeast.
Our financing-related activities during 1998 consisted of:
- redemption of $30 million of 6 1/2% Series first
mortgage bonds;
- redemption, at a premium, of $30 million of 6.48%
preferred stock; and
- use of interest rate swaps to fix the interest rates on
our three one-year, adjustable-rate, tax-exempt issues
totaling $132 million.
We repurchased 4.6 million shares of our common stock during
1998.
We raised the common stock dividend in January 1999 to a new
annual rate of $1.68.
In January 1999 we declared a two-for-one stock split on common
stock outstanding. Shareholders of record at the close of business on
March 12, 1999, will be entitled to the shares on April 1, 1999.
During the first quarter of 1999 we redeemed, at par, $25
million of 7.40% preferred stock and $50 million of adjustable rate
preferred stock. We also announced tender offers for the following
series of preferred stock: 3.75%, 4 1/2% (Series 1949), 4.15%, 4.40%
and 4.15% (Series 1954). The tender offers expired March 26, 1999.
<PAGE>
In December 1998 NYSEG's first mortgage bonds, unsecured
pollution control notes and preferred stock were upgraded by Moody's
Investors Service. This upgrade reflects Moody's expectation that
NYSEG will maintain solid cash flow and earnings measures while
managing the transition to competitive retail markets. Moody's also
noted that NYSEG has made significant progress in strengthening its
cash flow through ongoing cost reductions, streamlining operations
and improving efficiencies.
We use short-term, unsecured notes, usually commercial paper, to
finance certain refundings and for other corporate purposes. We had
$78 million of commercial paper outstanding at December 31, 1998, and
$58 million outstanding at December 31, 1997, all of which was issued
by NYSEG. The weighted average interest rate for commercial paper was
6.2% at December 31, 1998, and 6.3% at December 31, 1997.
NYSEG also has a revolving credit agreement with certain banks
that provides for borrowing of up to $200 million until December 31,
2001. We had no amounts outstanding under this agreement during 1998
or 1997.
We use interest rate swap agreements to manage the risk of
increases in variable interest rates. We record amounts paid and
received under the agreements as adjustments to the interest expense
of the specific debt issues.
<PAGE>
Forward-looking Statements
This Form 10-K contains certain forward-looking statements that
are based upon management s current expectations and information that
is currently available. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements in
certain circumstances. Whenever used in this report, the words
"estimate," "expect," "believe," or similar expressions are intended
to identify such forward-looking statements.
In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that could
cause actual results to differ materially from those contemplated in
any forward-looking statements include, among others, the risk that
more Year 2000 problems may be found as we continue the review of our
systems; the risk that our progress in addressing Year 2000 problems
may not proceed as we expect; the fact that despite all of our
efforts, there can be no assurances that all of our Year 2000 issues
can or will be remedied; the fact that there can be no assurances
that all Year 2000 issues that could affect us can or will be totally
eliminated by our suppliers, customers, neighboring or interconnected
utilities and other entities; and the fact that our assessment of the
effects of Year 2000 issues are based, in part, upon information
received from our suppliers, customers, neighboring or interconnected
utilities and other entities, our reasonable reliance upon this
information and the risk that inaccurate or incomplete information
may have been supplied to us.
Some additional factors that could cause actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the deregulation and unbundling of
energy services; our ability to compete in the rapidly changing and
increasingly competitive electric and natural gas utility markets;
our ability to control non-utility generator and other costs; changes
in fuel supply or cost and the success of our strategies to satisfy
our power requirements after our remaining coal-fired generating
stations are sold; our ability to expand our products and services,
including our energy distribution network in the Northeast; the
ability to obtain adequate and timely rate relief; nuclear or
environmental incidents; legal or administrative proceedings; changes
in the cost or availability of capital; growth in the areas in which
we are doing business; weather variations affecting customer energy
usage; and other considerations that may be disclosed from time to
time in our publicly disseminated documents and filings. We
undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or
otherwise.
<PAGE>
Results of Operations
1998 1997
over over
1997 1996
1998 1997 1996 Change Change
(Thousands, except per share amounts)
Total Operating Revenues $2,499,418 $2,170,102 $2,108,865 15% 3%
Operating Income $474,839 $436,961 $425,316 9% 3%
Net Income $194,205 $175,211 $168,711 11% 4%
Average Shares Outstanding $64,371 $68,153 $71,127 (6%) (4%)
Earnings Per Share, basic
and diluted $3.02 $2.57 $2.37 18% 8%
Earnings Per Share Excluding
Certain Charges $3.02 $2.81 $2.51 7% 12%
Dividends Paid Per Share $1.55 $1.40 $1.40 11% -
Earnings Per Share
Our earnings per share increased in 1998 primarily due to
higher electric wholesale prices and deliveries, cost control
efforts and a reduction in the number of common shares outstanding.
Those increases were partially offset by lower natural gas retail
deliveries, primarily because of unusually warm winter weather, and
lower electric retail prices. The 1997 earnings per share include
the effect of a nonrecurring charge of 24 cents per share.
Excluding the net effects of nonrecurring items, our earnings
per share for 1997 increased compared to 1996 primarily due to
higher electric wholesale deliveries, lower costs of natural gas
purchased and a reduction in the number of common shares
outstanding. Those increases were partially offset by a decrease
in earnings per share due to the price of NUG power.
<PAGE>
Operating Results for the Electric Business Segment
1998 1997
over over
1997 1996
1998 1997 1996 Change Change
(Thousands)
Retail Deliveries -
Megawatt-hours 13,277 13,238 13,216 - -
Wholesale Deliveries -
Megawatt-hours 22,711 10,406 7,914 118% 31%
Operating Revenues $2,159,868 $1,792,164 $1,723,147 21% 4%
Operating Expenses $1,713,509 $1,411,820 $1,322,885 21% 7%
Operating Income $446,359 $380,344 $400,262 17% (5%)
Operating Revenues: Our 1998 electric operating revenues
increased $368 million due to an increase in wholesale deliveries
and higher wholesale prices totaling $380 million, partially
offset by an $8 million decrease due to lower retail prices.
Our 1997 electric operating revenues increased $69 million
over 1996 due to a $70 million increase in wholesale deliveries.
Operating Expenses: Our 1998 electric operating expenses
increased $302 million due to a $343 million increase in
electricity purchased for wholesale deliveries, partially offset
by a $34 million decrease in other operating and maintenance costs
primarily due to cost control efforts and the effect of a 1997
nonrecurring charge.
Our 1997 electric operating expenses increased $89 million
primarily due to a $49 million increase in electricity purchased,
due to purchases for wholesale deliveries and the price of NUG
power. Expenses also increased as a result of a $19 million
increase in operating costs, primarily due to the effect of a 1997
nonrecurring charge, and an $11 million increase in fuel costs,
due to increased electric generation.
<PAGE>
Operating Results for the Natural Gas Business Segment
1998 1997
over over
1997 1996
1998 1997 1996 Change Change
(Thousands)
Retail Deliveries -
Dekatherms 54,162 59,324 61,542 (9%) (4%)
Wholesale Deliveries -
Dekatherms 7,527 3,027 4,056 149% (25%)
Operating Revenues $305,881 $337,825 $344,385 (9%) (2%)
Operating Expenses $266,138 $275,501 $287,104 (3%) (4%)
Operating Income $39,743 $62,324 $57,281 (36%) 9%
Our natural gas deliveries decreased in 1998 primarily due to
warmer weather, and decreased in 1997 due to one low-margin
customer that closed its cogeneration plant. Excluding the loss of
that customer, 1997 natural gas deliveries increased 2% over 1996.
Operating Revenues: Our 1998 natural gas operating revenues
decreased by $32 million. Revenues were reduced $48 million by
lower retail deliveries, primarily due to warmer weather. That
decrease was partially offset by a $13 million increase in
wholesale deliveries.
The $7 million decrease in 1997 natural gas operating revenues
was primarily due to lower retail deliveries that reduced revenues
$12 million and a $3 million decrease in other revenues. Those
decreases were partially offset by a more favorable sales mix that
added $9 million to revenues.
Operating Expenses: Our 1998 natural gas operating expenses
decreased $9 million due to a $6 million decrease in the cost of
natural gas purchased and a $3 million decrease in other operating
costs due to the effect of a 1997 nonrecurring charge.
Our 1997 natural gas operating expenses decreased $12 million
due to a decrease in the cost of natural gas purchased of
$16 million, partially offset by an increase in operating costs of
$3 million that was due to a nonrecurring charge.
Item 7A. Quantitative and qualitative disclosure about market risk.
Not applicable
<PAGE>
Item 8. Financial statements and supplementary data
Energy East Corporation
Consolidated Statements of Income
Year Ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------
(Thousands, except per share amounts)
Operating Revenues
Sales and services . . . . . . . . . . . . .$2,499,418 $2,170,102 $2,108,865
Operating Expenses
Fuel used in electric generation. . . . . . . 239,258 233,180 222,102
Electricity purchased . . . . . . . . . . . . 752,978 409,883 360,753
Natural gas purchased . . . . . . . . . . . . 158,656 164,661 180,866
Other operating expenses. . . . . . . . . . . 366,403 406,830 412,915
Maintenance . . . . . . . . . . . . . . . . . 111,502 110,373 107,697
Depreciation and amortization . . . . . . . . 191,073 201,768 192,501
Other taxes . . . . . . . . . . . . . . . . . 204,709 206,446 206,715
---------- ---------- ----------
Total Operating Expenses. . . . . . . . . . 2,024,579 1,733,141 1,683,549
---------- ---------- ----------
Operating Income. . . . . . . . . . . . . . . . 474,839 436,961 425,316
Other Income and Deductions . . . . . . . . . . 9,318 11,496 16,403
Interest Charges, Net . . . . . . . . . . . . . 125,557 123,199 122,729
Preferred Stock Dividends of
Subsidiary . . . . . . . . . . . . . . . . . . 8,583 9,342 9,530
---------- ---------- ----------
Income Before Federal Income Taxes. . . . . . . 331,381 292,924 276,654
Federal Income Taxes. . . . . . . . . . . . . . 137,176 117,713 107,943
---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . $194,205 $175,211 $168,711
========== ========== ==========
Earnings Per Share, basic and diluted . . . . . $3.02 $2.57 $2.37
Average Shares Outstanding. . . . . . . . . . . 64,371 68,153 71,127
The notes on pages 36 through 51 are an integral part of the financial
statements.
<PAGE>
Energy East Corporation
Consolidated Balance Sheets
December 31 1998 1997
- ----------------------------------------------------------------------------
(Thousands)
Assets
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . $48,068 $8,168
Special deposits. . . . . . . . . . . . . . . . . . 4,729 3,170
Accounts receivable, net. . . . . . . . . . . . . . 148,712 189,008
Fuel, at average cost . . . . . . . . . . . . . . . 44,643 43,706
Materials and supplies, at average cost . . . . . . 38,040 41,561
Prepayments . . . . . . . . . . . . . . . . . . . . 111,082 68,452
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . - 2,148
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . 395,274 356,213
Utility Plant, at Original Cost
Electric. . . . . . . . . . . . . . . . . . . . . . 5,299,604 5,234,725
Natural gas . . . . . . . . . . . . . . . . . . . . 602,904 576,683
Common. . . . . . . . . . . . . . . . . . . . . . . 144,043 152,034
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . 6,046,551 5,963,442
Less accumulated depreciation . . . . . . . . . . . 2,211,608 2,093,274
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . 3,834,943 3,870,168
Construction work in progress . . . . . . . . . . . 27,741 52,104
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . 3,862,684 3,922,272
Other Property and Investments, Net. . . . . . . . . 129,088 143,449
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes . . . . . . . 136,404 243,129
Unamortized debt expense . . . . . . . . . . . . . 71,530 76,418
Demand-side management program costs . . . . . . . 64,466 64,466
Environmental remediation costs . . . . . . . . . 60,600 82,900
Other . . . . . . . . . . . . . . . . . . . . . . 125,604 113,637
---------- ---------
Total regulatory assets . . . . . . . . . . . . . 458,604 580,550
Other assets. . . . . . . . . . . . . . . . . . . . 37,687 26,197
---------- ----------
Total Regulatory and Other Assets . . . . . . . . 496,291 606,747
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . $4,883,337 $5,028,681
========== ==========
The notes on pages 36 through 51 are an integral part of the financial
statements.
<PAGE>
Energy East Corporation
Consolidated Balance Sheets
December 31 1998 1997
- --------------------------------------------------------------------------
Liabilities (Thousands)
Current Liabilities
Current portion of long-term debt . . . . . . . . . $31,077 $38,240
Current portion of preferred stock of subsidiary. . 75,000 -
Commercial paper. . . . . . . . . . . . . . . . . . 78,300 58,000
Accounts payable and accrued liabilities. . . . . . 116,582 124,981
Interest accrued. . . . . . . . . . . . . . . . . . 19,556 20,500
Taxes accrued . . . . . . . . . . . . . . . . . . . 587 6,146
Accumulated deferred federal income tax, net. . . . 10,029 -
Other . . . . . . . . . . . . . . . . . . . . . . . 82,143 79,631
---------- ----------
Total Current Liabilities . . . . . . . . . . . . 413,274 327,498
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes. . . . . . . . . . . . . . . 98,038 81,986
Deferred income taxes - unfunded future federal
income taxes . . . . . . . . . . . . . . . . . . 60,896 99,126
Other. . . . . . . . . . . . . . . . . . . . . . . 42,182 79,709
---------- ----------
Total regulatory liabilities. . . . . . . . . . . 201,116 260,821
Other liabilities
Deferred income taxes. . . . . . . . . . . . . . . 765,592 753,722
Other postretirement benefits. . . . . . . . . . . 137,681 117,760
Environmental remediation costs. . . . . . . . . . 80,600 82,900
Other. . . . . . . . . . . . . . . . . . . . . . . 82,028 73,021
---------- ----------
Total other liabilities . . . . . . . . . . . . . 1,065,901 1,027,403
Long-term debt. . . . . . . . . . . . . . . . . . . 1,435,120 1,450,224
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . 3,115,411 3,065,946
Commitments. . . . . . . . . . . . . . . . . . . . . - -
Preferred Stock of Subsidiary
Preferred stock redeemable solely at the
option of subsidiary . . . . . . . . . . . . . . 29,440 134,440
Preferred stock subject to mandatory
redemption requirements. . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock ($.01 par value, 200,000 shares
authorized and 62,947 shares outstanding as of
December 31, 1998, and $6.66 2/3 par value, 90,000
shares authorized and 67,508 shares outstanding as
of December 31, 1997). . . . . . . . . . . . . . . 631 462,250
Capital in excess of par value. . . . . . . . . . . 1,057,904 811,648
Retained earnings . . . . . . . . . . . . . . . . . 662,562 568,844
Treasury stock, at cost (136 shares at December
31, 1998, and 1,829 shares at December 31, 1997) . (7,611) (39,447)
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . 1,713,486 1,803,295
---------- ----------
Total Liabilities and Stockholders' Equity. . . . $4,883,337 $5,028,681
========== ==========
The notes on pages 36 through 51 are an integral part of the financial
statements.
<PAGE>
Energy East Corporation
Consolidated Statements of Cash Flows
Year Ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------
(Thousands)
Operating Activities
Net income. . . . . . . . . . . . . . . . . . . .$194,205 $175,211 $168,711
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization . . . . . . . . . 191,073 201,768 192,501
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . . 38,749 5,884 28,928
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 40,296 35 6,791
Prepayments . . . . . . . . . . . . . . . . . . (42,630) (21,283) (15,798)
Accounts payable and accrued liabilities. . . . (8,399) 3,858 3,486
Taxes accrued . . . . . . . . . . . . . . . . . (5,559) 6,146 (22,231)
Other, net. . . . . . . . . . . . . . . . . . . . 60,052 75,115 84,932
-------- -------- --------
Net Cash Provided by Operating Activities . . . 467,787 446,734 447,320
-------- -------- --------
Investing Activities
Utility plant additions . . . . . . . . . . . . .(130,417)(123,768)(214,373)
Proceeds from governmental and other sources. . . 1,368 1,443 2,977
Other property and investment additions . . . . . 19,070 (57,803) (916)
-------- -------- --------
Net Cash Used in Investing Activities . . . . .(109,979)(180,128)(212,312)
-------- -------- --------
Financing Activities
Repurchase of common stock. . . . . . . . . . . .(177,243) (7,245) (40,198)
Treasury stock acquired, net. . . . . . . . . . . (7,611) (39,447) -
Repayments of first mortgage bonds and
preferred stock, including net premiums . . . . (60,600) (73,000)(171,478)
Changes in funds set aside for first
mortgage bond repayments. . . . . . . . . . . . - 25,000 (25,000)
Long-term notes, net. . . . . . . . . . . . . . . 7,733 (5,203) (2,581)
Commercial paper, net . . . . . . . . . . . . . . 20,300 (71,300) 100,680
Dividends on common stock . . . . . . .. . . . .(100,487) (95,496) (99,611)
-------- -------- --------
Net Cash Used in Financing Activities . . . . .(317,908)(266,691)(238,188)
-------- -------- --------
Net Increase (Decrease) in Cash
and Cash Equivalents . . . . . . .. . . . . . . 39,900 (85) (3,180)
Cash and Cash Equivalents, Beginning of Year . . . 8,168 8,253 11,433
-------- -------- --------
Cash and Cash Equivalents, End of Year . . . . . . $48,068 $8,168 $8,253
======== ======== ========
The notes on pages 36 through 51 are an integral part of the financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Energy East Corporation
Consolidated Statements of Changes in Common Stock Equity
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Common Stock Capital in
Outstanding(1) Excess of Retained Treasury
Shares Amount Par Value Earnings Stock Total
Balance, January 1, 1996 71,503 $476,686 $842,442 $424,412 - $1,743,540
Net income 168,711 168,711
Common stock dividends declared
($1.40 per share) (99,611) (99,611)
Common stock repurchased (1,833) (12,217) (27,981) (40,198)
Premium paid on redemption of
subsidiary's preferred stock, net (4,383) (4,383)
Amortization of capital stock
issue expense 1,923 1,923
Balance, December 31, 1996 69,670 464,469 816,384 489,129 - 1,769,982
Net income 175,211 175,211
Common stock dividends declared
($1.40 per share) (95,496) (95,496)
Common stock repurchased (333) (2,219) (5,026) (7,245)
Treasury stock transactions, net (1,829) 56 $(39,447) (39,391)
Amortization of capital stock
issue expense 234 234
Balance, December 31, 1997 67,508 462,250 811,648 568,844 (39,447) 1,803,295
Net income 194,205 194,205
Common stock dividends declared
($1.55 per share) (100,487) (100,487)
Common stock repurchased (4,425) (20,015) (157,228) (177,243)
Treasury stock transactions, net (136) (12,192) (27,235) 31,836 (7,591)
Change in par value of common stock (429,412) 429,412 -
Amortization of capital stock
issue expense 1,307 1,307
Balance, December 31, 1998 62,947 $631 $1,057,904 $662,562 $(7,611) $1,713,486
(1) Par value of $.01 at December 31, 1998, and $6.66 2/3 at December 31, 1997 and 1996 and January 1,
1996.
The notes on pages 36 through 51 are an integral part of the financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Holding Company Formation
Energy East Corporation is an energy delivery, products and
services company with operations in New York, Massachusetts, Maine,
New Hampshire, Vermont and New Jersey. We deliver electricity and
natural gas to retail customers and provide electricity, natural
gas and energy management and other services to retail and
wholesale customers in the Northeast.
On May 1, 1998, Energy East Corporation became the parent of
New York State Electric & Gas Corporation pursuant to an Agreement
and Plan of Share Exchange. Each share of NYSEG's outstanding
common stock was exchanged for a share of Energy East's common
stock.
Note 2. Significant Accounting Policies
Principles of consolidation
These financial statements consolidate our majority-owned
subsidiaries after eliminating all intercompany transactions.
Depreciation and amortization
We determine depreciation expense using straight-line rates,
based on the average service lives of groups of depreciable
property in service. Our depreciation accruals were equivalent to
3.4% of average depreciable property for 1998 and 3.5% for 1997 and
1996. Amortization expense includes the amortization of certain
regulatory assets authorized by the PSC.
Accounts receivable
We have an agreement that expires in November 2001 to sell,
with limited recourse, undivided percentage interests in certain of
our accounts receivable from customers. The agreement allows us to
receive up to $152 million from the sale of such interests. At
December 31, 1998 and 1997, accounts receivable on the consolidated
balance sheets are shown net of $152 million of interests in
accounts receivable sold. All fees related to the sale of accounts
receivable are included in other income and deductions on the
consolidated statements of income and amounted to approximately $9
million in 1998, 1997 and 1996. Accounts receivable on the
consolidated balance sheets are also shown net of an allowance for
doubtful accounts of $9 million at December 31, 1998, and $7
million at December 31, 1997. Bad debt expense was $18 million in
1998, $17 million in 1997 and $19 million in 1996.
<PAGE>
Income taxes
We file a consolidated federal income tax return. Deferred
income taxes reflect the effect of temporary differences between
the amount of assets and liabilities recognized for financial
reporting purposes and the amount recognized for tax purposes.
Investment tax credits are amortized over the estimated lives of
the related assets.
Utility plant
We charge repairs and minor replacements to operating expense
accounts. We capitalize renewals and betterments, including
certain indirect costs. The original cost of utility plant retired
or otherwise disposed of and the cost of removal less salvage are
charged to accumulated depreciation.
Regulatory assets and liabilities
Pursuant to Statement 71, we capitalize, as regulatory assets,
incurred costs that are probable of recovery in future electric and
natural gas rates. We also record, as regulatory liabilities,
obligations to refund previously collected revenue or to spend
revenue collected from customers on future costs. In accordance
with our current rate agreements in New York State, we no longer
defer most costs that were previously subject to deferral
accounting.
Unfunded future federal income taxes and deferred income taxes
are amortized as the related temporary differences reverse.
Unamortized debt expense is amortized over the lives of the related
debt issues. Demand-side management program costs, other regulatory
assets and other regulatory liabilities are amortized over various
periods in accordance with our current New York State rate
agreements. We earn a return on all regulatory assets for which funds
have been spent.
Consolidated statements of cash flows
We consider all highly liquid investments with a maturity date
of three months or less when acquired to be cash equivalents. Those
investments are included in cash and cash equivalents on the
consolidated balance sheets.
Total income taxes paid were $92 million in 1998, $111 million
in 1997 and $98 million in 1996.
Interest paid, net of amounts capitalized, was $104 million in
1998, $107 million in 1997 and $112 million in 1996.
<PAGE>
Risk management
We use natural gas futures and options contracts to manage our
exposure to fluctuations in natural gas commodity prices. Such
contracts allow us to fix margins on sales of natural gas generally
expected to occur over the next 18 months. The cost or benefit of
natural gas futures and options contracts is included in the
commodity cost when the related sales commitments are fulfilled.
We use electricity contracts to manage our exposure to
fluctuations in the cost of electricity. Such contracts allow us to
fix margins on the majority of our retail and wholesale sales of
electricity. The cost or benefit of electricity contracts is included
in the cost of electricity purchased when the electricity is sold.
We use interest rate swap agreements to manage the risk of
increases in variable interest rates. We record amounts paid and
received under the agreements as adjustments to the interest expense
of the specific debt issues.
Gains and losses resulting from the use of risk management
techniques in 1998 and 1997 were not material to our financial
position or results of operations. We do not hold or issue financial
instruments for trading or speculative purposes.
Estimates
Preparation of the consolidated 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 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.
Reclassifications
Certain amounts have been reclassified on the consolidated
financial statements to conform with the 1998 presentation.
Note 3. Income Taxes
Year ended December 31 1998 1997 1996
(Thousands)
Current $98,427 $111,829 $79,015
Deferred, net
Accelerated depreciation 20,684 29,070 52,572
Miscellaneous 22,718 (18,130) (17,307)
ITC (4,653) (5,056) (6,337)
-------- -------- --------
Total $137,176 $117,713 $107,943
======== ======== ========
Our effective tax rate differed from the statutory rate of 35%
due to the following:
Year ended December 31 1998 1997 1996
(Thousands)
Tax expense at statutory rate $118,987 $105,792 $100,165
Depreciation not normalized 16,776 16,854 20,542
ITC amortization (6,354) (6,359) (6,337)
Other, net 7,767 1,426 (6,427)
-------- -------- --------
Total $137,176 $117,713 $107,943
======== ======== ========
Our deferred tax assets and liabilities consisted of the
following:
December 31 1998 1997
(Thousands)
Current Deferred Tax Assets - $2,148
======== ========
Current Deferred Tax Liabilities $10,029 -
======== ========
Noncurrent Deferred Taxes
Depreciation $775,034 $775,943
Unfunded future federal income taxes 60,896 99,126
Accumulated deferred ITC 109,987 114,640
Future income tax benefit - ITC (37,584) (40,087)
Other 14,192 (16,399)
-------- --------
Total Noncurrent Deferred
Tax Liabilities 922,525 933,223
Valuation allowance 2,001 1,611
Less amounts classified as
regulatory liabilities
Deferred income taxes 98,038 81,986
Deferred income taxes - unfunded
future federal income taxes 60,896 99,126
-------- --------
Noncurrent Deferred Income Taxes $765,592 $753,722
======== ========
<PAGE>
Note 4. Preferred Stock of Subsidiary
At December 31, 1998 and 1997, NYSEG's serial cumulative
preferred stock was:
Shares
Par Value Redemption Authorized
Per Price and Amount
Series Share Per Share Outstanding(1) 1998 1997
(Thousands)
Redeemable solely at the option of the company:
3.75% $100 $104.00 150,000 $15,000 $15,000
4 1/2%(1949) 100 103.75 40,000 4,000 4,000
4.15% 100 101.00 14,000 1,400 1,400
4.40% 100 102.00 55,200 5,520 5,520
4.15% (1954) 100 102.00 35,200 3,520 3,520
6.48% (2) 100 - - 30,000
7.40% (3) 25 25.00 1,000,000 25,000 25,000
Adjustable
Rate (3) 25 25.00 2,000,000 50,000 50,000
104,440 134,440
Less preferred stock redemptions due within one
year - included in current liabilities 75,000 -
Total $29,440 $134,440
Subject to mandatory redemption requirements:
6.30% (4) 100 102.52 250,000 $25,000 $25,000
(1) At December 31, 1998, there were 1,910,600 shares of $100 par
value preferred stock, 7,800,000 shares of $25 par value preferred
stock and 1,000,000 shares of $100 par value preference stock
authorized but unissued. After giving effect to the redemptions
referred to in (3) below, there will be 10,800,000 shares of $25 par
value preferred stock authorized but unissued.
(2) Redeemed July 1, 1998.
(3) To be redeemed February 1, 1999.
(4) On January 1 of each year from 2004 through 2008, we must redeem
12,500 shares at par, and on January 1, 2009, we must redeem the
balance of the shares at par. This Series is redeemable at our
option at $102.52 per share before January 1, 2000. The $102.52
price will be reduced annually by 63 cents for the years ending 2000
through 2002; thereafter, the redemption price is $100.00. We are
restricted in our ability to redeem this Series before January 1,
2004.
Note 5. Bank Loans and Other Borrowings
We use short-term, unsecured notes, usually commercial paper,
to finance certain refundings and for other corporate purposes. The
weighted average interest rate on commercial paper balances, all of
which belonged to NYSEG, was 6.2% at December 31, 1998, and 6.3% at
December 31, 1997.
NYSEG has a revolving credit agreement with certain banks that
provides for borrowing of up to $200 million through December 31,
2001. The revolving credit agreement does not require compensating
balances. We had no outstanding loans under this agreement at
December 31, 1998 or 1997. At our option, the interest rate on
borrowings is related to the prime rate, the London Interbank Offered
Rate or the interest rate applicable to certain certificates of
deposit. The agreement provides for payment of a commitment fee,
which was .125% at December 31, 1998 and 1997.
Note 6. Long-term Debt
All of our consolidated long-term debt at December 31, 1998 and
1997, was issued by our subsidiaries.
Amount
Maturity Interest
Dates Rates 1998 1997
(Thousands)
First mortgage
bonds (1) 2001 to 2023 6 3/4% to 9 7/8% $800,000 $830,000
Pollution control
notes (2) 2006 to 2034 3.58% to 6.15% 613,000 613,000
Long-term notes 12/31/01 26,200 28,000
Various long-term notes 25,235 12,569
Obligations under capital leases 8,605 12,269
Unamortized premium and discount on debt, net (6,843) (7,374)
--------- ---------
1,466,197 1,488,464
Less debt due within one year - included
in current liabilities 31,077 38,240
--------- ---------
Total $1,435,120 $1,450,224
========= =========
At December 31, 1998, long-term debt and capital lease payments
that will become due during the next five years are:
1999 2000 2001 2002 2003
(Thousands)
$31,077 $19,127 $51,867 $151,460 $1,167
(1) NYSEG's first mortgage bond indenture constitutes a direct first
mortgage lien on substantially all of its utility plant. The mortgage
also provides for a sinking and improvement fund. This provision
requires us to make an annual cash deposit with the Trustee equal to
1% of the principal amount of all bonds delivered and authenticated
by the Trustee before January 1 of that year (excluding any bonds
issued on the basis of the retirement of bonds). Pursuant to the
terms of the mortgage, we satisfied the requirement in 1998 by
crediting "bondable value of property additions" against the amount
of cash to be deposited. We redeemed, in March 1998, $30 million of
6 1/2% Series first mortgage bonds, due September 1, 1998.
(2) Fixed-rate pollution control notes totaling $306 million were
issued to secure the same amount of tax-exempt pollution control
revenue bonds issued by a governmental authority. The interest rates
range from 5.70% to 6.15%.
Adjustable-rate pollution control notes totaling $132 million
were issued to secure the same amount of tax-exempt adjustable-rate
pollution control revenue bonds (Adjustable-rate Revenue Bonds)
issued by a governmental authority. The Adjustable-rate Revenue
Bonds bear interest at rates ranging from 3.58% to 4.18% through
dates preceding various annual interest rate adjustment dates. On
the annual interest rate adjustment dates the interest rates will be
adjusted, or at our option, subject to certain conditions, a fixed
rate of interest may become effective. Bond owners may elect,
subject to certain conditions, to have their Adjustable-rate Revenue
Bonds purchased by the Trustee. We have entered into interest rate
swaps to manage the risk of increases in the interest rates on the
Adjustable-rate Revenue Bonds, and such swaps are reflected in the
above interest rates.
Multi-mode pollution control notes totaling $175 million were
issued to secure the same amount of tax-exempt multi-mode pollution
control refunding revenue bonds (Multi-mode Revenue Bonds) issued by
a governmental authority. The Multi-mode Revenue Bonds have a
structure that allows the interest rates to be based on a daily rate,
a weekly rate, a commercial paper rate, an auction rate, a term rate
or a fixed rate. Bond owners may elect, while the Multi-mode Revenue
Bonds bear interest at a daily or weekly rate, to have their bonds
purchased by the Registrar and Paying Agent. The maturity dates of
the Multi-mode Revenue Bonds are February 1, 2029, June 1, 2029, and
October 1, 2029, and can be extended subject to certain conditions.
At December 31, 1998, the interest rate for the multi-mode pollution
control notes was at the daily rate. The weighted average interest
rate for all three series was 3.28%, excluding letter of credit fees,
for the year ended December 31, 1998.
NYSEG has irrevocable letters of credit that support certain
payments required to be made on the Adjustable-rate Revenue Bonds and
Multi-mode Revenue Bonds, and that expire on various dates. If we
are unable to extend the letter of credit related to a particular
series of Adjustable-rate Revenue Bonds, that series will have to be
redeemed unless a fixed rate of interest becomes effective. Multi-
mode Revenue Bonds are subject to mandatory purchase when there is
any change in the interest rate mode and in certain other
circumstances. Payments made under the letters of credit in
connection with purchases of Adjustable-rate Revenue Bonds and Multi-
mode Revenue Bonds are repaid with the proceeds from the remarketing
of those Bonds. To the extent the proceeds are not enough, we are
required to reimburse the bank that issued the letter of credit.
<PAGE>
Note 7. Sale of Coal-fired Generation Assets
In the spring of 1998 we put our seven coal-fired generating
stations and associated assets and liabilities up for auction. The
net book value of those coal-fired generation assets was $1.10
billion at December 31, 1998. In August 1998 we accepted two offers
totaling $1.85 billion for the coal-fired generation assets. We
completed the sale of our Homer City generation assets and expect to
complete the sale of our remaining coal-fired generation assets in
several weeks.
All proceeds, net of taxes and transaction costs, in excess of
the net book value of the generation assets, less funded deferred
taxes, will be used to write down our 18% investment in Nine Mile
Point nuclear generating unit No. 2. This treatment is in accordance
with our restructuring plan approved by the PSC in January 1998. (See
Note 8. Jointly-owned Generating Stations.)
Note 8. Jointly-owned Generating Stations
Nine Mile Point nuclear generating unit No. 2
We have an 18% interest in the output and costs of NMP2, which
is operated by Niagara Mohawk Power Corporation. Ownership of NMP2
is shared with Niagara Mohawk 41%, Long Island Power Authority 18%,
Rochester Gas and Electric Corporation 14% and Central Hudson Gas &
Electric Corporation 9%.
Our share of the rated capability is 205 megawatts. Our share
of net utility plant investment, excluding nuclear fuel, was
approximately $573 million at December 31, 1998, and $591 million at
December 31, 1997. The accumulated provision for depreciation was
approximately $178 million at December 31, 1998, and $162 million at
December 31, 1997.
Net proceeds from the sale of our coal-fired generation assets
will be used to write down our 18% investment in NMP2. (See Note 7.
Sale of Coal-fired Generation Assets.) Our share of operating
expenses is included in the consolidated statements of income.
We are actively pursuing the sale of our interest in NMP2. In
January Niagara Mohawk Power Corporation, the operator and 41% owner
of NMP2, announced its intention to pursue the sale of its interest
in NMP2. Together we are in active discussions concerning the sale
with a third party who recently completed due diligence at the site.
We will petition for all necessary regulatory approvals if an
agreement is reached to sell NMP2.
Nuclear insurance
Niagara Mohawk maintains public liability and property
insurance for NMP2. We reimburse Niagara Mohawk for our 18% share of
those costs.
The public liability limit for a nuclear incident is
approximately $9.1 billion. Should losses stemming from a nuclear
incident exceed the commercially available public liability
insurance, each licensee of a nuclear facility would be liable for up
to $84 million per incident, payable at a rate not to exceed $10
million per year. Our maximum liability for our 18% interest in NMP2
would be approximately $15 million per incident. The $84 million
assessment is subject to periodic inflation indexing and a 5%
surcharge should funds prove insufficient to pay claims associated
with a nuclear incident. The Price-Anderson Act also requires
indemnification for precautionary evacuations whether or not a
nuclear incident actually occurs.
Niagara Mohawk has obtained property insurance for NMP2
totaling approximately $2.8 billion through the Nuclear Insurance
Pools and Nuclear Electric Insurance Limited. In addition, we have
purchased NEIL insurance coverage for the extra expense that would be
incurred by purchasing replacement power during prolonged accidental
outages. Under NEIL programs, should losses resulting from an
incident at a member facility exceed the accumulated reserves of
NEIL, each member, including us, would be liable for its share of the
deficiency. Our maximum liability per incident under the property
damage and replacement power coverage is approximately $2 million.
Nuclear plant decommissioning costs
Based on the results of a 1995 decommissioning study, our 18%
share of the cost to decommission NMP2 is $161 million in 1999
dollars ($422 million in 2026 when NMP2's operating license will
expire). The estimated liability for decommissioning NMP2 using the
Nuclear Regulatory Commission's minimum funding requirement is
approximately $101 million in 1999 dollars. Our electric rates in New
York State currently include an annual allowance for decommissioning
of $4 million, which approximates the minimum funding requirement as
set forth in the 1995 decommissioning study. Decommissioning costs
are charged to depreciation and amortization expense and are
recovered over the expected life of the plant.
We have established a Qualified Fund under applicable
provisions of the federal tax law to comply with NRC funding
regulations. The balance in the fund, including reinvested earnings,
was approximately $21 million at December 31, 1998, and $13 million
at December 31, 1997. Those amounts are included on the consolidated
balance sheets in other property and investments, net. The related
liability for decommissioning is included in other liabilities -
other. At December 31, 1998, the external trust fund investments
were classified as available-for-sale.
Homer City
We had an undivided 50% interest in the output and costs of the
Homer City Generating Station, which comprises three generating
units. The station was owned with Pennsylvania Electric Company and
operated by its affiliate, GPU Generation, Inc. Our share of the
rated capability was 952 megawatts, and our net utility plant
investment was approximately $266 million at December 31, 1998, and
$262 million at December 31, 1997. The accumulated provision for
depreciation was approximately $184 million at December 31, 1998, and
$190 million at December 31, 1997. Our share of operating expenses is
included in the consolidated statements of income.
We accepted an offer of $900 million in August 1998 for our 50%
share of the Homer City Generating Station. (See Note 7. Sale of
Coal-fired Generation Assets.)
Note 9. Environmental Liability
From time to time environmental laws, regulations and compliance
programs may require changes in our operations and facilities and may
increase the cost of electric and natural gas service.
The U.S. Environmental Protection Agency and the New York State
Department of Environmental Conservation, as appropriate, notified us
that we are among the potentially responsible parties who may be
liable for costs incurred to remediate certain hazardous substances
at nine waste sites, not including our sites where gas was
manufactured in the past, which are discussed below. With respect to
the nine sites, seven sites are included in the New York State
Registry of Inactive Hazardous Waste Sites and three of the sites are
also included on the National Priorities list.
Any liability may be joint and several for certain of those
sites. We recorded an estimated liability of $1 million related to
five of the nine sites. The ultimate cost to remediate the sites may
be significantly more than the estimated amount. Factors affecting
the estimated remediation amount include the remedial action plan
selected, the extent of site contamination and the portion attributed
to us.
We have a program to investigate and perform necessary
remediation at our sites where gas was manufactured in the past. In
1994 and 1996, we entered into Orders on Consent with the NYSDEC.
These Orders require us to investigate and, where necessary,
remediate 34 of our 38 sites. Eight sites are included in the New
York State Registry.
Our estimate for all costs related to investigation and
remediation of the 38 sites ranges from $79 million to $178 million
at December 31, 1998. That estimate is based on both known and
potential site conditions and multiple remediation alternatives for
each of the sites. The estimate has not been discounted and is based
on costs in 1996 dollars that we expect to incur through the year
2017. The estimate could change materially based on facts and
circumstances derived from site investigations, changes in required
remedial action, changes in technology relating to remedial
alternatives and changes to current laws and regulations.
The liability to investigate and perform remediation, as
necessary, at the known inactive gas manufacturing sites, reflected
in our consolidated balance sheets was $79 million at December 31,
1998 and $81 million at December 31, 1997. We recorded a
corresponding regulatory asset, net of insurance recoveries, since we
expect to recover the net costs in rates.
Note 10. Retirement Benefits
Pension Benefits Postretirement Benefits
1998 1997 1998 1997
(Thousands)
Change in projected benefit obligation
Benefit obligation
at January 1 $746,008 $679,778 $258,884 $226,193
Service cost 19,500 19,317 6,283 7,010
Interest cost 51,556 50,951 16,606 17,075
Amendments - 4,120 - -
Actuarial loss (gain) 21,831 24,835 (3,889) 16,891
Benefits paid (35,614) (32,993) (8,432) (8,285)
---------- ---------- ---------- ---------
Projected benefit
obligation at
December 31 $803,281 $746,008 $269,452 $258,884
========== ========== ========== =========
Change in plan assets
Fair value of
plan assets
at January 1 $1,176,184 $995,795 - -
Actual return on
plan assets 155,956 213,382 - -
Benefits paid (35,614) (32,993)
---------- ---------- ---------- ----------
Fair value of
plan assets
at December 31 $1,296,526 $1,176,184 - -
========== ========== ========== ==========
Funded status $493,245 $430,176 $(269,452) $(258,884)
Unrecognized net
actuarial gain (395,780) (372,046) (12,847) (13,824)
Unrecognized prior
service cost 26,290 28,307 - -
Unrecognized net
transition (asset)
obligation (37,421) (44,660) 144,618 154,948
---------- ---------- ---------- ---------
Prepaid (accrued)
benefit cost $86,334 $41,777 $(137,681) $(117,760)
========== ========== ========== =========
Our postretirement benefits were unfunded as of December 31, 1998 and
1997.
<PAGE>
Pension Benefits Postretirement Benefits
1998 1997 1998 1997
Weighted-average assumptions
as of December 31
Discount rate 6.5% 7.0% 6.5% 7.0%
Expected return on
plan assets 8.5% 8.5% N/A N/A
Rate of compensation
increase 3.75% 4.25% N/A N/A
We assumed a 7% annual rate of increase in the costs of covered
health care benefits for 1999 that gradually decreases to 5% by the
year 2003.
Pension Benefits Postretirement Benefits
1998 1997 1996 1998 1997 1996
(Thousands)
Components of net periodic
benefit cost
Service cost $19,500 $19,317 $18,593 $6,283 $7,010 $6,436
Interest cost 51,556 50,951 46,070 16,606 17,075 15,795
Expected return on
plan assets (84,007) (73,777) (62,615) - - -
Amortization of prior
service cost 2,016 2,078 661 - - -
Recognized net
actuarial gain (26,384) (18,056) (11,603) (4,865) (3,565) (3,246)
Amortization of transition
(asset) obligation (7,238) (7,238) (7,238) 10,330 10,330 10,330
Deferral for future
recovery - - - (9,600)(11,766) (8,950)
-------- -------- -------- ------- ------- -------
Net periodic
benefit cost $(44,557)$(26,725) $(16,132) $18,754 $19,084 $20,365
======== ======== ======== ======= ======= =======
The net periodic benefit cost for postretirement benefits
represents the cost we charged to expense for providing health care
benefits to retirees and their eligible dependents. The amount of
postretirement benefit cost deferred was $10 million as of December
31, 1998, and $14 million as of December 31, 1997. We expect to
recover any deferred postretirement costs by the year 2002. The
transition obligation for postretirement benefits is being
amortized over a period of 20 years.
A one-percent change in the health care cost inflation rate
from assumed rates would have the following effects:
One-Percent One-Percent
Increase Decrease
Effect on total of service and
interest cost components $4 million $(3 million)
Effect on postretirement
benefit obligation $45 million $(36 million)
Note 11. Stock-Based Compensation
We apply Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees in accounting for our
stock-based compensation plans. Compensation expense would have
been the same in 1998, 1997 and 1996 had it been determined
consistent with Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation.
We may grant options and stock appreciation rights to senior
management and certain other key employees under our stock option
plan. Options granted in 1997 vested in 1997, while those granted
in 1998 vest over a three-year period, subject to, with certain
exceptions, continuous employment. All options expire ten years
after the grant date. Of the 3.3 million shares authorized,
unoptioned shares totaled 2.3 million at December 31, 1998, and 2.9
million at December 31, 1997.
During 1998 550,308 options/SARs were granted with a weighted-
average exercise price of $36.87. 11,438 options with a weighted-
average exercise price of $21.75 and 94,678 SARs with a weighted-
average exercise price of $21.86 were exercised in 1998. 18,000
options/SARs with an exercise price of $35.88 were forfeited in
1998. The 645,463 options/SARs outstanding at December 31, 1998,
had a weighted-average exercise price of $34.28. Of those
outstanding at December 31, 1998, 113,155 options/SARs with
exercise prices ranging from $21.75 to $34.13 and a weighted-
average remaining life of eight years had a weighted-average
exercise price of $21.95, and 532,308 options/SARs with exercise
prices ranging from $35.88 to $57.44 and a weighted-average
remaining life of nine years had a weighted-average exercise price
of $36.90. Of those exercisable at December 31, 1998, 113,155
options/SARs with exercise prices ranging from $21.75 to $34.13 had
a weighted-average exercise price of $21.95, and 242 options/SARs
had an exercise price of $39.25. During 1997 420,479 options/SARs
were granted with a weighted-average exercise price of $21.83.
7,933 options and 193,275 SARs with an exercise price of $21.75
were exercised in 1997. 216,792 outstanding options/SARs with a
weighted-average exercise price of $21.87 were exercisable at
December 31, 1997. 2,479 outstanding options with a weighted-
average exercise price of $33.32 were not exercisable at December
31, 1997. We recorded compensation expense for options/SARs of
$9.2 million in 1998 and $4.9 million in 1997.
Our Long-term Executive Incentive Share Plan provides
participants cash awards if certain shareholder return criteria are
achieved. There were 108,577 performance shares outstanding at
December 31, 1998, and compensation expense for 1998 was $5.2
million.
Note 12. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of some of our
financial instruments included in our consolidated balance sheets
are shown in the following table. The fair values are based on the
quoted market prices for the same or similar issues of the same
remaining maturities.
December 31 1998 1998 1997 1997
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands)
Investments held in external
trust funds - classified as
available-for-sale $30,097 $30,230 $53,049 $53,708
Preferred stock subject
to mandatory redemption
requirements $25,000 $25,188 $25,000 $24,315
First mortgage bonds $793,157 $861,756 $822,626 $882,616
Pollution control notes $613,000 $631,421 $613,000 $625,149
The carrying amounts for cash and cash equivalents, commercial
paper and interest accrued approximate their estimated fair values
because they mature within one year.
Special deposits include restricted funds set aside for
preferred stock and long-term debt redemptions. The carrying
amount approximates fair value because the special deposits have
been invested in securities that mature within one year.
Note 13. Segment Information
Our two primary business segments are electric and natural
gas. Our electric business segment consists of electric generation,
transmission and distribution operations. Our natural gas business
segment consists of natural gas distribution, transportation and
storage operations in New York. Other includes our energy services
business, natural gas and propane air distribution operations
outside of New York, common corporate assets of $201 million in
1998, $139 million in 1997 and $105 million in 1996, and
intersegment eliminations. Selected financial information for each
of our business segments is presented in the following table.
<PAGE>
Natural Other
Year Electric Gas Operations Total
(Thousands)
1998
Operating Revenues $2,159,868 $305,881 $33,669 $2,499,418
Depreciation and
amortization $172,382 $15,497 $3,194 $191,073
Operating Income $446,359 $39,743 $(11,263) $474,839
Interest Charges, Net $106,195 $17,718 $1,644 $125,557
Federal Income Taxes $133,111 $7,638 $(3,573) $137,176
Net Income $191,460 $11,056 $(8,311) $194,205
Identifiable Assets $4,069,627 $575,088 $238,622 $4,883,337
Capital Spending $96,987 $32,268 $8,095 $131,350
1997
Operating Revenues $1,792,164 $337,825 $40,113 $2,170,102
Depreciation and
amortization $183,304 $15,255 $3,209 $201,768
Operating Income $380,344 $62,324 $(5,707) $436,961
Interest Charges, Net $104,569 $17,113 $1,517 $123,199
Federal Income Taxes $104,575 $15,212 $(2,074) $117,713
Net Income $154,315 $26,482 $(5,586) $175,211
Identifiable Assets $4,273,100 $588,773 $166,808 $5,028,681
Capital Spending $78,667 $45,240 $5,644 $129,551
1996
Operating Revenues $1,723,147 $344,385 $41,333 $2,108,865
Depreciation and
amortization $176,906 $12,495 $3,100 $192,501
Operating Income $400,262 $57,281 $(32,227) $425,316
Interest Charges, Net $108,696 $12,735 $1,298 $122,729
Federal Income Taxes $102,223 $16,822 $(11,102) $107,943
Net Income $167,201 $24,189 $(22,679) $168,711
Identifiable Assets $4,376,814 $550,196 $132,671 $5,059,681
Capital Spending $132,190 $82,625 $916 $215,731
Note 14. Commitments
Capital Spending
We have commitments in connection with our capital spending
program and estimate that spending, including nuclear fuel, will
approximate $140 million for 1999, $127 million for 2000 and
$150 million for 2001. Our capital spending program is expected to
be financed entirely with internally generated funds. The program
is subject to periodic review and revision. Our capital spending
will be primarily for the extension of service, necessary
improvements to existing facilities and environmental compliance
requirements.
Nonutility generator power purchase contracts
We expensed approximately $326 million in 1998, $324 million
in 1997 and $320 million in 1996 for NUG power, including
termination costs. We estimate that NUG power purchases will total
$358 million in 1999 and $376 million in 2000 and in 2001, unless
we are able to change the NUG contracts.
Note 15. Quarterly Financial Information (Unaudited)
Quarter ended March 31 June 30 Sep. 30 Dec. 31
(Thousands, except per share amounts)
1998 1998 1998 1998
Operating Revenues $637,630 $548,308 $698,705 $614,775
Operating Income $155,644 $87,664 $117,447 $114,084
Net Income $76,171 $29,353 $45,050 $43,631
Earnings Per Share, basic
and diluted $1.15 $.46 $.71 $.69
Dividends Per Share $.35 $.40 $.40 $.40
Average Common Shares
Outstanding 66,408 64,349 63,667 63,103
Common Stock Price (1)
High $40.50 $44.19 $51.38 $58.00
Low $33.06 $38.94 $39.88 $46.75
1997 1997 1997 1997
Operating Revenues $599,146 $479,684 $501,779 $589,493
Operating Income $165,728 $80,766 $81,401 $109,066
Net Income $79,662 $23,923 $25,929(2) $45,697
Earnings Per Share, basic
and diluted $1.15 $.35 $.38(2) $.68
Dividends Per Share $.35 $.35 $.35 $.35
Average Common Shares
Outstanding 69,353 68,279 67,503 67,504
Common Stock Price (1)
High $24.50 $22.50 $27.19 $35.75
Low $21.25 $20.63 $20.81 $25.75
(1) Our common stock is listed on the New York Stock Exchange. The
number of shareholders of record at December 31, 1998, was 33,792.
(2) Includes the effect of fees related to an unsolicited tender
offer that decreased net income by $17 million and earnings per share
by 24 cents.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors,
Energy East Corporation and Subsidiaries
Albany, New York
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income and retained
earnings and of cash flows present fairly, in all material
respects, the financial position of Energy East Corporation, "the
Company," and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. 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 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.
PricewaterhouseCoopers LLP
New York, New York
January 29, 1999
<PAGE>
<TABLE>
<CAPTION>
ENERGY EAST CORPORATION
SCHEDULE II - Consolidated Valuation and Qualifying Accounts
(Thousands)
Years Ended December 31, 1998, 1997 and 1996
<S> <C> <C> <C> <C> <C>
Beginning End
Classification of Year Additions Write-offs (a) Adjustments of Year
1998
Allowance for Doubtful
Accounts - Accounts
Receivable $6,801 $17,517 $(15,039) - $9,279(b)
Deferred Tax Asset
Valuation Allowance $1,611 $390 - - $2,001
1997
Allowance for Doubtful
Accounts - Accounts
Receivable $6,806 $17,345 $(17,350) - $6,801(b)
Deferred Tax Asset
Valuation Allowance $1,385 $226 - - $1,611
1996
Allowance for Doubtful
Accounts - Accounts
Receivable $6,785 $18,858 $(18,937) $100(c) $6,806(b)
Deferred Tax Asset
Valuation Allowance $2,852 $158 $(1,625) - $1,385
(a) Uncollectible accounts charged against the allowance, net of recoveries.
(b) Represents an estimate of the write-offs that will not be recovered in rates.
(c) Due to acquisition of KENETECH Energy Management, Inc. in 1996.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors, Energy East
Corporation and Subsidiaries
Albany, New York
Our audits of the consolidated financial statements referred to
in our report dated January 29, 1999, appearing in this annual
report of Form 10-K also included an audit of the financial
statement schedule listed in Item 14(a) of this Form 10-K. In
our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein
when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 29, 1999
<PAGE>
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure - None
PART III
Item 10. Directors and executive officers of the Registrant
Incorporated herein by reference to the information in Proposal 1 under
the captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in our Proxy Statement dated March 3, 1999. The
information regarding executive officers is on pages 14 and 15 of this report.
Item 11. Executive compensation
Incorporated herein by reference to the information in Proposal 1 under
the captions "Stock Performance Graph," "Executive Compensation," "Employment,
Change in Control and Other Arrangements," "Directors' Compensation" and
"Report of Executive Compensation and Succession Committee" in our Proxy
Statement dated March 3, 1999.
Item 12. Security ownership of certain beneficial owners and management
Incorporated herein by reference to the information in Proposal 1 under
the caption "Security Ownership of Management" in our Proxy Statement dated
March 3, 1999.
Item 13. Certain relationships and related transactions
Incorporated herein by reference to the information in Proposal 1 under
the caption "Election of Directors" in our Proxy Statement dated March 3, 1999.
PART IV
Item 14. Exhibits, financial statement schedules, and reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements
Included in Part II of this report:
a) Consolidated Balance Sheets as of December 31, 1998 and 1997
b) For the three years ended December 31, 1998:
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stock Equity
c) Notes to Consolidated Financial Statements
d) Report of Independent Accountants
2. Financial statement schedule
Included in Part II of this report:
For the three years ended December 31, 1998:
II. Consolidated Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
not required, are inapplicable or the required information is presented in the
Consolidated Financial Statements or notes thereto.
<PAGE>
3. Exhibits
(a)(1) The following exhibits are delivered with this report:
Exhibit No.
10-1 - Asset Purchase Agreement among Pennsylvania Electric Company, NGE
Generation, Inc., New York State Electric & Gas Corporation and
Mission Energy Westside, Inc. dated as of August 1, 1998.
10-2 - Asset Purchase Agreement among NGE Generation, Inc., New York
State Electric & Gas Corporation and AES NY, L.L.C. dated as of
August 3, 1998.
(A)10-36 - Restricted Stock Plan.
12 - Computation of Ratio of Earnings to Fixed Charges.
21 - Subsidiaries.
23 - Consent of PricewaterhouseCoopers LLP to incorporation by
reference into certain registration statements.
27 - Financial Data Schedule.
99-1 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
99-2 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees.
99-3 - Pro forma financial statements.
(a)(2) The following exhibits are incorporated herein by reference:
Exhibit No. Filed in As Exhibit No.
2-1 - Agreement and Plan of Share Exchange between New
York State Electric & Gas Corporation and the
Company - Registration No. 333-37997 . . . . . . . 2-1
3-1 - Restated Certificate of Incorporation of the
Company pursuant to Section 807 of the Business
Corporation Law filed in the Office of the
Secretary of State of the State of New York on
April 23, 1998 - Post-effective Amendment No. 1 to
Registration No. 033-54155. . . . . . . . . . . . . 4-1
3-2 - By-Laws of the Company as amended October 9, 1998 -
Company's 10-Q for the quarter ended September 30,
1998 - File No. 1-14766 . . . . . . . . . . . . . . 3-2
10-3 - Coal Sales Agreement dated December 21, 1983 between
New York State Electric & Gas Corporation and
Consolidation Coal Company - New York State Electric &
Gas Corporation's 10-K for the year ended December 31,
1993 - File No. 1-3103-2 . . . . . . . . . . . . . . 10-14
10-4 - Amendment No. 1 dated as of October 1, 1985 to the Coal
Sales Agreement dated December 21, 1983 between New
York State Electric & Gas Corporation and Consolidation
Coal Company - New York State Electric & Gas
Corporation's 10-K for the year ended December 31, 1986
- File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-11
<PAGE>
Exhibit No. Filed in As Exhibit No.
10-5 - Amendment No. 2 dated as of August 28, 1986 to the Coal
Sales Agreement dated December 21, 1983 between New
York State Electric & Gas Corporation and Consolidation
Coal Company - New York State Electric & Gas
Corporation's 10-K for the year ended December 31, 1986
- File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-12
10-6 - Coal Hauling Agreement dated as of March 9, 1983 between
Somerset Railroad Corporation and New York State
Electric & Gas Corporation - Registration No. 2-82352. 10
(A)10-7 - Retirement Plan for Directors - New York State
Electric & Gas Corporation's 10-K for the year
ended December 31, 1991 - File No. 1-3103-2 . . . . . 10-26
(A)10-8 - Retirement Plan for Directors Amendment No. 1 -
New York State Electric & Gas Corporation's 10-K for
the year ended December 31, 1993 - File No. 1-3103-2. . 10-21
(A)10-9 - Retirement Plan for Directors Amendment No. 2 -
New York State Electric & Gas Corporation's 10-K for
the year ended December 31, 1995 - File No. 1-3103-2. . 10-15
(A)10-10 - Retirement Plan for Directors Amendment No. 3 -
New York State Electric & Gas Corporation's 10-K for
the year ended December 31, 1996 - File No. 1-3103-2. . 10-16
(A)10-11 - Retirement Plan for Directors Amendment No. 4 -
New York State Electric & Gas Corporation's 10-Q for
the quarter ended June 30, 1998 - File No.
1-3103-2 . . . . . . . . . . . . . . . . . . . . . . . 10-46
(A)10-12 - Form of Deferred Compensation Plan for Directors -
New York State Electric & Gas Corporation's 10-K for
the year ended December 31, 1989 -File No. 1-3103-2 . . 10-22
(A)10-13 - Deferred Compensation Plan for Directors Amendment
No. 1 - New York State Electric & Gas Corporation's
10-K for the year ended December 31, 1993 - File No.
1-3103-2 . . . . . . . . . . . . . . . . . . . . . . . 10-23
(A)10-14 - Amended and Restated Director Share Plan - New York
State Electric & Gas Corporation's 10-Q for the
quarter ended June 30, 1998 - File No. 1-3103-2 . . . . 10-47
(A)10-15 - Deferred Compensation Plan for the Director Share
Plan - New York State Electric & Gas Corporation's
10-K for the year ended December 31, 1996 - File No.
1-3103-2. . . . . . . . . . . . . . . . . . . . . . . . 10-20
(A)10-16 - Amended and Restated Supplemental Executive
Retirement Plan - New York State Electric & Gas
Corporation's 10-Q for the quarter ended June 30,
1998 - File No. 1-3103-2 . . . . . . . . . . . . . . . 10-48
(A)10-17 - Amended and Restated Annual Executive Incentive Plan
- New York State Electric & Gas Corporation's 10-Q
for the quarter ended June 30, 1998 - File No.
1-3103-2. . . . . . . . . . . . . . . . . . . . . . . . 10-49
(A)10-18 - Amended and Restated Long-Term Executive Incentive
Share Plan - New York State Electric & Gas
Corporation's 10-Q for the quarter ended June 30, 1998
- File No. 1-3103-2 . . . . . . . . . . . . . . . . . . 10-50
<PAGE>
Exhibit No. Filed in As Exhibit No.
(A)10-19 - Long-Term Executive Incentive Share Plan Amendment No. 1
- New York State Electric & Gas Corporation's 10-Q for
the quarter ended September 30, 1998 - File No.
1-3103-2 . . . . . . . . . . . . . . . . . . . . . . . 10-55
(A)10-20 - Long-Term Executive Incentive Share Plan Deferred
Compensation Agreement - New York State Electric & Gas
Corporation's 10-K for the year ended December 31,
1995 - File No. 1-3103-2. . . . . . . . . . . . . . . . 10-44
(A)10-21 - Form of Severance Agreement for Vice Presidents - New
York State Electric & Gas Corporation's 10-K for the
year ended December 31, 1993 - File No. 1-3103-2 . . . 10-48
(A)10-22 - Form of Severance Agreement for Vice Presidents
Amendment No. 1 - New York State Electric & Gas
Corporation's 10-K for the year ended December 31,
1995 - File No. 1-3103-2. . . . . . . . . . . . . . . . 10-52
(A)10-23 - Form of Severance Agreement for Vice Presidents
Amendment No. 2 - New York State Electric & Gas
Corporation's Schedule 14D-9, dated July 30, 1997 . . . 6
(A)10-24 - Form of Severance Agreement for Vice Presidents
Amendment No. 3 - New York State Electric & Gas
Corporation's Schedule 14D-9, dated July 30, 1997 . . . 7
(A)10-25 - Form of Amendment to the Company's Severance
Agreements - New York State Electric & Gas
Corporation's 10-Q for the quarter ended June 30,
1998 - File No. 1-3103-2 . . . . . . . . . . . . . . . 10-51
(A)10-26 - Employee Invention and Confidentiality Agreement
(Existing Executive) - New York State Electric &
Gas Corporation's Schedule 14D-9, dated July 30, 1997 . 9
(A)10-27 - Employee Invention and Confidentiality Agreement
(Existing Executive) Amendment No. 1 - New York
State Electric & Gas Corporation's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . . . . . . . . 10
(A)10-28 - Deferred Compensation Plan for Salaried Employees -
New York State Electric & Gas Corporation's 10-K for
the year ended December 31, 1995 - File No. 1-3103-2. . 10-53
(A)10-29 - Amended and Restated Employment Agreement for W.W.
von Schack - New York State Electric & Gas
Corporation's 10-Q for the quarter ended June 30,
1998 - File No. 1-3103-2 . . . . . . . . . . . . . . . 10-52
(A)10-30 - Amended and Restated Employment Agreement for M.I.
German - New York State Electric & Gas Corporation's
10-Q for the quarter ended June 30, 1998 - File
No. 1-3103-2 . . . . . . . . . . . . . . . . . . . . . 10-53
(A)10-31 - Amended and Restated Employment Agreement for K.M.
Jasinski - New York State Electric & Gas Corporation's
10-Q for the quarter ended June 30, 1998 - File No.
1-3103-2 . . . . . . . . . . . . . . . . . . . . . . . 10-54
(A)10-32 - 1997 Stock Option Plan - New York State Electric & Gas
Corporation's Schedule 14D-9, dated July 30, 1997 . . . 20
Exhibit No. Filed in As Exhibit No.
(A)10-33 - 1997 Stock Option Plan Amendment No. 1 - Company's
10-Q for the quarter ended June 30, 1998 - File No.
1-14766 . . . . . . . . . . . . . . . . . . . . . . . . 10-1
(A)10-34 - Non-Statutory Stock Option Award Agreement - New York
State Electric & Gas Corporation's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . . . . . . . . 21
(A)10-35 - Non-Statutory Stock Option Award Agreement Amendment
No. 1 - Company's 10-Q for the quarter ended June 30,
1998 - File No. 1-14766 . . . . . . . . . . . . . . . . 10-2
_____________________________
(A) Management contract or compensatory plan or arrangement.
The company agrees to furnish to the Commission, upon request, a copy of
the Credit Agreement dated as of March 9, 1983, as amended, between Somerset
Railroad Corporation and The Chase Manhattan Bank. The total amount of
securities authorized under such agreement does not exceed 10% of the total
assets of the company and its subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ENERGY EAST CORPORATION
Date: March 29, 1999 By Wesley W. von Schack
Wesley W. von Schack
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER,
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER
Date: March 29, 1999 By Wesley W. von Schack
Wesley W. von Schack
Chairman, President, Chief
Executive Officer and Director
<PAGE>
Signatures (Cont'd)
Date: March 29, 1999 By Richard Aurelio
Richard Aurelio
Director
Date: March 29, 1999 By James A. Carrigg
James A. Carrigg
Director
Date: March 29, 1999 By Alison P. Casarett
Alison P. Casarett
Director
Date: March 29, 1999 By Joseph J. Castiglia
Joseph J. Castiglia
Director
Date: March 29, 1999 By Lois B. DeFleur
Lois B. DeFleur
Director
Date: March 29, 1999 By Everett A. Gilmour
Everett A. Gilmour
Director
<PAGE>
Signatures (Cont'd)
Date: March 29, 1999 By Paul L. Gioia
Paul L. Gioia
Director
Date: March 29, 1999 By John M. Keeler
John M. Keeler
Director
Date: March 29, 1999 By Ben E. Lynch
Ben E. Lynch
Director
Date: March 29, 1999 By Alton G. Marshall
Alton G. Marshall
Director
Date: March 29, 1999 By Walter G. Rich
Walter G. Rich
Director
<PAGE>
EXHIBIT INDEX
*2-1 - Agreement and Plan of Share Exchange between New
York State Electric & Gas Corporation and the
Company.
*3-1 - Restated Certificate of Incorporation of the
Company pursuant to Section 807 of the Business
Corporation Law filed in the Office of the
Secretary of State of the State of New York on
April 23, 1998.
*3-2 - By-Laws of the Company as amended October 9, 1998.
10-1 - Asset Purchase Agreement among Pennsylvania Electric
Company, NGE Generation, Inc., New York State
Electric & Gas Corporation and Mission Energy Westside,
Inc. dated as of August 1, 1998.
10-2 - Asset Purchase Agreement among NGE Generation, Inc.,
New York State Electric & Gas Corporation and AES NY,
L.L.C. dated as of August 3, 1998.
*10-3 - Coal Sales Agreement dated December 21, 1983 between
New York State Electric & Gas Corporation and
Consolidation Coal Company.
*10-4 - Amendment No. 1 dated as of October 1, 1985 to the Coal
Sales Agreement dated December 21, 1983 between New
York State Electric & Gas Corporation and Consolidation
Coal Company.
*10-5 - Amendment No. 2 dated as of August 28, 1986 to the Coal
Sales Agreement dated December 21, 1983 between New
York State Electric & Gas Corporation and Consolidation
Coal Company.
*10-6 - Coal Hauling Agreement dated as of March 9, 1983 between
Somerset Railroad Corporation and New York State
Electric & Gas Corporation.
*(A)10-7 - Retirement Plan for Directors.
*(A)10-8 - Retirement Plan for Directors Amendment No. 1.
*(A)10-9 - Retirement Plan for Directors Amendment No. 2.
*(A)10-10 - Retirement Plan for Directors Amendment No. 3.
*(A)10-11 - Retirement Plan for Directors Amendment No. 4.
*(A)10-12 - Form of Deferred Compensation Plan for Directors.
*(A)10-13 - Deferred Compensation Plan for Directors Amendment
No. 1.
*(A)10-14 - Amended and Restated Director Share Plan.
*(A)10-15 - Deferred Compensation Plan for the Director Share
Plan.
*(A)10-16 - Amended and Restated Supplemental Executive
Retirement Plan.
*(A)10-17 - Amended and Restated Annual Executive Incentive Plan.
*(A)10-18 - Amended and Restated Long-Term Executive Incentive
Share Plan.
*(A)10-19 - Long-Term Executive Incentive Share Plan Amendment No. 1.
*(A)10-20 - Long-Term Executive Incentive Share Plan Deferred
Compensation Agreement.
*(A)10-21 - Form of Severance Agreement for Vice Presidents.
*(A)10-22 - Form of Severance Agreement for Vice Presidents Amendment
No. 1.
<PAGE>
EXHIBIT INDEX
*(A)10-23 - Form of Severance Agreement for Vice Presidents
Amendment No. 2.
*(A)10-24 - Form of Severance Agreement for Vice Presidents
Amendment No. 3.
*(A)10-25 - Form of Amendment to the Company's Severance
Agreements.
*(A)10-26 - Employee Invention and Confidentiality Agreement
(Existing Executive).
*(A)10-27 - Employee Invention and Confidentiality Agreement
(Existing Executive) Amendment No. 1.
*(A)10-28 - Deferred Compensation Plan for Salaried Employees.
*(A)10-29 - Amended and Restated Employment Agreement for W.W.
von Schack.
*(A)10-30 - Amended and Restated Employment Agreement for M.I.
German.
*(A)10-31 - Amended and Restated Employment Agreement for K.M.
Jasinski.
*(A)10-32 - 1997 Stock Option Plan.
*(A)10-33 - 1997 Stock Option Plan Amendment No. 1.
*(A)10-34 - Non-Statutory Stock Option Award Agreement.
*(A)10-35 - Non-Statutory Stock Option Award Agreement Amendment No. 1.
(A)10-36 - Restricted Stock Plan.
12 - Computation of Ratio of Earnings to Fixed Charges.
21 - Subsidiaries.
23 - Consent of PricewaterhouseCoopers LLP to incorporation
by reference into certain registration statements.
27 - Financial Data Schedule.
99-1 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
99-2 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees.
99-3 - Pro forma financial statements.
_____________________________
* Incorporated by reference.
(A) Management contract or compensatory plan or arrangement.
Exhibit 10-1
HOMER CITY ELECTRIC GENERATING STATION
ASSET PURCHASE AGREEMENT
BY AND AMONG
PENNSYLVANIA ELECTRIC COMPANY, NGE GENERATION, INC., and NEW YORK
STATE ELECTRIC & GAS CORPORATION as SELLERS,
MISSION ENERGY WESTSIDE, INC., as BUYER
Dated as of August 1, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Definitions. . . . . . . . . . . . . . . . . . . . 1
1.2 Certain Interpretive Matters . . . . . . . . . . .13
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets . . . . . . . . . . . . . . . .13
2.2 Excluded Assets. . . . . . . . . . . . . . . . . .15
2.3 Assumed Liabilities. . . . . . . . . . . . . . . .16
2.4 Excluded Liabilities . . . . . . . . . . . . . . .18
2.5 Control of Litigation. . . . . . . . . . . . . . .20
ARTICLE III
THE CLOSING
3.1 Closing. . . . . . . . . . . . . . . . . . . . . .20
3.2 Payment of Purchase Price. . . . . . . . . . . . .21
3.3 Adjustment to Purchase Price . . . . . . . . . . .21
3.4 Allocation of Purchase Price . . . . . . . . . . .22
3.5 Prorations . . . . . . . . . . . . . . . . . . . .23
3.6 Deliveries by Sellers. . . . . . . . . . . . . . .24
3.7 Deliveries by Buyer. . . . . . . . . . . . . . . .25
3.8 Ancillary Agreements . . . . . . . . . . . . . . .26
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
4.1 Incorporation; Qualification . . . . . . . . . . .26
4.2 Authority Relative to this Agreement . . . . . . .26
4.3 Consents and Approvals; No Violation . . . . . . .26
4.4 Insurance. . . . . . . . . . . . . . . . . . . . .27
4.5 Title and Related Matters. . . . . . . . . . . . .28
4.6 Real Property Leases . . . . . . . . . . . . . . .28
4.7 Environmental Matters. . . . . . . . . . . . . . .28
4.8 Labor Matters. . . . . . . . . . . . . . . . . . .29
4.9 Benefit Plans: ERISA . . . . . . . . . . . . . . .29
4.10 Real Property. . . . . . . . . . . . . . . . . . .30
4.11 Condemnation . . . . . . . . . . . . . . . . . . .30
4.12 Contracts and Leases . . . . . . . . . . . . . . .30
4.13 Legal Proceedings, etc.. . . . . . . . . . . . . .31
4.14 Permits. . . . . . . . . . . . . . . . . . . . . .31
4.15 Taxes. . . . . . . . . . . . . . . . . . . . . . .31
4.16 Intellectual Property. . . . . . . . . . . . . . .32
4.17 Capital Expenditures . . . . . . . . . . . . . . .32
4.18 Compliance with Laws . . . . . . . . . . . . . . .32
4.19 Disclaimers Regarding Purchased Assets . . . . . .33
4.20 Transmission . . . . . . . . . . . . . . . . . . .33
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization . . . . . . . . . . . . . . . . . . .34
5.2 Authority Relative to this Agreement . . . . . . .34
5.3 Consents and Approvals; No Violation . . . . . . .34
5.4 Availability of Funds. . . . . . . . . . . . . . .35
5.5 Financial Representations. . . . . . . . . . . . .35
5.6 Legal Proceedings. . . . . . . . . . . . . . . . .35
5.7 No Knowledge of Sellers' Breach. . . . . . . . . .35
5.8 Qualified Buyer. . . . . . . . . . . . . . . . . .36
5.9 Inspections. . . . . . . . . . . . . . . . . . . .36
5.10 WARN Act . . . . . . . . . . . . . . . . . . . . .36
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased
Assets . . . . . . . . . . . . . . . . . . . . . .36
6.2 Access to Information. . . . . . . . . . . . . . .38
6.3 Public Statements. . . . . . . . . . . . . . . . .41
6.4 Expenses . . . . . . . . . . . . . . . . . . . . .41
6.5 Further Assurances . . . . . . . . . . . . . . . .41
6.6 Consents and Approvals . . . . . . . . . . . . . .43
6.7 Fees and Commissions . . . . . . . . . . . . . . .45
6.8 Tax Matters. . . . . . . . . . . . . . . . . . . .45
6.9 Advice of Changes. . . . . . . . . . . . . . . . .46
6.10 Employees. . . . . . . . . . . . . . . . . . . . .47
6.11 Risk of Loss . . . . . . . . . . . . . . . . . . .51
6.12 Additional Covenants of Buyer. . . . . . . . . . .52
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer . . . . . . . .52
7.2 Conditions to Obligations of Sellers . . . . . . .54
<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. . . . . . . . . . . . . . . . . .57
8.2 Defense of Claims. . . . . . . . . . . . . . . . .59
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination. . . . . . . . . . . . . . . . . . . .61
9.2 Procedure and Effect of No-Default Termination . .63
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Several Liability of Each Seller . . . . . . . . .63
10.2 Amendment and Modification . . . . . . . . . . . .63
10.3 Waiver of Compliance; Consents . . . . . . . . . .63
10.4 No Survival. . . . . . . . . . . . . . . . . . . .63
10.5 Notices. . . . . . . . . . . . . . . . . . . . . .64
10.6 Assignment . . . . . . . . . . . . . . . . . . . .65
10.7 Governing Law. . . . . . . . . . . . . . . . . . .66
10.8 Counterparts . . . . . . . . . . . . . . . . . . .66
10.9 Interpretation . . . . . . . . . . . . . . . . . .66
10.10 Schedules and Exhibits . . . . . . . . . . . . . .66
10.11 Entire Agreement . . . . . . . . . . . . . . . . .66
10.12 Bulk Sales Laws . . . . . . . . . . . . . . . . .67
10.13 U.S. Dollars . . . . . . . . . . . . . . . . . . .67
10.14 Zoning Classification . . . . . . . . . . . . . .67
10.15 Sewage Facilities . . . . . . . . . . . . . . . .67
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Easement and Attachment Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Special Warranty Deed
Exhibit G Form of Transition Power Purchase Agreement
Exhibit H Guaranty
SCHEDULES
1.1(69) Permitted Encumbrances
1.1(97) Transferable Permits (both environmental and non-
environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed
to Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Description of Transmission and other Assets not
included in Conveyance
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Sellers' Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.l0 Description of Real Property
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable
Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.10(b) Schedule of Non-Union Employees
6.10(d) IBEW Collective Bargaining Agreement
6.10(h) Schedule of Severance Benefits
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of August 1, 1998, by and
among Pennsylvania Electric Company, a Pennsylvania corporation
("Penelec"), New York State Electric & Gas Corporation, a New
York corporation ("NYSEG"), NGE Generation, Inc., a New York
corporation ("NGE"), (Penelec, NGE and NYSEG, collectively,
"Sellers"), and Mission Energy Westside, Inc., a California
corporation ("Buyer"). Sellers and Buyer are referred to
individually as a "Party," and collectively as the "Parties."
W I T N E S S E T H
WHEREAS, each of Penelec and NGE owns as tenant-in-common a
50% undivided interest in the Homer City Electric Generating
Station (the "Facility") located near Indiana, Pennsylvania, and
certain facilities and other assets associated therewith and
ancillary thereto; and
WHEREAS, Penelec and NGE have heretofore agreed jointly to
divest themselves of the Facility;
WHEREAS, Buyer, a wholly owned subsidiary of Edison Mission
Energy, a California corporation ("Buyer Parent", and together
with Buyer, "Buyer Entities") desires to purchase and assume, and
Penelec and NGE desire to sell and assign, the Purchased Assets
(as defined in Section 2.1 below) and certain associated
liabilities, upon the terms and conditions hereinafter set forth
in this Agreement;
WHEREAS, to induce Sellers to execute this Agreement, Buyer
Parent is executing and delivering a certain Guaranty dated the
date hereof ("Guaranty") in favor of Sellers.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth,
and intending to be legally bound hereby, the Parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following
terms have the meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange
Act of 1934.
(2) "Agreement" means this Asset Purchase Agreement together
with the Schedules and Exhibits hereto, as the same may be from
time to time amended.
(3) "Ancillary Agreements" means the Interconnection
Agreement, the Easement and Attachment Agreement and the
Transition Power Purchase Agreements, as the same may be from
time to time amended.
(4) "Assignment and Assumption Agreement" means the
Assignment and Assumption Agreement between Sellers and Buyer
substantially in the form of Exhibit A hereto, by which Sellers
shall subject to the terms and conditions hereof, assign the
Sellers' Agreements, the Real Property Leases, certain intangible
assets and other Purchased Assets to Buyer and whereby Buyer
shall assume the Assumed Liabilities.
(5) "Assumed Liabilities" has the meaning set forth in
Section 2.3.
(6) "Benefit Plans" has the meaning set forth in Section
4.9.
(7) "Bill of Sale" means the Bill of Sale, substantially in
the form of Exhibit B hereto, to be delivered at the Closing,
with respect to the Tangible Personal Property included in the
Purchased Assets transferred to Buyer at the Closing.
(8) "Buyer Material Adverse Effect" has the meaning set
forth in Section 5.3(a).
(9) "Business Day" shall mean any day other than Saturday,
Sunday and any day on which banking institutions in New York
State or the Commonwealth of Pennsylvania are authorized by law
or other governmental action to close.
(10) "Buyer Benefit Plans" has the meaning set forth in
Section 6.10(f).
(11) "Buyer Indemnitee" has the meaning set forth in Section
8.1(b).
(12) "Buyer Required Regulatory Approvals" has the meaning
set forth in Section 5.3(b).
(13) "Capital Expenditures" has the meaning set forth in
Section 3.3(a).
(14) "CERCLA" means the Federal Comprehensive Environmental
Response, Compensation, and Liability Act, as amended.
(15) "Closing" has the meaning set forth in Section 3.1.
(16) "Closing Adjustment" has the meaning set forth in
Section 3.3(b).
(17) "Closing Date" has the meaning set forth in Section
3.1.
(18) "COBRA" means the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(19) "Code" means the Internal Revenue Code of 1986, as
amended.
(20) "Commercially Reasonable Efforts" means efforts which
are reasonably within the contemplation of the Parties at the
time of executing this Agreement and which do not require the
performing Party to expend any funds other than expenditures
which are customary and reasonable in transactions of the kind
and nature contemplated by this Agreement in order for the
performing Party to satisfy its obligations hereunder.
(21) "Confidentiality Agreement" means the Confidentiality
Agreement, dated April 1, 1998, by and among Sellers and Buyer
Parent.
(22) "Direct Claim" has the meaning set forth in Section
8.2(c).
(23) "Easements" means, with respect to the Purchased
Assets, the easements and access rights to be granted by Buyer to
Penelec and NYSEG pursuant to the Easement and Attachment
Agreement, including, without limitation, easements authorizing
access, use, maintenance, construction, repair, replacement and
other activities by Penelec and NYSEG, as further described in
the Easement and Attachment Agreement.
(24) "Easement and Attachment Agreement" means the Easement,
License and Attachment Agreement between Buyer, Penelec and
NYSEG, in the form of Exhibit C hereto, executed on the date
hereof, whereby Buyer will provide Penelec and NYSEG with
Easements with respect to the Real Property transferred to Buyer
and whereby Penelec and NYSEG will provide Buyer with certain
attachment rights with respect to certain real property owned by
Penelec and NYSEG.
(25) "Emission Allowance" means all present and future
authorizations to emit specified units of pollutants or Hazardous
Substances, which units are established by the Governmental
Authority with jurisdiction over the Plant under (i) an air
pollution control and emission reduction program designed to
mitigate global warming, interstate or intra-state transport of
air pollutants; (ii) a program designed to mitigate impairment of
surface waters, watersheds, or groundwater; or (iii) any
pollution reduction program with a similar purpose. Allowances
include allowances, as described above, regardless as to whether
the Governmental Authority establishing such Allowances
designates such allowances by a name other than "allowances."
(26) "Emission Reduction Credits" means credits, in units
that are established by the Governmental Authority with
jurisdiction over the Plant that has obtained the credits,
resulting from reductions in the emissions of air pollutants from
an emitting source or facility (including, without limitation,
and to the extent allowable under applicable law, reductions from
shut-downs or control of emissions beyond that required by
applicable law) that: (i) have been identified by the PaDEP as
complying with applicable Pennsylvania law governing the
establishment of such credits (including, without limitation,
that such emissions reductions are enforceable, permanent,
quantifiable and surplus) and listed in the Emissions Reduction
Credit Registry maintained by the PaDEP or with respect to which
such identification and listing are pending; or (ii) have been
certified by any other applicable Governmental Authority as
complying with the law and regulations governing the
establishment of such credits (including, without limitation,
certification that such emissions reductions are enforceable,
permanent, quantifiable and surplus). The term includes Emission
Reduction Credits that have been approved by the PaDEP and are
awaiting USEPA approval. The term also includes certified air
emissions reductions, as described above, regardless as to
whether the Governmental Authority certifying such reductions
designates such certified air emissions reductions by a name
other than "emission reduction credits."
(27) "Encumbrances" means any mortgages, pledges, liens,
security interests, conditional and installment sale agreements,
activity and use limitations, conservation easements, deed
restrictions, encumbrances and charges of any kind.
(28) "Environmental Claim" means any and all pending and/or
threatened administrative or judicial actions, suits, orders,
claims, liens, notices, notices of violations, investigations,
complaints, requests for information, proceedings, or other
written communication, whether criminal or civil, pursuant to or
relating to any applicable Environmental Law by any person
(including, but not limited to, any Governmental Authority,
private person and citizens' group) based upon, alleging,
asserting, or claiming any actual or potential (a) violation of,
or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs,
cleanup costs, removal costs, remedial costs, response costs,
natural resource damages, property damage, personal injury,
fines, or penalties arising out of, based on, resulting from, or
related to the presence, Release, or threatened Release into the
environment of any Hazardous Substances at any location related
to the Purchased Assets, including, but not limited to, any off-
Site location to which Hazardous Substances, or materials
containing Hazardous Substances, were sent for handling, storage,
treatment, or disposal.
(29) "Environmental Condition" means the presence or Release
to the environment, whether at the Site or at an off-Site
location, of Hazardous Substances, including any migration of
those Hazardous Substances through air, soil or groundwater to or
from the Site or any off-Site location regardless of when such
presence or Release occurred or is discovered.
(30) "Environmental Laws" means all Federal, state and
local, provincial and foreign, civil and criminal laws,
regulations, rules, ordinances, codes, decrees, judgments,
directives, or judicial or administrative orders relating to
pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws
relating to Releases or threatened Releases of Hazardous
Substances (including, without limitation, Releases to ambient
air, surface water, groundwater, land, surface and subsurface
strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport,
disposal or handling of Hazardous Substances. "Environmental
Laws" include, without limitation, CERCLA, the Hazardous
Materials Transportation Act (49 U.S.C. sec. 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. sec. 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. sec.
1251 et seq.), the Clean Air Act (42 U.S.C. sec. 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. sec. 2601 et seq.),
the Oil Pollution Act (33 U.S.C. sec. 2701 et seq.), the
Emergency Planning and Community Right-to-Know Act (42 U.S.C.
sec. 11001 et seq.), the Occupational Safety and Health Act (29
U.S.C. sec. 651 et seq.),the Pennsylvania Hazardous Sites Cleanup
Act (35 P.S. par. 6020.101 et seq.), the Pennsylvania Solid Waste
Management Act (35 P.S. par. 6018.101 et seq.), the Pennsylvania
Clean Stream Law (35 P.S. par. 691.1 et seq. ) and all other
state laws analogous to any of the above.
(31) "Environmental Permits" has the meaning set forth in
Section 4.7(a).
(32) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(33) "ERISA Affiliate" has the meaning set forth in Section
2.4(j).
(34) "ERISA Affiliate Plans" has the meaning set forth in
Section 2.4(j).
(35) "Estimated Adjustment" has the meaning set forth in
Section 3.3(b).
(36) "Estimated Closing Statement" has the meaning set forth
in Section 3.3(b).
(37) "Excluded Assets" has the meaning set forth in Section
2.2.
(38) "Excluded Liabilities" has the meaning set forth in
Section 2.4.
(39) "Facilities Act" has the meaning set forth in Section
10.15.
(40) "FERC" means the Federal Energy Regulatory Commission
or any successor agency thereto.
(41) "FIRPTA Affidavit" means the Foreign Investment in Real
Property Tax Act Certification and Affidavit, substantially in
the form of Exhibit D hereto.
(42) "Genco" means GPU Generation, Inc., a Pennsylvania
corporation and wholly-owned subsidiary of GPU.
(43) "Good Utility Practices" mean any of the practices,
methods and acts engaged in or approved by a significant portion
of the electric utility industry during the relevant time period,
or any of the practices, methods or acts which, in the exercise
of reasonable judgment in light of the facts known at the time
the decision was made, could have been expected to accomplish the
desired result at a reasonable cost consistent with good business
practices, reliability, safety and expedition. Good Utility
Practices are not intended to be limited to the optimum
practices, methods or acts to the exclusion of all others, but
rather to be acceptable practices, methods or acts generally
accepted in the industry.
(44) "Governmental Authority" means any federal, state,
local or other governmental, regulatory or administrative agency,
commission, department, board, or other governmental subdivision,
court, tribunal, arbitrating body or other governmental
authority.
(45) "GPU" means GPU, Inc., a Pennsylvania corporation and
parent company of Penelec.
(46) "Hazardous Substances" means (a) any petrochemical or
petroleum products, oil or coal ash, radioactive materials, radon
gas, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid which may contain levels of
polychlorinated biphenyls; (b) any chemicals, materials or
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials,"
"hazardous constituents," "restricted hazardous materials,"
"extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of
similar meaning and regulatory effect under any applicable
Environmental Law; and (c) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated
by any applicable Environmental Law.
(47) "HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(48) "IBEW" means Local 459 of the International Brotherhood
of Electrical Workers.
(49) "IBEW Collective Bargaining Agreement" has the meaning
set forth in Section 6.10(d).
(50) "Income Tax" means any federal, state, local or foreign
Tax (a) based upon, measured by or calculated with respect to net
income, profits or receipts (including, without limitation,
capital gains Taxes and minimum Taxes) or (b) based upon,
measured by or calculated with respect to multiple bases
(including, without limitation, corporate franchise taxes) if one
or more of the bases on which such Tax may be based, measured by
or calculated with respect to, is described in clause (a), in
each case together with any interest, penalties, or additions to
such Tax.
(51) "Indemnifiable Loss" has the meaning set forth in
Section 8.1(a).
(52) "Indemnifying Party" has the meaning set forth in
Section 8.1(e).
(53) "Indemnitee" has the meaning set forth in Section
8.1(d).
(54) "Independent Accounting Firm" means such independent
accounting firm of national reputation as is mutually appointed
by Sellers and Buyer.
(55) "Inspection" means all tests, reviews, examinations,
inspections, investigations, verifications, samplings and similar
activities conducted by Buyer or its agents or Representatives
with respect to the Purchased Assets prior to the Closing.
(56) "Intellectual Property" means all patents and patent
rights, trademarks and trademark rights, inventions, copyrights
and copyright rights owned by the Sellers and necessary for the
operation and maintenance of the Purchased Assets, and all
pending applications for registrations of patents, trademarks,
and copyrights, as set forth as part of Schedule 2.1(l)
(57) "Interconnection Agreement" means the Interconnection
Agreement, between Penelec, NYSEG and Buyer, in the form of
Exhibit E hereto, executed on the date hereof, under which
Penelec and NYSEG will provide Buyer with interconnection service
to certain of their respective transmission facilities and
whereby Buyer will provide Penelec and NYSEG with continuing
access to certain of the Purchased Assets after the Closing Date.
(58) "Inventories" means coal, fuel oil or alternative fuel
inventories, limestone, materials, spare parts, consumable
supplies and chemical and gas inventories relating to the
operation of the Plant located at, or in transit to, the Plant.
(59) "Knowledge" means the actual knowledge of the corporate
officers or managerial representatives of the specified Person
charged with responsibility for the particular function as of the
date of the this Agreement, or, with respect to any certificate
delivered pursuant to this Agreement, the date of delivery of the
certificate.
(60) "Material Adverse Effect" means any change in, or
effect on the Purchased Assets that is materially adverse to the
operations or condition (financial or otherwise) of the Purchased
Assets, taken as a whole, other than: (a) any change affecting
the international, national, regional or local electric industry
as a whole and not Sellers specifically and exclusively; (b) any
change or effect resulting from changes in the international,
national, regional or local wholesale or retail markets for
electric power; (c) any change or effect resulting from changes
in the international, national, regional or local markets for any
fuel used in connection with the Purchased Assets; (d) any change
or effect resulting from, changes in the North American,
national, regional or local electric transmission systems or
operations thereof; (e) any materially adverse change in or
effect on the Purchased Assets which is cured (including by the
payment of money) by the Sellers before the Termination Date; (f)
any order of any court or Governmental Authority or legislature
applicable to providers of generation, transmission or
distribution of electricity generally that imposes restrictions,
regulations or other requirements thereon; and (g) any change or
effect resulting from action or inaction by a Governmental
Authority with respect to an independent system operator or
retail access in Pennsylvania or New York.
(61) "Mine Indemnities" means the indemnification agreements
included in (x) the Termination Agreement, dated as of
February 11, 1993, among NYSEG, Penelec, The Helen Mining
Company, The Valley Camp Coal Company and Quaker State
Corporation and (y) Amendment No. 5 to the Coal Sales Agreement,
dated November 22, 1994, among NYSEG, Penelec, Helvetia Coal
Company and Rochester & Pittsburgh Coal Company.
(62) "Mines" means the Helen and Helvetia coal mines and
associated facilities which are located on the Real Property.
(63) "Non-Union Employees" has the meaning as set forth in
Section 6.10(b).
(64) "NYDEC" means the New York Department of Environmental
Conservation and any successor agency thereto.
(65) "NYPSC" means the Public Service Commission of the
State of New York and any successor agency thereto.
(66) "PaPUC" means the Pennsylvania Public Utility
Commission and any successor agency thereto.
(67) "PaDEP" means the Pennsylvania Department of
Environmental Protection and any successor agency thereto.
(68) "Permits" has the meaning set forth in Section 4.14.
(69) "Permitted Encumbrances" means: (i) the Easements;
(ii) those exceptions to title to the Purchased Assets listed in
Schedule 4.5 and those Encumbrances set forth in Schedule
1.1(69); (iii) statutory liens for Taxes or other governmental
charges or assessments not yet due or delinquent or the validity
of which is being contested in good faith by appropriate
proceedings provided that the aggregate amount being so contested
does not exceed $500,000; (iv) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the
ordinary course of business relating to obligations as to which
there is no default on the part of the Sellers or the validity of
which are being contested in good faith, and which do not,
individually or in the aggregate, exceed $500,000; (v) zoning,
entitlement, conservation restriction and other land use and
environmental regulations by Governmental Authorities; and (vi)
such other liens, imperfections in or failure of title, charges,
easements, restrictions and Encumbrances which do not materially,
individually or in the aggregate, detract from the value of the
Purchased Assets as currently used or materially interfere with
the present use of the Purchased Assets and neither secure
indebtedness, nor individually or in the aggregate create a
Material Adverse Effect.
(70) "Person" means any individual, partnership, limited
liability company, joint venture, corporation, trust,
unincorporated organization, or governmental entity or any
department or agency thereof.
(71) "Plant" means the three-unit coal-fired generating
station and related assets as more fully identified on Schedule
2.1 attached hereto.
(72) "Post-Closing Adjustment" has the meaning set forth in
Section 3.3(c).
(73) "Post-Closing Statement" has the meaning set forth in
Section 3.3(c).
(74) "Proposed Post-Closing Adjustment" has the meaning set
forth in Section 3.3(c).
(75) "Proprietary Information" of a Party means all
information about the Party or its Affiliates, including their
respective properties or operations, furnished to the other Party
or its Representatives by the Party or its Representatives, after
the date hereof, regardless of the manner or medium in which it
is furnished. Proprietary Information does not include
information that: (a) is or becomes generally available to the
public, other than as a result of a disclosure by the other Party
or its Representatives; (b) was available to the other Party on a
nonconfidential basis prior to its disclosure by the Party or its
Representatives; (c) becomes available to the other Party on a
nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality
agreement with the Party or its Representatives, or is not
otherwise under any obligation to the Party or any of its
Representatives not to transmit the information to the other
Party or its Representatives; (d) is independently developed by
the other Party; or (e) was disclosed pursuant to the
Confidentiality Agreement and remains subject to the terms and
conditions of the Confidentiality Agreement.
(76) "Purchased Assets" has the meaning set forth in Section
2.1.
(77) "Purchase Price" has the meaning set forth in Section
3.2.
(78) "Qualifying Offer" has the meaning set forth in Section
6.10(b).
(79) "Real Property" has the meaning set forth in Section
2.1(a).
(80) "Real Property Leases" has the meaning set forth in
Section 4.6.
(81) "Release" means release, spill, leak, discharge,
dispose of, pump, pour, emit, empty, inject, leach, dump or allow
to escape into or through the environment.
(82) "Remediation" means action of any kind to address a
Release or the presence of Hazardous Substances at the Site or an
off-Site location including, without limitation, any or all of
the following activities to the extent they relate to or arise
from the presence of a Hazardous Substance at the Site or an off-
Site location: (a) monitoring, investigation, assessment,
treatment, cleanup, containment, removal, mitigation, response or
restoration work; (b) obtaining any permits, consents, approvals
or authorizations of any Governmental Authority necessary to
conduct any such activity; (c) preparing and implementing any
plans or studies for any such activity; (d) obtaining a written
notice from a Governmental Authority with jurisdiction over the
Site or an off-Site location under Environmental Laws that no
material additional work is required by such Governmental
Authority; (e) the use, implementation, application,
installation, operation or maintenance of removal actions on the
Site or an off-Site location, remedial technologies applied to
the surface or subsurface soils, excavation and off-Site
treatment or disposal of soils, systems for long term treatment
of surface water or ground water, engineering controls or
institutional controls; and (f) any other activities reasonably
determined by a Party to be necessary or appropriate or required
under Environmental Laws to address the presence or Release of
Hazardous Substances at the Site or an off-Site location.
(83) "Replacement Welfare Plans" has the meaning set forth
in Section 6.10(e)
<PAGE>
(84) "Representatives" of a Party means the Party's
Affiliates and their directors, officers, employees, agents,
partners, advisors (including, without limitation, accountants,
counsel, environmental consultants, financial advisors and other
authorized representatives) and parents and other controlling
persons.
(85) "SEC" means the Securities and Exchange Commission and
any successor agency thereto.
(86) "Sellers' Agreements" means those contracts,
agreements, licenses and leases relating to the ownership,
operation and maintenance of the Plant and being assigned to
Buyer as part of the Purchased Assets, including without
limitation the IBEW Collective Bargaining Agreement.
(87) "Sellers' Indemnitee" has the meaning set forth in
Section 8.1 (a).
(88) "Sellers' Required Regulatory Approvals" has the
meaning set forth in Section 4.3(b).
(89) "Site" means the Real Property (including improvements)
forming a part of, or used or usable in connection with the
operation of, the Plant, including any disposal sites included in
Real Property. Any reference to the Site shall include, by
definition, the surface and subsurface elements, including the
soils and groundwater present at the Site, and any reference to
items "at the Site" shall include all items "at, on, in, upon,
over, across, under and within" the Site.
(90) "Subsidiary" when used in reference to any Person means
any entity of which outstanding securities having ordinary voting
power to elect a majority of the Board of Directors or other
Persons performing similar functions of such entity are owned
directly or indirectly by such Person.
(91) Reserved.
(92) "Tangible Personal Property" has the meaning set forth
in Section 2.1(c).
(93) "Taxes" means all taxes, charges, fees, levies,
penalties or other assessments imposed by any federal, state or
local or foreign taxing authority, including, but not limited to,
income, excise, property, sales, transfer, franchise, payroll,
withholding, social security, gross receipts, license, stamp,
occupation, employment or other taxes, including any interest,
penalties or additions attributable thereto.
(94) "Tax Return" means any return, report, information
return, declaration, claim for refund or other document
(including any schedule or related or supporting information)
required to be supplied to any taxing authority with respect to
Taxes including amendments thereto.
(95) "Termination Date" has the meaning set forth in Section
9.1(b).
(96) "Third Party Claim" has the meaning set forth in
Section 8.2(a).
(97) "Transferable Permits" means those Permits and
Environmental Permits which may be transferred to Buyer without a
filing with, notice to, consent or approval of any Governmental
Authority, and are set forth in Schedule 1.1 (97).
(98) "Transferred Employees" means Transferred Non-Union
Employees and Transferred Union Employees.
(99) "Transferred Non-Union Employees" has the meaning set
forth in Section 6.10(b).
(100) "Transferred Union Employees" has the meaning set
forth in Section 6.10(b).
(101) "Transferring Employee Records" means records related
to Sellers' personnel who will become employees of Buyer only to
the extent such files pertain to: (i) skill and development
training and biographies, (ii) seniority histories, (iii) salary
and benefit information, (iv) Occupational, Safety and Health
Administration reports, and (v) active medical restriction forms.
(102) "Transition Power Purchase Agreements" means the
agreements between Penelec and Buyer and NYSEG and Buyer,
respectively, in the form of Exhibit G hereto, executed on the
date hereof, relating to the sale of installed capacity to
Penelec and NYSEG, respectively, for a specified period of time
following the Closing Date.
(103) "Transmission Assets" has the meaning set forth in
Section 2.2(a).
(104) "USEPA" means the United States Environmental
Protection Agency and any successor agency thereto.
(105) "Year 2000 Compliant" has the meaning set forth in
Section 4.19. "Year 2000 Compliance" has a meaning correlative to
the foregoing.
(106) "WARN Act" means the Federal Worker Adjustment
Retraining and Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement,
unless the context otherwise required, the singular shall include
the plural, the masculine shall include the feminine and neuter,
and vice versa. The term "includes" or "including" shall mean
"including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article,
Exhibit or Schedule of this Agreement, and reference to a given
agreement or instrument shall be a reference to that agreement or
instrument as modified, amended, supplemented and restated
through the date as of which such reference is made.
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to
the satisfaction of the conditions contained in this Agreement,
at the Closing each of Penelec and NGE will sell, assign, convey,
transfer and deliver to Buyer, and Buyer will purchase, assume
and acquire from each such Seller, free and clear of all
Encumbrances (except for Permitted Encumbrances), and subject to
Section 2.2, all of such Seller s right, title and interest in
and to all of the assets constituting, or used in and necessary
for generation purposes to the operation of, the Plant, including
without limitation those assets identified in Schedule 2.1 and
those assets described below (but excluding the Excluded Assets),
each as in existence on the Closing Date (collectively,
"Purchased Assets"):
(a) Those certain parcels of real property (including
all buildings, facilities and other improvements thereon and all
appurtenances thereto) described in Schedule 4.10 (the "Real
Property"), but subject to the Permitted Encumbrances and those
exceptions listed in Schedule 4.5 and except as otherwise
constituting part of the Excluded Assets;
(b) All Inventories and Emission Allowances;
(c) All machinery, mobile or otherwise, equipment
(including communications equipment), vehicles, tools, furniture
and furnishings and other personal property located on the Real
Property on the Closing Date, including, without limitation, the
items of personal property included in Schedule 2.1(c), together
with all the personal property of Sellers used principally in the
operation of the Plant and listed in Schedule 2.1(c), other than
property used or primarily usable as part of the Transmission
Assets or otherwise constituting part of the Excluded Assets
(collectively, "Tangible Personal Property");
(d) Subject to the provisions of Section 6.5(c), all
Sellers' Agreements;
(e) Subject to the provisions of Section 6.5(c), all
Real Property Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety
and maintenance manuals, engineering design plans, documents,
blueprints and as built plans, specifications, procedures and
similar items of Sellers relating specifically to the
aforementioned assets and necessary for the operation of the Plant
(subject to the right of Sellers to retain copies of same for their
use) other than such items which are proprietary to third parties
and accounting records;
(h) All Emission Reduction Credits associated with
the Plant and identified in Schedule 2.1(h) that have accrued prior
to, or that accrue on or after, the date of this Agreement but
prior to the Closing Date;
(i) All unexpired, transferable warranties and
guarantees from third parties with respect to any item of Real
Property or personal property constituting part of the Purchased
Assets, as of the Closing Date;
(j) The name of the Plant. It is expressly understood
that Sellers are not assigning or transferring to Buyer any right
to use the name "Pennsylvania Electric Company", "Penelec", "GPU",
"GPU Energy", "GPU Generation", "GPU Genco", "New York State
Electric & Gas Corporation", "NYSEG", "NGE" or "NGE Generation" or
any related or similar trade names, trademarks, service marks,
corporate names and logos or any part, derivative or combination
thereof;
(k) All drafts, memoranda, reports, information,
technology, and specifications relating to the Sellers' plans for
Year 2000 Compliance;
(l) The Intellectual Property described on Schedule
2.1(l); and
(m) The substation equipment set forth in Schedule A
to the Interconnection Agreement and designated therein as being
transferred to Buyer.
2.2 Excluded Assets. Notwithstanding anything to the
contrary in this Agreement, nothing in this Agreement will
constitute or be construed as conferring on Buyer, and Buyer is not
acquiring, any right, title or interest in or to the following
specific assets which are associated with the Purchased Assets, but
which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule
2.1(c), the electrical transmission or distribution facilities (as
opposed to generation facilities) of Sellers or any of their
Affiliates located at the Site or forming part of the Plant
(whether or not regarded as a "transmission" or "generation" asset
for regulatory or accounting purposes), including all switchyard
facilities, substation facilities and support equipment, as well as
all permits, contracts and warranties, to the extent they relate to
such transmission and distribution assets (collectively, the
"Transmission Assets"), and those certain assets, facilities and
agreements all as identified on Schedule 2.2(a) attached hereto;
(b) Certain switches and meters in the Plant, gas
facilities, revenue meters and remote testing units, drainage pipes
and systems, as identified in the Easement and Attachment
Agreement;
(c) Certificates of deposit, shares of stock,
securities, bonds, debentures, evidences of indebtedness, and
interests in joint ventures, partnerships, limited liability
companies and other entities;
(d) All cash, cash equivalents, bank deposits,
accounts and notes receivable (trade or otherwise), and any income,
sales, payroll or other tax receivables;
(e) The rights of Sellers and their Affiliates to the
names "Pennsylvania Electric Company", "Penelec", "GPU", "GPU
Energy", "GPU Generation", "GPU Genco", "New York State Electric &
Gas Corporation", "NYSEG", "NGE" and "NGE Generation" or any
related or similar trade names, trademarks, service marks,
corporate names or logos, or any part, derivative or combination
thereof;
(f) All tariffs, agreements and arrangements to which
Sellers are a party for the purchase or sale of electric capacity
and/or energy or for the purchase of transmission or ancillary
services;
(g) The rights of Sellers in and to any causes of
action against third parties (including indemnification and
contribution) relating to any Real Property or personal property,
Permits, Environmental Permits, Taxes, Real Property Leases or
Sellers' Agreements, if any, including any claims for refunds,
prepayments, offsets, recoupment, insurance proceeds, condemnation
awards, judgments and the like, whether received as payment or
credit against future liabilities, relating specifically to the
Plant or the Site and relating to any period prior to the Closing
Date except that Buyer shall be deemed to be a third party
beneficiary of the Mine Indemnitees to the extent permitted by such
agreements;
(h) All personnel records of Sellers or their
Affiliates relating to the Transferred Employees other than
Transferring Employee Records or other records, the disclosure of
which is required by law, or legal or regulatory process or
subpoena; and
(i) Any and all of Sellers' rights in any contract
representing an intercompany transaction between Sellers and an
Affiliate of Sellers, whether or not such transaction relates to
the provision of goods and services, payment arrangements,
intercompany charges or balances, or the like.
2.3 Assumed Liabilities. On the Closing Date, Buyer shall
deliver to Sellers the Assignment and Assumption Agreement pursuant
to which Buyer shall assume and agree to discharge when due,
without recourse to Sellers, all of the following liabilities and
obligations of Sellers, direct or indirect, known or unknown,
absolute or contingent, which relate to the Purchased Assets, other
than Excluded Liabilities, in accordance with the respective terms
and subject to the respective conditions thereof (collectively,
"Assumed Liabilities"):
(a) All liabilities and obligations of Sellers
arising on or after the Closing Date under the Sellers' Agreements,
the Real Property Leases, and the Transferable Permits in
accordance with the terms thereof, including, without limitation,
(i) the contracts, licenses, agreements and personal property
leases entered into by Sellers with respect to the Purchased
Assets, whether or not disclosed on Schedule 4.12(a) and (ii) the
contracts, licenses, agreements and personal property leases
entered into by Sellers with respect to the Purchased Assets after
the date hereof consistent with the terms of this Agreement, except
in each case to the extent such liabilities and obligations, but
for a breach or default by Sellers, would have been paid, performed
or otherwise discharged on or prior to the Closing Date or to the
extent the same arise out of any such breach or default or out of
any event which after the giving of notice would constitute a
default by Sellers;
(b) All liabilities and obligations associated with
the Purchased Assets in respect of Taxes for which Buyer is liable
pursuant to Sections 3.5 or 6.8(a) hereof;
(c) All liabilities and obligations with respect to
the Transferred Employees on and after the Closing Date for which
(i) Buyer is responsible pursuant to Section 6.10 and (ii) the
grievances and arbitration proceedings arising out of or under the
Collective Bargaining Agreement prior to (as set forth in Schedule
4.8), on or after the Closing Date;
(d) Any liability, obligation or responsibility under
or related to Environmental Laws or the common law, whether such
liability or obligation or responsibility is known or unknown,
contingent or accrued, arising as a result of or in connection with
(i) any violation or alleged violation of Environmental Laws,
whether prior to, on or after the Closing Date, with respect to the
ownership or operation of any of the Purchased Assets, including,
but not limited to, the Mines (except to the extent Sellers receive
indemnity payments under the Mine Indemnities); (ii) loss of life,
injury to persons or property or damage to natural resources
(whether or not such loss, injury or damage arose or was made
manifest before the Closing Date or arises or becomes manifest on
or after the Closing Date) caused (or allegedly caused) by the
presence or Release of Hazardous Substances at, on, in, under,
adjacent to or migrating from the Purchased Assets prior to, on or
after the Closing Date, including, but not limited to, Hazardous
Substances contained in building materials at or adjacent to the
Purchased Assets or in the soil, surface water, sediments,
groundwater, landfill cells, or in other environmental media at or
near the Purchased Assets; and (iii) the Remediation (whether or
not such Remediation commenced before the Closing Date or commences
on or after the Closing Date) of Hazardous Substances that are
present or have been Released prior to, on or after the Closing
Date at, on, in, under, adjacent to or migrating from, the
Purchased Assets or in the soil, surface water, sediments,
groundwater, landfill cells or in other environmental media at or
adjacent to the Purchased Assets; provided, that nothing set forth
in this subsection 2.3(d) shall require Buyer to assume any
liabilities or obligations that are expressly excluded in Section
2.4 including without limitation liability for toxic torts as set
forth in Section 2.4(i); provided, further, however, that nothing
set forth in this subsection 2.3(d) or otherwise herein shall
require Buyer to assume any obligation for payment of fines,
penalties or costs imposed by a Governmental Authority to the
extent such obligations arise out of or relate to acts or omissions
of the Sellers prior to the Closing that constitute violations of
the New Source Performance Standards, Prevention of Significant
Deterioration or New Source Review regulations under the Clean Air
Act.
(e) All liabilities and obligations of Sellers with
respect to the Purchased Assets under the agreements or consent
orders set forth on Schedule 4.7 arising on or after the Closing;
and
(f) With respect to the Purchased Assets, any Tax
that may be imposed by any federal, state or local government on
the ownership, sale, operation or use of the Purchased Assets on or
after the Closing Date, except for any Income Taxes attributable to
income received by Sellers.
2.4 Excluded Liabilities. Buyer shall not assume or be
obligated to pay, perform or otherwise discharge the following
liabilities or obligations (the "Excluded Liabilities"):
(a) Any liabilities or obligations of Sellers in
respect of any Excluded Assets or other assets of Sellers which are
not Purchased Assets;
(b) Any liabilities or obligations in respect of
Taxes attributable to the ownership, operation or use of Purchased
Assets for taxable periods, or portions thereof, ending before the
Closing Date, except for Taxes for which Buyer is liable pursuant
to Sections 3.5 or 6.8(a) hereof;
(c) Any liabilities or obligations of Sellers
accruing under any of the Sellers' Agreements prior to the Closing
Date;
(d) Any and all asserted or unasserted liabilities or
obligations to third parties (including employees) for personal
injury or tort, or similar causes of action arising solely out of
the ownership or operation of the Purchased Assets prior to the
Closing Date, other than any liabilities or obligations which have
been assumed by Buyer under Section 2.3(d);
(e) Any fines, penalties or costs imposed by a
Governmental Authority resulting from (i) an investigation,
proceeding, request for information or inspection before or by a
Governmental Authority pending prior to the Closing Date but only
regarding acts which occurred prior to the Closing Date, or (ii)
illegal acts, willful misconduct or gross negligence of Sellers
prior to the Closing Date, other than, any such fines, penalties or
costs which have been assumed by Buyer under Section 2.3(d);
(f) Any payment obligations of Sellers for goods
delivered or services rendered prior to the Closing Date,
including, but not limited to, rental payments pursuant to the Real
Property Leases and Personal Property Leases;
(g) Any liability, obligation or responsibility under
or related to Environmental Laws or the common law, whether such
liability or obligation or responsibility is known or unknown,
contingent or accrued, arising as a result of or in connection with
loss of life, injury to persons or property or damage to natural
resources (whether or not such loss, injury or damage arose or was
made manifest before the Closing Date or arises or becomes manifest
on or after the Closing Date) to the extent caused (or allegedly
caused) by the off-Site disposal, storage, transportation,
discharge, Release, or recycling of Hazardous Substances, or the
arrangement for such activities, of Hazardous Substances, prior to
the Closing Date, in connection with the ownership or operation of
the Purchased Assets, provided that for purposes of this Section
"off-Site" does not include any location to which Hazardous
Substances disposed of or Released at the Purchased Assets have
migrated;
(h) Any liability, obligation or responsibility under
or related to Environmental Laws or the common law, whether such
liability or obligation or responsibility is known or unknown,
contingent or accrued, arising as a result of or in connection with
the investigation and/or Remediation (whether or not such
investigation or Remediation commenced before the Closing Date or
commences on or after the Closing Date) of Hazardous Substances
that are disposed, stored, transported, discharged, Released,
recycled, or the arrangement of such activities, prior to the
Closing Date, in connection with the ownership or operation of the
Purchased Assets, at any off-Site location, provided that for
purposes of this Section "off-Site" does not include any location
to which Hazardous Substances disposed of or Released at the
Purchased Assets have migrated;
(i) Third party liability for toxic torts arising as
a result of or in connection with loss of life or injury to persons
(whether or not such loss or injury arose or was made manifest on
or after the Closing Date) caused (or allegedly caused) by the
presence or Release of Hazardous Substances at, on, in, under,
adjacent to or migrating from the Purchased Assets prior to the
Closing Date;
(j) Subject to Section 6.10, any liabilities or
obligations relating to any Benefit Plan maintained by the Sellers
or any trade or business (whether or not incorporated) which is or
ever has been under common control, or which is or ever has been
treated as a single employer, with a Seller under Section 414(b),
(c), (m) or (o) of the Code ("ERISA Affiliate") or to which a
Seller and any ERISA Affiliate contributed thereunder (the "ERISA
Affiliate Plans"), including any multi-employer plan, maintained
by, contributed to, or obligated to contribute to, at any time, by
a Seller or any ERISA Affiliate, including but not limited to any
liability (i) relating to benefits payable under any Benefit Plans
(ii) relating to the Pension Benefit Guaranty Corporation under
Title IV of ERISA; (iii) relating to a multi-employer plan; (iv)
with respect to non-compliance with the notice and benefit
continuation requirements of COBRA; (v) with respect to any
noncompliance with ERISA or any other applicable laws; or (vi) with
respect to any suit, proceeding or claim which is brought against
Buyer, any Benefit Plan, ERISA Affiliate Plan, any fiduciary or
former fiduciary of any such Benefit Plan or ERISA Affiliate Plan;
(k) Subject to Section 6.10, any liabilities or
obligations relating to the employment or termination of
employment, including discrimination, wrongful discharge, unfair
labor practices, or constructive termination by a Seller of any
individual, attributable to any actions or inactions by the Sellers
prior to the Closing Date other than such actions or inactions
taken at the written direction of Buyer;
(l) Subject to Section 6.10, any obligations for
wages, overtime, employment taxes, severance pay, transition
payments in respect of compensation or similar benefits accruing or
arising prior to the Closing under any term or provision of any
contract, plan, instrument or agreement relating to any of the
Purchased Assets; and
(m) Any liability of a Seller arising out of a breach
by a Seller or any of its Affiliates of any of their respective
obligations under this Agreement or the Ancillary Agreements.
2.5 Control of Litigation. The Parties agree and
acknowledge that Sellers shall be entitled exclusively to control,
defend and settle any litigation, administrative or regulatory
proceeding, and any investigation or Remediation activities
(including without limitation any environmental mitigation or
Remediation activities), arising out of or related to any Excluded
Liabilities, and Buyer agrees to cooperate fully in connection
therewith.
ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the
satisfaction of the conditions contained in Article VII of this
Agreement, the sale, assignment, conveyance, transfer and
delivery of the Purchased Assets to Buyer, the payment of the
Purchase Price to Sellers, and the consummation of the other
respective obligations of the Parties contemplated by this
Agreement shall take place at a closing (the "Closing"), to be
held at the offices of Berlack, Israels & Liberman LLP, 120 West
45th Street, New York, New York at 10:00 a.m. local time, or
another mutually acceptable time and location, on the date that
is fifteen (15) Business Days following the date on which the
last of the conditions precedent to Closing set forth in Article
VII of this Agreement have been either satisfied or waived by the
Party for whose benefit such conditions precedent exist or such
other date as the Parties may mutually agree. The date of
Closing is hereinafter called the "Closing Date." The Closing
shall be effective for all purposes as of 12:01 a.m. on the
Closing Date.
3.2 Payment of Purchase Price. Upon the terms and
subject to the satisfaction of the conditions contained in this
Agreement, in consideration of the aforesaid sale, assignment,
conveyance, transfer and delivery of the Purchased Assets, Buyer
will pay or cause to be paid to Sellers at the Closing an
aggregate amount of one billion, eight hundred and one million
United States Dollars(U.S. $1,801,000,000.00) (the "Purchase
Price") plus or minus any adjustments pursuant to the provisions
of this Agreement, by wire transfer of immediately available
funds denominated in U.S. dollars or by such other means as are
agreed upon by Sellers and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section
3.3(b), at the Closing, the Purchase Price shall be adjusted,
without duplication, to account for the items set forth in this
Section 3.3(a):
(i) The Purchase Price shall be increased or
decreased, as applicable, to reflect the difference between
the book value of all Inventories as of the Closing Date and
the value of all Inventories as of December 31, 1997 reflected
on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to
account for the items prorated as of the Closing Date pursuant
to Section 3.5.
(iii) The Purchase Price shall be increased by
the amount expended, or for which liabilities are incurred, by
Sellers between the date hereof and the Closing Date for
capital additions to or replacements of property, plant and
equipment included in the Purchased Assets and other
expenditures or repairs on property, plant and equipment
included in the Purchased Assets that would be capitalized by
Sellers in accordance with normal accounting policies of
Sellers and their Affiliates (together, "Capital
Expenditures"), which are not described on Schedule 6.1 and
which either (A) are mandated after the date of this Agreement
by any Governmental Authority (subject to Buyer's right to
direct Sellers to contest such mandates by appropriate
proceedings at Buyer's expense and provided there is no
adverse impact on the Purchased Assets); or (B) do not fall
within category (A) above but do not exceed in the aggregate
$500,000; or (C) are approved in writing by Buyer.
(b) At least ten (10) Business Days prior to the Closing
Date, Sellers shall prepare and deliver to Buyer an estimated
closing statement (the "Estimated Closing Statement") that shall
set forth Sellers' best estimate of all estimated adjustments to
the Purchase Price required by Section 3.3(a) (the "Estimated
Adjustment"). Within five (5) Business Days following the delivery
of the Estimated Closing Statement by Sellers to Buyer, Buyer may
object in good faith to the Estimated Adjustment in writing. If
Buyer objects to the Estimated Adjustment, the Parties shall
attempt to resolve their differences by negotiation. If the
Parties are unable to do so within three (3) Business Days prior to
the Closing Date (or if Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be adjusted (the "Closing
Adjustment") for the Closing by the amount of the Estimated
Adjustment not in dispute. The disputed portion shall be paid as
a Post-Closing Adjustment to the extent required by Section 3.3(c).
(c) Within sixty (60) days following the Closing
Date, Sellers shall prepare and deliver to Buyer a final closing
statement (the "Post-Closing Statement") that shall set forth all
adjustments to the Purchase Price required by Section 3.3(a) (the
"Proposed Post-Closing Adjustment"). The Post-Closing Statement
shall be prepared using the same accounting principles, policies
and methods as Sellers have historically used in connection with
the calculation of the items reflected on such Post-Closing
Statement. Within thirty (30) days following the delivery of the
Post-Closing Statement by Sellers to Buyer, Buyer may object to the
Proposed Post-Closing Adjustment in writing. Sellers agree to
cooperate with Buyer to provide Buyer and Buyer's Representatives
information used to prepare the Post-Closing Statement and
information relating thereto. If Buyer objects to the Proposed
Post-Closing Adjustment, the Parties shall attempt to resolve such
dispute by negotiation. If the Parties are unable to resolve such
dispute within thirty (30) days of any objection by Buyer, the
Parties shall appoint the Independent Accounting Firm, which shall,
at Sellers' and Buyer's joint expense, review the Proposed Post-
Closing Adjustment and determine the appropriate adjustment to the
Purchase Price, if any, within thirty (30) days of such
appointment. The Parties agree to cooperate with the Independent
Accounting Firm and provide it with such information as it
reasonably requests to enable it to make such determination. The
finding of such Independent Accounting Firm shall be binding on the
Parties hereto. Upon determination of the appropriate adjustment
(the "Post-Closing Adjustment") by agreement of the Parties or by
binding determination of the Independent Accounting Firm, if the
Post-Closing Adjustment is more or less than the Closing
Adjustment, the Party owing the difference shall deliver such
difference to the other Party no later than two (2) Business Days
after such determination, in immediately available funds or in any
other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Sellers shall
endeavor to agree upon an allocation among the Purchased Assets of
the sum of the Purchase Price and the Assumed Liabilities
consistent with Section 1060 of the Code and the Treasury
Regulations thereunder within sixty (60) days of the date of this
Agreement. Each of Buyer and Sellers agree to file Internal Revenue
Service Form 8594, and all federal, state, local and foreign Tax
Returns, in accordance with any such agreed to allocation. Each
of Buyer and Sellers shall report the transactions contemplated by
this Agreement for federal Tax and all other Tax purposes in a
manner consistent with any such agreed to allocation determined
pursuant to this Section 3.4. Each of Buyer and Sellers agree to
provide the other promptly with any information required to
complete Form 8594. Buyer and Sellers shall notify and provide the
other with reasonable assistance in the event of an examination,
audit or other proceeding regarding any allocation of the Purchase
Price agreed to pursuant to this Section 3.4.
3.5 Prorations. (a) Buyer and Sellers agree that all of
the items normally prorated, including those listed below (but not
including Income Taxes), relating to the business and operation of
the Purchased Assets shall be prorated as of the Closing Date, with
Sellers liable to the extent such items relate to any time period
prior to the Closing Date, and Buyer liable to the extent such
items relate to periods commencing with the Closing Date (measured
in the same units used to compute the item in question, otherwise
measured by calendar days):
(i) Personal property, real estate and occupancy
Taxes, assessments and other charges, if any, on or with
respect to the business and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including
prepaid services or goods not included in Inventory) payable
by or to Sellers under any of the Sellers' Agreements;
(iii) Any permit, license, registration, compliance
assurance fees or other fees with respect to any Transferable
Permit;
(iv) Sewer rents and charges for water,
telephone, electricity and other utilities; and
(v) Rent and Taxes and other items payable by
Sellers under the Real Property Leases assigned to Buyer.
(b) In connection with the prorations referred to in
(a) above, in the event that actual figures are not available at
the Closing Date, the proration shall be based upon the actual
Taxes or other amounts accrued through the Closing Date or paid for
the most recent year (or other appropriate period) for which actual
Taxes or other amounts paid are available. Such prorated Taxes or
other amounts shall be re-prorated and paid to the appropriate
Party within sixty (60) days of the date that the previously
unavailable actual figures become available. The prorations shall
be based on the number of days in a year or other appropriate
period (i) before the Closing Date and (ii) including and after the
Closing Date. Sellers and Buyer agree to furnish each other with
such documents and other records as may be reasonably requested in
order to confirm all adjustment and proration calculations made
pursuant to this Section 3.5.
Notwithstanding anything to the contrary herein, no
proration shall be made under this Section 3.5 with respect to
Taxes payable under the Pennsylvania Public Utility Realty Tax Act
("PURTA"). Buyer shall be fully responsible for all Taxes payable
under PURTA for the year in which the Closing occurs.
3.6 Deliveries by Sellers. At the Closing, each of
Sellers as to itself will deliver, or cause to be delivered, the
following to Buyer:
(a) The Bill of Sale, duly executed by Penelec and NGE;
(b) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Sellers with respect to
the transfer of the Purchased Assets, or the consummation of the
transactions contemplated by this Agreement;
(c) The opinions of counsel and officer's certificates
contemplated by Section 7.1;
(d) One or more special warranty deeds conveying the Real
Property to Buyer, in substantially the form of Exhibit F hereto,
duly executed and acknowledged by Penelec and NGE and in recordable
form;
(e) The Assignment and Assumption Agreement, duly executed
by Penelec and NGE;
(f) A FIRPTA Affidavit, duly executed by Sellers;
(g) Copies, certified by the Secretary or Assistant
Secretary of each Seller, of corporate resolutions authorizing the
execution and delivery of this Agreement and all of the agreements
and instruments to be executed and delivered by Sellers in
connection herewith, and the consummation of the transactions
contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary
of each Seller identifying the name and title and bearing the
signatures of the officers of such Seller authorized to execute and
deliver this Agreement and the other agreements and instruments
contemplated hereby;
(i) Certificates of Good Standing with respect to the
Sellers, issued by the Secretary of the State of each Sellers'
state of incorporation, as applicable;
(j) To the extent available, originals of all Sellers'
Agreements, Real Property Leases and Transferable Permits and, if
not available, true and correct copies thereof;
(k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its
counsel, be necessary or desirable to transfer to Buyer the
Purchased Assets, in accordance with this Agreement and where
necessary or desirable in recordable form; and
(l) Such other agreements, documents, instruments and
writings as are required to be delivered by Sellers at or prior to
the Closing Date pursuant to this Agreement or otherwise reasonably
required in connection herewith.
3.7 Deliveries by Buyer. At the Closing, Buyer will
deliver, or cause to be delivered, the following to Sellers:
(a) The Purchase Price, as adjusted pursuant to Section 3.3,
by wire transfer of immediately available funds in accordance with
Sellers' instructions or by such other means as may be agreed to by
Sellers and Buyer;
(b) The opinions of counsel and officer's certificates
contemplated by Section 7.2;
(c) The Assignment and Assumption Agreement, duly executed
by Buyer;
(d) Copies, certified by the Secretary or Assistant
Secretary of Buyer and Buyer Parent, respectively, of resolutions
authorizing the execution and delivery of this Agreement, the
Guaranty and all of the agreements and instruments to be executed
and delivered by Buyer in connection herewith, and the consummation
of the transactions contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary
of Buyer and Buyer Parent, respectively, identifying the name and
title and bearing the signatures of the officers of Buyer
authorized to execute and deliver this Agreement, the Guaranty and
the other agreements contemplated hereby;
(f) All such other instruments of assumption as shall, in
the reasonable opinion of Sellers and their counsel, be necessary
for Buyer to assume the Assumed Liabilities in accordance with this
Agreement;
(g) Copies of any and all governmental and other third
party consents, waivers or approvals obtained by Buyer with respect
to the transfer of the Purchased Assets, or the consummation of the
transactions contemplated by this Agreement;
(h) Certificates of Insurance relating to the insurance
policies required pursuant to Article 10 of the Interconnection
Agreement; and
(i) Such other agreements, documents, instruments and
writings as are required to be delivered by Buyer at or prior to
the Closing Date pursuant to this Agreement or otherwise reasonably
required in connection herewith.
3.8 Ancillary Agreements. The Parties acknowledge that
the Ancillary Agreements have been executed on the date hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
Each of Sellers severally as to itself, in the case of
Sections 4.1, 4.2, 4.3, 4.5 and 4.15, and, subject to Section
10.1, jointly and severally, as to all other representations and
warranties, represents and warrants to Buyer as follows:
4.1 Incorporation; Qualification. Such Seller is a
corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation and has
all requisite corporate power and authority to own, lease, and
operate its material properties and assets and to carry on its
business as is now being conducted. Such Seller is duly qualified
to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction in which its business as now
being conducted shall require it to be so qualified, except where
the failure to be so qualified would not have a Material Adverse
Effect. Such Seller has heretofore delivered to Buyer true,
complete and correct copies of its Certificate of Incorporation
and Bylaws as currently in effect.
4.2 Authority Relative to this Agreement. Such Seller
has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by
it hereby. The execution and delivery of this Agreement by such
Seller and the consummation of the transactions contemplated by
such Seller hereby have been duly and validly authorized by all
necessary corporate action required on the part of such Seller
and this Agreement has been duly and validly executed and
delivered by such Seller. Subject to the receipt of Sellers'
Required Regulatory Approvals, this Agreement constitutes the
legal, valid and binding agreement of such Seller, enforceable
against such Seller in accordance with its terms, except that
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding
at law or in equity).
4.3 Consents and Approvals; No Violation. (a)
Except as set forth in Schedule 4.3(a), and subject to obtaining
Sellers' Required Regulatory Approvals, neither the execution and
delivery of this Agreement by such Seller nor the consummation by
such Seller of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of such Seller, (ii)
result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which such Seller
is a party or by which it, or any of the Purchased Assets may be
bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, would not, individually or
in the aggregate, create a Material Adverse Effect; or (iii)
constitute violations of any law, regulation, order, judgment or
decree applicable to such Seller, which violations, individually
or in the aggregate, would create a Material Adverse Effect.
(b) Except as set forth in Schedule 4.3(b), (the
filings and approvals referred to in Schedule 4.3(b) are
collectively referred to as the "Sellers' Required Regulatory
Approvals"), no consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for the execution and
delivery of this Agreement by such Seller, or the consummation by
such Seller of the transactions contemplated hereby, other than
(i) such consents, approvals, filings or notices which, if not
obtained or made, will not prevent such Seller from performing
its material obligations hereunder and (ii) such consents,
approvals, filings or notices which become applicable to such
Seller or the Purchased Assets as a result of the specific
regulatory status of Buyer (or any of its Affiliates) or as a
result of any other facts that specifically relate to the
business or activities in which Buyer (or any of its Affiliates)
is or proposes to be engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all
material policies of fire, liability, workers' compensation and
other forms of insurance owned or held by, or on behalf of,
Sellers with respect to the business, operations or employees at
the Plant or the Purchased Assets are in full force and effect,
all premiums with respect thereto covering all periods up to and
including the date hereof has been paid (other than retroactive
premiums which may be payable with respect to comprehensive
general liability and workers' compensation insurance policies),
and no notice of cancellation or termination has been received
with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such
cancellation. Except as described in Schedule 4.4, within the 36
months preceding the date of this Agreement, the Sellers have not
been refused any insurance with respect to the Purchased Assets
nor has their coverage been limited by any insurance carrier to
which they have applied for any such insurance or with which they
have carried insurance during the last twelve (12) months.
4.5 Title and Related Matters. Except as set forth in
Schedule 4.5 and subject to Permitted Encumbrances, (i) each of
Penelec and NGE is the owner of record title to a 50% undivided
interest in the Real Property and has good and valid title to the
other Purchased Assets which it purports to own, free and clear
of all Encumbrances and (ii) each such Seller shall convey to
Buyer such title with respect to the Real Property as a reputable
title company doing business in the Commonwealth of Pennsylvania
would insure.
4.6 Real Property Leases. Schedule 4.6 lists, as of the
date of this Agreement, all real property leases under which each
Seller is a lessee or lessor and which relate to the Purchased
Assets ("Real Property Leases"). Except as set forth in Schedule
4.6, all such leases are valid, binding and enforceable against
Sellers in accordance with their terms; there are no existing
material defaults by Sellers or, to such Sellers' Knowledge, any
other party thereunder; and no event has occurred which (whether
with or without notice, lapse of time or both) would constitute a
material default by Sellers or, to Sellers' Knowledge, any other
party thereunder. Sellers have delivered to Buyer true, correct
and complete copies of each of the Real Property Leases.
4.7 Environmental Matters. Except as disclosed in
Schedule 4.7 or in the "Phase I" and "Phase II" environmental
site assessments prepared by Sellers' outside environmental
consultants ("Environmental Reports") and made available for
inspection by Buyer:
(a) The Sellers hold, and are in substantial
compliance with, all permits, certificates, certifications,
licenses and governmental authorizations under Environmental Laws
("Environmental Permits") that are required for Sellers to conduct
the business and operations of the Purchased Assets, and Sellers
are otherwise in compliance with applicable Environmental Laws with
respect to the business and operations of the Purchased Assets
except for such failures to hold or comply with required
Environmental Permits, or such failures to be in compliance with
applicable Environmental Laws, as would not, individually or in the
aggregate, create a Material Adverse Effect;
(b) None of Sellers has received any written request
for information, or been notified that it is a potentially
responsible party, under CERCLA or any similar state law with
respect to the Real Property;
(c) None of the Sellers has entered into or agreed to
any consent decree or order relating to the Purchased Assets, or is
subject to any outstanding judgment, decree, or judicial order
relating to compliance with any Environmental Law or to
investigation or cleanup of Hazardous Substances under any
Environmental Law relating to the Purchased Assets.
(d) To Sellers' Knowledge, no Releases of Hazardous
Substances have occurred at, from, in, on, or under the Site, and
no Hazardous Substances are present in, on, about or migrating from
the Site that could give rise to an Environmental Claim related to
the Purchased Assets for which Remediation reasonably could be
required, except in any such case to the extent that any such
Releases would not, individually or in the aggregate, create a
Material Adverse Effect.
The representations and warranties made in this Section 4.7
are the Sellers' exclusive representations and warranties relating
to environmental matters.
4.8 Labor Matters. Sellers have previously delivered to
Buyer true and correct copies of all collective bargaining
agreements to which Sellers are a party or are subject and which
relate to the business and operations of the Purchased Assets.
With respect to the business or operations of the Purchased Assets,
except to the extent set forth in Schedule 4.8 and except for such
matters as will not, individually or in the aggregate, create a
Material Adverse Effect, (a) Sellers are in compliance with all
applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours; (b) neither
Seller has received written notice of any unfair labor practice
complaint against such Seller pending before the National Labor
Relations Board; (c) no arbitration proceeding arising out of or
under any collective bargaining agreements is pending against
either Seller; and (d) Sellers have not experienced any work
stoppage within the three-year period prior to the date hereof and
to Sellers' Knowledge none is currently threatened.
4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all
deferred compensation, profit-sharing, retirement and pension
plans, including multi-employer plans (of which none exist), and
all material bonus, fringe benefit and other employee benefit plans
maintained or with respect to which contributions are made by
Penelec or Genco in respect of the current employees of Penelec
or Genco connected with the Purchased Assets ("Benefit Plans").
True and complete copies of all such Benefit Plans have been made
available to Buyer.
(b) Except as set forth in Schedule 4.9(b), Sellers and
the ERISA Affiliates have fulfilled their respective obligations
under the minimum funding requirements of Section 302 of ERISA, and
Section 412 of the Code, with respect to each Benefit Plan which is
an "employee pension benefit plan" as defined in Section 3(2) of
ERISA and each such plan is in compliance in all material respects
with the presently applicable provisions of ERISA and the Code.
Except as set forth in Schedule 4.9(b), neither the Sellers nor any
ERISA Affiliate has incurred any liability under Section 4062(b) of
ERISA to the Pension Benefit Guaranty Corporation in connection
with any Benefit Plan which is subject to Title IV of ERISA or any
withdrawal liability, nor is there any reportable event (as defined
in Section 4043 of ERISA), except as set forth in Schedule 4.9(b).
Except as set forth in Schedule 4.9(b), the Internal Revenue
Service has issued a letter for each Benefit Plan which is intended
to be qualified under Section 401(a) of the Code, which letter
determines that such plan is exempt from United States Federal
Income Tax under Section 401(a) and 501(a) of the Code, and there
has been no occurrence since the date of any such determination
letter which has affected adversely such qualification.
(c) Neither the Sellers nor any ERISA Affiliate has
engaged in any transaction within the meaning of Section 4069(b) or
Section 4212(c) of ERISA. No Benefit Plan is a multi-employer
plan.
(d) To the extent the Sellers maintain a "group health
plan" within the meaning of Section 5000(b) (1) of the Code,
Sellers have materially complied in good faith with the notice and
continuation requirements of Section 4980B of the Code, COBRA, Part
6 of Subtitle B of Title I of ERISA and the regulations thereunder.
4.10 Real Property. Schedule 4.10 contains a description
of the Real Property owned by Penelec and NGE and included in the
Purchased Assets. True and correct copies of any current surveys,
abstracts or title opinions in Sellers' possession and any policies
of title insurance currently in force and in the possession of
Sellers with respect to the Real Property have heretofore been made
available to Buyer.
4.11 Condemnation. Except as set forth in Schedule 4.11,
Sellers have not received any written notices of and otherwise have
no Knowledge of any pending or threatened proceedings or
governmental actions to condemn or take by power of eminent domain
all or any part of the Purchased Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists
each written contract, license, agreement, or personal property
lease which is material to the business or operations of the
Purchased Assets, other than any contract, license, agreement or
personal property lease which is listed or described on another
Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by the Sellers
after the date hereof of less than $250,000 or payments by the
Sellers after the date hereof of less than $1,000,000 in the
aggregate.
(b) Except as disclosed in Schedule 4.12(b), each
Sellers' Agreement (i) constitutes a legal, valid and binding
obligation of the applicable Seller and, to each Seller's
Knowledge, constitutes a valid and binding obligation of the other
parties thereto, and (ii) may be transferred to Buyer pursuant to
this Agreement without the consent of the other parties thereto and
will continue in full force and effect thereafter, unless in any
such case the impact of such lack of legality, validity or binding
nature, or inability to transfer, would not, individually or in the
aggregate, create a Material Adverse Effect.
(c) Except as set forth in Schedule 4.12(c), there is
not, under the Sellers' Agreements, any default or event which,
with notice or lapse of time or both, would constitute a default on
the part of the Sellers or to each Seller's Knowledge, any of the
other parties thereto, except such events of default and other
events which would not, individually or in the aggregate, create a
Material Adverse Effect.
4.13 Legal Proceedings etc. Except as set forth in
Schedule 4.13, there are no actions or proceedings pending against
Sellers before any court, arbitrator or Governmental Authority,
which could, individually or in the aggregate, reasonably be
expected to create a Material Adverse Effect. Except as set forth
in Schedule 4.13, neither Seller is subject to any outstanding
judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or Governmental Authority which would,
individually or in the aggregate, create a Material Adverse Effect.
4.14 Permits. (a) The Sellers have all permits, licenses,
franchises and other governmental authorizations, consents and
approvals, (other than Environmental Permits, which are addressed
in Section 4.7 hereof) (collectively, "Permits") necessary to own
and operate the Purchased Assets except where the failure to have
such Permits would not, individually or in the aggregate, create a
Material Adverse Effect. Except as disclosed on Schedule 4.14(a),
Sellers have not received any notification that any Seller is in
violation of any such Permits, except notifications of violations
which would not, individually or in the aggregate, create a
Material Adverse Effect. Sellers are in compliance with all such
Permits except where non-compliance would not, individually or in
the aggregate, create a Material Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits
and Environmental Permits, other than Transferable Permits (which
are set forth on Schedule 1.1(96)) related to the Purchased Assets.
4.15 Taxes. Penelec and NGE have filed all returns that
are required to be filed by it with respect to any Tax relating to
the Purchased Assets, and Penelec and NGE have each paid all Taxes
that have become due as indicated thereon, except where such Tax is
being contested in good faith by appropriate proceedings, or where
the failure to so file or pay would not reasonably be expected to
create a Material Adverse Effect. Penelec and NGE have complied in
all material respects with all applicable laws, rules and
regulations relating to withholding Taxes relating to Transferred
Employees. All Tax Returns relating to the Purchased Assets are
true, correct and complete in all material respects. Except as set
forth in Schedule 4.15, no notice of deficiency or assessment has
been received from any taxing authority with respect to liabilities
for Taxes of such Sellers in respect of the Purchased Assets, which
have not been fully paid or finally settled, and any such
deficiency shown in Schedule 4.15 is being contested in good faith
through appropriate proceedings. Except as set forth in Schedule
4.15, there are no outstanding agreements or waivers extending the
applicable statutory periods of limitation for Taxes associated
with the Purchased Assets that will be binding upon Buyer after the
Closing. None of the Purchased Assets is property that is required
to be treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section 168(f) of
the Code, and none of the Purchased Assets is "tax-exempt use"
property within the meaning of Section 168(h) of the Code.
Schedule 4.15 sets forth the taxing jurisdictions in which either
Penelec or NGE own assets or conduct business that require a
notification to a taxing authority of the transactions contemplated
by this Agreement, if the failure to make such notification, or
obtain Tax clearance certificates in connection therewith, would
either require Buyer to withhold any portion of the Purchase Price
or subject Buyer to any liability for any Taxes of Penelec or NGE.
4.16 Intellectual Property. Schedule 2.1(l) sets forth
all Intellectual Property used in and, individually or in the
aggregate with other Intellectual Property, is material to the
operation or business of the Purchased Assets, each of which a
Seller or its Affiliates either has all right, title and interest
in or valid and binding rights under contract to use. Except as
disclosed in Schedule 4.16, (i) the Sellers are not, nor have they
received any notice that they are, in default (or with the giving
of notice or lapse of time or both, would be in default), under any
contract to use such Intellectual Property, and (ii), to Sellers'
Knowledge, such Intellectual Property is not being infringed by any
other Person. Sellers have not received notice that they are
infringing any Intellectual Property of any other Person in
connection with the operation or business of the Purchased Assets,
and Sellers, to their Knowledge, are not infringing any
Intellectual Property of any other Person the effect of which,
individually or in the aggregate, would have a Material Adverse
Effect.
4.17 Capital Expenditures. Except as set forth in Schedule
6.1, there are no capital expenditures associated with the
Purchased Assets that are planned by Sellers through December 31,
1999.
4.18 Compliance With Laws. The Sellers are in compliance
with all applicable laws, rules and regulations with respect to the
ownership or operation of the Purchased Assets except where the
failure to be in compliance would not, individually or in the
aggregate, create a Material Adverse Effect.
4.19 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV,
THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS", AND EACH SELLER
EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND
OR NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE
PLANT, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED
ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER
INCIDENTS OF THE PURCHASED ASSETS AND EACH SELLER SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE,
SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO
THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP
THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE
APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT
LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER EACH SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE
PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN,
EACH SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR
WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY
OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH
RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH
SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY
KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE
SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A POWER PLANT
AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER
MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY EACH
SELLER OR THEIR REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT
BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS
TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS.
The Sellers make no warranties and representations of any
kind, whether direct or implied, that any of the hardware,
software, and firmware product (including embedded microcontrollers
in non-computer equipment) which may be included in the Purchased
Assets to be transferred under this Agreement (the "Computer
Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000
Compliant" shall mean that the Computer Systems will correctly
differentiate between years, in different centuries, that end in
the same two digits, and will accurately process date/time data
(including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first
centuries, including leap year calculations.
4.20 Transmission. NYSEG represents and warrants that
Buyer shall not be obligated to pay a NYSEG transmission charge in
connection with any NYPP Economy Energy transaction as defined in
the NYPP Agreement as effective and on file with FERC without
waiving NYSEG's right to NYPP Economy Energy Transaction
Transmission Fund payments.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 Organization. Buyer is a California corporation,
duly organized, validly existing and in good standing under the
laws of the state of its organization and has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as is now being
conducted. Buyer is, or by the Closing will be, qualified to do
business in the Commonwealth of Pennsylvania. Buyer has
heretofore delivered to Sellers complete and correct copies of
its Certificate of Incorporation and Bylaws (or other similar
governing documents) as currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full
corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements and to consummate the
transactions contemplated by it hereby and thereby. The
execution and delivery of this Agreement and the Ancillary
Agreements by Buyer and the consummation of the transactions
contemplated hereby and thereby by Buyer have been duly and
validly authorized by all necessary corporate action required on
the part of Buyer. This Agreement and the Ancillary Agreements
have been duly and validly executed and delivered by Buyer.
Subject to the receipt of Buyer Required Regulatory Approvals,
this Agreement and the Ancillary Agreements constitute legal,
valid and binding agreements of Buyer, enforceable against Buyer
in accordance with their terms, except that such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other
similar laws affecting or relating to enforcement of creditors'
rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in
equity).
5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and
subject to obtaining Buyer Required Regulatory Approvals, neither
the execution and delivery of this Agreement and the Ancillary
Agreements by Buyer nor the consummation by Buyer of the
transactions contemplated hereby and thereby will (i) conflict with
or result in any breach of any provision of the Certificate of
Incorporation or Bylaws (or other similar governing documents) of
Buyer, or (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
material agreement or other instrument or obligation to which Buyer
or any of its Subsidiaries is a party or by which any of their
respective assets may be bound, except for such defaults (or rights
of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained or which would not,
individually or in the aggregate, have a material adverse effects
on the business, assets, operations or condition (financial or
otherwise) of Buyer Entities ("Buyer Material Adverse Effect") or
(iii) violate any law, regulation, order, judgment or decree
applicable to Buyer, which violations, individually or in the
aggregate, would create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the
filings and approvals referred to in such Schedule are collectively
referred to as the "Buyer Required Regulatory Approvals"), no
consent or approval of, filing with, or notice to, any Governmental
Authority is necessary for Buyer's execution and delivery of this
Agreement and the Ancillary Agreements, or the consummation by
Buyer of the transactions contemplated hereby and thereby, other
than such consents, approvals, filings or notices, which, if not
obtained or made, will not prevent Buyer from performing its
obligations under this Agreement and the Ancillary Agreements.
5.4 Availability of Funds. Buyer has sufficient funds and
lines of credit available to it or has received binding written
commitments from creditworthy financial institutions, copies of
which have been provided to Sellers, to provide sufficient funds on
the Closing Date to pay the Purchase Price and to permit Buyer to
timely perform all of its obligations under this Agreement and the
Ancillary Agreements.
5.5 Financial Representations. Buyer Parent has provided
Sellers with its balance sheet, income statement and statement of
changes in cash flows for each of the preceding three fiscal years
and most recent interim period. Such financial statements have been
prepared in accordance with generally accepted accounting
principles and fairly reflect the financial posture and results of
operations of Buyer Parent as at and for the periods therein.
5.6 Legal Proceedings. There are no actions or
proceedings pending against Buyer Entities before any court or
arbitrator or Governmental Authority, which, individually or in the
aggregate, could reasonably be expected to create a Buyer Material
Adverse Effect. Buyer Entities are not subject to any outstanding
judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or Governmental Authority which would,
individually or in the aggregate, create a Buyer Material Adverse
Effect.
5.7 No Knowledge of Sellers' Breach. Buyer Entities have
no Knowledge of any breach by Sellers of any representation or
warranty of Sellers, or of any other condition or circumstance that
would excuse Buyer from its timely performance of its obligations
hereunder. Buyer Entities shall notify Sellers promptly if any such
information comes to their attention prior to the Closing.
5.8 Qualified Buyer. Buyer is qualified to obtain any
Permits and Environmental Permits necessary for Buyer to own and
operate the Purchased Assets as of the Closing. Without limiting
the foregoing, Buyer is not aware of any reason or circumstance
that would prevent Buyer from procuring Buyer Required Regulatory
Approvals associated with Exempt Wholesale Generator (as defined in
the Public Utility Holding Company Act of 1935) status and market-
based rate authorization specified in items 3 and 2 of Schedule
5.3(b).
5.9 Inspections. Subject to the restrictions set forth
in Section 6.2(a), Buyer acknowledges and agrees that it has, prior
to its execution of this Agreement, (i) reviewed the Environmental
Reports, (ii) had full opportunity to conduct to its satisfaction
Inspections of the Purchased Assets, including the Site, and (iii)
fully completed and approved the results of all Inspections of the
Purchased Assets. Subject to the restrictions set forth in Section
6.2(a), Buyer acknowledges that it is satisfied through such
review and Inspections that no further investigation and study on
or of the Site is necessary for the purposes of acquiring the
Purchased Assets for Buyer's intended use. Buyer acknowledges and
agrees that it hereby assumes the risk that adverse past, present,
and future physical characteristics and Environmental Conditions
may not have been revealed by its Inspections and the
investigations of the Purchased Assets contained in the
Environmental Reports. In making its decision to execute this
Agreement, and to purchase the Purchased Assets, Buyer has relied
on and will rely upon, among other things, the results of its
Inspections and the Environmental Reports.
5.10 WARN Act. Buyer does not intend to engage in a
Plant Closing or Mass Layoff as such terms are defined in the WARN
Act within sixty days of the Closing Date.
<PAGE>
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets.
(a) Except as described in Schedule 6.1 or as expressly
contemplated by this Agreement or to the extent Buyer otherwise
consents in writing, during the period from the date of this
Agreement to the Closing Date, Sellers (i) will operate the
Purchased Assets in the ordinary course of business consistent with
the past practices of Sellers or their Affiliates or with Good
Utility Practices, (ii) shall use all Commercially Reasonable
Efforts to preserve intact the Purchased Assets, and endeavor to
preserve the goodwill and relationships with customers, suppliers
and others having business dealings with it, (iii) shall maintain
the insurance coverage described in Section 4.4, (iv) shall comply
with all applicable laws relating to the Purchased Assets,
including without limitation, all Environmental Laws, except where
the failure to so comply would not result in a Material Adverse
Effect, and (v) shall continue with Sellers' program, or (at
Buyer's expense) as Buyer may direct, to install such equipment or
software with respect to Year 2000 Compliance in accordance with
Sellers' plans referred to in Section 2.1(k). Without limiting the
generality of the foregoing, and, except as contemplated in this
Agreement or as described in Schedule 6.1, or as required under
applicable law or by any Governmental Authority, prior to the
Closing Date, without the prior written consent of Buyer, Sellers
shall not with respect to the Purchased Assets:
(i) Make any material change in the levels
of Inventories customarily maintained by Sellers or their
Affiliates with respect to the Purchased Assets, other than
changes which are consistent with Good Utility Practices;
(ii) Sell, lease (as lessor), encumber,
pledge, transfer or otherwise dispose of, any material
Purchased Assets individually or in the aggregate (except for
Purchased Assets used, consumed or replaced in the ordinary
course of business consistent with past practices of Sellers
or their Affiliates or with Good Utility Practices) other than
to encumber Purchased Assets with Permitted Encumbrances;
(iii) Modify, amend or voluntarily
terminate prior to the expiration date any of the Sellers'
Agreements or Real Property Leases or any of the Permits or
Environmental Permits in any material respect, other than (a)
in the ordinary course of business, to the extent consistent
with the past practices of Sellers or their Affiliates or with
Good Utility Practices, (b) with cause, to the extent
consistent with past practices of Sellers or their Affiliates
or with Good Utility Practices, or (c) as may be required in
connection with transferring Sellers' rights or obligations
thereunder to Buyer pursuant to this Agreement;
(iv) Except as otherwise provided herein,
enter into any commitment for the purchase, sale, or
transportation of fuel having a term greater than six months
and not terminable on or before the Closing Date either (i)
automatically, or (ii) by option of Sellers (or, after the
Closing, by Buyer) in its sole discretion, if the aggregate
payment under such commitment for fuel and all other
outstanding commitments for fuel not previously approved by
Buyer would exceed $1,000,000;
(v) Sell, lease or otherwise dispose of
Emission Allowances, or Emission Reduction Credits identified
in Schedule 2.1(h), except to the extent necessary to operate
the Purchased Assets in accordance with this Section 6.1;
(vi) Except as otherwise provided herein,
enter into any contract, agreement, commitment or arrangement
relating to the Purchased Assets that individually exceeds
$250,000 or in the aggregate exceeds $1,000,000 unless it is
terminable by Sellers (or, after the Closing, by Buyer)
without penalty or premium upon no more than sixty (60) days
notice;
(vii) Except as otherwise required by the terms of
the IBEW Collective Bargaining Agreement (as defined in
Section 6.10(d)), (a) hire at, or transfer to the Purchased
Assets, any new employees prior to the Closing, other than to
fill vacancies in existing positions in the reasonable
discretion of Sellers, (b) materially increase salaries or
wages of employees employed in connection with the Purchased
Assets prior to the Closing, (c) take any action prior to the
Closing to effect a material change in the Collective
Bargaining Agreement, or (d) take any action prior to the
Closing to materially increase the aggregate benefits payable
to the employees employed in connection with the Purchased
Assets;
(viii) Make any Capital Expenditures except as permitted
by Section 3.3(a)(iii) or for Sellers' account; and
(ix) Except as otherwise provided herein, enter into
any written or oral contract, agreement, commitment or
arrangement with respect to any of the proscribed transactions
set forth in the foregoing paragraphs (i) through (viii).
6.2 Access to Information.
(a) Between the date of this Agreement and the Closing
Date, Sellers will, at reasonable times and upon reasonable notice:
(i) give Buyer and its Representatives reasonable access to its
managerial personnel and to all books, records, plans, equipment,
offices and other facilities and properties constituting the
Purchased Assets; (ii) furnish Buyer with such financial and
operating data and other information with respect to the Purchased
Assets as Buyer may from time to time reasonably request, and
permit Buyer to make such reasonable Inspections thereof as Buyer
may request; (iii) furnish Buyer at its request a copy of each
material report, schedule or other document filed by Sellers or any
of their Affiliates with respect to the Purchased Assets with the
SEC, FERC, NYPSC, NYDEC, PaPUC, PaDEP or any other Governmental
Authority; and (iv) furnish Buyer with all such other information
as shall be reasonably necessary to enable Buyer to verify the
accuracy of the representations and warranties of Sellers contained
in this Agreement; provided, however, that (A) any such inspections
and investigations shall be conducted in such a manner as not to
interfere unreasonably with the operation of the Purchased Assets,
(B) Sellers shall not be required to take any action which would
constitute a waiver of the attorney-client privilege, and (C)
Sellers need not supply Buyer with any information which Sellers
are under a legal or contractual obligation not to supply.
Notwithstanding anything in this Section 6.2 to the contrary,
Sellers will only furnish or provide such access to Transferring
Employee Records and will not furnish or provide access to other
employee personnel records or medical information unless required
by law or specifically authorized by the affected employee and
Buyer shall not have the right to perform or conduct any
environmental sampling or testing at, in, on, or underneath the
Purchased Assets.
(b) Each Party shall, and shall use its best efforts
to cause its Representatives to, (i) keep all Proprietary
Information of the other Party confidential and not to disclose or
reveal any such Proprietary Information to any person other than
such Party's Representatives and (ii) not use such Proprietary
Information other than in connection with the consummation of the
transactions contemplated hereby. After the Closing Date, any
Proprietary Information to the extent related to the Purchased
Assets shall no longer be subject to the restrictions set forth
herein. The obligations of the Parties under this Section 6.2(b)
shall be in full force and effect for three (3) years from the date
hereof and will survive the termination of this Agreement, the
discharge of all other obligations owed by the Parties to each
other and the closing of the transactions contemplated by this
Agreement.
(c) For a period of seven (7) years after the Closing
Date (or such longer period as may be required by applicable law),
each Party and its Representatives shall have reasonable access to
all of the books and records of the Purchased Assets, including all
Transferring Employee Records in the possession of the other Party
to the extent that such access may reasonably be required by such
Party in connection with the Assumed Liabilities or the Excluded
Liabilities, or other matters relating to or affected by the
operation of the Purchased Assets. Such access shall be afforded
by the Party in possession of any such books and records upon
receipt of reasonable advance written notice and during normal
business hours. The Party exercising this right of access shall be
solely responsible for any costs or expenses incurred by it or the
other Party with respect to such access pursuant to this Section
6.2(c). If the Party in possession of such books and records shall
desire to dispose of any books and records upon or prior to the
expiration of such seven-year period (or any such longer period),
such Party shall, prior to such disposition, give the other Party
a reasonable opportunity at such other Party's reasonable expense,
to segregate and remove such books and records as such other Party
may select.
(d) Notwithstanding the terms of Section 6.2(b)
above, the Parties agree that prior to the Closing Buyer may reveal
or disclose Proprietary Information to any other Persons in
connection with Buyer's financing of its purchase of the Purchased
Assets or any equity participation in Buyer's purchase of the
Purchased Assets (provided that such Persons agree in writing to
maintain the confidentiality of the Proprietary Information in
accordance with this Agreement).
(e) Upon the other Party's prior written approval
(which will not be unreasonably withheld), either Party may provide
Proprietary Information of the other Party to the NYPSC, the PaPUC,
the SEC, the FERC or any other Governmental Authority with
jurisdiction or any stock exchange, as may be necessary to obtain
Sellers' Required Regulatory Approvals, or Buyer Required
Regulatory Approvals, respectively, or to comply generally with any
relevant law or regulation. The disclosing Party will seek
confidential treatment for the Proprietary Information provided to
any Governmental Authority and the disclosing Party will notify the
other Party as far in advance as is practicable of its intention to
release to any Governmental Authority any Proprietary Information.
(f) Except as specifically provided herein or in the
Confidentiality Agreement, nothing in this Section shall impair or
modify any of the rights or obligations of Buyer or its Affiliates
under the Confidentiality Agreement, all of which remain in effect
until termination of such agreement in accordance with its terms.
(g) Except as may be permitted in the Confidentiality
Agreement, Buyer agrees that, prior to the Closing Date, it will
not contact any vendors, suppliers, employees, or other contracting
parties of Sellers or their Affiliates with respect to any aspect
of the Purchased Assets or the transactions contemplated hereby,
without the prior written consent of Sellers, which consent shall
not be unreasonably withheld.
(h) (i) Buyer shall be entitled to inspect, in
accordance with this Section 6.2(h), all of the Purchased Assets
located adjacent to any Point of Interconnection (as defined in the
Interconnection Agreement), as shown in Schedule A to the
Interconnection Agreement, to verify and/or determine the accuracy
of the data, drawings, and records described in such Schedule. The
Parties shall cooperate to schedule Buyer's inspection at the
Facility so that any interference with the operation of the
Facility is minimized, to the extent reasonably feasible, and so
that Buyer may complete its inspections of the Facility within
thirty (30) working days of commencement of inspections and within
two (2) months after the execution of this Agreement.
(ii) Sellers shall provide, or shall cause to be
provided, to Buyer, access to the Facility at the times scheduled
for the inspections. Buyer shall provide qualified engineering,
operations, and maintenance personnel to escort Buyer's personnel
and to assist Buyer's personnel in conducting the inspections.
Sellers and Buyer shall each bear their own costs of participating
in the inspections. At a mutually convenient time not more than
one (1) month after Buyer has completed its inspections, the
Parties shall meet to discuss whether, as a result of the
inspections, it is appropriate to modify Schedule A to the
Interconnection Agreement to portray more accurately the Points of
Interconnection. Any modification to any portion of Schedule A of
the Interconnection Agreement to which the Parties agree shall
thereafter be deemed part of Schedule A of the Interconnection
Agreement for all purposes under the Interconnection Agreement.
6.3 Public Statements. Subject to the requirements
imposed by any applicable law or any Governmental Authority or
stock exchange, prior to the Closing Date, no press release or
other public announcement or public statement or comment in
response to any inquiry relating to the transactions contemplated
by this Agreement shall be issued or made by any Party without the
prior approval of the other Parties (which approval shall not be
unreasonably withheld). The Parties agree to cooperate in
preparing such announcements.
6.4 Expenses. Except to the extent specifically provided
herein, whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be
borne by the Party incurring such costs and expenses.
Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the
obtaining of any title insurance policy and all endorsements
thereto that Buyer elects to obtain and (b) all filing fees under
the HSR Act.
6.5 Further Assurances.
(a) Subject to the terms and conditions of this
Agreement, each of the Parties hereto shall use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the purchase
and sale of the Purchased Assets pursuant to this Agreement and the
assumption of the Assumed Liabilities, including without limitation
using its best efforts to ensure satisfaction of the conditions
precedent to each Party's obligations hereunder, including
obtaining all necessary consents, approvals, and authorizations of
third parties and Governmental Authorities required to be obtained
in order to consummate the transactions hereunder, and to
effectuate a transfer of the Transferable Permits to Buyer. Buyer
agrees to perform all conditions required of Buyer in connection
with the Sellers' Required Regulatory Approvals, other than those
conditions which would create a Buyer Material Adverse Effect.
Neither of the Parties hereto shall, without prior written consent
of the other Party, take or fail to take any action, which might
reasonably be expected to prevent or materially impede, interfere
with or delay the transactions contemplated by this Agreement.
Buyer further agrees that prior to the Closing Date, it will
neither enter into any other contract to acquire, nor acquire,
electric generation facilities or uncommitted generation capacity
located in New York State if Buyer's proposed acquisition of such
additional electric generation facilities or uncommitted generation
capacity might reasonably be expected to prevent or materially
impede, interfere with or delay the transactions contemplated by
this Agreement. Buyer shall give Sellers reasonable advance notice
(and in any event not less than 10 days) before Buyer contracts to
acquire or acquires any electric generation facility or uncommitted
generation capacity located in New York.
(b) In the event that any Purchased Asset shall not
have been conveyed to Buyer at the Closing, each Seller shall,
subject to Section 6.5(c) and (d), use Commercially Reasonable
Efforts to convey such asset to Buyer as promptly as is practicable
after the Closing. In the event that any Easement shall not have
been granted by Buyer to Penelec or NYSEG at the Closing, Buyer
shall use Commercially Reasonable Efforts to grant such Easement to
Penelec or NYSEG as promptly as is practicable after the Closing.
(c) To the extent that Sellers' rights under any
Sellers' Agreement or Real Property Lease may not be assigned
without the consent of another Person which consent has not been
obtained by the Closing Date, this Agreement shall not constitute
an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful. Sellers and Buyer
agree that if any consent to an assignment of any material Sellers'
Agreement or Real Property Lease shall not be obtained or if any
attempted assignment would be ineffective or would impair Buyer's
rights and obligations under the material Sellers' Agreement or
Real Property Lease in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, Sellers, at
Buyer's option and to the maximum extent permitted by law and such
material Sellers' Agreement or Real Property Lease, shall, after
the Closing Date, appoint Buyer to be Sellers' agent with respect
to such material Sellers' Agreement or Real Property Lease, or, to
the maximum extent permitted by law and such material Sellers'
Agreement or Real Property Lease, enter into such reasonable
arrangements with Buyer or take such other actions as are necessary
to provide Buyer with the same or substantially similar rights and
obligations of such material Sellers' Agreement or Real Property
Lease as Buyer may reasonably request. Sellers and Buyer shall
cooperate and shall each use Commercially Reasonable Efforts prior
to and after the Closing Date to obtain an assignment of such
material Sellers' Agreement or Real Property Lease to Buyer. For
purposes of this Section 6.5(c), all Sellers' Agreements listed on
Schedule 4.12(a) are deemed to be "material."
(d) To the extent that Sellers' rights under any
warranty or guaranty described in Section 2.1(i) may not be
assigned without the consent of another Person, which consent has
not been obtained by the Closing Date, this Agreement shall not
constitute an agreement to assign same, if an attempted assignment
would constitute a breach thereof, or be unlawful. Sellers and
Buyer agree that if any consent to an assignment of any such
warranty or guaranty shall not be obtained, or if any attempted
assignment would be ineffective or would impair Buyer's rights and
obligations under the warranty or guaranty in question, so that
Buyer would not in effect acquire the benefit of all such rights
and obligations, Sellers, at Buyer's expense, shall use
Commercially Reasonable Efforts, to the extent permitted by law and
such warranty or guaranty, to enforce such warranty or guaranty for
the benefit of Buyer so as to provide Buyer to the maximum extent
possible with the benefits and obligations of such warranty or
guaranty.
6.6 Consents and Approvals.
(a) As promptly as possible after the date of this
Agreement, Sellers and Buyer, as applicable, shall each file or
cause to be filed with the Federal Trade Commission and the United
States Department of Justice any notifications required to be filed
under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby.
The Parties shall use their respective best efforts to respond
promptly to any requests for additional information made by either
of such agencies, and to cause the waiting periods under the HSR
Act to terminate or expire at the earliest possible date after the
date of filing. Buyer will pay all filing fees under the HSR Act
but each Party will bear its own costs of the preparation of any
filing.
(b) As promptly as possible after the date of this
Agreement, Buyer shall file with the FERC an application requesting
Exempt Wholesale Generator status for Buyer, which filing may be
made individually by Buyer or jointly with the Sellers in
conjunction with other filings to be made with the FERC under this
Agreement, as reasonably determined by the Parties. Prior to
Buyer's submission of that application with the FERC, Buyer shall
submit such application to the Sellers for review and comment and
Buyer shall incorporate into the application any revisions
reasonably requested by Sellers. Buyer shall be solely responsible
for the cost of preparing and filing this application, any
petition(s) for rehearing, or any re-application. If Buyer's
initial application for Exempt Wholesale Generator status is
rejected by the FERC, Buyer agrees to petition the FERC for
rehearing and/or to re-submit an application with the FERC, as
reasonably required by the Sellers, provided that in either case
the action directed by the Sellers does not create a Buyer Material
Adverse Effect.
(c) As promptly as possible after the date of this
Agreement, Buyer shall file with the FERC an application requesting
authorization under Section 205 of the Federal Power Act to sell
electric generating capacity and energy, but not other services,
including, without limitation, ancillary services, at wholesale at
market-based rates, which filing may be made individually by Buyer
or jointly with Sellers in conjunction with other filings to be
made with the FERC under this Agreement, as reasonably determined
by the Parties. Prior to the filing of that application with the
FERC, Buyer shall submit such application to the Sellers for review
and comment and Buyer shall incorporate into the application any
revisions reasonably requested by the Sellers. Buyer shall be
solely responsible for the cost of preparing and filing this
application, any petition(s) for rehearing, or any reapplication.
If Buyer's initial application for market-based rate authorization
results in a FERC request for additional information or is rejected
by the FERC, Buyer shall provide that information promptly, to
petition the FERC for rehearing and/or to re-submit an application
with the FERC, as reasonably required by the Sellers, provided that
the Sellers shall have a reasonable opportunity to make changes to
such a petition or re-submission application and, provided further,
that the action directed by the Seller does not create a Buyer
Material Adverse Effect.
(d) As promptly as possible, and in any case within
sixty (60) days, after the date of this Agreement, Sellers and
Buyer, as applicable, shall file with the NYPSC, the PaPUC, the
FERC and any other Governmental Authority, and make any other
filings required to be made with respect to the transactions
contemplated hereby. The Parties shall respond promptly to any
requests for additional information made by such agencies, and use
their respective best efforts to cause regulatory approval to be
obtained at the earliest possible date after the date of filing.
Each Party will bear its own costs of the preparation of any such
filing.
(e) Sellers and Buyer shall cooperate with each other
and promptly prepare and file notifications with, and request Tax
clearances from, state and local taxing authorities in
jurisdictions in which a portion of the Purchase Price may be
required to be withheld or in which Buyer would otherwise be liable
for any Tax liabilities of Sellers pursuant to such state and local
Tax law.
(f) Buyer shall have the primary responsibility for
securing the transfer, reissuance or procurement of the Permits
and Environmental Permits (other than Transferable Permits)
effective as of the Closing Date. Sellers shall cooperate with
Buyer's efforts in this regard and assist in any transfer or
reissuance of a Permit or Environmental Permit held by Sellers or
the procurement of any other Permit or Environmental Permit when so
requested by Buyer.
6.7 Fees and Commissions. Each Seller, on the one hand,
and Buyer, on the other hand, represent and warrant to the other
that, except for Goldman, Sachs & Co., which are acting for and at
the expense of Sellers, and Lehman Brothers Inc., which is acting
for and at the expense of Buyer, no broker, finder or other Person
is entitled to any brokerage fees, commissions or finder's fees in
connection with the transaction contemplated hereby by reason of
any action taken by the Party making such representation. Each
Seller, on the one hand, and Buyer, on the other hand, will pay to
the other or otherwise discharge, and will indemnify and hold the
other harmless from and against, any and all claims or liabilities
for all brokerage fees, commissions and finder's fees (other than
the fees, commissions and finder's fees payable to the parties
listed above) incurred by reason of any action taken by the
indemnifying party.
6.8 Tax Matters.
(a) All transfer and sales taxes incurred in
connection with this Agreement and the transactions contemplated
hereby (including, without limitation, (a) Pennsylvania sales tax;
(b) the Pennsylvania transfer tax on conveyances of interests in
real property; and (c) Pennsylvania sales tax and transfer tax on
deeds) shall be borne by Buyer. Sellers shall file, to the extent
required by, or permissible under, applicable law, all necessary
Tax Returns and other documentation with respect to all such
transfer and sales taxes, and, if required by applicable law, Buyer
shall join in the execution of any such Tax Returns and other
documentation. Prior to the Closing Date, to the extent
applicable, Buyer shall provide to Sellers appropriate certificates
of Tax exemption from each applicable taxing authority.
(b) With respect to Taxes to be prorated in
accordance with Section 3.5 of this Agreement, Buyer shall prepare
and timely file all Tax Returns required to be filed after the
Closing Date with respect to the Purchased Assets, if any, and
shall duly and timely pay all such Taxes shown to be due on such
Tax Returns. Buyer's preparation of any such Tax Returns shall be
subject to Sellers' approval, which approval shall not be
unreasonably withheld. Buyer shall make such Tax Returns available
for Sellers' review and approval no later than fifteen (15)
Business Days prior to the due date for filing each such Tax
Return.
(c) Buyer and Sellers shall provide the other with
such assistance as may reasonably be requested by the other Party
in connection with the preparation of any Tax Return, any audit or
other examination by any taxing authority, or any judicial or
administrative proceedings relating to liability for Taxes, and
each shall retain and provide the requesting party with any records
or information which may be relevant to such return, audit,
examination or proceedings. Any information obtained pursuant to
this Section 6.8(c) or pursuant to any other Section hereof
providing for the sharing of information or review of any Tax
Return or other instrument relating to Taxes shall be kept
confidential by the parties hereto.
(d) Disputes. In the event that a dispute arises
between Sellers and Buyer regarding Taxes, or any amount due under
this Section 6.8, the Parties shall attempt in good faith to
resolve such dispute and any agreed upon amount shall be paid to
the appropriate Party. If such dispute is not resolved within 30
days, the Parties shall submit the dispute to the Independent
Accounting Firm for resolution, which resolution shall be final,
conclusive and binding on the Parties. Notwithstanding anything in
this Agreement to the contrary, the fees and expenses of the
Independent Accounting Firm in resolving the dispute shall be borne
50% by Sellers and 50% by Buyer. Any payment required to be made
as a result of the resolution of the dispute by the Independent
Accounting Firm shall be made within ten days after such
resolution, together with any interest determined by the
Independent Accounting Firm to be appropriate.
6.9 Advice of Changes. Prior to the Closing, each Party
will promptly advise the other in writing with respect to any
matter arising after execution of this Agreement of which that
Party obtains Knowledge and which, if existing or occurring at the
date of this Agreement, would have been required to be set forth in
this Agreement, including any of the Schedules hereto. Sellers may
at any time notify Buyer of any development causing a breach of any
of its representations and warranties in Article IV. Unless Buyer
has the right to terminate this Agreement pursuant to Section
9.1(f) below by reason of the developments and exercises that right
within the period of fifteen (15) days after such right accrues,
the written notice pursuant to this Section 6.9 will be deemed to
have amended this Agreement, including the appropriate Schedule, to
have qualified the representations and warranties contained in
Article IV above, and to have cured any misrepresentation or breach
of warranty that otherwise might have existed hereunder by reason
of the development.
6.10 Employees.
(a) At least 90 days prior to the Closing Date, Buyer
is required to offer employment, effective on the Closing Date, to
those employees of Penelec who are covered by the IBEW Collective
Bargaining Agreement as defined in Section 6.10(d) below, and who
are employed in positions relating to the Purchased Assets ("Union
Employees"). At least 90 days prior to the Closing Date, Buyer
shall provide Sellers with notice of its staffing level
requirements, listed by classification and operation, and shall be
required to offer employment only to that number of Union Employees
necessary to satisfy such staffing level requirements. In each
classification, Union Employees shall be so offered employment in
order of their seniority.
(b) At least 90 days prior to the Closing Date, Buyer
is also required to make reasonable efforts to make a Qualifying
Offer of employment, effective on the Closing Date, to those
salaried employees of Penelec or Genco who are listed in, or are in
a function or whose employment responsibilities are listed in,
Schedule 6.10(b) ("Non-Union Employees"). Each person who becomes
employed by Buyer pursuant to Section 6.10(a) or (b) (whether
pursuant to a Qualifying Offer or otherwise) shall be referred to
herein as a "Transferred Union Employee" or "Transferred Non-Union
Employee", respectively. As used herein, the term "Qualifying
Offer" means an offer of at least 85% of an employee's current
total annual cash compensation at the time the offer was made
(consisting of base salary and target incentive bonus). Schedule
6.10(b) sets forth, for each of the Non-Union Employees listed
therein, their current base salaries and target incentive bonuses.
(c) All offers of employment made pursuant to
Sections 6.10(a) or (b) shall be made (i) in accordance with
seniority and all applicable laws and regulations, and (ii) for
Union Employees, in accordance with the IBEW Collective Bargaining
Agreement.
(d) Schedule 6.10(d) sets forth the collective
bargaining agreement, and amendments thereto, to which Penelec is
a party with the IBEW in connection with the Purchased Assets
("IBEW Collective Bargaining Agreement"). Transferred Union
Employees shall retain their seniority and receive full credit for
service with Penelec in connection with entitlement to vacation and
all other benefits and rights under the IBEW Collective Bargaining
Agreement and under each compensation, retirement or other employee
benefit plan or program Buyer is required to maintain for
Transferred Union Employees pursuant to the IBEW Collective
Bargaining Agreement. With respect to Transferred Union Employees,
on the Closing Date, Buyer shall assume the IBEW Collective
Bargaining Agreement for the duration of its term as it relates to
Transferred Union Employees to be employed at the Plant in
positions covered by the IBEW Collective Bargaining Agreement and
shall comply with all applicable obligations under the IBEW
Collective Bargaining Agreement. Consistent with the obligations
under the IBEW Collective Bargaining Agreement and applicable laws,
Buyer shall be required to establish and maintain a pension plan
and other employer benefit programs for the Transferred Union
Employees for the duration of the term of the IBEW Collective
Bargaining Agreement which are substantially equivalent to the
Penelec plans and programs in effect for the Transferred Union
Employees immediately prior to the Closing Date (the "Penelec
Plans"), and which provide at least the same level of benefits or
coverage as do the Penelec Plans for the duration of the IBEW
Collective Bargaining Agreement. Buyer further agrees to recognize
the IBEW as the collective bargaining agent for the Transferred
Union Employees.
(e) As of the Closing Date, all Transferred Non-Union
Employees shall commence participation in welfare benefit plans of
Buyer or its Affiliates (the "Replacement Welfare Plans"). Buyer
shall (i) waive all limitations as to pre-existing condition
exclusions and waiting periods with respect to the Transferred Non-
Union Employees under the Replacement Welfare Plans, other than,
but only to the extent of, limitations or waiting periods that were
in effect with respect to such employees under the welfare plans
maintained by Genco, Penelec or their Affiliates and that have not
been satisfied as of the Closing Date, and (ii) provide each
Transferred Non-Union Employee with credit for any copayments and
deductibles paid prior to the Closing Date in satisfying any
deductible or out-of-pocket requirements under the Replacement
Welfare Plans (on a pro-rata basis in the event of a difference in
plan years).
(f) Transferred Non-Union Employees shall be given
credit for all service with Genco, Penelec and their Affiliates
under all deferred compensation, profit-sharing, 401(k), retirement
and pension plans, incentive compensation, bonus, fringe benefit
and other employee benefit plans, programs and arrangements of
Buyer ("Buyer Benefit Plans") in which they may become
participants. The service credit so given shall be for purposes of
eligibility and vesting, but not for level of benefits and benefit
accrual.
(g) To the extent allowable by law, Buyer shall take
any and all necessary action to cause the trustee of any defined
contribution plan of Buyer or its Affiliates in which any
Transferred Employee becomes a participant to accept a direct
"rollover" of all or a portion of said employee's "eligible
rollover distribution" within the meaning of Section 402 of the
Code from the GPU Companies Employee Savings Plan for Non-
Bargaining Employees or the Penelec Employee Savings Plan for
Bargaining Unit Employees (the "Sellers' Savings Plans") if
requested to do so by the Transferred Employee. Buyer agrees that
the property so rolled over and the assets so transferred may
include promissory notes evidencing loans from the Sellers' Savings
Plans to Transferred Employees that are outstanding as of the
Closing Date. However, except as otherwise provided in Section
6.10(d), any defined contribution plan of Buyer or its Affiliates
accepting such a rollover or transfer shall not be required to (x)
make any further loans to any Transferred Employee after the
Closing Date or (y) permit any additional investment to be made in
GPU common stock on behalf of any Transferred Employee after the
Closing Date.
(h) Buyer shall pay or provide to Transferred
Employees the benefits described in subparagraphs (i), (ii) and
(iii) of this Section 6.10(h), and shall reimburse the Sellers for
the benefits they will provide to Union Employees and Non-Union
Employees in accordance with subparagraph (iv) of this Section
6.10(h).
(i) Buyer shall make a transition incentive
payment in the amount of $2,500 to each Transferred Union
Employee. Payment shall be made as soon as practicable after,
but in any event no later than 60 days following, the Closing
Date.
(ii) In the case of each Transferred Non-Union
Employee who is initially assigned by Buyer to a principal
place of work that is at least 50 miles farther from the
employee's principal residence than was his principal place of
work immediately prior to the Closing Date and who relocates
his or her principal residence to the vicinity of his or her
new principal place of work within 12 months following the
Closing Date, Buyer shall reimburse the employee for all
"moving expenses" within the meaning of Section 217(b) of the
Code incurred by the employee and other members of his or her
household in connection with such relocation, up to a maximum
aggregate amount of $5,000. Claims for reimbursement for such
expenses shall be filed in accordance with such procedures,
and shall be accompanied by such substantiation of the
expenses for which reimbursement is sought, as Buyer may
reasonably request. All claims for reimbursement shall be
processed, and qualifying expenses shall be reimbursed, as
soon as practicable after, but in any event no later than 60
days following, the date on which the employee's claim for
reimbursement is submitted to Buyer.
(iii) Buyer shall provide the severance benefits
described in Section 1 of Schedule 6.10(h) to each Transferred
Employee who is "Involuntarily Terminated" (as defined below)
(a) within 12 months after the Closing Date or (b), in the
case of any Transferred Non-Union Employee who had attained
age 50 and had completed at least 10 Years of Service (as
defined in Section 1(c) of Schedule 6.10(h)) prior to the
Closing Date, on or any time prior to June 30, 2004. For
purposes of this Section 6.10(h) and Schedule 6.10(h), a
Transferred Employee shall be treated as "Involuntarily
Terminated" if his or her employment with Buyer and all of its
Affiliates is terminated by Buyer or any of its Affiliates for
any reason other than for cause, disability or mandatory
retirement. A Transferred Employee who voluntarily leaves
employment with Buyer and all of its Affiliates as a result of
a reduction of more than 15% in the rate of his or her total
annual cash compensation (including both base salary and
target incentive award) shall also be treated as having been
Involuntarily Terminated. Buyer shall require any Transferred
Employee who is Involuntarily Terminated, as a condition to
receiving the severance benefits described in Section 1(b),
(c), (d), (e) and (g) of Schedule 6.10(h), to execute a
release of claims against Penelec or Genco, as applicable, and
Buyer, in such form as Buyer and Sellers shall agree upon.
(iv) At the Closing or as soon thereafter as
practicable, but in any event no later than 60 days following
the Closing Date, Buyer shall pay to Sellers, in addition to
all other amounts to be paid by Buyer to Sellers hereunder, an
amount equal to the aggregate estimated cost that the Sellers
will or may incur in providing the severance, pension, health
care and group term life insurance benefits described in
Section 2 of Schedule 6.10(h) to the Union Employees and Non-
Union Employees therein described. The estimated cost of such
benefits shall be calculated by the actuarial firm regularly
engaged to provide actuarial services to the GPU Companies
with respect to their pension, health care and life insurance
plans, and shall be determined using the same assumptions as
to mortality, turnover, interest rate and other actuarial
assumption as used by such firm in determining the cost of
benefits under the GPU Companies' pension, health and group
term life insurance plans for purposes of their most recently
issued financial statements prior to the Closing Date.
(i) Sellers shall be responsible for any payments
required under their voluntary early retirement plans offered in
connection with the transfer of the Purchased Assets. Within
thirty (30) days following the last day that any Union Employee or
Non-Union Employee may elect to participate in such plans, Sellers
shall provide Buyer with a list of all such employees who have so
elected.
(j) Sellers shall be responsible, with respect to the
Purchased Assets, for performing and discharging all requirements
under the WARN Act and under applicable state and local laws and
regulations for the notification of its employees of any
"employment loss" within the meaning of the WARN Act which occurs
prior to the Closing Date.
(k) Sellers are responsible for extending and
continuing to extend COBRA continuation coverage to all employees
and former employees, and qualified beneficiaries of such employees
and former employees, who become or became entitled to such COBRA
continuation coverage on or before the Closing Date, including
those for whom the Closing Date occurs during their COBRA election
period.
(l) Sellers shall pay to all Sellers' employees that
Buyer offers employment pursuant to Section 6.10 hereof, all
compensation, bonus, vacation and holiday compensation, workers'
compensation or other employment benefits that are payable in cash
which have accrued to such employees through and including the
Closing Date, at such times as provided under the terms of the
applicable compensation or benefit programs.
6.11 Risk of Loss.
(a) From the date hereof through the Closing Date,
all risk of loss or damage to the property included in the
Purchased Assets shall be borne by Sellers, other than loss or
damage caused by the acts or negligence of Buyer or any Buyer
Representative, which loss or damage shall be the responsibility of
Buyer.
(b) If, before the Closing Date, all or any portion
of the Purchased Assets is (i) taken by eminent domain or is the
subject of a pending or (to the Knowledge of Sellers) contemplated
taking which has not been consummated, or (ii) damaged or destroyed
by fire or other casualty, Sellers shall notify Buyer promptly in
writing of such fact, and (x) in the case of a condemnation,
Sellers shall assign or pay, as the case may be, any proceeds
thereof to Buyer at the Closing and (y) in the case of a casualty,
Sellers shall either restore the damage or assign the insurance
proceeds therefor (and pay the amount of any deductible and/or
self-insured amount in respect of such casualty) to Buyer at the
Closing. Notwithstanding the above, if such casualty or loss
results in a Material Adverse Effect, Buyer and Sellers shall
negotiate to settle the loss resulting from such taking (and such
negotiation shall include, without limitation, the negotiation of
a fair and equitable adjustment to the Purchase Price). If no such
settlement is reached within sixty (60) days after Sellers have
notified Buyer of such casualty or loss, then Buyer or Sellers may
terminate this Agreement pursuant to Section 9.1(i). In the event
of damage or destruction which Sellers elect to restore, Sellers
will have the right to postpone the Closing for up to four (4)
months. Buyer will have the right to inspect and observe, or have
its representatives inspect or observe, all repairs necessitated by
any such damage or destruction.
6.12 Additional Covenants of Buyer. Notwithstanding
any other provision hereof, Buyer covenants and agrees that, after
the Closing Date, Buyer will not make any modifications to the
Purchased Assets or take any action which would result in a loss of
the exclusion of interest on the pollution control bonds issued on
behalf of Penelec or NYSEG in connection with the Purchased Assets
from gross income for federal income purposes under Section 103 of
the Code. Buyer further covenants and agrees that, in the event
that Buyer transfers any of the Purchased Assets, Buyer shall
obtain from its transferee a covenant and agreement that is
analogous to Buyer's covenant and agreement pursuant to the
immediately preceding sentence, as well as a covenant and agreement
that is analogous to that of this sentence. This covenant shall
survive Closing and shall continue in effect so long as the
pollution control bonds remain outstanding.
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer. The obligation
of Buyer to effect the purchase of the Purchased Assets and the
other transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date (or
the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable
to the consummation of the sale of the Purchased Assets
contemplated hereby shall have expired or been terminated.
(b) No preliminary or permanent injunction or other
order or decree by any federal or state court or Governmental
Authority which prevents the consummation of the sale of the
Purchased Assets contemplated herein shall have been issued and
remain in effect (each Party agreeing to use its reasonable best
efforts to have any such injunction, order or decree lifted) and no
statute, rule or regulation shall have been enacted by any state or
federal government or Governmental Authority which prohibits the
consummation of the sale of the Purchased Assets;
(c) Buyer shall have received all of Buyer's Required
Regulatory Approvals, in form and substance reasonably satisfactory
(including no material adverse conditions) to it;
(d) Sellers shall have performed and complied in all
material respects with the covenants and agreements contained in
this Agreement which are required to be performed and complied with
by Sellers on or prior to the Closing Date;
(e) The representations and warranties of Sellers set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made at and as of the
Closing Date;
(f) Buyer shall have received certificates from an
authorized officer of each Seller, dated the Closing Date, to the
effect that, to such officer's Knowledge, the conditions set forth
in Section 7.1(d) and (e) have been satisfied by such Seller;
(g) Buyer shall have received an opinion from each
Seller's counsel reasonably acceptable to Buyer, dated the Closing
Date and reasonably satisfactory in form and substance to Buyer and
its counsel, substantially to the effect that:
(i) Such Seller is a corporation duly
incorporated, validly existing and in good standing under the
laws its state of incorporation and Seller has the corporate
power and authority to own, lease and operate its material
assets and properties and to carry on its business as is now
conducted, and to execute and deliver the Agreement and each
Ancillary Agreement and to consummate the transactions
contemplated by it thereby; and the execution and delivery of
the Agreement by such Seller and the consummation of the sale
of the Purchased Assets contemplated thereby have been duly
and validly authorized by all necessary corporate action
required on the part of such Seller;
(ii) The Agreement and each Ancillary Agreement
has been duly and validly executed and delivered by such
Seller and constitutes a legal, valid and binding agreement of
such Seller, enforceable in accordance with its terms, except
that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and general
principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of
the Agreement and each Ancillary Agreement by such Seller does
not (A) conflict with the Certificate of Incorporation or
Bylaws of such Seller or (B) to the knowledge of such counsel,
constitute a violation of or default under those agreements or
instruments set forth on a Schedule attached to the opinion
and which have been identified to such counsel as all the
agreements and instruments which are material to the business
or financial condition of such Seller;
(iv) The Bill of Sale, the deeds, the Assignment
and Assumption Agreement and other transfer instruments
described in Section 3.6 are in proper form to transfer to
Buyer such title as was held by such Seller to the Purchased
Assets;
(v) No consent or approval of, filing with, or
notice to, any Governmental Authority is necessary for the
execution and delivery of this Agreement by such Seller or the
consummation by such Seller of the transactions contemplated
hereby, other than (i) such consents, approvals, filings or
notices set forth in Schedule 4.3(b) or which, if not obtained
or made, will not prevent such Seller from performing its
material obligations hereunder and (ii) such consents,
approvals, filings or notices which become applicable to
Sellers or the Purchased Assets as a result of the specific
regulatory status of Buyer (or any of its Affiliates) or as a
result of any other facts that specifically relate to the
business or activities in which Buyer (or any of its
Affiliates) is or proposes to be engaged.
In rendering the foregoing opinion, each Seller's counsel may
rely on opinions of local law reasonably acceptable to Buyer.
(h) Sellers shall have delivered, or caused to be
delivered, to Buyer at the Closing, Sellers' closing deliveries
described in Section 3.6.
(i) Buyer shall have received from a title insurance
company ALTA title owner's insurance policies on the Real Property
insuring title as described in Section 4.5, subject only to
Permitted Encumbrances reasonably acceptable to Buyer and standard
printed exceptions. A Permitted Encumbrance which is not removed
prior to Closing shall be deemed reasonably acceptable to Buyer as
aforesaid unless such Permitted Encumbrance would have a Material
Adverse Effect. Buyer shall provide Sellers with a copy of a
preliminary title report and survey for the Real Property as soon
as it is available.
(j) Since the date of this Agreement, no Material
Adverse Effect shall have occurred and be continuing.
7.2 Conditions to Obligations of Sellers. The obligation
of Sellers to effect the sale of the Purchased Assets and the other
transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date (or the waiver by
Sellers) of the following conditions:
(a) The waiting period under the HSR Act applicable
to the consummation of the sale of the Purchased Assets
contemplated hereby shall have expired or been terminated;
(b) No preliminary or permanent injunction or other
order or decree by any federal or state court which prevents the
consummation of the sale of the Purchased Assets contemplated
herein shall have been issued and remain in effect (each Party
agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or
regulation shall have been enacted by any state or federal
government or Governmental Authority in the United States which
prohibits the consummation of the sale of the Purchased Assets;
(c) NGE and NYSEG shall have received all of Sellers'
Required Regulatory Approvals applicable to NGE or NYSEG, in form
and substance reasonably satisfactory (including no material
adverse conditions) to it;
(d) Penelec shall have received all of Sellers'
Required Regulatory Approvals applicable to Penelec, in form and
substance reasonably satisfactory (including no material adverse
conditions) to it;
(e) All consents and approvals for the consummation
of the sale of the Purchased Assets contemplated hereby required
under the terms of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which any Seller is
party or by which any Seller, or any of the Purchased Assets, may
be bound, shall have been obtained, other than those which if not
obtained, would not, individually and in the aggregate, create a
Material Adverse Effect;
(f) Buyer shall have performed and complied with in
all material respects the covenants and agreements contained in
this Agreement which are required to be performed and complied with
by Buyer on or prior to the Closing Date;
(g) The representations and warranties of Buyer set
forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made at and as of the
Closing Date;
(h) Sellers shall have received a certificate from an
authorized officer of Buyer, dated the Closing Date, to the effect
that, to such officer's Knowledge, the conditions set forth in
Sections 7.2(f) and (g) have been satisfied by Buyer;
(i) Effective upon Closing, Buyer shall have assumed,
as set forth in Section 6.10, all of the applicable obligations
under the IBEW Collective Bargaining Agreement as they relate to
Transferred Union Employees;
(j) Sellers shall have received an opinion from
Buyer's counsel reasonably acceptable to Sellers, dated the Closing
Date and satisfactory in form and substance to Sellers and their
counsel, substantially to the effect that:
(i) Each Buyer Entity is a California
corporation duly organized, validly existing and in good
standing under the laws of the state of its organization and
is qualified to do business in the Commonwealth of
Pennsylvania and has the full corporate power and authority to
own, lease and operate its material assets and properties and
to carry on its business as is now conducted, and to execute
and deliver the Agreement and the Ancillary Agreements by
Buyer and the Guaranty by Buyer Parent and to consummate the
transactions contemplated thereby; and the execution and
delivery of the Agreement and the Ancillary Agreements by
Buyer and the Guaranty by Buyer Parent, and the consummation
of the transactions contemplated thereby have been duly
authorized by all necessary corporate action required on the
part of Buyer and Buyer Parent;
(ii) The Agreement, the Ancillary Agreements and
the Guaranty have been duly and validly executed and delivered
by Buyer and Buyer Parent, as applicable, and constitute
legal, valid and binding agreements of Buyer and Buyer Parent,
as applicable, enforceable against Buyer and Buyer Parent, as
applicable, in accordance with their terms, except that such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance
or other similar laws affecting or relating to enforcement of
creditor's rights generally and general principles of equity
(regardless of whether enforcement is considered in a
proceeding at law or in equity);
(iii) The execution, delivery and performance
of the Agreement and the Ancillary Agreements by Buyer and the
Guaranty by Buyer Parent does not (A) conflict with the
Certificate of Incorporation or Bylaws (or other
organizational documents), as currently in effect, of Buyer
and Buyer Parent or (B) to the knowledge of such counsel,
constitute a violation of or default under those agreements or
instruments set forth on a Schedule attached to the opinion
and which have been identified to such counsel as all the
agreements and instruments which are material to the business
or financial condition of Buyer or Buyer Parent;
(iv) The Assignment and Assumption Agreement and
other transfer instruments described in Section 3.7 are in
proper form for Buyer to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or
notice to, any Governmental Authority is necessary for Buyer's
execution and delivery of the Agreement and the Ancillary
Agreements, Buyer Parent's execution and delivery of the
Guaranty, or the consummation by Buyer and Buyer Parent of the
transactions contemplated hereby and thereby, other than such
consents, approvals, filings or notices, which, if not
obtained or made, will not prevent Buyer or Buyer Parent from
performing its respective obligations under the Agreement, the
Ancillary Agreements and Guaranty.
(k) Buyer shall have delivered, or caused to be
delivered, to Sellers at the Closing, Buyer's closing deliveries
described in Section 3.7.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless
Sellers, their officers, directors, employees, shareholders,
Affiliates and agents (each, a "Sellers' Indemnitee") from and
against any and all claims, demands, suits, losses, liabilities,
damages, obligations, payments, costs and expenses (including,
without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and
compromises relating thereto and reasonable attorneys' fees and
reasonable disbursements in connection therewith) (each, an
"Indemnifiable Loss"), asserted against or suffered by any Sellers'
Indemnitee relating to, resulting from or arising out of (i) any
breach by Buyer of any covenant or agreement of Buyer contained
in this Agreement or the representations and warranties contained
in Sections 5.1, 5.2 and 5.3, (ii) the Assumed Liabilities, (iii)
any loss or damages resulting from or arising out of any
Inspection, or (iv) any Third Party Claims against a Sellers'
Indemnitee arising out of or in connection with Buyer's ownership
or operation of the Plant and other Purchased Assets on or after
the Closing Date.
(b) Sellers shall jointly and severally, except as
otherwise specified in Section 10.1, defend and hold harmless
Buyer, its officers, directors, employees, shareholders, Affiliates
and agents (each, a "Buyer Indemnitee") from and against any and
all Indemnifiable Losses asserted against or suffered by any Buyer
Indemnitee relating to, resulting from or arising out of (i) any
breach by Sellers of any covenant or agreement of Sellers contained
in this Agreement or the representations and warranties contained
in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii)
noncompliance by Sellers with any bulk sales or transfer laws as
provided in Section 10.12, or (iv) any Third Party Claims against
a Buyer Indemnitee arising out of or in connection with Sellers'
ownership or operation of the Excluded Assets on or after the
Closing Date.
(c) Buyer, for itself and on behalf of its
Representatives and Affiliates, does hereby release, hold harmless
and forever discharge Sellers, their Representatives and
Affiliates, from any and all Indemnifiable Losses of any kind or
character, whether known or unknown, hidden or concealed, resulting
from or arising out of any Environmental Condition or violation of
Environmental Law relating to the Purchased Assets other than any
liabilities or obligations described in Sections 2.4(g), (h) and
(i). Buyer hereby waives any and all rights and benefits with
respect to such Indemnifiable Losses that it now has, or in the
future may have conferred upon it by virtue of any statute or
common law principle which provides that a general release does not
extend to claims which a party does not know or suspect to exist in
its favor at the time of executing the release, if knowledge of
such claims would have materially affected such party's settlement
with the obligor. In this connection, Buyer hereby acknowledges
that it is aware that factual matters now unknown to it may have
given or may hereafter give rise to Indemnifiable Losses that are
presently unknown, unanticipated and unsuspected, and it further
agrees that this release has been negotiated and agreed upon in
light of that awareness and they nevertheless hereby intend to
release Sellers and their Representatives and Affiliates from the
Indemnifiable Losses described in the first sentence of this
paragraph.
(d) Notwithstanding anything to the contrary
contained herein:
(i) Any Person entitled to receive
indemnification under this Agreement (an "Indemnitee") shall
use Commercially Reasonable Efforts to mitigate all losses,
damages and the like relating to a claim under these
indemnification provisions, including availing itself of any
defenses, limitations, rights of contribution, claims against
third Persons and other rights at law or equity. The
Indemnitee's Commercially Reasonable Efforts shall include the
reasonable expenditure of money to mitigate or otherwise
reduce or eliminate any loss or expenses for which
indemnification would otherwise be due, and the Indemnitor
shall reimburse the Indemnitee for the Indemnitee's reasonable
expenditures in undertaking the mitigation.
(ii) Any Indemnifiable Loss shall be net of (i)
the dollar amount of any insurance or other proceeds actually
receivable by the Indemnitee or any of its Affiliates with
respect to the Indemnifiable Loss, and (ii) income tax
benefits to the Indemnitee, to the extent realized by the
Indemnitee. Any party seeking indemnity hereunder shall use
Commercially Reasonable Efforts to seek coverage (including
both costs of defense and indemnity) under applicable
insurance policies with respect to any such Indemnifiable
Loss.
(e) The expiration or termination of any covenant or
agreement shall not affect the Parties' obligations under this
Section 8.1 if the Indemnitee provided the Person required to
provide indemnification under this Agreement (the "Indemnifying
Party") with proper notice of the claim or event for which
indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in
Article IX, the rights and remedies of Sellers and Buyer under
this Article VIII are exclusive and in lieu of any and all other
rights and remedies which Sellers and Buyer may have under this
Agreement or otherwise for monetary relief, with respect to (i) any
breach of or failure to perform any covenant, agreement, or
representation or warranty set forth in this Agreement, after the
occurrence of the Closing, or (ii) the Assumed Liabilities or the
Excluded Liabilities, as the case may be. The indemnification
obligations of the Parties set forth in this Article VIII apply
only to matters arising out of this Agreement, excluding the
Ancillary Agreements. Any Indemnifiable Loss arising under or
pursuant to an Ancillary Agreement shall be governed by the
indemnification obligations, if any, contained in the Ancillary
Agreement under which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein,
no party (including an Indemnitee) shall be entitled to recover
from any other party (including an Indemnifying Party) for any
liabilities, damages, obligations, payments losses, costs, or
expenses under this Agreement any amount in excess of the actual
compensatory damages, court costs and reasonable attorney's and
other advisor fees suffered by such party. Buyer and Sellers waive
any right to recover punitive, incidental, special, exemplary and
consequential damages arising in connection with or with respect to
this Agreement. The provisions of this Section 8.1(g) shall not
apply to indemnification for a Third Party Claim.
8.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion
of any claim or of the commencement of any claim, action, or
proceeding made or brought by any Person who is not a party to this
Agreement or any Affiliate of a Party to this Agreement (a "Third
Party Claim") with respect to which indemnification is to be sought
from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but in
any event such notice shall not be given later than ten (10)
calendar days after the Indemnitee's receipt of notice of such
Third Party Claim. Such notice shall describe the nature of the
Third Party Claim in reasonable detail and shall indicate the
estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying
Party will have the right to participate in or, by giving written
notice to the Indemnitee, to elect to assume the defense of any
Third Party Claim at such Indemnifying Party's expense and by such
Indemnifying Party's own counsel, provided that the counsel for the
Indemnifying Party who shall conduct the defense of such Third
Party Claim shall be reasonably satisfactory to the Indemnitee. The
Indemnitee shall cooperate in good faith in such defense at such
Indemnitee's own expense. If an Indemnifying Party elects not to
assume the defense of any Third Party Claim, the Indemnitee may
compromise or settle such Third Party Claim over the objection of
the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant
to this Agreement.
(b) (i) If, within ten (10) calendar days after an
Indemnitee provides written notice to the Indemnifying Party of any
Third Party Claims, the Indemnitee receives written notice from the
Indemnifying Party that such Indemnifying Party has elected to
assume the defense of such Third Party Claim as provided in Section
8.2(a), the Indemnifying Party will not be liable for any legal
expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying
Party shall fail to take reasonable steps necessary to defend
diligently such Third Party Claim within twenty (20) calendar days
after receiving notice from the Indemnitee that the Indemnitee
believes the Indemnifying Party has failed to take such steps, the
Indemnitee may assume its own defense and the Indemnifying Party
shall be liable for all reasonable expenses thereof. (ii) Without
the prior written consent of the Indemnitee, the Indemnifying Party
shall not enter into any settlement of any Third Party Claim which
would lead to liability or create any financial or other obligation
on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder. If a firm offer is made to
settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the
Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder and the Indemnifying Party desires to
accept and agree to such offer, the Indemnifying Party shall give
written notice to the Indemnitee to that effect. If the Indemnitee
fails to consent to such firm offer within ten (10) calendar days
after its receipt of such notice, the Indemnifying Party shall be
relieved of its obligations to defend such Third Party Claim and
the Indemnitee may contest or defend such Third Party Claim. In
such event, the maximum liability of the Indemnifying Party as to
such Third Party Claim will be the amount of such settlement offer
plus reasonable costs and expenses paid or incurred by Indemnitee
up to the date of said notice.
(c) Any claim by an Indemnitee on account of an
Indemnifiable Loss which does not result from a Third Party Claim
(a "Direct Claim") shall be asserted by giving the Indemnifying
Party reasonably prompt written notice thereof, stating the nature
of such claim in reasonable detail and indicating the estimated
amount, if practicable, but in any event such notice shall not be
given later than ten (10) calendar days after the Indemnitee
becomes aware of such Direct Claim, and the Indemnifying Party
shall have a period of thirty (30) calendar days within which to
respond to such Direct Claim. If the Indemnifying Party does not
respond within such thirty (30) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If
the Indemnifying Party rejects such claim, the Indemnitee will be
free to seek enforcement of its right to indemnification under this
Agreement.
(d) If the amount of any Indemnifiable Loss, at any
time subsequent to the making of an indemnity payment in respect
thereof, is reduced by recovery, settlement or otherwise under or
pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by, from or against any other
entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest
thereon from the date of payment thereof at the publicly announced
prime rate then in effect of Chase Manhattan Bank) shall promptly
be repaid by the Indemnitee to the Indemnifying Party.
(e) A failure to give timely notice as provided in
this Section 8.2 shall not affect the rights or obligations of any
Party hereunder except if, and only to the extent that, as a result
of such failure, the Party which was entitled to receive such
notice was actually prejudiced as a result of such failure.
ARTICLE IX
TERMINATION
9.1 Termination. (a) This Agreement may be terminated at
any time prior to the Closing Date by mutual written consent of
Sellers and Buyer.
(b) This Agreement may be terminated by Sellers or
Buyer if (i) any Federal or state court of competent jurisdiction
shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Closing, and
such order, judgment or decree shall have become final and
nonappeallable or (ii) any statute, rule, order or regulation shall
have been enacted or issued by any Governmental Authority which,
directly or indirectly, prohibits the consummation of the Closing;
or (iii) the Closing contemplated hereby shall have not occurred on
or before the day which is 12 months from the date of this
Agreement (the "Termination Date"); provided that the right to
terminate this Agreement under this Section 9.1(b) (iii) shall not
be available to any Party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; and
provided, further, that if on the day which is 12 months from the
date of this Agreement the conditions to the Closing set forth in
Section 7.1(b) or 7.2(c) or (d) shall not have been fulfilled but
all other conditions to the Closing shall be fulfilled or shall be
capable of being fulfilled, then the Termination Date shall be the
day which is 18 months from the date of this Agreement.
(c) Except as otherwise provided in this Agreement,
this Agreement may be terminated by Buyer if any of Buyer Required
Regulatory Approvals, the receipt of which is a condition to the
obligation of Buyer to consummate the Closing as set forth in
Section 7.1(b), shall have been denied (and a petition for
rehearing or refiling of an application initially denied without
prejudice shall also have been denied) or shall have been granted
but are not in form and substance reasonably satisfactory to Buyer.
(d) This Agreement may be terminated by Sellers, if
any of the Sellers' Required Regulatory Approvals applicable to
Penelec, the receipt of which is a condition to the obligation of
Penelec to consummate the Closing as set forth in Section 7.2(d),
shall have been denied (and a petition for rehearing or refiling of
an application initially denied without prejudice shall also have
been denied) or shall have been granted but are not in form and
substance reasonably satisfactory to Penelec.
(e) This Agreement may be terminated by Sellers, if
any of Sellers' Required Regulatory Approvals applicable to NGE or
NYSEG, the receipt of which is a condition to the obligations of
NGE or NYSEG to consummate the Closing as set forth in Section
7.2(c) have been denied (and a petition for rehearing or refiling
of an application initially denied without prejudice shall also
have been denied), or shall have been granted but are not in form
and substance reasonably satisfactory to NGE and NYSEG.
(f) This Agreement may be terminated by Buyer if
there has been a violation or breach by Sellers of any covenant,
representation or warranty contained in this Agreement which has
resulted in a Material Adverse Effect and such violation or breach
is not cured by the earlier of the Closing Date or the date thirty
(30) days after receipt by Sellers of notice specifying
particularly such violation or breach, and such violation or breach
has not been waived by Buyer.
(g) This Agreement may be terminated by Sellers, if
there has been a material violation or breach by Buyer of any
covenant, representation or warranty contained in this Agreement
and such violation or breach is not cured by the earlier of the
Closing Date or the date thirty (30) days after receipt by Buyer of
notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Sellers.
(h) This Agreement may be terminated by Sellers if
there shall have occurred any change that is materially adverse to
the business, operations or conditions (financial or otherwise) of
Buyer.
(i) This Agreement may be terminated by either of
Sellers or Buyer in accordance with the provisions of Section
6.11(b).
<PAGE>
9.2 Procedure and Effect of No-Default Termination. In
the event of termination of this Agreement by either or both of the
Parties pursuant to Section 9, written notice thereof shall
forthwith be given by the terminating Party to the other Party,
whereupon, if this Agreement is terminated pursuant to any of
Sections 9.1(a) through (e) and 9.1(h) and (i), the liabilities of
the Parties hereunder will terminate, except as otherwise expressly
provided in this Agreement, and thereafter neither Party shall have
any recourse against the other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Several Liability of each Seller. Notwithstanding
anything to the contrary contained herein, but subject to Section
10.4, it is expressly understood and agreed that (i) the
obligations and covenants of the Sellers in Section 3.6 and the
representations and warranties of Sellers in Sections 4.1, 4.2,
4.3, 4.5, 4.15 and 6.7 (and any indemnity under Article VIII
relating thereto) are made severally as to itself in the case of
Penelec, and jointly and severally in the case of NYSEG and NGE
as to themselves; and (ii) all other obligations and covenants of
the Sellers and all other representations and warranties of the
Sellers hereunder (except for Section 4.20 which is made solely
by NYSEG) are made severally by Penelec on the one hand, and
jointly and severally by NYSEG and NGE on the other, such that
Penelec on the one hand, and NYSEG and NGE on the other, shall in
no event be liable to Buyer hereunder for more than 50% of any
Indemnifiable Loss incurred by Buyer under the indemnity
agreement in Article VIII or otherwise under this Agreement for a
breach of such representation, warranty, obligation or covenant.
10.2 Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by
written agreement of Sellers and Buyer.
10.3 Waiver of Compliance; Consents. Except as
otherwise provided in this Agreement, any failure of any of the
Parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the Party entitled to the
benefits thereof only by a written instrument signed by the Party
granting such waiver, but such waiver of such obligation,
covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent failure to comply
therewith.
10.4 No Survival. Each and every representation,
warranty and covenant contained in this Agreement (other than the
covenants contained in Sections 3.3(c), 3.4, 3.5(b), 6.2, 6.4,
6.5, 6.6(f), 6.7, 6.8, 6.10, 6.12, 9.4, and in Articles VIII and
X, which provisions shall survive the delivery of the deed(s) and
the Closing in accordance with their terms and the
representations and warranties set forth in Sections 4.1, 4.2,
4.3, 5.1, 5.2 and 5.3, and claims arising under Sections 6.1 and
6.6(e), which representations and warranties and such claims
shall survive the Closing for eighteen (18) months from the
Closing Date) shall expire with, and be terminated and
extinguished by the consummation of the sale of the Purchased
Assets and shall merge into the deed(s) pursuant hereto and the
transfer of the Assumed Liabilities pursuant to this Agreement
and such representations, warranties and covenants shall not
survive the Closing Date; and none of Sellers, Buyer or any
officer, director, trustee or Affiliate of any of them shall be
under any liability whatsoever with respect to any such
representation, warranty or covenant.
10.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission, or mailed by
overnight courier or registered or certified mail (return receipt
requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party
as shall be specified by like notice; provided however, that
notices of a change of address shall be effective only upon
receipt thereof):
(a) If to Sellers, to:
(Penelec)
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: David Brauer
Vice President
(NGE or NYSEG)
4500 Vestal Parkway East
Binghamton, New York 13902
Attention: Daniel W. Farley
Vice President and Secretary
with a copy to:
(if to Penelec)
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Douglas E. Davidson, Esq.
(if to NGE or NYSEG)
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10169
Attention: Nicholas A. Giannasca, Esq.
Taras G. Borkowsky, Esq.
(b) if to Buyer, to:
Mission Energy Westside, Inc.
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
Attention: James V. Iaco
President
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Richard A. Shortz, Esq.
10.6 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit
of the Parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by
any Party hereto, including by operation of law, without the
prior written consent of each other Party, nor is this Agreement
intended to confer upon any other Person except the Parties
hereto any rights, interests, obligations or remedies hereunder.
No provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Sellers
(including any beneficiary or dependent thereof) in respect of
continued employment or resumed employment, and no provision of
this Agreement shall create any rights in any such Persons in
respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement except
as expressly provided for thereunder. Notwithstanding the
foregoing, (i) Buyer may assign all of its rights and obligations
hereunder to any majority owned Subsidiary (direct or indirect)
and upon Sellers' receipt of notice from Buyer of any such
assignment, such assignee will be deemed to have assumed,
ratified, agreed to be bound by and perform all such obligations,
and all references herein to "Buyer" shall thereafter be deemed
to be references to such assignee, in each case without the
necessity for further act or evidence by the Parties hereto or
such assignee, and (ii) Buyer or its permitted assignee may
assign, transfer, pledge or otherwise dispose of (absolutely or
as security) its rights and interests hereunder to a trustee,
lending institutions or other party for the purposes of leasing,
financing or refinancing the Purchased Assets, including such an
assignment, transfer or other disposition upon or pursuant to the
exercise of remedies with respect to such leasing, financing or
refinancing, or by way of assignments, transfers, pledges, or
other dispositions in lieu thereof; provided, however, that no
such assignment in clause (i) or (ii) shall relieve or discharge
Buyer from any of its obligations hereunder. The Sellers agree,
at Buyer's expense, to execute and deliver such documents as may
be reasonably necessary to accomplish any such assignment,
transfer, pledge or other disposition of rights and interests
hereunder so long as the Sellers' rights under this Agreement are
not thereby altered, amended, diminished or otherwise impaired.
10.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the law of the State of New York
(without giving effect to conflict of law principles) as to all
matters, including but not limited to matters of validity, con-
struction, effect, performance and remedies. THE PARTIES HERETO
AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED
TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE
AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH
COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND
THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF
AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER
RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.8 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
10.9 Interpretation. The articles, section and schedule
headings contained in this Agreement are solely for the purpose
of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this
Agreement.
10.10 Schedules and Exhibits. Except as otherwise provided
in this Agreement, all Exhibits and Schedules referred to herein
are intended to be and hereby are specifically made a part of
this Agreement.
10.11 Entire Agreement. This Agreement, the Confidentiality
Agreement, and the Ancillary Agreements including the Exhibits,
Schedules, documents, certificates and instruments referred to
herein or therein, embody the entire agreement and understanding
of the Parties hereto in respect of the transactions contemplated
by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other
than those expressly set forth or referred to herein or therein.
It is expressly acknowledged and agreed that there are no
restrictions, promises, representations, warranties, covenants or
undertakings contained in any material made available to Buyer
pursuant to the terms of the Confidentiality Agreement (including
the Offering Memorandum dated April 1998, previously delivered to
Buyer by Sellers and Goldman, Sachs & Co.). This Agreement
supersedes all prior agreements and understandings between the
Parties other than the Confidentiality Agreement with respect to
such transactions.
10.12 Bulk Sales Laws. Buyer acknowledges that,
notwithstanding anything in this Agreement to the contrary,
Sellers will not comply with the provision of the bulk sales laws
of any jurisdiction in connection with the transactions
contemplated by this Agreement. Buyer hereby waives compliance
by Sellers with the provisions of the bulk sales laws of all
applicable jurisdictions.
10.13 U.S. Dollars. Unless otherwise stated, all dollar
amounts set forth herein are United States (U.S.) dollars.
10.14 Zoning Classification. Buyer acknowledges that the
Real Property is not zoned.
10.15 Sewage Facilities. Buyer acknowledges that there is no
community (municipal) sewage system available to serve the Real
Property. Accordingly, any additional sewage disposal planned by
Buyer will require an individual (on-site) sewage system and all
necessary permits as required by the Pennsylvania Sewage
Facilities Act (the "Facilities Act"). Buyer recognizes that
certain of the existing individual sewage systems on the Real
Property may have been installed pursuant to exemptions from the
requirements of the Facilities Act or prior to the enactment of
the Facilities Act and that soils and site testing may not have
been performed in connection therewith. The owner of the
property or properties served by such a system, at the time of
any malfunction, may be held liable for any contamination,
pollution, public health hazard or nuisance which occurs as the
result of such malfunction.
<PAGE>
IN WITNESS WHEREOF, Sellers and Buyer have caused this
Agreement to be signed by their respective duly authorized
officers as of the date first above written.
PENNSYLVANIA ELECTRIC COMPANY NGE GENERATION, INC.
By: ___________________________ By: _____________________
Name: John G. Graham Name: Kenneth M. Jasinski
Title: Vice President and Title: Executive Vice President
Chief Financial Officer
MISSION ENERGY WESTSIDE, INC. NEW YORK STATE ELECTRIC & GAS
CORPORATION
By:_____________________________ By:______________________
Name: James V. Iaco Name: Kenneth M. Jasinski
Title: President Title: Executive Vice President
Exhibit 10-2
ASSET PURCHASE AGREEMENT
BY AND AMONG
NGE GENERATION, INC., SELLER,
NEW YORK STATE ELECTRIC & GAS CORPORATION,
AND
AES NY, L.L.C., BUYER
Dated As Of August 3, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions 1
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets 13
2.2 Excluded Assets 14
2.3 Assumed Liabilities 17
2.4 Excluded Liabilities 19
ARTICLE III
THE CLOSING
3.1 Closing 21
3.2 Payment of Purchase Price 21
3.3 Adjustment to Purchase Price 21
3.4 Allocation of Purchase Price 23
3.5 Prorations 23
3.6 Deliveries by the Sellers 24
3.7 Deliveries by the Buyer 25
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF
THE SELLERS
4.1 Organization; Qualification; Matters Regarding SRC 27
4.2 Authority Relative to this Agreement 27
4.3 Consents and Approvals; No Violation 28
4.4 Insurance 28
4.5 Title 29
4.6 Real Property Leases 29
4.7 Environmental Matters 29
4.8 Labor Matters 30
4.9 Benefit Plans: ERISA 31
4.10 Real Property 32
4.11 Condemnation 32
4.12 Contracts and Personal Property Leases 32
4.13 Legal Proceedings 33
4.14 Permits 33
4.15 Taxes 34
4.16 Disclaimers Regarding Purchased Assets 36
4.17 Intellectual Property 37
4.18 Additional Representations 37
4.19 No Work Stoppages or Grievances 38
4.20 Financial Representations 38
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
5.1 Organization 39
5.2 Authority Relative to this Agreement 39
5.3 Consents and Approvals; No Violation 39
5.4 Availability of Funds 40
5.5 Financial Representations 41
5.6 Legal Proceedings. 41
5.7 Qualified Buyer 42
5.8 Inspections 42
5.9 "AS IS" Sale 42
5.10 Purchase for Investment 43
5.11 WARN Act 43
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the
Purchased Assets 43
6.2 Access to Information 46
6.3 Expenses 49
6.4 Further Assurances 49
6.5 Public Statements 51
6.6 Consents and Approvals 51
6.7 Fees and Commissions 53
6.8 Tax Matters 54
6.9 Advice of Changes 60
6.10 Employees 60
6.11 Risk of Loss 63
6.12 Additional Covenants of the Buyer 65
6.13 Insurance 65
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of the Buyer 67
7.2 Conditions to Obligations of the Sellers 69
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification 72
8.2 Defense of Claims 74
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination 77
9.2 [RESERVED] 78
9.3 Effect of Termination Without Default 78
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Dispute Resolution 78
10.2 Amendment and Modification 79
10.3 Waiver of Compliance; Consents 79
10.4 No Survival 79
10.5 Notices 79
10.6 Assignment 80
10.7 Governing Law 81
10.8 Counterparts 81
10.9 Interpretation 81
10.10 Schedules and Exhibits 81
10.11 Entire Agreement 82
10.12 Bulk Sales Laws 82
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Deed
Exhibit D FIRPTA Affidavit
Exhibit E Reciprocal Easement Agreement
Exhibit F Interconnection Agreement
Exhibit G Milliken Operating Agreement
Exhibit H New York Transition Agreement
Exhibit I Agreement to Assign Transmission Rights and
Obligations
Exhibit J Buyer's Parent Guaranty
SCHEDULES
1.1(a)(15) Description of Deeds to Seller containing Easements
and Access Rights Reserved to NYSEG
1.1(a)(40) Managerial Representatives
1.1(a)(46) Permitted Encumbrances (other than with respect to
Real Property)
1.1(a)(66) Transferable Permits (both environmental and non-
environmental)
2.1 Schedule of Plants
2.1(c) Schedule of Tangible Personal Property to be Conveyed
to Buyer
2.1(d) Schedule of Agreements between Seller and its
Affiliates to be Assigned to Buyer
2.1(k) Schedule of Plant Names
2.1(m) Intellectual Property and Technology Hardware
2.2(a)(i) Description of Transmission Assets not included in
Conveyance
2.2(a)(ii) Description of Certain Other Excluded Assets
2.2(l) Description of Cooperative Agreements
3.3(a)(i) Schedule of book value of Inventories as of March 31,
1998
4.3(a) Seller's Third Party Consents
4.3(b) Seller's Regulatory Approvals
4.4 Insurance Schedule
4.5 Exceptions to Title with respect to the Real Property
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Labor Matters
4.9(a) Schedule of Benefit Plans
4.9(b) Schedule of ERISA Non-Compliance
4.10 Description of Real Property
4.11 Notices of Condemnation
4.12(a) List of Sellers' Agreements
4.12(b) List of Material Contracts Requiring Consents
4.12(c) List of Defaults under the Material Contracts
4.13 List of Litigation
4.14(b) List of material Permits (other than Transferable
Permits)
4.15 Tax Schedules
4.17 Intellectual Property Exceptions
5.3(b) Buyer's Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.10(a) Schedule of Transferred Hourly Paid Employees
6.10(b) Schedule of Transferred Salaried Employees
6.10(d) Schedule of IBEW Collective Bargaining Agreement and
Memoranda relating thereto
6.10(e) Schedule of Authorized Overtime
6.10(l) Schedule of Corporate Salaried Employees
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of August 3, 1998,
by and among NGE Generation, Inc., a New York corporation (the
"Seller"), New York State Electric & Gas Corporation, a New York
corporation ("NYSEG"), and AES NY, L.L.C., a Delaware limited
liability company (the "Buyer"). Seller and NYSEG from time to
time shall be collectively referred to as the "Sellers". The
Sellers and the Buyer from time to time shall each be referred to
individually as a "Party," and collectively as the "Parties."
WHEREAS, the Buyer desires to purchase and assume from
the Sellers, and the Sellers desire to sell and assign to the
Buyer, the Purchased Assets (as defined in Section 2.1 below)
which constitute the Sellers' fossil generation assets and
associated liabilities, upon the terms and conditions hereinafter
set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants, representations, warranties and agreements hereinafter
set forth, and intending to be legally bound hereby, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) As used in this Agreement, the
following terms have the meanings specified in this Section
1.1(a).
(1) "Affiliate" has the meaning set forth in Rule
12b-2 of the General Rules and Regulations under the Exchange
Act.
(2) "Agreement" means this Asset Purchase Agreement
together with the Schedules and Exhibits hereto, as the same may
be from time to time amended.
(3) "Agreement to Assign Transmission Rights and
Obligations" means the assignment and assumption agreement
whereby NYSEG will assign certain of its rights pursuant to
certain transmission agreements to the Buyer and whereby the
Buyer will assume certain obligations, dated as of the date of
this Agreement and in the form attached hereto as Exhibit "I".
(4) "Allowance" means an authorization to emit up to
one ton of sulfur dioxide or one ton of nitrogen oxide as defined
in the Federal Clean Air Act (42 U.S.C. ' 7401 et. seq) or as may
in the future be defined in regulations issued by the United
States Environmental Protection Agency or the New York State
Department of Environmental Conservation ("DEC").
<PAGE>
(5) "Ancillary Agreements" mean the Reciprocal
Easement Agreement, the Interconnection Agreement, the Milliken
Operating Agreement, the Agreement to Assign Transmission Rights
and Obligations, the New York Transition Agreement and the
Guaranty.
(6) "Assignment and Assumption Agreement" means the
Assignment and Assumption Agreement between the Sellers and the
Buyer, by which the Sellers shall assign the Assigned Contracts,
certain intangible assets and other Purchased Assets to the Buyer
and whereby the Buyer will assume the Assumed Liabilities,
substantially in the form of Exhibit "A" attached hereto.
(7) "Bill of Sale" means the Bill of Sale to be
delivered at the Closing, with respect to the Tangible Personal
Property included in the Purchased Assets which is to be
transferred at the Closing, substantially in the form of Exhibit
"B" attached hereto.
(8) "Business Day" shall mean any day other than
Saturday, Sunday or any day which is a day on which banking
institutions in New York State are authorized by law or obligated
by other governmental action to close.
(9) "CERCLA" means the Federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended.
(10) "COBRA" means the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(11) "Code" means the Internal Revenue Code of 1986,
as amended.
(12) "Commercially Reasonable Efforts" means efforts
which are reasonably within the contemplation of the Parties at
the time of executing this Agreement and which do not require the
performing Party to expend any funds other than expenditures
which are customary and reasonable in transactions of the kind
and nature contemplated by this Agreement in order for the
performing Party to satisfy its obligations hereunder.
(13) "Confidentiality Agreement" means the
Confidentiality Agreement, dated March 26, 1998, executed by The
AES Corporation prior to the auction of the Plants.
(14) "Deed" means the Bargain and Sale Deed, with
covenants against grantor's acts, by which the Real Property is
to be conveyed to the Buyer from the Seller, substantially in the
form of Exhibit "C" attached hereto.
<PAGE>
(15) "Easements" means, with respect to the Purchased
Assets, the easements and access rights to be granted by the
Buyer to NYSEG pursuant to the Reciprocal Easement Agreement,
including, without limitation, easements authorizing access, use,
maintenance, construction, repair, replacement and other
activities by NYSEG relating to the Transmission Assets, as
further described in the Reciprocal Easement Agreement, and the
easements and access rights reserved to NYSEG in those certain
deeds to the Seller dated February 11, 1998, which deeds are
described on Schedule 1.1(a)(15).
(16) "Emission Reduction Credits" means credits, in
units that have, prior to the date of this Agreement, been
established by a Governmental Authority with jurisdiction over
the Plants that have obtained the credits, resulting from
reductions in the emissions of air pollutants from an emitting
source or facility (including, without limitation, and to the
extent allowable under applicable law, reductions from shut-
downs, control of emissions beyond that required by applicable
law, and fuel switching), that: (a) have been certified by the
DEC as complying with the law and regulations of the State of New
York governing the establishment of such credits (including,
without limitation, that such emissions reductions are enforce
able, permanent, quantifiable, real and surplus) and listed in
the Certified Emissions Reduction Credit Registry maintained by
the DEC; or (b) have been certified by any other applicable
Governmental Authority as complying with the law and regulations
governing the establishment of such credits (including, without
limitation, certification that such emissions reductions are
enforceable, permanent, quantifiable, real and surplus).
Emission Reduction Credits include certified air emissions
reductions, as described above, regardless as to whether the
Governmental Authority certifying such reductions designates such
certified air emissions reductions by a name other than "emission
reduction credits."
(17) "Encumbrances" means any mortgages, pledges,
liens, security interests, conditional and installment sale
agreements, activity and use limitations, conservation easements,
deed restrictions, encumbrances and charges of any kind.
(18) "Environmental Claim" means any and all pending
and/or threatened administrative or judicial actions, suits,
orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or
civil, pursuant to or relating to any applicable Environmental
Law by any person (including, but not limited to, any
Governmental Authority, private person and citizens' group) based
upon, alleging, asserting, or claiming any actual or potential
(a) violation of, or liability under any Environmental Law, (b)
violation of any Environmental Permit, or (c) liability for
investigatory costs, cleanup costs, removal costs, remedial
costs, response costs, natural resource damages, property damage,
personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or
threatened Release into the environment of any Hazardous
Substances at any location related to the Purchased Assets,
including, but not limited to, any off-Site location to which
Hazardous Substances, or materials containing Hazardous
Substances, were sent for handling, storage, treatment, or
disposal.
(19) "Environmental Clean-up Site" means any location
which is listed or proposed for listing on the National
Priorities List, the Comprehensive Environmental Response,
Compensation and Liability Information System, or on any similar
state list of sites requiring investigation or cleanup, or which
is the subject of any Environmental Claim, or at which there has
been a threatened or actual Release of a Hazardous Substance.
(20) "Environmental Condition" means the presence or
Release to the environment, whether at a Site or at an off-Site
location, of Hazardous Substances, including any migration of
those Hazardous Substances through air, soil or groundwater to or
from a Site or any off-Site location.
(21) "Environmental Laws" means all present or future
Federal, state and local, provincial and foreign, civil and
criminal laws, regulations, rules, ordinances, codes, decrees,
judgments, directives, or judicial or administrative orders
relating to pollution or protection of the environment, natural
resources or human health and safety, including, without
limitation, laws relating to Releases or threatened Releases of
Hazardous Substances (including, without limitation, Releases to
ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Substances. "Environmental
Laws" include, without limitation, CERCLA, the Hazardous
Materials Transportation Act (49 U.S.C. '' 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. '' 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. 1251 et
seq.), the Clean Air Act (42 U.S.C. '' 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. '' 2601 et seq.), the Oil
Pollution Act (33 U.S.C. '' 2701 et seq.), the Emergency Planning
and Community Right-to-Know Act (42 U.S.C. '' 11001 et seq.), the
Occupational Safety and Health Act (29 U.S.C. '' 651 et seq.),
all state laws analogous to any of the above and the New York
State Environmental Conservation Law.
(22) "Environmental Reports" means the "Phase I" and
"Phase II" environmental site assessments prepared by Pilko and
Associates and made available for inspection by the Buyer.
(23) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(24) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(25) "Federal Power Act" means the Federal Power Act
of 1935, as amended.
(26) "FERC" means the Federal Energy Regulatory
Commission.
(27) "FIRPTA Affidavit" means the Foreign Investment
in Real Property Tax Act Certification and Affidavit,
substantially in the form of Exhibit "D" attached hereto.
(28) "Good Utility Practices" mean any of the
applicable practices, methods and acts engaged in or approved by
a significant portion of the electric generation, transmission,
and distribution industry in the region during the relevant time
period, or any of the practices, methods or acts which, in the
exercise of reasonable judgment in light of the facts known at
the time the decision is made, could be expected to accomplish
the desired result at a reasonable cost consistent with law,
regulation, good business practices, reliability, safety and
expedition. Good Utility Practices are not intended to be
limited to the optimum practices, methods or acts to the
exclusion of all others, but rather to practices, methods or acts
generally accepted by the electric generation, transmission, and
distribution industry in the region.
(29) "Governmental Authority" means any federal,
state, local, provincial, foreign or other governmental,
legislature, regulatory or administrative agency, commission,
official, department, board, or other governmental subdivision,
court, tribunal, arbitral body or other governmental authority.
(30) "Guaranty" means the Guaranty executed by The AES
Corporation (ABuyer's Parent@), dated the date of this Agreement
and in the form attached hereto as Exhibit "J."
(31) "Hazardous Substances" means: (a) any
petrochemical or petroleum products, oil or coal ash, radioactive
materials, radon gas other than in the form of a naturally
occurring radioactive material, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid
which may contain levels of polychlorinated biphenyls; (b) any
chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "hazardous constituents," "restricted
hazardous materials," "extremely hazardous substances," "toxic
substances," "contaminants," "pollutants," "toxic pollutants" or
words of similar meaning and regulatory effect under any
applicable Environmental Law; or (c) any other chemical, material
or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
(32) "HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(33) "Income Tax" means any federal, state, local or
foreign Tax (a) based upon, measured by or calculated with
respect to net income, profits or receipts (including, without
limitation, capital gains Taxes and minimum Taxes), or (b) based
upon, measured by or calculated with respect to multiple bases
(including, without limitation, corporate franchise taxes) if one
or more of the bases on which such Tax may be based, measured by
or calculated with respect to, is described in clause (a), in
each case together with any interest, penalties, or additions to
such Tax.
(34) "Independent Accounting Firm" means such
independent accounting firm of national reputation as is mutually
appointed by the Seller and the Buyer.
(35) "Inspection" means all reviews, examinations,
inspections, investigations, verifications, and similar
activities conducted by the Buyer or its agents or
Representatives with respect to the Purchased Assets prior to the
Closing.
(36) "Intellectual Property" means all patents and
patent rights, trademarks and trademark rights, inventions,
computer software, copyrights and copyright rights owned by the
Sellers and necessary for the operation and maintenance of the
Purchased Assets, and all pending applications for registrations
of patents, trademarks, and copyrights, as set forth as part of
Schedule 2.1(m).
(37) "Interconnection Agreement" means the
Interconnection Agreement between NYSEG and the Buyer, under
which NYSEG will provide the Buyer with interconnection service
to certain of its transmission facilities dated as of the date of
this Agreement and in the form attached hereto as Exhibit "F".
(38) "Inventories" means coal, fuel oil or alternative
fuel inventories, limestone, materials, spare parts, consumable
supplies and chemical and gas inventories relating to the
operation of the Plants located at, on, or in transit to, the
Plants.
(39) "ISO" means the Independent System Operator, as
established by NYPP.
(40) "Knowledge" means the actual knowledge of the
managerial representatives of the specified Person charged with
responsibility for the particular function as of the date of this
Agreement, or, with respect to any certificate delivered pursuant
to this Agreement, the date of delivery of the certificate, which
representatives are set forth in Schedule 1.1(a)(40).
(41) "Material Adverse Effect" means any change in, or
effect on the Purchased Assets that is materially adverse to the
operations or condition (financial or otherwise) of the Purchased
Assets, taken as a whole, other than: (a) any change affecting
the international, national, regional or local electric industry
as a whole and not Seller specifically and exclusively; (b) any
change or effect resulting from changes in the international,
national, regional or local wholesale or retail markets for
electric power; (c) any change or effect resulting from changes
in the international, national, regional or local markets for any
fuel used in connection with the Purchased Assets; (d) any change
or effect resulting from, changes in the North American,
national, regional or local electric transmission systems or
operations thereof; (e) any materially adverse change in or
effect on the Purchased Assets which is cured (including by the
payment of money) by the Seller before the Termination Date; (f)
any order of any court or Governmental Authority or legislature
applicable to providers of generation, transmission or
distribution of electricity generally that imposes restrictions,
regulations or other requirements thereon; and (g) any change or
effect resulting from action or inaction by a Governmental
Authority with respect to an ISO in New York or Retail Access.
(42) "Milliken Operating Agreement" means the
agreement between the Buyer and NYSEG, with respect to the
Buyer's operation of the Milliken Station on and after the
Closing Date, dated as of the date of this Agreement and in the
form attached hereto as Exhibit "G".
(43) "New York Transition Agreement" means the
agreement between NYSEG and the Buyer whereby the Buyer agrees to
sell installed capacity to NYSEG for a specified period of time
on and after the Closing Date, dated as of the date of this
Agreement and in the form attached hereto as Exhibit "H".
(44) "NYPP" means the New York Power Pool.
(45) "NYPSC" means the Public Service Commission of
the State of New York .
(46) "Permitted Encumbrances" means: (a) the
Easements; (b) those exceptions to title to the Real Property
listed in Schedule 4.5 and those Encumbrances with respect to the
other Purchased Assets set forth in Schedule 1.1(a)(46); (c)
statutory liens for Taxes or other governmental charges or
assessments not yet due or delinquent or the validity of which is
being contested in good faith by appropriate proceedings; (d)
mechanics', carriers', workers', repairers' and other similar
liens arising or incurred in the ordinary course of business
relating to obligations as to which there is no default on the
part of the Seller or the validity of which are being contested
in good faith, and which do not, individually or in the
aggregate, exceed $500,000; (e) zoning, entitlement, conservation
restriction and other land use and environmental regulations by
Governmental Authorities; and (f) such other liens, imperfections
in or failure of title, charges, easements, restrictions and
Encumbrances which do not materially detract from the value of
the Purchased Assets as currently used or materially interfere
with the present use of the Purchased Assets and neither secure
indebtedness, nor individually or in the aggregate create a
Material Adverse Effect.
(47) "Person" means any individual, a partnership, a
limited liability company, a joint venture, a corporation, a
trust, an unincorporated organization, or a governmental entity
or any department or agency thereof.
(48) "Plants" means the fossil fuel generating plants
identified on Schedule 2.1 attached hereto.
(49) "Proprietary Information" of a Party means all
information about that Party or its properties or operations
furnished to the other Party or its Representatives by the first
Party or its Representatives, after the date hereof, regardless
of the manner or medium in which it is furnished. Proprietary
Information does not include information that: (a) is or becomes
generally available to the public, other than as a result of a
disclosure by the other Party or its Representatives; (b) was
available to the other Party on a nonconfidential basis prior to
its disclosure by the first Party or its Representatives; (c)
becomes available to the other Party on a nonconfidential basis
from a person, other than the first Party or its Representatives,
who is not otherwise bound by a confidentiality agreement with
the first Party or its Representatives, or is not otherwise under
any obligation to the first Party or any of its Representatives
or otherwise not to transmit the information to the other Party
or its Representatives; (d) is independently developed by the
other Party; or (e) was disclosed pursuant to the Confidentiality
Agreement and remains subject to the terms and conditions of the
Confidentiality Agreement.
(50) "Reciprocal Easement Agreement" means the
Reciprocal Easement Agreement between the Buyer and NYSEG,
whereby the Buyer will provide NYSEG with Easements with respect
to the Real Property and Tangible Personal Property transferred
to the Buyer and whereby NYSEG will provide the Buyer with
certain easements and access rights with respect to certain real
property and personal property owned by NYSEG, dated as of the
date of this Agreement and in the form attached hereto as Exhibit
"E".
(51) "Release" means release, spill, leak, discharge,
dispose of, pump, pour, emit, empty, inject, leach, dump or allow
to escape into or through the environment.
<PAGE>
(52) "Remediation" means action of any kind to address
a Release or the presence of Hazardous Substances at a Site or an
off-Site location including, without limitation, any or all of
the following activities to the extent they relate to or arise
from the presence of a Hazardous Substance at a Site or off-Site
location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or
restoration work; (b) obtaining any permits, consents, approvals
or authorizations of any Governmental Authority necessary to
conduct any such activity; (c) preparing and implementing any
plans or studies for any such activity; (d) obtaining a written
notice from a Governmental Authority with jurisdiction over the
Site or off-Site location under Environmental Laws that no
material additional work is required by such Governmental
Authority; (e) the use, implementation, application,
installation, operation or maintenance of removal actions, in-
situ or ex-situ remedial technologies applied to the surface or
subsurface soils, excavation and off-Site treatment or disposal
of soils, systems for long term treatment of surface water or
ground water, engineering controls or institutional controls; and
(f) any other activities reasonably determined by a Party to be
necessary or appropriate or required under Environmental Laws to
address the presence or Release of Hazardous Substances at a Site
or off-Site location.
(53) "Representatives" of a Party means the Party's
Affiliates and its and their directors, officers, employees,
agents, partners, advisors (including, without limitation,
accountants, counsel, environmental consultants, financial
advisors and other authorized representatives) and parents and
other controlling persons.
(54) "Retail Access" means the ability of retail
electric customers to purchase electric power directly from power
generators, power marketers, or any other entities at prices not
subject to regulation.
(55) "SEC" means the Securities and Exchange
Commission.
(56) "Securities Act" means the Securities Act of
1933, as amended.
(57) "Sellers' Agreements" means those contracts
listed on Schedule 4.12(a) and the IBEW Collective Bargaining
Agreement and IBEW Memoranda (as defined in Section 6.10(d)) and
the Memorandum of Agreement referred to in Schedule 6.10(d).
(58) "Site" means the Real Property (including
improvements) forming a part of, or used or usable in connection
with the operation of, a Plant, including any disposal sites
included in Real Property. Any reference to the Site shall
include, by definition, the surface and subsurface elements,
including the soils and groundwater present at the Site, and any
reference to items "at the Site" shall include all items "at, on,
in, upon, over, across, under and within" the Site.
(59) "SRC" means Somerset Railroad Corporation, a New
York corporation.
(60) "SRC Stock" means the 2,000 shares of common
stock, no par value, of SRC owned, beneficially and of record, by
the Seller.
(61) "Subsidiary" when used in reference to any Person
means any entity with respect to which outstanding securities
having ordinary voting power to elect a majority of the board of
directors (or other individuals performing similar functions) of
such entity are owned directly or indirectly by such Person.
(62) "Tax Affiliate" means any entity that is a member
of the same affiliated group of corporations (within the meaning
of Section 1504(a) of the Code) ("Consolidated Group") as the
Seller.
(63) "Tax" or "Taxes" means all taxes, charges, fees,
levies, penalties or other assessments imposed by any federal,
state or local or foreign taxing authority, including, but not
limited to, income, excise, property, sales, use, transfer,
franchise, employment, unemployment, railroad retirement,
environmental, payroll, withholding, social security, gross
receipts, stamp, real estate, use, business, license, occupation
or other taxes, including any interest, penalties or additions
attributable thereto.
(64) "Tax Return" means any return, report,
information return, declaration, claim for refund or other
document (including any schedule or related or supporting
information) required to be supplied to any authority with
respect to Taxes, including amendments thereto.
(65) "Tax Sharing Agreement" means the tax sharing
agreement for the Consolidated Group of which the Seller and SRC
are members.
(66) "Transferable Permits" means those Permits and
Environmental Permits (and any applications pertaining thereto)
which are lawfully transferable by the Sellers to the Buyer (with
or without a filing with, notice to, consent or approval of any
Governmental Authority) and are set forth in Schedule 1.1(a)(66).
(67) "Transferred Employees" means all Transferred
Union Employees and Transferred Non-Union Employees.
(68) "Transferring Employee Records" means records
related to Transferred Employees only to the extent such files
pertain to: (a) skill and development training and biographies,
(b) seniority histories, (c) salary and benefit information, (d)
Occupational, Safety and Health Administration reports, and (e)
active medical restriction forms.
(69) "WARN Act" means the Federal Worker Adjustment
Retraining and Notification Act of 1988, as amended.
(b) Each of the following terms has the meaning
specified in the Section set forth opposite such term:
Term Section
Assigned Contracts 2.1(d)
Assumed Liabilities 2.3
Audits 4.15(b)(v)
Benefit Plans 4.9(a)
Buyer Applicable Contracts 7.2(i)(3)
Buyer Benefit Plans 6.10(g)
Buyer Material Adverse Effect 5.3(a)
Buyer Indemnitee 8.1(b)
Buyer Parent's SEC Reports 5.5
Buyer Required Regulatory Approvals 5.3(b)
Buyer's Parent 1.1(a)(30)
Capital Expenditures 6.1(b)
Closing 3.1
Closing Adjustment 3.3(b)
Closing Date 3.1
Computer Systems 4.16
Consolidated Group 1.1(a)(62)
Cooperative Agreements 2.2(l)
DEC 1.1(a)(4)
Direct Claim 8.2(c)
DOE 2.2(l)
Election 6.8(d)(1)(A)
Environmental Permits 4.7(a)
ERISA Affiliate 2.4(g)
ERISA Affiliate Plans 2.4(g)
Estimated Adjustment 3.3(b)
Estimated Closing Statement 3.3(b)
Excluded Assets 2.2
Excluded Liabilities 2.4
IBEW 6.10(c)
IBEW Collective Bargaining Agreement 6.10(d)
IBEW Employees 6.10(d)
IBEW Memoranda 6.10(d)
Indemnifiable Loss 8.1(a)
Indemnifying Party 8.1(e)
Indemnitee 8.1(d)
Insurance Policies 6.13(a)
Modified ADSP 6.8(d)(1)(B)
OM Expenditures 6.1(b)
Permits 4.14
Post-Closing Adjustment 3.3(c)
Post-Closing Statement 3.3(c)
Prior Welfare Plans 6.10(f)
Proposed Post-Closing Adjustment 3.3(c)
Purchased Assets 2.1
Purchase Price 3.2
Real Property 2.1(a)
Real Property Leases 4.6
Replacement Welfare Plans 6.10(f)
Seller Applicable Contracts 7.1(h)(3)
Seller Indemnitee 8.1(a)
Seller Required Regulatory Approvals 4.3(b)
Seller's Tax Returns 6.8(d)(2)(B)
SEC Reports 4.20
Straddle Period 6.8(d)(2)(A)
Tax Contest 6.8(d)(4)(A)
Tangible Personal Property 2.1(c)
Termination Date 9.1(b)
Third Party Claim 8.2(a)
Transferred Non-Union Employee 6.10(b)
Transferred Union Employee 6.10(b)
Transmission Assets 2.2(a)
Year 2000 Compliant 4.16
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets.
Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement, at the Closing the
Sellers will sell, assign, convey, transfer and deliver to the
Buyer, and the Buyer will purchase, assume and acquire from the
Sellers, free and clear of all Encumbrances (except for Permitted
Encumbrances), and subject to Section 2.2, all of the right,
title and interest that the Sellers possess and have in and to
the assets and property of every kind and description
constituting, or used in and necessary to the ownership,
operation or maintenance of, the Plants identified in Schedule
2.1, each as in existence on the Closing Date (collectively,
"Purchased Assets"), including, but not limited to, the
following:
(a) Those certain parcels of real property (including all
buildings, structures, fixtures, handling and storage facilities,
other improvements thereon and all appurtenances thereto)
described on Schedule 4.10 (the "Real Property"), subject to the
Permitted Encumbrances and those exceptions listed in Schedule
4.5, and except as otherwise constituting part of the Excluded
Assets;
(b) All Inventories in existence on the Closing Date;
(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and
furnishings, and other personal property located on the Real
Property or leased real property on the Closing Date including
without limitation, the items of personal property included in
Schedule 2.1(c), together with all the personal property of the
Seller used principally in the operation of the Plants and
expressly listed in Schedule 2.1(c), other than property used or
primarily usable as part of the Transmission Assets or otherwise
constituting part of the Excluded Assets (collectively, "Tangible
Personal Property");
(d) Subject to the provisions of Section 6.4(c), all
contracts, agreements, licenses and personal property leases
relating to the Seller's operation and maintenance of the Plants
and which are assignable, and the agreements between the Seller
and its Affiliates described on Schedule 2.1(d) (collectively,
"Assigned Contracts");
(e) Subject to the provisions of Section 6.4(c), all Real
Property Leases;
(f) Subject to the provisions of Section 6.6(g), all
Transferable Permits;
(g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, documents,
drawings, blueprints and as-built plans, specifications,
procedures and similar items of the Seller relating specifically
to the aforementioned assets and necessary for the operation of
the Plants regardless of the type of medium in which stored
(subject to the right of the Sellers to retain copies of same for
their use), other than such items which are proprietary to third
parties and books of account;
(h) All Allowances associated with the Plants whether
accrued prior to, or that accrue on or after, the date of this
Agreement but prior to the Closing Date;
(i) The SRC Stock, stock books, stock ledger, minutes books,
corporate seal and all other books and records of the type
described in Section 2.1(g) above and relating to SRC;
(j) All unexpired, transferable warranties and guarantees
from third parties with respect to any item of Real Property or
personal property constituting part of the Purchased Assets, as
of the Closing Date, if any;
(k) The rights of the Sellers in and to the name(s) of the
Plants, if any, set forth on Schedule 2.1(k). It is expressly
understood that the Sellers are not assigning or transferring to
the Buyer any right to use the names "New York State Electric &
Gas Corporation," "NYSEG," "NGE" or "NGE Generation" or any
related or similar trade names, trademarks, service marks,
corporate names and logos or any part, derivative or combination
thereof;
(l) All drafts, memoranda, reports, information, technology,
and specifications relating to the Seller's plans for Year 2000
compliance; and
(m) The rights of the Sellers to the Intellectual Property,
computer hardware, computer systems and dispatch, environmental
and management information systems necessary for the operation
and maintenance of the Purchased Assets; all as further described
in Schedule 2.1(m).
2.2 Excluded Assets.
Notwithstanding anything to the contrary in this Agreement,
nothing in this Agreement will be construed as conferring on the
Buyer, and the Buyer is not acquiring, any right, title or
interest in or to the following specific assets which are
associated with the Purchased Assets, but which are hereby
specifically excluded from the sale and the definition of
Purchased Assets herein (the "Excluded Assets"):
(a) (i) The real and personal property comprising or
constituting a part of any of the electrical transmission or
distribution facilities (as opposed to generation facilities) of
Sellers located at the Sites or forming part of the Plants
(whether or not regarded as a "transmission" or "generation"
asset for regulatory or accounting purposes), including all
switchyard facilities, NYSEG Improvements (as defined in the
Reciprocal Easement Agreement), substation facilities, support
equipment, Transmission Facilities (as defined in the Reciprocal
Easement Agreement) and Distribution Facilities (as defined in
the Reciprocal Easement Agreement), as well as all permits,
contracts and warranties, relating to such transmission and
distribution assets (collectively, the "Transmission Assets"),
including, without limitation, the real and personal property
described on Schedule 2.2(a)(i), and (ii) those certain assets,
facilities and agreements all as further described on Schedule
2.2(a)(ii);
(b) The Gas Facilities, Communication Facilities and
drainage pipes and systems, as defined or referred to in the
Reciprocal Easement Agreement;
(c) All cash, cash equivalents, bank deposits,
accounts and notes receivable (trade or otherwise), and any
income, sales, payroll or other tax receivables (except in each
case, with respect to SRC);
(d) Certificates of deposit, shares of stock (other
than the SRC Stock), securities, bonds, debentures, evidences of
indebtedness, and interests in joint ventures, partnerships,
limited liability companies and other entities of the Seller and
any of its Affiliates;
(e) The rights of the Sellers and their Affiliates to
the names "New York State Electric & Gas Corporation", "NYSEG",
"NGE" and "NGE Generation" or any related or similar trade names,
trademarks, service marks, corporate names and logos or any part,
derivative or combination thereof;
(f) Except as specifically provided by the Agreement
to Assign Transmission Rights and Obligations, all tariffs,
agreements and arrangements to which the Seller or any of its
Affiliates is a party for the purchase or sale of electric
capacity, energy transmission and/or ancillary services;
(g) The rights of the Sellers in and to any causes of
action against third parties (including indemnification and
contribution) relating to any Real Property, Tangible Personal
Property, Permits, Environmental Permits, Taxes, Real Property
Leases, or Assigned Contracts, if any, including any claims for
refunds (other than those Tax refunds that are covered by Section
2.2(h) below), prepayments, offsets, recoupment, insurance
proceeds, condemnation awards, judgments and the like, whether
received as payment or credit against future liabilities,
relating specifically to the Plants or the Sites and relating to
any period prior to the Closing Date, subject to the Sellers'
agreements set forth in Sections 6.13 and 8.2(d);
(h) Any refunds of real property Taxes (including
interest) paid or due with respect to the Plants or the Sites,
which refunds are the result of proceedings that, prior to the
Closing Date, were instituted by the Sellers under Article VII of
the New York Real Property Tax Law, regardless of when actually
paid, to the extent that such refunds relate to periods before
the Closing Date, and any refunds of real property Taxes
(including interest) paid or due with respect to the Plants or
the Sites, which refunds are the result of proceedings that,
prior to the Closing Date, were instituted by the Seller or its
Affiliates under Article VII of the New York Real Property Tax
Law, regardless of when actually paid to the extent that such
refunds relate to periods after the Closing Date and do not
exceed a pro-rata (based upon the amount of the refunds
attributable to the periods before and after the Closing Date)
amount of the costs incurred in obtaining all such refunds
(irrespective of whether relating to periods before or after the
Closing Date) (all such proceedings under Article VII of the New
York Real Property Tax Law shall be in the sole and exclusive
control of the Seller who shall make all decisions relevant to
the conduct of the proceedings, including, without limitation,
whether to settle any such proceedings; provided, however, that
no settlement of any such proceedings shall be made without the
Buyer's consent if that settlement would result in (i) the ratio
that (a) the tax refunds that are attributable to periods after
the Closing Date bears (b) to the real property Taxes that were
paid for those periods being less than (ii) the ratio that (c)
the tax refunds that are attributable to periods before the
Closing Date bears (d) to the real property Taxes that were paid
for that period);
(i) All personnel records of the Sellers other than
Transferring Employee Records or other records, the disclosure of
which is required by law;
(j) Any and all Emission Reduction Credits associated
with the Plants;
(k) Any and all of the Seller's rights in any contract
representing an intercompany transaction between the Seller and
an Affiliate of the Seller, whether or not such transaction
relates to the provision of goods and services, tax sharing
arrangements, payment arrangements, intercompany charges or
balances, or the like, other than the agreements described on
Schedule 2.1(d); and
(l) All books, records and accounts relating to the
Excluded Liabilities, including, but not limited to, those
required by the Seller and its Affiliates to meet various
reporting, demonstration and other obligations under research and
development contracts with the United States Department of Energy
("DOE") and others, as described in Schedule 2.2(l) ("Cooperative
Agreements").
2.3 Assumed Liabilities.
On the Closing Date, the Buyer shall deliver to the Sellers
the Assignment and Assumption Agreement pursuant to which the
Buyer shall assume and agree to discharge when due, without
recourse to the Sellers all of the following liabilities and
obligations of the Sellers direct or indirect, known or unknown,
absolute or contingent, that relate to the Purchased Assets,
other than Excluded Liabilities, in accordance with the
respective terms and subject to the respective conditions thereof
(collectively, "Assumed Liabilities"):
(a) All liabilities and obligations of the Sellers
arising or accruing on and after the Closing Date under the
Assigned Contracts (including the Sellers' Agreements), the
Real Property Leases, and the Transferable Permits in
accordance with the terms thereof, including, without
limitation, (i) the contracts, licenses, agreements and
personal property leases entered into by the Sellers with
respect to the Purchased Assets which would be required to
be disclosed on Schedule 4.12(a) but for the exceptions
provided in clauses (ii)(B) or (C) of Section 4.12(a) of
this Agreement and (ii) the contracts, licenses, agreements
and personal property leases entered into by the Sellers
with respect to the Purchased Assets after the date hereof
consistent with the terms of this Agreement, except in each
case to the extent such liabilities and obligations, but for
a breach or default by the Sellers, would have been paid,
performed or otherwise discharged on or prior to the Closing
Date or to the extent the same arise out of any such breach
or default or out of any event which after the giving of
notice would constitute a default by the Seller;
(b) All liabilities and obligations associated with
the Purchased Assets in respect of Taxes for which the Buyer
is liable pursuant to Sections 3.5 or 6.8(a) hereof;
(c) All liabilities and obligations with respect to
(i) the Transferred Employees on and after the Closing Date
for which the Buyer is responsible pursuant to Section 6.10
and (ii) the grievances and arbitration proceedings arising
out of or under the Collective Bargaining Agreement prior
to, on or after the Closing Date (as set forth in Schedule
4.8);
(d) Any liability, obligation or responsibility under
or related to former, current or future Environmental Laws
or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued,
arising as a result of or in connection with (i) any
violation or alleged violation of Environmental Laws,
whether prior to, on or after the Closing Date, with respect
to the ownership or operation of the Purchased Assets; (ii)
compliance with applicable Environmental Laws, whether prior
to, on or after the Closing Date, with respect to the
ownership or operation of the Purchased Assets; (iii) loss
of life, injury to persons or property or damage to natural
resources caused (or allegedly caused) by the presence or
Release of Hazardous Substances at, on, in, under, adjacent
to or migrating from the Purchased Assets prior to, on or
after the Closing Date, including, but not limited to,
Hazardous Substances contained in building materials at or
adjacent to the Purchased Assets or in the soil, surface
water, sediments, groundwater, landfill cells, or in other
environmental media at or near the Purchased Assets; (iv)
loss of life, injury to persons or property or damage to
natural resources caused (or allegedly caused) by the off-
Site disposal, storage, treatment, transportation,
discharge, Release or recycling of Hazardous Substances, or
the arrangement for such activities, on or after the Closing
Date, in connection with the ownership or operation of the
Purchased Assets; (v) the Remediation of Hazardous
Substances that are present or have been Released prior to,
on or after the Closing Date at, on, in, under, adjacent to
or migrating from the Purchased Assets, including, but not
limited to, Hazardous Substances contained in building
materials at or adjacent to the Purchased Assets or in the
soil, surface water, sediments, groundwater, landfill cells
or in other environmental media at or near the Purchased
Assets; and (vi) the Remediation of Hazardous Substances
that are disposed, stored, treated, transported, discharged,
Released, recycled, or the arrangement for such activities,
prior to, on or after the Closing Date, in connection with
the ownership or operation of the Purchased Assets, at any
off-Site location; provided, that nothing set forth in this
subsection 2.3(d) shall require the Buyer to assume any
liabilities or obligations that are expressly excluded in
Section 2.4; provided, further, however, that nothing set
forth in this subsection 2.3(d) shall require the Buyer to
assume any obligation for payment of criminal fines or
penalties imposed by a Governmental Authority to the extent
such obligations arise out of or relate to acts or omissions
of the Sellers prior to closing that constitute violations
of any Environmental Law;
(e) All liabilities and obligations of the Sellers
with respect to the Purchased Assets under the agreements or
consent orders set forth on Schedule 4.7 arising on or after
the Closing Date; and
(f) With respect to the Purchased Assets, any Tax that
may be imposed by any federal, state or local government on
the ownership, sale, operation or use of the Purchased
Assets on or after the Closing Date; except for any Income
Taxes attributable to income received by the Sellers
(including proceeds representing the Purchase Price or
proceeds of other asset sales).
2.4 Excluded Liabilities.
The Buyer shall not assume or be obligated to pay, perform or
otherwise discharge any liabilities or obligations of the
Sellers, or with respect to the Purchased Assets, of any kind or
nature other than the Assumed Liabilities (collectively,
"Excluded Liabilities"). The Excluded Liabilities include, but
are not limited to:
(a) Any liabilities or obligations of the Sellers in
respect of any Excluded Assets or other assets of the Seller
which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes
attributable to the Purchased Assets for taxable periods
ending before the Closing Date, except for all or the pro-
rated portion of Taxes for which the Buyer is liable
pursuant to Sections 3.5 or 6.8(a) hereof;
(c) Any liabilities or obligations of the Sellers
arising from the breach by Sellers of any of the Assigned
Contracts or Real Property Leases prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or
obligations to third parties for personal injury, tort,
death, or similar causes of action arising solely out of the
ownership or operation of the Purchased Assets prior to the
Closing Date, other than any liabilities or obligations
assumed by the Buyer under Section 2.3(d);
(e) Any fines or penalties imposed by a Governmental
Authority resulting from (i) an investigation or proceeding
before a Governmental Authority pending prior to the Closing
Date but only as such fines or penalties relate to acts or
occurrences prior to the Closing Date, or (ii) illegal acts,
willful misconduct or gross negligence of the Sellers prior
to the Closing Date, other than, in the case of either (i)
or (ii), any liability or obligation assumed by the Buyer
under Section 2.3(d);
(f) Any payment obligations of the Seller or its
Affiliates (but not SRC) for goods delivered or services
rendered prior to the Closing Date;
(g) Any liabilities or obligations accruing under or
relating to any Benefit Plan sponsored, maintained or
contributed to by the Seller or any trade or business
(whether or not incorporated) which is or ever has been
under common control, or which is or ever has been treated
as a single employer, with the Seller under Section 414(b),
(c), (m) or (o) of the Code ("ERISA Affiliate") or to which
the Seller and any ERISA Affiliate contributed thereunder
(the "ERISA Affiliate Plans"), including, but not limited
to, any liability: (i) relating to any benefits payable
under any Benefit Plan; (ii) under Title IV of ERISA; (iii)
with respect to the continuation coverage requirements of
COBRA; (iv) with respect to any noncompliance with ERISA,
the Code or any other applicable laws; (v) arising from the
termination of any Benefit Plan; (vi) with respect to any
suit, proceeding or claim which is brought against the
Buyer, any Benefit Plan, ERISA Affiliate Plan, any fiduciary
or former fiduciary of any such Benefit Plan or ERISA Affil-
iate Plan; or (vii) with respect to any Benefit Plan, any
liability resulting from any vesting of benefits, severance,
termination or other payments or liabilities as a result of
the transactions contemplated by this Agreement;
(h) Any liabilities or obligations, including wages,
overtime pay, employment taxes, vacation pay and workers
compensation payments, relating to the employment or
termination of employment, including a constructive
termination, by the Sellers of any individual attributable
to any actions or inactions by the Sellers prior to the
Closing Date other than such actions or inactions taken at
the direction of the Buyer (other than any liabilities or
obligations assumed by the Buyer under Section 2.3(c)(ii));
(i) Any liability, obligation or responsibility under
or related to former, current or future Environmental Laws
or the common law, or any loss of life, injury to persons or
property or damage to natural resources (whether or not such
loss, injury, or damage arose or was made manifest after the
Closing Date) to the extent caused by, relating or arising
from the disposal, storage, transportation, treatment,
Release, or recycling of Hazardous Substances prior to the
Closing Date at any off-Site location and the Remediation of
such Hazardous Substances (whether or not the Remediation
commenced before or commences after the Closing Date); and
(j) Any liability, obligation or responsibility for
reporting, recoupment and commercialization of various
development projects arising out of or related to the
Cooperative Agreements.
The Parties agree and acknowledge that the Sellers or their
Affiliates shall be entitled exclusively to control, defend and
settle any litigation, administrative or regulatory proceeding,
and any investigation or Remediation activities (including
without limitation any environmental mitigation or Remediation
activities) arising out of or related to any Excluded
Liabilities, and the Buyer agrees to cooperate fully with the
Sellers in connection therewith.
ARTICLE III
THE CLOSING
3.1 Closing
Upon the terms and subject to the satisfaction of the conditions
contained in Article VII of this Agreement, the closing of the
sale, assignment, conveyance, transfer and delivery of the
Purchased Assets to the Buyer, the payment of the Purchase Price
to the Seller, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement (the
"Closing") shall take place at the offices of Huber Lawrence &
Abell, 605 Third Avenue, New York , New York at 10:00 a.m. local
time, or another mutually acceptable hour and location, on the
date that is fifteen (15) Business Days following the date on
which all of the conditions precedent to Closing set forth in
Article VII of this Agreement have been either satisfied or
waived by the Party for whose benefit such conditions precedent
exist, or such other date as the Parties may mutually agree. The
date of Closing is hereinafter called the "Closing Date." The
Closing shall be effective for all purposes as of 12:01 A.M. on
the Closing Date.
3.2 Payment of Purchase Price
Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement, in consideration of the
aforesaid sale, assignment, conveyance, transfer and delivery of
the Purchased Assets, the Buyer will pay or cause to be paid to
the Seller at the Closing an amount in United States dollars of
Nine Hundred and Fifty Million (U.S. $950,000,000.00) (the
"Purchase Price") plus or minus any adjustments pursuant to the
provisions of this Agreement, by wire transfer of immediately
available funds denominated in U.S. dollars or by such other
means as are agreed upon by the Seller and the Buyer.
3.3 Adjustment to Purchase Price
(a) Subject to Section 3.3(b), at the Closing, the Purchase
Price shall be adjusted, without duplication, to account for the
items set forth in this Section 3.3(a):
<PAGE>
(i) The Purchase Price shall be adjusted to reflect
the difference between the book value of all Inventories held by
the Sellers as of the Closing Date and the book value of all
Inventories as of March 31, 1998, as reflected on Schedule
3.3(a)(i). Schedule 3.3(a)(i) has been prepared from and is in
accordance with the books and records of the Sellers;
(ii) The Purchase Price shall be adjusted to account
for the items prorated as of the Closing Date pursuant to Section
3.5; and
(iii) To the extent applicable, the Purchase Price
shall be decreased to reflect any settlement reached by the
Parties pursuant to the provisions of Section 6.11(b).
(b) At least ten (10) Business Days prior to the
Closing Date, the Seller shall prepare and deliver to the Buyer
an estimated closing statement (the "Estimated Closing
Statement") that shall set forth the Seller's best estimate of
all estimated adjustments to the Purchase Price required by
Section 3.3(a) (the "Estimated Adjustment"). Within five (5)
Business Days following the delivery of the Estimated Closing
Statement by the Seller to the Buyer, the Buyer may object in
good faith to the Estimated Adjustment in writing. If the Buyer
objects to the Estimated Adjustment, the Parties shall attempt to
resolve such dispute by negotiation. If the Parties are unable
to resolve such dispute before two (2) Business Days prior to the
Closing Date (or if the Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be adjusted (the "Closing
Adjustment") for the Closing by the amount of the Estimated
Adjustment not in dispute.
(c) Within sixty (60) days following the Closing Date,
the Seller shall prepare and deliver to the Buyer a Post-Closing
Statement (the "Post-Closing Statement") that shall set forth all
adjustments to the Purchase Price required by Section 3.3(a) (the
"Proposed Post-Closing Adjustment"). The Post-Closing Statement
shall be prepared using the same accounting principles, policies
and methods as the Sellers have historically used in connection
with the calculation of the terms reflected on such Post-Closing
Statement. Within thirty (30) days following the delivery of the
Post-Closing Statement by the Seller to the Buyer, the Buyer may
object to the Proposed Post-Closing Adjustment in writing. The
Sellers agree to cooperate with the Buyer to provide the Buyer
and the Buyer's Representatives information used to prepare the
Post-Closing Statement and information relating thereto. If the
Buyer objects to the Proposed Post-Closing Adjustment, the
Parties shall attempt to resolve such dispute by negotiation. If
the Parties are unable to resolve such dispute within thirty (30)
days of any objection by the Buyer, the Parties shall appoint the
Independent Accounting Firm, which shall, at the Seller's and the
Buyer's joint expense (to be shared equally), review the Proposed
Post-Closing Adjustment and determine the appropriate adjustment
to the Purchase Price, if any, within thirty (30) days of such
appointment. The Parties agree to cooperate with the Independent
Accounting Firm and provide it with such information as it
reasonably requests to enable it to make such determination. The
finding of such Independent Accounting Firm shall be binding on
the Parties. Upon determination of the appropriate adjustment
(the "Post-Closing Adjustment") by agreement of the Parties or by
binding determination of the Independent Accounting Firm, if the
Post-Closing Adjustment is more or less than the Closing
Adjustment, the Party owing the difference shall deliver such
difference to the other Party no later than five (5) Business
Days after such determination in immediately available funds or
in any other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price
(a) The Buyer and the Seller shall endeavor in
good faith to agree upon an allocation among the Purchased Assets
of the sum of the Purchase Price and the Assumed Liabilities
consistent with Section 1060 of the Code and the Treasury
Regulations thereunder within sixty (60) days of the date of this
Agreement. In the event that the Parties cannot agree on a
mutually satisfactory allocation within said time period, the
Independent Accounting Firm shall, at the Seller's and the
Buyer's joint expense (to be shared equally), determine the
appropriate allocation. The finding of such Independent
Accounting Firm shall be binding on the Parties. Upon
determination of the allocation by agreement of the Parties or by
binding determination of the Independent Accounting Firm, the
Buyer and the Seller agree to file Internal Revenue Service Form
8594, and all federal, state, local and foreign Tax Returns, in
accordance with such allocation. The Buyer and the Seller shall
report the transactions contemplated by this Agreement for
federal Tax and all other Tax purposes in a manner consistent
with the allocation determined pursuant to this Section 3.4. The
Buyer and the Seller agree to provide the other promptly with any
information required to complete Form 8594. The Buyer and the
Seller shall notify and provide the other Party with reasonable
assistance in the event of an examination, audit or other
proceeding regarding the agreed upon allocation of the Purchase
Price.
(b) With respect to the sale of the SRC Stock, the
Buyer and the Seller shall allocate that portion of the Purchase
Price which is attributable to the SRC Stock in accordance with
the allocation determined in Section 3.4(a).
3.5 Prorations
(a) The Buyer and the Seller agree that all of the
items normally prorated, including those listed below (but not
including Income Taxes), relating to the business and operation
of the Purchased Assets shall be prorated as of the Closing Date,
with the Seller liable to the extent such items relate to the
Purchased Assets for any time period prior to the Closing Date,
and the Buyer liable to the extent such items relate to the
<PAGE>
Purchased Assets for periods commencing on and after the Closing
Date (measured in the same units used to compute the item in
question, otherwise measured by calendar days):
(i) Personal property, real estate, occupancy,
sewerage and water Taxes, assessments and other charges, if
any, on or with respect to the business and operation of the
Purchased Assets;
(ii) Rent, Taxes and all other items payable by or to
the Seller under any of the Assigned Contracts;
(iii) Any permit, license, registration, compliance
assurance fees or other fees with respect to any
Transferable Permit;
(iv) Sewer rents and charges for water, telephone,
electricity and other utilities; and
(v) Rent, Taxes and other items payable by the Seller
under the Real Property Leases assigned to the Buyer.
(b) In connection with the prorations referred to in
(a) above, in the event that actual figures are not available at
the Closing Date, the proration shall be based upon the actual
Taxes or other amounts paid for the most recent year (or other
appropriate period) for which actual Taxes or other amounts paid
are available, as mutually agreed by the Buyer and the Seller.
Such prorated Taxes or other amounts shall be re-prorated and
paid to the appropriate Party within sixty (60) days of the date
that the previously unavailable actual figures become available.
The prorations shall be based upon the number of days in a year
(or other appropriate period) (i) before the Closing Date and
(ii) including and after the Closing Date. The Seller and the
Buyer agree to furnish each other with such documents and other
records as may be reasonably requested in order to confirm all
adjustment and proration calculations made pursuant to this
Section 3.5.
Notwithstanding anything that may be to the contrary herein,
this Section 3.5 does not apply to Tax refunds described in
Section 2.2(h).
3.6 Deliveries by the Sellers
At the Closing, the Seller will deliver, or cause to be
delivered, the following to the Buyer:
(a) The Bill of Sale, duly executed by the Seller;
(b) Copies of any and all governmental and other
third party consents, waivers or approvals obtained by the Seller
with respect to the transfer of the Purchased Assets, or the
consummation of the transactions connected to the sale of the
Purchased Assets contemplated by this Agreement;
(c) The opinion of counsel and officer's certificate
contemplated by Section 7.1;
(d) The Deeds, duly executed and acknowledged by the
Seller and in recordable form;
(e) The Assignment and Assumption Agreement, duly
executed by the Sellers;
(f) A stock certificate or certificates representing
the SRC Stock, together with stock powers duly endorsed to the
Buyer;
(g) A FIRPTA Affidavit, duly executed by the Seller;
(h) Copies, certified by the Secretary of the Seller
and NYSEG, respectively, of resolutions duly adopted by the Board
of Directors of the Seller and NYSEG, respectively, authorizing
the execution and delivery of this Agreement and all of the
agreements and instruments to be executed and delivered by the
Seller and NYSEG, respectively, in connection herewith, and the
consummation of the transactions contemplated hereby;
(i) Certificates of the Secretary of the Seller and,
NYSEG, respectively, which shall identify by name and title and
bear the signatures of the officers of the Seller and NYSEG,
respectively, authorized to execute and deliver this Agreement
and the other agreements and instruments contemplated hereby;
(j) To the extent available, originals of all
Sellers' Agreements, Real Property Leases and Transferable
Permits and, if not available, true and correct copies thereof;
(k) Resignations of all directors and officers of
SRC;
(l) Certificates of Good Standing with respect to the
Seller, NYSEG and SRC issued by the Secretary of the State of New
York;
(m) Reliance letters from Pilko and Associates with
respect to the Environmental Reports;
(n) Such other instruments of assignment, transfer
and conveyance as shall, in the reasonable opinion of the Buyer
and its counsel, be necessary for the Sellers to transfer to the
Buyer the Purchased Assets in accordance with this Agreement and
in order to consummate the transactions contemplated by this
Agreement and, where necessary or desirable, in recordable form;
and
(o) Such other agreements, documents, instruments and
writings as are required to be delivered by the Sellers at or
prior to the Closing Date pursuant to this Agreement.
3.7 Deliveries by the Buyer
At the Closing, the Buyer will deliver, or cause to be
delivered, the following to the Seller:
(a) The Purchase Price, as adjusted pursuant to the
provisions of Section 3.3(a), by wire transfer of immediately
available funds in accordance with Seller's instructions or by
such other means as are agreed upon by the Seller and the Buyer;
(b) The opinion of counsel and officer's certificate
contemplated by Section 7.2;
(c) The Assignment and Assumption Agreement, duly
executed by the Buyer;
(d) Copies, certified by the Secretary (or other
authorized representative performing similar functions) of the
Buyer and the Buyer's Parent, respectively, of resolutions
authorizing the execution and delivery of this Agreement and all
of the agreements and instruments to be executed and delivered by
the Buyer and Buyer's Parent, respectively, in connection
herewith, and the consummation of the transactions contemplated
hereby;
(e) Certificates of the Secretary of the Buyer and
the Buyer's Parent, respectively, which shall identify by name
and title and bear the signatures of the officers or managers of
the Buyer and Buyer's Parent, respectively, authorized to execute
and deliver this Agreement and the other agreements contemplated
hereby to which the Buyer or the Buyer's Parent is a party;
(f) Certificates of Good Standing with respect to the
Buyer and Buyer's Parent issued by the Secretary of State of such
entity's organization;
(g) All such other instruments of assumption as
shall, in the reasonable opinion of the Seller and its counsel,
be necessary for the Buyer to assume the Assumed Liabilities in
accordance with this Agreement;
(h) Copies of any and all governmental and other
third party consents, waivers or approvals obtained by the Buyer
with respect to transfer of the Purchased Assets, or the
consummation of the transactions contemplated by this Agreement;
(i) Certificates of Insurance relating to the
insurance policies required pursuant to Article 10 of the
Interconnection Agreement;
(j) Such other agreements, documents, instruments and
writings as are required to be delivered by the Buyer at or prior
to the Closing Date pursuant to this Agreement; and
(k) The payment, in a manner specified by the Seller,
for any Capital Expenditures, OM Expenditures or related lost
margin costs incurred by the Seller pursuant to Section 6.1(c).
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
OF THE SELLERS
The Seller (and to the extent the representations or
warranty relate to NYSEG, NYSEG) represents and warrants to the
Buyer as follows:
4.1 Organization; Qualification; Matters Regarding SRC
(a) Each of the Seller, NYSEG and SRC is a corporation duly orga
nized, validly existing and in good standing under the laws of
the State of New York and has all requisite corporate power and
authority to own, lease, and operate its properties and to carry
on its business as it is now being conducted. Each of the
Seller, NYSEG and SRC is duly qualified to do business as a
foreign corporation and is in good standing under the laws of
each jurisdiction in which its business as now being conducted
shall require it to be so qualified, except where the failure to
be so qualified would not have a Material Adverse Effect. The
Seller has heretofore made available to the Buyer complete and
correct copies of the Certificates of Incorporation and Bylaws of
the Seller, NYSEG and SRC, as currently in effect.
(b) The authorized capital stock of SRC consists of
2,000 shares of common stock, no par value, all of which shares
are issued and outstanding and owned beneficially and of record
by the Seller, free and clear of all Encumbrances. The SRC Stock
has been duly authorized and validly issued, and is fully paid
and non-assessable. There are no outstanding (i) securities
convertible into or exchangeable for the capital stock of SRC or
(ii) options, warrants, calls, right of first refusal, "phantom
stock" rights, preemptive rights or other rights to purchase or
subscribe for capital stock of SRC or securities convertible or
exchangeable for capital stock thereof.
4.2 Authority Relative to this Agreement
The Seller and NYSEG have full corporate power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and
delivery of this Agreement by the Seller and NYSEG and the
consummation of the transactions contemplated hereby by the
Seller and NYSEG have been duly and validly authorized by all
necessary corporate action required on the part of the Seller and
NYSEG. This Agreement has been duly and validly executed and
delivered by the Seller and NYSEG. Subject to the receipt of the
Seller Required Regulatory Approvals, and assuming that this
Agreement constitutes a legal, valid and binding agreement of the
Buyer, this Agreement constitutes a legal, valid and binding
agreement of the Seller and NYSEG, enforceable against the Seller
and NYSEG in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding
at law or in equity).
4.3 Consents and Approvals; No Violation
(a) Except as set forth in Schedule 4.3(a), and subject to
obtaining the Seller Required Regulatory Approvals, neither the
execution and delivery of this Agreement by the Seller or NYSEG
nor the consummation by the Seller or NYSEG of the transactions
contemplated hereby will: (i) conflict with or result in any
breach of any term, condition or provision of the Certificate of
Incorporation or Bylaws of the Seller or NYSEG, (ii) result (with
or without notice or lapse of time or both) in a default or
creation of a lien (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which the Seller
or NYSEG is a party or by which the Seller or NYSEG, or any of
the Purchased Assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained or which, would
not, individually or in the aggregate, create a Material Adverse
Effect, or (iii) constitute violations of any law, regulation,
order, judgment or decree applicable to the Seller, which
violations, individually or in the aggregate, would create a
Material Adverse Effect.
(b) Except as set forth in Schedule 4.3(b) (the
filings and approvals set forth in Schedule 4.3(b) are
collectively referred to as the "Seller Required Regulatory
Approvals"), no consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for the execution and
delivery of this Agreement by the Seller or NYSEG or the
consummation by the Seller or NYSEG of the transactions
contemplated hereby, other than such consents, approvals, filings
or notices which, if not obtained or made, will not prevent
Seller or NYSEG from performing its material obligations
hereunder and other than such consents, approvals, filings or
notices which become applicable to the Seller or NYSEG or the
Purchased Assets as a result of the specific regulatory status of
the Buyer (or any of its Affiliates) or as a result of any other
facts that specifically relate to the business or activities in
which the Buyer (or any of its Affiliates) is or proposes to be
engaged.
4.4 Insurance
Except as set forth in Schedule 4.4, all material policies
of fire, liability, worker's compensation and other forms of
insurance owned or held by, or on behalf of, Sellers and insuring
or relating to the Purchased Assets are in full force and effect,
all premiums with respect thereto covering all periods up to and
including the date hereof have been paid (other than retroactive
premiums which may be payable with respect to comprehensive
general liability and workers' compensation insurance policies),
and no notice of cancellation or termination has been received
with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such
cancellation. Except as described in Schedule 4.4, as of the
date of this Agreement, the Sellers have not been refused any
insurance with respect to the Purchased Assets nor has its
coverage been limited by any insurance carrier to which it has
applied for any such insurance or with which it carried insurance
during the last twelve months.
4.5 Title
Except for Permitted Encumbrances (including those
exceptions to title to the Real Property set forth in Schedule
4.5) (a) the Seller and SRC each hold and Seller shall convey
such title with respect to the Real Property as a reputable title
company doing business in the State of New York would insure,
subject to such exceptions as would not materially affect the use
of the Real Property as historically used by the Seller and SRC
and their Affiliates and (b) the Seller and SRC each has good and
valid title to the other Purchased Assets which it purports to
own, free and clear of all Encumbrances.
4.6 Real Property Leases
Schedule 4.6 lists, as of the date of this Agreement, all real
property leases under which the Sellers or SRC is a lessee or
lessor and which are to be transferred and assigned to the Buyer
on the Closing Date, other that those real property leases which
are not material to the business or operations of the Purchased
Assets ("Real Property Leases"). Except as set forth in Schedule
4.6, all such leases are valid, binding and enforceable in
accordance with their terms, and are in full force and effect;
there are no existing material defaults by the Sellers or SRC or,
to the Sellers' Knowledge, any other party thereunder; and no
event has occurred which (whether with or without notice, lapse
of time or both) would constitute a material default by the
Sellers or SRC or, to the Seller's Knowledge, any other party
thereunder.
4.7 Environmental Matters
Except as disclosed in Schedule 4.7 or in any public
filing by any Affiliate of the Seller pursuant to the Securities
Act or the Exchange Act or in the Environmental Reports:
(a) The Sellers and SRC hold, and are in substantial
compliance with, all permits, certificates, certifications,
licenses and governmental authorizations under Environmental Laws
("Environmental Permits") that are material and required for the
Sellers to conduct the business and operations of the Purchased
Assets, and the Sellers and SRC are otherwise in compliance with
applicable Environmental Laws with respect to the business and
operations of the Purchased Assets except for such failures to
hold or comply with required Environmental Permits, or such
failures to be in compliance with applicable Environmental Laws,
as would not, individually or in the aggregate, create a Material
Adverse Effect;
(b) Neither the Sellers nor SRC has received any
written request for information, or been notified that it is a
potentially responsible party, under CERCLA or any similar state
law with respect to any on-Site or off-Site location related to
the Purchased Assets;
(c) Neither the Sellers nor SRC (i) have entered into
or agreed to any consent decree or order relating to the
Purchased Assets, (ii) are subject to any outstanding judgment,
decree, or judicial order relating to compliance with any
Environmental Law or to investigation or cleanup of Hazardous
Substances under any Environmental Law relating to the Purchased
Assets, or (iii) are currently involved in any negotiation
relating to compliance;
(d) No Releases of Hazardous Substances have occurred
at, from, in, to, on, or under any Site, and no Hazardous
Substances are present in, on, about or migrating to or from any
Site that could give rise to an Environmental Claim related to
the Purchased Assets, except to the extent that any such Releases
would not, individually or in the aggregate, create a Material
Adverse Effect;
(e) Neither the Sellers nor SRC have transported or
arranged for the treatment, storage, handling, disposal, or
transportation of any Hazardous Material related to Purchased
Assets to any off-Site location which is an Environmental
Clean-up Site, except to the extent that any Environmental Claims
related to the Environmental Clean-up Site would not,
individually or in the aggregate, create a Material Adverse
Effect; and
(f) There are no liens arising under or pursuant to
any Environmental Law on any Site and there are no facts,
circumstances, or conditions that could reasonably be expected to
restrict, encumber, or result in the imposition of special
conditions under any Environmental Law with respect to the
ownership, occupancy, development, use, or transferability of any
of the Purchased Assets.
The representations and warranties made in this Section 4.7 are
the Sellers' exclusive representations and warranties relating to
environmental matters.
4.8 Labor Matters
The Sellers have previously delivered to the Buyer true and
correct copies of all collective bargaining agreements to which
the Sellers are a party or are subject and which relate to the
business or operations of the Purchased Assets. Solely (in each
of the following clauses (a) through (c)) with respect to the
business or operations of the Purchased Assets, except to the
extent set forth in Schedule 4.8 and except for such matters as
would not, individually or in the aggregate, create a Material
Adverse Effect, (a) the Sellers are in compliance with all
applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours; (b) the
Sellers have not received written notice of any unfair labor
practice complaint against the Sellers pending before the
National Labor Relations Board; and (c) no arbitration proceeding
arising out of or under any collective bargaining agreements is
pending against the Sellers.
4.9 Benefit Plans: ERISA
(a) Schedule 4.9(a) lists all deferred compensation,
profit-sharing, retirement and pension plans, including
multi-employer plans (of which none exist), and all material
bonus, fringe benefit and other employee benefit plans maintained
or with respect to which contributions are made by the Seller or
its Affiliates in respect to the current employees employed in
connection with the Purchased Assets ("Benefit Plans"). True and
complete copies of all such Benefit Plans have been made
available to the Buyer.
(b) Except as set forth in Schedule 4.9(b), the
Seller and the ERISA Affiliates have fulfilled their respective
obligations under the minimum funding requirements of Section 302
of ERISA, and Section 412 of the Code, with respect to each
Benefit Plan which is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA and each such plan is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code. Except as set forth in
Schedule 4.9(b), neither the Seller nor any ERISA Affiliate has
incurred any liability under Section 4062(b) of ERISA to the
Pension Benefit Guaranty Corporation in connection with any
Benefit Plan which is subject to Title IV of ERISA, or any
withdrawal liability, nor is there any reportable event (as
defined in Section 4043 of ERISA), except as set forth in
Schedule 4.9(b). Except as set forth in Schedule 4.9(b), the
Internal Revenue Service has issued a letter for each Benefit
Plan which is intended to be qualified under Section 401(a) of
the Code, which letter determines that such plan is exempt from
United States Federal Income Tax under Sections 401(a) and 501(a)
of the Code, and there has been no occurrence since the date of
any such determination letter which has affected adversely such
qualification.
(c) Neither the Seller nor any ERISA Affiliate has
engaged in any transaction within the meaning of Section 4069(b)
or Section 4212(c) of ERISA. No Benefit Plan is a multi-employer
plan.
(d) To the extent Sellers maintain a "group health
plan" within the meaning of Section 5000(b)(1) of the Code,
Sellers have materially complied in good faith with the notice
and continuation requirements of Section 4980B of the Code,
COBRA, Part 6 of Subtitle B of Title I of ERISA and the
regulations thereunder.
4.10 Real Property
Schedule 4.10 contains a description of, and exhibits
indicating the location of, the Real Property owned by the Seller
and included in the Purchased Assets or owned by SRC. True and
correct copies of any current surveys, abstracts or title
opinions in the Seller's possession or any policies of title
insurance currently in force and in the possession of the Seller
with respect to the Real Property have heretofore been made
available to the Buyer. No other fee simple interest in real
property, other than a fee simple interest in the fee simple
estates included in the Real Property, is necessary for the Buyer
to use the Purchased Assets substantially as historically used by
the Seller or its Affiliates.
4.11 Condemnation
Except as set forth in Schedule 4.11, the Seller have
received no written notices of, nor do the Sellers have Knowledge
of, any pending or threatened proceedings or governmental actions
to condemn or take by power of eminent domain all or any part of
the Purchased Assets.
4.12 Contracts and Personal Property Leases
(a) Schedule 4.12(a) lists (i) all written contracts,
licenses, agreements, or personal property leases which are
material to the business or operations of the Purchased Assets
and which are expected to continue in force and effect after the
Closing Date, other than contracts, licenses, agreements or
personal property leases which constitute Excluded Assets, and
(ii) all other contracts, licenses, agreements and personal
property leases of the Sellers or SRC relating to the Purchased
Assets other than (A) contracts, licenses, agreements and
personal property leases which are expected to expire prior to
the Closing Date, (B) any contract, license, agreement, and
personal property lease which provides for annual payments by the
Sellers or SRC after the date hereof of less than $100,000 or
aggregate payments by the Sellers or SRC after the date hereof of
less than $1,000,000, and (C) agreements of the Sellers or SRC
with suppliers entered into in the ordinary course of business
that are not material to the Purchased Assets.
(b) Except as set forth in Schedule 4.12(b), each
material Sellers' Agreement (i) constitutes a legal, valid and
binding obligation of Sellers or SRC, as the case may be,
enforceable in accordance with its terms, and, to the Seller's
Knowledge, constitutes a legal, valid and binding obligation of
the other parties thereto, (ii) is in full force and effect and
(iii) may be transferred to the Buyer pursuant to this Agreement
without the consent of the other parties thereto and will
continue in full force and effect thereafter, in each case
without breaching the terms thereof or resulting in the
forfeiture or impairment of any rights thereunder.
(c) Except as set forth in Schedule 4.12(c), there is
not, under any of the material Sellers' Agreements, any default
or event which, with notice or lapse of time or both, would
constitute a default on the part of the Sellers or SRC or, to the
Seller's Knowledge, any of the other parties thereto, except such
events of default and other events as to which requisite waivers
or consents have been obtained, or which would not, individually
or in the aggregate, create a Material Adverse Effect.
4.13 Legal Proceedings
Except as set forth in Schedule 4.13 or in any filing made by
any Affiliate of the Seller pursuant to the Securities Act or the
Exchange Act and except for matters which are Excluded
Liabilities, there are no actions or proceedings pending (or to
the Sellers' Knowledge, threatened as of the date of this
Agreement) against the Seller or SRC before any court or
Governmental Authority acting in an adjudicative capacity, which,
could reasonably be expected to, individually or in the
aggregate, create a Material Adverse Effect or prohibit or
restrain the execution, delivery or performance of this
Agreement, or the consummation of the transactions contemplated
hereby in any material respect. Except as set forth in Schedule
4.13 or in any filing made by any Affiliate of the Seller
pursuant to the Securities Act or the Exchange Act and except for
matters which are Excluded Liabilities, the Seller is not subject
to any outstanding judgments, rules, orders, writs, injunctions
or decrees of any court or Governmental Authority which would,
individually or in the aggregate, create a Material Adverse
Effect. Sellers shall advise Buyer of any actions or proceedings
which shall be commenced against Sellers, or either of them, or
SRC from and after the date hereof as soon as practicable after
the commencement of same, and shall further advise Buyer upon
Seller or NYSEG obtaining knowledge from and after the date
hereof of any threatened action or proceeding against the
Sellers, or either of them, or SRC which, in each case, could
reasonably be expected to, individually or in the aggregate,
create a Material Adverse Effect or prohibit or restrain the
performance of this Agreement, or the consummation of the
transactions contemplated hereby in any material respect.
4.14 Permits
(a) The Sellers and SRC own or validly hold all permits,
licenses, franchises and other governmental authorizations,
consents and approvals (other than with respect to Environmental
Laws, which are addressed in Section 4.7 hereto) (collectively,
"Permits") necessary to own and operate the Purchased Assets as
presently conducted except where any failure to have such Permits
would not, individually or in the aggregate, create a Material
Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits
and Environmental Permits, other than Transferable Permits (which
are set forth on Schedule 1.1(a)(66)).
4.15 Taxes
(a) The Seller has filed all returns, reports and
declarations that are required to have been filed by it with
respect to any material Tax, and the Seller has paid all Taxes
that have become due as indicated thereon, except where Seller is
contesting the same in good faith by appropriate proceedings.
Seller has complied in all material respects with all applicable
laws, rules and regulations relating to withholding Taxes. All
Tax returns are true, correct and complete in all material
respects. Except as set forth in Schedule 4.15, no notice of
deficiency or assessment has been received from any taxing
authority with respect to liabilities for Taxes of Seller in
respect of the Purchased Assets, which have not been fully paid
or finally settled, and any such deficiency shown in Schedule
4.15 is being contested in good faith through appropriate
proceedings. Except as set forth in Schedule 4.15, there are no
outstanding agreements or waivers extending the applicable
statutory periods of limitation for Taxes associated with the
Purchased Assets for any period. There are no Encumbrances for
Taxes (other than for current Taxes not yet due and payable) on
the Purchased Assets. There are no rulings or closing agreements
executed with any taxing authority relating to the Purchased
Assets that will be binding upon the Buyer after the Closing.
None of the Purchased Assets is property that is required to be
treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section
168(f)(8) of the Code, and none of the Purchased Assets is
"tax-exempt use" property within the meaning of Section 168(h) of
the Code. Schedule 4.15 sets forth the taxing jurisdictions in
which the Seller owns assets or conducts business that require a
notification to a taxing authority of the transactions
contemplated by this Agreement, if the failure to make such
notification, or obtain Tax clearance certificates in connection
therewith, would either require the Buyer to withhold any portion
of the Purchase Price or subject the Buyer to any liability for
any Taxes of the Seller.
(b) Except as set forth on Schedule 4.15:
(i) SRC has (A) duly and timely filed (or there have
been filed on its behalf) with the appropriate taxing
authorities all material Tax Returns required to be filed by
it, and all such Tax Returns are true, correct and complete
in all material respects and (B) timely paid or there have
been paid on its behalf all material Taxes due or claimed to
be due from it by any taxing authority (whether or not shown
on any tax return), and SRC currently is not the beneficiary
of any extension of time within which to file any Tax
Return;
(ii) SRC has, within the time and manner prescribed
by law, withheld and paid over to the proper governmental
authorities all material amounts required to be withheld and
paid over under all applicable laws;
(iii) There are no Encumbrances for Taxes upon the
assets or properties of SRC, except for Permitted
Encumbrances;
(iv) No outstanding waivers or comparable consents
regarding the application of the statute of limitations with
respect to any material Taxes or material Tax Returns have
been given by or on behalf of SRC;
(v) No federal, state, local or foreign audits or
other administrative proceedings or court proceedings
("Audits") exist or have been initiated with regard to any
material Taxes or material Tax Returns of SRC and SRC has
not received any written notice that such an audit is
pending or threatened with respect to any material Taxes due
from or with respect to SRC or any material Tax Return filed
by or with respect to SRC;
(vi) SRC has not requested or received a ruling from
any taxing authority or signed a closing or other agreement
with any taxing authority which would cause a material
adverse effect on the business or financial condition of
SRC;
(vii) All Audits commenced with respect to SRC have
been completed;
(viii) All Tax deficiencies which have been claimed,
proposed or asserted against SRC have been fully paid or
jointly settled;
(ix) Except for the Tax Sharing Agreement (a true copy
of which has been made available to the Buyer prior to the
date hereof), SRC is not a party to, is not bound by, and
has no obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or
arrangement;
(x) SRC has not filed a consent pursuant to Section
341(f) of the Code (or any predecessor provision) or agreed
to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset, as such term is
defined in Section 341(f)(4) of the Code, owned by SRC;
(xi) No property owned by SRC (A) is property required
to be treated as being owned by another Person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to
the enactment of the Tax Reform Act of 1986, (B) constitutes
"tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (C) is tax exempt bond financed
property within the meaning of Section 168(g) of the Code;
(xii) SRC has not incurred any liability for Taxes
other than in the ordinary course of business;
(xiii) SRC has no liability for Taxes of any person
pursuant to Treasury Regulation ' 1.1502-6 (or any similar
provision of state, local or foreign law) other than for the
Consolidated Group of which SRC is a member;
(xiv) SRC has not participated in, or cooperated with,
an international boycott within the meaning of Section 999
of the Code;
(xv) SRC is not a party to any contract, agreement or
other arrangement which, as a result of the transactions
contemplated hereunder, could result in the payment of
amounts that could be nondeductible by reason of Sections
28OG or 162(m) of the Code; and
(xvi) SRC has been consistently treated, through the
date hereof, as a corporation subject to New York franchise
tax as a transportation and transmission corporation under
New York Tax Law, Ch. 60, Art. 9, Sections 183 and 184, and
has not taken any actions (or any omissions thereof)
inconsistent with such treatment.
4.16 Disclaimers Regarding Purchased Assets
Except for the representations and warranties set forth in
this Article IV, the Purchased Assets are sold "as is, where is",
and the Sellers expressly disclaim any representations or
warranties of any kind or nature, express or implied, as to
liabilities, operations of the Plants, or the title, condition
(financial or otherwise), value or quality of the Purchased
Assets, or the prospects, risks and other incidents of the
Purchased Assets and Sellers specifically disclaim any
representation or warranty of merchantability, usage, suitability
or fitness for any particular purpose with respect to the
Purchased Assets, or any part thereof, or as to the workmanship
thereof, or the presence or absence of any defects therein,
whether latent or patent, or compliance with environmental
requirements, or the applicability of any governmental
requirements, including, but not limited to, any Environmental
Laws, or whether the Sellers possess sufficient real property or
personal property to operate the Purchased Assets. Except as
otherwise expressly provided herein, the Sellers further
specifically disclaim any representation or warranty regarding
the presence or absence of Hazardous Substances or liability or
potential liability arising under Environmental Laws with respect
to the Purchased Assets. Without limiting the generality of the
foregoing, except as otherwise expressly provided herein, the
Sellers expressly disclaim any representation or warranty of any
kind regarding the condition of the Purchased Assets or the
suitability of the Purchased Assets for operation as power plants
and no schedule or exhibit to this Agreement, nor any other
material or information provided by or communications made by
Sellers or their Representatives, or by any broker or investment
banker, will cause or create any warranty, express or implied, as
to the title, condition, value or quality of the Purchased
Assets.
The Sellers make no warranties and representations of any
kind, whether direct or implied, that any of the hardware,
software, and firmware product (including embedded
microcontrollers in non-computer equipment) which may be included
in the Purchased Assets to be transferred under this Agreement
(the "Computer Systems") is Year 2000 Compliant.
For purposes of this provision, "Year 2000 Compliant" shall
mean that the Computer Systems will correctly differentiate
between years, in different centuries, that end in the same two
digits, and will accurately process date/time data (including,
but not limited to, calculating, comparing, and sequencing) from,
into, and between the twentieth and twenty-first centuries,
including leap year calculations. It shall also include any
remediation necessary to correct software problems which may
result from so-called "magic numbers", such as "9999".
4.17 Intellectual Property
Schedule 2.1(m) sets forth all Intellectual Property
used in and, individually or in the aggregate with other such
Intellectual Property, material to the operation or business of
the Purchased Assets, each of which Seller or its Affiliates
either has all right, title and interest in or valid and binding
rights under contract to use. Except as disclosed in Schedule
4.17, (i) the Seller is not, nor has it received any notice that
it is, in default (or with the giving of notice or lapse of time
or both, would be in default) under any contract to use such
Intellectual Property, and (ii), to Seller's Knowledge, such
Intellectual Property is not being infringed by any other Person.
Seller has not received notice that Seller is infringing any
Intellectual Property of any other Person in connection with the
operation or business of the Purchased Assets, and Seller, to its
Knowledge, is not infringing any Intellectual Property of any
other Person the effect of which, individually or in the
aggregate, would have a Material Adverse Effect.
4.18 Additional Representations
(a) Except as set forth in Schedule 4.9(b),
with respect to each Benefit Plan which is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA, the Seller and
the ERISA Affiliates have made timely contributions to each such
plan.
(b) Neither the Seller nor any ERISA Affiliate has
ever been obligated to contribute to any multi-employer plan
(within the meaning of Section 4001(a)(3) of ERISA).
(c) No Benefit Plan contains any provision or is
subject to any law that would prohibit the transactions
contemplated by this Agreement.
(d) SRC has no employees.
4.19 No Work Stoppages or Grievances. Solely (in each
of the following clauses (a) through (b) with respect to the
business or operations of the Purchased Assets, except as set
forth in Schedule 4.8, (a) there is no labor strike, slowdown or
stoppage occurring or, to the Sellers' Knowledge, threatened, and
(b) no grievance proceeding arising out of or under the
Collective Bargaining Agreement is pending.
4.20 Financial Representations. NYSEG has made
available to the Buyer true and complete copies of each
registration statement, report and proxy or information statement
(including exhibits and any amendments thereto) filed by NYSEG
with the SEC since January 1, 1995 (collectively, the "SEC
Reports") all of which, as of their respective filing dates,
complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder. None of such SEC
Reports, as of the respective dates they were filed, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of the audited
consolidated financial statements of NYSEG (including any related
notes and schedules) included (or incorporated by reference) in
its Annual Report on Form 10-K for the fiscal year ended December
31, 1997, present fairly, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of NYSEG as of the
dates thereof and the consolidated results of their operations
and their cash flows for the periods then ended. Each of the
unaudited financial statements of NYSEG (including any related
notes and schedules) included in its quarterly report on Form 10-
Q for the quarter ended March 31, 1998, present fairly, in
conformity with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto), the consolidated financial
position of NYSEG as of the dates thereof and the consolidated
results of its operations and its cash flows for the periods then
ended.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer represents and warrants to the Sellers as
follows:
5.1 Organization The Buyer is a
limited liability company duly organized, validly existing and in
good standing under the laws of the state of its organization and
has all requisite limited liability company power and authority
to own, lease and operate its properties and to carry on its
business as it is now being conducted. The Buyer is, or before
the Closing Date will be, qualified to do business in the State
of New York . The Buyer has heretofore delivered to the Seller
complete and correct copies of the Certificate of formation,
Operating Agreement, Certificate of Incorporation and Bylaws of
Buyer and Buyer's Parent (or other similar governing documents),
as currently in effect.
5.2 Authority Relative to this Agreement
Each of the Buyer and Buyer's Parent has full power and
authority to execute and deliver this Agreement and the Ancillary
Agreements to which it is a party and to consummate the
transactions contemplated by them hereby and thereby. The
execution and delivery of this Agreement and the Ancillary
Agreements by the Buyer and Buyer's Parent, as the case may be,
and the consummation of the transactions contemplated hereby and
thereby by the Buyer and Buyer's Parent have been duly and
validly authorized by all necessary action required on the part
of the Buyer and Buyer's Parent. This Agreement and the
Ancillary Agreements have been duly and validly executed and
delivered by the Buyer and the Guaranty has been duly and validly
executed and delivered by Buyer's Parent, as the case may be.
Subject to the receipt of the Buyer Required Regulatory Approvals
and assuming that this Agreement and the Ancillary Agreements
constitute legal, valid and binding agreements of the other party
executing the same, this Agreement and the Ancillary Agreements
constitute legal, valid and binding agreements of the Buyer and
Buyer's Parent, as the case may be, enforceable against the Buyer
and Buyer's Parent in accordance with their terms, except that
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding
at law or in equity).
5.3 Consents and Approvals; No Violation
(a) Except as set forth in Schedule 5.3(a),
and subject to obtaining the Buyer Required Regulatory
Approvals, neither the execution and delivery of this
Agreement and the Ancillary Agreements by the Buyer or Buyer's
Parent, as the case may be, nor the consummation by the Buyer
and Buyer's Parent of the transactions contemplated hereby and
thereby, as the case may be, will (i) conflict with or result in
any breach of any term, condition or provision of the Certificate
of Formation, Operating Agreement, Certificate of Incorporation
or Bylaws (or other similar governing documents) of the Buyer or
Buyer's Parent, (ii) result (with or without notice or lapse of
time or both) in a default or creation of a lien (or give rise to
any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond,
mortgage, indenture, material agreement or other instrument or
obligation to which the Buyer or Buyer's Parent is a party or by
which any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been
obtained or which would not, individually or in the aggregate,
have a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of the Buyer or
Buyer's Parent ("Buyer Material Adverse Effect"), or (iii)
constitute violations of any law, regulation, order, judgment or
decree applicable to the Buyer or Buyer's Parent, which
violations, individually or in the aggregate, would create a
Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the
filings and approvals referred to in Schedule 5.3(b) are
collectively referred to as the "Buyer Required Regulatory
Approvals"), no consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for the Buyer's or
the Buyer's Parent's execution and delivery of this Agreement and
the Ancillary Agreements to which it is a party or the consum
mation by the Buyer, or the Buyer's Parent, as the case may be,
of the transactions contemplated hereby and thereby, other than
such consents, approvals, filings or notices, which, if not
obtained or made, will not prevent the Buyer from performing its
obligations under this Agreement and the Ancillary Agreements.
(c) The Buyer is not aware of any reason or
circumstance that would prevent the Buyer from procuring the
Buyer Required Regulatory Approvals associated with Exempt
Wholesale Generator status and market-based rate authorization
specified as items 2 and 3 in Schedule 5.3(b).
(d) The Buyer is not a "rail carrier", does not own or
control any "rail carrier" as defined in Title 49, Section
10102(5) of the United State Code, as amended, and is not
"affiliated" as defined in Title 49, Section 11323(c) of the
United States Code, as amended, with a "rail carrier".
5.4 Availability of Funds
The Buyer has sufficient funds available to it, or will have
sufficient funds on the Closing Date, to pay the Purchase Price
and to permit the Buyer to perform timely all of its obligations
under this Agreement and the Ancillary Agreements.
5.5 Financial Representations
Buyer's Parent has made available to the Seller
true and complete copies of each registration statement, report
and proxy or information statement (including exhibits and any
amendments thereto) filed by the Buyer's Parent with the SEC
since January 1, 1995 (collectively, the ABuyer Parent's SEC
Reports@) all of which, as of their respective filing dates,
complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder. None of such Buyer
Parent's SEC Reports, as of the respective dates they were filed,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each
of the audited consolidated financial statements of the Buyer's
Parent (including any related notes and schedules) included (or
incorporated by reference) in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, present fairly, in
conformity with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto), the consolidated financial
position of the Buyer's Parent and the Buyer as of the dates
thereof and the consolidated results of their operations and
their cash flows for the periods then ended. Each of the
unaudited financial statements of the Buyer's Parent (including
any related notes and schedules) included in its quarterly report
on Form 10-Q for the quarter ended March 31, 1998, present
fairly, in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto), the
consolidated financial position of the Buyer's Parent and its
subsidiaries as of the dates thereof and the consolidated results
of their operations and their cash flows for the periods then
ended.
5.6 Legal Proceedings
There are no actions or proceedings pending (or to the Buyer's
Knowledge, threatened as of the date of this Agreement) against
the Buyer or Buyer's Parent before any court or Governmental
Authority acting in an adjudicative capacity, which, could
individually or in the aggregate, reasonably be expected to
create a Buyer Material Adverse Effect or prohibit or restrain
the execution, delivery or performance of this Agreement or any
of the Ancillary Agreements, or the consummation of the
transactions contemplated hereby or thereby in any material
respect. The Buyer and Buyer's Parent are not subject to any
outstanding judgments, rules, orders, writs, injunctions or
decrees of any court or Governmental Authority which would,
individually or in the aggregate, create a Buyer Material Adverse
Effect. Buyer shall advise Sellers of any actions or proceedings
which shall be commenced against Buyer or the Buyer's Parent from
and after the date hereof as soon as practicable after the
commencement of same, and shall further advise Sellers upon Buyer
obtaining knowledge from and after the date hereof of any
threatened action or proceeding against the Buyer or the Buyer's
Parent which, in each case, could reasonably be expected to,
individually or in the aggregate, create a Buyer Material Adverse
Effect or prohibit or restrain the performance of this Agreement,
or the consummation of the transactions contemplated hereby in
any material respect.
5.7 Qualified Buyer
The Buyer is qualified to obtain any Permits and
Environmental Permits necessary for the Buyer to own and operate
the Purchased Assets as of the Closing.
5.8 Inspections
(a) The Buyer acknowledges and agrees that each of the
Buyer and Buyer's Parent has, prior to the Buyer's execution of
this Agreement, (i) reviewed the Phase I and Phase II reports,
(ii) had full opportunity to conduct to its satisfaction
Inspections of the Purchased Assets, including the Sites, and
(iii) fully completed, and approved the results of, all
Inspections of the Purchased Assets. The Buyer acknowledges that
each of the Buyer and Buyer's Parent is satisfied through such
review and Inspections that no further investigation and study on
or of the Purchased Assets is necessary for the purposes of
acquiring the Purchased Assets for the Buyer's intended use, and
the Buyer hereby waives any and all objections to or claims with
respect to any and all physical characteristics and existing
Environmental Conditions of the Sites, including without
limitation, any Hazardous Substances in, at, on, under or related
to the Sites. The Buyer acknowledges and agrees that it hereby
assumes the risk that adverse past, present, and future physical
characteristics and Environmental Conditions may not have been
revealed by its Inspections and the investigations of the
Purchased Assets contained in the Phase I and Phase II reports.
In making its decision to execute this Agreement, and to purchase
the Purchased Assets, the Buyer has relied and will rely upon the
results of its Inspections and the Phase I and Phase II reports.
(b) The Buyer acknowledges that its obligation to
consummate this transaction is not conditioned on or subject to
any further Inspections of the Purchased Assets, or the existence
of, or the absence of, any physical condition or circumstance
with respect to the Purchased Assets. Notwithstanding the
foregoing, the Buyer may conduct due diligence to confirm the
accuracy of the Sellers' representations and warranties. Such
due diligence shall not include the performance or conduct of any
environmental sampling or testing at, in, on or underneath the
Purchased Assets.
5.9 "AS IS" Sale
The Buyer acknowledges that the representations and
warranties set forth in Article IV constitute the sole and
exclusive representations and warranties of the Sellers in
connection with the transactions contemplated hereby. The
Buyer acknowledges that there are no representations,
warranties, covenants, understandings or agreements between the
Parties regarding the Purchased Assets or their transfer
other than those incorporated in this Agreement.
Except for the representations and warranties expressly set forth
in Article IV, the Buyer disclaims reliance on any
representations or warranties, either express or implied, by the
Sellers or their Representatives. Buyer acknowledges and agrees
that the Purchased Assets are being acquired "as is, where is" on
the Closing Date, and in their condition on the Closing Date, and
that the Buyer is relying on its own examination of the Purchased
Assets, and is not relying on any representation or warranty made
by the Sellers (other than those made by Sellers under this
Agreement) or their Representatives, or any broker or investment
banker.
5.10 Purchase for Investment
The Buyer is acquiring the SRC Stock for its own
account for investment and not with a view to or for sale or
distribution thereof within the meaning the Securities Act. The
Buyer (i) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and
risks of investing in the SRC Stock and protecting its own
interests in connection with the investment and purchase; (ii)
has been provided with the opportunity to ask questions and
receive answers concerning SRC and has had all such questions
answered to its satisfaction; (iii) notwithstanding Section 6.2,
has reviewed all information provided by the Seller and SRC
regarding SRC and has completed such review to its satisfaction
as of the date hereof; (iv) is aware that the SRC Stock is not
registered under the Securities Act or any state securities laws;
and (v) understands that the transfer of the SRC Stock may not be
transferred, directly or indirectly, unless the SRC Stock is
registered under the Securities Act or an exemption under the
Securities Act and the rules and regulations thereunder is
available with respect to such transfer and applicable state
securities laws are complied with.
5.11 WARN Act
The Buyer does not intend to engage in a Plant Closing or
Mass Layoff, as such terms are defined in the WARN Act, with
respect to the business or operations of the Purchased Assets,
within sixty days after the Closing Date.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1(a) Conduct of Business Relating to the Purchased
Assets
Except as described in Schedule 6.1 or as expressly
contemplated by this Agreement or to the extent the Buyer
otherwise consents in writing, during the period from the date of
this Agreement to the Closing Date, the Seller will operate the
Purchased Assets in the ordinary course of business consistent
with Good Utility Practices and shall use all Commercially
Reasonable Efforts to preserve and maintain intact the Purchased
Assets in good working order, and endeavor to preserve the
goodwill and relationships with customers, suppliers and others
having business dealings with it. Without limiting the
generality of the foregoing, and, except as contemplated in this
Agreement or as described in Schedule 6.1, or as required under
applicable law or by any Governmental Authority, prior to the
Closing Date, without the prior written consent of the Buyer, the
Sellers shall not (and shall not suffer or permit SRC to) with
respect to the Purchased Assets:
(i) Make any material change in the levels of
Inventories customarily maintained by the Seller or its
Affiliates with respect to the Purchased Assets, other than
changes which are consistent with Good Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge, or
transfer or otherwise dispose of any Purchased Assets
(except for Purchased Assets used, consumed or replaced in
the ordinary course of business consistent with Good Utility
Practices), other than to encumber Purchased Assets with
Permitted Encumbrances;
(iii) Modify, amend or terminate prior to the
expiration date any of the material Seller's Agreements,
Real Property Leases or any of the Permits or Environmental
Permits in any material respect, other than (a) as may be
required in connection with transferring the Sellers' rights
or obligations thereunder to Buyer pursuant to this
Agreement, or (b) as Buyer may consent.
(iv) Except as otherwise provided herein, enter into
any commitment for the purchase, sale, or transportation of
fuel having a term greater than six months and not
terminable on or before the Closing Date either (i)
automatically, or (ii) by option of the Seller (or, after
the Closing, by the Buyer) in its sole discretion, if the
aggregate payment under such commitment for fuel and all
other outstanding commitments for fuel not previously
approved by Buyer would exceed $5 million;
(v) Sell, lease or otherwise dispose of Allowances;
(vi) With respect to SRC, permit or cause SRC to
change its capital structure; amend its charter, by-laws or
other governing documents; issue new securities; declare any
dividends; merge, consolidate or combine with any other
entity; hire any employees; purchase or sell any assets in
an amount greater than $500,000; create or suffer to exist
any liabilities, contingent or otherwise, not directly
attributable to its business as presently conducted; or
change its business as presently conducted;
(vii) Except as otherwise provided herein, enter into
any contract, agreement, commitment or arrangement relating
to the Purchased Assets that individually exceeds $1,000,000
or in the aggregate exceeds $10,000,000 unless it is
terminable by Seller (or after the Closing, by the Buyer)
without penalty or premium upon no more than sixty (60) days
notice;
(viii) Except as otherwise required by the terms of
the IBEW Collective Bargaining Agreement (as defined in
Section 6.10(d)), (a) hire at, or transfer to the Purchased
Assets, any new employees prior to the Closing Date, other
than to fill vacancies in existing positions in the
reasonable discretion of Seller and other than the transfer
of employees identified by Buyer pursuant to Section 6.10(l)
from NYSEG to Seller, (b) materially increase salaries or
wages of employees employed in connection with the Purchased
Assets prior to the Closing Date, (c) take any action prior
to the Closing Date to effect a material change in the IBEW
Collective Bargaining Agreement, or (d) take any action
prior to the Closing to materially increase the aggregate
benefits payable to the employees employed in connection
with the Purchased Assets; and
(ix) Except as otherwise provided herein, enter into
any written or oral contract, agreement, commitment or
arrangement with respect to any of the proscribed
transactions set forth in the foregoing paragraphs (i)
through (viii).
(b) The Seller shall have the right to expend amounts
and incur liabilities from the date of this Agreement to the
Closing Date, including, but not limited to, capital additions to
or replacements of property, plant and equipment included in the
Purchased Assets and other expenditures or repairs on property,
plant and equipment included in the Purchased Assets that would
be capitalized by the Seller in accordance with normal
capitalization policies of the Seller and its Affiliates
(together, "Capital Expenditures"), and amounts to operate and
maintain the Purchased Assets ("OM Expenditures"), in order to
fulfill its obligation under Section 6.1(a) to preserve and
maintain intact the Purchased Assets in good working order.
(c) If the Seller incurs a Capital Expenditure and/or
an OM Expenditure from the date of this Agreement to the Closing
Date (i) at the reasonable request of the Buyer, then the Buyer
shall promptly reimburse the Seller for such expenditures and
related lost margin resulting from reduced output of the Plant(s)
during the time that such expenditures are made, pursuant to an
arrangement reasonably acceptable to the Seller, or (ii) pursuant
to an order or directive of a Governmental Authority, then (AA)
the Seller shall notify the Buyer of that order or directive, and
(BB) the Buyer shall reimburse the Seller for such expenditures
at the Closing.
(d) Notwithstanding any provision of this Agreement
that may be to the contrary, the Seller shall have no obligation
to commence any proceeding or proceedings under Article VII of
the New York Real Property Tax Law with respect to any of the
Purchased Assets.
6.2 Access to Information
(a) Between the date of this Agreement and the
Closing Date, the Seller will, during ordinary business hours and
upon reasonable notice: (i) give the Buyer and its
Representatives reasonable access to all books, records, plans,
offices and other facilities and properties constituting the Pur
chased Assets; (ii) furnish the Buyer with such financial and
operating data and other information with respect to the
Purchased Assets as the Buyer may from time to time reasonably re
quest; (iii) furnish the Buyer, upon its request, with a copy
each material report or other document filed by Seller or any of
its Affiliates with respect to the Purchased Assets with the SEC,
FERC or NYPSC, and (iv) furnish the Buyer with all such other
information as shall be reasonably necessary to enable the Buyer
to verify the accuracy of the representations and warranties of
Seller contained in this Agreement; provided, however, that (A)
any such inspections and investigations shall be conducted in
such a manner as not to interfere unreasonably with the operation
of the Purchased Assets, (B) the Seller shall not be required to
take any action which would constitute a waiver of the attorney-
client privilege, and (C) the Seller need not supply the Buyer
with any information which the Seller is under a legal or
contractual obligation not to supply. Notwithstanding anything
in this Section 6.2 to the contrary, the Seller will only furnish
or provide access to Transferring Employee Records and will not
furnish or provide access to other employee personnel records or
employee medical information unless required by law or
specifically authorized by the affected employee, and the Buyer
shall not have the right to perform or conduct any environmental
sampling or testing at, in, on, or underneath the Purchased
Assets.
(b) All information furnished to or obtained by the
Buyer and the Buyer Representatives pursuant to this Section 6.2
shall be "Proprietary Information" (as defined herein). Each
Party shall, and shall use its reasonable efforts to cause its
Representatives to, (i) keep all Proprietary Information of the
other Party confidential and not to disclose or reveal any such
Proprietary Information to any person other than such Party's
Representatives and (ii) not to use such Proprietary Information
other than in connection with the consummation of the
transactions contemplated hereby. After the Closing Date, any
Proprietary Information solely related to the Purchased Assets
shall no longer be subject to the restrictions set forth herein.
The obligations of the Parties under this Section 6.2(b) shall be
in full force and effect for three (3) years from the date hereof
and will survive the termination of this Agreement, the discharge
of all other obligations owed by the Parties to each other and
the Closing.
(c) For a period of seven (7) years after the Closing
Date, each Party and its Representatives shall have reasonable
access to all of the books and records related to the Purchased
Assets with respect to the periods prior to the Closing,
including all Transferring Employee Records in the possession of
the other Party to the extent that such access may reasonably be
required in connection with the Assumed Liabilities or the
Excluded Liabilities, or other matters relating to or affected by
the business or operation of the Purchased Assets. Such access
shall be afforded by the Party in possession of any such books
and records upon receipt of reasonable advance written notice and
during normal business hours. The Party exercising this right of
access shall be solely responsible for any costs or expenses
incurred by it or the other party with respect to such access
pursuant to this Section 6.2(c). If the Party in possession of
such books and records shall desire to dispose of any such books
and records upon or prior to the expiration of such seven-year
period, such Party shall, prior to such disposition, give the
other Party a reasonable opportunity, at such other Party's
expense, to segregate and remove such books and records as such
other Party may select.
Notwithstanding any provision herein to the contrary,
Buyer agrees that subsequent to the Closing Date, Sellers shall
have access to (i) Milliken Station, at reasonable times, as
requested by Seller and its Affiliates, the DOE, the DOE
contracting officer or the DOE contracting officer's Technical
Project Officer for the purposes of allowing government officials
and interested members of the public, as determined by Seller and
its Affiliates or the DOE, to observe the work and the effect of
the work performed pursuant to the Cooperative Agreements on the
operation of Milliken Station and, (ii) Milliken Station, as
requested by NYSEG or Seller, for the purpose of allowing members
of the public to observe the operation of the Topaz System, and
(iii) Kintigh Station, as requested by NYSEG or Seller, for the
purpose of allowing members of the public to observe the
operation of the carbon separator.
(d) Notwithstanding the terms of Section 6.2(b)
above, the Parties agree that prior to the Closing the Buyer may
reveal or disclose Proprietary Information to any other Persons
in connection with the Buyer's financing of its purchase of the
Purchased Assets (provided that such Persons agree in writing to
maintain the confidentiality of the Proprietary Information in
accordance with terms and conditions consistent with those
contained in this Agreement).
(e) Upon the other Party's prior written approval
(which will not be unreasonably withheld), either Party may
provide Proprietary Information of the other Party to the NYPSC,
the FERC or any other Governmental Authority with jurisdiction,
as necessary to obtain the Seller Required Regulatory Approvals,
or the Buyer Required Regulatory Approvals or comply generally
with any relevant laws or regulation. The disclosing Party will
seek confidential treatment for the Proprietary Information
provided to any Governmental Authority and the disclosing Party
will notify the other Party as far in advance as is practicable
of its intention to release to any Governmental Authority any
Proprietary Information.
(f) Except as specifically provided herein or in the
Confidentiality Agreement, nothing in this Section shall impair
or modify any of the rights or obligations of the Buyer or its
Affiliates under the Confidentiality Agreement, all of which
remain in effect until termination of such agreement in
accordance with its terms.
(g) Except as may be permitted in the Confidentiality
Agreement, the Buyer agrees that, prior to the Closing Date, it
will not contact any vendors, suppliers, employees, or other
contracting parties of the Sellers with respect to any aspect of
the Purchased Assets or the transactions contemplated hereby,
without the prior written consent of the Seller, which shall not
be unreasonably withheld.
(h) (i) The Buyer shall be entitled to inspect, in
accordance with this Section 6.2(h), all of the Purchased Assets
located adjacent to any Point of Interconnection (as defined in
the Interconnection Agreement), as shown in Schedule A to the
Interconnection Agreement, to verify and/or determine the
accuracy of the data, drawings, and records described in such
Schedule. The Parties shall cooperate to schedule the Buyer's
inspection at the Plants so that any interference with the
operation of the Plants is minimized, to the extent reasonably
feasible, and so that the Buyer may complete its inspections of
the Plants within thirty (30) working days of commencement of
inspections and within two (2) months after the execution of this
Agreement.
(ii) The Seller shall provide, or shall cause to
be provided, to the Buyer, access to the Plants at the times
scheduled for the inspections. The Seller shall provide
qualified engineering, operations, and maintenance personnel to
escort the Buyer's personnel and to assist the Buyer's personnel
in conducting the inspections. The Seller and the Buyer shall
each bear their own costs of participating in the inspections.
At a mutually convenient time not more than one (1) month after
the Buyer has completed its inspections, the Parties shall meet
to discuss whether, as a result of the inspections, it is
appropriate to modify Schedule A to the Interconnection Agreement
to portray more accurately the Points of Interconnection. Any
modification to any portion of Schedule A of the Interconnection
Agreement to which the Parties agree shall thereafter be deemed
part of Schedule A of the Interconnection Agreement for all
purposes under the Interconnection Agreement.
6.3 Expenses
Except to the extent specifically provided herein,
whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby
shall be borne by the Party incurring such costs and expenses.
Notwithstanding anything to the contrary herein, the Buyer will
be responsible for (a) all costs and expenses associated with the
obtaining of any title insurance policy and all endorsements
thereto that the Buyer elects to obtain and (b) all filing fees
under the Federal Power Act and HSR Act.
6.4 Further Assurances
(a)Subject to the terms and conditions of this Agreement, each of
the Parties hereto shall use its best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all
things as may be reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective
the purchase and sale of the Purchased Assets pursuant to this
Agreement and the assumption of the Assumed Liabilities,
including, without limitation, using its best efforts to ensure
satisfaction of the conditions precedent to the obligations of
the Parties hereunder, to obtain all necessary consents,
approvals and authorizations of third parties (including, without
limitation, the Seller Required Regulatory Approvals and the
Buyer Required Regulatory Approvals) and to effectuate a transfer
of the Transferable Permits to the Buyer. Neither of the Parties
hereto shall, without prior written consent of the other Party,
take or fail to take any action which might reasonably be
expected to prevent or materially impede, interfere with or delay
the transactions contemplated by this Agreement. Buyer further
agrees that prior to the Closing Date, it will neither enter into
any other contract to acquire, nor acquire, electric generation
facilities or uncommitted capacity located in New York State if
the Buyer's proposed acquisition of such additional electric
generation facilities or uncommitted capacity might reasonably be
expected to prevent or materially impede, interfere with or delay
the transactions contemplated by this Agreement. Buyer shall
give Sellers reasonable advance written notice (and in any event
not less than 10 days) before Buyer contracts, prior to the
Closing, to acquire or acquires any electric generation facility
or uncommitted capacity located in New York .
(b) In the event that any Purchased Asset shall not
have been conveyed to the Buyer at the Closing, the Seller shall,
subject to Sections 6.4(c) and (e), use Commercially Reasonable
Efforts to convey such asset to the Buyer as promptly as is
practicable after the Closing. In the event that any Easement
shall not have been granted by the Buyer to NYSEG at the Closing,
the Buyer shall use Commercially Reasonable Efforts to grant such
Easement to NYSEG as promptly as is practicable after the
Closing.
(c) To the extent that the Sellers' rights under any
material Seller's Agreement, or Real Property Lease, may not be
assigned without the consent of another Person which consent has
not been obtained by the Closing Date, this Agreement shall not
constitute an agreement to assign the same if an attempted
assignment thereof would constitute a breach thereof or be
unlawful and (i) the Seller shall use Commercially Reasonable
Efforts to obtain any such required consent(s) as promptly as
possible, or (ii) if the terms of such material Seller's
Agreement or Real Property Lease provide for termination of such
agreement without liability to Seller, Buyer may direct the
Seller, and the Seller shall agree, to terminate such material
Sellers' Agreement or Real Property Lease on the Closing Date in
accordance with its terms. The Seller and the Buyer agree that
if any consent to an assignment of any material Seller's
Agreement, or Real Property Lease, shall not be obtained or if
any attempted assignment would be ineffective or would impair the
Buyer's rights and obligations under the material Seller's
Agreement, or Real Property Lease, in question so that the Buyer
would not in effect acquire the benefit of all such rights and
obligations, the Seller, at its option and to the maximum extent
permitted by law and such material Seller's Agreement, or Real
Property Lease, shall, after the Closing Date, appoint the Buyer
to be the Seller's representative and agent with respect to such
material Seller's Agreement, or Real Property Lease, or, to the
maximum extent permitted by law and such material Seller's
Agreement, or Real Property Lease, enter into such reasonable
arrangements with the Buyer or take such other actions as are
necessary to provide the Buyer with the same or substantially
similar rights and obligations under such material Seller's
Agreement, or Real Property Lease, and provided further, that
Seller shall not make any agreement, arrangement or other
understanding that would have a Material Adverse Effect as a
condition for obtaining a consent(s) without the prior written
consent of the Buyer. The Seller and the Buyer shall cooperate
and shall each use Commercially Reasonable Efforts prior to and
after the Closing Date to obtain an assignment of such material
Seller's Agreement, or Real Property Lease, to the Buyer.
(d) From time to time after the date hereof, without
further consideration, the Seller will cooperate with the Buyer
in its efforts to maximize any tax benefits associated with the
Purchased Assets with respect to periods following the Closing
Date and to minimize the tax costs associated with the
transactions contemplated hereby, and will, at its own expense,
execute and deliver such documents to the Buyer as the Buyer may
reasonably request in order to more effectively vest in the Buyer
the Seller's title to the Purchased Assets. From time to time
after the date hereof, without further consideration, the Buyer
will cooperate with the Seller in its efforts to maximize any tax
benefits associated with the Purchased Assets with respect to
periods following the Closing Date and to minimize the tax costs
associated with the transactions contemplated hereby, and will,
at its own expense, execute and deliver such documents to the
Seller as the Seller may reasonably request in order to more
effectively consummate the sale of the Purchased Assets pursuant
to this Agreement.
(e) To the extent that the Sellers' rights under any
warranty or guaranty described in Section 2.1(j) may not be
assigned without the consent of another Person, which consent has
not been obtained by the Closing Date, this Agreement shall not
constitute an agreement to assign same, if an attempted
assignment would constitute a breach thereof, or be unlawful.
The Seller and the Buyer agree that if any consent to an
assignment of any such warranty or guaranty shall not be
obtained, or if any attempted assignment would be ineffective or
would impair the Buyer's rights and obligations under the
warranty or guaranty in question, so that the Buyer would not in
effect acquire the benefit of all such rights and obligations,
the Seller, at the Buyer's expense, shall use Commercially
Reasonable Efforts, to the extent permitted by law and such
warranty or guaranty, to enforce such warranty or guaranty for
the benefit of the Buyer so as to provide the Buyer to the
maximum extent possible with the benefits and obligations of such
warranty or guaranty.
6.5 Public Statements
Subject to the requirements imposed by applicable law or any
Governmental Authority or stock exchange, prior to the Closing
Date, no press release or other public announcement or public
statement or comment in response to any inquiry relating to the
transactions contemplated by this Agreement shall be issued or
made by either Party without the approval of the other Party
(which approval shall not be unreasonably withheld). The Parties
agree to cooperate in preparing such announcements.
6.6 Consents and Approvals
(a) As promptly as possible after the date of this
Agreement, the Seller and the Buyer shall each file or cause to
be filed with the Federal Trade Commission and the United States
Department of Justice any notifications required to be filed
under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby.
The Parties shall use their best efforts to respond promptly to
any requests for additional information made by either of such
agencies, and to cause the waiting periods under the HSR Act to
terminate or expire at the earliest possible date after the date
of filing. The Buyer will pay all filing fees under the HSR Act,
but each Party will bear its own costs of the preparation of any
filing.
(b) As promptly as possible after the date of this
Agreement, the Seller shall file with the FERC an application
requesting Exempt Wholesale Generator status for the Buyer, which
filing may be made individually by the Buyer or jointly with the
Seller in conjunction with other filings to be made with the FERC
under this Agreement, as reasonably determined by the Parties.
Prior to the Buyer's submission of that application with the
FERC, the Buyer shall submit such application to the Seller for
review and comment and the Buyer shall incorporate into the
application any revisions reasonably requested by the Seller. The
Buyer shall be solely responsible for the cost of preparing and
filing this application, any petition(s) for rehearing, or any
re-application. If the Buyer's initial application for Exempt
Wholesale Generator status is rejected by the FERC, the Buyer
shall be required to petition the FERC for rehearing and/or to
re-submit an application with the FERC, as reasonably required by
the Seller, provided that in either case the action directed by
the Seller does not create a Buyer Material Adverse Effect.
(c) As promptly as possible after the date of this
Agreement, the Buyer shall file with the FERC an application
requesting authorization under Section 205 of the Federal Power
Act to sell electric generating capacity and energy, but not
other services, including, without limitation, ancillary
services, and excluding those sales of electric generating
capacity and energy under the Milliken Operating Agreement and
the New York Transition Agreement at wholesale at market-based
rates, which filing may be made individually by the Buyer or
jointly with the Seller in conjunction with other filings to be
made with the FERC under this Agreement, as reasonably determined
by the Parties. Prior to the filing of that application with the
FERC, the Buyer shall submit such application to the Seller for
review and comment and the Buyer shall incorporate into the
application any revisions reasonably requested by the Seller. The
Buyer shall be solely responsible for the cost of preparing and
filing this application, any petition(s) for rehearing, or any
re- application. If the Buyer's initial application for market-
based rate authorization results in a FERC request for additional
information or is rejected by the FERC, the Buyer shall be
required to provide that information promptly, to petition the
FERC for rehearing and/or to re-submit an application with the
FERC, as reasonably required by the Seller, provided that the
Seller shall have a reasonable opportunity to make changes to
such a petition or re-submission application and, provided
further, that the action directed by the Seller does not create a
Buyer Material Adverse Effect.
(d) As promptly as possible after the date of this
Agreement, the Seller and the Buyer shall jointly file with the
NYPSC and the FERC any filings required to be made with respect
to the transactions contemplated hereby other than those filings
referred to in Section 6.6(b) and (c). The Parties shall use
their best efforts to respond promptly to any requests for
additional information made by either of such agencies, and to
cause regulatory approval to be obtained at the earliest possible
date after the date of filing. Each Party will bear its own
costs of the preparation of any joint filing.
(e) The Seller and the Buyer shall cooperate with
each other and promptly prepare and file notifications with, and
request Tax clearances from, state and local taxing authorities
in jurisdictions in which a portion of the Purchase Price may
otherwise be required to be withheld or in which the Buyer would
otherwise be liable for any Tax liabilities of the Seller
pursuant to state and local Tax law.
(f) Within thirty (30) days following the date of
this Agreement, the Buyer shall provide to the Sellers, at the
Buyer's expense, all necessary information, documents, analyses
and studies (including "Hub and Spoke" and "Appendix A" analyses)
requested by the Sellers to permit the Sellers to make the
certification as described in, and otherwise in accordance with,
the NYPSC's April 24, 1998 order approving NYSEG's auction
process, and to secure the FERC's approval or acceptance of the
transactions contemplated by this Agreement.
(g) The Buyer shall have the primary responsibility
for securing the transfer or reissuance of the Transferable
Permits and the procurement of any other Permit effective as of
the Closing Date. The Sellers and SRC shall cooperate with the
Buyer's efforts in this regard and assist in any transfer or
reissuance of a Transferable Permit or the procurement of any
other Permit when so requested by the Buyer. In the event that
the Buyer is unable, despite its Commercially Reasonable Efforts,
to obtain a transfer or reissuance of one or more Transferable
Permits as of the Closing Date, the Buyer may use the Permits
issued to the Seller, provided (i) such use is not unlawful, (ii)
the Buyer notifies the Seller prior to the Closing Date, (iii)
the Buyer continues to make Commercially Reasonable Efforts to
obtain a transfer or reissuance of such Permits after the Closing
Date, and (iv) the Buyer indemnifies the Sellers for any losses,
claims or penalties suffered by the Sellers in connection with
the Transferable Permit that is not transferred or reissued as of
the Closing Date resulting from the Buyer's ownership and
operation of the Purchased Assets following the Closing Date. In
no event shall Buyer use or otherwise rely on a Transferable
Permit issued to the Seller beyond one year after the Closing
Date.
6.7 Fees and Commissions
The Seller and the Buyer each represent and warrant to the other
that, except for Goldman, Sachs & Co., which is acting for and at
the expense of the Seller, no broker, finder or other Person is
entitled to any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby by reason of
any action taken by the Party making such representation and
warranty. The Seller, on the one hand, and the Buyer, on the
other hand, shall pay to the other or otherwise discharge, and
will indemnify and hold the other harmless from and against, any
and all claims or liabilities for all brokerage fees, commissions
and finder's fees (other than the fees, commissions and finder's
fees payable to the parties listed above) incurred by reason of
any action taken by the indemnifying Party.
6.8 Tax Matters
(a) All transfer and sales taxes incurred in connection with
this Agreement and the transactions contemplated hereby
(including, without limitation, (i) New York sales tax and (ii)
the New York transfer tax on conveyances of interests in real
property) shall be borne by the Buyer. The Seller shall file, to
the extent required by, or permissible under, applicable law, all
necessary Tax Returns and other documentation with respect to all
such transfer and sales taxes, and, if required by applicable
law, the Buyer shall join in the execution of any such Tax
Returns and other documentation. The Buyer and the Seller shall
use their respective best efforts to provide cooperation and
assistance (including documents and information) in order to
minimize the amount of applicable transfer and sales taxes to the
extent permitted by law. Prior to the Closing Date, to the
extent applicable, the Buyer shall provide to the Seller
appropriate certificates of Tax exemption from each applicable
taxing authority.
(b) With respect to Taxes to be prorated in
accordance with Section 3.5 of this Agreement, the Buyer shall
prepare and timely file all Tax Returns required to be filed
after the Closing Date with respect to the Purchased Assets, if
any, and shall duly and timely pay all such Taxes shown to be due
on such Tax Returns. The Buyer's preparation of any such Tax
Returns shall be subject to the Seller's approval, which approval
shall not be unreasonably withheld. The Buyer shall make such
Tax Returns available for the Seller's review and approval no
later than fifteen (15) Business Days prior to the due date for
filing each such Tax Return. Within fifteen (15) Business Days
after receipt of such Tax Return, the Seller shall pay to the
Buyer the Seller's share (appropriately adjusted to reflect any
payments previously made by the Seller) of the amount shown on
such Tax Return. With respect to real estate taxes, evidence of
payment shall be delivered by the Seller to the Buyer at closing.
(c) The Buyer and the Seller shall each provide the
other Party with such assistance as may reasonably be requested
by the other Party in connection with the preparation of any Tax
Return, any audit or other examination by any taxing authority,
or any judicial or administrative proceedings relating to
liability for Taxes, and each shall retain and provide the
requesting party with any records or information which may be
relevant to such return, audit, examination, or proceedings.
Any information obtained pursuant to this Section 6.8(c) or
pursuant to any other Section hereof providing for the sharing of
information or review of any Tax Return or other instrument
relating to Taxes shall be kept confidential by the parties
hereto. The Seller shall not destroy any records related to the
Purchased Assets or SRC without first giving notice to, and
obtaining the written consent (which consent shall not be
unreasonably withheld), of the Buyer.
(d) SRC Tax Matters.
(1) Section 338(h)(10) Election. (A) With respect to
the sale of the SRC Stock, if requested by the Buyer, the
Seller and the Buyer shall jointly make the election
provided for by Section 338(h)(10) of the Code and Section
1.338(h)(10)-1 of the Treasury Regulations promulgated under
the Code and any permissible comparable election under state
and local tax law (the "Election"). As soon as practicable
after the Closing Date, with respect to the Election, the
Seller and the Buyer shall mutually prepare a Form 8023-A,
with all attachments, and the Seller and the Buyer shall
sign such Form 8023-A. The Buyer and the Seller shall also
cooperate with each other to take all actions necessary and
appropriate (including filing such additional forms,
returns, elections, schedules and other documents as may be
required) to effect and preserve the Election in accordance
with the provisions of Section 1.338(h)(10)-1 of the
Treasury Regulations (or any comparable provisions of state
or local law) or any successor provision.
(B) With respect to the Election, the Modified
Aggregate Deemed Sales Price as defined in Section
1.338(h)(10)-1 of the Treasury Regulations (the "Modified
ADSP") shall be allocated among the assets of SRC pursuant
to Treasury Regulation ' 1.338(h)(10)-1. The Buyer and the
Seller shall use their good faith best efforts to agree upon
such allocation. The Seller may provide to the Buyer a
schedule and supporting material reflecting such allocation
for the Buyer's review and consent. Such consent is not to
be unreasonably withheld. The Parties shall take no action
inconsistent with, or fail to take any action necessary for
the validity of, the Election, and shall adopt and utilize
the asset values determined from such reasonable allocation
for the purpose of all Tax Returns filed by them, and shall
not voluntarily take any action inconsistent therewith upon
examination of any Tax Return, in any refund claim, in any
litigation or otherwise with respect to such Tax Returns.
(2) Return Filing, Payments, Refunds and Credits.
(A) For purposes of this Agreement, the amount of
Taxes of SRC attributable to the pre-Closing portion of any
taxable period beginning before and ending after the Closing
Date (the "Straddle Period") shall be determined based upon
the cumulative monthly income statements of SRC for all
months ending prior to the Closing Date and upon the monthly
income statement of SRC for the month in which the Closing
Date occurs based upon the relative number of days in the
pre-Closing and post-Closing portion of the month in which
the Closing Date occurs; provided, however, that Taxes
imposed on a periodic basis shall be determined by reference
to the relative number of days in the pre-Closing and post-
Closing portions of such Straddle Period and any
extraordinary transaction shall be allocated to the portion
of such Straddle Period in which it occurred; provided,
further, that the taxes of SRC that are attributable to the
pre-Closing portion of any taxable period shall include any
Taxes resulting from the gain on any deemed sale of assets
by SRC pursuant to Section 338 of the Code or any comparable
provision under the laws of any other jurisdiction with
respect to the transactions contemplated by this Agreement.
(B) The Buyer and the Seller shall cause SRC to
join, for all periods for which SRC is required or eligible
to do so, in all consolidated federal Tax Returns of the
Seller ("Seller's Tax Returns"). The Seller shall cause to
be prepared and timely filed all of Seller's Tax Returns and
shall cause SRC to pay, in accordance with the Tax Sharing
Agreement, SRC's share of all Taxes shown to be due on
Seller's Tax Returns; except that, as to Taxes attributable
to the Election, SRC's share of such Taxes shall be paid by
the Seller. The Buyer shall, or shall cause SRC to, pay to
the Seller the portion of such Taxes shown to be due thereon
that are attributable to SRC for the post-Closing Date
portion of the Straddle Period determined in accordance with
Section 6.8(d)(2)(A) and the Tax Sharing Agreement in effect
on the date of the signing of this Agreement.
(C) The Buyer shall, or shall cause SRC to, prepare
and timely file all Tax Returns of SRC for all pre-Closing
periods and the Straddle Period, other than those referred
to in Section 6.8(d)(2)(B), which Tax Returns have not been
filed as of the Closing Date, and shall cause to be timely
paid all Taxes shown to be due on such Tax Returns. The
Seller shall fully cooperate with the Buyer and SRC in
accordance with past practice in the preparation of the Tax
Returns referred to in this Section 6.8(d)(2)(C).
(D) The Tax Returns referred to in Section
6.8(d)(2)(B) and (C), other than such Tax Returns that
include not only SRC but also one or more other affiliates
of the Buyer or the Seller (as the case may be), shall be
prepared in a manner consistent with past practice, unless a
contrary treatment is required by applicable law. Upon
request by the other Party, the Seller shall cause a copy of
any Tax Return that is required to be filed by the Seller
under Section 6.8(d)(2)(B), and the Buyer shall cause a copy
of any Tax Return that is required to be filed by the Buyer
or SRC under Section 6.8(d)(2)(C) (other than such Tax
Returns that include not only SRC but also one or more other
affiliates of the Buyer or the Seller, as the case may be),
in each case together with all relevant work papers and
other information, to be made available to the other Party
for review and approval no later than 20 Business Days
prior to the due date for the filing of such Tax Return
(taking into account proper extensions). Such approval
shall not be unreasonably withheld. An exact copy of any
such Tax Return filed by the Buyer shall be provided to the
Seller and any such Tax Return filed by the Seller shall be
provided to the Buyer, in each case, no later than ten days
after such Tax Return is filed.
(E) Any refunds or credits of the Taxes of SRC plus
any interest received with respect thereto from the
applicable taxing authorities for any pre-Closing period
(including without limitation, refunds or credits arising
from an amended return filed after the Closing Date) shall
be for the account of the Seller, except to the extent that
such refunds or credits are attributable to the mandatory
carryback of any deductions or credits for any Tax Period
ending after the Closing Date and, if received by the Buyer
or SRC, shall be paid to the Seller within ten days after
the Buyer or SRC receives such refund or after the relevant
Tax Return is filed within which the credit is applied
against the Buyer's or SRC's liability for Taxes for a
period which begins after the Closing Date, net of any Taxes
the Buyer or SRC is required to pay on account of receiving
such refund or credit (including a reasonable estimate of
resulting future Tax costs). The Seller, without the
consent of the Buyer (which consent shall not be
unreasonably withheld), shall not apply for any refund that
would create a material adverse effect on any post-Closing
period Tax Return and shall not apply for any refund for any
Straddle Period Tax Return or any Tax Return for SRC that is
not a consolidated, combined, or unitary Tax Return. Any
refunds or credits of Taxes of SRC for any Straddle Period
shall be apportioned between the Seller and the Buyer in the
same manner as the liability for such Taxes is apportioned
pursuant to Section 6.8(d)(2)(A).
(3) Tax Indemnification. (A) The Seller and NYSEG
shall, jointly and severally, indemnify, defend and hold the
Buyer harmless from and against any and all Taxes (including
interest and penalties) which may be suffered or incurred by
the Buyer or SRC in respect of or relating to, directly or
indirectly (i) Taxes of or attributable to SRC for all pre-
Closing periods, (ii) Taxes of or attributable to SRC with
respect to the pre-Closing portion of the Straddle Period,
and (iii) Taxes payable by SRC with respect to any pre-
Closing period or Straddle Period by reason of SRC being
severally liable for the Tax of any Tax Affiliate pursuant
to Treasury Regulation ' 1.1502-6 or any analogous state or
local tax law.
(B) The Buyer shall indemnify, defend and hold the
Sellers harmless from and against any and all Taxes,
(including interest and penalties) which may be suffered or
incurred by the Seller in respect of or relating to,
directly or indirectly (i) Taxes of or attributable to SRC
with respect to all post-Closing periods, (ii) Taxes of or
attributable to SRC with respect to the post-Closing portion
of any Straddle Period, and (iii) Taxes of or attributable
to SRC with respect to pre-Closing periods but only to the
extent relating to a breach by Buyer of any covenant of this
Agreement relating to Tax.
(C) An indemnity payment due under this Section
6.8(d)(3) shall be made within thirty (30) days after (i) if
the Party in control of the issue under Section 6.8(d)(4)
determines not to contest the issue, the receipt of a formal
notice or assessment from a taxing authority or the
occurrence of any other event giving rise to the payment
subject to an indemnity, or (ii) if the Party in control of
the issue under Section 6.8(d)(4) determines to contest the
issue, the earlier of the signing of a closing agreement or
settlement agreement or any other similar agreement with the
relevant tax authorities, the receipt of a deficiency notice
with respect to which the period for filing a petition with
the relevant court has expired, or a decision of any court
of competent jurisdiction which is not subject to appeal or
as to which the time for appeal has expired.
(4) Tax Contest. (A) The Seller and the Buyer shall
notify the other party in writing within 30 days of the
notifying Party's receipt of written notice of any pending
or threatened tax examination, Audit or other administrative
or judicial proceeding (a "Tax Contest") that could
reasonably be expected to result in an indemnification
obligation of such other Party pursuant to this Section
6.8(d). If the recipient of such notice of a Tax Contest
fails to provide such notice to the other Party, the
recipient shall not be entitled to indemnification for any
Taxes arising in connection with such Tax Contest, but only
to the extent, if any, that such failure or delay shall have
adversely affected the indemnifying Party's ability to
defend against, settle, or satisfy any action, suit or
proceeding for which the indemnified Party is entitled to
indemnification hereunder.
(B) To the extent that a Tax Contest relates to any
period ending prior to the Closing Date (and does not relate
to any Taxes for which the Buyer is liable in full
hereunder) or to any Taxes for which the Seller is liable in
full hereunder, the Seller shall at its expense control the
defense and settlement of that part of such Tax Contest. If
such Tax Contest relates to any period beginning on or after
the Closing Date (and does not relate to any Taxes for which
the Seller is liable in full hereunder) or if a Tax Contest
relates to any Taxes for which the Buyer is liable in full
hereunder, the Buyer shall at its own expense control the
defense and settlement of that part of such Tax Contest.
The Party not in control of the defense shall have the right
to observe the conduct of any Tax Contest at its expense,
including through its own counsel and other professional
experts. The Buyer and the Seller shall jointly represent
SRC in any Tax Contest relating to a Straddle Period, and
fees and expenses related to such representation shall be
paid equally by the Buyer and the Seller.
(C) Notwithstanding anything to the contrary in
Section 6.8(d)(4)(B), to the extent that an issue raised in
any Tax Contest controlled by one Party or jointly
controlled could materially affect the liability for Taxes
of the Party not in sole control, the controlling Party
shall not, and neither party in the case of joint control
shall, enter into a final settlement of such Tax Contest
without the consent of the other Party, which consent shall
not be unreasonably withheld. Where a Party withholds its
consent to any final settlement, that Party may continue or
initiate further proceedings, at its own expense, and (as be
tween the consenting and the non-consenting party) the lia
bility of the Party that wished to settle shall not exceed
the liability to it that would have resulted from the
proposed final settlement (including additions to Tax and
penalties that have accrued at that time), and the non-
consenting party shall indemnify the consenting party for
any amount in excess of such liability. This Section
6.8(d)(4) shall not apply to any issue relating to the
allocation of the Purchase Price pursuant to Section 3.4.
(5) Tax Sharing Agreements. Any Tax sharing
agreement to which SRC is a party shall be deemed terminated
with respect to SRC on, and effective as of, the Closing
Date, and no Person shall have any rights or obligations
under such Tax sharing agreement with respect to SRC after
such termination; provided, however, that the Tax Sharing
Agreement shall remain in effect with respect to SRC in
order to determine the portion of the Seller's Tax
liabilities that are attributable to SRC and that are to be
paid to the Seller under Section 6.8(d)(2)(B) for the post-
Closing Date portion of the Straddle Period.
(e) Disputes. In the event that a dispute arises
between the Seller and the Buyer regarding Taxes, or any amount
due under Section 6.8(d) hereof, the Parties shall attempt in
good faith to resolve such dispute, and any agreed upon amount
shall be paid to the appropriate Party. If such dispute is not
resolved within 30 days, the Parties shall submit the dispute to
the Independent Accounting Firm for resolution, which resolution
shall be final, conclusive and binding on the Parties.
Notwithstanding anything in this Agreement to the contrary, the
fees and expenses of the Independent Accounting Firm in resolving
the dispute shall be borne equally by the Seller and the Buyer.
Any payment required to be made as a result of the resolution of
the dispute by the Independent Accounting Firm shall be made
within ten days after such resolution, together with any interest
determined by the Independent Accounting Firm to be appropriate.
6.9 Advice of Changes
Prior to the Closing, each Party will advise the other in
writing with respect to any matter arising after execution of
this Agreement of which that Party becomes aware and which, if
existing or occurring at the date of this Agreement, would have
been required to be set forth in this Agreement, including any of
the Schedules hereto. The Seller shall promptly notify the Buyer
of any such development, including any such development causing a
breach of any of its representations and warranties in Article
IV. Unless the Buyer has the right to terminate this Agreement
pursuant to Section 9.1(e) below by reason of the development and
exercises that right within the period of fifteen (15) days after
such right accrues, the written notice pursuant to this Section
6.9 will be deemed to have amended this Agreement, including the
appropriate Schedule, to have qualified the representations and
warranties contained in Article IV above, and to have cured any
misrepresentation or breach of warranty that otherwise might have
existed hereunder by reason of the development.
6.10 Employees
(a) The Buyer is required to offer employment, effective as
of the Closing Date, to those hourly- paid employees of the
Sellers: (i) who are covered by the IBEW Collective Bargaining
Agreement, as defined in Section 6.10(d) below; and (ii) who are
listed in, or are in a function or whose employment
responsibilities are listed in, Schedule 6.10(a).
(b) The Buyer is also required to offer employment,
effective as of the Closing Date, to those salaried employees of
the Seller who are listed in, or in a function or whose
employment responsibilities are listed in, Schedule 6.10(b).
Each person who becomes employed by the Buyer pursuant to
Section 6.10(a) or (b) shall be referred to herein as a
"Transferred Union Employee" or "Transferred Non-Union Employee",
respectively.
(c) All offers of employment made pursuant to Sections
6.10(a) or (b) shall be made (i) in accordance with all
applicable laws and regulations, and (ii) for employees
represented by System Council U-7 of the International
Brotherhood of Electrical Workers ("IBEW") in accordance with the
IBEW Collective Bargaining Agreement and IBEW Memoranda, as
defined in Section 6.10(d) below. Transferred Union Employees
shall retain their seniority and receive full credit for service
with the Seller, NYSEG and their Affiliates in connection with
entitlement to vacation and all other benefits and rights under
the IBEW Collective Bargaining Agreement and the IBEW Memoranda,
as defined in Section 6.10(d), below. Transferred Non-Union
Employees shall also be given credit for all service with Seller,
NYSEG and their Affiliates for purposes of benefits entitlement.
(d) Schedule 6.10(d) sets forth the collective
bargaining agreement, and amendments thereto, to which NYSEG is a
party with the IBEW in connection with the Purchased Assets
("IBEW Collective Bargaining Agreement"), together with the
Memoranda or Letters Renewed for the Term of the 1997 Agreement
between NYSEG and System Council U-7 of the IBEW ("IBEW
Memoranda"). With respect to Transferred Union Employees who
are included in the collective bargaining units covered by the
IBEW Collective Bargaining Agreement ("IBEW Employees"), on the
Closing Date, the Buyer shall assume the IBEW Collective
Bargaining Agreement and the IBEW Memoranda for the duration of
its term as it relates to IBEW Employees to be employed at the
Purchased Assets and shall comply with all applicable obligations
under the IBEW Collective Bargaining Agreement and the IBEW
Memoranda. The Buyer further agrees to recognize the IBEW as the
collective bargaining agent for the Transferred Union Employees.
(e) For the period commencing on the Closing Date and
ending on June 30, 2000, the Buyer shall provide all Transferred
Non-Union Employees with total compensation and benefits
including, without limitation, base pay, authorized overtime as
set forth in Schedule 6.10(e), bonuses, and benefits contained in
the employee benefit plans, programs, and fringe benefit
arrangements (including education reimbursement and vacation
entitlement) which are in the aggregate at least comparable in
value and nature to the Transferred Non-Union Employee's total
compensation and benefits prior to the Closing. Such total
compensation shall be based upon (1) such employee's existing
individual base pay, (2) authorized overtime, if applicable, and
(3) an average bonus and benefit component for such employee's
salary plan level, as consistently applied by Seller or its
Affiliates, apportioned according to such employee's base pay.
(f) As of the Closing Date, all Transferred Non-Union
Employees shall cease to participate in the employee welfare
benefit plans (as such term is defined in ERISA), maintained or
sponsored by the Seller or its Affiliates (the "Prior Welfare
Plans") and shall commence to participate in welfare benefit
plans of the Buyer or its Affiliates (the "Replacement Welfare
Plans"). The Buyer shall (i) waive all limitations as to pre-
existing condition exclusions and waiting periods with respect to
the Transferred Non-Union Employees under the Replacement Welfare
Plans, other than, but only to the extent of, limitations or
waiting periods that were in effect with respect to such
employees under the Prior Welfare Plans and that have not been
satisfied as of the Closing Date, and (ii) provide each
Transferred Non-Union Employee with credit for any co-payments
and deductibles paid prior to the Closing Date in satisfying any
deductible or out-of-pocket requirements under the Replacement
Welfare Plans (on a pro-rata basis in the event of a difference
in plan years).
(g) Transferred Non-Union Employees shall be given
credit for all service with the Seller and its Affiliates under
all employee benefit plans, programs, and fringe benefit plans,
programs, and fringe benefit arrangements of the Buyer
established for the Transferred Non-Union Employees ("Buyer
Benefit Plans") in which they become participants, to the extent
such service was recognized for comparable purposes under the
corresponding Benefit Plan of Seller or NYSEG. The service
credit given is for purposes of eligibility, vesting, service
related level of benefits, and benefit accrual. Although
Transferred Non-Union Employees shall be given credit for all
service with the Seller and its Affiliates under all Buyer
Benefit Plans, the ultimate benefits provided under the Buyer
Benefit Plans may be offset by those previously provided by the
Seller or its Affiliates or the Benefit Plans, or by the benefits
accrued under the Benefit Plans or otherwise committed to be
provided by the Seller or its Affiliates in the future,
regardless of whether such accrued benefits actually are paid.
(h) The Buyer shall establish a "defined benefit plan"
which is identical to the "Retirement Benefit Plan for Employees
of NYSEG" under which the ultimate benefits provided to the
Transferred Non-Union Employees and Transferred Union Employees
shall be offset by the benefits accrued under the "Retirement
Benefit Plan for Employees of NYSEG" or provided by the
"Retirement Benefit Plan for Employees of NYSEG" in the future.
(i) To the extent allowable by law, the Buyer shall
take any and all necessary action to cause the trustee of a
defined contribution plan of the Buyer or one of its Affiliates,
if requested to do so by a Transferred Employee, to accept a
direct "rollover" of all or a portion of said employee's
distribution (excluding securities) from the New York State
Electric & Gas Corporation Tax Deferred Savings Plan for Hourly
Paid Employees and the New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
(j) The Buyer shall pay to each Transferred Non-Union
Employee whose employment is terminated by the Buyer or one of
its Affiliates before June 30, 2000 a severance benefit package
equal to the following:
Each Transferred Non-Union Employee whose
employment is terminated by the Buyer for other than inability to
perform normally assigned duties, unsatisfactory job performance,
or for cause will be entitled to a severance payment based on the
following schedule:
Service Severance Payment
Less than 2 years l/2 month's base pay
2 but less than 4 years l month's base pay
4 but less than 6 years l l/2 month's base pay
6 but less than 8 years 2 month's base pay
8 but less than 10 years 2 l/2 month's base pay
10 but less than 12 years 3 month's base pay
12 but less than 15 years 3 2 month's base pay
15 or more 3 2 month's base pay plus 1
additional week's base pay for
each full year of service
beyond 14 years
(k) The Seller agrees to perform timely and discharge
all requirements under the WARN Act and under applicable state
and local laws and regulations for the notification of its
employees arising from the sale of the Purchased Assets to the
Buyer up to and including the Closing Date for those employees
who will become Transferred Employees effective as of the Closing
Date. After the Closing, the Buyer shall be responsible for
performing and discharging all requirements under the WARN Act
and under applicable state and local laws and regulations for the
notification of its employees with respect to the Purchased
Assets.
(l) The Buyer may offer employment, effective as of
the Closing Date, to those salaried employees of the Seller or
its Affiliates who are listed in, or whose employment functions
and responsibilities are listed in, Schedule 6.10(l). The Buyer
shall notify the Seller no later than ninety (90) days after the
date of this Agreement as to which salaried employees shall be
offered employment. Each person who becomes employed by the
Buyer pursuant to this Section 6.10(l) shall be considered a
"Transferred Non-Union Employee" for all purposes under this
Agreement.
6.11 Risk of Loss
(a) From the date hereof through the Closing Date, all
risk of loss or damage to the property included in the Purchased
Assets shall be borne by the Seller, other than loss or damage
caused by the acts or negligence of the Buyer or any Buyer
Representative, which loss or damage shall be the responsibility
of the Buyer.
(b) If, before the Closing Date, all or any material
portion of the Purchased Assets is taken by eminent domain or is
the subject of a pending or (to the Knowledge of the Seller)
contemplated taking which has not been consummated, or if all or
any material portion of the Purchased Assets is damaged or
destroyed by fire or other casualty, the Seller shall notify the
Buyer promptly in writing of such fact. If such taking,
contemplated taking, damage or destruction would create a
Material Adverse Effect, the Seller shall have the option,
exercised by notice to the Buyer, to restore, repair or replace
the taken or damaged Purchased Assets prior to the Closing. Upon
any taking, damage or destruction of less than a material portion
of the Purchased Assets, the Buyer and the Sellers shall
negotiate in good faith to settle the loss resulting from such
taking, damage or destruction by making a fair and equitable
adjustment to the Purchase Price and, upon such settlement,
consummate the transactions contemplated by this Agreement
pursuant to the terms of this Agreement. If no such settlement is
reached within sixty (60) days after the Seller has notified the
Buyer of such taking, damage or destruction, then the Purchase
Price shall be adjusted by an amount determined by the
Independent Accounting Firm.
(c) If the Seller elects to restore, repair or
replace the Purchased Assets, which election shall be made by
notice to the Buyer within fifteen (15) days following the
occurrence of the casualty or taking, the completion of the
repair, replacement or restoration will be a condition to the
Closing and the Closing Date shall be postponed at the election
of the Seller for the amount of time reasonably necessary to
complete the restoration, repair or replacement, not to exceed
one hundred twenty (120) days after receipt by the Buyer of such
notice, without Buyer's consent. The Buyer, and the Buyer's
representatives, shall have the right to observe the restoration,
repair, or replacement that the Seller elects to undertake. In
the event that the Seller elects not to restore, repair or
replace such damaged Purchased Assets, or in the event that the
Seller, having elected to repair, replace or restore such damaged
Purchased Assets, fails to complete the repair, replacement or
restoration within one hundred twenty (120) days, then the
Parties shall, within thirty (30) days following the Seller's
election, or failure to complete, whichever is later, negotiate
in good faith an equitable adjustment in the Purchase Price to
reflect the impact of the casualty or taking, as mitigated by any
repair, replacement or restoration work actually completed by the
Seller, on the Purchased Assets being sold to the Buyer, and
proceed to the Closing. To assist the Buyer in its evaluation of
any casualty or taking, the Seller shall provide the Buyer such
information as the Buyer may reasonably request in connection
therewith.
(d) In the event that the Parties fail to reach
agreement on an equitable adjustment of the Purchase Price within
the thirty (30) days provided in Section 6.11(c), then the Buyer
shall have the election, exercisable by notice to the Seller,
within fifteen (15) days immediately following the expiration of
the thirty (30) day period to either (i) proceed with the
consummation of the transaction at Closing, with a reduction in
the Purchase Price consistent with the Seller's last offer
communicated to the Buyer, in which event the Seller shall assign
over or deliver to the Buyer at Closing all condemnation proceeds
or insurance proceeds which the Seller receives, or to which
Seller becomes entitled by virtue of the casualty or taking, less
any costs and expenses reasonably incurred by the Seller in
obtaining such condemnation proceeds or insurance proceeds, or
(ii) terminate this Agreement, in which event this Agreement
shall terminate and neither Party shall thereafter have any
obligation or liability to the other by reason of this Agreement.
If the Buyer fails to make the election within such fifteen (15)
day period, the Buyer will be deemed to have made the election to
proceed with the Closing.
6.12 Additional Covenants of the Buyer
Notwithstanding any other provision hereof, the
Buyer covenants and agrees that, after the Closing Date, the
Buyer will not make any modifications to the Purchased
Assets or take any action which would result in a loss of the
exclusion of interest on the pollution control bonds or the solid
waste disposal bonds issued on behalf of NYSEG in connection with
the Kintigh, Milliken, Goudey, Greenidge, Hickling, and Jennison
Generating Stations from gross income for federal income purposes
under Section 103 of the Code. The Buyer further covenants and
agrees that, in the event that the Buyer transfers any of the
Purchased Assets, the Buyer shall obtain from its transferee a
covenant and agreement that is analogous to the Buyer's covenant
and agreement pursuant to the immediately preceding sentence, as
well as a covenant and agreement that is analogous to that of
this sentence. This covenant shall survive Closing and shall
continue in effect so long as the pollution control bonds or
solid waste disposal bonds remain outstanding.
6.13 Insurance
(a) After the Closing Date, upon the assertion of an
Environmental Claim against the Buyer and/or the Sellers relating
to an Assumed Liability of the Buyer hereunder, the Sellers, upon
written request from the Buyer, agrees to authorize and empower
the Buyer, on the Seller's behalf, to pursue any coverage
available for such Environmental Claim against each and every
insurance company which has issued comprehensive general
liability insurance and/or property damage insurance to and for
the benefit of the Seller or NYSEG and which may apply to such
Environmental Claim and the damages resulting therefrom
(individually an "Insurance Policy" and collectively the
"Insurance Policies").
(b) Such authorization will be made upon, and subject to,
the following terms and conditions: (i) the Buyer will direct
the conduct and prosecution of any such Environmental Claim,
consult with the Seller on the strategy and progress of such
Environmental Claim, and furnish the Seller with periodic reports
on the status of such Environmental Claim; (ii) the Buyer may
select its own legal counsel, provided the Seller and NYSEG may
participate in the prosecution of such Environmental Claim with
legal counsel of their choice provided they will be responsible
for any legal charges and expenses associated therewith; (iii)
the Buyer will be solely responsible for all costs, expenses, and
other charges associated with the prosecution of such
Environmental Claim, including but not limited to all attorneys'
fees and legal charges (other than Seller's and NYSEG's) and
court costs; (iv) the Buyer will diligently prosecute and pursue
such Environmental Claim; (v) the Buyer will pursue and prosecute
such Environmental Claim in a manner which will not prejudice
Seller's or NYSEG's residual rights under the Insurance Policies;
(vi) any proceeds, payment, judgment, or settlement amounts
received by the Buyer with respect to such Environmental Claim
will first be applied toward satisfying any indemnity obligation
of the Buyer relating to such Environmental Claim as set forth in
Section 8.1(a) of this Agreement, and, following the Seller's
receipt of same, the Seller and NYSEG will assign their right,
title, and interest in and to the remainder of such proceeds,
payment, judgment, or settlement to the Buyer; and (vii) the
Buyer will not settle or confess judgment with respect to such
Environmental Claim without the Seller's consent, which consent
will not be unreasonably withheld, provided, however, that the
Buyer acknowledges and agrees that it will be reasonable for the
Seller to withhold or delay its consent if such settlement or
confession prejudices the Seller's or NYSEG's residual rights
under the Insurance Policies and/or otherwise violates any term
or condition set forth in this Agreement.
(c) The Seller agrees, with respect to any such
Environmental Claim, (i) to cooperate with the Buyer and
participate to the extent reasonably necessary in the prosecution
of such Environmental Claim and to comply with all reasonable
requests for assistance and cooperation from the Buyer in the
prosecution of such Environmental Claim, (ii) that upon the
reasonable request of the Buyer, the Seller will make available
to the Buyer any employees and officers of the Seller and NYSEG
having knowledge of or expertise relating to such Environmental
Claims or Insurance Policies for the purpose of assisting Buyer
in the prosecution of such Environmental Claim, (iii) that upon
the reasonable request of the Buyer, the Seller will make
available to the Buyer and its counsel documents and physical
evidence in the possession or control of the Seller and NYSEG,
and that such documents and physical evidence will be preserved
in accordance with the respective document retention policies of
the Seller and NYSEG, (iv) that the Seller will assist the Buyer
in obtaining the execution of documents necessary for the
prosecution or settlement of any such Claim from employees and
officers of the Seller and NYSEG, and (v) that so long as the
Buyer fulfills its obligations set forth in subsection 6.13(b)
above, the Seller and NYSEG will not seek coverage for any such
Environmental Claim from the Insurance Policies without the prior
written consent of the Buyer, which consent shall not be
unreasonably withheld. The Sellers' agreements to cooperate and
assist the Buyer stated in this subparagraph will be furnished
without charge to the Buyer insofar as it relates to cooperation
and assistance that is reasonable.
(d) Notwithstanding the foregoing, or any
representation or warranty made by the Seller or NYSEG in this
Agreement, the Seller and NYSEG, individually and collectively,
make no representation or warranty as to the validity or
enforceability of any claim against the Insurance Policies for
any Environmental Claims, particularly but not by way of
limitation, that the Seller or NYSEG have furnished any insurance
company which has issued any Insurance Policy with adequate or
timely notice of (i) any occurrence or condition which may give
rise to an Environmental Claim, whether known or unknown, or (ii)
any Environmental Claim within the Knowledge of the Seller or
NYSEG.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of the Buyer
The obligation of the Buyer to effect the purchase of
the Purchased Assets and the other transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to
the Closing Date (or the waiver by the Buyer) of the following
conditions:
(a) The waiting period under the HSR Act applicable
to the consummation of the sale of the Purchased Assets
contemplated hereby shall have expired or been terminated.
(b) No preliminary or permanent injunction or other
order or decree by any federal or state court or Government
Authority which prevents the consummation of the sale of the
Purchased Assets contemplated herein shall have been issued and
remain in effect (each Party agreeing to use its reasonable best
efforts to have any such injunction, order or decree lifted) and
no statute, rule or regulation shall have been enacted by any
state or federal government or Governmental Authority in the
United States which prohibits the consummation of the sale of the
Purchased Assets;
(c) The Buyer shall have received all of the Buyer
Required Regulatory Approvals (other than those approvals which
if not obtained, would not individually or in the aggregate,
create a Material Adverse Effect), in each case subject to terms
and conditions that could not reasonably be expected to, in the
aggregate, have a Buyer Material Adverse Effect
(d) The Sellers shall have performed and complied
with in all material respects the covenants, agreements and
obligations contained in this Agreement which are required to be
performed and complied with by the Sellers on or prior to the
Closing Date;
(e) The representations and warranties of the Sellers
set forth in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made at and as
of the Closing Date, except that any representations and
warranties made as of a specified date shall continue on the
Closing Date to be true and correct in all material respects as
of such specified date;
(f) The Buyer shall have received a certificate from
an authorized officer of the Sellers, dated the Closing Date, to
the effect that, to such officers' Knowledge, the conditions set
forth in Sections 7.1(d) and (e) have been satisfied by the
Sellers;
(g) Since the date of this Agreement, no Material
Adverse Effect shall have occurred and be continuing;
(h) The Buyer shall have received an opinion from the
Seller's counsel reasonably acceptable to the Buyer, dated the
Closing Date and satisfactory in form and substance to the Buyer
and its counsel, substantially to the effect that:
(1) The Seller, NYSEG and SRC are each corporations
duly incorporated, validly existing and in good standing
under the laws of their respective jurisdictions of
incorporation and the Seller and NYSEG have full corporate
power and authority to execute and deliver the Agreement and
each of the Ancillary Agreements, as applicable, and to
consummate the transactions contemplated by them thereby;
and the execution and delivery of the Agreement and each of
the Ancillary Agreements by the Seller and NYSEG and the
consummation of the sale of the Purchased Assets and the
other transactions contemplated thereby by the Seller and
NYSEG have been duly and validly authorized by all necessary
corporate action required on the part of the Seller and
NYSEG;
(2) The Agreement and each of the Ancillary
Agreements have been duly and validly executed and delivered
by the Seller and NYSEG, as the case may be, and constitute
legal, valid and binding agreements of the Seller and NYSEG,
enforceable against the Seller and NYSEG in accordance with
its terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting
or relating to enforcement of creditors' rights generally
and general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in
equity);
(3) The execution, delivery and performance of the
Agreement and each of the Ancillary Agreements by the
Seller and NYSEG do not (A) conflict with the Certificate of
Incorporation or Bylaws, as currently in effect, of the
Seller or NYSEG or (B) to the knowledge of such counsel
constitute a violation of or default under the Seller
Applicable Contracts. "Seller Applicable Contracts" means
those agreements or instruments set forth on a Schedule
attached to the opinion and which have been identified to
such counsel as all the agreements and instruments which are
material to the business or financial condition of the
Seller or NYSEG;
(4) The Bill of Sale and other transfer instruments
described in Section 3.6 have been duly executed and
delivered and are in proper form to transfer to the Buyer
such title as was held by Seller to the Purchased Assets;
(5) No declaration, filing or registration with, or
notice to, or authorization, consent or approval of any
Governmental Authority is necessary for the consummation by
the Seller and NYSEG of the Closing other than (A) the
Seller Required Regulatory Approvals, all of which have been
obtained and are in full force and effect with such terms
and conditions as have been imposed by any applicable
Governmental Authority, and (B) such declarations, filings,
registrations, notices, authorizations, consents or
approvals which, if not obtained or made, would not, in the
aggregate create a Material Adverse Effect; and
<PAGE>
(6) The SRC Stock has been duly authorized and
validly issued and is fully paid and non-assessable. The
Seller is the holder of record of the SRC Stock; and
(h) The Seller shall have delivered, or caused to be
delivered, to the Buyer at the Closing, the Seller's closing
deliveries described in Section 3.6.
7.2 Conditions to Obligations of the Sellers
The obligation of the Sellers to effect the sale of the
Purchased Assets and the other transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the
Closing Date (or the waiver by the Seller) of the following
conditions:
(a) The waiting period under the HSR Act applicable
to the consummation of the sale of the Purchased Assets
contemplated hereby shall have expired or been terminated;
(b) No preliminary or permanent injunction or other
order or decree by any federal or state court which prevents the
consummation of the sale of the Purchased Assets contemplated
herein shall have been issued and remain in effect (each Party
agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or
regulation shall have been enacted by any state or federal
government or governmental agency in the United States which
prohibits the consummation of the sale of the Purchased Assets;
(c) The Seller shall have received all of the Seller
Required Regulatory Approvals (other than those approvals which
if not obtained, would not individually or in the aggregate,
create a Material Adverse Effect) in each case, subject to terms
and conditions that could not reasonably be expected, in the
aggregate, to have a material adverse effect on the business,
assets, operations or conditions (financial or otherwise) of the
Sellers;
(d) All consents and approvals for the consummation
of the sale of the Purchased Assets and the performance of the
Ancillary Agreements contemplated hereby required under the terms
of any note, bond, mortgage, indenture, material agreement or
other instrument or obligation to which Seller or NYSEG is party
or by which the Seller or NYSEG, or any of the Purchased Assets
may be bound, shall have been obtained, other than those which if
not obtained, would not, individually and in the aggregate,
create a Material Adverse Effect;
(e) The Buyer shall have performed and complied with
in all material respects the covenants, agreements and
obligations contained in this Agreement that are required to be
performed and complied with by the Buyer on or prior to the
Closing Date;
(f) The representations and warranties of the Buyer
set forth in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made at and as
of the Closing Date, except that any representations and
warranties made as of a specified date shall continue on the
Closing Date to be true and correct in all material respects as
of such specified date;
(g) The Sellers shall have received a certificate
from an authorized officer of the Buyer, dated the Closing Date,
to the effect that, to such officers' Knowledge, the conditions
set forth in Sections 7.2(e) and (f) have been satisfied by the
Buyer;
(h) The Buyer shall have assumed, as set forth in
Section 6.10, effective on and after the Closing Date, all of the
applicable obligations under the IBEW Collective Bargaining
Agreement and IBEW Memoranda as they relate to Transferred Union
Employees;
(i) The Seller shall have received an opinion from
the Buyer's counsel reasonably acceptable to the Seller, dated
the Closing Date and satisfactory in form and substance to the
Seller and its counsel, substantially to the effect that:
(1) The Buyer is a limited liability company and the
Buyer's Parent is a corporation, each of which is duly
organized, existing and in good standing under the laws of
the state of their respective jurisdiction of organization
and in such foreign jurisdictions where qualification is
necessary to conduct their business, and Buyer is qualified
to do business in the State of New York , and each has full
power and authority to execute and deliver the Agreement and
each of the Ancillary Agreements and to consummate the
transactions contemplated by them thereby; and the execution
and delivery of the Agreement and each of the Ancillary
Agreements by the Buyer, or the Buyer's Parent, as the case
may be, and the consummation of the transactions
contemplated thereby by the Buyer and Buyer's Parent have
been duly authorized by all necessary action required on the
part of the Buyer and Buyer's Parent;
(2) The Agreement and each of the Ancillary
Agreements have been duly and validly executed and delivered
by the Buyer and Buyer's Parent, as the case may be, and
constitute legal, valid and binding agreements of the Buyer
and Buyer's Parent, enforceable against each of them in
accordance with their terms, except that such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other
similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a
proceeding at law or in equity);
(3) The execution, delivery and performance of this
Agreement and each of the Ancillary Agreements by the Buyer
or the Buyer's Parent, as the case may be, do not (A)
conflict with the Certificate of Formation, Operating
Agreement, Certificate of Incorporation or Bylaws (or other
organizational documents) as currently in effect, of the
Buyer or Buyer's Parent or (B) to the knowledge of such
counsel, constitute a violation of or default under the
Buyer Applicable Contracts. "Buyer Applicable Contracts"
mean those agreements or instruments set forth on a Schedule
attached to the opinion and which have been identified to
such counsel as all the agreements and instruments which are
material to the business or financial condition of the Buyer
and Buyer's Parent;
(4) The Assignment and Assumption Agreement and other
transfer instruments described in Section 3.7 have been duly
executed and delivered and are in proper form for the Buyer
to assume the Assumed Liabilities; and
(5) No declaration, filing or registration with, or
notice to, or authorization, consent or approval of any
Governmental Authority is necessary for the consummation by
the Buyer of the Closing and the performance by Buyer and
Buyer's Parent, as applicable, of its obligations under the
Ancillary Agreements other than the Buyer Required
Regulatory Approvals, all of which have been obtained and
are in full force and effect.
(j) Buyer shall have delivered, or caused to be
delivered, to the Seller at the Closing, Buyer's closing
deliveries described in Section 3.7.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification
(a) The Buyer shall indemnify, defend and hold harmless the
Seller, its officers, directors, employees, shareholders,
Affiliates and agents (each, a "Seller Indemnitee") from and
against any and all claims, demands, suits, losses, liabilities,
damages, obligations, payments, costs and expenses (including,
without limitation, the costs and expenses of any and all
actions, suits, proceedings, assessments, judgments, settlements
and compromises relating thereto and reasonable attorneys' fees
and reasonable disbursements in connection therewith) (each, an
"Indemnifiable Loss") asserted against or suffered by any Seller
Indemnitee relating to, resulting from or arising out of (i) any
breach by the Buyer of any covenant or agreement of the Buyer
contained in this Agreement or the representations and warranties
contained in Sections 5.1, 5.2 and 5.3, (ii) the Assumed
Liabilities, (iii) any loss or damages resulting from or arising
out of any Inspection, or (iv) any Third Party Claims against a
Seller Indemnitee arising out of or in connection with the
Buyer's ownership or operation of the Plants and other Purchased
Assets on or after the Closing Date.
(b) The Seller and NYSEG shall, jointly and
severally, indemnify, defend and hold harmless the Buyer, its
officers, directors, employees, shareholders, Affiliates and
agents (each, a "Buyer Indemnitee") from and against any and all
Indemnifiable Losses asserted against or suffered by any Buyer
Indemnitee relating to, resulting from or arising out of (i) any
breach by the Seller of any covenant or agreement of the Seller
contained in this Agreement or the representations and warranties
contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded
Liabilities, (iii) noncompliance by the Seller with any bulk
sales laws as provided in Section 10.11, or (iv) any Third Party
Claims against a Buyer Indemnitee arising out of, or in
connection with, the Seller's ownership or operation of the
Excluded Assets.
(c) The Buyer for itself and on behalf of its
Representatives and Affiliates, does hereby release, hold
harmless and forever discharge the Seller, its Representatives
and Affiliates, from any and all Indemnifiable Losses of any kind
or character, whether known or unknown, hidden or concealed,
resulting from or arising out of any Environmental Condition or
violation of Environmental Law relating to the Purchased Assets
other than any liabilities or obligations related to
Environmental Conditions or Violations of Environmental Law
described in Section 2.4. The Buyer hereby waives any and all
rights and benefits with respect to such Indemnifiable Losses
that it now has, or in the future may have conferred upon it by
virtue of any statute or common law principle which provides that
a general release does not extend to claims which a party does
not know or suspect to exist in its favor at the time of
executing the release, if knowledge of such claims would have
materially affected such party's settlement with the obligor. In
this connection, the Buyer hereby acknowledges that it is aware
that factual matters now unknown to it may have given or may
hereafter give rise to Indemnifiable Losses that are presently
unknown and unsuspected, and it further agrees that this release
has been negotiated and agreed upon in light of that awareness
and it nevertheless hereby intends to release the Seller and its
Representatives and Affiliates from the Indemnifiable Losses
described in the first sentence of this paragraph.
(d) Any Person entitled to receive indemnification
under this Agreement (an "Indemnitee") having a claim under these
indemnification provisions shall make a reasonable good faith
effort (or authorize the Indemnifying Party in accordance with
the terms of Section 6.13, in the event of indemnification of any
Environmental Claims) to make such effort to recover all losses,
damages, costs and expenses from insurers of such Indemnitee
under applicable insurance policies so as to reduce the amount of
any Indemnifiable Loss hereunder. The amount of any
Indemnifiable Loss shall be reduced (i) to the extent that an
Indemnitee receives any insurance proceeds with respect to such
Indemnifiable Loss and (ii) to take into account any net Tax
benefit realized by the Indemnitee arising from the recognition
of such Indemnifiable Loss and any payment actually received by
the Indemnitee with respect to such Indemnifiable Loss.
(e) The expiration, termination or extinguishment of
any covenant or agreement shall not affect the Parties'
obligations under this Section 8.1 if the Indemnitee provided the
Person required to provide indemnification under this Agreement
(the "Indemnifying Party") with proper notice of the claim or
event for which indemnification is sought prior to such
expiration, termination or extinguishment.
(f) Except to the extent provided in Section
6.8(d)(3) hereof, which Section shall govern the matters covered
therein, and except to the extent provided in Article IX, which
Article governs the matters covered therein, the rights and
remedies of the Sellers and the Buyer under this Article VIII are
exclusive and in lieu of any and all other rights and remedies
which the Sellers and the Buyer may have under this Agreement or
otherwise for monetary relief with respect to (i) any breach of
or failure to perform any covenant or agreement or representation
or warranty set forth in this Agreement or (ii) the Assumed
Liabilities or the Excluded Liabilities, as the case may be.
(g) The indemnification obligations of the Parties
described in this Article VIII apply only to matters arising out
of this Agreement, excluding the Ancillary Agreements. Any
Indemnifiable Loss arising under or pursuant to an Ancillary
Agreement shall be governed by the indemnification obligations,
if any, in the Ancillary Agreement under which the Indemnifiable
Loss arises.
(h) No Indemnitee shall be entitled to recover from
an Indemnifying Party for any liabilities, damages, obligations,
payments, losses, costs or expenses as to which indemnification
is provided under this Agreement any amount in excess of the
direct damages, court costs and reasonable attorney's fees
suffered by such Indemnified Party. The Buyer and the Sellers
waive any right to recover punitive, special, incidental,
exemplary and consequential damages arising in connection with or
with respect to the indemnification provisions hereof. The
provisions of this Section 8.1(h) shall not apply to
indemnification for a Third Party Claim.
(i) Buyer and Sellers agree that notwithstanding any
provision to this Agreement to the contrary, all Parties to the
Agreement retain their remedies at law or in equity with respect
to willful or intentional breaches of this Agreement.
8.2 Defense of Claims
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any claim, action, or proceeding
made or brought by any Person who is not a party to this
Agreement or any Affiliate of a Party to this Agreement (a "Third
Party Claim") with respect to which indemnification is to be
sought from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but
in any event such notice shall not be given later than twenty
(20) calendar days after the Indemnitee's receipt of notice of
such Third Party Claim. Such notice shall describe the nature of
the Third Party Claim in reasonable detail and shall indicate the
estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying
Party will have the right to participate in or, by giving written
notice to the Indemnitee, to elect to assume the defense of any
Third Party Claim at such Indemnifying Party's expense and by
such Indemnifying Party's own counsel, provided that the counsel
for the Indemnifying Party who shall conduct the defense of such
Third Party Claim shall be reasonably satisfactory to the
Indemnitee. The Indemnitee shall cooperate in good faith in such
defense at such Indemnitee's own expense. If an Indemnifying
Party elects not to assume the defense of any Third Party Claim,
the Indemnitee may compromise or settle such Third Party Claim
over the objection of the Indemnifying Party, which settlement or
compromise shall conclusively establish the Indemnifying Party's
liability pursuant to this Agreement.
(b) If, within ten (10) calendar days after an
Indemnitee provides written notice to the Indemnifying Party of
any Third Party Claim, the Indemnitee receives written notice
from the Indemnifying Party that such Indemnifying Party has
elected to assume the defense of such Third Party Claim as
provided in Section 8.2(a), the Indemnifying Party will not be
liable for any legal expenses subsequently incurred by the
Indemnitee in connection with the defense thereof; provided,
however, that if the Indemnifying Party shall fail to take
reasonable steps necessary to defend diligently such Third Party
Claim within twenty (20) calendar days after receiving notice
from the Indemnitee that the Indemnitee believes the Indemnifying
Party has failed to take such steps, the Indemnitee may assume
its own defense, and the Indemnifying Party shall be liable for
all reasonable expenses thereof. Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter
into any settlement of any Third Party Claim which would lead to
liability or create any financial or other obligation on the part
of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a
Third Party Claim without leading to liability or the creation of
a financial or other obligation on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder
and the Indemnifying Party desires to accept and agree to such
offer, the Indemnifying Party shall give written notice to the
Indemnitee to that effect. If the Indemnitee fails to consent to
such firm offer within ten (10) calendar days after its receipt
of such notice, the Indemnifying Party shall be relieved of its
obligations to defend such Third Party Claim and the Indemnitee
may contest or defend such Third Party Claim. In such event, the
maximum liability of the Indemnifying Party as to such Third
Party Claim will be the amount of such settlement offer plus
reasonable costs and expenses paid or incurred by the Indemnitee
up to the date of such notice.
(c) Any claim by an Indemnitee on account of an
Indemnifiable Loss which does not result from a Third Party Claim
(a "Direct Claim") shall be asserted by giving the Indemnifying
Party reasonably prompt written notice thereof, stating the
nature of such claim in reasonable detail and indicating the
estimated amount, if practicable, but in any event such notice
shall not be given later than ten (10) calendar days after the
Indemnitee becomes aware of such Direct Claim, and the
Indemnifying Party shall have a period of thirty (30) calendar
days within which to respond to such Direct Claim. If the
Indemnifying Party does not respond within such thirty (30)
calendar day period, the Indemnifying Party shall be deemed to
have accepted such claim. If the Indemnifying Party rejects such
claim, the Indemnitee will be free to seek enforcement of its
right to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any
time subsequent to the making of an indemnity payment in respect
thereof, is reduced by recovery, settlement or otherwise under or
pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by, from or against any other
entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest
thereon from the date of payment thereof at the publicly
announced prime rate then in effect of The Chase Manhattan Bank)
shall promptly be repaid by the Indemnitee to the Indemnifying
Party. Except as otherwise provided in Section 8.2(e) below,
upon making any indemnity payment, the Indemnifying Party will,
to the extent of such indemnity payment, be subrogated to all
rights of the Indemnitee against any third party in respect of
the Indemnifiable Loss to which the indemnity payment relates;
provided, however, that (i) the Indemnifying Party will then be
in compliance with its obligations under this Agreement with
respect to such Indemnifiable Loss and (ii) until the Indemnitee
recovers full payment of its Indemnifiable Loss, any and all
claims of the Indemnifying Party against any such third party on
account of said indemnity payment is hereby made expressly,
subordinated and subjected in right of payment to the
Indemnitee's rights against such third party. Without limiting
the generality or effect of any other provision hereof, each such
Indemnitee and Indemnifying Party will duly execute upon request
all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights. Nothing in
this Section 8.2(d) shall be construed to require any party
hereto to obtain or maintain any insurance coverage.
(e) Notwithstanding anything else to the contrary set
forth in subsection 8.2(d), the Buyer will not be subrogated to
the rights of the Seller and NYSEG with respect to any
Environmental Claim against any insurance company upon making any
indemnity payments as required hereunder; the Buyer's right to
pursue coverage against the Insurance Policies with respect to
any Environmental Claim will be governed strictly by the terms of
Section 6.13.
(f) A failure to give timely notice as provided in
this Section 8.2 shall not affect the rights or obligations of
any Party hereunder except if, and only to the extent that, as a
result of such failure, the Party which was entitled to receive
such notice was actually prejudiced as a result of such failure.
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination
(a) This Agreement may be terminated at any time prior to
the Closing Date by mutual written consent of the Seller and the
Buyer.
(b) This Agreement may be terminated by the Seller or
the Buyer if (i) any federal or state court of competent
jurisdiction shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the
Closing, and such order, judgment or decree shall have become
final and nonappealable, or (ii) any statute, rule, order or
regulation shall have been enacted or issued by any Governmental
Authority which, directly or indirectly, prohibits the
consummation of the Closing, or (iii) the Closing contemplated
hereby shall have not occurred on or before the day which is
twelve months from the date of this Agreement (the "Termination
Date"); provided, however, that the right to terminate this Agree
ment under Section 9.1(b)(iii) shall not be available to any
Party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of
the Closing to occur on or before such date; and provided,
further, however, that if on the day which is twelve months from
the date of this Agreement the conditions to the Closing set
forth in Section 7.1(c) or 7.2(c) shall not have been fulfilled
but all other conditions to the Closing shall have been fulfilled
or shall be capable of being fulfilled, then the Termination Date
shall be the day which is eighteen months from the date of this
Agreement.
(c) Except as otherwise provided in this Agreement or
as otherwise provided in an Ancillary Agreement, this Agreement
may be terminated by the Buyer if any of the Buyer Required
Regulatory Approvals, the receipt of which is a condition to the
obligation of the Buyer to consummate the Closing as set forth in
Section 7.1 (b), shall have been denied or shall have been
granted subject to terms or conditions that, in the aggregate,
could reasonably be expected to have a Buyer Material Adverse
Effect.
(d) Except as otherwise provided in an Ancillary
Agreement, this Agreement may be terminated by the Seller if any
of the Seller Required Regulatory Approvals, the receipt of which
is a condition to the obligation of the Seller to consummate the
Closing as set forth in Section 7.2(c), shall have been denied or
shall have been granted subject to terms or conditions that, in
the aggregate, could reasonably be expected to have a material
adverse effect on the business, assets, operations or conditions
(financial or otherwise) of the Sellers.
(e) This Agreement may be terminated by the Buyer, if
(i) there has been a violation or breach by the Seller or NYSEG
of any covenant, representation or warranty contained in this
Agreement which also results in a Material Adverse Effect and
such violation or breach is not cured by the earlier of the
Closing Date or the date fifteen (15) days after receipt by the
Seller of notice specifying particularly such violation or
breach, and such violation or breach has not been waived by the
Buyer, or (ii) there has been an advice given pursuant to Section
6.9 of a development which results in a Material Adverse Effect
which is not cured by the earlier of the Closing Date or the date
fifteen (15) days after the giving of such advice, and such
Material Adverse Effect has not been waived by the Buyer.
(f) This Agreement may be terminated by the Seller,
if there has been a material violation or breach by the Buyer or
Buyer's Parent of any covenant, representation or warranty
contained in this Agreement and such violation or breach is not
cured by the earlier of the Closing Date or the date fifteen (15)
days after receipt by the Buyer of notice specifying particularly
such violation or breach, and such violation or breach has not
been waived by the Seller.
(g) This Agreement may be terminated by the Buyer in
accordance with the provisions of Section 6.11(d).
9.2 [Reserved]
9.3 Effect of Termination Without Default
If this Agreement is terminated pursuant to any of
Sections 9.1(a) through (d) and 9.1(g) through (h), then all
further obligations and liabilities of the Parties hereunder will
terminate, except as otherwise expressly provided in this
Agreement, and thereafter neither Party shall have any recourse
against the other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Dispute Resolution
Except as otherwise provided in this Agreement, prior to
instituting any litigation or other action, the Parties will
attempt in good faith to resolve any dispute or claim promptly by
referring any such matter to their respective chief executive
officers. Either Party may give the other Party written notice
of any dispute or claim. Within twenty (20) days after delivery
of that notice, the executives will meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem
necessary to exchange information and to attempt to resolve the
dispute or claim within thirty (30) days.
10.2 Amendment and Modification
Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of
the Seller and the Buyer.
10.3 Waiver of Compliance; Consents
Except as otherwise provided in this Agreement,
any failure of either of the Parties to comply with any
obligation, covenant, agreement or condition herein may be
waived by the Party entitled to the benefits thereof only by a
written instrument signed by the Party granting such waiver, but
such waiver of such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to,
any subsequent failure to comply therewith.
10.4 No Survival
Subject to the provisions of Section 9.3, each and every
representation, warranty and covenant contained in this Agreement
(other than the covenants contained in Sections 3.3(c), 3.4,
3.5(b), 6.1(c), 6.2, 6.3, 6.4, 6.6(g), 6.7, 6.8, 6.10, 6.12,
6.13, 10.6 and in Article VIII, which covenants shall survive in
accordance with their terms, (and the representations and
warranties set forth in Section 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3,
which representations and warranties shall survive for eighteen
(18) months from the Closing Date), shall expire with, and be
terminated and extinguished by the consummation of the sale of
the Purchased Assets and the transfer of the Assumed Liabilities
pursuant to this Agreement and such representations, warranties
and covenants shall not survive the Closing Date; and none of the
Seller, the Buyer or any officer, director, manager, trustee or
Affiliate of either of them shall be under any liability
whatsoever with respect to any such representation, warranty or
covenant.
10.5 Notices
All notices and other communications hereunder shall be
in writing and shall be deemed given and effective if delivered
personally or by facsimile transmission or mailed by overnight
courier or registered or certified mail (return receipt
requested), postage prepaid, to the recipient Party at its
following address (or at such other address or facsimile number
for a party as shall be specified by like notice; provided
however, that notices of a change of address shall be effective
only upon receipt thereof):
(a) If to the Sellers, to:
NYSEG
NEW YORK STATE ELECTRIC & GAS CORPORATION
4500 Vestal Parkway East
Binghamton, New York 13902
Attn: Vice President and Secretary
NGE
NGE Generation, Inc.
4500 Vestal Parkway East
Binghamton, New York 13902
Attn: Secretary
With a Copy to:
Huber Lawrence & Abell
605 Third Avenue
New York , New York 10158
Attn: Nicholas A. Giannasca, Esq.
Taras G. Borkowsky, Esq.
(b) if to the Buyer, to:
AES NY, L.L.C.
1001 North 19th Street
Arlington, Virginia 22209
Attn: Project Manager
with a copy to:
Chadbourne & Parke, LLP
30 Rockefeller Plaza
New York, New York 10112
Attn: Richard Sonkin, Esq.
10.6 Assignment
This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and
their respective successors and permitted assigns, but neither
this Agreement nor any of the rights, interests, obligations or
remedies hereunder shall be assigned by any Party hereto,
including by operation of law, without the prior written consent
of the other Party, nor is this Agreement intended to confer upon
any Person except the Parties hereto any rights, interests,
obligations or remedies hereunder. No provision of this
Agreement shall create any third party beneficiary rights in any
employee or former employee of the Sellers (including any
beneficiary or dependent thereof) in respect of continued
employment or resumed employment, and no provision of this
Agreement shall create any rights in any such Persons in respect
of any benefits that may be provided, directly or indirectly,
under any employee benefit plan or arrangement except as
expressly provided for thereunder. Notwithstanding the
foregoing, (a) the Buyer may assign any or all of its rights,
interests and obligations hereunder to one or more of its
Affiliates (in which case the Buyer and such Affiliate or
Affiliates shall nonetheless remain jointly and severally
responsible for the performance of all such obligations) so long
as any such assignment does not adversely affect the availability
or timing of any consent or approval of Governmental Authority
required for the consummation of the sale of the Purchased
Assets; (b) the Buyer or its permitted assignee may assign,
transfer, pledge or otherwise dispose of its rights and interests
hereunder to a trustee or lending institutions for the purposes
of financing or refinancing the Purchased Assets, including upon
or pursuant to the exercise of remedies with respect to such
financing or refinancing, or by way of assignments, transfers,
pledges, or other dispositions in lieu thereof; provided,
however, that no such assignment or other disposition shall
relieve or in any way discharge the Buyer or such assignee from
the performance of its obligations under this Agreement. The
Seller agrees, at the Buyer's expense, to execute and deliver
such documents as may be reasonably necessary to accomplish any
such assignment, transfer, pledge or other disposition of rights
and interests hereunder so long as the Sellers' rights under this
Agreement are not thereby altered, amended, diminished or
otherwise impaired.
10.7 Governing Law
This Agreement shall be governed by and construed in accordance
with the law of the State of New York (regardless of the law that
might otherwise govern under applicable New York principles of
conflicts of law) as to all matters, including, but not limited
to, matters of validity, construction, effect, performance and
remedies. The Parties hereto agree that venue in any and all
actions and proceedings related to the subject matter of this
Agreement shall be in the state and federal courts in and for New
York County, New York , which courts shall have exclusive
jurisdiction for such purpose, and the parties hereto irrevocably
submit to the exclusive jurisdiction of such courts and
irrevocably waive the defense of an inconvenient forum to the
maintenance of any such action or proceeding. Service of process
may be made in any manner recognized by such courts. Each of the
Parties hereto irrevocably waives its right to a jury trial with
respect to any action or claim arising out of any dispute in
connection with this Agreement or the transactions contemplated
hereby.
10.8 Counterparts
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
10.9 Interpretation
The article, section and schedule headings contained in this
Agreement are solely for the purpose of reference, are not part
of the agreement of the parties and shall not in any way affect
the meaning or interpretation of this Agreement.
10.10 Schedules and Exhibits
Except as otherwise provided in this Agreement, all
Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
10.11 Entire Agreement
This Agreement, the Confidentiality Agreement, and the Ancillary
Agreements, including the Exhibits, Schedules, documents, certifi
cates and instruments referred to herein or therein, embody the
entire agreement and understanding of the Parties hereto in
respect of the transactions contemplated by this Agreement.
There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth
or referred to herein or therein. It is expressly acknowledged
and agreed that there are no restrictions, promises, repre
sentations, warranties, covenants or undertakings contained in
any material made available to the Buyer pursuant to the terms of
the Confidentiality Agreement (including the Offering Memorandum
dated April 1998, previously made available to the Buyer by the
Seller and Goldman Sachs). This Agreement supersedes all prior
agreements and understandings between the Parties, other than the
Confidentiality Agreement, with respect to such transactions.
10.12 Bulk Sales Laws
The Buyer acknowledges that, notwithstanding anything in this
Agreement to the contrary, the Sellers will not comply with the
provision of the bulk sales laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
The Buyer hereby waives compliance by the Sellers with the
provisions of the bulk sales laws of all applicable
jurisdictions.
<PAGE>
IN WITNESS WHEREOF, the Seller, NYSEG, and the Buyer
have caused this Agreement to be signed by their respective duly
authorized officers as of the date first above written.
NGE GENERATION, INC.
By:
Kenneth M. Jasinski
Executive Vice President
NEW YORK STATE ELECTRIC
& GAS CORPORATION
By:
Kenneth M. Jasinski
Executive Vice President
AES NY, L.L.C.
By:
Henry Aszklar
Manager
Exhibit 10-36
Energy East Corporation
Restricted Stock Plan
I. Plan Objective
The objective of the Restricted Stock Plan (the "Plan") is
to attract and motivate current and future employees of
Energy East Corporation (hereinafter referred to as the
"Company") and its Affiliates by providing them with the
opportunity to receive, in addition to current compensation,
an equity interest in the Company.
II. Definitions
Wherever used in the Plan, unless the context clearly
indicates otherwise, the following words and phrases shall
have the meanings set forth below:
"Affiliate" shall mean any company which qualifies as a
"subsidiary corporation" or "parent corporation" of the
Company under Section 424 of the Code, or any successor
provision, or any other entity in which the Company owns,
directly or indirectly, fifty percent (50%) or more of the
equity.
"Award" shall mean an award of Restricted Stock under the
Plan.
<PAGE>
"Award Grant" shall mean the grant document (including any
amendment or supplement thereto) executed by the Company and
acknowledged by a Participant which specifies the terms and
conditions of an Award granted to such Participant.
"Board" shall mean the Board of Directors of the Company.
"Chairman" shall mean the Chairman of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Common Stock" shall mean the Common Stock of the
Company.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
"Participant" shall mean an individual who is selected
pursuant to Article IV hereof to receive an Award under the
Plan.
"Restricted Stock" shall mean the shares of Common
Stock granted pursuant to Article V hereof.
"Securities Act" shall mean the Securities Act of 1933,
as amended from time to time.
"Section 422" shall mean Section 422 of the Code, or
any successor provision, as amended from time to time, and
any regulations thereunder.
III. Administration
The Plan shall be administered by the Executive
Compensation and Succession Committee (the "Committee") of
the Board composed of such members as shall be appointed
from time to time by the Board. No member of the Committee
while serving as such shall be eligible for participation in
the Plan.
Except as otherwise provided in the Plan, decisions and
determinations by the Committee shall be final and binding
upon all parties. The Committee shall have the authority to
interpret the Plan, to establish and revise rules and
regulations relating to the Plan, and to make any other
determinations that it believes necessary or advisable for
the administration of the Plan.
IV. Eligibility and Participation
Awards may be granted to such employees of the Company
as the Committee may from time to time select. In
determining the individuals to whom Awards are to be granted
and the number and terms and conditions of such Awards, the
Committee shall take into consideration the individual's
present and potential contribution to the growth and success
of the Company and such other factors as the Committee may
deem proper and relevant. The Committee may request
recommendations for individual Awards from the Chairman. The
Committee may delegate to the Chairman the authority to make
Awards to any employees of the Company who are not executive
officers subject to Section 16 of the Exchange Act, subject
to a fixed maximum Award amount for such a group and a fixed
maximum Award amount for any one Participant, as determined
by the Committee. Determinations as to Awards made to
executive officers who are subject to Section 16 of the
Exchange Act shall be made solely by the Committee. For
purposes of participation in the Plan, the term "Company"
includes the Company and its Affiliates.
V. Awards of Restricted Stock
Subject to the other provisions of the Plan, the
Committee shall have the sole authority to determine the
employees to whom shares of Restricted Stock shall be
granted, the time or times when shares of Restricted Stock
shall be granted, the number of shares of Restricted Stock
to be granted, and such other terms, conditions,
limitations, restrictions and provisions for forfeiture with
respect to the Restricted Stock as it may prescribe.
VI. Restricted Stock Award Grants
Each Award under the Plan shall be evidenced by a
written Restricted Stock Award Grant executed by the Company
and acknowledged by the Participant in such form as the
Committee shall prescribe from time to time in accordance
with the Plan.
VII. Restrictions
Except as otherwise provided herein, shares of
Restricted Stock issued to a Participant may not be sold,
assigned, transferred, pledged, or otherwise encumbered or
disposed of, except by will or the laws of descent and
distribution, for such period as the Committee shall
determine, beginning on the date on which the Restricted
Stock is granted (the "Restricted Period"). The Committee
may also impose such other restrictions and conditions on
the shares or the release of the restrictions thereon as it
deems appropriate, including the achievement of performance
goals which are established by the Committee and which are
set forth in the Restricted Stock Award Grant. In
determining the Restricted Period of an Award, the Committee
may provide that the restrictions will lapse with respect to
specified percentages of the shares of Restricted Stock
awarded on specific dates following the date of such Award
or all at once.
The Committee may impose other restrictions on
transfer, including restrictions necessary to comply with
the Securities Act and the Exchange Act, requirements of any
stock exchange upon which the shares of Common Stock are
then listed and applicable State blue sky or securities
laws.
<PAGE>
VIII. Stock Certificate
As soon as practicable following the making of an
Award, the Restricted Stock shall be registered in the
Participant's name in certificate or book-entry form. If a
certificate is issued, it shall bear an appropriate legend
referring to the restrictions and it shall be held by the
Company, or its agent, on behalf of the Participant until
all of the restrictions have lapsed or otherwise have been
satisfied. If the shares are registered in book-entry form,
the restrictions shall be placed on the book-entry
registration. A Participant shall also be required to
execute and return to the Company a blank stock power for
each Restricted Stock certificate (or instruction letter,
with respect to shares registered in book-entry form), which
will permit transfer to the Company, without further action,
of all or any portion of the Restricted Stock that shall be
forfeited in accordance with the Restricted Stock Award
Grant.
Except for the transfer restrictions, and subject to
such other restrictions, if any, as determined by the
Committee, the Participant shall have all other rights of
a holder of shares of Common Stock, including the right
to receive dividends paid with respect to the Restricted
Stock and the right to vote (or to execute proxies for
voting) such shares. If all or part of a dividend in
respect of the Restricted Stock is paid in Common Stock
or any other security issued by the Company, such shares
of Common Stock or such other security shall be held by
the Company subject to the same restrictions as the
Restricted Stock in respect of which the dividend was
paid.
As soon as is practicable following the date on
which the forfeiture restrictions on the Restricted Stock
lapse or are otherwise satisfied, the Company shall
deliver to the Participant the certificates for such
shares (or lift the restrictions on the book-entry
registration), provided that the Participant shall have
complied with all conditions for delivery of such shares
contained in the Restricted Stock Grant (or the lifting
of restrictions on the book-entry registration) or
otherwise reasonably required by the Company and further
provided that the delivery of a certificate representing
the Restricted Stock of a Participant (or the lifting of
restrictions on the book-entry registration) may be
postponed for such period as may be necessary or
appropriate in order to comply with any applicable law,
or regulation, or requirement of a national securities
exchange. In no event shall the Company be obligated to
deliver any Restricted Stock (or lift the restrictions on
the book-entry registration) if the delivery thereof (or
the lifting of restrictions on the book-entry
registration) would violate any provision of the
Securities Act or the Exchange Act, or any other law or
regulation of any governmental authority or the rules of
any national securities exchange on which the shares of
Common Stock of the Company are then listed.
IX. Termination of Employment
Unless expressly provided to the contrary in the
applicable Restricted Stock Award Grant, all restrictions
placed upon Restricted Stock shall lapse immediately if,
during the term of the Plan, a Participant ceases to be
an employee of the Company or its Affiliates by reason of
death, retirement, disability (as defined in New York
State Electric & Gas Corporation's long-term disability
plan for salaried employees), or termination by the
Company or the applicable Affiliate without cause. In
addition, the Committee may in its discretion allow
restrictions on Restricted Stock to lapse prior to the
date specified in a Restricted Stock Award Grant.
Except as otherwise provided in the Restricted Stock
Award Grant, upon the effective date of a termination of
employment for any reason not specified in the first
paragraph of this Section IX., all shares then subject to
restrictions shall be immediately forfeited without any
further obligation on the part of the Company. For
purposes of this paragraph, the effective date of a
Participant's termination shall be the date upon which
such Participant ceases to perform services as an
employee of the Company or any of its Affiliates.
X. Shares Available for Awards
A. Amount of Stock
Subject to adjustment as provided in Subsection B of
this Article X., the aggregate number of shares of the
Company's Common Stock with respect to which Awards may
be granted is 1,000,000 shares. Shares of Common Stock
delivered by the Company pursuant to the Plan shall be
previously issued shares of Common Stock reacquired by
the Company, including shares purchased by the Company in
the open market, and held as treasury shares.
For purposes of this Subsection A., shares of the
Company's Common Stock that relate to an Award which are
forfeited to the Company shall thereafter again be
available for issuance under the Plan.
B. Dilution and Other Adjustments
In the event of any change in the outstanding shares
of Common Stock of the Company by reason of any stock
dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or
exchange of shares or other similar corporate change, if
the Committee shall determine, in its sole discretion,
that such change equitably requires an adjustment in the
number of shares of Restricted Stock available for grant
under the Plan, such adjustments shall be made by the
Committee and shall be conclusive and binding for all
purposes of the Plan.
XI. Amendments and Termination
The Board may at any time suspend, terminate, modify
or amend this Plan.
XII. Miscellaneous Provisions
A. The value of any Restricted Stock
issued pursuant to the Plan shall not be
considered a component of regular earnings
or base compensation for any purpose.
B. Nothing in the Plan or in any
Restricted Stock Award Grant executed
pursuant to the Plan shall confer upon any
Participant the right to continue in the
employment of the Company, or any of its
Affiliates, or affect any right which the
Company, and any of its Affiliates, may
have to terminate the employment of such
Participant.
C. In the event that a Participant
elects ("Section 83(b) Election"),
pursuant to Section 83(b) of the Code, to
include in gross income for Federal income
tax purposes an amount equal to the fair
market value of the Restricted Stock at
the time of the issuance of the Award, the
Participant shall be required to notify
the Company of said election at the time
the Section 83(b) Election is made.
At the time the forfeiture restrictions on
Restricted Stock lapse or are otherwise satisfied,
or, if earlier, upon the receipt of a Section
83(b) Election with respect to Restricted Stock,
the Company also shall award to the Participant
who was granted the Restricted Stock a separate
cash payment. This separate cash payment shall be
of an amount that will result in the net amount of
that separate cash payment, after deduction of any
applicable Federal, state and local taxes that are
required to be withheld with respect to such
separate cash payment, being equal to the amount
of any applicable Federal, state and local taxes
that are required to be withheld with respect to
such Restricted Stock.
Upon the payment of dividends with respect to
Restricted Stock as to which a Section 83(b)
Election has not been made and as to which the
forfeiture restrictions have not lapsed, the
Company shall have the right to require the
Participant to remit to the Company an amount
sufficient to satisfy any applicable Federal,
state and local taxes that are required to be
withheld with respect to such payment of
dividends. If a Participant shall fail to remit
the full amount required hereunder, the Company
shall, to the extent permitted by law, have the
right to deduct from any payment of any kind
otherwise due to the Participant the amount by
which any applicable Federal, state and local
taxes that are required to be withheld exceeds the
amount remitted by the Participant to the Company.
XIII. Effective Date
The Plan shall be effective as of December 1, 1998.
XIV. Change in Control
In order to preserve a Participant's rights under an
Award in the event of a change in control (as determined
by the Committee) of the Company, the Committee in its
discretion may, at the time an Award is made or any time
thereafter, take one or more of the following actions:
(i) provide for the acceleration of the vesting of the
Award, (ii) adjust the terms of the Award in a manner
determined by the Committee to reflect the change in
control, or (iii) make such other provision as the
Committee may consider equitable and in the best
interests of the Company.
EXHIBIT 12
ENERGY EAST CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Calendar Year
1998 1997 1996 1995 1994
(Thousands)
Net Income (Loss) . . . . . $194,205 $175,211 $168,711 $177,969 $168,698
Add:
Federal income tax -
current. . . . . . . . . 98,427 111,829 79,015 63,502 64,551
Federal income tax -
deferred . . . . . . . . 38,749 5,884 28,928 52,362 37,910
-------- -------- -------- -------- --------
Pre-tax income (loss) . 331,381 292,924 276,654 293,833 271,159
Fixed charges . . . . . . . 136,108 136,121 137,243 155,424 164,441
-------- -------- -------- -------- --------
Earnings, as defined. . . . $467,489 $429,045 $413,897 $449,257 $435,600
======== ======== ======== ======== ========
Fixed Charges:
Interest on long-term
debt . . . . . . . . . . $98,040 $104,122 $108,431 $115,687 $126,083
Other interest . . . . . . 21,421 13,192 9,752 8,744 6,628
Amortization of premium
and expense on debt. . . 6,507 6,502 6,507 6,488 7,014
Interest portion of
rental charges . . . . . 1,557 2,963 3,023 5,784 5,769
Earnings required to cover
preferred stock dividends
of subsidiary. . . . . . 8,583 9,342 9,530 18,721 18,947
-------- -------- -------- -------- -------
Total fixed charges,
as defined. . . . . . . . $136,108 $136,121 $137,243 $155,424 $164,441
======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges . . . . . . 3.43 3.15 3.02 2.89 2.65
======== ======== ======== ======== ========
Exhibit 21
SUBSIDIARIES
CMP Natural Gas, L.L.C. - Organized in the State of Maine.
Energy East Enterprises, Inc. - Incorporated in the State of Maine.
Energy East Solutions, Inc. - Incorporated in the State of
Delaware.
Energy East Telecommunications, Inc. - Incorporated in the State of
Delaware.
New York State Electric & Gas Corporation - Incorporated in the
State of New York.
XENERGY Enterprises, Inc. - Incorporated in the State of Delaware.
NGE Generation, Inc. - Incorporated in the State of New York.
NYSEG Solutions, Inc. - Incorporated in the State of New York.
Somerset Railroad Corporation - Incorporated in the State of New
York.
XENERGY, Inc. - Incorporated in the State of Massachusetts.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Energy East Corporation on Form S-3 (Registration No.
033-54155) and on S-8 (Registration Nos. 33-54993, 333-16201, 333-
27517 and 333-69079)of our report dated January 29, 1999, on our
audits of the consolidated financial statements and financial
statement schedule of Energy East Corporation and Subsidiaries as
of December 31, 1998 and 1997, and for the years ended December 31,
1998, 1997, and 1996, which report is included in this Annual
Report on form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,862,684
<OTHER-PROPERTY-AND-INVEST> 129,088
<TOTAL-CURRENT-ASSETS> 395,274
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 496,291
<TOTAL-ASSETS> 4,883,337
<COMMON> 631
<CAPITAL-SURPLUS-PAID-IN> 1,057,904
<RETAINED-EARNINGS> 662,562
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,713,486
25,000
29,440
<LONG-TERM-DEBT-NET> 1,435,120
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 78,300
<LONG-TERM-DEBT-CURRENT-PORT> 31,077
75,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,495,914
<TOT-CAPITALIZATION-AND-LIAB> 4,883,337
<GROSS-OPERATING-REVENUE> 2,499,418
<INCOME-TAX-EXPENSE> 137,176
<OTHER-OPERATING-EXPENSES> 366,403
<TOTAL-OPERATING-EXPENSES> 2,024,579
<OPERATING-INCOME-LOSS> 474,839
<OTHER-INCOME-NET> (9,318)
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 125,557
<NET-INCOME> 194,205
8,583
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 100,487
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 467,787
<EPS-PRIMARY> 3.02
<EPS-DILUTED> 3.02
</TABLE>
EXHIBIT 99-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Act of 1934
For the fiscal year ended December 31, 1998
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
--------------------------------------------------------
(Full title of the plan)
Energy East Corporation
--------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
P. O. Box 12904, Albany, New York 12212-2904
--------------------------------------------------------
(Address of principal executive office)
<PAGE>
REQUIRED INFORMATION
The Tax Deferred Savings Plan for Salaried Employees ("Plan") is
subject to the Employee Retirement Income Security Act of 1974
("ERISA"). Therefore, in lieu of the requirements of Items 1-3
of Form 11-K, the financial statements and schedules of the Plan
for the two fiscal years ended December 31, 1998 and 1997, which
have been prepared in accordance with the financial reporting
requirements of ERISA, are attached hereto as Appendix 1 and
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Committee to administer the Tax Deferred Savings Plan
for Salaried Employees has duly caused this Annual Report to be
signed by the undersigned hereunto duly authorized.
New York State Electric & Gas Corporation Tax
Deferred Savings Plan for Salaried Employees
By Richard R. Benson March 18, 1999
Richard R. Benson
Committee Member
By Gerald E. Putman March 18, 1999
Gerald E. Putman
Committee Member
By Sherwood J. Rafferty March 18, 1999
Sherwood J. Rafferty
Committee Member
<PAGE>
APPENDIX 1
NEW YORK STATE ELECTRIC & GAS CORPORATION
TAX DEFERRED SAVINGS PLAN FOR SALARIED EMPLOYEES
FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998 AND REPORT OF THE INDEPENDENT ACCOUNTANTS
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Year ended December 31, 1998
INDEX
Report of Independent Accountants....................................... 1
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1998......................................... 3
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1997......................................... 5
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1998......................... 7
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1997......................... 9
Notes to Financial Statements ........................................... 11
Line 27a - Schedule of Assets Held for Investment Purposes--
December 31, 1998...................................................... 15
Line 27d - Schedule of Reportable Transactions--Year ended
December 31, 1998 ..................................................... 16
Consent of Independent Accountants ...................................... 17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Administrative Committee
In our opinion, the accompanying statements of net assets
available for benefits and the related statements of changes in
net assets available for benefits present fairly, in all material
respects, the net assets available for benefits of New York State
Electric & Gas Corporation Tax Deferred Savings Plan for Salaried
Employees as of December 31, 1998 and 1997, and the changes in
net assets available for benefits for the years then ended, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Plan'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.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
accompanying supplemental schedules of assets held for investment
purposes as of December 31, 1998, and reportable transactions for
the year ended December 31, 1998, are presented for the purpose
of additional analysis and are not a required part of the basic
financial statements but are supplementary information required
by the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act
of 1974. The Fund Information in the statements of net assets
available for benefits and the statements of changes in net
assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets
available for benefits and changes in net assets available for
benefits of each fund. The supplemental schedules and Fund
Information have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in
our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
<PAGE>
The schedule of assets held for investment purposes that
accompanies the Plan's financial statements does not disclose the
historical cost of certain plan assets held by the Plan trustee.
Disclosure of this information is required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
PricewaterhouseCoopers LLP
Syracuse, New York
February 12, 1999
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1998
<S> <C> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market Stock
Fund Fund Fund Fund Fund
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - - -
Common stock of Energy East
Corporation - - - - $49,599,387
Other $56,039,832 $50,621,489 $5,367,247 $10,932,803 -
Loans to participants - - - - -
------------------------------------------------------
Net assets available for benefits $56,039,832 $50,621,489 $5,367,247 $10,932,803 $49,599,387
======================================================
Fund Information
------------------------------------------------------
Guaranteed OTC and
Investment Emerging Internat'l
Contract Income Growth Growth
Fund Fund Fund Fund Subtotal
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - - -
Common stock of Energy East
Corporation - - - - $49,599,387
Other - $430,403 $1,097,996 $303,765 124,793,535
Loans to participants - - - - -
------------------------------------------------------
Net assets available for benefits - $430,403 $1,097,996 $303,765 $174,392,922
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1998
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Fund Portfolio
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - -
Common stock of Energy East
Corporation $49,599,387 - - -
Other 124,793,535 $8,029,698 $4,340,825 $3,455,910
Loans to participants - - - -
------------------------------------------------------
Net assets available for benefits $174,392,922 $8,029,698 $4,340,825 $3,455,910
======================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan Total
Portfolio Fund 1998
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - -
Common stock of Energy East
Corporation - - $49,599,387
Other $1,750,472 - 142,370,440
Loans to participants - $3,545,557 3,545,557
------------------------------------------------------
Net assets available for benefits $1,750,472 $3,545,557 $195,515,384
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1997
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market
Fund Fund Fund Fund
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - -
Common stock of New York State
Electric & Gas Corporation - - - -
Other $41,440,213 $43,729,849 $3,678,710 $7,395,876
Loans to participants - - - -
------------------------------------------------------
Net assets available for benefits $41,440,213 $43,729,849 $3,678,710 $7,395,876
======================================================
Fund Information
------------------------------------------------------
Guaranteed
Company Investment
Stock Contract
Fund Fund Subtotal
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - $1,136,289 $1,136,289
Common stock of New York State
Electric & Gas Corporation $36,165,704 - $36,165,704
Other - - 96,244,648
Loans to participants - - -
------------------------------------------------------
Net assets available for benefits $36,165,704 $1,136,289 $133,546,641
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1997
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract $1,136,289 - - -
Common stock of New York State
Electric & Gas Corporation 36,165,704 - - -
Other 96,244,648 $5,189,049 $3,482,023 $2,846,368
Loans to participants
------------------------------------------------------
Net assets available for benefits $133,546,641 $5,189,049 $3,482,023 $2,846,368
======================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan
Portfolio Fund Total
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - $1,136,289
Common stock of New York State
Electric & Gas Corporation - - 36,165,704
Other $1,289,429 - 109,051,517
Loans to participants - $3,458,357 3,458,357
------------------------------------------------------
Net assets available for benefits $1,289,429 $3,458,357 $149,811,867
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market Stock
Fund Fund Fund Fund Fund
------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments 6,802,982 $2,125,120 $5,730 $91 $19,341,372
Dividends:
Energy East Corporation - - - - 1,408,725
Other 3,771,707 4,496,511 276,987 428,143 -
Interest on investments - - - - -
Interest on loans to participants - - - - -
-------------------------------------------------------------------
10,574,689 6,621,631 282,717 428,234 20,750,097
Contributions:
Employer - - - - 1,091,528
Employee 3,179,553 2,270,505 247,770 318,063 1,432,604
Transfers from (to) other qualified plans 5,329 637 - (53,654) (448)
Interfund transfers, net 2,630,372 (227,237) 1,418,123 3,576,071 (8,940,181)
------------------------------------------------------------------
Total additions 16,389,943 8,665,536 1,948,610 4,268,714 14,333,600
Deductions
Withdrawal benefits - stock - - - - 894,168
Withdrawal benefits - cash 1,787,643 1,770,836 259,865 730,866 -
Administrative fees 2,681 3,060 208 921 5,749
-------------------------------------------------------------------
Total deductions 1,790,324 1,773,896 260,073 731,787 899,917
-------------------------------------------------------------------
Net increase (decrease) 14,599,619 6,891,640 1,688,537 3,536,927 13,433,683
Net assets available for benefits
at beginning of year 41,440,213 43,729,849 3,678,710 7,395,876 36,165,704
-------------------------------------------------------------------
Net assets available for benefits
at end of year $56,039,832 $50,621,489 $5,367,247 $10,932,803 $49,599,387
===================================================================
Fund Information
------------------------------------------------------
Guaranteed OTC and
Investment Emerging Internat'l
Contract Income Growth Growth
Fund Fund Fund Fund Subtotal
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments - ($2,056) $192,120 $24,529 $28,489,888
Dividends:
Energy East Corporation - - - - 1,408,725
Other - 5,454 32,972 8,175 9,019,949
Interest on investments $44,532 - - - 44,532
Interest on loans to participants - - - - -
-------------------------------------------------------------------
44,532 3,398 225,092 32,704 38,963,094
Contributions:
Employer - - - - 1,091,528
Employee 6,375 7,177 16,042 5,695 7,483,784
Transfers from (to) other qualified plans (92,697) - - - (140,833)
Interfund transfers, net (1,094,499) 419,828 856,862 265,366 (1,095,295)
-------------------------------------------------------------------
Total additions (1,136,289) 430,403 1,097,996 303,765 46,302,278
Deductions
Withdrawal benefits - stock - - - - 894,168
Withdrawal benefits - cash - - - - 4,549,210
Administrative fees - - - - 12,619
-------------------------------------------------------------------
Total deductions - - - - 5,455,997
-------------------------------------------------------------------
Net increase (decrease) (1,136,289) 430,403 1,097,996 303,765 40,846,281
Net assets available for benefits
at beginning of year 1,136,289 - - - 133,546,641
-------------------------------------------------------------------
Net assets available for benefits
at end of year - $430,403 $1,097,996 $303,765 $174,392,922
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1998 (Continued)
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair
value of investments $28,489,888 $1,369,553 $382,646 $235,950
Dividends:
Energy East Corporation 1,408,725 - - -
Other 9,019,949 229,962 117,265 108,511
Interest on investments 44,532 - - -
Interest on loans to participants - - - -
-------------------------------------------------------------------
38,963,094 1,599,515 499,911 344,461
Contributions:
Employer 1,091,528 - - -
Employee 7,483,784 597,312 350,079 222,211
Transfers from (to) other qualified plans (140,833) (11) - -
Interfund transfers, net (1,095,295) 762,611 80,946 94,888
-------------------------------------------------------------------
Total additions 46,302,278 2,959,427 930,936 661,560
Deductions
Withdrawal benefits - stock 894,168 - - -
Withdrawal benefits - cash 4,549,210 118,515 71,936 51,869
Administrative fees 12,619 263 198 149
-------------------------------------------------------------------
Total deductions 5,455,997 118,778 72,134 52,018
-------------------------------------------------------------------
Net increase 40,846,281 2,840,649 858,802 609,542
Net assets available for benefits
at beginning of year 133,546,641 5,189,049 3,482,023 2,846,368
-------------------------------------------------------------------
Net assets available for benefits
at end of year $174,392,922 $8,029,698 $4,340,825 $3,455,910
===================================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan Total
Portfolio Fund 1998
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair
value of investments $53,699 - $30,531,736
Dividends:
Energy East Corporation - - 1,408,725
Other 77,592 - 9,553,279
Interest on investments - - 44,532
Interest on loans to participants - $290,246 290,246
-------------------------------------------------------------------
131,291 290,246 41,828,518
Contributions:
Employer - - 1,091,528
Employee 81,988 - 8,735,374
Transfers from (to) other qualified plans (4) - (140,848)
Interfund transfers, net 260,687 (103,837) -
-------------------------------------------------------------------
Total additions 473,962 186,409 51,514,572
Deductions
Withdrawal benefits - stock - - 894,168
Withdrawal benefits - cash 12,866 99,209 4,903,605
Administrative fees 53 - 13,282
-------------------------------------------------------------------
Total deductions 12,919 99,209 5,811,055
-------------------------------------------------------------------
Net increase 461,043 87,200 45,703,517
Net assets available for benefits
at beginning of year 1,289,429 3,458,357 149,811,867
-------------------------------------------------------------------
Net assets available for benefits
at end of year $1,750,472 $3,545,557 $195,515,384
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1997
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market
Fund Fund Fund Fund
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair value
of investments $5,617,926 $2,459,893 $68,706 -
Dividends:
New York State Electric & Gas Corp. - - - -
Other 2,465,928 5,550,176 207,097 348,024
Interest on investments - - - -
Interest on loans to participants - - - -
-------------------------------------------------------------------
8,083,854 8,010,069 275,803 348,024
Contributions:
Employer - - - -
Employee 2,687,983 2,116,803 258,047 344,068
Transfers from (to) other qualified plans 14,498 (4,947) (3,364) 23,813
Interfund transfers, net 996,029 2,929,148 180,645 1,373,166
-------------------------------------------------------------------
Total additions 11,782,364 13,051,073 711,131 2,089,071
Deductions
Withdrawal benefits - stock - - - -
Withdrawal benefits - cash 1,189,704 1,660,597 135,141 1,079,123
Administrative fees 8,491 8,880 732 2,763
-------------------------------------------------------------------
Total deductions 1,198,195 1,669,477 135,873 1,081,886
-------------------------------------------------------------------
Net increase 10,584,169 11,381,596 575,258 1,007,185
Net assets available for benefits
at beginning of year 30,856,044 32,348,253 3,103,452 6,388,691
-------------------------------------------------------------------
Net assets available for benefits
at end of year $41,440,213 $43,729,849 $3,678,710 $7,395,876
===================================================================
Fund Information
------------------------------------------------------
Guaranteed
Company Investment
Stock Contract
Fund Fund Subtotal
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair value
of investments $15,504,934 - $23,651,459
Dividends:
New York State Electric & Gas Corp. 1,641,724 - 1,641,724
Other - - 8,571,225
Interest on investments - $49,302 49,302
Interest on loans to participants - - -
-------------------------------------------------------------------
17,146,658 49,302 33,913,710
Contributions:
Employer 1,094,746 - 1,094,746
Employee 1,762,035 - 7,168,936
Transfers from (to) other qualified plans 1,685 997 32,682
Interfund transfers, net (9,314,999) (19,516) (3,855,527)
-------------------------------------------------------------------
Total additions 10,690,125 30,783 38,354,547
Deductions
Withdrawal benefits - stock 714,762 - 714,762
Withdrawal benefits - cash - 14,731 4,079,296
Administrative fees 25,910 - 46,776
-------------------------------------------------------------------
Total deductions 740,672 14,731 4,840,834
-------------------------------------------------------------------
Net increase 9,949,453 16,052 33,513,713
Net assets available for benefits
at beginning of year 26,216,251 1,120,237 100,032,928
-------------------------------------------------------------------
Net assets available for benefits
at end of year $36,165,704 $1,136,289 $133,546,641
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1997 (Continued)
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $23,651,459 $(468,089) $181,838 $32,915
Dividends:
New York State Electric & Gas Corp. 1,641,724 - - -
Other 8,571,225 935,701 234,107 229,884
Interest on investments 49,302 - - -
Interest on loans to participants - - - -
-------------------------------------------------------------------
33,913,710 467,612 415,945 262,799
Contributions:
Employer 1,094,746 - - -
Employee 7,168,936 543,302 352,280 202,848
Transfers from (to) other qualified plans 32,682 786 - -
Interfund transfers, net (3,855,527) 1,180,810 1,019,038 995,640
-------------------------------------------------------------------
Total additions 38,354,547 2,192,510 1,787,263 1,461,287
Deductions
Withdrawal benefits - stock 714,762 - - -
Withdrawal benefits - cash 4,079,296 87,601 23,122 13,601
Administrative fees 46,776 950 603 441
-------------------------------------------------------------------
Total deductions 4,840,834 88,551 23,725 14,042
-------------------------------------------------------------------
Net increase 33,513,713 2,103,959 1,763,538 1,447,245
Net assets available for benefits
at beginning of year 100,032,928 3,085,090 1,718,485 1,399,123
-------------------------------------------------------------------
Net assets available for benefits
at end of year $133,546,641 $5,189,049 $3,482,023 $2,846,368
===================================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan
Portfolio Fund Total
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $4,223 - $23,402,346
Dividends:
New York State Electric & Gas Corp. - - 1,641,724
Other 71,161 - 10,042,078
Interest on investments - - 49,302
Interest on loans to participants - $220,975 220,975
-------------------------------------------------------------------
75,384 220,975 35,356,425
Contributions:
Employer - - 1,094,746
Employee 39,350 - 8,306,716
Transfers from (to) other qualified plans - - 33,468
Interfund transfers, net 742,127 (82,088) -
-------------------------------------------------------------------
Total additions 856,861 138,887 44,791,355
Deductions
Withdrawal benefits - stock - - 714,762
Withdrawal benefits - cash 14,914 6,232 4,224,766
Administrative fees 127 - 48,897
-------------------------------------------------------------------
Total deductions 15,041 6,232 4,988,425
-------------------------------------------------------------------
Net increase 841,820 132,655 39,802,930
Net assets available for benefits
at beginning of year 447,609 3,325,702 110,008,937
-------------------------------------------------------------------
Net assets available for benefits
at end of year $1,289,429 $3,458,357 $149,811,867
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1998 and 1997
1. DESCRIPTION OF THE SALARIED PLAN
The New York State Electric & Gas Corporation Tax Deferred Savings Plan for
Salaried Employees (the Salaried Plan) was established effective January 1,
1985 to provide for before-tax contributions in accordance with Internal
Revenue Code (Code) Section 401(k).
As part of a corporate reorganization, on May 1, 1998, Energy East
Corporation (Energy East) became the parent corporation of New York State
Electric & Gas Corporation (company) pursuant to an Agreement and Plan of
Share Exchange. Each share of the company's outstanding common stock was
exchanged for a share of Energy East's common stock. Energy East is a
holding company with energy delivery, products and services subsidiaries
with operations in New York, Massachusetts, Maine, New Hampshire, Vermont,
and New Jersey. Energy East, through its subsidiaries, delivers
electricity and natural gas to retail customers and provides electricity,
natural gas and energy management and other services to retail and
wholesale customers in the Northeast.
The Salaried Plan is for the company's non-union employees as well as the
non-union employees of those members of the Energy East group of
corporations that participate under the Salaried Plan's provisions.
During 1998 Energy East agreed to sell the coal-fired generation assets of
one of its subsidiaries. The sale of the Homer City generation assets has
been completed and the sale of the remaining coal-fired generation assets
will be completed in several weeks. In connection with the sale of the
remaining coal-fired generation assets, net assets of the Salaried Plan
related to affected employees will be transferred to another plan,
distributed to the participant, or remain in the Salaried Plan.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are prepared on an accrual basis and in conformity
with generally accepted accounting principles, which require 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. Estimates also affect the reported
amounts of additions and deductions during the reporting period. Actual
results could differ from those estimates.
Investments
Investments consisting of publicly traded Energy East common stock in 1998,
company common stock in 1997, and various Putnam investment vehicles are
carried at current value using the closing market price on the last
business day of the year.
The guaranteed investment contract is valued at contract value (which
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1998 and 1997
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments (Continued)
approximates fair market value) and represents contributions plus interest
thereon at the contract rate less withdrawals and fees. The Salaried Plan
presents, in the statement of changes in net assets available for benefits,
the net appreciation (depreciation) in the fair value of its investments
which consists of the realized gains and losses and the unrealized
appreciation (depreciation) on those investments.
Contributions
Contributions to the Salaried Plan are allocated to participant accounts.
Participants have full and immediate vesting rights in employee and
employer contributions, investment earnings and other amounts allocated to
their accounts. An employee not covered by a collective bargaining
agreement may become a participant in the Salaried Plan as of the first day
of any calendar month that commences after the completion of the employee's
first 30 days of employment.
Employee contributions, with certain exceptions, range from 1% to 15% of
the participant's base compensation and may include overtime pay.
Effective January 1, 1999, the Salaried Plan employee contribution limit
increased to 20%. Subject to limitations stipulated by the Code, a
participant's total contribution could not exceed $10,000 per year in 1998
and $9,500 per year in 1997.
The company contributed solely to the Stock Fund (successor to the Company
Stock Fund) in 1998 and 1997, an amount equivalent to 25% of the
participant's contributions to any fund (up to 1.5% of the participant's
annual base compensation as of the first day of the year).
Benefit Payments
On termination of service a participant may elect either a lump sum amount
equal to the value of the participant's interest in his or her account, or
installments over a period permissible under the Code. Distributions from
all funds, except the Stock Fund, are made in cash. Distributions from the
Stock Fund are made in either whole shares of Energy East common stock or
in cash, as specified by the participant and subject to approval by the
Salaried Plan's administrative committee.
As of December 31, 1998, plan assets include $40,354,189 in amounts
allocated to participants who have withdrawn from the Salaried Plan, due to
termination, retirement or disability but for which disbursement of funds
has not yet occurred.
Loans
Participants may, under certain circumstances, borrow against their account
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1998 and 1997
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
balances. The principal amount of the loan is subject to certain
limitations as defined in the Salaried Plan document. The term of the loan
may not exceed five years, and the interest rate established by the
Salaried Plan's administrative committee provides the Salaried Plan with a
return commensurate with the interest rate charged by persons in the
business of lending money for loans which would be made under similar
circumstances. Interest rates range from 6.5% to 10.5%. The loan must be
repaid by payroll deductions over the term of the loan. Loan payments are
credited to an applicable fund based upon the participant's election. If a
participant's employment terminates for any reason, the loan will become
immediately due and payable.
Risks and Uncertainties
The Salaried Plan provides for various investment options in any
combination of stocks and mutual funds. Investment securities are exposed
to various risks, such as interest rate, market, and credit. Due to the
level of risk associated with certain investment securities, it is at least
reasonably possible that changes in risks in the near term would materially
affect participant's account balances and the amounts reported in the
statement of net assets available for benefits and the statement of changes
in net assets available for benefits.
Plan Termination
Although the company has not expressed any intent to terminate the Salaried
Plan, it has the right to discontinue contributions at any time and
terminate the Salaried Plan. In the event of termination of the Salaried
Plan, the net assets of the Salaried Plan are set aside, first for payment
of all Salaried Plan expenses and, second, for distribution to the
participants, based upon the balances in their individual accounts.
3. INVESTMENTS
Contributions by the participants are invested, at the election of the
participant, in one or a combination of the following twelve funds as
described by the Salaried Plan administrator:(1) the Capital Appreciation
Fund, which invests in a mutual fund consisting primarily of common stock;
(2) the Equity Fund, which invests in a mutual fund consisting primarily of
common stock; (3) the Government Obligation Fund, which invests in a mutual
fund consisting of securities that are backed by the full faith and credit
of the United States Government; (4) the Money Market Fund, which invests
in a mutual fund consisting of money market instruments; (5) the Stock
Fund, consisting of common stock of Energy East; (6) the Income Fund,
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Notes to Financial Statements
December 31, 1998 and 1997
3. INVESTMENTS (Continued)
which invests in a mutual fund consisting of debt securities, including
both government and corporate obligations, preferred stocks and dividend-
paying common stocks; (7) the OTC and Emerging Growth Fund, which invests
in a mutual fund consisting mainly of common stocks traded in the over-the-
counter market and common stocks of "emerging growth" companies listed on
designated securities exchanges; (8) the International Growth Fund, which
invests in a mutual fund primarily of equity securities of companies
located in a country other than the United States; (9) the Global Growth
Fund, which invests in a mutual fund consisting primarily of U.S. and
international common stocks; or (10) the three Asset Allocation funds,
consisting primarily of equity and fixed income securities. Effective
January 1, 1992, the Guaranteed Investment Contract Fund did not accept any
new investments. Prior to November 18, 1988, the Guaranteed Investment
Contract Fund consisted of investments in insurance contracts that
guaranteed an effective annual rate of interest through a specified period,
and effective November 18, 1988, included investments in securities and
other obligations issued by any company that guaranteed an effective annual
rate of interest through a specified period.
All funds of the Salaried Plan, with the exception of the Stock Fund,
invest in mutual funds of Putnam Mutual Funds, a subsidiary of Putnam
Investments, Inc., which represents a concentration of risk.
Individual investments which represent 5% or more of the net assets
available for benefits as of December 31, 1998 are as follows:
Putnam Voyager Fund (Capital Appreciation) $56,039,832
Putnam Fund for Growth and Income (Equity) 50,621,489
Putnam Money Market Fund (Money Market) 10,932,803
Energy East Common Stock (Stock Fund) 49,599,387
4. INCOME TAX STATUS
The company has received a determination letter from the Internal Revenue
Service dated March 24, 1995, that the Salaried Plan qualifies as a tax
deferred savings plan under Sections 401(a) and 401(k) of the Code. The
Salaried Plan has been amended subsequent to the receipt of the latest
determination letter. However, the Salaried Plan's administrator believes
that the Salaried Plan is designed and currently being operated in
compliance with the applicable requirements of the Code.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
All administrative fees are paid by the participants in the Salaried Plan.
Audit and legal fees are paid by the company.
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<S> <C> <C> <C>
Balance Held at Market
Name of Issuer and Title of Issue End of Year Cost ** Value
- ------------------------------------------------------------------------------
Capital Appreciation Fund
*Putnam Voyager Fund 2,556,562 shares $56,039,832
Equity Fund
*Putnam Fund for Growth
and Income 2,470,546 shares 50,621,489
Government Obligation Fund
*Putnam U.S. Government
Income Trust 409,089 shares 5,367,247
Money Market Fund
*Putnam Money Market Fund 10,932,803 shares 10,932,803
Income Fund
*Putnam Income Fund 62,197 shares 430,403
Growth Fund
*Putnam OTC and Emerging Growth Fund 63,652 shares 1,097,996
International Growth Fund
*Putnam International Growth Fund 15,796 shares 303,765
Global Growth Fund
*Putnam Global Growth Fund 644,956 shares 8,029,698
Asset Allocation - Growth Portfolio
*Putnam Asset Allocation - Growth
Portfolio 318,476 shares 4,340,825
Asset Allocation - Balanced Portfolio
*Putnam Asset Allocation - Balanced
Portfolio 287,753 shares 3,455,910
Asset Allocation - Conservative
Portfolio
*Putnam Asset Allocation -
Conservative Portfolio 168,639 shares 1,750,472
------------
Total Mutual Fund Investments $142,370,440
============
Stock Fund
*Energy East Corporation common stock 877,865 shares $49,599,387
===========
Participant Loans - interest
rates from 6.5% to 10.5% $3,545,557
===========
* Denotes a party-in-interest.
** Information pertaining to the historical cost was not available from the
trustee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1998
<S> <C> <C> <C> <C>
Current Value
of Asset on
Purchase Selling Transaction Net Gain
Description of Assets Price Price Date (Loss)
- -------------------------------------------------------------------------------
Category (iii) - Series of transactions in excess of 5% of plan assets
Capital Appr. Fund - Purchases
*Putnam Voyager Fund $16,626,873 $16,626,873
Capital Appr. Fund - Sales $7,242,450 $7,242,450
*Putnam Voyager Fund $8,830,101 $8,830,101 $1,587,651
Stock Fund - Purchases
*Energy East Corporation
Common Stock $7,500,129 $7,500,129
Stock Fund - Sales
*Energy East Corporation $9,212,349 $9,212,349
Common Stock $13,408,333 $13,408,333 $4,195,984
Equity Fund - Purchases
*Putnam Fund for Growth
and Income $13,435,076 $13,435,076
Equity Fund - Sales
*Putnam Fund for Growth $7,745,157 $7,745,157
and Income $8,668,446 $8,668,446 $923,289
There were no category (i), (ii), or (iv) reportable transactions during 1998.
* Denotes a party-in-interest.
</TABLE>
<PAGE>
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-16201) pertaining to the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Salaried Employees of our report dated February 12, 1999, with
respect to the financial statements and schedules of the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Salaried Employees for the year ended December 31, 1998, which
report is included in this Annual Report on Form 11-K.
PricewaterhouseCoopers LLP
Syracuse, New York
March 25, 1999
EXHIBIT 99-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
--------------------------------------------------------
(Full title of the plan)
Energy East Corporation
--------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
P. O. Box 12904, Albany, New York 12212-2904
--------------------------------------------------------
(Address of principal executive office)
<PAGE>
REQUIRED INFORMATION
The Tax Deferred Savings Plan for Hourly Paid Employees ("Plan")
is subject to the Employee Retirement Income Security Act of 1974
("ERISA"). Therefore, in lieu of the requirements of Items 1-3
of Form 11-K, the financial statements and schedules of the Plan
for the two fiscal years ended December 31, 1998 and 1997, which
have been prepared in accordance with the financial reporting
requirements of ERISA, are attached hereto as Appendix 1 and
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Committee to administer the Tax Deferred Savings Plan
for Hourly Paid Employees has duly caused this Annual Report to
be signed by the undersigned hereunto duly authorized.
New York State Electric & Gas Corporation Tax
Deferred Savings Plan for Hourly Paid Employees
By Richard R. Benson March 18, 1999
Richard R. Benson
Committee Member
By Gerald E. Putman March 18, 1999
Gerald E. Putman
Committee Member
By Sherwood J. Rafferty March 18, 1999
Sherwood J. Rafferty
Committee Member
<PAGE>
APPENDIX 1
NEW YORK STATE ELECTRIC & GAS CORPORATION
TAX DEFERRED SAVINGS PLAN FOR HOURLY PAID EMPLOYEES
FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998 AND REPORT OF THE INDEPENDENT ACCOUNTANTS
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Year ended December 31, 1998
INDEX
Report of Independent Accountants...................................... 1
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1998...................................... 3
Statement of Net Assets Available for Benefits, With Fund
Information--December 31, 1997...................................... 5
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1998...................... 7
Statement of Changes in Net Assets Available for Benefits, With
Fund Information--Year ended December 31, 1997...................... 9
Notes to Financial Statements.......................................... 11
Line 27a - Schedule of Assets Held for Investment Purposes--
December 31, 1998.................................................... 16
Line 27d - Schedule of Reportable Transactions--Year ended
December 31, 1998.................................................... 17
Consent of Independent Accountants..................................... 18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Administrative Committee
In our opinion, the accompanying statements of net assets
available for benefits and the related statements of changes in
net assets available for benefits present fairly, in all material
respects, the net assets available for benefits of New York State
Electric & Gas Corporation Tax Deferred Savings Plan for Hourly
Employees as of December 31, 1998 and 1997, and the changes in
net assets available for benefits for the years then ended, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Plan'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.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
accompanying supplemental schedules of assets held for investment
purposes as of December 31, 1998, and reportable transactions for
the year ended December 31, 1998, are presented for the purpose
of additional analysis and are not a required part of the basic
financial statements but are supplementary information required
by the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act
of 1974. The Fund Information in the statements of net assets
available for benefits and the statements of changes in net
assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets
available for benefits and changes in net assets available for
benefits of each fund. The supplemental schedules and Fund
Information have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in
our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
<PAGE>
The schedule of assets held for investment purposes that
accompanies the Plan's financial statements does not disclose
historical cost of certain plan assets held by the Plan trustee.
Disclosure of this information is required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
PricewaterhouseCooper LLP
Syracuse, New York
February 12, 1999
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1998
<S> <C> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market Stock
Fund Fund Fund Fund Fund
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - - -
Common stock of Energy East
Corporation - - - - $56,490,430
Other $44,772,942 $44,647,027 $3,458,082 $12,146,104 -
Loans to participants - - - - -
------------------------------------------------------
Net assets available for benefits $44,772,942 $44,647,027 $3,458,082 $12,146,104 $56,490,430
======================================================
Fund Information
-----------------------------------------------------
Guaranteed OTC and
Investment Emerging Internat'l
Contract Income Growth Growth
Fund Fund Fund Fund Subtotal
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - - -
Common stock of Energy East
Corporation - - - - $56,490,430
Other - $278,390 $641,994 $158,388 106,102,927
Loans to participants - - - - -
------------------------------------------------------
Net assets available for benefits - $278,390 $641,994 $158,388 $162,593,357
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1998
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - -
Common stock of Energy East
Corporation $56,490,430 - - -
Other 106,102,927 $7,661,916 $4,099,467 $3,542,794
Loans to participants - - - -
------------------------------------------------------
Net assets available for benefits $162,593,357 $7,661,916 $4,099,467 $3,542,794
======================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan Total
Portfolio Fund 1998
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - -
Common stock of Energy East
Corporation - - $56,490,430
Other $1,637,499 - 123,044,603
Loans to participants - $4,330,515 4,330,515
------------------------------------------------------
Net assets available for benefits $1,637,499 $4,330,515 $183,865,548
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1997
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market
Fund Fund Fund Fund
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - - -
Common stock of New York State
Electric & Gas Corporation - - - -
Other $31,603,236 $36,449,436 $2,869,360 $8,223,054
Loans to participants - - - -
------------------------------------------------------
Net assets available for benefits $31,603,236 $36,449,436 $2,869,360 $8,223,054
======================================================
Fund Information
------------------------------------------------------
Guaranteed
Company Investment
Stock Contract
Fund Fund Subtotal
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - $934,229 $934,229
Common stock of New York State
Electric & Gas Corporation $41,878,933 - $41,878,933
Other - - 79,145,086
Loans to participants - - -
------------------------------------------------------
Net assets available for benefits $41,878,933 $934,229 $121,958,248
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Net Assets Available for Benefits, With Fund Information (Continued)
December 31, 1997
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract $934,229 - - -
Common stock of New York State
Electric & Gas Corporation 41,878,933 - - -
Other 79,145,086 $4,593,473 $3,052,861 $2,397,014
Loans to participants
------------------------------------------------------
Net assets available for benefits $121,958,248 $4,593,473 $3,052,861 $2,397,014
======================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan
Portfolio Fund Total
------------------------------------------------------
Assets
Investments:
Guaranteed investment contract - - $934,229
Common stock of New York State
Electric & Gas Corporation - - 41,878,933
Other $897,356 - 90,085,790
Loans to participants - $3,615,518 3,615,518
------------------------------------------------------
Net assets available for benefits $897,356 $3,615,518 $136,514,470
======================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market Stock
Fund Fund Fund Fund Fund
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $5,329,829 $1,846,272 $7,340 - $21,672,592
Dividends:
Energy East Corporation - - - - 1,626,000
Other 2,987,776 3,973,024 203,017 - -
Interest on investments - - - $497,036 -
Interest on loans to participants - - - - -
-------------------------------------------------------------------
8,317,605 5,819,296 210,357 497,036 23,298,592
Contributions:
Employer - - - - 1,389,544
Employee 3,806,289 3,023,015 272,694 675,259 1,422,615
Interfund transfers, net 2,279,377 1,123,240 471,350 3,372,879 (10,158,097)
-------------------------------------------------------------------
Total additions 14,403,271 9,965,551 954,401 4,545,174 15,952,654
Deductions
Withdrawal benefits - stock - - - - 1,207,669
Withdrawal benefits - cash 998,173 1,664,411 364,951 592,166 -
Transfers to other qualified plans 232,256 100,304 477 28,774 126,760
Administrative fees 3,136 3,245 251 1,184 6,728
-------------------------------------------------------------------
Total deductions 1,233,565 1,767,960 365,679 622,124 1,341,157
-------------------------------------------------------------------
Net increase (decrease) 13,169,706 8,197,591 588,722 3,923,050 14,611,497
Net assets available for benefits
at beginning of year 31,603,236 36,449,436 2,869,360 8,223,054 41,878,933
-------------------------------------------------------------------
Net assets available for benefits
at end of year $44,772,942 $44,647,027 $3,458,082 $12,146,104 $56,490,430
===================================================================
Fund Information
------------------------------------------------------
Guaranteed OTC and
Investment Emerging Internat'l
Contract Income Growth Growth
Fund Fund Fund Fund Subtotal
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments - ($2,252) $124,678 $12,441 $28,990,900
Dividends:
Energy East Corporation - - - - 1,626,000
Other - 3,974 17,006 4,246 7,189,043
Interest on investments 37,307 - - - 534,343
Interest on loans to participants - - - - -
-------------------------------------------------------------------
37,307 1,722 141,684 16,687 38,340,286
Contributions:
Employer - - - - 1,389,544
Employee - 2,613 12,652 4,620 9,219,757
Interfund transfers, net (892,005) 274,080 487,669 137,081 (2,904,426)
-------------------------------------------------------------------
Total additions (854,698) 278,415 642,005 158,388 46,045,161
Deductions
Withdrawal benefits - stock - - - - 1,207,669
Withdrawal benefits - cash 1,645 - - - 3,621,346
Transfers to other qualified plans 77,886 - 11 - 566,468
Administrative fees - 25 - - 14,569
-------------------------------------------------------------------
Total deductions 79,531 25 11 0 5,410,052
-------------------------------------------------------------------
Net increase (decrease) (934,229) 278,390 641,994 158,388 40,635,109
Net assets available for benefits
at beginning of year 934,229 0 0 0 121,958,248
-------------------------------------------------------------------
Net assets available for benefits
at end of year $0 $278,390 $641,994 $158,388 $162,593,357
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1998
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $28,990,900 $1,320,177 $371,655 $236,973
Dividends:
Energy East Corporation 1,626,000 - - -
Other 7,189,043 220,116 112,065 109,261
Interest on investments 534,343 - - -
Interest on loans to participants - - - -
-------------------------------------------------------------------
38,340,286 1,540,293 483,720 346,234
Contributions:
Employer 1,389,544 - - -
Employee 9,219,757 772,927 481,439 315,108
Interfund transfers, net (2,904,426) 1,095,395 210,830 551,902
-------------------------------------------------------------------
Total additions 46,045,161 3,408,615 1,175,989 1,213,244
Deductions
Withdrawal benefits - stock 1,207,669 - - -
Withdrawal benefits - cash 3,621,346 323,740 87,993 67,207
Transfers to other qualified plans 566,468 15,888 41,196 40
Administrative fees 14,569 544 194 217
-------------------------------------------------------------------
Total deductions 5,410,052 340,172 129,383 67,464
-------------------------------------------------------------------
Net increase (decrease) 40,635,109 3,068,443 1,046,606 1,145,780
Net assets available for benefits
at beginning of year 121,958,248 4,593,473 3,052,861 2,397,014
-------------------------------------------------------------------
Net assets available for benefits
at end of year $162,593,357 $7,661,916 $4,099,467 $3,542,794
===================================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan Total
Portfolio Fund 1998
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $50,717 - $30,970,422
Dividends:
Energy East Corporation - - 1,626,000
Other 63,373 - 7,693,858
Interest on investments - - 534,343
Interest on loans to participants - $327,434 327,434
-------------------------------------------------------------------
114,090 327,434 41,152,057
Contributions:
Employer - - 1,389,544
Employee 108,642 - 10,897,873
Interfund transfers, net 580,469 465,830 -
-------------------------------------------------------------------
Total additions 803,201 793,264 53,439,474
Deductions
Withdrawal benefits - stock - - 1,207,669
Withdrawal benefits - cash 63,005 78,267 4,241,558
Transfers to other qualified plans 9 - 623,601
Administrative fees 44 - 15,568
-------------------------------------------------------------------
Total deductions 63,058 78,267 6,088,396
-------------------------------------------------------------------
Net increase (decrease) 740,143 714,997 47,351,078
Net assets available for benefits
at beginning of year 897,356 3,615,518 136,514,470
-------------------------------------------------------------------
Net assets available for benefits
at end of year $1,637,499 $4,330,515 $183,865,548
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1997
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Capital Government Money
Appreciation Equity Obligation Market
Fund Fund Fund Fund
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair value
of investments $4,012,004 $1,782,131 $51,898 -
Dividends:
New York State Electric & Gas Corp. - - - -
Other 1,855,288 4,543,786 152,689
Interest on investments - - - $367,183
Interest on loans to participants - - - -
-------------------------------------------------------------------
5,867,292 6,325,917 204,587 367,183
Contributions:
Employer - - - -
Employee 3,171,474 2,517,069 259,143 660,812
Interfund transfers, net 1,893,969 4,106,114 303,454 684,308
-------------------------------------------------------------------
Total additions 10,932,735 12,949,100 767,184 1,712,303
Deductions
Withdrawal benefits - stock - - - -
Withdrawal benefits - cash 374,941 698,258 88,320 585,155
Transfers to other qualified plans 14,498 (4,947) (3,364) (9,612)
Administrative fees 9,889 9,928 993 4,697
-------------------------------------------------------------------
Total deductions 399,328 703,239 85,949 580,240
-------------------------------------------------------------------
Net increase 10,533,407 12,245,861 681,235 1,132,063
Net assets available for benefits
at beginning of year 21,069,829 24,203,575 2,188,125 7,090,991
-------------------------------------------------------------------
Net assets available for benefits
at end of year $31,603,236 $36,449,436 $2,869,360 $8,223,054
===================================================================
Fund Information
------------------------------------------------------
Guaranteed
Company Investment
Stock Contract
Fund Fund Subtotal
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation in fair value
of investments $18,190,650 - $24,036,683
Dividends:
New York State Electric & Gas Corp. 1,938,123 - 1,938,123
Other - - 6,551,763
Interest on investments - $41,465 408,648
Interest on loans to participants - - -
-------------------------------------------------------------------
20,128,773 41,465 32,935,217
Contributions:
Employer 1,366,877 - 1,366,877
Employee 1,719,575 - 8,328,073
Interfund transfers, net (11,013,324) (4,370) (4,029,849)
-------------------------------------------------------------------
Total additions 12,201,901 37,095 38,600,318
Deductions
Withdrawal benefits - stock 764,427 - 764,427
Withdrawal benefits - cash - 11,051 1,757,725
Transfers to other qualified plans 1,685 997 (743)
Administrative fees 31,818 - 57,325
-------------------------------------------------------------------
Total deductions 797,930 12,048 2,578,734
-------------------------------------------------------------------
Net increase 11,403,971 25,047 36,021,584
Net assets available for benefits
at beginning of year 30,474,962 909,182 85,936,664
-------------------------------------------------------------------
Net assets available for benefits
at end of year $41,878,933 $934,229 $121,958,248
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Statement of Changes in Net Assets Available for Benefits, With Fund Information
Year ended December 31, 1997 (Continued)
<S> <C> <C> <C> <C>
Fund Information
------------------------------------------------------
Asset Asset
Subtotal Global Allocation Allocation
Brought Growth Growth Balanced
Forward Fund Portfolio Portfolio
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $24,036,683 $(498,081) $110,570 $33,286
Dividends:
New York State Electric & Gas Corp. 1,938,123 - - -
Other 6,551,763 828,154 199,394 188,363
Interest on investments 408,648 - - -
Interest on loans to participants - - - -
-------------------------------------------------------------------
32,935,217 330,073 309,964 221,649
Contributions:
Employer 1,366,877 - - -
Employee 8,328,073 585,218 342,257 234,491
Interfund transfers, net (4,029,849) 1,378,794 1,231,670 870,006
-------------------------------------------------------------------
Total additions 38,600,318 2,294,085 1,883,891 1,326,146
Deductions
Withdrawal benefits - stock 764,427 - - -
Withdrawal benefits - cash 1,757,725 45,015 32,480 4,891
Transfers to other qualified plans (743) 786 - -
Administrative fees 57,325 1,065 683 467
-------------------------------------------------------------------
Total deductions 2,578,734 46,866 33,163 5,358
-------------------------------------------------------------------
Net increase 36,021,584 2,247,219 1,850,728 1,320,788
Net assets available for benefits
at beginning of year 85,936,664 2,346,254 1,202,133 1,076,226
-------------------------------------------------------------------
Net assets available for benefits
at end of year $121,958,248 $4,593,473 $3,052,861 $2,397,014
===================================================================
Fund Information
------------------------------------------------------
Asset
Allocation
Conservative Loan
Portfolio Fund Total
-------------------------------------------------------------------
Additions
Investment income:
Net appreciation (depreciation) in fair
value of investments $290 - $23,682,748
Dividends:
New York State Electric & Gas Corp. - - 1,938,123
Other 51,509 - 7,819,183
Interest on investments - - 408,648
Interest on loans to participants - $269,052 269,052
-------------------------------------------------------------------
51,799 269,052 34,117,754
Contributions:
Employer - - 1,366,877
Employee 77,341 - 9,567,380
Interfund transfers, net 451,343 98,036 -
-------------------------------------------------------------------
Total additions 580,483 367,088 45,052,011
Deductions
Withdrawal benefits - stock - - 764,427
Withdrawal benefits - cash 23,259 1,863,370
Transfers to other qualified plans - - 43
Administrative fees 150 - 59,690
-------------------------------------------------------------------
Total deductions 150 23,259 2,687,530
-------------------------------------------------------------------
Net increase 580,333 343,829 42,364,481
Net assets available for benefits
at beginning of year 317,023 3,271,689 94,149,989
-------------------------------------------------------------------
Net assets available for benefits
at end of year $897,356 $3,615,518 $136,514,470
===================================================================
See notes to financial statements.
</TABLE>
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1998 and 1997
1. DESCRIPTION OF THE HOURLY PLAN
The New York State Electric & Gas Corporation Tax Deferred Savings
Plan for Hourly Paid Employees (the Hourly Plan) was established
effective January 1, 1986 to provide for before-tax contributions
in accordance with Internal Revenue Code (Code) Section 401(k).
As part of a corporate reorganization, on May 1, 1998, Energy East
Corporation (Energy East) became the parent corporation of New York
State Electric & Gas Corporation (company) pursuant to an Agreement
and Plan of Share Exchange. Each share of the company's
outstanding common stock was exchanged for a share of Energy East's
common stock. Energy East is a holding company with energy
delivery, products and services subsidiaries with operations in New
York, Massachusetts, Maine, New Hampshire, Vermont, and New Jersey.
Energy East, through its subsidiaries, delivers electricity and
natural gas to retail customers and provides electricity, natural
gas and energy management and other services to retail and
wholesale customers in the Northeast.
The Hourly Plan is for the company's union employees as well as the
union employees of those members of the Energy East group of
corporations that participate under the Hourly Plan's provisions.
During 1998 Energy East agreed to sell the coal-fired generation
assets of one of its subsidiaries. The sale of the Homer City
generation assets has been completed and the sale of the remaining
coal-fired generation assets will be completed in several weeks.
In connection with the sale of the remaining coal-fired generation
assets, net assets of the Hourly Plan related to affected employees
will be transferred to another plan, distributed to the
participant, or remain in the Hourly Plan.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are prepared on an accrual basis and in
conformity with generally accepted accounting principles, which
require 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. Estimates also affect the reported amounts of
additions and deductions during the reporting period. Actual
results could differ from those estimates.
Investments
Investments consisting of publicly traded Energy East common stock
in 1998, and company common stock in 1997, and various Putnam
Investment vehicles are carried at current value using the closing
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1998 and 1997
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments (Continued)
market price on the last business day of the year. The guaranteed
investment contract is valued at contract value (which approximates
fair market value) and represents contributions plus interest
thereon at the contract rate.
The Hourly Plan presents in the statement of changes in net assets
available for benefits the net appreciation (depreciation) in the
fair value of its investments which consists of the realized gains
and losses and the unrealized appreciation (depreciation) on those
investments.
Contributions
Contributions to the Hourly Plan are allocated to participant
accounts. Participants have full and immediate vesting rights in
employee and employer contributions, investment earnings and other
amounts allocated to their accounts. An employee covered by a
collective bargaining agreement may become a participant in the
Hourly Plan as of the first day of any calendar month that
commences after the completion of the employee's first 30 days of
employment.
Employee contributions, with certain exceptions, range from 1% to
15% of the participant's base compensation and may include overtime
pay. Effective January 1, 1999, the Hourly Plan employee
contribution limit increased to 20%. Subject to limitations
stipulated by the Code, a participant's total contribution could
not exceed $10,000 per year in 1998 and $9,500 per year in 1997.
The company contributed solely to the Stock Fund (successor to the
Company Stock Fund) in 1998 and 1997, an amount equivalent to 25%
of the participant's contributions to any fund (up to 1.5% of the
participant's annual base compensation as of the first day of the
year).
Benefit Payments
On termination of service a participant may elect either a lump sum
amount equal to the value of the participant's interest in his or
her account, or installments over a period permissible under the
Code. Distributions from all funds, except the Stock Fund, are
made in cash. Distributions from the Stock Fund are made in either
whole shares of Energy East common stock or in cash, as specified
by the participant and subject to approval by the Hourly Plan's
administrative committee.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1998 and 1997
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Benefit Payments (Continued)
As of December 31, 1998, plan assets include $19,812,896 in amounts
allocated to participants who have withdrawn from the Hourly Plan,
due to termination, retirement or disability but for which
disbursement of funds has not yet occurred.
Loans
Participants may, under certain circumstances, borrow against their
account balances. The principal amount of the loan is subject to
certain limitations as defined in the Hourly Plan document. The
term of the loan may not exceed five years, and the interest rate
established by the Hourly Plan's administrative committee provides
the Hourly Plan with a return commensurate with the interest rate
charged by persons in the business of lending money for loans which
would be made under similar circumstances. Interest rates range
from 6.5% to 10.5%. The loan must be repaid by payroll deductions
over the term of the loan. Loan payments are credited to an
applicable fund based upon the participant's election. If a
participant's employment terminates for any reason, the loan will
become immediately due and payable.
Risk and Uncertainties
The Hourly Plan provides for various investment options in any
combination of stocks and mutual funds. Investment securities are
exposed to various risks, such as interest rate, market, and
credit. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that
changes in risks in the near term would materially affect
participant's account balances and the amounts reported in the
statement of net assets available for benefits and the statement of
changes in net assets available for benefits.
Plan Termination
Although the company has not expressed any intent to terminate the
Hourly Plan, it has the right to discontinue contributions at any
time and terminate the Hourly Plan subject to the provisions of its
collective bargaining agreement. In the event of termination of
the Hourly Plan, the net assets of the Hourly Plan are set aside,
first for payment of all Hourly Plan expenses and, second, for
distribution to the participants, based upon the balances in their
individual accounts.
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1998 and 1997
3. INVESTMENTS
Contributions by the participants are invested, at the election of
the participant, in one or a combination of the following twelve
funds as described by the Hourly Plan administrator: (1) the
Capital Appreciation Fund, which invests in a mutual fund
consisting primarily of common stock; (2) the Equity Fund, which
invests in a mutual fund consisting primarily of common stock; (3)
the Government Obligation Fund, which invests in a mutual fund
consisting of securities that are backed by the full faith and
credit of the United States Government; (4) the Money Market Fund,
which invests in a mutual fund consisting of money market
instruments; (5) the Stock Fund, consisting of common stock of
Energy East; (6) the Income Fund, which invests in a mutual fund
consisting of debt securities, including both government and
corporate obligations, preferred stocks and dividend-paying common
stocks; (7) the OTC and Emerging Growth Fund, which invests in a
mutual fund consisting mainly of common stocks traded in the over-
the-counter market and common stocks of "emerging growth" companies
listed on designated securities exchanges; (8) the International
Growth Fund, which invests in a mutual fund consisting primarily of
equity securities of companies located in a country other than the
United States; (9) the Global Growth Fund, which invests in a
mutual fund consisting primarily of U.S. and international common
stocks; or (10) the three Asset Allocation Funds, consisting
primarily of equity and fixed income securities. Effective
January 1, 1992, the Guaranteed Investment Contract Fund did not
accept any new investments. Prior to November 18, 1988, the
Guaranteed Investment Contract Fund consisted of investments in
insurance contracts that guaranteed an effective annual rate of
interest through a specified period, and effective November 18,
1988, included investments in securities and other obligations
issued by any company that guaranteed an effective annual rate of
interest through a specified period.
All funds of the Hourly Plan, with the exception of the Stock Fund,
invest in mutual funds of Putnam Mutual Funds, a subsidiary of
Putnam Investments, Inc., which represents a concentration risk.
Individual investments which represent 5% or more of the net assets
available for benefits as of December 31, 1998 are as follows:
Putnam Voyager Fund (Capital Appreciation) $44,772,942
Putnam Fund for Growth and Income (Equity) 44,647,027
Putnam Money Market Fund (Money Market) 12,146,104
Energy East Common Stock (Stock Fund) 56,490,430
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Notes to Financial Statements
December 31, 1998 and 1997
4. INCOME TAX STATUS
The company has received a determination letter from the Internal
Revenue Service, dated June 3, 1994, that the Hourly Plan qualifies
as a tax deferred savings plan under Sections 401(a) and 401(k) of
the Code. The Hourly Plan has been amended subsequent to the
receipt of the latest determination letter. However, the Hourly
Plan's administrator believes that the Hourly Plan is designed and
currently being operated in compliance with the applicable
requirements of the Code.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
All administrative fees are paid by the participants in the Hourly
Plan. Audit and legal fees are paid by the company.
<PAGE>
<TABLE>
<CAPTION>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Line 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
<S> <C> <C> <C>
Balance Held at Market
Name of Issuer and Title of Issue End of Year Cost ** Value
- -----------------------------------------------------------------------------
Capital Appreciation Fund
*Putnam Voyager Fund 2,042,561 shares $44,772,942
Equity Fund
*Putnam Fund for Growth
and Income 2,178,967 shares 44,647,027
Government Obligation Fund
*Putnam U.S. Government
Income Trust 263,573 shares 3,458,082
Money Market Fund
*Putnam Money Market Fund 12,129,495 shares 12,146,104
Income Fund
*Putnam Income Fund 40,230 shares 278,390
Growth Fund
*Putnam OTC and
Emerging Growth Fund 37,217 shares 641,994
International Growth Fund
*Putnam International
Growth Fund 8,237 shares 158,388
Global Growth Fund
*Putnam Global Growth Fund 615,415 shares 7,661,916
Asset Allocation Growth Portfolio
*Putnam Asset Allocation - Growth
Portfolio 300,768 shares 4,099,467
Asset Allocation Balanced Portfolio
*Putnam Asset Allocation - Balanced
Portfolio 294,987 shares 3,542,794
Asset Allocation Conservative
Portfolio
*Putnam Asset Allocation
Conservative Portfolio 157,755 shares 1,637,499
------------
Total Mutual Fund Investments $123,044,603
============
Stock Fund
*Energy East Corporation common stock 999,831 shares $56,490,430
============
Loans to participants - interest
rates from 6.5% to 10.5% $4,330,515
============
* Denotes a party-in-interest.
** Information pertaining to the historical cost was not available from the
Trustee.
/TABLE
<PAGE>
New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees
Line 27d - Schedule of Reportable Transactions
Year ended December 31, 1998
Current Value
of Asset on
Purchase Selling Transaction Net Gain
Description of Assets Price Price Date (Loss)
- -------------------------------------------------------------------------------
Category (iii) - Series of transactions in excess of 5% of plan assets
Capital Appr. - Purchases
*Putnam Voyager Fund $14,059,018 $14,059,018
Capital Appr. - Sales $5,505,772 $5,505,772
*Putnam Voyager Fund $6,219,059 $6,219,059 $713,287
Equity Fund - Purchases
*Putnam Fund for
Growth and Income $12,305,055 $12,305,055
Equity Fund - Sales
*Putnam Fund for $5,149,357 $5,149,357
Growth and Income $5,953,634 $5,953,634 $804,277
Stock Fund - Purchases
*Energy East Corporation
Common Stock $6,356,160 $6,356,160
Stock Fund - Sales
*Energy East Corporation $9,008,996 $9,008,996
Common Stock $13,417,867 $13,417,867 $4,408,871
There were no category (i), (ii), or (iv) reportable transactions during 1998.
* Denotes a party-in-interest.
<PAGE>
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-16201) pertaining to the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Hourly Paid Employees of our report dated February 12, 1999, with
respect to the financial statements and schedules of the New York
State Electric & Gas Corporation Tax Deferred Savings Plan for
Hourly Paid Employees for the year ended December 31, 1998, which
report is included in this Annual Report on Form 11-K.
PricewaterhouseCoopers LLP
Syracuse, New York
March 25, 1999
<TABLE>
<CAPTION>
Exhibit 99-3
Energy East Corporation
Consolidated Balance Sheet
At December 31, 1998
Actual and Pro Forma
(Unaudited)
<S> <C> <C> <C>
Actual Adjustments Pro Forma
- ----------------------------------------------------------------------------------------------
(Thousands)
Assets
Current Assets
Cash and cash equivalents . . . . . . . . $48,068 $1,850,500 $1,898,568
Special deposits. . . . . . . . . . . . 4,729 4,729
Accounts receivable, net . . . . . . 148,712 148,712
Fuel, at average cost . . . . . . . . . 44,643 (24,443) 20,200
Materials and supplies, at average cost . . 38,040 (29,705) 8,335
Prepayments . . . . . . . . . . . 111,082 12,690 123,772
Accumulated deferred federal income
tax benefits, net . . . . . . . . . . -
---------- ---------- ----------
Total Current Assets . . . . . . . . . 395,274 1,809,042 2,204,316
Utility Plant, at Original Cost
Electric. . . . . . . . . . . . . 5,299,604 (1,926,803) 3,372,801
Natural gas. . . . . . . . . . . . 602,904 602,904
Common. . . . . . . . . . . . . . 144,043 144,043
---------- ---------- ----------
6,046,551 (1,926,803) 4,119,748
Less accumulated depreciation . . . . . . 2,211,608 (846,397) 1,365,211
---------- ---------- ----------
Net Utility Plant in Service . . . . . . 3,834,943 (1,080,406) 2,754,537
Construction work in progress . . . . . . 27,741 (7,633) 20,108
---------- ---------- ----------
Total Utility Plant . . . . . . . . . 3,862,684 (1,088,039) 2,774,645
Other Property and Investments, Net . . . . 129,088 (39,336) 89,752
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes . . . 136,404 136,404
Unamortized debt expense . . . . . . . 71,530 71,530
Demand-side management program costs . . . 64,466 64,466
Environmental remediation costs . . . . . 60,600 60,600
Other . . . . . . . . . . . . . 125,604 (72,714) 52,890
---------- ---------- ----------
Total regulatory assets . . . . . . 458,604 (72,714) 385,890
Other assets . . . . . . . . . . . 37,687 (9,218) 28,469
---------- ---------- ----------
Total Regulatory and Other Assets . . . . 496,291 (81,932) 414,359
---------- ---------- ----------
Total Assets . . . . . . . . . . $4,883,337 $599,735 $5,483,072
========== ========== ==========
The notes on page 4 of this exhibit are an integral part of the pro forma consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Energy East Corporation
Consolidated Balance Sheet
At December 31, 1998
Actual and Pro Forma
(Unaudited)
<S> <C> <C> <C>
Actual Adjustments Pro Forma
- -----------------------------------------------------------------------------------------------
Liabilities (Thousands)
Current Liabilities
Current portion of long-term debt . . . . . . $31,077 ($26,200) $4,877
Current portion of preferred stock of subsidiary. 75,000 75,000
Commercial paper. . . . . . . . . . . . . . 78,300 78,300
Accounts payable and accrued liabilities . . . . . . 116,582 116,582
Interest accrued. . . . . . . . . . . . . . 19,556 19,556
Taxes accrued . . . . . . . . . . . . 587 545,442 546,029
Accumulated deferred federal income tax, net . . 10,029 10,029
Other . . . . . . . . . . . . . . . . 82,143 9,769 91,912
---------- ---------- ---------
Total Current Liabilities . . . . . . . . . 413,274 529,011 942,285
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes . . . . . . . . . . . 98,038 98,038
Deferred income taxes - unfunded future federal
income taxes . . . . . . . . . . . . . . 60,896 60,896
Other. . . . . . . . . . . . . . . . 42,182 370,347 412,529
---------- ---------- ---------
Total regulatory liabilities . . . . . . . . 201,116 370,347 571,463
Other liabilities
Deferred income taxes . . . . . . . . . . . 765,592 (358,228) 407,364
Other postretirement benefits . . . . . . . . 137,681 3,827 141,508
Environmental remediation costs . . . . . . . 80,600 80,600
Other. . . . . . . . . . . . . . . . 82,028 82,028
---------- ---------- ---------
Total other liabilities . . . . . . . . . . 1,065,901 (354,401) 711,500
Long-term debt. . . . . . . . . . . . . 1,435,120 1,435,120
---------- ---------- ---------
Total Liabilities . . . . . . . . . . . . 3,115,411 544,957 3,660,368
Commitments . . . . . . . . . . . . . . . . - -
Preferred Stock of Subsidiary
Preferred stock redeemable solely at the
option of subsidiary . . . . . . . . . 29,440 29,440
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock ($.01 par value, 200,000 shares
authorized and 62,947 shares outstanding as of
December 31, 1998) . . . . . . . . . . 631 631
Capital in excess of par value . . . . . . 1,057,904 1,057,904
Retained earnings . . . . . . . . . . . 662,562 54,778 717,340
Treasury stock, at cost (136 shares at December
31, 1998) . . . . . . . . . . . . . . . . (7,611) (7,611)
---------- ---------- ---------
Total Common Stock Equity . . . . . . . . . 1,713,486 54,778 1,768,264
---------- ---------- ---------
Total Liabilities and Stockholders' Equity . . $4,883,337 $599,735 $5,483,072
========== ========== ==========
The notes on page 4 of this exhibit are an integral part of the pro forma consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Energy East Corporation
Consolidated Statement of Income
Year Ended December 31, 1998
Actual and Pro Forma
(Unaudited)
<S> <C> <C> <C>
Pro
Actual Adjustments Forma
- ----------------------------------------------------------------------------
(Thousands, except per share amounts)
Operating Revenues
Sales and services. . . . . . . . . . . $2,499,418 $(589,201)$1,910,217
Operating Expenses
Fuel used in electric generation. . . . 239,258 (232,787) 6,471
Electricity purchased . . . . . . . . . 752,978 (197,312) 555,666
Natural gas purchased . . . . . . . . . 158,656 - 158,656
Other operating expenses. . . . . . . . 366,403 (43,149) 323,254
Maintenance . . . . . . . . . . . . . . 111,502 (30,396) 81,106
Depreciation and amortization . . . . . 191,073 (61,725) 129,348
Other taxes . . . . . . . . . . . . . . 204,709 (24,130) 180,579
---------- ---------- ----------
Total Operating Expenses. . . . . . . 2,024,579 (589,499) 1,435,080
---------- ---------- ----------
Operating Income. . . . . . . . . . . . . 474,839 298 475,137
Other Income and Deductions . . . . . . . 9,318 9,318
Interest Charges, Net . . . . . . . . . . 125,557 (1,646) 123,911
Preferred Stock Dividends of
Subsidiary. . . . . . . . . . . . . . . 8,583 - 8,583
---------- ---------- ----------
Income Before Federal Income Taxes. . . . 331,381 1,944 333,325
Federal Income Taxes. . . . . . . . . . . 137,176 (4,043) 133,133
---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . $194,205 $5,987 $200,192
========== ========== ==========
Earnings Per Share, basic and diluted . . $3.02 $3.11
Average Common Shares Outstanding . . . . 64,371 64,371
The notes on page 4 of this exhibit are an integral part of the pro forma
consolidated financial statements.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Consolidated Financial Statements
Note 1. Our historical consolidated financial statements as of and for the 12
months ended December 31, 1998, have been adjusted to give effect to the
disposition of our coal-fired generation assets to Edison Mission Energy and
The AES Corporation discussed in Item 1. The pro forma consolidated balance
sheet assumes the disposition occurred December 31, 1998, and the pro forma
consolidated statement of income for the year ended December 31, 1998, assumes
that the disposition occurred on January 1, 1998. All proceeds from the sales,
net of taxes and transaction costs, in excess of the net book value of the
generation assets, less funded deferred taxes, will be used to write down our
18% investment in Nine Mile Point nuclear generating unit No. 2. This
treatment is in accordance with our restructuring plan approved by the Public
Service Commission of the State of New York in January 1998.
The pro forma consolidated financial statements were prepared based upon
certain assumptions and are for illustrative purposes only. They include
historical operating results and should not be used to forecast future
operating results or financial position. Actual operating results or financial
position could be substantially different.
Note 2.
The adjustments on the pro forma balance sheet represent the amount of utility
plant, other property and investments, fuel, and materials and supplies sold.
Liabilities incurred related to the sale, such as income taxes and estimated
transaction costs, are also included in the adjustments. Nonrecurring credits,
such as the gain from the sale of the plants that will be used to write down
our interest in NMP2, unamortized ITC and the curtailment of pension and OPEB
benefits, were also included in the adjustments.
Note 3.
The adjustments on the pro forma income statement do not reflect nonrecurring
charges and credits related to the sale of the plants. The adjustments were
based upon certain assumptions. Operating expense and maintenance expense
include all amounts directly related to the operation and maintenance of coal-
fired generation plus corporate administrative and general costs allocated
based on net revenues.
