As filed with the Securities and Exchange Commission on May 12, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
ESI TRACTEBEL ACQUISITION CORP.
(Exact Name of Co-Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 6799 65-0827005
- ------------------------ ---------------------------- ----------------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
------------------------
NORTHEAST ENERGY, LP
(Exact Name of Co-Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 4911 65-0811248
- ---------------------------- ---------------------------- ----------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification Number)
or organization)
</TABLE>
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
(561) 691-3500
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Glenn E. Smith, Vice President
c/o FPL Energy , Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
(561) 691-3500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------
Please send a copy of all communications to:
Daniel A. Mathews, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
(212) 506-5000
------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registrations statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Unit Price Registration Fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.99% Series B Secured
Bonds Due 2011 $220,000,000 100% $220,000,000 $64,900
==================================================================================================
</TABLE>
The Co-Registrants hereby amend this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Co-Registrants shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 12, 1998
PROSPECTUS
Offer to Exchange
7.99% Series B Secured Bonds Due 2011 for all outstanding
7.99% Series A Secured Bonds Due 2011
of
ESI Tractebel Acquisition Corp.
Payment of principal and interest unconditionally guaranteed by Northeast
Energy, LP, a Delaware limited partnership ("NE LP").
The exchange offer will expire at 5:00 P.M. New York City time, on _______, 1998
(as such date may be extended, the "Expiration Date").
ESI Tractebel Acquisition Corp. ("ESI Tractebel Acquisition"), a
Delaware corporation, hereby offers upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange its 7.99% Series B
Secured Bonds Due 2011 (the "New Securities") which have been registered under
the Securities Act of 1933, as amended (the "1933 Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each of the
outstanding 7.99% Series A Secured Bonds Due 2011 (the "Old Securities" and
together with the New Securities, the "Securities") of which $220,000,000
principal amount is outstanding. The form and terms of the New Securities are
identical in all material respects to the form and terms of the Old Securities
except that the New Securities have been registered under the 1933 Act and
therefore are not subject to Registration Default Damages (as defined herein)
and will not bear legends restricting the transfer thereof. The New Securities
will evidence the same debt as the Old Securities and will be entitled to the
benefits under the indenture governing the Old Securities (the "Indenture").
The Securities are general, secured obligations of ESI Tractebel
Acquisition and rank senior in right of payment to all subordinated
indebtedness, if any, of ESI Tractebel Acquisition incurred in the future and
will rank pari passu in right of payment with all senior indebtedness, if any,
of ESI Tractebel Acquisition incurred in the future. ESI Tractebel Acquisition's
obligations to make payment on the Securities are unconditionally guaranteed by
NE LP.
ESI Tractebel Acquisition will accept for exchange any and all Old
Securities that are validly tendered on or prior to 5:00 p.m., New York City
time, on the date the Exchange Offer expires, which will be _______, 1998,
unless the Exchange Offer is extended. Tenders of Old Securities may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date unless previously accepted for exchange. The
Exchange Offer is not conditioned upon any minimum principal amount of Old
Securities being tendered for exchange. However, the Exchange Offer is subject
to certain conditions which may be waived by ESI Tractebel Acquisition.
ESI Tractebel Acquisition is making the Exchange Offer in reliance on
the position of the staff of the Securities and Exchange Commission (the "SEC")
set forth in certain no-action letters addressed to other parties in other
transactions. However, ESI Tractebel Acquisition has not sought its own
no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Based on these interpretations by the staff of the SEC, New
i
<PAGE>
Securities issued pursuant to the Exchange Offer in exchange for Old Securities
may be offered for resale, resold, and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchases such New Securities directly from
the Company to resell pursuant to Rule 144A or any other available exemption
under the 1933 Act or (ii) any other such holder which is an "affiliate" of ESI
Tractebel Acquisition or NE LP within the meaning of Rule 405 under the 1933
Act), without compliance with the registration and prospectus delivery
provisions of the 1933 Act provided that the New Securities are acquired in the
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of the New Securities. Any
holder who participates in the Exchange Offer for the purpose of participating
in a distribution of the New Securities may not rely on the position of the
staff of the SEC as set forth in these no-action letters and would have to
comply with the registration and prospectus delivery requirements of the 1933
Act in connection with any secondary resale transaction. In addition, any
broker-dealer that receives New Securities for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Securities. This Prospectus, as it may be amended or
supplemented from time to time, may be used by broker-dealers in connection with
the resale of New Securities received in exchange for Old Securities where such
Old Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities. ESI Tractebel Acquisition has agreed
that for a period of up to one year after the date of the consummation of the
Exchange Offer, it will use its best efforts to keep the Registration Statement,
of which this Prospectus is a part, continuously effective. See "Plan of
Distribution," The New Securities will bear interest from the last interest
payment date of the Old Securities to occur prior to the issue date of the New
Securities. Holders of the Old Securities whose Old Securities are accepted for
exchange will not receive interest on such Old Securities for any period
subsequent to the last interest payment date of the Old Securities to occur
prior to the issue date of the New Securities, and will be deemed to have waived
the right to receive any payment in respect of interest on the Old Securities
accrued from and after such interest payment date.
ESI Tractebel Acquisition will not receive any proceeds from the
Exchange Offer. ESI Tractebel Acquisition and NE LP will pay all expenses
incident to their performance of or compliance with the Registration Rights
Agreement. Tenders of Old Securities pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. In the event ESI Tractebel
Acquisition terminates the Exchange Offer and does not accept for exchange any
Old Securities, the Old Securities will be returned promptly to the holders
thereof. See "The Exchange Offer."
Goldman has made a market in the Old Securities and intends, but is not
obligated, to continue to make a market in the Old Securities and to make a
market in the New Securities. ESI Tractebel Acquisition does not currently
intend to list the New Securities on any securities exchange. There can be no
assurance that an active public market for the New Securities will develop.
SEE "RISK FACTORS" ON PAGE 16 FOR A DESCRIPTION OF CERTAIN RISKS THAT
SHOULD BE CONSIDERED BY PURCHASERS OF THE NEW SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________, 1998
ii
<PAGE>
AVAILABLE INFORMATION
ESI Tractebel Acquisition and NE LP have filed with the Securities and
Exchange Commission (the "SEC") a Registration Statement on Form S-4 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"1933 Act"), with respect to the New Securities. This Prospectus, which forms a
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to ESI Tractebel Acquisition, NE LP and the New Securities,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement, and each such
statement shall be deemed qualified in its entirety by such reference. ESI
Funding and the Partnerships are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the SEC. Reports
and other information filed by ESI Funding and the Partnerships and the
Registration Statement filed by ESI Tractebel Acquisition and NE LP can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the SEC's
regional offices at Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661, and Seven World Trade Center, New York, New York 10048.
Copies of such material can also be obtained from the SEC at prescribed rates
through its Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC maintains a world wide web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
EST Tractebel Acquisition and NE LP are not currently subject to the
information requirements of the Exchange Act. ESI Tractebel Acquisition and NE
LP have agreed that, whether or not they are required to do so by the rules and
regulations of the SEC, for so long as any of the Securities remain outstanding,
they will furnish to the holders of the Securities and to any beneficial owner
of the Securities who so request ESI Tractebel Acquisition in writing and will
file with the SEC (unless the SEC will not accept such filings) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if ESI Tractebel
Acquisition and NE LP were required to file such forms, including a
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and, with respect to the annual information only, a report thereon by
ESI Tractebel Acquisition's and NE LP's certified independent accountants and
(ii) all reports that would be required to be filed with the SEC on Form 8-K if
ESI Tractebel Acquisition and NE LP were required to file such reports. In
addition, for so long as any of the Securities remain outstanding, ESI Tractebel
Acquisition and NE LP have agreed to make available to any prospective purchaser
of the Securities or beneficial owner of the Securities in connection with any
sale thereof the information required by Rule 144(d)(4) under the 1933 Act.
DEFINED TERMS
Unless otherwise specified, all capitalized terms used in this
Prospectus and not otherwise defined herein have the meanings assigned in
Appendix A hereto, beginning on page A-1 of this Prospectus.
iii
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), ESI Tractebel Acquisition and the
Partnerships are hereby filing cautionary statements identifying important
factors that could cause the Partnerships' actual results to differ materially
from those projected in forward-looking statements (as such term is defined in
the Reform Act) of the Partnerships made by or on behalf of the Partnerships
which are made in this Prospectus, in presentations, in response to questions or
otherwise. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
will likely result, are expected to, will continue, is anticipated, estimated,
projection, outlook) are not statements of historical facts and may be
forward-looking. Forward-looking statements involve estimates, assumptions, and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause the Partnerships' actual results to
differ materially from those contained in forward-looking statements of the
Partnerships made by or on behalf of the Partnerships.
-iv-
<PAGE>
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Partnerships undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions, with respect to allowed
rates of return, industry and rate structure, acquisition and disposal of assets
and facilities, operation and construction of plant facilities, recovery of fuel
and purchase power costs, recovery of fuel and purchase power costs, and present
or prospective competition.
The business and profitability of the Partnerships are also influenced
by economic and geographic factors including political and economic risks,
changes in and compliance with environmental and safety laws and policies,
weather conditions, population growth rates and demographic patterns,
competition for retail and wholesale customers, pricing and transportation of
commodities, market demand for energy from plants or facilities, changes in tax
rates or policies or in rates of inflation, unanticipated development project
delays or changes in project costs, unanticipated changes in operating expenses
and capital expenditures, capital market conditions, competition for new energy
development opportunities, and legal and administrative proceedings (whether
civil, such as environmental, or criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which
may materially affect actual results, and are beyond the control of the
Partnerships.
-v-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Potential purchasers should carefully consider the information set forth under
the caption "Risk Factors" prior to making any decision to invest in the
Securities.
The Issuer
ESI Tractebel Acquisition is a Delaware corporation that has been
established as a special purpose funding corporation for the purpose of issuing
the Securities. Each of ESI Northeast Energy Acquisition Funding, Inc. ("ESI
Acquisition Funding") and Tractebel Power owns fifty percent (50%) of the
outstanding capital stock of ESI Tractebel Acquisition. The Note (as defined
below) and any rights of ESI Tractebel Acquisition in the collateral pledged as
security for the payment of the Note are the only material assets of ESI
Tractebel Acquisition.
The Securities and the Use of Proceeds
Neither ESI Tractebel Acquisition nor NE LP will receive any proceeds
from the issuance of the New Securities in the Exchange Offer. In consideration
for the New Securities issued by ESI Tractebel Acquisition, as contemplated in
this Prospectus, ESI Tractebel Acquisition will receive in exchange a like
principal amount of Old Securities. The Old Securities surrendered in exchange
for the New Securities will be retired. Accordingly, the issuance of the New
Securities will not result in any change in the indebtedness of ESI Tractebel
Acquisition.
The proceeds received by ESI Tractebel Acquisition from the sale of the
Old Securities pursuant to the purchase agreement on February 12, 1998 by and
among ESI Tractebel Acquisition, NE LP, ESI Energy, Tractebel Power and Goldman
(the "Offering") were loaned (the "Bond Loan") by ESI Tractebel Acquisition to
NE LP. NE LP used the net proceeds received from the sale of the Old Securities,
after deducting fees and expenses, to reimburse certain of ESI Energy's and
Tractebel Power's subsidiaries for a portion of the original $534 million equity
contribution that was used to finance the cost of the Acquisitions described
below.
NE LP's obligation to repay the Bond Loan is evidenced by a promissory
note (the "Note") executed and delivered to ESI Tractebel Acquisition by NE LP
and assigned by ESI Tractebel Acquisition to the Trustee as security for the
payment of the Securities. The Note has terms that are substantially identical
to the terms of the Securities. As described below, ESI Tractebel Acquisition
has pledged to the Trustee all of ESI Tractebel Acquisition's rights to the
payments to be made by NE LP under the Note, and NE LP has guaranteed to the
Trustee the payment of the principal of and premium, if any, and interest and
Registration Default Damages, if any, on the Securities.
The Project Partnerships
NE LP, a limited partnership jointly owned by subsidiaries of ESI
Energy and Tractebel Power, owns a one percent (1%) general partner interest and
a ninety-eight percent (98%) limited partner interest in each of Northeast
Energy Associates, A Limited Partnership ("NEA") and North Jersey Energy
Associates, A Limited Partnership ("NJEA" and together with NEA, the
"Partnerships"). Northeast Energy, LLC ("NE LLC" and together with NE LP, the
"Partners"), a limited liability company directly and wholly owned by NE LP,
owns a one percent (1%) limited partner interest in each of the Partnerships.
The Partners purchased their interests in the Partnerships on January 14, 1998
from Intercontinental Energy Corporation ("IEC") and from certain individuals
(collectively, with IEC, the "Sellers"), as described below under the caption
"The Acquisitions."
<PAGE>
Each of the Partnerships was formed in 1986 to develop, construct, own,
operate and manage a nominal 300 MW gas-fired combined-cycle cogeneration
facility. NEA's facility is located in Bellingham, Massachusetts (the "NEA
Project") and NJEA's facility is located in Sayreville, New Jersey (the "NJEA
Project" and, together with the NEA Project, the "Projects"). The NEA Project
commenced commercial operation in September 1991, and the NJEA Project commenced
commercial operation in August 1991. NE LP is the sole general partner of each
of the Partnerships and NE LP and its wholly-owned subsidiary NE LLC are the
only limited partners of each of the Partnerships. NE LP is dedicated solely to
the ownership, operation and management of the Projects. NE LLC is dedicated
solely to the ownership of its limited partner interest in each of the
Partnerships.
The Projects
Each of the Projects is a nominal 300 MW combined-cycle cogeneration
facility. The Projects use natural gas to produce electrical energy and thermal
energy in the form of steam. The Projects were constructed by Westinghouse
Electric Corporation ("Westinghouse Electric") and pursuant to contracts with
Westinghouse Electric that expire in 2001 (collectively, the "O&M Agreements"),
are operated and maintained by Westinghouse Operating Services Company
("Westinghouse Services" or the "Operator"), a subsidiary of Westinghouse
Electric. On November 15, 1997, Westinghouse Electric announced that it intended
to sell all of its industrial businesses, including the business of Westinghouse
Services, to Siemens AG. Each of the Partnerships is also party to an operation
and maintenance agreement (collectively, the "New O&M Agreements") with ESI
Operating Services, Inc. (the "New Operator"), a direct and wholly-owned
subsidiary of ESI Energy, pursuant to which the New Operator has agreed to
operate and maintain the Projects following the expiration or early termination
of the O&M Agreements and, prior to such date, to provide certain other
services.
NEA currently sells 100% of the net electrical energy produced by the
NEA Project to three regulated utilities, Boston Edison Company ("Boston
Edison"), Commonwealth Electric Company ("Commonwealth") and Montaup Electric
Company ("Montaup"). Boston Edison purchases approximately 75% of such energy
under two contracts, Commonwealth purchases approximately 16% under two
contracts and Montaup purchases approximately 9%. NJEA currently sells the
electricity produced at the NJEA Project to one regulated utility, Jersey
Central Power & Light Company ("JCP&L"). Such sales are made pursuant to power
purchase agreements, all of which provide substantially for the continuous
delivery of base load power (collectively, the "Power Purchase Agreements"). Two
of the six Power Purchase Agreements are scheduled to expire in September 2011
and August 2011, three months and four months, respectively, prior to the final
maturity date of the Securities. Three of the six Power Purchase Agreements are
scheduled to expire in September 2016 and the sixth is scheduled to expire in
September 2021.
The Projects were developed and are operated as Qualifying Facilities
("QFs") under the Public Utility Regulatory Policies Act of 1978 and the
regulations promulgated thereunder ("PURPA") by the Federal Energy Regulatory
Commission ("FERC"). The Projects must satisfy certain annual operating and
efficiency standards, as well as ownership requirements, to maintain QF status,
which exempts the Projects from certain federal and state regulations. To date,
both Projects have satisfied these standards, and NE LP expects that they will
continue to do so.
Steam generated by the NEA Project is sold to NECO-Bellingham, Inc.
("NECO"), a special-purpose subsidiary of a privately held company based in
Texas, for use by a carbon dioxide plant located adjacent to the NEA Project
(the "Carbon Dioxide Plant"). The Carbon Dioxide Plant is owned by NEA and
leased to NECO. The steam generated by the NJEA Project is sold to Hercules,
Incorporated ("Hercules") for use by Hercules' Parlin, New Jersey plant.
Approximately 80% of the natural gas that fuels the Projects is
supplied to the Projects pursuant to long-term gas supply agreements with ProGas
Limited of Alberta, Canada ("ProGas") and, in the case of the NJEA Project, also
2
<PAGE>
pursuant to a long-term gas supply agreement with Public Service Electric and
Gas of Newark, New Jersey ("PSE&G"). The gas supply agreements with ProGas and
the gas supply agreement with PSE&G are referred to collectively as the
"Long-term Gas Supply Agreements." Gas is transported to, or stored for later
use by, the Projects pursuant to long-term gas transportation agreements (the
"Long-term Gas Transportation Agreements") and long-term gas storage agreements
(the "Long-term Gas Storage Agreements"). The Long-term Gas Supply Agreements
between NEA and ProGas (the "NEA ProGas Agreement") and between NJEA and ProGas
(the "NJEA ProGas Agreement" and, together with the NEA ProGas Agreement, the
"ProGas Agreements"), expire in November 2013. The Long-term Gas Supply
Agreement between NJEA and PSE&G (the "PSE&G Contract") for the supply, delivery
and transportation of natural gas expires in August 2011. There are several
Long-term Gas Transportation Agreements for transportation on a firm basis by
various transporters of gas purchased under the gas supply and storage
contracts, which expire in March 1999, October 2006, November 2011, March 2012
and November 2016. The Long-term Gas Storage Agreements expire in March 2012.
The remainder of the daily fuel requirements of the Projects are met by
open-market purchases delivered on an interruptible basis both into storage and
directly to the Projects. The price escalators under the Long-term Gas
Agreements are intended to substantially correlate to the price escalators under
the Power Purchase Agreements. The NEA Project may also be run on Number 2 fuel
oil in certain limited circumstances. See "The Projects -- Gas Supply
Arrangements" and "The Projects -- The NEA Project -- Project Description."
Each of the Partnerships is party to a fuel management agreement
(collectively, the "Fuel Management Agreements") with ESI Northeast Fuel
Management, Inc. (the "Fuel Manager"), an indirect wholly-owned subsidiary of
FPL Energy, pursuant to which the Fuel Manager has agreed to provide certain
fuel management and administrative services.
For more detailed information regarding the Projects, including the
various contracts referred to above and regulatory matters that affect the
Projects, see "The Projects," "Business," "Regulation" and "Summary of Principal
Project Agreements."
The Partners
All of the interests in the Partnerships are held by NE LP and NE LLC,
which in turn are owned by ESI GP and ESI LP (as defined herein), wholly-owned
subsidiaries of ESI Energy; and by Tractebel GP and Tractebel LP, wholly-owned
subsidiaries of Tractebel Power.
Each of ESI GP and Tractebel GP owns a one percent (1%) general partner
interest in NE LP, and each of ESI LP and Tractebel LP owns a forty-nine percent
(49%) limited partner interest in NE LP. ESI GP and ESI LP are wholly-owned,
direct subsidiaries of ESI Energy, and Tractebel GP and Tractebel LP are
wholly-owned subsidiaries of Tractebel Power.
On January 15, 1998, FPL Energy, Inc., ("FPL Energy"), an indirect,
wholly-owned subsidiary of FPL Group, Inc. ("FPL Group"), received as capital
contribution from FPL Group Capital Inc. ("FPL Group Capital") all of the
outstanding shares of stock of ESI Energy and of FPL Group International. FPL
Group is a holding company whose stock is traded on the New York Stock Exchange.
FPL Group is also the parent company of Florida Power & Light Company ("FPL"),
one of the largest investor-owned utilities in the United States. FPL Group
Capital, a wholly-owned subsidiary of FPL Group, holds the capital stock of FPL
Energy and provides most of the funding for the operating subsidiaries of FPL
Group other than FPL. The business activities of these companies primarily
consist of investments in non-utility energy projects and agricultural
operations.
Tractebel Power is a direct, wholly-owned subsidiary of Tractebel Inc.
("Tractebel"), which in turn is a direct, wholly-owned subsidiary of Tractebel,
S.A. ("Tractebel Belgium"), a global energy and environmental services business
3
<PAGE>
founded in 1895 and based in Brussels, Belgium. Services include engineering,
installations and communications. Tractebel Belgium's two primary U.S. operating
subsidiaries are Tractebel Power and Tractebel Energy Marketing, Inc.
The Acquisitions
The Partners acquired all of the partnership interests in each of the
Partnerships on January 14, 1998, pursuant to a Purchase Agreement, dated as of
November 21, 1997, by and among the Partners, the Sellers, ESI Northeast Energy
Funding, Inc. ("ESI Funding") and Tractebel Power. In connection with the
acquisition of all of the partnership interests in the Partnerships, ESI Funding
and Tractebel Power each acquired a thirty-seven and one-half percent (37.5%)
interest in ESI Tractebel Funding Corp. ("ESI Tractebel Funding"), a Delaware
special purpose corporation formerly known as "IEC Funding Corp." and the issuer
of the Project Securities described below. The Partners paid the purchase price
for all of the partnership interests in the Partnerships and for seventy-five
percent (75%) of the outstanding shares of capital stock in ESI Tractebel
Funding (collectively, the "Acquisitions") from contributions made by each of
ESI GP, Tractebel GP, ESI LP and Tractebel LP, the partners of NE LP. Broad
Street Contract Services, Inc. ("Broad Street"), a nominee for State Street Bank
and Trust Company, owns the remaining twenty-five percent (25%) of the
outstanding shares of capital stock in ESI Tractebel Funding for the purpose of
providing an independent director. Broad Street has no economic interest in
Partnership distributions.
Outstanding Project Indebtedness
Pursuant to a Trust Indenture, dated as of November 15, 1994, among
each of the Partnerships, IEC Funding Corp. (now ESI Tractebel Funding), and
State Street Bank and Trust Company, as trustee (the "Project Trustee"), as
supplemented by the First Supplemental Trust Indenture, dated as of November 15,
1994 (the "Original Project Indenture"), IEC Funding Corp. issued notes and
bonds in an aggregate principal amount of $560,000,000 (the "Project
Securities"). IEC Funding Corp. and the Partnerships applied the proceeds from
the sale of the Project Securities to refinance the costs of construction of the
Projects, among other things. As of December 31, 1997, the principal amount of
outstanding Project Securities was $490,286,720.
The Original Project Indenture requires the Partnerships to arrange for
the delivery of letters of credit in an aggregate amount of up to $82,000,000 to
secure the Partnerships' obligations to certain of the Projects' power
purchasers and for certain other purposes and permits the Partnerships to borrow
up to $20,000,000 for working capital purposes (the "Working Capital Facility").
At the time the original Project Securities were issued, the Partnerships
entered into a Credit Agreement (the "Sanwa Credit Agreement") with The Sanwa
Bank, Limited, New York Branch ("Sanwa Bank"), pursuant to which (i) Sanwa Bank
agreed to issue the project letters of credit (the "Sanwa Letters of Credit")
and (ii) Sanwa Bank and the other banks named in the Sanwa Credit Agreement
agreed to provide working capital loans under a working capital facility (the
"Sanwa Working Capital Facility"). The aggregate outstanding principal amount of
the Sanwa Letters of Credit as of December 31, 1997 was $67,656,000.
In February 1998, NE LP terminated the Sanwa Credit Agreement, the
Sanwa Letters of Credit and the Sanwa Working Capital Facility and arranged for
the delivery of new project letters of credit to satisfy requirements in certain
of the Power Purchase Agreements (the "Energy Bank Letters of Credit"). The new
Energy Bank Letters of Credit were issued in face amounts of $12,656,000 and
$54,000,000 by BankBoston, N.A. ("BankBoston") and NationsBank of Texas
("NationsBank"), respectively. Following the issuance of the Energy Bank Letters
of Credit and the FPL Group Capital Guaranty to BankBoston and NationsBank, cash
in the amount of approximately $69,156,000, plus interest receivable,
constituting the Cash Collateral Proceeds, was released and distributed to the
Partners. In January 1998 NE LP arranged for the issuance to the Project Trustee
by BankBoston and Bank Brussels Lambert of two letters of credit (the
"Substitute Letters of Credit") in substitution for the cash on deposit in the
Debt Service Reserve Fund under the Project Indenture. Following the issuance of
4
<PAGE>
the Substitute Letters of Credit, cash in the amount of approximately
$33,270,000 was released from the Debt Service Reserve Fund and distributed to
the Partners.
On January 14, 1998, in connection with the Acquisitions, and with the
consent of the holders of a majority in aggregate principal amount of the
Project Securities then outstanding, the Original Project Indenture was amended
by the Second Supplemental Trust Indenture, dated as of January 14, 1998 (the
"Second Supplemental Indenture"). The Original Project Indenture, as amended by
the Second Supplemental Indenture is referred to herein as the "Project
Indenture." The amendments contained in the Second Supplemental Indenture permit
(i) the Acquisitions, (ii) substitution of a guaranty (the "FPL Group Capital
Guaranty") to be issued by FPL Group Capital, a wholly-owned subsidiary of FPL
Group, for the cash collateral (the "Cash Collateral Proceeds") that secured the
Partnerships' reimbursement obligations related to the Sanwa Letters of Credit,
(iii) at the time of substitution of the FPL Group Capital Guaranty, the release
of such Cash Collateral Proceeds directly to the Partners without first
depositing such amounts to the Revenue Fund described below and (iv) upon the
substitution of Substitute Letters of Credit described above, the release
directly to the Partners of amounts held in the Debt Service Reserve Fund for
the Project Securities, without first depositing such amounts to the Revenue
Fund. Under the Reimbursement Agreement, dated as of November 21, 1997, NE LP's
obligation to reimburse FPL Group Capital for any of the amount paid by FPL
Group Capital Guaranty is subject to the prior payment of any amounts payable
under the Indenture in respect of the Securities.
The Partnerships' obligations under the Project Indenture, the Working
Capital Facility and certain interest rate swap agreements described below
(collectively, the "Project Indebtedness"), for which the Partnerships are
jointly and severally liable, are secured by mortgages of and security interests
in substantially all of the property of the Partnerships. Pursuant to the
Project Indenture, the Partnerships are required to pay debt service in respect
of the Project Indebtedness, to pay certain other expenses (including the costs
of operating and maintaining the Projects) and to fund certain reserves prior to
making any distributions to the Partners. In addition, distributions from the
Partnerships to the Partners are subject to satisfaction of a number of other
requirements, including satisfaction of financial ratio tests and the absence of
any default or event of default under the Project Indenture. NE LP will have no
source of income to make payments under the Note other than the distributions it
receives from the Partnerships, and ESI Tractebel Acquisition will have no
source of income other than the loan payments it receives from NE LP under the
Note. The Partnerships' debt and other obligations are required in all events to
be paid prior to the payment of debt service in respect of the Securities. See
"Risk Factors -- Holding Company Structure; Dependence upon Operations of
Partnerships."
5
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Ownership Structure
Flow Chart of the ownership structure
showing the relationship among ESI Tractebel
Acquisition, NE LP and the Partnerships.
6
<PAGE>
The Exchange Offer
<TABLE>
<S> <C>
Securities Offered............................ $220,000,000 principal amount of 7.99% Series B Secured Bonds Due
December 30, 2011 of ESI Tractebel Acquisition (the "New Securities").
Issuance of Old Securities;
Registration Rights...................... The Old Securities were issued on February 12, 1998 to Goldman which
placed the Old Securities with "qualified institutional buyers" (as
such term is defined in Rule 144A promulgated under the 1933 Act). In
connection therewith, ESI Tractebel Acquisition and NE LP executed and
delivered the Registration Rights Agreement pursuant to which ESI
Tractebel Acquisition and NE LP agreed (i) to file a registration
statement (the "Registration Statement") on or prior to 90 days after
February 19, 1998 with respect to the Exchange Offer and (ii) use their
best efforts to cause the Registration Statement to be declared
effective by the Commission on or prior to 180 days after February 19,
1998. In certain circumstances, ESI Tractebel Acquisition and NE LP
will be required to provide a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the Old Securities by the
holders thereof. If ESI Tractebel Acquisition and NE LP do not comply
with their obligations under the Registration Rights Agreement, ESI
Tractebel Acquisition and NE LP will be required to pay Registration
Default Damages to holders of the Old Securities. See "The Exchange
Offer -- Registration Rights; Registration Default Damages."
The Exchange Offer............................ The New Securities are being offered in exchange for a like principal
amount of Old Securities. The issuance of the New Securities is
intended to satisfy certain obligations of ESI Tractebel Acquisition
and NE LP pursuant to certain registration rights granted under the
Registration Rights Agreement. See "The Exchange Offer -- Purpose of
the Exchange Offer". For procedures for tendering see "The Exchange
Offer -- Procedures for Tendering Old Securities". Based on an
interpretation of the staff of the SEC set forth in no-action letters
issued to third parties in circumstances substantially the same as
those applicable here, ESI Tractebel Acquisition believes that New
Securities issued pursuant to the Exchange Offer in exchange for Old
Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than (i) a broker-dealer who purchases such
New Securities directly from the Company to resell pursuant to Rule
144A or any other available exemption under the 1933 Act or (ii) any
such holder which is an "affiliate" of ESI Tractebel Acquisition or NE
LP within the meaning of the Rule 405 under the 1933 Act) without
compliance with the registration and prospectus delivery provisions of
the 1933 Act, provided that such New Securities are acquired in the
ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the
distribution of such New Securities. Any broker-dealer that receives
New Securities for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any
resale of such New Securities. See "Plan of Distribution". Although
there has been no indication of any change in the staff's position,
there can be no assurance that the staff of the SEC would make a
similar determination with respect to the resale of the New Securities.
ESI Tractebel Acquisition believes that there are no other federal or
stateregulatory requirements to be complied with or approvals obtained to
effectuate the Exchange Offer.
Book-Entry Transfer........................... State Street Bank and Trust Company (the "Exchange Agent") will make a
request to establish an account with respect to the Old Securities at
The Depository Trust Company ("DTC") for purposes of the Exchange Offer
within two business days after the date of the Exchange Offer, and any
financial institution that is a participant in DTC's systems may make
book-entry delivery of Old Securities by causing DTC to transfer such
Old Securities into the Exchange Agent's account at DTC in accordance
with DTC's procedures. The Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the
Exchange Agent at the address set forth under "'The Exchange Offer--
Procedures for Tendering Old Securities" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be
complied with.
Tenders' Expiration Date; Withdrawal.......... The Exchange Offer will expire at 5:00 p.m., New York City time, on
____________, 1998, or such later date and time to which it is
extended. If the Company elects to extend the Expiration Date, in no
event will the Expiration Date be extended beyond ____________, 1998.
The tender of the Old Securities pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date by delivering a written notice of withdrawal to the
Exchange Agent. See "The Exchange Offer -- Withdrawal Rights". Any Old
</TABLE>
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<S> <C>
Securities not accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
The registration rights granted pursuant to the Registration Rights
Agreement will expire upon completion of the Exchange Offer.
Therefore, any holder that fails to tender its Old Securities prior to
the completion of the Exchange Offer will be unable to obtain
registration under the 1933 Act for the Old Securities.
Guaranteed Delivery Procedures................ If a registered holder of Old Securities desires to tender such Old
Securities and the Old Securities are not immediately available, or
time will not permit such holder's Old Securities or other required
documents to reach the Exchange Agent before the Expiration Date, or
the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed Delivery
Procedures".
Consequences of Failure to Exchange........... There is currently no market for the New Securities, nor is there any
active market for the Old Securities. See "Risk Factors -- Absence of
Public Market". The liquidity of the market for a holder's Old
Securities could be adversely affected upon completion of the Exchange
Offer if such holder does not participate in the Exchange Offer or does
not validly tender such holder's Old Securities pursuant to the
Exchange Offer. See "Risk Factors -- Consequences of Failure to
Properly Tender" and "The Exchange Offer -- Consequences of Failure to
Exchange".
Procedures for Tendering Old Securities....... Each holder of Old Securities wishing to accept the Exchange Offer must
complete and sign the Letter of Transmittal, have the signature thereon
guaranteed if required by Instruction 4 of the Letter of Transmittal
and mail or deliver the Letter of Transmittal, together with the Old
Securities and any other required documents (such as appropriate bond
powers, if the Old Securities have not been endorsed, and evidence of
authority to act, if the Letter of Transmittal or any Old Securities or
bond powers are signed by someone acting in a fiduciary or
representative capacity), to the Exchange Agent, at the address set
forth herein and therein on or prior to the Expiration Date. Any
holder of Old Securities whose Old Securities are registered in the
name of brokers, dealers, commercial banks, trust companies or other
nominees should contact such entities or persons promptly to instruct
them to effect the Exchange Offer on such holder's behalf if such
holder wishes to accept the Exchange Offer. Letters of Transmittal and
certificates representing Old Securities should not be sent to ESI
Tractebel Acquisition. Such documents should only be sent to the
Exchange Agent. See "The Exchange Offer -- Procedures for Tendering Old
Securities".
Form of New Securities........................ The New Securities will be issued initially in the form of global
notes. See "Description of Securities -- Form, Denomination and
Title". Holders of beneficial interests in one or more of the global
notes representing the Old Securities desiring to exchange such
interests should follow the procedures described in "The Exchange Offer
-- Exchanging Book-Entry Old Securities" and in the Letter of
Transmittal.
Certain Federal Income Tax Considerations..... The exchange of New Securities for Old Securities will not be a taxable
event for federal income tax purposes. See "Certain Federal Tax
Considerations".
Rights of Dissenting Security Holders......... Holders of the Securities do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law or the Indenture in
connection with the Exchange Offer.
Exchange Agent................................ State Street Bank and Trust Company is the Exchange Agent. The address
and phone number of the Exchange Agent is set forth in "The Exchange
Offer -- The Exchange Agent."
</TABLE>
Summary of Terms of the New Securities
The terms of the Old Securities and the New Securities are identical in
all material respects, except (i) for certain transfer restrictions and
registration rights relating to the Old Securities and (ii) that, if the
Exchange Offer is not consummated by August 19, 1998 ("Registration Default"),
ESI Tractebel Acquisition and NE LP will be required to pay to each holder of
Old Securities liquidated damages ("Registration Default Damages") in an amount
equal to $.05 per week for each $1,000 principal amount of Old Securities, as
applicable, held by such holder for each week or portion thereof that the
Registration Default continues for the first 90-day period following the
occurrence of such Registration Default. The amount of the Registration Default
Damages will increase by an additional $.05 per week with respect to each 90-day
period until the Exchange Offer is consummated, up to a maximum of $.50 per week
for each $1,000 principal amount of Old Securities, as applicable.
<TABLE>
<S> <C>
Securities Offered........................ $220,000,000 principal amount of 7.99% Series B Secured Bonds Due 2011
Maturity Date............................. December 30, 2011
Interest Payment Dates.................... June 30 and December 30 of each year, commencing on the first such date
to occur after the exchange of the New Securities for Old Securities
Guaranty.................................. ESI Tractebel Acquisition's payment obligations under the New
</TABLE>
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<TABLE>
<S> <C>
Securities will be unconditionally guaranteed by NE LP pursuant to a
Guaranty (the "Bond Guaranty"). See "Description of Securities."
Scheduled Principal Payments.............. The principal of the New Securities will be payable in semi-annual
installments to the holders thereof as follows:
Scheduled Payment Date Principal Amount
---------------------- ----------------
June 30, 1998 $ 0
December 30, 1998 0
June 30, 1999 0
December 30, 1999 0
June 30, 2000 0
December 30, 2000 0
June 30, 2001 0
December 30, 2001 0
June 30, 2002 4,400,000
December 30, 2002 4,400,000
June 30, 2003 4,400,000
December 30, 2003 4,400,000
June 30, 2004 4,400,000
December 30, 2004 4,400,000
June 30, 2005 4,400,000
December 30, 2005 4,400,000
June 30, 2006 6,600,000
December 30, 2006 6,600,000
June 30, 2007 11,000,000
December 30, 2007 11,000,000
June 30, 2008 11,000,000
December 30, 2008 11,000,000
June 30, 2009 13,200,000
December 30, 2009 13,200,000
June 30, 2010 17,600,000
December 30, 2010 17,600,000
June 30, 2011 33,000,000
December 30, 2011 33,000,000
Security...................................... Payment of the New Securities will be secured by: (a) a perfected,
first priority pledge of (i) 100% of the partner interests of NE LP,
(ii) 100% of the member interests in NE LLC and (iii) NE LP's 98%
limited partner interest in each of the Partnerships and NE LLC's one
percent limited partner interest in each of the Partnerships; (b) a
second priority pledge of NE LP's one percent general partner interest
in each of the Partnerships (subordinate to the first priority pledge
of such general partner interest that secures the payments of and the
Partnerships' obligations under the Project Indebtedness); (c) a
perfected, first priority pledge of the Note evidencing NE LP's
obligation to repay the Bond Loan made by ESI Tractebel Acquisition to
NE LP; (d) a perfected, first priority lien on the funds in the
Accounts under the Indenture; and (e) a perfected, first priority
pledge of all of the outstanding capital stock of ESI Tractebel
Acquisition. See "Description of Securities."
Source of Payment for the New Securities...... The New Securities are payable solely from payments to be made by NE LP
under the Note and the Bond Guaranty and from other monies that may be
available from time to time in the Accounts held by the Trustee and are
not obligations of the Partnership's. NE LP's obligations to make
payments under the Note and the Bond Guaranty are general obligations
of NE LP, although NE LP's only source of funds to make such payments
are the distributions from the Partnerships to NE LP and NE LLC, which
are pledged by NE LP and NE LLC to the Trustee. So long as the Project
Indebtedness is outstanding, distributions from the Partnerships
constitute "Restricted Payments" under the Project Indenture and may be
released by the Project Trustee only upon satisfaction of the
conditions set forth in the Project Indenture. See "Outstanding
Project Indebtedness-Flow of Funds" for a more detailed description of
the flow of funds under the Project Indenture and of the conditions
that must be satisfied prior to any distributions to NE LP and NE LLC.
Optional Redemption........................... The New Securities will not be redeemable at ESI Tractebel
Acquisition's option prior to June 30, 2008. Thereafter, the New
Securities will be subject to redemption at any time at the option of
ESI Tractebel Acquisition, in whole or in part, at the redemption
prices set forth herein, together with accrued and unpaid interest and
Registration Default Damages, if any, to the date fixed for redemption.
</TABLE>
9
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<TABLE>
<S> <C>
Extraordinary Mandatory Redemption............ The New Securities will be subject to mandatory redemption pro rata, at
a redemption price equal to 100% of the principal amount of the New
Securities being redeemed plus accrued and unpaid interest and
Registration Default Damages, if any, to the date fixed for redemption
if (1) (a) any event occurs that triggers the mandatory redemption or
repurchase of any or all of the outstanding Project Securities and (b)
any funds so required to be applied to such redemption or repurchase
remain after giving effect to such redemption or repurchase and such
excess funds equal at least $2,000,000 and are distributed to NE LP or
NE LLC or (2) a buyout or similar payment is made to a Partnership
under any Power Purchase Agreement and any such funds are distributed
to NE LP or NE LLC in accordance with the terms of the Project
Indenture and of the Indenture, provided that, in each case, only such
funds so distributed must be applied to the extraordinary mandatory
redemption. See "Description of Securities -- Extraordinary Mandatory
Redemption."
Change of Control............................. Upon the occurrence of a Change of Control (as defined herein), ESI
Tractebel Acquisition will be required to offer to each Holder to
repurchase in cash all or any part of such Holder's New Securities, at
a purchase price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of
purchase. A Change of Control will not occur, however, if Moody's and
S&P confirm that the then existing ratings of the New Securities will
not be lowered as a result of any of the events that, in the absence of
such confirmed rating, would have triggered ESI Tractebel Acquisition's
obligations with respect to a Change of Control. See "Description of
Securities -- Repurchase At the Option of the Holders Upon a Change of
Control."
Ranking....................................... The New Securities will rank senior in right of payment to any
subordinated indebtedness of ESI Tractebel Acquisition incurred in the
future and will rank pari passu in right of payment with any senior
indebtedness of ESI Tractebel Acquisition incurred in the future. The
Old Securities are and the New Securities will be unconditionally
guaranteed by NE LP. The claims of the Holders of the New Securities
and the claims of the Trustee as holder of the Note will be effectively
subordinated to all present and future indebtedness and other
liabilities and commitments of NEA and NJEA, including the guarantee by
NEA and NJEA of the Project Indebtedness. See "Risk Factors -- Holding
Company Structure; Dependence upon Operations of Projects" and
"Description of Securities -- General."
Certain Covenants............................. The Indenture governing the New Securities is the same Indenture which
governs the Old Securities and contains certain covenants that, among
other things, require ESI Tractebel Acquisition, NE LP and NE LLC to
comply with, and requires NE LP, as general partner of NEA and NJEA, to
cause NEA and NJEA to comply with, certain covenants contained in the
Project Indenture, as if such covenants were still in full force and
effect notwithstanding the termination or expiration of the Project
Indenture (including, among others, covenants to maintain existence,
insurance, rights necessary to conduct the business, government
approvals and QF status by NEA and NJEA, to comply with the formation
documents and applicable laws and to pay taxes), to limit the ability
of ESI Tractebel Acquisition, NE LP and NE LLC and their Subsidiaries
(including NEA and NJEA) to incur Additional Indebtedness (as defined
herein), issue Disqualified Stock (as defined herein), incur liens, pay
dividends or distributions or make investments or certain other
Restricted Payments (as defined herein), engage in mergers,
consolidations, or sales of assets, enter into certain transactions
with affiliates or assume any suretyship obligations. All of these
restrictions, however, are subject to a number of important exceptions
and qualifications. See "Description of Securities" and "Appendix D --
Summary of Project Indenture."
Ratings....................................... "Ba1" by Moody's Investors Service, Inc. ("Moody's") and "BB" by
Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. ("S&P").
</TABLE>
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Risk Factors
See "Risk Factors" for a discussion of certain factors including, among
other things, (i) substantial leverage, (ii) holding company structure;
dependence upon operations of projects and (iii) regulatory and financial
pressures on power purchasers, that should be considered in evaluating an
investment in the New Securities.
Experts' Reports
The Independent Engineer's Report and the Fuel Consultant's Report,
each summarized below, are included in this Prospectus as Appendices B and C.
Each of Sargent & Lundy LLC and Benjamin Schlesinger and Associates, Inc. were
selected by NE LP based on their reputation in the field. Neither entity has any
affiliation with ESI Tractebel Acquisition, the Partners or the Partnerships.
None of ESI Tractebel Acquisition, the Partners or the Partnerships imposed any
limitation on the scope of investigation conducted by either entity.
Independent Engineer's Report
Sargent & Lundy LLC ("Sargent & Lundy") has prepared a report dated
February 12, 1998 (the "Independent Engineer's Report"), a copy of which is
included as Appendix B in this Prospectus, to assist prospective investors in
understanding and evaluating the Projects and the Carbon Dioxide Plant. The
Independent Engineer's Report assesses certain technical, environmental and
economic aspects of the Projects and of the Carbon Dioxide Plant including,
among other things, certain financial and operations estimates and projections
prepared by, and which are the responsibility of, NE LP. Price Waterhouse LLP
has neither examined nor compiled the Projections contained in Appendix B, and
accordingly, Price Waterhouse LLP does not express an opinion or any other form
of assurance with respect thereto. The Price Waterhouse LLP report included in
this Prospectus relates solely to the Partnerships' historical financial
information. It does not extend to the Projections and should not be read to do
so. For purposes of preparing these projections and estimates, NE LP relied upon
certain assumptions regarding material contingencies and other matters that are
not within the control of ESI Tractebel Acquisition, the Partners, the
Partnerships, the Independent Engineer or any other person. These assumptions
are inherently subject to significant uncertainties and actual results will
differ, perhaps materially, from those projected. None of ESI Tractebel
Acquisition, the Partners, the Partnerships or the Independent Engineer can give
any assurance that these assumptions are correct or that these projections and
estimates will reflect actual results of operations. Therefore, no
representations are made or intended, nor should any be inferred, with respect
to the likely existence of a particular future set of facts or circumstances. If
actual results are materially less favorable than those shown or if the
assumptions used in formulating these projections and estimates prove to be
incorrect, ESI Tractebel Acquisition's ability to make payments of principal of
and interest on the Securities may be materially adversely affected. For certain
additional information relating to the projections and estimates contained in
the Independent Engineer's Report, see "Risk Factors -- Uncertainties of
Projections and Assumptions."
Subject to the information contained, and assumptions made, in the
Independent Engineer's Report, the Independent Engineer has expressed the
following opinions:
o The facilities have been well constructed in accordance with generally
accepted engineering practices and are fully capable of performing in
accordance with the operating and financial projections.
o The technology used for the Projects is sound, commercially proven and
should provide an additional 20 years of service or longer with proper
operations and maintenance practices.
o An acceptable operation and maintenance program, including provisions
for planned major maintenance, has been established.
o The plants are clean, well maintained and well operated. After the
current O&M Agreements with Westinghouse expire, the facilities will be
operated and maintained by ESI Operating Services, Inc. ESI Operating
11
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Services, Inc. is fully capable of operating and maintaining these
combined-cycle power plant facilities.
o Both plants have been operating for over six years, with higher than
guaranteed net capacities and lower than guaranteed plant heat rates.
The availabilities of the plants have exceeded guaranteed levels and are
higher than industry averages.
o The plants have in the past and are capable in the future of meeting the
requirements of the existing power purchase agreements.
o The pro forma projections reflect demonstrated plant performance and
include conservative estimates of future performance of the facilities.
The estimates of technical performance and of the expenses for
operations and maintenance of the facilities and other similar operating
assumptions used in the projections represent conservative estimates and
assumptions in light of the circumstances of the Projects. The budgets
provide sufficient funds for routine and major maintenance practices
used in the industry to minimize degradation of power output and heat
rate. The Independent Engineer expects that maintenance expenses will be
within the limits anticipated in the budgets.
o Under the base-case assumptions, the pro forma financial projections
show a minimum debt service coverage ratio for the New Securities of
2.25 times and an average debt service coverage ratio of 2.88 times over
the life of the New Securities. The debt service coverage ratios remain
relatively stable over a broad range of sensitivities.
o The facilities meet the requirements of all regulatory agencies,
including those for QFs and those required by the environmental permits,
and the Independent Engineer expects that they will continue to do so in
the future.
For a more complete discussion of the methodology employed by the
Independent Engineer and the assumptions underlying the foregoing opinions, see
"Appendix B -- The Independent Engineer's Report."
Fuel Consultant's Report
Benjamin Schlesinger and Associates, Inc. (the "Fuel Consultant") has
prepared a report (the "Fuel Consultant's Report") dated February 12, 1998, a
copy of which is included as Appendix C in this Prospectus. The Fuel
Consultant's Report was prepared to provide a due diligence analysis and
evaluation of the fuel supply, transportation and storage arrangements for the
Projects. The Fuel Consultant's Report summarizes and evaluates NE LP's
projections regarding future costs for gas, the Partnerships' overall fuel
supply plan, the linkage of fuel costs and certain Project Revenues and the
Partnerships' gas supply and transportation arrangements. The assumptions
contained in the Projections and evaluated in the Fuel Consultant's Report
concern material contingencies and other matters that are not within the control
of ESI Tractebel Acquisition, the Partnerships, the Partners, the Fuel
Consultant or any other person. These assumptions are inherently subject to
significant uncertainties, and actual results will differ, perhaps
substantially, from those projected. None of ESI Tractebel Acquisition, the
Partnerships, the Partners, the Fuel Consultant or any other person can give any
assurance that these assumptions are correct or that the Projections will
reflect actual results of operations. No representation is made therefore, or
intended, nor should any representation be inferred, with respect to the likely
existence of a particular future set of facts or circumstances. If actual
results are materially less favorable than those shown or if the assumptions
evaluated in the Fuel Consultant's Report and utilized in preparing the
Projections prove to be incorrect, ESI Tractebel Acquisition's ability to pay
principal of and interest on the Securities may be materially and adversely
affected. See "Risk Factors -- Uncertainties of Projections and Assumptions."
Subject to the information contained, and assumptions made, in the Fuel
Consultant's Report, the Fuel Consultant has expressed the following
conclusions:
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o The assumptions contained in NE LP's pro forma financial model for the
Projects as they relate to the current and projected prices of natural
gas are reasonable, and the expected cash flows for NE LP are robust
enough to withstand alternative fuel price scenarios.
o The Partnerships have secured contract gas at the Projects on a highly
reliable basis. Moreover, since the Projects entered commercial
operations in 1991, neither has ever had to shut down due to lack of
availability of non-contract gas supplies.
o Taken together, NEA's and NJEA's delivered fuel costs and power revenues
are naturally hedged; i.e., the degree to which NJEA's and NEA's gas
purchases are tied to their energy payments equals 95% and 91%,
respectively.
o NEA's and NJEA's contracted gas supply, storage and transportation
services are adequate to satisfy 80% of the plants' daily fuel
requirements at full operations.
o NEA and NJEA are well positioned to continue to obtain competitive and
reliable spot supplies because of (a) the significant liquidity of spot
gas markets as an ongoing feature of the Northeast natural gas industry
and (b) their individual and combined purchasing power.
o Early expiration of the Projects' interstate pipeline contracts poses no
risk to bondholders due to the protections inherent in federal
regulation and market realities.
o No material adverse economic impact upon NJEA's financial projections
associated with the termination of the PSE&G contract as scheduled in
2011 is foreseen.
o NEA and NJEA have executed exceptionally strong fuel supply and
transportation strategies and will be able to continue fulfilling all of
their gas requirements reliably and in a way that will protect
bondholders at least over the next 15 years.
For a more complete discussion of the methodology employed by the Fuel
Consultant and the assumptions underlying the foregoing conclusions, see
"Appendix C -- The Fuel Consultant's Report."
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
Historical
Presented below is the summary historical combined financial data of
the Partnerships at the dates and for the periods indicated. The summary
historical combined statement of operations data and statement of cash flows
data for the years ended December 31, 1995, 1996 and 1997 are derived from the
Partnerships' combined financial statements included elsewhere in this
Prospectus. The summary historical combined statement of operations data and
statement of cash flows data for the years ended December 31, 1993 and 1994 are
derived from the Partnerships' audited combined financial statements not
included in this Prospectus. The summary historical combined financial data set
forth below should be read in conjunction with, and is qualified by reference
to, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited combined financial statements of the Partnerships
and related notes thereto included elsewhere in this Prospectus.
Pro Forma
Because NE LP was formed November 21, 1997, it had no activity as of
and for the year ended December 31, 1997. As a result, the summary NE LP pro
forma financial information gives effect to the Acquisitions based on the
historical combined financial statements of the Partnerships, under the
assumptions and adjustments set forth in the notes accompanying the unaudited
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pro forma financial statements contained in "Unaudited Pro Forma Financial
Statements." NE LP has accounted for the Acquisitions as a purchase for
financial reporting purposes. The summary pro forma statement of operations data
for the year ended December 31, 1997 assumes that the Acquisitions and the
Offering were consummated on January 1, 1997. The summary pro forma balance
sheet as of December 31, 1997 assumes the Acquisitions and the Offering were
consummated on December 31, 1997.
The summary NE LP pro forma financial information should be read in
conjunction with the notes accompanying the unaudited pro forma financial
statements contained in "Unaudited Pro Forma Financial Statements" and with the
historical combined financial statements of the Partnerships and related notes
thereto included elsewhere in this Prospectus. The summary pro forma combined
financial information has been prepared for informational purposes only and is
not necessarily indicative of the actual or future results of operations or
financial condition that would have been achieved had the Acquisitions occurred
at the dates assumed.
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(In Thousands of Dollars)
<TABLE>
<CAPTION>
NE LP
Partnerships Combined Pro Forma
- ------------------------------------------------------------------------------------------------------------ --------------------
Year Ended December 31, Year Ended
- ------------------------------------------------------------------------------------------------------------ --------------------
1993 1994 1995 1996 1997 December 31, 1997(1)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ 238,826 $ 238,712 $ 280,549 $ 272,262 $ 312,154 $ 312,154
Operating income........................ $ 46,882 $ 54,176 $ 86,097 $ 71,279 $ 94,013 $ 73,532
Net income (loss)....................... $ (1,261) $ (16,916)(2) $ 26,857 $ 9,924 $ 36,673 $ (7,224)
BALANCE SHEET DATA:
Total assets............................ $ 546,484 $ 650,027 $ 617,034 $ 566,392 $ 541,431 $1,478,746
========= ========= ========= ========= ========== ==========
Loans payable and other liabilities..... $ 483,626 $ 587,459 $ 559,558 $ 532,949 $508,052 $1,080,345
Energy Bank liabilities................. 111,398 155,496 188,053 220,922 230,565 171,581
--------- --------- --------- --------- ---------- ----------
Total liabilities................ 595,024 742,955 747,611 753,871 738,617 1,251,926
Partners' equity (deficit).............. (48,540) (92,928) (130,577) (187,479) (197,186) 226,820
--------- --------- --------- --------- ---------- ----------
Total liabilities and partners'
equity (deficit)................ $ 546,484 $ 650,027 $ 617,034 $ 566,392 $ 541,431 $1,478,746
========= ========= ========= ========= ========== ==========
STATEMENT OF CASH FLOWS DATA:
Non-cash charges and Energy Bank
accruals(3)............................ $ 69,955 $ 70,745 $ 59,766 $ 60,220 $ 36,798
Extraordinary loss on extinguishment of
debt................................... -- 13,937 -- -- --
Change in future obligations under
interest rate swap agreements.......... -- 6,425 (2,771) (1,632) (1,133)
Change in working capital............... 455 (5,828) (12,622) 6,514 9,837
Net income (loss)....................... (1,261) (16,916) 26,857 9,924 36,673
--------- --------- --------- --------- ----------
Net cash provided by operating
activities(4).......................... $ 69,149 $ 68,363 $ 71,230 $ 75,026 $ 82,175
========= ========= ========= ========= ==========
Principal payments on debt.............. $ 48,742 $ 34,290 $ 20,434 $ 25,204 $ 24,075
Interest paid........................... $ 38,090 $ 37,743 $ 53,869 $ 51,435 $ 48,794
Distributions to partners............... $ 10,878 $ 27,472 $ 64,506 $ 66,826 $ 46,380
Ratio of earnings to fixed charges(5)... -- -- 1.38 1.18 1.70 --
</TABLE>
- ----------
(1) See "Unaudited Pro Forma Financial Statements."
(2) Includes extraordinary loss on extinguishment of debt of $13.9 million and
expense of $6.7 million related to future obligations under interest rate
swap agreements.
(3) Includes depreciation of property, plant and equipment, amortization of
financing costs, and annual increases in Energy Bank balances.
(4) Net cash provided by operating activities is net of interest paid during
the period.
(5) The ratio of earnings to fixed charges is determined by dividing the sum of
pre-tax income (net income) and fixed charges (consisting of interest
expense, amortization of debt issue costs, the estimated interest component
of rent expense and equipment rentals) by fixed charges. The earnings
for 1993, 1994 and pro forma 1997 were inadequate to cover fixed charges.
The coverage deficiencies during 1993, 1994 and pro forma 1997 are $1.261
million, $2.979 million and $7.224 million, respectively.
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<PAGE>
RISK FACTORS
Holders of the Old Securities should consider carefully the risk
factors set forth below, as well as other information contained herein, before
tendering their Old Securities in the Exchange Offer.
Substantial Leverage
As of the date of this Prospectus, ESI Tractebel Acquisition and NE LP
are substantially leveraged. On December 31, 1997, after giving pro forma effect
to the Offering, ESI Tractebel Acquisition would have had total indebtedness of
approximately $220 million, representing the aggregate principal amount of the
Securities. On December 31, 1997, after giving pro forma effect to the
Acquisitions, the Offering, and the uses of proceeds therefrom, NE LP would have
had total long-term indebtedness of $860,305,000 (of which $220,000,000 would
have consisted of the non-current portion of its Note relating to the
Securities, $468,724,000 would have consisted of the Partnerships' loan payable
to a related party and $171,581,000 would have consisted of Energy Bank
balances) and Partners' equity of $226,820,000. Subject to the limitations set
forth in the Indenture, ESI Tractebel Acquisition, NE LP and NE LLC and their
subsidiaries will be permitted to incur additional indebtedness in the future.
See "Capitalization" and "Summary Historical and Pro Forma Combined Financial
Data" and "Description of Securities."
ESI Tractebel Acquisition's ability to make scheduled payments of the
principal of, or to pay the interest on and Registration Default Damages, if
any, or to refinance, its indebtedness (including the Securities), will depend
upon NE LP's ability to make scheduled payments under the Note. NE LP's ability
to make such payments and the Partnerships' ability to make payments on the
Project Indebtedness and to fund planned capital expenditures for the Projects
will depend, in turn, on the future performance of the Partnerships, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond ESI Tractebel
Acquisition's, NE LP's or the Partnerships' control. Based upon the current
level of operations of the Partnerships, management of NE LP believes that cash
flow from operations and available cash will be adequate to meet the
Partnerships', NE LP's and ESI Tractebel Acquisition's future liquidity needs.
There can be no assurance, however, that the Partnerships' business will
generate sufficient cash flow from operations or that future borrowings will be
available in an amount sufficient to enable the Partnerships to service the
Project Indebtedness and to enable NE LP and ESI Tractebel Acquisition to
service their respective indebtedness, including the Securities, or to fund
their other liquidity needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The degree to which the Partnerships and NE LP are leveraged could have
important consequences to holders of the Securities, including, but not limited
to: (i) making it more difficult for ESI Tractebel Acquisition to satisfy its
obligations with respect to the Securities, (ii) increasing the Partnerships'
vulnerability to general adverse economic and industry conditions, (iii)
limiting NE LP's and the Partnerships' ability to obtain additional financing to
fund future working capital, capital expenditures and other general requirements
and (iv) limiting the Partnerships' flexibility in planning for, or reacting to,
changes in its business and in the industry. In addition, each of the Project
Indenture and the Indenture contain, certain restrictive covenants that limit
the ability of the Partnerships and ESI Tractebel Acquisition and NE LP,
respectively, to, among other things, borrow additional funds. Failure by the
Partnerships, NE LP or ESI Tractebel Acquisition to comply with such covenants
under the respective indentures could result in an event of default that, if not
cured or waived, could have a material adverse effect on the Partnerships and/or
ESI Tractebel Acquisition and NE LP. In addition, the degree to which ESI
Tractebel Acquisition is leveraged could prevent it from repurchasing all of the
Securities tendered to it upon the occurrence of a Change of Control. See "--
Holding Company Structure; Dependence upon Operations of Projects," "Description
16
<PAGE>
of Securities -- Repurchase at the Option of Holders Upon a Change of Control"
and "-- Outstanding Project Indebtedness."
Holding Company Structure; Dependence Upon Operations of Projects
Payment of the principal and premium, if any, and interest and
Registration Default Damages, if any, on the Securities are not obligations of
the Partnerships but are payable from payments to be received by ESI Tractebel
Acquisition on the Note, which payments can be made solely from distributions to
be made by the Partnerships to NE LP and NE LLC, and from funds held by the
Trustee in the Accounts, including the Debt Service Reserve Account. So long as
the Project Indebtedness is outstanding, such distributions can be made only
after all of the payments and deposits required under the Project Indenture have
been made. In addition to the operating expenses and reserves associated with
the Projects, payments under the Project Indenture include payments on the
Working Capital Facility, if any, the Project Securities and the Swaps and
reserves and fees therefor. In addition, distributions from the Partnerships to
NE LP and NE LLC are subject to satisfaction of a number of other requirements,
including satisfaction of financial ratio tests and the absence of any default
or event of default under the Project Indenture. Accordingly, payments on the
Securities are, effectively, deeply subordinated.
If a Partnership does not make a payment or otherwise fails to perform
its obligations under the Project Indenture or if the coverage tests are not
met, no distributions will be made to the Partners and no funds will be
available to make payments on the Securities, other than any amounts held by the
Trustee in the accounts described below. Upon the liquidation, bankruptcy,
insolvency or similar proceeding in respect of a Partnership or following any
event of default under the Project Indenture and/or under the NEA Second
Mortgage, all creditors of the Partnerships, including the holders of the
Project Securities, the Working Capital Banks, if any, and the Swap Banks and,
if the Project Indebtedness is no longer outstanding, the NEA Power Purchasers
under the NEA Second Mortgage, will be entitled to receive payment in full of
all amounts due and owing before the Partners will be entitled to receive any
amounts.
Debt service payments in respect of the Securities are entirely
dependent upon the operation of the Projects. Operation of the Projects involves
regulatory risks such as changes in laws or regulations, which could result in
increased compliance costs, the need for additional capital expenditures or the
reduction of certain benefits currently available to the Partnerships, and
involves a variety of other risks, including possible performance of one or both
Projects below expected levels of output or efficiency, interruptions in fuel
supply, disruptions in the off-take of electrical energy or steam, shut-downs
due to the breakdown or failure of equipment or processes, labor disputes,
material changes in governmental permit requirements and catastrophic events
such as fires, earthquakes, explosions, floods, severe storms or similar
occurrences affecting a Project or its power purchasers, steam purchasers, fuel
suppliers or fuel transporters. The occurrence of any of these events could
reduce significantly or eliminate entirely the revenues generated by a Project
and could increase significantly the expenses incurred by that Project. The
Partnerships maintain insurance to protect against many of these risks; however,
not all risks can be insured, and the proceeds of insurance for risks that are
covered may not be adequate to cover a Project's lost revenues or increased
expenses. In addition, although the Projects have been in operation since 1991,
there can be no assurance that the operating and financial results under the New
Operator and the Partners will match the past results described herein.
Regulatory and Financial Pressures on Power Purchasers
If the price to be paid by a Power Purchaser to a Partnership under its
Power Purchase Agreement exceeds such Power Purchaser's actual Avoided Costs for
the electricity purchased, or if a Power Purchaser is experiencing financial,
regulatory or other pressures, such Power Purchaser could attempt to amend or to
terminate its Power Purchase Agreement. See "-- Dependence Upon Third Parties."
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<PAGE>
Currently, the price to be paid by each of the Power Purchasers, other than
Montaup, is projected to be above actual Avoided Costs for the remaining term of
the Power Purchase Agreements. Although the provisions of the Power Purchase
Agreements do not permit amendments or early termination without the consent of
the applicable Partnership and although the provisions of the Project Indenture
and the Indenture prohibit the Partnerships and NE LP, respectively, from giving
such consent if the effect on the bondholders would be materially adverse, it is
conceivable that, upon a change in applicable legislation, case law and/or
regulations, a court or regulatory authority could order such an amendment or
termination. Such amendment or termination could materially and adversely affect
the net revenues of the applicable Partnership and consequently the cash flow
available for payments on the Securities and may constitute an event of default
under the Project Indenture and the Indenture. See "-- Dependence Upon Third
Parties" and "Regulation -- Utility Industry Restructuring."
JCP&L has reported to New Jersey regulators that its above-market costs
for power associated with the NJEA Power Purchase Agreement will total $837.67
million during the remaining life of the NJEA Power Purchase Agreement (present
value of such amount recently estimated by JCP&L to be approximately $509.44
million) and that it intends to pursue efforts to mitigate these costs. In
Massachusetts, pursuant to recently enacted electric deregulation legislation,
utilities and producers that are parties to certain above-market power contracts
are required, subject to certain conditions, to make good-faith efforts to
renegotiate such contracts in order to mitigate stranded costs. See "Regulation
- -- Utility Industry Restructuring."
Security of Partners' Pledges Limited to Economic Rights
Security for the Securities will include a first priority security
interest in NE LLC's and NE LP's limited partner interests in the Partnerships
and a second priority security interest in NE LP's general partner interest in
the Partnerships (second to the first priority security interest that secures
repayment of the Project Indebtedness). Following any default under the
Indenture, so long as the Project Securities or any other Project Indebtedness
is outstanding, security for the Securities is practically limited to the
Partners' economic interests in the Partnerships. The limited partner interests
do not include meaningful voting rights, so that foreclosure on such limited
partner interests will, practically, result only in acquisition of economic
interests. So long as the Project Securities are outstanding, the Trustee will
have no ability to assume or to influence management or control of the
Partnerships.
Limited Recourse
The obligations of NE LP under the Note are non-recourse to the direct
and indirect owners of NE LP. None of the Partnerships or any of their
affiliates or parents (including FPL Energy, ESI Energy and Tractebel Power),
stockholders, officers, directors or employees has any obligation with respect
to payment of the Securities or the Projects' Indebtedness. In addition, the
obligations of NEA and NJEA in connection with the Project and the Project
Indebtedness are non-recourse obligations of the Partnerships. Because NE LP and
NE LLC will have no meaningful revenues other than the distributions they
receive from the Partnerships, NE LP's ability to make payments under the Note
will be limited to payments to be made from amounts payable by the Partnerships
as distributions.
Energy Banks and the NEA Second Mortgage
Each of the Power Purchase Agreements (other than the Commonwealth
Power Purchase Agreements) provides for tracking accounts or "Energy Banks" that
represent the cumulative differences from time to time between (i) amounts
originally estimated to be paid or actually paid, depending upon the Power
Purchaser Agreement, by the Power Purchaser for electric power delivered
pursuant to such Power Purchase Agreement and (ii) the amounts originally
estimated as such Power Purchaser's Avoided Cost (as defined in such Power
18
<PAGE>
Purchase Agreement). The balances in the Energy Banks under the Boston Edison II
Power Purchase Agreement and under the JCP&L Power Purchase Agreement have been
reduced to zero resulting in a termination of the Energy Bank provisions in such
agreements. The Energy Bank balances under the Boston Edison I Power Purchase
Agreement and under the Montaup Power Purchase Agreement were $144,547,000 and
$27,035,000, respectively, as of December 31, 1997. The Energy Bank balance for
the Montaup Power Purchase Agreement is expected to increase throughout the term
of such agreement and to be approximately $60 million on December 30, 2011, the
maturity date of the Securities. Each of such agreements provides that any
positive Energy Bank balance will be due and payable by NEA in cash if such
agreement is terminated under the following circumstances: (i) in the case of
the Boston Edison I Power Purchase Agreement, upon the expiration or early
termination following an event of default by NEA (which includes the failure to
deliver a minimum quantity of electricity equal to approximately 50% of
historical levels for two consecutive years) and (ii) in the case of the Montaup
Power Purchase Agreement upon expiration or early termination following NEA's
insolvency or bankruptcy or upon NEA's failure to generate at an annual capacity
factor of 60% or higher for two consecutive years. Any such payment will be
senior in right of payment to the Securities.
The performance by NEA of its obligations under each of the NEA Power
Purchase Agreements is secured by the NEA Second Mortgage. In addition, the NEA
Second Mortgage grants security with respect to all amounts paid by the NEA
Power Purchasers under their respective NEA Power Purchase Agreements in excess
of the particular Power Purchaser's actual avoided costs, plus interest thereon
(the "Avoided Cost Security"). Although the Avoided Cost Security is payable
only from proceeds of any foreclosure sale following an event of default under
the NEA Second Mortgage or from the profits of the NEA Project following
repossession of the NEA Project by the NEA Power Purchasers under the NEA Second
Mortgage, and although none of such remedies may be exercised so long as the
Project Securities are outstanding, the projected amount of the Avoided Cost
Security is sufficiently large that if the Avoided Cost Security were to become
payable, NEA would likely not have sufficient resources to pay such amount and
would likely be rendered insolvent. Because the Project Securities are scheduled
to mature one year prior to the final maturity date of the Securities, it is
possible that, upon the occurrence and continuance of an event of default by NEA
under the NEA Power Purchase Agreements, the NEA Power Purchasers could
foreclose upon the NEA Project or repossess the NEA Project after the
termination or expiration of the Project Indenture and prior to the final
maturity date of the Securities. See "The Projects -- Power Purchase
Agreements."
The existence of the Energy Bank balances and the provisions of the NEA
Second Mortgage reduce the likelihood that holders of the Securities will be
paid if one or more of the NEA Power Purchasers terminate their Power Purchase
Agreements or foreclose upon or repossess the NEA Project under the NEA Second
Mortgage. For a description of the termination provisions under the Power
Purchase Agreements, see "Summary of Principal Project Agreements -- Power
Purchase Agreements."
Expiration of Certain Power Purchase Agreements; Merchant Sales
Project Revenues, and therefore distributions by the Partnerships to
the Partners, depend primarily upon payments to be made by the Power Purchasers.
The JCP&L Power Purchase Agreement expires on August 13, 2011, and the Boston
Edison II Power Purchase Agreement expires on September 15, 2011, four months
and three months, respectively, prior to the final maturity date of the
Securities. NE LP expects that after the expiration of the JCP&L Power Purchase
Agreement the NJEA Project will become a merchant plant with respect to the
portion of the net electrical output currently purchased by JCP&L thereunder and
with respect to the residual portion of the net electrical output expected to be
sold in the merchant markets, subject to certain restrictions and assuming such
merchant buyers are located. Although NE LP expects to find merchant market
purchasers for such additional capacity and plans to begin selling the residual
capacity (to which JCP&L currently has a right of recall at specified rates) in
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1999, to date none of the additional capacity has been sold by NJEA. No
assurance can be given that JCP&L will agree to such sales by NJEA or that such
sales will materialize. See "-- Dependence Upon Third Parties." NE LP also
expects that NEA may sell approximately 10 MW of the NEA Project's residual
capacity in the merchant markets beginning in 1999 and that after the expiration
of the Boston Edison II Power Purchase Agreement, the NEA Project will become a
merchant plant with respect to approximately 29% of its output. For either of
the Projects to operate as a merchant plant and to sell power at market-based
rates, that Project would first require approval from FERC. FERC would require a
showing that the Project's owners lack market power in the relevant generation
and transmission markets, as well as with respect to other inputs into the
generation of electricity (such as fuel). Market-based rate authority would also
require a showing that there is no opportunity for abusive affiliate
transactions involving regulated affiliates of the Partnerships. In addition, a
merchant plant sells power based upon market conditions at the time of sale, so
that there can be no certainty today about the amount or timing of any revenues
that may be received from merchant power sales in the future. NE LP's
projections of revenues anticipated to be received from merchant sales is
included in Appendix B, although there can be no assurance that such revenues
will be achieved. See "-- Uncertainties of Projections and Assumptions." In any
event, it is likely that Project Revenues from power sales following expiration
of the JCP&L Power Purchase Agreement and the Boston Edison II Power Purchase
Agreement will be lower than Project Revenues payable from JCP&L and Boston
Edison during the terms of the two agreements.
Dependence Upon Third Parties
The viability of the Projects, NE LP's corresponding ability to make
payments on the Note and ESI Tractebel Acquisition's corresponding ability to
make payments on the Securities depend significantly upon the performance by
third parties in accordance with the Project Documents. If the parties to the
Project Documents do not perform their obligations or are excused from
performing their obligations because of non-performance by the Partnerships or
because of force majeure or other events, the Partnerships may not be able to
obtain alternate customers, goods or services to cover such nonperformance, and
NE LP's ability to make Note payments and ESI Tractebel Acquisition's
corresponding ability to make payments on the Securities would likely be
materially and adversely affected.
The NEA Project is dependent upon three electric energy purchasers for
sales of substantially all of the electricity produced by the NEA Project, one
natural gas supplier for substantially all natural gas supplied to the NEA
Project and one purchaser, NECO, for all thermal energy sales required to
maintain the NEA Project's QF status. During 1997 and 1996 Boston Edison's
purchases of electric energy accounted for approximately 75% of the NEA
Project's electricity output and for approximately 76% of NEA's gross revenues.
During 1997 and 1996, ProGas supplied approximately 72% and 74%, respectively,
of the NEA Project's fuel requirements. Although the NEA Project may also be
operated with Number 2 fuel oil, using Number 2 fuel oil is permitted only under
certain limited conditions and for certain limited durations. Other than for
testing purposes, Number 2 fuel oil has never been used at the NEA Project. See
"The Projects -- Gas Supply Arrangements" and "The Projects -- NEA Project --
Project Description." In addition, NECO's obligations to purchase steam under
the NEA Steam Sales Agreements are based on the NEA Project's being fueled only
by 100% pipeline quality natural gas and will be suspended whenever Number 2
fuel oil is used. See "The Projects -- Steam Sales Agreement -- NEA." The
reduction or elimination of NEA's sales of steam to NECO may negatively impact
the NEA Project's QF status.
The NJEA Project is dependent upon one electrical energy purchaser,
JCP&L, for nearly all of its sales of electrical energy. During 1997 and 1996,
JCP&L's purchases accounted for 100% of the NJEA Project's electrical output
sold and all of NJEA's gross operating revenues other than revenues from steam
sales. The NJEA Project's electrical capacity, net of electric power consumed at
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<PAGE>
the NJEA Site, is approximately 287 MW, of which approximately 252 MW are being
sold to JCP&L. Although NE LP expects to find merchant market purchasers for
such additional capacity (to which JCP&L currently has a right of recall at
specified rates) and plans to begin selling such additional capacity in 1999, to
date none of such additional capacity has been sold by NJEA. No assurance can be
given that JCP&L will agree to such sales by NJEA or that such sales will
materialize. See "-- Expiration of Certain Power Purchase Agreements; Merchant
Sales." The NJEA Project is dependent upon two natural gas suppliers, ProGas and
PSE&G, for substantially all natural gas required to operate the Project.
NJEA's gas supply contract with PSE&G expires in August 2011,
approximately four months prior to the final maturity date of the Securities.
PSE&G currently supplies approximately 45% of the NJEA Project's fuel
requirements. NE LP expects that such quantities will be replaced by the Fuel
Manager with natural gas purchased on the spot market. No assurances can be
given, however, that the prices for such natural gas will not be materially
higher than the Partnerships' current costs for the supply of natural gas or
that adequate supplies of natural gas will be available.
Electric utility systems that purchase substantial portions of their
energy supply from non-utility generators under fixed-quantity contracts have
recently expressed a strong interest in lowering consumer rates by extending
dispatch flexibility to include the generating plants of non-utility generators.
General Public Utility's system, of which JCP&L is a part, has publicly
announced and is pursuing its Natural Gas Private Pooling Point Program in which
it would draw on its lower fuel-cost sources of energy before drawing on higher
fuel-cost sources. JCP&L has contacted NJEA regarding this program and has made
a presentation to NJEA regarding JCP&L's proposal to transform NJEA's must-run
contract into a dispatchable contract on terms that are to cover all fixed costs
(debt service and fixed operating expenses) and preserve current net profits
while allowing JCP&L to reduce its purchased power costs. JCP&L has reported to
New Jersey regulators that its above-market costs for power associated with the
NJEA Power Purchase Agreement will total $837.67 million during the remaining
life of the NJEA Power Purchase Agreement (present value of such amount recently
estimated by JCP&L to be approximately $509.44 million) and that it intends to
pursue its efforts to mitigate these costs. In Massachusetts, pursuant to
recently enacted electric deregulation legislation, utilities and producers that
are parties to certain above-market power contracts are required, subject to
certain conditions, to make good-faith efforts to renegotiate such contracts in
order to mitigate stranded costs. See "Regulation -- Utility Industry
Restructuring." Such initiatives aimed at reducing stranded costs may negatively
affect revenues under the Power Purchase Agreements and consequently ESI
Tractebel Acquisition's ability to make payments on the Securities.
NEA and NJEA are dependent upon NECO and Hercules, respectively, for
steam sales. Steam sales are important for the maintenance of QF status. NECO
uses steam to produce carbon dioxide, and is dependent upon two carbon dioxide
purchasers for its own revenues. NECO's obligation to pay rent under its lease
with NEA (the "NECO Lease") and to pay for steam under its steam sales agreement
with NEA (the "NEA Steam Sales Agreement") depends upon whether NECO's revenues
exceed its expenses, and NECO is entitled under such agreements to defer
payments to NEA so long as the amount of its expenses exceeds the amount of its
revenues. NEA has agreed with each of NECO's two customers that upon receipt of
notice of NECO's default on its obligations to such customer, NEA will, within
45 days, replace NECO as lessee of the Carbon Dioxide Plant. NEA may not be able
to locate another company to lease the Carbon Dioxide Plant and to purchase
steam from the NEA Project, in which case the NEA Project's status as a QF and
the amount of NEA's revenues could be adversely affected.
NJEA's steam sales depend upon the continuing operation and viability
of the Hercules plant, which produces smokeless and soluble nitrocellulose and
natrosol. If the Hercules plant closes, NJEA has the right to build another
steam host on land leased from Hercules. Such endeavor would be costly and
time-consuming, however, and there can be no assurance that NJEA would have the
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<PAGE>
funds or be able to borrow the funds to replace the Hercules plant as a steam
host. The NJEA Project's status as a QF depends in part upon Hercules' purchases
of steam, and loss of QF status is an event of default by NJEA under the NJEA
Power Purchase Agreement.
The loss of QF status by NEA would entitle Montaup to renegotiate the
price provisions of its Power Purchase Agreement, and the loss of QF status by
NJEA would entitle JCP&L to terminate its Power Purchase Agreement. The initial
term of NEA's Steam Sales Agreement is scheduled to expire in June 2007, prior
to the final maturity date of the Securities. If the Steam Sales Agreement with
NECO is not renewed or replaced after such expiration date or if NEA's steam
host is not replaced, the risk of loss of QF status would materially increase.
See "Regulation" and "Summary of Principal Project Agreements -- Power Purchase
Agreements."
Gas Supply, Transportation and Transmission Risks
Open Market Purchases. The natural gas supplied by ProGas and by PSE&G
under the Long-term Gas Supply Agreements accounted for approximately 86% of the
natural gas required to operate the Projects in 1996 and approximately 85% of
such in 1997. The Partnerships currently purchase approximately 18% of their
natural gas supplies on the open market and thus are exposed to risks regarding
changes in the availability and market price of natural gas. Certain of the
Power Purchase Agreements link the price payable for electricity delivered
thereunder to the cost of natural gas in specified markets, providing some
protection against gas price volatility, but these pricing links are not
directly tied to the Partnerships' actual gas costs and thus do not provide
complete protection. Although the Fuel Consultant has determined that for NJEA
and NEA there are 95% and 91% correlations, respectively, between price
escalators under the Long-term Gas Supply Agreements, the correlation is not an
exact one. Accordingly, there can be no assurance that the Partnerships' fuel
costs will not materially exceed the costs assumed in the Projections.
Gas Transportation. Although the Long-term Gas Transportation
Agreements provide for firm transportation of all gas purchased under the
Long-term Gas Supply Agreements, the Partnerships do not have firm
transportation arrangements for the delivery of natural gas purchased on the
open market or arrangements for the delivery of gas after certain of the
Long-term Gas Transportation Agreements expire in 2006 and 2011. Transportation
arrangements for open-market purchases may not be available or may not be
available at the prices assumed therefore in the Projections. The Partnerships'
operating expenses will be greater than those indicated in the Projections if
the Partnerships are required to pay higher prices for natural gas or for
transportation, and if the Partnerships are unable to obtain sufficient supplies
of natural gas or natural gas transportation, a reduction in the amount of
electricity that one or both of the Projects could produce would result,
negatively impacting the revenues of the Projects and consequently ESI Tractebel
Acquisition's ability to make payments on the Securities.
Most of the Long-term Gas Transportation Agreements, as well as the
transporters' approved tariffs, contain provisions that permit the transporter
to terminate, suspend or reduce transportation of natural gas to the Projects
under certain circumstances. In addition, applicable governmental agencies have
authority to modify the rates, terms and conditions that govern the services
provided under the Long-term Gas Arrangements, and any such modification could
materially increase the Partnerships' fuel transportation costs. There can be no
assurance, therefore, that the Partnerships' actual transportation costs will
not exceed those assumed in the Projections.
Gas Storage. The Long-term Gas Storage Agreements stipulate that if the
number of dekatherms of gas being stored drops below specified levels, the
contractor may limit delivery or refuse to deliver natural gas to the
Partnerships until the gas storage volumes are replenished. Curtailment of
22
<PAGE>
natural gas deliveries from storage would require purchases of additional
natural gas on the open market, which could increase the Partnerships' costs of
operating the Projects.
PSE&G Service Interruptions. PSE&G's gas supply and transportation
services to the NJEA Project are subject to interruption or to higher prices on
days when the forecast mean daily temperature for Newark, New Jersey is 22
degrees F or below. To avoid interruptions in service, NJEA may elect by March
of any year to have service without interruption, but at higher prices, on days
on which the temperature is below 22 degrees F but not below 14 degrees F. Since
1991, when the NJEA Project commenced commercial operation through the winter of
1996-1997, there have been an average of approximately 11 days per winter when
the forecast mean temperature was below 22 degrees F and two days per winter
when the forecast mean temperature was below 14 degrees F.
Transmission of Electrical Power. All of the electrical power sold to
the NEA Power Purchasers is transported through one 345kV line. Boston Edison
owns the Massachusetts section of this line. Commonwealth and Montaup have
access to a portion of the transmission capacity of this line pursuant to
arrangements that are scheduled to expire in 2001. Transmission access in New
England is determined in accordance with rules of NEPOOL and the ISO (as
described under the caption "Regulation -- Utility Industry Restructuring --
NEPOOL"), as such rules may be modified from time to time. The Projections
assume that costs of transmission in 2001 will be equal to the current Boston
Edison rates as filed with FERC. However, rates, terms and conditions of
transmission service after 2001 will depend on NEPOOL and FERC policies at the
time, which are difficult to predict with any certainty. In any event, any new
arrangements for transmitting power from the NEA Project to Commonwealth and
Montaup after 2001 are likely to result in increased transmission costs. NEA may
bear the burden of any such increased costs, and there can be no assurance that
such costs will not exceed the costs assumed therefor in the Projections.
Risks Arising from Regulation
General. The Partnerships are required to comply with numerous federal,
state and local statutory and regulatory standards and to maintain numerous
permits and approvals required for the operation of the Projects. Some of the
permits and regulatory approvals that have been issued to the Partnerships
contain certain conditions. Failure to satisfy any such conditions or approvals
could prevent the operation of either Project or result in additional costs.
There can be no assurance that either Project will continue to operate in
accordance with the conditions established by the permits or approvals. Laws and
regulations affecting ESI Tractebel Acquisition, the Partners, the Partnerships,
ESI Tractebel Funding and other Project participants can be expected to change
during the period in which the Securities are outstanding, and such changes
could adversely affect ESI Tractebel Acquisition, the Partners, the
Partnerships, ESI Tractebel Funding and such other Project participants. For
example, changes in laws or regulations (including but not limited to tax and
environmental laws and regulations) could impose more stringent or comprehensive
requirements on the operation or maintenance of the Projects resulting in
increased compliance costs, the need for additional capital expenditures or the
reduction of certain benefits currently available to the Partnerships, or could
expose ESI Tractebel Acquisition, the Partners, the Partnerships or ESI
Tractebel Funding to liabilities for previous actions taken in compliance with
laws in effect at the time or for actions taken by or conditions caused by the
Sellers or by other third parties. Changes in law could also encourage greater
competition in wholesale electricity markets resulting in a decline in long-term
rates to be paid by electric utilities (in particular under the Montaup Power
Purchase Agreement, which does not include a floor price). Although purchase
prices for electricity under the Power Purchase Agreements (other than the
Montaup Power Purchase Agreement) contain floor price provisions (and the
Projections assume that such floor prices are the prices that will be paid by
such Power Purchasers), a decline in long-term rates to be paid by electric
utilities generally may indirectly adversely affect the Partnerships' profits in
23
<PAGE>
connection with its sales to such Power Purchasers and would adversely affect
merchant plant sales. See "-- Regulatory and Financial Pressures on Power
Purchasers."
PURPA provides QFs such as the Projects with certain exemptions from
federal and state law and regulation, including regulation of rates at which
electricity can be sold. As of the date of this Prospectus, none of NE LP or the
Partnerships has received any notice that any of the required regulatory
approvals have been revoked or that FERC or any of the Power Purchasers has
initiated any regulatory proceedings to revoke the QF status of either Project.
If either Project fails to maintain its status as a QF, if amendments to PURPA
are enacted that substantially reduce the benefits currently afforded QFs, or if
the requirements for the Projects to maintain their status as QFs are
substantially changed, the Projects could be adversely affected, which could
affect NE LP's ability to pay interest and principal on the Note and the ability
of ESI Tractebel Acquisition to pay interest and principal on the Securities.
NEA has agreed in certain of its Power Purchase Agreements to use its best
efforts to maintain QF status. The loss of QF status by NEA would entitle
Montaup to renegotiate the price provisions of its Power Purchase Agreement and
the loss of QF status by NJEA would entitle JCP&L to terminate its Power
Purchase Agreement. In addition, the NEA Steam Sales Agreement is scheduled to
expire prior to the final maturity date of the Securities. If the NEA Steam
Sales Agreement is not renewed or replaced after such expiration date or if
NEA's steam host is not replaced, the risk of loss of QF status would materially
increase. See "Regulation" and "Summary of Principal Project Agreements -- Power
Purchase Agreements."
Permitting Risks. The Partnerships are required to maintain and to
comply with certain permits and approvals for the ownership and operation of the
Projects. Although the Partnerships have obtained all material permits and
approvals required for the ownership and operation of the Projects, there can be
no assurance that the requirements contained in such permits will not change or
that the Partnerships will be able to renew or to maintain all permits and
approvals required for continued operation of the Projects throughout the term
of the Securities. Failure to renew or to maintain any required permit or the
inability to satisfy any requirement of any permit may result in limited or
suspended operation of the affected Project.
Environmental Matters. The Partnerships are required to comply with a
number of statutes and regulations relating to protection of the environment and
to the safety and health of the public and of personnel operating the Projects.
Such statutes and regulations, which are always subject to change, include
regulation of Hazardous Materials associated with each Project, limitations on
noise emissions from the Projects, safety and health standards, and practices
and procedures and requirements relating to the discharge of air and water
pollutants. In addition, the Partnerships could become liable for the
investigation and removal of any Hazardous Materials that may be found on the
Project Sites regardless of the sources of such Hazardous Materials. Failure to
comply with any such statutes or regulations or any change in the requirements
of such statutes or regulations could result in civil or criminal liability,
imposition of cleanup liens and fines and large expenditures to bring the
Projects into compliance. The NEA Project location has been the subject of
ongoing remediation relating to the release of fuel oil in 1992. The Operator
has assumed full responsibility for the release and all related remedial
efforts, and has diligently pursued regulatory closure of this matter. Based on
the Independent Engineer's Report, it appears that the applicable regulatory
authorities are satisfied with the Operator's remedial efforts and that the
Operator should be in a position to obtain regulatory closure for the site
without incurring significant additional costs. There can be no assurance,
however, that the Operator will obtain regulatory closure for the site without
incurring significant additional costs, or that the Partnerships will not incur
liability notwithstanding that the Operator has assumed all such responsibility
for the spill.
The 1990 Amendments to the Federal Clean Air Act of 1955 (the "1990
Amendments") require states to develop implementation plans to be approved by
the EPA for attaining national ambient air quality standards for particular
24
<PAGE>
pollutants in areas that have not attained those standards. Because each Project
is situated in an ozone non-attainment area, each Project may become subject to
more stringent air emissions standards. There can be no assurance that the
Projects will be able to satisfy all new regulatory requirements that may arise
under the 1990 Amendments.
Federal law also allows the State of New Jersey and the Commonwealth of
Massachusetts to take certain actions regarding the issuance of stormwater
discharge permits. A federal stormwater discharge permitting program has been
established, and the State of New Jersey and the Commonwealth of Massachusetts
have promulgated stormwater management regulations, modeled on the federal
program, which may be applicable to the Projects. The Projects may also be
subject to the federal stormwater permit program. There can be no assurance that
the Projects satisfy or will continue to satisfy all requirements that may
result from action with respect to the stormwater discharge permitting program.
See "Regulation."
As of the date of this Prospectus, neither NE LP nor the Partnerships
has received any notice that any of the required regulatory approvals has been
revoked. There can be no assurance, however, that one or more of such required
regulatory approvals will not be revoked.
Curtailment by Power Purchasers. Each Power Purchase Agreement
authorizes the purchasing utility to curtail purchases for reasons of system
emergency, safety and repair and/or restoration of service. Each of the Power
Purchase Agreements with Boston Edison and Montaup also permits curtailment by
the purchaser for up to an additional 200 hours annually per contract year at
the purchaser's sole discretion. JCP&L is entitled to curtail or to refuse to
accept and purchase power (i) during off-peak periods, for up to 200 hours
annually and (ii) for up to an additional 200 hours annually until 2001 and for
up to an additional 400 hours annually thereafter, during light load periods in
which other member utilities within the PJM Interconnected Power Pool are
required to reduce generation to minimum levels. Under certain circumstances,
PURPA authorizes utilities to limit or discontinue purchases from QFs due to
"operational circumstances." This right to curtail purchases of power from QFs
in the circumstances set forth under PURPA is included in certain of the Power
Purchase Agreements. In the past, there have been several disputes between the
Partnerships and the Power Purchasers concerning curtailment rights, and in the
case of the NEA Project, with respect to the calculation of entitlement
percentages during periods of curtailment. For a more detailed description of
the utilities' curtailment rights, see "Summary of Principal Project Agreements
- -- Power Purchase Agreements."
Uncertainties of Projections and Assumptions
In connection with the Acquisitions and the issuance of the Securities,
NE LP prepared certain assumptions and projections (the "Projections") of the
Projects' revenue generation capacity and the costs associated therewith. The
Projections were provided to the Independent Engineer, and the Independent
Engineer has evaluated the reasonableness of the Projections in light of the
technical operating parameters of the Projects, as well as the operations and
maintenance budgets of the Projects (other than the budgets relating to the
Long-term Gas Arrangements) and the related assumptions and forecasts contained
therein, based upon an inspection and review of certain technical,
environmental, economic and regulatory aspects of the Projects, as set forth in
the Independent Engineer's Report. The Projections were also provided to the
Fuel Consultant, which evaluated the Projections in light of projected gas costs
and alternative gas supply and transportation arrangements, among other factors.
The Independent Engineer's Report and the Fuel Consultant's Report each contains
a discussion of the assumptions and forecasts NE LP utilized in preparing the
Projections, which concern the operations and maintenance budgets of the
Projects and which investors should review carefully.
25
<PAGE>
For purposes of preparing the Projections, NE LP made certain
assumptions with respect to general business and economic conditions, the prices
at which the Partnerships will be able to sell electric energy not sold pursuant
to the Power Purchase Agreements, the costs to the Partnerships of obtaining
natural gas supplies and storage and transportation services, taxes payable by
the Partnerships, NE LP or any other person and numerous other material
contingencies and matters that are not within the control of the Partnerships
and the outcome of which cannot be predicted by NE LP, its consultants, the
Independent Engineer, the Fuel Consultant or any other person with any
expectation of complete accuracy. NE LP also made assumptions concerning
operations and maintenance costs and savings and major maintenance costs and
savings during the term of the New O&M Agreements. Although NE LP, the
Independent Engineer and the Fuel Consultant believe that these assumptions and
the other assumptions upon which the Projections were based are reasonable,
assumptions are inherently subject to significant uncertainties, and actual
results are expected to differ, perhaps materially, from those projected.
Accordingly, the Projections are not necessarily indicative of future
performance, and none of NE LP, the Independent Engineer, the Fuel Consultant or
any other person assumes any responsibility for the accuracy of such
Projections. In addition, certain assumptions with respect to future business
decisions of the NE LP and the Partnerships are subject to change. Accordingly,
the Projections and the other forward-looking information contained in this
Prospectus, the Independent Engineer's Report and in the Fuel Consultant's
Report are not necessarily indicative of future performance. Therefore, no
representation is made or intended, nor should any representation be inferred,
with respect to the likely existence of any particular future set of facts or
circumstances, and prospective investors are cautioned not to place undue
reliance on the Projections, the Independent Engineer's Report or the Fuel
Consultant's Report. If actual results are less favorable than those shown or if
the assumptions used in formulating the Projections prove to be incorrect, the
Partnerships' financial performance may also be less favorable, and,
consequently, ESI Tractebel Acquisition's ability to make payment of principal
of and interest on the Securities may be materially adversely affected. See
"Appendix B -- Independent Engineer's Report" and "Appendix C -- Fuel
Consultant's Report."
The Projections were prepared by, and are the responsibility of, NE LP
on the basis of present knowledge and assumptions, which NE LP believes to be
reasonable. Price Waterhouse LLP has neither examined nor compiled the
Projections contained in Exhibit B, and accordingly, Price Waterhouse LLP does
not express an opinion or any other form of assurance with respect thereto. The
Price Waterhouse LLP report included in this Prospectus relates solely to the
Partnerships' historical financial information. It does not extend to the
Projections and should not be read to do so. None of NE LP, the Independent
Engineer or the Fuel Consultant intends to provide to holders of the Securities
any projections or to evaluate any projections other than the Projections set
forth herein.
Absence of a Public Market
The New Securities are being offered to the holders of the Old
Securities. The Old Securities were issued in February 1998 to a small number of
institutional investors and are eligible for trading in the Private Offerings,
Resale and Trading through Automatic Linkages (PORTAL) market. The New
Securities are new securities for which there is currently no established
market. ESI Tractebel Acquisition has been advised by Goldman that it presently
intends to make a market in the New Securities; however Goldman is not obligated
to do so and any such market-making activity may be discontinued at any time
without notice at the discretion of Goldman. ESI Tractebel Acquisition does not
intend to apply for listing of the New Securities on any securities exchange or
to seek approval for quotation through any automated quotation system.
Accordingly, there can be no assurance as to whether an active established
market will develop or, if an established market does develop, as to the
liquidity of the trading market for the New Securities. If an established market
does not develop, the market price and liquidity of the New Securities may be
adversely affected. See "Plan of Distribution."
26
<PAGE>
Consequences of Failure to Properly Tender
Issuance of the New Securities in exchange for the Old Securities
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of such Old Securities, a properly completed and duly executed
Letter of Transmittal and all other required documents. Therefore, holders of
the Old Securities desiring to tender such Old Securities in exchange for New
Securities should allow sufficient time to ensure timely delivery. ESI Tractebel
Acquisition is under no duty to give notification of defects or irregularities
with respect to tenders of Old Securities for exchange. Old Securities that are
not tendered or that are tendered but not accepted by ESI Tractebel Acquisition
for exchange will, following consummation of the Exchange Offer, continue to be
subject to the existing restriction upon transfer thereof under the 1933 Act
and, upon consummation of the Exchange Offer, certain registration rights under
the Registration Rights Agreement will terminate. In addition, any holder of Old
Securities who tenders in the Exchange Offer for the purpose of participating in
a public distribution of the New Securities may be deemed to be an "underwriter"
(within the meaning of Section 2(11) of the 1933 Act) of the New Securities and,
if so, will be required to comply with the registration and prospectus delivery
requirements in the 1933 Act in connection with any resale transaction. Each
broker-dealer that receives New Securities for its own account in exchange for
Old Securities, where such Old Securities were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge in the Letter of Transmittal that accompanies this Prospectus that
it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution". To the extent that Old Securities are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Securities could be adversely affected. See "The
Exchange Offer -- Consequences of Failure to Exchange".
USE OF PROCEEDS
Neither ESI Tractebel Acquisition nor NE LP will receive any proceeds
from the issuance of the New Securities in the Exchange Offer. In consideration
for the New Securities issued by ESI Tractebel Acquisition, as contemplated in
this Prospectus, ESI Tractebel Acquisition will receive in exchange a like
principal amount of Old Securities. The Old Securities surrendered in exchange
for the New Securities will be retired. Accordingly, the issuance of the New
Securities will not result in any change in the indebtedness of ESI Tractebel
Acquisition. The proceeds received by ESI Tractebel Acquisition from the sale of
Old Securities ($220,000,000 less certain expenses of the Offering of
approximately $6,663,300) were loaned by ESI Tractebel Acquisition to NE LP. NE
LP used the net proceeds to reimburse certain of ESI Energy's and Tractebel
Power's subsidiaries for expenses of the Offering and for a portion of the
original $534 million equity contribution that was used to finance the cost of
the Acquisitions.
CAPITALIZATION
Because NE LP and ESI Tractebel Acquisition were formed November 21,
1997 and Janurary 12, 1998, respectively, NE LP's historical balance sheet and
capitalization data as of December 31, 1997 had no activity and ESI Tractebel
Acquisition had no historical financial statements as of December 31, 1997. The
following table sets forth the pro forma capitalization at December 31, 1997 of
(i) NE LP as adjusted to reflect the Acquisitions and as adjusted to reflect the
Offering and the application of the estimated proceeds therefrom as described in
"Use of Proceeds" and (ii) ESI Tractebel Acquisition as adjusted to reflect the
Offering and the application of the estimated proceeds therefrom as described in
"Use of Proceeds," as if all such transactions occurred on December 31, 1997.
This table should be read in conjunction with the "Unaudited Pro Forma Financial
Statements" included elsewhere in this Prospectus.
27
<PAGE>
Pro Forma Capitalization at December 31, 1997
ESI
Tractebel
NE LP Acquisition
as Adjusted for as Adjusted
the Acquisitions for the
and the Offering Offering
---------------- ------------
(In Thousands)
Short-Term debt:
Current portion of loans
payable(1)....................... $ 21,563 $ --
---------- ---------
Long-Term debt:
Loan payable--ESI Tractebel --
Acquisition...................... 220,000
Loans payable-- related party.. 468,724 --
Securities payable............. -- 220,000
Energy Bank balances(2)........ 171,581 --
---------- ---------
Total long-term debt... 860,305 220,000
---------- ---------
Partners'/stockholders' equity:
Partners' equity............... 226,820 --
Stockholders' equity........... -- --
---------- ---------
Total partners'/stockholders'
equity............... 226,820 --
---------- ---------
Total capitalization... $1,108,688 $ 220,000
========== =========
- ----------
(1) Does not include amounts available under the Working Capital Facility.
(2) Energy Bank balances represent cumulative payments made to the Partnerships
by Power Purchasers under certain Power Purchase Agreements in excess of
rates scheduled or specified in such agreements (plus interest accrued
thereon). Under the terms of these agreements, such excess constitutes a
liability of the applicable Partnership to the applicable Power Purchaser,
which will be reduced by subsequent sales of electric power to such Power
Purchaser to the extent in later periods that the scheduled or specified
rate has risen above the contract rate, and must be repaid under certain
circumstances in cash.
28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Because NE LP was formed November 21, 1997, it had no activity as of
and for the year ended December 31, 1997. The following unaudited pro forma
financial statements give effect to the Acquisitions based on the historical
combined financial statements of the Partnerships, under the assumptions and
adjustments set forth in the notes accompanying the unaudited pro forma
financial statements. NE LP has accounted for the Acquisitions as a purchase for
financial reporting purposes. The unaudited pro forma financial statements are
based on a preliminary allocation of the purchase price ($534.442 million) plus
certain costs of the Acquisitions (estimated to be $10.363 million), and
proceeds of the Offering ($220 million) less certain expenses of the Offering
(estimated to be $6,663,300), and are subject to change as additional
information becomes available. The unaudited pro forma statement of operations
for the year ended December 31, 1997 assumes that the Acquisitions and the
Offering were consummated on January 1, 1997. The unaudited pro forma balance
sheet as of December 31, 1997 assumes that the Acquisitions and the Offering
were consummated on December 31, 1997. The adjustments contained in the
unaudited pro forma statement of operations do not give effect to any
nonrecurring costs directly associated with the Acquisitions that might be
incurred within the next twelve months. The unaudited pro forma statement of
operations also does not give effect to any potential cost savings and synergies
that could result from the Acquisitions such as those described under "Certain
Transactions." The unaudited pro forma financial statements have been prepared
for informational purposes only and are not necessarily indicative of the actual
or future results of operations or financial condition that would have been
achieved had the Acquisitions and the Offering occurred at the dates assumed.
The unaudited pro forma financial statements should be read in conjunction with
the historical combined financial statements of the Partnerships and related
notes thereto included elsewhere in this Prospectus.
29
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma
-----------------------------
NE LP
As Adjusted
for the
Acquisition Acquisitions
Partnerships and Offering and the
Historical Adjustments Offering
------------- ------------ ------------
(In Thousands of Dollars)
<S> <C> <C> <C>
Revenue:
Power sales to utilities(1)......... $ 307,530 -- $ 307,530
Steam sales......................... 4,624 -- 4,624
--------- -------- ---------
Total revenue............... 312,154 -- 312,154
--------- -------- ---------
Costs and expenses:
Cost of power and steam sales....... 151,476 (20,846)(A) 130,630
Operation and maintenance........... 25,689 (4,687)(B) 21,002
Depreciation and amortization....... 24,992 47,074 (C) 72,066
General and administrative expenses. 15,984 (1,060)(D) 14,924
--------- -------- ---------
Total costs and expenses.... 218,141 (20,481) 238,622
--------- -------- ---------
Operating income............ 94,013 (20,481) 73,532
--------- -------- ---------
Other (income) expenses:
Amortization of financing costs..... 2,163 (2,163)(E) --
Non-capitalizable acquisition costs. -- 273 (F) 273
Interest expense.................... 47,673 18,183 (G) 65,856
Interest expense on Energy Bank
balances............................ 17,435 -- 17,435
Interest income..................... (9,931) 7,123 (H) (2,808)
---------- -------- ---------
Total other expenses............. 57,340 23,416 80,756
--------- -------- ---------
Net income (loss)................ $ 36,673 $(43,897) $ (7,224)
========= ======== =========
</TABLE>
- ----------
(1) Power sales to utilities are net of change in Energy Bank principal
balance. Energy Bank principal balances represent cumulative payments
made to the Partnerships by Power Purchasers under certain Power
Purchase Agreements in excess of rates specified or scheduled in such
agreements. Under the terms of these agreements, such excess
constitutes a liability of the applicable Partnership to the applicable
Power Purchaser, which will be reduced by subsequent sales of electric
power to such Power Purchaser to the extent in later periods that the
scheduled or specified rate has risen above the contract rate, and must
be repaid under certain circumstances in cash.
(A) To reflect the amortization of the purchase price, including acquisition
costs, allocated to the above market fuel contracts over 16 years.
(B) To reflect the amortization of the purchase price, including acquisition
costs, allocated to the above market O&M contracts over 4 years.
(C) To reflect the depreciation and amortization of the purchase price,
including acquisition costs, allocated to the property, plant and equipment
over 34 years and to the Power Purchase Agreements over the remaining
respective contract periods, respectively.
(D) To remove the effect of the pre-paid heat rate bonus reflected on the
Partnerships' books pursuant to application of purchase accounting.
(E) To remove the amortization of financing costs reflected on the
Partnerships' books pursuant to application of purchase accounting.
(F) To reflect non-capitalizable acquisition costs pursuant to the application
of purchase accounting.
(G) To reflect the interest expense associated with the Note payable to ESI
Tractebel Acquisition of $220,000,000 at an assumed interest rate of 7.99%
and amortization of debt issuance costs of $6,663,300 over 14 years, using
the effective interest method.
(H) To remove the interest income associated with the release of the cash and
investments from the Debt Service Reserve Fund and the Energy Bank Cash
Collateral Proceeds upon completion of the Acquisitions.
30
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
NE LP
Acquisition As Adjusted for
Partnerships and Offering the Acquisitions
Historical Adjustments and the Offering
------------ ------------ ----------------
(In Thousands of Dollars)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ 61,203 $ (33,270)(A) $ 27,933
Accounts receivable.................. 34,036 -- 34,036
Fuel inventories..................... 4,752 -- 4,752
Prepaid expenses and other current
assets.............................. 3,052 (2,495)(B) 557
--------- --------- ----------
Total current assets.............. 103,043 (35,765) 67,278
--------- --------- ----------
Other assets
Restricted cash...................... 69,156 (69,156)(C) --
Power purchase agreements............ -- 888,756 (D) 888,756
Unamortized financing costs.......... 15,674 (15,674)(E) --
Debt issue costs..................... -- 6,663 (F) 6,663
Other assets......................... 4,193 (4,008)(G) 185
--------- --------- ----------
Total other assets................ 89,023 806,581 895,604
--------- --------- ----------
Property, plant and equipment, net..... 349,365 166,499 (H) 515,864
--------- --------- ----------
Total assets........................... $ 541,431 $ 937,315 $1,478,746
========= ========= ==========
Current liabilities
Accounts payable and other accrued
liabilities......................... $ 16,876 $ -- $ 16,876
Current portion of loans payable..... 21,563 -- 21,563
Future obligations under interest
rate swap agreements................ 889 -- 889
--------- --------- ----------
Total current liabilities.............. 39,328 -- 39,328
--------- --------- ----------
O&M/Fuel contract obligations.......... -- 352,293 (I) 352,293
--------- --------- ----------
Long-term debt
Loans payable -- ESI Tractebel
Acquisition......................... -- 220,000 (J) 220,000
Loans payable -- ESI Tractebel
Funding Corp........................ 468,724 -- 468,724
Energy Bank liability................ 230,565 (58,984)(K) 171,581
--------- --------- ----------
Total long-term debt................... 699,289 161,016 860,305
--------- --------- ----------
Partners' (deficit) equity............. (197,186) 741,991 (L) 226,820
(104,921)(M)
(213,064)(N)
--------- --------- ----------
Total liabilities and partners' equity. $ 541,431 $ 937,315 $1,478,746
========= ========= ==========
</TABLE>
- ---------
(A) To reflect the reduction in cash for the withdrawal of the Debt Service
Reserve Fund ($33.270 million).
(B) To reflect the reduction in interest receivable pursuant to adjustment (C).
(C) To reflect the reduction in restricted cash for the withdrawal of the
Energy Bank Cash Collateral Proceeds.
(D) To reflect the allocation of the purchase price, including acquisition
costs, to above-market Power Purchase Agreements.
(E) To reflect the removal of unamortized financing costs from the
pre-acquisition balance sheets.
(F) To reflect estimated debt issuance costs of the Offering.
(G) To remove the effect from the balance sheet of the pre-paid heat rate bonus
reflected on the pre-acquisition balance sheet.
(H) To allocate the remainder of the purchase price, including acquisition
costs to property, plant and equipment.
(I) To reflect the allocation of the purchase price, including acquisition
costs, to above-market fuel and O&M contracts.
(J) To reflect the issuance of the Securities in the Offering.
(K) To reflect the revaluation of the Energy Bank balances in connection with
purchase accounting.
31
<PAGE>
(L) To eliminate the historical Partners' deficit and to adjust Partners'
equity to reflect the acquisition price of $544.805 million, including
$10.363 million of reimbursable capitalizable costs.
(M) To reflect the reduction in equity associated with the distributions to the
Partners pursuant to adjustments (A), (B) and (C).
(N) To reflect the reduction in equity associated with the reimbursement to the
Partners of NE LP upon receipt of the proceeds of the Offering ($220
million), net of certain expenses of the Offering (estimated to be
$6,663,300) and non-capitalizable acquisition costs (estimated to be
$273,000).
32
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The selected historical combined financial data set forth below as of
December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and
1997 are derived from the Partnerships' combined financial statements included
elsewhere in this Prospectus, which have been audited by Price Waterhouse, LLP,
independent accountants. The selected historical combined financial data set
forth below as of December 31, 1993, 1994 and 1995 and for the years ended
December 31, 1993 and 1994 are derived from the Partnerships' audited combined
financial statements not included in this Prospectus. This data should be read
in conjunction with, and is qualified by reference to, the Partnerships' audited
combined financial statements and related notes thereto included elsewhere in
this Prospectus, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
33
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1993(2) 1994 1995 1996 1997
--------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement Of Operations Data:
Revenue:
Power sales to utilities net of
Energy Bank changes(1)........... $234,142 $234,933 $276,022 $267,789 $307,530
Steam sales........................ 4,684 3,779 4,527 4,473 4,624
-------- -------- -------- -------- --------
Total revenue................ 238,826 238,712 280,549 272,262 312,154
-------- -------- -------- -------- --------
Costs and expenses:
Cost of power and steam sales...... 132,580 128,402 132,839 138,727 151,476
Operation and maintenance.......... 20,283 20,808 24,699 22,854 25,689
Depreciation....................... 24,919 24,314 24,904 24,978 24,992
General and administrative expenses 14,162 11,012 12,010 14,424 15,984
-------- -------- -------- -------- --------
Total operating costs and
expenses................... 191,944 184,536 194,452 200,983 218,141
-------- -------- -------- -------- --------
Operating income............. 46,882 54,176 86,097 71,279 94,013
-------- -------- -------- -------- --------
Other (income) expenses:
Amortization of financing costs.... 2,599 2,333 2,305 2,373 2,163
Interest expense................... 38,992 38,068 50,930 49,841 47,673
Interest expense on Energy Bank
balances......................... 7,252 11,676 16,657 19,675 17,435
Interest income.................... (700) (1,656) (10,652) (10,534) (9,931)
Expense related to
future obligations under
interest rate swap
agreements(3).................... -- 6,734 -- -- --
-------- -------- -------- -------- --------
Total other expenses......... 48,143 57,155 59,240 61,355 57,340
-------- -------- -------- -------- --------
(Loss) income before
extraordinary item...... (1,261) (2,979) 26,857 9,924 36,673
Extraordinary item:
Loss on extinguishment of debt(3).. -- 13,937 -- -- --
-------- -------- -------- -------- --------
Net income (loss)............ $ (1,261) $(16,916) $ 26,857 $ 9,924 $ 36,673
======== ======== ======== ======== ========
Distributions to partners............ $ 10,878 $ 27,472 $ 64,506 $ 66,826 $ 46,380
Ratio of earnings to fixed
charges (4)...................... -- -- 1.38 1.18 1.70
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------
1993(2) 1994 1995 1996 1997
--------- -------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital...................... $ 19,754 $ 74,145 $ 71,975 $ 58,846 $ 63,715
Total assets......................... 546,484 650,027 617,034 566,392 541,431
Total loans payable.................. 465,458 560,000 539,566 514,362 490,287
Energy Bank balances(1).............. 111,398 155,496 188,053 220,922 230,565
Partners' deficit.................... (48,540) (92,928) (130,577) (187,479) (197,186)
</TABLE>
- ----------
(1) Energy Bank balances represent cumulative payments made to the
Partnerships by Power Purchasers in excess of projected scheduled
estimates of cumulative Avoided Costs specified in certain Power
Purchase Agreements. Under the terms of these agreements, such excess
constitutes a liability of the applicable Partnership to the applicable
Power Purchaser, which is expected to be reduced over future years as
cumulative Avoided Costs eventually rise above cumulative payments. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
(2) Certain reclassifications have been made to the 1993 financial statements
to conform with the 1994, 1995, 1996 and 1997 presentation. These
reclassifications had no effect on net income for 1993.
(3) As a result of the Partnerships' refinancing of the Original Project
Indenture on November 15, 1994, the Partnerships' Swaps no longer
qualified as hedges and therefore, the fair value of these swaps, $6.7
million was charged to the statement of operations. In addition, as a
result of the refinancing, unamortized debt issuance costs of $13.9
million, associated with the Original Project Indenture, were charged
to the statement of operations.
(4) The ratio of earnings to fixed charges is determined by dividing the sum of
pre-tax income (net income) and fixed charges (consisting of interest
expense, amortization of debt issue costs, the estimated interest component
of rent expense and equipment rentals) by fixed charges. The earnings for
1993, 1994 and pro forma 1997 were inadequate to cover fixed charges. The
coverage deficiencies during 1993, 1994 and pro forma 1997 are $1.261
million, $2.979 million and $7.224 million, respectively.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion relates to the financial condition and results
of operations of the Partnerships, not of the Partners. The Partners were formed
at the end of 1997 and have no significant assets other than their interests in
the Partnerships. The financial statements for periods prior to the Acquisition
Date are not necessarily comparable to or indicative of results for any period
following the Acquisitions. See "Use of Proceeds," "Unaudited Pro Forma
Financial Statements," "Selected Historical Combined Financial Data," and the
Partnerships' audited combined financial statements and notes thereto included
elsewhere in this Prospectus.
General
The Partnerships commenced commercial operations in the second half of
1991. The Partnerships' consolidated revenues are derived from, and costs are
incurred in connection with, the generation and sale of electricity and, to a
much lesser extent, the production and sale of thermal energy (steam).
Revenue from sales of electricity is recognized based on electricity
delivered at rates stipulated in the Power Purchase Agreements, except that
revenue recognition is deferred to the extent that such rates are in excess of
rates scheduled or specified in such agreements above which payment is subject
to recovery by certain of the Power Purchasers under certain circumstances. The
portion subject to deferred revenue recognition, which is referred to as the
"Energy Bank," is recorded as a liability of the applicable Partnership for
financial statement purposes. See "The Projects -- Power Purchase Agreements."
The capitalized costs of the Projects include initial acquisition
costs, increased by subsequent development and construction costs, including
test period operations, construction management fees and interest during
construction. The capitalization period ceased when construction of each Project
was complete and satisfactorily tested. Capitalized costs are depreciated over
the estimated useful life of each Project. Costs incurred during the development
and construction period that were not directly related and incremental to
project development and construction were expensed in the period incurred.
The Acquisitions
The Partners acquired all of the partnership interests in each of the
Partnerships on January 14, 1998, pursuant to the Purchase Agreement. In
connection with the acquisition of all of the partnership interests in the
Partnerships, ESI Funding and Tractebel Power each acquired a thirty-seven and
one-half percent (37.5%) interest in ESI Tractebel Funding. The partners paid
the purchase price for all of the Partnership interests in the Partnerships and
for seventy-five percent (75%) of the outstanding shares of capital stock in ESI
Tractebel Funding from contributions made by each of ESI GP, Tractebel GP, ESI
LP and Tractebel LP, the partners of NE LP. The Acquisitions were accounted for
under the purchase method; accordingly, the carrying value of the assets
acquired and liabilities assumed of the Partnerships were adjusted based upon
the final purchase price allocation, including an allocation to above-market
power purchase contracts.
Results of Operations
The following table sets forth the combined results of the
Partnerships' operations and the percentage of gross operating revenues and
receipts represented by certain components of operating costs and income for the
three years ended December 31, 1997.
35
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995 1996 1997
------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Gross operating revenues and
receipts(1)................... $ 296,449 100% $ 285,456 100% $ 304,363 100%
Operating costs................. 157,538 53% 161,581 57% 177,165 58%
Depreciation.................... 24,904 8% 24,978 9% 24,992 8%
General and administrative...... 12,010 4% 14,424 5% 15,984 5%
--------- --------- ---------
Operating income plus Energy Bank
accruals(1)................... 101,997 34% 84,473 30% 86,222 29%
--------- --------- ---------
Amortization of financing costs. 2,305 1% 2,373 1% 2,163 1%
Interest expense(2)............. 50,930 17% 49,841 17% 47,673 16%
Interest income................. (10,652) (4%) (10,534) (4%) (9,931) (3%)
--------- --------- ---------
Net income (loss) plus Energy
Bank Accruals and interest
thereon....................... $ 59,414 $ 42,793 $ 46,317
========= ========= =========
</TABLE>
- ----------
(1) Gross operating revenue and receipts represents total revenues plus (less),
as applicable, annual change in Energy Bank principal balances.
(2) Interest expense excludes interest on Energy Bank principal balances.
Calendar Year 1997 Compared to Calendar Year 1996
Gross Operating Revenue and Receipts. Gross operating revenue and
receipts for the year ended December 31, 1997 of $304.4 million increased by
$18.9 million (6.6%) as compared to the year ended December 31, 1996. This
increase was primarily due to higher generation and increased prices. The
increase in generation was primarily a result of no scheduled major maintenance
outages at the NEA Project (during the second quarter of 1996 a major inspection
and maintenance program, scheduled at five year intervals, was conducted at the
NEA Project) and fewer curtailment hours requested by JCP&L.
Operating Costs. Cost of power and steam sales was $151.5 million, or
49.8% of gross operating revenue and receipts for the year ended December 31,
1997 as compared to $138.7 million, or 48.6% of gross operating revenues and
receipts for the year ended December 31, 1996. The increased cost is primarily
due to price increases under a fuel supply contract that services both
facilities. Partially offsetting the increase in natural gas prices was a
reduction in extended gas services rights exercised by a NJEA fuel supplier
during the first quarter of 1997 as compared to 1996.
Operation and maintenance (O&M) costs increased $2.8 million (12.4%) as
compared to the same period in 1996. The primary cause of the increased cost was
the performance bonus (which is directly related to higher generation) payable
to the Operator under the NEA O&M Agreement. Escalation of the O&M Agreement of
approximately 4% also contributed to the increased costs.
General and Administrative Expenses. General and administrative
expenses for the year ended December 31, 1997 increased $1.6 million or 11% as
compared to the year ended December 31, 1996. The primary cause for this
increase was the write-off of approximately $1.5 million in accounts receivable.
Other increases included annual escalation of management fees as well as
increased consulting and overhead costs.
Interest Expenses and Interest Income. Interest expense for the year
ended December 31, 1997 decreased $2.1 million, or 4.3% as compared to the year
ended December 31, 1996. Interest on debt decreased as a result of declining
principal balances. Principal payments on Project Securities are made
semiannually on June 30 and December 30. During the year ended December 31,
1997, the Partnerships' average amount of debt outstanding was $508.3 million at
an average rate of 9.31%. During 1996, the Partnerships average amount of debt
outstanding was $533.3 million at an average rate of 9.26%. These decreases were
a result of changes in the underlying amounts accrued for Energy Bank balances.
Interest income during the year ended December 31, 1997 totaled approximately
36
<PAGE>
$9.9 million as compared to approximately $10.5 million during the year ended
December 31, 1996, decreasing $.6 million. As discussed below, interest income
is expected to decrease materially beginning in 1998.
Calendar Year 1996 Compared to Calendar Year 1995
Gross Operating Revenues and Receipts. Gross operating revenues and
receipts for the year ended December 31, 1996 of $285.5 million decreased by
$11.0 million (3.7%) as compared to the year ended December 31, 1995. This
decrease was primarily due to lower availability as a result of scheduled
maintenance outages. Availability was approximately 91% in 1996 versus
approximately 95% in 1995. During the second quarter of 1996 a major inspection
and maintenance program (scheduled at five-year intervals) took place at the NEA
Project. During the fourth quarter of 1996 a scheduled overhaul and inspection
took place at the NJEA Project. Power purchase rates, on a combined basis,
increased slightly over the prior year.
Operating Costs. Cost of power and steam sales was $138.7 million, or
48.6% of gross operating revenues and receipts for the year ended December 31,
1996 as compared to $132.8 million, or 44.8% of gross operating revenues and
receipts in the prior year. The increased costs were primarily attributable to
increases in fuel costs, including higher market prices of Spot Gas and
additional charges applicable under NJEA's extended gas service arrangement with
a fuel supplier. Extended gas service occurs when temperatures are below 22
degrees F. There were sixteen such days during the first quarter of 1996
compared with four days in the first quarter of 1995. A portion of these
increases was offset by gains on natural gas swap agreements (which were entered
into in an attempt to limit exposure to market price fluctuations).
Operation and maintenance expenses in 1996 decreased by $1.8 million
(7.5%) as compared to 1995. This decrease was a result of a lower performance
bonus payable to the Operator in 1996 as a result of scheduled maintenance
outages and a 1995 water franchise fee. Offsetting these cost decreases were
normal and expected escalations under the O&M Agreements.
General and Administrative Expenses. General and administrative
expenses in 1996 increased by $2.4 million (20.1%) as compared to 1995. The
increase was primarily due to increased management costs, insurance premiums and
legal and consulting costs related to potential industry restructuring.
Interest Expense and Interest Income. Interest expense for the year
ended December 31, 1996 decreased by $1.1 million (2.1%) as compared to the year
ended December 31, 1995. During 1995, the Partnerships' average amount of debt
outstanding was $554.9 million at an average rate of 9.23%. During 1996, the
Partnerships' average amount of debt outstanding was $533.3 million at an
average rate of 9.26%. Interest income in 1996 totaled $10.5 million as compared
to $10.7 million in 1995. This decrease was primarily a result of reduced cash
collateral being held in support of letters of credit.
Year 2000
The Partnerships are working to resolve the potential impact of the
year 2000 on the processing of information by its computer systems. An
assessment of identified software, including vendor-supplied software, has been
completed and work has begun to make the necessary modifications. The estimated
cost of addressing year 2000 issues in software applications is not expected to
have a material adverse effect on the Partnership's financial statements. The
Partnerships continue to assess the potential financial and operational impacts
of computerized processes embedded in operating equipment.
37
<PAGE>
Liquidity and Capital Resources
To date, the Partnerships have obtained cash from their operations and
from proceeds of nonrecourse project financing. The Partnerships have utilized
this cash to develop and construct the Projects and the Carbon Dioxide Plant,
service debt obligations, fund operations and fund distributions to partners.
As of December 31, 1997, the Partnerships' cash and cash equivalents
totaled approximately $61.2 million, as compared to $49.9 million at December
31, 1996. The increase in cash and cash equivalents was the net effect of $82.2
million provided by operations, offset by investing and financing activities,
including debt principal payments of $24.1 million and $46.4 million in
distributions to partners.
As of December 31, 1997, there were no outstanding loans under the
Sanwa Working Capital Facility. NE LP terminated the Sanwa Working Capital
Facility and the Sanwa Credit Agreement in February 1998. NE LP does not
anticipate the need to arrange for a new Working Capital Facility. Debt Service
Reserve Requirements were fully funded as of December 31, 1997.
Non-operating income for periods prior to the Acquisitions included
investment income received from the Cash Collateral Proceeds that secured the
Partnerships' obligations to Sanwa Bank under the Sanwa Credit Agreement and
investment income received from investments in the Debt Service Reserve Fund
held by the Project Trustee. As permitted under the Project Indenture, NE LP in
January 1998, arranged for the release of, and distributed to the Partners, cash
in the amount of $33,270,000 from the Debt Service Reserve Fund following the
issuance of Substitute Letters of Credit by BankBoston and Bank Brussels
Lambert. In February 1998, NE LP also arranged for the release of cash in the
amount of $69,156,000, plus interest receivable, constituting the Cash
Collateral Proceeds, following the issuance of the FPL Group Capital Guaranty.
Such cash was distributed to the Partners upon its release. As a result, NE LP
expects that the Partnerships' investment income will be materially reduced in
future years.
Working Capital Facility. The Project Indenture permits the
Partnerships to enter into revolving credit arrangements from time to time with
financial institutions with maximum available borrowings of up to $20 million to
provide for the working capital requirements of the Partnerships (the "Working
Capital Facility"). Pursuant to the Sanwa Credit Agreement, the Partnerships
entered into the Sanwa Working Capital Facility, which provided for maximum
available borrowings of up to $15 million subject to a borrowing base calculated
based on outstanding receivables and fuel. The Sellers have advised NE LP that
the Working Capital Facility has never been utilized. In February 1998, NE LP
terminated the Working Capital Facility and the Sanwa Credit Agreement and does
not anticipate the need to arrange for a new Working Capital Facility. See
"Summary."
Project Letter of Credit Facility. The Partnerships are required by the
terms of certain of the Power Purchase Agreements to provide the letters of
credit to the Power Purchasers thereunder to support the Partnerships' Energy
Bank Obligations. See "Summary of Principal Project Agreements -- Power Purchase
Agreements." Under the Project Indenture, the Partnerships have agreed to
provide such Energy Bank Letters of Credit and to secure the Partnerships'
obligations to reimburse the Project Letter of Credit Banks with cash
collateral, one or more back-up letters of credit (each a "Back-up Letter of
Credit") and/or a FPL Group Capital Guaranty. NE LP's obligation to reimburse
FPL Group Capital for any of the amount paid by FPL Group Capital Guaranty is
subject to the prior payment of any amounts payable under the Indenture in
respect of the Securities. In addition, the Partnerships may require letters of
credit for certain other purposes in the ordinary course of business.
38
<PAGE>
Pursuant to the Sanwa Credit Agreement, Sanwa Bank delivered the
Project Letters of Credit in an aggregate amount up to $82,000,000 for the
purpose of supporting the Partnerships' Energy Bank Obligations and for certain
other purposes. The aggregate amount of Energy Bank Letters of Credit issued and
outstanding as of December 31, 1997 was $67,656,000. In February 1998, NE LP
arranged for the delivery of letters of credit of BankBoston and NationsBank in
face amounts of $12.656 million and $54.0 million, respectively, in substitution
for the letters of credit of Sanwa Bank and terminated the Sanwa Credit
Agreement and the Sanwa Letters of Credit.
Swaps. In connection with the initial variable-rate financing of the
Projects under the Original Project Credit Agreement, the Partnerships entered
into certain interest rate swap agreements (the "Swaps") with certain financial
institutions (the "Swap Banks"), providing for payments thereunder on a notional
principal amount of indebtedness to be made by the Partnerships at fixed
interest rates in exchange for payments to be made by the Swap Banks at floating
interest rates.
Such Swaps remained in effect after the issuance of the fixed-rate
Project Securities. In connection with the issuance of the Project Securities,
the Partnerships entered into counter swap agreements to hedge the obligations
of the Partnerships under such existing Swaps. As a result of the foregoing
arrangements, after giving effect to the net payments to be made and received by
the Partnerships pursuant to all of the Swaps (including the counter swaps), the
Partnerships' net payments are equivalent to a fixed net interest rate of
approximately 1.8% on the specified notional principal amount, which is
scheduled to decline periodically until the scheduled expiration of the Swaps in
1999. After giving effect to the counter swaps, the Partnerships' net payments
under the Swaps will total approximately $718,275 in 1998 and approximately
$195,535 in 1999 (the scheduled year of termination of the Swaps).
The following tables set forth the notional principal amount and
related fair value of the Swaps as of the dates shown together with the
additional interest incurred for the years ended December 31, 1995, 1996 and
1997.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Notional Amount............. $ 27,596,000 $ 20,335,000 $12,940,000
Fair value (liability)(1)... $ (3,654,000) $ (2,022,000) $ (889,000)
Net Effect of Swaps on
Interest Expense (2)...... $ (486,000) $ 137,000 $ 103,000
</TABLE>
- ----------
(1) The estimated fair value of each existing Swap is the estimated amount
that the applicable Swap Bank would receive to terminate such Swap at
the respective dates, taking into account current interest rates and
the current creditworthiness of the Swap counter-parties.
(2) Represents the net effect of the Swaps on the interest expenses in the
statement of operations. The interest expense on the Swaps is reduced by
the change in the fair value of the Swaps.
Natural Gas Hedging Instruments
Approximately 20% of the fuel supply for the Projects must be provided
from sources other than the Long-term Gas Arrangements. To mitigate the price
risk associated with spot purchases of natural gas, the Partnerships may, from
time to time, enter into certain hedging transactions either through public
exchanges such as the NYMEX, or by means of over-the-counter transactions with
specific counterparties pursuant to the Fuel Management Agreements or otherwise.
These hedging transactions include (a) natural gas call options that give the
Partnerships the right, but not the obligation, to purchase specified quantities
of natural gas at a predetermined price, (b) gas purchase swap agreements that
require the Partnerships to pay a fixed price in return for a variable price on
a notional specified quantity of natural gas, and (c) forward purchases of
natural gas.
39
<PAGE>
The effect of these transactions is to fix the price of natural gas
purchases made on the open market and, as such, these transactions have not had
a material effect on total fuel costs.
Seasonality
The performance of the Projects is dependent on ambient conditions
(principally air temperature, air pressure and humidity), which affect the
efficiency and capacity of the combustion turbines. Ambient conditions also
affect the steam turbine cycle efficiency of the Projects by affecting the
operation of the air cooled condenser, and, therefore, the steam turbine exhaust
back pressure. Payments due to NJEA under the JCP&L Power Purchase Agreement
during winter and summer peak-hour periods are substantially higher than those
in spring and fall. Otherwise, the business of the Partnerships is not
materially subject to seasonal factors.
Industry Deregulation
On November 25, 1997, the Massachusetts legislature passed a
comprehensive electric deregulation bill, the purpose of which is to establish a
comprehensive framework for the restructuring of the electric utility industry.
Additionally, industry restructuring efforts are also underway in New Jersey.
While the Partnerships do not expect electric utility industry restructuring to
result in material adverse changes to the Partnerships' Power Purchase
Agreements, the impact of electric utility industry restructuring on the
companies that purchase power from the Partnerships is uncertain. See
"Regulation -- Utility Industry Restructuring."
40
<PAGE>
BUSINESS
General
ESI Tractebel Acquisition and ESI Tractebel Funding were created as
pass-through funding entities with no operations of their own.
The sole business of the two Partnerships is the ownership and
management of the Projects and, in the case of NEA, the ownership of the Carbon
Dioxide Plant. Each Partnership contracts to sell capacity and electrical energy
produced by its Project to electrical utility customers and in addition,
contracts for the sale of steam.
Independent Power Market
Utilities in the United States have been the predominant producers of
electric power intended primarily for sale to third parties since the early
1900s. In 1978, however, PURPA removed regulatory constraints relating to the
production and sale of electric energy by certain non-utility power producers
and required electric utilities to buy electricity from certain types of
non-utility power producers under certain conditions, thereby encouraging
companies other than electric utilities to enter the electric power production
market. Utilities are required to comply with state law guidelines and, in
general, are required to buy electricity from non-utility generators if there is
a need for such electricity and if it is priced at or below the utility's
avoided cost at the time of the agreements.
According to the Edison Electric Institute, as of December 31, 1996
non-utility generators represent approximately 8.4% of the United States'
installed capacity, accounting for approximately 12% of the total electric
generation in 1996. Between December 31, 1993 and December 31, 1996, non-utility
generators represented 52.3% of the new capacity added in the United States.
Competition in the non-utility power production market is not a material factor
in the Partnerships' operations, except as described in "Risk Factors --
Dependence Upon Third Parties" and as described below.
Electric utility systems that purchase a substantial portion of their
energy supply from non-utility generators under contracts that require purchases
of fixed or minimum quantities of energy have recently expressed an interest in
lowering consumer rates by extending their dispatch flexibility to include the
generating plants of their non-utility generators. Under this approach lower
fuel cost sources of energy would be drawn on before higher fuel cost sources.
General Public Utility's system, of which JCP&L is a part, has publicly
announced and is pursuing its Natural Gas Private Pooling Point Program in which
it would draw on its lower fuel cost sources of energy before drawing on higher
fuel cost sources. JCP&L has contacted NJEA regarding this program and has made
a presentation to NJEA regarding JCP&L's proposal to transform NJEA's must-run
contract into a dispatchable contract on terms that are to cover all fixed costs
(debt service and fixed operating expenses) and preserve current net profits
while allowing JCP&L to reduce its purchased power costs. JCP&L has reported to
New Jersey regulators that its above-market costs for power associated with the
NJEA Power Purchase Agreement will total $837.67 million during the remaining
life of the NJEA Power Purchase Agreement (present value of such amount recently
estimated by JCP&L to be approximately $509.44 million) and that it intends to
pursue its efforts to mitigate these costs.
In November 1997, legislation was enacted in Massachusetts requiring
electric companies and sellers under purchased-power contracts to make
good-faith efforts to renegotiate contracts that contain a price for electricity
that is above-market as of March 1, 1998. A good-faith effort under the Act does
not require accepting all proposals or making unlimited concessions but does
require the parties to show that they have actively participated in negotiations
41
<PAGE>
and have shown a willingness to make reasonable concessions. See "Regulation --
Utility Industry Restructuring -- Massachusetts."
It is not possible to predict the outcomes of various regulatory
initiatives in connection with utility restructuring or changes that may be
requested by JCP&L or the NEA Power Purchasers. Except as provided in the
Project Indenture and the Indenture, any requested changes to the Power Purchase
Agreements would require the consents of NEA or NJEA, as applicable, and of a
majority of the holders of the Project Securities and of the Securities.
THE PROJECTS
General
The Projects are cogeneration facilities, designed to produce
sequentially both electricity and useful thermal energy in the form of steam by
means of an integrated process using a single fuel source. Both Projects are
fueled by natural gas, although under limited circumstances, the NEA Project may
also be operated with Number 2 fuel oil. Substantially all electricity produced
by the Projects is sold pursuant to six Power Purchase Agreements with four
regulated utilities. The Boston Edison II Power Purchase Agreement and the JCP&L
Power Purchase Agreement are scheduled to expire in September 2011 and August
2011, respectively, three months and four months prior to the final maturity
date of the Securities, subject to certain extension rights of the power
purchaser in the case of the JCP&L Power Purchase Agreement. Substantially all
of the steam produced by the Projects is sold pursuant to two Steam Sales
Agreements with two steam purchasers. NEA's Steam Sales Agreement with NECO is
scheduled to expire in June 2007, prior to the final maturity date of the
Securities, subject to NECO's extension rights. There are long-term contracts
for the purchase, transportation and storage of natural gas, although some of
such agreements are scheduled to expire prior to the final maturity date of the
Securities. See "Summary of Principal Project Agreements -- Power Purchase
Agreements, Steam Sales Agreements, Gas, Transportation and Storage Agreements."
The Projects were developed and are currently operated as QFs under
PURPA. The Projects must satisfy certain annual operating and efficiency
standards to maintain QF status, which exempts the Projects from certain federal
and state regulations. See "Regulation -- Energy Regulation."
The Projects were designed and constructed by Westinghouse Electric and
are currently being operated and maintained by Westinghouse Services, a
subsidiary of Westinghouse Electric, under the O&M Agreements, scheduled to
expire on September 15, 2001. On November 15, 1997, Westinghouse Electric
announced that it intended to sell all of its industrial businesses, including
the business of Westinghouse Services, to Siemens AG. Pursuant to the New O&M
Agreements entered into by NE LP and the New Operator, a direct wholly-owned
subsidiary of ESI Energy, and assigned by NE LP to the Partnerships, the New
Operator has agreed to operate and maintain the Projects following the
expiration or early termination of the O&M Agreements and prior to such date, to
provide certain transition services. The New Operator operates eight power
projects and will soon operate a ninth power project, totaling 1,367 MW (743 MW
of which are gas-powered projects), located in California, South Carolina
(currently under construction), Virginia and Nevada.
For descriptions of the O&M Agreements and the New O&M Agreements, see
"Summary of Principal Project Agreements -- Operations and Maintenance
Agreements" and for a description of some of the savings NE LP expects the
Partnerships to realize during the term of the New O&M Agreements, see "Certain
Transactions."
42
<PAGE>
The NEA Project
Project Description. The NEA Project began commercial operation in
September 1991, and consists of a nominal 300 MW gas-fired cogeneration
facility, which is designed to produce approximately 287 MW of electricity, net
of electrical power consumed at the NEA Site and the Carbon Dioxide Plant, while
exporting between 60,000 and 70,000 pounds per hour of steam. Westinghouse
Services is currently operating and maintaining the NEA Project. Pursuant to the
New NEA O&M Agreement, the New Operator is providing certain services for the
NEA Project and has agreed to replace Westinghouse Services as the operator of
the NEA Project upon the expiration or early termination of the NEA O&M
Agreement. The NEA Project is certified as a QF under PURPA and is exempt from
rate regulation as an electric utility under federal and state law, provided
that the NEA Project continues to meet the applicable requirements of PURPA. See
"Regulation -- Energy Regulation."
The NEA Project is powered by two Westinghouse W501D5 combustion
turbine generators, each fitted with a heat recovery steam generator ("HRSG")
that produces steam that drives a steam turbine generator. This steam turbine
generator produces additional electricity, as described below, and supplies
steam to the Carbon Dioxide Plant. Project steam is also used to control nitrous
oxide emissions from the NEA Project. The NEA Project is designed to permit
flexible operation, including the production of both electricity and sufficient
steam to meet QF requirements, using either one or both of the combustion
turbine generators, with or without the one steam turbine generator.
The combustion and steam turbines and their associated auxiliary
equipment are located within a single building. Other project facilities include
mechanical and electrical auxiliaries, a 2.3 million gallon back-up fuel oil
storage tank with spill prevention and fire protection, air cooled condensers,
export steam distribution and condensate return lines, a "zero discharge"
wastewater treatment system that collects and treats all process aqueous wastes
and recycles all water for process use, cooling systems, a continuous emission
monitoring system, other instrumentation and control equipment and office space.
The combustion turbines use natural gas as their primary fuel and, subject to
the limitations contained in the NEA Project's air quality permit, can use
Number 2 fuel oil as a back-up fuel. The NEA Project has an air quality permit
allowing it to burn Number 2 fuel oil for up to 1,440 turbine hours each year in
the event of certain curtailments in the gas supplies for the NEA Project.
The NEA Power Purchase Agreements provide for the purchase by Boston
Edison, Commonwealth and Montaup of all the net electric power currently
produced by the NEA Project. Approximately 11 MW of the NEA Project's electric
power is consumed at the NEA Site and at the Carbon Dioxide Plant. NE LP's
Projections include an assumption that NEA will be able to arrange approximately
10 MW of additional power sales at market prices beginning in 1999. See "Risk
Factors -- Expiration of Certain Power Purchase Agreements; Merchant Sales."
The Carbon Dioxide Plant is adjacent to the NEA Project. The Carbon
Dioxide Plant is owned by NEA and is leased to NECO for an initial 15-year term
that expires on June 1, 2007, subject to certain rights of NECO to extend the
term. Fluor Daniel Inc. ("Fluor Daniel") designed and built the Carbon Dioxide
Plant, and Westinghouse Services currently operates the Carbon Dioxide Plant for
NECO. The Carbon Dioxide Plant uses technology developed by Dow Chemical Company
and acquired by Fluor Daniel to extract carbon dioxide from approximately 15% of
the NEA Project's exhaust flue gas and is designed to produce up to 350 tons per
day of food-grade carbon dioxide at an ambient temperature of 75 degrees F.
Approximately 60,000 to 70,000 pounds per hour of steam supplied by the NEA
Project is used by the Carbon Dioxide Plant in the carbon dioxide production
process. NECO produces food-grade carbon dioxide for a variety of uses,
including carbonated beverages and dry ice for food handling.
43
<PAGE>
Site. The NEA Project and the Carbon Dioxide Plant are located on an
industrially zoned 44-acre site in the town of Bellingham, Massachusetts (the
"NEA Site"). The NEA Site is located on the upper Charles River and is
accessible from Interstate Route 495 and by a railroad line belonging to
Consolidated Rail Corporation ("Conrail"). The NEA Project is interconnected to
Boston Edison's Medway Substation, which is located on a 345 kV power line
collectively owned by Boston Edison, Commonwealth and Northeast Utilities. The
Algonquin Gas Transmission Company's ("Algonquin") gas pipeline runs within the
site boundary. Railroad service can be supplied by a connection to an existing
Conrail line that accesses the NEA Site.
Water is supplied from two wells on the NEA Site and by three wells
located on land owned by the Town of Bellingham within one-half mile of the NEA
Site. Water is delivered to the NEA Site by a dedicated pipeline that runs
directly from the wells to the NEA Project and the Carbon Dioxide Plant. A 2.5
million gallon water storage tank is located at the NEA Site to be used as a
buffer supply, and a 1.0 million gallon raw water tank contains a 360,000 gallon
standpipe that provides a dedicated fire protection supply.
Fuel oil is stored on the NEA Site in a single 2.3 million gallon tank
with spill-prevention protection and ancillary loading and unloading facilities.
Operating History. During the year ended December 31, 1997, the NEA
Project produced an average of approximately 309 MW (net) of electrical energy
and 62.144 pounds per hour of steam. Since the commencement of commercial
operation in September 1991, the NEA Project has exceeded its electrical output
guarantee (which includes a guarantee of availability) and fuel efficiency
guarantee under the NEA O&M Agreement. The NEA Project's operating history for
the 1993-1997 calendar years are summarized below.
NEA Project
<TABLE>
<CAPTION>
Calendar Year
----------------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total Power Produced
(GWh)....................... 2,484 2,483 2,595 2,518 2,641
Net Plant Heat Rate
(Btu/kWh)................... 8,289 8,297 8,336 8,251 8,299
Total Steam Produced (MM
lbs.)(1).................... 535 492 568 533 544
Equivalent Availability
Factor(2)................... 93.7% 91.2% 95.5% 91.6% 96.2%
Curtailment................... 1.2% 2.3% 1.4% 1.3% 1.2%
</TABLE>
- ----------
Source: Independent Engineer's Report except as noted below.
(1) Source: NEA records.
(2) The average number of equivalent hours that the NEA Project was
available to run at approximately 290 MW, as a percentage of the total
number of hours in the year, without taking into account curtailment
hours.
For a detailed discussion of the NEA Project's operating history and
prospects and for a description of the condition and maintenance requirements of
the NEA Project, see "Appendix B -- Independent Engineer's Report." Gas supply
and transportation and storage arrangements are described in "Appendix C --Fuel
Consultant's Report."
44
<PAGE>
The NJEA Project
Project Description. The NJEA Project began commercial operations in
August 1991, and consists of a nominal 300 MW gas-fired cogeneration facility
that was designed to produce approximately 287 MW (net) of electricity while
exporting between 200,000 and 210,000 pounds per hour of steam. The NJEA Project
is designed so that a reduction in the export of steam would raise the
production of electricity; the NJEA Project generally exports an average of
125,000 pounds of steam per hour, and exports at that level result in increased
electric capacity of approximately 35 MW. Westinghouse Services is currently
operating and maintaining the NJEA Project. Pursuant to the New NJEA O&M
Agreement, the New Operator is providing certain services for the NJEA Project
and has agreed to replace Westinghouse Services as the operator of the NJEA
Project following the expiration or early termination of the NJEA O&M Agreement.
The NJEA Project is certified as a QF under PURPA and is exempt from rate
regulation as an electric utility under federal and state law, provided that the
NJEA Project continues to meet the applicable requirements of PURPA. See
"Regulation -- Energy Regulation."
Like the NEA Project, the NJEA Project is powered by two Westinghouse
W501D5 combustion turbine generators, each fitted with an HRSG that produces
steam which drives a steam turbine generator. This steam turbine generator
produces additional electricity, as described below, and supplies steam to
Hercules, the steam host. Project steam is also used to control nitrous oxide
emissions from the NJEA Project. The NJEA Project is designed to permit flexible
operation, including the production of both electricity and sufficient steam to
meet QF requirements, using either one or both of the combustion turbine
generators, with or without the one steam turbine generator.
The combustion and steam turbines and their associated auxiliary
equipment are located within a single building. Other project facilities include
mechanical and electrical auxiliaries, air cooled condensers, export steam
distribution and make up water return lines, cooling systems, a continuous
emission monitoring system, other instrumentation and control equipment and
office space. The combustion turbines use only natural gas as fuel.
NJEA sells to JCP&L approximately 252 MW of the NJEA Project's baseload
power. Approximately 5.5 MW of the NJEA Project's electric power is consumed at
the NJEA Site. Although NE LP expects to find purchasers for the additional 35
MW (subject to a right of recall by JCP&L), to date none of such additional
capacity has been sold by NJEA. See "Risk Factors -- Expiration of Certain Power
Purchase Agreements; Merchant Sales."
Steam generated by the NJEA Project is supplied to Hercules for use in
its Parlin, New Jersey facility in the production of smokeless and soluble
nitrocellulose as well as natrosol. Smokeless nitrocellulose is used in the
production of ammunition, soluble nitrocellulose is used in the manufacture of
coatings, and natrosol is used as a viscosity agent in water soluble polymers.
Site. The NJEA Project is located on an industrially zoned 49-acre site
in the Borough of Sayreville, New Jersey (the "NJEA Site"). The NJEA Site is
accessible from the Garden State Parkway and by a railroad line belonging to
Conrail. A natural gas pipeline owned by Transcontinental Gas Pipe Line
Corporation ("Transco") runs within 200 yards of the site boundary, and natural
gas is transported from the Transco pipeline to the NJEA Project through a
pipeline owned by PSE&G. The site is interconnected through a one-mile power
line to a 230kV power line owned by JCP&L.
Pursuant to a ground lease dated as of June 28, 1989, the NJEA Site has
been leased to IEC Urban Renewal Corporation ("IECURC"), a direct wholly-owned
subsidiary of NJEA. IECURC has leased back the NJEA Site to NJEA pursuant to a
sublease dated as of June 28, 1989.
45
<PAGE>
Water is supplied from the municipal water system by a pipeline from
the road, and raw water in an amount equal to 115% of the steam delivered to
Hercules is supplied by Hercules to the NJEA Project from a nearby private water
supply owned by Dubernal Water Company. A 1.0 million gallon water storage tank
containing a 360,000 gallon standpipe provides a dedicated fire protection
supply.
Operating History. During the year ended December 31, 1997, the NJEA
Project produced an average of approximately 253 MW of electrical energy and
exported an average of 123.636 pounds per hour of steam. Since the commencement
of commercial operation in August 1991, the NJEA Project has exceeded its
electrical output guarantee (which includes a guarantee of availability) and
fuel efficiency guarantee under the NJEA O&M Agreement. The NJEA Project's
operating history for the 1993-1997 calendar years are summarized below.
NJEA PROJECT
<TABLE>
<CAPTION>
Calendar Year
----------------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Total Power Produced
(GWh)....................... 2,005 1,830 2,104 2,019 2,026
Net Plant Heat Rate
(Btu/kWh)................... 9,078 8,884 9,066 9,073 8,954
Total Steam Produced (MM
Lbs.)(1).................... 1,108 823 1,013 1,039 1,083
Equivalent Availability
Factor(2)................... 91.1% 83% 94% 91% 91.6%
Curtailment................... 2.3% 3.8% 2.9% 3.8% 3.1%
</TABLE>
- ----------
Source: Independent Engineer's Report.
(1) Source: NJEA records.
(2) The number of equivalent hours that the NEA Project was available to
run at approximately 250 MW, as a percentage of the total number of
hours in the year, without taking into account curtailment hours.
For a detailed discussion of the NJEA Project's operating history and
prospects and for a description of the condition and maintenance requirements of
the NJEA Project, see "Appendix B -- Independent Engineer's Report." Gas supply
and transportation and storage arrangements are described in "Appendix C -- Fuel
Consultant's Report."
Power Purchase Agreements
NEA's primary sources of revenue are five Power Purchase Agreements
with Boston Edison, Commonwealth and Montaup. NJEA's primary source of revenue
is a Power Purchase Agreement with JCP&L. All six Power Purchase Agreements
provide for the substantially continuous provision of base-load power.
46
<PAGE>
The following table sets forth the applicable Power Purchaser's nominal
entitlement (its share of capacity and associated energy contracted by the
facilities) and the date of scheduled expiration with respect to each of the
Power Purchase Agreements.
<TABLE>
<CAPTION>
Purchaser's
Nominal Expiration
Entitlement Of Contract
-------------------- ------------------
<S> <C> <C> <C>
NEA Project:
Boston Edison I Power Purchase Agreement 135MW 46% September 15, 2016
Boston Edison II Power Purchase Agreement 84 29 September 15, 2011
Commonwealth I Power Purchase Agreement. 25 9 September 15, 2016
Commonwealth II Power Purchase Agreement 21 7 September 15, 2016
Montaup Power Purchase Agreement........ 25 9 September 15, 2021
--- ---
NEA Total....................... 290MW 100%
NJEA Project:
JCP&L Power Purchase Agreement.......... 252MW 100% August 13, 2011
</TABLE>
The JCP&L Power Purchase Agreement is scheduled to expire in August
2011, four months prior to the final maturity date of the Securities. Upon such
expiration, it is anticipated that the NJEA Project will become a merchant
facility subject to approval of FERC. See "Risk Factors -- Expiration of Certain
Power Purchase Agreements; Merchant Sales." Prior to such date, NJEA may arrange
to sell electricity in excess of the approximately 252 MW sold to JCP&L to
purchasers in the merchant market, although JCP&L has a right to purchase excess
power that is produced. NE LP's Projections include an assumption that NE LP
will be able to arrange some excess power sales at market prices beginning in
1999.
The Boston Edison II Power Purchase Agreement is also scheduled to
expire in September 2011, three months prior to the final maturity date of the
Securities. Upon such expiration, it is anticipated that the NEA Project will
become a merchant facility as to the portion of the energy output of the NEA
Project covered by the Boston Edison II Power Purchase Agreement, subject to
approval of FERC. NE LP's Projections also include an assumption that NEA will
be able to arrange approximately 10 MW of additional power sales at market
prices beginning in 1999. See "Risk Factors -- Expiration of Certain Power
Purchase Agreements; Merchant Sales." Under the Boston Edison II Power Purchase
Agreement, Boston Edison has certain rights of first refusal, proportionate to
its percentage entitlement to the output of the NEA Project, with respect to
power sales arrangements following the expiration of the Boston Edison II Power
Purchase Agreement.
Energy Banks
The Power Purchase Agreements (other than the Commonwealth Power
Purchase Agreements) provide for tracking accounts, or Energy Banks, to be
calculated during the terms of such Power Purchase Agreements. The Energy Banks
represent the cumulative differences from time to time between (i) the amount
originally estimated to be paid or actually paid, depending on the Power
Purchaser Agreement, by the applicable Power Purchaser for electric power
delivered under the applicable Power Purchase Agreement and (ii) the amounts
originally estimated as such Power Purchaser's Avoided Cost ("PPA Avoided Cost")
of electric power, adjusted in certain cases for peak and off-peak deliveries of
electric power from the Projects. Depending upon the Power Purchase Agreement,
47
<PAGE>
PPA Avoided Cost is either set at a scheduled amount per kWh of power, or
determined by reference to the Power Purchaser's actual Avoided Cost over time.
If the price paid under a Power Purchase Agreement exceeds the applicable Power
Purchaser's PPA Avoided Cost, a positive balance will build up in the applicable
Energy Bank, which depending upon the terms of the particular Power Purchase
Agreement, must be either fully or partially secured by Energy Bank Letters of
Credit and, in the case of the Power Purchase Agreements for the NEA Project, by
the NEA Second Mortgage. A positive balance in an Energy Bank represents a
liability of the applicable Partnership to the applicable Power Purchaser that
will be reduced by subsequent sales of electric power to such Power Purchaser to
the extent that, in later periods, PPA Avoided Costs are above the contract
rate. Under certain circumstances (in particular, following an early termination
of a Power Purchase Agreement resulting (i) in the case of the Boston Edison I
Power Purchase Agreement, from an Event of Default by NEA (which includes the
failure to deliver a minimum quantity of electricity equal to approximately 50%
of historical levels for two consecutive years) and (ii) in the case of the
Montaup Power Purchase Agreement, from NEA's insolvency or bankruptcy or NEA's
failure to generate electricity at an annual capacity factor of 60% or higher
for two successive years) such liability, if any, must be repaid in cash. The
Energy Bank balances under the JCP&L Power Purchase Agreement and the Boston
Edison II Power Purchase Agreement have been reduced to zero and, consequently,
the Energy Bank provisions set forth in such Power Purchase Agreements have
terminated. As of December 31, 1997, the Energy Bank liability under the Montaup
Power Purchase Agreement was approximately $27,035,000 and under the Boston
Edison I Power Purchase Agreement was approximately $144,547,000. The Energy
Bank balance under the Montaup Power Purchase Agreement is expected to increase
throughout the term of the Agreement and to be approximately $69,677,000 on
December 31, 2013. The Energy Bank balance under the Boston Edison I Power
Purchase Agreement is expected to decrease to zero by 2007.
Second Mortgage
The performance of NEA's obligations under the NEA Power Purchase
Agreements is secured by the NEA Second Mortgage, which is expressly subordinate
to the NEA Project Mortgage that secures the Project Indebtedness. Under the
subordination provisions set forth in the NEA Second Mortgage, such remedies
cannot be exercised so long as the Project Securities are outstanding. The last
series of Project Securities will, however, mature in 2010, one year before the
final maturity date of the Securities.
For a more detailed summary of the Power Purchase Agreements, see
"Summary of Principal Project Agreements -- Power Purchase Agreements."
Gas Supply Arrangements
The fuel supply arrangements for the Projects are designed to create
flexibility with respect to the Projects' major fuel supplier, ProGas. The
Long-term Gas Supply Agreements are designed to manage the risk of precipitous
increases in the price of natural gas (i) by indexing the prices paid by the
Partnerships to ProGas for a portion of the natural gas to the energy prices
paid by NEA's customers, (ii) by indexing the prices paid to ProGas for
additional natural gas to the cost of natural gas purchased by New Jersey
electrical utilities (including NJEA's customer, JCP&L), as reported in FERC
Form 423 and (iii) by allowing the Partnerships the flexibility to shift gas
purchased from ProGas between the Projects. Such fuel supply and management
arrangement, however, cannot eliminate entirely the risks associated with gas
price volatility. See "Risk Factors -- Gas Supply, Transportation and
Transmission Risks."
Approximately 80% of the Projects' combined fuel requirements of
natural gas are supplied under the Long-term Gas Arrangements on a "firm" basis,
that is, without interruption except for events of force majeure and in other
limited circumstances. The remaining natural gas supplies are purchased on the
open market and are transported by various means to the Projects. The Long-term
Gas Arrangements consist of two long-term contracts with ProGas for supply and
delivery of gas into the United States, one long-term contract with PSE&G for
supply and delivery of gas, several contracts for the transportation on a firm
basis by various transporters of gas purchased under the gas supply and storage
contracts and contracts for the storage of gas. All of the Long-term Gas
Arrangements (with the exception of the ProGas Agreements and one firm gas
transportation agreement with Algonquin) will expire prior to the final maturity
date of the Securities. See "Risk Factors -- Dependence Upon Third Parties." For
a more detailed summary of the contracts comprising the Long-term Gas
Arrangements, see "Summary Of Principal Project Agreements -- Gas Purchase
Agreements; -- Gas Transportation and Storage Agreements."
48
<PAGE>
Although it is expected that the Projects will use natural gas almost
exclusively, the NEA Project's air quality permit allows the NEA Project to burn
Number 2 fuel oil for up to 1,440 turbine generating hours per year (equivalent
to approximately 60 days per year, assuming one turbine is burning oil and
operating at base load) in the event of certain curtailments in the gas supplies
for the NEA Project, and the NEA Project has a 2.3 million gallon fuel tank for
storage of approximately a nine-day supply (assuming only one turbine is burning
oil) of Number 2 fuel oil as a back-up fuel. There is no fixed-price fuel
purchase agreement for the purchase or delivery of Number 2 fuel oil. To date,
the NEA Project has not been operated using Number 2 fuel oil (except for
testing purposes). Use of Number 2 fuel oil would result in the suspension of
NEA's sales of steam to NECO. See "Risk Factors -- Dependence Upon Third
Parties" and "The Projects -- Steam Sales Agreements -- NEA."
The air quality permits for the NJEA Project do not allow fuel oil to
be burned.
The table below illustrates natural gas supply consumed by the Projects
during the year ended December 31, 1997, expressed as a percentage of the total
gas requirement for each Project and for the combine total gas requirement for
both Projects.
Natural Gas Consumption for the Projects
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Sources of
Gas Consumed Contract
by the Projects NEA NJEA Total Expiration
(Bef) (Bef) (Bef)
<S> <C> <C> <C> <C> <C> <C> <C>
ProGas(1) 14.3 65% 9.2 50% 23.5 59% 2013
PSE&G - 0% 7.9 44% 7.9 20% 2011
Market Purchases 6.2 28% - 0% 6.2 15% N/A
From Storage(2) 1.4 7% 1.1 6% 2.5 6% 2012
------ ------- ------ ------ ------- ------- -------
TOTAL 21.9 100% 18.2 100% 40.1 100%
====== ======= ====== ====== ======= =======
</TABLE>
- -------------
(1) ProGas volumes are adjusted to reflect exchanges between the Projects.
(2) Gas from storage includes both volumes purchased as market purchases and
volumes purchased under the Long-term Gas Agreement from ProGas.
Steam Sales Arrangements
NEA
FERC regulations require that at least 5% of a QF's total energy output
be useful thermal energy. To meet this requirement, the NEA Project sells 60,000
to 70,000 pounds per hour of steam (equal to approximately 6 to 7% of the
Project's total energy output) to NECO for use by NECO in the operation of the
Carbon Dioxide Plant, pursuant to the NEA Steam Sales Agreement.
Steam Sales. NEA has leased the Carbon Dioxide Plant to NECO for an
initial term that expires on June 1, 2007, renewable at NECO's option for up to
four renewal periods of five years each and subject to termination by NEA for
the convenience of NEA or following an event of default by NECO. The NEA Steam
Sales Agreement, which also expires on June 1, 2007, provides for NEA to sell to
NECO at least 60,000 pounds per hour of steam during each hour that the NEA
Project is being fueled by 100% pipeline quality natural gas. NECO is required
to buy all its steam from the NEA Project whenever the NEA Project is operating
and to return all condensate. In any hour in which the NEA Project is being
fueled by 100% pipeline quality natural gas, NECO has contracted to accept steam
49
<PAGE>
quantities at least equal to 5% of the NEA Project's total energy output. The
price of steam is adjusted annually according to an index that takes into
account the blended base prices of gas supplied to NEA under the NEA ProGas
Agreement and to NJEA under the NJEA ProGas Agreement, subject to a floor price
of $3.50 per 1,000 pounds. The average price of steam under the NEA Steam Sales
Agreement during 1996 and 1997 was $3.52 per 1,000 pounds. NE LP expects to
renew the NECO Lease and the NEA Steam Sales Agreement with NECO following its
scheduled expiration in 2007. In the event that such renewal is not obtained, NE
LP expects that NEA, as owner of the Carbon Dioxide Plant, will be successful in
replacing NECO with another steam purchaser.
NECO's ability to pay for steam depends upon its successful operation
of the Carbon Dioxide Plant and the performance by NECO's two carbon dioxide
customers described below. The NEA Steam Sales Agreement permits NECO to defer
payment for all or a portion of the steam it takes if, after deferring its
payments under the NECO Lease, NECO's monthly expenses still exceed its monthly
revenues. In addition, NEA has agreed with NECO's two carbon dioxide customers
that if NECO fails to satisfy its obligations under the Carbon Dioxide Sales
Agreements described below, NEA will, within 45 days after receipt of notice
from such customer, terminate the NECO Lease, also terminating the NEA Steam
Sales Agreement, and will replace NECO as lessee. For more detailed summaries of
the NEA Steam Sales Agreement and the NECO Lease, See "Summary of Principal
Project Agreements -- Steam Sales Agreements -- NEA."
In addition to steam, the NEA Project provides exhaust gas from the
combustion turbines to the Carbon Dioxide Plant for use as a feedstock. Only the
exhaust from burning natural gas (and not Number 2 fuel oil) can be used for
carbon dioxide production. The Carbon Dioxide Plant can be run at full
operational output provided that at least one combustion turbine is run on gas
only. Under the Long-term Gas Arrangements, it is expected that there will be
sufficient natural gas to run at least one turbine year-round in this manner.
NEA will be obligated to pay liquidated damages to NECO if the NEA Project fails
to provide exhaust gas from at least one turbine running only on natural gas for
at least approximately 80% of the available hours per year.
Carbon Dioxide Sales Agreements. As required by the NECO Lease, NECO
has entered into carbon dioxide sales agreements with BOC Gases and Praxair
(collectively, the "Carbon Dioxide Sales Agreements"), whereby NECO agrees to
dedicate 55% of the Carbon Dioxide Plant's output to Praxair and 45% of the
Carbon Dioxide Plant's output to BOC Gases. BOC Gases and Praxair are two of the
largest suppliers and distributors of carbon dioxide in the United States. Under
the Carbon Dioxide Sales Agreements, 88% of Praxair's allocation and 65% of BOC
Gases' allocation are subject to a mandatory take-and-pay clause, up to a
maximum of 55,660 tons per year for Praxair and 35,000 tons per year for BOC
Gases. The price to be paid to NECO by BOC Gases is subject to adjustment based
upon the New England carbon dioxide market price and is protected by a floor
price of $38.00 per ton, unless and until a competitive plant is constructed and
becomes operational. Upon construction of such a plant, the floor price will be
reduced to $33.00 per ton and BOC Gases has a one-time option, exercisable
within six months after construction of the competitive plant, to lower the
floor price to $30.00 per ton. The price to be paid to NECO by Praxair is
subject to quarterly adjustment with the wholesale carbon dioxide market price.
The price to be paid by Praxair may not be reduced below $38.00 per ton, unless
and until a competitive plant is built in New England or in parts of New York or
New Jersey. After construction of such a plant, the floor price may be reduced
to $30.00 per ton. See "Summary of Principal Project Agreements -- Steam Sales
Agreements -- NEA."
Operation and Maintenance. The Carbon Dioxide Plant is operated for
NECO by Westinghouse Services pursuant to an agreement between NECO and
Westinghouse Services. On November 15, 1997, Westinghouse Electric announced
50
<PAGE>
that it intended to sell all of its industrial businesses, including the
business of Westinghouse Services, to Siemens AG.
NJEA
NJEA has entered into the NJEA Steam Sales Agreement with Hercules to
sell steam to Hercules' Parlin, New Jersey facility. The Hercules plant is
located approximately 1.5 miles from the NJEA Project and is connected by a
steam pipeline over land owned by Hercules. NJEA's sales of steam to Hercules
enable NJEA to satisfy FERC's rules with respect to useful thermal output
necessary to maintain the NJEA Project's QF status. To meet this requirement,
the NJEA Project sells approximately 125,000 pounds per hour of steam (equal to
approximately 15% of the NJEA Project's total energy output) to Hercules.
Steam Sales. The NJEA Steam Sales Agreement has an initial term that
expires on August 13, 2011, subject to renewal for two five-year terms. Under
the NJEA Steam Sales Agreement, Hercules must, for any hour in which it takes
steam, take a minimum of 30,000 pounds of steam. Although Hercules may require a
maximum of 205,000 pounds of steam per hour, Hercules' actual requirements have
averaged approximately 125,000 pounds of steam per hour. NJEA is required to pay
liquidated damages to Hercules in the event that (i) it fails to make delivery
on an average annual basis of at least 85% of the steam used by Hercules up to a
maximum of 205,000 pounds per hour or (ii) there are more than five total forced
outages annually or more than 15 partial forced outages annually. Hercules is
obligated under the contract to take sufficient process steam to maintain the
NJEA Project's QF status. The NJEA Steam Sales Agreement is terminable upon
Hercules' closing its Parlin plant, although in such case Hercules has agreed to
lease to NJEA sufficient land to construct an alternative steam host. The NJEA
Steam Sales Agreement's scheduled expiration date (2011) is the same as the
scheduled expiration date for the JCP&L Power Purchase Agreement. Following the
expiration of the JCP&L Power Purchase Agreement, the maintenance of the NJEA
Project's QF status may not be required. In such case, NE LP expects that a
replacement for or a renewal of the NJEA Steam Sales Agreement may not be
obtained. For a more detailed summary of the NJEA Steam Sales Agreement, see
"Summary of Principal Project Agreements -- Steam Sales Agreements -- NJEA Steam
Sales Agreement."
Employees
None of the Partnerships, ESI Tractebel Funding, ESI Tractebel
Acquisition or the Partners have any employees. Pursuant to the Administrative
Services Agreement, ESI GP has agreed to provide administrative services to NE
LP. The Operator, the Fuel Manager and the New Operator are to provide certain
operation and maintenance, oversight and fuel management services for the
Projects. See "Management" and "Certain Transactions."
Legal Proceedings
No material legal proceedings are presently pending against either of
the Partnerships, ESI Tractebel Acquisition or NE LP.
Properties
The Partnerships' principal properties are as follows:
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Approximate Building
Location Principal Use Square Footage
-------- ------------- --------------------
NEA
Bellingham, MA
NEA Project(1)....... Power Production 70,000
Carbon Dioxide
Plant(2)........... Carbon Dioxide Production 9,000
Certain residential
Properties(3)...... Residences 27,500
NJEA
Sayreville, NJ
NJEA Project(4)...... Power Production 60,000
- ----------
(1) NEA owns the NEA Project and the land upon which it is located, with
the exception of an approximately 15.25-acre parcel that is leased from
The Prestwich Corporation, pursuant to a 26 year operating lease that
expires on May 31, 2012. Subject to certain conditions, NEA has the
option under such operating lease to extend the term of such lease for
an additional 25 years.
(2) NEA owns the Carbon Dioxide Plant, which has been leased to NECO
pursuant to the NECO Lease. See "Summary of Principal Project Agreements --
Steam Sales Agreements -- NEA."
(3) NEA owns 12 single-family dwellings located on land immediately adjacent to
the NEA Site.
(4) NJEA owns the NJEA Project and the land upon which it is located. The NJEA
Site is leased to IECURC (a direct, wholly-owned subsidiary of NJEA) and
leased back to NJEA.
The NEA Site, the NEA Project, the Carbon Dioxide Plant and all other
related improvements and fixtures on the NEA Site owned by NEA are subject to
the NEA Project Mortgage. The NEA Site and the NEA Project are also subject to
the NEA Second Mortgage. The NJEA Site, the NJEA Project and all other related
improvements and fixtures on the NJEA Site owned by NJEA are subject to the NJEA
Project Mortgage. The residential properties referred to in the chart above are
subject to the NEA Additional Properties Mortgage.
REGULATION
Energy Regulation
PURPA
PURPA provides an electric generating project with rate and regulatory
incentives if the project is a QF. Under PURPA, a cogeneration facility is a QF
if (i) the facility sequentially produces both electricity and a useful thermal
energy output during any calendar year which constitutes at least 5% of its
total energy output and which is used for industrial, commercial, heating or
cooling purposes, (ii) during any calendar year the sum of the useful power
output of the facility plus one-half of its useful thermal energy output equals
or exceeds 42.5% of the total energy input of natural gas and oil, or, in the
event that the facility's useful thermal energy output is less than 15% of the
facility's total energy output, such sum equals or exceeds 45% of such total
energy input and (iii) the facility is not more than 50% owned, directly or
indirectly, by an electric utility, electric utility holding company or any
combination of the above.
Under PURPA, QFs receive two primary benefits. First, PURPA exempts QFs
from the Public Utility Holding Company Act of 1935 ("PUHCA"), most provisions
of the Federal Power Act (the "FPA") and certain state laws relating to
financial, organization and rate regulation. Second, FERC's regulations
promulgated under PURPA require (i) that electric utilities purchase electricity
generated by QFs, construction of which commenced on or after November 9, 1978,
at a price based on the purchasing utility's full Avoided Costs, and (ii) that
the utilities sell supplementary, back-up, maintenance and interruptible power
to QFs on a just and reasonable and nondiscriminatory basis. PURPA defines
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"Avoided Costs" as the "incremental costs to an electric utility of electric
energy or capacity or both which, but for the purchase from the qualifying
facility or qualifying facilities, such utility would generate itself or
purchase from another source." Utilities may also purchase power at prices other
than Avoided Costs pursuant to negotiations as provided by FERC regulations.
NE LP expects the Projects to continue to meet all of the criteria
required for certification as QFs under PURPA. If either Project were to fail to
meet such criteria, the related Partnership and, by virtue of the Partnerships'
common Partners, the other Partnership may become subject to regulation as a
public utility company or its equivalent under PUHCA, the FPA and state utility
laws. Certain of the Power Purchase Agreements require that the applicable
Partnership use its best efforts to maintain QF status, and others may be
terminated or be subject to price renegotiation if QF status is lost. In
addition, each of the O&M Agreements may be suspended by the Operator if the
applicable Project is operated in a manner likely to result in the loss of QF
status, and if such potential loss is certified by an independent engineer. See
"Summary of Principal Project Agreements -- Operations and Maintenance
Agreements."
PUHCA
PUHCA provides that any corporation, partnership or other entity or
organized group that owns, controls or holds power to vote 10% or more of the
outstanding voting securities of a "public utility company" or a company that is
a "holding company" of a "public utility company" is subject to registration
with the SEC and to regulation under PUHCA, unless exempted by Commission rule,
regulation or order. An entity may also be deemed to be a holding company if the
Commission determines, after providing notice and an opportunity for hearing
that such entity exercises a controlling influence over the management or
policies of any public utility or holding company as to make it necessary or
appropriate in the public interest or for the protection of investors or
consumers that such entity be regulated as a holding company. Unless an
exemption is obtained, PUHCA requires registration for a holding company of a
public utility company, and requires a public utility holding company to limit
its utility operations to a single integrated utility system and to divest any
other operations not functionally related to the operation of the utility
system. In addition, a public utility company that is a subsidiary of a
registered holding company under PUHCA is subject to financial and
organizational regulation, including approval by the Commission of its financing
transactions.
The Energy Policy Act of 1992 (the "Policy Act") contains amendments to
PUHCA that may allow the Partnerships to operate their businesses without
becoming subject to PUHCA in the event that either Project loses its status as a
QF. Under the Policy Act, a company engaged exclusively in the business of
owning and/or operating one or more facilities used for the generation of
electric energy exclusively for sale at wholesale may be exempted from PUHCA. To
qualify for such an exemption, a company must apply to FERC for a determination
of eligibility, pursuant to implementing rules promulgated by FERC. If QF status
is lost, however, obtaining this exemption would not eliminate the need to amend
or replace certain of the Power Purchase Agreements. Moreover, although the
Policy Act and its implementing rules provide certain exemptions from PUHCA, the
Policy Act may also encourage greater competition in wholesale electricity
markets, which could result in a decline in long-term rates to be paid by
electric utilities, including those party to the Power Purchase Agreements. Even
if a Partnership obtained an exemption from PUHCA pursuant to the Policy Act and
implementing rules, in the event that QF status is revoked, the applicable
Partnership would be subject to regulation under the FPA, as described below.
FPA
Under the FPA, FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and transmission in interstate commerce. These
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rates may be based on a cost of service approach or may be determined through
competitive bidding or negotiation. If a Project were to lose its QF status, the
rates set forth in each of the Power Purchase Agreements would have to be filed
with FERC and would be subject to review by FERC under the FPA. Under FERC
policy, the rates under those circumstances could be no higher than the price
such Power Purchasers would have paid for energy had they not been required to
purchase from such Project under PURPA's mandatory purchase requirements, i.e.
such Power Purchaser's economy energy (incremental) cost during the period of
non-compliance, unless the applicable power purchase agreement otherwise
provides for alternative rates to apply in the event of such loss of QF status.
Certain of the Power Purchase Agreements contain provisions for a renegotiation
of the rates to be paid for electric energy in the event of loss of QF status,
and loss of QF status constitutes an event of default under the JCP&L Power
Purchase Agreement.
The FPA and FERC's authority under the FPA subject public utilities to
various other requirements, including accounting and record-keeping
requirements; FERC approval requirements applicable to activities such as
selling, leasing or otherwise disposing of facilities; FERC approval
requirements for mergers, consolidations, acquisitions and the issuance of
securities; and certain restrictions regarding affiliations of officers and
directors.
State Regulation
The Projects, by virtue of being QFs, are exempt from New Jersey and
Massachusetts rate, financial and organizational regulations that are applicable
to public utilities. QFs, however, are not exempt from the state regulatory
commissions' general supervisory powers relating to environmental and safety
matters. In addition, the NEA Project is required to file reports used by the
Massachusetts Department of Public Utilities to forecast long-term electrical
power needs.
In the event that the NEA Project loses its QF status, in addition to
FPA and PUHCA regulation, NEA and the NEA Project would be subject to a wide
range of state regulations applicable to Massachusetts "electric companies,"
including requirements for the filing of annual reports and approval by the
Massachusetts Department of Telecommunications and Energy of any issuance of
securities. Similarly, in the event that the NJEA Project loses its QF status,
in addition to FPA and PUHCA regulation, NJEA and the NJEA Project could,
depending upon the character and extent of the business activities of NJEA with
respect to sales of electricity from the NJEA Project, and whether NJEA engages
in retail sales of electricity (such retail sales subject to the implementation
of retail competition in New Jersey pursuant to deregulation imposed by the New
Jersey Board of Public Utilities ("NJBPU")), be subject to a wide range of state
statutes and regulations applicable to New Jersey public utilities, which
includes the ability of the NJBPU to fix the rates charged by NJEA for the sale
of the electric energy generated by the NJEA Project, the approval by the NJBPU
of the issuance of securities by NJEA and the requirements for periodically
furnishing to the NJBPU detailed reports of NJEA's finances and operations.
Wheeling and Interconnection
Under the FPA, FERC is authorized to regulate the rates, terms and
conditions for the transmission of electric energy in interstate commerce. This
has been interpreted to mean that FERC has jurisdiction to prescribe the terms
of and to set the rates contained in agreements for the transmission of electric
energy when the applicable transmission system is interconnected and capable of
transmitting energy across a state boundary, even if the utility has no direct
connection with another utility outside its state but is interconnected with
another utility that in turn has interstate connections with other utilities.
Accordingly, the rates to be paid by NEA to Boston Edison under the Boston
Edison Interconnection Agreement are subject to the jurisdiction of FERC under
the FPA. Boston Edison submitted the Boston Edison Interconnection Agreement to
FERC on October 13, 1993. FERC accepted such filing; however, the terms thereof
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and the rates thereunder remain subject to review and potential modification
pursuant to the jurisdiction of FERC. See "Summary of Principal Project
Agreements -- Boston Edison Interconnection Agreement."
FERC's authority under the FPA to require electric utilities to provide
transmission service to QFs and other wholesale electricity producers has been
significantly expanded by the Policy Act. Pursuant to the Policy Act, the
Partnerships may apply to FERC for an order requiring a utility to provide
transmission services in order to transmit power to a wholesale purchaser. FERC
may issue such an order if FERC determines that such order would promote the
economically efficient transmission and generation of electricity, would be just
and reasonable and not unduly discriminatory or preferential and otherwise would
be in the public interest, provided that the reliability of the affected
electric systems would not be unreasonably impaired. The Policy Act may enhance
the Partnerships' ability to obtain transmission access necessary to sell
electric energy or capacity to purchasers other than those with which the
Partnerships presently have Power Purchase Agreements and NEA's ability to
obtain transmission line access for electrical sales to Commonwealth and Montaup
following the scheduled expiration in 2001 of Commonwealth's and Montaup's
access rights to Boston Edison's Medway Substation, which interconnects the NEA
Project with Montaup and Commonwealth's respective grids. There can be no
assurance however, that FERC would issue any such order or that the rates for
such transmission service would be economical for the Partnerships. The Policy
Act may also result in greater competition among wholesale electric energy
producers. See "Risk Factors -- Gas Supply, Transportation and Transmission
Risks -- Transmission of Electrical Power."
Utility Industry Restructuring
State and federal regulators are in the process of a major examination
of the organization of the electric utility industry, which is dominated by
vertically integrated investor-owned utilities.
Federal
In the Spring of 1996, FERC promulgated its Order No. 888, an order
containing significant policy initiatives designed to open the market for
generation of electricity to competition. In its order, FERC promulgated rules
requiring utilities owning transmission facilities to file uniform,
non-discriminatory open access tariffs. These filings were made during the
summer of 1996. The utilities themselves must use these tariffs for their
wholesale sales. The order permits the utilities an opportunity to recover
stranded costs (described below) associated with wholesale transmission.
Additionally, FERC directed the regional power pools that control the major
electric transmission networks to file uniform, non-discriminatory open access
tariffs. Among the power pools that are subject to this mandate are the New
England Power Pool ("NEPOOL") and the Pennsylvania-New Jersey-Maryland
Interconnection ("PJM"), the two power pools that control transmission of
electricity within the areas in which the Projects are located. Both NEPOOL and
PJM filed proposals for open access tariffs prior to the FERC's deadline,
December 3, 1996. FERC granted conditional approval of both of the proposed
tariffs in the Fall of 1997. The Partners do not expect Order No. 888 to have a
material impact on Partnerships' ability to obtain access to transmission lines
for electrical sales to those utilities with whom they have power purchase
agreements.
In the Spring of 1996, FERC also issued its Order No. 889. This order
requires utilities owning transmission facilities to adopt procedures for an
open-access same-time information system ("OASIS") that will make available, on
a real-time basis, pertinent information concerning each transmission utility's
services. The order also promulgated standards of conduct to ensure that the
utilities functionally separate their transmission and wholesale power merchant
functions to prevent self-dealing.
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In the Spring of 1997, FERC issued its orders on rehearing of Order
Nos. 888 and 889. In these orders FERC upheld the bulk of its rulings in Order
Nos. 888 and 889, while making changes to a few of its rules to implement its
open-access policies. Transmitting utilities were required to submit revised
tariffs to FERC during the summer of 1997 to reflect FERC's orders on rehearing.
In November 1997, FERC issued further orders on rehearing affirming, with
certain clarifications, its previous orders. Certain aspects of Order Nos. 888
and 889 have been appealed to the U.S. Court of Appeals.
Congress is considering legislation to modify federal laws affecting
the electric industry. Bills have been introduced in the current Congress to
provide retail electric customers with the right to choose their power
suppliers. Modifications of PUHCA and PURPA have also been proposed.
NEPOOL
NEPOOL was initially organized in 1971 and presently has over 130
members representing more than ninety-nine percent (99%) of the electric
business in New England. NEPOOL is a voluntary association which operates to
assure that the bulk electric power supply of the New England region is provided
through central dispatch of virtually all of the generation and transmission
facilities in New England as a single control area.
On December 31, 1996, as supplemented February 14, April 18, May 1 and
June 5, 1997, NEPOOL filed with FERC a comprehensive restructuring proposal. The
restructuring proposal was intended to: (1) comply with the requirements of
Order No. 888; (2) transfer control of the NEPOOL transmission grid to an
independent system operator; and (3) provide a more open, competitive market for
wholesale sales and purchases of electric energy in the New England region
through a bilateral market and a regional power exchange.
On June 25, 1997, FERC unconditionally authorized the establishment of
the independent system operator and authorized the transfer of control of pool
transmission facilities ("PTFs") owned by the public utility members of NEPOOL
to the independent system operator. FERC concluded that this was both consistent
with the public interest and would serve to maximize the potential for reliable,
competitive bulk power operations in the region. The independent system operator
is responsible for, among other things, monitoring the regional power market
which includes maintaining system reliability, operating the NEPOOL control area
and control center, administering the 7 spot markets, administering the NEPOOL
tariff, and promoting efficient and competitive functioning within the market.
PJM
The PJM power pool is a voluntary association of eight member electric
utility companies in the mid-Atlantic region, originally formed in 1927, with a
pooled generating capacity of over 56,000 megawatts. Under the historic PJM
power pool structure, the member companies jointly own and control the bulk
power transmission systems in the region and jointly plan transmission systems
upgrades. On December 31, 1996, the PJM filed with FERC a proposal to
restructure PJM to introduce open access transmission and otherwise to implement
FERC Order 888. On February 28, 1997, FERC approved PJM's filing subject to
further orders. FERC, on an interim basis, approved the PJM open access
transmission tariffs effective April 1, 1997, and incorporated such proposal
with respect to all issues except for congestion pricing. With implementation of
a pool-wide open-access transmission tariff on April 1, 1997, PJM began
operating a regional bid-based energy market. Participants buy and sell spot
energy, schedule bilateral transactions, and reserve transmission service using
the PJM OASIS.
On November 25, 1997, FERC approved a restructuring plan for the PJM
interconnection. The comprehensive plan included the approval of the PJM
Operating Agreement, the PJM Open-Access Transmission Tariff, the Transmission
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Owners Agreement, and the Reliability Assurance Agreement. FERC modifications to
the Agreement will be made in subsequent compliance filings by PJM. PJM has
requested an April 1, 1998 implementation date for the approved PJM Open-Access
Transmission Tariff. On March 30, 1998, FERC issued an order accepting for
filing certain revisions to PJM's open access transmission tariff and operating
agreement, and permitted them to go into effect on April 1, 1998.
Massachusetts
On November 25, 1997 the Massachusetts legislature passed a
comprehensive electric deregulation bill entitled "AN ACT RELATIVE TO
RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY IN THE COMMONWEALTH, REGULATING THE
PROVISIONS OF ELECTRICITY AND OTHER SERVICES, AND PROMOTING ENHANCED CONSUMER
PROTECTIONS THEREIN" (the "Act"). The purpose of the Act is to establish a
comprehensive framework for the restructuring of the electric utility industry.
In furtherance of this, the Act eliminates the existing Department of Public
Utilities, replacing it with a five-member Department of Telecommunications and
Energy ("DTE").
Divestiture
The Act provides that each electric company may, in its sole
discretion, divest itself of its existing generation facilities. An electric
company that chooses not to divest all of its non-nuclear generation facilities,
is required to subject its nuclear and non-nuclear generation facilities and
purchased power contracts to a valuation under which the DTE determines the
market value of such generation facilities and contracts. The DTE is to require
a reconciliation of projected transition costs to actual transition costs by
March 1, 2000, and for every 18 months thereafter through March 1, 2008, or the
termination date of any transition charge allowed to be assessed.
If an electric company chooses to divest itself of its existing
non-nuclear generation facilities, such company shall transfer or separate
ownership of generation, transmission, and distribution facilities into
independent affiliates.
Commonwealth, Montaup and Boston Edison are all in various stages of
divestiture.
Stranded Costs
The Act also requires the DTE to identify and determine stranded costs
that may be allowed to be recovered through a non-bypassable transition charge.
DTE approval is required for any plan to recover such costs, DTE may not grant
such approval unless it finds that the company has taken all reasonable steps to
mitigate the total amount of such costs that will be recovered and minimize the
impact of such costs on ratepayers.
Above-Market Power Purchase Contracts
The Act further provides that to mitigate the projected above market
cost of power associated with purchased power contracts ("PPCs") approved by the
DTE or by its predecessor, the Department of Public Utilities Commission, by
December 31, 1995, except with respect to trash to energy facilities, electric
companies and sellers under such contracts are required to make good-faith
efforts to renegotiate those contracts that contain a price for electricity that
is above-market as of March 1, 1998. In order to meet this standard, the parties
must show that they have actively participated in negotiations and have shown a
willingness to make reasonable concessions to mitigate equitably stranded costs.
A good-faith effort under the Act does not require accepting all proposals and
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making unlimited concessions. Beginning July 1, 1998, and at least annually
thereafter, the DTE is required to continue to review such PPCs to determine if
the contracts are above-market as of the date of review. If such contract is
above-market, the electric company and the seller under the contract must
attempt to make a good-faith effort to renegotiate such contract to achieve
further reductions in the transition charge. If an electric company has assigned
such contract to a buyer having adequate financial resources under a
DTE-approved divestiture plan, the electric company is deemed to have met its
obligations. If the seller under such contract has consented to the assignment
and has agreed to release the electric company from all obligations under such
contract, the seller is deemed to have met its obligations.
If the DTE finds that a negotiated contract buyout or other
modification is likely to achieve savings to the ratepayers and is otherwise in
the public interest, the remaining amounts in excess of market value associated
with such contract shall be included in the transition charges. If the DTE finds
that a seller has made a bona fide offer for such a contract buyout or
modification that has been refused by the purchasing electric company, only
those amounts in excess of market value associated with such contract that would
not have been mitigated by such offer shall be included in the transition
charges, and the seller is deemed to have met its obligation to negotiate in
good faith.
New Jersey
Industry restructuring efforts are also underway in New Jersey. On
April 30, 1997, the New Jersey Board of Public Utilities ("NJBPU" or "Board")
issued its Final Report in the Energy Master Planning Process entitled
"Restructuring the Electric Power Industry in New Jersey: Findings and
Recommendations." The principal announced goal of the NJBPU in its restructuring
initiative is to open the electric generation market to increased competition.
On July 15, 1997, each of New Jersey's four electric utility companies filed:
(1) a Restructuring Plan, (2) an Unbundled Rate Filing, and (3) a Stranded Costs
Filing with the NJBPU pursuant to the NJBPU's Final Report.
Stranded Costs
The stranded costs filing of each utility will determine the specific
initial level of non-mitigatable stranded costs to be recovered by the local
electric distribution company. The stranded cost filing for each utility has
been transmitted to the Office of Administrative Law for evidentiary hearings.
The JCP&L hearing commenced on December 2, 1997; the Initial Decision from the
Administrative Law Judge is due on May 15, 1998, with a Final Decision by the
NJBPU due thereafter.
Stranded costs are defined by the NJBPU as the potential shortfall in
revenues, or "loss," which would be experienced by the electric utilities as
competition is introduced and their traditional monopolies are opened up to
competitors. The Board seeks to address the stranded costs that may be created
as a result of its recommendation to open the power generation and supply market
up to competition. The Board has determined to limit the eligibility for
stranded cost surcharge recovery to costs related directly to power supply
including utility generation plant, long- and short-term power purchase
contracts with other utilities and long-term power purchase contracts with
non-utility generators.
The NJBPU concluded in its April 30, 1997 report that electric
utilities should be given an opportunity to recover from customers the costs
associated with past financial commitments made by the utility for the purpose
of procuring generating supplies to serve the retail electric customers in their
service territory, notwithstanding the emergence of competition in the
generation market. Such pronouncement is not binding at the present, and is
subject to future regulatory proceedings and actions by the New Jersey
Legislature. Additionally, federal legislation has been proposed that may alter
a state's ability to regulate the emerging competitive market and the recovery
of stranded costs. See "Risk Factors -- Dependence on Third Parties."
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Above Market Power Purchase Contracts
The NJBPU stated in its final report that utilities should make a
reasonable good faith effort to mitigate stranded costs, including the buy-out
or renegotiation of existing purchased power contracts with non-utility
generators. The Board has acknowledged that it appears to lack jurisdiction to
order modification of non-utility generators' contracts, and has determined that
the "non-mitigatable costs associated with all such contracts which have
previously been reviewed and approved by the Board, notwithstanding the specific
date, must be eligible for stranded cost recovery."
The NJBPU based its determination that it lacks jurisdiction to order
modification of non-utility generators' contracts on the decision of the Third
Circuit Court of Appeals in Freehold Cogeneration Associates, L.P. v. Board of
Regulatory Commissioners of New Jersey, 44 F.3d. 1178 (3rd Cir. 1995), cert.
den., 116 S. Ct. 68, which held that
Once the [NJBPU] approved the power purchase agreement between Freehold
and JCP&L, on the grounds that the rates were consistent with avoided cost, any
action or order by the [NJBPU] to reconsider its approval or to deny the passage
of those rates to JCP&L consumers under purported state authority was preempted
by federal law. (Id., Freehold, 44 F.3d at 1194).
The NJBPU has interpreted the Freehold decision to mean that "without
legislative action at the federal or State level, a State regulator has minimal
ability to subsequently adjust the pricing in such non-utility generators
contracts once approved."
Notwithstanding the NJBPU's acknowledgment that it appears to lack
jurisdiction to order modification of non-utility generators' contracts under
current law it has "strongly encouraged all stakeholders to renew their efforts
to explore all reasonable means to mitigate IPP contracts." The Board further
stated that the appropriate legislative bodies may wish to review this issue to
"provide an added impetus for parties to these [non-utility generators']
contracts to seriously consider mitigation." JCP&L has reported to the NJBPU
that it intends to pursue efforts to mitigate its above-market costs for
non-utility generator purchase power agreements. JCP&L has contacted NJEA and
made a presentation to NJEA regarding a preliminary proposal by JCP&L to
transform NJEA's must-run contract into a dispatchable contract on terms that
are to cover all fixed costs (debt service and fixed operating expenses) and
preserve current net profits while allowing JCP&L to reduce its purchase power
costs. See "Risk Factors -- Dependence Upon Third Parties."
While NE LP does not expect utility industry restructuring to result in
any material adverse change to the Partnerships' Power Purchase Agreements, the
impact of electrical industry restructuring on the companies that purchase power
from Partnerships is uncertain.
Permit Status
The Independent Engineer has confirmed that as of the date of this
Prospectus all material permits required for the operation of the Projects have
been obtained.
The 1990 Amendments to the Clean Air Act require states and the federal
government to implement certain measures that may affect the operation of the
Projects. The State of New Jersey and the Commonwealth of Massachusetts are
required to incorporate new, more stringent requirements into their plans for
bringing the air quality in the areas in which the Projects are located into
compliance with national air quality standards. In addition, thirteen
northeastern states, including Massachusetts and New Jersey, have entered into a
Memorandum of Understanding to address problems associated with the
cross-boundary transport of ozone (the "MOU"). Under the MOU, the states have
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agreed to reduce emissions of nitrogen oxides ("NOx"), which is a precursor to
ozone, in two phases. In 1999, utility sources in Massachusetts and New Jersey
generally will be expected to meet a 0.20 lbs/mmBtu effective NOx emissions
rate. In 2003 and thereafter, such sources will be expected to meet a 0.15
lbs/mmBtu effective NOx emissions rate. The Projects currently meet an effective
NOx emissions rate of .09 lbs/mmBtu, and thus it appears that the Projects are
favorably positioned to meet the NOx emissions limits contemplated under the MOU
without the need for additional capital expenditures. In the event that the
Projects are unable to meet the NOx emissions limitations contemplated under the
MOU or other regulations, it is possible that each Project could be required to
install a selective catalytic reduction (SCR) system in order to meet any such
limitations, at a cost of approximately $1.2 to $1.5 million per system.
The 1990 Amendments also require each state to implement an operating
permit program that incorporates all of a facility's Clean Air Act requirements
into a single permit and that includes sufficient monitoring requirements to
ensure compliance. In addition, states are authorized to impose fees of at least
$25 per ton of air pollutants emitted by a facility, even if such emissions are
within permitted limits. The Departments of Environmental Protection for each of
New Jersey and Massachusetts are currently reviewing the operating permit
applications for the NJEA Project, the NEA Project and the Carbon Dioxide Plant,
respectively.
SUMMARY OF PRINCIPAL PROJECT AGREEMENTS
The following is a summary of selected provisions of certain principal
agreements related to the Projects and is not considered to be a full statement
of the terms of such agreements. Accordingly, the following summaries are
qualified by reference to each agreement and are subject to the terms of the
full text of each agreement. Unless otherwise stated, any reference in this
summary to any agreement shall mean such agreement and all schedules, exhibits
and attachments thereto as amended, supplemented or otherwise modified and in
effect as of the date hereof.
Power Purchase Agreements
NEA Power Purchase Agreements
Boston Edison I Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Boston Edison as
of April 1, 1986 (the "Boston Edison I Power Purchase Agreement"), provides for
the sale to Boston Edison of 46% of the net power actually generated by the NEA
Project.
Term. The Boston Edison I Power Purchase Agreement extends for an
initial term of 25 years expiring September 15, 2016, subject to earlier
termination in accordance with its terms. Following the initial term, Boston
Edison has the right to extend the Boston Edison I Power Purchase Agreement for
an additional five years upon six months written notice. Following any such
renewal, the Boston Edison I Power Purchase Agreement will remain in effect
until terminated by either party by giving the other party six month's written
notice of such termination.
Purchase and Delivery. Pursuant to the Boston Edison I Power Purchase
Agreement, NEA is obligated to deliver to Boston Edison, and Boston Edison is
obligated to accept, a portion of the available capacity and hourly generation
of the NEA Project equal to the ratio of 135 MW to the Net Electrical Capability
(as defined herein) of 290 MW of the NEA Project multiplied by 100% of the
available capacity and hourly generation of the NEA Project, or 46% of the net
power actually generated. Plant output is dependent, among other things, on
ambient temperatures, and is therefore subject to some variation. Whenever the
NEA Project is operating above or below its Net Electrical Capability of 290 MW,
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the output sold to Boston Edison and other NEA Power Purchasers will be
increased or reduced proportionately. NEA is obligated, however, to make
available and dedicate to Boston Edison capacity and electric energy in the
amount of 135 MW. Boston Edison has a right of first refusal, on terms to be
agreed, to purchase a proportionate share based on its then current entitlement
of any increased capacity resulting from an expansion of or addition to the NEA
Project or from any other electricity generating facility on the NEA Site. All
power is to be delivered to the nearest Boston Edison interconnection point,
which is presently Boston Edison's Medway Station.
Curtailment. Boston Edison has the right under the Boston Edison I
Power Purchase Agreement to refuse power from the NEA Project for up to 200
hours per year (in addition to its other curtailment rights described below).
Boston Edison also has the right to interrupt, reduce or refuse to purchase
electric energy and NEA has the right to interrupt, reduce or refuse to deliver
electric energy in order to install equipment, make inspections or perform
maintenance and repairs. In addition, Boston Edison has the right to curtail or
interrupt the taking of electric energy for as long as reasonably necessary in
the event of an emergency.
Interconnection. NEA has agreed to secure and pay all expenses of
interconnection for the delivery of electrical energy at the delivery point.
While Boston Edison may, at its option (subject to certain conditions), enter
into transmission and interconnection agreements if necessary to ensure
continued transmission and delivery of electrical energy, the expense and the
risk of loss of such transmission are to be borne by NEA. All necessary
interconnection agreements have been entered into. See "-Boston Edison
Interconnection Agreement" below.
Pricing. The Boston Edison I Power Purchase Agreement provides for a
fixed capacity payment of 1.04 cents per kWh for all power delivered to Boston
Edison plus an energy payment per kWh delivered equal to a percentage of the
"Qualifying Facility Power Purchase Rate," which is a rate determined under
Massachusetts law. It has been agreed that this percentage shall be 80% in each
contract year through 2003, 75% from 2004 through 2007, 80% from 2008 through
2010, 85% in 2011 and 90% thereafter. If Boston Edison elects to exercise its
right to extend the Boston Edison I Power Purchase Agreement, the energy payment
for the period of any such extension will be 100% of the Qualifying Facility
Power Purchase Rate. The Boston Edison I Power Purchase Agreement further
provides that the minimum total payment for both energy and capacity to be
received by NEA (in all cases whether or not such minimum amount is greater than
the applicable percentage of the "Qualifying Facility Power Purchase Rate")
shall not be less than 7.50 cents per kWh through 1997, after which the minimum
payment becomes 6.50 cents per kWh until the end of the initial term. There is
no minimum for any extension period. In 1997 the price per kWh was 7.50 cents.
If, due to transmission constraints, Boston Edison must purchase power from NEA
rather than a lower priced source, the purchase price for such power will be the
lower price Boston Edison was forced to forego. However, such substitute rate is
only available for up to 100 hours in any contract year.
Energy Bank. The Boston Edison I Power Purchase Agreement provides for
a special account referred to as the Energy Bank or Balance Account, and the
Energy Bank balances therein are to be increased or decreased based upon a
formula that prices power delivered to Boston Edison at its projected avoided
cost, which is determined by reference to a fixed schedule specifying dollar
amounts per kWh sold for each year of the Boston Edison I Power Purchase
Agreement. As of December 31, 1997, the Energy Bank balance under the Boston
Edison I Power Purchase Agreement was approximately $144,547,000 and is
projected to decrease to zero by 2007. The Boston Edison I Power Purchase
Agreement requires that approximately 50% of all positive Energy Bank balances
be supported by an irrevocable letter of credit, subject to a maximum letter of
credit requirement of $54 million. See "Business -- Power Purchase Agreements."
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Contract Security. To secure its performance under the Boston Edison I
Power Purchase Agreement (as well as the other NEA Power Purchase Agreements),
NEA has granted Boston Edison, Commonwealth and Montaup the NEA Second Mortgage
on the NEA Site and the NEA Project, subordinated only to the rights of the
holders of the Project Securities ("the Project Secured Parties") pursuant to
the NEA Project Mortgage and certain replacements thereof. In addition, NEA has
granted Boston Edison an unsubordinated declaration of easements, encumbering
the NEA Project for the term of the Boston Edison I Power Purchase Agreement.
This declaration provides Boston Edison with limited access to the NEA Project
under certain specified conditions and obligates any subsequent owner of the NEA
Project to sell to Boston Edison its entitlement under the Boston Edison I Power
Purchase Agreement. See "-- Accommodation Agreement."
Sale of Power to Other Purchasers. The Boston Edison I Power Purchase
Agreement contains a "most-favored nation" clause specifying that if any of the
Commonwealth Power Purchase Agreements and the Montaup Power Purchase Agreement
are amended or if NEA enters into any additional power purchase agreements, and
Boston Edison believes the terms of such amendment or such power purchase
agreement are more favorable to the applicable third party than the terms of the
Boston Edison I Power Purchase Agreement are to Boston Edison, NEA shall make
such terms available to Boston Edison for the remaining term of the Boston
Edison I Power Purchase Agreement, provided Boston Edison accepts the other
substantive terms of such amendment or power purchase agreement. Pursuant to a
Consent and Agreement, dated as of June 28, 1989, and confirmed in a
Confirmation Agreement, dated September 16, 1994, subject to conditions
contained therein, Boston Edison has irrevocably waived its rights to invoke the
"most-favored nation" clause. NEA may not enter into any contract for the sale
of electricity from any addition to or expansion of the NEA Project or from any
other electricity generation facilities located at the NEA Site unless it first
offers Boston Edison an amount of electricity proportionate to its then current
entitlement on substantially the same business terms specified in any proposal
or letter of intent with the applicable third party and Boston Edison does not
accept such terms.
Right of First Offer. Other than in connection with the financing or
refinancing of the NEA Project, or with the sale of equity participations in the
form of partnership interests or otherwise, NEA has agreed under the Boston
Edison I Power Purchase Agreement that if it desires to sell all or any portion
of the NEA Project, it will first offer the terms of such sale to Boston Edison,
which will have 60 days to respond to such offer. If Boston Edison declines the
offer, NEA, will be free to offer the same terms to any third party, but in the
event that an agreement is reached with such third party on terms more favorable
than those proposed to Boston Edison, NEA is obligated to offer such terms to
Boston Edison. The right of first offer is subject to adjustments proportionate
to increases in entitlements of Commonwealth and Montaup.
Qualifying Facility Status. The Boston Edison I Power Purchase
Agreement does not require that the NEA Project's QF status be maintained.
However, NEA has warranted to Boston Edison that NEA will use its best efforts
to maintain the NEA Project's QF status.
Events of Default and Remedies; Termination. The occurrence of any one
or more of the following events constitutes an event of default under the Boston
Edison I Power Purchase Agreement and may result in termination of the Boston
Edison I Power Purchase Agreement and the exercise of other remedies by the
non-defaulting party: (i) the dissolution or liquidation of either party; (ii)
failure by either party to perform or observe any of the material terms of the
Boston Edison I Power Purchase Agreement, where such failure has not been cured
within 45 days of notice thereof by the non-defaulting party or, where cure is
not practicable within 45 days, cure has not been undertaken within 45 days and
completed within a reasonable period not to exceed two years; (iii) certain
events of bankruptcy or insolvency; (iv) the failure of NEA to deliver at least
591.3 million kWh of electricity per year (equivalent to 135 MW at 50% capacity
factor annually) to Boston Edison in each of two consecutive contract years,
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whether or not such failure is due to force majeure; and (v) either party
contests the enforceability of the Boston Edison I Power Purchase Agreement. In
addition, Boston Edison may terminate the Boston Edison I Power Purchase
Agreement in the event of NEA's failure to pay costs and expenses, if any,
associated with transmission services, filing fees, administrative costs and any
interest accrued thereon in accordance with such contract.
Boston Edison II Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Boston Edison as
of January 28, 1988 (the "Boston Edison II Power Purchase Agreement"), provides
for the sale to Boston Edison of 29% of the net power actually generated by the
NEA Project, subject to certain limitations described below.
Term. The Boston Edison II Power Purchase Agreement extends for a term
of 20 years expiring September 15, 2011, subject to earlier termination in
accordance with its terms. The Boston Edison II Power Purchase Agreement does
not include any right to extend its term.
Purchase and Delivery. Pursuant to the Boston Edison II Power Purchase
Agreement, NEA is obligated to deliver to Boston Edison, and Boston Edison is
obligated to accept, a portion of the available capacity and hourly generation
of the NEA Project equal to the ratio of 84 MW to the Net Electrical Capability
of 290 MW of the NEA Project multiplied by 100% of the available capacity and
hourly generation of the NEA Project, or 29% of the net power actually
generated, not to exceed 68 MW during the Summer Period (June through September)
or 92 MW during the Winter Period (October through May). The maximum delivery
amount under the Boston Edison II Power Purchase Agreement during any contract
year is 735.84 million kWh (equivalent to 84 MW at 100% capacity factor
annually). Boston Edison is not obligated to accept energy in excess of the
amounts stated. Project output is dependent, among other things, on ambient
temperatures, and is therefore subject to some variation. Whenever the NEA
Project is operating above or below its Net Electric Capability of 290 MW, the
output sold to Boston Edison and other NEA Power Purchasers will be increased or
reduced proportionately subject to Boston Edison's maximum purchase obligations
described above. All power is to be delivered to an interconnection point
mutually agreed to by Boston Edison and NEA, which is presently Boston Edison's
Medway Station.
Curtailment. Boston Edison has the right under the Boston Edison II
Power Purchase Agreement to interrupt, reduce or refuse to purchase electric
energy, and NEA has the right to interrupt, reduce or refuse to deliver electric
energy in order to install equipment, make inspections or perform maintenance
and repair. Boston Edison also has the right to curtail or interrupt the taking
of electric energy for as long as reasonably necessary in the event of an
emergency.
Interconnection. NEA has agreed to pay all expenses of interconnection
for the delivery of electrical energy at the delivery point. All necessary
interconnection agreements have been entered into. See "-Boston Edison
Interconnection Agreement."
Pricing. The Boston Edison II Power Purchase Agreement provides for
fixed payments for all power delivered to Boston Edison averaging 4.50 cents per
kWh in 1992, 4.84 cents per kWh in 1993, and rising thereafter at a fixed
escalation rate of 7.5% per year. In 1997, this rate was 6.46 cents per kWh.
Escrow Account. NEA is required by the Boston Edison II Power Purchase
Agreement to maintain an escrow account for plant maintenance of $1.275 million.
Pursuant to Boston Edison's consent to the issuance of the Project Securities,
the security provided for the Project Debt Service Reserve Fund will be deemed
to fulfill this obligation.
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Energy Bank Liability and Support. Although the Boston Edison II Power
Purchase Agreement provides for an Energy Bank, there is no liability remaining
for the Energy Bank under the Boston Edison II Power Purchase Agreement.
Contract Security. To secure its performance under the Boston Edison II
Power Purchase Agreement (as well as the other NEA Power Purchase Agreements),
NEA has granted Boston Edison, Commonwealth and Montaup the NEA Second Mortgage
on the NEA Site and the NEA Project, subordinated only to the rights of the
Project Secured Parties pursuant to the NEA Project Mortgage and certain
replacements thereof. In addition, NEA has granted Boston Edison an
unsubordinated declaration of easements, encumbering the NEA Project for the
term of the Boston Edison II Power Purchase Agreement. This declaration provides
Boston Edison with limited access to the NEA Project under certain specified
conditions and obligates any subsequent owner of the NEA Project to sell to
Boston Edison its entitlement under the Boston Edison II Power Purchase
Agreement. See "-- Accommodation Agreement" below.
Sale of Power to Other Purchasers. The Boston Edison II Power Purchase
Agreement provides that NEA may not enter into any contract for the sale of
electricity from the NEA Project or any additions to the NEA Project unless it
first offers Boston Edison an amount of electricity proportionate to its then
current entitlement on substantially the same business terms specified in any
letters or notice of intent with the applicable third party and Boston Edison
does not accept such terms.
Qualifying Facility Status. The Boston Edison II Power Purchase
Agreement does not require that the NEA Project's QF status be maintained.
However, NEA has warranted to Boston Edison that NEA will use its best efforts
to maintain the NEA Project's QF status.
Events of Default and Remedies; Termination. The occurrence of any one
or more of the following events constitutes an Event of Default under the Boston
Edison II Power Purchase Agreement and may result in termination of the Boston
Edison II Power Purchase Agreement and the exercise of other remedies by the
non-defaulting party: (i) the dissolution or liquidation of either party; (ii)
the failure by either party to perform or observe any of the material terms of
the Boston Edison II Power Purchase Agreement, where such failure has not been
cured within 45 days of notice thereof by the non-defaulting party, or, where
cure is not practicable within 45 days, cure has not been undertaken within 45
days and completed within a reasonable period not to exceed two years (subject
to force majeure); (iii) certain events of bankruptcy and insolvency; (iv) the
failure of NEA (other than due to the acts or omissions of Boston Edison) to
deliver at least 367.92 million kWh of electricity per year (equivalent to 84 MW
at 50% capacity factor annually) to Boston Edison in each of three consecutive
contract years, whether or not such failure is due to force majeure, except that
such failure shall not be an event of default if (x) on or before the final day
of such three year period, NEA delivers to Boston Edison the report of an
independent engineer stating that the NEA Project is expected to be generating
electricity at or near its 290 MW Net Electrical Capability within 90 days, and
(y) the NEA Project begins generating at such level within 90 days; and (v)
either party contests the enforceability of the Boston Edison I Power Purchase
Agreement.
Commonwealth I Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Commonwealth as of
November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), provides for
the sale to Commonwealth of approximately 9% of the net power actually generated
by the NEA Project.
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Term. The Commonwealth I Power Purchase Agreement extends for a term of
25 years expiring September 15, 2016. The Commonwealth I Power Purchase
Agreement does not have any provision for extension of its term.
Purchase and Delivery. Pursuant to the Commonwealth I Power Purchase
Agreement, NEA is obligated to sell and deliver to Commonwealth, and
Commonwealth is obligated to accept, a portion of the available capacity and
hourly generation of the NEA Project equal to the ratio of 25 MW to the Net
Electrical Capability of 290 MW of the NEA Project multiplied by 100% of the
available capacity and hourly generation of the NEA Project, or approximately 9%
of the net power actually generated. Project output is dependent, among other
things, on ambient temperatures, and is therefore subject to some variation.
Whenever the NEA Project is operating above or below its Net Electrical
Capability of 290 MW, the output sold to Commonwealth and other NEA Power
Purchasers will be increased or reduced proportionately. NEA has the right to
withdraw the NEA Project from service and to cease to supply electricity to
Commonwealth as necessary to perform any maintenance or repair of the NEA
Project.
Curtailment. Commonwealth has the right under the Commonwealth I Power
Purchase Agreement to curtail or interrupt the taking of electricity when, in
its reasonable judgment, such curtailment or interruption is needed or desirable
in order to restore service on Commonwealth's system or those systems with which
it is directly or indirectly connected or whenever any of such systems
experience a system emergency.
Pricing. The Commonwealth I Power Purchase Agreement provides for a
payment per kWh for all power delivered to Commonwealth consisting of (i) a
fixed capacity payment of 2.00 cents per kWh, (ii) an energy payment of 3.375
cents per kWh through December 31, 1998, and 2.70 cents per kWh thereafter,
multiplied by the ratio of (x) the actual price per barrel of Number 6 fuel oil
to (y) a base price of $16.69 per barrel, and (iii) a production factor not to
exceed plus or minus 0.4 cents, depending on the extent to which availability in
the preceding year has exceeded or been less than 85%. The energy payment
component of the foregoing price is subject to the floor price of at least 4.50
cents per kWh through December 31, 2000. The foregoing price is required to be
paid for 99% of the kWh delivered to Commonwealth minus non-pool transmission
facility losses. As a result of the foregoing formula, the price paid by
Commonwealth will be influenced significantly by changes in the price of Number
6 fuel oil. During 1997, the average price per kWh under this contract was 6.76
cents.
Contract Security. To secure its performance under the Commonwealth I
Power Purchase Agreement (as well as the other NEA Power Purchase Agreements),
NEA has granted Commonwealth, Boston Edison and Montaup the NEA Second Mortgage
on the NEA Site and the NEA Project, subordinated only to the rights of the
Project Secured Parties pursuant to the NEA Project Mortgage and certain
replacements thereof. In addition, NEA has granted Commonwealth an
unsubordinated declaration of easements, encumbering the NEA Project for the
term of the Commonwealth I Power Purchase Agreement. This declaration provides
Commonwealth with limited access to the NEA Project under certain specified
conditions and obligates any subsequent owner of the NEA Project to sell to
Commonwealth its entitlement under the Commonwealth I Power Purchase Agreement.
See "-- Accommodation Agreement" below.
Sale of Power to Other Purchasers. The Commonwealth I Power Purchase
Agreement has a "most favored nation" clause specifying that Commonwealth will
be given the benefit of any more favorable terms established in future NEA power
sales contracts or any amendment to any other NEA Power Purchase Agreement
provided that it agrees to be bound by the other substantive provisions thereof.
Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in
a Confirmation Agreement, dated October 13, 1994, subject to conditions
contained therein, Commonwealth has irrevocably waived its rights to invoke the
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"most-favored nation" clause. The Commonwealth I Power Purchase Agreement also
specifies that NEA shall not enter into any contract for the sale of electricity
from any additions to the NEA Project unless it first offers a contract to
Commonwealth for the sale of a proportionate amount of such electricity
according to Commonwealth's then current entitlement under the Commonwealth I
Power Purchase Agreement on the same terms as those specified in any proposal to
another party.
Transmission. Under the Commonwealth I Power Purchase Agreement, NEA
bears all risk and expenses with respect to the provision of transmission
services to Commonwealth for the term of the contract.
Qualifying Facility Status. Commonwealth's obligations under the
Commonwealth I Power Purchase Agreement were conditioned upon the NEA Project's
being certified as a QF on the in-service date, which condition was satisfied.
NEA has agreed to use its best efforts to maintain such status, and in the event
that the QF status of the NEA Project is revoked, NEA has agreed to use its best
efforts to regain the certification and both parties have agreed to continue to
purchase and sell electrical power on the terms set forth in the Commonwealth I
Power Purchase Agreement (including those relating to price).
Commonwealth II Power Purchase Agreement
The Power Sale Agreement entered into by NEA and Commonwealth as of
August 15, 1988 (the "Commonwealth II Power Purchase Agreement") provides for
the sale to Commonwealth of approximately 7% of the net power actually generated
by the NEA Project.
Term. The Commonwealth II Power Purchase Agreement extends for a term
of 25 years expiring September 15, 2016. The Commonwealth II Power Purchase
Agreement does not have any provision for extension of its term.
Purchase and Delivery. Pursuant to the Commonwealth II Power Purchase
Agreement, NEA is obligated to sell and deliver and Commonwealth is obligated to
accept a portion of the available capacity and hourly generation of the NEA
Project equal to the ratio of 21 MW to the Net Electrical Capability of 290 MW
of the NEA Project multiplied by 100% of the available capacity and hourly
generation of the NEA Project, or approximately 7% of the net power actually
generated. Project output is dependent, among other things, on ambient
temperatures, and is therefore subject to some variation. Whenever the NEA
Project is operating above or below its Net Electrical Capability of 290 MW, the
output sold to Commonwealth and other NEA Power Purchasers will be increased or
reduced proportionately. NEA has the right to withdraw the NEA Project from
service and to cease to supply electricity to Commonwealth as necessary to
perform any maintenance or repair to the NEA Project.
Curtailment. Commonwealth has the right under the Commonwealth II Power
Purchase Agreement to curtail or interrupt the taking of electricity when, in
its reasonable judgment, such curtailment or interruption is needed or desirable
in order to restore service on Commonwealth's system or those systems with which
it is directly or indirectly connected or whenever any of such systems
experience a system emergency.
Pricing. The Commonwealth II Power Purchase Agreement provides for
fixed payments of 4.5 cents per kWh for all power delivered to Commonwealth in
1992 and 4.84 cents per kWh in 1993, rising thereafter at a fixed escalation
rate of 7.5% per year, which are payable with respect to 99% of the kWh
delivered to Commonwealth minus non-pool transmission facility losses. The rate
per kWh in 1997 was 6.46 cents.
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Contract Security. To secure its performance under the Commonwealth I
Power Purchase Agreement (as well as the other NEA Power Purchase Agreements),
NEA has granted Commonwealth, Boston Edison and Montaup the NEA Second Mortgage
on the NEA Site and the NEA Project, subordinated only to the rights of the
Project Secured Parties pursuant to the NEA Project Mortgage and certain
replacements thereof. In addition, NEA has granted Commonwealth an
unsubordinated declaration of easements, encumbering the NEA Project for the
term of the Commonwealth II Power Purchase Agreement. This declaration provides
Commonwealth with limited access to the NEA Project under certain specified
conditions and obligates any subsequent owner of the NEA Project to sell to
Commonwealth its entitlement under the Commonwealth II Power Purchase Agreement.
See "-- Accommodation Agreement" below. Finally, The Commonwealth II Power
Purchase Agreement requires that NEA's obligations be secured by a letter of
credit in the amount of $1 million until September 15, 1998.
Sale of Power to Other Purchasers. The Commonwealth II Power Purchase
Agreement has a "most favored nation" clause specifying that Commonwealth will
be given the benefit of any more favorable terms established in future NEA power
sales contracts or any amendment to any other NEA Power Purchase Agreement
provided that it agrees to be bound by the other substantive provisions thereof.
Pursuant to a Consent and Agreement, dated as of June 28, 1989, and confirmed in
a Confirmation Agreement, dated October 13, 1994, subject to conditions
contained therein, Commonwealth has irrevocably waived its rights to invoke the
"most-favored nation" clause. The Commonwealth II Power Purchase Agreement also
specifies that NEA shall not enter into any contract for the sale of electricity
from any additions to the NEA Project unless it first offers a contract to
Commonwealth for the sale of a proportionate amount of such electricity
according to Commonwealth's then current entitlement under the Commonwealth II
Power Purchase Agreement on the same terms as those specified in any proposal to
another party.
Transmission. Under the Commonwealth I Power Purchase Agreement, NEA
bears all risk and expenses with respect to the provision of transmission
services to Commonwealth for the term of the contract.
Qualifying Facility Status. Commonwealth's obligations under the
Commonwealth II Power Purchase Agreement were initially conditioned upon the NEA
Project's being certified as a QF on the in-service date, which condition was
satisfied. NEA has agreed to use its best efforts to maintain such status, and
in the event that the NEA Project's QF status is revoked, NEA has agreed to use
its best efforts to regain the certification and both parties have agreed to
continue to purchase and sell power on the terms set forth in the Commonwealth
II Power Purchase Agreement (including those relating to price).
Montaup Power Purchase Agreement
The Power Purchase Agreement entered into by NEA and Montaup as of
October 17, 1986 (the "Montaup Power Purchase Agreement") provides for the sale
to Montaup of approximately 9% of the net power actually generated by the NEA
Project.
Term. The Montaup Power Purchase Agreement extends for an initial term
of 30 years expiring September 15, 2021, subject to earlier termination in
accordance with its terms. The Montaup Power Purchase Agreement will remain in
effect thereafter until either party terminates the contract by giving the other
party six months' written notice of such termination.
Purchase and Delivery. Pursuant to the Montaup Power Purchase
Agreement, NEA is obligated to deliver to Montaup, and Montaup is obligated to
accept, a portion of the available capacity and hourly generation of the NEA
Project equal to the ratio of 25 MW to the Net Electrical Capability of 290 MW
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of the NEA Project multiplied by 100% of the available capacity and hourly
generation of the NEA Project, or approximately 9% of the net power actually
generated. Project output is dependent, among other things, on ambient
temperatures, and is therefore subject to some variation. Whenever the NEA
Project is operating below its Net Electrical Capacity of 290 MW, the output
sold to Montaup and other NEA Power Purchasers will be reduced proportionately.
Whenever the NEA Project is operating above its Net Electrical Capacity of 290
MW, NEA may sell the increased output to Montaup or another power purchaser
subject to Montaup's right of first refusal.
Curtailment. Montaup has the right under the Montaup Power Purchase
Agreement to refuse power for up to 200 hours per year, at its reasonable
discretion, in addition to its other curtailment rights described below. Montaup
has the right to interrupt, reduce or refuse to purchase electric energy, and
NEA has the right to interrupt, reduce or refuse to deliver electric energy, in
order to install equipment, make inspections or perform maintenance and repairs.
In addition, Montaup has the right to curtail or interrupt the taking of
electric energy for as long as reasonably necessary in the event of an
emergency.
Pricing. The Montaup Power Purchase Agreement provides for an energy
payment per kWh for all power delivered to Montaup equal to 75% of Montaup's
Qualifying Facility Power Purchase Rate (described below) in each year through
2000 and at least 75% but no more than 95% of such rate thereafter, dependent
upon the balance in the Energy Bank in such year, together with an average fixed
capacity payment of 1.04 cents per kWh, which is not subject to adjustment
provided that peak-hour availability remains in excess of 80%. The Montaup Power
Purchase Agreement further provides that the minimum rate to be received by NEA
is 6.50 cents per kWh through 2000, after which no minimum rate applies. The
foregoing rates are payable in respect of 99% of the kilowatt hours delivered by
NEA for sale to Montaup under the Montaup Power Purchase Agreement. Montaup's
Qualifying Facility Power Purchase Rate is a rate determined under state law
based on Montaup's Avoided Cost of power production. If, due to transmission
constraints, Montaup must purchase power from NEA rather than a lower priced
source, then the purchase price for such power will be the lower price Montaup
was forced to forego. However, this substitute rate is only available for up to
100 hours annually. During 1997, the payment per kWh under the Montaup Power
Purchase Agreement was 6.5 cents.
Energy Bank Liability and Support. The Montaup Power Purchase Agreement
provides for an Energy Bank, and the Energy Bank balance under the Montaup Power
Purchase Agreement will be increased to the extent that the price paid by
Montaup exceeds the greater of (i) Montaup's Qualifying Facility Power Purchase
Rate and (ii) an Energy Bank floor rate. The Energy Bank floor rate is specified
pursuant to a fixed schedule. Positive Energy Bank balances are reduced to the
extent payments to NEA are less than the foregoing Energy Bank rates. Positive
balances are subject to interest each month at the prime rate as established
from time to time by the First National Bank of Boston. As of December 31, 1997
the Energy Bank balance under the contract was approximately $27,035,000. The
Montaup Power Purchase Agreement requires NEA to deliver a letter of credit to
Montaup securing the payment of positive Energy Bank balances. However, the face
amount of the letter of credit is not required to exceed $12.656 million or (if
less) the remaining Energy Bank balance.
Contract Security. To secure its performance under the Montaup Power
Purchase Agreement, NEA has granted Montaup (as well as other NEA Power
Purchasers), the NEA Second Mortgage, subordinated only to the rights of the
Project Secured Parties pursuant to the NEA Project Mortgage and certain
replacements thereof. In addition, NEA has granted Montaup an unsubordinated
Declaration of Easements, encumbering the NEA Project for the life of the
Montaup Power Purchase Agreement. This declaration provides Montaup with limited
access to the NEA Project and obligates any subsequent owner of the NEA Project
to sell Montaup in contract entitlement. See "-- Accommodation Agreement" below.
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Right of First Refusal. Montaup has a right of first refusal for the
purchase of any additional capacity generated by the NEA Project and not covered
by the Power Purchase Agreements with Boston Edison and Commonwealth,
proportionate to its then current entitlement. Any capacity currently covered by
Boston Edison's or Commonwealth's entitlement which becomes available in the
future is also subject to Montaup's proportionate right of first refusal.
Transmission. Under the Montaup Power Purchase Agreement, NEA is
responsible for, bears all risk with respect to and is required to pay all
expenses in connection with the provision of transmission services to Montaup
for the term of the contract.
Qualifying Facility Status. NEA has warranted to Montaup that as of the
date the NEA Project commenced operations, it would be a QF, and that should the
NEA Project lose its QF status thereafter, NEA would use its best efforts to
regain such status. Montaup is entitled to renegotiate the pricing provisions of
the Montaup Power Purchase Agreement in the event that the NEA Project's QF
status is revoked.
NJEA Power Purchase Agreement
The Power Purchase Agreement entered into by JCP&L and NJEA as of
October 22, 1987 (the "JCP&L Power Purchase Agreement"), provides for the sale
of 250 MW of power from the NJEA Project's baseload power.
Term. The JCP&L Power Purchase Agreement extends for an initial term of
20 years expiring August 13, 2011, and may be extended for an additional five
year period upon written notice by JCP&L to NJEA, subject to the renegotiation
of the price terms for any such extension.
Purchase and Delivery. Pursuant to the JCP&L Power Purchase Agreement,
NJEA is obligated to deliver to JCP&L, and JCP&L is obligated to accept, the
contract capacity of not less than 250 MW and up to 2.2 million MwH per year of
associated energy (250 MW at 100% capacity factor annually) from the NJEA
Project throughout the term of the JCP&L Power Purchase Agreement. JCP&L has
certain rights, but not the obligation, to purchase certain energy produced by
the NJEA Project in excess of 250 MW per hour at a discounted price.
Curtailment. Pursuant to the JCP&L Power Purchase Agreement, JCP&L has
the right, for up to 200 hours annually during the period expiring August 13,
2001, and for 400 hours annually thereafter, to refuse electric power from the
NJEA Project, in any event on no more than 20 separate occasions annually, if
conditions on the PJM Interconnected Power Pool system are such that generators
of all PJM member utilities are required to reduce generation to minimum levels
during periods of low load in accordance with applicable procedures. In
addition, without affecting the number of hours during which JCP&L may refuse
power under the circumstances described above, JCP&L may refuse power: (i) for
up to 200 hours annually during off peak periods (provided that each such
curtailment shall be for a minimum of six hours); (ii) when JCP&L deems such
refusal to be in keeping with prudent utility practices or necessary to
facilitate construction, installation, maintenance, repair or inspection of any
of JCP&L's or NJEA's facilities or equipment, to maintain JCP&L's system
integrity, or due to emergency, forced outages, potential overloading or force
majeure and (iii) if NJEA's operation of the NJEA Project endangers JCP&L
personnel, until such dangerous condition is corrected.
Interconnection. NJEA has agreed to design, construct and provide
during the term of the JCP&L Power Purchase Agreement all interconnection
facilities and protective apparatus necessary to effect delivery of power to
JCP&L's system pursuant to the JCP&L Power Purchase Agreement, subject to
JCP&L's approval and in accordance with its standards.
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Pricing. The JCP&L Power Purchase Agreement provides for payment to
NJEA of: (i) a variable energy payment referencing JCP&L's 1989 cost of gas,
indexed to the cost of gas purchased by New Jersey utilities; (ii) a capacity
payment that is made for power purchased during peak hours in peak season
(approximately 1,800 hours per year); and (iii) a fixed energy payment. For the
elapsed portion of the operating year commencing in August, 1994 (through July
1995), the average variable energy payment has been 2.296 cents per kWh, the
capacity payment has been 6.41 cents per kWh and the average fixed energy
payment has been 2.2 cents per kWh, for a total average payment of 5.85 cents
per kWh. Commencing in July, 1994, and for each year thereafter, if average
annual on-peak electricity generation is less than 85% of the average annual
on-peak generation during the three preceding years, a penalty payment of 3.6
cents for each kWh of shortfall in average on-peak generation for such year will
be due to JCP&L from NJEA.
Energy Bank. Although the JCP&L Power Purchase Agreement provides for
an Energy Bank, there is no liability remaining for the Energy Bank under the
JCP&L Power Purchase Agreement.
Right of First Offer. Other than in connection with the financing or
refinancing of the NJEA Project, NJEA has agreed under the JCP&L Power Purchase
Agreement that it will not sell or transfer all or any portion of the NJEA
Project without the prior written consent of JCP&L. The JCP&L Power Purchase
Agreement also grants a right of first offer to JCP&L for any such sale or
transfer.
Right of First Refusal. If as a result of improvements or the
construction of additional generating units the capacity of the NJEA Projects
increased, then JCP&L has a right of first refusal on such excess capacity
produced by the NJEA Project on terms no less favorable than those offered to
any third party in an arm's length transaction for such excess capacity.
Qualifying Facility Status. NJEA is required under the JCP&L Power
Purchase Agreement to maintain the NJEA Project's QF status for so long as PURPA
or legislation of similar import is in effect. Failure to maintain such status
constitutes an event of default under the JCP&L Power Purchase Agreement.
Remedies; Events of Default; Termination. The occurrence of any one or
more of the following events constitutes an event of default and may result in
termination of the JCP&L Power Purchase Agreement by the non-defaulting party:
(i) a material breach of any material term or condition of the JCP&L Power
Purchase Agreement, including but not limited to failure to maintain the
collateral security, breach of any representation, warranty or covenant and
failure of either party to make a required payment to the other party of amounts
due under the contract, or failure by a party to provide any required schedule,
report or notice if such failure is not cured within 30 days after notice to the
defaulting party; (ii) failure by NJEA to deliver electricity for a period of
365 consecutive days for any reason except as may be excused by force majeure;
(iii) sale or supply of electricity by NJEA from the NJEA Project, or agreement
by NJEA to sell or supply electricity, to anyone other than JCP&L at times when
JCP&L can accept delivery of such electricity; (iv) failure by JCP&L to accept
deliveries of electricity from NJEA Project for a period of 90 consecutive days
for any reason other than force majeure or as otherwise permitted by the
contract; (v) certain events of insolvency or bankruptcy; or (vi) revocation by
FERC at any time during the term of the JCP&L Power Purchase Agreement of the
NJEA Project's certification as a Qualifying Facility. Upon the occurrence of
any event of default, the non-defaulting party may furnish the other party with
a written of default. If the defaulting party does not cure or make a good faith
attempt to cure such event of default within 30 days of such notice, the
non-defaulting party may terminate the JCP&L Power Purchase Agreement and may
exercise all other remedies. Either party may terminate the JCP&L Power Purchase
Agreement upon 10 days' written notice if (i) the NJEA Project is either
substantially damaged or destroyed and NJEA advise JCP&L that it does not intend
to reconstruct or repair the NJEA Project promptly or (ii) an event of force
majeure prevents either party from making substantial performance of its
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respective obligations for a period of 24 consecutive months. In addition,
JCP&L, at its sole election and without any obligation to do so, may assume
management control of and otherwise operate the NJEA Project as necessary to
generate and deliver electric power from the NJEA Project to JCP&L's system (i)
upon the occurrence of an event of default, other than an event of default due
to force majeure, or (ii) in the event that NJEA fails to operate and maintain
the NJEA Project in accordance with the terms and conditions of the JCP&L Power
Purchase Agreement for a period of 60 days after receiving written notice from
JCP&L regarding the need for repairs or replacement of equipment during which
NJEA does not make such necessary repairs or replacements. JCP&L's right to
assume control of and operate the NJEA Project will be limited in time until
such date when NJEA demonstrates to JCP&L's reasonable satisfaction its ability
to resume performance of its obligations under the JCP&L Power Purchase
Agreement. The assumption of control and operation of the NJEA Project by JCP&L
will not, however, create any duty or responsibility on JCP&L to continue
operation of the NJEA Project. NJEA has agreed to indemnify JCP&L from and
against claims (other than those due to JCP&L's gross negligence) stemming from
JCP&L's control and operation of the NJEA Project, and NJEA has waived all
claims it may have against JCP&L in the future (other than for damages arising
from JCP&L's gross negligence) as a result of any injury or damages to any
property during the time of JCP&L's control or operation of the NJEA Project
pursuant to the terms of the JCP&L Power Purchase Agreement. NJEA is required to
reimburse JCP&L for any expenses reasonably incurred by JCP&L in operating the
NJEA Project or JCP&L may set off such expenses against amounts due to NJEA
under the JCP&L Power Purchase Agreement.
Steam Sales Agreements
NEA
The NEA Project is adjacent to the Carbon Dioxide Plant, which is
presently being leased by NEA to NECO pursuant to the NECO Lease. NEA sells
steam to NECO for use in the Carbon Dioxide Plant pursuant to the NEA Steam
Sales Agreement. The principal terms of the NEA Steam Sales Agreement and the
NECO Lease are summarized below.
NEA Steam Sales Agreement
The Amended and Restated NEA Steam Sales Agreement dated as of December
21, 1990 between NEA and NECO (the "NEA Steam Sales Agreement") provides for the
exclusive sale by NEA to NECO of a minimum of 60,000 pounds and a maximum of
120,000 pounds of steam per hour when the NEA Project is being fueled by 100%
pipeline quality natural gas, subject to certain limited exceptions. NECO will
at all times have immediate first call on steam up to such maximum amount,
provided, however, that if NEA is unable to satisfy NECO's steam needs for any
period more than ten days, NECO may seek alternative sources of steam.
Term. The NEA Steam Sales Agreement extends for the same term as that
of the NECO Lease described below, with automatic extension for any renewal
period elected under the NECO Lease.
Price. The monthly base price payable by NECO to NEA for steam
delivered under the NEA Steam Sales Agreement is $3.50 per thousand pounds of
steam, subject to periodic adjustments based on the blended base prices for
natural gas in the ProGas Agreements. The minimum base price also is subject to
adjustment for, among other things, liquidated damages as described below under
"Minimum Output."
Minimum Output. Under the NEA Steam Sales Agreement, NEA has agreed to
deliver a minimum output of 60,000 pounds of steam per hour when the NEA Project
is being fueled by 100% pipeline quality natural gas. All such steam deliveries
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are required to take place for at least 80% of the hours in each year, adjusted
for excused downtime and subject to the force majeure provisions described
below. In every fourth year of the NEA Steam Sales Agreement, the hourly
percentage drops to 75% to allow for routine maintenance. In any operating year
in which the minimum outputs are not met, NEA is obligated to pay liquidated
damages for each hour of shortfall equal to the sum of the hourly cost of NECO's
operating and maintenance expenses, property taxes and basic rent under the NECO
Lease, each calculated as the annual charge for such expenses divided by 8,760
hours per year.
NECO has contracted to purchase (during each hour that the NEA Project
is in commercial operation using 100% pipeline quality natural gas) a minimum of
5% of the total energy output of the NEA Project so as to meet requirements set
by PURPA in order to maintain the NEA Project's QF Status. NECO is obligated to
buy all of its steam from the NEA Project, subject to limited exceptions, and
also is obligated to return all condensate to the NEA Project.
NECO may defer payment for all or a portion of the steam it takes if
after deferring its payments under the NECO Lease, NECO's monthly expenses still
exceed its monthly revenues. If the amounts due to NEA are reduced to zero and
NECO continues to incur losses, NEA may reimburse NECO for such losses or
alternatively, NEA may terminate the NECO Lease and the NEA Steam Sales
Agreement.
Liability. The NEA Steam Sales Agreement provides that the total
cumulative liability of NEA and any of its contractors, subcontractors and
suppliers arising from, or in any way connected with, its obligations under such
agreement shall not in the aggregate exceed $500,000 in any calendar year
prorated for any portion of such year where such agreement is in effect.
Notwithstanding such maximum aggregate liability provision, neither NEA nor any
of its contractors, subcontractors and suppliers will be liable to NECO or any
of its affiliates for any special, incidental, consequential or indirect losses
or for damage to or loss of property or equipment not furnished under the NEA
Steam Sales Agreement, or for loss of use of the facilities, cost of capital,
lost profits or revenues, costs of replacement power or steam or claims of
customers of NECO.
Assignment. The NEA Steam Sales Agreement and the NECO Lease may be
assigned by either party with the written consent of the other party, or by NEA
without any such consent (i) to any NEA affiliate, (ii) to a lender as security
for financing for NEA or its affiliates, (iii) as a security assignment or (iv)
to any successor or entity to NEA. NECO has granted its consent to the
assignment of NEA's rights under the NEA Steam Sales Agreement as collateral
security pursuant to the Project Security Documents.
Breach/Remedies. NEA may temporarily suspend sales of steam under the
NEA Steam Sales Agreement for (i) fraudulent or unauthorized use of NEA's meters
or (ii) an assignment of the NEA Steam Sales Agreement by NECO not made in
accordance with the requirements for assignment under the NEA Steam Sales
Agreement. In addition, NEA may suspend sales of steam in the event of the
occurrence of any life-threatening conditions at the Carbon Dioxide Plant until
such conditions are remedied. Upon the occurrence of any of the above events, if
NECO shall fail to remedy such event within 20 days of notice thereof (unless
such event cannot be remedied within such period to avoid exercise of the
following remedies) NEA may terminate the NEA Steam Sales Agreement. NEA may
also terminate the NEA Steam Sales Agreement if (i) NECO shall fail to pay any
bill for steam within 15 days of such bill's due date, (ii) NECO shall fail to
satisfy its minimum purchase requirement of 5% of the NEA Project's total energy
output, (iii) NECO terminates the NECO Lease at its option or (iv) an event of
default under the NECO Lease shall have occurred and be continuing.
Interconnection Obligations. The NEA Steam Sales Agreement provides
that NEA is responsible for all auxiliary equipment and systems required to
supply steam to the point of interconnection with the Carbon Dioxide Plant.
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Lease of Carbon Dioxide Facility
The NECO Lease, dated as of December 31, 1990, provides for the lease
of the Carbon Dioxide Plant and certain related utilities by NEA to NECO.
Term. The NECO Lease has an initial term of 15 years expiring June 1,
2007. The NECO Lease may be renewed at NECO's option for up to four subsequent
five year periods, with such option to be exercised at the end of the initial
term or any five year renewal period, as applicable. The NECO Lease may be
terminated by NEA upon 30 days' written notice to NECO, subject to payment by
NEA of any amounts that may be due to NECO as a result of certain rent
adjustment provisions of the NECO Lease. The NECO Lease may also be terminated
by NEA for its convenience upon the occurrence of an event of default, as
defined in the NECO Lease. NEA has agreed with Praxair and BOC Gases that if
NECO fails to satisfy its obligations to Praxair or BOC Gases, NEA will
terminate the NECO Lease within 45 days after notice of such failure.
Operation. The Carbon Dioxide Plant is operated by Westinghouse
Services pursuant to a separate operating agreement between Westinghouse
Services and NECO.
Rent. The basic rent payable by NECO to NEA pursuant to the NECO Lease
is $100,000 per month and is subject to adjustment based upon the monthly
profits or losses realized by NECO in connection with the operation of the
Carbon Dioxide Plant.
Right of First Refusal. Absent an event of default under the NECO
Lease, NECO has a right of first refusal with respect to any sale of the Carbon
Dioxide Plant.
Event of Loss. Under the NECO Lease, NECO is required to pay to NEA, as
promptly as practicable and in any event within five days following the receipt
of insurance proceeds with respect to the occurrence of an event of loss (as
defined in the NECO Lease) with respect to the Carbon Dioxide Plant, an amount
equal to the sum of (a) any insurance proceeds so received plus (b) any rent
accrued but unpaid plus (c) any amount payable under the NEA Steam Sales
Agreement accrued but unpaid.
NJEA Steam Sales Agreement
The NJEA Project sells steam to Hercules pursuant to the Industrial
Steam Sales Contract dated as of June 5, 1990 between NJEA and Hercules (the
"NJEA Steam Sales Agreement"). The NJEA Steam Sales Agreement provides for the
sale by NJEA to Hercules of up to an annualized maximum of 205,000 pounds of
steam per hour when both gas turbines at the NJEA Project are fully operational
and up to a maximum of 100,000 pounds of steam per hour when only one gas
turbine is fully operational.
Term. The NJEA Steam Sales Agreement extends for a term of 20 years
expiring August 13, 2011, subject to automatic renewal for two consecutive
five-year terms unless either party to the agreement gives written notice of its
intent not to renew at least two years before the expiration of the then-current
term.
Price. The monthly floor price payable by Hercules to NJEA for steam
delivered under the NJEA Steam Sales Agreement is $2.50 per thousand pounds of
steam, subject to monthly escalation (which began in September, 1991) based on a
national coal price index. After Hercules has purchased steam amounting to
205,000 pounds per hour on an annualized basis or purchased more than 230,000
pounds of steam per hour in any given hour, Hercules also is required to pay the
fuel costs associated with the production of additional steam, payable within 20
days of receipt of NJEA's invoice.
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Minimum Purchase Obligation. Hercules is required, for any hour in
which it purchases steam, to purchase an hourly minimum of 30,000 pounds of
steam, and a minimum of 415.8 million pounds of steam annually. Hercules is
required to apply 378 million pounds of such steam to thermal uses annually,
which will satisfy the minimum thermal use requirement for maintaining the NJEA
Project's QF status under PURPA. However, Hercules has no obligation to continue
purchasing steam in the event that it closes or abandons its Parlin plant. NJEA
is entitled to a minimum of 90 days advance notice of any such closure. NJEA has
an option under the NJEA Steam Sales Agreement to lease the Parlin plant site
from Hercules in the event of any such closure. Pursuant to the NJEA Steam Sales
Agreement, the terms and conditions of any lease entered into pursuant to such
option are subject to negotiation, except that the term of any such lease shall
not be for a period that is less than the unexpired term of the NJEA Steam Sales
Agreement when the parties enter into such lease.
Events of Default and Remedies. Events of default by Hercules under the
NJEA Steam Sales Agreement include (i) failure to pay bills for steam when due
within 30 days of notice of such failure, (ii) fraudulent use of meters which
continues for 90 days after notice thereof and (iii) breach of any other
material obligation under the NJEA Steam Sales Agreement which continues
unremedied for 90 days after notice thereof. NJEA may terminate the NJEA Steam
Sales Agreement in the event of any such event of default. Events of default by
NJEA under the NJEA Steam Sales Agreement include (i) fraudulent use of meters
and failure to cure within 90 days following notice thereof, (ii) failure to
deliver on an annual average basis a minimum of 85% of the total steam used by
Hercules in its Parlin plant, (iii) more than five total forced outages
resulting in total loss of steam production for more than 15 minutes in any full
calendar year and (iv) more than 15 partial forced outages resulting in a loss
of 10% of steam production of more than 15 minutes in any full calendar year. In
the event NJEA fails to deliver at least 85% of Hercules' steam requirement,
NJEA is required to reimburse Hercules for up to $800,000 of Hercules' cost of
making replacement steam. In the event that there are more than five total
outages or more than 15 partial outages in a year, including those due to force
majeure, NJEA is required to pay Hercules $40,000 per total forced outage and
$5,000 per partial forced outage up to a maximum of $200,000 annually.
Gas Purchase Agreements
NEA ProGas Agreement
Quantities. The Gas Purchase Contract dated as of May 12, 1988 and
amended as of April 17, 1989, June 23, 1989, November 1, 1991 and June 30, 1993
between NEA and ProGas (the "NEA ProGas Agreement") provides for the sale by
ProGas to NEA of 49,560 Mcf of natural gas per day, with an equivalent heating
value of at least 48,817 Dth (the "Daily NEA Quantity"). If NEA fails to take
75% of the annualized Daily NEA Quantity in any contract year, then NEA is
required to purchase additional gas in the following contract year to make up
any such deficiency. If NEA fails to purchase such required quantities in any
year, ProGas has the right to bill NEA monthly for interest at the rate of the
then-current Canadian Imperial Bank of Commerce prime rate plus 2% on the
contract price that would have been payable in respect of the shortfall amount.
Further, following any such year in which NEA fails to take such percentage of
the annualized Daily NEA Quantity, ProGas has the right to renegotiate the Daily
NEA Quantity unless NEA was unable to take the required amount due to the
temporary inability of the NEA Project to utilize the gas supplies. If NEA
requests volumes in excess of the Daily NEA Quantity, ProGas may accommodate
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such requests on a best efforts basis. If ProGas fails to deliver the required
quantities on a sustained basis, ProGas will, contingent on receipt of any
necessary regulatory approvals extend deliveries beyond the primary term in
order to permit NEA to recover such deficiencies. If ProGas fails to deliver the
required quantities in any contract year by an amount greater than ten percent,
NEA has the right to renegotiate the Daily NEA Quantity. If the NEA Facility
experiences certain outages and NEA does not require natural gas for any other
purpose, NEA may notify ProGas that such gas supplies are available to ProGas
for resale. ProGas will use all reasonable efforts to remarket such gas supplies
in order to relieve NEA of its purchase obligations.
Term. The term of the NEA ProGas Agreement is 22 years expiring
November 1, 2013. The final seven years of this term constitutes an extension of
the original 15 year term which has been agreed to by the parties and approved
by the producers and Canadian regulatory authorities.
Delivery Point. Gas delivered by ProGas under the NEA ProGas Agreement
is delivered to the Import Point at Niagara Falls, Ontario/Niagara Falls, New
York. For a description of transportation arrangements for such gas from the
Import Point to the NEA Project, see "-- Gas Transportation and Storage
Agreements" below.
Price. The actual billings to NEA by ProGas are developed through the
use of a two-part rate structure, consisting of a monthly demand charge which is
subject to a commodity charge. The monthly demand charge is the product of the
average Daily NEA Quantity and the monthly demand rate where the monthly demand
rate is the sum of (i) the monthly demand toll per Mcf, as determined by
Canada's National Energy Board, charged to ProGas by TransCanada PipeLines
Limited, a Canadian Transporter ("TransCanada"), (ii) the monthly demand toll
per Mcf charged by NOVA Corporation of Alberta, also a Canadian Transporter, to
ProGas and (iii) the monthly demand toll per Mcf charged by ProGas as approved
by the Alberta Petroleum Marketing Commission. Payments pursuant to this monthly
demand charge are based on the anticipated Daily NEA Quantities under the NEA
ProGas Agreement. The monthly demand charge is payable regardless of the actual
volume of gas delivered.
The commodity charge is applied to volumes of gas actually delivered
under the NEA ProGas Agreement and is the difference between the unitized
monthly heating demand rate and the then applicable "base price" escalated from
U.S. $2.7665 per Dth as of January 1, 1990. The "base price," as theretofore
escalated, was further increased by $.038 per Mcf, effective December 1, 1994.
Escalation of the "base price" is determined by reference to the escalation
rates in the Power Purchase Agreements for both Projects. The "base price" for
approximately 70% of the contract quantities is escalated using the weighted
average of (I) the fixed escalators applicable to NEA's fixed price power sales
and (ii) the changes in fuel prices that determine escalation of price under
NEA's Avoided Cost contracts. No more than 150 MW of Avoided Cost sales are
included in this weighing at a price no lower than a floor price of 6.5 cents
per kWh. The remaining contract quantities, approximately 30%, have a "base
price" adjusted annually by the change in the cost of natural gas purchased by
New Jersey electric utilities as reported in FERC Form 423.
The price of gas sold pursuant to the NEA ProGas Agreement will be
adjusted in the event that (i) the NJEA Project has ceased to operate for a
period of six consecutive months and (ii) ProGas is not selling gas under the
NJEA ProGas Agreement on a monthly basis at least equal to 65% of the Daily NJEA
Quantity (as defined below). The price adjustment will be subject to an
escalator based on natural gas costs as determined by FERC and the pricing
provisions contained in the NJEA ProGas Agreement. In any contract year
commencing on or after November 1, 2001, the contract pricing also is subject to
renegotiation or arbitration if the contract prices do not track comparable
long-term service contracts then prevailing. Arbitration conducted between
November 1, 2001 and October 31, 2006 may result in an increase in the
escalation of the "base price," while arbitration conducted between November 1,
2006 and the end of the term may result in an increase or decrease in the rate
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of escalation of the "base price." In either time period, the change is not to
impair the ability of NEA to cover operating costs of the NJEA project or to
service the debt on the project, nor is it to cause a materially adverse affect
on NEA's net cash flow from the NJEA project. The actual price of the natural
gas service, however, is not subject to arbitration in either time period.
NEA's Right to Pay Gas Transporters and Gas Producers Directly. In the
event of ProGas' bankruptcy, insolvency or failure to pay any transporter of
gas, or to pay gas producers with reserves dedicated in whole or in part to the
NEA ProGas Agreement any amounts due them for transportation services or sale of
gas relating to transportation of gas for ultimate redelivery to NEA or sale of
gas for resale to NEA, NEA shall have the right to the extent permitted by
ProGas' contractual arrangements with transporters or gas producers and subject
to any limitation imposed by law or regulation, to withhold payments due ProGas,
in whole or in necessary part, and from such withheld amounts to pay directly to
any transporter or gas producer the amount due to it from ProGas.
Termination. In the event NEA is 60 or more days in arrears on
undisputed amounts payable, ProGas may terminate the NEA ProGas Agreement
provided it has given NEA 15 days' written notice of its intent to exercise such
right in the event the arrears is not cured within that period. In addition,
ProGas may terminate the NEA ProGas Agreement in the event that each of the
following conditions has occurred and is continuing: (i) NEA has filed a
petition of bankruptcy, (ii) NEA has failed to take an average of 50% of the
Daily NEA Quantity for six consecutive months or has failed to resume acceptance
at an average of 65% of the Daily NEA Quantity during the last month of the
six-month period and (iii) NEA's failure to take such Daily NEA Quantity for
such period is not the result of a force majeure event. NEA may terminate the
NEA ProGas Agreement in the event that each of the following conditions has
occurred and is continuing: (i) ProGas has filed a petition of bankruptcy, (ii)
ProGas has failed to deliver 50% of the volumes designated for six consecutive
months or has failed to resume delivery at a rate of 65% of the volumes
scheduled for daily delivery during the last month of the six month period and
(iii) ProGas' failure to deliver such volumes for such period is not the result
of a force majeure event. In the event that any change in applicable law has a
materially adverse effect on the terms of performance under the NEA ProGas
Agreement, the party adversely affected may terminate such agreement.
NJEA Gas Purchase Agreements
NJEA ProGas Agreement
Quantities. The Gas Purchase Contract dated as of May 12, 1988 and
amended as of April 17, 1989, June 23,1989, November 1, 1991, and July 30, 1993
between NJEA and ProGas (the "NJEA ProGas Agreement") provides for the sale by
ProGas to NJEA of 22,354 Mcf of natural gas per day, with an equivalent heating
value of at least 22,019 Dth (the "Daily NJEA Quantity"). If NJEA fails to take
75% of the annualized Daily NJEA Quantity in any contract year, then NJEA is
required to purchase additional gas in the following contract year to make up
any such deficiency. If NJEA fails to purchase such required quantities in any
year, ProGas has the right to bill NJEA monthly for interest at the rate of the
then-current Canadian Imperial Bank of Commerce prime rate plus 2% on the
contract price that would have been payable in respect of the shortfall amount.
Further, following any such year in which NJEA fails to take such percentage of
the annualized Daily NJEA Quantity, ProGas has the right to renegotiate the
Daily NJEA Quantity unless NJEA was unable to take the required amount due to
the temporary inability of the NJEA Project to utilize the gas supplies, if NJEA
requests volumes in excess of the Daily NJEA Quantity, ProGas may accommodate
such requests on a best efforts basis. If ProGas fails to deliver the required
quantities on a sustained basis, ProGas will, contingent on receipt of any
required regulatory approvals, extend deliveries beyond the primary term in
order to permit NJEA to recover such deficiencies. If ProGas fails to deliver
the required quantities in any contract year by an amount greater than ten
percent, NJEA has the right to renegotiate the Daily NJEA Quantity. If the NJEA
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Facility experiences certain outages and NJEA does not require natural gas for
any other purpose, NJEA may notify ProGas that such gas supplies are available
to ProGas for resale. ProGas will use all reasonable efforts to remarket such
gas supplies in order to relieve NJEA of its purchase obligations.
Term. The term of the NJEA ProGas Agreement is 22 years expiring
November 1, 2013. The final seven years of this term constitutes an extension of
the original 15 year term, which has been agreed to by the parties and approved
by the producers and Canadian regulatory authorities.
Delivery Point. Gas delivered by ProGas under the NJEA ProGas Agreement
is delivered to the Import Point at Niagara Falls, Ontario/ Niagara Falls, New
York. For a description of transportation arrangements for such gas from the
Import Point to the NJEA Project see "-Gas Transportation and Storage
Agreements" below.
Price. The actual billings to NJEA by ProGas are developed through the
use of a two-part rate structure, consisting of a monthly demand charge which is
subject to a commodity charge. The monthly demand charge is the product of the
average Daily NJEA Quantity and the monthly demand rate where the monthly demand
rate is the sum of (i) the monthly demand toll per Mcf, as determined by
Canada's National Energy Board, charged to ProGas by TransCanada, (ii) the
monthly demand toll per Mcf charged by NOVA Corporation of Alberta, also a
Canadian Transporter, to ProGas and (iii) the monthly demand toll per Mcf
charged by ProGas as approved by the Alberta Petroleum Marketing Commission.
Payments pursuant to this monthly demand charge are based on the anticipated
Daily NJEA Quantities under the NJEA ProGas Agreement. The monthly demand charge
is payable regardless of the actual volume of gas delivered.
The commodity charge is applied to volumes of gas actually delivered
under the NEA ProGas Agreement and is the difference between the unitized
monthly heating demand rate and the then applicable "base price" escalated from
U.S. $2.7665 per Dth as of January 1, 1990. The "base price" as theretofore
escalated, was further increased by $.038 per Mcf, effective December 1, 1994
Such escalation rate is adjusted annually by the change in the cost of natural
gas purchased by New Jersey electric utilities as reported in FERC Form 423.
The price of gas, sold pursuant to the NJEA ProGas Agreement will be
adjusted in the event that (i) the NEA Project has ceased to operate for a
period of six consecutive months and (ii) ProGas is not selling gas under the
NEA ProGas Agreement on a monthly basis at least equal to 65% of the Daily NEA
Quantity (as defined below). The price adjustment will be subject to an
escalator based on natural gas costs as determined by FERC and the pricing
provisions contained in the NEA ProGas Agreement. In any contract year
commencing on or after November 1, 2001, the contract pricing also is subject to
renegotiation or arbitration if the contract prices do not track comparable long
term service contracts then prevailing. Arbitration conducted between November
1, 2001 and October 31, 2006 may result in an increase in the escalation of the
"base price," while arbitration conducted between November 1, 2006 and the end
of the term may result in an increase or decrease in the rate of escalation of
the "base price." In either time period, the change is not to impair the ability
of NJEA to cover operating costs of the NEA project or to. service the debt on
the project, nor is it to cause a materially adverse effect on NJEA's net cash
flow from the NEA project. The actual price of the natural gas service, however,
is not subject to arbitration in either.
NJEA's Right to Pay Gas Transporters and Gas Producers Directly. In the
event of ProGas' bankruptcy, insolvency or failure to pay any transporter of
gas, or to pay gas producers with reserves dedicated in whole or in part to the
NJEA ProGas Agreement any amounts due them for transportation services or sale
of gas relating to transportation of gas for ultimate redelivery to NJEA or sale
of gas for resale to NJEA, NJEA shall have the right to the extent permitted by
ProGas' contractual arrangements with transporters or gas producers and subject
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to any limitation imposed by law or regulation, to withhold payments due ProGas,
in whole or in necessary part, and from such withheld amounts to pay directly to
any transporter or gas producer the amount due to it from ProGas.
Termination. In the event NJEA is 60 or more days in arrears on
undisputed amounts payable, ProGas may terminate the NJEA ProGas Agreement
provided it has given NJEA 15 days' written notice of its intent to exercise
such right in the event the arrears is not cured within that period. In
addition, ProGas may terminate the NJEA ProGas Agreement in the event that each
of the following conditions has occurred and is continuing: (i) NJEA has filed a
petition of bankruptcy, (ii) NJEA has failed to take an average of 50% of the
Daily NJEA Quantity for six consecutive months or has failed to resume
acceptance at an average of 65% of the Daily NJEA Quantity during the last month
of the six-month period and (iii) NJEA's failure to take such Daily NJEA
Quantity for such period is not the result of a force majeure event. NJEA may
terminate the NJEA ProGas Agreement in the event that each of the following
conditions has occurred and is continuing: (I) ProGas has filed a petition of
bankruptcy, (ii) ProGas has failed to deliver 50% of the volumes designated for
six consecutive months or has failed to resume delivery at a rate of 65% of the
volumes scheduled for daily delivery during the last month of the six-month
period and (iii) ProGas' failure to deliver such volumes for such period is not
the result of a force majeure event. In the event that any change in applicable
law has a materially adverse effect on the terms of performance under the NJEA
ProGas Agreement, the party adversely affected may terminate such agreement.
PSE&G Contract
The Gas Purchase and Sales Agreement dated as of May 4, 1989 between
NJEA and PSE&G (the "PSE&G Contract"), provides for the sale by PSE&G to NJEA of
gas, and for certain gas transportation services.
Sale of Gas. PSE&G sells to NJEA up to 25,000 dekatherms of gas per day
subject to "Service Interruptions" by PSE&G discussed below. NJEA has the option
to purchase additional gas (i) at NJEA's request on a daily basis subject to
PSE&G's ability to provide such amounts, (ii) under an Extended Gas Service (as
defined herein) option if PSE&G retains gas on certain "peak days" and (iii)
commencing November 1 and ending March 31 for "winter-seasonal service" up to a
specified amount with appropriate notice.
Transportation Service. PSE&G transports for NJEA all of the fuel
required to operate the NJEA Project (from points originating in PSE&G's service
territory to the delivery point at the NJEA Project), including all gas
purchased by NJEA from ProGas, gas purchased on the open market and gas
delivered from storage. NJEA may deliver to PSE&G for transport to the NJEA
Project up to 32,500 dekatherms of gas per day purchased from sources other than
PSE&G, and PSE&G is required to redeliver an equal quantity to the NJEA Project
except in certain limited circumstances on "peak days." In the event that NJEA
has delivered to PSE&G for transport in any calendar month an amount less than
the amount redelivered by PSE&G to the NJEA Project in such calendar month and
NJEA falls to correct the resulting imbalance in the immediately following
month, then PSE&G will sell to NJEA at NJEA's request a quantity of gas equal to
up to 10% of the gas used by NJEA in the month of the imbalance at a price equal
to the commodity charge under the PSE&G Contract plus a penalty fee of three
times the "service charge" discussed below.
Term. The term of the PSE&G Contract is 20 years expiring August 12,
2011. The PSE&G Contract does not include any renewal provision.
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Price. The monthly price payable by NJEA to PSE&G for gas sold under
the PSE&G Contract equals the sum of (i) a "customer charge" (indexed to the
Implicit Price Deflator of GNP as published by the United States Department of
Commerce, Bureau of Economic Analysis in its "Survey of Current Business")
initially set in 1990 at $86 per month and adjusted annually as of the first
calendar day of each succeeding year, (ii) a "commodity charge" per dekatherm
sold by PSE&G to NJEA based upon the average costs incurred by PSE&G in
acquiring gas during such month, (iii) a "service charge" (indexed to the
weighted average change in PSE&G's natural gas rates as approved by the New
Jersey Board of Public Utilities) initially set in 1990 at $0.30 per dekatherm
delivered and (iv) a "loss and shrinkage charge" equal to 1.5% of the monthly
"commodity charge." The price for additional amounts purchased under the
Extended Gas Service option includes a "service charge" and an "extended gas
service charge." The price for additional amounts purchased under the
winter-seasonal service is equal to the "extended gas service charge" plus a
delivery charge. If PSE&G retains gas on certain "peak days" PSE&G will pay to
NJEA a "Peak Gas Service Credit" described below under "Service Interruption."
The monthly price payable by NJEA to PSE&G under the PSE&G Contract for
the transportation of gas purchased by NJEA from gas suppliers other than PSE&G
is the product of the number of dekatherms of gas transported multiplied by the
monthly "service charge" described in clause (iii) above. NJEA may elect to
renegotiate the sales price under the PSE&G Contract if the actual price charged
thereunder to NJEA in any one-year period ending on October 31 exceeds the
comparable average gas cost incurred by New Jersey electric utilities by 15%.
Conversely, if such price is less than 85% of the comparable average gas cost
incurred by New Jersey electric utilities, then PSE&G may elect to renegotiate
the sales price. To date, actual prices have not fallen above or below this
range. If NJEA and PSE&G are unable to renegotiate the sales price, the parties
may elect to terminate the sales provisions contained in the PSE&G Contract
without terminating the transportation provisions contained therein. During
1997, the "customer charge" was approximately $97 per month, the "commodity
charge" was approximately $.32928 per dekatherm, and the "service charge" was
approximately $.32928 per dekatherm.
Quantity Adjustments. All quantities specified in the PSE&G Contract,
upon 30 days' written notice to PSE&G, may be adjusted by NJEA to reflect
changes in the percentage of gas that is retained by Canadian or U.S. pipelines
transporting gas for NJEA in order to provide the NJEA Project with the same
delivered quantity as existed prior to such changes.
Service Interruption. PSE&G may interrupt sales and transportation
service to the NJEA Project on "peak days" when the mean daily temperature
forecast for Newark, New Jersey is 22(degree)F or below. On such days, PSE&G may
retain the gas supplies tendered to it by NJEA. This occurred on 4 days during
1997. At NJEA's election, PSE&G will offer Extended Gas Service on such days,
unless the mean daily temperature forecast is 14(degree) F or below. In the
latter case PSE&G may curtail all service to NJEA and the NJEA Project may not
be able to operate. This occurred on 2 days during 1997. The price of Extended
Gas Service is based upon the cost to PSE&G of propane supplies delivered to its
processing facilities plus a mark-up. During 1997, NJEA purchased 908,290
dekatherms of Extended Gas Service supplies at an average price of $8.813 per
dekatherm.
In exchange for the right to retain NJEA's gas supplies on those
certain peak days described above, PSE&G pays a demand charge to NJEA (the "Peak
Gas Service Credit") which is indexed to demand charges paid by NJEA for the
transportation and storage of its supplies in the U.S. The Peak Gas Service
Credit is subject to a floor of 37% of the PSE&G "service charge" and a cap of
68% of the "service charge." During 1997, PSE&G paid NJEA over $2 million in
Peak Gas Service Credits. In addition, PSE&G pays NJEA for gas retained
according to a formula which prices these supplies at the greater of (i) the
weighted average commodity cost of PSE&G for natural gas supplies purchased from
all sources, or (ii) an amount which is the lesser of the market price of fuel
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oil per dekatherm or PSE&G's propane cost per dekatherm. During 1997, PSE&G
retained 120,288 dekatherms at an average price of $5.199916 per dekatherm.
Termination. In the event either party is in arrears on undisputed
amounts payable, the party to whom payment is owed may provide the other party
with a written protest of failure to pay and suspend performance 15 days later
if the failure continues, and, in addition, may terminate the contract upon
written notice to the other party. In the event regulatory authorities having
jurisdiction take any action that requires an increase in the "service charge"
described above under "Price," or materially alters the method for the
calculation of the sales price, NJEA may terminate the PSE&G Contract on 90
days' notice in writing to PSE&G.
Gas Transportation and Storage Agreements
The following table identifies the Long-term Gas Transportation
Agreements and Long-term Gas Storage Agreements and sets forth certain
information with respect thereto. The Long-term Gas Storage Agreements provide
contractual arrangements for the storage of limited volumes of gas with third
parties for future delivery to the Projects.
NEA -- Transportation Agreements
<TABLE>
<CAPTION>
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------ ------------- -------------------
<S> <C> <C>
CNG Transmission Corporation 48,817 Dth November 1, 2011
Firm Transportation Service Agreement
Rate Schedule X-71
CNG Transmission Corporation 1,654 Dth Winter March 31, 1999
Service Agreement Applicable to 828 Dth Summer
Transportation of Natural Gas
Rate Schedule FT:
Transcontinental Gas Pipe Line Corporation 48,800 Mcf October 31 2006
Firm Gas Transportation Agreement
Rate Schedule X-320
Algonquin Gas Transmission Company 62,000 Dth November 30, 2016
Service Agreement
Rate Schedule AFT-1
CNG Transmission Corporation 14,000 Dth March 31, 2012
Service Agreement Applicable to
the Storage of Natural Gas (1)
Rate Schedule FT-GSS-11
Texas Eastern Transmission Corporation 14,000 Dth March 31, 2012
Service Agreement
Rate Schedule FTS-5
</TABLE>
- -------------
(1) Includes an agreement for the transportation of natural gas held in storage.
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NJEA - Transportation Agreements
<TABLE>
<CAPTION>
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------ ------------- ----------------
<S> <C> <C>
CNG Transmission Corporation Firm 22,019 Dth November 1, 2011
Transportation Service Agreement
Rate Schedule X-70
CNG Transmission Corporation 746 Dth Winter March 31, 1999
Service Agreement Applicable to 372 Dth Summer
Transportation of Natural Gas,
Rate Schedule FT
Transcontinental Gas Pipe Line Corporation 22,019 Mcf October 31, 2006
Firm Gas Transportation Agreement
Rate Schedule X-319
Public Service Electric & Gas Company 32,500 Dth August 12, 2011
Gas Purchase and Sales Agreement
CNG Transmission Corporation 10,508 Dth March 31, 2012
Service Agreement Applicable to
the Storage of Natural Gas (1)
Rate Schedule FT-GSS-11
Texas Eastern Transmission Corporation 10,508 Dth March 31, 2012
Service Agreement
Rate Schedule FTS-5
</TABLE>
- -------------
(1) Includes an agreement for the transportation of natural gas held in storage.
NEA -- Storage Agreements
<TABLE>
<CAPTION>
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------- ---------------------- ----------------------
<S> <C> <C>
CNG Transmission Corporation Withdrawal: 14,000 Dth March 31, 2012
Service Agreement Applicable to Injection: 10,000 Dth
the Storage of Natural Gas Capacity: 1,400,000 Dth
Rate Schedule GSS-11
</TABLE>
NJEA - Storage Agreements
<TABLE>
<CAPTION>
Maximum Daily Contract
Gas Transporter and Agreements Quantity Expiration Date
- ------------------------------- ---------------------- ----------------------
<S> <C> <C>
CNG Transmission Corporation Withdrawal: 10,508 Dth March 31, 2012
Service Agreement Applicable to the Injection: 7,506 Dth
Storage of Natural Gas Capacity: 1,050,800 Dth
Rate Schedule GSS-11
</TABLE>
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Operations and Maintenance Agreements
NEA Operations and Maintenance Agreement
The Second Amended and Restated Operation and Maintenance Agreement for
the NEA Project dated as of June 28, 1989, as amended, between NEA and
Westinghouse Electric (the "NEA O&M Agreement"), provides for the operation and
maintenance by Westinghouse Services (the "Operator") of the NEA Project.
Term. The term of the NEA O&M Agreement extends for an initial term of
10 years expiring September 15, 2001. The Operator has agreed, pursuant to a
letter agreement with NEA dated as of June 23, 1993, to enter into a successor
agreement for a term of ten years at NEA's option, with payments to be made to
the Operator for certain services on either a firm-price basis, subject to
successful negotiation of terms by the parties, or a cost-plus basis. In the
event that the agreement is not extended on either basis, the Operator is to
provide assistance to effect a transition to a new service provider. Pursuant to
the New NEA O&M Agreement, the New Operator is providing certain services for
the NEA Project, and has agreed to replace Westinghouse Services as the operator
of the NEA Project upon the expiration or early termination of the NEA O&M
Agreement.
Basic Obligations. The Operator has agreed to provide all operations
and maintenance services, including scheduled all major maintenance and has
agreed to provide all personnel, spare parts and consumables necessary in order
to operate and maintain the NEA Project. Such services include all services
necessary or advisable to use, operate and maintain the NEA Project in good
operating condition and in compliance with (i) the NEA Project Documents, (ii)
all insurance policies relating to the NEA Project, (iii) the procedures
established in the operation and maintenance manuals provided pursuant to the
construction contract for the NEA Project, or applicable industry guidelines,
(iv) all applicable prudent industry practices and standards, (v) vendor and
manufacturer requirements or conditions, as applicable, (vi) the standards set
forth in the NEPOOL Agreement, (vii) the operating and maintenance procedures
established by the Operator in accordance with the NEA O&M Agreement and (viii)
any and all governmental approvals, licenses or permits associated with the NEA
Project. Substantive changes to the obligations of the Operator require consent
of NEA and of an independent engineer to a written "change order" request of the
Operator.
Compensation. For the initial term, NEA has agreed to pay the Operator
a monthly fee (the "NEA O&M Fee") of $435,417 (in 1990 dollars) , subject to a
biannual adjustment each January and July calculated on the basis of certain
national indices for the cost of labor, materials and producer prices. The NEA
O&M Fee incurred during 1997 was $6,550,447 (excluding heat rate and performance
bonuses).
Performance Guarantees. The NEA O&M Agreement specifies certain
guaranteed performance levels for the NEA Project, including but not limited to
(i) guaranteed electrical output of approximately 290 MW of capacity, adjusted
for variations from standard operating conditions and excused downtime and by 3%
per annum for plant degradation, at 90% average availability, when the NEA
Project is being fueled by 100% pipeline quality natural gas, (ii) guaranteed
electrical output of approximately 290 MW of capacity, adjusted for variations
from standard operating conditions and excused downtime, at 83% for purposes of
liquidated damages calculations or 85% for purposes of bonus payments average
availability, when the NEA Project is burning a combination of natural gas and
fuel oil, (iii) guaranteed steam output of not less than 5% of the total energy
output of the NEA Project, with an affirmative obligation for the Operator to
correct any deficiency as NEA's sole remedy, (iv) guaranteed fuel consumption,
as adjusted to reflect variations from standard conditions, not in excess of
certain agreed upon levels with an affirmative obligation to correct
inefficiencies and, in certain circumstances, to reimburse excess fuel costs and
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(v) a guarantee that emissions will not exceed certain agreed upon levels, with
remediations the sole liability in the event of failure to maintain such levels.
Catastrophic Loss of Viability. Subject to the provisions regarding
liquidated damages and the limitations on the Operator's liability contained in
the NEA O&M Agreement, the Operator has agreed to pay off the outstanding
balance of NEA's senior debt financing for the NEA Project (which would include
the Project Notes (as defined herein)) upon the occurrence of certain specified
events, including the following: (i) the destruction of the NEA Project; (ii)
the unavailability of insurance proceeds or the lapse of insurance policies in
respect of such destruction, in either case, as a result of the Operator's acts
or omissions; (iii) the inability of NEA to service its senior debt as a result
of a catastrophic loss of viability; (iv) the failure of attempts to cure; and
(v) the acceleration of the entire principal balance of NEA's senior debt
financing for the NEA Project.
Liquidated Damages. The Operator has agreed to pay liquidated damages
to NEA in the following amounts for shortfalls in the annual (adjusted) number
of MWH produced below the guaranteed performance levels described above: (i) $15
per MWH for the first 100,000 MWH of shortfall, (ii) $33 per MWH for the second
100,000 MWH of shortfall and (iii) $50 per MWH for all additional MWH of
shortfall. Aggregate liquidated damages are subject to a maximum cumulative
liability of the Operator (excluding certain indemnities) of $9 million in any
operating year, and $60 million over the initial term of the NEA O&M Agreement.
During any extension period, the maximum liability of the Operator under the NEA
O&M Agreement is reduced to $3 million (in 1993 dollars) in any operating year.
Bonus Payment. In the event that the amount of energy generated by the
NEA Project exceeds the guaranteed electrical output, as adjusted for certain
specified excused outages and seasonal variations from standard operating
conditions, NEA has agreed to pay to the Operator the following amounts as a
bonus for each MWH of energy generated in excess of the guaranteed levels: (i)
$5 per MWH for the first 25,000 MWH of excess, (ii) $10 per MWH for the second
25,000 MWH of excess, and (iii) $15 per MWH for all additional MWH of excess. By
a letter agreement dated as of June 23, 1993, NEA and the Operator agreed that
NEA would pay the Operator the aggregate sum of $3.289 million as the heat rate
bonus for the initial term of the NEA O&M Agreement, payable in installments
(without interest) as follows: (i) an initial payment of $572,000 on December
30, 1992; and (ii) the remaining $2.717 million to be paid in equal annual
installments of $543,400 each on September 30 of each of the succeeding five
years except that in the event of a refinancing of the Original Project Credit
Agreement, a portion of the remaining balance of the heat rate bonus may be
payable at the time of the refinancing based on the amount of net proceeds. No
payment was due to the Operator pursuant to this provision in respect of the
refinancing effected by the issuance of the Project Securities. During any
extension period beyond the initial term of the NEA O&M Agreement, heat rate
bonuses will be payable based upon actual heat rates in each year, subject to a
maximum annual bonus of $1 million (in 1993 dollars). During 1997, NEA incurred
an aggregate heat bonus of $310,514.
Energy Bank. In the event that any Power Purchaser draws against any
letter of credit supporting the Energy Bank balances under its Power Purchase
Agreement solely as a result of the Operator's acts or omissions, the Operator
is obligated to refund the amount of such drawing to NEA.
Termination. With the concurrence of an independent engineer, NEA has
the right to terminate the NEA O&M Agreement if (i) the Operator is in material
breach of any material provision of the NEA O&M Agreement (however, breach of
performance guarantees for which liquidated damages have been paid or
remediation has been undertaken by the Operator does not constitute material
breach for this purpose), and such breach has not been cured within 45 days of
written notice thereof, or as soon as practicable thereafter (ii) the actual
output of the NEA Project for four consecutive quarters is less than 67% of the
adjusted guaranteed MWH or (iii) the Operator is required in any given year to
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pay the entire $9 million maximum liquidated damages allowed by the NEA O&M
Agreement. The Operator has the right to terminate the NEA O&M Agreement if NEA
fails to make any monthly payment, insurance reimbursement or payment in respect
of fuel off-loading services when due, if NEA fails to cure such failure within
30 days of written notice thereof. Either party may terminate the NEA O&M
Agreement (but only with the concurrence of an independent engineer in the case
of a termination by NEA) if the other party is insolvent, commences bankruptcy,
insolvency or reorganization proceedings or makes a general assignment for the
benefit of its creditors. The NEA O&M Agreement will terminate automatically in
the event that the NEA Project is subject to a catastrophic loss of viability
and the Operator makes the required payment with respect thereto as described
above under "-- Catastrophic Loss of Viability."
After termination of the NEA O&M Agreement by written notice from NEA
to the Operator, NEA is entitled, in addition to its other remedies, to take
possession of the NEA Project and any spare parts located on the NEA Site. If
NEA takes possession of the NEA Project in this manner, the Operator will remain
liable for (i) all liquidated damages accrued but unpaid at the time of such
termination and (ii) for each remaining operating year following termination up
to September 15, 2001, the difference between (x) the amount that would have
been payable to the Operator pursuant to the NEA O&M Agreement as NEA O&M Fees
for such year and (y) the amount payable to a replacement operator for each such
operating year, provided, however, that the Operator's aggregate liability shall
not exceed the lesser of (a) 30% of the aggregate amounts payable to the
Operator in the year of termination or (b) $12.5 million.
The Operator is to have no other liability to NEA.
Right to Suspend Performance for Loss of Qualifying Facility Status. In
the event that the NEA Project is operated in a manner during any three-month
period in any calendar year that would result in the loss of its QF status if
such operation were to be continued for the remainder of such calendar year, and
such projected loss is confirmed by an independent engineer, NEA has agreed to
take reasonable steps to ensure that operating practices will maintain such QF
status. Under certain circumstances relating to a potential or actual loss of QF
status, the Operator may suspend performance under the NEA O&M Agreement and
find a replacement operator. See "Business -- Regulation -- Energy Regulation."
NJEA Operations and Maintenance Agreement
The Amended and Restated Operations and Maintenance Agreement for the
NJEA Project dated as of June 28, 1989, as amended, between NJEA and
Westinghouse Electric (the "NJEA O&M Agreement") provides for the operation and
maintenance by Westinghouse Services (the "Operator") of the NJEA Project.
Term. The term of the NJEA O&M Agreement extends for an initial term of
ten years expiring September 15, 2001. The Operator has agreed, pursuant to a
letter agreement with NJEA dated June 23, 1993, to enter into a successor
agreement for a term of ten years at NJEA's option, with payments to be made to
the Operator for certain services on a fixed price basis, with major maintenance
and certain other items on a firm price basis, subject to negotiation of terms
by the parties, or on a cost-plus basis. Pursuant to the New NJEA O&M Agreement,
the New Operator is providing certain services for the NJEA Project, and has
agreed to replace Westinghouse Services as the operator of the NJEA Project upon
the expiration or early termination of the NJEA O&M Agreement.
Basic Obligations. The Operator has agreed to provide all operations
and maintenance services, including all scheduled major maintenance, and has
agreed to provide all personnel, spare parts and consumables necessary in order
to efficiently operate and maintain the NJEA Project. Such services include all
services necessary or advisable to use, operate and maintain the NJEA Project in
good operating condition and in compliance with (i) the NJEA Project Documents,
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(ii) all insurance policies relating to the NJEA Project, (iii) the procedures
established in the operation and maintenance manuals provided pursuant to the
construction contract for the NJEA Project, or applicable industry guidelines,
(iv) all applicable prudent industry practices and standards, (v) vendor and
manufacturer requirements or conditions, as applicable, (vi) all applicable
requirements and guidelines adopted by PJM Interconnected Power Pool, including
the PJM Agreement, (vii) the operating and maintenance procedures established by
the Operator in accordance with the NJEA O&M Agreement and (viii) any and all
governmental approvals, licenses or permits associated with the NJEA Project.
Substantive changes to the obligations of the Operator require consent of NJEA
and of an independent engineer to a written "change order" request of the
Operator.
Compensation. For the initial term, NJEA has agreed to pay the Operator
a monthly fee (the "NJEA O&M Fee") of $493,750 (in 1990 dollars), subject to
adjustment in January and in July of each year, calculated on the basis of
certain national indices for the cost of labor, materials and producer prices.
The aggregate NJEA O&M Fee incurred during 1997 was $7,337,011 (excluding heat
rate and performance bonus payments).
Performance Guarantees. The NJEA O&M Agreement specifies certain
guaranteed performance levels for the NJEA Project, including but not limited to
(i) guaranteed electrical output of 90% of the approximately 275 MW of capacity,
adjusted for variations from standard operating conditions and excused downtime
and by 3% per annum for plant degradation, during on-peak hours (8:00 a.m. to
8:00 p.m. Monday through Friday, December through February and June through
September excluding holidays), (ii) guaranteed electrical output of 85% of the
approximately 275 MW of capacity, adjusted for variations from standard
operating conditions, during off-peak hours, (iii) guaranteed steam output of
not less than 5% of the total energy output of the NJEA Project, with an
affirmative obligation for the Operator to correct any deficiency as NJEA's sole
remedy, (iv) guaranteed fuel consumption, as adjusted to reflect variations from
standard conditions, not in excess of certain agreed upon levels with an
affirmative obligation to correct inefficiencies and, in certain circumstances,
to reimburse excess fuel costs as NJEA's sole remedy and (v) a guarantee that
emissions will not exceed certain agreed upon levels, with restriction of the
level of power output or cessation of operation of the NJEA Project until such
emissions guarantee is satisfied being the sole remedy in the event of failure
to maintain such levels.
Catastrophic Loss of Viability. Subject to the provision regarding
liquidated damages and the limitations on the Operator's liability contained in
the NJEA O&M Agreement, the Operator has agreed to pay off the outstanding
balance of NJEA's senior debt financing for the NJEA Project (which would
include the Project Notes) upon the occurrence of certain specified events,
including the following: (i) the destruction of the NJEA Project, (ii) the
unavailability of insurance proceeds or the lapse of insurance policies in
respect of such destruction, in either case, as a result of the Operator's acts
or omissions, (iii) the inability of NJEA to service its senior debt as a result
of a catastrophic loss of viability, (iv) the failure of attempts to cure and
(v) the acceleration of the entire principal balance of NJEA's senior debt
financing for the NJEA Project.
Liquidated Damages. The Operator has agreed to pay liquidated damages
to NJEA in the following amounts for shortfalls in the annual (adjusted) number
of kWh produced below the guaranteed performance levels: (i) 1.5 cents per kWh
of off-peak shortfall, (ii) 2 cents per kWh of on-peak shortfall and (iii) if
actual on-peak output is less than 85% of average actual on-peak output during
the immediately preceding 3 operating years and NJEA is obligated to pay
liquidated damages in respect of such shortfall under the JCP&L Power Purchase
Agreement 3.6 cents per kWh of shortfall below 85% to the extent of NJEA's
liquidated damages obligation to JCP&L (or a total of 5.6 cents per kWh if a
part of the on-peak shortfall is below the requisite level). Aggregate
liquidated damages are subject to a maximum cumulative liability of the Operator
(excluding certain indemnities) of $9 million in any operating year, and $60
million over the initial term of the NJEA O&M Agreement. During any extension
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period, the maximum liability of the Operator under the NJEA O&M Agreement is
reduced to $3 million (in 1993 dollars) in any operating year. Liquidated
damages payments will be made only if the cumulative downtime in any quarter
exceeds 180 hours during on-peak hours or exceeds 1044 hours during off-peak
hours.
Bonus Payments. In the event that the amount of energy generated by the
NJEA Project during on-peak hours exceeds the guaranteed electrical output, as
adjusted for certain specified excused outages and seasonal variations from
standard operating conditions, NJEA has agreed to pay to the Operator a bonus
for energy generated during such hours in excess of the guaranteed levels of 3.0
cents per kWh. In the event that the amount of energy generated by the NJEA
Project during off-peak hours exceeds the guaranteed electrical output, as
adjusted for certain specified excused outages and seasonal variations from
standard operating conditions, NJEA has agreed to pay to the Operator a bonus
for energy generated during such hours in excess of the guaranteed levels of 0.3
cents per kWh. By a letter agreement dated as of June 23, 1993, NJEA and the
Operator agreed that NJEA would pay the Operator the aggregate sum of $7.711
million as the heat rate bonus for the initial term of the NJEA O&M Agreement,
payable in installments (without interest) as follows: (i) an initial payment of
$1.156 million on December 30, 1992; and (ii) the remaining $6.555 million to be
paid in equal annual installments of $1.311 million each on September 30 of each
of the succeeding five years, except that in the event of a refinancing of the
Original Project Credit Agreement, a portion of the remaining balance of the
heat rate bonus may be payable at the time of the refinancing based on the
amount of the net proceeds. No payment was due to the Operator pursuant to this
provision in respect of the refinancing effected by the issuance of the Project
Securities. During any extension period beyond the initial term of the NJEA O&M
Agreement, heat rate bonuses will be payable based upon actual heat rates in
each year, subject to a maximum annual bonus of $1 million (in 1993 dollars).
Bonus payments will be made if the cumulative downtime in any quarter is less
than 150 hours during on-peak hours or is less than 1,044 hours during off-peak
hours. During 1997 NJEA incurred an aggregate heat rate bonus of $749,142.
Energy Bank. In the event that JCP&L draws against any letter of credit
supporting the Energy Bank obligations under its Power Purchase Agreement solely
as a result of the Operator's actions or omissions, the Operator is obligated to
refund the amount of such drawing to NJEA.
Termination. With the concurrence of an independent engineer, NJEA has
the right to terminate the NJEA O&M Agreement if: (i) the Operator is in
material breach of any material provision of the NJEA O&M Agreement (however,
breach of performance guarantees for which liquidated damages have been paid or
remediation has been undertaken by the Operator does not constitute material
breach for this purpose), and such breach has not been cured within 45 days of
written notice thereof, or as soon as practicable in the event that such a cure
cannot be effected within 45 days, (ii) the actual output of the NJEA Project
for four consecutive quarters is less than 67% of the adjusted guaranteed output
or (iii) the Operator is required in any given year to pay the $9 million
maximum liquidated damages allowed by the NJEA O&M Agreement. The Operator has
the right to terminate the NJEA O&M Agreement if NJEA fails to make any monthly
payment, insurance reimbursement or payment in respect of refuel off-loading
services when due if NJEA fails to cure such failure within 30 days of written
notice thereof. Either party may terminate the NJEA O&M Agreement (but only with
the concurrence of an independent engineer in the case of a termination by NJEA)
if the other party is insolvent, commences bankruptcy, insolvency or
reorganization proceedings or makes a general assignment for the benefit of its
creditors. The NJEA O&M Agreement will terminate automatically in the event that
the NJEA Project is subject to catastrophic loss of viability and the Operator
makes the required payment with respect thereto as described above under
"-- Catastrophic Loss of Viability."
After termination of the NJEA O&M Agreement by written notice from NJEA
to the Operator, NJEA is entitled, in addition to its other remedies, to take
possession of the NJEA Project and any spare parts located on the NJEA Site. If
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NJEA takes possession of the NJEA Project in this manner, the Operator will
remain liable for (i) all liquidated damages accrued but unpaid at the time of
such termination and (ii) for each remaining operating year following
termination up to September 15, 2001, the difference between (x) the amount that
would have been payable to the Operator pursuant to the NJEA O&M Agreement as
NJEA O&M Fees for such year and (y) the amount payable to a replacement operator
for each such operating year, provided, however, that the Operator's aggregate
liability shall not exceed the lesser of (a) 30% of the aggregate amounts
payable to the Operator in the year of termination or (b) $12.5 million.
The Operator is to have no other liability to NJEA.
Right to Suspend Performance for Loss of Qualifying Facility Status. In
the event that the NJEA project is operated in a manner during any three-month
period in any calendar year that would result in the loss of its QF status if
such operation were to be continued for the remainder of such calendar year, and
such projected loss is confirmed by an independent engineer, NJEA has agreed to
take reasonable steps to ensure that operating practices will maintain such QF
status. Under certain circumstances relating to a potential or actual loss of QF
status, the Operator may suspend its performance under the NJEA O&M Agreement
and find a replacement operator. See "Business -- Regulation -- Energy
Regulation."
New NEA and NJEA Operation and Maintenance Agreements
Each of The Operation and Maintenance Agreements, dated as of November
21, 1997 (the "New NEA O&M Agreement" and the "New NJEA O&M Agreement"), by and
between NE LP and ESI Operating Services, Inc. (the "New Operator"), provides
for the operation and maintenance by the New Operator of the NEA and NJEA
Projects respectively on the day following the expiration or early termination
of the NEA and NJEA O&M Agreements (each, an "Operating Period Commencement
Date"). Under the New NEA and NJEA O&M Agreements, the New Operator has agreed
to provide currently Oversight Services (defined below) and has agreed to
provide Transition Services (defined below) , commencing ninety (90) days prior
to the applicable Operating Period Commencement Date (each, a "Transition
Services Commencement Date").
Term. The term of the New NEA and NJEA O&M Agreements extends for an
initial term of eighteen (18) years until January 14, 2016, subject to extension
by mutual agreement of the parties before six months preceding such expiration.
Oversight Services. The New Operator has agreed to provide certain
oversight services (the "Oversight Services") prior to the Operating Period
Commencement Date, including (i) reviewing certain Operator reports, proposed
changes in procedures, facility performance data, operating logs and records of
unplanned outages and annual generation forecasts, (ii) assessing NEA and NJEA
Site conditions on a quarterly basis, (iii) assessing the Operator's personnel,
policies, and procedures, (iv) analyzing all proposed capital expenditures for
the NEA and NJEA Project, (v) providing such technical support as reasonably
requested by NE LP and (vi) monitoring the Operator's activities during major
scheduled outages and major equipment overhauls.
Transition Services. On the Transition Period Commencement Date and
until the Operating Period Commencement Date, the New Operator has agreed to
provide certain transition services consisting of the review of existing
maintenance and operation records and the performance of all activities
necessary to mobilize its personnel (the "Transition Services"), including
without limitation (i) providing the necessary staff to operate and maintain the
NEA and NJEA Projects on the Operating Period Commencement Date, including
relocation of such personnel, review of personnel qualifications, recruiting and
training, (ii) preparing and submitting to NE LP (a) a transition plan and
budget for the orderly transition of operation and maintenance responsibilities
for the NEA and NJEA Projects, (b) an initial operation and maintenance plan for
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the upcoming year, (c) an initial proposed budget for operating and maintaining
the NEA and NJEA Projects pursuant to such plan and (d) a proposed format for
monthly reports to be delivered by the New Operator following the Operating
Period Commencement Date, (iii) developing the necessary programs and procedures
to perform the operation and maintenance of the NEA and NJEA Projects and (iv)
identifying and procuring as NE LP's agent necessary tools, equipment, goods,
and other items and materials necessary to operate and maintain the NEA and NJEA
Projects.
Operation and Maintenance Services. On and following the Operating
Period Commencement Date, the New Operator has agreed to perform all activities
necessary to operate and maintain the NEA and NJEA Projects (the "O&M
Services"), provided that the O&M Services are not to include, and the New
Operator is not to be responsible for, supplying water, natural gas, appropriate
distillate fuel oil or start up electrical power for the NEA Project, securing
or maintaining certain permits to be obtained by NE LP or arranging for the sale
of steam or electricity, maintaining insurance other than the insurance
described below, and services to be provided by NE LP, as described below. The
O&M Services include without limitation, the following: (i) making available
qualified labor and professional, supervisory and managerial personnel,
including appointing the plant manager, (ii) maintaining the NEA and NJEA
Projects in compliance with all applicable laws and permits, including the
efficiency requirements set forth in 18 C.F.R. 292.205, and in accordance with
Prudent Utility Practices (as defined in the New NEA O&M Agreement), with the
approved annual plan, with the approved plant manual and with the Project
Documents, (iii) seeking appropriate warranties, (iv) performing certain audits
under the NEA and NJEA Power Purchase Agreement(s), (iv) disposing of waste
products from the NEA and NJEA Projects, (v) responding to emergencies in
accordance with certain requirements, (vi) performing all necessary services in
connection with Unscheduled Maintenance (as defined in the New NEA and NJEA O&M
Agreements) and establishing maintenance programs, (vii) performing accounting
activities, (viii) preparing various reports and coordinating with NE LP and the
NEA and NJEA Power Purchasers regarding operations, (ix) maintaining various
records of operation and maintenance, finances, accidents and other related
data, (x) procuring necessary inventory and (xi) providing certain technical
support services.
Owner Services. NE LP has agreed to provide certain services at its
sole cost and expense during certain periods, including without limitation, the
following: (i) providing the New Operator with copies of certain permits,
licenses, authorizations, as-built drawings of the NEA and NJEA Projects,
quarterly reports and Project Documents, (ii) providing access to the NEA and
NJEA Sites and NEA and NJEA Projects, (iii) securing and maintaining all permits
required for NE LP to operate the NEA and NJEA Projects, (iv) providing an
operating account to pay for costs incurred by the New Operator, (v) paying all
taxes relating to the NEA and NJEA Projects (except income taxes of the New
Operator) and (v) taking reasonable steps to allow the NEA and NJEA Projects to
meet QF standards.
Compensation. NE LP has agreed to pay to the New Operator a minimum fee
of $750,000 per annum for each Project, commencing on January 14, 1998, payable
in monthly installments and adjusted on January 1 of each year based on the
Producer Price Index for all Commodities, published by the Department of Labor,
Bureau of Labor Statistics. In addition, NE LP has agreed to pay to the New
Operator all properly incurred costs and expenses of performing the Transition
Services and the O&M Services.
Termination. NE LP, may, by written notice to the New Operator,
terminate the New NEA and NJEA O&M Agreements if, prior to the Operating Period
Commencement Date, an independent engineer has not certified that the New
Operator is capable of operating the NEA and NJEA Projects in accordance with
Prudent Utility Practices. The New Operator may, by written notice to NE LP,
terminate the New NEA and NJEA O&M Agreements, if NE LP fails to make a payment
thereunder within 5 days after the same shall have become due. Either party may
terminate the New NEA and NJEA O&M Agreements by written notice if (i) the other
party defaults in the performance of any material term, covenant or obligation
contained in the New NEA and NJEA O&M Agreements and does not remedy such
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default within 30 days after such party's receipt of the non-defaulting party's
written notice thereof to such party (or as soon as possible thereafter but in
any event within 180 days, if it cannot be reasonably accomplished in such 30
day period and the defaulting party has commenced all actions required to remedy
such default within such 30 day period and diligently thereafter pursues the
same to completion), (ii) certain bankruptcy or insolvency events as to the
other party occur, (iii) the NEA or the NJEA Project is destroyed or suffers
damage in excess of $100,000,000 and is not rebuilt and in commercial operation
within 24 months after such damage or destruction, (iv) the NEA or the NJEA
Project cannot be operated for a period of at least 18 consecutive months as a
result of a force majeure event, (v) the NEA or the NJEA Project loses its QF
status or (vi) NE LP determines to permanently shut down the NEA or NJEA
Project.
Assignment
Neither party may assign or otherwise convey its rights under the New
NEA and NJEA O&M Agreements, without the prior written consent of the other
party (such consent not unreasonably withheld), except that NE LP has agreed to
assign its rights and obligations under the New NEA O&M Agreement to NEA upon
the later to occur of (i) the applicable Operating Period Commencement Date and
(ii) the execution and delivery by NEA of a counterpart of the New NEA O&M
Agreement to NE LP and the New Operator and except that NE LP has agreed to
assign its rights and obligations under the New NJEA O&M Agreement to NJEA upon
the later to occur of the (i) applicable Operating Period Commencement Date and
(ii) the execution and delivery by NJEA of a counterpart of the New NJEA O&M
Agreement to NE LP and the New Operator.
Accommodation Agreement
NEA, Chase, as agent for the Original Banks, and the NEA Power
Purchasers have entered into an Accommodation Agreement dated as of June 28,
1989 (the "Accommodation Agreement'.") confirming the NEA Power Purchase
Agreements and the declaration of easements, covenants, and restrictions giving
the NEA Power Purchasers certain rights in the event that possession of the NEA
Project is obtained by or transferred to a third party pursuant to an exercise
of remedies under the Project Security Documents, and subordinating the rights
of the NEA Power Purchasers under the NEA Second Mortgage on the NEA Project to
those of the financial institutions party to the Original Project Credit
Agreement (as defined herein) under the NEA Project Mortgage. In connection with
the issuance of the Original Project Securities, each of the NEA Power
Purchasers affirmed the Accommodation Agreement and agreed that the NEA Second
Mortgage will be subordinated to the NEA Project Mortgage.
In addition, the Collateral Agent has confirmed to the NEA Power
Purchasers that the rights granted to the NEA Power Purchasers under the
Accommodation Agreement described above, are in full force and effect with
respect to the Collateral Agent, including the rights granted to the NEA Power
Purchasers under the Declaration. As a result (i) if the Collateral Agent or any
Project Secured Party acquires possession of the NEA Project or the NEA Site, or
NEA's interest therein, pursuant to the exercise of rights or remedies under the
Project Security Documents, or otherwise, then it will be required, among other
things, to use reasonable efforts to perform or cause to be performed the
obligations of NEA under the NEA Power Purchase Agreements subject to certain
conditions, and to honor the Declaration, (ii) if the Collateral Agent or a
Project Secured Party transfers the NEA Project or the NEA Site pursuant to a
foreclosure sale or otherwise, it must require any prospective transferee to
honor the NEA Power Purchase agreement and the declaration of easements,
covenants, and restrictions and (iii) in the event of a casualty to the NEA
Project, the Collateral Agent and the Project Secured Parties will allow the
application of Loss Proceeds (as defined herein) to the repair or restoration of
the NEA Project in accordance with certain provisions specified in the
Accommodation Agreement.
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Boston Edison Interconnection Agreement
The Amended and Restated Interconnection Agreement between Boston
Edison and NEA, dated September 24, 1993 (the "Boston Edison Interconnection
Agreement") provides for the electrical interconnection between the NEA Project
and Boston Edison's high voltage transmission line on its Right-of-Way No. 13.
This interconnection is used for the delivery of electricity to Boston Edison,
Montaup and Commonwealth pursuant to the NEA Power Purchase Agreements.
Term. The Boston Edison Interconnection Agreement will remain in effect
until the termination date of the latest to terminate of the NEA Power Purchase
Agreements. Boston Edison and NEA have agreed to remain interconnected during
the term of the Boston Edison Interconnection Agreement, so long as they can do
so without significant service disruptions and imminent danger to life or
property. An interruption of the interconnection for any of these reasons shall
continue only for so long as is reasonably necessary.
Operation and Maintenance. Each of NEA and Boston Edison owns and
maintains the respective facilities that it has constructed pursuant to the
terms of the Boston Edison Interconnection Agreement. Boston Edison and NEA have
agreed to operate the interconnection in accordance with NEPOOL's rules and
requirements. If NEPOOL ceases to establish such rules and requirements, the
parties have agreed to operate interconnection in compliance with requirements
of Boston Edison, provided that such requirements are reasonable and consistent
with the NEPOOL rules and requirements previously in effect. Boston Edison has
the sole right to schedule maintenance (routine or emergency) for its
transmission lines and other interconnection facilities used for the NEA
Project. Boston Edison has agreed to perform such maintenance and NEA has agreed
to pay Boston Edison the cost thereof. NEA has sole responsibility for operating
and maintaining its transmission lines and interconnection facilities at its own
expense.
Payment. NEA has agreed to (i) pay or reimburse Boston Edison for all
engineering, design and construction costs incurred by Boston Edison in
providing the electrical interconnection, including a percentage of costs
attributable to indirect engineering and corporate overhead and (ii) reimburse
Boston Edison for all operation and maintenance expenses and all taxes
associated with Boston Edison's interconnection facilities used by the NEA
Project. If at any time FERC approves a tariff of Boston Edison applicable to
the interconnection services provided under the Boston Edison Interconnection
Agreement, such tariff shall be used to determine payments and compensation in
lieu of the payment terms contained in the agreement.
Fuel Management Agreements
NEA and NJEA Fuel Management Agreements
Each of the Fuel Management Agreements, dated as of January 20, 1998
(the "NEA Fuel Management Agreement"), by and between NE LP and ESI Northeast
Fuel Management, Inc., an affiliate of ESI Energy (the "Fuel Manager"), assigned
by NE LP to NEA on January 20, 1998, and the Fuel Management Agreement, dated as
of January 20, 1998, effective retroactive to January 14, 1998 (the "NJEA Fuel
Management Agreement" and together with the NEA Fuel Management Agreement, the
"Fuel Management Agreements"), by and between NE LP and the Fuel Manager,
assigned by NE LP to NJEA on January 20, 1998, provides for the management of
all natural gas (and in the case of the NEA Fuel Management Agreement, fuel oil
supply), transportation and storage agreements and the location and purchase of
any additional required natural gas (and in the case of the NEA Fuel Management
Agreement, fuel oil), by the Fuel Manager for each of the Projects.
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Term. The term of the NEA Fuel Management Agreement extends for
twenty-five (25) years, expiring on January 14, 2023, and the term of the NJEA
Fuel Management Agreement extends for twenty-five (25) years, expiring on
January 14, 2023.
Fuel Management Services. The Fuel Manager has agreed to provide fuel
management services for the NEA Project (the "NEA Fuel Management Services") and
for the NJEA Project (the "NEA Fuel Management Services"), including without
limitation: (i) preparation and modification of fuel transportation, storage and
supply plans, (ii) transportation scheduling, transportation balancing,
transportation imbalance reconciliation, proposals and possible utilization of
excess transportation capacity through scheduling and relinquishment or possible
sales to third parties, compliance with pipeline operational orders, general
operational and planning advice, (iii) monitoring of pipeline tariff filings and
possible intervention in FERC hearings, (iv) analysis of the NEA and NJEA
Projects' fuel requirements, (v) analysis of regional supply and demand,
sources, transportation, delivery, supply mechanisms and the regulatory
structure for natural gas (and, in the case of NEA, fuel oil), (vi) screening of
proposals by natural gas and fuel oil suppliers, and if approved by NEA or NJEA,
as the case may be, negotiation and obtainment of additional supply agreements
with such suppliers, (vii) evaluation of price risk management proposals, and if
agreed to by NEA or NJEA, as the case may be, negotiation and obtainment of such
risk management arrangements, (viii) review of existing and potential
transportation and storage arrangements for natural gas and fuel oil advisement
to NEA and NJEA concerning such arrangements, and if approved by NEA or NJEA, as
the case may be, negotiation and obtainment of such additional arrangements,
(ix) advisement concerning changes in cost, reliability, interruption or other
factors affecting supply of natural gas and fuel oil, advisement on alternative
supply arrangements, and if agreed to by NEA or NJEA, as the case may be, the
negotiation and obtainment of such alternative arrangements and (x) location and
purchase of replacement gas and fuel oil or transportation services in emergency
situations.
Compensation. NEA has agreed to pay to the Fuel Manager a minimum
management fee of $450,000 per annum for the services provided under the NEA
Fuel Management Agreement (the "NEA Fuel Management Fee"), and NJEA has agreed
to pay to the Fuel Manager a minimum management fee of $450,000 per annum for
the services provided under the NJEA Fuel Management Agreement (the "NJEA Fuel
Management Fee"), each payable in monthly installments and adjusted annually in
accordance with the Producer Price Index for All Commodities, published by the
Department of Labor, Bureau of Labor Statistics. In addition to the NEA and NJEA
Fuel Management Fees, NEA and NJEA have agreed to pay to the Fuel Manager all
properly incurred costs and expenses of performing the NEA Fuel Management
Services and NJEA Fuel Management Services, respectively.
Termination. NEA may, by written notice to the Fuel Manager, terminate
the NEA Fuel Management Agreement, and NJEA may, by written notice to the Fuel
Manager, terminate the NJEA Fuel Management Agreement, if the Fuel Manager acts,
in a material way, outside the authority granted to it by NEA pursuant to the
NEA Fuel Management Agreement or by NJEA pursuant to the NJEA Fuel Management
Agreement. The Fuel Manager may, by written notice to NEA or NJEA, as the case
may be, terminate their respective Fuel Management Agreements, if the offending
party fails to make a payment thereunder within 10 days after the same shall
have become due. Either party may terminate the NEA Fuel Management Agreement or
the NJEA Fuel Management Agreement by written notice if (i) the other party
fails, for reasons other than force majeure, to perform any of the material
covenants or obligations imposed upon it under and by virtue of the NEA Fuel
Management Agreement or the NJEA Fuel Management Agreement, as the case may be,
and does not remedy or cure such default (and the effects thereof) within 30
days after such party's receipt of the non-defaulting party's written notice
thereof (or within 90 days after receipt of such notice, in the case of defaults
not susceptible of cure within 30 days, provided, however, that the defaulting
party commences and diligently seeks to cure such default within such 30 day
period), (ii) the applicable Project is destroyed or suffers damage in excess of
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$100,000,000 and is not rebuilt and in commercial operation within 24 months
after such damage or destruction, (iii) the applicable Project cannot be
operated for a period of at least 18 consecutive months as a result of a force
majeure event, (iv) the applicable Project loses its QF status or (v) NEA or
NJEA, as the case may be, determines to permanently shut down the applicable
Project.
Administrative Services Agreement
The Administrative Services Agreement dated as of November 21, 1997
between NE LP and ESI GP (the "Administrative Services Agreement") provides for
the performance by ESI GP of certain services, as summarized below, to assist
the management committee of NE LP with the management and administration of NE
LP and the Partnerships.
Term
The Administrative Services Agreement extends for a term of 20 years
expiring January 14, 2018.
Services
ESI GP's general obligations under the Administrative Services
Agreement consist of (i) leading the negotiation and administration of all
contracts to which NE LP or either of the Partnerships is a party (subject to
certain contracts with Affiliates of ESI GP) (ii) implementing the annual
budgets of each of the Partnerships, NE LP and NE LLC, and other policies and
directions provided by the Management Committee, (iii) managing the affairs of
NE LP and each of the Partnerships and (iv) administering and coordinating any
financing to which NE LP is a party. In the event emergency actions are required
and if ESI GP is unable to consult with the Management Committee, ESI GP may
make any expenditures it deems advisable to protect and safeguard life and
property with respect to the Projects.
ESI GP is also obligated to (i) administer the Fuel Management
Agreements on behalf of NE LP and the Partnerships, and monitor and supervise
the Fuel Manager's compliance therewith, (ii) administer the O&M Agreements and
the New O&M Agreements on behalf of NE LP and the Partnerships, and monitor and
supervise the Operator's and the New Operator's compliance therewith, (iii)
prepare the initial annual budgets of NE LP, NE LLC and the Partnerships for
review and approval by the Management Committee, (iv) report on the receipts and
expenditures of the NE LP, NE LLC and the Partnerships at each meeting of the
Management Committee as of a date reasonably close to the date of the meeting
and will recommend to the Management Committee any changes in the annual budgets
which it considers necessary or appropriate, (v) keep or cause to be kept
complete and accurate books, records and financial statements of NE LP and
supporting documentation of transactions with respect to the conduct of NE LP's
business and (vi) provide specified financial statements and reports to ESI GP,
Tractebel GP, ESI LP and Tractebel LP.
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Administrative Services Fee
NE LP is obligated under the contract to pay to ESI GP a fee, payable
monthly, equal to $600,000 per annum (the "Administrative Services Fee"), as
adjusted upwards or downwards by multiplying the Administrative Services Fee for
the prior year by a fraction the numerator of which will be a producer price
index reported by the Department of Labor Bureau of Labor Statistics for the
immediately preceding December and the denominator of which will be such
producer price index for the month of December one year earlier; provided that
in no event shall the Administrative Services Fee be decreased below $600,000.
Neither of the Partnerships is liable for the payment of the Administration
Services Fee.
Administrative Expenses
NE LP is obligated under the contract to pay to ESI GP all
out-of-pocket costs and expenses of performing the services under the contract.
Termination
NE LP may terminate the Administrative Services Agreement (i) upon
thirty days' notice to ESI GP if ESI GP transfers its general partner interest
in NE LP (other than to an Affiliate) or (ii) upon written notice to ESI GP if
ESI GP materially defaults in the performance of any material term, covenant or
obligation contained in the Administrative Services Agreement and does not
remedy such default within thirty days after ESI GP's receipt of NE LP's written
notice thereof to ESI GP (or within 180 days, if it cannot be reasonably
accomplished in such thirty day period and ESI GP shall diligently take all
appropriate actions to remedy such default as soon as commercially practicable
within such thirty day period), in such case NE LP shall pay to ESI GP all
amounts due and not previously paid to ESI GP for services performed in
accordance with the Administrative Services Agreement through the effective date
of such termination. ESI GP may, by written notice to NE LP, terminate the
Administrative Services Agreement if NE LP (i) fails to make any payment under
the Administrative Services Agreement within 5 days after the same shall have
become due or (ii) materially defaults in the performance of any material term,
covenant or agreement contained therein and does not remedy such default within
thirty days after NE LP's receipt of ESI GP's written notice thereof to the
Partnership (or within 180 days, if it cannot be reasonably accomplished in such
thirty day period and the Partnership shall have commenced all actions required
to remedy such default within such thirty day period). Either party may
terminate the Administrative Services Agreement by written notice to the other
party (but only with the concurrence of ESI GP in the case of termination by NE
LP) if (i) the other party is in bankruptcy or makes a general assignment for
the benefit of creditors; (ii) proceedings are commenced or steps taken for the
appointment of a receiver, custodian, liquidator, trustee or similar person with
respect to all or a substantial portion of the other party's property; or (iii)
any proceedings are commenced or steps taken by any creditor, regulatory agency
or other person relating to the reorganization, arrangement, adjustment
composition, liquidation, dissolution, winding up, custodianship or other
similar relief with respect to such other party.
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MANAGEMENT
Management Committee of NE LP
All management functions of the Partnerships are the responsibility of
NE LP. Pursuant to the NE LP Partnership Agreement, such functions are performed
by the Management Committee of NE LP. The following table lists the names and
ages of the members of the Management Committee of NE LP.
Name Age Affiliation
- ---- --------- -----------
Kenneth P. Hoffman................. 46 FPL Energy
Scot C. Hathaway................... 46 FPL Energy
Eric M. Heggeseth.................. 46 Tractebel Power
W.E. (Wes) Schattner............... 45 Tractebel Power
Kenneth P. Hoffman was appointed to the NE LP Management Committee by
ESI GP in November, 1997. Mr. Hoffman joined ESI Energy in June 1989, and since
1993 has been the Vice President of Business Management. Mr. Hoffman is
currently a Vice President of FPL Energy. Prior to joining ESI Energy, Mr.
Hoffman was employed by FPL. Mr. Hoffman holds an M.B.A. degree from Florida
International University and a B.S. degree from Rochester Institute of
Technology.
Scot C. Hathaway was appointed to the NE LP Management Committee by ESI
GP in April 1998. From November 1990 until December 1995, Mr. Hathaway was the
fuel manager and since January 1995, has been the Director, Fuels and Business
Management of Doswell Limited Partnership ("DLP"), the owner of a 665.6 MW
combined cycle, power generation facility. ESI Energy owns a controlling
interest in DLP. Mr. Hathaway holds an M.S. degree from Northwestern University
and a B.S. degree from Virginia Polytechnic Institute.
Eric M. Heggeseth was appointed to the NE LP Management Committee by
Tractebel GP in March 1998. Since 1992, Mr. Heggeseth has been a vice president
for Tractebel Power, Inc. and related entities. Mr. Heggeseth is a member of the
management committees for the following independent facilities: Hopewell
Cogeneration Facility, a 365 MW gas combined-cycle cogeneration facility in
Hopewell, Virginia; West Windsor Power Project, a 110 MW gas combined-cycle
cogeneration facility in Windsor, Ontario; Appomatox Cogeneration Facility, a 50
MW black liquor, coal and wood waste cogeneration facility in Hopewell,
Virginia; Ryegate Power Station, a 20 MW wood-fired electric facility in East
Ryegate, Vermont and Winooski One Hydro, a 7.5 MW hydro-electric facility in
Winooski, Vermont. Mr. Heggeseth holds a B.S. degree from St. Olaf College.
W.E. (Wes) Schattner was appointed to the NE LP Management Committee by
Tractebel GP in January 1998. Since 1992, Mr. Schattner has been an executive
vice president of Tractebel Power, Inc. and related entities. Mr. Schattner
currently serves on the management committees of Hopewell Cogeneration Facility,
Westwood Properties, a waste coal facility, Ryegate Power Station, Appomattox
Cogeneration Facility and West Windsor Power Project. Mr. Schattner holds a B.S.
degree from Rensselaer Polytechnic Institute.
Pursuant to the Administrative Services Agreement, ESI GP has agreed to
perform services on behalf of NE LP in connection with the management of NE LP,
the Partnerships, ESI Tractebel Funding and ESI Tractebel Acquisition. See
"Summary of Principal Project Agreements -- Administrative Services Agreement."
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EXECUTIVE COMPENSATION
None of the executive officers or directors of ESI Tractebel
Acquisition receives any compensation for his or her services. The members of
the Management Committee of NE LP are not entitled to any direct compensation
from ESI Tractebel Acquisition, ESI Tractebel Funding or the Partnerships. NE LP
is to be paid a management fee by the Partnerships, as described under "Certain
Transactions -- Management Costs."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 6, 1998, the direct and
indirect partnership interests in the Partnerships.
<TABLE>
<CAPTION>
Name and Address of Nature of Beneficial
Title of Class Beneficial Owner Ownership Percentage Interest
- -------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
General and Limited Northeast Energy LP(1)(2) General Partner 98% LP
Partnership Interest 1% GP
Limited Partnership Interest Northeast Energy LLC(1)(2) Limited Partner 1% LP
General Partnership Interest ESI GP(1)(2) General Partner in 1% GP
Northeast Energy LP
General Partnership Interest Tractebel GP(3)(4) General Partner in 1% GP
Northeast Energy LP
Limited Partnership Interest ESI LP(1)(2) Limited Partner in 49% LP
Northeast Energy LP
Limited Partnership Interest Tractebel LP(3)(4) Limited Partner in 49% LP
Northeast Energy LP
</TABLE>
- ----------------
(1) The address for each of Northeast Energy LP, Northeast Energy LLC, ESI GP
and ESI LP is c/o FPL Energy, Inc., 11760 US Highway 1, Suite 600, North
Palm Beach, Florida 33408.
(2) ESI GP and ESI LP are wholly-owned, direct subsidiaries of ESI Energy. ESI
Energy is a wholly-owned, indirect subsidiary of FPL Group, Inc.
(3) The address for each of Tractebel GP and Tractebel LP is c/o Tractebel
Power, Inc., 1177 West Loop South, Suite 900, Houston, Texas 77027.
(4) Tractebel GP and Tractebel LP are wholly-owned, direct subsidiaries of
Tractebel Power. Tractebel Power is a wholly-owned, indirect subsidiary of
Tractebel, S.A.
The following table sets forth as of May 6, 1998, the number of shares
and percentage owned of ESI Tractebel Acquisition's voting securities
beneficially owned by each Person known by ESI Tractebel Acquisition to be the
beneficial owner of more than five percent (5%) of ESI Tractebel Acquisition's
voting securities.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
Common Stock ESI Northeast Energy 10 shares 50%
Acquisition Funding, Inc.(1)
Common Stock Tractebel Power, Inc.(1) 10 shares 50%
</TABLE>
- ---------------
(1) The address for ESI Northeast Energy Acquisition Funding, Inc. is c/o
FPL Energy, Inc., 11760 US Highway 1, Suite 600, North Palm Beach,
Florida 33408 and the address for Tractebel Power, Inc. is 1177 West
Loop South, Suite 900, Houston, Texas 77027.
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CERTAIN TRANSACTIONS
Management Costs
Fees payable by the Partnerships to NE LP are limited to the Management
Costs permitted under the Project Indenture, which consists of four components:
(i) out-of-pocket costs payable to third parties (including allocated rent and
independent legal, consulting and accounting fees and expenses), (ii) general
administrative expenses allocable to the Projects, (iii) compensation (including
salary and related benefits) of individuals and (iv) for each calendar year, an
amount equal to $3,500,000, $1,500,000 of which is the Subordinated Management
Fee (each such amount inflated annually in accordance with the Project
Indenture). All costs identified in clauses (i), (ii) and (iii) may be included
as part of the Management Costs and paid from Project Revenues only to the
extent such costs are certified by the Partnerships as being reasonably
allocable to the Projects. The amounts described in clause (iv) for the year
ending December 31, 1997 and 1996 were approximately $3,758,000 and $3,688,000,
respectively, and are subject to escalation as set forth in the Project
Indenture.
Administrative Services Fee
As compensation to ESI GP for the services it performs pursuant to the
Administrative Services Agreement, NE LP has agreed to pay to ESI GP a fee,
payable monthly, equal to $600,000 per annum, adjusted annually based on a
producer price index (the "Administrative Services Fee"), provided that in no
event is the Administrative Services fee to be decreased below $600,000. Neither
of the Partnerships is liable for the Administrative Services Fee. See "Summary
of Principal Project Agreements -- Administrative Services Agreement."
New O&M Fees
The New Operator, an Affiliate of NE LP, currently is providing certain
oversight and transition services for the Projects and will provide operation
and maintenance services for the Projects following the expiration or early
termination of the O&M Agreements, pursuant to each of the New O&M Agreements.
As compensation for such services, NE LP has agreed under each of the New O&M
Agreements to pay to the New Operator a fee of $750,000 per annum ($1,500,000
per annum in the aggregate), payable monthly and adjusted annually based on a
producer price index (the "New O&M Fees"). In addition, NE LP has agreed to pay
to the New Operator all properly incurred costs and expenses of performing the
transition services and the operation and maintenance services. NE LP expects
that combined operations and maintenance costs for both Projects will be reduced
by approximately $6.5 million per year after 2001, when the O&M Agreements for
the Projects expire. Neither of the Partnerships is liable for the New O&M Fees
prior to the applicable Operating Period Commencement Date. See "Summary of
Principal Project Agreements -- New O&M Agreements."
Fuel Management Fees
The Fuel Manager, an affiliate of FPL Energy, currently is providing
certain fuel management services for the Projects, pursuant to each of the Fuel
Management Agreements. As compensation for such services, each of NEA and NJEA
has agreed to pay to the Fuel Manager a fee under the NEA Fuel Management
Agreement and the NJEA Fuel Management Agreement, respectively, of $450,000 per
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annum, payable monthly and adjusted annually based on a producer price index
(the "NEA Fuel Management Fee" and the "NJEA Fuel Management Fee,"
respectively), provided that neither of such Fuel Management Fees is to be
decreased below $450,000. See "Summary Of Principal Project Agreements -- Fuel
Management Agreements."
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Exchange Offer is being made by ESI Tractebel Acquisition and NE LP
to satisfy their obligations pursuant to the Registration Rights Agreement,
which requires ESI Tractebel Acquisition and NE LP to use their best efforts to
effect the Exchange Offer under the 1933 Act. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Based on an interpretation of the staff of the SEC set forth in
no-action letters issued to third parties in circumstances substantially the
same as those applicable here, ESI Tractebel Acquisition believes that New
Securities issued pursuant to the Exchange Offer in exchange for Old Securities
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchases such New Securities directly from
the Company to resell pursuant to Rule 144A or any other available exemption
under the 1933 Act or (ii) any such holder which is an "affiliate" of ESI
Tractebel Acquisition or NE LP within the meaning of Rule 405 under the 1933
Act) without compliance with the registration and prospectus delivery provisions
of the 1933 Act provided that such New Securities are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Securities. Any broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. Although there
has been no indication of any change in the staff's position, there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the resale of the New Securities. A letter accompanying the New
Securities to be delivered to each holder of the Old Securities pursuant to the
Exchange Offer will state that, by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
1933 Act. This Prospectus, as it may be amended or supplemented from time to
time, may be used by broker-dealers in connection with the resale of New
Securities received in exchange for Old Securities where such Old Securities
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. ESI Tractebel Acquisition has agreed that for a period
of up to one year after the date of the consummation of the Exchange Offer, it
will use its best efforts to cause the Registration Statement, of which this
Prospectus is a part, to remain continuously effective. See "Plan of
Distribution."
Terms of the Exchange Offer; Period for Tendering Old Securities
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), ESI Tractebel Acquisition will exchange the
New Securities for the Old Securities which are properly tendered on or prior to
the Expiration Date and not withdrawn as permitted below. As used herein, the
term "Expiration Date" means 5:00 p.m. New York City time, on ________, 1998;
provided, however, if ESI Tractebel Acquisition, in its sole discretion, has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended; provided, further that in no event will the Exchange Offer be extended
beyond ____, 1998.
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<PAGE>
As of the date of this Prospectus, $220,000,000 in aggregate principal
amount of the Old Securities are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent as of the date of this Prospectus, to all
registered holders of the Old Securities known to ESI Tractebel Acquisition. ESI
Tractebel Acquisition's obligation to accept the Old Securities for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
below under "-- Certain Conditions to the Exchange Offer".
ESI Tractebel Acquisition may extend the Exchange Offer at any time or
from time to time by giving oral or written notice to the Exchange Agent and by
timely public announcement. Without limiting the manner in which ESI Tractebel
Acquisition may choose to make any public announcement and subject to applicable
law, ESI Tractebel Acquisition shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency. During any such extension, all Old
Securities previously tendered will remain subject to the Exchange Offer, and
may be accepted for exchange.
The terms of the Old Securities and the New Securities are identical in
all material respects, except for certain transfer restrictions and registration
rights relating to the Old Securities and certain rights to receive Registration
Default Damages. See "-- Registration Rights; Registration Default Damages." The
Old Securities were, and the New Securities will be, issued under the Indenture
and both the Old Securities and the New Securities are entitled to the benefits
of the Indenture.
ESI Tractebel Acquisition expressly reserves the right to amend or
terminate the Exchange Offer and not to accept for exchange any Old Securities
not theretofore accepted for exchange upon the occurrence of any of the
conditions of the Exchange Offer specified below under "-- Certain Conditions to
the Exchange Offer." To the extent the Exchange Offer is terminated, the Old
Securities not accepted for exchange will be returned without expense to the
tendering holder as promptly as practicable after the termination of the
Exchange Offer. ESI Tractebel Acquisition will give oral or written notice of
any extension, amendment, non-acceptance, or termination to the registered
holders of the Old Securities as promptly as practicable, such notice in the
case of any extension to be issued no later than 9:00 a.m., New York City time,
on the next business day following the previously scheduled Expiration Date. For
purposes of the Exchange Offer, a "business day" means any day other than a
Saturday, Sunday, or federal holiday and consists of the time period from 12:01
a.m. through Midnight, New York City time.
Registration Rights; Registration Default Damages
In connection with the issuance of the Old Securities, ESI Tractebel
Acquisition and NE LP entered into the Registration Rights Agreement with
Goldman.
Holders of New Securities (other than as set forth below) are not
entitled to any registration rights with respect to the New Securities. Pursuant
to the Registration Rights Agreement, holders of Old Securities are entitled to
certain registration rights. Under the Registration Rights Agreement, ESI
Tractebel Acquisition and NE LP have agreed, for the benefit of the holders of
the Old Securities, that they will, at their cost, (i) within 90 days after
February 19, 1998, file the Registration Statement with the SEC and (ii) within
180 days after February 19, 1998, use their best efforts to cause such
Registration Statement to be declared effective under the 1933 Act. The
Registration Statement of which this Prospectus is a part constitutes the
Registration Statement. If (i) ESI Tractebel Acquisition and NE LP are not
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or SEC policy or (ii) any holder of Transfer
Restricted Bonds (as defined) notifies ESI Tractebel Acquisition within the
specified time period that (A) such holder is prohibited by law or SEC policy
from participating in the Exchange Offer, (B) such holder may not resell the New
Securities acquired by it in the Exchange Offer to the public without delivering
a prospectus and this Prospectus is
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not appropriate or available for such resales by such holder or (C) such holder
is a broker-dealer and acquired the Old Securities directly from ESI Tractebel
Acquisition or an Affiliate of ESI Tractebel Acquisition, ESI Tractebel
Acquisition and NE LP will file with the SEC the Shelf Registration Statement to
cover resales of the Transfer Restricted Bonds by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. ESI Tractebel Acquisition and
NE LP will use their best efforts to cause the applicable registration statement
to be declared effective as promptly as possible by the SEC. For purposes of the
foregoing, "Transfer Restricted Bonds" means each Old Security, until the
earliest to occur of (i) the date on which such Transfer Restricted Bonds has
been exchanged in the Exchange Offer and entitled to be resold to the public by
the holder thereof without complying with the prospectus delivery requirements
of the 1933 Act, (ii) following the exchange by a broker-dealer in the Exchange
Offer of a Transfer Restricted Bond for a New Security, the date on which such
New Security is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the Prospectus contained in the
Registration Statement, (iii) the date on which such security has been
effectively registered under the 1933 Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such security is
distributed pursuant to Rule 144 under the 1933 Act.
The Registration Rights Agreement also provides that, (i ) unless the
Exchange Offer would not be permitted by applicable law or SEC policy, ESI
Tractebel Acquisition and NE LP will commence the Exchange Offer and use their
best efforts to issue on or prior to 30 business days after the date on which
the Registration Statement was declared effective by the SEC, New Securities in
exchange for all Transfer Restricted Bonds tendered prior thereto in the
Exchange Offer and (ii) if obligated to file the Shelf Registration Statement,
ESI Tractebel Acquisition and NE LP will file the Shelf Registration Statement
with the SEC on or prior to 30 days after such filing obligation arises and use
their best efforts to keep such Shelf Registration Statement continuously
effective, supplemented and amended until the second anniversary of the date on
which the Shelf Registration Statement becomes effective or such shorter period
that will terminate when all the Transfer Restricted Bonds covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. If (a) ESI Tractebel Acquisition and NE LP fail to file any of the
registration statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such registration
statements are not declared effective by the SEC on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
effective date of the Registration Statement, or (d) the Shelf Registration
Statement or the Registration Statement is declared effective but thereafter,
subject to certain exceptions, ceases to be effective or usable in connection
with resales of Transfer Restricted Bonds during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Registration Default Damages to each holder of Transfer Restricted Bonds, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week for each $1,000
principal amount of Transfer Restricted Bonds held by such holder. The amount of
the Registration Default Damages will increase by an additional $.05 per week
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Registration Default Damages of $.50
per week for each $1,000 principal amount of Transfer Restricted Bonds, as
applicable. Following the cure of all Registration Defaults, the accrual of
Registration Default Damages will cease.
Holders of Transfer Restricted Bonds will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Agreement in order to have their Transfer
Restricted Bonds included in the Shelf Registration Statement and benefit from
the provisions regarding Registration Default Damages set forth above.
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Procedures for Tendering Old Securities
The tender to ESI Tractebel Acquisition of Old Securities by a holder
as set forth below and the acceptance thereof by ESI Tractebel Acquisition will
constitute a binding agreement between the tendering holder and ESI Tractebel
Acquisition upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, and all other
documents required by such Letter of Transmittal. Except as set forth below, a
holder who wishes to tender Old Securities for exchange pursuant to the Exchange
Offer must transmit the Old Securities, together with a properly completed and
duly executed Letter of Transmittal, and all other documents required by such
Letter of Transmittal, by overnight courier or hand delivery or by mail to State
Street Bank and the Trust Company (the "Exchange Agent") at one of the addresses
set forth below under "Exchange Agent", on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Securities must be received by
the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Securities, if such procedure is available, into the Exchange Agent's account at
The Depository Trust Company ("DTC") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF THE OLD SECURITIES,
LETTERS OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO ESI TRACTEBEL
ACQUISITION OR NE LP.
Each signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Securities surrendered for
exchange pursuant thereto are tendered (i) by a registered holder who has not
completed either the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) by
an Eligible Institution (as defined below). In the event that a signature on a
Letter of Transmittal or a notice of withdrawal, as the case may be, is required
to be guaranteed, such guaranty must be by a firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States or by such other "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Old Securities are registered in
the name of the person other than the signer of the Letter of Transmittal, the
Old Securities surrendered for exchange must either (i) be endorsed by the
registered holder, with a signature thereon guaranteed by an Eligible
Institution, or (ii) be accompanied by a bond power, duly executed by the
registered holder, with a signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the Old
Securities means any person in whose name the Old Securities are registered on
the books of the Trustee, which is currently the Security Registrar for the
Securities, or, in the case of book-entry Old Securities, any participant in
DTC's system whose name appears on a security position listing as the holder of
such Old Securities.
Tenders may be made in principal amounts of $100,000 and integral
multiples of $1,000 in excess thereof. Subject to the foregoing, holders may
tender less than the aggregate principal amounts represented by the Old
Securities deposited with the Exchange Agent provided they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Securities.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Old Securities tendered for exchange
will be determined by ESI Tractebel Acquisition
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in its sole discretion, which determination shall be final and binding. ESI
Tractebel Acquisition reserves the absolute right to reject any and all tenders
of any of the Old Securities not properly tendered or to reject any of the Old
Securities, the acceptance of which might, in the judgment of ESI Tractebel
Acquisition or its counsel, be unlawful. ESI Tractebel Acquisition also reserves
the absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer as to any of the Old Securities either before,
on or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender the Old Securities in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions thereto) by ESI Tractebel Acquisition
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Securities for exchange must be
cured within such time as ESI Tractebel Acquisition shall determine. Neither ESI
Tractebel Acquisition, the Exchange Agent, NE LP, nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
lenders of Old Securities for exchange, nor shall any of them incur any
liability for failure to give such notification. Tenders of the Old Securities
will not be deemed to have been made until such irregularities have been cured
or waived.
If any Letter of Transmittal, endorsement, bond power or other document
required by the Letter of Transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by ESI Tractebel Acquisition, proper
evidence satisfactory to ESI Tractebel Acquisition of such person's authority to
so act must be submitted.
Each holder that tenders the Old Securities in the Exchange Offer will
be required to represent to ESI Tractebel Acquisition that (i) the New
Securities to be acquired by such holder are being acquired in the ordinary
course of such holder's business, (ii) such holder has no intent or arrangement
with any person to participate in the "distribution" of the New Securities
within the meaning of the 1933 Act and (iii) that such holder is not an
"affiliate" of ESI Tractebel Acquisition or NE LP as defined in Rule 405
promulgated under the 1933 Act.
Acceptance of the Old Securities for Exchange, Delivery of New Securities
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, ESI Tractebel Acquisition will, promptly after the Expiration Date,
accept all the Old Securities properly tendered and will promptly thereafter
issue the New Securities. See "-- Certain Conditions to the Exchange Offer". For
purposes of the Exchange Offer, ESI Tractebel Acquisition shall be deemed to
have accepted Old Securities that are tendered for exchange when, as and if ESI
Tractebel Acquisition has given oral or written notice thereof to the Exchange
Agent, with written confirmation of any oral notice to be given promptly
thereafter. The Exchange Agent will act as agent for the tendering holders of
Old Securities for the purposes of receiving the New Securities from ESI
Tractebel Acquisition and delivering the New Securities to such holders.
The form and terms of the New Securities will be identical to the form
and terms of the Old Securities, except for certain changes to such forms to
reflect the consummation of the Exchange Offer. The New Securities will bear
interest from the last interest payment date of the Old Securities. Holders
whose Old Securities are accepted for exchange will not receive interest on such
Old Securities for any period subsequent to the last interest payment date of
the Old Securities to occur prior to the issue date of the New Securities and
will be deemed to have waived the right to receive any payment in respect of
interest on the Old Securities accrued from and after such interest payment
date. See "Description of Securities".
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In all cases, issuance of the New Securities for Old Securities that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of the Old Securities, a properly completed
and executed Letter of Transmittal and all other required documents; provided,
however, that ESI Tractebel Acquisition reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Securities are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or if the Old Securities are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted Old Securities or substitute Old Securities evidencing the
unaccepted portion, as appropriate, will be returned (or, in the case of Old
Securities tendered by book entry transfer through DTC, will be credited to an
account maintained with DTC) without expense to the tendering holder as promptly
as practicable after the rejection of tender or the Expiration Date.
Exchanging Book-Entry Old Securities
The Exchange Agent and DTC have confirmed that any financial
institution that is a participant in DTC's system (a "Participant") may utilize
DTC's Automated Tender Offer Program ("ATOP") to tender Old Securities.
The Exchange Agent will request that DTC establish an account with
respect to the Old Securities for purposes of the Exchange Offer within two
business days after the date of this Exchange Offer. Any Participant may make
book-entry delivery of Old Securities by causing DTC to transfer such Old
Securities into such Exchange Agent's account in accordance with DTC's ATOP
procedures for transfer. However, the exchange for the Old Securities so
tendered will only be made after timely confirmation ( a "Book-Entry
Confirmation") of such book-entry transfer of Old Securities into the Exchange
Agent's account, and timely receipt by the Exchange Agent of the Letter of
Transmittal, and any other documents required by the Exchange Agent and forming
part of a Book-Entry Confirmation, which states that DTC has received an express
acknowledgement from a Participant tendering Old Securities which are the
subject of such Book-Entry Confirmation that such Participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and that ESI
Tractebel Funding may enforce such agreement against such Participant.
The method of delivery of Old Securities is at the option and risk of
the tendering holder and, except as otherwise provided in the Letter of
Transmittal, the delivery will be deemed to be made only when actually received
by the Exchange Agent.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Securities and (i) whose Old
Securities are not immediately available, (ii) who cannot deliver their Old
Securities, the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date or (iii) who cannot comply with the
procedures for book entry tender on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution:
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of the Old Securities, the certificate number or
numbers of such Old Securities (except in the case of book-entry tenders) and
the principal amount of Old Securities tendered (regardless of the means of
tendering); stating that the tender is being made thereby and guaranteeing that,
within five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with Old Securities to be
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tendered in proper form for transfer and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), all tendered Old Securities in proper form for transfer (or
a Book-Entry Confirmation with respect to such Old Securities) and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within five New York Stock Exchange trading days after the Expiration
Date.
Withdrawal Rights
Tenders of Old Securities may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must
be received by the Exchange Agent at the address set forth below prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Securities to
be withdrawn (the "Depositor"), (ii) identify the Old Securities to be withdrawn
(including the certificate number or numbers and principal amount of the Old
Securities), (iii) be signed in the same manner required for the Letter of
Transmittal by which such Old Securities were tendered (including any required
signature guarantees, endorsements, and/or bond powers) and (iv) specify the
name in which any such Old Securities are to be registered if different from
that of the Depositor. If the Old Securities have been tendered pursuant to the
procedure for book-entry tender set forth above under "-- Exchanging Book-Entry
Old Securities", a notice of withdrawal must specify, in lieu of certificate
numbers, the name and account number at DTC to be credited with the withdrawn
Old Securities. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by ESI Tractebel
Acquisition, whose determinations shall be final and binding on all parties. Any
Old Securities so withdrawn, if any, will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Securities
which have been tendered for exchange but which are withdrawn will be returned
to the holder without cost to such holder as soon as practicable after
withdrawal. Properly withdrawn Old Securities may be tendered by following one
of the procedures described under "-- Procedures for Tendering Old Securities"
above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, ESI
Tractebel Acquisition shall not be required to accept for exchange, or to issue
the New Securities in exchange for, any Old Securities and may terminate or
amend the Exchange Offer, if at any time before the acceptance of the Old
Securities for exchange or the exchange of the Old Securities for the New
Securities, any of the following events shall occur which occurrence, in the
sole judgment of ESI Tractebel Acquisition and regardless of the circumstances
(including any action by ESI Tractebel Acquisition) giving rise to any such
event, makes it inadvisable to proceed with the Exchange Offer or with such
acceptance for exchange or with such exchange:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order, or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of ESI
Tractebel Acquisition to accept for exchange all or some of the Old Securities;
or any statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any domestic or
foreign government or governmental authority or any action shall have been
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taken, proposed or threatened by any domestic or foreign government or
governmental authority or agency or court, that, in the sole judgment of ESI
Tractebel Acquisition, might directly or indirectly result in any of the
consequences referred to in clause (i) or (ii) above or, in the sole judgment of
ESI Tractebel Acquisition, might result in the holders of the New Securities
having obligations with respect to resales and transfers of New Securities that
are greater than those described in the interpretation of the SEC referred to on
the cover page of this Prospectus or would otherwise make it inadvisable to
proceed with the Exchange Offer;
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for or trading in, securities on any national securities
exchange or the over-the-counter market, (ii) any limitation by any governmental
agency or authority which adversely affects the ability of ESI Tractebel
Acquisition to complete the transactions contemplated by the Exchange Offer,
(iii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any governmental
agency or authority which adversely affects the extension of credit, or (iv) a
commencement of a war, armed hostilities, or other similar international
calamity directly or indirectly involving the United States, or in the case of
any of the foregoing existing at the time of the commencement of the Exchange
Offer, a material escalation or worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of ESI Tractebel Acquisition, NE LP or either of the Partnerships that, in the
sole judgment of ESI Tractebel Acquisition, is or may have adverse significance
with respect to the values of the Old Securities or the New Securities.
The foregoing conditions are for the sole benefit of ESI Tractebel
Acquisition and may be asserted by ESI Tractebel Acquisition regardless of the
circumstances giving rise to any such condition or may be waived by ESI
Tractebel Acquisition in whole or in part at any time and from time to time in
its sole discretion. The failure by ESI Tractebel Acquisition at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by ESI Tractebel
Acquisition concerning the events described above will be final and binding upon
all parties.
In addition, ESI Tractebel Acquisition will not accept for exchange any
Old Securities tendered, and no New Securities will be issued in exchange for
any such Old Securities, if at such time any stop order shall be threatened or
in effect with respect to the Registration Statement or the qualifications of
the Indenture under the Trust Indenture Act of 1939.
If any of the conditions described above exist, ESI Tractebel
Acquisition will refuse to accept any Old Securities and will promptly return
(or, in the case of Old Securities tendered by book-entry transfer through DTC,
will promptly credit to an account maintained with DTC) all tendered Old
Securities to exchanging holders of the Old Securities.
Exchange Agent
State Street Bank and the Trust Company has been appointed as the
Exchange Agent for the Exchange Offer. The Exchange Agent also acts as Trustee
under the Indenture. All executed Letters of Transmittal and Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the addresses
set forth below. Questions and requests for assistance, requests for additional
copies of this Prospectus or for the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
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Deliver to: State Street Bank and Trust Company, Exchange Agent:
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------- --------------------------------------
By Hand Delivery: By Overnight Courier By Mail:
----------------- -------------------- --------
<S> <C> <C>
State Street Bank and Trust Company State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place Two International Place, 4th Floor P.O. Box 778
Fourth Floor Boston, Massachusetts 02110 Boston, Massachusetts 02110
Corporate Trust Window
Boston, Massachusetts 02110
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Fees and Expenses
ESI Tractebel Acquisition will not make any payment to brokers, dealers
or others soliciting acceptances of the Exchange Offer. ESI Tractebel
Acquisition will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. ESI Tractebel Acquisition will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of the Old Securities and in handling tenders
for their customers. The expenses to be incurred in connection with the Exchange
Offer, including the fees and expenses of the Exchange Agent and printing,
accounting, registration and legal fees, will be paid by ESI Tractebel
Acquisition and are estimated to be approximately $500,000.
Transfer Taxes
Holders who tender their Old Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct ESI Tractebel Acquisition to register New Securities in the name
of, or request that Old Securities not tendered or not accepted in the Exchange
Offer be returned to, a person other than the registered tendering holder will
be responsible for the payment of any applicable transfer tax thereon.
Appraisal Rights
HOLDERS OF OLD SECURITIES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
Consequences of Failure to Exchange
Holders of Old Securities who do not exchange their Old Securities for
New Securities pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Securities as set forth in the legend
thereon as a consequence of the issuance of the Old Securities pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the 1933 Act and applicable state securities laws. In general,
the Old Securities may not be offered or sold, unless registered under the 1933
Act, except pursuant to an exemption from, or in a transaction not subject to,
the 1933 Act and applicable state securities laws. ESI Tractebel Acquisition
does not currently anticipate that it will register the Old Securities under the
1933 Act. Based on interpretations by the staff of the SEC set forth in certain
no-action letters addressed to other parties in other transactions, New
Securities
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issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such New Securities directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the 1933 Act or (ii) any such
holder which is an "affiliate" of ESI Tractebel Acquisition or NE LP within the
meaning of Rule 405 under the 1933 Act) without compliance with the registration
and prospectus delivery provisions of the 1933 Act provided that such New
Securities are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in the
distribution of such New Securities. If any holder has any arrangement or
understanding with respect to the distribution of the New Securities to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the 1933 Act in connection
with a secondary resale transaction. In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Securities may not be
offered or sold unless they have been registered or qualified for sale in such
jurisdiction pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the New Securities
for offer or sale under the securities or blue sky laws of such jurisdictions as
any holder of the Securities reasonably requests in writing. Upon consummation
of the Exchange Offer, due to the restriction on transfer of the Old Securities
described above and the absence of such restriction applicable to the New
Securities (subject to the qualifications described above), it is likely that
the market, if any, for Old Securities will be relatively less liquid than the
market for New Securities.
DESCRIPTION OF SECURITIES
General
The New Securities are identical in all material respects to the Old
Securities. The only significant difference is that the New Securities are
registered pursuant to the 1933 Act and thus are not subject to Registration
Default Damages. The New Securities are to be issued under the same Indenture
under which the Old Securities have been issued. The following summary of the
material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the Indenture and the
Pledge Agreements have been filed as exhibits to the Registration Statement. See
"Available Information." The definitions of certain terms used in the following
summary are set forth below under the caption "-- Certain Definitions."
NE LP has unconditionally guaranteed the payment of the principal of
premium, if any, interest and Registration Default Damages, if any, on the
Securities pursuant to the Bond Guaranty executed and delivered to the Trustee.
The Securities will rank senior in right of payment to all subordinated
Indebtedness, if any, of ESI Tractebel Acquisition incurred in the future and
will rank pari passu in right of payment with all senior Indebtedness, if any,
of ESI Tractebel incurred in the future. Payment of the Securities will be
secured by: (a) a perfected, first priority pledge of (i) 100% of the partner
interests of NE LP, (ii) 100% of the member interests in NE LLC and (iii) NE
LP's 98% limited partner interest in each of the Partnerships and NE LLC's one
percent limited partner interest in each of the Partnerships, which will
include, among other things, all rights to receive distributions with respect to
the respective partner interests (such distributions to be made directly to the
Trustee by the Project Trustee (after taking into consideration the terms and
conditions set forth in the Project Indenture) and deposited into the Revenues
Account); (b) a second priority pledge of the one percent general partner
interest in each of the Partnerships (the first priority pledge of such general
partner interest securing the obligations of the Partnerships in respect of the
Project Indebtedness, which pledge will include, among other things, a pledge of
all of NE LP's rights to receive distributions with respect to its general
partner interest (such distributions to be made directly to the Trustee as
described in clause (a)(iii) immediately above); (c) a perfected, first priority
pledge of the Note evidencing NE LP's obligation to repay the Bond Loan; (d) a
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perfected, first priority lien on the funds in the Accounts (as defined below);
and (e) a perfected, first priority pledge of all of the outstanding Capital
Stock of ESI Tractebel Acquisition.
The Securities are payable solely from payments to be made by NE LP
under the Note and from other moneys that may be available from time to time in
the Accounts (as defined below) held by the Trustee. NE LP's obligations to make
payments under the Note are non-recourse to the direct and indirect owners of NE
LP (including ESI Energy and Tractebel Power). Except as described below under
the caption "-- Acceptable Credit Support," neither the Partners nor any of the
direct or indirect owners of the Partners will be obligated to contribute
additional funds if moneys in the Accounts are insufficient for the payment of
debt service in respect of the Securities. So long as any of the Project
Indebtedness is outstanding, distributions to NE LP and NE LLC from the
Partnerships will constitute "Restricted Payments" under and as defined in the
Project Indenture and may be paid only from and to the extent of amounts then on
deposit with the Project Trustee in the Partnership Distribution Fund under the
Project Indenture. Transfers to the General Subfund of the Partnership
Distribution Fund may be made only upon satisfaction of several conditions,
including among others, that (i) the amount then on deposit in all of the other
funds under the Project Indenture are equal to or exceed the amounts then
required to be on deposit therein; (ii) no Default or Event of Default (as
defined in the Project Indenture) has occurred and is continuing; (iii) no Debt
is outstanding under the Working Capital Facility; (iv) either the Debt Service
Coverage Ratio for the Rolling Prior Year or the Substitute Debt Service
Coverage Ratio for the Rolling Prior Year (each as defined in the Project
Indenture) is equal to or exceeds 1.25:1; and (v) the Partnerships have no
knowledge of any event or circumstance that could reasonably be expected to
result in the Debt Service Coverage Ratio for the following two consecutive
fiscal quarters, treated as a single period, being less than 1.25:1. See
"Outstanding Project Indebtedness -- Flow of Funds" for a more detailed
description of the flow of funds under the Project Indenture and of the
conditions that must be satisfied prior to any distributions to NE LP and NE LLC
from the General Subfund of the Partnership Distribution Fund.
Except as otherwise permitted by the Indenture, NE LP and NE LLC will
hold all of the partner interests of NEA and NJEA. All revenues actually
received by NE LP and NE LLC from any source (other than the Released Cash
Collateral (as defined below), the payment of Management Costs and the
Non-Operating Revenues), including distributions from NEA and NJEA (other than
distributions constituting Non-Operating Revenues), and any earnings from funds
deposited in the Accounts (as defined below), will constitute "Operating
Revenues." The proceeds of any financing undertaken by NE LP, NE LLC or ESI
Tractebel Acquisition, distributions made by the Partnerships to NE LP or NE LLC
with the proceeds of any financing or with funds required to be used for the
extraordinary mandatory redemption of the Securities as described under the
caption "--Extraordinary Mandatory Redemption" and any other extraordinary
revenues (including any buyout or similar payment made to a Partnership under
any Power Purchase Agreement) will constitute "Non-Operating Revenues" (together
with the Operating Revenues, the "Revenues"). Any cash obtained from the
Partnerships by the Sponsors, NE LP or NE LLC at or following the Acquisitions
due to the release of cash collateral and the substitution therefor of
alternative collateral pursuant to the Project Indenture (the "Released Cash
Collateral") and any payment of Management Costs (as defined in the Project
Indenture as in effect on the date of the Indenture) will not (a) be subject to
the lien of the Collateral Documents, (b) be deposited in the Accounts or (c)
constitute Revenues. The Indenture will provide for the allocation of Revenues
and for the establishment and maintenance of a Revenues Account, a Debt Service
Account, a Debt Service Reserve Account and a Distribution Account
(collectively, the "Accounts"). All Revenues will be paid into the Revenues
Account, from which funds will be transferred on a monthly basis in the order of
priority set forth below under the caption "-- Flow of Funds." The Trustee will
be required to apply amounts in the Debt Service Account to make payments on the
Securities when due.
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Payments in respect of the Note and, therefore, in respect of the
Securities will be effectively subordinated to payment of all Indebtedness and
other liabilities and commitments (including trade payables and lease
obligations) of NEA and NJEA, including the guarantee by NEA and NJEA of the
Project Indebtedness. Any right of NE LP and NE LLC to receive the assets of any
of their Subsidiaries (including NEA and NJEA) upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Securities to
participate in those assets) will be effectively subordinated to the claims of
such Subsidiaries' creditors (including the holders of the Project
Indebtedness), except to the extent that NE LP or NE LLC are themselves
recognized as creditors of such Subsidiaries, in which case the claims of NE LP
and NE LLC would still be subordinate to any security in the assets of such
Subsidiaries and any Indebtedness of such Subsidiaries senior to the
Indebtedness held by NE LP and NE LLC. On December 31, 1997, after giving pro
forma effect to the Acquisitions and the Offering, NE LP would have had
approximately $860,305,000 of long-term Indebtedness outstanding. See "Risk
Factors -- Holding Company Structure; Dependence upon Operations of Projects"
and "Risk Factors -- Substantial Leverage."
Security
Payment of the Securities will be secured by, among other things, a
perfected, first priority pledge by NE LP and NE LLC of their respective limited
partner interests in NEA and NJEA and a second priority pledge by NE LP of its
general partner interest in NEA and NJEA. Such pledges by NE LP and NE LLC will
include, among other things, all of their rights to receive distributions from
NEA and NJEA. All such distributions are to be made directly to the Trustee by
the Project Trustee and deposited into the Revenues Account and the sub-accounts
thereof. See "-- Flow of Funds."
ESI Tractebel Acquisition, NE LP and NE LLC will be subject to a Pledge
Agreement (the "Issuer and Partner Pledge Agreement") providing for (a) the
perfected, first priority pledge by NE LP to the Trustee as collateral agent (in
such capacity, the "Collateral Agent"), for the benefit of the Trustee and the
holders of the Securities, of (i) NE LP's 100% member interest in NE LLC and
(ii) NE LP's 98% limited partner interest in each of NEA and NJEA; (b) the
second priority pledge by NE LP to the Collateral Agent, for the benefit of the
Trustee and the Holders of the Securities, of NE LP's one percent general
partner interest in each of NEA and NJEA; (c) the perfected, first priority
pledge by NE LLC to the Collateral Agent, for the benefit of the Trustee and the
Holders of the Securities, of NE LLC's one percent limited partner interest in
each of NEA and NJEA; (d) the perfected, first priority pledge by ESI Tractebel
Acquisition to the Collateral Agent, for the benefit of the Trustee and the
Holders of the Securities, of the Note evidencing the Bond Loan. The Indenture
will provide for a perfected, first priority lien on the Accounts and all funds
deposited therein granted to the Trustee, for the benefit of the Collateral
Agent, the Trustee and the holders of the Securities, by NE LP and NE LLC.
In addition, the Sponsor Pledgors (as defined herein) are subject to a
pledge agreement (the "Sponsor Pledge Agreement") providing for (a) the
perfected, first priority pledge by each of ESI Northeast Energy GP, Inc., ESI
Northeast Energy LP, Inc., Tractebel Associates Northeast LP, Inc. and Tractebel
Northeast Generation GP, Inc. (collectively, the "Sponsor Pledgors") to the
Collateral Agent for the benefit of the Collateral Agent, the Trustee and the
holders of the Securities, of all of such Sponsor Pledgors' partner interests in
NE LP and (b) a perfected, first priority pledge by each owner of ESI Tractebel
Acquisition to the Collateral Agent, for the benefit of the Collateral Agent,
the Trustee and the holders of the Securities, of all of the outstanding Capital
Stock of ESI Tractebel Acquisition. The Indenture and the Pledge Agreements will
secure the payment and performance when due of all of the Obligations of ESI
Tractebel Acquisition under the Indenture and the Securities, of NE LP and NE
LLC under the Indenture and of NE LP under the Note and the Bond Guaranty, as
provided in the Indenture and the Pledge Agreements.
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So long as no Default or Event of Default has occurred and is
continuing, and subject to certain terms and conditions in the Indenture and the
Pledge Agreements, all Revenues will be allocated to the appropriate Accounts in
the manner described under the caption "-- Flow of Funds." Upon the occurrence
and during the continuance of a Default or Event of Default, (a) all rights of
NE LP and NE LLC and the owners thereof and of ESI Tractebel Acquisition to
exercise any voting or other consensual rights in respect of the pledged
Collateral will cease, and all such rights will become vested in the Trustee,
which, to the extent permitted by law, will have the sole right to exercise such
voting and other consensual rights, (b) the Trustee may sell the pledged
Collateral or any part thereof in accordance with the terms of the Collateral
Documents and (c) the Trustee shall have all rights of a "secured party" under
the Uniform Commercial Code of the State of New York. All funds distributed
under the Pledge Agreements and the Indenture and received by the Trustee for
the benefit of the holders will be distributed by the Trustee in accordance with
the provisions of the Indenture.
Under the terms of the Collateral Documents, the Trustee will determine
the circumstances and manner in which the Collateral will be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Collateral from the Liens created by the Collateral Documents
and whether to foreclose on the Collateral following a Default or Event of
Default. Upon the full and final payment and performance of all Obligations in
respect of the Bond Loan, the Indenture and the Securities, the Collateral
Documents will terminate and the Collateral will be released.
Principal, Maturity and Interest
The Securities will be limited in aggregate principal amount to
$220,000,000 and will mature on December 30, 2011. Principal of the Securities
will be payable in semi-annual installments to the holders thereof as follows:
Scheduled Payment Date Principal Amount Payable
---------------------- ------------------------
June 30, 1998........... $ 0
December 30, 1998....... 0
June 30, 1999........... 0
December 30, 1999....... 0
June 30, 2000........... 0
December 30, 2000....... 0
June 30, 2001........... 0
December 30, 2001....... 0
June 30, 2002........... 4,400,000
December 30, 2002....... 4,400,000
June 30, 2003........... 4,400,000
December 30, 2003....... 4,400,000
June 30, 2004........... 4,400,000
December 30, 2004....... 4,400,000
June 30, 2005........... 4,400,000
December 30, 2005....... 4,400,000
June 30, 2006........... 6,600,000
December 30, 2006....... 6,600,000
June 30, 2007........... 11,000,000
December 30, 2007....... 11,000,000
June 30, 2008........... 11,000,000
December 30, 2008....... 11,000,000
June 30, 2009........... 13,200,000
December 30, 2009....... 13,200,000
June 30, 2010........... 17,600,000
December 30, 2010....... 17,600,000
June 30, 2011........... 33,000,000
December 30, 2011....... 33,000,000
The New Securities will bear interest from the last interest payment
date of the Old Securities to occur prior to the issue date of the New
Securities at the rate shown on the cover page hereof and will be payable
semi-annually in arrears on June 30 and December 30, commencing on the first
such date to occur after the exchange of the New Securities for Old Securities,
to holders of record at the close of
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business on June 15 or December 15, as the case may be, next preceding such
interest payment date. Interest on the New Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance of the Old Securities. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Subject to the provisions set forth under the caption "-- Same Day Settlement
and Payment," principal, premium, if any, interest and Registration Default
Damages, if any, on the Securities will be payable at the office or agency of
the Trustee, as paying agent (the "Paying Agent"), maintained for such purpose
within the City and State of New York or, at the option of ESI Tractebel
Acquisition, payment of interest and Registration Default Damages, if any, may
be made by check mailed to the holders of the Securities at their respective
addresses set forth in the register of holders; provided that all payments of
principal, premium, interest and Registration Default Damages, if any, with
respect to Securities the holders of which have given wire transfer instructions
to ESI Tractebel Acquisition will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
Until otherwise designated by ESI Tractebel Acquisition, ESI Tractebel
Acquisition's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Securities will be issued in denominations of
$100,000 and integral multiples of $1,000 in excess thereof. See "-- Book-Entry,
Delivery and Form." Additional Securities may be issued from time to time after
the date of this Prospectus, subject to the provisions of the Indenture
described below under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
Ratings
The Securities have received ratings of "Ba1" from Moody's and "BB"
from S&P.
Optional Redemption
The Securities will not be redeemable at ESI Tractebel Acquisition's
option prior to June 30, 2008. Thereafter, the Securities will be subject to
redemption at any time at the option of ESI Tractebel Acquisition at the
direction of NE LP, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest, thereon to the date
fixed for redemption, if redeemed during the twelve-month period beginning on
June 30 of the years indicated below:
Year Percentage
---- -----------
2008.............. 101.844%
2009.............. 101.229%
2010.............. 100.615%
2011 and thereafter 100.000%
Extraordinary Mandatory Redemption
The Securities will be subject to extraordinary mandatory redemption
pro rata, at a redemption price equal to the outstanding principal amount
thereof plus accrued and unpaid interest to the date fixed for redemption if (1)
(a) any event occurs which triggers the mandatory redemption or repurchase of
any or all of the Project Securities pursuant to the terms of the Project
Indenture and (b) any funds so required to be applied to such redemption or
repurchase remain after giving effect to such redemption or repurchase of
Project Securities, and such excess funds equal at least $2,000,000 and are
distributed to NE LP or NE LLC or (2) a buyout or similar payment is made to a
Partnership under any Power Purchase Agreement and any such funds are
distributed to NE LP or NE LLC in accordance with the terms of the Project
Indenture and terms of the Indenture, provided that, in each such case, only
such funds so distributed must be applied to the extraordinary mandatory
redemption.
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Selection and Notice
Subject to the book-entry system described herein, if less than all of
the Securities are to be redeemed at any time, selection of Securities for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Securities are
listed, or, if the Securities are not so listed, on a pro rata basis or by such
other method as the Trustee deems fair and appropriate; provided that, except in
the case of an extraordinary mandatory redemption, no Securities will be
redeemed in part if the unredeemed portion will be in an unauthorized
denomination. Notices of redemption shall be mailed by first class mail at least
30 but not more than 60 days before the redemption date to each holder to be
redeemed at its registered address. Notices of redemption may not be conditional
and will be irrevocable. If any Security is to be redeemed in part only, the
notice of redemption that relates to such Security will state the portion of the
principal amount thereof to be redeemed and that a new Security in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Security. Securities called for
redemption become due on the date fixed for redemption. On and after the date
fixed for redemption, interest ceases to accrue on Securities or portions of
Securities to be redeemed. Except as a result of a redemption as described under
the caption "-- Extraordinary Mandatory Redemption," no Securities will be
permitted to be in denominations other than the authorized denominations.
Repurchase at the Option of Holders Upon a Change of Control
Upon the occurrence of a Change of Control (which will not occur if
Moody's and S&P confirm that the then existing ratings of the Securities will
not be lowered as a result of any of the events that, in the absence of such
confirmed rating, would constitute a Change of Control), ESI Tractebel
Acquisition will be required to offer to each holder to repurchase all or any
part (equal to $100,000 or an integral multiple of $1,000 in excess thereof) of
such holder's Securities pursuant to the offer described below (the "Change of
Control Offer") at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within ten days
following any Change of Control, ESI Tractebel Acquisition will be required to
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Securities on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. ESI Tractebel Acquisition will be required to comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Securities
as a result of a Change of Control.
On the Change of Control Payment Date, ESI Tractebel Acquisition will
be required, to the extent lawful, to (1) accept for payment all Securities or
portions thereof properly tendered pursuant to the Change of Control Offer, (2)
deposit with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Securities or portions thereof so tendered and (3) deliver or
cause to be delivered to the Trustee the Securities so accepted together with an
Officers' Certificate stating the aggregate principal amount of Securities or
portions thereof purchased by ESI Tractebel Acquisition. The Paying Agent will
be required to promptly pay to each holder that has so tendered Securities the
Change of Control Payment for such Securities, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Security equal in principal amount to any unpurchased portion of the
Securities surrendered, if any; provided that each such new Security will be in
a principal amount of $100,000 or an integral multiple of $1,000 in excess
thereof. ESI Tractebel Acquisition will be required to announce publicly the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
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The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that require ESI Tractebel Acquisition to repurchase or to
redeem the Securities in the event of a takeover, recapitalization or similar
transaction.
ESI Tractebel Acquisition will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by ESI Tractebel Acquisition and purchases all Securities validly tendered
and not withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of NE LP, NE LLC, NEA or NJEA to any "person" or
"group" (as each such term is used in Section 13(d)(3) and 14(d)(2) of the
Exchange Act) other than the Sponsors or their Related Parties; (ii) the
adoption of a plan relating to the liquidation or dissolution of NE LP, NE LLC,
NEA or NJEA (other than as permitted by the Indenture); (iii) the consummation
of any transaction or series of related transactions (including, without
limitation, any merger or consolidation) the result of which is that any person
or group (as defined above), other than the Sponsors and their Related Parties,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that a person or group shall be deemed to
have "beneficial ownership" of all securities that such person or group has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the voting power of any general partner of NE LP, NEA or NJEA
or of the voting power of the managing member of NE LLC by way of merger or
consolidation or otherwise other than a transaction involving an acquisition of
FPL Group or Tractebel S.A., (iv) the consummation of any transaction or series
of related transactions the result of which is that any person or group (as
defined above) owns, directly or indirectly, more of the economic and voting
interest of the Sponsors, NE LP, NE LLC, NEA or NJEA or of the voting power of
the managing member of NE LLC than do FPL Group and Tractebel S.A.; or (v) the
consummation of any transaction or series of related transactions the result of
which is that any person or group (as defined above) other than the Sponsors and
the Related Parties owns, directly or indirectly, more of the voting power of
any general partner of NE LP, NEA or NJEA than do the Sponsors and their Related
Parties; provided that, notwithstanding the foregoing, a Change of Control will
not occur if Moody's and S&P confirm that the then existing ratings of the
Securities will not be lowered as a result of any of the foregoing events.
If any of the events described in clauses (i) through (v) of the
definition of "Change of Control" occurs, but ESI Tractebel Acquisition is not
required to offer to purchase the Securities because Moody's and S&P confirm
that the then existing rating of the Securities will not be lowered as a result
of such event, then immediately after such event, the definitions of "Sponsor"
and "Related Parties" in the Indenture will be amended by supplemental indenture
(without the consent of the holders of the Securities) to mean the entity or
entities that Moody's and S&P relied upon, if any, in confirming the then
existing ratings of the Securities.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of NE LP, NE LLC, NEA or NJEA. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
whether ESI Tractebel Acquisition will be required to repurchase such Securities
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of NE LP, NE LLC, NEA or NJEA to another person or group
(as defined above) may be uncertain. In addition, ESI Tractebel Acquisition's
ability to pay cash to the holders of Securities upon a repurchase may be
limited by ESI Tractebel Acquisition's then existing financial resources.
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Flow of Funds
All Revenues will be required to be deposited into an account
designated the "Revenues Account." The funds in the Revenues Account will be
transferred on a monthly basis in following order of priority:
Debt Service Account
The funds from the Revenues Account will be transferred, first, to an
account designated the "Debt Service Account," into which shall be deposited an
amount equal to the difference between (i) the amount then on deposit therein
and (ii) the aggregate amount of principal, premium, if any, interest and
Registration Default Damages, if any, scheduled to be paid in respect of the
Securities on the next semi-annual payment date and any trustee, registration or
other administrative expenses due with respect to the Securities during the next
six months. The Trustee will apply the funds on deposit in the Debt Service
Account to make payments on the Securities when due and to pay up to $10,000 of
the trustee, registration or other administrative expenses with respect to the
Securities when due.
Debt Service Reserve Account
The funds from the Revenues Account will be transferred, second, to an
account designated the "Debt Service Reserve Account," into which shall be
deposited an amount equal to the difference between (i) the sum of the amount
then on deposit therein and the undrawn amount of any Acceptable Credit Support
credited thereto and (ii) the aggregate principal, premium, if any, interest and
Registration Default Damages, if any, scheduled to be paid on the Securities on
the next semi-annual payment date (the "Required DSRA Balance"). The funds on
deposit in the Debt Service Reserve Account (including any amounts available to
be drawn under Acceptable Credit Support credited thereto) shall be available to
pay amounts due and payable in respect of the Securities to the extent that
there are insufficient funds in the Debt Service Account to do so. The
consummation of this Offering will be conditioned upon depositing funds or
Acceptable Credit Support (in accordance with the Indenture) into the Debt
Service Reserve Account on the date of such consummation in an amount equal to
the then current Required DSRA Balance.
Distribution Account
Any amount remaining in the Revenues Account will be transferred,
finally, to an account designated the "Distribution Account" if and only if, at
the time of and after giving effect to such transfer and the deemed removal of
funds from the Distribution Account pursuant to the covenants described under
the caption "-- Certain Covenants -- Restricted Payments":
(a) the Debt Service Account and Debt Service Reserve Account
are funded to their then required levels;
(b) no Default or Event of Default under the Indenture has
occurred and is continuing or would occur as a consequence thereof; and
(c) and the Debt Service Coverage Ratio and the Projected Debt
Service Coverage Ratio equal or exceed 1.4 to 1, provided that, in
calculating the Debt Service Coverage Ratio for purposes of this clause
(c) at any time prior to December 30, 1998 the Operating Revenues
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received and scheduled debt service payments referred to in clauses (i)
and (ii) of the definition thereof shall be measured for the period of
months that has elapsed from the date of the Acquisitions to the date
of such calculation.
Notwithstanding the foregoing, no funds will be permitted to be
transferred to the Distribution Account prior to June 30, 1998. Thereafter upon
satisfaction of the requirements described above, moneys in the Distribution
Fund may be released to or at the direction of NE LP.
Acceptable Credit Support
Provided that no Default or Event of Default has occurred and is
continuing, ESI Tractebel Acquisition may deposit Acceptable Credit Support in
an equal amount in place of all or a portion of the cash deposited or required
to be deposited in the Debt Service Reserve Account. Upon such deposit of
Acceptable Credit Support and receipt by the Trustee of a written request
accompanied by the documents required pursuant to the Indenture, the Trustee
will be authorized and required to release such replaced cash to or at the
direction of NE LP. "Acceptable Credit Support" means (a) an irrevocable
unconditional letter of credit in form and substance acceptable to the Trustee
from an entity whose long term debt is rated A2 or higher by Moody's and A or
higher by S&P and/or (b) a Guarantee by FPL Group Capital in the form provided
in the Indenture so long as the long-term debt of FPL Group Capital is rated A2
or higher by Moody's and A or higher by S&P, provided that a letter of credit in
form and substance acceptable to the Trustee from Bank Brussels Lambert shall be
satisfactory as Acceptable Credit Support so long as its long-term debt is rated
A2 or higher by Moody's and its short-term debt is rated A-1 or higher by S&P.
The Indenture will provide that the Trustee will be the beneficiary under any
letter of credit or Guarantee constituting Acceptable Credit Support and the
Acceptable Credit Support will allow drawings by the Trustee if it is not
renewed at least 30 days prior to its expiration date or if the ratings of any
guarantor or letter of credit issuer fall below the required level and
alternative Acceptable Credit Support or cash is not provided to the Trustee
within 15 days thereafter. ESI Tractebel Acquisition of or account party to any
letter of credit or Guarantee may have rights of subrogation against ESI
Tractebel Acquisition, NE LP or NE LLC so long as (a) the Obligations of ESI
Tractebel Acquisition, NE LP and NE LLC in respect thereof are subordinated to
the repayment of the Bond Loan and the Securities and are payable only to the
extent Restricted Payments can be made and (b) such issuer or account party
waives its rights to exercise remedies in respect thereof so long as the
Securities are outstanding.
Certain Covenants
Restricted Payments
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
may make Restricted Payments only from, and to the extent of, amounts on deposit
in the Distribution Account from time to time. "Restricted Payments" means the
direct or indirect: (i) declaration or payment of any dividend or any other
payment or distribution on account of ESI Tractebel Acquisition's, NE LP's or NE
LLC's Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving ESI Tractebel Acquisition, NE LP or
NE LLC) or to the direct or indirect holders of ESI Tractebel Acquisition's, NE
LP's or NE LLC's Equity Interests in any capacity (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of ESI
Tractebel Acquisition, NE LP or NE LLC or to ESI Tractebel Acquisition, NE LP or
NE LLC); (ii) repayment of any indebtedness owed by NE LP or NE LLC to the
Sponsors or their Affiliates, including, without limitation, any reimbursement
obligations with respect to any letters of credit or guarantees provided by the
Sponsors or their Affiliates as Acceptable Credit Support; (iii) purchase,
redemption or other acquisition or retirement for value (including, without
limitation, in connection with any merger or consolidation involving ESI
Tractebel Acquisition, NE LP or NE LLC) of any Equity Interests of ESI Tractebel
Acquisition, NE LP or
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NE LLC or any direct or indirect parent of ESI Tractebel Acquisition, NE LP or
NE LLC; or (iv) payment on or with respect to, or purchase, redemption,
defeasance or other acquisition or retirement for value of any Indebtedness that
is pari passu with or subordinated to the Securities (other than the
Securities), except a scheduled payment of interest or principal.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
will not, directly or indirectly, create, incur, issue, assume, guarantee,
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness, other than Permitted
Indebtedness, and will not issue any Disqualified Stock, unless (a) such
Indebtedness will be pari passu with or subordinated to the Note and the
Securities, (b) the proceeds of such incurrence or issuance are used to make
equity contributions to either or both of NEA or NJEA, (c) the proceeds of such
incurrence or issuance are used to finance the completion of Required
Improvements or capital expenditures for the Projects other than Required
Improvements, (d) if the proceeds of such Indebtedness are used to finance the
completion of Required Improvements (as defined in the Project Indenture as in
effect on the date of the Indenture), (i) the Projected Debt Service Coverage
Ratio (determined on a pro forma basis giving effect to the incurrence and the
application of the net proceeds therefrom and the construction of the Required
Improvements) measured on each remaining semi-annual payment date in respect of
the Securities is at least 1.2 to 1 and (ii) an independent engineer acceptable
to the Trustee (which may, absent any conflict or the objection of the Trustee,
be the Independent Engineer with respect to the Project Securities) certifies
that the improvements are Required Improvements (as defined in the Project
Indenture as in effect on the date of the Indenture) and that there will be
sufficient funds available to construct the Required Improvements after the
incurrence and (e) if the proceeds of such Indebtedness are used to finance
capital expenditures for the Projects other than Required Improvements, (i) the
Projected Debt Service Coverage Ratio (determined on a pro forma basis giving
effect to the incurrence and the application of the net proceeds therefrom and
the proposed capital expenditures) measured on each remaining semi-annual
payment date of the Securities is at least 2 to 1 and the average of such
Projected Debt Service Coverage Ratios is at least 3 to 1 and (ii) Moody's and
S&P confirm that the then current ratings of the Securities will not be lowered
as a result of such incurrence. "Permitted Indebtedness" means subordinated
loans or reimbursement obligations owing to a Sponsor or any Affiliate thereof
(i) which can only be repaid to the extent Restricted Payments can be made, (ii)
in respect of which remedies cannot be exercised by such Sponsor or Affiliate so
long as the Securities are outstanding, (iii) incurred at a time when the
minimum Projected Debt Service Coverage Ratio (assuming, for purposes of such
calculation, that scheduled debt service payments in respect of Permitted
Indebtedness that is subordinate in right of payment to the Securities, the Bond
Note and the Bond Guaranty is included in clause (ii) of the definition of
"Projected Debt Service Coverage Ratio") on each semi-annual payment date of the
Securities is at least 1.5 to 1 (provided that the incurrence of reimbursement
obligations subordinated to the Securities of NE LP to the issuers of Acceptable
Credit Support under the Indenture and in respect of Guarantees issued by FPL
Group Capital and/or Backup Letters of Credit and Substitute Letters of Credit
pursuant to the Project Indenture will not be subject to such Projected Debt
Service Coverage Ratio test) or Moody's and S&P confirm that the then current
ratings of the Securities will not be lowered as a result of such incurrence and
(iv) the proceeds of which are used to make equity contributions to either NEA
or NJEA.
The Indenture also provides that ESI Tractebel Acquisition, NE LP and
NE LLC will not be permitted to incur any Indebtedness that is contractually
subordinated in right of payment to any other Indebtedness of ESI Tractebel
Acquisition, NE LP or NE LLC, as applicable, unless such Indebtedness is also
contractually subordinated in right of payment to the Securities and the Bond
Loan on substantially identical terms; provided, however, that no Indebtedness
of ESI Tractebel Acquisition, NE LP or NE LLC shall be deemed to be
contractually subordinated in right of payment to any other Indebtedness of ESI
Tractebel Acquisition, NE LP or NE LLC, as applicable, solely by virtue of being
unsecured.
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Limitations on Project Indebtedness
The Indenture provides that notwithstanding the terms of the Project
Indenture, NE LP and NE LLC will not permit ESI Tractebel Funding Corp. or the
Partnerships to create, issue, incur, assume, guarantee, otherwise become liable
for or suffer to exist any Debt (as defined in the Project Indenture as in
effect on the date of the Indenture) to finance the construction of Required
Improvements unless, after giving effect to the incurrence of such Debt and the
application of the proceeds thereof, the Projected Debt Service Coverage Ratio
for the 12-month period beginning on the date of such incurrence and for each
succeeding 12-month period thereafter through the final maturity of the
Securities is at least 1.2 to 1.
The Indenture also provides that notwithstanding the terms of the
Project Indenture, NE LP and NE LLC will not permit ESI Tractebel Funding Corp.
or the Partnerships to create, issue, incur, assume, guarantee, otherwise become
liable for or suffer to exist any Debt (as defined in the Project Indenture as
in effect on the date of the Indenture), other than Debt to finance the
construction of Required Improvements, unless after giving effect to the
incurrence of such Debt and the application of the proceeds thereof, (i) the
Projected Debt Service Coverage Ratio measured on each remaining semi-annual
payment date of the Securities is at least 2 to 1 and (ii) the average of such
Projected Debt Service Coverage Ratios is at least 3 to 1.
Finally, the Indenture provides that NE LP and NE LLC will not permit
ESI Tractebel Funding Corp. or the Partnerships to create, incur, assume,
guarantee, otherwise become liable for or suffer to exist any Indebtedness,
Guarantees or indemnity obligations following the repayment, prepayment or
defeasance of all of the Project Securities or the termination or expiration of
the Project Indenture, other than as described in one of the two preceding
paragraphs.
Limitation on Senior Subordinated Debt
The Indenture provides that none of ESI Tractebel Acquisition, NE LP or
NE LLC will, nor will any such party permit any of its Subsidiaries or
Affiliates to, create, issue, incur, assume, guarantee, otherwise become liable
for or suffer to exist any Indebtedness that is subordinated or junior in right
of payment to the Project Indebtedness and senior in any respect in right of
payment to the Securities, the Note or the Bond Guaranty (other than
Indebtedness expressly permitted to be incurred by the Project Indenture and the
Indenture).
Limitations on Liens
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
will not, directly or indirectly, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien on any of their assets or
properties now owned or hereafter acquired, or any income or profits therefrom,
or assign or convey any right to receive income therefrom, except for Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
will not, and will not permit any of its or their Subsidiaries (including NEA
and NJEA), directly or indirectly, to create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary thereof to (i)(a) pay dividends or make any other distributions to
ESI Tractebel Acquisition, NE LP and NE LLC or any of its or their Subsidiaries
(1) on its Capital Stock or (2) with respect to any
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other interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to ESI Tractebel Acquisition, NE LP and NE LLC or any of its
or their Subsidiaries, (ii) make loans or advances to ESI Tractebel Acquisition,
NE LP or NE LLC or any of its or their Subsidiaries or (iii) transfer any of its
properties or assets to ESI Tractebel Acquisition, NE LP or NE LLC or any of its
or their Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions under or by reason of (a) the Project Indenture and
the other Transaction Documents (as defined in the Project Indenture as in
effect on the date of the Indenture) and, in each case, as in effect on the date
of the Indenture, (b) the Indenture and the Securities, (c) applicable law, (d)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices and (e) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired.
Merger, Consolidation, or Sale of Assets
The Indenture provides that none of ESI Tractebel Acquisition, NE LP,
NE LLC, NEA or NJEA will consolidate or merge with or into (whether or not such
entity is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets or all
or any of the partner interests of NEA or NJEA in one or more related
transactions to any Person unless (a) such consolidation, merger, sale,
assignment, lease, conveyance or other disposition (i) does not constitute a
Change of Control or (ii) constitutes a Change of Control and a Change of
Control Offer is made as set forth under the caption "-- Repurchase at the
Option of Holders Upon a Change of Control," (b) (i) ESI Tractebel Acquisition,
NE LP or NE LLC (as the case may be) is the surviving entity or the Person
formed by or surviving any such consolidation or merger (if other than ESI
Tractebel Acquisition, NE LP or NE LLC, as the case may be) or the entity to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (1) is a corporation or a partnership organized or existing
under the laws of the United States, any state thereof or the District of
Columbia and (2) assumes all of the Obligations of ESI Tractebel Acquisition, NE
LP or NE LLC (as the case may be) under the Note, the Securities, the Indenture,
the Bond Guaranty and the Registration Rights Agreement, (c) immediately after
giving effect to such transaction, no Default or Event of Default exists, (d)
Moody's and S&P confirm that the then current ratings of the Securities will not
be lowered as a result thereof and (e) ESI Tractebel Acquisition, NE LP and NE
LLC would be permitted to incur one dollar of Indebtedness the proceeds of which
would be used to finance capital expenditures other than Required Improvements
for NEA and/or NJEA under the provisions described in the first paragraph under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
may not make any payment to, or sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement, understanding,
loan, advance or Guarantee with, or for the benefit of, any Affiliate thereof
(each of the foregoing, an "Affiliate Transaction"), unless such Affiliate
Transaction is on terms that are no less favorable to ESI Tractebel Acquisition,
NE LP or NE LLC (as the case may be) than those that would have been obtained in
a comparable transaction by ESI Tractebel Acquisition, NE LP or NE LLC with an
unrelated Person. Notwithstanding the foregoing, the following shall not be
deemed to be Affiliate Transactions: (i) transactions between or among ESI
Tractebel Acquisition, NE LP, NE LLC or any of their Affiliates contemplated by
any agreement entered into prior to the date of the Indenture; (ii) payments of
reasonable directors' fees to Persons who are not otherwise Affiliates of ESI
Tractebel Acquisition, NE LP or NE LLC; and (iii) Restricted Payments that are
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments."
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Limitations on Issuances of Guarantees and Indemnities
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
may not, directly or indirectly, incur or have outstanding any Guarantees or
indemnities or assume any other suretyship obligations, except (a) the Bond
Guaranty, (b) Guarantees arising in the ordinary course of business not to
exceed $250,000 in the aggregate at any one time outstanding and (c) indemnities
or reimbursement obligations with respect to any Acceptable Credit Support or
otherwise, so long as such indemnities or reimbursement obligations are payable
only to the extent Restricted Payments can be made and the party in respect of
whom such indemnities or reimbursement obligations run in favor waives its
rights to exercise remedies in respect thereof so long as the Securities are
outstanding.
Limitations on Investments
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
may not make any Investment other than Permitted Investments.
Amendments to, and Assignments of, Project Documents
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
will not permit or suffer NEA or NJEA (a) to waive a right under, or modify,
terminate or amend, any material governmental consent, any material term of any
Project Document (as defined in the Project Indenture as in effect on the date
of the Indenture), other than any Power Purchase Agreement, or any material term
of the Project Indenture unless such waiver, modification, termination or
amendment could not reasonably be expected to have a material adverse effect on
ESI Tractebel Acquisition, NE LP, NE LLC or the holders of the Securities or (b)
to assign any of its rights under any of the Project Documents (as defined in
the Project Indenture as in effect on the date of the Indenture) other than as
permitted by the Indenture or the Project Indenture. The Indenture also provides
that ESI Tractebel Acquisition, NE LP and NE LLC will not permit or suffer NEA
or NJEA to waive a right under, or modify, terminate or amend, any material term
of any Power Purchase Agreement unless (i) NE LP delivers to the Trustee a
certificate, in form and substance reasonably satisfactory to the Trustee, of an
independent engineer acceptable to the Trustee (which may, absent any conflict
or the objection of the Trustee, be the Independent Engineer with respect to the
Project Securities), certifying that such waiver, modification, termination or
amendment could not reasonably be expected to have a material adverse effect on
ESI Tractebel Acquisition, NE LP, NE LLC or the holders of the Securities and
(ii) Moody's and S&P confirm that the then existing ratings of the Securities
will not be lowered as a result of such waiver, modification, termination or
amendment.
Business Activities
The Indenture provides that (a) ESI Tractebel Acquisition may not
engage in any business other than the issuance of the Securities and the
incurrence of the other Indebtedness permitted by the Indenture to be incurred
by ESI Tractebel Acquisition and (b) NE LP and NE LLC may not engage in any
business other than holding, directly or indirectly, the partner interests of
NEA and NJEA, and, with respect to NE LP, acting as general partner of NEA and
NJEA, and the issuance of the Note and the Bond Guaranty and the incurrence of
the other Indebtedness permitted by the Indenture to be incurred by NE LP and NE
LLC.
Limitations on Loans and Advances
The Indenture provides that ESI Tractebel Acquisition, NE LP and NE LLC
may not, directly or indirectly, make any loans or advances to, or acquire any
stock, obligations or securities of, any Person, except in connection with the
incurrence of Permitted Indebtedness.
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Reporting Requirements
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Securities are outstanding, ESI Tractebel Acquisition will be
required to furnish to the holders of the Securities and to any beneficial owner
of Securities who so requests ESI Tractebel Acquisition in writing (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if ESI
Tractebel Acquisition were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by ESI Tractebel Acquisition's independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
ESI Tractebel Acquisition were required to file such reports, in each case
within the time periods specified in the Commission's rules and regulations. In
addition, following the consummation of the Exchange Offer, whether or not
required by the rules and regulations of the Commission, ESI Tractebel
Acquisition will be required to file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, ESI Tractebel Acquisition has
agreed that, for so long as any Securities remain outstanding, it will furnish
to the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the 1933 Act. In addition, and whether or not ESI Tractebel Acquisition is
subject to the reporting requirements of Section 13 or Section 15(d) of the
Securities Exchange Act (the "Exchange Act") of 1934, as amended, ESI Tractebel
Acquisition will be required to file with the SEC and provide to the Trustee and
the holders of the Securities, and (upon request) to broker-dealers and
prospective investors, all information, documents and reports specified in
Section 13 and Section 15(d) of the Exchange Act.
NE LP will also be required to provide to the Trustee, the holders of
the Securities and any beneficial owner of Securities who so requests ESI
Tractebel Acquisition in writing (i) all notices, financial statements and other
information required to be given by ESI Tractebel Funding Corp., NEA or NJEA to
the Project Trustee under the Project Indenture, (ii) calculations of the Debt
Service Coverage Ratio and the Projected Debt Service Coverage Ratio, together
with the information required to substantiate such calculations, on each
semi-annual payment date in respect of the Securities, at the time any amounts
are to be transferred into the Distribution Account and at any other time such
ratios are required to be provided by the terms of the Indenture and (iii)
calculations of the Debt Service Coverage Ratio and the Substitute Debt Service
Coverage Ratio for the Rolling Prior Year (each as defined in the Project
Indenture as in effect on the date of the Indenture), together with the
information required to substantiate such calculations and a copy of the
certificate of the management committee of NE LP on behalf of the Partnerships
delivered pursuant to the Project Indenture certifying that it has no knowledge
of any event or circumstance that could reasonably be expected to result in the
Debt Service Coverage Ratio for the period of two fiscal quarters commencing on
the expiration date of the Rolling Prior Year, treated as a single period, being
less than 1.25:1, on each semi-annual payment date in respect of the Securities,
at the time any amounts are to be transferred into the General Subfund of the
Partnership Distribution Fund (as defined in the Project Indenture as in effect
on the date of the Indenture) and at any other time such ratios are required to
be provided by the terms of the Project Indenture. Finally, each of ESI
Tractebel Acquisition, NE LP and NE LLC will be required to advise the Trustee
promptly in writing of (i) the occurrence of any Event of Default of which it
has knowledge and the occurrence of any "Event of Default" as defined in the
Project Indenture as in effect on the date of the Indenture and (ii) any
material litigation or claim against or concerning any of ESI Tractebel
Acquisition, NE LP, NE LLC or any of its property or assets.
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Compliance
Each of ESI Tractebel Acquisition, NE LP and NE LLC will be required at
all times to obtain, maintain and comply in all material respects with all
material governmental consents and all applicable laws. NE LP will be required
at all times, in its capacity as general partner of NEA and NJEA, to cause NEA
and NJEA to comply with all material terms and provisions of the Project
Indenture (as in effect as of the date of the Indenture), unless the failure to
comply could not reasonably be expected to have a material adverse effect on ESI
Tractebel Acquisition, NE LP, NE LLC or the holders of the Securities.
Notwithstanding the expiration or termination of the Project Indenture (whether
at the stated maturity of the last to mature of the Project Securities or
otherwise) or the exercise by holders of the Project Securities of their rights
with respect to satisfaction and discharge of the Project Indenture, legal or
covenant defeasance or any other prepayment of the Project Securities permitted
or required by the Project Indenture, NE LP will be required, in its capacity as
general partner of NEA and NJEA, to cause NEA and NJEA to comply with the
covenants and provisions contained in certain sections of the Project Indenture,
as if such covenants and provisions were still in full force and effect, which
covenants and provisions relate to such matters as the maintenance of existence
of the Partnerships, the maintenance of rights necessary to conduct the business
of the Partnerships, the operation and maintenance of the Projects, compliance
with the formation documents of the Partnerships, the maintenance of
governmental approvals, compliance with laws, the maintenance of insurance, the
payment of taxes, the incurrence of liens and guaranties, the prohibition on
certain dispositions of assets, the nature of business conducted by the
partnerships, employee benefit plans, certain transactions with affiliates, the
making of investments and the maintenance of QF status by the Partnerships.
Maintaining Rights Under Project Documents
Subject to the covenants described under the captions "-- Amendments
to, and Assignments of, Project Documents" and "-- Compliance," ESI Tractebel
Acquisition, NE LP and NE LLC will be required to take all actions necessary to
cause NEA and NJEA to maintain and preserve the material rights granted to NEA
and NJEA pursuant to the Project Documents and to comply therewith unless the
failure to maintain and preserve such rights could not reasonably be expected to
have a material adverse effect on ESI Tractebel Acquisition, NE LP, NE LLC or
the holders of the Securities.
Partnership Distributions
NE LP will be required, in its capacity as general partner of NEA and
NJEA, to cause NEA and NJEA to distribute to NE LP and NE LLC all amounts
released to NEA and NJEA or permitted to be withdrawn by NEA or NJEA from the
Partnership Distribution Fund (as defined in the Project Indenture as in effect
on the date of the Indenture) or any subfund thereof in accordance with the
Project Indenture, and, following the expiration or termination of the Project
Indenture, will be required, in its capacity as general partner of NEA and NJEA,
to cause NEA and NJEA to distribute to NE LP and NE LLC all amounts available
for distribution pursuant to the Project Indenture.
Payment of Taxes
ESI Tractebel Acquisition, NE LP and NE LLC are required to pay all
taxes and other governmental charges before they become delinquent unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in conformity with GAAP are being maintained.
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Auditor
ESI Tractebel Acquisition and NE LP are required to appoint and
maintain an internationally recognized auditor.
Use of Proceeds
ESI Tractebel Acquisition, NE LP and NE LLC are required to use the net
proceeds of the Offering (and the proceeds of the Bond Loan) as set forth under
the caption "Use of Proceeds."
Existence
Except as expressly permitted by the Indenture, each of ESI Tractebel
Acquisition, NE LP and NE LLC are required at all times to maintain its
existence.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 15 days in the payment when due of the principal of
or premium, if any, on the Securities or the Note; (ii) default for 15 days in
the payment when due of interest on, with respect to the Securities or the Note;
(iii) failure by ESI Tractebel Acquisition, NE LP or NE LLC to comply with the
provisions described under the captions "-- Repurchase at the Option of Holders
Upon a Change of Control," "-- Certain Covenants -- Restricted Payments," "--
Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"
or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets;" (iv)
failure by ESI Tractebel Acquisition, NE LP or NE LLC for 60 days to comply with
any of its other agreements in the Indenture or any of the Collateral Documents;
(v) default by ESI Tractebel Acquisition, NE LP or NE LLC in the payment when
due (after giving effect to any applicable grace periods) of any principal of or
premium, if any, or interest on any Indebtedness (other than the Securities or
the Note) the principal amount of which exceeds $3 million in the aggregate;
(vi) failure by ESI Tractebel Acquisition, NE LP or NE LLC to pay final
judgments aggregating in excess of $3 million, which judgments are not paid,
discharged or stayed for a period of at least 60 days; (vii) the
unenforceability of any material provisions of the Collateral Documents or the
cessation or failure of any lien granted thereby or the priority thereof (and
such unenforceable provisions, cessation or failure is not cured within 10 days
after ESI Tractebel Acquisition, NE LP or NE LLC has obtained knowledge
thereof); (viii) certain events of bankruptcy or insolvency with respect to ESI
Tractebel Acquisition, NE LP or NE LLC; (ix) any limited partnership or limited
liability company agreement of NE LP or NE LLC as amended from time to time
ceases to be valid and binding and in full force and effect in all material
respects; (x) a default by any counterparty under any of the Material Project
Agreements (as defined in the Project Indenture as in effect on the date of the
Indenture) that would likely have a material adverse effect on ESI Tractebel
Acquisition, NE LP, NE LLC or the holders of the Securities and such default is
not cured within 180 days (or 360 days if the applicable Partnership has
promptly commenced and is diligently using its best efforts to cure such
default); (xi) an "Event of Default" (as defined in the Project Indenture as in
effect on the date of the Indenture) occurs (other than as a result of the
breach of an immaterial covenant); and (xii) the acceleration of the maturity
date of the Project Securities.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in aggregate principal amount of the then outstanding
Securities may declare by written notice to ESI Tractebel Acquisition the
principal amount of the Securities then outstanding to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to ESI
Tractebel Acquisition, NE LP or NE LLC, the principal amount of all outstanding
Securities will become due and payable without further action or
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notice. Holders of the Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Securities notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of ESI Tractebel
Acquisition with the intention of avoiding payment of the premium that ESI
Tractebel Acquisition would have had to pay if ESI Tractebel Acquisition then
had elected to redeem the Securities pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the Securities. If an Event of Default occurs prior to June 30, 2008 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of ESI Tractebel Acquisition with the intention of avoiding the prohibition on
optional redemption of the Securities prior to June 30, 2008, then the Make
Whole Premium shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Securities.
The holders of a majority in aggregate principal amount of the
Securities then outstanding by notice to the Trustee may on behalf of the
holders of all of the Securities waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest and Registration Default Damages, if any, on,
or the principal of, the Securities.
ESI Tractebel Acquisition is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and ESI Tractebel
Acquisition is required upon becoming aware of any Default or Event of Default
to deliver to the Trustee a statement specifying such Default or Event of
Default.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
Indenture, the Securities and the other Financing Agreements may be amended or
supplemented by ESI Tractebel Acquisition, NE LP, NE LLC and the Trustee, and
Events of Default and compliance with the provisions of the Financing Agreements
may be waived, with the consent of the holders of at least a majority in
aggregate outstanding principal amount of the Securities (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Securities).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Security held by a non-consenting holder): (i) reduce
the principal amount of Securities whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Security or alter the provisions with respect to extraordinary or
optional redemption of the Securities (other than provisions relating to the
covenant described above under the caption "--Repurchase at the Option of
Holders Upon a Change of Control"); (iii) reduce the rate of or change the time
for payment of interest on any Security; (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest or
Registration Default
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Damages, if any, on the Securities (except a rescission of acceleration of the
Securities by the holders of at least a majority in aggregate principal amount
of the Securities then outstanding and a waiver of the payment default that
resulted from such acceleration); (v) make any Security payable in money other
than that stated in the Securities; (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of holders to
receive payments of principal of or premium, if any, or interest or Registration
Default Damages, if any, on the Securities; (vii) waive a redemption payment
with respect to any Security (other than a payment required by the covenant
described above under the caption "-- Repurchase at the Option of Holders Upon a
Change of Control"); (viii) make a change in or waive the security provisions of
any of the Financing Agreements (ix) make any change in or waive the
applicability of the Bond Guaranty; or (x) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder, ESI
Tractebel Acquisition, NE LP, NE LLC and the Trustee may amend or supplement the
Financing Agreements (other than the Pledge Agreements, which may be amended by
the parties thereto for the purposes that follow) to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Securities in addition to or in
place of certificated Securities, to provide for the assumption of ESI Tractebel
Acquisition's obligations to holders in the case of a merger or consolidation or
sale of all or substantially all of ESI Tractebel Acquisition's assets, to make
any change that would provide any additional rights or benefits to the holders
or that does not adversely affect the legal rights under the Indenture of any
holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, partner, member or
stockholder of ESI Tractebel Acquisition, NE LP or NE LLC as such shall have any
liability for any Obligations of ESI Tractebel Acquisition under the Securities,
the Indenture or NE LP under the Indenture, the Note or the Bond Guaranty for
any claim based on, in respect of, or by reason of, such Obligations or their
creation. Each holder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Securities. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
Legal Defeasance and Covenant Defeasance
ESI Tractebel Acquisition may, at its option and at any time, elect to
have all of its obligations discharged with respect to the outstanding
Securities ("Legal Defeasance") except for (i) the rights of holders of
outstanding Securities to receive payments in respect of the principal of,
premium, if any, and interest if any, on such Securities when such payments are
due from the trust referred to below, (ii) ESI Tractebel Acquisition's
obligations with respect to the Securities concerning issuing temporary
Securities, registration of Securities, mutilated, destroyed, lost or stolen
Securities and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and ESI Tractebel Acquisition's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, ESI Tractebel Acquisition may, at its option and at any time, elect
to have the obligations of ESI Tractebel Acquisition released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and, thereafter, any failure to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Securities. In the
event Covenant Defeasance occurs, certain events (other than nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
the caption "-- Events of Default and Remedies" will no longer constitute Events
of Default with respect to the Securities.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) ESI Tractebel Acquisition must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the Securities, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
interest and Registration Default Damages, if any,
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on the outstanding Securities on the stated maturity or on the applicable
redemption date, as the case may be, and ESI Tractebel Acquisition must specify
whether the Securities are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, ESI Tractebel Acquisition
must have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) ESI Tractebel
Acquisition has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the holders
of the outstanding Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, ESI Tractebel Acquisition
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of the deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which ESI Tractebel Acquisition, NE LP or NE LLC is a party or
by which ESI Tractebel Acquisition, NE LP or NE LLC is bound; (vi) ESI Tractebel
Acquisition must have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) ESI
Tractebel Acquisition must have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by ESI Tractebel Acquisition
with the intent of preferring the holders of Securities over the other creditors
of ESI Tractebel Acquisition with the intent of defeating, hindering, delaying
or defrauding creditors of ESI Tractebel Acquisition or others; and (viii) ESI
Tractebel Acquisition must have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for in the Indenture relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange Securities in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and ESI
Tractebel Acquisition may require a holder to pay any taxes and fees required by
law or permitted by the Indenture. ESI Tractebel Acquisition is not required to
transfer or exchange any Security selected for redemption. Also, ESI Tractebel
Acquisition is not required to transfer or exchange any Security for a period of
15 days before a selection of Securities to be redeemed. See "-- Book-Entry,
Delivery and Form."
The registered holder of a Security will be treated as the owner of
such Security for all purposes.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of ESI Tractebel Acquisition, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
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The holders of a majority in principal amount of the then outstanding
Securities will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture will provide that in case an Event
of Default occurs (which is not cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder, unless such holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
The Securities were offered and sold to qualified institutional buyers
in reliance on Rule 144A ("Rule 144A Securities") and in offshore transactions
in reliance on Regulation S ("Regulation S Securities"). Rule 144A Securities
are in registered, global form without interest coupons (the "Rule 144A Global
Securities"). Regulation S Securities are in registered, global form without
interest coupons (the "Regulation S Securities" and together with the Rule 144A
Securities, the "Global Securities"). The Global Securities will be deposited
upon issuance with the Trustee as custodian for DTC in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Beneficial interests in the Rule 144A Global Securities may not be exchanged for
beneficial interests in the Regulation S Global Bonds at any time except in the
limited circumstances described below. See "-- Exchanges Between Regulation S
Securities and Rule 144A Securities."
Except as set forth below, the Global Securities may be transferred, in
whole or in part, only to another nominee of DTC or to a successor of DTC or its
nominee, Beneficial interests in the Global Securities may not be exchanged for
Securities in certificated form except in the limited circumstances described
below. See "-- Exchange of Book Entry Securities for Certificated Securities."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Securities will not be entitled to receive physical
delivery of Certificated Securities (as defined below).
Transfers of beneficial interests in the Global Securities will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of the Euroclear System
("Euroclear") and Cedel, S.A. ("Cedel"), which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The
Securities may be presented for registration of transfer and exchange at the
offices of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. ESI
Tractebel Acquisition takes no responsibility for these operations and
procedures and urges investors to contact the systems or their participants
directly to discuss these matters.
DTC has advised ESI Tractebel Acquisition that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-
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entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including Goldman), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's systems
is also available to other entities such as banks, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised ESI Tractebel Acquisition that, pursuant to
procedures established by it, (i) upon deposit of the Global Securities, DTC
will credit the accounts of Participants designated by ESI Tractebel Acquisition
with portions of the principal amount of the Global Securities and (ii)
ownership of such interests in the Global Securities will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Securities)
Investors in the Rule 144A Global Securities may hold their interests
therein directly through DTC, if they are Participants in such system, or
indirectly through organizations (including Euroclear and Cedel) which are
Participants in such system. Investors may hold interests in the Regulation S
Global Securities through Participants in the DTC system other than Euroclear
and Cedel. Euroclear and Cedel will hold interests in the Regulation S Global
Securities on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositories, which are Morgan Guaranty Trust Company of New York, Brussels
office, as operator of Euroclear, and Citibank, N.A., as operator of Cedel. All
interests in a Global Security, including those held through Euroclear or Cedel,
may be subject to the procedures and requirements of DTC. Those interests held
through Euroclear and Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Security
to such persons will be limited to that extent. Because DTC can act only on
behalf of Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Security to pledge such interests to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of such interests, may
be affected by the lack of a physical certificate evidencing such interests.
Except as described herein, owners of interest in the Global Securities
will not have Securities registered in their names, will not receive physical
delivery of Securities in certificated form and will not be considered the
registered owners or "holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, premium, if any, interest and
Registration Default Damages, if any, on a Global Security registered in the
name of DTC or its nominee will be payable to DTC in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, ESI
Tractebel Acquisition and the Trustee will treat the persons in whose names the
Securities, including the Global Securities, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither ESI Tractebel Acquisition, the
Trustee nor any agent of ESI Tractebel Acquisition or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Securities, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised ESI Tractebel Acquisition that its current practice, upon receipt of any
payment in respect of securities such as the
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Securities (including principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of beneficial
interest in the relevant security as shown on the records of DTC unless DTC has
reason to believe it will not receive payment on such payment date. Payments by
the Participants and the Indirect Participants to the beneficial owners of
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or ESI Tractebel Acquisition.
Neither ESI Tractebel Acquisition nor the Trustee will be liable for any delay
by DTC or any of its Participants in identifying the beneficial owners of the
Securities, and ESI Tractebel Acquisition and the Trustee may conclusively rely
on and will be protected in relying on instructions from DTC or its nominee for
all purposes.
Except for trades involving only Euroclear and Cedel participants,
interest in the Global Securities are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "-- Same Day
Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same day funds, and transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one
hand, and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as the
case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Cedel, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Security in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositories for Euroclear or Cedel.
DTC has advised ESI Tractebel Acquisition that it will take any action
permitted to be taken by a holder of Securities only at the direction of one or
more Participants to whose account DTC has credited the interests in the Global
Securities and only in respect of such portion of the aggregate principal amount
of the Securities as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Securities,
DTC reserves the right to exchange the Global Securities for legended Securities
in certificated form, and to distribute such Securities to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing
procedures to facilitate transfers of interests in the Regulation S Global
Securities and the Rule 144A Global Securities among Participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither ESI Tractebel Acquisition nor the Trustee nor any of their respective
agents will have any responsibility for the performance by DTC, Euroclear or
Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
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Exchange of Book-Entry Securities for Certificated Securities
A Global Security is exchangeable for definitive Securities in
registered certificated form ("Certificated Securities") only if (i) DTC (x)
notifies ESI Tractebel Acquisition that it is unwilling or unable to continue as
depositary for the Global Securities and ESI Tractebel Acquisition thereupon
fails to appoint a successor depositary within 90 days or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) ESI Tractebel
Acquisition, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Securities, (iii) there shall have
occurred and be continuing a Default or Event of Default with respect to the
Securities or (iv) upon the written request of a beneficial owner of Securities
in accordance with the Indenture. In all cases, Certificated Securities
delivered in exchange for any Global Security or beneficial interests therein
will be registered in the names, and issued in any approved denominations
(except as otherwise expressly set forth herein), requested by or on behalf of
the depositary (in accordance with its customary procedures).
Exchange of Certificated Securities for Book-Entry Securities
Securities issued in certificated form may not be exchanged for
beneficial interests in any Global Securities unless the transferor first
delivers to the Trustee a written certificate (in the form provided in the
Indenture) to the effect that such transfer will comply with the appropriate
transfer restrictions applicable to such Securities.
Exchanges Between Regulation S Securities and Rule 144A Securities
Beneficial interests in a Rule 144A Global Security may be transferred
to a person who takes delivery in the form of an interest in the Regulation S
Global Security, only if the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer is being made in accordance with Rule 903 or 904 of Regulation S or
Rule 144 (if available).
Transfers involving an exchange of a beneficial interest in the
Regulation S Global Security for a beneficial interest in a Rule 144A Global
Security or vice versa will be effected in DTC by means of an instruction
originated by the Trustee through the DTC Deposit/Withdraw at Custodian system.
Accordingly, in connection with any such transfer, appropriate adjustments will
be made to reflect a decrease in the principal amount of the Regulation S Global
Security and a corresponding increase in the principal amount of the Rule 144A
Global Security or vice versa, as applicable. Any beneficial interest in one of
the Global Securities that is transferred to a person who takes delivery in the
form of an interest in the other Global Security will, upon transfer, cease to
be an interest in such Global Security and will become an interest in the other
Global Security and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interest in such
other Global Security for so long as it remains such an interest.
Same Day Settlement and Payment
The Indenture will require that payments in respect of the Securities
represented by the Global Securities (including principal, premium, if any,
interest and Registration Default Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Security
Holder. With respect to Securities in certificated form, ESI Tractebel
Acquisition will make all payments of principal, premium, if any, interest and
Registration Default Damages, if any, by wire transfer of immediately available
funds to the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address. The
Securities represented by the Global Securities are expected to be eligible to
trade in the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in
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such Securities will, therefore, be required by DTC to be settled in immediately
available funds. ESI Tractebel Acquisition expects that secondary trading in any
certificated Securities will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear
or Cedel participant purchasing an interest in a Global Security from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised ESI Tractebel
Acquisition that cash received in Euroclear or Cedel as a result of sales of
interests in a Global Security by or through a Euroclear or Cedel participant to
a Participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Cedel cash account only as of
the business day for Euroclear or Cedel following DTC's settlement date.
Other Information Concerning DTC
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to ESI
Tractebel Acquisition as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to ESI
Tractebel Acquisition or the Trustee. Under such circumstances, in the event
that a successor securities depositary is not obtained, Security certificates
are required to be printed and delivered. If ESI Tractebel Acquisition decides
to discontinue use of the system of book-entry transfers through DTC (or a
successor securities depositary), Security certificates will be printed and
delivered.
Ratings
Moody's Investors Service, Inc., and Standard & Poor's Corporation have
assigned the Securities ratings of "Ba1" and "BB", respectively. Each such
rating reflects only the view of the applicable rating agency at the time the
rating was issued, and any explanation of the significance of such rating may
only be obtained from such rating agency. There is no assurance that any such
credit rating will remain in effect for any given period of time or that such
rating will not be lowered, suspended or withdrawn entirely by the applicable
rating agency, if, in such rating agency's judgment, circumstances so warrant.
Any such lowering, suspension or withdrawal of any rating may have an adverse
effect on the market price or marketability of the Securities.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's or
S&P and in each case maturing within six months after the date of acquisition
and (vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Collateral" means all collateral pledged, or in respect of which a
lien is granted, pursuant to the Indenture and the Pledge Agreements.
"Collateral Documents" means the Pledge Agreements and the Indenture.
"Debt Service Coverage Ratio" means the ratio of (i) the Operating
Revenues actually received directly by NE LP and NE LLC during the 12-month
period preceding the date as of which such ratio is calculated (net of any
operating expenses paid by any of ESI Tractebel Acquisition, NE LP and NE LLC
during such period) to (ii) the scheduled debt service payments (including
principal, interest, premia, penalties and fees) on the Securities and all other
indebtedness (other than any Permitted Indebtedness) of ESI Tractebel
Acquisition, NE LP and NE LLC during such 12-month period, (provided that, for
purposes of this calculation, the corresponding payments in respect of the Note
and the Securities shall be deemed to constitute only one payment).
"Default" means any event that is or that with the passage of time or
the giving of notice or both would be an Event of Default.
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"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Securities mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Issuer to repurchase such Capital Stock upon the occurrence
of a Change of Control shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that ESI Tractebel Acquisition may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption "--
Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Financing Agreements" means, collectively, the Indenture, the
Securities, the Note, the Bond Guaranty, the Registration Rights Agreement and
the Pledge Agreements.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included but without
duplication, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances
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to officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If ESI
Tractebel Acquisition, NE LP, NE LLC or any Subsidiary thereof sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary thereof, ESI Tractebel Acquisition, NE LP, NE LLC or any
Subsidiary thereof shall be deemed to have made an Investment on the date of any
such sale or disposition.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Make Whole Premium" means an amount equal to the excess, if any, of
(i) the present value of all interest and principal payments scheduled to become
due after the date of the Event of Default in respect of the Securities (such
present value to be determined on the basis of a discount rate equal to the
yield to maturity on the U.S. treasury instruments with a maturity as close as
practicable to the remaining average life of the Securities) over (ii) the
outstanding principal amount of the Securities.
"Moody's" means Moody's Investors Service, Inc.
"NE LLC" means Northeast Energy, LLC and its successors.
"NE LP" means Northeast Energy, LP and its successors.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Indebtedness" has the meaning given in the covenant
described under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Permitted Investments" means Cash Equivalents, the Bond Loan, NE LLC's
Investment in the Partnerships and NE LP's Investment in NE LLC and the
Partnerships.
"Permitted Liens" means: (i) Liens in favor of ESI Tractebel
Acquisition, NE LP or NE LLC; (ii) Liens on the property of a Person existing at
the time such Person is merged into or consolidated with ESI Tractebel
Acquisition, NE LP or NE LLC, provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with ESI
Tractebel Acquisition, NE LP or NE LLC; (iii) Liens on property existing at the
time of acquisition thereof by ESI Tractebel Acquisition, NE LP or NE LLC,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (iv) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens in favor of the Trustee
pursuant to the Collateral Documents; (vi) the first priority pledge of the one
percent general partner interest in each of the Partnerships in favor of the
holders of the Project Indebtedness; and (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor.
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"Projected Debt Service Coverage Ratio" means the ratio of (i) the
Operating Revenues projected to be received directly by NE LP and NE LLC during
the 12-month period following the date as of which such ratio is calculated (net
of any operating expenses projected to be paid by ESI Tractebel Acquisition, NE
LP and NE LLC during such period) to (ii) the scheduled debt service payments
(including principal, interest, premia, penalties and fees) on the Securities
and all other indebtedness (other than any Permitted Indebtedness) of ESI
Tractebel Acquisition, NE LP and NE LLC during such 12-month period, (provided
that, for purposes of this calculation, the corresponding payments in respect of
the Note and the Securities shall be deemed to constitute only one payment).
"Related Party" means, with respect to any Sponsor, (A) any controlling
stockholder thereof or Subsidiary at least 80% of which is owned by such Sponsor
or (B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Sponsor and/or such other Persons
referred to in the immediately preceding clause (A).
"Revenues" has the meaning given under the caption "-- General."
"Sponsors" means ESI Energy, Inc. and Tractebel Power, Inc.
"S&P" means Standard & Poor's Rating Services, a division of the
McGraw-Hill Companies, Inc.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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OUTSTANDING PROJECT INDEBTEDNESS
The ability of ESI Tractebel Acquisition to pay the principal of and
premium, if any, and interest on the Securities, from payments to be made by NE
LP under the Note, depends upon, among other things, the prior payment of the
Project Indebtedness and the satisfaction of the other conditions set forth in
the agreements that govern the Project Indebtedness.
The following summaries of certain provisions of the Project Indenture
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Project Indenture,
including the definitions therein. Copies of the Project Indenture are available
for review. See "Available Information."
The Project Securities
The Project Securities were issued by IEC Funding Corp. (now ESI
Tractebel Funding) in May 1995, in exchange for securities that were issued in
December 1994 (i) to refinance the Original Project Notes that were issued in
1989 to finance the costs of constructing the Projects, (ii) to provide the cash
collateral to secure the Partnerships' obligations to reimburse Sanwa Bank for
any drawings under the Sanwa Letters of Credit, (iii) to fund the Debt Service
Reserve Fund and the Note Subfunds of the Interest Fund and the Principal Fund
for the Project Securities, and (iv) to pay certain transaction costs. The
Project Securities, of which $490,286,720 remain outstanding as of December 31,
1997, were issued pursuant to the Original Project Indenture in four series as
the 8.43% Senior Secured Notes Due 2000, Series A (the "2000 Project Notes"),
the 9.16% Senior Secured Notes Due 2002, Series A (the "2002 Project Notes"),
the 9.32% Senior Secured Bonds Due 2007, Series A (the "2007 Project Bonds"),
and the 9.77% Senior Secured Bonds Due 2010, Series A (the "2010 Project
Bonds").
Principal Amount, Interest Rate and Stated Maturity
The original principal amounts, outstanding principal amounts, interest
rates and maturity dates of the Project Securities are set forth below.
<TABLE>
<CAPTION>
Original Principal Outstanding
Series Amount Principal Amount(1) Interest Rate Final Maturity
------ ------ ------------------- ------------- --------------
<S> <C> <C> <C> <C>
2000 Project Notes $141,120,000 $ 71,406,720 8.43% December 30, 2000
2002 Project Notes 31,500,000 31,500,000 9.16% June 30, 2002
2007 Project Bonds 215,740,000 215,740,000 9.32% December 30, 2007
2010 Project Bonds 171,640,000 171,640,000 9.77% December 30, 2010
</TABLE>
- ----------
(1) As of December 31, 1997.
Payment of Principal and Interest
Interest on the Project Securities is payable semiannually on each June
30 and December 30, and principal is payable in semiannual installments on the
same dates.
Redemption and Repurchase
The Project Securities are not subject to optional redemption. The
Project Securities are subject to mandatory redemption or repurchase in certain
limited circumstances involving the failure or inability to Restore a Project
(as defined in the Project Indenture) upon an Event of Loss.
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Project Guaranty
The obligations of ESI Tractebel Funding to pay the principal and
premium, if any, and interest on the Project Securities when due are
unconditionally guaranteed, jointly and severally, by the Partnerships pursuant
to the Project Guaranty.
Limitation on Liability
The Project Indenture and related documents provide that ESI Tractebel
Funding's obligations under the Project Indenture are solely corporate
obligations of ESI Tractebel Funding and that no personal liability shall attach
to any affiliate of ESI Tractebel Funding or any such incorporator, stockholder,
officer, employee or director. The Project Indenture and related documents also
provide that satisfaction of the obligations of the Partnerships shall be had
solely from the Project Collateral, and that no recourse shall be had in the
event of any non-performance by the Partnerships of such obligations to any
assets of the Partners (other than their respective interests in the Project
Collateral) or to any Partner or any affiliate of any Partner or either
Partnership or any incorporator, stockholder, officer, employee or director of
any such Partner or affiliate, or any predecessor or successor thereof.
Flow of Funds
Securities are payable only from distributions made by the Partnerships
to the Partners and from any funds available in the Accounts. Such distributions
are "Restricted Payments" under the Project Indenture and may be made only from
amounts on deposit from time to time in the General Subfund of the Partnership
Distribution Fund created under the Project Indenture and transferred to the
Trustee, and then only if certain conditions are met. The Project Indenture
requires that prior to their deposit in the Partnership Distribution Fund,
Project Revenues be transferred first to the Revenue Fund and then to the
following funds and accounts in the following order, in each case taking into
account moneys then on deposit in such fund. Such transfers generally are to be
made on the first business day of each month.
First: to the Working Capital Fund, the amount required to repay the
Working Capital Loans (or such lesser amount of such loans as the
Partnerships elect to repay), plus all interest, fees and other
amounts due and payable under the Working Capital Facility during
such month. The Working Capital Facility has not been utilized by
the Partnerships and NE LP does not anticipate that the
Partnerships will maintain a Working Capital Facility.
Second: to the General Subfund of the Operating Fund, the amount of
Operating Expenses for such month as estimated by the
Partnerships, including Management Fees but excluding Subordinated
Management Fees. Moneys in the General Subfund of the Operating
Fund are to be applied to the payment of Operating Expenses but
may also be withdrawn to make up any deficiencies in the Working
Capital Fund and the Good Faith Contest Fund.
Third: beginning in 2001, to the Major Overhaul Reserve Fund, the sum of
the Monthly MOR Contribution Amount, plus any MOR Deficiency. The
MOR Contribution Amount is the amount set forth in the Project
Indenture to be reserved annually for the payment of the projected
major maintenance costs. For the NEA Project, the amounts to be
deposited annually range from $2,869,000 in 2001 to $9,115,000 in
2003 to $2,099,000 in 2010. For the NJEA Project, the amounts to
be deposited annually range from $3,004,000 in 2001 to $9,419,000
in 2003 to $2,401,000 in 2010. These amounts may be changed,
provided that the Independent Engineer (currently, Sargent &
Lundy) confirms that the new MOR Contribution Amount is
reasonable. NE LP expects that under the New O&M Agreement for the
NEA Project the MOR Contribution Amount will be reduced to amounts
that range from
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$3,206,000 in 2001, to $4,982,000 in 2003 and zero in 2010. For
the NJEA Project, NE LP expects that the MOR Contribution amount
will range from $3,457,000 in 2001, to $478 in 2003, $4,947,000 in
2008 and zero in 2010. In the event the amounts on deposit in the
Major Overhaul Reserve Fund are not sufficient to pay any Major
Overhaul Expense, such excess Major Overhaul Expense is to be
treated as an Operating Expense payable from the General Subfund
of the Operating Fund. In the event an O&M Agreement is amended or
replaced to provide for payment by the operator of Major Overhaul
Expenses, the Major Overhaul Reserve Requirement will be
recalculated, any excess in the Major Overhaul Reserve Fund will
be transferred to the Revenue Fund and amounts owed to such
operator for such Major Overhaul Expenses will then be paid as
Operating Expenses. Under the New O&M Agreements, the New Operator
has agreed to pay Major Overhaul Expenses, and NE LP has agreed to
reimburse the New Operator for such costs. Moneys in the Major
Overhaul Reserve Fund may also be withdrawn to make up any
deficiency in the Working Capital Fund.
Fourth: to the Note Subfund of the Interest Fund, the amount payable on
the Project Securities on the next interest payment date (or on
such transfer date if such transfer date is an interest payment
date) and to the Other Obligations Subfund, the amount estimated
to be payable during such month in respect of Permitted Purchase
Money Indebtedness and/or Permitted Unsecured Indebtedness and
amounts estimated to be payable during such month to the Swap
Banks. In the event amounts in one subfund are not sufficient,
moneys are to be withdrawn from the other subfund to make up the
difference prior to transferring funds from any other fund. In
addition, moneys may be borrowed under the Working Capital
Facility for this purpose and must be borrowed if a deficiency
still exists two business days later. Moneys in the Interest Fund
may also be withdrawn to make up any deficiencies in the Working
Capital Fund and in the Operating Fund.
Fifth: to the L/C Fee Fund, the amounts estimated to be payable to the
Letter of Credit Banks during such month (other than the principal
of and interest on any reimbursement obligations). Moneys in the
L/C Fee Fund may also be withdrawn to make up any deficiencies in
the Working Capital Fund, the Operating Fund and the Interest
Fund.
Sixth: to the Note Subfund of the Principal Fund, the aggregate principal
amount of the Project Notes to become due on the next principal
payment date (or on the monthly transfer date if the monthly
transfer date is a principal payment date) and to the Other
Obligations Subfund of the Principal Fund (i) the Aggregate
Amortization Reserve Amount (relating to Permitted Purchase Money
Indebtedness and to Permitted Unsecured Indebtedness), (ii)
without duplication, the principal amount estimated to become due
during such month in respect of any Permitted Purchase Money
Indebtedness due as a consequence of the permitted sale or other
disposition of the property to which such indebtedness relates and
(iii) without duplication, the principal amount estimated to
become due and payable during the next six months in respect of
Permitted Purchase Money Indebtedness and/or Permitted Unsecured
Indebtedness, unless in the case of (iii) the amount then on
deposit in the Debt Service Reserve Fund is less than the current
Debt Service Reserve Requirement and unless there is any GSR
Deficiency, referred to below. In the event of any deficiency in
one subfund, amounts are to be transferred from the other subfund
before transfers are made from the other funds to cure such
deficiency. Amounts may also be borrowed if the deficiency
continues for two business days. Moneys in the Principal Fund may
also be withdrawn to make up any deficiencies in the Working
Capital Fund, the Operating Fund, the Interest Fund and the L/C
Fee Fund.
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<PAGE>
Seventh: to the Subordinated Management Fee Subfund of the Operating Fund,
the amount of Subordinated Management Fees then due and payable
during the following month. Moneys may be withdrawn from this
Subfund to make up deficiencies in Working Capital Fund, the
Operating Fund, the Interest Fund, the L/C Fee Fund and the
Principal Fund.
Eighth: to the Tax Payment Subfund of the Partnership Distribution Fund,
the aggregate amount of Tax Requirements then estimated to become
due on the Quarterly Tax Payment Dates during the following six
months. Moneys in the Tax Payment Subfund may also be withdrawn to
make up deficiencies in the Working Capital Fund, the Operating
Fund, the Interest Fund, the L/C Fee Fund and the Principal Fund.
Ninth: to the Debt Service Reserve Fund, the amount required to make the
amount on deposit therein equal to the then-current Debt Service
Reserve Requirement. In accordance with the Project Indenture, NE
LP arranged for the delivery of two Substitute Letters of Credit
in lieu of cash that was held in the Debt Service Reserve Fund.
Proceeds from a drawing under a Substitute Letter of Credit may be
withdrawn to make up any deficiency in the Working Capital Fund,
the Operating Fund, the Interest Fund, the L/C Fee Fund, the
Principal Fund and the Tax Payment Subfund. As provided in the
Project Indenture, only NE LP, and not the Partnerships, is
obligated to reimburse a Substitute Letter of Credit Bank for
amounts, if any, drawn under a Substitute Letter of Credit.
Tenth: to the Gas Transmission Reserve Fund, beginning 15 months before
the earliest Transco Agreement Expiration Date (October 31, 2006),
the amount of the Gas Transmission Reserve Requirement, provided
that the aggregate amount of transfers is not to exceed the sum of
$10,600,000 plus the aggregate amount of withdrawals from the Gas
Transmission Reserve Fund (other than amounts transferred to the
Revenue Fund after the Transco Agreement Expiration Date, a
Transco Extension Event or a Transco Substitution Event or after
the recalculation of the Gas Transmission Reserve Requirement
following the occurrence of a Partial Transportation Extension
Event). Moneys in the Gas Transmission Reserve Fund are to be
transferred to the Revenue Fund beginning one month after the
earliest Transco Agreement Expiration Date, until the occurrence
of a Transco Agreement Extension Event with respect to both
Transco Agreements or a Transco Agreement Substitution Event.
Moneys may also be withdrawn from the Gas Transmission Reserve
Fund to make up deficiencies in the Working Capital Fund, the
Operating Fund, the Interest Fund, the L/C Fee Fund, the principal
Fund and the Tax Payment Subfund.
Eleventh: to the Gas Supply Reserve Fund, on certain days and in amounts as
specified in the Project Indenture. At the time of issuance of the
Original Project Securities, the agreements extending the term of
the ProGas Agreements from 2006 to 2013 remained subject to
certain contingencies. In order to mitigate the risk that such
extensions might ultimately be ineffective, the Project Indenture
provides for the establishment of a Gas Supply Reserve Fund. Such
extensions, however, have since become final and non-appealable,
and accordingly there is no longer any requirement to fund the Gas
Supply Reserve Fund.
Twelfth: to the Partnership Suspense Fund, the remaining balance on deposit
in the Revenue Fund. Amounts on deposit in the Partnership
Suspense Fund may be transferred to the funds described above in
the event of any deficiencies therein. In addition, upon
satisfaction of the conditions set forth in the Project Indenture
and described below, amounts on deposit in the Partnership
Suspense Fund, but not exceeding the Distributable Percentage, may
be transferred to the General Subfund of the Partnership
Distribution Fund for payment at any time to the Partnerships. The
Distributable Percentage ranges from 100%, if the Debt Service
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<PAGE>
Coverage Ratio for the Rolling Prior Year is greater than or equal
to 1.40:1, to 25% if the Debt Service Coverage Ratio is less than
1.30:1 but not less than 1.25:1. No transfers to the General
Subfund of the Partnership Distribution Fund may be made, however,
unless the conditions described below under "Restricted Payments"
are satisfied. As described above moneys permitted to be
transferred to the General Subfund will be transferred directly to
the Trustee and deposited to the Debt Service Account held by the
Trustee under the Indenture.
Restricted Payments
Under the Project Indenture, distributions to the Partners and payments
in respect of permitted subordinated indebtedness of the Partnerships, other
than for amounts in respect of taxes and certain management fees and costs, may
be made by the Partnerships only from, and to the extent of, amounts then on
deposit in the General Subfund of the Partnership Distribution Fund. The
transfer of amounts into the General Subfund of the Partnership Distribution
Fund is subject to the prior satisfaction of a number of conditions set forth in
the Project Indenture. Among other conditions, the Project Trustee must
determine that (i) the amounts on deposit in the other Funds are equal to or
greater than the amounts then required to be on deposit therein under the
Project Indenture; (ii) no default or event of default under the Project
Indenture has occurred and is continuing; (iii) no debt is outstanding under the
Working Capital Facility, (iv) either the Debt Service Coverage Ratio or the
Substitute Debt Service Coverage Ratio for the Rolling Prior Year equals or
exceeds 1.25:1; and (v) the Partnerships have certified that they have no
knowledge of any event or circumstance that could reasonably be expected to
result in the Debt Service Coverage Ratio for the period of two fiscal quarters
commencing on the expiration date of the Rolling Prior Year, treated as a single
period, being less than 1.25:1. If such conditions are satisfied, funds may be
transferred to the General Subfund of the Partnership Distribution Fund in an
amount equal to a percentage of the amounts then on deposit in the Partnership
Suspense Fund, with such percentage to be determined by reference to the Debt
Service Coverage Ratio for the Rolling Prior Year. Such percentage will be (i)
100% if such ratio equals or exceeds 1.40:1, (ii) 75% if such ratio equals or
exceeds 1.35:1, but is less than 1.40:1, (iii) 50% if such ratio equals or
exceeds 1.30:1 but is less than 1.35:1 or (iv) 25% if such ratio equals or
exceeds 1.25:1 but is less than 1.30:1. The amount to be transferred may be
increased based upon the Substitute Debt Service Coverage Ratio for the Rolling
Prior Year.
Limitations on Debt
ESI Tractebel Funding is not permitted to create or incur or to suffer
to exist any Debt, except the Project Securities and Additional Project
Securities.
Neither Partnership is permitted to create or incur or suffer to exist
any Debt, except (i) Debt arising under the Project Credit Agreement in an
aggregate principal amount equal to the aggregate outstanding principal amount
of the Project Securities and any Additional Project Securities; (ii) Debt in
respect of Project Letters of Credit in an aggregate amount at no time greater
than the lesser of (a) the combined maximum amount of the Energy Bank
Obligations for both Partnerships required by the terms of any Power Purchase
Agreement to be supported by Energy Bank Letters of Credit at any time prior to
the final maturity of the Project Securities plus certain other obligations as
provided in the Project Indenture and (b) $82 million; (iii) Debt under the
Working Capital Facility in an aggregate principal amount at any time not
greater than $20 million; (iv) obligations of the Partnerships under the Swaps;
(v) Debt arising under any of the Project Documents; (vi) Subordinated Debt not
to exceed an aggregate principal amount of $50 million, the proceeds of which
are applied to the payment of Capital Expenditures for the Projects; (vii)
Permitted Purchase Money Indebtedness; (viii) certain trade accounts payable;
(ix) Permitted Unsecured Indebtedness; (x) certain permitted Project Guarantees;
(xi) Debt in respect of fuel price hedging arrangements related to the
acquisition of fuel reasonably necessary for the operation of the Projects; and
(xii) Debt incurred by either Partnership to the other Partnership.
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<PAGE>
Certain Other Covenants
Among the other provisions contained in the Project Indenture are
requirements to maintain insurance, limitations on liens and on mergers,
consolidations and similar transactions and limitations on the rights of ESI
Tractebel Funding's and of the Partnerships to amend or terminate material
agreements. See Appendix E for a more detailed summary of covenants contained in
the Project Indenture.
The Working Capital Facility
The Project Indenture permits the Partnerships to enter into revolving
credit arrangements from time to time with financial institutions with maximum
available borrowings of up to $20 million in order to provide for the working
capital requirements of the Partnerships (the "Working Capital Facility"). The
obligations of the Partnerships in respect of any Working Capital Facility are
secured by the same collateral that secures the obligations in respect of the
Project Securities, the Project Guaranty and the Swaps, but upon an exercise of
remedies in respect of such collateral, the Working Capital Banks will be
entitled to payment in full of all amounts payable in respect of such Working
Capital Facility prior to the payment of any amounts in respect of such other
obligations and prior to the payment of any amounts in respect of the
Securities. In February 1998, NE LP terminated the Sanwa Working Capital
Facility and does not anticipate a need to replace it with another Working
Capital Facility. See "Summary."
The Project Letter of Credit Facility
The Partnerships are required by the terms of certain of their
respective Power Purchase Agreements to provide Energy Bank Letters of Credit to
the Power Purchasers thereunder to support the Partnerships' Energy Bank
Obligations. See "Summary of Principal Project Agreements -- Power Purchase
Agreements." Under the Project Indenture the Partnerships have agreed to provide
for such Energy Bank Letters of Credit and to secure the obligations under such
Project Letter of Credit Facility, subject to certain terms and conditions set
forth in the Project Indenture.
Upon the termination of the Sanwa Letters of Credit, BankBoston issued
a letter of credit in a face amount of $12.656 million to support NEA's Energy
Bank Obligations to Montaup, and NationsBank issued a letter of credit in a face
amount of $54.0 million to support NEA's Energy Bank Obligations to Boston
Edison.
Any drawings under the Energy Bank Letters of Credit are to be
reimbursed by FPL Group Capital, and pursuant to the Reimbursement Agreement, NE
LP is obligated to reimburse FPL Group Capital. The Partnerships are not
obligated to reimburse FPL Group Capital for such drawings.
The Swaps
The Partnerships entered into the Swaps with certain financial
institutions. The remaining Swaps are scheduled to expire in 1999. Payments
under the Swaps are to be made from the Interest Fund on a parity with the
interest payments on the Project Securities. For a summary of the terms of the
Swaps, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Swaps."
Collateral Security
In 1994, the holders of the Project Securities (represented by the
Project Trustee), Sanwa Bank, the Swap Banks, the Collateral Agent and the
Project Trustee (collectively, the "Project Secured Parties") entered into the
Collateral Agency Agreement with IEC Funding Corp. (now ESI Tractebel Funding)
and the Partnerships, pursuant to which the Collateral Agent acts as agent for
the Project Secured Parties under the Project Security Documents. The rights of
the Project Secured Parties in respect of the Project Collateral are shared
among the Project Secured Parties in accordance with the Collateral Agency
Agreement. In addition, a mortgage on the NEA Site and the NEA Project
(subordinate to the mortgage and security interests in favor of the Project
Secured Parties) has been granted by NEA to the NEA Power Purchasers pursuant to
the NEA Second Mortgage to secure NEA's obligations under the NEA Power Purchase
Agreements See "Summary of Principal Project Agreements -- Power Purchase
Agreements -- NEA Power Purchase Agreements."
139
<PAGE>
CERTAIN FEDERAL TAX CONSIDERATIONS
The Exchange
The following discussion is a summary of the material United States
federal income tax consequences expected to apply to the exchange of New
Securities for Old Securities under currently applicable law. The summary is
based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change. The discussion does not cover all aspects of federal
taxation that may be relevant to, or the actual tax effect that any of the
matters described herein will have on, particular holders, and does not address
state, local, foreign or other tax laws. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
taxpayers subject to the alternative minimum tax and foreign persons) may be
subject to special rules not discussed below. Each holder should consult with
its own tax advisor in determining the federal, state, local and any other tax
consequences to the particular holder of the exchange of New Securities for Old
Securities.
The exchange of New Securities for Old Securities will not be a taxable
event to holders for federal income tax purposes. The exchange of New Securities
for the Old Securities pursuant to the Exchange Offer should not be treated as
an "exchange" for federal income tax purposes because the New Securities will
not be considered to differ materially in kind or extent from the Old
Securities. If, however, the exchange of the New Securities for the Old
Securities were treated as an exchange for federal income tax purposes, such
exchange would constitute a recapitalization for federal income tax purposes.
Accordingly, the New Securities will have the same issue price as the Old
Securities, and a holder will have the same adjusted basis and holding period in
the New Securities as it had in the Old Securities immediately before the
exchange.
Non-United States Holders
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Securities by an initial beneficial owner of Securities that, for United
States federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"). This discussion is based upon the United States
federal tax law now in effect, which is subject to change, possibly
retroactively. For purposes of this discussion, a "United States person" means a
citizen or resident of the United States (except as may be provided in
regulations), a corporation, partnership or other entity created or organized in
the United States or under the laws of the United States or of any political
subdivision thereof, an estate whose income is includible in gross income for
United States federal income tax purposes regardless of its source or a trust,
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust. The tax treatment of the holders of the
Securities may vary depending upon their particular situations. United States
persons acquiring the Securities are subject to different rules than those
discussed below. In addition, certain other holders may be subject to special
rules not discussed below. Further, the consequences to the holders of the
equity interests in a Non-United States Holder of that Non-United States Holder
are not discussed. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of Securities, as well as any tax consequences that may arise under
the laws of any foreign, state, local or other taxing jurisdiction.
Interest
Interest paid by ESI Tractebel Acquisition to a Non-United States
Holder will not be subject to United States federal income or withholding tax if
such Non-United States Holder has no connection with
140
<PAGE>
the United States other than owning Securities, and in particular such interest
is not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States Holder
(i) does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of ESI Tractebel Acquisition or ESI Energy
or Tractebel Power; (ii) does not actually or constructively own 10% or more of
the capital or profits or interest in NE LP (iv) is not a controlled foreign
corporation with respect to which ESI Tractebel Acquisition, ESI Energy,
Tractebel Power or NE LP is a "related person" within the meaning of the United
States Internal Revenue Code of 1986 (the "Code") and (v) certifies, under
penalties of perjury, that such holder is not a United States person and
provides such holder's name and address.
Gain on Disposition
A Non-United States Holder will generally not be subject to United
States federal income tax on gain recognized on a sale, redemption or other
disposition of a Security provided such holder has no connection with the United
States other than holding Securities and in particular (i) the gain is not
effectively connected with the conduct of a trade or business within the United
States by the Non-United States Holder or (ii) in the case of a Non-United
States Holder who is a nonresident alien individual and holds the Security as a
capital asset, such holder is not present (or treated as present) in the United
States for 183 or more days in the taxable year and certain other requirements
are met.
Federal Estate Taxes
If interest on the Securities is exempt from withholding of United
States federal income tax under the rules described above, the Securities
generally will not be included in the estate of a deceased Non-United States
Holder for United States federal estate tax purposes.
Information Reporting and Backup Withholding
ESI Tractebel Acquisition will, where required, report to the holders
of Securities and the Internal Revenue Service the amount of any interest paid
on the Securities in each calendar year and the amounts of tax withheld, if any,
with respect to such payments.
In the case of payments of interest to Non-United States Holders,
temporary Treasury regulations provide that the 31% backup withholding tax and
certain information reporting will not apply to such payments with respect to
which either the requisite certification, as described above, has been received,
or an exemption has otherwise been established; provided that neither ESI
Tractebel Acquisition nor its payment agent has actual knowledge that the holder
is a United States person or that the conditions of any other exemption are not
in fact satisfied. Under temporary Treasury regulations, these information
reporting and backup withholding requirements will apply, however, to the gross
proceeds paid to a Non-United States Holder on the disposition of the Securities
by or through a United States office of a United States or foreign broker,
unless the holder certifies to the broker under penalties of perjury as to its
name, address and status as a foreign person or the holder otherwise establishes
an exemption. Information reporting requirements, but not backup withholding,
will also apply to a payment of the proceeds of a disposition of the Securities
by or through a foreign office of a United States broker or foreign brokers with
certain types of relationships to the United States unless such broker has
documentary evidence in its file that the holder of the Securities is not a
United States person, and such broker has no actual knowledge to the contrary,
or the holder establishes an exception. Neither information reporting nor backup
withholding generally will apply to a payment of the proceeds of a disposition
of the Securities by or through a foreign office of a foreign broker not subject
to the preceding sentence.
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<PAGE>
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
The Treasury Department recently promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, the final regulations do not significantly alter the substantive
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. The final
regulations are generally effective for payments made after December 31, 1999,
subject to certain transition rules. Non-United States Holders should consult
their own tax advisers with respect to the impact, if any, of the new final
regulations.
PLAN OF DISTRIBUTION
Any broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by broker-dealers in connection with the resale of New Securities received in
exchange for Old Securities where such Old Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities.
Neither ESI Tractebel Acquisition nor NE LP will receive any proceeds
from any sales of New Securities by broker-dealers. New Securities received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time at prices determined at the time of sale directly to
purchasers or to or through broker-dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Securities. Any broker-dealer that resells New
Securities that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such New
Securities may be deemed to be an "underwriter" within the meaning of the 1933
Act and any profit on any such resale of New Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the 1933 Act. A letter accompanying the New Securities to be
delivered to each holder that tendered Old Securities pursuant to the Exchange
Offer will state that by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the 1933 Act.
For a period of up to one year after the date of the consummation of
the Exchange Offer ESI Tractebel Acquisition will use its best efforts to
maintain the Registration Statement of which this Prospectus is a part
continuously effective. ESI Tractebel Acquisition and NE LP have agreed to pay
all expenses incident to the performance of their obligation to effect the
Exchange Offer other than commissions or concessions of any brokers or dealers
and will indemnify certain holders of New Securities against certain liabilities
arising from resales of the New Securities pursuant to this Prospectus and any
amendment or supplement to this Prospectus, including liabilities under the 1933
Act.
LEGAL MATTERS
The validity of the New Securities and certain other legal matters in
connection with the offering of the New Securities are being passed upon for ESI
Tractebel Acquisition and NE LP by Orrick, Herrington & Sutcliffe LLP as special
counsel for ESI Tractebel Acquisition and NE LP.
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EXPERTS
The combined financial statements of the Partnerships as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
Sargent & Lundy has prepared the Independent Engineer's Report included
as Appendix B to this Prospectus. The Independent Engineer's Report should be
read in its entirety for additional information with respect to the Projects and
the related subjects discussed therein. As stated in the Independent Engineer's
Report, Sargent & Lundy has made a number of assumptions in reaching its
conclusions, all of which are set forth therein, and has utilized the sources of
information described therein. Sargent & Lundy believes that the use of such
information and assumptions is reasonable for the purposes of its Independent
Engineer's Report. The Independent Engineer's Report has been included in this
Prospectus in reliance upon the conclusions therein of Sargent & Lundy and upon
such firm's experience in preparing independent engineer's reports for similar
projects.
The Fuel Consultant's Report on the Projects included as Appendix C to
this Prospectus has been prepared by Benjamin Schlesinger and Associates, Inc.
and is included herein in reliance upon the authority of such firm and its
affiliates as experts in fuel supply arrangements.
TRUSTEE
State Street Bank and Trust Company, the trustee under the Indenture
and the Collateral Agent under the Pledge Agreements, is also the Project
Trustee and the Collateral Agent in connection with the Project Securities.
State Street is also acting as the Exchange Agent in connection with the
Exchange Offer. Broad Street Contract Services, Inc., an affiliate of State
Street Bank & Trust Company, owns 25% of the outstanding shares of stock of ESI
Tractebel Funding, the issuer of the Project Securities for the purpose of
providing an independent director. Broad Street has no economic interest in the
cash flow of the Partnerships. Broad Street Contract Services, Inc. receives a
fee for its services.
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<PAGE>
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP; AND
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy
Associates, A Limited Partnership
Report of Independent Accountants F-2
Combined Balance Sheet at December 31, 1996 and 1997 F-3
Combined Statement of Operations for the years ended December 31,
1995, 1996 and 1997 F-4
Combined Statement of Partners' Deficit for the years ended December 31,
1995, 1996 and 1997 F-5
Combined Statement of Cash Flows for the years ended December 31, 1995, 1996
and 1997 F-6
Notes to Combined Financial Statements F-8
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Partners of Northeast Energy Associates, A Limited Partnership,
and North Jersey Energy Associates, A Limited Partnership
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, of partners' deficit and of cash flows present fairly,
in all material respects, the financial position of Northeast Energy Associates,
A Limited Partnership, and North Jersey Energy Associates, A Limited
Partnership, at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnerships' managements;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
March 24, 1998
F-2
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Balance Sheet
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
---- ----
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,861 $61,203
Accounts receivable 43,671 34,036
Fuel inventories 5,410 4,752
Prepaid expenses and other current assets 2,566 3,052
-------- --------
Total current assets 101,508 103,043
-------- --------
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $129,068,000 and $153,963,000 at December 31, 1996 and
1997, respectively) 373,781 349,365
Other fixed assets (net of accumulated depreciation of $438,000 and
$535,000 at December 31, 1996 and 1997, respectively) 304 181
Unamortized financing costs 17,837 15,674
Other assets 3,806 4,012
Restricted cash 69,156 69,156
-------- --------
Total non-current assets 464,884 438,388
-------- --------
Total assets $566,392 $541,431
======== ========
Liabilities and Partners' Deficit
Current liabilities:
Current portion of loans payable - ESI Tracetebel Funding Corp. $ 24,075 $21,563
(formerly IEC Funding Corp.)
Accounts payable 14,528 15,450
Other accrued expenses 2,037 1,426
Future obligations under interest rate swap agreements 2,022 889
-------- --------
Total current liabilities 42,662 39,328
-------- --------
Loans payable - ESI Tracetebel Funding Corp. 490,287 468,724
(formerly IEC Funding Corp.)
Amounts due utilities for energy bank balances 220,922 230,565
-------- --------
Total non-current liabilities 711,209 699,289
-------- --------
Total liabilities 753,871 738,617
-------- --------
Partners' deficit:
General partner (4,616) (4,714)
Limited partners (182,863) (192,472)
-------- --------
Total partners' deficit (187,479) (197,186)
-------- --------
Commitments and contingencies (Note 6) - -
-------- --------
Total liabilities and partners' deficit $566,392 $541,431
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Operations
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1995 1996 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenue:
Power sales to utilities $276,022 $267,789 $307,530
Steam sales 4,527 4,473 4,624
-------- -------- --------
Total revenue 280,549 272,262 312,154
-------- -------- --------
Costs and expenses:
Cost of power and steam sales 132,839 138,727 151,476
Operation and maintenance 24,699 22,854 25,689
Depreciation 24,904 24,978 24,992
General and administrative expenses 12,010 14,424 15,984
-------- -------- --------
Total costs and expenses 194,452 200,983 218,141
-------- -------- --------
Operating income 86,097 71,279 94,013
-------- -------- --------
Other expenses (income):
Amortization of financing costs 2,305 2,373 2,163
Interest expense 50,930 49,841 47,673
Interest expense on energy bank balances 16,657 19,675 17,435
Interest income (10,652) (10,534) (9,931)
-------- -------- --------
Total other expenses, net 59,240 61,355 57,340
-------- -------- --------
Net income $26,857 $9,924 $36,673
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Partners' Deficit
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited Partners'
Partner Partners Deficit
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1994 $ (3,670) $ (89,258) $ (92,928)
Net income 268 26,589 26,857
Distribution to partners (645) (63,861) (64,506)
--------- ---------- ----------
Balance at December 31, 1995 (4,047) (126,530) (130,577)
Net income 99 9,825 9,924
Distribution to partners (668) (66,158) (66,826)
--------- ---------- ----------
Balance at December 31, 1996 (4,616) (182,863) (187,479)
Net income 366 36,307 36,673
Distribution to partners (464) (45,916) (46,380)
--------- ---------- ----------
Balance at December 31, 1997 $ (4,714) $ (192,472) ($197,186)
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1995 1996 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from utilities and other customers $287,638 $294,942 $314,293
Cash paid to suppliers (164,875) (170,531) (184,234)
Interest paid (53,869) (51,435) (48,794)
Bank commitment fees paid (38) (38) (37)
Interest received 8,854 10,807 9,602
Cash payments to general partner for operating activities (2,914) (5,031) (4,897)
Cash payments to owners/management (3,566) (3,688) (3,758)
-------- -------- --------
Net cash provided by operating activities 71,230 75,026 82,175
-------- -------- --------
Cash flows from investing activities:
Net expenditures for facilities (1,885) (808) (334)
Expenditures for other fixed assets (76) (16) (44)
Decrease in restricted cash 3,432 9,412 --
-------- -------- --------
Net cash provided by (used for) investing activities 1,471 8,588 (378)
-------- -------- --------
Cash flows from financing activities:
Principal payments on debt (20,434) (25,204) (24,075)
Payment of financing costs (5,739) -- --
Distributions to partners (64,506) (66,826) (46,380)
-------- -------- --------
Net cash used for financing activities (90,679) (92,030) (70,455)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (17,978) (8,416) 11,342
Cash and cash equivalents at beginning of year 76,255 58,277 49,861
-------- -------- --------
Cash and cash equivalents at end of year $58,277 $49,861 $61,203
======== ======== ========
</TABLE>
Non-cash Investing Activities
In 1996 and 1997, total capitalized facility costs which were accrued at year
end for payment were approximately $165,000 and $240,000, respectively.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Combined Statement of Cash Flows (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1995 1996 1997
---- ---- ----
(In thousands)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<S> <C> <C> <C>
Net income $ 26,857 $ 9,924 $ 36,673
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 24,904 24,978 24,992
Amortization of financing costs 2,305 2,373 2,163
(Increase) decrease in accounts receivable (11,346) 7,794 9,635
(Increase) decrease in fuel inventories 0 (894) 658
(Increase) decrease in prepaid expenses
and other current assets (1,765) 347 (486)
Increase in accounts payable 633 129 847
Increase (decrease) in other accrued expenses 651 (67) (611)
(Decrease) in future obligations
under interest rate swap agreements (2,771) (1,632) (1,133)
Increase in amounts due utilities for energy
bank balances 32,557 32,869 9,643
(Increase) in other assets (795) (795) (206)
--------- --------- ---------
Net cash provided by operating activities $ 71,230 $ 75,026 $ 82,175
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
1. Nature of Business
The enactment in 1978 of the Public Utility Regulatory Policies Act
("PURPA") and the adoption of the regulations thereunder by the Federal
Energy Regulatory Commission ("FERC") provided incentives for the
independent development of power production facilities, such as
cogeneration, by requiring electric utilities to purchase power
generated by qualifying facilities.
Northeast Energy Associates, A Limited Partnership, ("NEA") and North
Jersey Energy Associates, A Limited Partnership, ("NJEA") (or together,
the "Partnerships") operate in the independent power industry. The
Partnerships were organized to develop, finance, construct, own, manage
and operate two 300 megawatt ("MW") natural gas-fueled cogeneration
facilities, one in Bellingham, Massachusetts and one in Sayreville, New
Jersey. The Partnerships have been granted permission by FERC to
operate the cogeneration facilities as qualifying facilities defined in
PURPA and as defined in federal regulations.
Through January 14, 1998, the general partner of each of the
Partnerships was Intercontinental Energy Corporation ("IEC"), a
Massachusetts corporation. IEC owned a one percent interest in each
partnership and the individual stockholders of the general partner
collectively owned the majority of the remaining partnership interests.
On January 14, 1998, all of the partner interests in the Partnerships
were acquired (Note 10).
The partners share profits and losses and have interests in assets and
liabilities and cash flows in proportion to their tax basis capital
accounts. Distributions to the partners may be made only after all
required funds and subfunds have been fully funded, as described in the
trust indenture (Note 5).
Cash Allocations Upon Disposition or Refinancing
In the absence of any dissolution events, the Partnerships shall
continue in existence until December 31, 2025 or thereafter, if so
determined by the majority of partners. Proceeds upon liquidation or
refinancing of partnership property would be apportioned on the
following basis:
1. Expenses of liquidation;
2. Third party debts and obligations;
3. To partners in proportion to their designated interests in the
Partnerships.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements include the accounts of
NEA and NJEA and are combined based on common ownership. All
transactions between NEA and NJEA have been eliminated in these
combined financial statements.
F-8
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Cogeneration Facilities and Carbon Dioxide Facility
The cogeneration facilities and the carbon dioxide facility are stated
at cost. Cost includes initial acquisition costs increased by
subsequent development and construction costs, including developer fees
and construction management fees, interest expense and amortization of
project loan acquisition costs incurred during the construction period,
and continuing facility improvements. Capitalized facility costs are
being depreciated using the straight-line method over the estimated
useful life of each facility of 20 years.
Unamortized Financing Costs
Unamortized financing costs consist primarily of investment banking
fees, legal fees and other costs associated with the placement of
securities (Note 5). In May 1995, the Partnerships paid a $5,600,000
restructuring fee, out of excess cash flow, to the general partner in
connection with the refinancing (Note 5) equal to 1% of the total
refinancing. These costs are being amortized over the approximate
15-year term of the securities using the interest method. Unamortized
financing costs are net of accumulated amortization of $4,845,000 and
$7,008,000 at December 31, 1996 and 1997, respectively.
Other Fixed Assets
Other fixed assets consist primarily of furniture, office equipment and
leasehold improvements and are depreciated using the straight-line
method over estimated useful lives ranging from 3-7 years.
Inventories
Inventories consist of natural gas and fuel oil and are stated at the
lower of cost, determined on a first-in, first-out (FIFO) basis, or
market.
Interest Rate Swap Agreements
Notional principal amounts in contracts and related settlement gains
and losses on interest rate swap agreements are allocated to the
Partnerships based on the relative amounts of outstanding borrowings of
each partnership on the date on which the swap agreements were
contracted. Prior to the refinancing (Note 5), gains and losses, based
on the amount the Partnerships were entitled to receive or required to
pay for additional interest, were determined at each calendar
quarter-end based on the outstanding notional balance and the amount by
which the contractual fixed rate exceeded or was less than the
contractual variable rate. Such gains and losses were recognized as
adjustments to interest expense. Subsequent to the refinancing (Note
5), the net payments required pursuant to all swap agreements and the
change in the fair value of the swap agreements are recognized as
adjustments to interest expense. The fair value of the swap agreements
is recorded as a current liability. See Notes 5 and 9 for further
disclosure regarding interest rate swap agreements.
Natural Gas Hedging Instruments
Premiums paid for natural gas call options are deferred within other
current assets and are accounted for in conjunction with the underlying
natural gas purchases at which point the premiums are written off to,
and any resultant gains credited to, cost of power and steam sales.
Gains and losses on natural gas purchase swap agreements are recognized
as adjustments to cost of power and steam sales at monthly settlement
dates. Purchases of natural gas under forward purchase agreements are
accounted for as cost of power and steam sales at their contract price
at the time of delivery. See Note 9 for further disclosure regarding
natural gas hedging instruments.
F-9
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Revenue Recognition
Revenue from power sales is recognized in accordance with Emerging
Issues Task Force Issue No. 91-6, "Revenue Recognition of Long-Term
Power Sales Contacts." Revenue is recognized based on power delivered
at rates stipulated in power sales agreements, except that revenue is
deferred to the extent that stipulated rates are in excess of amounts,
either scheduled or specified, in the agreements. The excess amounts
deferred are accumulated in energy banks and are reflected as amounts
due utilities for energy bank balances on the combined balance sheet.
Revenue from steam sales is recognized upon delivery of the steam.
Income Taxes
The partners are required to report their respective shares of the
Partnerships' taxable income or losses in their income tax returns and
are liable for any related taxes thereon. Accordingly, no provision for
income taxes is made in the combined financial statements of the
Partnerships.
The Partnerships' net assets and liabilities for financial reporting
purposes exceeded the net assets and liabilities for tax purposes by
approximately $41.6 million and $41.5 million at December 31, 1996 and
1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
3. Cash and Cash Equivalents and Restricted Cash
The Partnerships consider all investments purchased with an original
maturity of three months or less to be cash equivalents. The
Partnerships invest excess cash in high grade money market accounts and
commercial paper with original maturities less than three months.
Accordingly, the investments are subject to minimal credit and market
risk and are considered by the Partnerships to be cash equivalents. At
December 31, 1996 and 1997, all of the Partnerships' cash equivalents
are classified as held-to-maturity and recorded at amortized cost,
which approximates fair value.
Restricted cash at December 31, 1996 and 1997 represents cash reserved
as collateral for letters of credit related to energy bank balances
(Note 6). This cash is invested with a bank in a fixed-rate investment
agreement. Subsequent to the acquisition on January 14, 1998 of all of
the partner interests in the Partnerships, the cash collateral
requirement related to the energy bank balances was terminated in
exchange for the guarantee of one of the acquiring entities (Note 10).
4. Cogeneration Facilities and Carbon Dioxide Facility
Cogeneration Facilities
Cogeneration facilities consist of costs incurred to develop and
construct two gas-fueled cogeneration plants with maximum output
capacities of any combination of electricity and steam equivalent to
approximately 600 MW in the aggregate.
F-10
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Facility Sites
The facility owned by NEA is constructed on four parcels of land of
approximately 44 acres in Bellingham, Massachusetts. Three of the
parcels were acquired under various purchase and sale agreements. The
remaining parcel of land was acquired under a 26-year operating lease
agreement entered into in 1986 between NEA and a local developer. The
lease may be extended for another 25 years at the option of NEA. The
agreement provides for an annual lease payment of $60,000 from the date
of the agreement increasing annually thereafter by $12,000 (Note 6).
The facility owned by NJEA is constructed on two parcels of land of
approximately 49 acres acquired under various purchase and sale
agreements.
Power Sale Agreements
Commencing in 1986, NEA entered into five power sale agreements with
three major Massachusetts utilities to sell approximately 290 MW at
initial floor prices per kilowatt hour ("Kwh"), subject to adjustment
based on actual volumes of electricity purchased, escalation factors
and other conditions. Performance under certain of these power sale
agreements is secured by a second mortgage on the Bellingham facility.
In 1987, NJEA entered into an agreement with a major New Jersey utility
to sell 250 MW at an initial fixed price per Kwh subject to
adjustments, as defined in the agreement. These power sale agreements
have terms ranging from 20 to 30 years. All of the Partnerships' power
sales to utilities are generated through these arrangements. As such,
the Partnerships are directly affected by changes in the power
generation industry. Substantially all of the Partnerships' accounts
receivable are with utilities located in the Northeast portion of the
United States. The Partnerships do not require collateral or other
security to support their receivables. However, management does not
believe significant credit risk exists at December 31, 1997. Sales to
significant customers are as follows:
During the year ended December 31, 1995, revenue from two different
utilities totaled approximately $132.1 million and $118.3 million, or
approximately 47% and 42% of revenue, respectively.
During the year ended December 31, 1996, revenue from two different
utilities totaled approximately $122.3 million and $121.5 million, or
approximately 45% and 44% of revenue, respectively.
During the year ended December 31, 1997, revenue from two different
utilities totaled approximately $142.4 million and $123.6 million, or
approximately 46% and 40% of revenue, respectively.
Certain agreements require the establishment of suspense accounts
("energy banks") to record cumulative payments made by the utilities in
excess of avoided cost rates scheduled or specified in such agreements.
Some energy banks bear interest at various rates specified in the
agreements. A positive energy bank balance represents a liability of
the applicable Partnership to the applicable power purchaser which will
be reduced by subsequent sales of electric power to such power
purchaser to the extent that in later periods the avoided cost rates
scheduled or specified in such agreements rise above contract rates.
For certain agreements requiring the establishment of energy banks, the
Partnerships are required to provide collateral based on energy bank
balances (Note 6).
F-11
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
On November 25, 1997, the Massachusetts legislature passed a
comprehensive electric deregulation bill, the purpose of which is to
establish a comprehensive framework for the restructuring of the
electric utility industry. Additionally, industry efforts are also
underway in New Jersey. While the Partnerships' do not expect electric
utility industry restructuring to result in material adverse changes to
the Partnerships' Power Purchase Agreements, the impact of electric
utility industry restructuring on the companies that purchase power
from the Partnerships is uncertain.
Steam Sales Agreements and Carbon Dioxide Facility
In order for the Partnerships' facilities to maintain the status as
qualifying facilities under PURPA, the facilities are required to
generate five percent of total energy output as steam for sale to
unrelated third parties.
In 1989, NEA entered into a 25-year steam sales contract with a
processor and seller of carbon dioxide. Pursuant to this agreement, NEA
sells all the steam generated by the Bellingham facility at a price
which fluctuates based on changes in the price of a specified grade of
fuel oil.
This agreement can be extended at the option of the steam user. In
conjunction with this contract, NEA has constructed a carbon dioxide
facility and, in 1989, entered into a 15-year agreement to lease the
facility to the steam user. Base rent under the terms of the lease is
$100,000 per month, adjusted by the operating results of the carbon
dioxide facility for each month as outlined in the lease agreement.
Additionally, NEA pays the steam user $100,000 annually for
administrative services rendered related to the operation of the carbon
dioxide facility. NEA does not operate the carbon dioxide facility.
In 1989, NJEA entered into a 20-year steam sales contract with a steam
user adjacent to the Sayreville facility. Under the terms of this
agreement, NJEA sells a specified maximum quantity of steam at a floor
price which can increase based on changes in prices of coal. This
agreement automatically renews for two consecutive five year terms
unless either party gives notice not to renew two years before the
expiration of each of the prior terms.
Fuel Supply, Transportation and Storage Agreements
Natural gas is provided to the facilities primarily under long-term
contracts for supply, transportation and storage. The remaining fuel
requirements of the facilities are provided under short-term "spot"
arrangements. The long-term natural gas supply is provided under
contracts with ProGas Limited ("ProGas"), a Canadian gas marketing
company, and Public Service Electric and Gas Company ("PSE&G"), a
domestic retail gas distribution company. Transportation of the natural
gas is provided by various pipeline companies, including CNG
Transmission Company ("CNG"), Transcontinental Gas Pipe Line
Corporation ("Transco") and Algonquin Gas Transmission Company
("Algonquin"). Gas storage agreements provide contractual arrangements
for the storage of limited volumes of natural gas with third parties
for future delivery to the projects.
The ProGas contracts commenced in 1991. The initial terms of these
contracts of 15 years were extended an additional seven years effective
in 1994. Under the ProGas contracts, ProGas is required to arrange for
the aggregation, gathering and transportation of gas from Alberta,
Canada to the U.S. pipeline at Niagara, New York. The maximum total
volumes of gas to be delivered under these contracts are approximately
48,800 and 22,000 MMBtu per day for NEA and NJEA,
F-12
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
respectively. The contract price of the ProGas supply delivered to the
import point, inclusive of transportation costs to that point, is
determined with reference to a "base price" in 1990, redetermined
annually thereafter based on specified inflation indices. The PSE&G
contract commenced in 1991. Under the PSE&G agreement, PSE&G will sell
and deliver to NJEA up to 25,000 MMBtu per day of gas for a term of 20
years. The contract price of the PSE&G fuel is established monthly
using a contractually specified mechanism.
With the exception of the PSE&G arrangement, all of the Partnerships'
long-term contractual arrangements call for monthly "demand charge"
payments. These demand charge payments, which are to reserve certain
pipeline transportation capacity, are made regardless of the
facilities' specific fuel requirements in any month and regardless of
whether the facilities utilize the capacity reserved under the
contracts. These demand charges totaled approximately $49 million, $48
million and $46 million in 1995, 1996 and 1997, respectively, and total
payments under such contracts were approximately $98.3 million, $100.5
million and $112.5 million in 1995, 1996 and 1997, respectively,
inclusive of demand charges. Under 1997 pricing conditions, the demand
charge payments would be approximately $46 million under these
contracts for each of the next five years and approximately $723
million over the remaining life of these contracts. Total charges under
the contract with PSE&G, including transportation costs, during 1995,
1996 and 1997, were approximately $24.3 million , $32.4 million and
$28.1 million, respectively. In the event that the available capacity
under these agreements is not utilized by the operations of the
facilities, the Partnerships have the opportunity under certain of
these contractual agreements to sell unused capacity to third parties,
but have not yet done so.
NEA's facility also has the capability to burn #2 fuel oil. Fuel oil
was obtained and is stored on site for contingency supply for the
facility.
5. Loans Payable
In 1989, as amended in 1990, 1991 and 1992, the Partnerships, together
with the general partner, executed a project loan and credit agreement
with a group of banks for a maximum commitment of $600,000,000 for the
construction and development of the Bellingham and Sayreville
facilities and initial working capital and letters of credit facility.
On December 1, 1994, the Partnerships refinanced their existing
borrowings by means of a placement of securities to qualified
institutional investors as defined in Rule 144A of the Securities Act
of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997
---- ----
<S> <C> <C>
8.43% Senior Secured Notes Due 2000 $95,482,000 $71,407,000
9.16% Senior Secured Notes Due 2002 31,500,000 31,500,000
9.32% Senior Secured Bonds Due 2007 215,740,000 215,740,000
9.77% Senior Secured Bonds Due 2010 171,640,000 171,640,000
------------ ------------
$514,362,000 $490,287,000
============ ============
</TABLE>
F-13
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
The above securities were issued through a special purpose funding
corporation, IEC Funding Corp., established solely for the purpose of
issuing the securities, and are unconditionally guaranteed, jointly and
severally, by the Partnerships. Effective February 10, 1995, IEC
Funding Corp. filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission for purposes of effecting a public
exchange offer whereby the securities listed above were exchanged for a
new issue of securities (the "Securities"). The Securities have terms
identical to the securities issued in accordance with Rule 144A.
Subsequent to the acquisition discussed in Note 10, IEC Funding Corp.
changed its name to ESI Tractebel Funding Corp.
Interest on the Securities is payable semiannually on each June 30 and
December 30, commencing December 30, 1994. Principal repayments, which
commenced on June 30, 1995, are made semiannually in amounts stipulated
in the trust indenture.
Future principal payments are as follows:
Year ending December 31,
------------------------
1998 $ 21,563,000
1999 23,511,000
2000 26,333,000
2001 20,160,000
2002 22,688,000
Thereafter 376,032,000
------------
$490,287,000
============
The Securities are not subject to optional redemption but are subject
to mandatory redemption in certain limited circumstances involving the
occurrence of an event of loss, as defined in the trust indenture, for
which the Partnerships fail to or are unable to restore a facility.
Additionally, the Partnerships may, at their option, repurchase all or
part of the Securities with proceeds received from the release of cash
collateral maintained as security for letters of credit (Note 6).
The proceeds of the Securities were used (a) to purchase the notes
outstanding under the original loan and credit agreement and (b) to
make loans to the Partnerships. In connection with these two
transactions, the notes outstanding under the loan and credit agreement
were surrendered and new notes of the Partnerships were issued to ESI
Tractebel Funding Corp. (formerly IEC Funding Corp.) in an aggregate
principal amount equal to the aggregate principal amount of the
Securities (the "New Notes") and the loan and credit agreement was
assigned to ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
and amended and restated (the "Amended and Restated Credit Agreement").
Borrowings are secured by a lien on, and a security interest in,
substantially all of the assets of the Partnerships. Under the Amended
and Restated Credit Agreement, the Partnerships are jointly and
severally required to make scheduled payments on the New Notes on dates
and in amounts identical to the scheduled payments of principal and
interest on the Securities. The Securities, the guarantees thereon
provided by the Partnerships and the New Notes are nonrecourse to the
partners of the Partnerships and are payable solely from the collateral
pledged as security.
F-14
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Under the terms of the trust indenture governing the Securities, the
Partnerships are required to establish certain funds and subfunds,
which must be fully funded before any distributions can be made to
partners. The funding requirements of these funds are defined in the
trust indenture. Cash within these funds can be drawn currently if
funds in the Partnerships' other cash accounts are insufficient to meet
operational cash requirements. The order in which these funds may be
drawn is described in the trust indenture. Funds available for
distribution to partners as of December 31, 1997 have been paid.
The trust indenture contains certain restrictions on certain activities
of the Partnerships, including the incurrence of additional
indebtedness or liens, the payment of distributions to the partners,
the cancellation of power sale and fuel supply agreements, the use of
proceeds from the issuance of the Securities and the execution of
mergers, consolidations and sales of assets.
The trust indenture allows the Partnerships to enter into revolving
credit agreements of up to $20 million in order to provide for working
capital requirements. The Partnerships have entered into an initial
working capital facility of $15 million with a bank. Available
borrowings under the working capital facility are calculated based on
outstanding receivables and fuel inventories. The Partnerships are
required to pay an annual agency fee of $25,000 and quarterly
commitment fees at an annual rate of .25% on the unused portion of the
facility. At December 31, 1996 and 1997, no borrowings were outstanding
under this working capital facility. Subsequent to the acquisition on
January 14, 1998 of all of the partner interests in the Partnerships,
this working capital facility was terminated (Note 10).
Under the terms of the original loan and credit agreement, the
Partnerships were required to enter into interest rate swap agreements
("Swaps") with certain financial institutions, providing for payments
thereunder on a notional principal amount of indebtedness to be made by
the Partnerships at fixed interest rates in exchange for payments to be
made by such financial institutions at floating interest rates. Such
existing Swaps remained in effect after the issuance of the Securities.
In connection with the issuance of the Securities, the Partnerships
entered into counter swap agreements in order to hedge the obligations
of the Partnerships under such existing Swaps. As a result of the
foregoing arrangements, after giving effect to the net payments to be
made and received by the Partnerships pursuant to all of the Swaps, the
Partnerships' net payments pursuant to the Swaps were equivalent to a
fixed net interest rate of approximately 1.35% on the original
specified notional principal amount, which was scheduled to decline
periodically until the scheduled expiration of the Swaps in 1999. The
Partnerships are jointly and severally liable under these agreements.
The Partnerships' exposure to interest rate fluctuations could increase
in the event of nonperformance by the bank who is party to the interest
rate swap agreements; however, the Partnerships do not anticipate
nonperformance by the bank. See Note 9 for additional information
regarding interest rate swap agreements.
As a result of the refinancing described above, the original Swaps no
longer qualify as hedges and, therefore, must be recorded at fair
value. Changes in fair value are recognized in the combined statement
of operations. See Note 9 for information regarding fair value of
financial instruments.
F-15
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
6. Commitments and Contingencies
See Note 4 for information regarding additional commitments and
contingencies.
Energy Bank Collateral
Under the terms of the trust indenture, the Partnerships are required
to maintain a letter of credit facility to secure obligations for
energy bank balances under the various power purchase agreements (Note
4). During December 1994, the Partnerships entered into an agreement
with a bank for a letter of credit facility to issue up to an aggregate
amount of $82 million in letters of credit. This facility contains a
cross-default provision to the trust indenture, as well as a payment
default under the working capital facility (Note 5). The Partnerships
pay quarterly fees on this letter of credit facility at an annual rate
of .30% on outstanding letters of credit and unused commitments to
issue letters of credit. As of December 31, 1996 and 1997, the
Partnerships' obligation for letters of credit outstanding under this
facility is $68,656,000 and $67,656,000, respectively. The Partnerships
are required to provide cash collateral for the maximum amount of
obligations allowed under the terms of this facility. As of December
31, 1996 and 1997, the Partnerships reserved $69,156,000 in cash as
collateral for such obligations (Note 3). Subsequent to the acquisition
on January 14, 1998 of all of the partner interests in the
Partnerships, the cash collateral requirement was terminated in
exchange for the guarantee of one of the acquiring entities; also, the
letters of credit facility was replaced with letters of credit from
other financial institutions (Note 10).
Operation and Maintenance of the Cogeneration Facilities In 1989, the
Partnerships entered into two separate ten year operation and
maintenance agreements with the same contractor responsible for
constructing and installing the combined-cycle cogeneration plants for
both facilities for an aggregate annual consideration of approximately
$11,100,000 subject to changes in specified indices. The agreements
commenced during 1991 after the facilities became operational. The
Partnerships each have an option to enter into a successor operation
and maintenance agreement with the contractor for a ten year term
following the expiration of the term of the original agreement, on
either a cost plus payment basis or a fixed fee payment basis to be
negotiated at the time of the operation exercise.
Under the terms of these agreements, the Partnerships are required to
pay the operation and maintenance contractor a bonus payable annually
over the term of the agreement, based on operating performance for each
year ending on the anniversary of the respective commencement of
operations (September 1, 1991 for NJEA and October 1, 1991 for NEA).
The Partnerships incurred $5,375,000, $3,482,000 and $5,823,000 related
to this bonus in 1995, 1996 and 1997, respectively.
During 1993, the Partnerships entered into a revised ten year heat rate
bonus agreement with the operation and maintenance contractor. Under
the terms of this agreement, the total bonus to be earned over the ten
year period is $11 million, subject to the continued satisfaction of
specified minimum performance standards. The agreement provides that
this amount will be paid to the contractor over the first five years of
the agreement. The agreement also provides that amounts paid under the
former heat rate bonus agreement during 1992 would be applied as
payments under the revised agreement. Total payments made under this
agreement were $1,854,000 in each of 1995, 1996 and 1997. Amounts
expensed under this heat rate bonus agreement were $1,060,000 in each
of 1995, 1996 and 1997.
F-16
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Operating Lease
Lease payments under the operating lease for the land in Bellingham,
Massachusetts (Note 4) are as follows:
Year ending December 31,
------------------------
1998 $ 189,000
1999 201,000
2000 213,000
2001 225,000
2002 237,000
Thereafter 2,760,000
------------
$ 3,825,000
============
During 1995, 1996 and 1997, NEA paid and expensed $153,000, $165,000
and $177,000, respectively, under this agreement.
7. Employee Savings Plan
Effective January 1, 1991, the general partner (IEC) adopted a defined
contribution employee savings plan qualifying under Section 401(k) of
the Internal Revenue Code. Pursuant to the plan, the general partner
fully matches contributions made by eligible employees to the plan up
to 5% of an employee's base compensation. Contributions made by the
general partner become fully vested after four years of continuous
service. In addition, employees may contribute up to an additional 5%
of base compensation which is not matched by the general partner.
During 1995, 1996 and 1997, the Partnerships were charged $78,000,
$90,000 and $156,000, respectively, for their shares of contributions
made by the general partner to this plan (Note 8).
8. Other Related Party Transactions
Subsequent to the commencement of operations of the Partnerships, the
general partner began to pay certain expenses as a convenience for the
Partnerships. These expenses are reimbursed to the general partner at
cost. The following represents the activity between the Partnerships
and the general partner for the years ended December 31, 1995, 1996 and
1997:
F-17
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended December 31, 1995: NEA NJEA
--- ----
<S> <C> <C>
Expenses paid by the general partner
Payroll and related expenses $1,053,000 $878,000
Travel 76,000 76,000
Office space and utilities 126,000 125,000
Professional fees, insurance and other 424,000 413,000
---------- ---------
1,679,000 1,492,000
Payments to the general partner 1,457,000 1,457,000
---------- ---------
Payments in excess of expenses (222,000) (35,000)
Due from (to) general partner, December 31, 1994 133,000 13,000
---------- ---------
Due from (to) general partner, December 31, 1995 ($89,000) ($22,000)
========== =========
For the year ended December 31, 1996:
Expenses paid by the general partner
Payroll and related expenses $1,364,000 $1,311,000
Travel 95,000 95,000
Office space and utilities 128,000 128,000
Professional fees, insurance and other 827,000 830,000
---------- ----------
2,414,000 2,364,000
Payments to the general partner 2,541,000 2,490,000
---------- ----------
Payments in excess of expenses 127,000 126,000
Due from (to) general partner, December 31, 1995 (89,000) (22,000)
---------- ----------
Due from (to) general partner, December 31, 1996 $ 38,000 $ 104,000
========== ==========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997: NEA NJEA
--- ----
<S> <C> <C>
Expenses paid by the general partner
Payroll and related expenses $1,402,000 $1,332,000
Travel 88,000 88,000
Office space and utilities 168,000 168,000
Professional fees, insurance and other 934,000 816,000
---------- ----------
2,592,000 2,404,000
Payments to the general partner 2,483,000 2,414,000
---------- ----------
Payments in excess of expenses (109,000) 10,000
Due from (to) general partner, December 31, 1996 38,000 104,000
---------- ----------
Due from (to) general partner, December 31, 1997 $ (71,000) $ 114,000
=========== ==========
</TABLE>
9. Financial Instruments
The Partnerships have made use of derivative financial instruments to
hedge their exposure to fluctuations in both interest rates and the
purchase price of natural gas.
Under the project loan and credit agreement, the Partnerships were
required to enter into fixed interest rate swap agreements as a means
of managing exposure to the variable rate interest of the original
Partnerships borrowings. In conjunction with the refinancing, the
Partnerships entered into counter swap agreements so that the
Partnerships would no longer be exposed to changes in interest rates
(Note 5).
The prices received by the Partnerships for power sales under their
long-term sales contracts do not move precisely in tandem with the
prices paid by the Partnerships for natural gas. In order to mitigate
the price risk associated with purchases of natural gas, the
Partnerships may, from time to time, enter into certain hedging
transactions either through public exchanges such as the NYMEX, or by
means of over-the-counter transactions with specific counterparties.
The Partnerships hedge purchases of natural gas through the use of (a)
natural gas call options that give the Partnerships the right, but not
the obligation, to purchase specified quantities of natural gas at a
pre-determined price; (b) natural gas purchase swap agreements that
require the Partnerships to pay a price, fixed absolutely or within a
specified range, in return for a variable price on a notional specified
quantity of natural gas; and (c) forward purchases of natural gas.
The Partnerships control the credit risk arising from these instruments
through credit approvals, limits and monitoring procedures. There are
no significant concentrations of credit risk. The Partnerships do not
normally require collateral or other security to support financial
instruments with credit risks.
F-19
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
The following table sets forth the contract or notional amounts of
these financial instruments. While indicating the size of the
transaction entered into, the amounts do not represent the
Partnerships' exposure to loss in the event of nonperformance by the
counterparties involved. The Partnerships do not anticipate
nonperformance by the counterparties.
<TABLE>
<CAPTION>
Contract or Contract or
notional amount notional amount
at December 31, at December 31,
1996 1997
------------------------- ---------------------------
$ MMBtu $ MMBtu
----- ----- ----- -----
<S> <C> <C> <C>
Interest rate swap agreements 20,335,000 - 12,940,000 <C> -
Gas purchase swap agreements - 28,600,000 - 21,920,000
Gas forward purchases - 418,000 - -
</TABLE>
The net effect on interest expense due to the interest rate swap
agreements and the net gain/(loss) included in cost of power and steam
sales resulting from the gas purchase options, swap agreements and
forward purchases is as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net effect on interest expense -
(decrease) increase $(486,000) $ 137,000 $ 103,000
Net (loss)/gain included in cost of
power and steam sales (448,000) 5,246,000 3,990,000
</TABLE>
The estimated fair value and related carrying amounts of certain
financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
----------------- -----------------
Related Related
Fair carrying Fair carrying
value amount value amount
$ $ $ $
----- -------- ----- -------
<S> <C> <C> <C> <C>
Loans payable (564,075,000) (514,362,000) (526,010,000) (490,287,000)
Restricted cash 69,156,000 69,156,000 69,156,000 69,156,000
Interest rate swap agreements (2,022,000) (2,022,000) (889,000) (889,000)
Gas purchase swap agreements 1,671,000 - 2,527,000 -
Gas forward purchases (143,000) - - -
</TABLE>
The estimated fair values may not be representative of actual values of
the financial instruments that could have been realized as of year end
or that will be realized in the future.
F-20
<PAGE>
Northeast Energy Associates, A Limited Partnership, and
North Jersey Energy Associates, A Limited Partnership
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair
values of certain instruments:
Loans payable - The fair value of loans payable at December 31, 1996
was estimated by an independent third party valuation based on the
fixed nature of the loans, the credit risk associated with such loans
and the current borrowing environment available to the Partnerships.
The estimated fair value of the loans payable at December 31, 1997 has
been determined based upon the borrowing rate (8%) currently available
to the Partnerships for debt instruments with similar terms and average
maturities.
Restricted cash - The fair value of restricted cash is estimated based
upon the fixed yield and term of the investment and rates currently
available to the Partnerships for deposits of similar maturities.
Interest rate swap agreements - The fair value of interest rate swap
agreements is the estimated amount that the banks would receive to
terminate the swap agreements, taking into account current interest
rates and the creditworthiness of the swap counterparties.
Natural gas hedging instruments - The fair value of natural gas hedging
instruments is based upon the amounts the Partnerships would be
entitled to receive or required to pay if the contracts were terminated
at the reporting date, taking into account the forward prices of
natural gas on the reporting date, the fixed purchase prices of the
contracts and the exercise dates of the contracts.
10. Subsequent Events
On January 14, 1998, pursuant to the purchase agreement dated as of
November 21, 1997, all of the partner interests in the Partnerships
were acquired by Tractebel, S.A. and FPL Group, Inc., through their
wholly owned subsidiaries, for approximately $533 million in cash and
the assumption of the Partnerships' outstanding debt. The acquisition
will be accounted for under the purchase method; accordingly, the
carrying value of the assets acquired and liabilities assumed of the
Partnerships will be adjusted based upon the final purchase price
allocation. Concurrent with and related to the acquisition of the
Partnerships, IEC Funding Corp. was also acquired and its name changed
to ESI Tractebel Funding Corp. Subsequent to the acquisition, the
working capital facility was terminated and the letters of credit
facility and the Debt Service Reserve Fund were replaced with new
letter of credit arrangements (Notes 5 and 6) and the cash collateral
requirement related to the energy bank balances was eliminated in
exchange for the guarantee of one of the acquiring entities (Note 6).
F-21
<PAGE>
APPENDIX A
DEFINED TERMS
The following are summaries of some of the definitions used in certain
of the principal documents and in this Prospectus. This Appendix is qualified in
its entirety by reference to the project documents for the complete terms and
definitions.
"Accommodation Agreement" means the Accommodation Agreement dated as of
June 28, 1989, among NEA, Commonwealth, Boston Edison and Montaup.
"Acquisition Date" means January 14, 1998, the date of the consummation
of the Acquisitions.
"Acquisitions" means the acquisition by NE LP and NE LLC of all of the
partnership interests in NEA and NJEA and the acquisition by ESI Funding and
Tractebel Power of seventy-five percent (75%) of the outstanding capital stock
of ESI Tractebel Funding pursuant to the Purchase Agreement.
"Additional Project Securities" means any Debt of ESI Tractebel Funding
issued, subject to certain conditions set forth in the Project Indenture, to
provide a source of funds for (i) Required Improvements, (ii) cash collateral to
support Energy Bank Obligations (or to secure obligations of the Partnerships
under the Project Letter of Credit Facility with respect to Project Letters of
Credit issued to secure such Energy Bank Obligations) arising as a result of
Power Purchase Agreements (or amendments thereto) entered into after November
15, 1994 (iii) payment of fees and costs associated with the issuance of
Additional Project Securities, or (iv) funding the Debt Service Reserve Fund to
the extent that the balance in such Fund is less than the Debt Service Reserve
Requirement.
"Administrative Services Agreement" means the Administrative Services
Agreement, dated as of November 21, 1997, by and between NE LP and ESI GP.
"Administrative Services Fee" means a fee, payable monthly, equal to
$600,000 per annum, adjusted annually based on a producer price index paid by NE
LP to ESI LP as compensation for the services it performs pursuant to the
Administrative Services Agreement.
"Affiliate," as used in the Project Indenture, means, as to any Person,
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that the beneficial ownership of 20% or more of the Voting
Stock of a Person shall be deemed to be control.
"Aggregate Amortization Reserve Amount" means, as of any date of
determination, the sum of the Amortization Reserve Amounts as of such date in
respect of all items of Permitted Purchase Money Indebtedness and Permitted
Unsecured Indebtedness then outstanding.
"Algonquin" means Algonquin Gas Transmission Company, a Delaware
corporation.
"Avoided Cost Security" means the security granted, pursuant to the NEA
Second Mortgage, with respect to all amounts paid under the respective Power
Purchase Agreements for the NEA Project in excess of the particular mortgagee's
actual Avoided Costs, with interest thereon at the prime rate of The First
National Bank of Boston, N.A. in effect from time to time.
<PAGE>
"Avoided Costs" means, the incremental costs to an electric utility of
electric energy or capacity or both which, but for the purchase from a
qualifying facility, such utility would generate itself or purchase from some
other source.
"Back-up Letter of Credit" as used in the Project Indenture means an
irrevocable standby letter of credit (a) issued by a commercial bank whose
long-term obligations are rated (or whose bank holding company has long-term
obligations rated) at least "A" by S&P, "A2" by Moody's or "A" by Fitch (or an
equivalent rating by another nationally recognized credit rating agency of
similar standing if two or more of such corporations are not in the business of
rating long-term obligations of commercial banks), (b) in form reasonably
acceptable to the Project Trustee, (c) with a minimum term of one (1) year (or
shorter period ending on or after the Stated Maturity of the Project
Securities), (d) for the benefit of the Project Letter of Credit Banks, (e)
which shall not be a Debt of either ESI Tractebel Acquisition or either
Partnership and shall not be secured by or otherwise encumber any of the Project
Collateral and (f) providing for the amount thereof to be available to the
Project Letter of Credit Banks in multiple drawings, including a drawing by the
Project Letter of Credit Banks in multiple drawings, including a drawing by the
Project Letter of Credit Banks in multiple drawings, including a drawing by the
Project Letter of Credit Banks (or Project Trustee or the Collateral Agent on
behalf of the Project Letter of Credit Banks) upon the receipt of notice from
the Project Letter of Credit Banks (or the Project Trustee or the Collateral
Agent) of any Event of Default and, until such time as a Back-up Letter of
Credit is not required, a drawing by the Project Letter of Credit Banks (or the
Project Trustee or the Collateral Agent on behalf of the Project Letter of
Credit Banks) at any time within 30 days prior to the expiration of such letter
of credit for the full face amount thereof in the event such letter of credit is
not renewed or substituted with one or more other Back-up Letters of Credit at
such time, conditioned in each case only upon presentment of sight drafts
accompanied by the applicable certificate in the form attached to such letter of
credit (and reasonably acceptable in form to the Project Letter of Credit Banks
and either the Project Trustee or the Collateral Agent).
"BankBoston" means BankBoston, N.A.
"BOC Gases" means the BOC Gases Division of the BOC Group, Inc., a
Delaware corporation.
"Bond Guaranty" means the guaranty to be provided on the Closing Date
by NE LP in favor of the Trustee, guaranteeing the obligations of ESI Tractebel
Acquisition under the Indenture.
"Bond Loan" means ESI Tractebel Acquisition's loan to NE LP of proceeds
received by ESI Tractebel Acquisition from the sale of the Securities.
"Boston Edison" means Boston Edison Company, a Massachusetts
corporation.
"Boston Edison I Power Purchase Agreement" means the Power Purchase
Agreement dated as of April 1, 1986, as amended on June 8, 1987 and June 21,
1989, between NEA and Boston Edison.
"Boston Edison II Power Purchase Agreement" means the Power Purchase
Agreement dated as of January 28, 1988, as amended, between NEA and Boston
Edison.
"Boston Edison Interconnection Agreement" means the Amended and
Restated Interconnection Agreement dated as of September 24, 1993, between
Boston Edison and NEA.
A-2
<PAGE>
"Broad Street" means Broad Street Contract Service's, Inc.
"Btu" means British thermal units, a unit of energy.
"Capital Expenditures" as defined in the Project Indenture, means for
any period, expenditures (including the aggregate amount of obligations in
respect of Capital Leases (as defined in the Project Indenture) incurred during
such period) made during such period by either Partnership to acquire or
construct fixed assets, including, without limitation, plant, equipment and
fixtures (including renewals, improvements and replacements, but excluding
repairs) during such period computed in accordance with GAAP.
"Carbon Dioxide Plant" means the carbon dioxide production facility
owned by NEA and located adjacent to the NEA Project on the NEA Site and all
equipment and facilities ancillary thereto.
"Carbon Dioxide Sales Agreements" means those agreements between NECO
and BOC Gases, and NECO and Praxair, respectively, for the purchase and sale of
carbon dioxide.
"Cash Collateral Proceeds" means the cash collateral (and investments
thereof) deposited by the Partnerships to secure the Partnerships' obligations
to reimburse under the Project Letter of Credit Facility.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of NE LP, NE LLC, NEA or NJEA to any "person" or
group (as each such term is used in section 13(d)(3) and 14(d)(2) of the
Exchange Act) other than the Sponsors or their Related Parties; (ii) the
adoption of a plan relating to the liquidation or dissolution of NE LP, NE LLC,
NEA or NJEA (other than as permitted by the Indenture); (iii) the consummation
of any transaction or series of related transactions (including without
limitation, any merger or consolidation) the result of which is that any person
or group (as defined above), other than the Sponsors and their Related Parties,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that a person or group shall be deemed to
have "beneficial ownership" of all securities that such person or group has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the voting power of any general partner of NE LP, NEA or NJEA
or of the voting power of the managing member of the NE LLC by way of merger or
consolidation or otherwise other than a transaction involving an acquisition of
FLP Group or Tractebel; (iv) the consummation of any transactions or series of
related transactions the result of which is that any person or group of persons
(as defined above) other than the Sponsors and the Related Parties owns,
directly or indirectly, more of the economic and voting interests of the
Sponsors, NE LP, NE LLC, NEA or NJEA or of the voting power of the managing
member of NE LLC than do the FLP Group and Tractebel; or (v) the consummation of
any transaction or series of related transactions the result of which is that
any person or group (as defined above) other than the Sponsors and the Related
Parties owns, directly or indirectly more of the voting power of any general
partner of NE LP, NEA, or NJEA than do the Sponsors and their Related Parties;
provided that, notwithstanding the foregoing, a Change of Control will not occur
if Moody's and S&P confirm that the then existing ratings of the New Securities
will not be lowered as a result of any of the foregoing events.
"Clean Air Act" means the Federal Clean Air Act of 1955, as amended.
"Closing Date" means February 19, 1998, the date the Old Securities
were issued and delivered to Goldman.
A-3
<PAGE>
"CNG" means CNG Transmission Corporation, a Delaware corporation.
"Collateral Agency Agreement" means the Collateral Agency Agreement,
dated as of December 1, 1994, as amended, among the Collateral Agent, the
Project Trustee, IEC Funding Corp. (now ESI Tractebel Funding), the Swap Banks,
the Working Capital Banks and the Partnerships.
"Collateral Agent" when used in connection with the Project Securities,
means State Street Bank, as collateral agent pursuant to the Collateral Agency
Agreement and when used in connection with the Securities, means State Street
Bank, as collateral agent under the Pledge Agreements.
"Commission" means the United States Securities and Exchange
Commission.
"Commonwealth" means Commonwealth Electric Company, a Massachusetts
corporation.
"Commonwealth I Power Purchase Agreement" means the Power Sale
Agreement between Commonwealth and NEA dated as of November 26, 1986, and
amended as of August 15, 1988 and as further amended as of January 1, 1989.
"Commonwealth II Power Purchase Agreement" means the Power Sale
Agreement between Commonwealth and NEA dated as of August 15, 1988, and amended
as of January 1, 1989.
"Commonwealth Power Purchase Agreements" means, collectively, the
Commonwealth I Power Purchase Agreement and the Commonwealth II Power Purchase
Agreement.
"Conrail" means Consolidated Rail Corporation.
"Daily NEA Quantity" means 48,817 Dth of natural gas.
"Daily NJEA Quantity" means 22,019 Dth of natural gas.
"Debt" of any Person, as defined in the Project Indenture, means (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, (iv) all obligations under capital leases of such Person, (v) all Debt
of others secured by a Lien on any asset of such Person, whether or not such
Debt is assumed by such Person (vi) all Debt of others to the extent guaranteed
by such Person, (vii) all obligations under letters of credit issued for the
account of such Person, (viii) all obligations of such Person under trade or
bankers' acceptances and (ix) all obligations of such Person under agreements
providing for interest rate swaps, collars or caps.
"Debt Service Account," as defined in the Indenture, means the account
entitled "Debt Service Account" established and maintained by the Trustee
pursuant to the Indenture.
"Debt Service Coverage Ratio," as defined in the Project Indenture,
means the ratio of (i) the Project Revenues received directly by NE LP and NE
LLC during the 12-month period preceding the date as of which such ratio is
calculated (net of any operating expenses paid by any of the Securities, NE LP
and NE LLC during such period) to (ii) the scheduled debt service payments
(including principal, interest, premium, penalties and fees) on the Securities
and all other indebtedness (other than any Permitted Indebtedness) of ESI
Tractebel Acquisition, NE LP and NE LLC during such 12-month period, (provided
that, for purposes of this calculation, the corresponding payments in respect of
the Bond Loans and the Securities shall be deemed to constitute only one
payment).
A-4
<PAGE>
"Debt Service Reserve Fund," as defined in the Project Indenture, means
the Fund entitled "Debt Service Reserve Fund" established and maintained by the
Project Trustee pursuant to the Project Indenture.
"Debt Service Reserve Requirement," as defined in the Project
Indenture, means, as of any Monthly Transfer Date, an amount equal to 50% of the
aggregate regularly scheduled interest, principal and fee payments to be made by
the Partnerships in respect of the Project Notes (for application to the payment
of principal, interest and fees of the Project Securities and any Additional
Project Securities) during the period commencing on (and including) such Monthly
Transfer Date and ending on (but excluding) the twelfth (12th) Monthly Transfer
Date thereafter; provided that the amount of the Debt Service Reserve
Requirement as of the Closing Date and as of the date of issuance of any
Additional Project Securities and for the period thereafter until the next
succeeding Monthly Transfer Date shall be equal to the Debt Service Reserve
Requirement calculated as of the Closing Date the date of issuance of any
Additional Project Securities or such next succeeding Monthly Transfer Date, as
the case may be.
"Dekatherm" or "Dth" means one MMBtu.
"Disqualified Stock", as defined in the Indenture, means any Capital
Stock that, by its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Securities mature; provided,
however, that any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require ESI Tractebel Acquisition
to repurchase such Capital Stock upon the occurrence of a Change of Control
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that ESI Tractebel Acquisition may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described under "Description of Securities."
"Distributable Percentage", as defined in the Project Indenture, means,
at any date, (i) 100% if the Debt Service Coverage Ratio for the Rolling Prior
Year is greater than or equal to 1.40:1, (ii) 75% if the Debt Service Coverage
Ratio for the Rolling Prior Year is less than 1.40:1 but greater than or equal
to 1.35:1, (iii) 50% if the Debt Service Coverage Ratio for the Rolling Prior
Year is less than 1.35:1 but greater than or equal to 1.30:1 and (iv) 25% if the
Debt Service Coverage Ratio for the Rolling Prior Year is less than 1.30:1 but
greater than or equal to 1.25:1.
"Distribution Account", as defined in the Indenture, means the account
entitled "Distribution Account" maintained by the Trustee pursuant to the
Indenture.
"Dollars" and "$" means lawful money of the United States.
"DTC" means The Depository Trust Company.
"DTE" means Department of Telecommunications and Energy.
"Energy Bank" or "Energy Bank Obligations" means an account recording
the liability of a Partnership to a Power Purchaser representing cumulative
payments made to such Partnership by such Power Purchaser under the applicable
Power Purchase Agreement in excess of such Power Purchaser's Avoided Costs,
determined in accordance with such Power Purchase Agreement.
A-5
<PAGE>
"Energy Bank Letters of Credit" means, collectively, any letter or
letters of credit for the benefit of the Power Purchasers to secure the Energy
Bank Obligations.
"Environmental Law" means any and all Government Rules relating to
human health or the environment, or the release of Hazardous Materials into the
indoor or outdoor environment including, without limitation, ambient air,
surface water, groundwater, wetlands, land or subsurface strata or otherwise
relating to the use of Hazardous Material, whether now or hereafter in effect.
Environmental Laws shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Toxic Substances Control Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean
Air Act, as amended, the Occupational Safety and Health Act, as amended, and all
analogous laws promulgated or issued by any state or other Governmental
Authority.
"EPA" means the Environmental Protection Agency of the United States.
"ESI" or "ESI Energy" means ESI Energy, Inc., a Florida corporation.
"ESI Acquisition Funding" means ESI Northeast Energy Acquisition
Funding, Inc., a Florida corporation.
"ESI Funding" means ESI Northeast Energy Funding, Inc., a Florida
corporation.
"ESI GP" means ESI Northeast Energy GP, Inc., a Florida corporation.
"ESI LP" means ESI Northeast Energy LP, Inc., a Florida corporation.
"ESI Tractebel Acquisition" means ESI Tractebel Acquisition Corp., a
Delaware corporation.
"ESI Tractebel Funding" means ESI Tractebel Funding Corp., a Delaware
corporation, formerly known as "IEC Funding Corp."
"Event of Loss" means any compulsory transfer or taking or transfer
under threat of compulsory transfer or taking of all or any material part of
either Project by any Government Authority, or any event which causes all or any
material portion of either Project by any Government Authority, or any event
which cause all or any material portion of either Project to be damaged,
destroyed or rendered unfit for normal use for any reason whatsoever.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the anticipated offer by ESI Tractebel
Acquisition to exchange the New Securities for an equal principal amount of the
Old Securities.
"Extended Gas Service" means the sale and delivery of gas to NJEA by
PSE&G for days on which the mean daily temperature for Newark, New Jersey is
between 22(degree)F and 14(degree)F.
"FERC" means the United States Federal Energy Regulatory Commission.
"Fluor Daniel" means Fluor Daniel Inc., a California corporation.
"Fluor Daniel Agreement" means the Design/Build Contract dated as of
June 28, 1989 between NEA and Fluor Daniel.
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"FPA" means the Federal Power Act, as amended.
"FPL" means Florida Power & Light Co., a Florida corporation.
"FPL Energy" means FPL Energy, Inc., a Florida corporation.
"FPL Group" means FPL Group, Inc., a Florida corporation.
"FPL Group Capital" means FPL Group Capital Inc., a Florida
corporation.
"FPL Group Capital Guaranty" or "FPL Capital Guarantee" means a
guaranty or an agreement made by FPL Group Capital in to reimburse Energy Bank
Letter of Credit Banks and/or Substitute Letter of Credit Banks, issued pursuant
to the Reimbursement Agreement.
"Fuel Consultant" means Benjamin Schlesinger and Associates, Inc.
"Fuel Consultant's Report" means the report prepared by the Fuel
Consultant included in Appendix C.
"Fuel Management Agreements" means, collectively, the NEA Fuel
Management Agreement and the NJEA Fuel Management Agreement.
"Fuel Management Fees" means the monthly fees required to be paid by
NEA and NJEA to the Fuel Manager pursuant to the Fuel Management Agreements.
"Fuel Manager" means ESI Northeast Fuel Management, Inc., a Florida
corporation.
"Funds" means the funds established and maintained by the Project
Trustee pursuant to the Project Indenture.
"Gas Transmission Reserve Fund" means the Fund entitled "Gas
Transmission Reserve Fund" established and maintained by the Project Trustee
pursuant to the Project Indenture.
"Gas Transmission Reserve Requirement" means (a) as of any date
occurring within the fifteen month period preceding the earliest expiration date
of the Transco Agreements and which precedes the earliest expiration date of the
Transco Agreements by a period that includes not less than three Monthly
Transfer Dates, $5,300,000, (b) as of any other date thereafter, $10,600,000 and
(c) prior to the date determined pursuant to clause (a), zero; provided that as
of and subsequent to any extension or replacement of the Transco Agreements by
agreements expiring on or after the final maturity date of the Project
Securities and satisfying certain other conditions specified in the Project
Indenture, the Gas Transmission Reserve Requirement shall be zero. The Gas
Transmission Reserve Requirement has been determined based on the assumption
that each Transco Agreement will expire on October 31, 2006, and will not be
extended, in whole or in part, beyond such date. In the event that either or
both Transco Agreements are extended or replaced by agreements satisfying
certain conditions specified in the Project Indenture, the Gas Transmission
Reserve Requirement will be adjusted pursuant to a formula specified in the
Project Indenture.
"General Partner" means NE LP.
"Goldman" means Goldman, Sachs & Co.
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"Government Approval" means (i) any authorization, consent, approval,
license, ruling, permit, certification, exemption, filing, variance, order,
judgment, decree or publication of, by or with, (ii) any notice to, (ii) any
declaration of or with or (iv) any registration by or with, any Government
Authority required to be obtained or made by ESI Tractebel Acquisition, NE LP,
ESI Tractebel Funding or a Partnership or, where the context requires, by any
other Person party to a Project Document.
"Government Authority" means any United States federal, state,
municipal, local, territorial or other governmental subdivision, department,
commission, board, bureau, agency, regulatory authority, instrumentality,
judicial or administrative body, domestic or foreign.
"Government Rule" means any statute, law, regulation, ordinance, rule,
judgment, order, decree, permit, concession, grant, franchise, code, license,
directive, guideline, policy or rule of common law, requirement of, or other
governmental restriction or any judicial or administrative order, consent decree
or judgement or similar form of decision of or determination by, or any
interpretation or administration of any of the foregoing by, any Government
Authority, whether now or hereafter in effect.
"GSR Deficiency", as defined in the Project Indenture, is now zero.
"Guaranty", as defined in the Project Indenture, by any Person means
any guaranty, surety, bond or other obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing in any manner any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person: (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
Partnership arrangements, by agreement to keep well, to purchase assets, goods,
bonds or services, to take-or-pay, or to maintain financial statement conditions
or otherwise), (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part) or
(iii) to reimburse any Person for the payment by such Person under any letter of
credit, surety, bond or other guaranty issued for the benefit of such other
Person, but excluding (x) endorsements for collection or deposit in the ordinary
course of business, or (y) indemnity or hold harmless provisions included in
contracts entered into in the ordinary course of business.
"Hazardous Material", as defined in the Project Indenture, means: (i)
any petroleum or petroleum products, flammable explosives, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls (PCBs), (ii) any chemicals
or other materials or substances which are now or hereafter become defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or
words of similar import under any Environmental Law and (iii) any other chemical
or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated as such under any Environmental Law including
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 6901 et seq., or any similar state statute.
"Hercules" means Hercules Incorporated, a Delaware corporation.
"HRSG" means a heat recovery steam generator.
"IEC" means Intercontinental Energy Corporation, a Massachusetts
corporation, the former general partner of each of the Partnerships.
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<PAGE>
"IEC Funding Corp." means the corporation now referred to as ESI
Tractebel Funding Corp., a Delaware corporation.
"IECURC" means IEC Urban Renewal Corporation, a New Jersey corporation
wholly-owned by NJEA.
"Import Point" means the point of interconnection between the
TransCanada pipeline and CNG's pipeline at Niagara Falls, Ontario/Niagara Falls,
New York.
"Indenture" means the Trust Indenture dated as of the Closing Date,
among ESI Tractebel Acquisition, NE LP, NE LLC and the Trustee providing for the
issuance of the Securities.
"Independent Engineer" means Sargent & Lundy, L.L.C., an Illinois
limited liability company, or its successors.
"Independent Engineer's Report" means the Report prepared by the
Independent Engineer and included as Appendix B in this Prospectus.
"Independent Gas Consultant" means Benjamin Schlesinger and Associates,
or its successors.
"Insurance Proceeds" means all amounts and proceeds (including
instruments) in respect of the proceeds of any casualty insurance policy or
title insurance policy, except proceeds of delayed opening or business
interruption insurance.
"Interest Fund," as defined in the Project Indenture, means the
Interest Fund established and maintained by the Project Trustee pursuant to the
Project Indenture.
"ISO Conditions" means a temperature of 59 degrees and an atmospheric
pressure of 29.92 inches of mercury absolute (i.e. sea level).
"Issuer and Partner Pledge Agreement" means the Pledge Agreement by
ESI Tractebel Acquisition, NE LP and NE LLC to the Collateral Agent, for the
benefit of the Collateral Agent, the Trustee and the holders of the Securities.
"JCP&L" means Jersey Central Power & Light Company, a New Jersey
corporation.
"JCP&L Power Purchase Agreement" means the Power Purchase Agreement
dated as of October 22, 1987, between NJEA and JCP&L, as amended.
"Kilowatt" or "KW" means one thousand watts.
"Kilowatt-hours" or "kWh" means a unit of electrical energy equal to
one kilowatt of power supplied or taken from an electric circuit steadily for
one hour.
"Lien", as defined in the Project Indenture, means, with respect to any
property of any Person, any mortgage, lien, pledge, charge, lease, easement,
servitude, right of others or security interest or encumbrance of any kind in
respect of such property of such Person.
"Long-term Gas Arrangements" means, collectively, the Long-term Gas
Supply Agreements, the Long-term Gas Transportation Agreements and the Long-term
Gas Storage Agreements.
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"Long-term Gas Storage Agreements" means the NEA Gas Storage Agreement
and the NJEA Gas Storage Agreement.
"Long-term Gas Supply Agreements" means the NEA ProGas Agreement, the
NJEA ProGas Agreement and the PSE&G Contract.
"Long-term Gas Transportation Agreements" means the NEA Gas
Transportation Agreements and the NJEA Gas Transportation Agreements.
"Loss Proceeds" means all Insurance Proceeds, all condemnation awards,
settlement payments and other amounts (other than proceeds of delayed opening or
business interruption insurance or similar items) received or payable in respect
of any Event of Loss.
"Major Overhaul Expenses" means expenses not covered by any operations
and maintenance contractor and which are incurred by a Partnership in connection
with scheduled major overhauls of a project in accordance with the maintenance
recommendations of the applicable manufacturer or vendor pursuant to the Project
Indenture.
"Major Overhaul Reserve Fund" means the Fund entitled "Major Overhaul
Reserve Fund" established and maintained by the Project Trustee pursuant to the
Project Indenture.
"Management Costs" means the management fee payable to NE LP, which fee
shall be comprised of four components, without duplication: (i) third-party
costs certified as being reasonably allocable to either or both of the Projects
or either or both of the Partnerships or ESI Tractebel Funding (including but
not limited to any rent, independent legal, consulting and accounting fees and
expenses that are certified as such), (ii) general and administrative expenses
of NE LP reasonably allocable to either or both of the Projects or either or
both of the Projects or either or both of the Partnerships or ESI Tractebel
Funding, (iii) compensation (including salary and related benefits) of
individuals that are not related by blood or marriage to the Original Project
Sponsors certified as being reasonable allocable to either or both of the
Projects or either or both of the Partnerships or the company and (iv) for each
calendar year commencing with the year in which the Closing Date shall occur, an
amount equal to $3,500,000, $1,500,000 of which shall constitute the
Subordinated Management Fee (each such amount inflated annually commencing on
January 1, 1995, in accordance with the Project Indenture, and adjusted ratably
for each partial calendar year in which the Project Securities shall be
outstanding).
"MBtu" means one thousand Btus.
"Mcf" means one thousand cubic feet of gas at 60 degrees F and at a
pressure of 14.73 pounds per square inch absolute.
"Medway Substation" means the Medway Substation of Boston Edison,
located in Medway, Massachusetts.
"Megawatt" or "MW" means one million watts.
"Megawatt hour" or "MWH" means one thousand kilowatt-hours.
"MMBtu" means one million Btus.
"Montaup" means Montaup Electric Company, a Massachusetts corporation.
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<PAGE>
"Montaup Power Purchase Agreement" means the Power Purchase Agreement
dated as of October 17, 1986, as amended on June 28, 1989, between NEA and
Montaup.
"Monthly MOR Contribution Amount," as defined in the Project Indenture
means, for each Monthly Transfer Date commencing with the first such date in
calendar year 2001 (a) the applicable amount set forth in the Project Indenture
as the aggregate required contribution to the Major Overhaul Reserve Fund for
the calendar year of such Monthly Transfer Date (as such schedule may be
revised, as set forth therein, by the Independent Engineer in the event that
either O&M Agreement is amended or replaced to provide for the payment by a
third party operator for either Project of all or a portion of any Major
Overhaul Expenses) divided by (b) 12 (or, in the case of the calendar year in
which the final maturity date for the Project Securities occurs, the number of
Monthly Transfer Dates occurring in such calendar year prior to such date).
"Monthly Transfer Date," as defined in the Project Indenture means the
first business day of each calendar month.
"Monthly Transfer Period" means the period commencing on (and
including) a Monthly Transfer Date and ending on (but excluding) the immediately
succeeding Monthly Transfer Date.
"Moody's" means Moody's Investors Service, Inc.
"MOR Deficiency," as defined in the Project Indenture, means, as of any
date of determination subsequent to the first Monthly Transfer Date in calendar
year 2001, the excess, if any, of (a) the aggregate Monthly MOR Contribution
Amounts for all prior Monthly Transfer Dates over (b) the excess (if any) of (i)
the aggregate amount of all prior transfers to the Major Overhaul Reserve Fund
over (ii) the aggregate amount of all withdrawals from the Major Overhaul
Reserve Fund made on or prior to such date of determination other than pursuant
to the Project Indenture; provided, that the amount of any MOR Deficiency (i)
shall be reduced by the amount of Major Overhaul Expenses previously paid by the
Partnerships from funds other than disbursements from the Major Overhaul Reserve
Fund, (ii) shall be subject to adjustment as provided in the Project Indenture
and (iii) shall be equal to zero as of any date of determination prior to the
first Monthly Transfer Date in calendar year 2001.
"MOU" means Memorandum of Understanding.
"NationsBank" means NationsBank of Texas.
"NE LLC" means Northeast Energy, LLC, a Delaware limited liability
company.
"NE LP" means Northeast Energy, LP, a Delaware limited partnership.
"NE LP Partnership Agreement" means the Agreement of Limited
Partnership of Northeast Energy, LP, dated as of November 21, 1997, by and among
ESI GP, ESI LP, Tractebel GP and Tractebel LP.
"NEA" means Northeast Energy Associates, A Limited Partnership, a
Massachusetts limited partnership.
"NEA Additional Properties Mortgage" means the Amended and Restated
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Additional
Properties) granted by NEA to the Collateral Agent with respect to certain real
estate owned by NEA adjacent to the NEA Site.
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<PAGE>
"NEA Fuel Management Agreement" means the Fuel Management Agreement,
dated as of January 20, 1998 (effective retroactively to January 14, 1998) by
and between the Fuel Manager and NE LP, assigned by NE LP to NEA on January 20,
1998.
"NEA Fuel Management Fee" means $450,000, as compensation for certain
fuel management services for the NEA Project pursuant to the NEA Fuel Management
Agreement.
"NEA Gas Agreements" means the NEA ProGas Agreement, the NEA Gas
Transportation Agreements and the NEA Gas Storage Agreement.
"NEA Gas Storage Agreement" means the Service Agreement Applicable to
the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30,
1993, between CNG and NEA, as amended by the parties and in respect of changes
in FERC approved tariffs.
"NEA Gas Supply Agreement" means the NEA ProGas Agreement.
"NEA Gas Transportation Agreements" means collectively, the Firm
Transportation Service Agreement dated as of February 28, 1994, among CNG, NEA,
ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate
Schedule X-320) dated February 27, 1991, between Transco and NEA, the Rate
Schedule X-35 Firm Gas Transportation Agreement dated October, 1993, between
Algonquin and NEA and the Service Agreement for Rate Schedule FTS-5 dated
February 16, 1994, between Texas Eastern and NEA, each as amended by the parties
and in respect of changes in FERC approved tariffs.
"NEA O&M Agreement" means the Second Amended and Restated Operations
and Maintenance Agreement dated as of June 28, 1989, between NEA and the
Operator (as successor to Westinghouse Electric).
"NEA O&M Fee" means the monthly fee required to be paid by NEA to the
Operator pursuant to the NEA O&M Agreement.
"NEA Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Northeast Energy Associates, A Limited Partnership, dated
as of November 21, 1997 by and between NE LP and NE LLC.
"NEA Power Purchase Agreements" means the Boston Edison I Power
Purchase Agreement, the Boston Edison II Power Purchase Agreement, the
Commonwealth I Power Purchase Agreement, the Commonwealth II Power Purchase
Agreement and the Montaup Power Purchase Agreement.
"NEA Power Purchasers" means Boston Edison, Commonwealth and Montaup.
"NEA ProGas Agreement" means the Gas Purchase Contract dated as of May
12, 1988, between NEA and ProGas, as amended.
"NEA Project" means the nominal 300 MW natural gas-fired combined cycle
cogeneration facility owned by NEA located on the NEA Site, including all
electrical and steam generating components, and all electrical, steam and
natural gas interconnection facilities and structures, associated materials,
handling and environmental equipment and ancillary structures, equipment and
systems.
"NEA Project Documents" means, individually and collectively, certain
existing agreements and documents specified in the Project Indenture (which
include the NEA Power Purchase Agreements, the
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<PAGE>
NEA Gas Agreements, the NEA Steam Sales Agreement and the NECO Lease), as any of
the same may from time to time be amended, modified or supplemented together
with all Additional Project Documents (as defined in the Project Indenture) to
which NEA is a party or which relate to all or any part of the NEA Project as to
the Carbon Dioxide Plant.
"NEA Project Mortgage" means the Amended and Restated Mortgage,
Assignment of Rents, Security Agreement and Fixture Filing granted by NEA to the
Collateral Agent with respect to the NEA Site and all related improvements and
fixtures thereon owned by NEA.
"NEA Second Mortgage" means the Mortgage, Assignment of Rents, Security
Agreement and Fixture Filing dated as of June 28, 1989, by NEA in favor of
Boston Edison, Commonwealth and Montaup securing the performance by NEA of its
obligations under each of the NEA Power Purchase Agreements.
"NEA Site" means the approximately 44-acre site on the upper Charles
River in the town of Bellingham, Massachusetts, on which the NEA Project and the
Carbon Dioxide Plant are located.
"NEA Steam Sales Agreement" means the Amended and Restated Steam Sales
Agreement dated as of December 21, 1990, between NEA and NECO.
"NECO" means NECO-Bellingham, Inc., a special-purpose subsidiary of a
privately held company based in Houston.
"NECO Lease" means the Amended and Restated Lease dated as of December
21, 1990, between NEA and NECO.
"NEPOOL" means the New England Power Pool.
"NEPOOL Agreement" means the NEPOOL Agreement dated September 1, 1971.
"Net Electrical Capability" means the sum of the nameplate rating of
the generators for each Project, as designated by the manufacturer and expressed
in megawatts, less allowance for station service, at which such Project is
designed to operate continuously in a reasonable and prudent manner under ISO
conditions in accordance with good utility practice.
"New Securities" means the bonds to be exchanged by ESI Tractebel
Acquisition in exchange for Old Securities pursuant to the Exchange Offer.
"New NEA O&M Agreement" means the Operation and Maintenance Agreement,
dated as of November 21, 1997, by and between NE LP and the New Operator,
subsequently assigned by NE LP to NEA.
"New NEA O&M Fee" means the monthly fee required to be paid by NEA to
the New Operator pursuant to the New NEA O&M Agreement.
"New NJEA O&M Agreement" means the Operation and Maintenance Agreement,
dated as of November 21, 1997, by and between NE LP and the New Operator,
subsequently assigned by NE LP to NJEA.
"New NJEA O&M Fee" means the monthly fee required to be paid by NJEA to
the New Operator pursuant to the New NJEA O&M Agreement.
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<PAGE>
"New O&M Agreements" means the New NEA O&M Agreement and the New NJEA
O&M Agreement.
"New O&M Fees" means the fees as compensation for the operation and
maintenance services for the Projects under the New O&M Agreements.
"New Operator" means ESI Operating Services, Inc., a Florida
corporation.
"1990 Amendments" means the 1990 Amendments to the Federal Clean Air
Act of 1955.
"NJBPU" means the New Jersey Board of Public Utilities.
"NJEA" means North Jersey Energy Associates, A Limited Partnership, a
New Jersey limited partnership.
"NJEA Fuel Management Agreement" means the Fuel Management Agreement,
dated as of January 20, 1998 (effective retroactively to January 14, 1998) by
and between the Fuel Manager and NE LP, assigned by NE LP to NJEA on January 20,
1998.
"NJEA Fuel Management Fee" means $450,000, as compensation for certain
fuel management services for the NJEA Project pursuant to the NJEA Fuel
Management Agreement.
"NJEA Gas Agreements" means, collectively, the NJEA ProGas Agreement,
the PSE&G Contract, the NJEA Gas Transportation Agreements and the NJEA Gas
Storage Agreement.
"NJEA Gas Storage Agreement" means the Service Agreement Applicable to
the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30,
1993, between CNG and NJEA.
"NJEA Gas Supply Agreements" means, collectively, the NJEA ProGas
Agreement and the PSE&G Contract.
"NJEA Gas Transportation Agreements" means collectively, the Firm
Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA,
ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate
Schedule X-319) dated February 27, 1991, between Transco and NJEA and the
Service Agreement for Rate Schedule FTS-5 dated February 16, 1994, between Texas
Eastern and NJEA, each as amended by the parties and in respect of changes in
FERC approved tariffs.
"NJEA O&M Agreement" means the Amended and Restated Operations and
Maintenance Agreement dated as of June 28, 1989, between NJEA and the Operator
(as successor to Westinghouse Electric).
"NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the
Operator pursuant to the NJEA O&M Agreement.
"NJEA Partnership Agreement" means the Amended and Restated Agreement
of Limited Partnership of North Jersey Energy Associates, A Limited Partnership,
dated as of November 21, 1997 by and between NE LP and NE LLC.
"NJEA Power Purchase Agreement" means the JCP&L Power Purchase
Agreement.
"NJEA Power Purchaser" means JCP&L.
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<PAGE>
"NJEA ProGas Agreement" means the Gas Purchase Contract dated as of May
12, 1988, between NJEA and ProGas, as amended.
"NJEA Project" means the nominal 300 MW natural gas-fired combined
cycle cogeneration facility owned by NJEA and located on the NJEA Site,
including all electrical and steam generating components, and all electrical,
steam and natural gas interconnection facilities and structures, associated
materials handling and environmental control equipment and ancillary structures,
equipment and systems.
"NJEA Project Documents" means, individually and collectively, certain
existing agreements and documents specified in the Project Indenture (which
include the JCP&L Power Purchase Agreement, the NJEA Gas Agreements and the NJEA
Steam Sales Agreement), as any of the same may from time to time be amended,
modified or supplemented, together with all Additional Project Documents (as
defined in the Project Indenture) to which NJEA is a party or which relate to
all or any part of the NJEA Project.
"NJEA Project Mortgage" means the Amended and Restated Indenture of
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated as
of December 1, 1994, granted by NJEA to the Collateral Agent with respect to the
NJEA Site and all related improvements and fixtures thereon owned by NJEA.
"NJEA Site" means the approximately 49-acre site in the Borough of
Sayreville, New Jersey, on which the NJEA Project is located.
"NJEA Steam Sales Agreement" means the Industrial Steam Sales Contract
dated as of June 5, 1989, as amended, between NJEA and Hercules.
"Non-Material Project Document", as defined in the Project Indenture,
means any Project Document (x) which shall be for a term (including any
extensions provided therein, other than those that are optional to the
applicable Partnership) not longer than 1 year or (y) under which such
Partnership shall have obligations not in excess of $1,000,000, excluding,
however, (a) any contract or agreement providing, directly or indirectly, for
monetary or nonmonetary obligations of the Partnership the performance of which
could reasonably be expected to have a material adverse effect and (b) any
contract or agreement providing for the acquisition by either Partnership of
property, or the delivery to the Partnership of services, that if no obtained
could reasonably be expected to have material adverse effect (taking into
consideration all available alternatives). For purposes of this definition,
indemnity or similar obligations of a Partnership subject to a maximum dollar
amount shall be limited to such amount, and, subject to any such limitation,
shall be computed at the maximum amount thereof which could, at the time such
agreement is entered into, reasonably be expected to become due and payable.
"Note" means the note issued by NE LP to ESI Tractebel Acquisition to
evidence NE LP's obligation to repay the Bond Loan.
"NOx" means oxides of nitrogen.
"NYMEX" means the New York Mercantile Exchange.
"O&M Agreements" means the NEA O&M Agreement and the NJEA O&M
Agreement, as applicable, (including any extensions or modifications thereof).
"OASIS" means an open-access same-time information system, as defined
in FERC Order No. 889.
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<PAGE>
"Offering" means the offering of the Old Securities described herein.
"Operating Expenses," as defined in the Project Indenture means, for
any period, the sum of the following costs and expenses (without duplication)
paid or required to be paid during such period (or, in the case of any future
period, projected to be paid or payable in such period): (a) the operating and
maintenance expenses of the Projects including, without limitation, (i) amounts
due from the applicable Partnership under any operations and maintenance
agreement in respect of the operation and maintenance of either Project, (ii)
fuel procurement, storage, transportation, management and associated costs for
the Projects and costs of any fuel hedging arrangements, (iii) premiums for
insurance including, without limitation, insurance required to be maintained
pursuant to the Project Indenture or pursuant to any Project Document, (iv)
franchise, licensing, excise, property and other similar taxes (other than
federal and state income taxes and any other taxes imposed upon, or measured by,
income or receipts, unless any such tax shall be imposed on the Partnerships
solely by reason of the adoption of a Government Rule or the amendment of an
existing Government Rule subsequent to the closing date with respect to the
offering of the Project Securities) payable by or on behalf of the Partnerships,
(v) all taxes payable by ESI Tractebel Funding, (vi) utilities, supplies and
other services acquired in connection with the operation or maintenance of the
Projects, (vii) maintenance costs with regard to the Projects, including the
rebuilding, repair or replacement of any Project in connection with an Event of
Loss (to the extent such costs are not paid from funds on deposit in the Major
Overhaul Reserve Fund or the Capital Expenditure Fund), (viii) costs and fees
incurred in connection with obtaining and maintaining in effect the Government
Approvals relating to a Project, (ix) costs of the Partnerships and ESI
Tractebel Funding relating to the settlement of pending or threatened litigation
or other claims relating to a Project or any related fines, penalties, judgments
and other costs (including, without limitation, legal fees and expenses)
associated with such litigation or other claims, (x) rental expense of the
Partnerships relating to the rental of any property associated with the
Projects, (xi) fees and expenses of consultants and experts retained by or
required to be paid by either of the Partnerships or ESI Tractebel Funding,
including, without limitation, the Independent Experts, attorneys and
accountants, (xii) indemnification payments made by either of the Partnerships
or ESI Tractebel Funding to any Person pursuant to any bona fide obligation
necessarily and reasonably incurred in connection with the operation or
financing (including any financing contemplated pursuant to the Project
Indenture) of the Projects and owed by such Partnership to such Person and
(xiii) Management Costs (provided that the amount of Management Costs referred
to in clause (iv) of the definition thereof payable as an Operating Expense
during any Monthly Transfer Period shall not exceed the sum of (A) the quotient
of (x) the then applicable annual amount of such Management Costs over (y) 12
or, if applicable, the number of Monthly Transfer Periods in any partial year in
which the Project Securities shall be outstanding and (B) the amount of
Management Costs that were permitted to be paid as operating expenses pursuant
to this proviso in any prior Monthly Transfer Period but not previously paid;
provided further that, for purposes of the foregoing proviso, a portion of the
amount determined pursuant to clause (A) for each Monthly Transfer Period shall
be allocated ratably to the Subordinated Management Fee and amounts determined
pursuant to clause (B) shall be allocated to the Subordinated Management Fee to
the extent unpaid amounts are attributable to deficiencies in the Subordinated
Management Fee Subfund of the Operating Fund); plus (b) fees and expenses of the
Project Trustee and the Collateral Agent, plus (c) costs relating to the
issuance of any Project Securities, including, without limitation, any exchange
offer and any registration statement in respect of the Project Securities or any
other costs incurred by ESI Tractebel Funding and the Partnerships in connection
with the performance of any further assurance obligations hereunder and under
the Project Indenture and the Project Security Documents; plus (d) amounts
payable by the Partnerships in respect of guaranties permitted under the Project
Indenture; plus (e) amounts payable to any entity (other than an affiliate of NE
LP), either in the form of dividends or management or similar fees or
reimbursement of expenses (in each case in reasonable amounts) that owns any of
the outstanding capital stock of ESI Tractebel Funding, provided that all of the
foregoing costs and expenses shall be determined on a cash basis and shall not
include depreciation, amortization or other non-cash items.
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"Operator" means Westinghouse Services.
"Original Banks" means the financial institutions party to the Original
Project Credit Agreement.
"Original Project Credit Agreement" means the Project Loan and Credit
Agreement dated as of June 28, 1989, as amended, among the Partnerships as
borrowers, IEC, The Chase Manhattan Bank as issuing bank and as agent for the
Original Banks, The Bank of New York (as successor to Irving Trust Company) as
co-agent and the Original Banks.
"Original Project Indenture" means the Trust Indenture, dated as of
November 15, 1994, among each of the Partnerships, IEC Funding Corp. (now ESI
Tractebel Funding), and the Project Trustee, as supplemented by the First
Supplemental Trust Indenture, dated as of November 15, 1994.
"Original Project Notes" means the notes issued by the Partnerships to
the Original Banks pursuant to the Original Project Credit Agreement.
"Original Project Securities" means the 8.43% Senior Secured Notes Due
2000, the 9.16% Senior Secured Notes Due 2002, the 9.32% Senior Secured Bonds
Due 2007 and the 9.77% Senior Secured Bonds Due 2010. The Original Project
Securities were exchanged for Project Securities in May 1995.
"Partial Transportation Extension Event" means the occurrence of the
following with respect to a Transco Agreement: (a) either (i) the extension of
the term of such Transco Agreement on terms and conditions which would
constitute a Transco Extension Event but for the fact that (A) the term of such
Transco Agreement (as so extended) is scheduled to expire prior to the final
maturity date of the Project Securities and/or (B) the maximum daily quantity to
be transported pursuant to such Transco Agreement is less than that in effect
under such Transco Agreement on December 1, 1994 or (ii) the execution by either
Partnership and one or more third parties of one or more gas transportation
agreements providing for firm gas transportation service to such Partnership by
such third party(ies) which would constitute a Transco Substitution Event but
for the fact that (x) the term of such agreement is scheduled to expire prior to
the final maturity date of the Project Securities and/or (y) the maximum daily
quantity to be transported pursuant to such agreement(s) is less than that in
effect for the applicable Transco Agreement on December 1, 1994; and (b) the
receipt by the Project Trustee of a certificate of the Independent Gas
Consultant to the effect of (a) above.
"Partners" means, collectively, NE LP and NE LLC.
"Partnership Distribution Fund" means the Fund entitled "Partnership
Distribution Fund" established and maintained by the Project Trustee pursuant to
the Project Indenture.
"Partnership Suspense Fund" means the Fund entitled "Partnership
Suspense Fund" established and maintained by the Project Trustee pursuant to the
Project Indenture.
"Partnerships" means NEA and NJEA.
"Peak Gas Service Credit" means the demand charge paid by PSE&G to NJEA
in exchange for the right to retain NJEA's gas supplies on days when the mean
daily temperature forecast for Newark, New Jersey drops below certain levels.
"Permitted Purchase Money Indebtedness," as defined in the Project
Indenture, means purchase money or lease obligations incurred to finance items
of equipment not comprising an integral part of
A-17
<PAGE>
either Project (and obligations in respect of Debt incurred to refinance any
such obligations), provided that (a) if such obligations are secured, they are
secured only by Liens upon the equipment being financed and (b) such obligations
do not in the aggregate have annual scheduled interest, principal, lease and
purchase price installment payments in excess of $5,000,000.
"Permitted Unsecured Indebtedness" means unsecured Debt in an aggregate
outstanding principal amount at no time greater than $10,000,000.
"Person" means any individual, sole proprietorship, corporation,
partnership, joint venture, limited liability company, trust, unincorporated
association, institution, Government Authority or any other entity.
"PJM" or "PJM Interconnected Power Pool" means the Pennsylvania/New
Jersey/Maryland interconnected Power Pool.
"PJM Agreement" means the PJM Agreement dated September 26, 1956, as
amended.
"Pledge Agreements" means the Sponsor Pledge Agreement and the Issuer
and Partner Pledge Agreement.
"Policy Act" means the Energy Policy Act of 1992.
"PORTAL" means the Private Offerings, Resales and Trading Through
Automatic Linkages of the National Association of Securities Dealers, Inc.
"Power Purchase Agreements" means individually and collectively, the
Boston Edison I Power Purchase Agreement, the Boston Edison II Power Purchase
Agreement, the Commonwealth I Power Purchase Agreement, the Commonwealth II
Power Purchase Agreement, the Montaup Power Purchase Agreement and the JCP&L
Power Purchase Agreement, and any Additional Project Document (as defined in the
Project Indenture) (other than a Non-Material Project Document) providing for
the sale of electric energy or capacity from the Projects.
"Power Purchasers" means Boston Edison, Commonwealth, JCP&L and Montaup
and any other Person (other than the Partnerships) party to a Power Purchase
Agreement.
"Praxair" means Praxair, Inc., the successor to Liquid Carbonic Carbon
Dioxide Corporation.
"Principal Fund" means the Fund entitled "Principal Fund" described in,
and pursuant to the Project Indenture.
"ProGas" means ProGas Limited, an Alberta corporation.
"ProGas Agreement Expiration Date" means, with respect to each ProGas
Agreement, the later of (a) November 1, 2006 and (b) the scheduled expiration
date of such ProGas Agreement after giving effect to any Partial ProGas
Extension Events.
"ProGas Agreements" means the NEA ProGas Agreement and the NJEA ProGas
Agreement.
"Project Accounts" means the accounts entitled "Project Accounts"
maintained and used by the Project Trustee.
A-18
<PAGE>
"Project Collateral," defined as "Collateral" in the Project Indenture,
means, collectively, all of the collateral mortgaged, pledged or assigned to the
Collateral Agent by any of ESI Tractebel Funding, each Partnership, NE LP, ESI
Funding and Tractebel Power, in each case pursuant to the granting and assigning
clauses of the applicable Project Security Documents.
"Project Credit Agreement" means the Amended and Restated Project Loan
and Credit Agreement, dated as of December 1, 1994, by and among ESI Tractebel
Funding and each of the Partnerships.
"Project Documents" means, collectively, the NEA Project Documents and
the NJEA Project Documents.
"Project Guaranty" means the guaranty agreement, by and among the
Project Trustee, NEA and NJEA, guaranteeing the obligations of ESI Tractebel
Funding under the Project Indenture.
"Project Indebtedness," as used in this Prospectus means, collectively,
the existing Debt of the Partnerships and ESI Tractebel Funding in connection
with the Project Securities, the existing Debt of the Partnerships in connection
with the Sanwa Credit Agreement and the existing Debt of the Partnerships under
the Swaps.
"Project Indenture" means the Trust Indenture dated as of November 15,
1994, entered into by ESI Tractebel Funding, the Partnerships and the Project
Trustee providing for the issuance of the Project Securities, as supplemented by
a First Supplemental Trust Indenture, dated as of November 15, 1994, and as
amended and supplemented by the Second Supplemental Trust Indenture dated as of
January 14, 1998.
"Project Letter of Credit Banks" means the financial institutions from
time to time parties to a Project Letter of Credit Facility.
"Project Letter of Credit Facility" means any agreement or agreements
from time to time in effect among the Partnerships and the Project Letter of
Credit Banks, and any replacements thereof which satisfies the requirements
under the Power Purchase Agreements, the Fluor Daniel Agreement and the
Prestwich Lease providing for the issuance of the Project Letters of Credit. No
Letters of Credit are currently outstanding in connection with the Fluor Daniel
Agreement or the Prestwich Lease.
"Project Letters of Credit" means the Letters of Credit securing the
Partnerships' obligations.
"Project Loans" means the loan made by ESI Tractebel Funding to each of
the Partnerships in connection with the Project Credit Agreement and the Project
Indenture.
"Project Notes" means (a) the promissory notes of the Partnerships
issued to ESI Tractebel Funding on December 1, 1994 pursuant to the Project
Credit Agreement, which notes were issued (x) to amend and restate the Original
Project Notes and (y) to evidence the Project Loans together with (b) any
promissory notes issued by the Partnerships to ESI Tractebel Funding subsequent
to December 1, 1994 in accordance with the terms of the Project Credit
Agreement.
"Project Partnership Agreements" means, collectively, the NEA
Partnership Agreement and the NJEA Partnership Agreement.
"Project Revenues," as defined in the Project Indenture means, for any
period, the sum of the following (without duplication) received by either of the
Partnerships, or credited to the account of either of the Partnerships as
described in clause (iii) below, on a cash basis during such period: (i) all
revenues
A-19
<PAGE>
under the Power Purchase Agreements and the Steam Sales Agreements plus (ii) all
other revenues, whether from the sale of electrical capacity or electricity,
thermal energy or by-products of the operations of the Projects or otherwise
plus (iii) investment earnings on amounts in the Funds and on the investment of
the Cash Collateral Proceeds (and any substitute collateral for the Project
Letter of Credit Facility), but only to the extent such investment earnings have
been transferred to the Revenue Fund plus (iv) the proceeds of any business
interruption insurance and other payments received for interruption of
operations (excluding any proceeds of any physical damage or liability
insurance) plus (v) refunds of deposits plus (vi) all rental and other payments
received by either of the Partnerships from the lease or sale of any portion of
either or both of the Project Sites plus (vii) all other income, proceeds or
receipts, howsoever earned or received by either of the Partnerships during such
period plus (viii) Cash Collateral Proceeds (and any substitute collateral for
the Project Letter of Credit Facility) transferred to the Revenue Fund as a
result of any reduction in the Energy Bank Obligations. Project Revenues shall
exclude, to the extent otherwise included, (a) proceeds of the Project
Securities (including any such proceeds advanced to the Partnerships pursuant to
the Project Credit Agreement), (b) proceeds of borrowings under the Working
Capital Facility or any other permitted Debt, (c) Cash Collateral Proceeds (and
any substitute collateral for the Project Letter of Credit Facility) released
from the security of the Project Letter of Credit Banks or the Power Purchasers,
as the case may be, which are not the result of any reduction in the Energy Bank
Obligations and (d) Loss Proceeds.
"Project Secured Parties" include the holders of the Project Securities
(represented by the Project Trustee), the Sanwa Working Capital Banks, the Swap
Banks, if any, the Collateral Agent and the Project Trustee.
"Project Securities" means, collectively, the 2000 Project Notes, the
2002 Project Notes, the 2007 Project Bonds and the 2010 Project Bonds issued by
ESI Tractebel Funding under the Project Indenture.
"Project Security Documents" means the mortgages and other security
agreements pursuant to which the Partnerships, ESI Tractebel Funding and NE LP
grant liens to the Collateral Agent for the benefit of the Project Secured
Parties.
"Project Sites" means, collectively, the NEA Site and the NJEA Site.
"Project Trustee" means State Street Bank and Trust Company in its
capacity as trustee under the Project Indenture.
"Projections" means certain projections of the Projects' revenues and
the costs associated therewith including certain assumptions by NE LP.
"Projects" means, collectively, the NEA Project and the NJEA Project.
"Prudent Utility Practices" means the practices, methods and standards
generally followed by the independent power and electric utility industry with
respect to the design, construction, operation and maintenance of electric
generating equipment of the type applicable to the Projects, and which
practices, methods and standards generally conform to operation and maintenance
standards recommended by the applicable Project's equipment suppliers and
manufacturers.
"PSE&G Contract" means the Gas Purchase and Sales Agreement dated as
of May 4, 1989, as amended, between NJEA and PSE&G.
"PTFs" means pool transmission facilities.
A-20
<PAGE>
"PSE&G" means Public Service Electric and Gas Company, a New Jersey
corporation.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
"Purchase Agreement" means the Purchase Agreement, dated as of November
21, 1997, by and among the Sellers, the Partners, ESI Funding and Tractebel
Power for the acquisition of all of the partnership interests in the
Partnerships.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended, and the regulations promulgated thereunder.
"QF" or "Qualifying Facility" means a "qualifying cogeneration
facility" in accordance with PURPA and the rules and regulations of FERC under
PURPA relating thereto.
"Qualifying Facility Power Purchase Rate" means the energy rate filed
from time to time by each of the NEA Power Purchasers and approved by the
Massachusetts Department of Public Utilities.
"Quarterly Tax Payment Dates" means, collectively, January 15, April
15, June 15 and September 15 of each calendar year or, in the event that any tax
payments contemplated by the definition of "Tax Requirements" shall become due
on any date or dates other than those provided for immediately above, any such
other date or dates on which such tax payments shall be due.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Closing Date, among ESI Tractebel Acquisition, NE LP and
Goldman.
"Regulation S" means Regulation S under the 1933 Act.
"Reimbursement Agreement" means the Reimbursement Agreement, dated as
of November 21, 1997 by and among FPL Group Capital, Tractebel Power and NE LP.
"Required Improvements" means improvements required to comply with any
change in applicable Environmental Laws or other Government Rules (or
interpretations thereof), or to maintain the status of a Project as a QF.
"Restricted Payments," as defined in the Project Indenture, means: (a)
(i) the declaration or payment of distributions or dividends by, or the
occurrence of any liability to make any such payment or distribution on account
of, either Partnership in cash, property, obligations or other securities on, or
(ii) other payments or distributions on account of, or (iii) the purchase,
redemption, retirement or other acquisition of, or (iv) the setting apart of
money for a sinking or other analogous fund for the purchase, redemption,
retirement or other acquisition of, any Partnership (whether general or limited)
interest (or any share capital of any class or any preferred stock issued by any
Permitted Successor (as defined in the Project Indenture), including redeemable
preferred shares, or any warrant, option or other right to acquire such share
capital or preferred stock, but excluding dividends or other distributions
payable solely in ordinary common shares of such Permitted Successor (as defined
in the Project Indenture)); and (b) any payment of the principal of or interest
on any subordinated indebtedness; and (c) the making of any loans or advances
from either Partnership or ESI Tractebel Funding to any Related Party (other
than certain permitted Debt contemplated by the Project Indenture).
"Revenue Fund" means the Fund entitled "Revenue Fund" established and
maintained by the Project Trustee pursuant to the Project Indenture.
A-21
<PAGE>
"Rolling Prior Year" means, (i) as of December 1, 1994 and any date
occurring prior to the delivery to the Project Trustee of financial statements
of the Partnerships for any fiscal quarter ending after December 1, 1994, the
most recent period of four consecutive fiscal quarters of the Partnerships ended
prior to such date, treated as a single accounting period and (ii) as of any
other date, the most recent period of four consecutive fiscal quarters of the
Partnerships ended prior to such date (or shorter period commencing on December
1, 1994), treated as a single accounting period, with respect to which financial
statements shall have been delivered to the Project Trustee.
"Rule 144A" means Rule 144A under the 1933 Act.
"S&P" means Standard & Poor's Ratings Services, a division of McGraw
Hill.
"Sanwa Bank" means The Sanwa Bank, Limited, New York Branch.
"Sanwa Credit Agreement" means the Credit Agreement, dated as of
December 1, 1994, by and among the Partnerships, Sanwa Bank as issuing bank and
as agent, and the other banks named therein.
"Sanwa Letter of Credit Banks" means the financial institutions from
time to time parties to the Sanwa Letter of Credit Facility,
"Sanwa Letters of Credit" means the letters of credit issued by the
Sanwa Letter of Credit Banks to secure the Partnerships' Energy Bank
Obligations.
"Sanwa Working Capital Banks" means the financial institutions from
time to time parties to the Sanwa Working Capital Facility.
"Sanwa Working Capital Facility" means the Working Capital Facility
provided by the Sanwa Working Capital Banks pursuant to the Sanwa Credit
Agreement.
"Sargent & Lundy" means Sargent & Lundy, L.L.C., an Illinois limited
liability company.
"SEC" means the United States Securities and Exchange Commission.
"Second Supplemental Indenture" means the Second Supplemental Trust
Indenture dated as of January 14, 1998.
"Sellers" means those Sellers identified on Schedule I to the Purchase
Agreement.
"Sponsor Pledge Agreement" means the pledge agreement by ESI GP, ESI
LP, Tractebel GP, Tractebel LP, Tractebel Power and ESI Funding to the
Collateral Agent for the benefit of the Collateral Agent, the Trustee and the
holders of the Securities.
"Sponsors" means ESI Energy, Inc. and Tractebel Power, Inc.
"Spot Gas" means any natural gas purchased by either Partnership
pursuant to (a) arrangements and agreements having a term of one year or less,
(b) either ProGas Agreement subsequent to the ProGas Agreement Expiration Date
with respect thereto (i.e., during the period over which such ProGas Agreement
shall be extended on terms not constituting a Partial ProGas Extension Event) or
(c) any arrangements and agreements entered into after the date hereof and
covering a period subsequent to the earliest ProGas Agreement Expiration Date
and having a term greater than one year in duration.
A-22
<PAGE>
"State Street Bank" means State Street Bank and Trust Company, a
Massachusetts banking corporation.
"Steam Sales Agreements" means, collectively, the NEA Steam Sales
Agreement and the NJEA Steam Sales Agreement.
"Subfunds" means the subfunds established and maintained by the Project
Trustee pursuant to the Project Indenture.
"Subordinated Debt" means all Debt of the Partnerships or ESI Tractebel
Funding subordinated in right of payment to the Project Securities in accordance
with certain requirements specified in the Project Indenture.
"Subordinated Management Fee" means, for each calendar year commencing
with the year in which the closing date occurs a portion of the Management Costs
referred to in clause (iv) of the definition thereof in an amount equal to
$1,500,000 (inflated annually commencing on January 1, 1999 and adjusted ratably
for each partial calendar year in which the Project Securities are outstanding).
"Substitute Debt Service Coverage Ratio" means, for any period, the
ratio of (a) the sum of (i) Operating Cash Flow for such period plus (ii) the
balance held in the Partnership Suspense Fund as of the date of determination of
the Substitute Debt Service Coverage Ratio to (b) Mandatory Debt Service for
such period.
"Substitute Letter of Credit" means an irrevocable standby letter of
credit (a) issued by a commercial bank whose long-term unsecured debt
obligations are rated (or whose bank holding company has long-term unsecured
debt obligations rated) at least "A" by S&P, "A2" by Moody's or "A" by Fitch (or
an equivalent rating by another nationally recognized credit rating agency of
similar standing if two or more of such corporations are not in the business of
rating long-term obligations of commercial banks) at the time of issuance, (b)
in a form reasonably acceptable to the Project Trustee, (c) with a minimum term
of one year (or shorter period ending on or after the final maturity date of the
Project Securities), (d) for the benefit of the Project Trustee, (e) which shall
not be a Debt of either ESI Tractebel Funding or either Partnership and shall
not be secured by or otherwise encumber any of the Project Collateral and (f)
providing for the amount thereof to be available to the Project Trustee in
multiple drawings, including a final drawing at any time within 30 days prior to
the expiration of such letter of credit for the full face amount thereof in the
event such letter of credit is not renewed or substituted with one or more other
Substitute Letters of Credit at such time, conditioned only upon presentation of
sight drafts accompanied by the applicable certificate in the form attached to
such letter of credit (and reasonably acceptable in form to the Project
Trustee).
"Substitute Letter of Credit Bank" means BankBoston, Bank Brussels
Lambert or any other financial institutions providing a Substitute Letter of
Credit.
"Swap Banks" means the financial institutions that are parties to the
Swaps.
"Swaps" means (i) the interest rate exchange agreements entered into by
the Partnerships with various financial institutions in connection with the
Original Project Credit Agreement and (ii) the interest rate exchange agreements
entered into by the Partnerships on December 1, 1994, in connection with the
issuance of the Original Project Securities.
"Tax Requirements," as defined in the Project Indenture, means, for
each Quarterly Tax Payment Date, the aggregate amount of Federal, New Jersey (in
the case of a partner of NJEA) and Massachusetts
A-23
<PAGE>
(in the case of a partner of NEA) income taxes (including estimated tax payments
thereof) estimated to be payable by the partners on such Quarterly Tax Payment
Date, computed based upon and in accordance with the following assumptions: (a)
each partner shall be considered an unmarried individual without dependents
subject to tax on all income at the highest marginal rate of Federal and, as
applicable, New Jersey and/or Massachusetts income taxes whose only asset and
only source of income, gain, loss, deduction or credit is the Partnership(s)
(taking into account net operating loss, capital loss and any other loss or
credit carryforwards or carrybacks that would be available to such partner, and
that arise solely as a result of the income, gains, losses, deductions and
credits of the Partnerships and the deductibility of state income taxes for
Federal income tax purposes); (b) all income of the Partnerships subject to
Massachusetts income tax shall be treated as ordinary income, interest income,
dividend income or net capital gain in accordance with the relevant provisions
of Massachusetts income tax law; and (c) except as otherwise contemplated
pursuant to the next succeeding sentence, each partner pays its taxes for a
given calendar year in quarterly installments on the applicable Quarterly Tax
Payment Date; provided, that any such computation shall not give effect to, and
the term "Tax Requirements" shall not include, any income taxes payable as a
result of a dissolution of one or both Partnerships to the extent that such
income taxes exceed the amount of income taxes which would have been payable if
such dissolution had not occurred. The Tax Requirements, as of any date of
determination (the "Tax Determination Date"), shall be increased or reduced, as
the case may be, to reflect any difference between (x) the Tax Requirements for
any preceding Quarterly Tax Payment Date as originally computed (after giving
effect to any previous increase or reduction relating thereto) and (y) the Tax
Requirements for such preceding Quarterly Tax Payment Date as recomputed at the
Tax Determination Date to reflect any change in the original computation,
including, on an annual basis, any differences between any estimates of
Partnership income and expenses for any fiscal year (or any period during such
fiscal year) utilized in such computations and the actual Partnership income and
expenses for such fiscal year. In the case of a reduction that exceeds the Tax
Requirements amount calculated before giving effect to such reduction, each
subsequent Tax Requirements amount shall be reduced to the extent of such excess
until such excess has been fully offset against subsequent Tax Requirements. At
any time during which either NJEA, NEA or any Permitted Successor (as defined in
the Project Indenture) is itself an entity subject to Federal or, in the case of
NJEA, New Jersey, or in the case of NEA, Massachusetts, income or franchise or
similar taxes, the Tax Requirements attributable to NJEA, NEA or such Permitted
Successor (as defined in the Project Indenture), as the case may be, shall be
reduced by the amount of such Federal, New Jersey and Massachusetts taxes
payable by NJEA, NEA or such successor entity; provided, however, that in the
case of any such tax payable to New Jersey or Massachusetts, no such reduction
to the applicable Tax Requirements shall occur if the entity on which the tax is
imposed is treated as a pass-through entity in such jurisdiction.
"Texas Eastern" means Texas Eastern Transmission Line Corporation, a
Delaware corporation.
"Tractebel Belgium" means Tractebel S.A., a company organized under the
laws of Belgium.
"Tractebel GP" means Tractebel Northeast Generation GP, Inc., a
Delaware corporation.
"Tractebel LP" means Tractebel Associates Northeast LP, Inc., a
Delaware corporation.
"Tractebel Power" means Tractebel Power, Inc., a Delaware corporation.
"Tractebel" means Tractebel, Inc., a Delaware corporation.
"TransCanada" means Trans Canada Pipelines Limited, an Ontario
corporation.
"Transco" means Transcontinental Gas Pipe Line Corporation, a Delaware
corporation.
A-24
<PAGE>
"Transco Agreement Expiration Date" means, with respect to each Transco
Agreement, the later of (a) October 31, 2006, and (b) the scheduled expiration
date of such Transco Agreement after giving effect to any Partial Transportation
Extension Events with respect to such Transco Agreement (it being understood
that, in the event of the continuance of such Transco Agreement on terms not
constituting a Partial Transportation Extension Event, the scheduled expiration
date of such Transco Agreement for purposes of this clause (b) shall be deemed
to be the last day through which such Transco Agreement was extended on terms
constituting a Partial Transportation Extension Event.
"Transco Agreements" means the Firm Gas Transportation Agreement for
Rate Schedule X-320 dated February 27, 1991 between Transco and NEA and the Firm
Gas Transportation Agreement for Rate Schedule X-319 dated February 27, 1991
between Transco and NJEA.
"Transco Extension Event" means the occurrence of each of the following
with respect to a Transco Agreement: (a) the extension of the term of such
Transco Agreement resulting in a scheduled expiration date therefor that is on
or after the final maturity date of the Project Securities and otherwise on
substantially the same terms and conditions contained in such agreement on
December 1, 1994, except for any changes to the charges for transportation
service applicable to the period of any such extension; and (b) the receipt by
the Project Trustee of a certificate of the Independent Gas Consultant to the
effect of (a) above.
"Transco Substitution Event" means the occurrence of each of the
following: (a) the execution by each Partnership and one or more third parties
of one or more gas transportation agreements providing for firm gas
transportation service to the Partnerships by such third party(ies) in
substitution of the firm transportation service provided to the Partnerships by
Transco under the Transco Agreements, which substitute firm gas transportation
service shall (i) be furnished during the period form the expiration date of the
Transco Agreements through a date no earlier than the final maturity date of the
Project Securities, (ii) cover volumes of gas for each Partnership not less than
those covered on December 1, 1994 under the Transco Agreements to which such
Partnership is (or was) party, and (iii) be on terms generally no less favorable
to each Partnership than those contained on December 1, 1994 in the Transco
Agreement to which such Partnership is (or was) party, except for changes to the
charges for transportation service; and (b) the receipt by the Project Trustee
of a certificate of the Independent Gas Consultant to the effect of (a) above
(other than with respect to (a)(iii) above).
"Trustee" means State Street Bank and Trust Company in its capacity as
trustee under the Indenture.
"Voting Stock" as defined in the Project Indenture means the Capital
Stock of any Person as of any date that such Person is at the time entitled to
vote in the election of the Board of Directors of such Person.
"Westinghouse Electric" means Westinghouse Electric Corporation, a
Pennsylvania corporation.
"Westinghouse Services" means Westinghouse Operating Services Company,
a Delaware corporation and a subsidiary of Westinghouse Electric.
"Working Capital Banks" means the financial institutions from time to
time parties to a Working Capital Facility.
"Working Capital Facility" means any agreement or agreements from time
to time in effect among the Partnerships and the Working Capital Banks providing
for the availability of working capital loans to the Partnerships in an
aggregate principal amount not to exceed $20 million.
A-25
<PAGE>
"Working Capital Fund" means the Fund entitled "Working Capital Fund"
established and maintained by the Project Trustee pursuant to the Project
Indenture.
"Working Capital Loans" means loans provided under the Working Capital
Facility.
A-26
<PAGE>
APPENDIX B
Bellingham and Sayreville Cogeneration Facilities
Due Diligence Review
Prepared for
ESI Energy, Inc. and
Tractebel Power, Inc.
SL-5171
February 12, 1998
55 East Monroe Street
Chicago, IL 60603-5780 USA
B-1
<PAGE>
i
SL-5171
- -------------------------------------------------------------------------------
Bellingham and Sayreville Cogeneration Facilities
Due Diligence Review
Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ES EXECUTIVE SUMMARY.................................................................................. ES-1
Technical Review of the Cogeneration Facilities.................................................. ES-2
Technical Review of the Bellingham Carbon Dioxide Plant.......................................... ES-3
Plant Performance Review......................................................................... ES-3
Operation and Maintenance Review................................................................. ES-4
Pro Forma Financial Statement Review............................................................. ES-4
Permitting and Compliance Review................................................................. ES-5
1 INTRODUCTION....................................................................................... 1-1
Ownership Structure.............................................................................. 1-1
The Sites........................................................................................ 1-2
The Cogeneration Plants.......................................................................... 1-3
The Bellingham Carbon Dioxide Plant.............................................................. 1-4
Auxiliary Plant Services......................................................................... 1-5
Objective of Review and Methodology.............................................................. 1-6
Summary.......................................................................................... 1-7
</TABLE>
- -------------------------------------------------------------------------------
This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
B-2
<PAGE>
ii
SL-5171
- -------------------------------------------------------------------------------
Contents (cont.)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
2 TECHNICAL REVIEW OF THE COGENERATION FACILITIES..................................................... 2-1
Westinghouse 501D5 Combustion Turbines............................................................ 2-1
Design Basis................................................................................. 2-1
Operation and Maintenance.................................................................... 2-2
Heat Recovery Steam Generators.................................................................... 2-4
Design Basis................................................................................. 2-4
Operation and Maintenance.................................................................... 2-5
Westinghouse Steam Turbines....................................................................... 2-7
Design Basis................................................................................. 2-7
Operation and Maintenance.................................................................... 2-7
Air-Cooled Condenser/Air Removal System........................................................... 2-8
Design Basis................................................................................. 2-8
Operation and Maintenance.................................................................... 2-8
Balance-of-Plant Equipment........................................................................ 2-9
Condensate System............................................................................ 2-9
Boiler Feedwater System...................................................................... 2-9
Demineralized Water Treatment System......................................................... 2-10
Fire Protection System....................................................................... 2-10
Zero Discharge Wastewater Treatment System................................................... 2-11
Summary...................................................................................... 2-12
Electrical Components and Systems................................................................. 2-12
Bellingham Cogeneration Facility............................................................. 2-12
Sayreville Cogeneration Facility............................................................. 2-15
Plant Control System......................................................................... 2-17
</TABLE>
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Contents (cont.)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Architectural/Civil/Structural Components and Systems...................................... 2-19
General Features of Both Facilities................................................... 2-19
Bellingham Cogeneration Facility...................................................... 2-20
Sayreville Cogeneration Facility...................................................... 2-22
Summary.................................................................................... 2-23
3 TECHNICAL REVIEW OF THE BELLINGHAM CARBON DIOXIDE PLANT.......................................... 3-1
Process Description and Design............................................................. 3-1
Operation and Maintenance History.......................................................... 3-2
Condensate Return Pump................................................................ 3-3
CO2 Oil Separator..................................................................... 3-4
Summary.................................................................................... 3-5
4 PLANT PERFORMANCE REVIEW......................................................................... 4-1
Capacity, Generation, and Heat Rate........................................................ 4-1
1991 Plant Acceptance Tests........................................................... 4-1
Operating Guarantees.................................................................. 4-2
Operating Performance................................................................. 4-3
Availability............................................................................... 4-4
Industry Averages..................................................................... 4-4
Station Performance................................................................... 4-5
Summary.................................................................................... 4-8
</TABLE>
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Contents (cont.)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
5 OPERATION AND MAINTENANCE REVIEW.................................................................... 5-1
Existing O&M Agreements....................................................................... 5-1
Bellingham Facility...................................................................... 5-2
Sayreville Facility...................................................................... 5-3
Nonfuel O&M Expenses.......................................................................... 5-4
Summary....................................................................................... 5-8
6 PRO FORMA FINANCIAL PROJECTIONS REVIEW.............................................................. 6-1
Operational Assumptions....................................................................... 6-2
Capacity................................................................................. 6-2
Availability............................................................................. 6-5
Heat Rate as Fuel Consumption per Kilowatt-Hour.......................................... 6-6
Power Generation Revenues..................................................................... 6-7
Power Sales Prices....................................................................... 6-7
Energy Banks............................................................................. 6-7
Gross Steam Production Income............................................................ 6-8
Project Operating Costs.................................................................. 6-8
Financing Costs.......................................................................... 6-9
Reserve Accounts......................................................................... 6-10
Base-Case Results............................................................................. 6-11
Sensitivity Analyses.......................................................................... 6-11
Sensitivity Case A: Increased Spot Gas Prices............................................ 6-11
Sensitivity Case B: Increased Inflation Rate............................................. 6-11
</TABLE>
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Contents (cont.)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Sensitivity Case C: Lower Station Availability....................................... 6-11
Sensitivity Case D: Lower Fuel Efficiency............................................ 6-12
Sensitivity Case E: No Merchant Power Sales.......................................... 6-12
Summary ................................................................................ 6-12
7 PERMITTING AND COMPLIANCE REVIEW.............................................................. 7-1
Bellingham Cogeneration Facility.......................................................... 7-1
Energy and Utility Approvals and Requirements........................................ 7-1
Environmental Impact Report.......................................................... 7-2
Soil and Groundwater Contamination................................................... 7-3
Air Pollution Control Permits........................................................ 7-3
Other Air Pollution Control Requirements............................................. 7-5
Noise Guidelines Compliance.......................................................... 7-6
Airspace Obstruction Approval........................................................ 7-7
Wastewater Discharges................................................................ 7-7
Water Withdrawal Permits............................................................. 7-8
Solid and Hazardous Waste Disposal................................................... 7-8
Chemical and Petroleum Storage....................................................... 7-9
Oil and Chemical Spill Response...................................................... 7-10
Wetlands and Floodplain Permits...................................................... 7-11
Zoning Approvals..................................................................... 7-12
Building Permits..................................................................... 7-13
Right-of-Way Permits................................................................. 7-13
Future Environmental Regulations..................................................... 7-13
CO2 Plant - Air Permit............................................................... 7-14
</TABLE>
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Contents (cont.)
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
CO2 Plant - Chemical Spill Response.................................................. 7-15
Sayreville Cogeneration Facility.......................................................... 7-15
Energy and Utility Approvals and Requirements........................................ 7-15
Soil and Groundwater Contamination................................................... 7-16
Air Pollution Control Permits........................................................ 7-16
Noise Levels......................................................................... 7-19
Airspace Obstruction Approval........................................................ 7-19
Wastewater Discharges................................................................ 7-19
Water Withdrawal Permits............................................................. 7-21
Solid and Hazardous Waste Disposal................................................... 7-21
Chemical and Petroleum Storage....................................................... 7-22
Oil and Chemical Spill Response...................................................... 7-22
Wetlands and Stream Encroachment Permits............................................. 7-22
Zoning Approvals and Building Permits................................................ 7-23
Future Environmental Regulations..................................................... 7-23
Summary ................................................................................ 7-24
</TABLE>
Appendixes
A Financial Projections for Base Case
B Financial Projections for Sensitivity Cases
- -------------------------------------------------------------------------------
This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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EXECUTIVE SUMMARY
Sargent & Lundy L.L.C. (Sargent & Lundy) has performed a due diligence review of
the Bellingham and Sayreville cogeneration facilities to provide an independent
assessment of the facilities' design bases, the quality of the facilities as
constructed, the operation and maintenance practices and budgets, the
performance history, the pro forma financial statements, and the environmental
permitting and compliance history. The Bellingham and Sayreville facilities are
two nominal 300-megawatt combined-cycle power plants developed by
Intercontinental Energy Corporation and acquired by Northeast Energy, L.P. and
Northeast Energy, L.L.C. The facilities are located in Bellingham,
Massachusetts, and Sayreville, New Jersey. The plants are similar in design and
construction and are currently being operated and maintained by Westinghouse
Electric Corporation under similar contractual arrangements. Each facility
consists of a cogeneration plant, together with site improvements,
administrative and other process-related buildings, and all necessary
interconnections. The Bellingham facility also includes a carbon dioxide (CO2)
plant that produces food-grade CO2.
Through our independent assessment, Sargent & Lundy is able to render the
following opinions:
o The facilities have been well constructed in accordance with
generally accepted engineering practices and are fully capable of
performing in accordance with the operating and financial
projections.
o The technology used for the projects is sound, is commercially
proven, and should provide an additional 20 years of service or
longer with proper operations and maintenance practices.
o An acceptable operation and maintenance program, including
provisions for planned major maintenance, has been established.
o The plants are clean, well operated, and well maintained. After
the current O&M agreements with Westinghouse expire, the facilities
will be operated and maintained by ESI Operating Services, Inc., an
affiliate of one of the new owners. ESI Operating Services, Inc. is
fully capable of operating and maintaining these combined-cycle
power plant facilities.
o Both plants have been operating for over six years, with higher
than guaranteed net capacities and lower than guaranteed plant heat
rates. The availabilities of the plants have exceeded guaranteed
levels and are higher than industry averages.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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o Each facility's electrical and steam production and overall
performance to date is consistent with the design of each facility.
The facilities are operating as baseload power plants. Through
1997, the Bellingham and Sayreville plants have achieved average
availability factors of 96% and 93.3%, respectively.
o The plants have in the past and are capable in the future of
meeting the requirements of the existing power purchase agreements.
o The pro forma projections reflect demonstrated plant performance
and include conservative estimates of future performance of the
facilities. The estimates of technical performance and of the
expenses for operations and maintenance of the facilities and other
similar operating assumptions used in the projections represent
conservative estimates and assumptions in light of the
circumstances of the projects. The budgets provide sufficient funds
for routine and major maintenance practices used in the industry to
minimize degradation of power output and heat rate. We expect that
maintenance expenses will be within the limits anticipated in the
budgets.
o Under the base-case assumptions, the pro forma financial
projections show a minimum debt service coverage ratio for the
Bonds of 2.25 times and an average debt service coverage ratio of
2.88 times over the life of the Bonds. The debt service coverage
ratios remain relatively stable over a broad range of
sensitivities.
o The facilities meet the environmental requirements of all
regulatory agencies, including those for Qualifying Facilities and
those required by the environmental permits, and we expect that
they will continue to do so in the future.
The significant findings of the review are presented by section in the following
summaries.
TECHNICAL REVIEW OF THE COGENERATION FACILITIES
General reviews of the design bases, construction, operation, and maintenance of
the Bellingham and Sayreville cogeneration plants were performed, including
reviews of design standards, drawings, and specifications. Walkdowns of each
facility were also performed to establish the present condition, and interviews
of key plant operations and maintenance personnel were conducted. Based on the
technical review, the facilities have been well constructed in accordance with
generally accepted engineering practices.
The conditions noted at each facility were usual for operating plants and should
not affect the long-term operability or maintainability of the units. Some
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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conditions do exist that require minor repair or modification, and the plant
personnel are aware of these conditions and have made or are making plans to
perform the required work. The costs associated with these repairs or
modifications are not significant and are within the amounts included in the
operation and maintenance budgets.
The plants have been successfully operated and maintained by Westinghouse
Electric Corporation since startup, and continued good operation and maintenance
practices by the owners should provide reliable long-term service from both
plants allowing the plants to meet their operating and financial projections.
TECHNICAL REVIEW OF THE BELLINGHAM CARBON DIOXIDE PLANT
The CO2 plant has been in operation since 1991 producing and marketing a
food-grade product. For the past 55 months, the plant has been operating
virtually 100% of the time, producing in excess of the design guaranteed
production quantities of food-grade CO2. This record is a result of a concerted
effort by the plant personnel to identify and eliminate the source of corrosion
that occurred during the startup operation and to establish new predictable
process operating parameters. Based on the consistency of current operations,
the CO2 plant should continue operating at its design parameters and within
projected operation and maintenance costs.
PLANT PERFORMANCE REVIEW
The performance and reliability test procedures, performance test correction
curves, operation and maintenance agreements, monthly generation reports, outage
reports, and other documents were reviewed to determine whether the guaranteed
performance parameters are being met and used correctly in projecting the future
performance of the plants. The demonstrated capacity and heat rate of each plant
have shown little anneal variance, and each plant has consistently achieved the
contract performance guarantees. The average yearly availabilities for both
plants are consistently higher than the industry average for newer
combined-cycle plants. Finally, the Bellingham CO2 plant has also demonstrated
its capability to produce the design quantity and quality of CO2 and to utilize
the necessary amount of steam to fulfill the cogeneration plant's Qualifying
Facility requirements. The historical performance of the plants should result in
a reasonably accurate forecast of future plant performance.
- -------------------------------------------------------------------------------
This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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OPERATION AND MAINTENANCE REVIEW
The Operation and Maintenance (O&M) budget estimates for the Bellingham and
Sayreville facilities were assessed in light of the operating history of the two
plants and industry experience. The purpose of this assessment was to determine
whether the O&M budget estimates are adequate, conservative and consistent with
expected performance characteristics.
The review of the O&M budget estimates for the Bellingham and Sayreville
facilities indicates that the budgets represent reasonable estimates and
assumptions. The budgets provide sufficient funds for routine and major
maintenance practices used in the industry to minimize degradation of power
output and heat rate. The minor corrective actions suggested in this report,
such as routine painting, HRSG tubing inspection and repair, and HRSG foundation
pier inspection and repair, can all be implemented within this budget. Based on
the review of the existing O&M agreements, the specified payments to the
operator should be sufficient to support expected plant performance, and the
liquidated damages for fuel consumption and steam output should be sufficient to
maintain expected net income. The liquidated damages for electrical output
mitigate lost income in the event of reduced plant output and, together with the
bonus provisions, provide an economic incentive to the operator to maintain or
exceed the output guarantee. Once the existing O&M agreements expire, the owner
will bear additional risk for plant performance since the liquidated damage and
bonus incentive will no longer exist. Since the new entity performing the O&M
activities is an affiliate of one of the new owners, the new operator will have
a greater incentive to maintain or improve on the high levels of performance
achieved in the past.
PRO FORMA FINANCIAL STATEMENT REVIEW
The annual debt service coverage ratios for the base case and sensitivity cases
presented by Northeast are shown in the following table. These coverage ratios
represent cash distributions to Northeast divided by scheduled annual debt
service on the Bonds.
- -------------------------------------------------------------------------------
This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Annual Bond Debt
Service Coverage Ratios
Minimum Average
----------------------------- ---------------------
Base Case 2.25 x 2.88 x
Sensitivity Case A 2.21 x 2.87 x
Sensitivity Case B 2.17 x 2.80 x
Sensitivity Case C 2.05 x 2.65 x
Sensitivity Case D 1.88 x 2.33 x
Sensitivity Case E 1.37 x 2.59 x
The debt service coverage ratios under the base case and sensitivity cases
remain relatively stable over a broad range of sensitivities around the key
parameters discussed in this report.
Based on a review of the structure of the pro formas and a detailed review of a
sample of the more significant calculations, the financial model appears
accurate and in accordance with industry practice, and the pro forma financial
projections are reasonable forecasts of the future financial performance of the
projects.
PERMITTING AND COMPLIANCE REVIEW
Based on the environmental permitting and compliance review of the Bellingham
and Sayreville cogeneration facilities, the following conclusions were reached:
o All of the permits and approvals currently required for
construction and operation of the plants have been obtained.
o The plants have been operating in compliance with all of their
permit conditions, except for minor exceedances of NOX emission
limits at Sayreville, which have been adequately addressed.
o Based on the physical walkdowns of the facilities, interviews with
key plant personnel, and reviews of documents and records, the
plants should be able to operate in compliance in the future based
on the procedures and equipment now in place.
o The plants have been operating in compliance with qualifying
facility requirements as defined under the Public Utilities
Regulatory Policies Act.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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o The four environmental releases, a fuel oil spill and three
chemical spills at Bellingham, were promptly and effectively
resolved and actions were taken to prevent future occurrences.
Additional remediation of the oil spill at Bellingham is required.
This remediation continues to be the responsibility of
Westinghouse. To date, Westinghouse has diligently pursued closure
of this issue, and the remediation effort has apparently been
satisfactory to the relevant environmental authorities. There
should be no additional impacts to the operation of the facilities
because of these spills.
o The plants are required to obtain Title V Operating Permits, and
the owner is actively pursuing issuance of the permits. There is no
reason to believe the plants will be adversely affected by the
permits.
Due to the existing systems already in place, the facilities are generally well
designed to meet any expected requirements from future environmental
regulations.
- -------------------------------------------------------------------------------
This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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SARGENT & LUNDY, by
<TABLE>
<S> <C>
/s/ J. G. Gatz /s/ C. A. Radek
- --------------------------------------- ----------------------------------------------
J. G. Gatz C. A. Radek
Project Manager Structural Engineer
Power Generation Systems Division Structural & Civil Division
/s/ D. R. Harvin /s/ L. A. Valerio
- --------------------------------------- ----------------------------------------------
D. R. Harvin L. A. Valerio
Financial Analyst Senior Electrical Engineer
Project Financial Services Division Mechanical Project Engineering Division
/s/ R. J. Kerhin /s/ H. H. Wisch
- --------------------------------------- ----------------------------------------------
R. J. Kerhin H. H. Wisch
Quality Control Specialist Combustion Turbine Specialist
Materials Engineering Division Mechanical Project Engineering Division
/s/ R. S. Light
- ---------------------------------------
R. S. Light
Senior Environmental Engineer
Air & Water Quality Division
</TABLE>
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Section 1
INTRODUCTION
The two nominal 300 megawatt (MW) combined-cycle power plant facilities are
located in Bellingham, Massachusetts, and Sayreville, New Jersey, on sites that
are owned in fee simple. The locations of the facilities are shown in Exhibit
1-1. The two cogeneration plants are similar in design and construction and are
currently being operated and maintained by Westinghouse Electric Corporation
(Westinghouse) under similar contractual arrangements. Each facility consists of
a cogeneration plant, together with site improvements, administrative and other
process related buildings, and all necessary interconnections. The Bellingham
facility also includes a carbon dioxide (CO2) plant that produces food-grade
CO2.
OWNERSHIP STRUCTURE
The facilities were developed by Intercontinental Energy Corporation (IEC),
which held a 1% general partnership interest in Northeast Energy Associates
(NEA) and limited partnership interests. The facilities were acquired by
Northeast Energy, L.P. (Northeast) and Northeast Energy, L.L.C. (NE, L.L.C.), a
wholly-owned subsidiary of Northeast. Northeast purchased IEC's 1% general
partnership interest as well as all of the limited partnership interests in NEA
except for a 1% limited partnership interest purchased by NE, L.L.C.
Fifty percent of Northeast is owned and controlled, through wholly-owned
subsidiaries, by ESI Energy, Inc. (ESI). ESI has 31 projects in its portfolio,
including natural gas, geothermal and wind facilities, and is one of the largest
independent power companies in the United States of America. ESI is an indirect
wholly-owned subsidiary of FPL Group, Inc. (FPL Group), a holding company whose
stock is traded on the New York Stock Exchange. FPL Group's total assets as of
June 30, 1997, exceeded $12.7 billion and its revenue and net income for its
fiscal year ended 1996 exceeded $6 billion and $579 million, respectively.
FPL Group is also the parent company of Florida Power & Light Company (FPL), one
of the largest investor-owned utilities in the United States. FPL serves
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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approximately 3.6 million customers within a service area that includes most of
the eastern and southern regions of the state of Florida. FPL has experience in
operating cost-effective generation while maintaining high plant availability.
The other fifty percent of Northeast is owned and controlled, through
wholly-owned subsidiaries, by Tractebel Power, Inc. (TPI). TPI is a wholly-owned
subsidiary of Tractebel Inc. (Tractebel), which in turn is a wholly-owned
subsidiary of Tractebel, S.A. a major energy and industrial group founded in
1895 and based in Brussels, Belgium (Tractebel Belgium). Tractebel Belgium, with
annual revenues of approximately $10 billion in its fiscal year ended December
31, 1996, is a world leader in the electric power generation and transmission
industry and produces approximately 23,000 MW globally. Tractebel Belgium's two
primary U.S. operating subsidiaries are TPI and Tractebel Energy Marketing, Inc.
TPI concentrates on acquiring, developing, and operating independent power
facilities in North America and, together with its subsidiaries, currently owns
14 power projects in the United States. Tractebel Power Operations, Inc., a
subsidiary of TPI, provides administration and operations and maintenance
services for 13 of the projects.
THE SITES
The Bellingham facility is located on an industrially zoned 44-acre site in the
town of Bellingham, Massachusetts, near the upper Charles River. The site is
readily accessible from Interstate Route 495 and by a railroad line belonging to
Consolidated Rail Corporation (Conrail). The facility is close to Boston Edison
Company's Medway substation and less than a mile from a 345-kilovolt (kV) power
line through which the plant is interconnected with Boston Edison Company,
Commonwealth Electric Company, and Montaup Electric Company. The Algonquin Gas
Transmission Company (Algonquin) gas pipe runs within the site boundary.
The Sayreville facility is located on an industrially zoned 49-acre site in the
borough of Sayreville, New Jersey. The site is easily accessible by the Garden
State Parkway, the New Jersey Turnpike, and a Conrail railroad line. A
Transcontinental Gas Pipe Line Corporation (Transco) natural gas pipeline runs
within 200 yards of the site, and the facility is interconnected with Jersey
Central Power & Light Company (JCP&L) through a one-mile power line.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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A photograph of the Bellingham Cogeneration Facility and the site plot plan are
presented in Exhibits 1-2 and 1-3, respectively, and a photograph of the
Sayreville Cogeneration Facility and the site plot plan are presented in
Exhibits 1-4 and 1-5, respectively.
THE COGENERATION PLANTS
Each cogeneration plant, nominally rated at 300 MW, consists of the following
major equipment:
o Two Westinghouse 501D5 combustion turbines and associated electric
generators and transformers
o Two unfired heat recovery steam generators (HRSGs)
o One Westinghouse steam turbine and associated electric generator
and transformer
o One air-cooled steam condenser
o Balance-of-plant equipment consisting of a condensate system,
deaerator, boiler feedwater system, high- and low-pressure steam
systems, demineralizer system, and fire protection system
A zero discharge wastewater treatment system is installed at Bellingham.
Westinghouse has recently provided 21 501D5 combustion turbines for simple-cycle
and combined-cycle power plants with a total generation of 2570 MW. The
Westinghouse scope for these power plants ranged from equipment supply only to
complete turnkey installations. Approximately 235 combustion turbines of the 501
series are currently in service, of which 85 are 501D5 units.
At each facility, the combustion and steam turbines and their associated
auxiliary equipment are located within a building. Two bridge-type cranes are
installed to service the combustion and steam turbines for maintenance.
Natural gas is the primary fuel for both Bellingham and Sayreville. Natural gas
is supplied to the sites via pipelines. The environmental permits for the
Bellingham facility provide for the combustion turbines to fire low-sulfur No. 2
fuel oil for a maximum of 1440 turbine-operating hours per year.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The exhaust gases from the combustion turbines pass through the HRSGs, providing
heat to generate steam, and then exhaust into the atmosphere through a common
chimney. The chimney has one liner at Bellingham and two liners at Sayreville.
The steam generated in the HRSGs is used to generate power in the steam
turbines, for NOX control, and for process steam used in the carbon dioxide
plant at Bellingham and for sale to Hercules Incorporated (Hercules) at
Sayreville.
Plant exhaust gas emissions are continuously monitored. The emissions are
controlled by restrictions on contaminants in the fuel supply, by the combustion
turbine combustor basket design, and by steam injection for NOX control.
At Bellingham, the facility interconnects with a 345-kV power line collectively
owned by Boston Edison Company, Commonwealth Electric Company, and Northeast
Utilities. Boston Edison Company, Commonwealth Electric Company, and Montaup
Electric Company collectively purchase all of the power generated, generally, on
a pro rata basis. In addition, approximately 4 MW of power is provided directly
to the carbon dioxide plant. At Sayreville, the facility interconnects with a
230-kV line owned by JCP&L, which currently purchases all of the power
generated.
THE BELLINGHAM CARBON DIOXIDE PLANT
The Bellingham carbon dioxide plant is designed to produce 350 tons per day of
food-grade CO2. The plant is located adjacent to the cogeneration plant on the
Bellingham site. The control room and office area, electrical equipment, CO2
purification equipment, and a 5-ton overhead maintenance crane are housed in a
multifunction prefabricated steel building. Most of the process equipment is
located outdoors.
Carbon dioxide is recovered from the exhaust gas produced by the combustion
turbines in the cogeneration plant using an amine technology developed by Dow
Chemical Company and acquired by Fluor Daniel. This proprietary technology was
developed to recover carbon dioxide from exhaust gases containing low volumes of
carbon dioxide and high volumes of oxygen. The exhaust gas at Bellingham
contains approximately 3% by volume of carbon dioxide and 12% oxygen. From 10%
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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to 15% of the exhaust gas produced by the combustion turbines is diverted to the
carbon dioxide plant. The remainder of the exhaust gas is emitted to the
atmosphere through the chimney.
The recovered carbon dioxide is purified and liquefied using standard industry
technology. The liquid carbon dioxide is stored in eight 200-ton storage tanks
from which it is loaded into trucks for distribution. The site also has the
capability of loading CO2 into rail cars for distribution.
AUXILIARY PLANT SERVICES
At Bellingham, railroad service is supplied by a connection to an existing
Conrail line that accesses one corner of the site. Process water is supplied
from three dedicated offsite wells and augmented when required by two onsite
wells. Storage for 2,500,000 gallons of water is provided in a single tank, in
addition to a 1,000,000-gallon raw water tank that contains a reserve water
supply for fire protection.
Fuel oil is stored in a single 2,500,000-gallon tank with the necessary
spill-prevention protection and ancillary loading and unloading facilities.
At Sayreville, raw water, in an amount equal to the steam exported to Hercules
plus 15%, is supplied from the Hercules private water supply system. Additional
process and potable water is supplied from the municipal water system.
Offices for the administrative and operations and maintenance personnel and a
workshop are included within the turbine building of each facility.
OBJECTIVE OF REVIEW AND METHODOLOGY
The objective of this review was for Sargent & Lundy L.L.C. (Sargent & Lundy) to
provide an independent assessment of the facilities' design bases, the quality
of the facilities as constructed, the operation and maintenance (O&M) practices
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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and budgets, the performance history, the pro forma financial statements, and
the environmental permitting and compliance history for the Bellingham and
Sayreville cogeneration facilities.
Sargent & Lundy performed a walkdown of the facilities, interviewed the key
plant personnel, and reviewed the following documentation to accomplish this
objective in an effective manner:
o Plant design documents including--
-- site drawings
-- general arrangement drawings
-- heat, mass, and water balances
-- process flow and piping & instrumentation diagrams
-- electrical single-line diagrams
-- major electrical, mechanical and structural specifications, and physical
drawings
o Plant operation and maintenance records including--
-- historical capacity, heat rate, and availability information
-- historical power generation, steam generation, fuel consumption, and
planned maintenance hours
-- operating conditions of major plant components and systems
forced outages and deratings and corrective actions taken
-- qualifying facility compliance records
o Plant contractual agreements including--
-- power purchase agreements steam sales agreements gas supply agreements
-- O&M agreements
o Pro forma financial projections
o Applicable environmental requirements including--
-- energy and utility approvals and requirements
-- air and water pollution control permits
-- waste disposal permits and requirements
-- various other environmental permitting requirements
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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o Plant environmental records including--
-- permit applications and permits received
-- environmental records and reports prepared as required by the
permitting agencies
-- environmental compliance issues and corrective actions taken
In performing the review of past performance, Sargent & Lundy focused on the
first six years of operation from September 1991 through September 1997.
SUMMARY
Sargent & Lundy was provided access to the facilities, the key plant personnel,
and the necessary documentation to provide an independent assessment of the
Bellingham and Sayreville cogeneration facilities and a review of cash flow
available to cover debt service on the Bonds. Based on this review, we are able
to render the following opinions:
o The facilities have been well constructed in accordance with
generally accepted engineering practices and are fully capable of
performing in accordance with the operating and financial
projections.
o The technology used for the projects is sound, commercially
proven, and should provide an additional 20 years of service or
longer with proper operations and maintenance practices.
o An acceptable operation and maintenance program, including
provisions for planned major maintenance, has been established.
o The plants are clean, well operated, and well maintained. After
the current O&M agreements with Westinghouse expire, the facilities
will be operated and maintained by ESI Operating Services, Inc., an
affiliate of one of the new owners. ESI Operating Services, Inc. is
fully capable of operating and maintaining these combined-cycle
power plant facilities.
o Both plants have been operating for over six years, with higher
than guaranteed net capacities and lower than guaranteed plant heat
rates. The availabilities of the plants have exceeded guaranteed
levels and are higher than industry averages.
o Each facility's electrical and steam production and overall
performance to date is consistent with the design of each facility.
The facilities are operating as baseload power plants. Through
1997, the Bellingham and Sayreville plants have achieved average
availability factors of 96% and 93.3%, respectively.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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o The plants have in the past and are capable in the future of
meeting the requirements of the existing power purchase agreements.
o The pro forma projections reflect demonstrated plant performance
and include conservative estimates of future performance of the
facilities. The estimates of technical performance and of the
expenses for operations and maintenance of the facilities and other
similar operating assumptions used in the projections represent
conservative estimates and assumptions in light of the
circumstances of the projects. The budgets provide sufficient funds
for routine and major maintenance practices used in the industry to
minimize degradation of power output and heat rate. We expect that
maintenance expenses will be within the limits anticipated in the
budgets.
o Under the base-case assumptions, the pro forma financial
projections show a minimum debt service coverage ratio for the
Bonds of 2.25 times and an average debt service coverage ratio of
2.88 times over the life of the Bonds. The debt service coverage
ratios remain relatively stable over a broad range of
sensitivities.
o The facilities meet the environmental requirements of all
regulatory agencies, including those for Qualifying Facilities and
those required by the environmental permits, and we expect that
they will continue to do so in the future.
This report presents the results of the review on which we based these opinions.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Section 2
TECHNICAL REVIEW OF THE COGENERATION FACILITIES
The design bases, construction, operation, and maintenance of the major
components and systems of the Bellingham and Sayreville cogeneration facilities
were reviewed. The following components and systems were included in this
review:
o Westinghouse 501D5 combustion turbines
o Heat recovery steam generators (HRSGs)
o Westinghouse steam turbines
o Air-cooled condenser/air removal system
o Balance-of-plant equipment
o Electrical components and systems
o Architectural/civil/structural components and systems
The technical review of the Bellingham carbon dioxide plant is presented in
Section 3.
WESTINGHOUSE 501D5 COMBUSTION TURBINES
Design Basis
Each plant utilizes two Westinghouse 501D5 combustion turbine-generators for
power generation and to provide high-temperature exhaust gas to the HRSGs for
steam production. Each Westinghouse 501D5 combustion turbine consists of a
high-efficiency 19-stage axial compressor, a combustion cylinder with 14
combustors interconnected in a circular array parallel to the rotor axis, and a
4-stage reaction turbine. The principal fuel for the Bellingham and Sayreville
combustion turbines is natural gas, although the Bellingham facility has been
designed for the combustion turbines to fire low-sulfur No. 2 fuel oil.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Westinghouse has supplied 85 combustion turbines of this design since 1981, and
the 501D5 combustion turbine has no inherent design defects. The 501D5
combustion turbine is a sound, commercially proven technology, based on over 40
years of Westinghouse design and manufacturing experience.
The combustion turbines installed at the Bellingham and Sayreville plants were
manufactured in 1990 by Mitsubishi Heavy Industries, Ltd. (MHI) in Takasago,
Japan, where Westinghouse-designed combustion turbines have been produced under
license for more than 25 years.
Operation and Maintenance
All four combustion turbines are normally operated in continuous service, and
therefore, the combustion turbines have not experienced many startup-shutdown
cycles. The combustion turbines are normally brought offline only for scheduled
maintenance or routine compressor water-washing to maintain power output and
efficiency. The Bellingham combustion turbines normally operate at baseload
power. The Sayreville combustion turbines normally operate at baseload
temperature, but with reduced airflow and power due to the terms of the existing
power purchase agreement (PPA) with JCP&L wherein JCP&L purchases approximately
250 MW of output.
The monthly availabilities for both plants are consistently higher than industry
average availabilities. Since plant commissioning, the Bellingham units have
experienced 58 forced outages, and the Sayreville units have experienced 19
forced outages. All but two of the forced outages were minor and of relatively
short duration, as discussed in Section 4. The plant O&M personnel took prompt
effective corrective actions to resolve the problems.
At Bellingham, a major forced outage of Combustion Turbine Number 1 (No. 1)
occurred in December 1992. The combustion turbine incurred extensive mechanical
damage when a failed transition piece released debris into the turbine flow
path, destroying all four stages. The combustion turbine was rebuilt and
returned to baseload service in 28 days. The origin of the transition piece
failure was a minor crack that occurred in the rear support as the result of a
marginal shop weld. All suspect transition pieces were replaced with redesigned
versions or with transition pieces having significantly improved welds.
Operating procedures and personnel training were also enhanced immediately.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Based on the results of annual inspections over the past six years, there have
been no indications of cracks. The affected combustion turbine has since
operated at full design capacity, and this problem is considered to be
successfully resolved.
Since the rotor of this combustion turbine was replaced in December 1992
following the transition piece failure, this combustion turbine has experienced
turbine-end vibration problems. In a typical excursion, vibration amplitudes
increase substantially without notice and without a corresponding change in
phase angle. Within 30 to 60 minutes of the beginning of the vibration
excursion, the combustion turbine must be tripped. Normal restart can then be
initiated immediately, and the problem does not recur for several days or weeks.
Several such excursions may occur during a year. Although running vibration
remains at acceptable amplitudes of 2.0 to 2.5 mils, amplitudes increase during
such events. This phenomenon has been the subject of numerous studies, and the
major inspection scheduled for May 1998 may reveal the root cause of the
vibration, which is currently believed to be a rub.
In August 1993, a third-stage turbine blade failed in the Sayreville No. 1
combustion turbine. The resultant damage required the replacement of all third-
and fourth-stage turbine components. The root cause for this failure has not
been completely established, but is believed to be either a defective blade or
corrosion. There are no other known failures of this blade design. All
replacement blades were coated to prevent future corrosive attack. Since the
event, this combustion turbine has been operated at required power without
incident, and this problem is considered to be successfully resolved.
In summary, the Westinghouse combustion turbines installed at Bellingham and
Sayreville have performed well and have contributed to higher-than-average
availabilities. All but two of the forced outages that have occurred were minor,
and O&M personnel took prompt effective corrective actions to resolve the
problems that caused the outages. The root causes of the two major outages have
been addressed, and the units have been operated as required without further
incidents. With continued good operation and maintenance practices, the
combustion turbines should provide reliable long-term service.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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HEAT RECOVERY STEAM GENERATORS
Design Basis
The heat recovery steam generators (HRSGs) installed at both plants were
designed and manufactured by Nooter/Eriksen Cogeneration Systems, Inc.
(Nooter/Eriksen). Nooter/Eriksen has designed and built over 100 HRSGs and is
well known in the power industry as a quality supplier of this type of
equipment. Each combustion turbine is fitted with one HRSG at its exhaust, which
recovers heat from the exhaust gas to produce steam from treated, deaerated
boiler feedwater at fixed pressures. The steam produced in each HRSG is mainly
used in the steam turbine for power production. In addition, steam is used for
injection into the combustion turbine combustors for NOX emissions control and
for process steam export. Each of the HRSGs has a two-pressure configuration and
a top-supported, natural-circulation, water tube design. Each of the HRSGs is
rated at the following steam conditions:
Design Operating Design
Pressure Pressure Temperature
--------- ---------- -----------
High-pressure (HP) steam 1145 psig 985 psig 938(0)F
Low-pressure (LP) steam 185 psig 85-90 psig 400(0)F
The heating surface of each HRSG is enclosed in a gas-tight outer casing with
internal insulation covered by floating internal liners. The HRSGs have
provisions to maintain the steam system in a warm condition overnight to enable
hot restart. Primary steam flow at the design point is 340,660 lb/hr at 945 psig
and 938(Degree)F. Side seals exist at every third row throughout the HRSG to
maintain performance. The superheaters, evaporators, and economizers are fully
drainable.
Operation and Maintenance
The HRSGs at both plants are operated below their rated pressure. Initially,
there were several minor outages associated with valve leaks and heat tracing.
These problems were resolved. In 1994, tube leaks were discovered in the
low-pressure (LP) evaporator at Sayreville. The HRSG boiler tubes have
experienced some internal erosion/corrosion that has resulted in tube leaks.
Laser optic inspections of the inside diameter of the boiler tubes were
performed by QUEST Integrated, Inc. in 1996. These inspections showed that the
majority of the flow-assisted corrosion (FAC) was located in the upper elbows
and small portions of the vertical straight tubes on the hot side of the LP
evaporator.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The root cause of this phenomenon has not been determined but may be a
combination of the following factors:
* flow-related design problems
* low carbon steel material
* boiler water chemistry
* operating parameters
Westinghouse has striven to address all of these factors.
To address the flow-related aspects, 10 taps have been installed on each HRSG,
and Deltak has been contracted to perform a flow analysis of the system.
Based on similar experience in the industry, Westinghouse has elected to replace
the most susceptible tubing, and over 500 three-foot long sections of tubing
have been replaced. Most of this work was performed during the October 1997
outage. A 3-foot section consisting of the elbow and adjacent SA 178 carbon
steel tubing was replaced with SA 213 Grade T 22 tubing. This new tubing
contains 2-1/4% chromium and 1% molybdenum, which has been shown to have
approximately 40 times the resistance to FAC than carbon steel. In addition, the
initial wall thickness of the 2-inch outer diameter tubes was 0.105 inch but the
replacement tubes have a wall thickness of 0.220 inch. Since this method of
repair has been successfully implemented at other facilities, Westinghouse
believes that this additional tube wall thickness plus the corrosion resistance
of the T 22 material will eliminate any further problems in these areas. While
it is not known whether other tubes might be susceptible in the future,
Westinghouse intends to perform ongoing inspections to identify and resolve any
future occurrences of this problem.
Concerning boiler water chemistry, the oxygen scavenger used at Sayreville is
more corrosive than that used at Bellingham. Due to Food and Drug Administration
(FDA) requirements at the steam host, Hercules, the same
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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scavenger used at Bellingham cannot be used at Sayreville. The different water
chemistry may contribute to the problem.
Finally, the units at Sayreville operate below capacity, and therefore, the LP
boiler operates at a higher temperature. The fluid in the area experiencing FAC
may actually be a two-phase fluid instead of water, which would dramatically
increase FAC.
In conclusion, while the root cause of the leaks has not been determined, the
replacement of over 500 susceptible elbows should eliminate the problem since
this method of repair has been successfully implemented at other facilities. The
plant operators recognize that continued surveillance is required, and it is
possible that a similar replacement may be required on the cold side of the LP
evaporators.
The cyclones that remove moisture from the steam entering the steam drum have
significant wear also probably as a result of FAC. Thirteen cyclones were
removed for repair or replacement due to holes at the first turn where the fluid
exits from the baffle. The current method of repair is to weld a piece of 2-1/4%
chromium and 1% molybdenum sheet metal to the worn area and place the cyclones
back into service. This repair appears to be successful, but the repair must be
performed to all 88 cyclones.
The HRSGs at Bellingham have not experienced any similar FAC. Either because of
the different operating parameters or boiler water chemistry, there is little
wear in the tubes of the Bellingham HRSGs. At Bellingham, the cold end of the
high-pressure evaporator has deposits from the boiler water, which have caused a
few leaks. These deposits require cleaning during the outages. With continued
good operation and maintenance practices, the HRSGs at both facilities should
provide reliable long-term service.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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WESTINGHOUSE STEAM TURBINES
Design Basis
Each of the two plants uses one Westinghouse steam turbine to convert the steam
produced by the two HRSGs into mechanical energy, which is then used to create
electrical power in the generator connected to the steam turbine. The steam
turbine at each of the plants is a Westinghouse single-flow, single-casing,
nonreheat design with an upward exhaust. The maximum capacity of the Bellingham
steam turbine is 108,290 kilowatts (kW) at 935 psig and 915(degree)F, and the
maximum capacity of the Sayreville steam turbine is 101,740 kW at 928 psig and
934(degree)F. Sayreville exports a significant quantity of steam to Hercules,
while a lesser quantity is used by the Bellingham CO2 plant. The condenser
backpressure is 2.5 in. HgA at each site. Low-pressure steam is admitted to the
steam turbine at approximately 80 psig and 405(0)F, and steam for combustion
turbine NOX control is extracted from the steam turbine at approximately 325
psig and 700(0)F. Westinghouse has designed and manufactured hundreds of steam
turbines of similar configuration and size, and is generally viewed in the power
industry as a high-quality supplier of steam turbine-generator units.
Operation and Maintenance
On the days of the site visits, all units were observed to be operating at
normal power output. The operators advised that the condenser pressure is
consistently maintained below the steam turbine exhaust pressure alarm and trip
points.
Based on the outage reports for both plants, no major forced outages have been
caused by the steam turbine-generators and related auxiliary equipment during
the September 1991 through September 1997 period. At Bellingham, 14 minor forced
outages occurred during the period due to the steam turbine. At Sayreville,
there were 4 minor forced outages during the same period. These outages were
associated with minor problems such as flange gasket leaks and valves sticking
closed. With continued good operation and maintenance practices, these steam
turbines should provide reliable long-term power generation.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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AIR-COOLED CONDENSER/AIR REMOVAL SYSTEM
Design Basis
The air-cooled condensers installed at the Bellingham and Sayreville plants
accept steam from the steam turbine exhaust and condense the steam to water by
distributing the steam through finned tubes that are cooled by fans providing
air flow across the tubes. All condensate is directed to the condensate tank
and, from there, is pumped to the plant feedwater system. The air-cooled
condensers are each comprised of 16 bays arranged in a four-row A-frame
configuration mounted on a steel support structure. Each bay is served by a
two-speed electric motor-driven fan that provides convective upward airflow
across the fin tubes. The fans are a multi-blade, axial flow design and are
driven by individual motors and gearboxes. An air ejection system is provided to
remove noncondensibles from the condenser and connected systems during operation
and before condenser startup. The ejector system consists of two single-stage
hogging and twin-element, two-stage holding steam jet ejectors. Under normal
operating conditions, only one of the two holding ejector elements is required
for maintaining vacuum. These condensers were designed and built by GEA Power
Cooling Systems, a well-known supplier of air-cooled condensers that has
installed over 80 units of similar designs since 1939.
Operation and Maintenance
Each site had one inoperative fan during the site visit; however, Westinghouse
advised that all fans will be operating by spring 1998. While one inoperative
fan is not a problem during winter, each site has been known to lose 5 to 10 MW
of output due to high back-pressure when ambient temperatures exceed
90(degree)F. Available engineering weather data, from various government data
sources, indicate that the dry bulb temperature in Massachusetts will equal or
exceed 90(Degree)F, on the average, 0.7% of the hours in a year (62 hours per
year) and that the dry bulb temperature in New Jersey will equal or exceed
90(degree)F, on the average, 1.3% of the hours in a year (114 hours per year).
The air-cooled condensers are well maintained, being cleaned as necessary to
maintain performance. From September 1991 to September 1997, there have been no
air-cooled condenser-related forced outages at
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Bellingham and only one minor outage at Sayreville due to a faulty gasket. With
continued proper operation and maintenance practices, the air-cooled condenser
and air removal system should provide reliable long-term service.
BALANCE-OF-PLANT EQUIPMENT
Condensate System
Identical condensate system designs are used at the Bellingham and Sayreville
plants. At each site, condensate from the air-cooled condenser and makeup from
the vacuum deaerator flows by gravity to the condensate receiver tank. A
condensate pump supplies condensate through two 50% capacity, plate-type
condensate preheaters. The condensate pumps are 300-horsepower (hp)
self-lubricated, four-stage impeller units manufactured by Byron Jackson. Two
100% capacity condensate pumps and two 100% capacity makeup pumps are used in
this design, with one pump in the standby mode during normal operation. The
design of the condensate systems at both plants is consistent with accepted
power industry practices.
The condensate pumps and deaerator were observed to be operating at their normal
conditions at both plants. One minor forced outage occurred at Sayreville in
1993 due to a steam leak in the deaerator system. No major forced outages have
occurred during the September 1991 through September 1997 period due to any of
the equipment in the condensate systems at either plant.
Boiler Feedwater System
A feedwater pump delivers high-pressure and low-pressure feedwater from the
deaerator to the HRSG steam drums, the fuel gas heaters, and the NOX steam
desuperheaters. Hot condensate from the deaerator storage tank transfers heat to
the condensate entering the deaerator before the condensate enters the feed pump
suction. Two 100% capacity motor-driven feedwater pumps are used, with one in
the standby mode during normal operation. The boiler feed pumps were
manufactured by Ingersoll-Rand. The pumps are designed with force-fed
lubrication and are driven by 2000-hp motors. The design of the feedwater system
at both plants is consistent with accepted power industry practices.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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One minor outage occurred at Bellingham in 1993 due to a clogged boiler feed
pump strainer, and one minor outage occurred at Sayreville due to an instrument
air loss to the boiler feedwater stop valve. No major forced outages have
occurred during the September 1991 through September 1997 period due to any of
the equipment in the feedwater systems at either plant.
Demineralized Water Treatment System
The demineralized water treatment systems at Bellingham and Sayreville provide
treated water to the condensate storage tank for cycle makeup. At Bellingham,
wastewater from the neutralization tank is supplied to the zero discharge system
for recycling. At Sayreville, wastewater is discharged to the local municipal
treatment plant. Two purification trains are used at Bellingham, and three
trains are used at Sayreville. The Sayreville plant has higher makeup water
requirements because Hercules, the steam host, does not return condensate but
rather supplies 115% raw water, which must be demineralized. The demineralizer
system at Bellingham has a capacity of 520 gallons per minute (gpm) net per
train. The system provides 748,800 gallons per train per day to demineralized
water storage. The Sayreville system capacity is 460 gpm net per train. The
system provides 662,400 gallons per train per day. All major pumps in this
system are provided with 100% capacity standby pumps for redundancy.
The major equipment in the demineralized water treatment system was observed to
be well maintained and operating properly on the days of the inspections. No
forced outages have occurred during the September 1991 through September 1997
period due to the demineralized water treatment systems at either plant.
Fire Protection System
The fire protection system designs for the Bellingham and Sayreville plants are
based on National Fire Protection Association (NFPA) standards; other
industry-accepted standards; and good, sound engineering practices. The fire
protection systems should provide adequate protection of property to the owner
and adequate protection of life to the operators and the community.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The fire protection systems at both the Bellingham and Sayreville plants consist
of the following subsystems:
* A water supply system for the fire hydrants, hose stations, and
sprinkler systems in the general areas of the plant.
* A Halon 1301 flooding system for various enclosed turbine
packages, control rooms, and equipment rooms. A supply of Halon
1301 is stored at the site for future use.
* Smoke detectors and temperature-sensing devices located throughout
the plant that initiate the fire protection system and shut down
the HVAC system in the event of a fire.
* A foam fire protection system for the fuel oil storage area at
Bellingham. Only the Bellingham plant stores fuel oil.
The fire protection systems and equipment are installed according to NFPA
standards and other industry-accepted standards. The systems and equipment
showed no deviation from the standards used for their design.
The Bellingham and Sayreville fire protection systems should provide the
necessary protection for the personnel and property provided that plant
personnel continue to perform the required periodic maintenance and testing for
the systems on a regular and timely basis, and any fire protection system issues
that would result in system inoperability are quickly and efficiently resolved.
The plant personnel have demonstrated their ability to maintain the fire
protection systems in an appropriate condition.
Zero Discharge Wastewater Treatment System
The wastewater treatment system at Bellingham is a zero discharge system. The
zero discharge system collects and processes aqueous wastes from boiler
blowdown, oily waste drains, and filter backwash drains and demineralizer wastes
from the neutralization tank. The wastes are delivered intermittently and are
processed through two subsystems: the backwash filter subsystem and the
evaporator system. The treated water is then recycled to the raw water tank. All
major pumps in this system are provided with 100% capacity standby pumps to
provide redundancy. The design of the zero discharge system is consistent with
accepted industry practices.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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All of the major equipment in the zero discharge system was observed to be well
maintained and functioning properly on the days of the plant inspections. No
forced outages have occurred due to the zero discharge system at Bellingham.
Summary
The design of the balance-of-plant systems installed at the Bellingham and
Sayreville cogeneration facilities is consistent with accepted power industry
practices. None of the balance-of-plant systems have contributed to major
outages at either of the facilities. With continued proper operation and
maintenance practices, the systems should provide reliable long-term service.
ELECTRICAL COMPONENTS AND SYSTEMS
Bellingham Cogeneration Facility
Electric power from the Bellingham plant is produced by three identical
generators rated at 129.06 MW at 0.9 power factor. The steam turbine-generator
produces less power due to the capacity of the turbine; nevertheless, the
generator sizes are identical for simplicity, interchangeability of spare parts,
and other similar reasons. The power is generated at a nominal 13.8-kV level and
is carried over 6000-ampere (A) isolated-phase bus ducts to the main step-up
transformers sized at the oil-air/forced air (OA/FA) ratings of 100/133
megavolt-amperes (MVA). These transformers raise the generated voltage to 345
kV, which is the voltage level of the single-circuit transmission line that
delivers the power to the Boston Edison Company (BECO), Commonwealth Electric
Company (CEC), and Eastern Utilities Associates Service Corporation (EUA) grids.
The transmission line ties in to the 345-kV transmission line between EUA's
Sherman Road substation and BECO's West Medway substation approximately 0.45
mile from the plant.
Neatly arranged takeoff towers support the overhead lines and arresters that tie
the high-voltage bushings of the main step-up transformers to the 345-kV
air-insulated disconnect switches that can electrically isolate each unit under
an offline condition. An air-to-gas terminal bushing at the disconnect switch
allows the transition of the air-
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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insulated overhead line to the compact, six-breaker, gas-insulated ring bus. The
gas-insulated ring bus was used principally because of the switchyard space
limitation.
The sulfur hexafluoride (SF6) gas-insulated switchyard consists of six 1200-A
gas-insulated, dead-tank-design circuit breakers in a ring bus configuration
with three sections used for the incoming generator power lines, one section for
the outgoing transmission line, and two sections used for the two auxiliary
transformers. The auxiliary transformers provide station auxiliary power during
startup and normal operating conditions. Motorized disconnect switches are used
on each side of the circuit breakers.
Gas-to-air terminals are provided near the transmission line dead-end tower for
the transition back to air insulation from the gas-insulated substation.
Disconnect switches are provided in series both on the gas side of the bushing
and on the air side for isolation. The air-side disconnect is manually operated
and under the control of BECO for isolating the plant from the grid under
offline conditions.
If the single transmission line leaving the plant is disabled, the Bellingham
plant would be isolated from the 345-kV grid, requiring the plant to be either
taken off line or to "island." Islanding means reducing the power output from
the generator to the level needed to supply only the plant's auxiliary loads.
The plant is designed to continuously "island"; however, once shut down, the
plant cannot be restarted until the 345-kV grid power is available. There is no
diesel generator or in-plant power source to provide a black-start capability.
Vital 125-Vdc power is provided through two 1650-A-hr station batteries to allow
a safe and orderly shutdown of equipment if all other power is lost.
To ensure that emergency electrical power is available for housekeeping loads
and for some of the essential long-term loads, a tie in to Massachusetts
Electric Company is provided via a 13.8-kV overhead line. The loads supplied
from this source through a 1,000-kVA transformer are connected to one of two
independent motor control centers provided for that purpose.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The normal source of power for the auxiliary loads is from two full-sized
auxiliary transformers that are connected to the 345-kV system at the
gas-insulated substation. Each of these transformers, which have an OA/FA rating
of 12/16 MVA, can run all of the auxiliaries with the second transformer
out-of-service.
The auxiliary power arrangement consists of two 4.16-kV switchgear buses rated
for 250 MVA. Branch circuit breakers of 1200 A feed two 4.16-kV motor controller
buses and four 4.16-kV to 480-V double-ended substations with OF/FA ratings of
2000/2667 kVA. A single feed runs to the CO2 plant. Each of the auxiliary
transformers is connected to its correspondent switchgear through 3000-A circuit
breakers. Both switchgear are interconnected through a 3000-A tie circuit
breaker. The 480-V motor control centers, low-voltage panels, batteries, and
inverters are all logically intertied to equipment that is well arranged for
reliability and safe operation of the plant.
The electrical design of the Bellingham plant has been well thought out and
properly installed. A few minor issues, such as uncovered cable trays in exposed
outdoor areas and corrosion on the electrical junction boxes in the zero
discharge system area, were noted; however, these items do not degrade plant
performance. The plant personnel currently have an ongoing plan to replace and
relocate affected junction boxes. Nothing observed at the plant would be
considered a design or construction flaw or a violation of applicable permits or
building codes.
Visual inspection of the electrical equipment showed the equipment to be well
maintained with signed and dated inspection tags on the equipment. Good
housekeeping practices were evident, with the switchgear, control room, and
instrument areas being notably clean.
In December 1993, the generator of Combustion Turbine No. 1 at Bellingham was
shut down and the rotor was removed to locate and eliminate a ground on the
generator field windings that had been appearing on the field ground detector.
When the rotor was removed, the inspection showed that the slot wedges in the
stator were loose and required replacing. The field ground was caused by a
broken baffle spring.
The original steel axial baffle springs, which are located under both the
exciter and turbine end retaining rings, were replaced with a new and superior
nonmetallic type, and the wedges were subsequently replaced during the spring
1994 outage. These machine upgrades were implemented on the other two units
during the spring 1996 outage.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Other outages due to electrical problems were not extraordinary and were likely
the result of the early startup problems often associated with a new plant. The
latest oil sample analysis reports for all of the oil-filled transformers showed
satisfactory condition and normal aging. All indications showed the plant to be
properly maintained and well operated.
Sayreville Cogeneration Facility
Electric power from the Sayreville plant is produced by three identical
generators rated at 129.06 MW at 0.9 power factor. The steam turbine-generator
produces less power due to the capacity of the turbine; nevertheless, the
generator sizes are identical for simplicity, interchangeability of spare parts,
and other similar reasons. The power is generated at a nominal 13.8-kV level and
is carried over 6000-A isolated-phase bus ducts to the main step-up transformers
sized at the forced-oil-and-air (FOA) rating of 133 MVA. These transformers
raise the generated voltage to 230 kV, which is the voltage level of the
double-circuit transmission line that delivers the power to the Jersey Central
Power and Light Company (JCP&L) grid over a common transmission right-of-way
with both circuits on common poles. After exiting the site, one line is routed
to the Raritan River Substation and the other to the Atlantic Substation.
Each main power transformer has a single 230-kV, 1200-A, SF6 gas-insulated
circuit breaker associated with it. An overhead line supported from a dead-end
tower at the turbine building is tapped down to the transformer bushing and
arrester. The line connects to another tower located over the circuit breaker
where the line drops down into the circuit breaker bushing. Each circuit breaker
is tied to an in-line disconnect switch that is connected to one of two rigid
buses that exit the plant property and connects into a four 230-kV, 2000-A, SF6
gas-insulated circuit breaker ring bus configuration that is owned and
maintained by JCP&L.
Power into the plant for startup and generated power out is metered at the JCP&L
switchyard tie-in point. Except for the double-circuit 230-kV transmission
lines, there is no other offsite power source available. The plant is
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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designed to operate in an islanding mode during which time the plant supplies
power only to its own auxiliaries; however, once the plant is shut down, it
requires power from the 230-kV grid to restart. There is no black-start diesel
generator or other onsite power source available for starting up the plant.
Battery power is available to allow a safe and orderly shutdown of equipment if
all other power is lost.
The normal source of power for the auxiliary loads is supplied by two full-sized
auxiliary transformers. Each of these transformers, which have an OA/FA rating
of 12/16 MVA, can run all of the auxiliaries with the second transformer out of
service. The transformers are connected to the 230-kV air-insulated substation
by 1,200-A circuit switchers. Circuit switchers are devices that do not have the
full interrupting rating of a circuit breaker. Circuit switchers can break a
high-voltage circuit that is energized, and they can interrupt a transformer
low-voltage ground fault because the 4-kV system is resistance grounded, which
limits the amount of ground fault current available. Relaying also is provided
to trip the circuit switchers if the transformers become overloaded.
The auxiliary power arrangement consists of two 4.16-kV switchgear buses rated
at 250 MVA. Branch circuit breakers of 1200 A feed two 4.16-kV motor controller
buses and four 4-kV to 480-V double-ended substations with OF/FA ratings of
2000/2667 kVA. Each of the auxiliary transformers is connected to its
corresponding switchgear through 3000-A circuit breakers. Both switchgear are
interconnected through a 3000-A tie circuit breaker. The 480-V motor control
centers, low-voltage panels, batteries, and inverters all are logically
intertied to equipment that appears to be well arranged for reliability and safe
operation of the plant.
The electrical design of the Sayreville plant has been well thought out and
properly installed. A few minor issues, such as uncovered cable trays and heat
tracing tapes in exposed outdoor areas, were noted; however, these items do not
degrade plant performance. Nothing observed at the plant would be considered a
design or construction flaw or a violation of applicable permits or building
codes.
Because of the December 1993 incident concerning the steel axial baffle springs
of the Combustion Turbine No. 1 generator at Bellingham, the original steel
axial baffle springs at Sayreville were also replaced with the nonmetallic type.
The upgrade of the steam turbine generator, including replacement of the stator
wedges, was
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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performed during the fall 1994 outage. The Combustion Turbine No. 2
generator upgrade was performed during the fall 1996 outage, and the Combustion
Turbine No. 1 generator upgrade was performed during the fall 1997 outage.
With the exception of the high-voltage switchyard, the Sayreville electrical
components and systems are almost identical to those at the Bellingham plant.
Several of the early outages were attributable to relay and instrumentation
startup-type trips. The latest oil sample analysis reports for all of the
oil-filled transformers showed satisfactory condition and normal aging. All
indications showed the plant to be properly maintained and well operated.
Plant Control System
The control systems for each of the Bellingham and Sayreville plants is a
Westinghouse Distributed Processing Family (WDPF) controller with completely
redundant drops, data highways, and operator stations. There are three stations
located in the control room, each consisting of touch screen monitors and a
keyboard for nonautomatic control. The touch screens monitor plant conditions
through a series of graphic displays of plant processes and allow the mode of
control to be switched between automatic and manual. Manual control of equipment
is performed using the keyboard. The systems are interconnected with
Westinghouse's engineering facility in Orlando, Florida, so that any problems
can be quickly diagnosed and engineering support can be provided. This
interconnection was most used during the initial operation of the plants and has
not been used lately.
The control systems would generally be classified as state-of-the-art. Most of
the operators have worked at the plants since initial startup and their
knowledge of the systems and evidence of formal training was noteworthy.
At Bellingham, the WDPF control system was upgraded in 1996 from a level 6.5.2
system to a level 7.2. This upgrade significantly reduced processing time,
allowing the system to update information faster and to react to changing plant
conditions faster. The upgrade ensures that process data points are not dropped
due to processor overloading. Based on information provided at the plant, the
cost for this upgrade was approximately $200,000.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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There is presently no plan to install this control upgrade at Sayreville since
the Sayreville control system did not experience the same processor overload
problem experienced with the Bellingham control system. The current availability
of parts and technical support should be analyzed to determine whether there is
any merit to implementing this upgrade at Sayreville.
A heat rate monitoring system is installed in the control room at Bellingham.
The applicable data gathered by the control system are manually inputted by the
operator to calculate the heat rate.
A vertical mimic control board is also located in each of the control rooms for
breaker and disconnect control of the circuit breakers. Pistol-grip-type control
switches with targets and lights are mounted on the mimic board for switching
the breakers. An automatic synchronization system is normally used for closing
these breakers, but manual synchronizing can also be accomplished if required by
the operator.
The control system is highly automated with excellent information available to
the operator and others desiring current and/or historical system conditions.
ARCHITECTURAL/CIVIL/STRUCTURAL COMPONENTS AND SYSTEMS
General Features of Both Facilities
The Bellingham and Sayreville facilities are very similar with regard to the
architectural, civil, and structural design except for the following features:
* The Bellingham Cogeneration facility includes a carbon dioxide
plant.
* The Bellingham plant has oil burning capabilities with the
required fuel oil handling and storage facilities.
* The Bellingham plant utilizes a common concrete chimney with a
single liner to service both units while the Sayreville plant has
two liners inside a common concrete chimney with one dedicated to
each unit.
* At Bellingham, ductwork from the HRSG outlet is directed to the
chimney and to the CO2 plant, which is not present at Sayreville.
The Sayreville ductwork from the HRSG outlets are routed directly
to the chimney.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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* The Sayreville design has the necessary features, including an
elevator to provide handicapped persons access to the office
areas. The Bellingham plant is not designed for handicapped
access.
* The foundation designs are somewhat different since the soil
conditions are different at the two sites.
Other differences in the designs of the two facilities are insignificant from an
architectural/civil/structural standpoint.
Both facilities were designed in accordance with good engineering practices and
the latest codes and standards in effect at the time of design. A review of
drawings revealed the design of the foundations and structures is consistent
with the approaches outlined in the civil and architectural design basis
documents that were prepared for the projects. The design conditions, structural
loadings, and construction materials are consistent with those used in the
industry for facilities of this type. The foundation designs were observed to be
generally consistent and comparable with those used at other similar facilities.
Field walkdowns were performed at each site. In general, the condition of the
structures was good and consistent with the age of the facilities. The steel and
concrete are beginning to show signs of aging that were not present when a
similar assessment was performed in 1994. The conditions noted at each facility
were not unusual for an operating plant and should not affect the long-term
operability or maintainability of the units. Some conditions do exist that
require repair or modification, and the plant personnel are aware of these
conditions and have made or are making plans to perform the required work.
Bellingham Cogeneration Facility
Steel/Superstructure
The indoor and outdoor steel structures are a combination of galvanized and
painted steel. The interior steel was in good condition whether of galvanized or
painted construction. The outdoor galvanized steel appeared to be in good
condition with only some mild staining or rusting noted in places. The outdoor
painted steel was in acceptable condition, but some areas are beginning to peel,
rust, or corrode such that cleaning and painting would
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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be prudent. None of the rusting noted, however, was to an extent that would
warrant immediate action. The cleaning and painting required can be achieved
through a planned maintenance program that targets the most heavily corroded
areas.
No significant warping or damage to any structural member was observed at the
site.
The ductwork to the carbon dioxide plant was reported to be in good condition.
Yearly inspections of the ductwork have revealed the occurrence of some minor
surface corrosion. This minor corrosion is typical for this type of ductwork. A
historic problem with the ductwork was reported as major rusting and scaling of
the interior walls. This problem was eliminated by installing drains in the
ductwork next to the chimney. Since the installation of the drains, the major
rusting and scaling has ceased.
The combustion turbine enclosures and the turbine hall are constructed of
insulated metal siding with a metal wall liner panel that is perforated to
deaden the sound from the equipment. This siding appeared to be in good
condition, as was all other plant siding except that for the water treating
building.
Concrete and Foundations
Concrete structures were in a generally acceptable condition with some minor
cracking of foundations and floor slabs noted at places. The cracking was
consistent with the age of the structures and was minor at all areas except the
HRSG foundations. No excessive settlement of any structure was observed.
Concerning the HRSG foundations, the plant personnel plan on repairing the
foundation piers that are currently cracked, removing all tack welds between
plates, and greasing all bearing plates. These measures should reestablish the
original design conditions and help prevent further difficulties.
Other Items
As noted in inspections performed in 1994, the drainage of the site appears to
be adequate to prevent flooding of the site and to maintain adequate operation
of the facility during heavy rainfall.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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In general, the structures appear to meet the design requirements of the NFPA
code for the transformer foundations and the protection of the adjacent
structures.
To date, the concrete chimney has not been inspected. Based on the age of the
chimney and the aggressive environment that exists inside, the plant personnel
should conduct an inspection within the next two years. Afterwards, regular
inspections of the interior and exterior of the chimney should be conducted.
Inspection of the chimney will help identify problems with the liner materials
and the concrete shell that can develop due to the effects of leaking flue gas.
Sayreville Cogeneration Facility
Steel/Superstructure
Similar to the Bellingham Cogeneration Facility, the indoor and outdoor steel
structures at Sayreville are a combination of galvanized and painted steel. The
condition of the steel was similar to that at Bellingham. Cleaning and painting
of the more heavily corroded areas is recommended as part of normal maintenance
activities.
No significant warping or damage to any structural member was observed at the
site.
The Sayreville building siding was of similar construction to the Bellingham
siding. No significant problem areas were noted.
Concrete and Foundations
Concrete structures were in a generally acceptable condition with some minor
cracking of foundations and floor slabs noted at places. The cracking was
consistent with the age of the structures and was minor at all areas.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Similar to the Bellingham facility, some of the HRSG foundations are cracked.
For the cracked HRSG foundations, the plant personnel are aware of the adverse
conditions and have instituted repairs to some piers. They are planning to
repair the other cracked piers and grease the base plates to eliminate the
problem.
Other Items
The drainage of the site appears to be adequate to prevent flooding of the site
and to maintain adequate operation of the facility during heavy rainfall.
In general, the structures appear to meet the design requirements of the NFPA
code for the transformer foundations and the protection of the adjacent
structures.
The concrete chimney has been inspected twice. Each report summarized the
chimney as being in good condition. Some foamglass block tiles were noted as
missing at the breeching, and this condition is being monitored by the plant
personnel. The plant personnel intend to replace the missing tiles in the future
and to perform future inspections to assess the condition of the chimney.
SUMMARY
General reviews of the design bases, construction, operation, and maintenance of
the Bellingham and Sayreville cogeneration plants were performed including
reviews of design standards, drawings, and specifications. Walkdowns of each
facility were also performed to establish the present condition, and interviews
of key plant operations and maintenance personnel were conducted. Based on the
technical review, the facilities have been well constructed in accordance with
generally accepted engineering practices.
The conditions noted at each facility were usual for operating plants and should
not affect the long-term operability or maintainability of the units. Some
conditions do exist that require minor repair or modification, and the plant
personnel are aware of these conditions and have made or are making plans to
perform the required
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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work. The costs associated with these repairs or modifications are not
significant and are within the amounts included in the operation and maintenance
budgets.
The plants have been successfully operated and maintained by Westinghouse
Electric Corporation since startup, and continued good operation and maintenance
practices by the owners should provide reliable long-term service from both
plants allowing the plants to meet their operating and financial projections.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Section 3
TECHNICAL REVIEW OF THE BELLINGHAM CARBON DIOXIDE PLANT
The Bellingham Carbon Dioxide (CO2) plant is located on property adjacent to the
cogeneration plant. The CO2 plant is fed by a slip stream of 10% to 15% of the
combustion turbine exhaust gases. The inlet duct that conducts this slip stream
to the CO2 plant is equipped with dampers so that the CO2 plant can be supplied
from either or both of the combustion turbines. The CO2 plant can operate at
rated capacity with the exhaust gas from one combustion turbine. The CO2 plant
is based on amine technology developed by Dow Chemical Company and acquired by
Fluor Daniel. This technology was developed to recover carbon dioxide from
exhaust gases containing low volumes of carbon dioxide and high volumes of
oxygen. This plant is designed to recover CO2 from the exhaust gas, producing
350 tons per day of food-grade CO2.
During the limited periods when the combustion turbines are fired on fuel oil,
the CO2 plant must be shut down due to inherent contaminants in the No. 2 fuel
oil. However, the duct design and shutoff dampers allow the CO2 plant to operate
at rated capacity with one combustion turbine operating on natural gas.
All process water needed for the CO2 plant is recovered from the incoming
exhaust gas. Excess water is either vented to the atmosphere as part of the
process or is disposed of off site with the degraded monoethanolamine (MEA)
solution from the reclaimer.
PROCESS DESCRIPTION AND DESIGN
Exhaust gas from the cogeneration plant enters a direct-contact cooler where it
is cooled by a countercurrent flow of water. The exit gas is compressed by a
2500-hp blower and enters the bottom of the absorber. The gas flows up through
the absorber-packed beds where it comes in contact with a countercurrent flow of
MEA solution. This contact results in absorption of the CO2 into the MEA
solution. The CO2 is stripped from the rich MEA solution in the reboilers and
also from the countercurrent flow of the hot gas vapors from the reboilers.
Low-pressure steam from the cogeneration plant is used to vaporize the solution
in the reboilers.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The saturated carbon dioxide gas stream from the top of the stripper is then
passed through a series of heat exchangers, knock-out drums, drying media, and
filter media to remove moisture and impurities. Then the CO2 gas stream is
compressed and liquefied and stored at 217 psig and -17(Degree)F in eight
individual 200-ton storage tanks.
The CO2 plant is constructed with a high degree of redundancy and parallel
systems for availability and maintainability. The CO2 is purified and liquefied
using standard commercial items, and no unusual maintenance problems have been
experienced or are anticipated with this equipment.
This facility has been designed in agreement with the structural considerations
for the cogeneration plant. The available design documentation was reviewed, and
the design has been performed in accordance with generally accepted engineering
practices. The structures were designed by Fluor Daniel using materials and
conditions similar to those used in the cogeneration plant. The design of the
site civil features is consistent with the design for the cogeneration plant.
A field walkdown of the site indicated that the structures are in good condition
and show no signs of damage. There is no cracking visible in any of the concrete
structures, and no visible settlement of any of the structures was noted.
OPERATION AND MAINTENANCE HISTORY
The CO2 plant has been in operation since 1991 producing and marketing a
food-grade product. During the first year of operation, plant production was
somewhat curtailed due to limitations in operating parameters, equipment
modifications, and system shutdowns. This experience is consistent with the
startup of a new and complex processing facility. During this period, the plant
was able to meet contractual commitments for steam consumption.
In the first year of operation, there were excursions in the iron and
heat-stable salt measurements. As a result, there was a concern that corrosion
was taking place in the CO2 system. A program was initiated in June 1992 to
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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monitor the wall thickness of the absorber and stripper vessels. During a
subsequent review of wall thickness measurements generated during a January 1993
monitoring effort, excessive corrosion of one section of the absorber was
identified. The system was brought off line, and on internal inspection,
excessive corrosion and failure of the lower level internals,
non-pressure-retaining parts, was identified. A corrective action was
implemented to replace the internals with stainless steel material and install a
stainless steel liner on the lower area affected by uninhibited wet CO2 gas.
Before restarting, a consultant, Mr. John McCullough, established new process
operating parameters (passivation) for startup and continuous operation.
Internal examination and wall thickness measurements of the absorber and
stripper have been performed yearly since the modifications. The observations
and measurements taken during the recent scheduled outages confirm that the
corrective actions implemented in March 1993, including the modified operation
procedures, properly addressed the conditions found during the January 1993
outage. For the past 55 months, the plant has been operating virtually 100% of
the time, producing in excess of design guaranteed production quantities of
food-grade CO2.
In addition to these items, operation and maintenance issues were noted with the
condensate return pump and the CO2 oil separator.
Condensate Return Pump
The two condensate return pumps used to pump high-temperature condensate from
the condensate return tank in the CO2 plant have a history of repair and rework.
Each has been repaired approximately ten times since startup in 1991. These
pumps operate with 272(Degree)F condensate at the pump suction with a discharge
pressure of 270 psig and a flow of 150 gpm. Changes in the load can cause the
pressure and temperature of the condensate to lower the net positive suction
head (NPSH) margin, which is the difference between the NPSH available and the
NPSH required. A low NPSH margin can result in cavitation and pump damage.
Various modifications have been made over the years, but these modifications
have not changed pump reliability.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The NPSH margin can be increased by cooling the condensate or new pumps could be
installed that are designed for these conditions. If the appropriate pump is
available, this alternative will likely be the most cost-effective solution
since it will not require a complete redesign of the system. Plant personnel
estimate that the new pumps would cost approximately $50,000 each.
CO2 Oil Separator
The CO2 high-stage compressor oil separator is an ASME Section VIII pressure
vessel that developed a leak at a coupling for an oil heater. The leak resulted
from a crack just above the coupling, probably caused by vibration and a
concentration of stresses at the weld. These couplings have not been used for
years since the machines are installed indoors and do not require the heaters.
The CO2 high-stage compressor oil separator was repaired by cutting out a
rectangular section that included the coupling and replacing it with a full
penetration weld patch. This repair was accomplished in accordance with the
National Board Inspection Code NB-23, approved by an Authorized Inspector, and
hydrostatically tested.
Because of this leak, all other couplings on the high-stage compressor and the
two low-stage compressor oil separators were liquid-penetrant tested. One other
crack was found on a low-stage separator heater coupling. This crack was not
through-wall and therefore did not leak. This crack is being constantly
monitored, and a similar repair to that performed on the high-stage oil
separator is planned. Westinghouse believes this repair should solve the
problem. Since the additional load of the oil heaters is no longer present,
additional cracking is unlikely.
SUMMARY
The CO2 plant has been in operation since 1991 producing and marketing a
food-grade product. For the past 55 months, the plant has been operating
virtually 100% of the time, producing in excess of the design guaranteed
production quantities of food-grade CO2. This record is a result of a concerted
effort by the plant personnel to identify and eliminate the source of corrosion
that occurred during the startup operation and to establish new predictable
process operating parameters. Based on the consistency of current operations,
the CO2 plant should continue operating at its design parameters and within
projected operating and maintenance costs.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Section 4
PLANT PERFORMANCE REVIEW
The historical capacity, generation, heat rate, and availability of the
Bellingham and Sayreville cogeneration facilities were reviewed in order to
obtain a benchmark for the performance assumed in the pro forma financial
models. The following station documents were reviewed:
* Performance and Reliability Test Procedures
* Performance Test Correction Curves
* Operation and Maintenance Agreements, including the Bellingham
and Sayreville heat rate revisions dated June 23, 1993
* Monthly Generation Reports
* Outage Reports (BEL 97-031, SVL-172)
* Equivalent Availability Charts
The tested capacities were higher than guaranteed and the tested heat rates were
lower than guaranteed for the plants, and both plants are achieving annual
availability rates above the industry average.
CAPACITY, GENERATION, AND HEAT RATE
1991 Plant Acceptance Tests
Plant acceptance tests were conducted in August 1991 at Sayreville and in
September 1991 at Bellingham to affirm the guarantees provided by Westinghouse
in their engineering, procurement, and construction (EPC) contracts. The
guarantees were based on new and clean operation at design conditions, which
include baseload operation at ISO conditions (59(degree)F and 14.7 psia) with
51,500 lb/hr of 57-psig export steam at Bellingham and 230,000 lb/hr of 600-psig
export steam at Sayreville. The capacity guarantees are net of power plant
consumption, and at Bellingham gross of the CO2 plant load. The test results
were corrected, using Westinghouse correction curves, to conform the actual test
conditions to design conditions.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The results of the acceptance tests, as shown in Table 4-1, demonstrate that
tested capacities were higher than guaranteed and the tested heat rates were
lower than the guaranteed levels:
Table 4-1 -- EPC Acceptance Tests
Guarantee Test Results
--------------------- ---------------------
Bellingham
Capacity 303.6 MW 312.3 MW
Heat Rate (HHV) 8245 Btu/kWh 8039 Btu/kWh
Sayreville
Total Power 272.34 MW 279.2 MW
Heat Rate (HHV) 9191 Btu/kWh 8748 Btu/kWh
Operating Guarantees
The June 1989 Operating and Maintenance contracts establish performance
guarantees for metered (net) generation and heat rate, based on degradation
factors of 3% for capacity and 1% for heat rate. These factors are typical for
natural gas-fired combined-cycle plants. The Operation and Maintenance contracts
were revised in June 1993 to establish, among other things, guarantees for heat
rate at lower levels while maintaining the generation guarantees at the same
levels.
The bases for the original and revised guarantees are listed in Table 4-2.
Table 4-2 -- O&M Contract Guarantees
Bellingham Sayreville
------------------ -----------------
Capacity 294.5 MW 264.17 MW
Original Heat Rate (HHV) 8323 Btu/kWh 9278 Btu/kWh
Revised Heat Rate (HHV) 8222 Btu/kWh 9057 Btu/kWh
The generation guarantee involves the total annual metered generation assuming
the nominal capacity listed in Table 4-2. The revised heat rate guarantee is the
cumulative average of all periodic heat rate tests performed since the last
combustion turbine overhaul and involves test data corrected from actual to
design conditions. At Sayreville, but not Bellingham, the heat rate is further
corrected for deviations between design and actual export steam.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Operating Performance
Actual plant operating data for the first five complete calendar years were
obtained. For consistency, the data were not corrected from actual conditions to
design conditions, since the necessary information was not recorded throughout
time at both plants. The partial 1997 calendar year has not been included
because it does not account for changes in performance that occur throughout a
full-year ambient temperature cycle. However, the operating data for the first
nine months of the 1997 calendar year are consistent with the first nine months
of the other calendar years.
Table 4-3 -- Actual Operating Data
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Bellingham
Total Power Produced (GWh) 2436 2484 2483 2595 2518
Net Plant Heat Rate, HHV (Btu/kWh) 8240 8289 8297 8336 8251
Sayreville
Total Power Produced (GWh) 2035 2005 1830 2104 2019
Net Plant Heat Rate, HHV (Btu/kWh) 9148 9078 8884 9066 9073
The Total Power Produced is the annual net power available for sale, which in
the case of Bellingham includes the power transmitted to the CO2 plant. The Net
Plant Heat Rate is based on the annual heat input from the fuel, divided by the
annual net power available for sale. This method of calculating heat rate does
not correct for ambient conditions, export steam, or plant loading.
The actual heat rate at Sayreville indicated in Table 4-3 cannot be compared to
the guaranteed levels because Sayreville normally operates at a net output of
252 MW due to the pricing structure of the PPA. Similarly, the guarantees are
based on the maximum export steam rate of 230,000 lb/hr, whereas the actual
export steam demand is significantly less at 125,000 lb/hr. At reduced load, the
cycle efficiency is lower, which results in a higher average heat rate.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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As a condition of the revised 1993 Operations and Maintenance Agreement,
instrumentation and other improvements were to be implemented that would allow
correcting the heat rate for ambient conditions and export steam. At Bellingham,
the corrected heat rate has been monitored daily since mid-1993. At Sayreville,
the Power Purchaser must authorize exceeding 252 MW and the corrected heat rate
has been monitored once a month since June 1996. The corrected heat rates and
capacity are listed in Table 4-4.
Table 4-4 -- Corrected Operating Data
1994 1995 1996
---- ---- ----
Bellingham
Capacity (MW) 303.3 303.1 302.9
Net Plant Heat Rate, HHV (Btu/kWh) 8216 8210 8221
Sayreville
Capacity (MW) -- -- 278*
Net Plant Heat Rate, HHV (Btu/kWh) -- -- 8951*
- -----------
*Sayreville data based on July 1996 through June 1997 data
AVAILABILITY
Industry Averages
* The following availability definitions were used for this evaluation:
Equivalent Availability Factor (EAF). The number of equivalent
hours that a unit is available to run at full load as a percentage
of total hours in a given period.
* Corrected Equivalent Availability Factor (CEAF). The number of
equivalent hours that a unit is available to run at full load as a
percentage of the total hours in a given period less curtailment
hours.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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* Forced Outage Hours (FOH). The number of equivalent outage hours
caused by an unplanned component failure that requires the unit to
be removed from service or derated during services.
When there are two combustion turbines at plants such as Bellingham and
Sayreville, an event that causes two outage hours on one combustion turbine
contributes one equivalent outage hour for the complete plant.
Events affecting availability include forced outages, planned maintenance
outages, curtailments by power purchasers or fuel suppliers, and Force Majeure
events such as snow build-up on the inlet air filters. Curtailments and events
of Force Majeure are beyond the control of the plant personnel, and the planned
maintenance schedule is dictated by the operations and maintenance requirements
of the equipment. Therefore, the forced outage rate is the primary factor that
plant personnel can control to improve availability.
In the United States, industry averages are usually obtained from data submitted
by utilities to the North American Electric Reliability Council (NERC). A sort
of the NERC database was made to extract the most current data being reported
for combined-cycle units operated by U.S. electric utilities. In 1996, data were
reported for 54 units with an average unit age of approximately 12 years.
Average values of EAF = 86% and FOH = 123 were obtained. These data reflect the
increasing reliability achievable with improved technology and newer equipment.
In 1992, for example, data for 25 units with an average unit age of 16 years
indicated an EAF equal to 76% and an FOH equal to 255.
Station Performance
The equivalent availability factor and percentage of curtailments are monitored
monthly. The reported data and the corrected equivalent availability for
Bellingham and Sayreville are listed in Table 4-5.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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<TABLE>
<CAPTION>
Table 4-5 -- Availability
Equivalent Availability (%) Curtail CEAF
-------------------------------------------------------------------------------------------------------
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Ave. Ave. (%)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bellingham
1992 99.5 99.5 100.0 99.4 93.5 75.5 88.5 100.0 100.0 92.1 97.1 66.5 92.6 -- 93.3
1993 87.4 97.8 90.2 99.1 100.0 99.4 96.0 100.0 94.5 87.5 92.5 79.6 93.7 1.2 94.8
1994 88.3 94.1 95.9 59.6 100.0 97.7 98.8 100.0 95.8 89.3 90.2 85.0 91.2 2.3 93.4
1995 99.6 98.7 99.7 96.4 82.2 97.9 96.4 94.1 93.2 93.6 94.7 99.9 95.5 1.4 96.9
1996 99.8 98.2 99.5 96.9 45.4 80.7 99.8 100.0 94.4 93.5 91.5 99.2 91.6 1.3 92.7
1997 96.4 97.4 100.0 100.0 85.3 100.0 100.0 97.7 94.4 91.4 -- -- 96.2 1.2 97.4
Sayreville
1992 99.3 97.3 97.3 98.6 74.5 94.0 94.2 96.3 95.5 77.9 98.8 99.3 93.6 2.3 95.7
1993 99.9 97.9 89.2 100.0 80.4 98.8 99.1 75.5 87.3 99.0 68.2 97.7 91.1 2.3 93.2
1994 72.0 99.1 97.4 98.0 73.6 99.9 99.8 91.1 89.7 6.5 72.6 96.2 83.0 3.8 86.3
1995 99.6 89.8 99.2 98.8 76.1 97.7 98.9 99.2 100.0 74.5 95.9 98.1 94.0 2.9 96.8
1996 98.5 91.5 99.5 76.2 84.9 100.0 98.6 98.3 98.5 50.1 98.1 98.1 91.0 3.8 94.7
1997 93.9 97.5 100.0 100.0 87.2 97.7 100.0 98.7 100.0 44.4 -- -- 91.9 1.0 92.9
</TABLE>
Station outage reports were reviewed to identify the equipment that was most
responsible for the forced outages. Equipment failures that resulted in unit
deratings were included by computing an equivalent full outage hour based on the
ratio of the derating to the unit's full output. This information is summarized
in Table 4-6.
Table 4-6 -- Forced Outage Hours
<TABLE>
<CAPTION>
Combustion Steam
Turbine/ Turbine/ Balance of
Generator Generator HRSG Instrumentation Electrical Plant
---------- --------- ------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bellingham
1992 101 6 23 516 1 23
1993 397 41 0 12 0 89
1994 54 0 87 39 18 35
1995 15 3 7 36 0 0
1996 56 37 34 26 0 6
1997* 19 0 3 12 7 0
Sayreville
1992 56 0 2 28 0 0
1993 57 0 22 21 0 22
1994 2 0 109 6 0 107
1995 28 1 3 6 0 0
1996 9 0 48 0 0 25
1997* 0 0 0 1 72 1
- ---------
*1997 values through November; BEL 97-031, SVL-172.
</TABLE>
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The monthly availabilities for both plants are consistently higher than the
industry average availability, which is to be expected since plant forced outage
hours are below those typical of the industry. Also, scheduled outage hours are
minimized by effective outage planning and execution.
Most of the Bellingham forced outage hours were due to combustion turbine and
associated instrumentation problems. To a great extent, these problems have been
corrected. As previously discussed, however, there remains a vibration problem
with Combustion Turbine No. 1 that contributes to most of the combustion turbine
forced outages. Overall, the total number of outage hours since initial startup
is relatively low.
As discussed in Section 3, the Bellingham CO2 plant has also demonstrated its
capability to produce the design quantity and quality of CO2 and to utilize the
necessary amount of steam to fulfill the cogeneration plant's Qualifying
Facility requirements.
The performance of Sayreville has been excellent. Most of the Sayreville forced
outage hours were due to combustion turbine problems; however, the total hours
involved is very low.
As noted, both plants are achieving annual availability rates above the industry
average. Future scheduled outages and maintenance should be similar to present
experience, and continued high unit availabilities can be expected in the future
for both plants.
SUMMARY
The performance and reliability test procedures, performance test correction
curves, operation and maintenance agreements, monthly generation reports, outage
reports, and other documents were reviewed to determine whether the guaranteed
performance parameters are being met and used correctly in projecting the future
performance of the plants. The demonstrated capacity and heat rate of each plant
have shown little annual variance, and each plant has consistently achieved the
contract performance guarantees. The average yearly availabilities for both
plants are consistently higher than the industry average for newer
combined-cycle plants. Finally, the Bellingham CO2 plant has also demonstrated
its capability to produce the design quantity and quality of CO2 and to utilize
the necessary amount of steam to fulfill the cogeneration plant's Qualifying
Facility requirements. The historical performance of the plants should result in
a reasonably accurate forecast of future plant performance.
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Section 5
OPERATION AND MAINTENANCE REVIEW
The Operation and Maintenance (O&M) budget estimates were assessed in light of
the operating history of the two plants and industry experience with other
combined-cycle plants. This assessment determined whether the O&M budget
estimates are adequate, conservative, and consistent with expected performance
characteristics.
The focus of this analysis was on the nonfuel portion of O&M expenses. While
fuel expenses have a more significant impact on the project's net income, they
are based largely on plant performance assumptions such as plant output and net
heat rate. These performance assumptions are addressed in Section 4.
The pro forma O&M expenses reflect continued operation by Westinghouse until the
end of the current contract, followed with operation by ESI Operating Services,
Inc., an affiliate of one of the new owners. ESI Operating Services, Inc. is
fully capable of operating and maintaining these combined-cycle power plant
facilities.
EXISTING O&M AGREEMENTS
The O&M budgets for the Bellingham and Sayreville facilities are based on their
respective O&M agreements, which specify, among other things, the payments to
the operator, the obligations of the owner and the operator, and the performance
guarantees. The net payments to the operator may include liquidated damages or
bonuses tied to the performance guarantees.
The O&M agreements were examined to determine whether the payments to the
operator are sufficient to support expected plant performance and whether the
liquidated damages or bonuses are sufficient to maintain expected project net
income. These determinations were based in part on the power purchase
agreements, which indicate the value of lost or gained electrical output; the
fuel supply agreements, which indicate the value of excess or reduced fuel
consumption; and the steam supply agreements, which indicate the value of lost
steam supply.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Bellingham Facility
The Bellingham facility is being operated by Westinghouse under an O&M agreement
between Northeast Energy Associates (NEA) and Westinghouse, dated June 1989 and
amended June 1993. Westinghouse is paid a monthly sum of $435,417 (January 1990
dollars), which is escalated twice a year according to a composite index of
materials (20%), equipment (30%), and labor (50%). Westinghouse is responsible
for all routine O&M expenses as well as major maintenance, inspections, and
overhauls. The owner must pay for fuel, water, permits, property taxes, and
insurance.
Westinghouse must maintain an average annual electrical output of 90% of net
capacity (adjusted for degradation), measured in kilowatt-hours. They must pay
liquidated damages for shortfalls, but they receive bonuses for excesses, as
measured relative to the 90% guarantee. The 90% guarantee applies to the days of
natural gas operation, but the guarantee level is lower for days of combined
fuel operation: 83% as applied to liquidated damages and 85% as applied to
bonuses. The liquidated damages and bonuses are as follows:
o Liquidated Damages = $15.00/MWh (first 100,000 MWh shortfall)
$33.00/MWh (next 100,000 MWh shortfall)
$50.00/MWh (all additional MWh)
o Bonuses = $ 5.00/MWh (first 25,000 MWh excess)
$10.00/MWh (next 25,000 MWh excess)
$15.00/MWh (all additional MWh)
NEA is a party to five power purchase agreements with three companies: Boston
Edison Company (BECO), Commonwealth Electric Company (CEC), and Montaup Electric
Company. There are no liquidated damages against megawatt-hour shortfalls under
any of these agreements. Electrical output shortfalls, however, would reduce
gross project income by approximately $28/MWh on the basis of the 1997 weighted
average power sales rate. The liquidated damages under the O&M agreements are
triggered after the first 100,000 MWh below the guaranteed level, which is
approximately 4%. Together with the bonuses, the liquidated damages provide an
economic incentive to the operator to maintain or exceed the guarantee. Output
in excess of the guarantee increases the project net income since the cost of
bonuses is less than the incremental power sales income.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Westinghouse must also maintain a guaranteed net plant heat rate and pay
liquidated damages for any incremental fuel costs due to deviations above the
guaranteed value.
Steam sales are made to the CO2 plant under a steam sales agreement with
NECO-Bellingham, Inc. NEA must pay a prorated portion of the CO2 plant's O&M
expenses, property taxes, and basic rent as liquidated damages for any steam
production shortfalls. Even though net profits to NEA from steam sales would be
reduced during steam production shortfalls, NECO-Bellingham, Inc. has an
incentive to maintain production in order to maximize its net profits.
Sayreville Facility
The Sayreville facility is being operated by Westinghouse under an O&M Agreement
between North Jersey Energy Associates (NJEA) and Westinghouse, dated June 1989
and amended June 1993. Westinghouse is paid a monthly sum of $493,750 (January
1990 dollars), which is escalated twice a year according to a composite index of
materials (20%), equipment (30%), and labor (50%). Westinghouse is responsible
for all routine O&M expenses as well as major maintenance, inspections, and
overhauls. The owners must pay for fuel, water, permits, property taxes, and
insurance.
Westinghouse must maintain an average annual electrical output of 90% of net
capacity during peak periods and 85% of net capacity during offpeak periods,
measured in kilowatt-hours. They must pay liquidated damages for shortfalls, but
they receive bonuses for excesses, as measured relative to the 90% peak and 85%
offpeak guarantees. The liquidated damages and bonuses are as follows:
o Liquidated Damages = $15.00/MWh (offpeak shortfall)
$20.00/MWh (onpeak shortfall)
$56.00/MWh (onpeak shortfall for portion
below 90% of 3-year average onpeak output)
o Bonuses = $ 3.00/MWh (offpeak excess above 85% guarantee)
$30.00/MWh (onpeak excess above 90% guarantee)
- --------------------------------------------------------------------------------
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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NJEA is party to a power purchase agreement with Jersey Central Power and Light
Company (JCP&L) with a liquidated damages provision that requires the owner to
pay $36.00/MWh (on-peak shortfall for portion below 85% of 3-year average).
The owner is covered under the JCP&L damage provision by the liquidated damages
that would be collected from Westinghouse under the O&M agreement. Electrical
output shortfalls would reduce gross project income by approximately $38/MWh on
the basis of the 1997 weighted average power sales rate. The liquidated damages
mitigate lost income and provide an economic incentive to the operator to
maintain or exceed the guarantee. Output in excess of the guarantee increases
the project net income since the cost of bonuses is less than the incremental
power sales income.
Westinghouse must also maintain a guaranteed net plant heat rate and pay
liquidated damages for any incremental fuel costs due to deviations above the
guaranteed value. Steam sales are made to Hercules under a steam sales
agreement. Under the terms of the O&M agreement, Westinghouse is responsible for
paying the liquidated damages specified in the steam sales agreement for
shortfalls in steam supply. These damages are intended to compensate Hercules
for having to generate steam with their own boilers.
NONFUEL O&M EXPENSES
Since only three years remain on the existing O&M agreement with Westinghouse,
and the cash flows associated with this agreement are predictable based on past
experience, the focus of this analysis is on the years after the Westinghouse
contract expires.
The Westinghouse fee for the 1997/1998 fiscal year is $6,430,000 at Bellingham
and $7,292,000 at Sayreville. Furthermore, the performance bonuses of $2,000,000
at Bellingham and $1,600,000 at Sayreville are reasonable. The pro forma
reflects these values.
- --------------------------------------------------------------------------------
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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To test the validity of the pro forma O&M budget estimate for years after the
existing O&M agreement, O&M cost estimates were independently developed on the
basis of in-house databases and the following recent industry data sources:
o Federal Energy Regulatory Commission (FERC) Form 1 data for existing
gas turbine and combustion turbine/combined-cycle plants, including O&M
costs, capital modifications, and operating data, submitted annually by
reporting utilities as compiled by the Resource Data Institute.
o O&M cost relationships developed by Oak Ridge National Laboratory
(ORNL), Estimation of Non-Fuel Operation and Maintenance Costs for
Advanced Circulating Fluidized Bed and Advanced Natural Gas-Fired
Combined Cycle Power Plants December 1989. This study includes cost
adjustment factors for differences in sizes and configurations.
o Electric Power Research Institute (EPRI) Report GS-6415, A Comparison
of Steam-Injected Gas Turbine and Combined Cycle Power Plants:
Technology Assessment June 1989.
o Detailed line item budget proposals for long-term O&M contracts
prepared by experienced O&M contractors for other combined-cycle
cogeneration plants, obtained from our in-house data files.
The first two sources were used to validate the estimate totals, adjust costs
for differences in megawatt sizes and number of units, and verify the splits
between fixed and variable components. The first source, the FERC database, was
also used for regression analysis of dollars per kilowatt-year versus annual
operating hours to help validate the fixed and variable cost breakdowns. The
last three sources were used as a means of building up the O&M estimates from
detailed line-item data
The data obtained from FERC include O&M costs that were expensed as well as
those capitalized by reporting utilities. Capitalized amounts are measured by
the year-to-year change in the Form 1 "Cost of Plant" account. According to the
Uniform System of Accounts, routine maintenance is normally expensed while major
repairs that are expected to last several years are capitalized. Since the exact
distinction between expensed and capitalized items varies by individual utility
and public utility commission, the analysis included the sum total of these two
reported costs.
- --------------------------------------------------------------------------------
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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All data were normalized to 2002 dollars, with costs that occur infrequently,
such as inspections and overhauls, averaged over the long-term maintenance cycle
to an equivalent annual value.
Table 5-1 compares the pro forma estimates with the normalized industry data,
with costs adjusted to 2002 dollars, which is the first full year in which O&M
is by the new owner. The comparison is based on a 93% capacity factor, which is
the 6-year average used in the pro forma. The industry data include estimated
O&M costs of steam injection for NOX control. Although the industry data
subcategories for Total O&M Budget and Total Major Maintenance are different
from those used in the pro forma, the totals are comparable.
Table 5-1 -- Comparison of the Pro Forma Estimates with Normalized Industry Data
Pro Forma Assumptions ($10(3))
---------------------------------------------
Bellingham Sayreville
--------------------- ---------------------
O&M 746 746
Other Direct Costs 644 476
Payroll and Related 2,083 2,013
Operator Fee 750 750
Water Costs 643 1,447
Capital Expenditures 100 100
--------------------- ---------------------
Total O&M Budget 4,966 5,532
Total Major Maintenance 2,514 2,438
Industry Average
---------------------
Labor Cost 1,542
Maintenance Materials 2,174
Raw Water 498
Water Treatment 974
Misc. Consumables 329
---------------------
Total O&M Budget 5,517
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Major Maintenance Inspections 1,531
Major Maintenance Spare Parts 1,050
---------------------
Total Major Maintenance 2,581
The pro forma O&M annual budget, excluding Administrative and Support, of
$4,966,000 for Bellingham is less than the industry average estimate, but within
a reasonable range. The O&M annual budget, excluding Administrative and Support,
of $5,532,000 for Sayreville is consistent with the industry average estimate.
The six-year average Major Maintenance budgets of $2,514,000 for Bellingham and
$2,438,000 for Sayreville are consistent with the industry data estimate of
$2,581,000 and are reasonable. Thus, the assumed O&M budgets are reasonable
forecasts of the actual expenses to be incurred at the plants.
This analysis excludes the pro forma budgets for Property Taxes or Service
Charges, Owner Insurance, Easement Fees, and Other Direct Costs for site
expenses and Administrative and Support expenses. Industry comparisons are
difficult for property taxes and insurance since they are usually reported as
part of corporate overhead not allocated to specific plants. Easement fees and
other site expenses are very site-specific and also not directly comparable with
industry data. Industry comparisons of administrative and support costs are
misleading because of the different methods used to allocate corporate overhead
to individual plants.
The project thereby provides sufficient funds for maintenance practices used in
the industry to minimize degradation of power output and heat rate. The
following schedule is typical of industry practice:
o Routine Maintenance:
- weekly or biweekly online gas turbine compressor water washing;
- offline gas turbine compressor water washing when indicated by plant
performance, which may vary from bimonthly to quarterly depending on
the operating environment; and
- annual gas turbine combustor inspection with minor repairs and
cleaning,
o Major Maintenance:
- hot gas path inspection every three years with full cleaning of the
turbine blade path;
- full gas turbine inspection and overhaul every 5 to 6 years or less
as required; and
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
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- major steam turbine inspection and overhaul every 5 to 6 years.
The cyclic trend of Major Maintenance expenses in the pro forma reflects the
above schedule.
SUMMARY
The review of the O&M budget estimates for the Bellingham and Sayreville
facilities indicates that the budgets represent reasonable estimates and
assumptions. The budgets provide sufficient funds for routine and major
maintenance practices used in the industry to minimize degradation of power
output and heat rate. The minor corrective actions suggested in this report,
such as routine painting, HRSG tubing inspection and repair, and HRSG foundation
pier inspection and repair, can all be implemented within this budget. Based on
the review of the existing O&M agreements, the specified payments to the
operator should be sufficient to support expected plant performance, and the
liquidated damages for fuel consumption and steam output should be sufficient to
maintain expected net income. The liquidated damages for electrical output
mitigate lost income in the event of reduced plant output and, together with the
bonus provisions, provide an economic incentive to the operator to maintain or
exceed the output guarantee. Once the existing O&M agreements expire, the owner
will bear additional risk for plant performance since the liquidated damage and
bonus incentive will no longer exist. Since the new entity performing the O&M
activities is an affiliate of one of the new owners, the new operator will have
a greater incentive to maintain or improve on the high levels of performance
achieved in the past.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Section 6
PRO FORMA FINANCIAL PROJECTIONS REVIEW
The financial projections presented in Appendix A of this report were prepared
by Northeast Energy, L.P. (Northeast) and are based on the contractual,
operational, and economic assumptions discussed in this section of the report.
The pro forma financial projections prepared for the projects were reviewed. The
review focused on the following issues:
o methodology for preparing the financial projections,
o appropriateness of the general assumptions,
o consistency between the assumptions for plant performance and actual
historical performance,
o consistency between revenue forecasts and existing sales contracts,
o appropriateness of operating expense forecasts, and
o correctness of the pro forma model and calculations therein.
The results of the sensitivity analyses of key parameters were also reviewed.
Certain assumptions incorporated in the pro formas were confirmed in the report
of the Fuel Consultant. Many of the projection assumptions that are discussed in
this section are based on the provisions of individual project contracts,
certain provisions of which are summarized in the Offering Circular. Neither
Northeast's independent accountants, Deloitte & Touche, L.L.P., nor Price
Waterhouse, L.L.P., have either examined or compiled the pro formas or any such
assumptions and, accordingly, do not express any opinion or any other form of
assurance with respect thereto.
The pro formas, while presented with numerical specificity, necessarily are
based on a number of estimates and assumptions that, while considered reasonable
by Northeast, are inherently subject to significant business, economic, and
competitive uncertainties and contingencies, many of which are beyond the
control of Northeast. They are also based on assumptions with respect to future
business decisions that are subject to change.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Accordingly, there can be no assurance that the pro formas will be realized. The
actual results will vary from the pro formas, and such variations may be
significant. The inclusion of the pro formas herein should not be regarded as a
representation by Northeast or any other person that the pro formas will be
achieved. Northeast does not intend to update the pro formas. Prospective
investors in the bonds are cautioned not to place undue reliance on the pro
formas. Capitalized terms used in this section and not otherwise defined have
the meanings assigned in Appendix A of the Offering Circular. The assumptions
described in this section were used in the preparation of a base-case projection
and in the sensitivity case projections except where otherwise noted in the
introduction to the sensitivity case projections.
Under the base-case assumptions, the pro forma financial projections show a
minimum debt service coverage ratio for the Bonds of 2.25 times and an average
debt service coverage ratio of 2.88 times over the life of the Bonds. The debt
service coverage ratios remain relatively stable over a broad range of
sensitivities.
OPERATIONAL ASSUMPTIONS
In general, the pro forma financial models assume that both plants will generate
at the maximum available capacity, will provide export steam for the duration of
existing contracts, will supply power in accordance with the power purchase
agreements, and will sell all surplus generation on the open market.
Capacity
The pro formas assume a base capacity with annual degradation of 0.7% in
nonoverhaul years, returning to base capacity after major maintenance. The net
capacity available for sale for a typical year is determined as shown on Table
6-1.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Table 6-1 -- Determination of Net Capacity Available for Sale
Bellingham Sayreville
------------------------ ------------------------
Base Capacity 315.9 MW 308.0 MW
Degradation 0.7% 0.7%
Power Plant Load 5.5 MW 5.5 MW
Steam Load 0.8 MW 13.2 MW
CO2 Load 4.5 MW NA
Net Capacity 302.9 MW 287.2 MW
The base capacity at each plant is reasonable and conservative. The 1991 Plant
Acceptance Test for Bellingham indicated that the original net capacity,
including the CO2 plant load, was 312.3 MW, equal to a base capacity of 318.6
MW. The pro forma assumption of 315.9 MW allows for 1% nonrecoverable
degradation, which is reasonable. As stated earlier in this report, the
different inlet steam conditions at Sayreville result in reduced performance of
7 MW in the steam turbine. This reduction is reflected in the base capacity
assumptions.
The power plant load is in accordance with Westinghouse energy balances and
plant power consumption observed from control room monitors during plant
walkdowns.
The steam load is appropriate considering the Sayreville heat rate correction
procedure and the minimal export steam at Bellingham.
The CO2 plant load is conservative based on past demand of the plant. The owner
reports indicate the annual consumption of the CO2 plant to be no greater than
37,340 MWh, equivalent to 4.26 MW.
In the pro forma, projected net electrical output for the Bellingham Project is
290 MW in 1998 increasing to approximately 300 MW from 1999 through the
scheduled term of the securities, which reflects the additional sale of power
from unused capacity at the Bellingham Project in varying amounts from 9.6 MW to
15.4 MW between 1999 and 2010, approximately one year before the final maturity
of the Bonds. Upon expiration of the Boston
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Edison II PPA in September 2011, approximately three months before the final
maturity of the Bonds, the Bellingham Project is assumed to sell 36.3 MW of
merchant power in the open market.
These assumptions generally reflect the current operating scenario for the
Bellingham Cogeneration Facility, which is currently operating at full capacity,
corrected for export steam. Therefore, the actual plant performance data
discussed in Section 4 of this report can be used directly to assess the
appropriateness of the plant performance assumptions.
In the pro forma, projected net electrical output for the Sayreville Project
under the JCP&L contract is 252 MW. Additional sales of power in the open market
from the Sayreville Project's unused capacity of approximately 35 MW is assumed
to begin January 1, 1999. After the termination of the JCP&L contract in August
2011, approximately four months before the final maturity of the Bonds, the
model assumes that the previously contracted 252 MW will be sold in the open
market.
The above assumptions represent a new operating scenario for the Sayreville
Cogeneration Facility, which is currently operating below its maximum available
capacity. Due to the pricing structure of the single PPA for Sayreville, the
plant generally has been operated at a net output of 252 MW. This is
approximately 20 MW below its rated output when delivering export steam at the
maximum rate of 230,000 lb/hr. The actual average export steam rate of
approximately 125,000 lb/hr has been significantly less than this maximum. At
this lower export rate, the plant's net output of 252 MW is approximately 35 MW
below its rated available capacity. Therefore, the actual plant performance data
discussed in Section 4 of this report, specifically the heat rate and
generation, cannot be used directly to assess the appropriateness of the plant
performance assumptions. Such an assessment must be based on performance trends.
The assumed operating scenario for Sayreville is a credible scenario. The terms
of the PPA with JCP&L give JCP&L the first right to any excess power generated,
which would be sold at unfavorable rates. The pro forma reflects a
revenue-sharing arrangement with JCP&L, which should provide adequate incentive
to JCP&L to allow the sale of excess generation to third parties. The effect of
no merchant power sales is considered in Sensitivity
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Case E. In this case, the pro formas yield an average coverage ratio of 2.59
times and a minimum coverage ratio of 1.37 times.
Availability
During a year in which no major inspections or maintenance outages are
scheduled, the Sayreville pro forma assumes a 93.3% availability factor derived
as follows:
o Planned Outage 1.5% 131.4 hours
o Maintenance Outage 1.5% 131.4 hours
o Forced Outage 1.4% 122.2 hours
o Curtailment 2.28% 200.0 hours
The curtailment allowance escalates to 400 hours in 2002 in accordance with the
terms of the PPA. Although additional curtailments enforced by the fuel supplier
do periodically occur, these curtailments are minimal and their exclusion from
the availability calculation should have no bearing on the results. The
allowance for forced outages is in accordance with industry guidelines and
current trends at the plant. The planned outage schedule reflects the equipment
requirements, namely a 3-day annual inspection increasing to 3-4 weeks during
years in which major maintenance activities are scheduled. The routine
maintenance allowance is appropriate considering the availability is in
accordance with current plant trends. In summary, the availability projections
for Sayreville are reasonable.
The corresponding breakdown was not included in the Bellingham pro forma. The
assumed 96% availability during years in which no major maintenance activities
are scheduled generally represents the above breakdown for Sayreville if
curtailment is excluded. There are minor curtailment provisions of the
Bellingham PPAs, and the plant has experienced some curtailments as discussed in
Section 4. The availability projections for Bellingham are reasonable. The
effect of lower station availabilities is evaluated in Sensitivity Case C.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Heat Rate as Fuel Consumption per Kilowatt-Hour
The pro formas assume a baseline heat rate with an annual degradation of 0.7%
for years during which no major maintenance outage is scheduled, returning to
the baseline heat rate after major maintenance has been performed.
At Bellingham, the assumed baseline heat rate is 8229 Btu/kWh, with an average
heat rate of 8304 Btu/kWh over the 6-year major maintenance cycle. As presented
in Section 4, the average actual operating heat rate is 8282.6 Btu/kWh.
Therefore, the degraded heat rates assumed in the pro forma are conservative.
Total fuel consumption is derived by multiplying this heat rate by the output of
the Bellingham Project, including both electricity consumed by the CO2 plant and
electricity sold to the Bellingham Power Purchasers.
At Sayreville, the assumed baseline heat rate is 9057 Btu/kWh in the first year
and 8461 Btu/kWh from 1999 through 2011. This trend reflects continued reduced
load operation in the first year and full-load operation with export steam
starting in 1999.
The operating scenario assumed in the first year is comparable to the actual
operating scenario for which data are presented in Section 4. The assumed heat
rate is in accordance with the actual operating heat rate. At full-load
operation, the fuel consumption rate is unaffected by the relationship between
export steam and electrical generation. Therefore, the heat rate in subsequent
years can be determined using the 1991 Plant Acceptance Test, which was
performed at full-load conditions, and pro-rating according to the relative net
capacities. The heat rates assumed in the pro forma are consistent with this
approach, and they are considered reasonable forecasts of the heat rates in
future years.
The fuel consumption is correctly calculated using the net plant heat rate, the
net capacity available for sale, and the availability factor.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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POWER GENERATION REVENUES
Power Sales Prices
Power from the Bellingham Project and the Sayreville Project is sold to the four
Power Purchasers under six Power Purchase Agreements (PPAs). Power prices in the
financial model are projected on the basis of base prices set forth in the
respective PPAs. The base prices set forth in the respective contracts increase
by either fixed rates, reference to Avoided Cost indices, reference to gas
prices, or reference to fuel oil prices. Certain of the projected power sales
prices are based on assumptions regarding prospective fuel costs. Assumptions
regarding projected fuel prices are reviewed in the Fuel Consultant's Report
included in the Offering Circular. For further detail on the pricing provisions
of these contracts, see "Summary of Principal Project Agreements" as part of the
Offering Circular.
The sales of additional uncontracted merchant power on the open market are at
well-documented market prices for generation and capacity.
In summary, the revenues assumed in the pro forma are reasonable and
appropriate.
Energy Banks
NEA has incurred Energy Bank liabilities under its Boston Edison I and Montaup
Electric Company PPAs. The balance under the Boston Edison I PPA is projected to
decrease to 0 by year 2007, and the balance under the Montaup Electric Company
PPA is projected to increase to approximately $60,000,000 by December 31, 2011.
These Energy Bank liabilities are supported by letters of credit to the
respective utilities. Increases or decreases in the Energy Bank liabilities do
not affect the project cash flows. For a further discussion of the Energy Banks,
see "Summary of Principal Project Agreements."
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Gross Steam Production Income
NEA
The net cash flow impact to NEA from the steam produced by the Bellingham
Project is determined by the production and sale of carbon dioxide. CO2 sales
are projected at nominally 330 tons per day, and steam use is projected at
nominally 51,500 pounds per hour (lb/hr). The actual CO2 sales and steam use are
based on the power plant's availability factor. The price at which CO2 is sold
is projected to escalate with inflation. CO2 cash revenues are applied first to
pay the direct operation costs and fees incurred in the operation of the CO2
plant, and any residual up to the $1,200,000 rent payable under the lease
between NEA and NECO-Bellingham, Inc., is paid to NEA.
NJEA
For the pro formas, output to Hercules is projected to be approximately 125,000
lb/hr, consistent with current operating experience at the Sayreville Project.
The Hercules steam purchase price is escalated at the rate of inflation from the
$2.5 per thousand pounds paid in 1996. This results in a projected price of $2.6
per thousand pounds in 1998, escalated at half the rate of inflation.
Project Operating Costs
Delivered Fuel Cost
Delivered fuel commodity and transportation costs are discussed in the Fuel
Consultant's Report.
Nonfuel Operations and Maintenance Expenses
The nonfuel operations and maintenance expenses are evaluated in detail in
Section 5 of this report. To summarize the conclusion of Section 5, the O&M
budgets for the Bellingham and Sayreville facilities represent reasonable
estimates and assumptions. The budgets provide sufficient funds for routine and
major maintenance practices used in the industry to minimize degradation of
power output and heat rate.
In summary, the operations and maintenance expenses assumed in the pro forma are
reasonable and appropriate.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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General and Administrative Expenses
Costs for insurance, property taxes, easement fees, administrative expenses, and
General Partner management fees are projected on the basis of historical costs.
The General Partner management fee is set forth in the Indenture. Costs for
insurance, property taxes, and easement fees are escalated in a manner
appropriate for these items. All administrative expenses and the General Partner
management fee are projected to grow at the same rate as inflation.
Financing Costs
Bond Payments
The Bond financing is modeled as a $220 million issue, with semi-annual
principal payments beginning June 30, 2002, an assumed issue date of February
15, 1998, and a final maturity of December 30, 2011.
Project Securities Payments
The pro forma identifies approximately $490 million of Project Securities
outstanding as of December 31, 1997. These securities are subject to semi-annual
principal and interest payments through December 30, 2010.
Other Facilities
The pro formas include expected interest and fee expenses for letters of credit
that are issued to support the Projects' Energy Bank and Debt Service Reserve
obligations, and for the Working Capital Facility. Because the Projects are
assumed to be consistently cash-flow positive on a monthly basis, and as the
Working Capital Facility has never been drawn upon, the pro formas do not
anticipate any draws under the Working Capital Facility, and Northeast currently
intends to discontinue this facility.
Interest Income
The pro formas assume that the Projects will earn interest income on all free
cash balances at a rate equal to 2% more than the projected rate of inflation.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Reserve Accounts
Debt Service Reserve
The pro formas assume that ESI Tractebel Funding will obtain a Substitute Letter
of Credit in an amount sufficient to cover six months of principal and interest
on the Project Securities as permitted under the Project Indenture. Similarly,
the pro formas assume that the Issuer will obtain a Letter of Credit in an
amount sufficient to cover six months of principal and interest on the Bonds as
permitted under the Indenture.
Major Overhaul Reserve
A major overhaul reserve is provided during the term of the O&M Agreements in an
amount equal to the next year's projected major maintenance costs. These
expenses are included as cash expenses on a current basis during the period
following the expiration of the O&M Agreements based on a major overhaul expense
projection provided by Northeast. As discussed in Section 5, the O&M budgets for
the Bellingham and Sayreville facilities represent reasonable estimates and
assumptions.
Gas Transmission Reserve
ESI Tractebel Funding has agreed pursuant to the Project Indenture to set aside
funds in the Gas Transmission Reserve Fund, in the event that the Transco
Agreements are not extended through the final maturity of the Project
Securities. Because of regulations governing pipeline transportation, Northeast
believes that it is likely that they will be able to extend these contracts, and
therefore they believe that reserving will not be required, and the pro forma
does not include any reserve.
BASE-CASE RESULTS
On the basis of the analyses of the Projects and the assumptions discussed in
this section, distributions to the Issuer deriving from the projected revenues
from the sale of electrical and thermal energy are adequate to pay annual
operating and maintenance expenses, including provisions for major maintenance;
fuel expenses and other operating expenses; and principal and interest on the
Bonds and to provide a minimum annual debt service
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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coverage ratio for the Bonds of 2.25 times and an average annual debt service
coverage ratio of 2.88 times over the life of the Bonds.
SENSITIVITY ANALYSES
To demonstrate the effect on the Base Case of using different assumptions,
certain sensitivity cases were reviewed. It should be noted that other changed
assumptions could have been considered and that the sensitivity cases presented
here reflect only a small number of possible variations on the Base Case. The
sensitivity cases are presented in Appendix B of this report. The sensitivity
cases are described below.
Sensitivity Case A: Increased Spot Gas Prices
For Sensitivity Case A, projected spot market natural gas costs are increased 6%
over the levels assumed in the Base Case. Contracted power sales prices are tied
to either fixed rates or projections of gas-based and avoided-cost based
escalators, as called for in the PPAs.
Sensitivity Case B: Increased Inflation Rate
For Sensitivity Case B, the rate of inflation is assumed to be 4.0% per year
versus the assumed rate of 2.7% to 2.8% per year under the Base Case.
Sensitivity Case C: Lower Station Availability
For Sensitivity Case C, the availability factor for both Projects is assumed to
be 90.0% throughout the projection period versus the assumed average
availability factor of 96% for Bellingham and 93.3% for Sayreville under the
Base Case. Decreasing the station availability reduces both the revenues and the
fuel expense, and it has an overall effect of reducing the projects' cash flow.
The 90% availability factor is below the availability demonstrated at either of
the plants as well as below the industry average for similar plants. The 90%
availability is a reasonable estimate of the lower bound for the plants.
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This document contains information that is confidential and proprietary to
Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Sensitivity Case D: Lower Fuel Efficiency
For Sensitivity Case D, the heat rate at each plant is assumed to be 110% of
that assumed in each year of the Base Case. Increasing the net plant heat rate
increases the fuel consumption, and thereby reduces cash flow. The 10% increase
places the heat rates used in the pro formas well above the actual heat rates
experienced at either of the plants. Furthermore, the power plant technology is
very mature and the operation and maintenance practices are well established. It
is unlikely that the net plant heat rate will deteriorate beyond the 10%
considered. The 10% heat rate increase is a reasonable estimate of the upper
bound for the plants.
Sensitivity Case E: No Merchant Power Sales
For Sensitivity Case E, it is assumed that there are no sales of uncontracted
merchant power at either Bellingham or Sayreville throughout the duration of the
pro formas. Under this scenario, all contracted costs are paid and a minimum
contract-based coverage of 1.37 is maintained.
SUMMARY
The annual debt service coverage ratios for the base case and sensitivity cases
presented by Northeast are shown in Table 6-2. These coverage ratios represent
cash distributions to Northeast divided by scheduled annual debt service on the
Bonds.
Table 6-2 -- Annual Bond Debt Service Coverage Ratios
Minimum Average
------------------------- -----------------------
Base Case 2.25 x 2.88 x
Sensitivity Case A 2.21 x 2.87 x
Sensitivity Case B 2.17 x 2.80 x
Sensitivity Case C 2.05 x 2.65 x
Sensitivity Case D 1.88 x 2.33 x
Sensitivity Case E 1.37 x 2.59 x
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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The debt service coverage raios under the base case and sensitivity cases
remain relatively stable over a broad range of sensitivities around the key
parameters discussed in this report.
Based on a review of the structure of the pro formas and a detailed review of a
sample of the more significant calculations, the financial model appears
accurate and in accordance with industry practice, and the pro forma financial
projections are reasonable forecasts of the future financial performance of the
projects.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Section 7
PERMITTING AND COMPLIANCE REVIEW
The objective of the environmental permitting and compliance review was to
confirm that all required permits have been obtained, that the plants have been
operating in compliance with those permits, and that adequate facilities and
procedures are in place to ensure continued compliance. If events of
noncompliance have occurred, the corrective actions were reviewed to confirm
that future noncompliance should be prevented. In addition, potential future
environmental regulations were considered to determine the potential impact on
the facilities.
The review included physical walkdowns of the facilities, interviews with key
plant personnel, and reviews of documents and records maintained by the owners
and the operators of the facilities. Engineering and design documents, permits
and permit applications, and records and reports required by those permits and
related regulations were reviewed.
The results of the review are discussed in the following sections.
BELLINGHAM COGENERATION FACILITY
Energy and Utility Approvals and Requirements
Under Massachusetts law, an approval from the Massachusetts Energy Facility
Siting Council for construction of a proposed bulk electric generating unit at a
proposed site is required before a construction permit is issued by any other
state agencies. This approval is also required for the transmission line. An
applicant must show that the energy supplied by the proposed facility is needed
and that the proposed facility can provide the necessary energy supply with the
minimum impact on the environment and at the lowest possible cost.
A Petition for Approval to Construct a Bulk Generating Facility was filed in
June 1987. A Final Decision was issued by the Siting Council on December 9,
1987, approving the petition subject to two conditions:
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o The owners monitor noise levels near the plant for two years and
maintain records of any noise complaints received, and
o The owners provide selective tree plantings along nearby residential
streets to reduce the visibility of the chimney.
Based on our inspection of the facility and of certain documents, the facility
is in compliance with these requirements. Compliance with the noise guidelines
is discussed in further detail later in this section.
A Qualifying Facility (QF) Certification was received from the Federal Energy
Regulatory Commission. The QF certification indicates that the project will have
sufficient steam sales to qualify as a cogeneration facility under the Public
Utilities Regulatory Policies Act of 1978. The certification was initially
received before the plans to construct the CO2 plant were finalized and was
recertified based on steam sales to the plant. On the basis of the review of the
technical parameters of the facility and plant performance, the facility should
continue to meet the QF criteria. No action is required to maintain the QF
certification.
A Self-Certification of Capability to Use Coal or Alternate Fuel was filed with
the Economic Regulatory Administration of the Department of Energy on July 27,
1987. The Economic Regulatory Administration published a notice of the
self-certification in the Federal Register on August 11, 1987. This constitutes
the facility's compliance with the Power Plant and Industrial Fuel Use Act of
1978. No further action to maintain compliance is required.
Environmental Impact Report
A Certificate of the Massachusetts Secretary of Environmental Affairs on the
Final Environmental Impact Report (FEIR) was issued on March 18, 1988,
concluding the state environmental review process under the Massachusetts
Environmental Policy Act that was begun in August 1986. The Secretary noted that
the FEIR was thorough in its presentation of the various environmental issues
and that several improvements to the project had been made during the course of
the review. No conditions for compliance were imposed. Therefore, the project is
in compliance with the certificate and is expected to remain in compliance.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
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Soil and Groundwater Contamination
The Site Assessment Relative to Oil and Hazardous Material, dated May 9, 1988,
which was prepared by the BSC Group - Boston, Inc. (BSC) for the Bellingham
site, was reviewed. The site assessment was conducted by BSC in December 1987
and January 1988. The site assessment consisted of historical research into past
land uses of the site and adjacent properties, investigation of state and
federal records, interviews with local authorities, field reconnaissance of the
site, and sampling and analysis of groundwater and soil samples.
BSC concluded that there was no evidence that oil or hazardous material was on
the site or had been released on the site. They also concluded that the
potential for offsite migration of contaminants from an adjacent parcel was
negligible. Subsequent sampling and analysis of groundwater in April 1989 by BSC
further supported these conclusions. The scope and methodology of the site
assessment was adequate in connection with the conclusions reached, and the
conclusions were reasonably drawn.
Soil and groundwater contamination that occurred after the construction and
operation of the plant is discussed in the Oil and Chemical Spill Response
section.
Air Pollution Control Permits
Several air quality control permits are required by state and federal law, all
under the authority of the Massachusetts Department of Environmental Protection
(MDEP), formerly the Massachusetts Department of Environmental Quality
Engineering. All of the permits and approvals currently required have been
obtained, including the following:
o Prevention of Significant Deterioration (PSD) Permit, issued by the
MDEP on February 1, 1989
o Conditional Approval to construct and operate the facility, issued by
the MDEP on February 1, 1989
o Final Approval for operation, issued by the MDEP on June 11, 1989
o An NOX Emission Control Plan (ECP), approved by the MDEP, initially on
September 15, 1994, with an updated ECP plan approved on November 3,
1994.
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released to any third party without the prior written consent of S&L. Copyright
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The four permits and approvals provide numerous conditions with which the
facility must comply, including the following key conditions:
o Operating Limitations restrict the plant to a maximum operating rate of
2560 mmBtu/hr* when burning natural gas and 2472 mmBtu/hr when burning
fuel oil.
o Emission limits for SO2, NOX, particulate, CO, and VOC, for both oil-
and gas-fired operations, in lb/mmBtu per turbine, lb/hr for the plant,
and ton/yr for the plant. Opacity of the chimney emissions and noise
impacts are also limited. The following emission limits apply:
Table 7-1 -- Emission Limits for Bellingham
<TABLE>
<CAPTION>
Emission Limits Emission Limits
for Natural Gas Firing for Distillate Oil Firing
---------------- -------------------------------------- -------------------------------------
Per Turbine Plant Total Per Turbine Plant Total
Pollutant (lb/mmBtu) (lb/hr) (lb/mmBtu) (lb/hr)
---------------- ------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
SO2 0.0016 4.0 0.2136 528.0
NOX 0.0859 (1) 220.0 0.1497 (2) 370.0
PM 0.0047 12.0 0.0647 160.0
CO 0.0516 132.0 0.3277 810.0
VOC 0.0043 11.0 0.0151 37.4
Opacity 10% 10% 10% 10%
</TABLE>
------------------------------------
1 Equivalent to 25 ppmvd @ 15% O2
2 Equivalent to 42 ppmvd @ 15% O2
o Fuel oil restrictions limit the use of distillate fuel oil to 1440
turbine hours per year and limit fuel oil sulfur content to 0.2% or
less.
o Operation of the steam injection NOX control system with a
steam-to-fuel ratio of at least 1 to 1 during all modes of operation
except the startup and shutdown periods.
- ----------------------
* mmBtu=10(6) Btu
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o Testing and Reporting Requirements include NOX minimization tests to
optimize fuel-to-water ratios, initial performance tests for compliance
with emission limits, and a noise survey. Noise compliance studies are
discussed in further detail later in this section.
o Monitoring and Recording Requirements for the installation and
operation of Continuous Emission Monitors and Recorders (CEM),
Continuous Operating Parameters Monitors and Recorders, and an
operating log.
o Reporting and Record Keeping Requirements, which specify monthly
operation and emissions reports during the first year and quarterly
reports thereafter.
Initially, the plant experienced periods of excess emissions that were reported
to the MDEP. The owner and the operator of the plant have since instituted
changes to eliminate excess emissions. The changes included the installation of
a steam flow gauge for better control of steam injection and adjustment of the
NOX emission target for plant operators from 25 ppm NOX (the permit limit) to
approximately 22 ppm NOX. The most recent quarterly emission reports through the
third quarter of 1997, which covers the period since implementation of the
changes were reviewed. Based on the review, the plant has successfully reduced
periods of excess emissions to those periods acceptable to the MDEP according to
the terms of the permits.
Based on the technical review of the plant and quarterly emissions reports
submitted to the MDEP, the facility is currently operating in compliance with
its air pollution control permits. Based on current operation and maintenance
practices, the plant should continue to operate in compliance.
Other Air Pollution Control Requirements
The Bellingham site is in the Boston-Lawrence-Worcester (Eastern Massachusetts)
Ozone Nonattainment Area, which is classified as a serious nonattainment area
and is part of the Northeast States Ozone Transport Region. Title I of the Clean
Air Act Amendments of 1990 (CAAA) requires states to impose NOX and VOC
Reasonably Available Control Technology (RACT) requirements on existing plants
in ozone nonattainment areas. Existing facilities were required to comply with
the RACT rules by May 31, 1995. The MDEP RACT rules for combustion turbines
require NOX limits of 42 ppmvd when burning natural gas and 65 ppmvd when
burning oil.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
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The cogeneration plant already meets these limits, and the ECP was submitted in
compliance with the MDEP requirements for NOX RACT. No additional controls were
required. The plant is exempt from VOC RACT because VOC emissions, other than
those from incomplete combustion, which are exempt, are below the threshold. On
November 14, 1994, the owner submitted a letter to the MDEP documenting the
plant's exemption from VOC RACT.
Under Title V of the CAAA, both the cogeneration plant and the CO2 plant are
required to obtain an Operating Permit that consolidates all existing air
pollution requirements. A Title V Permit Application for the facility was
submitted on May 1, 1995. On October 18, 1995, the MDEP notified the owner that
the application was administratively complete. In early 1997, the MDEP issued a
preliminary draft of the Operating Permit, but has not yet issued a draft for
public comment or a final Operating Permit.
The Operating Permit is intended to consolidate existing air pollution
requirements, not to create new requirements. The preliminary draft reviewed
does not impose additional air pollution control requirements.
Noise Guidelines Compliance
Pursuant to the siting approval, the air pollution control permits, and the
local zoning permits, the facility must not violate industrial noise level
limits in the Bellingham Zoning Codes and in the MDEP's Air Quality Control
Regulations. A noise compliance evaluation was jointly conducted by HMM
Associates, Inc. and Sigma Research Corporation during a period when both the
cogeneration facility and the CO2 plant were operating at essentially full load.
The conclusions of the study were that the noise levels generated by the plant
are well within MDEP and local requirements. The scope and methodology of the
study were appropriate and the conclusions reached were reasonably drawn.
No additional data on plant noise levels have been collected or are required.
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Airspace Obstruction Approval
On December 3, 1987, the Federal Aviation Administration determined that
construction of the plant, including the chimney, fuel oil storage tank, and
associated transmission lines, do not constitute an obstruction or a hazard to
air navigation. Marking or lighting of the facility was not required.
Wastewater Discharges
Under state and federal laws, the facility must have permits for discharges of
pollutants to surface waters. The plant discharges two types of wastewater:
sanitary wastes and storm water runoff. Industrial wastewater, including
blowdown from the steam cycle, is generated on site but is not discharged to the
environment because the facility uses a zero-discharge water recycling system.
There is no cooling water discharge, because the facility uses an air-cooled
condenser system.
The cogeneration plant and the CO2 plant each have a septic system for the
disposal of sanitary wastes. A Disposal Works Construction Permit for both of
these septic systems was issued by the Bellingham Board of Health on May 9,
1990. At the request of the Board of Health, the holding tanks for the septic
systems are pumped out once per year. Based on our site inspection, the septic
systems have been constructed and are being operated in compliance with all
conditions.
A determination that a National Pollutant Discharge Elimination System (NPDES)
permit was not required for storm water discharges was made by the MDEP in 1988.
Regulations have changed since that time and now require NPDES permits for storm
water discharges from all industrial facilities. The cogeneration plant has
complied with current regulations by filing a Notice of Intent (NOI) for Storm
Water Discharges Associated with Industrial Activity Under the NPDES General
Permit on September 30, 1992 and, for a renewal, on September 4, 1997. The
general permit requires the facility to develop a storm water pollution
prevention plan (SWPPP). The general permit does not require that the SWPPP be
submitted to or approved by the United States Environmental Protection Agency
(USEPA). This plan was completed in November 1993 and revised in August 1997.
The SWPPP now covers both of the facilities and appears to meet the requirements
of the permit.
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released to any third party without the prior written consent of S&L. Copyright
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Water Withdrawal Permits
The MDEP issued a Water Withdrawal Permit on November 30, 1990, and a modified
permit on March 7, 1991, authorizing the facility to draw groundwater from five
wells in the Charles River Basin, for a 20-year permit term. The authorization
limits the daily average withdrawal to 0.66 million gallons per day (mgd) and
the total annual withdrawal to 240.9 million gallons per year (mgy). The permit
requires metering of the withdrawal amounts and annual reports of the withdrawal
amounts. The permit was issued based on the water conservation program developed
by the facility, in particular, the air-cooled condenser and the zero discharge
water recycling system.
Based on the annual reports filed by Westinghouse for 1991 and by the owner for
1992 through 1996, the facility has been operating in compliance with this
permit, and we expect that the facility will continue to operate in compliance
with this permit.
A permit for water use during construction of the facilities was issued by the
Bellingham Water and Sewer Department on March 8, 1990. The requirements of this
permit are no longer applicable.
Solid and Hazardous Waste Disposal
The facility generates some solid waste, such as small quantities of waste oil,
solvents, and cleaning agents, and approximately one ton per day of solid
residue, evaporator sludge, from the zero-discharge water recycling system.
There are small quantities of non-hazardous-type wastes such as office trash,
fluorescent lighting, scrapped parts, and similar wastes.
The facility is registered with the MDEP as a small quantity generator of waste
oil, and with the USEPA as a very small quantity generator for hazardous wastes.
The owner filed a Notification of Hazardous Waste Activity under RCRA Section
3010. The USEPA issued an Acknowledgment of Notification of Hazardous Waste
Activity on July 15, 1992, and issued an "EPA Identification Number" for the
facility. The Identification Number must be
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used on all shipping manifests for transporting hazardous wastes, and on all
annual reports for generators of hazardous wastes required under Subtitle C of
RCRA. All documents reviewed complied with these requirements.
The plant also generates wastes contaminated with polychlorinated biphenyl
compounds (PCBs). These wastes come from a gas-liquid stripper installed by the
Algonquin Gas Transmission Company in 1995 on the incoming natural gas supply
pipeline. The liquids collected in the traps of the stripper can contain small
amounts of PCBs. A Notification of PCB Activity was filed with the USEPA on
February 13, 1996, and acknowledged by the USEPA on February 28, 1996. A USEPA
Identification Number was also issued.
Chemical and Petroleum Storage
Most of the chemicals used at the facility, including chemicals used in the
HRSGs, are used and stored in the water treatment building where adequate
storage facilities are provided. Any spills or leaks in the water treatment
building are contained within the wastewater treatment system. Fuel oil is
stored in a 2,500,000-gallon tank with a concrete secondary containment dike
designed to contain 150% of the contents of the tank.
Tank Permits from the Massachusetts Department of Public Safety were issued on
February 1, 1991, for construction or installation of the evaporator feed tank,
the neutralization tank, and the fuel oil storage tank. The only conditions of
the permits are that the tanks be constructed in accordance with the approved
plans and operated in accordance with the department's rules and regulations.
The state inspected the fuel oil tank on August 22, 1991, and the wastewater
tanks on October 18, 1991. The tanks are in compliance with all requirements.
A Spill Prevention Control and Countermeasure (SPCC) Plan is required by the
Clean Water Act and implementing regulations issued by the USEPA because the
facility stores a large quantity of oil, greater than 660 gallons, on site. A
Facility Response Plan (FRP) is required by the Oil Pollution Act of 1990
because the facility has more than 1,000,000 gallons of storage capacity. The
SPCC plan was prepared by Westinghouse in June 1992, updated on October 7, 1996,
and March 31, 1997, and is kept on site. The FRP was prepared by Westinghouse on
February 14, 1995, and approved by the USEPA on August 21, 1995. The FRP
identifies a emergency response contractor, Zeeco, Inc. of Westborough,
Massachusetts, for responding to an oil discharge.
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released to any third party without the prior written consent of S&L. Copyright
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The plant is registered with the Massachusetts Department of Public Safety,
Division of Fire Protection. A license for the storage of flammable materials
was granted on September 10, 1990.
Oil and Chemical Spill Response
The cogeneration plant has had only one oil or chemical spill. On February 11,
1992, an oil leak occurred due to a failed flange gasket in the fuel oil
pumphouse. Approximately 23,000 gallons of No. 1 fuel oil were released. The
fuel oil flowed downhill and collected in a low area on the site property. Upon
discovery, immediate action was taken by the plant operating personnel to stop
the leak and contain the release. Eventually, emergency response actions were
taken by Westinghouse Remediation Services, Zecco, Inc., and ENSR Consulting and
Engineering (ENSR). The approximate extent of soil contamination consisted of an
area 200 feet by 120 feet. The oil was contained on site, and no oil was ever
observed in the drainage swale leading to Box Pond or in the pond itself.
All of the oil was removed from the ground surface, and eventually all
oil-contaminated soil, approximately 2500 tons, was removed. A groundwater
pump-and-treat operation was established to remove any remaining groundwater
contamination and prevent impacts to Box Pond and its associated wetlands. The
pump-and-treat operation uses two activated carbon units to remove petroleum
hydrocarbons from the pumped groundwater.
Petroleum hydrocarbons were initially detected in groundwater on site, but
petroleum hydrocarbon concentrations are now generally low.
Within the pumphouse, where the leak occurred, several changes have been made.
The pumphouse has been surrounded by a low concrete sill to prevent oil from
escaping, and the floor drains in the pumphouse have been routed to a sump with
an oil separator. Any oil collected in the oil separator is returned to the fuel
oil storage tank. All of the gaskets similar to the one that failed have been
replaced.
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released to any third party without the prior written consent of S&L. Copyright
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On September 23, 1993, ENSR submitted a Waiver Application and a Phase 1 Report
on the remedial actions to the MDEP. The report concluded that the remedial
actions taken at the site had successfully addressed the MDEP's concerns. On
February 16, 1994, the MDEP approved the Waiver Application on the condition
that the groundwater treatment system continue to be operated until petroleum
hydrocarbon concentrations are consistently below standards. ENSR has submitted
periodic updates on the progress of the remedial groundwater treatment system
through April 24, 1997.
The oil spill and subsequent remediation activities have been the responsibility
of Westinghouse, the EPC contractor and operator. Westinghouse is continuing to
evaluate options to obtain site closure for the groundwater remediation,
consistent with the Massachusetts Contingency Plan. Recommendations from their
remediation consultant, ENSR, are expected soon. To date, Westinghouse has
diligently pursued closure of this issue, and they should be able to do so to
the satisfaction of the MDEP.
Wetlands and Floodplain Permits
Floodplain construction permits were not required because construction of the
facility did not impact any flood hazard zones delineated by the Federal
Emergency Management Agency.
The Bellingham Conservation Commission (BCC) issued an amended Order of
Conditions under the Massachusetts Wetlands Protection Act for the construction
of the transmission line on September 16, 1988, and for the construction of the
water pipeline on September 12, 1988.
The Orders were required to be recorded at the Registry of Deeds before starting
work. They were recorded, and a Certificate of Compliance was issued by the
Conservation Commission. A condition of the Order of Conditions requires
on-going maintenance of certain on-site facilities, such as drainage structures
and vegetative cover. Based on the inspection of the site, the facility is in
compliance with these conditions.
The excavation of oil-contaminated soil, as discussed in the preceding Oil and
Chemical Spill Response section, impacted approximately 7200 ft2 of wetlands.
The BCC issued a Notice of Emergency Certification on February 13, 1992, for the
initial remedial activities. On August 5, 1994, an application for wetland
restoration activities for the affected wetlands was submitted to the BCC. The
BCC issued an Order of Conditions for the activities, which were completed in
September 1995. An annual wetlands restoration monitoring report was submitted
to the BCC in April 1996.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Zoning Approvals
The facility was built on a site that was principally within the Industrial
Zoning District and partially within B-1 and Residential Zoning Districts. The
Bellingham Planning Board approved the subdivision of the site, issued three
special permits under the Bellingham Zoning Bylaw, and approved the site plan
for the project on May 11, 1989. The special permits include the following key
conditions:
o The owner was required to retain a consultant to review material
storage and safety measures on the site;
o The owner was required to provide groundwater quality monitoring wells
and surface water quality monitoring in the storm water detention pond
and Box Pond;
o Residue from the water treatment process is to be disposed of in a
properly licensed out-of-town landfill;
o Certain fire fighting features were to be incorporated into the plant's
design, construction, and operation, such as access for fire fighting
equipment, provision of onsite fire fighting equipment, training for
local fire fighters, and alarms at the Bellingham Fire House; and
o Periodic inspections are to be performed of oil and chemical storage
tanks.
On June 24, 1997, the Bellingham Planning Board agreed to reduce the groundwater
monitoring program to once every two years and to limit the sampling to
parameters indicative of petroleum and other industrial chemicals used at the
plant.
Based on the inspection of the facilities and review of certain documents, the
plant is in compliance with all of these requirements.
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released to any third party without the prior written consent of S&L. Copyright
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The Bellingham Zoning Board of Appeals issued a Special Permit to allow the use
of land for the transmission line, provided the approval for the transmission
line was obtained from the BCC. The BCC approved the transmission line, as
discussed in the preceding Wetlands and Floodplain Permits section.
Building Permits
The Town Inspector for the Village of Bellingham has issued building permits.
All of the structures were inspected, and Occupancy Permits were issued on
February 25, 1992.
Right-of-Way Permits
The Norfolk County Commissioners approved construction of a railroad spur across
Depot Street on May 13, 1990. The approval required that the construction be
completed in accordance with plans filed with the commission. Based on the
inspection of the crossing, the facility is in compliance with this approval.
The Massachusetts Office of Transportation and Construction approved
construction of a building on former railroad right-of-way at the Bellingham
site on September 3, 1991. No specific conditions were required.
Future Environmental Regulations
Because the plant has already received the required permits and approvals, has
been constructed, and has operated for several years, it is unlikely that future
environmental requirements will significantly affect the project. Many new
environmental regulations have provisions to "grandfather" existing facilities.
However, some environmental programs have the potential to affect existing
facilities in the future. These include the following programs:
o The Continuous Assurance Monitoring (CAM) rule
o Reporting requirements under Section 313 of the Emergency Planning and
Community Right-To-Know Act (EPCRA)
o New National Ambient Air Quality Standards (NAAQS) for ozone and PM2.5
o Additional NOX restrictions to control ground-level ozone, pursuant to
the recommendations of the Ozone Transport Assessment Group (OTAG), the
Ozone Transport Commission (OTC), and the MDEP NOX Allowance Program
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
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o Any greenhouse effect/global warming requirements resulting from
ongoing international political debates.
In our opinion, the facility is generally well designed and has existing systems
in place to meet any expected requirements from these programs. Some
administrative or management changes may be required, for example, to meet the
EPCRA reporting requirements.
The OTAG and OTC recommendations may ultimately require NOX emission limits as
low as 0.15 lb/mmBtu for existing plants. The facility is already required to
meet an emission limit of 0.0859 lb/mmBtu while burning natural gas and 0.1497
lb/mmBtu when burning oil. The MDEP NOX Allowance Program has allocated 458 tons
of NOX emissions per ozone season to the facility. This allowance exceeds the
already-permitted emissions by over 50 tons when burning natural gas. The
allowance will permit firing oil for 722 hours during the ozone season and
firing gas for 100% of the remaining hours in the ozone season. Therefore, it is
unlikely that the facility will be substantially affected by additional NOX
restrictions. A worst-case scenario would be the required installation of a
selective catalytic reduction (SCR) system to further reduce NOX emissions. The
estimated cost for installation of an SCR system is in the range of $1,200,000
to $1,500,000.
CO2 Plant - Air Permit
The MDEP issued an air permit to construct and operate the CO2 plant on March 8,
1989. A revised permit was issued on December 11, 1989. The permit establishes
emission limits for MEA and VOCs from the absorber. As required by the permit,
various performance tests and emissions tests were completed in 1992, and a
report of the results was submitted to MDEP.
On May 20, 1993, Fluor Daniel and Eastmount Engineering, Inc., issued a
certificate confirming that during the June 1992 performance tests, the plant
emissions were in compliance with the permit and all applicable rules and
regulations of the MDEP. The supporting documentation was reviewed and found to
support this certification.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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CO2 Plant - Chemical Spill Response
Three accidental chemical spills have occurred at the CO2 plant. On January 18,
1992, between 10 and 20 gallons of backwash water from a new activated carbon
bed were spilled to the plant sewer system. On April 2, 1992, a soda ash spill
of up to 50 gallons occurred. Finally, on August 4, 1992, approximately 150
gallons of MEA solution were sprayed on the ground, of which approximately 25
gallons drained to the plant sewer system.
Initial response to all three spills, taken by the operator, included quickly
stopping the source of the leaks and containing spilled materials. All three
spills were reported to state and local authorities, and prompt cleanup action
was initiated. No spilled material was released from the plant site, and
appropriate follow-up actions were taken to prevent reoccurrence. All three
spills were contained within the plant sewer system. If they had not been
contained within the sewer system, the spills would have been retained in the
plant retention pond.
SAYREVILLE COGENERATION FACILITY
Energy and Utility Approvals and Requirements
A Qualifying Facility (QF) Certification was received from the Federal Energy
Regulatory Commission. The QF certification indicates that the project will have
sufficient steam sales to qualify as a cogeneration facility under the Public
Utilities Regulatory Policies Act of 1978. On the basis of the review of the
technical parameters of the facility and plant performance, the facility should
continue to meet the QF criteria. No action is required to maintain the QF
certification.
A Self-Certification of Capability to Use Coal or Alternate Fuel was filed with
the Economic Regulatory Administration of the Department of Energy on July 27,
1987. The Economic Regulatory Administration published a notice of the
self-certification in the Federal Register on August 11, 1987. This action
constitutes the facility's compliance with the Power Plant and Industrial Fuel
Use Act of 1978. No further action to maintain compliance is needed.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Soil and Groundwater Contamination
The Environmental Site Assessment, dated May 4, 1989, which was prepared by EFP
Associates, Inc. (EFP) for the Sayreville site, was reviewed. EFP conducted the
site assessment in March and April 1989. The site assessment included historical
research relating to prior land use, a site reconnaissance, and a field
investigation of soils and groundwater conditions. Samples of soil and
groundwater were analyzed for numerous chemical parameters.
No chemical compounds were detected in the soil or groundwater samples above
NJDEP Cleanup Action Levels. Therefore, EFP concluded that no soil or
groundwater remediation was warranted for the Sayreville site. The scope and
methodology of the environmental site assessment was adequate in connection with
the conclusions reached, and the conclusions were reasonably drawn.
Soil and groundwater contamination that occurred after the construction and
operation of the plant is discussed in the Oil and Chemical Spill Response
section.
Air Pollution Control Permits
Several air quality control permits are required by state and federal law, all
issued by the New Jersey Department of Environmental Protection and Energy
(NJDEPE). All of the permits currently required have been obtained, including--
o Prevention of Significant Deterioration (PSD) Permit, issued by the
NJDEPE on May 22, 1989
o A Permit to Construct, Install or Alter Control Apparatus or Equipment,
and a Temporary Certificate to Operate the facility, also issued by the
NJDEPE on May 22, 1989
o A five-year Certificate to Operate Control Apparatus or Equipment,
originally issued by the NJDEPE on February 8, 1990. The current
certificate expires on July 21, 1998.
These permits provide numerous conditions with which the facility must comply
including the following key conditions:
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released to any third party without the prior written consent of S&L. Copyright
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o Operating Limitations restrict the total annual natural gas fired in
the turbines to a maximum of 2.474 x 1013 Btu.
o Emission limits for total suspended particulates, PM10, SO2, NOX, CO,
and total nonmethane hydrocarbons (TNMH), in lb/hr, lb/mmBtu, and
ton/yr for the plant. Opacity of the chimney emissions and odors are
also limited. The following emission limits apply:
Table 7-2 -- Emission Limits for Sayreville
Emission Limits
for Natural Gas Firing
---------------------------------------------
Per Turbine Per Turbine
Pollutant (lb/mmBtu) (lb/hr)
----------------- --------------------- ---------------------
TSP 0.0153 21.4
PM-10 0.0153 21.4
SO2 0.00164 2.3
H2SO3 0.0005 0.7
NOX 0.0921 (1) 129.0
CO 0.0589 (2) 82.5
TNMH 0.0055 (3) 7.7
Opacity 10% 10%
-----------------------------------------
1 Equivalent to 25.0 ppmvd @ 15% O2
2 Equivalent to 25.0 ppmvd @ 15% O2
3 Equivalent to 4.0 ppmvd @ 15% O2
o Testing and Reporting Requirements require initial emissions
performance tests for compliance with emission limits and to determine
the minimum steam to fuel ratio required to comply with NOX limits.
These emission tests must be repeated in five years before the
expiration of the operating certificate.
o Monitoring and Recording Requirements for the installation and
operation of Continuous Emission Monitors and Recorders (CEM) for NOX,
nonmethane hydrocarbons, CO, and O2, and a continuous monitoring system
for gas and steam flow.
o Reporting and Record Keeping Requirements, which specify quarterly
operation and emission reports.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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o Ambient Monitoring of toluene, ethyl acrylate, and acrylonitrile at one
location is required. Quarterly reports must be submitted. Until 1994,
ambient monitoring of NOX also was required, but the NJDEPE has dropped
this requirement.
In 1993, the NJDEPE proposed a $6,000 penalty for the plant because of two hours
of excess NOX emissions during the third quarter of 1993. The owner protested
the penalty and submitted information showing that the excess emissions were
caused by equipment shutdown. The NJDEPE and the owner have agreed to settle the
enforcement action through the payment of a penalty of $3,000 without admitting
any noncompliance.
The plant has continued to experience occasional exceedances of the NOX emission
limit. These exceedances occur due to various steam turbine trips that require
the steam injection system to switch from extraction steam to steam from the
main header. For six such incidences, between May 1995 and February 1997, the
owner has been able to successfully assert an "affirmative defense" and has not
been subject to violation notices or penalties.
An affirmative defense, under New Jersey air pollution control laws (NJSA
26:2C-19.2b) is applicable when a violation is the result of startup, shutdown,
or an equipment malfunction. The violation must not be the result of an operator
error, lack of maintenance, or part of a recurrent pattern. If an affirmative
defense is applicable, the NJDEP will not issue a Notice of Violation or assess
penalties for an exceedance of an emission rate, limit, or standard.
Based on the review of the initial performance tests, written reports to the
NJDEPE, and ambient NOX monitoring reports, the plant has been operating in
compliance with the air pollution control permits with the minor exceptions
noted above. The facility should continue to operate in compliance with these
permits.
Under Title V of the CAAA, the plant is required to obtain an Operating Permit
that consolidates all existing air pollution requirements. The permit
application must include a certification that the plant is in compliance with
all existing requirements. The owner submitted the permit application on August
15, 1995. The Operating Permit is intended to consolidate existing air pollution
requirements, not to create new requirements. Because the plant is relatively
new and has low emissions, however, additional air pollution control
requirements do not seem likely.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Noise Levels
Noise levels from the facility are limited by a local zoning ordinance. Based on
the review of the documents, there are no requirements for monitoring noise
levels. Based on a qualitative inspection of the facility, the project appears
to be in compliance with the noise level limitations, and the facility should
remain in compliance in the future.
Airspace Obstruction Approval
On May 8, 1988, the Federal Aviation Administration determined that construction
of the plant, including the chimney and associated transmission lines, do not
constitute an obstruction or a hazard to air navigation. Marking or lighting of
the facility was not required.
Wastewater Discharges
Under state and federal laws, the facility must have permits for discharges of
wastewater to surface water and groundwater. The plant discharges industrial
wastewater, sanitary wastes, and storm water runoff. Industrial and sanitary
wastewater are discharged to the local municipal treatment plant. Storm water
runoff is directed to an infiltration/percolation lagoon where the water is
discharged primarily to the groundwater, with occasional surface discharges.
There are no cooling water discharges, because the facility uses an air-cooled
condenser system. The water and wastewater treatment systems do not generate any
solid residues.
The Middlesex County Utilities Authority (MCUA) approved the facility's
application for sewer service through the Borough of Sayreville system on June
22, 1989, and issued a Non-Domestic Wastewater Discharge Permit for the facility
on April 1, 1992. A modified permit was issued October 1, 1992. The NJDEPE
approved the construction of the sewer main extension to the facility and issued
a Treatment Works Approval (TWA) on March 10, 1993, for the construction of an
oil-water separator and the wastewater holding tank, all of which have been
completed. Monthly monitoring and semi-annual reporting is now required. The
semi-annual Self-Monitoring Reports (SMRs) through June 1997 were reviewed.
These reports show that plant wastewaters are in compliance with permit
conditions. The MCUA has conducted regular inspections of the facility. The most
recent inspection, on January 29, 1997, found some "minor deficiencies" but
otherwise rated the facility as "acceptable."
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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A New Jersey Pollutant Discharge Elimination System (NJPDES) permit was issued
by the NJDEPE for discharges of runoff to surface waters and groundwater. The
permit was issued on November 1, 1989, a revised permit was issued on June 15,
1993, and a minor modification was issued on August 27, 1993. The current
expiration date is July 31, 1998. The revised permit, as now in effect,
establishes discharge limits for lead and petroleum hydrocarbons and requires
monitoring of flow, pH, ammonia nitrogen, lead, petroleum hydrocarbons, and
total dissolved solids in the lagoon. Reports must be submitted quarterly. The
discharge monitoring reports (DMRs) through October 1997 were reviewed. These
reports show compliance with permit conditions.
The original NJPDES permit required groundwater monitoring to monitor for
pollution from the runoff. After collecting data during the initial two years of
plant operation, the owner received a revised permit that discontinued the
groundwater monitoring requirement because no evidence of pollution had been
detected. The revised permit required that all existing groundwater monitoring
wells previously required by the permit be sealed and discontinued requirements
for groundwater monitoring.
Three incidences of noncompliance occurred after November 1995 that involved
discharges resulting from boiler tube leaks. These noncompliances were
identified by the facility owner and the operator and were reported to the
NJDEPE. Since then, the HRSG drain valves have been modified so that they no
longer discharge to site runoff, but instead go to the plant's chemical drains.
On April 25, 1997, a Compliance Evaluation Inspection was conducted by the
NJDEPE Enforcement office. The facility received a rating of "acceptable" and no
deficiencies were noted. Earlier NJDEPE inspection reports also indicate no
deficiencies. Based on the review of the permits, records, and reports and on
the findings of the NJDEPE, the facility is now operating in compliance with its
wastewater discharge permits and should continue to do so.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Water Withdrawal Permits
The facility obtains process and potable water from the Sayreville Water
Department. The Sayreville Water Department obtained a permit from the NJDEPE to
construct the water main and provide water to the facility on January 9, 1990.
Water is also supplied by Hercules from its private water supply system in an
amount equal to 115% of the steam use rate. The NJDEPE issued a Physical
Connection Permit for connecting the private system to the potable water system
on February 23, 1993. A renewed Physical Connection Permit was issued in
mid-1997. The permit requires testing and inspections of the backflow preventor
device.
Solid and Hazardous Waste Disposal
The only hazardous waste generated by the facility is waste oil and oily/dirty
rags. No solid residues are generated on the site. Waste oil is properly stored
and removed by a disposal contractor, Advanced Environmental Technology
Corporation, which is registered with the USEPA. The facility has been assigned
a USEPA identification number, and the wastes are manifested upon removal. The
manifested wastes are ultimately disposed of at hazardous waste facilities
regulated by the state. The facility also generates nonhazardous wastes, such as
office wastes. The facility has a recycling system in place for newspaper,
glass, aluminum, cardboard, and office paper.
Chemical and Petroleum Storage
The Sayreville Bureau of Fire Safety issued Fire Safety Permits for the storage
or use of natural gas on March 10, 1992, and annual reauthorization thereafter.
The facility does not have any bulk oil storage on the site. Most of the
hazardous chemicals are used in the water treatment building, where adequate
storage facilities are provided. The most recent inspection certificate from the
Bureau indicates compliance with the New Jersey Uniform Fire Code and expires
September 1, 1998.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Oil and Chemical Spill Response
The facility does not handle any large volumes of oil on the site. The majority
of the hazardous chemical use occurs in the water treatment building where the
chemicals are properly stored as previously discussed. Therefore, no oil or
chemical spills have occurred that have required reporting.
Wetlands and Stream Encroachment Permits
On June 22, 1989, the NJDEPE issued a Freshwater Wetlands Letter of
Interpretation confirming the jurisdictional boundary of regulated wetlands on
the Sayreville site, identified them as "intermediate value resource" wetlands,
and required a buffer area 50 feet wide between the wetlands and regulated
activities. They also issued an authorization, Freshwater Wetlands General
Permit #2, for construction of the steam line and the transmission line across
wetland areas. Typical conditions apply. The U.S. Army Corps of Engineers issued
an authorization, Nationwide Permit No. 7, for the wetlands work on September
27, 1988.
A Stream Encroachment Permit was issued by the NJDEPE on November 30, 1989. The
permit authorized construction of the steam lines and a storm water outfall on
Duck Creek. A completion report was filed on June 17, 1991, stating that all
work under the permit has been completed.
Zoning Approvals and Building Permits
The Sayreville site is zoned Heavy Industrial. On May 12, 1989, the Sayreville
Planning Board approved the subdivision, the site plan, and several variances or
waivers from the Zoning Ordinance and from the Borough Design Standards and
Details. They also directed that building permits be issued. The facility is in
compliance with the conditions that were specified. On June 27, 1989, the
Middlesex County Planning Board also approved the subdivision and site plan. No
specific conditions were mentioned.
Future Environmental Regulations
Because the plant has already received the required permits and approvals, has
been constructed, and has operated for several years, it is unlikely that future
environmental requirements will significantly affect the project. Many new
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
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environmental regulations have provisions to "grandfather" existing facilities.
However, some environmental programs have the potential to affect existing
facilities in the future. These include the following programs:
o The Continuous Assurance Monitoring (CAM) rule
o Reporting requirements under Section 313 of the Emergency Planning and
Community Right-To-Know Act (EPCRA)
o New National Ambient Air Quality Standards (NAAQS) for ozone and PM2.5
o Additional NOX restrictions to control ground-level ozone, pursuant to
the recommendations of the Ozone Transport Assessment Group (OTAG), the
Ozone Transport Commission (OTC), and any regulations adopted by the
NJDEP pursuant to the recommendations
o Any greenhouse effect/global warming requirements resulting from
ongoing international political debates.
In our opinion, the facility is generally well designed and has existing systems
in place to meet any expected requirements from these programs. Some
administrative or management changes may be required, for example, to meet the
EPCRA reporting requirements.
The OTAG and OTC recommendations may ultimately require NOX emission limits as
low as 0.15 lb/mmBtu for existing plants. The facility is already required to
meet an emission limit of 0.921 lb/mmBtu. Therefore, it is unlikely that the
facility will be substantially affected by additional NOX restrictions. A
worst-case scenario would be the required installation of a selective catalytic
reduction (SCR) system to further reduce NOX emissions. The estimated cost for
installation of an SCR system is in the range of $1,200,000 to $1,500,000.
SUMMARY
Based on the environmental permitting and compliance review of the Bellingham
and Sayreville cogeneration facilities, the following conclusions were reached:
o All of the permits and approvals currently required for construction
and operation of the plants have been obtained.
o The plants have been operating in compliance with all of their permit
conditions, except for minor exceedances of NOX emission limits at
Sayreville, which have been adequately addressed.
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o Based on the physical walkdowns of the facilities, interviews with key
plant personnel, and reviews of documents and records, the plants
should be able to operate in compliance in the future based on the
procedures and equipment now in place.
o The plants have been operating in compliance with qualifying facility
requirements as defined under the Public Utilities Regulatory Policies
Act.
o The four environmental releases, a fuel oil spill and three chemical
spills at Bellingham, were promptly and effectively resolved and
actions were taken to prevent future occurrences. Additional
remediation of the oil spill at Bellingham is required. This
remediation continues to be the responsibility of Westinghouse. To
date, Westinghouse has diligently pursued closure of this issue, and
the remediation effort has apparently been satisfactory to the relevant
environmental authorities. There should be no additional impacts to the
operation of the facilities because of these spills.
o The plants are required to obtain Title V Operating Permits, and the
owner is actively pursuing issuance of the permits. There is no reason
to believe the plants will be adversely affected by the permits.
Due to the existing systems already in place, the facilities are generally well
designed to meet any expected requirements from future environmental
regulations.
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Sargent & Lundy (S&L). It shall not be reproduced in whole or in part or
released to any third party without the prior written consent of S&L. Copyright
Sargent & Lundy 1998; all rights reserved.
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Appendix A
Financial Projections for Base Case
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Northeast Energy, LP
The financial projections presented in this Appendix were prepared by, and are
the responsibility of, Northeast Energy, LP on a cash basis and are based on the
contractual, operational, and economic assumptions summarized below. Certain
aspects of the Projections have been reviewed by the Independent Engineer and
the Fuel Consultant. See the Independent Engineer's Report in Appendix B and the
Fuel Consultant's Reports in Appendix C to the Prospectus. Price Waterhouse LLP
has neither examined nor compiled the Projects or any such assumptions and,
accordingly, Price Waterhouse LLP does not express any opinion or any other form
of assurance with respect thereto. The Price Waterhouse LLP report included in
the Prospectus relates solely to the Partnerships' historical financial
information. It does not extend to the Projections and should not be read to do
so. Many of the projection assumptions that appear below are based on the
provisions of individual project contracts, the Project Indenture and the
Indenture, certain provisions of which are summarized in the Prospectus. See
"Summary of Principal Project Agreements" in the Prospectus and "Summary of the
Project Indenture" in Appendix D to the Prospectus. The projections, wile
presented with numerical specificity, necessarily are based upon a number of
estimates and assumptions that, while considered reasonable by Northeast Energy,
LP, are inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the control of
Northeast Energy, LP, and upon assumptions with respect to future business
decisions that are subject to change. Accordingly, there can be no assurance
that the Projections will be realized. The actual results will vary from the
Projections, and such variations may be material. The inclusion of the
Projections herein should not be regarded as a representation by Northeast
Energy, LP or any other person that the Projections will be achieved. Northeast
Energy, LP does not intend to update the Projections. Prospective investors in
the Bonds are cautioned not to place undue reliance on the Projections.
Capitalized terms used in this Appendix and not otherwise defined have the
meaning assigned in Appendix A to the Prospectus. The assumptions described
below were used in the preparation of a base-case projection and in the
sensitivity case projections except where otherwise noted.
Summary of Underlying Assumptions
Power Generation Revenue
Power Sales Prices: Contracted power prices in the financial model are projected
on the basis of the prices set forth in the respective Power
Purchase Agreements. For further detail on the pricing
provisions of these contracts, see "Summary of Principal
Project Agreements" in the Prospectus.
The Projects also contain the assumption of the sale of
certain amounts of uncontracted energy produced by the
Projects on the open market. The assumed merchant sale price
for such energy is presented in the Projections and
represents Northeast Energy, LP's expectation of market
rates available for sales from the Projects. These merchant
sales price assumptions are consistent with studies
completed for this region of the United States.
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Northeast Energy, LP
Summary of Underlying Assumptions
Power Output: Projected net electrical output for the Bellingham Project
is 290 MW in 1998, increasing to approximately 300 MW from
1999.
Projected net electrical output for the Sayreville Project
is 252 MW in 1998, increasing to approximately 287 MW
from 1999.
From 1999, the projections assume that all uncontracted net
electricity produced by the Projects is sold in the
merchant power market.
Equivalent
Availability
Factor: During a year in which no major inspections or maintenance
outages are scheduled, the Sayreville and Bellingham pro
formas assume an average annual equivalent availability
factor of 93.3% and 96%, respectively.
Energy Banks: Energy Bank liabilities are supported by letters of credit
to the respective utilities. Increases or decreases in the
Energy Bank liabilities do not affect project cash flows
and, therefor, are not reflected in the projected cash
flows. For a further discussion of the Energy Banks, see
"Summary of Principal Project Agreements" in
the Prospectus.
Cost of Power Generation
Fuel Consumption
per kwh (Heat
Rate): The projections assume a baseline heat rate with an annual
degradation of 0.7% in each year. The assumed heat rate
returns to the baseline heat rate after major maintenance
has been performed. Major maintenance is performed every six
years.
At Bellingham, using the assumed baseline heat rate and the
0.7% annual degradation factor included in the projections,
there is an average heat rate of 8,304 Btu/kWh over the
6-year major maintenance cycle.
At Sayreville, the assumed baseline heat rate is 9,057
Btu/kWh in 1998 and 8,461 Btu/kWh from 1999 through 2011.
This reflects continued reduced load operation in the first
year and full-load operation starting in 1999.
Total fuel consumption is equal to a plant's net electrical
output in kWh multiplied by the heat rate.
Delivered Fuel
Costs: Non-contract fuel commodity and transportation prices are
based on current market prices and represent annual
estimates for market rates prepared by Northeast Energy, LP.
Contract fuel commodity, transportation and storage costs
are based on prices set forth in the applicable contracts.
Average fuel costs for the Projects are a function of the
mix of fuel sources used by the Projects. See The Fuel
Consultant's Report in Appendix C to the Prospectus.
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Northeast Energy, LP
Summary of Underlying Assumptions
Gross Steam Production Income
NEA: Steam sales are projected at nominally 51,000 pounds
per hour (lb/hr) based on historic amounts sold. The price
at which steam is sold is based on the Steam Sales Agreement
between NEA and NECO.
NJEA: Output to Hercules is projected to be approximately
125,000 lb/hr consistent with current operating experience
at the Sayreville Project. The Hercules steam purchase price
is based on pricing contained in the Steam Sales Agreement
between NJEA and Hercules and is projected to escalate at
half the rate of inflation.
Project Operating Costs
General Operations
and Maintenance: The base prices for the operations and maintenance services
provided by Westinghouse Services are projected on the basis
of the current O&M Agreements through their initial term
expiring in 2001. From 2001, when the New Operator is
expected to assume operation and maintenance of the
Projects, operation and maintenance costs are projected to
increase with inflation from base costs derived from
historical costs at similar facilities. The projection of
bonuses during the remaining term of the O&M Agreements are
capped per the terms of such agreements.
Bonus Payments: For NEA and NJEA, output bonuses paid to Westinghouse
Services are determined based on the number of bonus
megawatt hours produced (calculated as the projected output
of the Projects multiplied by availability over the
guaranteed level), multiplied by payment amounts in the
respective agreements. Such bonuses are included in
operations and maintenance costs in the Projections.
General and
Administrative
Expenses: Costs for water, insurance, property taxes, easement
fees, and General Partner management costs are projected on
the basis of historical costs. Water costs are projected to
increase at half the rate of inflation; property taxes and
insurance costs increase with inflation; easement fees
increase by $12,000 per annum from the 1997 estimate. The
General Partner management fee is set forth in the
Indenture. In general administrative costs and the General
Partner management fee are projected to grow from Northeast
Energy, LP's estimates of 1998 levels at the same rate as
inflation.
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Northeast Energy, LP
Summary of Underlying Assumptions
Gas Hedge & Peak
Service Loss
(Savings}: Northeast Energy, LP expects to realize cash inflows of
approximately $4,158 million in 1998, based on recent prices
for natural gas, resulting from the monetization of certain
gas hedging arrangements. Beginning in 1999, Northeast
Energy, LP expects NEA to exercise its ability to operate
with Number 2 fuel oil for a certain number of hours each
year. Northeast Energy, LP expects this operation on Number
2 fuel oil to result in annual savings of between
approximately $575,000 and $1,325,000 between 1999 and 2011.
Financing Costs
Bond Payments: The Bond financing is modeled as a $220 million issue,
with semi-annual principal payments beginning June 30,
2002, an assumed issue date of February 15, 1998, and a
final maturity of December 30, 2001.
Project Securities
Payments: The projections assume approximately $490 million of Project
Securities outstanding as of December 31, 1997. These
securities are subject to semi-annual principal and interest
payments through December 30, 2010.
Other Facilities: The projections include expected interest and fee expenses
for letters of credit that are issued to support the
Projects' Energy Bank and Debt Service Reserve obligations
and for the Working Capital Facility. Because the Projects
are cash-flow positive on a monthly basis, and as the
Working Capital Facility has never been drawn upon, the
projections do not anticipate any draws under the Working
Capital Facility, and Northeast Energy, LP intends to
discontinue this facility.
Interest Income: The projections assume that the Projects will earn interest
income on all free cash balances at a rate equal to 2% more
than the projected rate of inflation.
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Northeast Energy, LP
Summary of Underlying Assumptions
Balance Sheet Entries
Debt Service
Reserves: ESI Tractebel Funding has obtained a letter of credit in an
amount sufficient to cover six months of principal and
interest on the Project Securities as permitted under the
Project Indenture. Similarly, the projections assume that
the Issuer will obtain a letter of credit in an amount
sufficient to cover six months of principal and interest on
the Bonds as permitted under the Indenture.
Major Overhaul
Reserve: A major overhaul reserve is provided in accordance with the
Project Indenture and the O&M Agreements in an amount equal
to the next year's projected major maintenance costs. Based
on historical maintenance of similar plants, Northeast
Energy, LP estimates that annual reserve contributions with
respect to NEA will be in amounts that average $2.3 million
through 2009, the last year deposits to the reserve are
required. For NJEA, Northeast Energy, LP expects such
contributions will average $2.7 million through 2009. Such
amounts deposited to the reserve are included in operations
and maintenance in the projections.
Gas Transmission:
Reserve: The projections assume that the Transco Agreements are
extended beyond the final maturity of the Project
Securities, and therefore, deposits will not need to be
made to the Gas Transmission Reserve pursuant to the
Project Indenture.
Working Capital
Accounts: Working capital balances are projected on the basis of
historical levels.
Sensitivity Analysis
In order to examine the effect of changes in certain assumptions on projected
cash flows and coverage ratios, Northeast Energy, LP has run five sensitivity
cases. These sensitivities involve variation of the base case assumptions in the
following parameters:
o Spot gas prices
o Inflation
o Station availability
o Fuel efficiency (heat rate)
o No merchant power sales
These sensitivities are discussed in further detail in Section 6 of the
Independent Engineer's Report, and the financial projections corresponding to
each sensitivity case are presented in Appendix B to the Independent Engineer's
Report.
B-107
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Base Case Projections
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,649 $73,649 $74,415 $73,266 $68,288 $73,649 $71,351
Boston Edison II 48,928 52,665 57,202 60,526 60,597 70,290 73,220
Commonwealth I 13,635 13,607 13,805 10,954 9,905 11,523 11,144
Commonwealth II 12,153 13,081 14,207 15,033 15,051 17,458 18,186
Montaup 13,550 13,550 13,691 6,453 6,476 7,385 7,588
Merchant Sales 0 2,709 3,187 2,881 2,400 4,504 4,108
Steam 1,256 1,153 1,099 1,051 729 1,137 997
Interest Income 404 404 481 552 479 518 541
-------- -------- -------- -------- -------- -------- --------
Total Revenues $163,576 $170,819 $178,088 $170,717 $163,925 $186,465 $187,135
Expenses
Operations and maintenance $8,677 $8,998 $12,825 $10,180 $3,122 $7,987 $4,264
Water costs and easement fee 304 317 331 495 883 904 925
Insurance 887 912 937 964 991 1,017 1,045
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 3,601 3,712 3,824 3,936 4,049 4,154 4,259
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) (4,158) (991) (1,011) (575) (753) (941) (1,133)
Other 1,039 1,062 1,076 1,036 2,190 2,413 2,309
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $13,476 $17,223 $21,286 $19,433 $13,974 $19,121 $15,350
Total fuel cost 91,654 96,006 99,494 101,159 99,318 106,904 107,483
-------- -------- -------- -------- -------- -------- --------
Total expenses $105,130 $113,229 $120,780 $120,592 $113,291 $126,025 $122,833
Operating Cash Flow $58,445 $57,590 $57,308 $50,125 $50,634 $60,441 $64,302
NJEA Operating Results
Revenues
JCP&L $142,607 $145,606 $148,580 $148,879 $147,531 $144,865 $157,667
Merchant Sales 0 8,150 7,405 8,308 8,080 7,714 10,483
Steam 2,635 2,672 2,709 2,747 2,785 2,823 2,861
Interest Income 284 284 306 389 476 396 378
-------- -------- -------- -------- -------- -------- --------
Total Revenues $145,526 $156,711 $159,000 $160,322 $158,872 $155,797 $171,389
Expenses
Operations and maintenance $9,130 $9,336 $10,447 $11,539 $7,377 $3,412 $6,780
Water costs and easement fee 800 821 842 1,094 1,687 1,719 1,751
Insurance 748 769 790 812 835 858 881
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 866 867 868 870 871 872 874
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 420 431 437 463 512 527 548
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,090 $15,438 $16,688 $18,174 $14,774 $10,973 $14,516
Total fuel cost 62,837 68,689 71,620 72,740 73,181 72,865 80,026
-------- -------- -------- -------- -------- -------- --------
Total expenses $77,927 $84,127 $88,308 $90,914 $87,955 $83,838 $94,542
Operating Cash Flow $67,598 $72,584 $70,692 $69,408 $70,916 $71,959 $76,847
Combined Operating Results
Total Revenues $309,101 $327,530 $337,088 $331,039 $322,796 $342,262 $358,524
Non-fuel operating expenses 28,566 32,660 37,974 37,607 28,748 30,093 29,866
Total fuel cost 154,491 164,696 171,114 173,899 172,499 179,769 187,509
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $126,044 $130,174 $128,000 $119,533 $121,550 $132,400 $141,149
Change in Working Capital 10,097 3,005 1,401 (1,190) (1,200) 3,276 2,663
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $115,947 $127,169 $126,599 $120,723 $122,750 $129,124 $138,486
Subordinated Management Fee $1,649 $1,695 $1,742 $1,791 $1,841 $1,891 $1,942
Project Securities
Principal 21,563 23,511 26,333 20,160 22,688 23,818 28,564
Interest 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Project Security Debt Service Coverage
Project Security debt service coverage* 1.76x 1.92x 1.89x 2.06x 2.07x 2.22x 2.28x
Minimum Project Security debt service coverage 1.76x
Average Project Security debt service coverage 2.16x
Distributions to NE LP $49,058 $60,191 $58,840 $61,263 $62,666 $70,043 $76,988
The Bonds
Principal 0 0 0 0 8,800 8,800 8,800
Interest 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Debt Service Coverages
Bond debt service coverage 3.19x 3.42x 3.35x 3.49x 2.39x 2.75x 3.10x
Minimum Bond debt service coverage 2.25x
Average Bond debt service coverage 2.88x
Consolidated coverage 1.41x 1.50x 1.48x 1.57x 1.42x 1.53x 1.60x
Minimum consolidated debt service coverage 1.41x
Average consolidated coverage 1.57x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projections should be read in conjunction with the attached
Summary of Underlying Assumptions.
B-108
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Base Case Projections
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,266 $73,649 $73,266 $68,288 $73,649 $71,351 $73,266
Boston Edison II 80,795 87,351 93,350 93,543 108,502 112,971 88,537
Commonwealth I 11,908 12,267 12,421 11,288 13,078 12,684 13,423
Commonwealth II 20,068 21,696 23,186 23,234 26,949 28,059 30,972
Montaup 8,238 8,495 8,655 8,249 9,204 9,256 9,663
Merchant Sales 3,863 5,122 4,647 3,831 7,157 6,475 18,416
Steam 1,170 1,232 1,234 855 1,334 1,170 1,374
Interest Income 439 480 578 514 519 514 404
-------- -------- -------- -------- -------- -------- --------
Total Revenues $199,746 $210,293 $217,337 $209,802 $240,393 $242,479 $236,056
Expenses
Operations and maintenance $3,833 $6,174 $8,149 $3,646 $8,516 $3,601 $5,085
Water costs and easement fee 946 967 988 1,009 1,030 1,052 1,074
Insurance 1,073 1,102 1,132 1,162 1,194 1,226 1,260
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 4,362 4,464 4,564 4,661 4,756 4,846 4,943
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) (1,155) (1,185) (1,215) (622) (886) (1,099) (1,325)
Other 2,352 2,327 2,322 2,145 2,381 2,248 2,347
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,192 $17,733 $19,928 $16,098 $21,198 $16,195 $17,826
Total fuel cost 112,220 115,566 118,085 115,546 124,633 125,012 130,697
-------- -------- -------- -------- -------- -------- --------
Total expenses $127,411 $133,299 $138,013 $131,644 $145,830 $141,207 $148,523
Operating Cash Flow $72,335 $76,994 $79,325 $78,158 $94,562 $101,273 $87,533
NJEA Operating Results
Revenues
JCP&L $159,702 $162,480 $166,309 $164,315 $160,776 $175,260 $113,850
Merchant Sales 10,490 10,739 12,634 12,583 12,351 17,278 62,814
Steam 2,900 2,939 2,979 3,019 3,060 3,101 1,965
Interest Income 406 323 382 493 400 284 284
-------- -------- -------- -------- -------- -------- --------
Total Revenues $173,498 $176,481 $182,303 $180,410 $176,586 $195,922 $178,913
Expenses
Operations and maintenance $4,759 $3,385 $7,447 $8,284 $3,658 $3,514 $6,869
Water costs and easement fee 1,783 1,815 1,848 1,880 1,914 1,947 1,982
Insurance 905 929 954 980 1,006 1,034 1,062
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 875 876 878 879 881 882 884
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 564 575 585 598 617 588 605
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $12,667 $11,464 $15,700 $16,718 $12,282 $12,287 $15,844
Total fuel cost 82,196 84,596 87,376 87,445 86,461 94,569 97,716
-------- -------- -------- -------- -------- -------- --------
Total expenses $94,863 $96,060 $103,076 $104,163 $98,744 $106,855 $113,560
Operating Cash Flow $76,635 $80,421 $79,227 $76,247 $77,842 $89,067 $65,353
Combined Operating Results
Total Revenues $373,244 $386,774 $399,641 $390,212 $416,979 $438,402 $414,969
Non-fuel operating expenses 27,859 29,197 35,629 32,816 33,480 28,481 33,670
Total fuel cost 194,415 200,162 205,460 202,990 211,094 210,581 228,413
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $150,970 $157,414 $158,552 $154,405 $172,405 $190,340 $152,886
Change in Working Capital 2,416 2,233 2,088 (1,673) 4,568 3,603 (4,666)
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $148,554 $155,182 $156,464 $156,078 $167,837 $186,737 $157,552
Subordinated Management Fee $1,994 $2,048 $2,103 $2,160 $2,219 $2,278 $2,342
Project Securities
Principal 45,349 52,641 54,021 51,801 54,616 65,223 0
Interest 29,880 25,484 20,545 15,504 10,374 4,779 0
Project Security Debt Service Coverage
Project Security debt service coverage* 2.00x 2.01x 2.13x 2.35x 2.62x 2.70x
<PAGE>
Distribution to NE LP $73,325 $77,058 $81,897 $88,773 $102,847 $116,734 $157,552
The Bonds
Principal 8,800 13,200 22,000 22,000 26,400 35,200 66,000
Interest 15,293 14,502 13,271 11,514 9,668 7,383 3,955
Debt Service Coverages
Bond debt service coverage 3.04x 2.78x 2.32x 2.65x 2.85x 2.74x 2.25x
Consolidated coverage 1.50x 1.47x 1.42x 1.55x 1.66x 1.66x 2.25x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordianted management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with
the attached Summary of Underlying Assumptions.
B-109
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Base Case Projections
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.70% 2.70%
#6 fuel oil, 2.2% S ($/MMBtu) $2.74 $2.77 $2.81 $2.83 $2.86 $2.89 $2.92
#2 fuel oil ($/MMBtu) 4.42 4.51 4.61 4.67 4.73 4.79 4.85
Nominal Spot Gas Price Escalation 4.37% 4.35% 4.33% 3.80% 3.79% 3.68% 3.67%
Spot gas ($/MMBtu) 2.10 2.19 2.28 2.37 2.46 2.55 2.65
NEA Operational Factors
Net GWh generated 2,443 2,534 2,583 2,526 2,338 2,570 2,472
Net capacity (MW) 290 301 304 301 299 305 303
Equivalent availability factor 96.15% 96.15% 97.15% 95.65% 89.15% 96.15% 93.15%
Heat rate (Btu/kWh) 8,283 8,339 8,270 8,325 8,380 8,229 8,283
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Commonwealth I 6.54 6.53 6.55 5.28 5.12 5.53 5.52
Commonwealth II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Montaup 6.50 6.50 6.50 3.11 3.35 3.54 3.76
Merchant Sales 0.00 2.88 2.72 2.94 3.20 3.48 3.80
---- ---- ---- ---- ---- ---- ----
Average all-in rate 6.66 6.71 6.86 6.72 6.99 7.22 7.54
Electricity Sales (GWh)
Boston Edison I 1,133 1,133 1,145 1,127 1,051 1,133 1,098
Boston Edison II 705 705 712 701 654 705 683
Commonwealth I 208 208 211 207 193 208 202
Commonwealth II 175 175 177 174 162 175 170
Montaup 208 208 211 207 193 208 202
Merchant Sales 0 94 117 98 75 129 108
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.37 $4.46 $4.47 $4.59 $4.74 $4.98 $4.98
Annual Volume (BBtu/yr) 20,416 20,552 21,455 21,675 21,348 19,945 21,463
NJEA Operational Factors
Net GWh generated 2,071 2,361 2,344 2,307 2,216 2,101 2,320
Net capacity (MW) 252 287 285 288 286 284 289
Equivalent availability factor 93.82% 93.82% 93.82% 91.54% 88.54% 84.54% 91.54%
Heat rate (Btu/kWh) 9,057 8,461 8,574 8,503 8,560 8,617 8,461
Electricity Sales Rates (cents/kWh)
JCP&L 6.90 7.05 7.19 7.38 7.56 7.78 7.82
Merchant Sales 0.00 2.81 2.71 2.90 3.09 3.29 3.50
---- ---- ---- ---- ---- ---- ----
Average all-in rate 6.90 6.51 6.65 6.81 7.02 7.26 7.25
Electricity Sales (GWh)
JCP&L 2,071 2,071 2,071 2,021 1,955 1,866 2,021
Merchant Sales 0 290 273 287 262 235 299
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 1,013
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $3.35 $3.44 $3.56 $3.70 $3.85 $4.02 $4.07
Annual Volume (BBtu/yr) 18,760 19,977 20,100 19,634 18,995 18,147 19,641
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-110
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Base Case Projections
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.80%
#6 fuel oil, 2.2% S ($/MMBtu) $2.95 $2.98 $3.01 $3.04 $3.07 $3.10 $3.09
#2 fuel oil ($/MMBtu) 4.92 4.94 4.96 4.99 5.01 5.03 5.01
Nominal Spot Gas Price Escalation 3.66% 3.18% 3.18% 3.17% 2.70% 3.17% 3.74%
Spot gas ($/MMBtu) 2.74 2.83 2.92 3.01 3.09 3.19 3.31
NEA Operational Factors
Net GWh generated 2,521 2,556 2,526 2,338 2,570 2,472 2,521
Net capacity (MW) 301 304 301 299 305 303 301
Equivalent availability factor 95.65% 96.15% 95.65% 89.15% 96.15% 93.15% 95.65%
Heart rate (Btu/kWh) 8,339 8,270 8,325 8,380 8,229 8,283 8,339
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Commonwealth I 5.74 5.88 5.99 5.84 6.27 6.28 6.47
Commonwealth II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Montaup 3.97 4.07 4.17 4.27 4.42 4.58 4.66
Merchant Sales 4.13 4.42 4.75 5.11 5.54 5.99 6.19
----- ----- ----- ----- ----- ----- -----
Average all-in rate 7.89 8.19 8.57 8.95 9.32 9.78 9.33
Electricity Sales (GWh)
Boston Edison I 1,127 1,133 1,127 1,051 1,133 1,098 1,127
Boston Edison II 701 705 701 654 705 683 498
Commonwealth I 207 208 207 193 208 202 207
Commonwealth II 174 175 174 162 175 170 174
Montaup 207 208 207 193 208 202 207
Merchant Sales 93 116 98 75 129 108 298
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average $5.16 $5.26 $5.39 $5.53 $5.79 $5.81 $6.01
all-in cost ($/MMBtu)
Annual Volume (BBtu/yr) 20,813 21,347 21,460 21,348 19,945 21,463 20,813
NJEA Operational Factors
Net GWh generated 2,291 2,275 2,307 2,216 2,101 2,320 2,311
Net capacity (MW) 287 285 288 286 284 289 290
Equivalent availability factor 91.04% 91.04% 91.54% 86.54% 84.54% 91.54% 91.04%
Heat rate (Btu/kWh) 8,518 8,574 8,503 8,560 8,617 8,461 8,518
Electricity Sales Rates (cents/kWh)
JCP&L 7.96 8.10 8.25 8.42 8.63 8.69 8.88
Merchant Sales 3.73 4.06 4.41 4.81 5.26 5.78 5.95
----- ------ ----- ------ ------ ----- ------
Average all-in rate 7.43 7.62 7.75 7.98 8.24 8.30 7.57
Electricity Sales (GWh)
JCP&L 2,010 2,010 2,021 1,955 1,866 2,021 1,279
Merchant Sales 281 265 287 262 235 299 1,055
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 633
Delivered Natural Gas - Average $4.21 $4.33 $4.45 $4.60 $4.76 $4.81 $4.96
all-in cost ($/MMBtu)
Annual Volume (BBtu/yr) 19,526 19,517 19,634 18,995 18,147 19,641 19,701
</TABLE>
These financial projections should be read in conjunction with the attached
Summary of Underlying Assumptions.
B-111
<PAGE>
Conversion to GAAP Accounting
The following table converts the operating cash flow values in the base case
projections to operating income values consistent with GAAP.
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
NEA
<S> <C> <C> <C> <C> <C> <C> <C>
Operating cash flow $58,445 $57,590 $57,308 $50,125 $50,634 $60,441 $64,302
Deduct:
Interest income 404 404 481 552 479 518 541
Depreciation 15,215 15,220 15,225 15,230 15,199 15,194 15,199
Amortization of power
purchase contracts 22,339 23,302 24,471 25,328 25,346 27,844 28,599
Accrual of major maintenance
expenditure 957 1,569 2,067 2,489 2,446 2,492 2,602
Add:
Major maintenance funding 0 0 3,208 2,927 194 4,982 1,180
Above-market fuel/O&M
contract amortization 17,091 17,091 17,091 17,091 14,593 14,593 14,593
Change in fixed assets 100 100 100 100 100 100 100
Letter of credit fees 259 259 251 253 252 246 217
Change in Energy Bank balances* 719 5,047 7,047 5,133 6,693 12,755 25,108
GAAP operating income $37,699 $39,592 $42,762 $32,029 $28,995 $47,069 $58,559
NJEA
Operating cash flow $67,598 $72,584 $70,692 $69,408 $70,916 $71,959 $76,847
Deduct:
Interest income 284 284 306 389 476 396 378
Depreciation 6,130 6,135 6,140 6,145 6,136 6,133 6,138
Amortization of power purchase
contracts 27,964 27,964 27,964 27,964 27,964 27,964 27,964
Accrual of major maintenance
expenditure 1,717 1,811 2,357 2,740 2,830 2,515 2,266
Add:
Major maintenance funding 0 0 899 3,457 4,518 478 3,770
Above-market fuel/O&M
contract amortization 8,442 8,442 8,442 8,442 6,253 6,253 6,253
Change in fixed assets 100 100 100 100 100 100 100
Letter of credit fees 42 42 37 37 37 38 47
GAAP operating income $40,088 $44,975 $43,403 $44,207 $44,419 $41,821 $50,271
Combined Partnerships with NE LP
GAAP operating income $77,787 $84,566 $86,165 $76,236 $73,414 $88,890 $108,830
Deduct:
Interest expense on Project
Securities 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Interest expense on Bonds 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Net interest expense on swaps 86 19 0 0 0 0 0
Amortization of financing fees 450 450 450 450 450 450 450
Letter of credit fees 300 302 288 290 289 285 263
Add:
Interest income 688 688 787 940 955 913 919
GAAP net income 16,931 23,438 27,209 19,558 16,832 37,106 60,106
</TABLE>
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
NEA
<S> <C> <C> <C> <C> <C> <C> <C>
Operating cash flow $72,335 $76,994 $79,325 $78,158 $94,562 $101,273 $87,533
Deduct:
Interest income 439 480 578 514 519 514 404
Depreciation 14,823 14,828 14,833 14,011 14,016 14,015 14,020
Amortization of power
purchase contracts 30,552 32,241 33,787 33,837 37,692 38,844 34,048
Accrual of major maintenance
expenditure 2,447 2,559 2,538 2,610 2,574 2,596 2,657
Add:
Major maintenance funding 668 2,927 4,817 227 5,007 0 1,386
Above-market fuel/O&M
contract amortization 14,593 14,593 14,593 14,593 14,593 14,593 14,593
Change in fixed assets 100 100 100 100 100 100 100
Letter of credit fees 165 106 97 95 99 38 38
Change in Energy Bank balances' 33,230 34,243 (1,949) (3,728) (3,867) (4,084) (4,368)
GAAP operating income $72,830 $78,854 $45,247 $38,473 $55,693 $55,952 $48,153
NJEA
Operating cash flow $78,635 $80,421 $79,227 $76,247 $77,842 $89,067 $65,353
Deduct:
Interest income 406 323 382 493 400 284 284
Depreciation 5,987 5,992 5,997 5,670 5,675 5,677 5,682
Amortization of power purchase
contracts 27,964 27,964 27,964 27,964 27,964 27,964 27,964
Accrual of major maintenance
expenditure 2,284 2,326 2,581 2,657 2,957 2,739 2,824
Add:
Major maintenance funding 1,671 215 4,195 4,947 233 0 3,259
Above-market fuel/O&M
contract amortization 6,253 6,253 6,253 6,253 6,253 6,253 6,253
Change in fixed assets 100 100 100 100 100 100 100
Letter of credit fees 49 46 42 40 44 0 0
GAAP operating income $50,066 $50,431 $52,893 $50,803 $47,476 $58,756 $38,210
Combined Partnerships with NE LP
GAAP operating income $122,896 $129,285 $98,140 $89,276 $103,169 $114,707 $86,362
Deduct:
Interest expense on Project
Securities 29,880 25,484 20,545 15,504 10,374 4,779 0,000
Interest expense on Bonds 15,293 14,502 13,271 11,514 9,668 7,383 3,955
Net interest expense on swaps 0 0 0 0 0 0 0
Amortization of financing fees 450 450 450 450 450 450 450
Letter of credit fees 214 152 139 135 143 38 38
Add:
Interest income 845 803 960 1,007 919 797 688
GAAP net income 77,905 89,500 64,694 62,680 83,452 102,854 82,608
</TABLE>
*Changes in Energy Bank balances include non-cash interest expense on the Energy
Banks.
Amounts may not add due to rounding.
B-112
<PAGE>
Appendix B
Financial Projections for Sensitivity Cases
B-113
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case A: Spot Gas Prices Increased 6%
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,649 $73,649 $74,415 $73,266 $68,288 $73,649 $71,351
Boston Edison II 48,928 52,665 57,202 60,526 60,597 70,290 73,220
Commonwealth I 13,635 13,607 13,805 10,954 9,905 11,523 11,144
Commonwealth II 12,153 13,081 14,207 15,033 15,051 17,458 18,186
Montaup 13,550 13,550 13,691 6,453 6,476 7,385 7,588
Merchant Sales 0 2,709 3,187 2,881 2,400 4,504 4,108
Steam 1,256 1,153 1,099 1,051 729 1,137 997
Interest Income 404 404 481 552 479 518 541
-------- -------- -------- -------- -------- -------- --------
Total Revenues $163,576 $170,819 $178,088 $170,717 $163,925 $186,465 $187,135
Expenses
Operations and maintenance $8,677 $8,998 $12,825 $10,180 $3,122 $7,987 $4,264
Water costs and easement fee 304 317 331 495 883 904 925
Insurance 887 912 937 964 991 1,017 1,045
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 3,601 3,712 3,824 3,936 4,049 4,154 4,259
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) (4,158) (991) (1,011) (575) (753) (941) (1,133)
Other 1,039 1,062 1,076 1,036 2,190 2,413 2,309
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $13,476 $17,223 $21,286 $19,433 $13,974 $19,121 $15,350
Total fuel cost 92,124 97,619 101,193 102,903 101,012 108,791 109,382
-------- -------- -------- -------- -------- -------- --------
Total expenses $105,600 $114,841 $122,479 $122,336 $114,986 $127,912 $124,732
Operating Cash Flow $57,975 $55,977 $55,609 $48,381 $48,939 $58,553 $62,403
NJEA Operating Results
Revenues
JCP&L $146,753 $149,932 $153,085 $153,458 $152,121 $149,410 $162,773
Merchant Sales 0 8,150 7,405 8,308 8,080 7,714 10,483
Steam 2,635 2,672 2,709 2,747 2,785 2,823 2,861
Interest Income 264 284 306 389 476 396 378
-------- -------- -------- -------- -------- -------- --------
Total Revenues $149,671 $161,037 $163,504 $164,901 $163,461 $160,343 $176,495
Expenses
Operations and maintenance $9,130 $9,336 $10,447 $11,539 $7,377 $3,412 $6,780
Water costs and easement fee 800 821 842 1,094 1,687 1,719 1,751
Insurance 748 769 790 812 835 858 881
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 866 867 868 870 871 872 874
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 420 431 437 463 512 527 548
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,090 $15,438 $16,688 $18,174 $14,774 $10,973 $14,516
Total fuel cost 64,224 71,798 74,881 76,053 76,506 76,159 83,725
-------- -------- -------- -------- -------- -------- --------
Total expenses $79,314 $87,236 $91,569 $94,227 $91,281 $87,132 $98,241
Operating Cash Flow $70,358 $73,801 $71,935 $70,675 $72,180 $73,211 $78,254
Combined Operating Results
Total Revenues $313,247 $331,856 $341,592 $335,618 $327,386 $346,808 $363,630
Non-fuel operating expenses 28,566 32,660 37,974 37,607 28,748 30,093 29,866
Total fuel cost 156,348 169,417 176,074 178,955 177,519 184,951 193,108
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $128,333 $129,779 $127,544 $119,056 $121,119 $131,764 $140,657
Change in Working Capital 10,781 2,921 1,424 (1,181) (1,197) 3,261 2,749
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $117,551 $126,858 $126,121 $120,237 $122,316 $128,503 $137,908
Subordinated Management Fee $1,649 $1,695 $1,742 $1,791 $1,841 $1,891 $1,942
Project Securities
Principal 21,563 23,511 26,333 20,160 22,688 23,818 28,564
Interest 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Project Security Debt Service Coverage
Project Security debt service coverage* 1.78x 1.92x 1.89x 2.05x 2.07x 2.21x 2.27x
Minimum Project Security debt service coverage 1.78x
Average Project Security debt service coverage 2.15x
Distributions to NE LP $50,662 $59,880 $58,361 $60,777 $62,232 $69,422 $76,410
The Bonds
Principal 0 0 0 0 8,800 8,800 8,800
Interest 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Debt Service Coverages
Bond debt service coverage 3.29x 3.41x 3.32x 3.46x 2.38x 2.72x 3.08x
Minimum Bond debt service coverage 2.21x
Average Bond debt service coverage 2.87x
Consolidated coverage 1.43x 1.50x 1.48x 1.56x 1.42x 1.52x 1.60x
Minimum consolidated debt service coverage 1.42x
Average consolidated coverage 1.57x
</TABLE>
* The numerator of the Project Security Debt Service Coverage Ratio is
calculated before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-114
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case A: Spot Gas Prices Increased 6%
(data in $000's unless noted)
<TABLE>
<CAPTION>
NEA Operating Results 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Boston Edison I $73,266 $73,649 $ 73,266 $ 68,288 $73,649 $71,351 $73,266
Boston Edison II 80,795 87,351 93,350 93,543 108,502 112,971 88,537
Commonwealth I 11,906 12,267 12,421 11,288 13,078 12,684 13,423
Commonwealth II 20,068 21,696 23,186 23,234 26,949 28,059 30,972
Montaup 8,238 8,495 8,655 8,249 9,204 9,256 9,663
Merchant Sales 3,863 5,122 4,647 3,831 7,157 6,475 18,416
Steam 1,170 1,232 1,234 855 1,334 1,170 1,374
Interest Income 439 480 578 514 519 514 404
-------- -------- -------- -------- -------- -------- --------
Total Revenues $199,746 $210,293 $217,337 $209,802 $240,393 $242,479 $236,056
Expenses
Operations and maintenance $3,833 $6,174 $8,149 $3,646 $8,516 $3,601 $5,085
Water costs and easement fee 946 967 988 1,009 1,030 1,052 1,074
Insurance 1,073 1,102 1,132 1,162 1,194 1,226 1,260
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 4,362 4,464 4,564 4,661 4,756 4,846 4,943
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) (1,155) (1,185) (1,215) (622) (886) (1,099) (1,325)
Other 2,352 2,327 2,322 2,145 2,381 2,248 2,347
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,192 $17,733 $19,928 $16,098 $21,198 $16,195 $17,826
Total fuel cost 114,237 117,665 120,239 117,627 126,934 127,310 133,132
-------- -------- -------- -------- -------- -------- --------
Total expenses $129,429 $135,398 $140,167 $133,725 $148,131 $143,505 $150,958
Operating Cash Flow $70,317 $74,895 $77,171 $76,077 $92,262 $98,975 $85,098
NJEA Operating Results
Revenues
JCP&L $164,949 $167,894 $171,934 $169,911 $166,276 $181,422 $117,893
Merchant Sales 10,490 10,739 12,634 12,583 12,351 17,278 62,814
Steam 2,900 2,939 2,979 3,019 3,060 3,101 1,965
Interest Income 406 323 382 493 400 284 284
-------- -------- -------- -------- -------- -------- --------
Total Revenues $178,745 $18,894 $187,928 $186,006 $182,086 $202,084 $182,956
Expenses
Operations and maintenance $4,759 $3,385 $7,447 $8,284 $3,658 $3,514 $6,869
Water costs and easement fee 1,783 1,815 1,848 1,880 1,914 1,947 1,982
Insurance 905 929 954 980 1,006 1,034 1,062
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 875 876 878 879 881 882 884
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 564 575 585 598 617 588 605
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expenses $12,667 $11,464 $15,700 $16,718 $12,282 $12,287 $15,844
Total fuel cost 86,008 88,537 91,466 91,526 90,473 99,042 102,352
-------- -------- -------- -------- -------- -------- --------
Total expenses $96,675 $100,001 $107,166 $108,245 $102,755 $111,328 $118,196
Operating Cash Flow $80,069 $81,893 $80,762 $77,761 $79,331 $90,756 $64,760
Combined Operating Results
Total Revenues $378,491 $392,187 $405,266 $395,808 $422,479 $444,563 $419,012
Non-fuel operating expenses 27,859 29,197 35,629 32,816 33,480 28,481 33,670
Total fuel cost 200,246 206,201 211,705 209,153 217,406 226,352 235,483
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $150,387 $156,789 $157,932 $153,839 $171,593 $189,731 $149,858
Change in Working Capital 2,432 2,255 2,119 (1,675) 4,544 3,706 (5,067)
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $147,955 $154,534 $155,814 $155,513 $167,049 $186,025 $154,926
Subordinated Management Fee $1,994 $2,048 $2,103 $2,160 $2,219 $2,278 $2,342
Project Securities
Principal 45,349 52,641 54,021 51,801 54,616 65,223 0
Interest 29,880 25,484 20,545 15,504 10,374 4,779 0
Project Security Debt Service Coverage
Project Security debt service coverage* 1.99x 2.00x 2.12x 2.34x 2.60x 2.69x
Distributions to NE LP $72,726 $76,410 $81,247 $88,208 $102,059 $116,022 $154,926
The Bonds
Principal 8,800 13,200 22,000 22,000 26,400 35,200 66,000
Interest 15,293 14,502 13,271 11,514 9,668 7,383 3,955
Debt Service Coverages
Bond debt service coverage 3.02x 2.76x 2.30x 2.63x 2.83x 2.72x 2.21x
Consolidated coverage 1.49x 1.46x 1.42x 1.54x 1.65x 1.65x 2.21x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-115
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case A: Spot Gas Prices Increased 6%
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
Commodity Prices
<S> <C> <C> <C> <C> <C> <C> <C>
Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.70% 2.70%
#6 fuel oil, 2.2% S ($/MMBtu) $2.74 $2.77 $2.81 $2.83 $2.86 $2.89 $2.92
#2 fuel oil ($/MMBtu) 4.42 4.51 4.61 4.67 4.73 4.79 4.85
Nominal Spot Gas Price Escalation 10.64% 4.35% 4.33% 3.80% 3.79% 3.68% 3.67%
Spot gas ($/MMBtu) 2.22 2.32 2.42 2.51 2.61 2.71 2.81
NEA Operational Factors
Net GWh generated 2,443 2,534 2,583 2,526 2,338 2,570 2,472
Net capacity (MW) 290 301 304 301 299 305 303
Equivalent availability factor 96.15% 96.15% 97.15% 95.65% 89.15% 96.15% 93.15%
Heat rate (Btu/kWh) 8,283 8,339 8,270 8,325 8,380 8,229 8,283
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Commonwealth I 6.54 6.53 6.55 5.28 5.12 5.53 5.52
Commonwealth II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Montaup 6.50 6.50 6.50 3.11 3.35 3.54 3.76
Merchant Sales 0.00 2.88 2.72 2.94 3.20 3.48 3.80
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.66 6.71 6.86 6.72 6.99 7.22 7.54
Electricity Sales (GWh)
Boston Edison I 1,133 1,133 1,145 1,127 1,051 1,133 1,098
Boston Edison II 705 705 712 701 654 705 683
Commonwealth I 208 208 211 207 193 208 202
Commonwealth II 175 175 177 174 162 175 170
Montaup 208 208 211 207 193 208 202
Merchant Sales 0 94 117 98 75 129 108
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.37 $4.48 $4.55 $4.67 $4.82 $5.06 $5.07
Annual Volume (BBtu/yr) 20,416 20,552 21,455 21,675 21,348 19,945 21,463
NJEA Operational Factors
Net GWh generated 2,071 2,361 2,344 2,307 2,216 2,101 2,320
Net capacity (MW) 252 287 285 288 286 284 289
Equivalent availability factor 93.82% 93.82% 93.82% 91.54% 88.54% 84.54% 91.54%
Heat rate (Btu/kWh) 9,057 8,461 8,574 8,503 8,560 8,617 8,461
Electricity Sales Rates (cents/kWh)
JCP&L 7.10 7.25 7.41 7.61 7.80 8.02 8.07
Merchant Sales 0.00 2.81 2.71 2.90 3.09 3.29 3.50
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.10 6.70 6.85 7.01 7.23 7.48 7.47
Electricity Sales (GWh)
JCP&L 2,071 2,071 2,071 2,021 1,955 1,866 2,021
Merchant Sales 0 290 273 287 262 235 299
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 1,013
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $3.42 $3.59 $3.73 $3.87 $4.03 $4.20 $4.26
Annual Volume (BBtu/yr) 18,760 19,977 20,100 19,634 18,995 18,147 19,641
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-116
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case A: Spot Gas Prices Increased 6%
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
Commodity Prices
<S> <C> <C> <C> <C> <C> <C> <C>
Inflation 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.80%
#6 fuel oil, 2.2% S ($/MMBtu) $2.95 $2.98 $3.01 $3.04 $3.07 $3.10 $3.09
#2 fuel oil ($/MMBtu) 4.92 4.94 4.96 4.99 5.01 5.03 5.01
Nominal Spot Gas Price Escalation 3.66% 3.18% 3.18% 3.17% 2.70% 3.17% 3.74%
Spot gas ($/MMBtu) 2.91 3.00 3.10 3.19 3.28 3.38 3.51
NEA Operational Factors
Net GWh generated 2,521 2,556 2,526 2,338 2,570 2,472 2,521
Net capacity (MW) 301 304 301 299 305 303 301
Equivalent availability factor 95.65% 96.15% 95.65% 89.15% 96.15% 93.15% 95.65%
Heat rate (Btu/kWh) 8,339 8,270 8,325 8,380 8,229 8,283 8,339
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Commonwealth I 5.74 5.88 5.99 5.84 6.27 6.28 6.47
Commonwealth II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Montaup 3.97 4.07 4.17 4.27 4.42 4.58 4.66
Merchant Sales 4.13 4.42 4.75 5.11 5.54 5.99 6.19
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.89 8.19 8.57 8.95 9.32 9.78 9.33
Electricity Sales (GWh)
Boston Edison I 1,127 1,133 1,127 1,051 1,133 1,098 1,127
Boston Edison II 701 705 701 654 705 683 498
Commonwealth I 207 208 207 193 208 202 207
Commonwealth II 174 175 174 162 175 170 174
Montaup 207 208 207 193 208 202 207
Merchant Sales 93 116 98 75 129 108 298
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $5.26 $5.35 $5.48 $5.63 $5.90 $5.91 $6.12
Annual Volume (BBtu/yr) 20,813 21,347 21,460 21,348 19,945 21,463 20,813
NJEA Operational Factors
Net GWh generated 2,291 2,275 2,307 2,216 2,101 2,320 2,311
Net capacity (MW) 287 285 288 286 284 289 290
Equivalent availability factor 91.04% 91.04% 91.54% 88.54% 84.54% 91.54% 91.04%
Heat rate (Btu/kWh) 8,518 8,574 8,503 8,560 8,617 8,461 8,518
Electricity Sales Rates (cents/kWh)
JCP&L 8.22 8.37 8.53 8.71 8.93 8.99 9.19
Merchant Sales 3.73 4.06 4.41 4.81 5.26 5.78 5.95
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.66 7.85 8.00 8.24 8.50 8.57 7.74
Electricity Sales (GWh)
JCP&L 2,010 2,010 2,021 1,955 1,866 2,021 1,279
Merchant Sales 281 265 287 262 235 299 1,055
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 633
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.40 $4.54 $4.66 $4.82 $4.99 $5.04 $5.20
Annual Volume (BBtu/yr) 19,526 19,517 19,634 18,995 18,147 19,641 19,701
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-117
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Class B: 4% Inflation
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,649 $73,649 $74,415 $73,266 $68,288 $73,649 $71,351
Boston Edison II 48,928 52,665 57,202 60,526 60,597 70,290 73,220
Commonwealth I 13,635 13,607 13,805 10,954 9,905 11,523 11,144
Commonwealth II 12,153 13,081 14,207 15,033 15,051 17,458 18,186
Montaup 13,550 13,550 13,691 6,453 6,476 7,385 7,588
Merchant Sales 0 2,709 3,187 2,881 2,400 4,504 4,108
Steam 1,213 1,065 962 921 598 1,024 886
Interest Income 505 505 605 699 605 674 707
-------- -------- -------- -------- -------- -------- --------
Total Revenues $163,634 $170,831 $178,076 $170,734 $163,919 $186,509 $187,190
Expenses
Operations and maintenance $8,753 $9,154 $13,220 $10,603 $3,206 $8,528 $4,533
Water costs and easement fee 304 318 333 502 902 928 953
Insurance 897 933 971 1,009 1,050 1,092 1,135
G&A and Professional fees 650 676 703 731 760 791 822
Property tax 3,643 3,844 4,052 4,270 4,495 4,729 4,971
Management fees 2,050 2,132 2,217 2,306 2,398 2,494 2,594
Fuel management fee 450 468 487 506 526 547 569
Gas Hedge & Peak Service Loss/(Savings) (4,158) (991) (1,011) (575) (753) (941) (1,133)
Other 1,048 1,080 1,105 1,075 2,234 2,467 2,374
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $13,638 $17,615 $22,076 $20,426 $14,819 $20,635 $16,819
Total fuel cost 91,654 96,006 99,494 101,159 99,318 106,904 107,483
-------- -------- -------- -------- -------- -------- --------
Total expenses $105,292 $113,621 $121,571 $121,586 $144,137 $127,539 $124,302
Operating Cash Flow $58,342 $57,210 $56,504 $49,148 $49,783 $58,969 $62,887
NJEA Operating Results
Revenues
JCP&L $142,607 $146,606 $148,580 $148,879 $147,531 $144,865 $157,667
Merchant Sales 0 8,150 7,405 8,308 8,080 7,714 10,483
Steam 2,650 2,703 2,757 2,813 2,869 2,926 2,985
Interest Income 355 355 383 493 611 516 495
-------- -------- -------- -------- -------- -------- --------
Total Revenues $145,612 $156,814 $159,126 $160,493 $159,090 $156,021 $171,630
Expenses
Operations and maintenance $9,215 $9,514 $10,766 $12,031 $7,776 $3,560 $7,307
Water costs and easement fee 804 828 853 1,114 1,731 1,772 1,815
Insurance 757 787 818 851 885 920 957
G&A and Professional fees 650 676 703 731 760 791 822
Property tax 867 868 870 872 874 876 878
Management fees 2,050 2,132 2,217 2,306 2,398 2,494 2,594
Fuel management fee 450 468 487 506 526 547 569
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 424 440 451 485 544 566 596
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,217 $15,713 $17,165 $18,896 $15,495 $11,527 $15,538
Total fuel cost 62,837 68,689 71,620 72,740 73,181 72,865 80,026
-------- -------- -------- -------- -------- -------- --------
Total expenses $78,054 $84,402 $88,785 $91,636 $88,676 $64,392 $95,565
Operating Cash Flow $67,558 $72,412 $70,341 $68,856 $70,414 $71,629 $76,065
Combined Operating Results
Total Revenues $309,246 $327,646 $337,202 $331,227 $323,009 $342,530 $358,820
Non-fuel operating expenses 28,855 33,327 39,242 39,323 30,313 32,163 32,358
Total fuel cost 154,491 164,696 171,114 173,899 172,499 179,769 187,509
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $125,900 $129,622 $126,846 $118,005 $120,197 $130,598 $138,953
Change in Working Capital 10,084 2,989 1,383 (1,193) (1,191) 3,272 2,656
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $115,817 $126,634 $125,463 $119,198 $121,388 $127,326 $136,297
Subordinated Management Fee $1,668 1,735 1,804 1,876 1,951 2,029 2,110
Project Securities
Principal 21,563 23,511 26,333 20,160 22,688 23,818 28,564
Interest 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Project Security Debt Service Coverage
Project Security debt service coverage* 1.76x 1.92x 1.88x 2.04x 2.05x 2.19x 2.25x
Minimum Project Security debt service coverage 1.76x
Average Project Security debt service coverage 2.12x
Distribution to NE LP $48,927 $59,655 $57,703 $59,738 $61,304 $68,245 $74,800
The Bonds
Principal 0 0 0 0 8,800 8,800 8,800
Interest 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Debt Service Coverages
Bond debt service coverage 3.18x 3.39x 3.28x 3.40x 2.34x 2.68x 3.02x
Minimum Bond debt service coverage 2.17x
Average Bond debt service coverage 2.80x
Consolidated coverage 1.41x 1.50x 1.47x 1.55x 1.41x 1.51x 1.58x
Minimum consolidated debt service coverage 1.39x
Average consolidated coverage 1.54x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordianted management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-118
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case B: 4% Inflation
(data in $000's unless noted)
<TABLE>
<CAPTION>
NEA Operating Results 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Boston Edison I $73,266 $73,649 $73,266 $68,288 $73,649 $71,351 $73,266
Boston Edison II 80,795 87,351 93,350 93,543 108,502 112,971 88,537
Commonwealth I 11,906 12,267 12,421 11,288 13,078 12,684 13,423
Commonwealth II 20,068 21,696 23,186 23,234 26,949 28,059 30,972
Montaup 8,238 8,495 8,655 8,249 9,204 9,256 9,663
Merchant Sales 3,863 5,122 4,647 3,831 7,157 6,475 18,416
Steam 1,077 1,152 1,165 756 1,296 1,121 1,363
Interest Income 567 627 770 678 689 681 505
-------- -------- -------- -------- -------- -------- --------
Total Revenues $199,780 $210,360 $217,460 $209,867 $240,525 $242,598 $236,145
Expenses
Operations and maintenance $4,104 $6,763 $9,130 $4,029 $9,782 $4,066 $5,868
Water costs and easement fee 979 1,005 1,031 1,058 1,085 1,112 1,140
Insurance 1,181 1,228 1,277 1,328 1,381 1,437 1,494
G&A and Professional fees 855 890 925 962 1,001 1,041 1,082
Property tax 5,222 5,480 5,745 6,017 6,296 6,580 6,868
Management fees 2,697 2,805 2,918 3,034 3,156 3,282 3,413
Fuel management fee 592 616 640 666 693 720 749
Gas Hedge & Peak Service Loss/(Savings) (1,155) (1,185) (1,215) (622) (886) (1,099) (1,325)
Other 2,429 2,416 2,424 2,260 2,511 2,393 2,507
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $16,904 $20,048 $22,877 $18,734 $25,017 $19,531 $21,797
Total fuel cost 112,220 115,566 118,085 115,546 124,633 125,012 130,697
--------------- -------- -------- -------- -------- -------- -------- --------
Total expenses $129,124 $135,615 $140,961 $134,279 $149,650 $144,543 $152,494
Operating Cash Flow $70,656 $74,745 $76,499 $75,588 $90,875 $98,056 $83,651
NJEA Operating Results
Revenues
JCP&L $159,702 $162,480 $166,309 $164,315 $160,776 $175,260 $113,850
Merchant Sales 10,490 10,739 12,634 12,583 12,351 17,278 62,814
Steam 3,044 3,105 3,167 3,231 3,295 3,361 2,143
Interest Income 536 418 506 671 535 363 355
-------- -------- -------- -------- -------- -------- --------
Total Revenues $173,772 $176,743 $182,617 $180,799 $176,957 $196,262 $179,161
Expense
Operations and maintenance $5,142 $3,650 $8,333 $9,402 $4,094 $3,969 $7,988
Water costs and easement fee 1,858 1,901 1,946 1,991 2,036 2,082 2,129
Insurance 996 1,035 1,077 1,120 1,165 1,211 1,260
G&A and Professional fees 855 890 925 962 1,001 1,041 1,082
Property tax 880 882 885 887 890 892 895
Management fees 2,697 2,805 2,918 3,034 3,156 3,282 3,413
Fuel management fee 592 616 640 666 693 720 749
Gas Hedge & peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 620 640 660 683 712 695 723
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $13,640 $12,421 $17,383 $18,745 $13,745 $13,893 $18,240
Total fuel cost 82,196 84,596 87,376 87,445 86,461 94,569 97,716
-------- -------- -------- -------- -------- -------- --------
Total expenses $95,836 $97,016 $104,759 $106,189 $100,206 $108,461 $115,955
Operating Cash Flow $77,936 $79,727 $77,858 $74,610 $76,751 $87,801 $63,206
Combined Operating Results
Total Revenue $373,552 $387,103 $400,076 $390,666 $417,482 $438,861 $415,307
Non-fuel operating expenses 30,545 32,469 40,260 37,478 38,762 33,424 40,036
Total fuel cost 194,415 200,162 205,460 202,990 211,094 219,581 228,413
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $148,592 $154,472 $154,356 $150,198 $167,626 $185,856 $146,857
Change in Working Capital 2,411 2,226 2,081 (1,689) 4,568 3,590 (4,691)
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $146,181 $152,245 $152,276 $151,886 $163,058 $182,267 $151,548
Subordinated Management Fee 2,195 2,283 2,374 2,469 2,568 2,670 2,777
Project Securities
Principal 45,349 52,641 54,021 51,801 54,616 65,223 0
Interest 28,880 25,484 20,545 15,504 10,374 4,779 0
Project Security Debt Service Coverage
Project Security debt service coverage* 1.97x 1.98x 2.07x 2.29x 2.55x 2.64x
Distributions to NE LP $70,953 $74,121 $77,709 $84,581 $98,068 $112,264 $151,548
The Bonds
Principal 8,800 13,200 22,000 22,000 26,400 35,200 66,000
Interest 15,293 14,502 13,271 11,514 9,668 7,383 3,955
Debt Service Coverages
Bond debt service coverage 2.94x 2.68x 2.20x 2.52x 2.72x 2.64x 2.17x
Consolidated coverage 1.47x 1.44x 1.39x 1.51x 1.61x 1.62x 2.17x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-119
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case B: 4% Inflation
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
Commodity Prices
<S> <C> <C> <C> <C> <C> <C> <C>
Inflation 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
#6 fuel oil, 2.2% S ($/MMBtu) $2.74 $2.77 $2.81 $2.83 $2.86 $2.89 $2.92
#2 fuel oil ($/MMBtu) 4.42 4.51 4.61 4.67 4.73 4.79 4.85
Nominal Spot Gas Price Escalation 4.37% 4.35% 4.33% 3.80% 3.79% 3.68% 3.67%
Spot gas ($/MMBtu) 2.10 2.19 2.28 2.37 2.46 2.55 2.65
NEA Operational Factors
Net GWh generated 2,443 2,534 2,583 2,526 2,338 2,570 2,472
Net capacity (MW) 290 301 304 301 299 305 303
Equivalent availability factor 96.15% 96.15% 97.15% 95.65% 89.15% 96.15% 93.15%
Heat rate (Btu/kWh) 8,283 8,339 8,270 8,325 8,380 8,229 8,283
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Commonwealth I 6.54 6.53 6.55 5.28 5.12 5.53 5.52
Commonwealth II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Montaup 6.50 6.50 6.50 3.11 3.35 3.54 3.76
Merchant Sales 0.00 2.88 2.72 2.94 3.20 3.48 3.80
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.66 6.71 6.86 6.72 6.99 7.22 7.54
Electricity Sales (GWh)
Boston Edison I 1,133 1,133 1,145 1,127 1,051 1,133 1,098
Boston Edison II 705 705 712 701 654 705 683
Commonwealth I 208 208 211 207 193 208 202
Commonwealth II 175 175 177 174 162 175 170
Montaup 208 208 211 207 193 208 202
Merchant Sales 0 94 117 98 75 129 108
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.37 $4.46 $4.47 $4.59 $4.74 $4.98 $4.98
Annual Volume (BBtu/yr) 20,416 20,552 21,455 21,675 21,348 19,945 21,463
NJEA Operational Factors
Net GWh generated 2,071 2,361 2,344 2,307 2,216 2,101 2,320
Net capacity (MW) 252 287 285 288 286 284 289
Equivalent availability factor 93.82% 93.82% 93.82% 91.54% 88.54% 84.54% 91.54%
Heat rate (Btu/kWh) 9,057 8,461 8,574 8,503 8,560 8,617 8,461
Electricity Sales Rates (cents/kWh)
JCP&L 6.90 7.05 7.19 7.38 7.56 7.78 7.82
Merchant Sales 0.00 2.81 2.71 2.90 3.09 3.29 3.50
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.90 6.51 6.65 6.81 7.02 7.26 7.25
Electricity Sales (GWh)
JCP&L 2,071 2,071 2,071 2,021 1,955 1,866 2,021
Merchant Sales 0 290 273 287 262 235 299
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 1,013
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $3.35 $3.44 $3.56 $3.70 $3.85 $4.02 $4.07
Annual Volume (BBtu/yr) 18,760 19,977 20,100 19,634 18,995 18,147 19,641
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-120
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case B: 4% Inflation
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
#6 fuel oil, 2.2% S ($/MMBtu) $2.95 $2.98 $3.01 $3.04 $3.07 $3.10 $3.09
#2 fuel oil ($/MMBtu) 4.92 4.94 4.96 4.99 5.01 5.03 5.01
Nominal Spot Gas Price Escalation 3.66% 3.18% 3.18% 3.17% 2.70% 3.17% 3.74%
Spot gas ($/MMBtu) 2.74 2.83 2.92 3.01 3.09 3.19 3.31
NEA Operational Factors
Net GWh generated 2,521 2,556 2,526 2,338 2,570 2,472 2,521
Net capacity (MW) 301 304 301 299 305 303 301
Equivalent availability factor 95.65% 96.15% 95.65% 89.15% 96.15% 93.15% 95.65%
Heat rate (Btu/kWh) 8,339 8,270 8,325 8,380 8,229 8,283 8,339
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Commonwealth I 5.74 5.88 5.99 5.84 6.27 6.28 6.47
Commonwealth II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Montaup 3.97 4.07 4.17 4.27 4.42 4.58 4.66
Merchant Sales 4.13 4.42 4.75 5.11 5.54 5.99 6.19
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.89 8.19 8.57 8.95 9.32 9.78 9.33
Electricity Sales (GWh)
Boston Edison I 1,127 1,133 1,127 1,051 1,133 1,098 1,127
Boston Edison II 701 705 701 654 705 683 498
Commonwealth I 207 208 207 193 208 202 207
Commonwealth II 174 175 174 162 175 170 174
Montaup 207 208 207 193 208 202 207
Merchant Sales 93 116 98 75 129 108 298
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $5.16 $5.26 $5.39 $5.53 $5.79 $5.81 $6.01
Annual Volume (BBtu/yr) 20,813 21,347 21,460 21,348 19,945 21,463 20,813
NJEA Operational Factors
Net GWh generated 2,291 2,275 2,307 2,216 2,101 2,320 2,311
Net capacity (MW) 287 285 288 286 284 289 290
Equivalent availability factor 91.04% 91.04% 91.54% 88.54% 84.54% 91.54% 91.04%
Heat rate (Btu/kWh) 8,518 8,574 8,503 8,560 8,617 8,461 8,518
Electricity Sales Rates (cents/kWh)
JCP&L 7.96 8.10 8.25 8.42 8.63 8.69 8.88
Merchant Sales 3.73 4.06 4.41 4.81 5.26 5.78 5.95
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.43 7.62 7.75 7.98 8.24 8.30 7.57
Electricity Sales (GWh)
JCP&L 2,010 2,010 2,021 1,955 1,866 2,021 1,279
Merchant Sales 281 265 287 262 235 299 1,055
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 633
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.21 $4.33 $4.45 $4.60 $4.76 $4.81 $4.96
Annual Volume (BBtu/yr) 19,526 19,517 19,634 18,995 18,147 19,641 19,701
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-121
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case C: 90% Availability
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $68,939 $68,939 $68,939 $68,939 $68,939 $68,939 $68,939
Boston Edison II 45,798 49,296 52,992 56,951 61,175 65,794 70,743
Commonwealth I 12,273 12,245 12,216 9,852 10,069 10,286 10,509
Commonwealth II 11,375 12,244 13,162 14,145 15,194 16,342 17,571
Montaup 12,683 12,683 12,683 6,066 6,520 6,892 7,306
Merchant Sales 0 2,536 2,953 2,711 2,423 4,216 3,970
Steam 941 839 733 754 775 796 817
Interest Income 404 404 481 552 479 518 541
-------- -------- -------- -------- -------- -------- --------
Total Revenues $152,414 $159,186 $164,158 $159,968 $165,574 $173,782 $180,396
Expenses
Operations and maintenance $6,631 $6,830 $10,229 $8,864 $3,122 $7,987 $4,264
Water costs and easement fee 304 317 331 495 883 904 925
Insurance 887 912 937 964 991 1,017 1,045
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 3,601 3,712 3,824 3,936 4,049 4,154 4,259
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) (4,158) (991) (1,011) (575) (753) (941) (1,133)
Other 1,039 1,062 1,077 1,036 2,215 2,234 2,231
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $11,430 $15,055 $18,691 $18,116 $13,998 $18,942 $15,272
Total fuel cost 88,029 91,938 94,417 96,880 99,350 101,942 104,561
-------- -------- -------- -------- -------- -------- --------
Total expenses $99,459 $106,993 $113,108 $114,996 $113,348 $120,883 $119,834
Operating Cash Flow $52,955 $52,193 $51,050 $44,972 $52,226 $52,899 $60,562
NJEA Operating Results
Revenues
JCP&L $137,789 $140,662 $143,512 $146,677 $149,487 $152,348 $155,306
Merchant Sales 0 7,818 7,103 8,168 8,213 8,212 10,307
Steam 2,635 2,672 2,709 2,747 2,785 2,823 2,861
Interest Income 284 284 306 389 476 396 378
-------- -------- -------- -------- -------- -------- --------
Total Revenues $140,708 $151,436 $153,630 $157,981 $160,961 $163,778 $168,851
Expenses
Operations and maintenance $8,987 $9,193 $10,305 $11,495 $7,377 $3,412 $6,780
Water costs and easement fee 800 821 842 1,094 1,687 1,719 1,751
Insurance 748 769 790 812 835 858 881
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 866 867 868 870 871 872 874
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 420 431 437 463 512 527 548
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $14,948 $15,295 $16,545 $18,130 $14,774 $10,973 $14,516
Total fuel cost 60,913 66,552 69,376 71,799 74,107 76,453 78,976
-------- -------- -------- -------- -------- -------- --------
Total expenses $75,860 $81,847 $85,922 $89,929 $88,882 $87,426 $93,492
Operating Cash Flow $64,847 $69,589 $67,708 $68,052 $72,080 $76,352 $75,360
Combined Operating Results
Total Revenues $293,122 $310,622 $317,788 $317,949 $326,535 $337,560 $349,248
Non-fuel operating expenses 26,378 30,350 35,236 36,246 28,773 29,915 29,789
Total fuel cost 148,942 158,490 163,794 168,679 173,457 178,395 183,537
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $117,802 $121,782 $118,758 $113,024 $124,305 $129,251 $135,922
Change in Working Capital 7,453 2,865 1,019 (176) 1,597 1,828 1,928
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $110,349 $118,917 $117,739 $113,200 $122,709 $127,423 $133,994
Subordinated Management Fee $1,649 1,695 1,742 1,791 1,841 1,891 1,942
Project Securities
Principal 21,563 23,511 26,333 20,160 22,688 23,818 28,564
Interest 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Project Security Debt Service Coverage
Project Security debt service coverage* 1.67x 1.80x 1.76x 1.93x 2.07x 2.19x 2.21x
Minimum Project Security debt service coverage 1.67x
Average Project Security debt service coverage 2.07x
Distributions to NE LP $43,459 $51,939 $49,980 $53,740 $62,625 $68,341 $72,497
The Bonds
Principal 0 0 0 0 8,800 8,800 8,800
Interest 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Debt Service Coverages
Bond debt service coverage 2.83x 2.95x 2.84x 3.06x 2.39x 2.68x 2.92x
Minimum Bond debt service coverage 2.05x
Average Bond debt service coverage 2.65x
Consolidated coverage 1.34x 1.41x 1.38x 1.47x 1.42x 1.51x 1.55x
Minimum consolidated debt service coverage 1.34x
Average consolidated coverage 1.51x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-122
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case C: 90% Availability
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $68,939 $68,939 $68,939 $68,939 $68,939 $68,939 $68,939
Boston Edison II 76,023 81,764 87,835 94,435 101,562 109,151 83,307
Commonwealth I 10,739 10,975 11,218 11,467 11,723 11,987 12,147
Commonwealth II 18,882 20,308 21,816 23,455 25,225 27,110 29,143
Montaup 7,722 7,918 8,106 8,285 8,615 8,943 9,092
Merchant Sales 3,635 4,794 4,373 3,868 6,699 6,256 17,328
Steam 839 862 885 909 934 959 986
Interest Income 439 480 578 514 519 514 404
-------- -------- -------- -------- -------- -------- --------
Total Revenues $187,218 $196,040 $203,750 $211,872 $224,217 $233,858 $221,346
Expenses
Operations and maintenance $3,833 $6,174 $8,149 $3,646 $8,516 $3,601 $5,085
Water costs and easement fee 946 967 988 1,009 1,030 1,052 1,074
Insurance 1,073 1,102 1,132 1,162 1,194 1,226 1,260
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 4,362 4,464 4,564 4,661 4,756 4,846 4,943
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) (1,155) (1,185) (1,215) (622) (886) (1,099) (1,325)
Other 2,204 2,170 2,152 2,170 2,194 2,154 2,178
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,043 $17,575 $19,758 $16,123 $21,011 $16,101 $17,655
Total fuel cost 107,271 110,040 112,780 115,609 118,515 121,431 124,628
-------- -------- -------- -------- -------- -------- --------
Total expenses $122,314 $127,616 $132,537 $131,731 $139,526 $137,531 $142,283
Operating Cash Flow $64,904 $68,425 $71,212 $80,140 $84,691 $96,326 $79,063
NJEA Operating Results
Revenues
JCP&L $158,211 $160,958 $163,790 $166,545 $169,275 $172,579 $113,842
Merchant Sales 10,370 10,617 12,422 12,791 13,148 16,987 62,097
Steam 2,900 2,939 2,979 3,019 3,060 3,101 1,965
Interest Income 406 323 382 493 400 284 284
-------- -------- -------- -------- -------- -------- --------
Total Revenues $171,888 $174,836 $179,573 $182,847 $185,882 $192,951 $178,188
Expenses
Operations and maintenance $4,759 $3,385 $7,447 $8,284 $3,658 $3,514 $6,869
Water costs and easement fee 1,783 1,815 1,848 1,880 1,914 1,947 1,982
Insurance 905 929 954 980 1,006 1,034 1,062
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 875 876 878 879 881 882 884
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 564 575 585 598 617 588 605
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $12,667 $11,464 $15,700 $16,718 $12,282 $12,287 $15,844
Total fuel cost 81,461 83,836 86,214 88,581 90,829 93,300 96,822
-------- -------- -------- -------- -------- -------- --------
Total expenses $94,128 $95,300 $101,914 $105,300 $103,111 $105,586 $112,666
Operating Cash Flow $77,760 $79,536 $77,658 $77,548 $82,771 $87,364 $65,522
Combined Operating Results
Total Revenues $359,106 $370,877 $383,322 $394,719 $410,099 $426,808 $399,534
Non-fuel operating expenses 27,710 29,040 35,458 32,841 33,294 28,387 33,499
Total fuel cost 188,731 193,876 198,994 204,190 209,343 214,730 221,450
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $142,664 $147,961 $148,871 $157,688 $167,462 $183,691 $144,585
Change in Working Capital 1,596 1,935 2,018 1,830 2,604 2,863 (5,282)
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $141,068 $145,026 $146,853 $155,858 $164,858 $180,828 $149,867
Subordinated Management Fee 1,994 2,048 2,103 2,160 2,219 2,278 2,342
Project Securities
Principal 45,349 52,641 54,021 51,801 54,616 65,223 0
Interest 29,880 25,484 20,545 15,504 10,374 4,779 0
Project Security Debt Service Coverage
Project Security debt service coverage* 1.90x 1.90x 2.00x 2.35x 2.57x 2.62x
Distribution to NE LP $65,840 $67,902 $72,286 $88,553 $99,867 $110,825 $149,867
The Bonds
Principal 8,800 13,200 22,000 22,000 26,400 35,200 66,000
Interest 15,293 14,502 13,371 11,514 9,668 7,383 3,955
Debt Service Coverages
Bond debt service coverage 2.73x 2.45x 2.05x 2.64x 2.77x 2.60x 2.14x
Consolidated coverage 1.42x 1.38x 1.34x 1.55x 1.63x 1.61x 2.14x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-123
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case C: 90% Availability
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.70% 2.70%
#6 fuel oil, 2.2% S ($/MMBtu) $2.74 $2.77 $2.81 $2.83 $2.86 $2.89 $2.92
#2 fuel oil ($/MMBtu) 4.42 4.51 4.61 4.67 4.73 4.79 4.85
Nominal Spot Gas Price Escalation 4.37% 4.35% 4.33% 3.80% 3.79% 3.68% 3.67%
Spot gas ($/MMBtu) 2.10 2.19 2.28 2.37 2.46 2.55 2.65
NEA Operational Factors
Net GWh generated 2,286 2,372 2,393 2,376 2,360 2,405 2,389
Net capacity (MW) 290 301 304 301 299 305 303
Equivalent availability factor 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%
Heat rate (Btu/kWh) 8,283 8,339 8,270 8,325 8,380 8,229 8,283
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Commonwealth I 6.29 6.28 6.26 5.05 5.16 5.27 5.39
Commonwealth II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Montaup 6.50 6.50 6.50 3.11 3.34 3.53 3.74
Merchant Sales 0.00 2.88 2.72 2.94 3.20 3.48 3.80
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.64 6.69 6.84 6.70 6.99 7.20 7.53
Electricity Sales (GWh)
Boston Edison I 1,061 1,061 1,061 1,061 1,061 1,061 1,061
Boston Edison II 660 660 660 660 660 660 660
Commonwealth I 195 195 195 195 195 195 195
Commonwealth II 164 164 164 164 164 164 164
Montaup 195 195 195 195 195 195 195
Merchant Sales 0 88 109 92 76 121 104
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.37 $4.56 $4.57 $4.69 $4.81 $4.94 $5.06
Annual Volume (BBtu/yr) 20,416 19,284 20,131 20,135 20,132 20,128 20,138
NJEA Operational Factors
Net GWh generated 1,987 2,265 2,249 2,269 2,253 2,237 2,281
Net capacity (MW) 252 287 285 288 286 284 289
Equivalent availability factor 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%
Heat rate (Btu/kWh) 9,057 8,461 8,574 8,503 8,560 8,617 8,461
Electricity Sales Rates (cents/kWh)
JCP&L 6.95 7.10 7.24 7.40 7.54 7.68 7.83
Merchant Sales 0.00 2.81 2.71 2.90 3.09 3.29 3.50
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.95 6.56 6.70 6.83 7.00 7.18 7.26
Electricity Sales (GWh)
JCP&L 1,987 1,987 1,987 1,987 1,987 1,987 1,987
Merchant Sales 0 278 262 282 266 250 294
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 1,013
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $3.38 $3.47 $3.59 $3.72 $3.84 $3.96 $4.09
Annual Volume (BBtu/yr) 18,012 19,180 19,299 19,311 19,302 19,292 19,318
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-124
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case C: 90% Availability
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
Commodity Prices
<S> <C> <C> <C> <C> <C> <C> <C>
Inflation 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.80%
#6 fuel oil, 2.2% S ($/MMBtu) $2.95 $2.98 $3.01 $3.04 $3.07 $3.10 $3.09
#2 fuel oil ($/MMBtu) 4.92 4.94 4.96 4.99 5.01 5.03 5.01
Nominal Spot Gas Price Escalation 3.66% 3.18% 3.18% 3.17% 2.70% 3.17% 3.74%
Spot gas ($/MMBtu) 2.74 2.83 2.92 3.01 3.09 3.19 3.31
NEA Operational Factors
Net GWh generated 2,372 2,393 2,376 2,360 2,405 2,389 2,372
Net capacity (MW) 301 304 301 299 305 303 301
Equivalent availability factor 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%
Heat rate (Btu/kWh) 8,339 8,270 8,325 8,380 8,229 8,283 8,339
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Commonwealth I 5.50 5.62 5.75 5.88 6.01 6.14 6.23
Commonwealth II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Montaup 3.96 4.06 4.15 4.25 4.42 4.58 4.66
Merchant Sales 4.13 4.42 4.75 5.11 5.54 5.99 6.19
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.87 8.17 8.55 8.95 9.30 9.77 9.31
Electricity Sales (GWh)
Boston Edison I 1,061 1,061 1,061 1,061 1,061 1,061 1,061
Boston Edison II 660 660 660 660 660 660 469
Commonwealth I 195 195 195 195 195 195 195
Commonwealth II 164 164 164 164 164 164 164
Montaup 195 195 195 195 195 195 195
Merchant Sales 88 109 92 76 121 104 280
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $5.19 $5.33 $5.46 $5.60 $5.74 $5.89 $6.03
Annual Volume (BBtu/yr) 20,134 20,131 20,135 20,132 20,128 20,138 20,134
NJEA Operational Factors
Net GWh generated 2,265 2,249 2,269 2,253 2,237 2,281 2,285
Net capacity (MW) 287 285 288 286 284 289 290
Equivalent availability factor 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%
Heat rate (Btu/kWh) 8,518 8,574 8,503 8,560 8,617 8,461 8,518
Electricity Sales Rates (cents/kWh)
JCP&L 7.98 8.12 8.26 8.40 8.54 8.70 8.89
Merchant Sales 3.73 4.06 4.41 4.81 5.26 5.78 5.95
------ ------ ------ ------ ------ ------ ------
Average all-in rate 7.44 7.63 7.77 7.96 8.16 8.31 7.58
Electricity Sales (GWh)
JCP&L 1,987 1,987 1,987 1,987 1,987 1,987 1,278
Merchant Sales 278 262 282 266 250 294 1,043
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 633
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.22 $4.34 $4.46 $4.59 $4.71 $4.83 $4.97
Annual Volume (BBtu/yr) 19,308 19,299 19,311 19,302 19,292 19,318 19,481
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-125
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results
for NEA and NJEA
Sensitivity Case D: Heat Rates Increased 10%
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,649 $73,649 $74,415 $73,266 $68,288 $73,649 $71,351
Boston Edison II 48,928 52,665 57,202 60,526 60,597 70,290 73,220
Commonwealth I 13,635 13,607 13,805 10,954 9,905 11,523 11,144
Commonwealth II 12,153 13,081 14,207 15,033 15,051 17,458 18,186
Montaup 13,550 13,550 13,691 6,453 6,476 7,385 7,588
Merchant Sales 0 2,709 3,187 2,881 2,400 4,504 4,108
Steam 1,256 1,153 1,099 1,051 729 1,137 997
Interest Income 404 404 481 552 479 518 541
-------- -------- -------- -------- -------- -------- --------
Total Revenues $163,576 $170,819 $178,088 $170,717 $163,925 $186,465 $187,135
Expenses
Operations and maintenance $8,677 $8,998 $12,825 $10,180 $3,122 $7,987 $4,264
Water costs and easement fee 304 317 331 495 883 904 925
Insurance 887 912 937 964 991 1,017 1,045
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 3,601 3,712 3,824 3,936 4,049 4,154 4,259
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service
Loss/(Savings) (4,158) (991) (1,011) (575) (753) (941) (1,133)
Other 1,039 1,062 1,076 1,036 2,190 2,413 2,309
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $13,476 $17,223 $21,286 $19,433 $13,974 $19,121 $15,350
Total fuel cost 97,264 102,243 106,015 107,798 105,766 114,007 114,608
-------- -------- -------- -------- -------- -------- --------
Total expenses $110,740 $119,466 $127,301 $127,231 $119,740 $133,127 $129,957
Operating Cash Flow $52,835 $51,353 $50,787 $43,486 $44,185 $53,338 $57,177
NJEA Operating Results
Revenues
JCP&L $142,607 $145,606 $148,580 $148,879 $147,531 $144,865 $157,667
Merchant Sales 0 8,150 7,405 8,308 8,080 7,714 10,483
Steam 2,635 2,672 2,709 2,747 2,785 2,823 2,861
Interest Income 284 284 306 389 476 396 378
-------- -------- -------- -------- -------- -------- --------
Total Revenues $145,526 $156,711 $159,000 $160,322 $158,872 $155,797 $171,389
Expenses
Operations and maintenance $9,130 $9,336 $10,447 $11,539 $7,377 $3,412 $6,780
Water costs and easement fee 800 821 842 1,094 1,687 1,719 1,751
Insurance 748 769 790 812 835 858 881
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 866 867 868 870 871 872 874
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service
Loss/(Savings) 0 0 0 0 0 0 0
Other 420 431 437 463 512 527 548
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,090 $15,438 $16,688 $18,174 $14,774 $10,973 $14,516
Total fuel cost 68,470 74,899 78,089 79,275 79,727 79,344 87,191
-------- -------- -------- -------- -------- -------- --------
Total expenses $83,560 $90,336 $94,777 $97,449 $94,501 $90,317 $101,707
Operating Cash Flow $61,966 $66,375 $64,223 $62,874 $64,371 $65,480 $69,682
Combined Operating Results
Total Revenues $309,101 $327,530 $337,088 $331,039 $322,796 $342,262 $358,524
Non-fuel operating expenses 28,566 32,660 37,974 37,607 28,748 30,093 29,866
Total fuel cost 165,734 177,142 184,104 187,073 185,493 193,350 201,798
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $114,801 $117,728 $115,011 $106,359 $108,556 $118,819 $126,860
Change in Working Capital 9,635 2,956 1,378 (1,198) (1,193) 3,252 2,634
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $105,166 $114,772 $113,632 $107,557 $109,748 $115,567 $124,225
Subordinated Management Fee $1,649 1,695 1,742 1,791 1,841 1,891 1,942
Project Securities
Principal 21,563 23,511 26,333 20,160 22,688 23,818 28,564
Interest 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Project Security Debt Service
Coverage
Project Security debt service
coverage* 1.60x 1.74x 1.70x 1.84x 1.86x 1.99x 2.05x
Minimum Project Security debt
service coverage 1.60x
Average Project Security debt
service coverage 1.94x
Distributions to NE LP $38,276 $47,794 $45,873 $48,097 $49,665 $56,486 $62,728
The Bonds
Principal 0 0 0 0 8,800 8,800 5,500
Interest 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Debt Service Coverages
Bond debt service coverage 2.49x 2.72x 2.61x 2.74x 1.90x 2.22x 2.53x
Minimum Bond debt service
coverage 1.88x
Average Bond debt service
coverage 2.33x
Consolidated coverage 1.28x 1.36x 1.33x 1.40x 1.27x 1.37x 1.44x
Minimum consolidated debt
service coverage 1.27x
Average consolidated debt
coverage 1.41x
</TABLE>
*The numerator of the Project Security Debt Service Ratio is calculated before
payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-126
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case D: Heat Rates Increased 10%
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,226 $73,649 $73,266 $68,288 $73,649 $71,351 $73,286
Boston Edison II 80,795 87,351 93,350 93,543 108,502 112,971 88,537
Commonwealth I 11,906 12,267 12,421 11,288 13,078 12,684 13,423
Commonwealth II 20,068 21,696 23,186 23,234 26,949 28,059 30,972
Montaup 8,238 8,495 8,655 8,249 9,204 9,256 9,663
Merchant Sales 3,863 5,122 4,647 3,831 7,157 6,475 18,416
Steam 1,170 1,232 1,234 855 1,334 1,170 1,374
Interest income 439 480 578 514 519 514 404
-------- -------- -------- -------- -------- -------- --------
Total Revenues $199,746 $210,293 $217,337 $209,802 $240,393 $242,479 $236,056
Expenses
Operations and maintenance $3,833 $6,174 $8,149 $3,646 $8,516 $3,601 $5,085
Water costs and easement fee 946 967 988 1,009 1,030 1,052 1,074
Insurance 1,073 1,102 1,132 1,162 1,194 1,226 1,260
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 4,362 4,464 4,564 4,661 4,756 4,846 4,943
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) (1,155) (1,185) (1,215) (622) (886) (1,099) (1,325)
Other 2,352 2,327 2,322 2,145 2,381 2,248 2,347
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,192 $17,733 $19,928 $16,098 $21,198 $16,195 $17,826
Total fuel cost 119,736 123,329 126,024 123,220 133,031 133,406 139,564
-------- -------- -------- -------- -------- -------- --------
Total expenses $134,928 $141,062 $145,952 $139,317 $154,228 $149,601 $157,390
Operating Cash Flow $64,818 $69,231 $71,385 $70,485 $86,164 $92,879 $78,666
NJEA Operating Results
Revenues
JCP&L $159,702 $162,480 $166,309 $164,315 $160,776 $175,260 $113,850
Merchant Sales 10,490 10,739 12,634 12,583 12,351 17,278 62,814
Steam 2,900 2,939 2,979 3,019 3,060 3,101 1,965
Interest income 406 323 382 493 400 284 284
-------- -------- -------- -------- -------- -------- --------
Total Revenues $173,498 $176,481 $182,303 $180,410 $176,586 $195,922 $178,913
Expenses
Operations and maintenance $4,759 $3,385 $7,447 $8,284 $3,658 $3,514 $6,869
Water costs and easement fee 1,783 1,815 1,848 1,880 1,914 1,947 1,982
Insurance 905 929 954 980 1,006 1,034 1,062
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 875 876 878 879 881 882 884
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 564 575 585 598 617 588 605
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $12,667 $11,464 $15,700 $16,718 $12,282 $12,287 $15,844
Total fuel cost 89,543 92,138 95,166 95,214 94,098 102,989 106,433
-------- -------- -------- -------- -------- -------- --------
Total expenses $102,210 $103,603 $110,866 $111,932 $106,380 $115,275 $122,277
Operating Cash Flow $71,288 $72,878 $71,437 $68,478 $70,206 $80,647 $56,636
Combined Operating Results
Total Revenues $373,244 $386,774 $399,641 $390,212 $416,979 $438,402 $414,969
Non-fuel operating expenses 27,859 29,197 35,629 32,816 33,480 28,481 33,670
Total fuel cost 209,279 215,467 221,189 218,433 227,129 236,395 245,997
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $136,106 $142,109 $142,823 $138,962 $156,370 $173,526 $135,302
Change in Working Capital 2,392 2,214 2,071 (1,661) 4,543 3,571 (4,698)
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $133,714 $139,895 $140,752 $140,623 $151,827 $169,955 $140,000
Subordinated Management Fee 1,994 2,048 2,103 2,160 2,219 2,278 2,342
Project Securities
Principal 45,349 52,641 54,021 51,801 54,616 65,223 0
Interest 29,880 25,484 20,545 15,504 10,374 4,779 0
Project Security Debt Service Coverage
Project Security debt service coverage* 1.80x 1.82x 1.92x 2.12x 2.37x 2.46x
Distributions to NE LP $58,486 $61,771 $66,185 $73,318 $86,837 $99,952 $140,000
The Bonds
Principal 8,800 13,200 22,000 22,000 26,400 35,200 66,000
Interest 15,293 14,502 13,271 11,514 9,668 7,383 3,955
Debt Service Coverages
Bond debt service coverage 2.43x 2.23x 1.88x 2.19x 2.41x 2.35x 2.00x
Consolidated coverage 1.35x 1.32x 1.28x 1.39x 1.50x 1.51x 2.00x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-127
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case D: Heat Rates Increased 10%
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.70% 2.70%
#6 fuel oil, 2.2% S ($/MMBtu) $2.74 $2.77 $2.81 $2.83 $2.86 $2.89 $2.92
#2 fuel oil ($/MMBtu) 4.42 4.51 4.61 4.67 4.73 4.79 4.85
Nominal Spot Gas Price Escalation 4.37% 4.35% 4.33% 3.80% 3.79% 3.68% 3.67%
Spot gas ($/MMBtu) 2.10 2.19 2.28 2.37 2.46 2.55 2.65
NEA Operational Factors
Net GWh generated 2,443 2,534 2,583 2,526 2,338 2,570 2,472
Net capacity (MW) 290 301 304 301 299 305 303
Equivalent availability factor 96.15% 96.15% 97.15% 95.65% 89.15% 96.15% 93.15%
Heat rate (Btu/kWh) 9,112 9,172 9,097 9,157 9,218 9,051 9,112
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Commonwealth I 6.54 6.53 6.55 5.28 5.12 5.53 5.52
Commonwealth II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Montaup 6.50 6.50 6.50 3.11 3.35 3.54 3.76
Merchant Sales 0.00 2.88 2.72 2.94 3.20 3.48 3.80
---- ----- ---- ----- ----- ---- ----
Average all-in rate 6.66 6.71 6.86 6.72 6.99 7.22 7.54
Electricity Sales (GWh)
Boston Edison I 1,133 1,133 1,145 1,127 1,051 1,133 1,098
Boston Edison II 705 705 712 701 654 705 683
Commonwealth I 208 208 211 207 193 208 202
Commonwealth II 175 175 177 174 162 175 170
Montaup 208 208 211 207 193 208 202
Merchant Sales 0 94 117 98 75 129 108
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.21 $4.30 $4.33 $4.45 $4.59 $4.82 $4.83
Annual Volume (BBtu/yr) 22,457 22,607 23,600 23,843 23,483 21,940 23,609
NJEA Operational Factors
Net GWh generated 2,071 2,361 2,344 2,307 2,216 2,101 2,320
Net capacity (MW) 252 287 285 288 286 284 289
Equivalent availability factor 93.82% 93.82% 93.82% 91.54% 88.54% 84.54% 91.54%
Heat rate (Btu/kWh) 9,963 9,307 9,432 9,354 9,416 9,479 9,307
Electricity Sales Rates (cents/kWh)
JCP&L 6.90 7.05 7.19 7.38 7.56 7.78 7.82
Merchant Sales 0.00 2.81 2.71 2.90 3.09 3.29 3.50
---- ----- ---- ----- ----- ---- -----
Average all-in rate 6.90 6.51 6.65 6.81 7.02 7.26 7.25
Electricity Sales (GWh)
JCP&L 2,071 2,071 2,071 2,021 1,955 1,866 2,021
Merchant Sales 0 290 273 287 262 235 299
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 1,013
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $3.32 $3.41 $3.53 $3.67 $3.82 $3.97 $4.04
Annual Volume (BBtu/yr) 20,636 21,975 22,110 21,597 20,895 19,962 21,605
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-128
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case D: Heat Rates Increased 10%
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.80%
#6 fuel oil, 2.2% S ($/MMBtu) $2.95 $2.98 $3.01 $3.04 $3.07 $3.10 $3.09
#2 fuel oil ($/MMBtu) 4.92 4.94 4.96 4.99 5.01 5.03 5.01
Nominal Spot Gas Price Escalation 3.66% 3.18% 3.18% 3.17% 2.70% 3.17% 3.74%
Spot gas ($/MMBtu) 2.74 2.83 2.92 3.01 3.09 3.19 3.31
NEA Operational Factors
Net GWh generated 2,521 2,556 2,526 2,338 2,570 2,472 2,521
Net capacity (MW) 301 304 301 299 305 303 301
Equivalent availability factor 95.65% 96.15% 95.65% 89.15% 96.15% 93.15% 95.65%
Heat rate (Btu/kWh) 9,172 9,097 9,157 9,218 9,051 9,112 9,172
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Commonwealth I 5.74 5.88 5.99 5.84 6.27 6.28 6.47
Commonwealth II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Montaup 3.97 4.07 4.17 4.27 4.42 4.58 4.66
Merchant Sales 4.13 4.42 4.75 5.11 5.54 5.99 6.19
---- ---- ---- ---- ---- ---- ----
Average all-in rate 7.89 8.19 8.57 8.95 9.32 9.78 9.33
Electricity Sales (GWh)
Boston Edison I 1,127 1,133 1,127 1,051 1,133 1,098 1,127
Boston Edison II 701 705 701 654 705 683 498
Commonwealth I 207 208 207 193 208 202 207
Commonwealth II 174 175 174 162 175 170 174
Montaup 207 208 207 193 208 202 207
Merchant Sales 93 116 98 75 129 108 298
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $5.01 $5.10 $5.22 $5.37 $5.62 $5.63 $5.83
Annual Volume (BBtu/yr) 22,894 23,482 23,606 23,483 21,940 23,609 22,894
NJEA Operational Factors
Net GWh generated 2,291 2,275 2,307 2,216 2,101 2,320 2,311
Net capacity (MW) 287 285 288 286 284 289 290
Equivalent availability factor 91.04% 91.04% 91.54% 88.54% 84.54% 91.54% 91.04%
Heat rate (Btu/kWh) 9,369 9,432 9,354 9,416 9,479 9,307 9,369
Electricity Sales Rates (cents/kWh)
JCP&L 7.96 8.10 8.25 8.42 8.63 8.69 8.88
Merchant Sales 3.73 4.06 4.41 4.81 5.26 5.78 5.95
---- ---- ---- ---- ---- ---- ----
Average all-in rate 7.43 7.62 7.75 7.98 8.24 8.30 7.57
Electricity Sales (GWh)
JCP&L 2,010 2,010 2,021 1,955 1,866 2,021 1,279
Merchant Sales 281 265 287 262 235 299 1,055
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 633
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.17 $4.29 $4.41 $4.56 $4.71 $4.77 $4.91
Annual Volume (BBtu/yr) 21,479 21,469 21,597 20,895 19,962 21,605 21,671
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-129
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case E: No Merchant Sales
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,649 $73,649 $74,415 $73,266 $68,288 $73,649 $71,351
Boston Edison II 48,928 52,665 57,202 60,526 60,597 70,290 73,220
Commonwealth I 13,635 13,607 13,805 10,954 9,905 11,523 11,144
Commonwealth II 12,153 13,081 14,207 15,033 15,051 17,458 18,186
Montaup 13,550 13,550 13,691 6,453 6,476 7,385 7,588
Merchant Sales 0 0 0 0 0 0 0
Steam 1,256 1,153 1,099 1,051 729 1,137 997
Interest Incomes 404 404 481 552 479 518 541
-------- -------- -------- -------- -------- -------- --------
Total Revenues $163,576 $168,110 $174,901 $167,836 $161,524 $181,961 $183,026
Expenses
Operations and maintenance $8,677 $8,859 $12,635 $10,089 $3,122 $7,987 $4,264
Water costs and easement fee 304 317 331 495 883 904 925
Insurance 887 912 937 964 991 1,017 1,045
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 3,601 3,712 3,824 3,936 4,049 4,154 4,259
Management fee 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Peak Service Loss/(Savings) (4,158) (991) (1,011) (575) (753) (941) (1,133)
Other 1,039 1,062 1,076 1,036 2,190 2,413 2,309
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $13,476 $17,084 $21,096 $19,341 $13,974 $19,121 $15,350
Total fuel cost 91,654 93,846 96,726 98,750 97,386 103,558 104,558
-------- -------- -------- -------- -------- -------- --------
Total expenses $105,130 $110,930 $117,822 $118,091 $111,359 $122,679 $119,907
Operating Cash Flow $58,445 $57,180 $57,079 $49,745 $50,165 $59,282 $63,119
NJEA Operating Results
Revenues
JCP&L $142,607 $145,606 $148,580 $148,879 $147,531 $144,865 $157,667
Merchant Sales 0 0 0 0 0 0 0
Steam 2,635 2,672 2,709 2,747 2,785 2,823 2,861
Interest income 284 284 306 389 476 396 378
-------- -------- -------- -------- -------- -------- --------
Total Revenues $145,526 $148,562 $151,595 $152,014 $150,792 $148,083 $160,906
Expenses
Operations and maintenance $9,130 $9,336 $10,447 $11,539 $7,377 $3,412 $6,780
Water costs and easement fee 800 821 842 1,094 1,687 1,719 1,751
Insurance 748 769 790 812 835 858 881
G&A and Professional fees 650 668 687 706 726 746 766
Property tax 866 867 868 870 871 872 874
Management fees 2,026 2,083 2,141 2,201 2,263 2,324 2,387
Fuel management fee 450 463 476 489 503 516 530
Gas Hedge & Park Service Loss/(Savings) 0 0 0 0 0 0 0
Other 420 431 437 463 512 527 548
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expenses $15,090 $15,438 $16,688 $18,174 $14,774 $10,973 $14,516
Total fuel cost 62,837 64,906 68,114 68,649 69,522 69,681 75,183
-------- -------- -------- -------- -------- -------- --------
Total expenses $77,927 $80,344 $84,802 $86,823 $84,296 $80,654 $89,699
Operating Cash Flow $67,598 $68,218 $66,793 $65,191 $66,496 $67,429 $71,207
Combined Operating Results
Total Revenues $309,101 $316,672 $326,496 $319,850 $312,316 $330,044 $343,932
Non-fuel operating expenses 28,566 32,522 37,784 37,515 28,748 30,093 29,866
Total fuel cost 154,491 158,752 164,839 167,399 166,908 173,240 179,741
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $126,044 $125,398 $123,872 $114,936 $116,661 $126,711 $134,326
Change in Working Capital 10,097 1,260 1,465 (1,293) (1,110) 2,995 2,279
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $115,947 $124,138 $122,408 $116,230 $117,771 $123,716 $132,047
Subordinated Management Fee $1,649 $1,695 $1,742 $1,791 $1,841 $1,891 $1,942
Project Securities
Principal 21,563 23,511 26,333 20,160 22,688 23,818 28,564
Interest 45,327 43,468 41,426 39,300 37,396 35,264 32,933
Project Security Debt Service Coverage
Project Security debt service coverage* 1.76x 1.88x 1.83x 1.98x 1.99x 2.13x 2.18x
Minimum Project Security debt service coverage 1.76x
Average Project Security debt service coverage 2.05x
Distributions to NE LP $49,058 $57,160 $54,648 $56,770 $57,687 $64,634 $70,550
The Bonds
Principal 0 0 0 0 8,800 8,800 8,800
Interest 15,381 17,578 17,578 17,578 17,402 16,699 15,996
Debt Service Coverages
Bond debt service coverage 3.19x 3.25x 3.11x 3.23x 2.20x 2.53x 2.85x
Minimum Bond debt service coverage 1.37x
Average Bond debt service coverage 2.59x
Consolidated coverage 1.41x 1.47x 1.43x 1.51x 1.36x 1.46x 1.53x
Minimum consolidated debt service coverage 1.34x
Average consolidated coverage 1.45x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is
calculated before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-130
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Base Case E. No Merchant Sales
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NEA Operating Results
Revenues
Boston Edison I $73,266 $73,649 $73,266 $68,288 $73,649 $71,351 $73,266
Boston Edison II 80,795 87,351 93,350 93,543 108,502 112,971 88,537
Commonwealth I 11,906 12,267 12,421 11,288 13,078 12,684 13,423
Commonwealth II 20,068 21,696 23,186 23,234 26,949 28,059 30,972
Montaup 8,238 8,495 8,655 8,249 9,204 9,256 9,663
Merchant Sales 0 0 0 0 0 0 0
Steam 1,170 1,232 1,234 855 1,334 1,170 1,374
Interest Income 439 480 578 514 519 514 404
-------- -------- -------- -------- -------- -------- --------
Total Revenues $195,884 $205,171 $212,690 $205,971 $233,236 $236,005 $217,640
Expenses
Operations and maintenance $3,833 $6,174 $8,149 $3,646 $8,516 $3,601 $5,085
Water costs and easement fee 946 967 988 1,009 1,030 1,052 1,074
Insurance 1,073 1,102 1,132 1,162 1,194 1,226 1,260
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 4,362 4,464 4,564 4,661 4,756 4,846 4,943
Management fees 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) (1,155) (1,185) (1,215) (622) (886) (1,099) (1,325)
Other 2,352 2,327 2,322 2,145 2,381 2,248 2,347
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $15,192 $17,733 $19,928 $16,098 $21,198 $16,195 $17,826
Total fuel cost 109,607 112,259 115,195 113,241 120,665 121,557 127,608
-------- -------- -------- -------- -------- -------- --------
Total expenses $124,799 $129,992 $135,124 $129,339 $141,863 $137,752 $145,434
Operating Cash Flow $71,085 $75,179 $77,567 $76,632 $91,373 $98,253 $72,206
NJEA Operating Results
Revenues
JCP&L $159,702 $162,480 $166,309 $164,315 $160,776 $175,260 $113,850
Merchant Sales 0 0 0 0 0 0 0
Steam 2,900 2,939 2,979 3,019 3,060 3,101 1,965
Interest Income 406 323 382 493 400 284 284
-------- -------- -------- -------- -------- -------- --------
Total Revenues $163,008 $165,741 $169,669 $167,826 $164,235 $178,645 $116,099
Expenses
Operations and maintenance $4,759 $3,385 $7,447 $8,284 $3,658 $3,514 $6,869
Water costs and easement fee 1,783 1,815 1,848 1,880 1,914 1,947 1,982
Insurance 905 929 954 980 1,006 1,034 1,062
G&A and Professional fees 786 808 829 852 875 898 924
Property tax 875 876 878 879 881 882 884
Management fee 2,451 2,517 2,585 2,655 2,727 2,800 2,879
Fuel management fee 544 559 574 590 606 622 639
Gas Hedge & Peak Service Loss/(Savings) 0 0 0 0 0 0 0
Other 564 575 585 598 617 588 605
-------- -------- -------- -------- -------- -------- --------
Non-fuel operating expense $12,667 $11,464 $15,700 $16,718 $12,282 $12,287 $15,844
Total fuel cost 77,719 80,506 82,499 83,102 82,708 88,877 91,678
-------- -------- -------- -------- -------- -------- --------
Total expenses $90,386 $91,971 $98,199 $99,820 $94,991 $101,164 $107,522
Operating Cash Flow $72,621 $73,771 $71,470 $68,006 $69,245 $77,481 $8,577
Combined Operating Results
Total Revenues $358,891 $370,913 $382,360 $373,797 $397,471 $414,649 $333,739
Non-fuel operating expenses 27,859 29,197 35,629 32,816 33,480 28,481 33,670
Total fuel cost 187,326 192,766 197,694 196,343 203,373 210,435 219,286
-------- -------- -------- -------- -------- -------- --------
Operating Cash Flow $143,706 $148,949 $149,037 $144,638 $160,618 $175,733 $80,784
Change in Working Capital 2,432 1,968 1,843 (1,560) 4,044 2,883 (15,217)
-------- -------- -------- -------- -------- -------- --------
Cash Available for Debt Service $141,274 $146,981 $147,194 $146,198 $156,574 $172,851 $96,001
Subordinated Management Fee 1,994 2,048 2,103 2,160 2,219 2,278 2,342
Project Securities
Principal 45,349 52,641 54,021 51,801 54,616 65,223 0
Interest 29,880 25,484 20,545 15,504 10,374 4,779 0
Project Security Debt Service Coverage
Project Security debt service coverage* 1.90x 1.91x 2.00x 2.20x 2.44x 2.50x
Distribution to NE LP $66,046 $68,857 $72,627 $78,893 $91,584 $102,848 $96,001
The Bonds
Principal 8,800 13,200 22,000 22,000 26,400 35,200 66,000
Interest 15,293 14,502 13,271 11,514 9,668 7,383 3,955
Debt Service Coverages
Bond debt service coverage 2.74x 2.49x 2.06x 2.35x 2.54x 2.42x 1.37x
Consolidated coverage 1.42x 1.39x 1.34x 1.45x 1.55x 1.54x 1.37x
</TABLE>
*The numerator of the Project Security Debt Service Coverage Ratio is calculated
before payment of a subordinated management fee.
Amounts may not add due to rounding.
These financial projects should be read in conjunction with the attached
Summary of Underlying Assumptions.
B-131
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case E: No Merchant Sales
(data in $000's unless noted)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.70% 2.70%
#6 fuel oil, 2.2% S ($/MMBtu) $2.74 $2.77 $2.81 $2.83 $2.86 $2.89 $2.92
#2 fuel oil ($/MMBtu) 4.42 4.51 4.61 4.67 4.73 4.79 4.85
Nominal Spot Gas Price Escalation 4.37% 4.35% 4.33% 3.80% 3.79% 3.68% 3.67%
Spot gas ($/MMBtu) 2.10 2.19 2.28 2.37 2.46 2.55 2.65
NEA Operational Factors
Net GWh generated 2,443 2,443 2,468 2,430 2,265 2,443 2,366
Net capacity (MW) 290 290 290 290 290 290 290
Equivalent availability factor 96.15% 96.15% 97.15% 95.65% 89.15% 96.15% 93.15%
Heat rate (Btu/kWh) 8,283 8,399 8,270 8,325 8,380 8,229 8,283
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Commonwealth I 6.54 6.63 6.55 5.28 5.12 5.53 5.52
Commonwealth II 6.94 7.47 8.03 8.63 9.27 9.97 10.72
Montaup 6.50 6.50 6.50 3.11 3.35 3.54 3.76
Merchant Sales 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.66 6.85 7.05 6.87 7.11 7.41 7.70
Electricity Sales (GWh)
Boston Edison I 1,133 1,133 1,145 1,127 1,051 1,133 1,098
Boston Edison II 705 705 712 701 654 705 683
Commonwealth I 208 208 211 207 193 208 202
Commonwealth II 175 175 177 174 162 175 170
Montaup 208 208 211 207 193 208 202
Merchant Sales 0 0 0 0 0 0 0
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.37 $4.46 $4.54 $4.67 $4.81 $5.04 $5.07
Annual Volume (BBtu/yr) 20,416 20,552 20,689 20,724 20,551 19,332 20,416
NJEA Operational Factors
Net GWh generated 2,071 2,071 2,071 2,021 1,955 1,866 2,021
Net capacity (MW) 252 252 252 252 252 252 252
Equivalent availability factor 93.82% 93.82% 93.82% 91.54% 88.54% 84.54% 91.54%
Heat rate (Btu/kWh) 9,057 9,057 9,178 9,102 9,163 9,224 9,057
Electricity Sales Rates (cents/kWh)
JCP&L 6.90 7.05 7.19 7.38 7.56 7.78 7.82
Merchant Sales 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------
Average all-in rate 6.90 7.05 7.19 7.38 7.56 7.78 7.82
Electricity Sales (GWh)
JCP&L 2,071 2,071 2,071 2,021 1,955 1,866 2,021
Merchant Sales 0 0 0 0 0 0 0
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 1,013
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $3.35 $3.46 $3.58 $3.73 $3.88 $4.04 $4.11
Annual Volume (BBtu/yr) 18,760 18,760 19,011 18,405 17,933 17,256 18,313
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-132
<PAGE>
ESI Tractebel Acquisition Corp. -- Projected Operating Results for NEA and NJEA
Sensitivity Case E: No Merchant Sales
(data in $000's unless noted)
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Prices
Inflation 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.80%
#6 fuel oil, 2.2% S ($/MMBtu) $2.95 $2.98 $3.01 $3.04 $3.07 $3.10 $3.09
#2 fuel oil ($/MMBtu) 4.92 4.94 4.96 4.99 5.01 5.03 5.01
Nominal Spot Gas Price Escalation 3.66% 3.18% 3.18% 3.17% 2.70% 3.17% 3.74%
Spot gas ($/MMBtu) 2.74 2.83 2.92 3.01 3.09 3.19 3.31
NEA Operational Factors
Net GWh generated 2,430 2,443 2,430 2,265 2,443 2,366 2,430
Net capacity (MW) 290 290 290 290 290 290 290
Equivalent availability factor 95.65% 96.15% 95.65% 89.15% 96.15% 93.15% 95.65%
Heat rate (Btu/kWh) 8,339 8,270 8,325 8,380 8,229 8,283 8,339
Electricity Sales Rates (cents/kWh)
Boston Edison I 6.50 6.50 6.50 6.50 6.50 6.50 6.50
Boston Edison II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Commonwealth I 5.74 5.88 5.99 5.84 6.27 6.28 6.47
Commonwealth II 11.52 12.39 13.31 14.31 15.39 16.54 17.78
Montaup 3.97 4.07 4.17 4.27 4.42 4.58 4.66
Merchant Sales 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ---- ---- ----
Average all-in rate 8.03 8.37 8.72 9.07 9.51 9.94 8.92
Electricity Sales (GWh)
Boston Edison I 1,127 1,133 1,127 1,051 1,133 1,098 1,127
Boston Edison II 701 705 701 654 705 683 498
Commonwealth I 207 208 207 193 208 202 207
Commonwealth II 174 175 174 162 175 170 174
Montaup 207 208 207 193 208 202 207
Merchant Sales 0 0 0 0 0 0 0
Steam volume (MMlbs) 568 568 568 568 568 568 568
CO2 output (ton/day) 330 330 330 330 330 330 330
Delivered Natural Gas - Average all-in
cost ($MMBtu) $5.25 $5.32 $5.47 $5.61 $5.86 $5.91 $6.10
Annual Volume (BBtu/yr) 19,933 20,585 20,518 20,551 19,332 20,416 19,933
NJEA Operational Factors
Net GWh generated 2,010 2,010 2,021 1,955 1,866 2,021 2,010
Net capacity (MW) 252 252 252 252 252 252 252
Equivalent availability factor 91.04% 91.04% 91.54% 88.54% 84.54% 91.54% 91.04%
Heat rate (Btu/kWh) 9,117 9,178 9,102 9,163 9,224 9,057 9,117
Electricity Sales Rates (cents/kWh)
JCP&L 7.96 8.10 8.25 8.42 8.63 8.69 8.88
Merchant Sales 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ---- ---- ----
Average all-in rate 7.96 8.10 8.25 8.42 8.63 8.69 8.88
Electricity Sales (GWh)
JCP&L 2,010 2,010 2,021 1,955 1,866 2,021 1,279
Merchant Sales 0 0 0 0 0 0 0
Steam volume (MMlbs) 1,013 1,013 1,013 1,013 1,013 1,013 633
Delivered Natural Gas - Average all-in
cost ($/MMBtu) $4.24 $4.36 $4.48 $4.63 $4.79 $4.85 $5.00
Annual Volume (BBtu/yr) 18,337 18,459 18,405 17,933 17,256 18,313 18,337
</TABLE>
These financial projections should be read in conjunction with the
attached Summary of Underlying Assumptions.
B-133
<PAGE>
APPENDIX C
- --------------------------------------------------------------------------------
NORTHEAST ENERGY ASSOCIATES AND
NORTH JERSEY ENERGY ASSOCIATES COGENERATION PROJECTS
FUEL CONSULTANT'S REPORT
FINAL REPORT
By:
Benjamin Schlesinger and Associates, Inc.
The Bethesda Gateway
7201 Wisconsin Avenue, Suite 740
Bethesda, MD 20814
February 12, 1998
- --------------------------------------------------------------------------------
Legal Notice: This report is meant to be read as a whole. In preparing this
report, BSA relied on information and statements obtained from various sources,
including ESI Energy, Tractebel Power and other private and governmental
entities. BSA makes no assurances as to the accuracy of any such information and
statements or any conclusions based thereon. Neither BSA nor any BSA employee:
(a) makes any warranty, expressed or implied, with respect to the use of any
information, statements, conclusions, or methods disclosed in this report; or
(b) assumes any liability with respect to the use of any information,
statements, conclusions, or methods disclosed in this report.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc.
C-1
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
I. INTRODUCTION......................................................... 1
II. SUMMARY AND CONCLUSIONS.............................................. 4
III. NEA'S AND NJEA'S FUEL SUPPLY AND DELIVERY ARRANGEMENTS............... 7
A. Firm Gas Supply Arrangements...................................... 7
1. ProGas:.................................................... 7
2. PSE&G:..................................................... 10
B. Gas Storage Arrangements.......................................... 11
C. Firm Gas Transportation Arrangements.............................. 12
1. CNG........................................................ 12
2. Transco.................................................... 12
3. TETCO...................................................... 13
4. Algonquin (NEA only)....................................... 13
5. PSE&G (NJEA only).......................................... 14
D. Peak Shaving Arrangements......................................... 14
1. NEA........................................................ 14
2. NJEA....................................................... 14
IV. ANALYSIS OF PRO FORMA GAS COSTS TO NEA/NJEA.......................... 16
V. ASSESSMENT OF NEA/NJEA'S NON-CONTRACT GAS PROCUREMENT................ 18
VI. ANALYSIS OF POTENTIAL FUEL ISSUES.................................... 20
A. ProGas's lay-off gas responsibilities............................. 20
B. Continuation of interstate pipeline services beyond contract
expiration........................................................ 20
C. Economic Risk of PSE&G Contract Termination in 2011............... 22
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page ii
C-2
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
LIST OF EXHIBITS
Exhibit 1 - NEA: Schematic of Firm Daily Contract Capacities................. 2
Exhibit 2 - NJEA: Schematic of Firm Daily Contract Capacities................ 3
Exhibit 3 - Summary of NEA's and NJEA's Gas Supply and
Transportation Portfolio......................................... 4
Exhibit 4 - NEA and NJEA Gas Supply Sources by Price Category: 10/95-9/97.... 5
Exhibit 5 - TETCO Receipt/Delivery Points & MDQs............................. 13
Exhibit 6 - Comparison of Henry Hub Gas Price Forecasts...................... 18
LIST OF APPENDICES
Appendix A: Power Contract and Gas Price Comparisons
Appendix B: Catalogue of Principal NEA/NJEA Fuel Contracts
Appendix C: Analysis of Transco's and CNG's Part 284 and 7(c) Rates
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page iii
C-3
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
NORTHEAST ENERGY ASSOCIATES AND
NORTH JERSEY ENERGY ASSOCIATES COGENERATION PROJECTS
("NEA" and "NJEA") FUEL CONSULTANT'S REPORT
I. INTRODUCTION
NEA and NJEA constructed and, since 1991, have operated two 300 MW,
gas-fired, combined cycle cogeneration facilities located respectively in
Bellingham, MA and Sayreville, NJ. NECO, a carbon dioxide manufacturer, serves
as the steam host for the NEA facility while Hercules, Inc., a chemical
manufacturer, is the steam host for NJEA. NEA has contracted to sell 290 MW of
its electric generating capacity to Boston Edison Company, Commonwealth Electric
Company, and Montaup Electric Company while NJEA sells approximately 252 MW of
its generating capacity to Jersey Central Power and Light Company.
In light of their anticipated and continuing high load factor of
operations (approximately 94%), NEA and NJEA have adopted a fuel strategy that
involves long-term, firm gas supply and transportation arrangements. Each has
entered into long-term gas purchase contracts with ProGas, Ltd. ("ProGas"), a
major Canadian gas supplier. In addition, NJEA has entered into a long-term gas
purchase and delivery agreement with Public Service Electric and Gas Company
("PSE&G") of New Jersey. Both projects also have long-term gas storage contracts
with CNG Transmission Corporation ("CNG"). In addition, both projects have
executed long-term, firm transportation (FT) service agreements with CNG,
Transcontinental Gas Pipe Line Corporation ("Transco," a subsidiary of
Williams), and Texas Eastern Transmission Company ("TETCO," a subsidiary of Duke
Energy Company). NEA also has a long-term FT contract with Algonquin Gas
Transmission Company ("Algonquin," also a subsidiary of Duke Energy Company).
As illustrated in Exhibits 1 and 2, respectively for NEA and NJEA, this
set of long-term agreements enables the projects to secure approximately 80% of
their combined overall natural gas requirements on a firm basis if they operated
100% of the time./1 According to plan, NEA and NJEA satisfy the remaining 20% of
their gas requirements through spot purchases delivered both to storage and
directly to the plants, primarily in the non-winter months of April through
October.
Subsidiaries of ESI Energy, Inc. and Tractebel Power, Inc. (the
"Owners"), as owners of Northeast Energy, LP ("NE LP"), are involved in a
capital market financing in connection with the acquisition of interest in the
partnerships that own the NEA and NJEA projects, with closing expected to take
place in February 1998. The bonds, which will mature by December 30, 2011, are
expected to have an average life of approximately 11 years.
In conjunction with the proposed financing, Benjamin Schlesinger and
Associates, Inc. (BSA) was retained to prepare the following fuel due diligence
report. BSA is a natural gas consulting firm based in Bethesda, MD, specializing
in all strategic aspects of the natural gas
- -----------------
1 Actual, as opposed to contract, firm gas supplies to the projects equaled
approximately 85% over the past two years.
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industry. Since 1984, BSA has prepared fuel supply audits, fuel plans and
similar analyses for 94 cogenerators and independent power projects in the U.S.,
Canada, Mexico, and Colombia. BSA's clients have included all major banks and
project developers, as well as investors, governments, fuel suppliers, and
others. In particular, BSA's previous independent opinion reports concerning NEA
and NJEA include fuel due diligence reports in 1990 and 1994 in conjunction with
construction financing and subsequent refinancing, respectively.
The purpose of this report is to provide a timely due diligence analysis
and evaluation of the fuel supply, transportation and delivery arrangements to
serve NEA and NJEA.
Exhibit 1 - NEA: Schematic of Firm Daily Contract Capacities
[GRAPHIC OMITTED]
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Exhibit 2 - NJEA: Schematic of Firm Daily Contract Capacities
[GRAPHIC OMITTED]
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II. SUMMARY AND CONCLUSIONS
Overall Fuel Supply Plan: NEA and NJEA have arranged a portfolio of gas
supply, transportation and storage arrangements, summarized below in Exhibit
3, that has succeeded in matching the economic terms of their power sales
agreements, and has fully met their physical operating fuel requirements.
This same set of arrangements has been in place with minor modification
since the projects' initial operation in September 1991. Under this set of
long-term gas supply, transportation and storage arrangements, NEA and NJEA
have secured delivery of their contract gas supplies to the plants on a
highly reliable basis, and neither has ever had to shut down due to lack of
fuel availability since start-up.
Exhibit 3 - Summary of NEA's and NJEA's Principal Gas Supply and
Transportation Portfolio
<TABLE>
<CAPTION>
Gas Supplier Plant Volume Supply Source
------------ ----- ------ -------------
<S> <C> <C> <C>
ProGas NEA 48,817 Dth/day Alberta
NJEA 22,019 Dth/day Alberta
PSE&G NJEA 25,000 Dth/day PSE&G system supply
CNG Storage NEA 14,000 Dth/day Various (On withdrawal days)+
NJEA 10,508 Dth/day Various (On withdrawal days)+
Spot Volumes NEA 14,000 Dth/day Various (On non-withdrawal days)
NJEA 10,508 Dth/day Various (On non-withdrawal days)
<CAPTION>
Firm Transporter Plant Volume From To
---------------- ----- ------ ---- --
<S> <C> <C> <C> <C>
CNG NEA 48,817 Dth/day Niagara, NY (ProGas) Leidy, PA
NJEA 22,019 Dth/day Niagara, NY (ProGas) Leidy, PA
Transco NEA 48,800 Mcf/day Leidy, PA Centreville, NJ
NJEA 22,019 Mcf/day Leidy, PA Centreville, NJ
TETCO NEA 14,000 Dth/day CNG Storage Centreville, NJ*
NJEA 10,508 Dth/day CNG Storage Sayreville, NJ*
Algonquin NEA 62,000 Dth/day Centreville, NJ Plant
PSE&G NJEA 32,527 Dth/day Sayreville, NJ Plant
</TABLE>
+ Storage injection spot volumes are not indicated in this table.
* This route is representative; the contract permits certain amount of gas
flows in the opposite direction as well.
Linkage of Fuel Costs and Power Revenues: NJEA's power revenues are based on
the delivered cost of gas to New Jersey electric utilities as reported on
Federal Energy Regulatory Commission (FERC) Form 423. NJEA's gas supply
prices are tied to its power revenues (a) directly in its ProGas contract,
which escalates with Form 423 prices in New Jersey, and (b) indirectly
through the commodity cost of PSE&G sales service, which correlates highly
(91.8%) with Form 423 prices in New Jersey. NEA's power revenues are based
on a mix of fixed and avoided cost pricing. NEA's ProGas supplies are priced
to match power revenues, while the remainder of its gas purchases (NJEA's
ProGas supplies
- --------------------------------------------------------------------------------
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delivered to NEA and spot gas) also match power revenues. We conclude that,
taken together, NEA and NJEA's delivered fuel costs and power revenues are
naturally hedged; i.e., the degree to which NJEA's and NEA's gas purchases
are tied to their energy payments equals approximately 95% and 91%,
respectively (see Exhibit 4 below and Appendix A):
Exhibit 4 - NEA and NJEA Gas Supply Sources by Price Category: 10/95-9/97
[GRAPHIC OMITTED]
Projected Cost of Gas: In our opinion, the assumptions contained in NE LP's
pro forma financial model for the NEA and NJEA projects, as they relate to
the current and projected price of natural gas, are reasonable. As a
sensitivity analysis, BSA requested the Owners to modify the projections of
gas prices contained in NE LP's pro forma model. The resulting financial
projections indicated that expected cash flows for NE LP are robust enough
to withstand alternative foreseeable fuel price scenarios.
Gas Supply and Transportation Arrangements: NEA's and NJEA's contracted gas
supply, storage and transportation services are adequate to satisfy 80% of
the plants' daily fuel requirements at full operations. NEA and NJEA's
amended firm gas supply contracts with ProGas extend to 2013 and NJEA's
supply contract with PSE&G extends to 2011. The projects' transportation
agreements with CNG, Transco, Tetco and Algonquin extend to 2011, 2006, 2012
and 2016, respectively. We considered and resolved in this report three
issues associated with NEA's and NJEA's gas supply and transportation
arrangements:
o While NEA and NJEA will continue to rely on non-contract gas
supplies for approximately 20% of their combined daily fuel
requirements during most of the next 15 years,/2 we conclude that
NEA and NJEA are well positioned to continue to obtain competitive
and reliable spot supplies because of (a) the significant liquidity
of spot gas markets as an ongoing feature of the Northeast natural
gas industry, and (b) their individual and combined purchasing
power. Most prudent fuel managers in the U.S.
- -----------------
2 Virtually all the projects' spot gas is consumed at NEA, as shown in Exhibit
4.
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rely with comfort on spot gas market purchases for a portion of
their gas procurement practices and systems.
o While NEA and NJEA's gas transportation contracts with Transco and
CNG expire on October 31, 2006 and November 1, 2011, respectively,
as federally regulated interstate pipelines, neither can simply
abandon transportation services. Instead, both pipelines are
required to offer NEA and NJEA the right to extend their
transportation contracts on a year-to-year basis upon expiration. In
order to abandon service to NEA and NJEA, Transco or CNG would have
to receive approval from the FERC, and BSA is unaware of any
instance where the FERC has approved a contested abandonment
application. As a worst case, in order to retain firm transportation
(FT) services provided by Transco and CNG beyond their terminations
in 2006 and 2011, respectively, NEA and NJEA might have to pay the
maximum prevailing Part 284 rates after the contracts expire,
instead of their currently lower rates. We project that Transco's
Part 284 rates during the five years from 2006 to 2011 will be 5%
higher than the Transco rates used in NE LP's pro forma model.
Therefore, even if Transco requires both projects to convert to Part
284 service in 2006, their gas transportation rates would not
increase significantly over their projected Section 7(c) rates.
Likewise, we estimate that CNG's Part 284 rate may exceed by
approximately 20% the projects' negotiated Section 7(c) rates during
November and December of 2011, the two months following contract
termination, which could result in an additional expenditure of
approximately $329,000 in 2011. Sensitivity analysis of NE LP's pro
forma financial model indicated these additional expenditures would
not have a material impact on cash flow available to NE LP or on
debt coverages.
o While NJEA's 20-year gas supply and transportation contract with
PSE&G expires on August 12, 2011, we believe that PSE&G will
continue to maintain the capability to provide competitive rates to
customers of NJEA's size, flexibility, and physical access to
alternative suppliers. NJEA pays PSE&G a price equal to PSE&G's
weighted average cost of gas (WACOG) plus an added negotiated rate.
PSE&G's WACOG correlates significantly (96.4% for the past two
years) with spot gas market prices in the New York-New Jersey
region./3 Moreover, we reasonably expect that PSE&G will continue to
provide customers like NJEA with competitively priced gas
transportation services, as they have in the past, because of NJEA's
scale, flexibility and location. Consequently, as documented later
in this report, we foresee no material adverse economic impact upon
NJEA's financial projections associated with the termination of the
PSE&G contract as scheduled in 2011.
In light of the foregoing, we conclude that NEA and NJEA have executed
exceptionally strong fuel supply and transportation strategies, and will be able
to continue meeting all of their gas requirements reliably, and in a way that
will protect bondholders at least over the next 15 years.
- -----------------
3 PSE&G's WACOG has averaged approximately 3.5% less than spot gas market prices
in the region since 1995.
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III. NEA'S AND NJEA'S FUEL SUPPLY AND DELIVERY ARRANGEMENTS
In this section, we briefly describe NEA's and NJEA's gas purchase and
delivery portfolio, which consists of four basic components: firm supply, firm
transportation, firm storage, and spot gas. We also describe the peak shaving
arrangements for each plant.
A. Firm Gas Supply Arrangements
NEA and NJEA have arranged to buy up to a combined maximum daily
quantity ("MDQ") of 70,836 MMBtu/day of firm gas supply from ProGas. In
addition, NJEA has arranged to buy up to 25,000 MMBtu/day of firm gas supply
from PSE&G (see Part 2 of this section).
1. ProGas:
ProGas is a major Canadian aggregator and marketer of natural gas.
ProGas holds more than 4 trillion cubic feet (Tcf) of proved and probable gas
reserves, approximately twice the amount needed to meet all of its long-term
requirements, including its contract commitment to NEA and NJEA./4
On May 12, 1988, NEA and NJEA each contracted to purchase from ProGas an
MDQ of 30,358 MMBtu/day and on October 28, 1988, both plants increased their
respective MDQs, as permitted under the original contract, by 5,060 MMBtu/day to
35,418 MMBtu/day. On July 2, 1991, NEA and NJEA notified ProGas of their
intention to divert 13,399 MMBtu/day from NJEA to NEA, thereby raising NEA's MDQ
to 48,817 MMBtu/day and decreasing NJEA's MDQ to 22,019 Dth/day. ProGas prices
the gas diverted from NJEA to NEA as per the NJEA contract (see pricing
description in NJEA Price below). Both ProGas contracts, as amended, extend to
November 2013.
ProGas delivers the daily nominations up to the MDQ for NEA and NJEA to
the interconnection of TransCanada Pipelines Ltd. ("TCPL") and CNG at Niagara
Falls, on the international border between the province of Ontario, Canada, and
the State of New York.
In any contract year (November 1 - October 31), NEA and NJEA must take
from ProGas at least 75% of the sum of their respective MDQs of gas in the
contract year. Should NEA and NJEA fail to take this threshold quantity of gas
in any contract year n, then, in the following contract year n+1, they are
obligated to take (i) the threshold quantity for contract year n+1, plus (ii)
the shortfall from contract year n. Take-or-pay requirements under the contracts
are both 75%, which level is well below anticipated operating requirements of
NEA and NJEA. See the section in this report, entitled ANALYSIS OF POTENTIAL
FUEL ISSUES.
- -----------------
4 Source: John R. Lacey International, Ltd., Gas Reserves and Resources and the
Supply to Meet Requirements of Gas Sales Contracts, prepared for ProGas Limited
and Various Gas Buyers, June 1996.
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NEA Price: ProGas charges a monthly demand charge and a commodity charge
for gas purchased under the NEA contract. The monthly demand charge is
determined as follows:
- --------------------------------------------------------------------------------
Monthly Demand Chargei = Average MDi x Monthly Demand Ratei
where:
i = billing month
The Monthly Demand Ratei is the sum of the following charges in the billing
month:
(a) the monthly demand charge per Mcf on TCPL's system for transporting the gas
to Niagara Falls,
(b) the monthly demand charge per Mcf that NOVA charges ProGas for gathering and
delivering the gas to the Alberta/Saskatchewan border, and
(c) ProGas' monthly demand charge per Mcf approved by the Alberta Petroleum
Marketing Commission.
- --------------------------------------------------------------------------------
The Commodity Charge per MMBtu is calculated as follows:
- --------------------------------------------------------------------------------
Commodity Chargei = Base Pricen - (MHDRi x 12)/365
where:
i = billing month
n = contract year
"MHDR" is the Monthly Heating Demand Rate and is simply the Monthly Demand Rate
per MMBtu payable in the billing month.2
- --------------------------------------------------------------------------------
The initial commodity charge for 1/1/90 was US$ 1.9365 per MMBtu. The
Base Price is determined on January 1 of every year as follows:
- --------------------------------------------------------------------------------
Base Pricen = Base Pricen-1 x [{(Fixed Rate Sales/Total NEA Sales) x Fixed Price
Escalator} + {(Avoided Cost Sales/Total NEA Sales) x (Avoided Cost Sales
Raten/Avoided Cost Sales Raten-1)}]
where:
n = year of calculation
Fixed Rate Sales is the sum of total megawatt power sales that NEA has
contracted for at fixed rates and cannot be less than 100 MW.
Avoided Cost Sales is the sum of total megawatt power sales that NEA has
contracted for on the basis of the avoided cost of the power purchasers and
cannot exceed 150 MW.
Total Sales is the sum of fixed rate sales and avoided cost sales.
Fixed Price Escalator = 1.1478 (1/1/91)
= 1.1364 (1/1/92)
= 1.0750 (1/1/93 onwards)
Avoided Cost Sales Rate is the weighted average unit sales rate (cents/kWh) of
power sold by NEA under avoided cost sales contracts. This rate can never be
less than 6.5 cents/kWh.
- --------------------------------------------------------------------------------
NJEA Price: ProGas charges a monthly demand charge and a commodity
charge for gas purchased under the NJEA contract. The monthly demand charge is
determined as follows:
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- --------------------------------------------------------------------------------
Monthly Demand Chargei = Average MDQi x Monthly Demand Ratei
where:
i = billing month
The Monthly Demand Ratei is the sum of the following charges in the billing
month:
(i) the monthly demand charge per Mcf on TCPL's system for transporting
the gas to Niagara Falls,
(ii) the monthly demand charge per Mcf that NOVA charges ProGas for
gathering and delivering the gas to the Alberta/Saskatchewan border,
and
(iii) ProGas' monthly demand charge per Mcf approved by the Alberta Petroleum
Marketing Commission.
- --------------------------------------------------------------------------------
The Commodity Charge per MMBtu is calculated as follows:
- --------------------------------------------------------------------------------
Commodity Chargei = Base Pricen - (MHDRi x 12)/365
where:
i = billing month
n = contract year
"MHDR" is the Monthly Heating Demand Rate and is the Monthly Demand Rate per
MMBtu in the billing month.
- --------------------------------------------------------------------------------
The initial commodity charge for 1/1/90 was US$ 1.9365 per MMBtu. The
Base Price is determined on January 1 of every year as follows:
- --------------------------------------------------------------------------------
Base Pricen = Base Pricen-1 x [NGCn-1/NGCn-2]
where:
n = year of calculation
NGC = cost of natural gas purchased by New Jersey electric
utilities, as reported on FERC Form 423
- --------------------------------------------------------------------------------
Under 1993 amendments to the ProGas contracts, if NEA or NJEA do not
require gas because of a scheduled or unscheduled outage at the plants, ProGas
must use all reasonable efforts to remarket the gas ("layoff" sale). If ProGas
makes layoff sales, NEA or NJEA will be relieved of their purchase obligations
by the amount of the layoff sales and will receive a commensurate credit of the
monthly demand charges, see ANALYSIS OF POTENTIAL FUEL ISSUES.
- --------------------------------------------------------------------------------
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2. PSE&G:
PSE&G is a major natural gas utility ($14.7 billion in assets as of
12/31/96) whose franchised service area covers much of northern and central New
Jersey. PSE&G provides firm gas supply service to NJEA for up to 25,000
MMBtu/day until August 12, 2011 (i.e., 20 years after commencement of commercial
operations).
Price: NJEA pays PSE&G a monthly charge comprised of a customer charge,
a commodity charge, a charge for services, and a charge for loss and shrinkage.
The customer charge was $86.00 per month in 1990 and is adjusted annually on
January 1 of every year by the U.S. GNP deflator. The commodity charge is equal
to the weighted average commodity cost of gas received by PSE&G (i.e., the
commodity portion of PSE&G's overall weighted average cost of gas or "WACOG").
The commodity portion of PSE&G's WACOG essentially includes the wellhead price
of gas, all commodity transportation charges (including ACA and GRI surcharges),
and pipeline retainages./5 By definition, it excludes pipeline demand charges.
The per Dth charge for service is calculated as follows:
- --------------------------------------------------------------------------------
Service Charge = $0.30 per Dth in 1990.
After 1990 the Service Charge is adjusted by the weighted average
change in PSE&G's base rates under all rate schedules, as approved by the New
Jersey Board of Public Utilities ("NJBPU"). The adjusted charge will be
effective on the first day of the month immediately following the NJBPU's
approval of the base rate change.
- --------------------------------------------------------------------------------
The charge for loss and shrinkage is 1.5%./6
If over any one-year period extending from November 1 through October
31, the average price payable to PSE&G for sales service is higher than (i) the
average delivered price to NJEA of gas not sold by PSE&G,/7 and (ii) is 15%
greater than the comparable average cost of gas to New Jersey electric
utilities, then NJEA may request renegotiation of pricing by notifying PSE&G
before the following April 30.
- -----------------
5 "Retainage" or "compression gas" is gas volume that a pipeline retains for
purposes of fueling its compressors; also known as "fuel gas."
6 The retainage charge is usually quoted as a percentage of gas volume at the
inlet. The associated costs are essentially the cost for purchasing the required
volumes to account for retainage and any transportation charges (commodity and
demand) incurred upstream of the relevant pipeline to move the required volumes.
7 Note, however, that PSE&G still makes the final delivery to NJEA under a
transportation service agreement (see Firm Gas Transportation Arrangements
section).
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Similarly, if the average price of PSE&G sales service is less than 85%
of the comparable average cost of gas to New Jersey electric utilities over a
one-year period extending from November 1 through October 31, then PSE&G may
request a renegotiation of the pricing formula by notifying NJEA before the
following April 30.
Thus far, neither of the foregoing situations has occurred since the
projects began commercial operations in 1991.
Extended Gas Service: On days when the weather service retained by PSE&G
forecasts the mean daily temperature to be below 22(degree)F, PSE&G has an
option to interrupt the sales service. However, if the temperature is forecast
to be above 14(degree)F, PSE&G will allow NJEA to buy Extended Gas Service to
replace its sales service volumes. NJEA must notify PSE&G by May 1 of any year
in which it intends to elect Extended Gas Service commencing on November 1 of
the same calendar year. Once NJEA elects to receive Extended Gas Sales and
Transportation Services in any given year, NJEA then receives all of its gas
needs through such Extended Services whenever the temperature is between
14(degree)F and 22(degree)F degrees.
The price for Extended Gas Service equals the Service Charge per Dth,
described above, plus an Extended Gas Service Charge calculated as follows:
- --------------------------------------------------------------------------------
Extended Gas Service Charge = Propane Cost per Dth + $0.80 (1988)
Propane Cost per Dth is the price of 11 gallons of propane delivered to PSE&G's
production facilities. After 1988, the $0.80 charge is escalated on January 1 of
every calendar year using the following formula:
(L*0.40) + (F*0.60)
where:
L = percentage change in the previous year in the
index for average hourly earnings in the
manufacturing sector in New Jersey
F = percentage change from the previous January
through March in the average price of #2 fuel oil at
Northern New Jersey terminals as published in the
Platt's Oilgram Daily Price Report
- --------------------------------------------------------------------------------
BSA understands that NJEA has made use of Extended Gas Sales service
each year since 1995, based on our analysis of its past fuel invoices. We are,
therefore, comfortable that this service will continue to be reliably available
for future use by NJEA as needed.
B. Gas Storage Arrangements
As part of their fuel plan, NEA and NJEA have arranged for gas storage
services that enable them to purchase relatively inexpensive spot market gas in
the summer, and save it for use in the winter, when spot gas is typically more
costly. Their gas storage is firm in the same sense that their gas
transportation is firm, i.e., up to the contracted maximum amounts, service
cannot be interrupted for reasons other than force majeure.
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CNG is a major U.S. interstate natural gas pipeline company ($6.0
billion in assets as of 12/31/96) based in Pittsburgh, PA. CNG provides gas
transportation services throughout the northern Appalachian region and, in
particular, is also a major provider of gas storage services.
NEA has acquired storage capacity on the CNG system under CNG's GSS-II
storage service schedule for a maximum storage quantity ("MSQ") of 1,400,000 Dth
per year. NEA may withdraw the lesser of its storage inventory or the maximum
daily withdrawal quantity ("MDWQ") of 14,000 Dth/day. The receipt and delivery
points are, respectively, Leidy, PA and Chambersburg, PA or other points
mutually agreed upon by CNG and NEA. The primary term of the contract extends
until March 31, 2012 and may be extended by NEA from year to year thereafter.
NJEA has acquired similar storage service from CNG with an MSQ of
1,050,800 Dth per year and an MDWQ of 10,508 Dth/day. As above, the receipt and
delivery points are Leidy, PA and Chambersburg, PA or other points mutually
agreed upon by CNG and NJEA. The primary term of the contract extends until
March 31, 2012 and may be extended by NJEA from year to year thereafter.
C. Firm Gas Transportation Arrangements
NEA and NJEA have arranged with CNG, Transco, TETCO, Algonquin, and
PSE&G for FT service to deliver the ProGas supply from Niagara to the NEA and
NJEA plants and also gas from CNG's storage facilities to the NEA and NJEA
plants.
1. CNG
CNG transports on a firm (FT) basis up to 48,817 Dth/day (NEA) and
22,019 Dth/day (NJEA) of the gas that ProGas delivers to it at Niagara Falls, NY
to its interconnect either with Transco or TETCO at Leidy, PA, or with TETCO at
either Oakford or Chambersburg, PA. CNG bills NEA and NJEA under its rate
schedules X71 and X70, respectively. The terms of the CNG transportation
contracts extend until November 1, 2011.
2. Transco
Transcontinental Gas Pipe Line Corporation ("Transco") is a subsidiary
of Williams of Tulsa, OK. Williams ($12.4 billion in assets as of 12/31/96)
operates one of the nation's largest interstate gas pipeline networks. Under its
tariff X320, Transco delivers up to 49,971 Dth/day of NEA's gas from CNG at
Leidy, PA to Algonquin at Centreville, NJ. Similarly, under schedule X319,
Transco delivers up to 22,547 Dth/day of NJEA's gas from CNG at Leidy to PSE&G
at Sayreville. The terms of the contracts nominally extend until October 31,
2006, although FERC policies would make it virtually impossible for Transco to
terminate firm transportation service to NEA or NJEA over the latter's
objections.
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See ANALYSIS OF POTENTIAL FUEL ISSUES for a discussion of the
implications of the termination date of the Transco contracts.
3. TETCO
Texas Eastern Transmission Company ("TETCO") is a subsidiary of Duke
Energy Company ($13.5 billion in assets as of 12/31/96), which is one of the
nation's largest integrated energy companies. TETCO operates a major interstate
gas pipeline system throughout the Appalachian and eastern portions of the U.S.
TETCO provides firm transportation services for NEA and NJEA under its
FTS-5 Rate Schedule. The term of each of the contracts extends until March 31,
2012. The receipt points, delivery points and MDQs at these points are as
depicted in Exhibit 5 below:
- --------------------------------------------------------------------------------
Exhibit 5 - TETCO Receipt/Delivery Points & MDQs
Receipt/Delivery Pts. NEA Vol. NJEA Vol.
(Dth/day) (Dth/day)
Hunterdon Cty., interconnect
with Algonquin 14,000 10,508
11 points on PSE&G's
system 14,000 10,508
Chambersburg, PA,
interconnect with CNG 14,000 10,508
Delivery Points only
Leidy, PA,
interconnect with CNG 7,778 5,838
Oakford, PA,
interconnect with CNG 14,000 10,508
- --------------------------------------------------------------------------------
Source: BSA 1997.
4. Algonquin (NEA only)
Algonquin Gas Pipeline Company ("Algonquin"), also a subsidiary of Duke
Energy Company, provides gas transportation services from northern New Jersey to
customers in New England. Under Rate Schedule AFT-1, Algonquin transports up to
62,000 Dth/day of NEA's gas from its interconnects with Transco at Centreville,
NJ (up to 48,000 Dth/day) and with TETCO at
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Lambertville, NJ (up to 14,000 Dth/day) to the plant. The primary term of the
Service Agreement covering this transportation extends to November 30, 2016, and
NEA may extend the Agreement for an additional eight-year term.
5. PSE&G (NJEA only)
PSE&G provides NJEA gas transportation of up to a maximum volume of
32,500 MMBtu/day until August 12, 2011. In addition, NJEA may elect to receive
an additional amount of transportation capacity in the winter not to exceed
7,200 MMBtu/day.
The price for transportation service per Dth is the Service Charge, as
described earlier in this Section III, under subsection A, Firm Gas Supply
Arrangements (2. PSE&G). Similar to the sales service, the transportation
service is subject to interruption when the forecast mean daily temperature
falls below 22(degree)F (except in the month of March). Likewise, NJEA can elect
to receive Extended Gas Service to replace its transportation volumes if the
forecast mean daily temperature is greater than 14(degree)F and will pay the
same price as it would for Extended Gas Service to replace interrupted sales
service volumes.
D. Peak Shaving Arrangements
1. NEA
NEA has been designed and permitted to burn #2 fuel oil. To the extent
the plant's daily fuel requirements exceed daily gas availability, fuel oil
capability provides a backup to NEA's gas supplies. Although NEA has
fuel-switching capability, and had originally expected to contract with Bay
State Gas to exchange peak gas supplies for oil, it has no gas peak shaving or
sales arrangement in place at this time.
2. NJEA
When the forecast mean daily temperature falls below 14(degree)F, PSE&G
may interrupt NJEA's sales and transportation service, including any additional
winter transportation service./8 PSE&G will compensate NJEA only for curtailment
(or PSE&G's retention) of NJEA's transportation service volumes, including any
additional winter transportation capacity that PSE&G provides.
The foregoing events have taken place for NJEA in the past. PSE&G has
retained NJEA's gas because the temperature fell below 14(degree)F degrees on an
average of 1.8 days per year since plant operations commenced in 1991. Note that
the 1.8 days refers to the average number of days on which PSE&G withheld gas
service to NJEA, although the interruptions were not always for a full day,
e.g., some interruptions only lasted for a few hours. NJEA does have the
- -----------------
8 PSE&G cannot interrupt transportation service in March.
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option of buying spot gas and transporting to the plant directly on Transco, and
has done so on a few occasions. ESI Northeast Fuel Management, Inc., the new
fuel manager for NEA and NJEA, plans to rely on spot gas purchases as necessary
to keep NJEA fully operational even when the temperature falls below 14(degree)F
degrees. The Owners ran a sensitivity analysis in NE LP's pro forma financial
model incorporating the assumption that the project would have to purchase spot
gas at 150% of the cost of New Jersey spot gas prices to replace the PSE&G sales
and transportation services interrupted below 14(degree)F degrees. The results
confirmed that projected cash flows for NJEA are robust enough to withstand the
foregoing sensitivity change with comfort.
PSE&G calculates the monthly commodity charge paid on all volumes it
retains as follows:
- --------------------------------------------------------------------------------
Commodity Charge = Dth retained by PSE&G on Extended Gas Service days x
max[PSE&G WACOG commodity, min(propane cost per Dth, fuel oil cost per Dth)] +
Dth retained by PSE&G on non-Extended Gas Service days x Fuel oil cost per Dth
where:
PSE&G WACOG commodity is calculated as described in the Firm Gas
Supply Arrangements section
Propane cost per Dth determined as described in the Firm Gas Supply
Arrangements section
Fuel oil cost per Dth is the average price of 7.21 gallons of #2
fuel oil at Northern New Jersey terminals as reported in Platt's
Oilgram Daily Price Report + a delivery charge of $0.0721 per Dth
adjusted annually by the GNP deflator of the preceding year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 15
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FINAL REPORT
- --------------------------------------------------------------------------------
PSE&G also pays NJEA a Peak Gas Service Credit every month of the year
and this is calculated as follows:
- --------------------------------------------------------------------------------
Peak Gas Service Crediti = 32,000 Dth/day x Unit Credit x Days in month i
where:
32,000 Dth/day is the maximum daily tran sportation quantity that NJEA
can have interstate pipelines deliver to PSE&G and that PSE&G will
deliver to the plant.
Unit credit = min(0.375*Firm Supply Demand Charge per Dth + 0.125*
Storage-Related Demand Charge per Dth, $0.157 per Dth in 1988)
The Firm Supply Demand Charge per Dth is the actual per Dth demand
charges paid by NEA for transportation of its firm gas supplies to
PSE&G.
The Storage-Related Demand Charge per Dth is the actual per Dth demand
charges (excluding storage capacity charges) paid by NJEA for storage
and transportation of storage gas to PSE&G.
The $0.157 per Dth charge is escalated on January 1 of every year by
the average change in the following pipeline rates:(i) TETCO's DCQ
and FT-1, (ii) Transco's CD and FT, (iii) CNG's CD and TF, as further
specified in the contract.
The Unit Credit can only vary within a band of values. The floor to
this band is 37% of the Service Charge and the ceiling is 68% of the
Service Charge.
- --------------------------------------------------------------------------------
IV. ANALYSIS OF PRO FORMA GAS COSTS TO NEA/NJEA
NEA and NJEA's fuel costs are linked to its power revenues as follows:
o NJEA's power revenues are based on the delivered cost of gas to New
Jersey electric utilities as reported on Federal Energy Regulatory
Commission (FERC) Form 423. NJEA's gas supply prices are tied to its
power revenues (a) directly in its ProGas contract, which escalates
with Form 423 prices in New Jersey, and (b) indirectly through the
commodity cost of PSE&G sales service, which correlates highly
(91.8%) with Form 423 prices in New Jersey.
o NEA's power revenues are based on a mix of fixed and avoided cost
pricing. NEA's ProGas supplies are priced to match power revenues,
while the remainder of its gas purchases (NJEA's ProGas supplies
delivered to NEA and spot gas) also match power revenues.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 16
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FINAL REPORT
- --------------------------------------------------------------------------------
We conclude that, taken together, NEA and NJEA's delivered fuel costs
and power revenues are naturally hedged; i.e., the degree to which NJEA's and
NEA's gas purchases are tied to their energy payments equals approximately 95%
and 91%, respectively (see Appendix A). Nonetheless, BSA reviewed the
assumptions contained in NE LP's pro forma financial model for the NEA and NJEA
projects ("the pro forma") as they relate to the current and projected price of
natural gas. We conclude that those assumptions are reasonable, as follows (see
Exhibit 6):
o Through 2000, the pro forma's gas price projection, which is taken
at Henry Hub (Erath, Louisiana):
- Tracks very closely the gas price forecast issued in 1997 by the
U.S. Department of Energy's Energy Information Administration
(DOE)
- Also tracks the 1997 gas price forecast of the Gas Research
Institute (GRI), which is nearly identical to DOE's projection
- Falls below the current gas price forecasts of the American Gas
Association (AGA), Cambridge Energy Research Associates (CERA),
and Petroleum Industry Research
Associates (PIRA)
- Falls significantly below the average 1997 closing price of the
gas futures contract for delivery at Henry Hub, as traded on the
New York Mercantile Exchange (NYMEX).
o Beyond 2000, the pro forma's gas price projection rises by 1% over
the GNP deflator, and thus escalates more rapidly than the DOE and
GRI projections (which increases at the GNP deflator), and more
slowly than that of AGA (which increases at approximately 2% over
the GNP deflator).
The pro forma's gas projection beyond 2000 falls well within the range
of existing gas price forecasts. The pro forma's gas price projection before
2000 appears to be lower than most (except DOE and GRI) and is lower than the
average 1997 NYMEX gas price. As a sensitivity analysis, therefore, BSA
requested the Owners to modify the projections of gas prices contained in the
pro forma to reflect current NYMEX closing prices for delivery through 2000. The
resulting financial projections enabled us to conclude with comfort that
expected cash flows for NEA and NJEA are robust enough to withstand alternative
foreseeable fuel price scenarios.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 17
C-20
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
Exhibit 6 - Comparison of Henry Hub Gas Price Forecasts
[GRAPHIC OMITTED]
We conclude, therefore, that NE LP's pro forma embodies fully reasonable
assumptions as to future fuel prices.
V. ASSESSMENT OF NEA/NJEA'S NON-CONTRACT GAS PROCUREMENT
NEA's and NJEA's spot gas utilization can be classified into three
categories:
o Storage Gas: During the summer months, NEA and NJEA fill up their
storage with spot volumes.
o Flow-through Gas (Summer): After taking ProGas and PSE&G (NJEA
only) contract volumes, NEA and NJEA make up the remaining portion
of required volumes at the plants with spot purchases.
o Replacement Gas (Winter): Under the CNG GSS II contracts, NEA and
NJEA may each withdraw gas from storage, up to the contract
allowable maximum daily rates, during a tariff-defined winter period
(November 1- March 31). Assuming that NEA's and NJEA's inventory
balances are at 100% of capacity when they begin withdrawals on
November 1, and that they have no opportunity to inject gas into
storage during the
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 18
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<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
winter period,/9 they may withdraw gas at the contract maximum daily
withdrawal rate for a total of 100 days. Thus, for the remaining 51
days/10 of CNG's winter period, NEA and NJEA replace the storage gas
flowing to the plants with matching spot purchases flowing to the
plants.
Spot gas supplies are available 12 months per year in the regions where
NEA and NJEA procure their non-contract gas. This availability extends both to
the Appalachian region, where the projects procure spot gas for injection into
CNG's storage facilities, and to the New York/New Jersey region, where the
projects procure spot gas directly for consumption in the plants. We use the
term "spot gas" broadly to encompass all of the projects' non-contract supplies,
including supplies arranged on a seasonal basis.
The Owners, on behalf of NEA and NJEA, entrusted ESI Northeast Fuel
Management, Inc. (the "Fuel Manager") with the responsibility of managing the
procurement of all gas supplies, and transportation and storage services which
the projects will require in its operations. The Fuel Manager has put into place
a Fuel Supply team consisting of experienced personnel in the natural gas
industry. We anticipate that this Fuel Supply team will be able to access the
kinds of markets referred to above, and will maintain the skills, information
technologies, and equipment necessary to operate the projects' long-term
contracts and short-term spot gas purchasing activities.
Prior to the end of every month, Fuel Supply personnel will receive from
the plant managers anticipated daily natural gas requirements for the following
month for the NEA and NJEA projects. Based on these requirements, Fuel Supply
personnel will then negotiate with and enter into short-term gas supply
arrangements with marketers during the end-of-the-month bid-week (when many
shippers arrange transportation service on pipelines for the following month).
Their strategy is one of "best available supply," with an emphasis on
reliability of deliveries.
Based on BSA's discussions with the Fuel Manager, we are comfortable
that the Fuel Supply team will install a suitable system to track daily and
monthly purchases and flows of gas to both plants, as has existed in the past on
behalf of NEA and NJEA. The system must produce daily and monthly management
reports which managers will use for operational purposes, such as imbalance
management./11 These reports will also form the basis for accounting functions
including invoicing and to keep track of variances from budgetary targets.
- -----------------
9 NEA and NJEA may have opportunities to cycle gas into storage during the
winter period in order to partially restock their inventory balances.
10 52 days when leap years occur.
11 If, at any point in time, a shipper takes out more or less gas than it has
put into a pipeline's or LDC's system, it creates an imbalance with respect to
its own account. The pipeline or LDC may charge the shipper a certain fee for
unreconciled daily or monthly imbalances.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 19
C-22
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
VI. ANALYSIS OF POTENTIAL FUEL ISSUES
In this section, we assess potential fuel-related issues related to the
financial performance of NEA and NJEA. We resolved each issue in a way that
enabled us to conclude that none poses any material risk to bondholders in the
area of fuel price, supply and delivery.
A. ProGas's lay-off gas responsibilities.
By amendment entered into in 1996, ProGas agreed to use all reasonable
efforts to remarket, or "layoff" to third parties, any gas that NEA or NJEA may
not require due to scheduled or unscheduled outages at the plants. If ProGas
makes layoff sales, NEA and NJEA will be relieved of their purchase obligations
by the amount of the layoff sales and will receive a commensurate credit of
their monthly demand charges. If ProGas does not make layoff gas sales, the Fuel
Manager will continue to have the following choices, as in the past:
o The Fuel Manager may inject the unneeded ProGas supplies into
storage. If NEA and NJEA do not require the gas at the plants on any
given day, the marginal economics may lead them to take delivery of
the gas at Niagara and inject it into CNG storage rather than buying
spot gas for storage injection. Previous fuel managers at NEA and
NJEA report having injected ProGas supplies into storage in the
past.
o The Fuel Manager may sell unneeded supplies into local markets. The
previous fuel managers report having economically sold some of the
ProGas supplies to third parties during an outage at NEA that took
place during the winter of 1992-1993. The ability to deliver gas to
Niagara or further downstream in the Northeast U.S. market area on a
firm basis allows ProGas or the Fuel Manager to guarantee
comfortably gas deliveries to a layoff customer for the duration of
any foreseeable plant outage.
We conclude that the recently agreed upon provision allowing ProGas to
"layoff" unneeded gas adds a further protection to bondholders to the options
already available to the Fuel Manager during infrequent instances when the
projects do not require ProGas supplies.
B. Continuation of interstate pipeline services beyond contract
expiration.
The terms of NEA's and NJEA's FT contracts with Transco extend through
October 31, 2006, and year to year thereafter unless either party elects to
terminate the contracts with six months notice. In addition, the projects'
contracts with CNG for transportation services expire on November 1, 2011. We
discuss below the risk associated with these contract terminations, which
predate bond maturity.
Transco and CNG are each interstate pipelines regulated by the Federal
Energy Regulatory Commission (FERC), and will remain so through 2011 and beyond.
As such, they provide services subject to FERC regulatory oversight and
procedures. Both pipelines provide
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 20
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<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
services to NEA and NJEA under Section 7(c) of the Natural Gas Act of 1938
(NGA), under which the FERC allows shippers such as NEA and NJEA to pay a rate
for transportation based on cost of the specific facilities that the pipelines
built to provide service to them. Transco and CNG also provide FT service to
shippers pursuant to Part 284 of the Natural Gas Policy Act of 1978 (NGPA)
utilizing overall system capacity, i.e., facilities not specifically dedicated
to Section 7(c) service. Part 284 shippers pay a "rolled-in" rate by which the
pipeline recovers the overall embedded costs of its system, excluding the costs
of the specific facilities devoted to Section 7(c) service.
If Transco or CNG were to abandon service to NEA and NJEA when their
contracts expire, then NEA and NJEA could be left paying higher rates for
alternative transportation services. We conclude in this section that neither
pipeline has the ability under the FERC's rules and procedures to cancel service
to NEA or NJEA. As a worst case, the projects could, when the contracts expire,
be required to pay a higher Part 284 transportation rate, matching the economic
value of the highest alternative offer from other shippers, subject to the
maximum rate./12
Our analysis is as follows:/13
o First, under Section 7(b) of the NGA, pipelines subject to the
jurisdiction of the FERC cannot terminate service simply because the
contract has expired. The contract is not controlling in this
regard. Unless the FT certificate was obtained with pregranted
abandonment - which is not the case under any of the contracts
between CNG and Transco and NEA/NJEA/14 - the pipeline cannot
terminate service without additional authorization after a hearing.
The pipeline has the burden to demonstrate that abandonment meets
the "public convenience and necessity" test before it will get
authorization to terminate service. In a contested abandonment case,
meeting this test is a great burden and it is virtually impossible
to meet this test.
o Second, the year-to-year extension feature included in all of the
Transco and CNG contracts with NEA and NJEA is a source of
protection for the projects. FERC has consistently applied a 1950's
doctrine regarding a Sunray case that applies the notice of
dependence and reliance on pipeline capacity for not allowing
abandonment.
o Finally, the FERC's recent pipeline services restructuring Order
636, which changed abandonment procedures, reaffirmed protection for
shippers protesting service abandonments. Pipelines such as Transco
and CNG must furnish a Notice of
- -----------------
12 Alternatively, the Part 284 rate may in the future fall below the Section
7(c) rate applicable to NEA and NJEA.
13 BSA discussed the issue of pipeline service abandonment with counsel to
several pipelines and LDCs, and with FERC staff.
14 A Section 7(c) contract, which we are dealing with here, offers greater
protection than a Part 284 contract does. Part 284 transportation contracts have
a pregranted abandonment procedure, which is not a part of a Section 7(c)
contract, thus the latter offers greater protection to shippers against
abandonment than the former.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 21
C-24
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
Abandonment and existing shippers (such as NEA and NJEA) have the
first right of refusal. The pipelines may only terminate service if
the preexisting shipper fails to match a higher offer from another
shipper. Consequently, the worst case is that, in order to retain FT
services on Transco and CNG, NEA and NJEA would have to match a
higher value offer (both in terms of rate and duration of contract)
from another shipper, subject to maximum rates.
In the unlikely event that the projects are forced to convert to
Transco's Part 284 Rates in 2007, the projected Part 284 rates will be only 5%
higher than the currently projected Transco rates used in NE LP's pro forma
model and would not materially impact gas costs. BSA also notes that the
projects anticipate negotiating a demand charge reduction on Transco of
approximately $1.00 per Dth per month beginning in 1999. Such a reduction, if
successfully implemented, would enable the projects to reduce significantly
their cost of transportation on Transco from 1999 forward.
Similarly, if the projects are unable to negotiate contract extensions
with CNG, we project that in November and December of 2011, the two months
following contract expiration that precede bond maturity, CNG's Part 284 demand
charge may be as much as 20% higher than the rates the projects pay under Rate
Schedules X-70 and X-71, or an estimated $329,000 in 2011. Sensitivity analysis
of NE LP's pro forma model using this higher cost for Part 284 service in 2011,
together with Part 284 service costs for Transco during 2007-2011 showed
virtually no impact on NE LP's revenues or debt service coverages.
We conclude that the maximum risk to NEA and NJEA associated with early
termination of its Transco and CNG gas transportation contracts is that, in
order to continue these services, the projects could have to match the terms of
an offer from an alternative bidder/shipper, but that the rate they pay will not
exceed the maximum Part 284 rate then in effect./15 We further conclude that
there is essentially no risk of actual physical loss of the firm transportation
and storage services that the projects currently have under contract with CNG
and Transco.
C. Economic Risk of PSE&G Contract Termination in 2011
PSE&G provides both firm gas supply service and transportation service
to NJEA under an agreement that expires on August 12, 2011. Termination of this
agreement predates bond maturity by approximately four and one half months. We
discuss below the risks associated with early termination of this contract.
PSE&G is an intrastate public utility in New Jersey and as such will
continue to be subject to regulation by the New Jersey Board of Utilities. NJEA
has the right to request and PSE&G has the obligation to provide NJEA both gas
sales and transportation services under its State
- -----------------
15 In exchange for paying the higher Part 284 rate (if it proves to be higher),
NEA and NJEA would have the same service rights as all other Part 284 shippers,
including such features required by the FERC's Order 636 of Part 284 services as
flexible receipt and delivery points and capacity release options.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 22
C-25
<PAGE>
FINAL REPORT
- --------------------------------------------------------------------------------
approved tariffs upon expiration of its current contract on August 12, 2011./16
NJEA will, however, have the obligation to pay for these services at the then
prevailing sales and transportation tariff rates. Alternatively, NJEA will have
the opportunity to negotiate with PSE&G for a more favorable rate, as it has in
the past.
NJEA will have the following options to continue to receive gas supply
and transportation services from PSE&G upon expiration of its current contract:
o Renegotiate the existing contract for gas sales and transportation
with PSE&G under mutually agreeable terms. Renegotiation of
contracts upon expiration is done routinely by large gas users such
as NJEA; moreover, NJEA has the flexibility to receive gas directly
off the Transco pipeline by virtue of its physical location and
working equipment on site. Hence this would be the most likely
option.
o Receive gas supply under an alternative arrangement with PSE&G
using its Cogeneration Tariff to replace the contract sales service
agreement with PSE&G upon its expiration. This gas supply
arrangement would be for 25,000 Dth/day.
o Receive gas transportation service under PSE&G's interruptible
transportation tariff for 32,527 Dth/day for transporting both the
Canadian ProGas gas supply and spot gas from storage from
Sayreville, NJ to the NJEA plant. We believe that the quality of
this transportation service would be generally comparable to NJEA's
existing transportation service with PSE&G.
In light of NJEA's physical capability to receive gas directly from
Transco, we view the latter two options above to be extremely unlikely.
We conclude that there is no risk of physical loss of gas supply or
transportation services from PSE&G upon expiration of existing contract in 2011,
since PSE&G will retain the obligation to serve customers situated within its
franchised service area.
We further conclude that there is essentially no risk that NJEA will
have to pay PSE&G's standard transportation tariff rates because NJEA is
physically located adjacent to the Transco pipeline. In our opinion, PSE&G will
continue to maintain the capability to provide competitive rates to customers of
NJEA's size, flexibility, and physical access to alternative suppliers.
- -----------------
16 Telephone conversation with Mr. Vic Bozzo, Bureau of Competitive Services,
Energy Division, NJ Board of Utilities, on December 23, 1997.
- --------------------------------------------------------------------------------
Benjamin Schlesinger and Associates, Inc. Page 23
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<PAGE>
Appendix A: Power Contract and Gas Price Comparisons
NJEA Gas Commodity Price Correlation with Power Revenues
Jun-95 through May-97
<TABLE>
<CAPTION>
Actual % of Total % Correlation w/ Volume Weighted
Purchased Volume Purchased Volume NJ Form 423 Correlation
---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
ProGas 15,310,018 48.4% 100.0% 48.4%
PSE&G Sales 15,098,819 47.8% 91.8% 43.8%
PSE&G Extended 1,037,639 3.3% 67.1% 2.2%
Spot 162,061 0.5% 86.5% 0.4%
Total 31,608,537 94.9%
</TABLE>
NEA Gas Commodity Price Correlation with Power Revenues
Jun-95 through May-97
<TABLE>
<CAPTION>
Actual % of Total % Correlation w/ Volume Weighted
Purchased Volume Purchased Volume Power Rev. Correlation
----------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
ProGas (NEA Price) 24,622,439 55.5% 100.0% 55.5%
ProGas (NJEA Price) 9,316,153 21.0% 71.0% 14.9%
Spot 10,397,968 23.5% 86.0% 20.2%
Total 44,336,560 90.6%
</TABLE>
1
C-27
<PAGE>
Appendix A (cont.)
PSE&G vs. NY/NJ Citygate Spot Index
<TABLE>
<CAPTION>
Mid-point of Inside
PSE&G Sales FERC's NY/NJ Citygates PSE&G less Spot
($/Dth) ($/Dth) ($/Dth)
------- --------------- -------
<S> <C> <C> <C>
Jun-95 $1.95 $1.87 $0.08
Jul-95 $1.64 $1.67 ($0.02)
Aug-95 $1.63 $1.53 $0.10
Sep-95 $1.68 $1.74 ($0.06)
Oct-95 $1.86 $1.82 $0.04
Nov-95 $2.09 $2.03 $0.06
Dec-95 $2.45 $2.57 ($0.11)
Jan-96 $3.21 $3.28 ($0.06)
Feb-96 $2.50 $2.51 ($0.01)
Mar-96 $2.84 $3.72 ($0.88)
Apr-96 $2.60 $2.89 ($0.28)
May-96 $2.43 $2.35 $0.08
Jun-96 $2.41 $2.55 ($0.13)
Jul-96 $2.79 $2.82 ($0.03)
Aug-96 $2.53 $2.51 $0.02
Sep-96 $2.01 $1.95 $0.07
Oct-96 $2.03 $2.00 $0.03
Nov-96 $2.65 $2.84 ($0.19)
Dec-96 $4.09 $4.04 $0.05
Jan-97 $4.20 $4.61 ($0.41)
Feb-97 $3.09 $3.37 ($0.28)
Mar-97 $1.87 $1.96 ($0.09)
Apr-97 $2.06 $2.07 ($0.01)
May-97 $2.12 $2.30 ($0.18)
Jun-97 $2.51 $2.62 ($0.11)
Jul-97 $2.37 $2.37 $0.00
Aug-97 $2.62 $2.38 $0.25
Sep-97 $2.61 $2.78 ($0.16)
Average $2.45 $2.54 ($0.09)
</TABLE>
PSE&G Correlation w/ NY/NJ Citygate Spot Prices: 96.4%
Data Source: Inside FERC's Gas Market Report.
2
C-28
<PAGE>
Appendix B: Catalogue of Principal NEA/NJEA Fuel Contracts
(received 11/13/97 by BSA)
<TABLE>
<CAPTION>
TITLE PARTIES TERMINATION EXTENSION TERMS
<S> <C> <C> <C>
A. Gas Purchase
- ------------------------------------------------------------------------------------------------------------------------------------
1 Gas Purchase and Sale Agreement NJEA and PSE&G August 12, 2011 None
(NJEA and PSE&G)
- ------------------------------------------------------------------------------------------------------------------------------------
2 Gas Purchase Contract for Bellingham NEA and ProGas November 1, 2013 Two 5-year terms
- ------------------------------------------------------------------------------------------------------------------------------------
3 Gas Purchase Contract for Sayreville NJEA and ProGas November 1, 2013 Two 5-year terms
- ------------------------------------------------------------------------------------------------------------------------------------
4 Amending Agreements for Gas Purchase NEA/NJEA and ProGas September 3, 2006 Two 5-year terms
Contract
- ------------------------------------------------------------------------------------------------------------------------------------
B. Storage
- ------------------------------------------------------------------------------------------------------------------------------------
1 Gas Storage Service Agreement NEA and CNG March 31, 2012 Year-to-Year
(Schedule GSS-II)
- ------------------------------------------------------------------------------------------------------------------------------------
2 Gas Storage Service Agreement NJEA and CNG March 31, 2012 Year-to-Year
(Schedule GSS-II)
- ------------------------------------------------------------------------------------------------------------------------------------
C. Transportation
- ------------------------------------------------------------------------------------------------------------------------------------
1 Firm Transportation Service Agreement NEA, CNG, ProGas USA November 1, 2011 Shall not terminate until
and ProGas 7(b) authority received
- ------------------------------------------------------------------------------------------------------------------------------------
2 Firm Transportation Service Agreement NJEA, CNG, ProGas USA November 1, 2011 Shall not terminate until
and ProGas 7(b) authority received
- ------------------------------------------------------------------------------------------------------------------------------------
3 Service Agreement for Schedule FTS-5 NEA and Texas Eastern March 31, 2012 Year-to-Year
- ------------------------------------------------------------------------------------------------------------------------------------
4 Service Agreement for Schedule FTS-5 NJEA and Texas Eastern March 31, 2012 Year-to-Year
- ------------------------------------------------------------------------------------------------------------------------------------
5 Firm Gas Transportation Agreement NEA and Transco October 31, 2006 Year-to-Year
(Rate Schedule X-320) (15 years from agreement)
- ------------------------------------------------------------------------------------------------------------------------------------
6 Firm Gas Transportation Agreement NJEA and Transco October 31, 2006 Year-to-Year
(Schedule X-319) (15 years from start)
- ------------------------------------------------------------------------------------------------------------------------------------
7 Firm Gas Transportation Agreement NEA and Algonquin October 1, 2018 Single 8-year term
(Schedule X-35)
- ------------------------------------------------------------------------------------------------------------------------------------
8 Firm Gas Transportation Agreement NEA and Algonquin November 30, 2016 Option period for renewal
(Schedule AFT-1 converted from X-35) is single 8-year term
- ------------------------------------------------------------------------------------------------------------------------------------
9 Gas Purchase and Sale Agreement NJEA and PSE&G August 12, 2011 None
(NJEA and PSE&G)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page B-1
C-29
<PAGE>
Appendix C: Analysis of Transco's and CNG's Part 284 and 7(c) Rates
Comparison of Transco's Part 284 and Section 7(c) Demand Charges
($/MMBtu/Month)
------------------------------------------------------
Inflation: 2.8%
Escalation Factor: 1.4%
------------------------------------------------------
- --------------------------------------------------------------------------------
Section 7(c) Section 7(c) Part 284
Contract Rate Proforma Rate Rolled-in Rates
Year (declining) (increasing) (increasing)
- --------------------------------------------------------------------------------
1997 4.47 4.47 3.58
1998 4.41 4.53 3.63
1999 4.34 3.50 3.68
2000 4.28 3.55 3.73
2001 4.22 3.60 3.78
2002 4.16 3.65 3.83
2003 4.11 3.70 3.89
2004 4.05 3.75 3.94
2005 3.99 3.80 4.00
2006 3.94 3.86 4.05
2007 3.88 3.91 4.11
2008 3.83 3.97 4.17
2009 3.77 4.02 4.22
2010 3.72 4.08 4.28
2011 3.67 4.14 4.34
% difference from Proforma Rate in 2011: 0.0% 5.0%
% difference from Proforma Rate - Avg. 2007-2011: 0.0% 5.0%
- --------------------------------------------------------------------------------
Note: Excludes GRI and retainage charges.
C-30
<PAGE>
Appendix C (cont.)
Comparison of CNG's Part 284 and Section 7(c) Demand Charges
($/MMBtu/Month)
--------------------------------------------------
Inflation: 2.8%
Escalation Factor: 1.4%
--------------------------------------------------
- --------------------------------------------------------------------------------
Section 7(c) Section 7(c) Part 284
Contract Rate Proforma Rate Rolled-in Rates
Year (constant) (declining) (increasing)
- --------------------------------------------------------------------------------
1997 4.94 4.50 4.87
1998 4.94 4.44 4.94
1999 4.94 4.37 5.01
2000 4.94 4.31 5.08
2001 4.94 4.25 5.15
2002 4.94 4.19 5.22
2003 4.94 4.13 5.30
2004 4.94 4.08 5.37
2005 4.94 4.02 5.45
2006 4.94 3.96 5.52
2007 4.94 3.91 5.60
2008 4.94 3.85 5.68
2009 4.94 3.80 5.76
2010 4.94 3.75 5.84
2011 4.94 3.69 5.92
% difference from Contract Rate in 2011: -25.2% 20.0%
- --------------------------------------------------------------------------------
Note: Excludes GRI and retainage charges.
C-31
<PAGE>
APPENDIX D
SUMMARY OF PROJECT INDENTURE
The following is a summary of selected provisions of the Project Indenture
and is not to be considered to be a full statement of the terms of the Project
Indenture. Accordingly, the following summaries are qualified by reference to
the Project Indenture and are subject to the terms of the full text of the
Project Indenture. Copies of the Project Indenture are available for review. See
"Available Information." Capitalized terms used in this Appendix D and not
otherwise defined in this Prospectus have the meaning assigned to such terms in
the Project Indenture.
The Funds
Establishment of Funds
Under the Project Indenture, the following Funds and Subfunds have been
established with the Project Trustee in the name of the Partnerships:
(i) Capital Expenditure Fund, including
(a) Loss Proceeds Subfund, and
(b) Additional Bonds Subfund;
(ii) Revenue Fund;
(iii) Working Capital Fund;
(iv) Operating Fund, including
(a) General Subfund, and
(b) Subordinated Management Fee Subfund;
(v) Major Overhaul Reserve Fund;
(vi) Interest Fund, including
(a) Note Subfund, and
(b) Other Obligations Subfund;
(vii) L/C Fee Fund;
(viii) Principal Fund, including
(a) Note Subfund, and
(b) Other Obligations Subfund;
(ix) Debt Service Reserve Fund;
(x) Gas Transmission Reserve Fund;
(xi) Gas Supply Reserve Fund;
(xii) Partnership Suspense Fund;
(xiii) Partnership Distribution Fund, including
(a) Tax Payment Subfund, and
(b) General Subfund; and
(xiv) Good Faith Contest Fund.
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Capital Expenditure Fund
Loss Proceeds Subfund
All Loss Proceeds received in respect of an Event of Loss are required to be
deposited in the Loss Proceeds Subfund of the Capital Expenditure Fund, except
as provided in the last paragraph of this subsection. Such proceeds are then
required to be applied (i) to the payment of the costs of Restoring the Project
in respect of which such Loss Proceeds were received (the "Affected Project") in
accordance with the terms and conditions of the Project Indenture; and (ii) in
the event that the applicable Partnership elects not to Restore the Affected
Project or in the event that the Restoration Conditions with respect to the
Affected Project are not satisfied, to the redemption or repurchase of the
Project Securities.
With respect to any Event of Loss, prior to the initial release of Loss
Proceeds from the Loss Proceeds Subfund to pay Restoration costs in respect of
such Event of Loss, it is a condition to such initial release that the Project
Trustee shall have received (a) an officer's certificate of the applicable
Partnership (i) stating its irrevocable election to Restore the Affected Project
pursuant to the Project Indenture, (ii) setting forth a reasonable good faith
estimate of the cost of Restoring the Affected Project and (iii) stating that in
the opinion of such Partnership the Restoration Conditions with respect to the
Affected Project are then, and during the period of any such Restoration are
expected to continue to be, satisfied; and (b) in the case of any Event of Loss
for which the amount of Loss Proceeds shall exceed $30 million, an Independent
Engineer's certificate to the effect that the Independent Engineer concurs with
(i) the applicable Partnership's estimate of the costs of Restoring the Affected
Project and (ii) such Partnership's determination that the Restoration
Conditions are then, and during the period of any such Restoration are expected
to continue to be, satisfied with respect to the Affected Project.
In the case of each release of Loss Proceeds from the Loss Proceeds Subfund
to pay the costs of Restoration, it is a condition to such release that the
Project Trustee shall have received a requisition from the applicable
Partnership dated not more than five business days prior to the date such
payment is requested to be made, stating (i) the amount to be paid; (ii) that
the payment will be used to pay the costs associated with the Restoration of the
Affected Project, such costs are then due and payable and such payment is a
proper charge against the Loss Proceeds Subfund; (iii) that bills, invoices or
other evidence of payment are in the possession of the applicable Partnership or
NE LP; (iv) that the item for which payment is requested has not been the basis
for a prior requisition from any Fund which has been paid or with respect to
which a request for payment is pending; (v) that (a) no written notice of any
Lien, right to Lien or attachment upon, or claim affecting the right to receive
payment of, any of the monies payable under such requisition has been received
(other than in respect of a Permitted Lien) or (b) if any such notice has been
received, then any such Lien, attachment or claim has been released or
discharged or will be released or discharged (to the extent of the payment to be
made) upon payment of such requisition; and (vi) that such requisition contains
no items representing payment on account of any retained percentages, if any, to
be retained at the date of such requisition.
Upon Substantial Completion of the Restoration of the Affected Project, the
applicable Partnership is required to furnish an officer's certificate to the
Project Trustee stating (a) that Substantial Completion has been achieved, and
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that the Restoration was performed in accordance with Prudent Utility Practices,
and (b) the amount (the "Retained Amount"), if any, required, in the applicable
Partnership's reasonable opinion, to be retained in the Capital Expenditure Fund
for the payment of all remaining costs of completing the Restoration of the
Affected Project. Upon receipt of such certification (and if the aggregate
amount of Loss Proceeds relating to such Restoration exceeds $30 million,
receipt of an Independent Engineer's certificate concurring with the statements
in such officer's certificate referenced in clause (a) above), the balance of
all Loss Proceeds in excess of the Retained Amount (and following completion of
the Restoration and payment of all costs, any excess Retained Amount) is
required to be transferred to the Revenue Fund.
If in connection with the Restoration of an Affected Project (or in
connection with the construction of any Required Improvements) either
Partnership is entitled to receive any liquidated damages from a contractor and
such damages are attributable to the inadequate performance of the applicable
Project (but not construction delays), then such condition is deemed to
constitute an independent Event of Loss and such liquidated damages are required
to be treated as Loss Proceeds to be applied as described herein; provided that
if the aggregate amount of such liquidated damages exceeds $10 million, then, in
addition to the other conditions to release of Loss Proceeds described herein,
it is a condition to the release of such Loss Proceeds to pay Restoration costs
that the Project Trustee shall have received an Independent Engineer's
certificate to the effect that the applicable Partnership's plan for Restoration
is in accordance with Prudent Utility Practices and that the contractor engaged
to perform such Restoration is competent to do so in accordance with Prudent
Utility Practices.
In the event that the total Loss Proceeds to be received in respect of any
event does not exceed $5 million, then such Loss Proceeds are to be released to
the applicable Partnership upon receipt of an officer's certificate stating (i)
the applicable Partnership's irrevocable election to Restore the Affected
Project and to apply such Loss Proceeds to the payment of the costs of such
Restoration (with any excess to be deposited in the Revenue Fund) and (ii) that
no event of default under the Project Indenture has occurred and is continuing.
Additional Bonds Subfund
All proceeds of the sale of any Additional Project Securities are required
to be deposited in the Additional Bonds Subfund for application (i) toward the
payment of the costs of construction of Required Improvements, (ii) to furnish
additional cash security (to support additional Energy Bank obligations that may
be incurred if either Partnership were to enter into additional Power Purchase
Agreements, or amend existing Power Purchase Agreements, in accordance with the
Project Indenture), (iii) to the extent the Project Trustee is directed to do so
by ESI Tractebel Funding or required to do so by the applicable series
supplemental indenture, to the payment of fees, expenses or other costs incurred
in connection with the issuance of such Additional Project Securities and (iv)
to the extent the Project Trustee is directed to do so by ESI Tractebel Funding
or required to do so by the applicable series supplemental indenture, to fund
the Debt Service Reserve Fund, to the extent that the balance of such Fund upon
issuance of such Additional Project Securities is less than the Debt Service
Reserve Requirement upon such issuance.
The conditions to the release of funds from the Additional Bonds Subfund for
the payment of construction costs relating to any Required Improvement, and the
provisions relating the disposition of any excess funds upon Substantial
Completion of such construction, are substantially the same as those applicable
to the Loss Proceeds Subfund, summarized above.
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Revenue Fund
All Project Revenues are required to be deposited into the Revenue Fund held
by the Project Trustee.
Prior to the first business day of each calendar month (a "Monthly Transfer
Date"), the Partnerships are required to deliver to the Project Trustee a
certificate (the "Applicable Monthly Transfer Certificate") providing certain
information to the Project Trustee, and on each Monthly Transfer Date, the
Project Trustee is required to transfer funds from the Revenue Fund, to the
extent then available in the Revenue Fund (after giving effect to all transfers
to be made to the Revenue Fund on such date), in the following amounts and order
of priority:
to the Working Capital Fund, the excess, if any, of (a) the sum of the
aggregate principal amount of all loans then outstanding under the Working
Capital Facility (or such lesser amount of such loans as the Partnerships
may elect to repay during the month commencing on such Monthly Transfer
Date), plus all interest, fees and other amounts estimated by the
Partnerships to be or become due and payable under or pursuant to the
Working Capital Facility during the month commencing on such Monthly
Transfer Date over (b) the aggregate amount of all funds then on deposit in
the Working Capital Fund;
to the General Subfund of the Operating Fund, the excess, if any, of (a) the
aggregate amount of all Operating Expenses (excluding Subordinated
Management Fees) estimated by the Partnerships to be or to become due and
payable during the month commencing on such Monthly Transfer Date over (b)
the aggregate amount of all funds then on deposit in the Operating Fund and
the Operating Accounts, other than amounts in the Operating Accounts against
which outstanding checks have been drawn and mailed or delivered;
commencing on the first Monthly Transfer Date in calendar year 2001, to the
Major Overhaul Reserve Fund, the sum of (a) the amount, if any, specified in
the Project Indenture to be deposited in such Fund on such date plus (b) the
amount of any deficiency in such Fund that may have resulted from the
failure to fully fund any previous scheduled deposit to such Fund or any
withdrawals from such Fund to satisfy deficiencies in other Funds as
described herein;
to the respective Subfunds of the Interest Fund, the amounts hereinafter set
forth (or a ratable portion of each such amount to each such Subfund, in the
event of a shortfall): (a) to the Note Subfund of the Interest Fund, the
excess, if any, of (1) the aggregate amount of interest payable on the
Project Notes (for application to the payment of interest on the Project
Securities) on the immediately succeeding interest payment date therefor (or
if such Monthly Transfer Date is an interest payment date, then on such
date) over (2) any funds then on deposit in the Note Subfund of the Interest
Fund; and (b) to the Other Obligations Subfund of the Interest Fund, the
excess, if any, of (1) the sum of (A) all interest payments estimated by the
Partnerships to be or to become due and payable during the month commencing
on such Monthly Transfer Date in respect of certain permitted Debt of the
Partnerships (consisting of Permitted Purchase Money Indebtedness and
Permitted Unsecured Indebtedness), plus (B) unless the existing Swaps are
terminated, all payments estimated by the Partnerships to be or to become
payable by the Partnerships to the Swap Banks during the month commencing on
such Monthly Transfer Date pursuant to the Swaps, over (2) the aggregate
amount of all funds then on deposit in the Other Obligations Subfund of the
Interest Fund;
to the L/C Fund, the excess, if any, of (a) the amount estimated by the
Partnerships to be or become due and payable to the Project Letter of Credit
Banks pursuant to the Project Letter of Credit Facility during the month
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commencing on such Monthly Transfer Date (other than the principal amount of
and interest on any reimbursement obligation and any interest payable
thereunder) over (b) the aggregate amount of all funds then on deposit in
the L/C Fee Fund;
to the respective Subfunds of the Principal Fund, the amounts hereinafter
set forth (or a ratable portion of each such amount to each such Subfund, in
the event of a shortfall): (a) to the Note Subfund of the Principal Fund,
the excess, if any, of (1) the aggregate principal amount of the Project
Notes due and payable on the principal payment date for such Project Notes
first following such Monthly Transfer Date (or, if such Monthly Transfer
Date is an interest payment date, then on such date) over (2) the aggregate
amount of all funds then on deposit in the Note Subfund of the Principal
Fund and (b) to the Other Obligations Subfund of the Principal Fund, the
excess, if any, of (1) the sum of (A) the Aggregate Amortization Reserve
Amount, plus (B) without duplication of (A) above, the principal amount
estimated by the Partnerships to be or become due and payable during the
month commencing on such Monthly Transfer Date in respect of any Permitted
Purchase Money Indebtedness as a consequence of the sale or other
disposition, consistent with the provisions of the Project Indenture and the
Project Security Documents, of any property or asset to which such Permitted
Purchase Money Indebtedness relates, plus (C) without duplication of (A) or
(B) above, the principal amount estimated by the Partnerships to be or
become due and payable during the six-month period commencing on such
Monthly Transfer Date in respect of Permitted Purchase Money Indebtedness
and/or Permitted Unsecured Indebtedness, but only to the extent that the sum
of such principal payments exceeds the amount of funds on deposit in the
Other Obligations Subfund after giving effect to (A) and (B) above and
provided that no transfer described in this clause (C) is permitted unless
the amounts then on deposit in the Debt Service Reserve Fund, the Gas
Transmission Reserve Fund and the Gas Supply Reserve Fund equal or exceed
the amounts then required to be on deposit in each such Fund as set forth in
the Project Indenture, over (2) the aggregate amount of all funds then on
deposit in the Other Obligations Subfund of the Principal Fund;
to the Subordinated Management Fee Subfund of the Operating Fund, the
excess, if any, of (x) the amount set forth in the Applicable Monthly
Transfer Certificate as the amount of Operating Expenses constituting
Subordinated Management Fees that are due and payable or estimated to become
due and payable during the Monthly Transfer Period commencing on such
Monthly Transfer Date, over (y) the aggregate amount of all funds then on
deposit in the Subordinated Management Fee Subfund of the Operating Fund;
to the Tax Payment Subfund of the Partnership Distribution Fund, the excess,
if any, of (a) the aggregate amount of Tax Requirements estimated by the
Partnerships to be or become due and payable on Quarterly Tax Payment Dates
during the six month period following such Monthly Transfer Date (such
estimated amount hereinafter the "Estimated Semi-Annual Tax Requirements")
over (b) the aggregate amount of all funds then on deposit in the Tax
Payment Subfund of the Partnership Distribution Fund;
to the Debt Service Reserve Fund, the excess, if any, of (a) the then
current Debt Service Reserve Requirement over (b) the aggregate amount of
all funds then on deposit in the Debt Service Reserve Fund;
on each Gas Transmission Reserve Contribution Date, to the Gas Transmission
Reserve Fund, the excess, if any, of (a) the then current Gas Transmission
Reserve Requirement over (b) the aggregate amount of all funds then on
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deposit in the Gas Transmission Reserve Fund, provided that the aggregate
amount of transfers described in this clause (ix) shall not exceed the sum
of (1) $10.6 million plus (2) the aggregate amount of all withdrawals from
the Gas Transmission Reserve Fund made to satisfy deficiencies in other
Funds, as described herein; and
to the Partnership Suspense Fund, the remaining balance, if any, on deposit
in the Revenue Fund on such date.
Certain provisions of the Project Indenture permit ESI Tractebel Funding and
the Partnerships to contest various claims and other items that otherwise would
not be permitted provided that such contest is a Good Faith Contest, which
requires, among other things, the establishment of accounting reserves to the
extent required by GAAP ("GAAP Reserves") and certain cash reserves in an amount
equal to any such GAAP Reserves less the amount of any asset which GAAP allows
to be established in connection therewith representing a source of payment for
the contested item ("Good Faith Contest Reserves"). On the first Monthly
Transfer Date following the establishment of GAAP Reserves relating to a Good
Faith Contest and on each Monthly Transfer Date thereafter for so long as any
such GAAP Reserves are maintained, the Project Trustee is required to transfer
to the Good Faith Contest Fund from funds available in the Revenue Fund in the
same manner and priority as if the potential obligation giving rise to such Good
Faith Contest was being paid without contest and was then due and payable, the
excess, if any, of (a) the aggregate amount of all Good Faith Contest Reserves
relating to such GAAP Reserves over (b) the aggregate amount of all funds then
on deposit in the Good Faith Contest Fund.
Working Capital Fund
Amounts on deposit in the Working Capital Fund are to be applied for the
payment of principal, interest, fees and other amounts payable pursuant to the
Working Capital Facility.
If at any time the amount of funds in the Working Capital Fund is
insufficient to pay (i) the principal of any loans then due under the Working
Capital Facility which the Partnerships may not elect to repay at a later date
or (ii) any interest, fees or other amounts then due thereunder (a "Working
Capital Payment Deficiency"), then the Project Trustee is required, upon receipt
of an officer's certificate of the Partnerships, or, if the Partnerships fail to
deliver such certificate, a certificate from the Working Capital Banks, to
transfer to the Working Capital Fund an amount equal to such Working Capital
Payment Deficiency from the following Funds in the following order of priority:
the General Subfund of the Partnership Distribution Fund; the Partnership
Suspense Fund; the Gas Supply Reserve Fund; the Gas Transmission Reserve Fund;
the Debt Service Reserve Fund; the Tax Payment Subfund of the Partnership
Distribution Fund; the Subordinated Management Fee Subfund of the Operating
Fund; each Subfund of the Principal Fund (ratably in proportion to the amounts
on deposit in such Subfunds); the L/C Fee Fund; each Subfund of the Interest
Fund (ratably in proportion to the amounts on deposit in such Subfunds); the
Major Overhaul Reserve Fund; and the General Subfund of the Operating Fund.
In the event that at any time the Partnerships deliver an officer's
certificate to the Project Trustee to the effect that a surplus of funds exists
in the Working Capital Fund, the Project Trustee is required to transfer from
the Working Capital Fund to any other Fund specified in such officer's
certificate an amount equal to such surplus (or any portion thereof specified in
such officer's certificate).
Operating Fund
General Subfund
Amounts on deposit in the General Subfund of the Operating Fund are to be
applied (i) to fund any Operating Account (to be used for the payment of
Operating Expenses, excluding Subordinated Management Fees) and (ii) for the
payment when due of Operating Expenses (excluding Subordinated Management Fees).
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If at any time the amount of funds in the General Subfund of the Operating
Fund and Operating Accounts is insufficient to pay Operating Expenses (excluding
Subordinated Management Fees) then due (an "Operating Expense Deficiency"), then
the Project Trustee is required, upon receipt of an officer's certificate of
either Partnership or ESI Tractebel Funding, to transfer to the General Subfund
of the Operating Fund an amount equal to such Operating Expense Deficiency from
the following Funds in the following order of priority: the General Subfund of
the Partnership Distribution Fund; the Partnership Suspense Fund; the Gas Supply
Reserve Fund; the Gas Transmission Reserve Fund; the Debt Service Reserve Fund;
the Tax Payment Subfund of the Partnership Distribution Fund; the Subordinated
Management Fee Subfund of the Operating Fund; each Subfund of the Principal Fund
(ratably in proportion to the amounts on deposit in such Subfunds); the L/C Fee
Fund; each subfund of the Interest Fund (ratably in proportion to the amounts on
deposit in such Subfunds); the Major Overhaul Reserve Fund; and the Revenue
Fund; provided that no such amounts may be transferred (other than from the
General Subfund of the Partnership Distribution Fund and the Partnership
Suspense Fund) unless a Partnership or ESI Tractebel Funding also certifies that
the Operating Expense Deficiency has been determined after borrowing and
applying all amounts under the Working Capital Facility available for the
purpose.
Subordinated Management Fee Subfund
Amounts on deposit in the Subordinated Management Fee Subfund of the
Operating Fund are to be applied solely for the payment of Operating Expenses
constituting Subordinated Management Fees then due. The Project Trustee will
from time to time disburse monies in the Subordinated Management Fee Subfund of
the Operating Fund as directed in writing by an authorized representative of
either Partnership.
If at any time the amount of funds in the Subordinated Management Fee
Subfund of the Operating Fund is insufficient to pay the Operating Expenses then
due constituting Subordinated Management Fees (a "Subordinated Management Fee
Deficiency"), the Project Trustee is required, upon receipt of an officer's
certificate of the applicable Partnership, to transfer to the Subordinated
Management Fee Subfund of the Operating Fund an amount equal to the amount of
such Subordinated Management Fee Deficiency from the following funds in the
following order of priority: the General Subfund of the Partnership Distribution
Fund and the Partnership Suspense Fund.
Major Overhaul Reserve Fund
Amounts on deposit in the Major Overhaul Reserve Fund are to be applied to
pay Major Overhaul Expenses, subject to certain conditions set forth in the
Project Indenture relating to requisitions to be submitted to the Project
Trustee by the applicable Partnership. In the event that the balance on deposit
in the Major Overhaul Reserve Fund is insufficient to pay any Major Overhaul
Expense, such expense will constitute an Operating Expense and be payable from
funds on deposit in the General Subfund of the Operating Fund.
The amounts scheduled to be deposited in the Major Overhaul Reserve Fund
have been determined on the assumption that, upon expiration of the O&M
Agreements (which provide for Major Overhaul Expenses to be paid by the
Operator), the Operator (or its successor) will cease to pay any Major Overhaul
Expenses. In the event that either O&M Agreement is amended or replaced (by the
New O&M Agreements or otherwise) in order to provide for the payment by an
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Operator for either Project of all or any portion of any Major Overhaul
Expenses, then the Independent Engineer will revise the amounts scheduled to be
deposited in the Major Overhaul Reserve Fund in accordance with the Project
Indenture and certify such revised amounts to the Project Trustee. If the
Independent Engineer determines that, as a result of such revision, there are
any excess amounts then on deposit in the Major Overhaul Reserve Fund, such
excess will be transferred to the Revenue Fund.
Interest Fund
Note Subfund
Amounts on deposit in the Note Subfund of the Interest Fund are to be
applied for the payment when due (whether at stated maturity or on call for
redemption or by acceleration or otherwise) of interest on the Project Notes
(for application to the payment of interest on the Project Securities). At the
time any payment of interest on the Project Notes is due, the Project Trustee is
required to withdraw the amount of such payment from the Note Subfund of the
Interest Fund for application toward interest then due and payable in respect of
the Project Notes (for application to the payment of interest on the Project
Securities on behalf of ESI Tractebel Funding).
If at any time the amount of funds in the Note Subfund of the Interest Fund
is insufficient to pay any interest on the Project Notes then due (a "Note
Interest Deficiency"), then the Project Trustee is required to (i) notify the
Partnerships of such Note Interest Deficiency, and (ii) subject to the proviso
below, transfer to the Note Subfund of the Interest Fund an amount equal to such
Note Interest Deficiency from the following Funds in the following order of
priority: the Other Obligations Subfund of the Interest Fund; the General
Subfund of the Partnership Distribution Fund; the Partnership Suspense Fund; the
Gas Supply Reserve Fund; the Debt Service Reserve Fund; the Tax Payment Subfund
of the Partnership Distribution Fund; the Subordinated Management Fee Subfund of
the Operating Fund; each Subfund of the Principal Fund (ratably in proportion to
the amounts on deposit in such Subfunds); and the L/C Fee Fund; provided that
the Partnerships may (but except as described below, are not obligated to)
borrow funds available under the Working Capital Facility and pay such funds to
the Project Trustee for application toward interest then due in respect of the
Project Notes and the amount of the transfers referred to above will be reduced
by the amount of such payment to the Project Trustee. The transfers to the Note
Subfund described above are required to be made (a) on the date interest on the
Project Notes first becomes due, if such transfer is from the Other Obligations
Subfund of the Interest Fund, the General Subfund of the Partnership
Distribution Fund, or the Partnership Suspense Fund, (b) on the first business
day thereafter, if such transfer is from the Gas Supply Reserve Fund, the Gas
Transmission Reserve Fund, or the Debt Service Reserve Fund, and (c) on the
third business day thereafter, if such transfer is from any other Fund. On the
second business day following the occurrence of any Note Interest Deficiency, or
as promptly thereafter as is reasonably possible (and in any event within two
business days of receipt of notice from the Project Trustee of any Note Interest
Deficiency), the Partnerships are required to borrow all amounts available to be
borrowed for the purpose under the Working Capital Facility, to the extent of
the Note Interest Deficiency at the time of such borrowing, and the funds so
borrowed are to be paid to the Project Trustee for application toward interest
then due in respect of the Project Notes.
In the event that at any time a surplus of funds exists in the Note Subfund
of the Interest Fund, the Project Trustee is required to (i) notify the
Partnerships of the existence and amount of such surplus and (ii) upon receipt
of written direction from an authorized representative of the Partnerships,
transfer from the Note Subfund of the Interest Fund to the Revenue Fund or any
other Fund specified by the Partnerships that is senior to the Interest Fund in
the order of priority set forth in the Indenture an amount equal to such surplus
(or any portion thereof specified in such written direction).
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Other Obligations Subfund
Amounts on deposit in the Other Obligations Subfund of the Interest Fund are
to be applied to the payment when due of interest in respect of Permitted
Purchase Money Indebtedness, interest in respect of Permitted Unsecured
Indebtedness and payments to Swap Banks pursuant to the Swaps, if any
(collectively, "Other Interest Obligations").
If at any time the amount of funds in the Other Obligations Subfund of the
Interest Fund is insufficient to pay any Other Interest Obligations then due (an
"Other Interest Obligations Deficiency"), then the Project Trustee is required,
upon receipt of an officer's certificate of the applicable Partnership, to
transfer to the Other Obligations Subfund of the Interest Fund an amount equal
to such Other Interest Obligations Deficiency from the following Funds in the
following order of priority: the Note Subfund of the Interest Fund; the General
Subfund of the Partnership Distribution Fund; the Partnership Suspense Fund; the
Gas Supply Reserve Fund; the Gas Transmission Reserve Fund; the Debt Service
Reserve Fund; the Tax Payment Subfund of the Partnership Distribution Fund; the
Subordinated Management Fee Subfund of the Operating Fund; each Subfund of the
Principal Fund (ratably in proportion to the amounts on deposit in such
Subfunds); and the L/C Fee Fund; provided that no such amounts may be
transferred (other than from the General Subfund of the Partnership Distribution
Fund and the Partnership Suspense Fund) unless the applicable Partnership also
certifies that the Other Interest Obligations Deficiency has been determined
after borrowing and applying all amounts under the Working Capital Facility
available for the purpose.
In the event that at any time the Partnerships deliver an officer's
certificate to the Project Trustee to the effect that a surplus of funds exists
in the Other Obligations Subfund of the Interest Fund, the Project Trustee is
required to transfer from the Other Obligations Subfund of the Interest Fund to
the Revenue Fund or any other Fund specified by the Partnerships that is senior
to the Interest Fund in the order of priority set forth in the Project Indenture
an amount equal to such surplus (or any portion thereof specified in such
officer's certificate).
L/C Fee Fund
Amounts on deposit in the L/C Fee Fund are to be applied to the payment when
due of amounts payable to the Project Letter of Credit Banks pursuant to the
Project Letter of Credit Facility (other than the principal sum of any
reimbursement obligations or derivative loans payable thereunder) ("L/C
Payables").
If at any time the amount of funds in the L/C Fee Fund is insufficient to
pay any L/C Payables then due (an "L/C Payable Deficiency"), then the Project
Trustee is required, upon receipt of an officer's certificate of the
Partnerships, to transfer to the L/C Fee Fund an amount equal to such L/C
Payable Deficiency from the following Funds in the following order of priority:
the General Subfund of the Partnership Distribution Fund; the Partnership
Suspense Fund; the Gas Supply Reserve Fund; the Gas Transmission Reserve Fund;
the Debt Service Reserve Fund; the Tax Payment Subfund of the Partnership
Distribution Fund; the Subordinated Management Fee Subfund of the Operating
Fund; and each Subfund of the Principal Fund (ratably in proportion to the
amounts on deposit in such Subfunds); provided that no such amounts may be
transferred (other than from the General Subfund of the Partnership Distribution
Fund and the Partnership Suspense Fund) unless the Partnerships also certify
that the L/C Payable Deficiency has been determined after borrowing and applying
all amounts under the Working Capital Facility available for the purpose.
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In the event that at any time the Partnerships deliver an officer's
certificate to the Project Trustee to the effect that a surplus of funds exists
in the L/C Fee Fund, the Project Trustee is required to transfer from the L/C
Fee Fund to the Revenue Fund or any other Fund specified by the Partnerships
that is senior to the L/C Fee Fund in the order of priority set forth in the
Project Indenture an amount equal to such surplus (or any portion thereof
specified in such officer's certificate).
Principal Fund
Note Subfund
Amounts on deposit in the Note Subfund of the Principal Fund are to be
applied for the payment when due (whether at stated maturity or on call for
redemption or by acceleration or otherwise) of principal of the Project Notes
(for application to the payment of principal of the Project Securities). At the
time any payment of principal of the Project Notes is due, the Project Trustee
is required to withdraw the amount of such payment from the Note Subfund of the
Principal Fund for application toward the principal then due and payable in
respect of the Project Notes (for application to the payment of principal of the
Project Securities on behalf of the ESI Tractebel Funding).
If at any time the amount of funds in the Note Subfund of the Principal Fund
is insufficient to pay any principal of the Project Notes then due (a "Note
Principal Deficiency"), then the Project Trustee is required to (i) notify the
Partnerships of such Note Principal Deficiency, and (ii) subject to the proviso
below, transfer to the Note Subfund of the Principal Fund an amount equal to
such Note Principal Deficiency from the following Funds in the following order
of priority: the Other Obligations Subfund of the Principal Fund; the General
Subfund of the Partnership Distribution Fund; the Partnership Suspense Fund; the
Gas Supply Reserve Fund; the Gas Transmission Reserve Fund; the Debt Service
Reserve Fund; the Tax Payment Subfund of the Partnership Distribution Fund; and
the Subordinated Management Fee Subfund of the Operating Fund; provided that the
Partnerships may (but except as described below are not obligated to) borrow
funds available under the Working Capital Facility and pay such funds to the
Project Trustee for application toward principal then due in respect of the
Project Notes and the amount of the transfers referred to above shall be reduced
by the amount of such payment to the Project Trustee. The transfers to the Note
Subfund described above are required to be made (a) on the date principal on the
Project Notes first becomes due, if such transfer is from the Other Obligations
Subfund of the Principal Fund, the General Subfund of the Partnership
Distribution Fund or the Partnership Suspense Fund, (b) on the first business
day thereafter, if such transfer is from the Gas Supply Reserve Fund, the Gas
Transmission Reserve Fund or the Debt Service Reserve Fund and (c) on the third
business day thereafter, if such transfer is from the Tax Payment Subfund of the
Partnership Distribution Fund. On the second business day following the
occurrence of any Note Principal Deficiency, or as promptly thereafter as is
reasonably possible (and in any event within two business days of receipt from
the Project Trustee of notice of any Note Principal Deficiency) the Partnerships
are required to borrow all amounts available to be borrowed under the Working
Capital Facility for the purpose, to the extent of such Note Principal
Deficiency at the time of such borrowing, and the funds so borrowed are to be
paid to the Project Trustee for application toward principal then due in respect
of the Project Notes.
In the event that at any time a surplus of funds exists in the Note Subfund
of the Principal Fund, the Project Trustee is required to (i) notify the
Partnerships of the existence and amount of such surplus and (ii) upon receipt
of written direction from an authorized representative of the Partnerships,
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transfer from the Note Subfund of the Principal Fund to the Revenue Fund or any
other Fund specified by the Partnerships that is senior to the Interest Fund in
the order of priority set forth in the Project Indenture an amount equal to such
surplus (or any portion thereof specified in such written direction).
Other Obligations Subfund
Amounts on deposit in the Other Obligations Subfund of the Principal Fund
are to be applied (i) to the payment when due of principal in respect of
Permitted Purchase Money Indebtedness or Permitted Unsecured Indebtedness
("Other Principal Obligations") or (ii) to the prepayment of Other Principal
Obligations, but only if, at the time of such proposed prepayment, the Project
Trustee has received an officer's certificate of the Partnerships to the effect
that after giving effect to such prepayment the aggregate amount of funds
remaining on deposit in the Other Obligations Subfund of the Principal Fund will
not be less than the sum of (x) the Aggregate Amortization Reserve Amount plus
(y) the amount of any funds previously deposited to such Subfund pursuant to the
provisions of the Project Indenture described in clauses (b)(2)(B) and (b)(2)(C)
of clause (vi) above under "The Funds -- Revenue Fund" and not yet applied to
pay or prepay the Other Principal Obligations in respect of which such deposits
were made or otherwise withdrawn from such Subfund pursuant to the Project
Indenture.
If at any time the amount of funds in the Other Obligations Subfund of the
Principal Fund is insufficient to pay any Other Principal Obligations then due
(an "Other Principal Obligation Deficiency"), then the Project Trustee is
required, upon receipt of an officer's certificate of the applicable
Partnership, to transfer to the Other Obligations Subfund of the Principal Fund
an amount equal to such Other Principal Obligation Deficiency from the following
Funds in the following order of priority: the Note Subfund of the Principal
Fund; the General Subfund of the Partnership Distribution Fund; the Partnership
Suspense Fund; the Gas Supply Reserve Fund; the Gas Transmission Reserve Fund;
the Debt Service Reserve Fund; the Tax Payment Subfund of the Partnership
Distribution Fund; and the Subordinated Management Fee Subfund of the Operating
Fund; provided that no such amounts may be transferred (other than from the
General Subfund of the Partnership Distribution Fund and the Partnership
Suspense Fund) unless the applicable Partnership also certifies that the Other
Principal Obligation Deficiency has been determined after borrowing and applying
all amounts under the Working Capital Facility available for the purpose.
In the event that at any time the Partnerships deliver an officer's
certificate to the Project Trustee to the effect that a surplus of funds exists
in the Other Obligations Subfund of the Principal Fund, the Project Trustee is
required to transfer from the Other Obligations Subfund of the Principal Fund to
the Revenue Fund or any other Fund specified by the Partnerships that is senior
to the Other Obligations Subfund of the Principal Fund in the order of priority
set forth in the Project Indenture an amount equal to such surplus (or any
portion thereof specified in such officer's certificate).
Debt Service Reserve Fund
Amounts on deposit in the Debt Service Reserve Fund are to be applied to
cover deficiencies in certain other Funds as described herein. At any time,
either Partnership may, in lieu of funding the Debt Service Reserve Fund with
cash, deliver to the Project Trustee one or more Substitute Letters of Credit in
an aggregate maximum amount available to be drawn thereunder, without
duplication, equal to all or any portion of the then current Debt Service
Reserve Requirement, provided that any Substitute Letter of Credit will be in a
minimum amount of $1 million. The Debt Service Reserve Fund is deemed to be
funded to the extent amounts are available to be drawn by the Project Trustee
under any Substitute Letter of Credit.
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If on any Monthly Transfer Date the balance on deposit in the Debt Service
Reserve Fund exceeds the then current Debt Service Reserve Requirement, any such
excess funds are required to be transferred to the Revenue Fund, unless such
excess is attributable to any Substitute Letter of Credit, in which case the
Project Trustee shall not draw on such Substitute Letter of Credit but shall
take such action as ESI Tractebel Funding shall reasonably direct in order to
reduce the stated amount of such Substitute Letter of Credit by the amount of
the excess.
Gas Transmission Reserve Fund
Commencing on the first Monthly Transfer Date occurring at least one month
after October 31, 2006 (subject to extension to a later date in the event of an
extension of the term of each Transco Agreement that satisfies certain
conditions set forth in the Project Indenture), and on each Monthly Transfer
Date thereafter, a portion (or the remaining balance) of amounts on deposit in
the Gas Transmission Reserve Fund are to be transferred to the Revenue Fund
pursuant to a formula set forth in the Project Indenture. The amount to be
transferred on each such Monthly Transfer Date will be the lesser of (a) the
remaining balance on deposit in the Gas Transmission Reserve Fund and (b) an
amount equal to the product of (i) the excess, if any, of (A) the all-inclusive
weighted-average per unit cost for gas transportation (including the allocable
portion of any demand charges) between the receipt and delivery points on the
Leidy line specified in the Transco Agreements (and/or any applicable substitute
receipt and delivery points) paid by the Partnerships in the preceding month,
over (B) the all-inclusive per unit cost for gas transportation on the Leidy
line under the Transco Agreements as of the commencement date of transfers from
the Gas Transmission Reserve Fund, multiplied by (ii) the excess, if any, of (A)
70,836 MMBtus per day multiplied by 30 days over (B) the contracted volume of
gas, if any, entitled to be transported between such receipt and delivery points
during such month pursuant to any agreement which resulted in an extension or
replacement of a Transco Agreement and that satisfies certain conditions set
forth in the Project Indenture.
The Project Indenture also provides for (a) the transfer to the Revenue Fund
of the entire balance on deposit in the Gas Transmission Reserve Fund in certain
events involving the extension or replacement of the Transco Agreements in
accordance with conditions set forth in the Project Indenture and (b)
recomputation of the Gas Transmission Reserve Requirement, and transfer to the
Revenue Fund of any resulting surplus funds in the Gas Transmission Reserve
Fund, in certain other events involving the extension or replacement of the
Transco Agreements in accordance with conditions set forth in the Project
Indenture.
Gas Supply Reserve Fund
At the time of issuance of the Original Project Securities, the agreements
extending the term of the ProGas Agreements from 2006 to 2013 remained subject
to certain contingencies. In order to mitigate the risk that such extensions
might ultimately be ineffective, the Project Indenture provides for the
establishment of a Gas Supply Reserve Fund. However, such extensions have since
become final and non-appealable and, accordingly, there is no requirement to
fund the Gas Supply Reserve Fund.
Partnership Suspense Fund and General Subfund of Partnership Distribution Fund
On any day on which the Partnerships are entitled to transfer funds from the
Partnership Suspense Fund pursuant to the Project Indenture, the Project Trustee
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is required, upon receipt of a Restricted Payment Certificate from the
Partnerships as contemplated by the Project Indenture, to transfer from the
Partnership Suspense Fund to the General Subfund of the Partnership Distribution
Fund the amount specified in such Restricted Payment Certificate. The conditions
to such transfers and limitations on the amounts that may be so transferred are
described below under "Certain Covenants -- Restricted Payments."
The Project Indenture also requires the Project Trustee, upon receipt of
instructions from the Partnerships, to (i) transfer any funds on deposit in the
Partnership Suspense Fund to any other Fund specified by the Partnerships that
is senior to the Partnership Suspense Fund in the order of priority set forth in
the Project Indenture or (ii) disburse any funds on deposit in the Partnership
Suspense Fund for the payment of any obligation of either or both Partnerships;
provided that, in the case of any such disbursement described in clause (ii),
the Partnerships will be required to certify that such payment does not
constitute a Restricted Payment and will not violate any provision of the
Project Indenture or any other Project Credit Document.
The Partnerships may from time to time withdraw any funds on deposit in the
General Subfund of the Partnership Distribution Fund, without restriction, and
such funds may be disbursed for any purpose, including for Restricted Payments.
Tax Payment Subfund of Partnership Distribution Fund
Amounts on deposit in the Tax Payment Subfund of the Partnership
Distribution Fund are to be released to the Partnerships by the Project Trustee
upon receipt of a duly completed Tax Withdrawal Certificate from the
Partnerships specifying the amount to be released (calculated by reference to
Tax Requirements payable within 30 days thereafter). Amounts so released may be
distributed by the Partnerships to the Partners without restriction.
If at the time of delivery of a Tax Withdrawal Certificate the amount of
funds in the Tax Payment Subfund is less than the amount specified in the Tax
Withdrawal Certificate to be released (a "Tax Requirements Deficiency"), then
the Project Trustee is required to transfer to the Tax Payment Subfund an amount
equal to such Tax Requirements Deficiency from the following Funds in the
following order of priority: the General Subfund of the Partnership Distribution
Fund; the Partnership Suspense Fund; the Gas Supply Reserve Fund; the Gas
Transmission Reserve Fund; and the Debt Service Reserve Fund; provided that no
such amounts may be transferred (other than from the General Subfund of the
Partnership Distribution Fund and the Partnership Suspense Fund) unless the
Partnerships certify that the Tax Requirements Deficiency has been determined
after borrowing and applying all amounts under the Working Capital Facility
available for the purpose.
In the event that at any time the balance on deposit in the Tax Payment
Subfund exceeds the Estimated Semi-Annual Tax Requirements set forth in the most
recent Applicable Monthly Transfer Certificate, the Partnerships are required to
direct the Project Trustee to transfer the amount of such surplus from the Tax
Payment Subfund to the Revenue Fund or any other fund that is senior to the Tax
Payment Subfund in the order of priority set forth in the Project Indenture.
Good Faith Contest Fund
Amounts on deposit in the Good Faith Contest Fund are to be applied to the
payment of obligations relating to contested matters giving rise to deposits to
the Good Faith Contest Fund ("Good Faith Contest Obligations"). In the event
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that the balance on deposit in the Good Faith Contest Fund is insufficient to
pay any Good Faith Contest Obligation, such excess Good Faith Contest Obligation
shall constitute an Operating Expense and shall be paid upon final resolution or
settlement of the contested item giving rise to such Good Faith Contest
Obligation from funds on deposit in the General Subfund of the Operating Fund.
In the event that at any time the Partnerships deliver an officer's
certificate to the Project Trustee to the effect that a surplus exists in the
Good Faith Contest Fund, the Project Trustee is required to transfer the amount
of such surplus from the Good Faith Contest Fund to the Revenue Fund.
Investment of Funds
The Project Trustee is required to invest the moneys on deposit in the Funds
as directed by the Partnerships in Permitted Investments with maturities of one
year or less from, or which permit redemption at the option of the holder within
one year of, the date of investment or reinvestment (or with a longer maturity
if the holder of such Permitted Investment may redeem without restriction or
penalty amounts required by the terms of the Project Indenture to be applied to
a particular purpose, at the time so required), provided that, when an Event of
Default has occurred and is continuing, Permitted Investments must have a
maturity of 30 days or less. The Partnerships are required to select investments
that, in their reasonable opinion, will mature or be subject to redemption at
the option of the holder thereof in the amounts and at the times needed for the
purposes of the funds invested. The Project Trustee is not liable for any loss
incurred on the liquidation of investments. Profits from Permitted Investments
are required to be deposited into the Revenue Fund. Losses on Permitted
Investments are to be charged to the applicable Fund.
Identity and Qualifications of Independent Experts
The Project Indenture provides for the appointment of Independent Experts,
consisting of an Independent Engineer (currently Sargent & Lundy), an
Independent Gas Consultant (currently Schlesinger and Associates) and an
Independent Insurance Consultant.
The Partnerships may at any time remove any Independent Expert, subject to
certain restrictions set forth in the Project Indenture. If an Independent
Expert fails to be independent (within the meaning specified in the Project
Indenture), or becomes incapable of acting or fails to perform its functions
contemplated under the Project Indenture, or becomes subject to certain events
of bankruptcy or insolvency, then the Project Trustee may (and, if requested to
do so by holders of a majority of the aggregate principal amount of the
outstanding Project Securities, is required to) remove such Independent Expert.
Upon the resignation or removal of any Independent Expert, the Partnerships are
required to appoint a successor, which must be a nationally recognized
engineering firm, gas consulting firm or insurance consulting firm, as
applicable, selected by the Partnerships and not objected to by the Project
Trustee within 10 days after notice (an "Eligible Successor"). If the
Partnerships fail to appoint a successor within 30 days of notice of such
resignation or removal, the Project Trustee is then required to appoint a
successor from among the Eligible Successors. The Partnerships will compensate
the Independent Experts for their services in accordance with such arrangements
as may be agreed by the Partnerships with such Independent Experts.
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<PAGE>
Certain Covenants
Insurance
The Partnerships are required at all times to maintain, with responsible
insurance carriers, and periodically to provide evidence of, the following
insurance coverages: worker's compensation insurance (as required by law);
general liability insurance; automobile liability insurance; excess liability
insurance covering claims in excess of the Partnerships' primary worker's
compensation, general liability and automobile liability coverage with a minimum
limit per occurrence (when combined with such primary insurance coverages) of
$19 million, subject to inflation; physical damage insurance in a minimum
aggregate amount equal to replacement value (subject to a sublimit for earth
movement and flood); boiler and machinery insurance in a minimum amount equal to
replacement value plus expediting expenses of $1 million; and business
interruption insurance insuring gross earnings for a period of 12 months (with a
maximum deductible of 60 days). Notwithstanding the foregoing, (i) the
Partnerships may satisfy the requirements for workers' compensation insurance,
general liability insurance, automobile liability insurance and excess liability
insurance described above by being added as a named insured to insurance
coverages maintained by the Operator, and (ii) if at any time any of the
required insurance shall no longer be available on commercially reasonable
terms, the Partnerships are required to procure substitute insurance coverage
that is the most equivalent to the required coverage and available on
commercially reasonable terms (and such substitute insurance coverage shall be
deemed to satisfy the applicable insurance requirement) or, if no such
substitute coverage is available on commercially reasonable terms, then such
insurance coverage shall not be required. The Partnerships are permitted to have
deductibles under the required insurance coverages, subject to limitations
specified in the Project Indenture.
Limitations on Debt
ESI Tractebel Funding is not permitted to create or incur or suffer to exist
any Debt, except for: (i) the Original Project Securities; (ii) the Project
Securities; and (iii) any Additional Project Securities issued (a) to provide a
source of funds for the construction of Required Improvements, (b) to furnish
cash collateral to secure Energy Bank Obligations (or to secure obligations with
respect to Project Letters of Credit issued to support Energy Bank Obligations)
arising as a result of Power Purchase Agreements (or amendments thereto) entered
into after the date of the Project Indenture to sell electrical energy or
capacity at levels in excess of those contracted for under the existing Power
Purchase Agreements ("Additional Cash Collateral Proceeds") or (c) to the extent
directed to do so by ESI Tractebel Funding or required pursuant to the
applicable series supplemental indenture, (i) to pay any fees or costs
associated with the issuance of the Additional Project Securities or (ii) to
fund the Debt Service Reserve Fund to the extent that the balance in such Fund
upon issuance of such Additional Project Securities is less than the Debt
Service Reserve Requirement upon such issuance; provided that (A) any such
Required Improvements must be subject to the Lien granted to the Collateral
Agent pursuant to the Project Security Documents; (b) such Additional Project
Securities must be issued under the Project Indenture and subject to the
Collateral Agency Agreement; (C) the proceeds from the sale of such Additional
Project Securities must be loaned to the Partnerships and Project Notes must be
issued under the Project Credit Agreement to evidence such loans, which Project
Notes must be pledged to the Collateral Agent, (D) until applied, such proceeds
must be pledged to the Collateral Agent and deposited with the Project Trustee
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<PAGE>
in accordance with the Project Indenture, (E) no more than an aggregate
principal amount of $100 million of such Additional Project Securities may be
issued and outstanding at any time, with a sublimit of no more than $25 million
of such outstanding Additional Project Securities that were issued for the
purpose of providing Additional Cash Collateral Proceeds, (F) the Partnerships
must certify to the Project Trustee that any such Required Improvements are
necessary to comply with a change in Environmental Laws or other Government
Rules (or interpretation thereof) or to maintain the QF status of the applicable
Project, (G) the Partnerships must certify to the Project Trustee that the
proceeds from the issuance of any such Additional Project Securities for the
construction of Required Improvements (together with any other funds available
for the purpose) are sufficient for the purposes for which such Additional
Project Securities were issued and (H) the Partnerships must certify to the
Project Trustee that after giving effect to the issue of the Additional Project
Securities and application of the proceeds therefrom, the minimum annual
Projected Debt Service Coverage Ratio for any calendar year commencing with the
year in which such Additional Project Securities are issued through the year in
which the final maturity date of the Project Securities occurs will not be less
than 1.0:1 and the average annual Projected Debt Service Coverage Ratio for all
such calendar years will not be less than 1.1:1.
Neither Partnership is permitted to create or incur or suffer to exist any
Debt, except for: (i) Debt arising under the Project Credit Agreement in an
aggregate principal amount equal to the aggregate outstanding principal amount
of the Project Securities and any Additional Project Securities; (ii) Debt in
respect of Project Letters of Credit in an aggregate amount at no time greater
than the lesser of (a) the combined maximum amount of the Energy Bank
Obligations for both Partnerships required by the terms of any Power Purchase
Agreement to be supported by Project Letters of Credit at any time prior to the
final maturity date of the Project Securities plus certain other obligations as
provided in the Project Indenture and (b) $82 million; (iii) Debt under the
Working Capital Facility in an aggregate principal amount at any time not
greater than $20 million; (iv) obligations of the Partnerships under the Swaps;
(v) Debt arising under any of the Project Documents; (vi) Subordinated Debt not
to exceed an aggregate principal amount of $50 million, the proceeds of which
are applied to the payment of Capital Expenditures for the Projects; (vii)
purchase money or lease obligations incurred to finance items of equipment not
comprising an integral part of either Project (and Debt incurred to refinance
any such obligations) provided that (a) if such obligations are secured, they
are secured only by Liens upon the equipment being financed and (b) such
obligations do not in the aggregate have annual scheduled interest, principal,
lease and purchase price installment payments in excess of $5 million (any such
permitted Debt is referred to as "Permitted Purchase Money Indebtedness");
(viii) trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so long as such
trade accounts payable are payable or are paid within 90 days of the date the
respective goods are delivered or the respective services are rendered; (ix)
unsecured Debt in an aggregate outstanding principal amount at no time greater
than $10 million ("Permitted Unsecured Indebtedness"); (x) certain permitted
Project Guarantees (described below under "Limitations on Guarantees"); (xi)
Debt in respect of fuel price hedging arrangements related to the acquisition of
fuel reasonably necessary for the operation of the Projects; and (xii) Debt
incurred by either Partnership to the other Partnership.
Limitations on Liens
ESI Tractebel Funding is not permitted to create or suffer to exist or
permit any Lien upon or with respect to any of its properties, except for: (i)
Liens created or otherwise expressly permitted or required to exist by the
Project Indenture or any Project Security Document; (ii) Liens for taxes which
are either not yet due, are due but payable without penalty or are the subject
of a Good Faith Contest; (iii) legal or equitable encumbrances deemed to exist
by reason of the existence of any litigation or other legal proceedings if the
same is the subject of a Good Faith Contest; and (iv) Liens substantially
similar to any of the foregoing, provided such Lien could not reasonably be
expected to result in a Material Adverse Effect.
Neither Partnership is permitted to create or suffer to exist or permit any
Lien upon or with respect to any of its properties, except for: (i) Liens
created or otherwise expressly permitted or required to exist by the Project
Indenture of any other Project Transaction Document with respect to such
Partnership or its Property (including Liens on the Cash Collateral Proceeds to
secure the Project Letters of Credit); (ii) Liens securing Permitted Purchase
Money Indebtedness as described in clause (vii) of the second paragraph under
"Limitations on Debt" above; (iii) Liens securing fuel hedging arrangements
D-16
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related to the acquisition of fuel reasonably necessary for the operation of the
Projects, subordinated in accordance with certain requirements of the Project
Indenture; (iv) Liens for taxes which are either not yet due, are due but
payable without penalty or are the subject of a Good Faith Contest; (v) any
exceptions to title which are contained in the title insurance policies
delivered to the Project Trustee in connection with the issuance of the Project
Securities; (vi) such minor defects, easements, rights of way, restrictions,
irregularities, encumbrances and clouds on title and statutory Liens that do not
individually or in the aggregate materially impair the use of the property
affected thereby for its intended purpose; (vii) deposits or pledges to secure:
statutory or other public obligations or appeals; releases of attachments, stays
of execution or injunctions; performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases; or for purposes of like general
nature in the ordinary course of business; (viii) Liens in connection with
workmen's compensation, unemployment insurance or other social security or
pension obligations; (ix) legal or equitable encumbrances deemed to exist by
reason of the existence of any litigation or other legal proceeding if the same
is the subject of Good Faith Contest; (x) mechanic's, workmen's, materialmen's,
construction or other like Liens arising in the ordinary course of business or
incident to the construction or improvement of any property in respect of
obligations which are not yet due or which are the subject of a Good Faith
Contest; (xi) Liens existing on property prior to the time such property is
acquired by the Partnerships and not created in contemplation of such
acquisition; and (xii) Liens substantially similar to any of the foregoing
Liens, provided such Lien could not reasonably be expected to result in a
Material Adverse Effect.
Limitations on Guarantees
ESI Tractebel Funding is not permitted to be or become liable, directly or
indirectly, in connection with any Guaranty.
Neither Partnership is permitted to be or become liable, directly or
indirectly, in connection with any Guaranty, except for: (i) Guarantees
expressly required or contemplated by the Project Transaction Documents,
including the Project Guaranty; (ii) indemnities with respect to certain unfiled
Liens permitted as described above; (iii) indemnities to Government Authorities
relating to any expenses incurred that are incidental to obtaining easements for
the benefit of either Project; (iv) Guarantees which arise by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business; (v) Guarantees by one Partnership of Permitted Indebtedness incurred
by the other Partnership; and (vi) any other Guarantees reasonably required for
the Operation of the Projects and incurred in the ordinary course of business
and in accordance with Prudent Utility Practices.
Prohibition on Fundamental Changes and Disposition of Assets
ESI Tractebel Funding is not permitted to Transfer or lease (as lessor) any
of its Property except as contemplated by certain of the Project Security
Documents and except as payment of its obligations permitted under the Project
Indenture. Neither Partnership is permitted to Transfer or lease (as lessor) any
Property material to the operation of the Projects except (i) as contemplated by
the Project Transaction Documents, (ii) pursuant to the NECO Lease or any
replacement or successor agreement, (iii) in the ordinary course of business and
(iv) to the extent such Property is worn out or no longer useful or useable.
Neither ESI Tractebel Funding nor either Partnership is permitted to enter
into any transaction of merger or consolidation, change its form of organization
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or its business, or liquidate or dissolve, nor is it permitted to acquire all or
substantially all of the assets of any other Person; provided that either
Partnership may assign all its rights and obligations (as a whole) in respect of
the Project Transaction Documents (other than any Non-Material Project Documents
that are not assignable), its Project, all applicable Government Approvals
(other than those that are not assignable provided that the failure to do so
could not reasonably be expected to result in a Material Adverse Effect) and all
of its other Property to a corporation or other limited liability company (a
"Permitted Successor"), subject to the conditions that (a) all Voting Stock of
the Permitted Successor shall have been pledged to the Collateral Agent, (b) the
Project Trustee shall have received an officer's certificate of such Partnership
containing certain certifications specified in the Project Indenture, including
to the effect that such assignment and assumption would not result in a Default
or an Event of Default and could not reasonably be expected to result in a
Material Adverse Effect and (c) the Project Trustee shall have received an
opinion of counsel as to certain matters specified in the Project Indenture,
including opinions to the effect that (i) based upon laws in effect at the time,
after giving effect to such assignment, the aggregate amount of taxes to which
the Permitted Successor may be subject will not materially exceed the aggregate
amount of taxes to which such Partnership would have been subject if such
assignment had not been made, (ii) based upon laws in effect at the time, after
giving effect to such assignment, the amount of Tax Requirements attributable to
the Permitted Successor will not exceed the amount of Tax Requirements that
would have been attributable to such Partnership if such assignment had not been
made, (iii) all necessary consents to such assignment have been obtained and
(iv) the Permitted Successor has lawfully and validly assumed all such assigned
obligations, which obligations constitute legal, valid and binding obligations
of the Permitted Successor.
Limitations on Amendments to Project Contracts
ESI Tractebel Funding is not permitted to terminate, amend or modify any
Project Transaction Document to which it is a party or enter into any new
contract unless (i) such action is reasonably and necessarily related to the
issuance of the Project Securities or any Additional Project Securities pursuant
to the Project Indenture or the performance of its obligations under the Project
Transaction Documents and (ii) such action could not reasonably be expected to
result in a Material Adverse Effect.
Neither of the Partnerships is permitted to terminate, amend or modify any
Project Document to which it is a party or enter into any Additional Project
Document unless either: (i) such action could not reasonably be expected to (x)
result in a Material Adverse Effect or (y) except in the case of Additional
Project Documents pertaining to fuel hedging arrangements in respect of the
acquisition of fuel reasonably necessary for the operation of the Projects,
materially increase the Partnerships' contingent liabilities (including in
respect of any Energy Bank Obligations); or (ii) as a result of such action
(including, in the case of any such action with respect to a Power Purchase
Agreement, after giving effect to the issuance of any Additional Project
Securities which ESI Tractebel Funding anticipates issuing for the purpose of
furnishing Additional Cash Collateral Proceeds), the minimum annual and average
annual Projected Debt Service Coverage Ratios for any and all years commencing
with the year of effectiveness of such termination, amendment, modification or
Additional Project Document, as the case may be, through the year of the final
maturity of the Project Securities are not less than the lesser of (x) the
minimum annual and average annual Projected Debt Service Coverage Ratios for
such periods without giving effect to such termination, amendment, modification
or Additional Project Document and (y) a minimum annual Projected Debt Service
Coverage Ratio and an average annual Projected Debt Service Coverage Ratio for
such periods of 1.4:1 and 1.6:1, respectively, in each case as certified by the
Partnerships and the Independent Engineer.
Promptly upon the execution of any Additional Project Document (other than a
Non-Material Project Document), the applicable Partnership is required to take
actions necessary to grant to the Collateral Agent an assignment of such
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Partnership's rights under such Additional Project Document and a Lien on all
property interests acquired by such Partnership in connection therewith
(perfected to the extent such Lien can be perfected by filing a mortgage or
fixture filing under local law or a financing statement under the UCC); provided
that no such assignment or Lien shall be required with respect to equipment
financed with Permitted Purchase Money Indebtedness if prohibited by the terms
thereof.
Restricted Payments
The Partnerships and ESI Tractebel Funding are not permitted to make any
Restricted Payment (other than (i) Management Costs, as described under "Certain
Relationships and Related Transactions -- Management Fee", which will be payable
from the Operating Fund as Operating Expenses, and (ii) distributions to
Partners from the Tax Payment Subfund as described above under "The Funds -- Tax
Payment Subfund of Partnership Distribution Fund") except from, and to the
extent of, moneys then on deposit in the General Subfund of the Partnership
Distribution Fund. The Partnerships may instruct the Project Trustee to transfer
funds from the Partnership Suspense Fund to the General Subfund of the
Partnership Distribution Fund on any day that the following conditions are
satisfied as certified by the Partnerships to the Project Trustee: (i) the
amounts on deposit in each of the General Subfund of the Operating Fund, the
Major Overhaul Reserve Fund, the Interest Fund, the L/C Fee Fund, the Principal
Fund, the Subordinated Management Fee Subfund of the Operating Fund, the Tax
Payment Subfund of the Partnership Distribution Fund, the Debt Service Reserve
Fund, the Gas Transmission Reserve Fund, the Gas Supply Reserve Fund and the
Good Faith Contest Fund shall be equal to or in excess of the minimum amount
then required to be on deposit in such Fund in accordance with the Project
Indenture; (ii) no Default or Event of Default has occurred and is continuing;
(iii) no Debt is outstanding under the Working Capital Facility; (iv) either the
Debt Service Coverage Ratio or the Substitute Debt Service Coverage Ratio for
the Rolling Prior Year shall equal or exceed 1.25:1; and (v) the Partnerships
have no knowledge of any event or circumstance that could reasonably be expected
to result in the Debt Service Coverage Ratio for the period of two consecutive
fiscal quarters commencing on the expiration date of the Rolling Prior Year,
treated as a single period, being less than 1.25:1.
Upon receipt of an officer's certificate from the Partnerships as to the
satisfaction of the foregoing conditions, the Project Trustee is required to
transfer from the Partnership Suspense Fund to the General Subfund of the
Partnership Distribution Fund the amount set forth in such officer's
certificate. The amount set forth in any such officer's certificate may not
exceed the applicable "Distributable Percentage," set forth below, of the
balance then on deposit in the Partnership Suspense Fund; provided that if the
Debt Service Coverage Ratio for the Rolling Prior Year is less than a "Hurdle
Ratio" (defined as any of the ratios set forth below in the definition of
"Distributable Percentage") and the Substitute Debt Service Coverage Ratio for
the Rolling Prior Year is greater than such Hurdle Ratio, then the amount set
forth in such officer's certificate may be increased to the "Distributable
Percentage" of the balance then on deposit in the Partnership Suspense Fund
determined as if the Debt Service Coverage Ratio were equal to such Hurdle
Ratio, but not to exceed the amount that, after giving effect to the transfer of
such amount from the Partnership Suspense Fund, would reduce the Substitute Debt
Service Coverage Ratio for the Rolling Prior Year to such Hurdle Ratio. The
applicable "Distributable Percentage" is determined as follows:
if the Debt Service Coverage Ratio for the Rolling Prior Year is greater
than or equal to 1.40:1, the "Distributable Percentage" is 100%;
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<PAGE>
if the Debt Service Coverage Ratio for the Rolling Prior Year is less than
1.40:1 but greater than or equal to 1.35:1, the "Distributable Percentage"
is 75%;
if the Debt Service Coverage Ratio for the Rolling Prior Year is less than
1.35:1 but greater than or equal to 1.30:1, the "Distributable Percentage"
is 50%; and
if the Debt Service Coverage Ratio for the Rolling Prior Year is less than
1.30:1 but greater than or equal to 1.25:1, the "Distributable Percentage"
is 25%.
Limitations on Activities of ESI Tractebel Funding and the Partnerships
ESI Tractebel Funding is not permitted to engage in any business other than
the issuance of the Project Securities and any Additional Project Securities and
the performance of the Project Transaction Documents to which it is a party.
Neither of the Partnerships is permitted to engage in any business other than
the operation of its Project as contemplated by the Project Transaction
Documents and the performance of the Project Transaction Documents to which it
is a party.
Additional Covenants
In addition to the covenants described above, the Project Indenture also
contains covenants of ESI Tractebel Funding and the Partnerships regarding:
delivery to the Project Trustee of financial statements, compliance certificates
and certain other information; maintenance of existence, properties and certain
rights; compliance with laws; payment of taxes and other claims; maintenance of
books and records; inspection rights of the Project Trustee and the Independent
Engineer; opinions of counsel regarding the maintenance of recordations and
filings; providing further assurance; replacement of O&M Agreements; employee
plans; transactions with Affiliates; delivery of certain information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act in order to
permit compliance by a holder with Rule 144A in connection with the resale of
Original Project Securities; maintenance of Project Letters of Credit; Events of
Loss; Investment; and certain required contributions to the Revenue Fund.
Events of Default
The following events constitute "Events of Default" under the Project
Indenture:
(a) failure by ESI Tractebel Funding to pay any principal, interest or
premium, if any, on any Project Bond when the same becomes due and payable,
whether by scheduled maturity or required prepayment or by acceleration or
otherwise, and such failure continues uncured for 15 or more days;
(b) any representation or warranty made by either of the Partnerships,
ESI Tractebel Funding, NE LP or any pledgor under the ESI Tractebel Funding
Stock Pledge Agreement, in any Project Security Document or in any
representation, warranty or statement in any certificate, financial
statement or other document furnished to the Project Trustee or any other
Person by or on behalf of either of the Partnerships or ESI Tractebel
Funding under the Project Indenture or the Project Security Documents shall
prove to have been false or misleading in any material respect as of the
time made, confirmed or furnished and the inaccuracy has resulted in a
Material Adverse Effect and such Material Adverse Effect continues uncured
for 30 or more days after the earlier of (x) written notice thereof to ESI
Tractebel Funding by the Project Trustee or to ESI Tractebel Funding and the
D-20
<PAGE>
Project Trustee by the holders of at least 25% in aggregate principal amount
of the outstanding Project Securities and (y) the date that ESI Tractebel
Funding or either Partnership furnishes the Project Trustee with the notice
thereof as required by the Project Indenture, provided that if a
Partnership, ESI Tractebel Funding, NE LP or any such pledgor commences and
diligently pursues efforts to cure such Material Adverse Effect within such
30 day period, and such Material Adverse Effect may not be cured by the
payment of money, such Person may continue to effect such cure (and such
inaccuracy shall not be deemed an "Event of Default" under the Project
Indenture) for an additional 90 days;
(c) failure by either Partnership or ESI Tractebel Funding to perform or
observe certain covenants contained in the Project Indenture (relating to
insurance, limitations on Debt, limitations on Guarantees, prohibition of
fundamental changes, prohibition of disposition of assets, limitation of
activities by the Partnerships or ESI Tractebel Funding, Restricted Payments
and Project Letters of Credit), and such failure shall continue uncured for
30 or more days after the earlier of (x) written notice thereof to ESI
Tractebel Funding by the Project Trustee or to ESI Tractebel Funding and the
Project Trustee by the holders of at least 25% in aggregate principal amount
of the outstanding Project Securities and (y) the date that ESI Tractebel
Funding or either Partnership furnishes the Project Trustee with the notice
thereof as required by the Project Indenture;
(d) failure by either Partnership, ESI Tractebel Funding, NE LP or any
pledgor under the ESI Tractebel Funding Stock Pledge Agreement to perform or
observe any of its covenants contained in the Project Indenture and not
described in the preceding paragraph or any of its covenants under the
Project Security Documents and such failure shall continue uncured for 30 or
more days after the earlier of (x) written notice thereof to ESI Tractebel
Funding by the Project Trustee or to ESI Tractebel Funding and the Project
Trustee by the holders of at least 25% in aggregate principal amount of the
outstanding Project Securities and (y) the date that ESI Tractebel Funding
or either Partnership furnishes the Project Trustee with the notice thereof
as required by the Project Indenture; provided that if either Partnership,
ESI Tractebel Funding, NE LP or any pledgor under the ESI Tractebel Funding
Stock Pledge Agreement commences and diligently pursues efforts to cure such
default within such 30 day period, and such default is not curable the
payment of money, such Person may continue to effect such cure of the
default (and such default shall not be deemed an "Event of Default" under
the Project Indenture) for an additional 90 days so long as such Person is
diligently pursuing the cure;
(e) the occurrence and continuance beyond any stated "grace" period of
(i) any "event of default" under the Working Capital Facility or the Swaps
which has not been waived or (ii) any acceleration or right of acceleration
of the maturity of any Debt under the Working Capital Facility or the Swaps
other than such event or circumstance which (x) also causes the Project
Securities to be redeemed in full prior to their final maturity date and is
not otherwise an Event of Default under the Project Indenture or (y) is in
the nature of a "clean-up" obligation under the Working Capital Facility;
(f) certain events involving the bankruptcy, insolvency or receivership
of either Partnership or ESI Tractebel Funding;
(g) the entry of a final and nonappealable judgment or judgments for the
payment of money in excess of $20 million against either of the Partnerships
or ESI Tractebel Funding, which remain unpaid and unstayed for a period of
90 or more consecutive days;
D-21
<PAGE>
(h) failure by either Partnership or ESI Tractebel Funding to make any
payment when due (subject to any applicable grace period) in respect of any
Debt with an outstanding balance exceeding $10 million (other than any
amount due in respect of the Project Securities);
(i) any Material Project Agreement at any time (prior to its scheduled
expiration) ceases to be valid and binding and in full force and effect or
any party thereto substantially ceases performance thereunder; provided,
however, that no such event shall be an Event of Default unless and until
180 days shall have elapsed from the occurrence of such (or 360 days shall
have elapsed from the occurrence thereof if the Partnerships have promptly
commenced and are diligently using their best efforts to cure such event and
on the 180th day after such occurrence the balance on deposit in the Debt
Service Reserve Fund is equal to or greater than the then current Debt
Service Reserve Requirement as of the 180th day) and during such period the
Partnerships shall not have either (1) caused the non-performing party to
resume performance, or (2) entered into a replacement agreement which
satisfies the following conditions, to be certified by the Partnerships and
the Independent Engineer: (A) after giving effect to such replacement
agreement, the Projects shall be projected to maintain either (x) a minimum
annual and an average annual Project Debt Service Coverage Ratio, in each
case commencing from the year in which such replacement agreement is
executed (the "Replacement Year") through the year in which the final
maturity date of the Project Securities occurs, equal to or greater than the
ratios that would have been projected during such period had performance
under the original Material Project Agreement been obtained or (y) a minimum
annual Projected Debt Service Coverage Ratio equal to or greater than 1.05:1
and an average annual Projected Debt Service Coverage Ratio equal to or
greater than 1.25:1 (with respect to both the remaining term of the Project
Securities and the period commencing immediately following the year with the
lowest annual Projected Debt Service Coverage Ratio during such remaining
term and ending with the year of the final maturity of the Project
Securities); and (B) in the case of the replacement of any Power Purchase
Agreement, such replacement agreement is with (or unconditionally guaranteed
or otherwise supported by) one or more entities having long-term unsecured
debt rated at the time of execution of the replacement agreement equal to
the lesser of (x) the current long-term unsecured debt rating of the
purchaser under the Power Purchase Agreement being replaced or (y) Baa by
Moody's or BBB by S&P or BBB by Fitch (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if two or
more such corporations are not then in the business of rating long-term
unsecured debt of commercial entities);
(j) any grant of Lien contained in any Project Security Document ceases
to be effective to grant a Lien to the Collateral Agent on any material
portion of the Project Collateral described therein, or ceases to be
perfected or to have the priority required by the applicable Project
Security Documents, and such cessation continues uncured for 10 days after
ESI Tractebel Funding or the Partnerships have knowledge thereof;
(k) either Project loses its certification or status as a Qualifying
Facility; provided, however, that any such loss shall not be an Event of
Default unless and until 180 days shall have elapsed since such loss of
certification or status (or 360 days shall have elapsed since such loss if
the applicable Partnership has promptly commenced and is diligently using
its best efforts to cure such loss and on the 180th day after such loss the
balance on deposit in the Debt Service Reserve Fund shall be equal to or
greater than the then current Debt Service Reserve Requirement as of the
180th day) and during such period the applicable Partnership shall not have
either (i) restored such Project's certification or status as a Qualifying
Facility or (ii) (A) obtained all Government Approvals and all amendments to
D-22
<PAGE>
the Project Documents necessary to own and operate such Project without such
certification or status in a manner which will not result in a Regulatory
Event and to continue the sale of electricity pursuant to the applicable
Power Purchase Agreements at wholesale at the same rates and volumes or at
such rates and in such volumes which, taken as a whole, result in either (x)
a minimum annual and an average annual Projected Debt Service Coverage
Ratio, in each case commencing from the year in which such Government
Approvals and amendments have been obtained through the year of the final
maturity date of the Project Securities, equal to or greater than the ratios
that would have been projected during such period had such loss of
certification or status as a Qualifying Facility not occurred or (y) a
minimum annual Projected Debt Service Coverage Ratio equal to or greater
than 1.05:1 and an average annual Projected Debt Service Coverage Ratio
equal to or greater than 1.25:1 (with respect to both the remaining term of
the Securities and the period commencing immediately following the year with
the lowest Projected Debt Service Coverage Ratio during such remaining term
and ending with the final maturity date of the Project Securities), in each
case as certified by the applicable Partnership and the Independent Engineer
and (B) as a result of the applicable Partnership's obtaining all requisite
Government Approvals and necessary amendments to the Project Documents
necessary to own and operate such Project in accordance with clause (A)
immediately above, either (x) such loss of certification or status as a
Qualifying Facility for the applicable Project shall not result in a loss of
Certification or status as a Qualifying Facility for the other Project or
(y) in the event such loss of certification or status as a Qualifying
Facility for the applicable Project shall result in a loss of certification
or status as a Qualifying Facility for the other Project, the applicable
Partnership shall have obtained all requisite Government Approvals and all
amendments to the Project Documents necessary to own and operate the other
Project without such certification or status in a manner which will not
result in a Regulatory Event and to continue the sale of electricity
pursuant to the applicable Power Purchase Agreements at wholesale at the
same rates and volumes or at such rates and in such volumes, which taken as
a whole, satisfy the Projected Debt Service Coverage Ratio requirement set
forth in clause (A) immediately above, in each case as certified by the
applicable Partnership and the Independent Engineer;
(l) the applicable Partnership shall cease to have (i) ownership of its
Project or (ii) the Government Approvals necessary to Operate its Project,
unless such loss of Government Approvals could not in the opinion of the
Partnerships and the Independent Engineer reasonably be expected to result
in a Material Adverse Effect; provided that an event described in this
clause (1) shall not constitute a Default or an Event of Default unless such
event would not constitute a Default or an Event of Default under any other
clause defining Events of Default under the Project Indenture;
(m) neither ESI Energy or Tractebel, alone or together, owns or
controls, directly or indirectly (i) at least 25% of the equity interests in
each of the Partnerships, or (ii) at least 51% of the Voting Stock in NE LP;
(n) any Person other than ESI Energy, Tractebel or an Affiliate thereof
holds any general partner interest in a Partnership.
The Project Indenture provides that upon the occurrence of an Event of
Default with respect to ESI Tractebel Funding described in clause (f) above, all
interest and principal on the Project Securities outstanding shall become
automatically due and payable. In the case of Events of Default described in
clause (a) above all interest and principal on the Project Securities shall be
declared due and payable upon the direction of the holders of not less than 25%
in aggregate principal amount of the outstanding Project Securities. In the case
of any other Event of Default, all interest and principal on the Project
Securities shall be declared due and payable upon the direction of the holders
of not less than 50% in aggregate principal amount of the outstanding Project
D-23
<PAGE>
Bond Securities. Subject to the provisions of the Project Indenture relating to
the duties of the Project Trustee, in case an Event of Default occurs and is
continuing, the Project Trustee is under no obligation to exercise any of the
rights or powers vested in it under the Project Indenture at the request or
direction of any of the holders of the Project Securities unless it is offered
reasonable security or indemnity against costs, expenses and liabilities. The
exercise or remedies by the Collateral Agent under the Project Security
Documents is subject to the terms and conditions contained in the Collateral
Agency Agreement.
Amendments and Supplements
Without the consent of the holders of any Project Securities, ESI Tractebel
Funding and the Project Trustee may enter into one or more supplemental
indentures for any of the following purposes: (a) to establish the form and
terms of the debt securities of any series permitted by the Project Indenture;
(b) to evidence the succession of another entity to ESI Tractebel Funding or
either Partnership, and the assumption by any such successor of the covenants of
such entity under the Project Securities or the Project Indenture; (c) to
evidence the succession of a new Project Trustee pursuant to the Project
Indenture; (d) to add to the covenants of ESI Tractebel Funding and/or either
Partnership or to surrender any right or power therein conferred upon ESI
Tractebel Funding and/or either Partnership; (e) to convey, transfer and assign
to the Project Trustee properties or assets to secure the Project Securities,
and to correct or amplify the description of any property at any time subject to
the Project Indenture or to assure, convey and confirm unto the Project Trustee
or the Collateral Agent any property subject or required to be subject to the
Project Indenture; (f) to modify, eliminate or add to the provisions of the
Project Indenture to the extent necessary to qualify, requalify or continue the
qualification of the Project Indenture under the Trust Indenture Act or any
similar statute later enacted and to add to the Project Indenture such other
provisions as may be expressly permitted by the Trust Indenture Act (exclusive
of Section 316(a)(2) of the Trust Indenture Act as in effect on the date of the
execution of the Project Indenture); (g) to change or eliminate any provision of
the Project Indenture, provided that if the interests of the holders of any
series would be adversely affected, such change or elimination will not become
effective as to such series; and provided further that, if the interests of the
Working Capital Banks or the Project Letter of Credit Banks would be adversely
affected, such change or elimination will not become effective until the Project
Trustee receives a certificate consenting to such change or elimination from the
working Capital Banks or an agent therefor; (h) to permit or facilitate the
issuance of the Project Securities in uncertified form; (i) to cure any
ambiguity or to correct or supplement any provision of the Project Indenture
that may be defective or inconsistent with any other provision therein; (j) to
make any other provisions with respect to matters or questions arising under the
Project Indenture, provided such action shall not adversely affect the interests
of the holders of any series in any material respect; or (k) to provide for the
issuance of the Project Securities and so make such other changes as are
necessary or appropriate in connection therewith, provided such action shall not
adversely affect the interests of the holders of any series of the Project
Securities in any material respect.
With the consent of the holders of not less than a majority in aggregate
principal amount of the Project Securities of all series then outstanding,
considered as one class, ESI Tractebel Funding and the Partnerships may, and the
Project Trustee shall, enter into an indenture or indentures supplemental to the
Project Indenture for the purpose of adding any provisions to or changing in any
manner or eliminating or waiving any of the provisions of, the Project
Indenture; provided, however, that if there are Project Securities of more than
one series outstanding under the Project Indenture and if a proposed
supplemental indenture will directly affect the rights of the holders of one or
more, but less than all, of such series, then the consent only of the holders of
not less than a majority in aggregate principal amount of the outstanding
Project Securities of all series so directly affected, considered as one class,
shall be required; and provided further that no such supplemental indenture
D-24
<PAGE>
shall, without the consent of the holder of each outstanding Project Bond
directly affected thereby, (a) change the stated maturity of any Project Bond
(or, if the principal thereof is payable in installments, the stated maturity of
any such installment), or of any payment of interest thereon, or the dates or
circumstances of payment of premium, if any, on any Project Bond, or change the
principal amount thereof or the interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Project Bond or the premium, if any, or the interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment of principal or interest on or after the stated maturity
thereof (or, in the case of redemption, on or after the Redemption Date) or such
payment of premium, if any, on or after the date such payment of premium becomes
due and payable, or change the dates or the amounts of payments to be made
through the operation of the sinking fund in respect of such Project Securities,
if any; or (b) permit the creation of any Lien prior to or, except in the case
of Project Securities issued in accordance with the terms of the Project
Indenture, pari passu with the Lien of the Project Security Documents with
respect to all or any substantial portion of the Project Collateral or terminate
the Lien of the Project Security Documents on all or any substantial portion of
the collateral or deprive any holder of the security afforded by the lien of the
Project Security Documents, except to the extent expressly permitted by the
Project Indenture or any of the Project Security Documents; or (c) reduce the
percentage in principal amount of the outstanding Project Securities, the
consent of whose holders is required for any waiver (of compliance with certain
provisions of the Project Indenture or certain defaults thereunder and their
consequences) provided for in the Project Indenture; or (d) modify any of the
Project Indenture provisions relating to the waiver of defaults or the making of
modifications to the Project Indenture.
Any supplemental indenture which adds any provisions to or changes or
eliminates any provisions of the Project Indenture which shall adversely affect
the interests of the Working Capital Banks shall not become effective without
the consent of the Working Capital Banks, as the case may be, or an agent
therefor.
A supplemental indenture that changes or eliminates any covenant or other
provision of the Project Indenture which has been expressly included solely for
the benefit of one or more particular series of Project Securities, or which
modifies the rights of the holders of Project Securities of such series with
respect to such covenant or other provision, shall be deemed not to affect the
rights under the Indenture of the holders of Project Securities of any other
series.
Satisfaction and Discharge of the Indenture; Defeasance
ESI Tractebel Funding may terminate the Project Indenture and the Project
Guaranty by delivering all outstanding Project Securities to the Project Trustee
for cancellation and by paying all other sums payable under the Project
Indenture.
In addition to the foregoing, ESI Tractebel Funding shall be deemed to have
paid and discharged the entire indebtedness on all the Project Securities of any
series on the 91st day after the date of the deposit described in clause (1)
below, and the provisions of the Project Guaranty and the Project Indenture, as
they relate to the Project Securities of such series, shall no longer be in
effect (except (i) the right to receive, solely from the trust funds described
in clause (1) below, payments in respect of such Project Securities as and when
due, (ii) certain ministerial rights and obligations of ESI Tractebel Funding
and the Project Trustee relating to the registration and transfer of such
Project Securities and similar matters, and (iii) the rights, powers, trusts and
immunities of the Project Trustee), provided that the following conditions have
been satisfied:
(1) ESI Tractebel Funding has irrevocably deposited with the Project
Trustee, in trust, money or U.S. Government Obligations (or a combination
thereof) in an amount which will be sufficient to pay the principal of and
D-25
<PAGE>
premium, if any, and interest on the Project Securities of such series on
the respective dates on which such payments become due;
(2) specified Defaults (regarding failure to make payments in respect to
the Project Securities and certain events of bankruptcy or insolvency) shall
not occur with respect to Project Securities of such series on the date of
such deposit or during the period ending 91 days thereafter;
(3) ESI Tractebel Funding has delivered to the Project Trustee an
opinion of counsel to the effect that (i) the holders of the Project
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of the deposit, defeasance and discharge and will be
subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit, defeasance
and discharge had not occurred and (ii) the defeasance trust is not an
investment company under the Investment Company Act of 1940; and
(4) if the deposit described in clause (1) above has been made to make
payments in respect to the Project Securities of such series to and
including a redemption date on which all the outstanding Project Securities
of such series are eligible for redemption and on which such Project
Securities are to be redeemed, then ESI Tractebel Funding shall have
irrevocably designated such redemption date and requested that the Project
Trustee give notice of such redemption to the holders not less than 30 nor
more than 60 days prior to such redemption date in accordance with the
applicable provisions of the Project Indenture.
If the conditions described in clauses (1), (2) and (4) above have been
satisfied with respect to the Project Securities of any series (but the
condition described in clause (3) above is not satisfied), then, effective on
the 91st day after the date of the deposit described in clause (1) above:
(a) with respect to the Project Securities of such series, ESI Tractebel
Funding, the Partnerships and NE LP (and the pledgors under the ESI
Tractebel Funding Stock Pledge Agreement) will be released from
substantially all of their covenants and other obligations contained in the
Project Indenture, the Project Guaranty and the other Project Transaction
Documents, and thereafter any failure to comply with any such covenant or
obligation will not constitute a Default or an Event of Default with respect
to the Project Securities of such series;
(b) the occurrence of any event described in clause (b), (c), (d), (e),
(g), (h), (i), (j), (k), (l), (m) or (n) under "Events of Default" above
will no longer constitute a Default or an Event of Default with respect to
the Project Securities of such series;
(c) the Project Securities of such series will thereafter be deemed not
to be outstanding for purposes of determining whether the holders of the
requisite aggregate principle amount of Project Securities have approved any
amendment, modification or waiver with respect to any covenant or obligation
described in clause (a) above or any event described in clause (b) above;
and
(d) the Project Securities of such series will cease to be secured by or
be entitled to any benefit under the Project Security Documents or any other
Lien upon any Project Collateral (other than the trust funds deposited with
the Project Trustee in respect of such Project Securities in order to effect
the defeasance described therein);
D-26
<PAGE>
provided that the foregoing will not relieve ESI Tractebel Funding of its
obligations to make payments in respect of the Project Securities of such
series.
If ESI Tractebel Funding or the Partnerships incur any Debt and all or any
portion of the proceeds therefrom are concurrently applied to make a deposit
described in clause (1) above in respect of any series of Project Securities (or
to acquire U.S. Government Obligations that are so deposited), then any Default
or Event of Default that would arise as a result of such an incurrence or as a
result of any Lien granted to secure such Debt will not constitute a Default or
Event of Default with respect to the Project Securities of such series.
The Project Trustee
State Street Bank and Trust Company is the Project Trustee under the Project
Indenture. The Project Trustee's current address is Two International Place,
Boston, MA 02110, Attention: Ms. Jill Olson, Corporate Trust Department.
D-27
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ESI TRACTEBEL ACQUISITION OR NE LP. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
--------------------
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................iii
DEFINED TERMS.........................................................iii
SAFE HARBOR STATEMENT
UNDER THE PRIVATE
SECURITIES LITIGATION
REFORM ACT OF 1995..................................................iv
SUMMARY.................................................................1
SUMMARY HISTORICAL AND PRO
FORMA COMBINED FINANCIAL
DATA................................................................13
RISK FACTORS...........................................................16
USE OF PROCEEDS........................................................27
CAPITALIZATION.........................................................27
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS................................................29
SELECTED HISTORICAL
COMBINED FINANCIAL DATA.............................................33
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS..........................................................35
BUSINESS...............................................................41
THE PROJECTS...........................................................42
REGULATION.............................................................52
SUMMARY OF PRINCIPAL
PROJECT AGREEMENTS..................................................60
MANAGEMENT.............................................................94
EXECUTIVE COMPENSATION.................................................95
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................................95
CERTAIN TRANSACTIONS...................................................96
THE EXCHANGE OFFER.....................................................97
DESCRIPTION OF SECURITIES.............................................106
OUTSTANDING PROJECT
INDEBTEDNESS.......................................................134
CERTAIN FEDERAL TAX
CONSIDERATIONS.....................................................140
PLAN OF DISTRIBUTION..................................................142
LEGAL MATTERS.........................................................142
EXPERTS...............................................................143
TRUSTEE...............................................................143
INDEX TO FINANCIAL
STATEMENTS.........................................................F-1
Appendix A: Defined Terms.............................................A-1
Appendix B: Independent Engineer's Report.............................B-1
Appendix C: Fuel Consultant's Report..................................C-1
Appendix D: Summary of Project Indenture..............................D-1
--------------------
Until ___________, 1998, all dealers effecting transactions in the New
Securities, whether or not participating in the Exchange Offer, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
ESI Tractebel Acquisition Corp.
Northeast Energy, LP
7.99% Series B Secured Bonds Due 2011
----------------------
PROSPECTUS
----------------------
________________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law and paragraph 9 of
ESI Tractebel Acquisition's Certificate of Incorporation provide for
indemnification of the Registrant's directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
A list of exhibits is set forth in the Exhibit Index appearing
elsewhere in this Registration Statement and is incorporated herein by
reference.
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of North Palm Beach, State of Florida on May 11, 1998.
ESI TRACTEBEL ACQUISITION CORP.
By: /s/ Glenn E. Smith
-----------------------------
Glenn E. Smith
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on May 11, 1998.
Signature Title
- --------- -----
/s/ Glenn E. Smith
- ------------------------------
Glenn E. Smith Vice President
(Principal Executive Officer)
/s/ Peter D. Boylan
- ------------------------------
Peter D. Boylan Treasurer
(Principal Financial and
Accounting Officer)
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of North Palm Beach, State of Florida on May 11, 1998.
NORTHEAST ENERGY, A LIMITED PARTNERSHIP
By: ESI NORTHEAST ENERGY GP, INC.
By: /s/ Glenn E. Smith
---------------------------------
Glenn E. Smith
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on May 11, 1998.
Signature Title
- --------- -----
/s/ Glenn E. Smith
- -----------------------------
Glenn E. Smith Vice President
(Principal Executive Officer)
/s/ Peter D. Boylan
- ----------------------------- Treasurer
Peter D. Boylan
(Principal Financial and
Accounting Officer)
II-3
<PAGE>
Exhibit Index
Exhibit No. Description
----------- -----------
1. Purchase Agreement dated February 12, 1998 by and
between ESI Tractebel Acquisition Corp., Northeast
Energy, LP, ESI Energy, Inc., Tractebel Power,
Inc. and Goldman, Sachs & Co.
3.1 Certificate of Incorporation of ESI Tractebel
Acquisition Corp. as filed with the Secretary of
State of the State of Delaware on January 12,
1998.
3.2 By-laws of ESI Tractebel Acquisition Corp.
3.3* Certificate of Limited Partnership of Northeast
Energy, LP, a Delaware limited partnership, as
filed with the Secretary of State of the State of
Delaware on November 21, 1997
3.4* Agreement of Limited Partnership of Northeast
Energy, LP, a Delaware limited partnership, dated
as of November 21, 1997.
4.1 Indenture, dated as of February 19, 1998, among
ESI Tractebel Acquisition Corp., Northeast Energy,
LP, Northeast Energy, LLC and State Street Bank
and Trust Company as trustee and collateral agent.
4.2 Registration Rights Agreement, dated as of
February 19, 1998, by and among ESI Tractebel
Acquisition Corp., Northeast Energy, LP and
Goldman, Sachs & Co.
4.3 Company & Partner Pledge Agreement dated as of
February 19, 1998 by and among ESI Tractebel
Acquisition Corp., Northeast Energy, LP and
Northeast Energy, LLC in favor of State Street
Bank and Trust Company as trustee and collateral
agent.
4.4 Sponsor Pledge Agreement dated as of February 19,
1998 by and among ESI Northeast Energy Acquisition
Funding, Inc., ESI Northeast Energy GP, Inc., ESI
Northeast Energy LP, Inc., Tractebel Northeast
Generation GP, Inc., Tractebel Associates
Northeast LP, Inc. and Tractebel Power, Inc. in
favor of State Street Bank and Trust Company as
trustee and collateral agent.
5.1** Opinion of Orrick, Herrington & Sutcliffe LLP.
<PAGE>
10.1* Operation and Maintenance Agreement dated as of
November 21, 1997 by and between Northeast Energy,
LP, a Delaware limited partnership and ESI
Operating Services, Inc.
10.2* Operation and Maintenance Agreement dated as of
November 21, 1997 by and between Northeast Energy,
LP, a Delaware limited partnership and ESI
Operating Services, Inc.
10.3* Fuel Management Agreement, dated as of January 20,
1998, by and between Northeast Energy, LP, a
Delaware limited partnership and ESI Northeast
Fuel Management, Inc., assigned by Northeast
Energy, LP to Northeast Energy Associates, a
limited partnership on January 20, 1998.
10.4* Fuel Management Agreement, dated as of January 20,
1998, effective retroactive to January 14, 1998,
by and between Northeast Energy, LP, a Delaware
limited partnership and ESI Northeast Fuel
Management, Inc.
10.5* Administrative Services Agreement dated as of
November 21, 1997 between Northeast Energy, LP, a
Delaware limited partnership and ESI Northeast
Energy GP, Inc.
10.6 Reimbursement Agreement, dated as of November 21,
1997, by and among FPL Group Capital, Inc.,
Tractebel Power, Inc. and Northeast Energy, LP, a
Delaware limited partnership
12.1 Statements regarding computation of Ratio of
Earnings to Fixed Charges
21.1 Subsidiary of Northeast Energy, LP
23.1** Consent of Orrick, Herrington & Sutcliffe LLP
(included as part of Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Sargent & Lundy LLC
23.4 Consent of Benjamin Schlesinger and Associates,
Inc.
25 Statement of Eligibility on Form T-1 of the
Trustee.
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
<PAGE>
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agency Agreement between ESI
Tractebel Acquisition Corp. and the Trustee
99.4 Form of letter to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees
- ----------
* Incorporated herein by reference from the Annual Report on Form 10-K filed by
ESI Tractebel Funding Corp., Northeast Associates, A Limited Partnership and
North Jersey Energy Associates, A Limited Partnership on March 27, 1998.
** To be filed by amendment.
Exhibit 1
ESI TRACTEBEL ACQUISITION CORP.
$220,000,000 SECURED BONDS DUE 2011
unconditionally guaranteed as to the payment of principal, premium,
if any, and interest by
NORTHEAST ENERGY, LP
-------------
Purchase Agreement
February 12, 1998
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
ESI Tractebel Acquisition Corp., a Delaware corporation (the
"Company"), a special purpose corporation wholly-owned by ESI Northeast Energy
Acquisition Funding, Inc. ("ESI Acquisition Funding"), an affiliate of ESI
Energy, Inc. ("ESI Energy"), and Tractebel Power, Inc. ("Tractebel Power" and
together with ESI Energy, the "Sponsor Guarantors") proposes, subject to the
terms and conditions stated herein, to issue and sell to Goldman, Sachs & Co.
(the "Purchaser" or "Goldman Sachs") an aggregate of $220,000,000 principal
amount of 7.99% Secured Bonds Due 2011 of the Company, specified above (the
"Bonds"). The proceeds to be received by the Company from the sale of the Bonds
will be loaned by the Company to Northeast Energy, LP, a Delaware limited
partnership ("NE LP") to refinance a portion of the purchase price paid by NE LP
to acquire a 98% limited partnership interest and a 1% general partnership
interest in each of Northeast Energy Associates, A Limited Partnership ("NEA")
and North Jersey Energy Associates, A Limited Partnership ("NJEA," and together
with NEA, the "Partnerships") and by Northeast Energy, LLC, a direct
wholly-owned subsidiary of NE LP ("NE LLC") to acquire a 1% limited partnership
interest in each of NEA and NJEA.
The Company's obligations under the Bonds will be unconditionally
guaranteed by NE LP, the sole general partner of each of the Partnerships (the
"Bond Guarantor"), which is owed by ESI Northeast Energy GP, Inc., a Florida
corporation ("ESI GP") as a general partner, ESI Northeast Energy LP, Inc., a
Florida corporation ("ESI LP") as a limited partner, Tractebel Northeast
Generation GP, Inc., a Delaware corporation ("Tractebel GP") as a general
partner, and Tractebel Associates Northeast LP, Inc., a Delaware corporation
("Tractebel LP") as a limited partner. The Bond Guarantor and the Sponsor
Guarantors are collectively referred to herein as the "Guarantors."
Capitalized terms used herein without definitions shall have the
meanings assigned to them in the Offering Circular (as defined herein).
<PAGE>
Pursuant to a Registration Rights Agreement, to be dated the Time of
Delivery, among the Company, the Bond Guarantor and the Purchaser (the
"Registration Rights Agreement"), substantially in the form attached as Exhibit
C hereto, the Company and the Bond Guarantor will agree, among other things, to
file with the Securities and Exchange Commission (the "Commission"), under the
circumstances set forth therein, (i) a registration statement under the United
States Securities Act of 1933, as amended (the "Securities Act") relating to (a)
another series of debt securities of the Company with terms substantially
identical to the Bonds (the "Exchange Bonds") to be offered in exchange for the
Bonds (the "Exchange Offer"), and (ii) to the extent required by the
Registration Rights Agreement, a shelf registration statement pursuant to Rule
415 of the Securities Act relating to the resale by certain holders of the
Bonds, and in each case, to use its best efforts to cause such registration
statements to be declared effective. An execution and delivery of the
Registration Rights Agreement by the Company and the Bond Guarantor is a
condition to the Purchaser's obligations under Section 3 hereof.
1. Each of the Company, the Bond Guarantor and the Sponsor Guarantors
jointly and severally represents and warrants to, and agrees with the Purchaser
that:
(a) A preliminary offering circular, dated January 28, 1998 (the
"Preliminary Offering Circular") and an offering circular, dated February 12,
1998 (the "Offering Circular"), in each case including the international
supplement thereto, have been prepared in connection with the offering of the
Bonds. Any reference to the Preliminary Offering Circular or the Offering
Circular, as the case may be, as amended or supplemented, as of any specified
date, shall be deemed to refer to and to include any Additional Issuer
Information (as defined in Section 5(f)) furnished by the Company prior to the
completion of the distribution of the Bonds. The Preliminary Offering Circular
or the Offering Circular and any amendments or supplements thereto did not and
will not, as of their respective dates, contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein;
(b) Neither Partnership nor any of its subsidiaries has sustained since
the date of the latest audited financial statements of the Partnerships included
in the Offering Circular any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Offering Circular;
and, since the respective dates as of which information is given in the Offering
Circular, there has not been any change in the capital stock or partners' equity
interests, as applicable, or long-term debt of the Company, the Bond Guarantor
or either Partnership, or any of their respective subsidiaries or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial position,
shareholders' equity or partners' equity interests, as applicable, or results of
operations of the Company, the Bond Guarantor, the Partnerships and their
respective subsidiaries, otherwise than as set forth or contemplated in the
Offering Circular;
(c) Each of the Company, the Bond Guarantor, the Partnerships and their
respective subsidiaries have good and marketable title in fee simple to all real
property and good and marketable title to all personal property owned by them,
in each case free and clear of all liens, encumbrances and defects except such
as are described in the Offering Circular or such as do not materially affect
the value of such property and do not materially interfere with the use made and
proposed to be made of such property by it and its subsidiaries; and any real
property and buildings held under lease by the Company, the Bond Guarantor, the
Partnerships and their respective subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by them;
2
<PAGE>
(d) Each of the Company, the Bond Guarantor and the Partnerships has been
duly incorporated or organized and is validly existing as a corporation or a
partnership, as applicable, in good standing under the laws of the jurisdiction
of its incorporation or organization, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Offering Circular, and has been duly qualified as a foreign corporation or a
partnership for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so qualified in
any such jurisdiction; and each of its subsidiary has been duly incorporated or
organized and is validly existing as a corporation or a partnership in good
standing under the laws of its jurisdiction of incorporation or organization;
(e) The Company has an authorized capitalization as set forth in the
Offering Circular, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable.
(f) The Bonds have been duly authorized by all necessary corporate action
on the part of the Company and, when executed and authenticated in accordance
with the terms of the Indenture and delivered to and paid for by the Purchaser
in accordance with the terms of this Purchase Agreement, will constitute a valid
and legally binding obligations of the Company enforceable in accordance with
their terms and entitled to the benefits provided by the indenture to be dated
as of February 19, 1998 (the "Indenture") among the Company, the Bond Guarantor,
NE LLC and State Street Bank and Trust Company, as Trustee (the "Trustee") and
collateral agent (the "Collateral Agent"), under which they are to be issued;
the Indenture has been duly authorized by the Company, the Bond Guarantor and NE
LLC and, when duly executed and delivered by the Company, the Bond Guarantor, NE
LLC and the Trustee, the Indenture will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and the Bonds and the Indenture will conform to the descriptions
thereof in the Offering Circular and will be in substantially the form
previously delivered to you.
(g) The guaranty of the Bonds (the "Bond Guaranty") has been duly
authorized by the Bond Guarantor and, upon the due authorization, execution,
authentication, issuance and delivery of the related Bonds, will have been duly
executed, issued and delivered and will constitute a valid and legally binding
obligation of the Bond Guarantor, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles. The Bond Guaranty will be evidenced by a notation of
such Bond Guaranty by or on behalf of the Bond Guarantor in accordance with the
terms of the Indenture on each Bond authenticated and delivered by the Trustee;
provided, however, that the Bond Guaranty will be in full force and effect
notwithstanding any failure to endorse on each Bond a notation of such Bond
Guaranty. The Bond Guaranty will conform to the descriptions thereof in the
Offering Circular;
(h) The Registration Rights Agreement has been duly authorized by the
Company and the Bond Guarantor. The Exchange Bonds will be duly authorized for
issuance by the Company, and when executed, exchanged, authenticated, issued and
delivered in accordance with the terms of the Registration Rights Agreement and
the Indenture will be the valid and legally binding obligations of the Company
entitled to the benefits provided by the Indenture and enforceable in accordance
with their terms, subject, as to enforcement, to bankruptcy, insolvency and
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The Registration Rights
Agreement will conform to the descriptions thereof in the Offering Circular;
(i) The Bond Guaranty of the Company's obligations under the Exchange
Bonds, which terms will be substantially identical to the terms of the Bond
Guaranty (the "Exchange Guaranty"), will be duly
3
<PAGE>
authorized by the Bond Guarantor, and upon the due authorization, execution,
authentication, issuance and delivery of the related Exchange Bonds, will have
been duly executed, issued and delivered and will constitute a valid and legally
binding obligations of the Bond Guarantor, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles; The Exchange Guaranty will be evidenced by a
notation of such Exchange Guaranty by or on behalf of the Bond Guarantor, in
accordance with the terms of the Indenture, on each Exchange Bond authenticated
and delivered by the Trustee; provided, however, that the Exchange Guaranty will
be in full force and effect notwithstanding any failure to endorse on each
Exchange Bond a notation of such Exchange Guaranty.
(j) The promissory note evidencing the Bond Guarantor's obligation to
repay the Bond Loan (the "Note") has been duly authorized by the Bond Guarantor
and, upon the due execution and delivery, the Note will have been duly executed,
issued and delivered in accordance with the terms of the Indenture, and will
constitute a valid and legally binding obligations of the Bond Guarantor,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles. The
Note will conform to the descriptions thereof in the Offering Circular;
(k) The sponsor pledge agreement to be dated the Time of Delivery (the
"Sponsor Pledge Agreement") among ESI LP, ESI GP, Tractebel LP, Tractebel GP,
the Sponsor Guarantors (collectively, the "Sponsor Pledgors") and the Collateral
Agent, has been duly authorized by each Sponsor Pledgor and, when executed and
delivered by each such Sponsor Pledgor, the Sponsor Pledge Agreement will
constitute a valid and legally binding obligation of each such Sponsor Pledgor,
enforceable against each such Sponsor Pledgor in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles and, with respect to rights to indemnity, to federal
securities law and public policy.
(l) The Company and partner pledge agreement to be dated the Time of
Delivery (the "Company and Partner Pledge Agreement") among the Company, NE LP,
NE LLC (collectively, the "Company and Partner Pledgors") and the Collateral
Agent, has been duly authorized by each Company and Partner Pledgors and, when
executed and delivered by each such Company and Partner Pledgor, the Company and
Partner Pledge Agreement will constitute a valid and legally binding obligation
of each such Company and Partner Pledgor, enforceable against each such Company
and Partner Pledgor in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles and,
with respect to rights to indemnity, to federal securities law and public
policy. The Sponsor Pledge Agreement and the Company and Partner Pledge
Agreement are together referred to herein as the "Pledge Agreements" and each
individually as a "Pledge Agreement." The Sponsor Pledgors and the Company and
Partner Pledgors are referred to herein collectively as the "Pledgors" and each
individually as a "Pledgor;"
(m) None of the transactions contemplated by this Agreement (including,
without limitation, the use of the proceeds from the sale of the Bonds) will
violate or result in a violation of Section 7 of the Exchange Act, or any
regulation promulgated thereunder, including, without limitation, Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System;
(n) Prior to the date hereof, none of the Company, the Guarantors or any
of their affiliates has taken any action which is designed to or which has
constituted or which might have been expected to cause or result in
stabilization or manipulation of the price of any security of the Company in
connection with the offering of the Bonds;
4
<PAGE>
(o) The issue and sale of the Bonds and the compliance by the Company,
the Bond Guarantor and NE LLC with all of the provisions of the Bonds, the Bond
Guaranty, the Note, the Indenture, the Registration Rights Agreement, the
Company and Partner Pledge Agreement and this Agreement (collectively, the
"Company and Partner Operative Agreements") to which the Company, the Bond
Guarantor or NE LLC are parties, and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which any of the Company or the Bond Guarantor or any of their
subsidiaries is a party or by which any of the Company or the Bond Guarantors or
any of their subsidiaries is bound or to which any of the property or assets of
the Company or the Bond Guarantor or any of their subsidiaries is subject, nor
will such action result in any violation of the provisions of the Certificate of
Incorporation or By-laws or other organizational documents, as applicable, of
the Company or the Bond Guarantor or any of their subsidiaries or any statute or
any order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or the Bond Guarantor or any of their subsidiaries
or any of their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental agency
or body is required for the issue and sale of the Bonds or the consummation by
the Company, the Bond Guarantor and their subsidiaries of the transactions
contemplated by the Company and Partner Operative Agreements to which any of the
Company or the Bond Guarantor or any of their subsidiaries is a party, except
for (i) the filing of registration statements by the Company with the Commission
under the Securities Act pursuant to the Registration Rights Agreement and (ii)
such consents, approvals, authorizations, registrations or qualifications as
have been obtained or may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Bonds by the Purchaser or
the qualifications of the Indenture under the Trust Indenture Act of 1939, as
amended, as to which no representation is made;
(p) The compliance by either Sponsor Guarantor or any of its Affiliates
with the provisions of the Sponsor Pledge Agreement and this Agreement
(together, the "Sponsor Operative Agreements," and collectively with the Company
and Partner Operative Agreements, the "Operative Agreements") to which such
Sponsor Guarantor or its Affiliates are parties, will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which such Sponsor Guarantor or
its Affiliates are parties or by which such Sponsor Guarantor or its Affiliates
are bound or to which any of the property or assets of such Sponsor Guarantor or
its Affiliates are subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws or other
organizational documents, as applicable, of such Sponsor Guarantor or its
Affiliates or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Sponsor Guarantor or
its Affiliates or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for performance by such Sponsor
Guarantor or its Affiliates of its obligations under the Sponsor Pledge
Agreement or this Agreement to which such Sponsor Guarantor or its Affiliates
are parties;
(q) Except as otherwise set forth in the Offering Circular, all of the
issued and outstanding shares of capital stock of the Company are owned directly
or indirectly by ESI Northeast Energy Acquisition Funding, Inc., an Affiliate of
ESI Energy, and by Tractebel Power, free and clear of all liens, encumbrances,
equities or claims;
(r) None of the Company, the Bond Guarantor, the Partnerships or any of
their respective subsidiaries is in violation of its Certificate of
Incorporation or By-laws or other applicable organizational documents, as
applicable, or in default in the performance or observance of any material
obligation, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
5
<PAGE>
(s) The statements set forth in the Offering Circular (i) under the
caption "Description of Bonds," insofar as such statements relate to the terms
of the Bonds or the provisions of documents therein described, fairly present,
in all material respects, as to the Bonds and such documents, the information
that would be required to be presented if the Offering Circular were a
prospectus included in a registration statement on Form S-1 under the Securities
Act and (ii) under the caption "Certain United States Federal Tax Considerations
for Non-United States Holders", and under the caption "Underwriting," insofar as
they purport to describe the provisions of the laws and documents referred to
therein, are correct in all material respects;
(t) Other than as set forth in the Offering Circular, there are no legal
or governmental proceedings pending to which the Company, the Bond Guarantor or
the Partnerships or any of their respective subsidiaries is a party or of which
any property of them or any of their respective subsidiaries is the subject
which, if determined adversely to any of them or any of their respective
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future financial position, shareholders' equity or
partners' equity interests, as applicable, or results of operations of the
Company, the Bond Guarantor, the Partnerships and their respective subsidiaries
and, to the best of its knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(u) When the Bonds and the Bond Guaranty are issued and delivered
pursuant to this Agreement, neither the Bonds nor the Bond Guaranty will be of
the same class (within the meaning of Rule 144A under the Securities Act) as
securities which are listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system;
(v) None of the Company, the Bond Guarantor, NE LLC or the Partnerships
is or, after giving effect to the offering and sale of the Bonds, will be an
"investment company," or an entity "controlled" by an "investment company," as
such terms are defined in the United States Investment Company Act of 1940, as
amended (the "Investment Company Act");
(w) None of the Company, the Bond Guarantor, the Partnerships or any of
their respective affiliates, nor any person acting on its or their behalf (other
than the Purchaser and its affiliates) has offered or sold the Bonds by means of
any general solicitation or general advertising within the meaning of Rule
502(c) under the Securities Act or, with respect to Bonds sold outside the
United States to non-U.S. persons (as defined in Rule 902 under the Securities
Act), by means of any directed selling efforts within the meaning of Rule 902
under the Securities Act and the Company, any affiliate of the Company and any
person acting on its or their behalf has complied with and will implement the
"offering restriction" within the meaning of such Rule 902;
(x) Within the preceding six months, neither the Company nor any other
person acting on behalf of the Company has offered or sold to any person any
Bonds, or any securities of the same or a similar class as the Bonds, other than
Bonds offered or sold to the Purchaser hereunder. The Company will take
reasonable precautions designed to ensure that any offer or sale, direct or
indirect, in the United States or to any U.S. person (as defined in Rule 902
under the Securities Act) of any Bonds or any substantially similar security
issued by the Company, within six months subsequent to the date on which the
distribution of the Bonds has been completed (as notified to the Company by the
Purchaser), is made under restrictions and other circumstances reasonably
designed not to affect the status of the offer and sale of the Bonds in the
United States and to U.S. persons contemplated by this Agreement as transactions
exempt from the registration provisions of the Securities Act;
(y) None of the Company, the Bond Guarantor, the Partnerships, nor any of
their respective affiliates does business with the government of Cuba or with
any person or affiliate located in Cuba within the meaning of Section 517.075,
Florida Statutes;
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(z) Price Waterhouse LLP, who has audited certain combined financial
statements of the Partnerships, and Deloitte & Touche LP, who have reviewed
certain financial information of the Company and the Bond Guarantor, are
independent public accountants as required by the Securities Act and the rules
and regulations of the Commission thereunder;
(aa) Each of the Bond Guarantor, the Partnerships and their respective
subsidiaries, if any, maintains insurance of the types and in the amounts
reasonably believed by the Bond Guarantor and the Partnerships to be adequate
for it and its subsidiaries' respective businesses; all of which insurance is in
full force and effect;
(bb) Except as set forth in the Offering Circular, the Company, the Bond
Guarantor, each Partnership and their respective subsidiaries have all necessary
permits, licenses, authorizations, consents and approvals and have made all
necessary filings required under any applicable United States, foreign or
supranational law, regulation or rule, and have obtained all necessary
authorizations, consents and approvals from other persons, material to the
conduct of their respective businesses, in each case, except to the extent that
the failure to obtain such permits, licenses, authorizations, consents or
approval or to make such filings would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect; except as set forth in
the Offering Circular, none of the Company, the Bond Guarantor, the Partnerships
or any of their respective subsidiaries has received any notice of proceedings
which remain unresolved relating to revocation or modification of any such
permits, licenses, authorizations, consents or approvals, nor is the Company,
the Bond Guarantor, the Partnerships or any of their respective subsidiaries in
violation of, or in default under, any such permits, licenses, authorizations,
consents or approvals or any applicable United States, foreign or supranational
laws, regulation or rule or any decree, order or judgment applicable to the
Company, the Bond Guarantor, the Partnerships or any of their respective
subsidiaries, the effect of which would reasonably be expected to have a
material adverse effect;
(cc) The Company, the Bond Guarantor, the Partnerships and their
respective subsidiaries, if any, are in material compliance with all
Environmental Law (as such term is defined in the Offering Circular), including
without limitation all permits, licenses, authorizations, consents and approvals
required thereunder to conduct their respective businesses, in each case, except
to the extent that the failure to obtain such permits, licenses, authorizations,
consents or approvals or to make such filings would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company, NE LP or the Holders of the Bonds. Except as set forth in the Offering
Circular and except to the extent that would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company, NE LP or the Holders of the Bonds, none of the Company, the Bond
Guarantor, the Partnerships or any of their respective subsidiaries has received
any notice to the effect that, or otherwise has knowledge that, (i) the Projects
(as such term is defined in the Offering Circular) are not in compliance in any
material respect with, or are in violation of, any Environmental Law or permits
required thereunder or (ii) any currently existing circumstances are likely to
result in a failure of each such Project to comply with, or a violation of, any
such Environmental Law or permits required thereunder. Except as disclosed in
the Offering Circular or as would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect, there are no existing
or, to the knowledge of the Company, the Bond Guarantor, or the Partnerships,
potential claims arising under Environmental Law against the Company, the Bond
Guarantor, or the Partnerships in respect of the Projects, nor has any of them
received any written notification or otherwise has any knowledge, of any
allegation of any actual, or potential responsibility for, or any inquiry or
investigation regarding, any disposal, release or threatened release at any
location of any hazardous substance generated by the Projects;
(dd) The Offering Circular contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Securities Act.
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(ee) On January 14, 1998, NEA and NJEA each filed with the Federal Energy
Regulatory Commission ("FERC") Notices of Self-Recertification as a Qualifying
Facility (each, a "Project QF Self-Recertification"). The Project QF
Self-Recertification for each Project is in full force and effect and is not the
subject of any pending or, to NE LP's best knowledge, threatened administrative
or judicial proceedings. Each Project, when owned and operated in the manner
contemplated by the applicable Project QF Self-Recertification, will be a
Qualifying Facility and will be eligible for the benefit of the exemptions
provided by 18 C.F.R. 292.60.6019(c), 292.602(b) and 292.602(c). The manner in
which each Project QF Self-Recertification contemplates that each Project will
be owned, operated and modified, to the extent applicable, does not differ in
any material respect from the manner in which this Agreement (and the
transactions contemplated by the other Operative Agreements) contemplates that
the Projects will be owned, operated and modified, to the extent applicable;
(ff) As long as each of the Projects is a Qualifying Facility in
accordance with the FERC's regulations pursuant to the Public Utility Regulatory
Policies Act ("PURPA"), none of the Company, the Bond Guarantor or the
Partnerships is, or after giving effect to the offering and sale of the Bonds,
will be, solely by reason of (A) the, direct or indirect, ownership, leasing,
operation or maintenance of the Projects by the Partnerships, including
operation or maintenance by an agent of the Partnerships or (B) any other
transaction contemplated by this Agreement: (i) subject to regulation under Part
II or III of the Federal Power Act, except for Sections 202(c), 210, 211, 212,
213, 214 and 305(c) of the Federal Power Act and the enforcement provisions of
Part III of the Federal Power Act relating thereto; (ii) an "electric utility
company" for purposes of the Public Utility Holding Company Act of 1935 (the
"Holding Company Act"); (iii) subject to state laws or regulations respecting
the rates of electric utilities or state laws or regulations respecting the
financial and organizational regulation of electric utilities (except for state
laws implementing Subpart C of 18 C.F.R. Part 292); or (iv) subject to state
regulation as a provider of thermal energy under applicable state laws and/or
regulations;
(gg) As long as each of the Projects is a Qualifying Facility, none of
the Purchaser, the Trustee, the Collateral Agent or the Holders of the Bonds
will be, solely by reason of (A) the ownership, leasing, operation or
maintenance of the Projects by the Partnerships; (B) the securing of the
obligations of the Company, NE LP, NE LLC or the Partnerships by imposing liens
on the Collateral; (C) the Trustee's or the Collateral Agent's ownership of the
Projects; or (D) any other transaction contemplated by this Agreement: (i)
"primarily engaged in the generation or sale of electric power (other than
electric power solely from cogeneration facilities or small power production
facilities)", pursuant to FERC's PURPA regulations; (ii) an "electric utility"
or an "electric utility holding company" or a wholly or partially-owned, direct
or indirect, subsidiary of an "electric utility" or "electric utility holding
company," pursuant to the Holding Company Act; or (iii) subject to regulation
under applicable state laws and/or regulations as a state-regulated provider of
utility services; and
(hh) None of the Purchaser, the Trustee, the Collateral Agent or the
Holders of the Bonds will be, solely by reason of such party's ownership or
operation of either of the Projects, upon the exercise of remedies under the
Indenture or the Pledge Agreement or by reason of any transaction contemplated
by this Agreement: (i) subject to regulation under Part II or III of the Federal
Power Act, except for Sections 202(c), 210, 211, 212, 213, 214 and 305(c) of the
Federal Power Act and the enforcement provisions of Part III of the Federal
Power Act relating thereto; (ii) an "electric utility company" for purposes of
the Holding Company Act; (iii) subject to state laws or regulations respecting
the rates of electric utilities or state laws or regulations respecting the
financial and organizational regulation of electric utilities (except for state
laws or regulations implementing Subpart C of 18 C.F.R. Part 292); or (iv)
subject to state regulation as a provider of thermal energy under applicable
state laws and/or regulations provided that (a) as a result of any transaction
other than those contemplated by this Agreement, none of the Purchaser, the
Trustee, the Collateral Agent or Holders of the Bonds is for purposes of the
FERC's regulations under PURPA an "electric utility" or an "electric utility
holding company" or a wholly or partially-owned, direct or indirect, subsidiary
of an "electric utility" or
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"electric utility holding company" and (b) each Project is operated in
compliance with the requirements set forth in FERC's PURPA regulations for the
Project to be a Qualifying Facility.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase
from the Company, at a purchase price of 7.99% of the principal amount thereof,
plus accrued interest, if any, from February 19, 1998 to the Time of Delivery
hereunder, the Bonds.
3. Upon the authorization by the Company of the release of the Bonds, the
Purchaser proposes to offer the Bonds for sale upon the terms and conditions set
forth in this Agreement and the Offering Circular and the Purchaser makes the
representations, warranties and agreements set forth in Annex I to this
Agreement and hereby further represents and warrants to, and agrees with the
Company, the Bond Guarantor, the Sponsor Guarantors and the Partnerships that:
(a) It will offer and sell the Bonds only to: (i) persons who it
reasonably believes are "qualified institutional buyers" ("QIBs") within the
meaning of Rule 144A under the Securities Act ("Rule 144A") in transactions
meeting the requirements of Rule 144A or (ii) through its affiliates, in
offshore transactions in reliance on Regulation S under the Securities Act
(purchasers of Bonds pursuant to clauses (a)(i) and (a)(ii) of this Section 3
are referred to collectively as the "Eligible Purchasers");
(b) It is an Institutional Accredited Investor within the meaning of Rule
501 under the Securities Act; and
(c) It will not offer or sell the Bonds by any form of general
solicitation or general advertising, including but not limited to the methods
described in Rule 502(c) under the Securities Act.
4. (a) The Bonds to be purchased by the Purchaser hereunder will be
represented by one or more definitive global Bonds in book-entry form which will
be deposited by or on behalf of the Company with The Depositary Trust Company
("DTC") or its designated custodian. The Company will deliver the Bonds to the
Purchaser, for its account, against payment of the purchase price therefor by
wire transfer of Federal (same day) funds, by causing DTC to credit the Bonds to
the account of Goldman, Sachs & Co. at DTC. The time and date of such delivery
and payment shall be 9:30 a.m., New York City time, on February 19, 1998 or such
other time and date as the Purchaser and the Company may agree upon in writing.
Such time and date are herein called the "Time of Delivery." The Company will
cause the definitive global Bonds to be made available to the Purchaser for
checking at least twenty-four hours prior to the Time of Delivery (as defined
below) at the office of DTC or its designated custodian (the "Designated
Office"); and
(b) The documents to be delivered at the Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Bonds and any additional documents requested by the Purchaser pursuant
to Section 7(h) hereof, will be delivered at such time and date at the offices
of Latham & Watkins at 885 Third Avenue, Suite 1000, New York, New York 10022
(the "Closing Location"), and the Bonds will be delivered at the Designated
Office, all at the Time of Delivery. A meeting will be held at the Closing
Location at 3:00 p.m., New York City time, on the New York Business Day next
preceding the Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. Each of the Company and the Bond Guarantor, jointly and severally,
agrees with the Purchaser:
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(a) To prepare the Offering Circular in a form approved by you; to make
no amendment or any supplement to the Offering Circular which shall be
disapproved by you promptly after reasonable notice thereof; and to furnish you
with copies thereof;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Bonds for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Bonds, provided
that in connection therewith neither the Company nor the Bond Guarantor shall be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) To furnish the Purchaser with as many copies of the Offering Circular
and each amendment or supplement thereto signed by an authorized officer of the
Company with the independent accountants' report(s) in the Offering Circular,
and any amendment or supplement containing amendments to the financial
statements covered by such report(s), signed by the accountants, as you may from
time to time reasonably request, and if, at any time prior to the earlier of the
Exchange or the expiration of nine months after the date of the Offering
Circular, any event shall have occurred as a result of which the Offering
Circular as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Offering Circular is delivered, not misleading, or, if for any other
reason it shall be necessary or in the opinion of the Company and the Bond
Guarantor desirable during such same period to amend or supplement the Offering
Circular, to notify you and upon your request to prepare and furnish without
charge to you and to any dealer in securities as many copies as you may from
time to time reasonably request of an amended Offering Circular or a supplement
to the Offering Circular which will correct such statement or omission or effect
such compliance;
(d) During the period beginning from the date hereof and continuing until
the date six months after the Time of Delivery, not to offer, sell contract to
sell or otherwise dispose of, except as provided hereunder any security (as
defined in the Securities Act) that would be integrated with the sale of the
Bonds in a manner that would require registration under the Securities Act;
(e) Not to be or become, at any time prior to the expiration of two years
after the Time of Delivery, an open-end investment company, unit investment
trust, closed-end investment company or face-amount certificate company that is
or is required to be registered under Section 8 of the Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or 15(d) of
the Exchange Act, for the benefit of holders from time to time of Bonds, to
furnish at its expense, upon request, to holders of Bonds and prospective
purchasers of securities information (the "Additional Issuer Information")
satisfying the requirements of subsection (d)(4)(i) of Rule 144A under the
Securities Act;
(g) If requested by you, to use its reasonable efforts to cause the Bonds
to be eligible for the PORTAL trading system of the National Association of
Securities Dealers, Inc. ("PORTAL");
(h) To furnish to the registered holders of the Bonds and to any
beneficial owner of the Bonds who so requests in writing as soon as practicable
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms (all prepared and presented in accordance with
GAAP), including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the certified independent accountants of the Company and (ii)
all current
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reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports, in each case, within the time
periods specified in the Commission's rules and regulations. In addition,
following consummation of the Exchange Offer, whether or not required by the
rules and regulations of the Commission, the Company shall file a copy of all
such information and reports with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company shall, for so long as any Bonds remain outstanding, furnish to
registered holders of the Bonds and to any beneficial owner of the Bonds who so
requests the Company in writing and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act. In addition, and whether or not the
Company is subject to the reporting requirements of Section 13 or Section 15(d)
of the Exchange Act, the Company will be required to file with the Commission
and provide to the Trustee and such holders of the Bonds, and (upon request) to
broker-dealers and prospective investors, all information, documents and reports
specified in Section 13 and Section 15(d) of the Exchange Act;
(i) During a period of five years from the date of the Offering Circular,
to furnish to you copies of all material reports or other material
communications (financial or other) furnished to the Holders of the Bonds, and
to deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any securities
exchange on which the Bonds or any class of securities of the Company or the
Bond Guarantor is listed; and (ii) such additional information concerning the
business and financial condition of the Company, the Bond Guarantor, the
Partnerships and their respective subsidiaries, as you may from time to time
reasonably request (such financial statements to be on a consolidated basis to
the extent the accounts of the Company and its subsidiaries are consolidated in
reports furnished to the Holders of the Bonds generally or to the Commission);
(j) During the period of two years after the Time of Delivery, neither
the Company nor the Bond Guarantor will, nor will it permit any of its
"affiliates" (as defined in Rule 144 under the Securities Act) to, resell any of
the Bonds which constitute "restricted securities" under Rule 144 that have been
reacquired by any of them;
(k) To execute and deliver the Registration Rights Agreement;
(l) To use the net proceeds received by it from the sale of the Bonds
pursuant to this Agreement in the manner specified in the Offering Circular
under the caption "Use of Proceeds;"
(m) None of the Company, the Partnerships or the Bond Guarantor shall
take or omit to take any action, or permit any person to take or omit to take
any action, which action or omission could foreseeably result in: (i) either of
the Projects ceasing to be a Qualifying Facility; (ii) the Company, the Bond
Guarantor or the Partnerships becoming: (A) subject to regulation under Part II
or the Federal Power Act, except for Sections 202(c), 210, 211, 212, 213, 214
and 305(c) of the Federal Power Act and the enforcement provisions of Part III
of the Federal Power Act relating thereto, (B) an "electric utility company" for
purposes of the Holding Company Act, (C) subject to state laws or regulations
respecting the rates of electric utilities or state laws or regulations
respecting the financial and organizational regulation of electric utilities
(except for state laws or regulations implementing Subpart C of 18 C.F.R. Part
292) or (D) subject to state regulation as a provider of thermal energy under
applicable state laws and/or regulations; or (iii) the Purchaser, the Trustee or
the Collateral Agent becoming (A) "primarily engaged in the generation or sale
of electric power (other than electric power solely from cogeneration facilities
or small power production facilities)", pursuant to FERC's PURPA regulations,
(B) an "electric utility" or an "electric utility holding company" or a wholly
or partially-owned, direct or indirect, subsidiary of an "electric utility" or
"electric utility holding company" pursuant to the
11
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Holding Company Act, or (C) subject to regulation under applicable state laws
and/or regulations as state-regulated provider of utility services; and
(n) Except as otherwise expressly permitted by the Indenture and the
Project Indenture, the Bond Guarantor will not permit any Partnership to sell
any electricity generated by the Project to any retail end-user (i.e.,
industrial, commercial or residential electric customers), without first
obtaining the approvals pursuant to the terms of the Project Indenture and the
Indenture;
provided, however that the obligations of the Company and the Bond
Guarantor to comply with clauses (m) and (n) of this Section 5 shall cease upon
the execution and delivery of the Indenture by all parties thereto and the
consummation of the transactions contemplated therein.
6. Each of the Company and the Guarantors, jointly and severally,
covenants and agrees with the Purchaser that it will pay or cause to be paid the
following: (i) the fees, disbursements and expenses of the Company's and the
Bond Guarantor's counsel and accountants in connection with the issue of the
Bonds and the Bond Guaranty and all other expenses in connection with the
preparation, printing and filing of the Preliminary Offering Circular and the
Offering Circular and any amendments and supplements thereto and the mailing and
delivering of copies thereof to the Purchaser and dealers; (ii) the cost of
printing or producing the Operative Agreements, the Blue Sky and Legal
Investment Memoranda, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Bonds and the Guarantees; (iii) all expenses in connection with the
qualification of the Bonds and the Guarantees for offering and sale under state
securities laws as provided in Section 5(b) hereof, including the reasonable
fees and disbursements of counsel for the Purchaser in connection with such
qualification and in connection with the Blue Sky and legal investment surveys;
(iv) any fees charged by securities rating services for rating the Bonds; (v)
the cost of preparing the global Bonds and the Guarantees; (vi) the fees and
expenses of the Trustee, the Collateral Agent and any agent of the Trustee and
the Collateral Agent approved by the Company and the reasonable fees and
disbursements of counsel for the Trustee and the Collateral Agent in connection
with the Indenture and the Bonds and the Guarantees; (viii) any cost incurred in
connection with the designation of the Bonds for trading in PORTAL and (ix) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 8
and 11 hereof, the Purchaser will pay all of its own costs and expenses,
including the fees of its counsel, transfer taxes on resale of any of the Bonds
by the Purchaser, and any advertising expenses connected with any offers it may
make.
7. Conditions Precedent to the obligations of the Purchaser:
(a) The obligations of the Purchaser hereunder shall be subject, in its
discretion, to the condition that all representations and warranties and other
statements of the Company and each of the Guarantors herein are, at and as of
the Time of Delivery, true and correct, to the condition that the Company and
each of the Guarantors shall have performed all of their respective obligations
hereunder theretofore to be performed, and the following additional conditions:
(b) Latham & Watkins, counsel for the Purchaser, shall have furnished to
you such opinion or opinions, dated the Time of Delivery, in form and substance
as set forth in Exhibit A hereto and with respect to such other related matters
as you may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon such
matters;
(c) Orrick, Herrington & Sutcliffe LLP (or, with respect to certain
issues, other counsel satisfactory to you), counsel for the Company and the
Guarantors, shall have furnished to you their written
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<PAGE>
opinion, dated the Time of Delivery, in form and substance as set forth in
Exhibit B hereto and otherwise satisfactory to you;
(d) Orrick, Herrington & Sutcliffe LLP, counsel for the Company and the
Guarantors, shall have furnished to you their written tax opinion, dated the
Time of Delivery, in form and substance as contained in Orrick, Herrington &
Sutcliffe LLP's opinion set forth in Exhibit B hereto;
(e) On the date of the Offering Circular prior to the execution of this
Agreement and also at the Time of Delivery, each of Deloitte and Touche and
Price Waterhouse LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex II hereto;
(f) (i) None of the Company, the Bond Guarantor or the Partnerships or
any of their subsidiaries shall have sustained since the date of the latest
audited financial statements included in the Offering Circular any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Offering Circular, and (ii) since the respective dates as of
which information is given in the Offering Circular there shall not have been
any change in the capital stock of the Company or long-term debt of the Company,
the Bond Guarantor or the Partnerships or any of their respective subsidiaries
or any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position, shareholders'
equity or partners' equity interests, as applicable, or results of operations of
it and its subsidiaries, otherwise than as set forth or contemplated in the
Offering Circular, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Purchaser so material and adverse as to make
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Bonds on the terms and in the manner contemplated in this
Agreement and in the Offering Circular;
(g) On or after the date hereof (A) (i) the ratings of the Bonds shall be
at least "Ba1" by Moody's Investors Services, Inc. ("Moody's") and "BB" by
Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc.
("S&P") and (ii) neither Moody's nor S&P shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of the Bonds and (B) (i) no downgrading shall have occurred in the rating
accorded to ESI Tractebel Funding Corp.'s debt securities by Moody's or S&P and
(ii) neither Moody's nor S&P shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of ESI Tractebel Funding Corp.'s debt securities;
(h) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on; (iii) a general moratorium
on commercial banking activities declared by either Federal or New York; or (iv)
the outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this Clause, in the judgment of the Purchaser
makes it impracticable or inadvisable to proceed with the public offering or the
delivery of the Bonds on the terms and in the manner contemplated in the
Offering Circular;
(i) The Bonds have been designated for trading on PORTAL; and
(j) Each of the Company and the Guarantors shall have furnished or caused
to be furnished to you at the Time of Delivery certificates of its officers (or
in the case of a partnership, certificates of officers of its general partners)
satisfactory to you as to the accuracy of the representations and warranties of
the Company and the Guarantors herein at and as of such Time of Delivery, as to
the performance by each of the Company
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and the Guarantors of all of their respective obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth in
subsections (a), (f) and (g) of this Section and as to such other matters as you
may reasonably request.
8. (a) The Company and each of the Guarantors, collectively referred to
herein as the "Indemnifying Parties" and each individually as the "Indemnifying
Party") will, jointly and severally, indemnify and hold harmless the Purchaser
against any losses, claims, damages or liabilities, joint or several, to which
such Purchaser may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Offering Circular, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact necessary to make the
statements therein not misleading, and will reimburse the Purchaser for any
legal or other expenses reasonably incurred by the Purchaser in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company or the Guarantors shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Offering
Circular or the Offering Circular or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company or the Guarantors by the Purchaser expressly for use therein.
(b) The Purchaser will indemnify and hold harmless the Indemnifying
Parties against any losses, claims, damages or liabilities to which such
Indemnifying Parties may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Offering Circular or
the Offering Circular, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact or necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary Offering
Circular or the Offering Circular or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Indemnifying Parties by the Purchaser expressly for use therein; and will
reimburse the Indemnifying Parties for any legal or other expenses reasonably
incurred by such Indemnifying Parties in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such
14
<PAGE>
settlement, compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or claim and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Indemnifying Parties on the one hand and the Purchaser on the other from
the offering of the Bonds. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Indemnifying Parties
on the one hand and the Purchaser on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Indemnifying Parties on
the one hand and the Purchaser on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Indemnifying Parties bear to the total underwriting
discounts and commissions received by the Purchaser, in each case as set forth
in the Offering Circular. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Parties on the one hand or
the Purchaser on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Indemnifying Parties and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), the Purchaser shall not be required to contribute any amount in
excess of the amount by which the total price at which the Bonds were offered to
investors exceeds the amount of any damages which the Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
(e) The obligations of the Indemnifying Parties under this Section 8
shall be in addition to any liability which the Indemnifying Parties may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls the Purchaser within the meaning of the Securities
Act; and the obligations of the Purchaser under this Section 8 shall be in
addition to any liability which the Purchaser may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Indemnifying Parties and to each person, if any, who controls any Indemnifying
Parties within the meaning of the Securities Act.
9. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Guarantors and the Purchaser, as set
forth in this Agreement or made by them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by the Purchaser
or any controlling person of the Purchaser, or any of the Company or the
Guarantors, or any officer or director or controlling person thereof, and shall
survive delivery of and payment for the Bonds.
15
<PAGE>
10. If for any other reason, the Bonds are not delivered by or on behalf
of the Company as provided herein, the Company and each of the Guarantors,
jointly and severally, will reimburse you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by you in making preparations for the purchase, sale and
delivery of the Bonds, but the Company and the Guarantors shall then be under no
further liability to you except as provided in Sections 6 and 8 hereof.
11. All statements, requests, notices and agreements hereunder shall be
in writing, and if to the Initial Purchaser shall be delivered or sent by mail,
telex or facsimile transmission to you at 85 Broad Street, New York, New York
10004, Attention: Registration Department; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Offering Circular, Attention: Secretary.
12. This Agreement shall be binding upon, and inure solely to the benefit
of the Purchaser, the Company and the Guarantors and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors thereof and each person who
controls any of the Company, the Guarantors, or the Purchaser, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Bonds from the Purchaser shall be deemed a
successor or assign by reason merely of such purchase.
13. Time shall be of the essence of this Agreement.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
15. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
[Signature page follows]
16
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us (one for each of the Company, the Bond Guarantor, each Sponsor
Guarantor and the Purchaser plus one for each counsel) counterparts hereof, and
upon the acceptance hereof by you, this letter and such acceptance hereof shall
constitute a binding agreement between you and each of the Company, the Bond
Guarantors and the Sponsor Guarantors.
Very truly yours,
COMPANY
ESI TRACTEBEL ACQUISITION CORP.
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
BOND GUARANTOR
NORTHEAST ENERGY, LP,
By: ESI NORTHEAST ENERGY GP, INC.,
as a general partner
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
as a general partner
By: /s/ James E. Hammelman
----------------------------
Name: James E. Hammelman
Title: Vice President and
Treasurer
SPONSOR GUARANTORS
ESI ENERGY, INC.
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
<PAGE>
TRACTEBEL POWER, INC.
By: /s/ James E. Hammelman
------------------------------
Name: James E. Hammelman
Title: Vice President and
Treasurer
Accepted as of the date hereof
/s/ Goldman, Sachs & Co.
- ---------------------------
(Goldman, Sachs & Co.)
<PAGE>
EXHIBIT A
Form of Opinion of Latham & Watkins
A-1
<PAGE>
EXHIBIT B
Form of Opinion of Orrick, Herrington & Sutcliffe and Other Counsel
A-2
<PAGE>
EXHIBIT B - PART V
Opinion of Texas Counsel
(in form and substance substantially
identical to the Opinion of Florida Counsel set forth in Exhibit B - Part IV)
A-3
<PAGE>
ANNEX I
Representations and Warranties of the Purchaser referred to in
Section 3:
(1) The Bonds have not been and will not be, other than as provided in
the Registration Rights Agreement, registered under the Securities Act and may
not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Regulation S under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act. The Purchaser represents that it has offered and sold the
Bonds and will offer and sell the Bonds (i) as part of its distribution at any
time and (ii) otherwise until 40 days after the later of the commencement of the
offering and the Time of Delivery, only in accordance with Rule 903 of
Regulation S or the Rule 144A under the Securities Act. Accordingly, the
Purchaser agrees that neither it, its affiliates nor any persons acting on its
behalf has engaged or will engage in any directed selling efforts with respect
to the Bonds, and it and they have complied and will comply with the offering
restrictions requirement of Regulation S. The Purchaser agrees that, at or prior
to confirmation of sale of Bonds (other than a sale pursuant to Rule 144A) it
will have sent to each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases Bonds from it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Bonds covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the commencement of
the offering and the closing date, except in either case in accordance
with Regulation S (or Rule 144A if available) under the Securities Act.
Terms used above have the meaning given to them by Regulation S."
Terms used in this paragraph have the meanings given to them by Regulation S.
The Purchaser further agrees that it has not entered and will not enter
into any contractual arrangement with respect to the distribution or delivery of
the Bonds except with its affiliates or with the prior written consent of the
Company.
In addition,
(A) except to the extent permitted under U.S. Treas. Reg. ss.
1.163-5(C)(2)(i)(D) (the "D Rules"), (i) the Purchaser agrees that it
has not offered or sold, and during the restricted period will not
offer or sell, Bonds in bearer form to a person who is within the
United States or its possessions or to a U.S. person, and (ii) it has
not delivered and will not deliver within the United States or its
possessions definitive Bonds in bearer form that are sold during the
restricted period;
(B) the Purchaser represents and agrees that it has, and
throughout the restricted period will have, in effect procedures
reasonably designed to ensure that its employees or agents who are
directly engaged in selling Bonds in bearer form are aware that such
Bonds may not be offered or sold during the restricted period to a
person who is within the United States or its possessions or to a
United States person, except as permitted by the D Rules;
(C) if it is a United States person, the Purchaser represents
that it is acquiring the Bonds in bearer form for purposes of resale in
connection with their original issuance and if it retains Bonds in
A-4
<PAGE>
bearer form for its own account, it will only do so in accordance with
the requirements of U.S. Treas. Reg. ss. 1.163-5(c)(2)(i)(D)(6); and
(D) with respect to each affiliate that acquires from it Bonds
in bearer form for the purpose of offering or selling such Bonds during
the restricted period, the Purchaser either (i) repeats and confirms
the representations and agreements contained in clauses (A), (B) and
(C) on its behalf or (ii) agrees that it will obtain from such
affiliate for the Company's benefit the representations and agreements
contained in clauses (A), (B) and (C).
Terms used in this paragraph have the meanings given to them by the United
States Internal Revenue Code and regulations thereunder, including the D Rules.
(2) Notwithstanding the foregoing, Bonds in registered form may be
offered, sold and delivered by the Purchaser in the United States and to U.S.
persons pursuant to Section 3 of this Agreement without delivery of the written
statement required by paragraph (1) above.
(3) The Purchaser further represents and agrees, on behalf of itself
and its affiliates, that (i) it has not offered or sold and prior to the date
six months after the date of issue of the Bonds will not offer or sell any Bonds
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (b) it has complied, and will comply, with all
applicable provisions of the Financial Services Act of 1986 of Great Britain
with respect to anything done by it in relation to the Bonds in, from or
otherwise involving the United Kingdom, and (C) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issuance of the Bonds to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 of Great Britain or is a person to whom
the document may otherwise lawfully be issued or passed on.
(4) The Purchaser agrees that it will not offer, sell or deliver any of
the Bonds in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Bonds in such jurisdictions. The Purchaser
understands that no action has been taken to permit a public offering in any
jurisdiction outside the United States where action would be required for such
purpose. The Purchaser agrees not to cause any advertisement of the Bonds to be
published in any newspaper or periodical or posted in any public place and not
to issue any circular relating to the Bonds, except in any such case with
Goldman, Sachs & Co.'s express written consent and then only at its own risk and
expense.
A-5
<PAGE>
ANNEX II
Forms of Comfort Letters of Price Waterhouse LLP and Deloitte & Touche LP
A-1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ESI TRACTEBEL ACQUISITION CORP.
1. The name of this Corporation is "ESI Tractebel Acquisition Corp."
2. The registered office of this Corporation in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
3. The purposes of this Corporation are:
(a) to act as agent of Northeast Energy, LP, a Delaware
limited partnership, and/or Northeast Energy, LLC, a
Delaware limited liability company, and their respective
successors (the "Partnerships") for the purpose of
issuing bonds, debentures, notes and other securities and
evidence of indebtedness, or otherwise borrowing funds,
to provide financing to the Partnerships or to refinance
any indebtedness incurred for such purpose;
(b) to purchase, refinance or otherwise acquire bonds,
debentures, notes and other securities and evidence of
indebtedness from, or otherwise lend funds to, the
Partnerships;
(c) to secure indebtedness or other obligations of the
Corporation or the Partnerships by pledging or otherwise
granting security interests in or liens on any or all
properties and other assets of the Corporation;
(d) to enter into, execute, deliver, file or record such
agreements, instruments and other documents as shall be
necessary or appropriate in furtherance of the foregoing,
including, without limitation, trust indentures, loan
agreements, security agreements, underwriting agreements,
registration rights agreements, swap agreements, hedging
agreements, forward bond purchase agreements and other
financing or collateral arrangements, and to perform all
undertakings and obligations incurred thereunder; and
(e) to engage in any lawful act or activity that is either
(i) in furtherance of the foregoing purposes of the
Corporation or (ii) necessary for the continued existence
of the Corporation or compliance with its obligations.
4. The name and mailing address of the sole incorporator is: Jonathan B.
Lurvey, c/o Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, 18th
Floor, New York, New York 10103-0001.
<PAGE>
5. The total number of shares of stock that this Corporation shall have
authority to issue is 100 shares of Common Stock, par value $0.10 per share.
Each share of Common Stock shall be entitled to one vote.
6. Except as provided to the contrary in the provisions establishing a
class or series of stock, the amount of the authorized stock of this
Corporation of any class or classes may be increased or decreased by the
affirmative vote of the holders of a majority of the stock of this
Corporation entitled to vote.
7. The number of directors of the Corporation shall be fixed by, or in
the manner provided in, the By-laws of the Corporation. The election of
directors need not be by written ballot unless the bylaws shall so require.
8. A director of this Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not
permitted under the General Corporation Law of the State of Delaware as in
effect at the time such liability is determined. No amendment or repeal of
this paragraph 8 shall apply to or have any effect on the liability or
alleged liability of any director of this Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.
9. This Corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request
shall advance expenses to any person who is or was a party or is threatened
to be made a party to any threatened, pending or completed action, suit,
proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was or has
agreed to be a director or officer of this Corporation or while a director
or officer is or was serving at the request of this Corporation as a
director, officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, against expenses (including
attorneys' fees and expenses), judgments, fines, penalties and amounts paid
in settlement incurred in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim; provided,
however, that the foregoing shall not require this Corporation to indemnify
or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person.
Such indemnification shall not be exclusive of other indemnification rights
arising under any bylaw, agreement, vote of directors or stockholders or
otherwise and shall inure to the benefit of the heirs and legal
representatives of such person. Any person seeking indemnification under
this paragraph 9 shall be deemed to have met the standard of conduct
required for such indemnification unless the contrary shall be established.
Any repeal or modification of the foregoing provisions of this paragraph 9
shall not adversely effect any right or protection of a director or officer
of this Corporation with respect to any acts or omissions of such director
or officer occurring prior to such repeal or modification.
<PAGE>
10. The books and records of this Corporation may (subject to any
statutory requirements) be kept outside the State of Delaware as may be
designated by the Board of Directors or in the bylaws of this Corporation.
11. The Corporation reserves the right at any time and from time to time
to amend, alter or repeal any provision contained in this Certificate of
Incorporation (including provisions as may hereafter be added or inserted in
this Certificate of Incorporation as authorized by the laws of the State of
Delaware) in the manner now or hereafter prescribed by law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its current form or as hereafter amended are
granted subject to the right reserved in this Paragraph 11.
IN WITNESS WHEREOF, this Certificate of Incorporation has been
duly adopted by the sole incorporator of the Corporation, pursuant to the
General Corporation Law of the State of Delaware this 12th day of January, 1998.
/s/ Jonathan B. Lurvey
------------------------
Jonathan B. Lurvey
Sole Incorporator
Exhibit 3.2
BY-LAWS
OF
ESI TRACTEBEL ACQUISITION CORP.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders shall be held at any place within or
outside the State of Delaware designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
Section 2. The annual meeting of stockholders shall be held each year on
a date and at a time designated by the Board of Directors. At each annual
meeting, directors shall be elected and any other proper business may be
transacted.
Section 3. A majority of the stock issued and outstanding and entitled
to vote at any meeting of stockholders, the holders of which are present in
person or represented by proxy, shall constitute a quorum for the transaction of
business except as otherwise provided by law, by the Certificate of
Incorporation, or by these By-Laws. A quorum, once established, shall not be
broken by the withdrawal of enough votes to leave less than a quorum and the
votes present may continue to transact business until adjournment. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, a majority of the voting stock represented in person or by proxy
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
1
<PAGE>
Section 4. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these By-Laws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. At each meeting of the stockholders, each stockholder having
the right to vote may vote in person or may authorize another person or persons
to act for him by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said instrument provides for a longer period. All proxies must be filed
with the Secretary of the corporation at the beginning of each meeting in order
to be counted in any vote at the meeting. Each stockholder shall have one vote
for each share of stock having voting power, registered in his name on the books
of the corporation on the record date set by the Board of Directors as provided
in Article V, Section 6 hereof. All elections shall be had and all questions
decided by a plurality vote.
Section 6. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or the Secretary at the request in writing of a majority of the Board
of Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given which notice
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. The
written notice of any meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the corporation.
Section 8. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE>
Section 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be not less than one nor more than three. The directors need not be
stockholders or citizens of the United States or residents of the State of
Delaware. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified;
provided, however, that unless otherwise restricted by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, either with or without cause, from the Board of Directors at any
meeting of stockholders by a majority of the stock represented and entitled to
vote thereat.
Section 2. Vacancies on the Board of Directors by reason of death,
resignation, retirement, disqualification, or increase in the authorized number
of directors may, subject to Section 1 above, be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. The directors so chosen shall hold office until the next annual
election of directors and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy, the directors then in office shall constitute less
than a majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of stockholders holding
at least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 3. The property and business of the corporation shall be managed
by or under the direction of its Board of Directors. In addition to the powers
and authorities by these By-Laws expressly conferred upon them, the Board may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. The directors may hold their meetings and have one or more
offices, and keep the books of the corporation outside of the State of Delaware.
Section 2. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board.
Section 3. Special meetings of the Board of Directors may be called by
the President on forty-eight hours' notice to each director, either personally,
by telegram or by telecopy; special meetings shall be called by the President or
the Secretary in like manner and on like notice on the written request of two
directors unless the Board consists of only one director; in which case special
meetings shall be called by the President or Secretary in like manner or on like
notice on the written request of the sole director.
Section 4. At all meetings of the Board of Directors, one-half of the
entire Board of Directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the vote of a majority of the
directors present at any meeting at which there is a quorum, shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these By-Laws. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 5. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 6. Members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in a meeting of the Board
of Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
Section 1. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee,
<PAGE>
to the extent provided in the resolution of the Board of Directors, and subject
to the requirements of Article III, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal for the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Section 2. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 1. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director; provided, however, that services provided by any director
which are determined by the Board of Directors to be ministerial and of
negligible value will not be compensated. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall include a President, a Secretary, and a Treasurer. The
corporation may also have at the discretion of the Board of Directors such other
officers as are desired, including a Chairman of the Board, one or more Vice
Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
2 hereof. In the event there are two or more Vice Presidents, then one or more
may be designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these By-Laws otherwise provide.
Section 2. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 3. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
<PAGE>
Section 4. The officers of the corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at all meetings of the Board of Directors and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by these By-Laws. If there is no
President, the Chairman of the Board shall in addition be the Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
Section 6 of this Article IV.
PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board, if there be such an officer, the
President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. He shall
preside at all meetings of the stockholders and, in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board of Directors. He
shall be an ex-officio member of all committees and shall have the general
powers and duties of management usually vested in the office of President and
Chief Executive Officer of corporations, and shall have such other powers and
duties as may be prescribed by the Board of Directors or these By-Laws.
VICE PRESIDENTS
In the absence or disability of the President, the Vice Presidents in
order of their rank as fixed by the Board of Directors, or if not ranked, the
Vice President designated by the Board of Directors, shall perform all the
duties of the President, and when so acting shall have all the powers of and be
subject to all the restrictions upon the President. The Vice Presidents shall
have such other duties as from time to time may be prescribed for them,
respectively, by the Board of Directors.
SECRETARY AND ASSISTANT SECRETARY
Section 1. The Secretary shall attend all sessions of the Board of
Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these By-Laws. He shall keep
in safe custody the seal of
<PAGE>
the corporation, and when authorized by the Board, affix the same to any
instrument requiring it, and when so affixed it shall be attested by his
signature or by the signature of an Assistant Secretary. The Board of Directors
may give general authority to any other officer to affix the seal of the
corporation and to attest the affixing by his signature.
Section 2. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors, or if
there be no such determination, the Assistant Secretary designated by the Board
of Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
TREASURER AND ASSISTANT TREASURER
Section 1. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects, in the name and to the credit of the corporation, in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his transactions as Treasurer and of the
financial condition of the corporation. If required by the Board of Directors,
he shall give the corporation a bond, in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors, for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 2. The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors, or
if there be no such determination, the Assistant Treasurer designated by the
Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Every holder of stock of the corporation shall be entitled to
have a certificate signed by, or in the name of the corporation by, the Chairman
or Vice Chairman of the Board of Directors, or the President or a Vice
President, and by the Secretary or an Assistant Secretary, or
<PAGE>
the Treasurer or an Assistant Treasurer of the corporation, certifying the
number of shares represented by the certificate owned by such stockholder in the
corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Section 3. If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate, which the corporation shall issue to represent
such class or series of stock, a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 1. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 1. Upon surrender to the corporation, or the transfer agent of
the corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
<PAGE>
FIXING RECORD DATE
Section 1. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders, or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 1. The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as expressly provided by the laws
of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve. The corporation
will not pay dividends out of funds other than retained earnings unless the
Board of Directors determines that the funds to be paid as dividends are no
longer needed by the corporation in the operations of its business and that the
corporation will not require any additional capital contributions after the
payment of such dividend.
CHECKS
Section 1. All checks, drafts or other orders for the payment of money
issued in the name of the Corporation shall be signed by such officers,
employees or agents of the Corporation as
<PAGE>
shall from time to time be designated by the Chairman of the Board, the
President, the Vice President-Finance, the Treasurer or an Assistant Treasurer.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as shall from time to time be designated by the
Chairman of the Board, the President, the Vice President-Finance, the Treasurer
or an Assistant Treasurer; and such officers may designate any type of
depository arrangement (including but not limited to depository arrangements
resulting in net debits against the Corporation) as from time to time offered or
available.
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors.
SEAL
The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
to be equivalent.
ANNUAL STATEMENT
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
<PAGE>
ARTICLE VII
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
By-Laws is conferred upon the Board of Directors by the Certificate of
Incorporation, it shall not divest or limit the power of the stockholders to
adopt, amend or repeal By-Laws.
Exhibit 4.1
Execution Copy
--------------
------------------------------------
ESI TRACTEBEL ACQUISITION CORP.
Issuer
NORTHEAST ENERGY, LP
Borrower and Guarantor
NORTHEAST ENERGY, LLC
SERIES A AND SERIES B
7.99% SECURED BONDS DUE 2011
------------------------
INDENTURE
Dated as of February 19, 1998
------------------------
STATE STREET BANK AND TRUST COMPANY
Trustee and Collateral Agent
--------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust IndentureAct Section Indenture Section
<S> <C>
310 (a)(1).....................................................................................................7.10
310 (a)(2) ....................................................................................................7.10
310 (a)(3).....................................................................................................N.A.
310 (a)(4).....................................................................................................N.A.
310 (a)(5).....................................................................................................7.10
310 (b)........................................................................................................7.03
310 (c)........................................................................................................N.A.
311 (a)........................................................................................................7.11
311 (b)........................................................................................................7.11
311 (c)........................................................................................................N.A.
312 (a)........................................................................................................2.05
312 (b).......................................................................................................13.03
312 (c).......................................................................................................13.03
313 (a)........................................................................................................7.06
313 (b)(1)....................................................................................................11.02
313 (b)(2).....................................................................................................7.06
313 (c)........................................................................................................7.06
.......................................................................................................11.02
313 (d)........................................................................................................7.06
314 (a)........................................................................................................4.03
314 (b)................................................................................................10.02, 11.04
314 (c)(1)....................................................................................................11.04
314 (c)(2)....................................................................................................11.04
314 (c)(3).....................................................................................................7.02
314 (d)..................................................................................10.03, 10.04, 10.05, 11.04
314 (e).......................................................................................................13.05
314 (f)..........................................................................................................NA
315 (a)........................................................................................................7.01
315 (b).................................................................................................7.05, 11.02
315 (c)........................................................................................................7.01
315 (d)........................................................................................................7.01
315 (e)........................................................................................................6.11
316 (a)(last sentence).........................................................................................2.09
316 (a)(1)(A)..................................................................................................6.05
316 (a)(1)(B)..................................................................................................6.04
316 (a)(2).....................................................................................................N.A.
316 (b)........................................................................................................6.07
316 (c)........................................................................................................2.12
317 (a)(1).....................................................................................................6.08
317 (a)(2).....................................................................................................6.09
317 (b)........................................................................................................2.04
318 (a).......................................................................................................11.01
318 (b)........................................................................................................N.A.
318 (c).......................................................................................................11.01
</TABLE>
- ------------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1
Section 1.01. Definitions......................................................................................1
Section 1.02. Other Definitions...............................................................................13
Section 1.03. Incorporation by Reference of Trust Indenture Act...............................................13
Section 1.04. Rules of Construction...........................................................................14
ARTICLE 2. THE BONDS.............................................................................................14
Section 2.01. Form and Dating.................................................................................14
Section 2.02. Execution and Authentication....................................................................16
Section 2.03. Registrar and Paying Agent......................................................................16
Section 2.04. Paying Agent to Hold Money in Trust.............................................................17
Section 2.05. Holder Lists....................................................................................17
Section 2.06. Transfer and Exchange...........................................................................17
Section 2.07. Replacement Bonds...............................................................................30
Section 2.08. Outstanding Bonds...............................................................................30
Section 2.09. Treasury Bonds..................................................................................31
Section 2.10. Temporary Bonds.................................................................................31
Section 2.11. Cancellation....................................................................................31
Section 2.12. Defaulted Interest..............................................................................32
ARTICLE 3. REDEMPTION AND PREPAYMENT.............................................................................32
Section 3.01. Notices to Trustee..............................................................................32
Section 3.02. Selection of Bonds to Be Redeemed or Repurchased................................................32
Section 3.03. Notice of Redemption............................................................................33
Section 3.04. Effect of Notice of Redemption..................................................................33
Section 3.05. Deposit of Redemption Price.....................................................................34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3.06. Bonds Redeemed in Part..........................................................................34
Section 3.07. Optional Redemption.............................................................................34
Section 3.08. Mandatory Redemption............................................................................35
Section 3.09. Extraordinary mandatory redemption..............................................................35
ARTICLE 4. COVENANTS.............................................................................................35
Section 4.01. Payment of Bonds................................................................................35
Section 4.02. Maintenance of Office or Agency.................................................................36
Section 4.03. Reports.........................................................................................36
Section 4.04. Compliance Certificate..........................................................................38
Section 4.05. Taxes...........................................................................................38
Section 4.06. Stay, Extension and Usury Laws..................................................................39
Section 4.07. Restricted Payments.............................................................................39
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries..................................40
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock......................................40
Section 4.10. Limitations on Project Indebtedness.............................................................41
Section 4.11. Transactions with Affiliates....................................................................42
Section 4.12. Liens...........................................................................................42
Section 4.13. Business Activities.............................................................................42
Section 4.14. Corporate Existence.............................................................................43
Section 4.15. Offer to Repurchase Upon Change of Control......................................................43
Section 4.16. No Senior Subordinated Debt.....................................................................45
Section 4.17. Amendments to, and assignments of, project documents............................................45
Section 4.18. Compliance......................................................................................45
Section 4.19. Maintaining Rights under Project Documents......................................................46
Section 4.20. Partnership Distributions.......................................................................46
Section 4.21. Limitation on Issuances of Guarantees of and indemnities........................................46
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 4.22. Limitations on Loans and Advances...............................................................47
Section 4.23. Payments for Consent............................................................................47
Section 4.24. Additional Bond Guarantees......................................................................47
Section 4.25. regulatory limitations..........................................................................47
Section 4.26. Limitations on Investments......................................................................48
Section 4.27. Auditor.........................................................................................48
Section 4.28. Use of Proceeds.................................................................................48
ARTICLE 5. SUCCESSORS............................................................................................48
Section 5.01. Merger, Consolidation, or Sale of Assets........................................................48
Section 5.02. Successor Corporation Substituted...............................................................49
ARTICLE 6. DEFAULTS AND REMEDIES.................................................................................49
Section 6.01. Events of Default...............................................................................49
Section 6.02. Acceleration....................................................................................51
Section 6.03. Other Remedies..................................................................................52
Section 6.04. Waiver of Past Defaults.........................................................................52
Section 6.05. Control by Majority.............................................................................52
Section 6.06. Limitation on Suits.............................................................................53
Section 6.07. Rights of Holders of Bonds to Receive Payment...................................................53
Section 6.08. Collection Suit by Trustee......................................................................53
Section 6.09. Trustee May File Proofs of Claim................................................................54
Section 6.10. Priorities......................................................................................54
Section 6.11. Undertaking for Costs...........................................................................55
ARTICLE 7. TRUSTEE...............................................................................................55
Section 7.01. Duties of Trustee...............................................................................55
Section 7.02. Rights of Trustee...............................................................................56
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 7.03. Individual Rights of Trustee....................................................................57
Section 7.04. Trustee's Disclaimer............................................................................57
Section 7.05. Notice of Defaults..............................................................................58
Section 7.06. Reports by Trustee to Holders of the Bonds......................................................58
Section 7.07. Compensation and Indemnity......................................................................58
Section 7.08. Replacement of Trustee..........................................................................59
Section 7.09. Successor Trustee by Merger, etc................................................................60
Section 7.10. Eligibility; Disqualification...................................................................60
Section 7.11. Preferential Collection of Claims Against Company...............................................60
Section 7.12. rights and indemnities of collateral agent......................................................61
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE..............................................................61
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance........................................61
Section 8.02. Legal Defeasance and Discharge..................................................................61
Section 8.03. Covenant Defeasance.............................................................................61
Section 8.04. Conditions to Legal or Covenant Defeasance......................................................62
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions...63
Section 8.06. Repayment to Company............................................................................64
Section 8.07. Reinstatement...................................................................................64
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER......................................................................65
Section 9.01. Without Consent of Holders of Bonds.............................................................65
Section 9.02. With Consent of Holders of Bonds................................................................65
Section 9.03. Compliance with Trust Indenture Act.............................................................67
Section 9.04. Revocation and Effect of Consents...............................................................67
Section 9.05. Notation on or Exchange of Bonds................................................................67
Section 9.06. Trustee to Sign Amendments, etc.................................................................68
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
ARTICLE 10. ACCOUNTS AND REVENUES................................................................................68
Section 10.01. Establishment Of Accounts......................................................................68
Section 10.02. Revenues Account...............................................................................68
Section 10.03. Acceptable Credit Support......................................................................70
Section 10.04. Initial Deposit of Cash or Acceptable Credit Support...........................................71
Section 10.05. The Accounts As Collateral; Trustee As Collateral Agent........................................71
ARTICLE 11. COLLATERAL AND SECURITY..............................................................................71
Section 11.01. Pledge Agreements..............................................................................71
Section 11.02. Recording and Opinions.........................................................................72
Section 11.03. Release of Collateral..........................................................................73
Section 11.04. Certificates of the Company....................................................................73
Section 11.05. Certificates of the Trustee....................................................................74
Section 11.06. Authorization of Actions to Be Taken by the Trustee Under the Pledge Agreement.................74
Section 11.07. Authorization of Receipt of Funds by the Trustee Under the Pledge Agreements...................74
Section 11.08. Termination of Security Interest...............................................................75
ARTICLE 12. BOND GUARANTY........................................................................................75
Section 12.01. Bond Guaranty..................................................................................75
Section 12.02. Limitation on Guarantor Liability..............................................................76
Section 12.03. Execution and Delivery of Bond Guaranty........................................................76
Section 12.04. Guarantor's merger, consolidation, etc.........................................................77
ARTICLE 13. MISCELLANEOUS........................................................................................77
Section 13.01. Trust Indenture Act Controls...................................................................77
Section 13.02. Notices........................................................................................78
Section 13.03. Communication by Holders of Bonds with Other Holders of Bonds..................................79
Section 13.04. Certificate and Opinion as to Conditions Precedent.............................................79
</TABLE>
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<S> <C>
Section 13.05. Statements Required in Certificate or Opinion..................................................79
Section 13.06. Rules by Trustee and Agents....................................................................80
Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders.......................80
Section 13.08. Governing Law..................................................................................80
Section 13.09. No Adverse Interpretation of Other Agreements..................................................80
Section 13.10. Successors.....................................................................................80
Section 13.11. Severability...................................................................................81
Section 13.12. Counterpart Originals..........................................................................81
Section 13.13. Table of Contents, Headings, etc...............................................................81
</TABLE>
EXHIBITS
Exhibit A FORM OF BOND
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit E FORM OF BOND GUARANTY
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
Exhibit G FORM OF PLEDGE AGREEMENTS
Exhibit H FORM OF NOTE
Exhibit I FORM OF FPL GROUP CAPITAL GUARANTEE
Exhibit J AMORTIZATION SCHEDULE
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INDENTURE dated as of February 19, 1998 between ESI TRACTEBEL
ACQUISITION CORP., a Delaware corporation (the "Company"), NORTHEAST ENERGY, LP,
a Delaware limited partnership ("NE LP" or the "Guarantor"), NORTHEAST ENERGY,
LLC, a Delaware limited liability company ("NE LLC"), directly and wholly owned
by NE LP, and STATE STREET BANK AND TRUST COMPANY, as trustee (the "Trustee")
and collateral agent (the "Collateral Agent").
The Company, NE LP, NE LLC and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 7.99% Series A and Series B Secured Bonds due 2011 (the "Bonds"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Bond" means a global bond in the form of Exhibit A-1
hereto bearing the Global Bond Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Bonds sold in reliance on Rule 144A.
"Acceptable Credit Support" means (a) an irrevocable unconditional
letter of credit in form and substance acceptable to the Trustee (which may rely
on advice of its counsel) from an entity whose long term debt is rated A2 or
higher by Moody's and A or higher by S&P and/or (b) a Guarantee by FPL Group
Capital in the form of Exhibit I (or otherwise in form and substance acceptable
to the Trustee which may rely on advice of its counsel) so long as the long-term
debt of FPL Group Capital is rated A2 or higher by Moody's and A or higher by
S&P, provided that a letter of credit in form and substance acceptable to the
Trustee (which may rely on advice of its counsel) from Bank Brussels Lambert
shall be satisfactory as Acceptable Credit Support so long as its long-term debt
is rated A2 or higher by Moody's and its short-term debt is rated A-1 or higher
by S&P.
"Accounts" means the accounts established by Section 10.1 hereof.
"Acquisition" means the acquisitions by NE LP and NE LLC of all of the
partnership interests in each of the Partnerships on January 14, 1998, pursuant
to a Purchase Agreement, dated as of November 21, 1997, by and among the NE LP,
NE LLC, the sellers listed therein, ESI Northeast Energy Funding, Inc. ("ESI
Funding") and Tractebel Power, Inc. and the acquisition by each of ESI Funding
and Tractebel Power, Inc. of a thirty-seven and one-half percent (37.5%)
interest in ESI Tractebel Funding Corp. ("ESI Tractebel Funding"), a Delaware
special purpose corporation formerly known as "IEC Funding Corp.", the issuer of
the Project Securities.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
<PAGE>
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Bond, the rules and procedures of
the Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or NE
LLC, as applicable, or any authorized committee of the Board of Directors, or
the Management Committee of NE LP, or any authorized committee of such
Management Committee.
"Bond Guaranty" means the Guaranty by the Guarantor of the Company's
payment obligations under this Indenture and the Bonds, executed pursuant to the
provisions of this Indenture.
"Bonds" has the meaning assigned to it in the preamble to this
Indenture.
"Bond Loan" means a loan, evidenced by the Note, by the Company to NE
LP of the proceeds received by the Company from the sale of Bonds.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
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months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's or
S&P and, in each case, maturing within six months after the date of acquisition
and (vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" has the meaning given in Section 4.15.
"Collateral Documents" means the Pledge Agreements and the Indenture.
"Collateral Agent" means the Trustee in such capacity and any and all
successors thereto.
"Company" means ESI Tractebel Acquisition Corp. and any and all
successors thereto.
"Company and Partner Pledge Agreement" means the company and partner
pledge agreement by the Company, NE LP and NE LLC for the benefit of the
Trustee, the Collateral Agent and the Holders of the Bonds, dated as of the date
hereof, and substantially in the form attached as Exhibit F hereto, as such
agreement may be amended, modified or supplemented from time to time.
"Corporate Trust Office of the Trustee" means the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Company and the Holders.
"Custodian" means the Trustee, as custodian with respect to the Bonds
in global form, or any successor entity thereto.
"Debt Service Coverage Ratio" means the ratio of (i) the Operating
Revenues actually received directly by NE LP and NE LLC during the 12-month
period preceding the date as of which such ratio is calculated (net of any
operating expenses paid by any of the Company, NE LP and NE LLC during such
period) to (ii) the scheduled debt service payments (including principal,
interest, premia, penalties and fees) on the Bonds and all other indebtedness
(other than any Permitted Indebtedness) of the Company, NE LP and NE LLC during
such 12-month period, (provided that, for purposes of this calculation, the
corresponding payments in respect of the Note and the Bonds shall be deemed to
constitute only one payment).
"Default" means any event that is or that with the passage of time or
the giving of notice or both would be an Event of Default.
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"Definitive Bond" means a certificated Bond registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Bond shall not bear the Global Bond
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Bond" attached thereto.
"Depositary" means, with respect to the Bonds issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Bonds, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Bonds mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that the Company may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with Section 4.07.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ESI GP" means ESI Northeast Energy GP, Inc., a Florida corporation, a
general partner of NE LP.
"ESI LP" means Northeast Energy LP, Inc., a Florida corporation, a
limited partner in NE LP.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Bonds" means the Bonds issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
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"Financing Agreements" means, collectively, the Indenture, the Bonds,
the Note, the Bond Guaranty, the Registration Right Agreement and the Pledge
Agreements.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Global Bonds" means, individually and collectively, each of the
Restricted Global Bonds and the Unrestricted Global Bonds, in the form of
Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Bond Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Bonds issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee of any Person (other than by endorsement
of negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit or reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Guarantor" means Northeast Energy, LP, the guarantor under the Bond
Guaranty executed in accordance with the provisions of this Indenture, and its
respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Bond is registered on the
registration books kept by the Registrar.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
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by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included but without
duplication, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Bond through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company, NE LP, NE LLC or any Subsidiary thereof sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary such that,
after giving effect to any such sale or disposition, such Person is no longer a
Subsidiary thereof, the Company, NE LP, NE LLC or any Subsidiary thereof shall
be deemed to have made an Investment on the date of any such sale or
disposition.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or The Commonwealth of Massachusetts or at
a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue on such payment for the intervening
period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Bonds for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
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interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Make Whole Premium" means an amount equal to the excess, if any, of
(i) the present value of all interest and principal payments scheduled to become
due after the date of the Event of Default in respect of the Bonds (such present
value to be determined on the basis of a discount rate equal to the yield to
maturity on U.S. treasury instruments with a maturity as close as practicable to
the remaining average life of the Bonds) over (ii) the outstanding principal
amount of the Bonds.
"Management Costs" has the meaning given in the Project Indenture.
"Moody's" means Moody's Investors Service, Inc.
"NE LLC" means Northeast Energy, LLC and its successors.
"NE LP" means Northeast Energy, LP and its successors.
"Non-Operating Revenues" means the proceeds of any financing undertaken
by NE LP, NE LLC or the Company, distributions made by the Partnerships to NE LP
or NE LLC with the proceeds of any financing or with funds required to be used
for the extraordinary mandatory redemption of the Bonds under Section 3.09
hereof and any other extraordinary revenues (including any buyout or similar
payment made to a Partnership under any Power Purchase Agreement).
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note" means the promissory note evidencing the Bond Loan executed and
delivered to the Company by NE LP (which terms are substantially identical to
the terms of the Bond and which is substantially in the form set forth in
Exhibit H hereto), assigned by the Company to the Trustee as security for the
payment of the Bonds.
"Obligations" means any principal, interest, Registration Default
Damages, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering" means the sale of the Bonds by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, NE LP or NE LLC, as applicable: (i) in the case of the Company, by an
Officer of the Company, (ii) in the case of NE LP, by a member of the Management
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Committee of NE LP and an Officer of one or both general partners of NE LP, and
(iii) in the case of NE LLC, by a member of the Management Committee of NE LP,
in its capacity as the manager of NE LLC, and an Officer of one or both general
partners of NE LP, as applicable, in each case one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, NE LP or NE LLC, as applicable,
that meets the requirements of Section 13.05 hereof.
"Operating Revenues" means all revenues actually received by NE LP and
NE LLC from any source (other than the Released Cash Collateral, the payment of
Management Costs and the Non-Operating Revenues), including distributions from
NEA and NJEA (other than distributions constituting Non-Operating Revenues), and
any earnings from funds deposited in the Accounts.
"Opinion of Counsel" means an opinion from legal counsel who is not
reasonably objected to by the Trustee, that meets the requirements of Section
13.05 hereof. The counsel may be an employee of or counsel to the Company, NE
LP, NE LLC, any Subsidiary, partner or member thereof or the Trustee.
"Owners of NE LP" means ESI LP, ESI GP, Tractebel LP and Tractebel GP
and any permitted successors and assigns.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Partnerships" means Northeast Energy Associates, A Limited Partnership
("NEA"), and North Jersey Energy Associates, A Limited Partnership ("NJEA"), and
"Partnership" means either of the foregoing.
"Permitted Indebtedness" has the meaning given in Section 4.09.
"Permitted Investments" means Cash Equivalents, the Bond Loan, NE LLC's
Investment in the Partnerships and NE LP's Investment in NE LLC and the
Partnerships.
"Permitted Liens" means: (i) Liens in favor of the Company, NE LP or NE
LLC; (ii) Liens on the property of a Person existing at the time such Person is
merged into or consolidated with the Company, NE LP or NE LLC, provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company, NE LP or NE LLC; (iii) Liens on
property existing at the time of acquisition thereof by the Company, NE LP or NE
LLC, provided that such Liens were in existence prior to the contemplation of
such acquisition; (iv) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens in favor of the Trustee
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pursuant to the Collateral Documents; (vi) the first priority pledge of the one
percent general partner interest in each of the Partnerships in favor of the
holders of the Project Indebtedness; and (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Pledge Agreements" means the Partner Pledge Agreement and the Sponsor
Pledge Agreement.
"Pledged Collateral" means all collateral pledged from time to time or
with respect to which a Lien is granted pursuant to the Pledge Agreements or
Article Eleven of this Indenture.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Bonds issued under this Indenture except Exchange
Bonds and except where otherwise permitted by the provisions of this Indenture.
"Project Indenture" means the Trust Indenture dated as of November 15,
1994, entered into by ESI Tractebel Funding, the Partnerships and the Project
Trustee providing for the issuance of the Project Securities, as supplemented by
a First Supplemental Trust Indenture, dated as of November 15, 1994, and as
amended and supplemented by the Second Supplemental Trust Indenture dated as of
January 14, 1998, and any supplements and amendments thereto permitted thereby.
"Project Securities" means, collectively, the 2000 Project Notes, the
2002 Project Notes, the 2007 Project Bonds and the 2010 Project Bonds issued by
ESI Tractebel Funding under the Project Indenture and then outstanding.
"Project Trustee" means State Street Bank and Trust Company, as trustee
under the Project Indenture and any successor trustee.
"Projected Debt Service Coverage Ratio" means the ratio of (i) the
Operating Revenues projected to be received directly by NE LP and NE LLC during
the 12-month period following the date as of which such ratio is calculated (net
of any operating expenses projected to be paid by the Company, NE LP and NE LLC
during such period) to (ii) the scheduled debt service payments (including
principal, interest, premia, penalties and fees) on the Bonds and all other
indebtedness (other than any Permitted Indebtedness) of the Company, NE LP and
NE LLC during such 12-month period, (provided that, for purposes of this
calculation, the corresponding payments in respect of the Note and the Bonds
shall be deemed to constitute only one payment).
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"Purchaser" means Goldman, Sachs & Co.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registrar" has the meaning given in Section 2.03 hereof.
"Registration Default Damages" means at any time all registration
default damages then owing pursuant to Section 5 of the Registration Rights
Agreement and the Bonds.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of February 19, 1998, by and among the Company, NE LP and
Goldman, Sachs & Co. as such agreement may be amended, modified or supplemented
from time to time.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Bond" means a Regulation S Temporary Global Bond
or Regulation S Permanent Global Bond, as appropriate.
"Regulation S Permanent Global Bond" means a permanent global Bond in
the form of Exhibit A-1 hereto bearing the Global Bond Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Bond upon
expiration of the Restricted Period.
"Regulation S Temporary Global Bond" means a temporary global Bond in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Bonds initially sold in reliance on Rule 903 of Regulation S.
"Related Party" means, with respect to any Sponsor, (A) any controlling
stockholder thereof or Subsidiary at least 80% of which is owned by such Sponsor
or (B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Sponsor and/or such other Persons
referred to in the immediately preceding clause (A).
"Released Cash Collateral" means any cash obtained from the
Partnerships by the Sponsors, NE LP or NE LLC at or following the Acquisitions
due to the release of cash collateral and the substitution therefor of
alternative collateral pursuant to the Project Indenture.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee or the
Trustee's New York Affiliate customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
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"Restricted Definitive Bond" means a Definitive Bond bearing the
Private Placement Legend.
"Restricted Global Bond" means a Global Bond bearing the Private
Placement Legend.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Restricted Payment" has the meaning given in Section 4.07 hereof.
"Revenues" means the Operating Revenues and Non-Operating Revenues.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders of the Company" means ESI Northeast Energy Acquisition
Funding, Inc., an Affiliate of ESI Energy, Inc., and Tractebel Power, Inc. and
any permitted successor and assign.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Sponsor Affiliates" means the Shareholders of the Company and the
Owners of NE LP.
"Sponsor Pledge Agreement" means the pledge agreement by the Sponsor
Affiliates for the benefit of the Trustee, the Collateral Agent and the Holders
of the Bonds, dated as of the date hereof, and substantially in the form
attached as Exhibit F hereto, as such agreement may be amended, modified or
supplemented from time to time.
"Sponsor Pledged Collateral" means the assets of the Sponsor Affiliates
defined as Pledged Collateral in the Pledge Agreement.
"Sponsors" means ESI Energy, Inc. and Tractebel Power, Inc.
"S&P" means Standard & Poor's Rating Services, a division of the
McGraw-Hill Companies, Inc.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Tractebel GP" means Tractebel Northeast Generation GP, Inc., a
Delaware corporation, a general partner of NE LP.
"Tractebel LP" means Tractebel Northeast Associates LP, Inc., a
Delaware corporation, a limited partner of NE LP.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Global Bond" means a permanent global Bond in the form of
Exhibit A-1 attached hereto that bears the Global Bond Legend and that has the
"Schedule of Exchanges of Interests in the Global Bond" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Bonds that do not bear the Private
Placement Legend.
"Unrestricted Definitive Bond" means one or more Definitive Bonds that
do not bear and are not required to bear the Private Placement Legend.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- -------
"Affiliate Transaction"..........................................4.11
"Authentication Order"...........................................2.02
"Change of Control Offer"........................................4.15
"Change of Control Payment"......................................4.15
"Change of Control Payment Date" ................................4.15
"Covenant Defeasance"............................................8.03
"Event of Default"...............................................6.01
"incur"..........................................................4.09
"Legal Defeasance" ..............................................8.02
"Paying Agent"...................................................2.03
"Permitted Indebtedness".........................................4.09
"Registrar"......................................................2.03
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Bonds;
"indenture security Holder" means a Holder of a Bond;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Bonds and on the Note and the Bond Guaranty means the
Company and the Bond Guarantor, respectively, and any successor obligor upon the
Bonds or the Note and the Bond Guaranty, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
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SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE BONDS
SECTION 2.01. FORM AND DATING.
(a) General. The Bonds and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Bonds may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Bond shall be dated the date of its authentication. The Bonds shall
be in denominations of $100,000 and integral multiples of $1,000 in excess
thereof.
The terms and provisions contained in the Bonds shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the Bond
Guarantor, NE LLC and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Bond conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.
(b) Global Bonds. Bonds issued in global form shall be substantially in
the form of Exhibits A-1 or A-2 attached hereto (including the Global Bond
Legend thereon and the "Schedule of Exchanges of Interests in the Global Bond"
attached thereto). Bonds issued in definitive form shall be substantially in the
form of Exhibit A-1 attached hereto (but without the Global Bond Legend thereon
and without the "Schedule of Exchanges of Interests in the Global Bond" attached
thereto). Each Global Bond shall represent such of the outstanding Bonds as
shall be specified therein and each shall provide that it shall represent the
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aggregate principal amount of outstanding Bonds from time to time endorsed
thereon and that the aggregate principal amount of outstanding Bonds represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Bond to reflect
the amount of any increase or decrease (other than in connection with any
scheduled payment of principal) in the aggregate principal amount of outstanding
Bonds represented thereby shall be made by the Trustee or the Bond Custodian, at
the direction of the Trustee, in accordance with instructions given by the
Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Bonds. Bonds offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Bond, which shall be deposited on behalf of the purchasers of the Bonds
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The Restricted Period shall be terminated upon
the receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Bond (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Bond bearing a Private Placement Legend, all
as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from the Company to the effect that such Restricted Period has
ended. Following the termination of the Restricted Period, beneficial interests
in the Regulation S Temporary Global Bond shall be exchanged for beneficial
interests in Regulation S Permanent Global Bonds pursuant to the Applicable
Procedures. Simultaneously with the authentication of Regulation S Permanent
Global Bonds, the Trustee shall cancel the Regulation S Temporary Global Bond.
The aggregate principal amount of the Regulation S Temporary Global Bond and the
Regulation S Permanent Global Bonds may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. Provided that neither
the Company nor the Trustee shall be required to take notice of any such
provision, the provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Bond and the Regulation S Permanent Global Bonds that are held by
Participants through Euroclear or Cedel Bank.
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SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Bonds
for the Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Bonds and may be in facsimile form.
If one or both Officers whose signature are on a Bond no longer hold
that office at the time a Bond is authenticated, the Bond shall nevertheless be
valid.
A Bond shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Bond has
been authenticated under this Indenture.
The Trustee shall, upon (i) a written order of the Company signed by
one or both Officers (an "Authentication Order") accompanied by the documents
required pursuant to Section 13.04, (ii) the initial deposit of cash or
Acceptable Credit Support pursuant to Section 10.04, (iii) the execution and
delivery by the parties thereto of the Pledge Agreements and (iv) delivery to
the Trustee of evidence of receipt by the Collateral Agent of the Pledge
Agreements, the Pledged Shares and the Pledged Note, authenticate Bonds for
original issue up to the aggregate principal amount stated in paragraph 4 of the
Bonds. The aggregate principal amount of Bonds outstanding at any time may not
exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Bonds. An authenticating agent may authenticate Bonds
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain or cause to
be maintained an office or agency where Bonds may be presented for registration
of transfer or for exchange ("Registrar") and shall appoint an institution with
trust powers to maintain an office or agency where Bonds may be presented for
payment ("Paying Agent"). The Registrar shall keep a register of the Bonds and
of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or NE LP may act as Registrar but shall
not act as Paying Agent.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Bonds.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Bond Custodian with respect to the Global Bonds.
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SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Registration Default Damages, if any, or interest on the
Bonds, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent shall have no further liability for the
money.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Bonds and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Bonds. A Global Bond may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Bonds will be exchanged by
the Company for Definitive Bonds if (i) the Company or the Depositary delivers
to the Trustee notice from the Depositary that it is unwilling or unable to
continue to act as Depositary or that it is no longer a clearing agency
registered under the Exchange Act and, in either case, a successor Depositary is
not appointed by the Company within 90 days after the date of such notice from
the Depositary or (ii) the Company in its sole discretion determines that the
Global Bonds (in whole but not in part) should be exchanged for Definitive Bonds
and delivers a written notice to such effect to the Trustee; provided that in no
event shall the Regulation S Temporary Global Bond be exchanged by the Company
for Definitive Bonds prior to (x) the expiration of the Restricted Period and
(y) the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events described in (i) or (ii) above, Definitive Bonds shall be
issued in such names as the Depositary shall instruct the Trustee. Global Bonds
also may be exchanged or replaced, in whole or in part, as provided in Sections
2.07 and 2.10 hereof. Except as otherwise provided in this Section 2.06(a) every
Bond authenticated and delivered in exchange for, or in lieu of, a Global Bond
or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10
hereof, shall be authenticated and delivered in the form of, and shall be, a
Global Bond. A Global Bond may not be exchanged for another Bond other than as
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provided in this Section 2.06(a); however, beneficial interests in a Global Bond
may be transferred and exchanged as provided in Section 2.06(b),(c) or (f)
hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Bonds.
The transfer and exchange of beneficial interests in the Global Bonds shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Bonds shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Bonds also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Bond.
Beneficial interests in any Restricted Global Bond may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Bond in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Temporary Regulation S
Global Bond may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than the Purchaser). Beneficial
interests in any Unrestricted Global Bond may be transferred to Persons
who take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Bond. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Bonds. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Registrar either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Bond in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Bond in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary
to the Registrar containing information regarding the Person in whose
name such Definitive Bond shall be registered to effect the transfer or
exchange referred to in (1) above; provided that in no event shall
Definitive Bonds be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Bond prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903 under the
Securities Act. Upon consummation of an Exchange Offer by the Company
in accordance with Section 2.06(f) hereof, the requirements of this
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Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt
by the Registrar of the instructions contained in the Letter of
Transmittal delivered by the Holder of such beneficial interests in the
Restricted Global Bonds. Upon satisfaction of all of the requirements
for transfer or exchange of beneficial interests in Global Bonds
contained in this Indenture and the Bonds or otherwise applicable under
the Securities Act, the Trustee shall adjust the principal amount of
the relevant Global Bond(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Bond. A beneficial interest in any Restricted Global Bond may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Bond if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Bond, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Bond or
the Regulation S Global Bond, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Bond for Beneficial Interests in the Unrestricted
Global Bond. A beneficial interest in any Restricted Global Bond may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Bond or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Bond if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Bonds or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company; or
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement; or
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
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(1) if the holder of such beneficial interest in a
Restricted Global Bond proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Bond, a certificate
from such holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Bond proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Bond, a certificate from such holder
in the form of Exhibit B hereto, including the certifications in item
(4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Bond has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Bonds in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Bond cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Bond.
(c) Transfer or Exchange of Beneficial Interests for Definitive Bonds.
(i) Beneficial Interests in Restricted Global Bonds to
Restricted Definitive Bonds. If any holder of a beneficial interest in
a Restricted Global Bond proposes to exchange such beneficial interest
for a Restricted Definitive Bond or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Bond, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Bond proposes to exchange such beneficial interest for a
Restricted Definitive Bond, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
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(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Bond to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Bond in the appropriate principal amount. Any Definitive
Bond issued in exchange for a beneficial interest in a Restricted
Global Bond pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Bonds
to the Persons in whose names such Bonds are so registered. Any
Definitive Bond issued in exchange for a beneficial interest in a
Restricted Global Bond pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Bond may not
be exchanged for a Definitive Bond or transferred to a Person who takes
delivery thereof in the form of a Definitive Bond prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act, except in the case of a
transfer pursuant to an exemption from the registration requirements of
the Securities Act other than Rule 903 or Rule 904.
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(iii) Beneficial Interests in Restricted Global Bonds to
Unrestricted Definitive Bonds. A holder of a beneficial interest in a
Restricted Global Bond may exchange such beneficial interest for an
Unrestricted Definitive Bond or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Bond only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Bonds or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest
in a Restricted Global Bond proposes to exchange such
beneficial interest for a Definitive Bond that does not bear
the Private Placement Legend, a certificate from such holder
in the form of Exhibit C hereto, including the
certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest
in a Restricted Global Bond proposes to transfer such
beneficial interest to a Person who shall take delivery
thereof in the form of a Definitive Bond that does not bear
the Private Placement Legend, a certificate from such holder
in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Bonds to
Unrestricted Definitive Bonds. If any holder of a beneficial interest
in an Unrestricted Global Bond proposes to exchange such beneficial
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interest for a Definitive Bond or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive
Bond, then, upon satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Bond to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Bond in the appropriate principal amount. Any
Definitive Bond issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iii) shall be registered in such name or names
and in such authorized denomination or denominations as the holder of
such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Bonds to the
Persons in whose names such Bonds are so registered. Any Definitive
Bond issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Bonds for Beneficial
Interests.
(i) Restricted Definitive Bonds to Beneficial Interests in
Restricted Global Bonds. If any Holder of a Restricted Definitive Bond
proposes to exchange such Bond for a beneficial interest in a
Restricted Global Bond or to transfer such Restricted Definitive Bonds
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Bond, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Bond proposes
to exchange such Bond for a beneficial interest in a Restricted
Global Bond, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Bond is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Restricted Definitive Bond is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Bond is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Bond is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other
than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto, including
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the certifications, certificates and Opinion of Counsel required
by item (3) thereof, if applicable;
(F) if such Restricted Definitive Bond is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such Restricted Definitive Bond is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Bond, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Bond, in the case
of clause (B) above, the 144A Global Bond, in the case of clause (c)
above, the Regulation S Global Bond.
(ii) Restricted Definitive Bonds to Beneficial Interests in
Unrestricted Global Bonds. A Holder of a Restricted Definitive Bond may
exchange such Bond for a beneficial interest in an Unrestricted Global
Bond or transfer such Restricted Definitive Bond to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Bond only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Bonds or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Bonds proposes to
exchange such Bonds for a beneficial interest in the Unrestricted
Global Bond, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Bonds proposes to
transfer such Bonds to a Person who shall take delivery thereof in the
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form of a beneficial interest in the Unrestricted Global Bond, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Bonds and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Bond.
(iii) Unrestricted Definitive Bonds to Beneficial Interests in
Unrestricted Global Bonds. A Holder of an Unrestricted Definitive Bond
may exchange such Bond for a beneficial interest in an Unrestricted
Global Bond or transfer such Definitive Bonds to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Bond at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Bond and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Bonds.
If any such exchange or transfer from a Definitive Bond to a beneficial
interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above
at a time when an Unrestricted Global Bond has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Bonds in an aggregate principal amount equal to the principal amount of
Definitive Bonds so transferred.
(e) Transfer and Exchange of Definitive Bonds for Definitive Bonds.
Upon request by a Holder of Definitive Bonds and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Bonds. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Bonds duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Bonds to Restricted Definitive
Bonds. Any Restricted Definitive Bond may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Bond if the Registrar receives the
following:
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(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Bonds to Unrestricted Definitive
Bonds. Any Restricted Definitive Bond may be exchanged by the Holder
thereof for an Unrestricted Definitive Bond or transferred to a Person
or Persons who take delivery thereof in the form of an Unrestricted
Definitive Bond if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Bonds or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Bonds
proposes to exchange such Bonds for an Unrestricted Definitive Bond, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Bonds
proposes to transfer such Bonds to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Bond, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
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and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Bonds to Unrestricted Definitive
Bonds. A Holder of Unrestricted Definitive Bonds may transfer such
Bonds to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Bond. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Bonds pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02
(including any certificates and opinions required pursuant to Section 13.04
hereof), the Trustee shall authenticate (i) one or more Unrestricted Global
Bonds in an aggregate principal amount equal to the principal amount of the
beneficial interests in the Restricted Global Bonds tendered for acceptance by
Persons that certify in the applicable Letters of Transmittal that (x) they are
not broker-dealers, (y) they are not participating in a distribution of the
Exchange Bonds and (z) they are not affiliates (as defined in Rule 144) of the
Company, and accepted for exchange in the Exchange Offer and (ii) Definitive
Bonds in an aggregate principal amount equal to the aggregate principal amount
of the Restricted Definitive Bonds accepted for exchange in the Exchange Offer.
Concurrently with the issuance of such Bonds, the Trustee shall cause the
aggregate principal amount of the applicable Restricted Global Bonds to be
reduced accordingly and the Definitive Bonds accepted to be cancelled, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Bonds so accepted Definitive
Bonds in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Bonds and Definitive Bonds issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Bond and each Definitive Bond (and all Bonds issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) BY THE
INITIAL INVESTOR (A) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER
THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (B) IN AN OFFSHORE TRANSACTION MEETING THE
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REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (D)
TO THE COMPANY OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (2) BY SUBSEQUENT INVESTORS AS SET FORTH
IN (1) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR
IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES. THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT
PURCHASER FROM IT OF THE BONDS EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN THE PREVIOUS SENTENCE. NO REPRESENTATION CAN
BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144
FOR RESALES OF THE BONDS."
(B) Notwithstanding the foregoing, any Global Bond or
Definitive Bond issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Bonds issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Bond Legend. Each Global Bond shall bear a legend
in substantially the following form:
"THIS GLOBAL BOND IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS BOND) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL BOND MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
BOND MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL BOND MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY."
(iii) Regulation S Temporary Global Bond Legend. The
Regulation S Temporary Global Bond shall bear a legend in substantially
the following form:
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"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL BOND, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
BONDS, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL BOND SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Bonds. At such time as all
beneficial interests in a particular Global Bond have been exchanged for
Definitive Bonds or a particular, Global Bond has been redeemed, repurchased,
exchanged or canceled in whole and not in part, each such Global Bond shall be
returned to or retained and canceled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Bond is exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Bond or
for Definitive Bonds, the principal amount of Bonds represented by such Global
Bond shall be reduced accordingly and an endorsement shall be made on such
Global Bond by the Trustee or by the Depositary at the direction of the Trustee
to reflect such reduction; and if the beneficial interest is being exchanged for
or transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Bond, such other Global Bond shall be
increased accordingly and an endorsement shall be made on such Global Bond by
the Trustee or by the Depositary at the direction of the Trustee to reflect such
increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Bonds
and Definitive Bonds upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Bond or to a Holder of a Definitive
Bond for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 4.15 and 9.05
hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Bond selected for redemption in whole or in
part, except the unredeemed portion of any Bond being redeemed in part.
(iv) All Global Bonds and Definitive Bonds issued upon any
registration of transfer or exchange of Global Bonds or Definitive
Bonds shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Bonds or Definitive Bonds surrendered upon such registration
of transfer or exchange.
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(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Bonds during a period
beginning at the opening of business 15 days before the day of any
selection of Bonds for redemption under Section 3.02 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Bond so selected for redemption in whole
or in part, except the unredeemed portion of any Bond being redeemed in
part or (c) to register the transfer of or to exchange a Bond between a
record date and the next succeeding Interest Payment Date.
(vi) The Trustee, any Agent and the Company may deem and treat
the Person in whose name any Bond is registered as the absolute owner
of such Bond for the purpose of receiving payment of principal of and
interest on such Bonds and for all other purposes, and none of the
Trustee, any Agent or the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Global Bonds and
Definitive Bonds in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
SECTION 2.07. REPLACEMENT BONDS
If any mutilated Bond is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Bond, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Bond if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Bond is
replaced. The Company may charge for its expenses in replacing a Bond.
Every replacement Bond is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Bonds duly issued hereunder.
SECTION 2.08. OUTSTANDING BONDS.
The Bonds outstanding at any time are all the Bonds authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Bond effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Bond
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Bond.
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If a Bond is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Bond is held by a bona fide purchaser.
If the principal amount of any Bond or portion thereof is considered
paid under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Bonds payable on that date, then on and after that date such
Bonds shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY BONDS.
In determining whether the Holders of the required principal amount of
Bonds have concurred in any direction, waiver or consent, Bonds owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Bonds that the Trustee knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY BONDS
Until certificates representing Bonds are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Bonds. Temporary Bonds shall be substantially in
the form of certificated Bonds but may have variations that the Company
considers appropriate for temporary Bonds and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Bonds in exchange for temporary Bonds.
Holders of temporary Bonds shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Bonds to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Bonds surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Bonds surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Bonds (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Bonds shall be delivered
to the Company. The Company may not issue new Bonds to replace Bonds that it has
paid or that have been delivered to the Trustee for cancellation.
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SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Bonds, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Bonds
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Bond and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Bonds pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 40 days but not more than 70 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Bonds to be redeemed and (iv) the redemption price including
Registration Default Damages, if any.
SECTION 3.02. SELECTION OF BONDS TO BE REDEEMED OR REPURCHASED
Subject to the book entry system described herein, if less than all of
the Bonds are to be redeemed or purchased in an offer to purchase at any time,
the Trustee shall select the Bonds to be redeemed or purchased in compliance
with the requirements of the principal national securities exchange, if any, on
which the Bonds are listed or, if the Bonds are not so listed, on a pro rata
basis or by such other method as the Trustee considers fair and appropriate;
provided that, except in the case of an extraordinary mandatory redemption, no
Bonds will be redeemed in part if the unredeemed portion will be in an
unauthorized denomination. Subject to the book-entry system, in the event of
partial redemption by lot, the particular Bonds to be redeemed shall be
selected, unless otherwise provided herein, not less than 35 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Bonds not
previously called for redemption.
The Trustee shall promptly notify the Registrar and the Paying Agent in
writing of the Bonds selected for redemption and, in the case of any Bond
selected for partial redemption, the principal amount thereof to be redeemed.
Bonds and portions of Bonds selected shall be in amounts of $100,000 or whole
multiples of $1,000 in excess thereof; except that if all of the Bonds of a
Holder are to be redeemed, the entire outstanding amount of Bonds held by such
Holder, even if not a multiple of $100,000 or a multiple of $1,000 in excess
thereof, shall be redeemed. Except as provided in the preceding sentence,
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provisions of this Indenture that apply to Bonds called for redemption also
apply to portions of Bonds called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION
At least 30 days but not more than 60 days before a redemption date,
the Registrar shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Bonds are to be redeemed at its registered
address.
The notice shall identify the Bonds to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price including any Registration Default Damages;
(c) if any Bond is being redeemed in part, the portion of the principal
amount of such Bond to be redeemed and that, after the redemption date upon
surrender of such Bond, a new Bond or Bonds in principal amount equal to the
unredeemed portion shall be issued in the name of the Holder thereof upon
cancellation of the original Bond;
(d) the name and address of the Paying Agent;
(e) that Bonds called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Bonds called for redemption ceases to accrue on and after
the date fixed for redemption;
(g) the paragraph of the Bonds and/or Section of this Indenture
pursuant to which the Bonds called for redemption are being redeemed; and
(h) the CUSIP number and that no representation is made as to the
correctness or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Bonds.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Bonds called for redemption become irrevocably due and payable on the
date fixed for redemption at the redemption price. A notice of redemption may
not be conditional.
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SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
No later than one Business Day prior to the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent money
sufficient, together with moneys then held by the Trustee, to pay the redemption
price of and accrued interest on all Bonds to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Bonds to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the date fixed for redemption, interest shall cease to accrue on
the Bonds or the portions of Bonds redeemed. If a Bond is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Bond was registered at the close of business on such record date. If any
Bond called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Bonds and in
Section 4.01 hereof.
SECTION 3.06. BONDS REDEEMED IN PART.
Upon surrender of a Bond that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Bond in a principal amount
equal to the unredeemed portion of the Bond surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Bonds shall not be redeemable at the Company's option prior to
June 30, 2008. Thereafter, the Bonds shall be subject to redemption at any time
at the option of the Company at the direction of NE LP, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Registration Default Damages, if any, thereon to the
applicable date fixed for redemption, if redeemed during the twelve-month period
beginning on June 30 of the years indicated below:
Year Percentage
---- ----------
2008................................................... 101.844%
2009................................................... 101.229%
2010................................................... 100.615%
2011 and thereafter.................................... 100.000%
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(b) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Section 3.09 and 4.15 and except for the
payment of the principal of the Bonds in semiannual installments to the Holders
thereof, the Company shall not be required to make mandatory redemption,
mandatory purchases or sinking fund payments with respect to the Bonds.
SECTION 3.09. EXTRAORDINARY MANDATORY REDEMPTION.
(a) The Bonds shall be subject to extraordinary mandatory
redemption by the Company, pro rata, at a redemption price equal to the
outstanding principal amount thereof plus accrued and unpaid interest and any
Registration Default Damages to the date fixed for redemption if (1) (a) an
event occurs which triggers the mandatory redemption or repurchase of any or all
of the Project Securities pursuant to the terms of the Project Indenture and (b)
any funds so required to be applied to such redemption or repurchase remain
after giving effect to such redemption or repurchase of Project Securities, and
such excess funds equal at least $2 million and are distributed to NE LP or NE
LLC or (2) a buyout or similar payment is made to a Partnership under any Power
Purchase Agreement and any such funds are distributed to NE LP or NE LLC in
accordance with the terms of the Project Indenture and terms of the Indenture,
provided that, in each such case, only such funds so distributed must be applied
to the extraordinary mandatory redemption.
(b) Any redemption pursuant to this Section 3.09 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF BONDS.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest and Registration Default Damages, if any, on the Bonds on the
dates and in the manner provided in the Bonds. Principal, premium, if any, and
interest and Registration Default Damages, if any, shall be considered paid on
the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by
the Company in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest then due. The Company shall pay
all Registration Default Damages, if any, in the same manner on the dates and in
the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
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1% per annum in excess of the then applicable interest rate on the Bonds to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Registration Default Damages, if any, without regard to any applicable grace
period at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall appoint a Registrar to maintain or cause to be
maintained in the Borough of Manhattan, the City of New York, an office or
agency (which may be an office of the Trustee or an affiliate of the Trustee,
Registrar or co-registrar) where Bonds may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Bonds and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain or cause to be maintained any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Bonds may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to appoint the Registrar to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Registrar in accordance with Section 2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Bonds are outstanding, the Company shall furnish to the
Holders of Bonds and to any beneficial owner of the Bonds who so requests the
Company in writing (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports, in each case, within the time periods specified in the SEC's
rules and regulations. In addition, following the consummation of the Exchange
Offer, whether or not required by the rules and regulations of the SEC, the
Company shall file a copy of all such information and reports with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
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information available to securities analysts and prospective investors upon
request. The Company shall at all times comply with TIA ss. 314(a).
(b) For so long as any Bonds remain outstanding, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act. In addition, and whether or not the Company
is subject to the reporting requirements of Section 13 or Section 15(d) of the
Exchange Act, the Company shall file with the SEC and provide to the Trustee and
the Holders of the Bonds, and (upon request) to broker-dealers and prospective
investors, all information, documents and reports specified in Section 13 and
Section 15(d) of the Exchange Act.
(c) NE LP shall provide to the Trustee, the Holders of the Bonds
and any beneficial owner of Bonds who so requests the Company in writing (i) all
notices, financial statements and other information required to be given by ESI
Tractebel Funding Corp., NEA or NJEA to the Project Trustee under the Project
Indenture, (ii) calculations of the Debt Service Coverage Ratio and the
Projected Debt Service Coverage Ratio, together with the information required to
substantiate such calculations, on each semi-annual payment date in respect of
the Bonds, at the time any amounts are to be transferred into the Distribution
Account and at any other time such ratios are required to be provided by the
terms of the Indenture and (iii) calculations of the Debt Service Coverage Ratio
and the Substitute Debt Service Coverage Ratio for the Rolling Prior Year (each
as defined in the Project Indenture as in effect on the date of the Indenture),
together with the information required to substantiate such calculations and a
copy of the certificate of the management committee of NE LP on behalf of the
Partnerships delivered pursuant to the Project Indenture certifying that it has
no knowledge of any event or circumstances that could reasonably be expected to
result in the Debt Service Coverage Ratio for the period of two fiscal quarters
commencing on the expiration date of the Rolling Prior Year, treated as a single
period, being less than 1.25:1, on each semi-annual payment date in respect of
the Bonds, at the time any amounts are to be transferred into the General
Subfund of the Partnership Distribution Fund (as defined in the Project
Indenture as in effect on the date of the Indenture) and at any other time such
ratios are required to be provided by the terms of the Project Indenture.
Finally, each of the Company, NE LP and NE LLC shall advise the Trustee promptly
in writing of (i) the occurrence of any Event of Default of which it has
knowledge and the occurrence of any "Event of Default" as defined in the Project
Indenture as in effect on the date of the Indenture and (ii) any material
litigation or claim against or concerning any of the Company, NE LP, NE LLC or
any of its property or assets.
Except that it shall examine the information, documents and reports
filed with it pursuant to TIA Sections 314(a)(2) and 314(a)(4), the Trustee
shall not be required to examine any of the documents required to be filed with
it pursuant to Section 4.03(a) and (b) and the first sentence of Section 4.03(c)
to ascertain whether there has been compliance with the covenants herein.
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SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and NE LP (to the extent that NE LP is so required
under the TIA) shall deliver to the Trustee, within 90 days after the end of
each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries, if any, and NE LP during the
preceding fiscal year has been made under the supervision of the signing Officer
with a view to determining whether the Company and NE LP has kept, observed,
performed and fulfilled their obligations under this Indenture and the Company
and Partner Pledge Agreement, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
and NE LP has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and the Company and Partner Pledge Agreement and are
not in default in the performance or observance of any of the terms, provisions
and conditions of this Indenture and the Company and Partner Pledge Agreement
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company and/or NE LP are taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Bonds is prohibited or if such event has occurred, a
description of the event and what action the Company and/or NE LP are taking or
propose to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established international reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) Each of the Company, NE LP and NE LLC shall, so long as any of
the Bonds are outstanding, deliver to the Trustee, forthwith upon any Officer's
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company, NE LP
or NE LLC is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
Each of the Company, NE LP and NE LLC shall pay prior to delinquency,
all taxes, assessments and other governmental charges, except such as are
contested in good faith and by appropriate proceedings and adequate reserves in
conformity with GAAP are being maintained.
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SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company, NE LP and NE LLC each covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company, NE
LP and NE LLC each (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not, by resort to any such law, hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company, NE LP and NE LLC shall make Restricted Payments only from,
and to the extent of, amounts on deposit in the Distribution Account from time
to time. "Restricted Payments" means the direct or indirect: (i) declaration or
payment of any dividend or any other payment or distribution on account of the
Company's, NE LP's or NE LLC's Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company, NE LP or NE LLC) or to the direct or indirect holders of the Company's,
NE LP's or NE LLC's Equity Interests in any capacity (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company, NE LP or NE LLC or to the Company, NE LP or NE LLC); (ii) repayment of
any Indebtedness owed by NE LP or NE LLC to the Sponsors or their Affiliates,
including, without limitation, any reimbursement obligations with respect to any
letters of credit or guarantees provided by the Sponsors or their Affiliates as
Acceptable Credit Support; (iii) purchase, redemption or other acquisition or
retirement for value (including, without limitation, in connection with any
merger or consolidation involving the Company, NE LP or NE LLC) of any Equity
Interests of the Company, NE LP or NE LLC or any direct or indirect parent of
the Company, NE LP or NE LLC; or (iv) payment on or with respect to, or
purchase, redemption, defeasance or other acquisition or retirement for value of
any Indebtedness that is pari passu with or subordinated to the Bonds (other
than the Bonds), except a scheduled payment of interest or principal.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company, NE LP or NE LLC,
pursuant to the Restricted Payment. The fair market value of any non-cash
Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon, and accompanied by, an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if such fair market value exceeds $5.0 million. Not later than the date
of making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
4.07 were computed, together with a copy of any fairness opinion or appraisal
required by this Indenture.
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SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company, NE LP and NE LLC shall not, and shall not permit any of
its or their Subsidiaries (including NEA and NJEA), directly or indirectly, to
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Subsidiary thereof to (i) (a) pay dividends
or make any other distributions to the Company, NE LP and NE LLC or any of its
or their Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to the Company, NE LP and NE LLC or any of its or their
Subsidiaries, (ii) make loans or advances to the Company, NE LP or NE LLC or any
of its or their Subsidiaries or (iii) transfer any of its properties or assets
to the Company, NE LP or NE LLC or any of its or their Subsidiaries. However,
the foregoing restrictions will not apply to encumbrances or restrictions under
or by reason of (a) the Project Indenture and the other Transaction Documents
(as defined in the Project Indenture as in effect on the date of the Indenture)
and, in each case, as in effect on the date of the Indenture, (b) the Indenture
and the Bonds, (c) applicable law, (d) customary non-assignment provisions in
leases entered into in the ordinary course of business and consistent with past
practices and (e) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company, NE LP and NE LLC shall not, directly or indirectly,
create, incur, issue, assume, guarantee, otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness, other than Permitted Indebtedness, and shall not issue any
Disqualified Stock, unless (a) such Indebtedness will be pari passu with or
subordinated to the Note and the Bonds, (b) the proceeds of such incurrence or
issuance are used to make equity contributions to either or both of NEA or NJEA,
(c) the proceeds of such incurrence or issuance are used to finance the
completion of Required Improvements or capital expenditures for the Projects
other than Required Improvements, (d) if the proceeds of such Indebtedness are
used to finance the completion of Required Improvements (as defined in the
Project Indenture as in effect on the date of the Indenture), (i) the Projected
Debt Service Coverage Ratio (determined on a pro forma basis giving effect to
the incurrence and the application of the net proceeds therefrom and the
construction of the Required Improvements) measured on each remaining
semi-annual payment date in respect of the Bonds is at least 1.2 to 1 and (ii)
an independent engineer acceptable to the Trustee (which may, absent any
conflict or the objection of the Trustee, be the Independent Engineer with
respect to the Project Securities) certifies that the Improvements are Required
Improvements (as defined in the Project Indenture as in effect on the date of
the Indenture) and that there will be sufficient funds available to construct
the Required Improvements after the incurrence and (e) if the proceeds of such
Indebtedness are used to finance capital expenditures for the Projects other
than Required Improvements, (i) the Projected Debt Service Coverage Ratio
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(determined on a pro forma basis giving effect to the incurrence and the
application of the net proceeds therefrom and the proposed capital expenditures)
measured on each remaining semi-annual payment date of the Bonds is at least 2
to 1 and the average of such Projected Debt Service Coverage Ratios is at least
3 to 1 and (ii) Moody's and S&P confirm that the then current ratings of the
Bonds will not be lowered as a result of such incurrence. "Permitted
Indebtedness" means subordinated loans or reimbursement obligations owing to a
Sponsor or any Affiliate thereof (i) which can only be repaid to the extent
Restricted Payments can be made, (ii) in respect of which remedies cannot be
exercised by such Sponsor or Affiliate so long as the Bonds are outstanding,
(iii) incurred at a time when the minimum Projected Debt Service Coverage Ratio
(assuming, for purposes of such calculation, that scheduled debt service
payments in respect of Permitted Indebtedness that is subordinate in right of
payment to the Bonds, the Note and the Bond Guaranty is included in clause (ii)
of the definition of "Projected Debt Service Coverage Ratio") on each
semi-annual payment date of the Bonds is at least 1.5 to 1 (provided that the
incurrence of reimbursement obligations subordinated to the Bonds of NE LP to
the issuers of Acceptable Credit Support under the Indenture and in respect of
Guarantees issued by FPL Group Capital and/or Backup Letters of Credit and
Substitute Letters of Credit (as defined in the Project Indenture) pursuant to
the Project Indenture shall not be subject to such Projected Debt Service
Coverage Ratio test) or Moody's and S&P confirm that the then current ratings of
the Bonds will not be lowered as a result of such incurrence and (iv) the
proceeds of which are used to make equity contributions to either NEA or NJEA.
For purposes of determining compliance with this Section 4.09, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (iv) above
or is entitled to be incurred pursuant to the first paragraph of this Section
4.09, the Company, NE LP and NE LLC shall each, in its sole discretion, classify
such item of Indebtedness in any manner that complies with this Section 4.09.
Accrual of interest shall not be deemed to be an incurrence of Indebtedness for
purposes of this Section 4.09.
SECTION 4.10. LIMITATIONS ON PROJECT INDEBTEDNESS
Notwithstanding the terms of the Project Indenture, NE LP and NE LLC
shall not permit ESI Tractebel Funding Corp. or the Partnerships to create,
issue, incur, assume, guarantee, otherwise become liable for or suffer to exist
any Debt (as defined in the Project Indenture as in effect on the date of the
Indenture) to finance the construction of Required Improvements unless, after
giving effect to the incurrence of such Debt and the application of the proceeds
thereof, the Projected Debt Service Coverage Ratio for the 12-month period
beginning on the date of such incurrence and for each succeeding 12-month period
thereafter through the final maturity of the Bonds is at least 1.2 to 1.
In addition, notwithstanding the terms of the Project Indenture, NE LP
and NE LLC shall not permit ESI Tractebel Funding Corp. or the Partnerships to
create, issue, incur, assume, guarantee, otherwise become liable for or suffer
to exist any Debt (as defined in the Project Indenture as in effect on the date
of the Indenture), other than Debt to finance the construction of Required
Improvements, unless after giving effect to the incurrence of such Debt and the
application of the proceeds thereof, (i) the Projected Debt Service Coverage
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Ratio measured on each remaining semi-annual payment date of the Bonds is at
least 2 to 1 and (ii) the average of such Projected Debt Service Coverage Ratios
is at least 3 to 1.
Finally, NE LP and NE LLC shall not permit ESI Tractebel Funding Corp.
or the Partnerships to create, incur, assume, guarantee, otherwise become liable
for or suffer to exist any Indebtedness, Guarantees or indemnity obligations
following the repayment, prepayment or defeasance of all of the Project
Securities or the termination or expiration of the Project Indenture, other than
in accordance with one of the two preceding paragraphs.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company, NE LP and NE LLC shall not make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate thereof (each of the foregoing, an
"Affiliate Transaction"), unless such Affiliate Transaction is on terms that are
no less favorable to the Company, NE LP or NE LLC (as the case may be) than
those that would have been obtained in a comparable transaction by the Company,
NE LP or NE LLC with an unrelated Person. Notwithstanding the foregoing, the
following shall not be deemed to be Affiliate Transactions: (i) transactions
between or among the Company, NE LP, NE LLC or any of their Affiliates
contemplated by any agreement entered into prior to the date of the Indenture;
(ii) payments of reasonable directors' fees to Persons who are not otherwise
Affiliates of the Company, NE LP or NE LLC; and (iii) Restricted Payments that
are permitted under Section 4.07 hereof.
SECTION 4.12. LIENS.
The Company, NE LP and NE LLC shall not, directly or indirectly create,
incur, assume or otherwise cause or suffer to exist or become effective any Lien
on any of their assets or properties now owned or hereafter acquired, or any
income or profits therefrom, or assign or convey any right to receive income
therefrom, except for Permitted Liens.
SECTION 4.13. BUSINESS ACTIVITIES.
(a) The Company shall not engage in any business other than the
issuance of the Bonds and the incurrence of the other Indebtedness permitted by
the Indenture to be incurred by the Company and (b) NE LP and NE LLC shall not
engage in any business other than holding, directly or indirectly, the partner
interests of NEA and NJEA, and, with respect to NE LP, acting as general partner
of NEA and NJEA, and the issuance of the Note and the Bond Guaranty and the
incurrence of the other Indebtedness permitted by the Indenture to be incurred
by NE LP and NE LLC.
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SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company, NE LP and NE LLC shall each
do or cause to be done all things necessary to preserve and keep in full force
and effect (i) its corporate or partnership existence, and the corporate,
partnership or other existence of each of its Subsidiaries, in accordance with
the respective organizational documents (as the same may be amended from time to
time) of the Company, NE LP and NE LLC or any such Subsidiary and (ii) the
rights (charter and statutory), licenses and franchises of the Company and their
Subsidiaries; provided, however, that the Company, NE LP and NE LLC shall not be
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company, NE LP and NE LLC and their
respective Subsidiaries, taken as a whole, and that the loss thereof is not
adverse in any material respect to the Holders of the Bonds.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control (which shall not
occur if Moody's and S&P confirm that the then existing ratings of the Bonds
will not be lowered as a result of any of the events that, in the absence of
such confirmed rating, would constitute a Change of Control), the Company shall
offer to each Holder to repurchase all or any part (equal to $100,000 or an
integral multiple of $1,000 in excess thereof) of such Holder's Bonds pursuant
to the offer described below (the "Change of Control Offer") at a purchase price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Registration Default Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within ten days following any Change
of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Bonds on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company shall comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Bonds as a
result of a Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (1) accept for payment all Bonds or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Bonds
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Bonds so accepted together with an Officer's Certificate stating the
aggregate principal amount of Bonds or portions thereof purchased by the
Company. The Paying Agent shall promptly pay to each Holder that has so tendered
Bonds the Change of Control Payment for such Bonds, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Bond equal in principal amount to any unpurchased portion of
the Bonds surrendered, if any; provided that each such new Bond shall be in a
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principal amount of $100,000 or an integral multiple of $1,000 in excess
thereof. The Company shall announce publicly the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(c) Notwithstanding anything to the contrary in this Section 4.15,
the Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.15 hereof, and purchases all Bonds validly tendered and not
withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of NE LP, NE LLC, NEA or NJEA to any "person" or
"group" (as each such term is used in Section 13(d)(3) and 14(d)(2) of the
Exchange Act) other than the Sponsors or their Related Parties; (ii) the
adoption of a plan relating to the liquidation or dissolution of NE LP, NE LLC,
NEA or NJEA (other than as permitted by the Indenture); (iii) the consummation
of any transaction or series of related transactions (including, without
limitation, any merger or consolidation) the result of which is that any person
or group (as defined above), other than the Sponsors and their Related Parties,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that a person or group shall be deemed to
have "beneficial ownership" of all securities that such person or group has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the voting power of any general partner of NE LP, NEA or NJEA
or of the voting power of the managing member of NE LLC by way of merger or
consolidation or otherwise other than a transaction involving an acquisition of
FPL Group or Tractebel S.A., (iv) the consummation of any transaction or series
of related transactions the result of which is that any person or group (as
defined above) owns, directly or indirectly, more of the economic and voting
interest of the Sponsors, NE LP, NE LLC, NEA or NJEA or of the voting power of
the managing member of NE LLC than do FPL Group and Tractebel S.A.; or (v) the
consummation of any transaction or series of related transactions the result of
which is that any person or group (as defined above) other than the Sponsors and
the Related Parties owns, directly or indirectly, more of the voting power of
any general partner of NE LP, NEA or NJEA than do the Sponsors and their Related
Parties; provided that, notwithstanding the foregoing, a Change of Control shall
not occur if Moody's and S&P confirm that the then existing ratings of the Bonds
will not be lowered as a result of any of the foregoing events.
If any of the events described in clauses (i) through (v) of the
definition of "Change of Control" occurs, but the Company is not required to
offer to purchase the Bonds because Moody's and S&P confirm that the then
existing rating of the Bonds will not be lowered as a result of such event, then
immediately after such event, the definitions of "Sponsor" and "Related Parties"
set forth above shall be amended by supplemental indenture (without the consent
of the Holders of the Bonds) to mean the entity or entities that Moody's and S&P
relied upon, if any, in confirming the then existing ratings of the Bonds.
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SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, none of the
Company, NE LP or NE LLC shall, nor shall any such party permit any of its
Subsidiaries or Affiliates to, create, issue, incur, assume, guarantee,
otherwise become liable for or suffer to exist any Indebtedness that is
subordinated or junior in right of payment to the Project Indebtedness and
senior in any respect in right of payment to the Bonds, the Note or the Bond
Guaranty (other than Indebtedness expressly permitted to be incurred by the
Project Indenture and the Indenture).
SECTION 4.17. AMENDMENTS TO, AND ASSIGNMENTS OF, PROJECT DOCUMENTS.
The Company, NE LP and NE LLC shall not permit or suffer NEA or NJEA
(a) to waive a right under, or modify, terminate or amend, any material
governmental consent, any material term of any Project Document (as defined in
the Project Indenture as in effect on the date of the Indenture), other than any
Power Purchase Agreement, or any material term of the Project Indenture unless
such waiver, modification, termination or amendment could not reasonably be
expected to have a material adverse effect on the Company, NE LP, NE LLC or the
Holders of the Bonds or (b) to assign any of its rights under any of the Project
Documents (as defined in the Project Indenture as in effect on the date of the
Indenture) other than as permitted by the Indenture or the Project Indenture.
The Company, NE LP and NE LLC shall not permit or suffer NEA or NJEA to waive a
right under, or modify, terminate or amend, any material term of any Power
Purchase Agreement unless (i) NE LP delivers to the Trustee a certificate, in
form and substance reasonably satisfactory to the Trustee, of an independent
engineer acceptable to the Trustee (which may, absent any conflict or the
objection of the Trustee, be the Independent Engineer with respect to the
Project Securities), certifying that such waiver, modification, termination or
amendment could not reasonably be expected to have a material adverse effect on
the Company, NE LP, NE LLC or the Holders of the Bonds and (ii) Moody's and S&P
confirm that the then existing ratings of the Bonds will not be lowered as a
result of such waiver, modification, termination or amendment.
SECTION 4.18. COMPLIANCE.
Each of the Company, NE LP and NE LLC shall at all times obtain,
maintain and comply in all material respects with all material governmental
consents and all applicable laws. NE LP shall at all times, in its capacity as
general partner of NEA and NJEA, cause NEA and NJEA to comply with all material
terms and provisions of the Project Indenture (as in effect as of the date of
the Indenture), unless the failure to comply could not reasonably be expected to
have a material adverse effect on the Company, NE LP, NE LLC or the Holders of
the Bonds. Notwithstanding the expiration or termination of the Project
Indenture (whether at the stated maturity of the last to mature of the Project
Securities or otherwise) or the exercise by holders of the Project Securities of
their rights with respect to satisfaction and discharge of the Project
Indenture, legal or covenant defeasance or any other prepayment of the Project
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Securities permitted or required by the Project Indenture, NE LP shall, in its
capacity as general partner of NEA and NJEA, cause NEA and NJEA to comply with
the covenants and provisions contained in Sections 7.2, 7.3, 7.4, 7.5, 7.12,
7.13, 7.14, 7.16, 7.20, 7.21 and 7.25 of the Project Indenture, as if such
covenants and provisions were still in full force and effect (which covenants
and provisions relate to such matters as the maintenance of existence of the
Partnerships, the maintenance of rights necessary to conduct the business of the
Partnerships, the operation and maintenance of the Projects, compliance with the
formation documents of the Partnerships, the maintenance of governmental
approvals, compliance with laws, the maintenance of insurance, the payment of
taxes, the incurrence of liens and guaranties, the prohibition on certain
dispositions of assets, the nature of business conducted by the partnerships,
employee benefit plans, certain transactions with affiliates, the making of
investments and the maintenance of QF status by the Partnerships.)
SECTION 4.19. MAINTAINING RIGHTS UNDER PROJECT DOCUMENTS.
Subject to Sections 4.17 and 4.18 hereof, the Company, NE LP and NE LLC
shall take all actions necessary to cause NEA and NJEA to maintain and preserve
the material rights granted to NEA and NJEA pursuant to the Project Documents
and to comply therewith unless the failure to maintain and preserve such rights
could not reasonably be expected to have a material adverse effect on the
Company, NE LP, NE LLC or the Holders of the Bonds.
SECTION 4.20. PARTNERSHIP DISTRIBUTIONS.
NE LP shall, in its capacity as general partner of NEA and NJEA, cause
NEA and NJEA to distribute to NE LP and NE LLC all amounts released to NEA and
NJEA or permitted to be withdrawn by NEA or NJEA from the Partnership
Distribution Fund (as defined in the Project Indenture as in effect on the date
of the Indenture) or any subfund thereof in accordance with the Project
Indenture, and; following the expiration or termination of the Project
Indenture, shall in its capacity as general partner of NEA and NJEA, cause NEA
and NJEA to distribute to NE LP and NE LLC all amounts available for
distribution in accordance with the Project Indenture.
SECTION 4.21. LIMITATION ON ISSUANCES OF GUARANTEES AND INDEMNITIES.
The Company, NE LP and NE LLC shall not directly or indirectly, incur
or have outstanding any Guarantees or indemnities or assume any other suretyship
obligations, except, (a) the Bond Guaranty, (b) Guarantees arising in the
ordinary course of business not to exceed $250,000 in the aggregate at any one
time outstanding and (c) indemnities or reimbursement obligations with respect
to any Acceptable Credit Support or otherwise, so long as such indemnities or
reimbursement obligations are payable only to the extent Restricted Payments can
be made and the party in respect of whom such indemnities or reimbursement
obligations run in favor waives its rights to exercise remedies in respect
thereof so long as the Bonds are outstanding.
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SECTION 4.22. LIMITATIONS ON LOANS AND ADVANCES.
The Company, NE LP and NE LLC shall not, directly or indirectly, make
any loans or advances to, or acquire any stock, obligations or securities of,
any Person, except in connection with the incurrence of Permitted Indebtedness.
SECTION 4.23. PAYMENTS FOR CONSENT.
The Company, NE LP and NE LLC shall not, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Bonds for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Bonds unless such consideration is offered to be paid or is paid to all Holders
of the Bonds that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
SECTION 4.24. ADDITIONAL BOND GUARANTEES.
If the Company, NE LP, NE LLC or any of their respective Subsidiaries
shall acquire or create another Subsidiary after the date of this Indenture,
then such newly acquired or created Subsidiary shall become a Guarantor by
executing a Supplemental Indenture in the form attached hereto as Exhibit F and
deliver an Opinion of Counsel to the Trustee to the effect that such
Supplemental Indenture has been duly authorized, executed and delivered by such
Subsidiary and constitutes a valid and binding obligation of such Subsidiary,
enforceable against such Subsidiary in accordance with its terms (subject to
customary exceptions).
SECTION 4.25. REGULATORY LIMITATIONS.
Neither the Company nor NE LP shall, nor shall NE LP permit either
Partnership to, take or omit to take any action, or permit any person to take or
omit to take any action, which action or omission could foreseeably result in:
(i) either of the Projects ceasing to be a Qualifying Facility; except as
permitted by the Project Indemnity, (ii) the Company, NE LP or the Partnerships
becoming: (A) subject to regulation under Part II or the Federal Power Act,
except for Sections 202(c), 210, 211, 212, 213, 214 and 305(c) of the Federal
Power Act and the enforcement provisions of Part III of the Federal Power Act
relating thereto, (B) an "electric utility company" for purposes of the Holding
Company Act, (C) subject to state laws or regulations respecting the rates of
electric utilities or state laws or regulations respecting the financial and
organizational regulation of electric utilities (except for state laws or
regulations implementing Subpart C of 18 C.F.R. Part 292) or (D) subject to
state regulation as a provider of thermal energy under applicable state laws
and/or regulations; or (iii) any Holder of the Bonds, the Trustee or the
Collateral Agent becoming (A) "primarily engaged in the generation or sale of
electric power (other than electric power solely from cogeneration facilities or
small power production facilities)", pursuant to FERC's PURPA regulations, (B)
an "electric utility" or an "electric utility holding company" or a wholly or
partially-owned, direct or indirect, subsidiary of an "electric utility" or
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"electric utility holding company" pursuant to the Holding Company Act, or (C)
subject to regulation under applicable state laws and/or regulations as
state-regulated provider of utility services.
In addition, NE LP shall not permit any Partnership to sell any
electricity generated by the Project to any retail end-user (i.e., industrial,
commercial or residential electric customers) unless applicable law permits such
sales without jeopardizing either Project's Exempt Wholesale Generator status;
provided that any failure to maintain Exempt Wholesale Generator status presents
a material risk to either Project.
SECTION 4.26. LIMITATIONS ON INVESTMENTS.
The Company, NE LP and NE LLC may not make any investment other than
Permitted Investments.
SECTION 4.27. AUDITOR.
The Company and NE LP shall appoint and maintain an internationally
recognized auditor.
SECTION 4.28. USE OF PROCEEDS.
The Company, NE LP and NE LLC shall use the net proceeds of the
Offering (and the net proceeds of the Bond Loan), after deducting fees and
expenses, to reimburse certain of the Sponsors' subsidiaries for a portion of
the original $533 million equity contribution that was used to finance the cost
of the Acquisitions.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
None of the Company, NE LP, NE LLC, NEA or NJEA shall consolidate or
merge with or into (whether or not such entity is the surviving entity) or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets or all or any of the partner interests of NEA or
NJEA in on or more related transactions to any Person unless (a) such
consolidation, merger, sale, assignment, lease, conveyance or other disposition
(i) does not constitute a change of control or (ii) constitutes a Change of
Control and a Change of Control Offer is made pursuant to Section 4.15 hereof,
(b)(i) the Company, NE LP or NE LLC (as the case may be) is the surviving entity
or the Person formed by or surviving any such consolidation or merger (if other
than the Company, NE LP or NE LLC as the case may be) or the entity to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made (1) is a corporation or a partnership organized or existing under
the laws of the United States, any state thereof or the District of Columbia and
(2) assumes all of the Obligations of the Company, NE LP or NE LLC (as the case
may be) under the Note, the Bonds, the Indenture, the Bond Guaranty, the Company
and Partner Pledge Agreement and the Registration Rights Agreement, (c)
immediately after giving effect to such transaction, no Default or Event of
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Default exists, (d) Moody's and S&P confirm that the then current ratings of the
Bonds will not be lowered as a result thereof and (e) the Company, NE LP and NE
LLC would be permitted under Section 4.09 to incur one dollar of Indebtedness
the proceeds of which would be used to finance capital expenditures other than
Required improvements for NEA and/or NJEA.
The Company, NE LP and NE LLC, as the case may be, shall deliver to the
Trustee an Officer's Certificate (attaching the arithmetic computations to
demonstrate compliance with clause (e) above) and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with;
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company, NE LP or NE LLC in accordance with Section 5.01 hereof, the
successor entity formed by such consolidation or into or with which the Company,
NE LP or NE LLC is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted for
(so that from and after the date of such entity, merger, sale, lease, conveyance
or other disposition, the provisions of this Indenture referring to the
"Company," "NE LP" or "NE LLC", as the case may be, shall refer instead to the
successor entity and not to the Company, NE LP or NE LLC, as the case may be,
and may exercise every right and power of the Company, NE LP or NE LLC, as the
case may be, under this Indenture with the same effect as if such successor
Person had been named as the Company, NE LP or NE LLC, as the case may be,
herein; provided, however, that the predecessor Company shall not be relieved
from the obligation to pay the principal of and interest on the Bonds except in
the case of a sale of all of the Company's assets that meets the requirements of
Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) the Company or NE LP, as applicable, defaults in the payment
of principal of or premium, if any, on the Bonds or the Note when the same
becomes due and payable at maturity, upon redemption (including in connection
with an offer to purchase) or otherwise and such default continues for a period
of 15 days;
(b) the Company or NE LP, as applicable, defaults in the payment
when due of interest on or Registration Default Damages, if any, with respect to
the Bonds or the Note and such default continues for a period of 15 days;
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(c) the Company, NE LP or NE LLC fails to comply with any of the
provisions of Section 4.07, 4.09, 4.15 or 5.01 hereof;
(d) the Company, NE LP or NE LLC fails to observe or perform any other
covenant, representation, warranty or other agreement in this Indenture, the
Bonds or any of the Collateral Documents to which it is a party for 60 days
after notice to the Company by the Trustee or the Holders of at least 25% in
aggregate principal amount of the Bonds then outstanding voting as a single
class;
(e) the Company, NE LP or NE LLC defaults in the payment when due
(after giving effect to any applicable grace periods) of any principal of or
premium, if any, or interest on any Indebtedness (other than the Bonds or the
Note) the principal amount of which exceeds $3 million in the aggregate;
(f) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the Company,
NE LP or NE LLC and such judgment or judgments remain unpaid or undischarged for
a period (during which execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such undischarged judgments exceeds $3
million;
(g) Any of the material provisions of the Collateral Documents
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any lien granted thereby
or the priority thereof ceases or fails for any reason to be in full force and
effect (and such unenforceable provisions or cessation or failure of a lien is
not cured within 10 days after the Company, NE LP or NE LLC has obtained
knowledge thereof);
(h) the Company, NE LP or NE LLC pursuant to or within the meaning
of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company, NE LP or NE LLC in an
involuntary case;
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(ii) appoints a custodian of the Company, NE LP or NE LLC or for
all or substantially all of the property of the Company, NE LP or NE
LLC; or
(iii) orders the liquidation of the Company, NE LP or NE LLC;
and the order or decree remains unstayed and in effect for 60
consecutive days;
(j) Any limited partnership or limited liability company agreement
of NE LP or NE LLC as amended from time to time ceases to be valid and binding
and in full force and effect in all material respects;
(k) Any default by a counterparty under any of the Material
Project Agreements occurs (as defined in the Project Indenture as in effect on
the date of the Indenture) that would likely have a material adverse effect on
the Company, NE LP or NE LLC or the Holders of the Bonds and such default is not
cured within 180 days (or 360 days if the applicable Partnership has promptly
commenced and is diligently using its best efforts to cure such default);
(l) An "Event of Default" (as defined in the Project Indenture as
in effect on the date of the Indenture) occurs other than as a result of the
breach of an immaterial covenant; and
(m) the maturity date of the Project Securities are accelerated.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (h) or (i) of Section 6.01 hereof with respect to the Company NE LP or NE
LLC), occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding Bonds may declare by written
notice to the Company the principal amount of all the Bonds then outstanding to
be due and payable immediately. Upon any such declaration, the Bonds shall
become due and payable immediately. Notwithstanding the foregoing, if an Event
of Default specified in clause (h) or (i) of Section 6.01 hereof occurs with
respect to the Company, NE LP or NE LLC, the principal amount of all outstanding
Bonds shall be due and payable immediately without further action or notice. The
Holders of the Bonds may not enforce the Indenture or the Bonds except as
provided in the Indenture. Subject to Section 6.05 and 7.02(f), Holders of a
majority in principal amount of the then outstanding Bonds may direct the
Trustee in its exercise of any trust or power. The Holders of not less than a
majority in aggregate principal amount of the then outstanding Bonds by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences under the Indenture if the recission would not
conflict with any judgment or decree and if all existing Events of Default
(except a continuing Default or Event of Default in the payment of principal,
interest or premium, if any, on the Bonds that has become due solely because of
the acceleration) have been cured or waived.
If an Event of Default occurs on or after June 30, 2008 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
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would have had to pay if the Company then had elected to redeem the Bonds
pursuant to Section 3.07 hereof, then, upon acceleration of the Bonds, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Bonds to the
contrary notwithstanding. If an Event of Default occurs prior to June 30, 2008
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on optional
redemption of the Bonds prior to such date, then, upon acceleration of the
Bonds, the Make Whole Premium shall also become and be immediately due and
payable to the extent permitted by law.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Bonds, the Note and the Bond Guaranty or to enforce the
performance of any provision of the Bonds or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Bonds or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Bond in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Bonds by written notice to the Trustee may on behalf of all
of the Holders waive an existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of the principal of, premium and Registration Default
Damages, if any, or interest on, the Bonds (including in connection with an
offer to purchase); provided, however, that the Holders of not less than a
majority in aggregate principal amount of the then outstanding Bonds by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences under the Indenture, including any related
payment default that resulted from such acceleration. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon or affect any rights of the Trustee to collect amounts due to
it pursuant to Section 7.07 hereof.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in aggregate principal amount of the then
outstanding Bonds may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or that the Trustee
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determines may be unduly prejudicial to the rights of other Holders of Bonds or
that may involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Bond may pursue a remedy with respect to this Indenture
or the Bonds only if:
(a) the Holder of a Bond gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Bonds make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Bond or Holders of Bonds offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Bonds do not give the Trustee a direction
inconsistent with the request.
A Holder of a Bond may not use this Indenture to prejudice the rights
of another Holder of a Bond or to obtain a preference or priority over another
Holder of a Bond.
SECTION 6.07. RIGHTS OF HOLDERS OF BONDS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Bond to receive payment of principal, premium and Registration
Default Damages, if any, and interest on the Bond, on or after the respective
due dates expressed in the Bond (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium and Registration Default Damages, if any, and interest
remaining unpaid on the Bonds and the Note and interest on overdue principal
and, to the extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
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SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents and take such other actions as it may deem necessary or advisable
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders of the Bonds allowed in any judicial proceedings
relative to the Company, NE LP or NE LLC (or any other obligor upon the Bonds),
its creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims, and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Bonds or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Bonds for amounts due and unpaid on the Bonds for
principal, premium and Registration Default Damages, if any, and interest,
ratably (based on the principal amount of Bonds deemed hereunder to be
outstanding at the time of distribution), without preference or priority of any
kind, according to the amounts due and payable on the Bonds for principal,
premium and Registration Default Damages, if any and interest, respectively;
Third: to the ratable payment of all other Obligations under this
Indenture, until all Obligations shall have been paid in full; and
Fourth: to or at the direction of NE LP or to such party as a court of
competent jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment to
Holders of Bonds pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Bond pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Bonds.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs provided that the Trustee shall be entitled to presume conclusively
that no premium or Make Whole Premium is due pursuant to the last paragraph of
Section 6.02 unless it receives evidence which in its reasonable opinion, it
believes establishes that such additional amount is due.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
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(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
provided that the Trustee shall not be deemed to know of any Default or any fact
or occurrence upon the happening of which it might be required to take action
unless one of its Responsible Officers has actual knowledge thereof or it has
received written notice thereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both or a
certificate or opinion of an independent engineer recognized as an expert in its
field or of internationally recognized independent accountant. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel or such certificate or
opinion of an independent engineer or of independent accountant. With respect to
the amount of Registration Default Damages owed at any time, the Trustee may
rely upon written notification from the Purchaser. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it thereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
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(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(h) any permissive right or power available to the Trustee under this
Indenture or any supplement hereto shall not be construed to be a mandatory duty
or obligation;
(i) the Trustee shall have no liability for any inaccuracy in the
books or records of, or for any actions or omissions of, DTC, Euroclear or CEDEL
or any other Depository or Participant.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledge of Bonds and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that, after the occurrence of an Event of
Default, the Trustee has or acquires any conflicting interest as determined in
Section 310(b) of the TIA it must eliminate such conflict within 90 days, apply
to the SEC for permission to continue as trustee or resign. Any Agent may do the
same with like rights and duties. The Trustee is also subject to Sections 7.10
and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Bonds, it shall not be
accountable for the Company's use of the proceeds from the Bonds or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Bonds or
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any other document in connection with the sale of the Bonds or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Bonds a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Bond, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Bonds.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE BONDS.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Bonds remain outstanding, the
Trustee shall mail to the Holders of the Bonds a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Bonds shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Bonds are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Bonds are listed on any stock
exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
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Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Bonds on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Bonds. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Bonds of a
majority in principal amount of the then outstanding Bonds may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Bonds may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Bonds of at least 10% in principal amount of the then outstanding
Bonds may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Bond who has
been a Holder of a Bond for at least six months, fails to comply with Section
7.10, such Holder of a Bond may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Bonds. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
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SECTION 7.12. RIGHTS AND INDEMNITIES OF COLLATERAL AGENT.
The rights, protections and indemnities provided to the Trustee herein
shall also be provided, and apply, to State Street Bank and Trust Company, as
Collateral Agent.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Bonds upon
compliance with the conditions set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Bonds on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Bonds, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Bonds and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Bonds to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on and Registration Default
Damages, if any, with respect to such Bonds when such payments are due, (b) the
Company's obligations with respect to such Bonds under Article 2 and Section
4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith and (d)
this Article Eight. Subject to compliance with this Article Eight, the Company
may exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.10, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22, 4.23,
4.24, 4.25, 4.26, 4.27, and 4.28 hereof with respect to the outstanding Bonds on
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and after the date the conditions set forth in Section 8.04 are satisfied
(hereinafter, "Covenant Defeasance"), and the Bonds shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Bonds shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Bonds, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01 hereof, but, except as specified
above, the remainder of this Indenture and such Bonds shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03 hereof, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through
6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Bonds:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium and Registration Default Damages,
if any, and interest on the outstanding Bonds on the stated maturity date for
payment thereof or on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Bonds will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Bonds will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
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income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Bonds pursuant to this Article Eight
concurrently with such incurrence) or insofar as Sections 6.01(h) or 6.01(i)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Bonds
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Bonds and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Bonds of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law or by Section 2.04 and Article X hereof.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
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interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Bonds.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Bond and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its written request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Bond shall
thereafter, as a secured creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Bonds
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Bond following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Bonds to receive such payment from the money held by the
Trustee or Paying Agent.
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ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF BONDS.
Notwithstanding Section 9.02 of this Indenture, the Company, NE LP, NE
LLC and the Trustee may amend or supplement this Indenture and the other
Financing Agreements (other than the Pledge Agreements, which may be amended by
the parties thereto for the purposes that follow) or the Bonds without the
consent of any Holder of a Bond:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Bonds in addition to or in place
of certificated Bonds or to alter the provisions of Article 2 hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Bonds by a successor to the Company pursuant to Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Bonds or that does not adversely affect the legal
rights hereunder of any Holder of the Bond; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company, NE LP and NE LLC in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF BONDS.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Section 4.15 hereof),
and the other Financing Agreements and the Bonds may be amended or supplemented,
and with the consent of the Holders of at least a majority in principal amount
of the Bonds then outstanding voting as a single class (including consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Bonds), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on or Registration
Default Damages with respect to the Bonds, except a payment default resulting
from an acceleration that has been rescinded) or compliance with any provision
of this Indenture, the other Financing Agreements or the Bonds may be waived
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with the consent of the Holders of a majority in principal amount of the then
outstanding Bonds voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Bonds).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Bonds as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Bonds under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Bonds affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Bonds then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Bonds. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Bonds held by a non-consenting Holder):
(a) reduce the principal amount of Bonds whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Bond or
alter or waive any of the provisions with respect to extraordinary or optional
redemption of the Bonds except as provided above with respect to Sections 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Bond;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest or Registration Default Damages, if any, on the
Bonds (except a rescission of acceleration of the Bonds by the Holders of at
least a majority in aggregate principal amount of the then outstanding Bonds and
a waiver of the payment default that resulted from such acceleration);
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(e) make any Bond payable in money other than that stated in the Bonds;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Bonds to receive payments
of principal of or premium, if any, or interest or Registration Default Damages,
if any or Registration Default Damages, if any, on the Bonds;
(g) waive a redemption payment with respect to any Bond (other than a
payment required by Section 4.15 hereof;
(h) make a change in or waive the security provisions of any of the
Financing Agreements;
(i) make change in or waive the applicability of the Bond Guaranty; and
(j) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Bonds shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Bond is a continuing consent by the Holder of a Bond and
every subsequent Holder of a Bond or portion of a Bond that evidences the same
debt as the consenting Holder's Bond, even if notation of the consent is not
made on any Bond. However, any such Holder of a Bond or subsequent Holder of a
Bond may revoke the consent as to its Bond if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF BONDS.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Bond thereafter authenticated. The Company in
exchange for all Bonds may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Bonds that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Bond shall not
affect the validity and effect of such amendment, supplement or waiver.
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SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article Nine if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
13.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
ARTICLE 10.
ACCOUNTS AND REVENUES
SECTION 10.01. ESTABLISHMENT OF ACCOUNTS.
(a) The following Accounts are hereby established and created on behalf
of NE LP and NE LLC with the Trustee in the name of the Trustee and the
Collateral Agent:
(i) Revenues Account;
(ii) Debt Service Account;
(iii) Debt Service Reserve Account; and
(iv) Distribution Account.
(b) All Accounts are hereby pledged to the Trustee for its benefit, the
benefit of the Collateral Agent and the ratable benefit of the Holders of the
Bonds and shall be under the exclusive dominion and control of the Trustee and,
except as expressly provided herein, none of the Company, NE LP or NE LLC shall
have any right to withdraw funds from any Account. Each of NE LP and NE LLC
hereby irrevocably authorizes the Trustee to receive and deposit all Revenues
into an account designated the "Revenues Account" and to withdraw and transfer
funds from the Revenues Account on a monthly basis on the first Business Day of
each month (the "Transfer Date") in the order of priority set forth in Sections
10.02 hereof, in accordance with the terms of this Indenture.
SECTION 10.02. REVENUES ACCOUNT.
(a) Without limitation of any other amounts required under this
Indenture to be deposited in the Revenues Account, NE LP and NE LLC shall
deposit and/or cause to be deposited all Revenues with the Trustee in the
Revenues Account and in furtherance thereof NE LP, NE LLC and, if applicable,
the Company, shall instruct each Person from whom it receives or is entitled to
receive Revenues to pay such Revenues (identifying them as such) directly to the
Trustee for deposit in the Revenues Account, and the Trustee shall be entitled
to receive directly all Revenues from the Persons owing the same but except in
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its capacity as trustee under the Project Indenture shall have no obligation
otherwise with respect to the collection thereof. In the event that any Revenues
are remitted directly to, or otherwise received by, any of NE LP, NE LLC or the
Company, as the case may be, such Person shall hold such Revenues in trust for
the Trustee and shall promptly remit such Revenues, in the form received (with
any necessary endorsement) to the Trustee for deposit in the Revenues Account.
(b) On each Transfer Date, the Trustee shall make the following
transfers from funds then on deposit in the Revenues Account (after giving
effect to all transfers to be made to the Revenues Account on such date) in the
respective amounts, and in the order of priority, set forth below:
(i) first, to an account designated the "Debt Service
Account", into which shall be deposited an amount equal to the
difference between (i) the amount then on deposit therein and (ii) the
aggregate amount of principal, premium, if any, interest on and
Registration Default Damages, if any, scheduled to be paid in respect
of the Bonds on the next semi-annual payment date and any trustee,
registration or other administrative expenses, as certified by the
Company to the Trustee and not exceeding $10,000 in any semi-annual
period, due during the next six months. The Trustee shall apply the
funds on deposit in the Debt Service Account to make payments on the
Bonds when due and to pay up to $10,000 of trustee, registration or
other administrative expenses with respect to the Bonds when due.
(ii) second, to an account designated the "Debt Service
Reserve Account," into which shall be deposited an amount equal to the
difference between (i) the sum of the amount then on deposit therein
and the undrawn amount of any Acceptable Credit Support credited
thereto and (ii) the aggregate principal, premium, if any, interest on
and Registration Default Damages, if any, scheduled to be paid with
respect of the Bonds on the next semi-annual payment date (the
"Required DSRA Balance"). The Trustee shall apply the funds on deposit
in the Debt Service Reserve Account (including any amounts available to
be drawn under Acceptable Credit Support credited thereto after cash
then on deposit therein has been exhausted) to pay amounts due and
payable in respect of the Bonds to the extent that on a semi annual
payment date there are insufficient funds in the Debt Service Account
to do so; and
(iii) finally, any amount remaining in the Revenues Account
will be transferred to an account designated the "Distribution Account"
if and only if, at the time of and after giving effect to such transfer
and the deemed removal of funds from the Distribution Account pursuant
to Section 4.07:
(x) the Debt Service Account and Debt Service Reserve
Account are funded to their then required levels;
(y) no Default or Event of Default under the
Indenture has occurred and is continuing or would occur as a
consequence thereof; and
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(z) the Debt Service Coverage Ratio and the Projected
Debt Service Coverage Ratio equal or exceed 1.4 to 1, provided
that, in calculating the Debt Service Coverage Ratio for
purposes of this clause (c) at any time prior to December 30,
1998, the Operating Revenues received and scheduled debt
service payment referred to in clauses (i) and (ii) of the
definition thereof shall be measured for the period of months
that has elapsed from the date of the Acquisitions to the date
of such calculations.
Notwithstanding the foregoing, no funds shall be permitted to be
transferred to the Distribution Account prior to June 30, 1998. Thereafter, on
any Transfer Date, promptly upon receipt by the Trustee of an Officer
Certificate and other documents required pursuant to Section 4.07, the Trustee
shall be authorized and directed to release moneys in the Distribution Account
to or at the direction of NE LP.
SECTION 10.03. ACCEPTABLE CREDIT SUPPORT.
(a) Provided that no Default or Event of Default has occurred and
is continuing and subject to clauses (b) and (c) below, the Company may in
writing, accompanied by the documents required by Section 13.04, request payment
to it of all or a portion of the cash deposited or required to be deposited in
the Debt Service Reserve Account upon the deposit of Acceptable Credit Support
in an equal amount. Upon such Deposit of Acceptable Credit Support and receipt
by the Trustee of such written request, the Trustee shall be authorized and
directed to release such replaced cash to or at the direction of NE LP.
(b) The Trustee shall be the beneficiary under any letter of
credit and under any Guarantee constituting Acceptable Credit Support, and any
Acceptable Credit Support shall allow drawings by the Trustee and the Trustee
shall draw upon such Acceptable Credit Support if it is not renewed at least 30
days prior to its expiration date or if the ratings of any guarantor or letter
of credit issuer fall below the required levels and alternative Acceptable
Credit Support or cash is not provided to the Trustee within 15 days thereafter.
If at any semi-annual interest payment date, the funds then on deposit in the
Debt Service Account are insufficient to cover the payments set forth in Section
10.02(b)(i) hereof, the Trustee shall apply the funds then on deposit in the
Revenues Account and, if still insufficient, the funds then on deposit in the
Debt Service Reserve Account as provided in Section 10.02(b)(ii) hereof and/or
if on any semi-annual interest payment date, the funds then on deposit in the
Debt Service Reserve Account are insufficient to cover the Required DSRA Balance
pursuant to Section 10.02(b)(ii) hereof, the Trustee is hereby authorized to
transfer the funds on deposit in the Revenues Account and, if still
insufficient, to draw upon such Acceptable Credit Support pro rata (if more than
one) or otherwise in accordance with the terms of such Acceptable Credit Support
(after cash then on deposit therein has been exhausted).
(c) The issuer of or account party to any letter of credit or
Guarantee shall have rights of subrogation against the Company, NE LP or NE LLC
so long as (a) the Obligations of the Company, NE LP and NE LLC in respect
thereof are subordinated to the repayment of the Bond Loan and the Bonds and are
payable only to the extent Restricted Payments can be made and (b) such issuer
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or account party waives its rights to exercise remedies in respect of such
Obligations so long as the Bonds are outstanding.
SECTION 10.04. INITIAL DEPOSIT OF CASH OR ACCEPTABLE CREDIT SUPPORT.
Prior to or at the date hereof and as a condition precedent to the
consummation of the transactions contemplated herein and in the other Financing
Agreements, cash or Acceptable Credit Support in an aggregate amount equal to
the first Required DSRA Balance shall be deposited in accordance with this
Article 10 into the Debt Service Reserve Account.
SECTION 10.05. THE ACCOUNTS AS COLLATERAL; TRUSTEE AS COLLATERAL AGENT.
(a) NE LP and NE LLC each hereby pledges and grants to the Trustee
as Collateral Agent for its benefit (as Trustee and Collateral Agent) and for
the ratable benefit of the Holders of Bonds, a continuing first priority
security interest in all of its right, title and interest in the Accounts and in
all funds deposited therein and all Permitted Investments credited thereto. The
foregoing security interest secures prompt and complete payment and performance
when due (whether at stated maturity, by acceleration or otherwise) of all
Obligations of (i) the Company under the Indenture and the Bonds, (ii) NE LP and
NE LLC under the Indenture and (iii) NE LP under the Note and the Bond Guaranty.
The Trustee is hereby authorized to invest the funds on deposit in the Accounts
in the Permitted Investments at the written request of and as directed by NE LP.
(b) If an Event of Default shall have occurred and be continuing,
then in addition to the remedies provided in Article Six hereof, the Collateral
Agent may (but shall be under no obligation to) exercise any and all rights and
remedies granted to a "secured party" under the Uniform Commercial Code of the
State of New York.
ARTICLE 11.
COLLATERAL AND SECURITY
SECTION 11.01. PLEDGE AGREEMENTS.
The due and punctual payment of the principal of and interest and
Registration Default Damages, if any, on the Bonds when and as the same shall be
due and payable, whether on an interest payment date, at maturity, by
acceleration, repurchase, redemption or otherwise, and interest on the overdue
principal of and interest and Registration Default Damages (to the extent
permitted by law), if any, on the Note and the Bonds and performance of all
other Obligations of the Company, NE LP and NE LLC to the Holders of Bonds or
the Trustee under this Indenture, the Note, the Bond Guaranty and the Bonds, as
applicable, according to the terms hereunder or thereunder, shall be secured as
provided in the Company and Partner Pledge Agreement which the Company, NE LP
and NE LLC have entered into and in the Sponsor Pledge Agreement which the
Sponsor Affiliates entered into simultaneously with the execution of this
Indenture and forms of which are attached as Exhibit G hereto. The Company and
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Partner Pledge Agreement and the Sponsor Pledge Agreement are collectively
referred to as the "Pledge Agreements" and each individually as a "Pledge
Agreement." Each Holder of Bonds, by its acceptance thereof, consents and agrees
to the terms of the Pledge Agreements (including, without limitation, the
provisions providing for foreclosure and release of Pledged Collateral) as the
same may be in effect or may be amended from time to time in accordance with
their terms and authorizes and directs the Collateral Agent to enter into the
Pledge Agreements and to perform its obligations and exercise its rights
thereunder in accordance therewith. The Company, NE LP and NE LLC shall deliver
to the Trustee copies of all documents delivered to the Collateral Agent
pursuant to the Company and Partner Pledge Agreement and the Sponsor Pledge
Agreement, and shall do or cause to be done all such acts and things as may be
necessary or proper, or as may be reasonably required by the provisions of the
Company and Partner Pledge Agreement, or as may be reasonably requested by the
Trustee or Collateral Agent, to assure and confirm to the Trustee and the
Collateral Agent the security interest in the Pledged Collateral contemplated
hereby, by the Company and Partner Pledge Agreement, so as to render the same
available for the security and benefit of this Indenture, the Note, the Bond
Guaranty and of the Bonds secured hereby, according to the intent and purposes
herein expressed and to create and maintain, as security for the Obligations of
the Company, NE LP and NE LLC hereunder and under the Note, the Bond Guaranty
and the Bonds, as applicable, a valid and enforceable perfected first priority
(or, with respect to NE LP's one percent general partner interest in each
Partnership, second priority) Lien in and on all the Pledged Collateral in favor
of the Collateral Agent for its benefit, the benefit of the Trustee and the
ratable benefit of the Holders of the Bonds, superior to and prior to the rights
of all third Persons and subject to no other Liens than Permitted Liens.
SECTION 11.02. RECORDING AND OPINIONS.
(a) The Company, NE LP and NE LLC shall furnish to the Trustee
simultaneously with the execution and delivery of this Indenture an Opinion of
Counsel either (i) stating that in the opinion of such counsel all action has
been taken with respect to the recording, registering and filing of this
Indenture, financing statements or other instruments necessary to make effective
the Lien intended to be created by the Company and Partner Pledge Agreement and
the Sponsor Pledge Agreement, and reciting with respect to the security
interests in the Pledged Collateral, the details of such action, or (ii) stating
that, in the opinion of such counsel, no such action is necessary to make such
Lien effective.
(b) The Company, NE LP and NE LLC shall furnish to the Collateral
Agent and the Trustee on December 31 in each year beginning with December 31,
1998, an Opinion of Counsel, dated as of such date, either (i) (A) stating that,
in the opinion of such counsel, action has been taken with respect to the
recording, registering, filing, re-recording, re-registering and refiling of all
supplemental indentures, financing statements, continuation statements or other
instruments of further assurance as is necessary to maintain the Lien of the
Company and Partner Pledge Agreement and the Sponsor Pledge Agreement and
reciting with respect to the security interests in the Pledged Collateral the
details of such action or referring to prior Opinions of Counsel in which such
details are given, (B) stating that, based on relevant laws as in effect on the
date of such Opinion of Counsel, all financing statements and continuation
statements have been executed and filed that are necessary as of such date and
during the succeeding 12 months fully to preserve and protect, to the extent
such protection and preservation are possible by filing, the rights of the
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Holders of Bonds and the Collateral Agent and the Trustee hereunder and under
the Company and Partner Pledge Agreement and the Sponsor Pledge Agreement with
respect to the security interests in the Pledged Collateral, or (ii) stating
that, in the opinion of such counsel, no such action is necessary to maintain
such Lien and assignment.
(c) The Company shall otherwise comply with the provisions of TIA
ss.314(b).
SECTION 11.03. RELEASE OF COLLATERAL.
(a) No Pledged Collateral shall be released from the Lien and security
interest created by the Pledge Agreements and pursuant to the provisions of each
such Pledge Agreement unless there shall have been delivered to the Trustee and
the Collateral Agent the certificate required by Section 11.04.
(b) At any time when a Default or Event of Default shall have
occurred and be continuing and the maturity of the Bonds shall have been
accelerated (whether by declaration or otherwise) and the Trustee shall have
delivered a notice of acceleration to the Collateral Agent, no release of
Pledged Collateral pursuant to the provisions of any Pledge Agreement shall be
effective as against the Holders of Bonds.
(c) The release of any Pledged Collateral from the terms of this
Indenture; the Company and Partner Pledge Agreement and the Sponsor Pledge
Agreement shall not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Collateral is released pursuant to the terms of the Company and Partner Pledge
Agreement, the Sponsor Pledge Agreement and this Indenture. To the extent
applicable, the Company shall cause TIA ss. 313(b), relating to reports, and TIA
ss. 314(d), relating to the release of property or securities from the Lien and
security interest of the Company and Partner Pledge Agreement, the Sponsor
Pledge Agreement and this Indenture and relating to the substitution therefor of
any property or securities to be subjected to the Lien and security interest of
the Company and Partner Pledge Agreement, the Sponsor Pledge Agreement and this
Indenture, to be complied with. Any certificate or opinion required by TIA ss.
314(d) may be made by an Officer of the Company except in cases where TIA ss.
314(d) requires that such certificate or opinion be made by an independent
Person, which Person shall be an independent engineer, appraiser, accountant or
other expert selected or approved by the Trustee and the Collateral Agent in the
exercise of reasonable care.
SECTION 11.04. CERTIFICATES OF THE COMPANY.
The Company, NE LP and NE LLC shall furnish to the Trustee and the
Collateral Agent, prior to each proposed release of the Pledged Collateral
pursuant to the Company and Partner Pledge Agreement or the Sponsor Pledge
Agreement, (i) all documents required by TIA ss. 314(d) and each such Pledge
Agreement and (ii) an Opinion of Counsel, which may be rendered by internal
counsel to the Company, NE LP and NE LLC, to the effect that such accompanying
documents constitute all documents required by TIA ss. 314(d). The Trustee may,
to the extent permitted by Sections 7.01 and 7.02 hereof, accept as conclusive
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evidence of compliance with the foregoing provisions the appropriate statements
contained in such documents and such Opinion of Counsel.
SECTION 11.05. CERTIFICATES OF THE TRUSTEE.
In the event that the Company wishes to release Pledged Collateral in
accordance with the Company and Partner Pledge Agreement and/or the Sponsor
Pledge Agreement and has delivered the certificates and documents required by
the Company and Partner Pledge Agreement and/or the Sponsor Pledge Agreement and
Sections 11.03 and 11.04 hereof, the Trustee shall determine whether it has
received all documentation required by TIA ss. 314(d) in connection with such
release and, based on such determination and the Opinion of Counsel delivered
pursuant to Section 11.04(b), shall deliver a certificate to the Collateral
Agent setting forth such determination.
SECTION 11.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
PLEDGE AGREEMENTS.
Subject to the provisions of Section 7.01 and 7.02 hereof, the Trustee
may in the case of an Event of Default, in its sole discretion and without the
consent of the Holders of Bonds (subject to Section 6.05), direct, on behalf of
the Holders of Bonds, the Collateral Agent to, take all actions it deems
necessary or appropriate in order to (a) enforce any of the terms of the Pledge
Agreements and (b) collect and receive any and all amounts payable in respect of
the Obligations of the Company, NE LP and NE LLC hereunder. The Trustee shall
have power to institute and maintain such suits and proceedings as it may deem
expedient to prevent any impairment of the Pledged Collateral by any acts that
may be unlawful or in violation of the Pledge Agreements or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders of Bonds in the Pledged
Collateral (including power to institute and maintain suits or proceedings to
restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or order
would impair the security interest hereunder or be prejudicial to the interests
of the Holders of Bonds or of the Trustee).
SECTION 11.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE PLEDGE
AGREEMENTS.
The Trustee is authorized and required to receive for the benefit of
the Holders of Bonds any funds distributed under the Pledge Agreements, and
shall deposit such funds in the Revenues Account to be administered as set forth
in Section 10.02 and make further distributions of such funds to the Holders of
Bonds according to the provisions of this Indenture.
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SECTION 11.08. TERMINATION OF SECURITY INTEREST.
Upon the payment in full of all Obligations of (i) the Company under
this Indenture and the Bonds, (ii) of NE LP LLC under the Indenture and (iii) NE
LP under the Note and the Bond Guaranty, or upon Legal Defeasance, the Trustee
shall, at the request of the Company, deliver a certificate to the Collateral
Agent stating that such Obligations have been paid in full, and instruct the
Collateral Agent to release the Liens pursuant to this Indenture and the Pledge
Agreements.
ARTICLE 12.
BOND GUARANTY
SECTION 12.01. BOND GUARANTY.
Subject to this Article 12, NE LP hereby unconditionally guarantees to
each Holder of a Bond authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, irrespective of the validity and
enforceability of this Indenture, the Bonds or the obligations of the Company
hereunder or thereunder, that: (a) the principal of, premium, if any, and
interest on and Registration Default Damages, if any, with respect to the Bonds
will be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and interest
on the Bonds, if any, if lawful, and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Bonds or any of such other
obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, NE LP shall
be obligated to pay the same immediately. NE LP agrees that this is a guarantee
of payment and not a guarantee of collection.
NE LP hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Bonds or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Bonds with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. NE LP hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Bond Guaranty shall not be discharged except by complete
performance of the obligations contained in the Bonds and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, NE LP, NE LLC or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company, NE LP or NE
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LLC, any amount paid by either to the Trustee or such Holder, this Bond
Guaranty, to the extent theretofore discharged, shall be reinstated in full
force and effect.
NE LP agrees that it shall not be entitled to any right of subrogation
in relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby. NE LP further agrees that,
as between NE LP, on the one hand, and the Holders and the Trustee, on the other
hand, (x) the maturity of the obligations guaranteed hereby may be accelerated
as provided in Article 6 hereof for the purposes of this Bond Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such obligations as provided in
Article 6 hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by NE LP for the purpose of this Bond Guaranty.
SECTION 12.02. LIMITATION ON GUARANTOR LIABILITY.
NE LP, and by its acceptance of Bonds, each Holder, hereby confirms
that it is the intention of all such parties that the Bond Guaranty of NE LP not
constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law to the extent applicable to any Bond Guaranty.
To effectuate the foregoing intention, the Trustee, the Holders and NE LP hereby
irrevocably agree that the obligations of NE LP under its Bond Guaranty and this
Article 12 shall be limited to the maximum amount as will, after giving effect
to such maximum amount and all other contingent and fixed liabilities of NE LP
that are relevant under such laws, and after giving effect to any collections
from, rights to receive contribution from or payments made by or on behalf of
any other Guarantor, if any, in respect of the obligations of such other
Guarantor, if any, under this Article 12, result in the obligations of NE LP
under its Bond Guaranty not constituting a fraudulent transfer or conveyance.
SECTION 12.03. EXECUTION AND DELIVERY OF BOND GUARANTY.
To evidence its Bond Guaranty set forth in Section 12.01, NE LP hereby
agrees that a notation of such Bond Guaranty substantially in the form included
in Exhibit E shall be endorsed by an Officer of NE LP on each Bond authenticated
and delivered by the Trustee and that this Indenture shall be executed on behalf
of NE LP by its President or one of its Vice Presidents.
NE LP hereby agrees that its Bond Guaranty set forth in Section 12.01
shall remain in full force and effect notwithstanding any failure to endorse on
each Bond a notation of such Bond Guaranty.
If an Officer whose signature is on this Indenture or on the Bond
Guaranty no longer holds that office at the time the Trustee authenticates the
Bond on which a Bond Guaranty is endorsed, the Bond Guaranty shall be valid
nevertheless.
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The delivery of any Bond by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Bond Guaranty set forth
in this Indenture on behalf of the NE LP.
In the event that the Company, NE LP or NE LLC creates or acquires any
new Subsidiaries subsequent to the date of this Indenture, if required by
Section 4.24 hereof, the Company, NE LP and NE LLC shall cause such Subsidiaries
to execute supplemental indentures to this Indenture and Bond Guaranty in
accordance with Section 4.24 hereof and this Article 12, to the extent
applicable.
SECTION 12.04. GUARANTOR'S MERGER, CONSOLIDATION, ETC.
NE LP may not, nor may any other future Guarantor, if any, consolidate
with or merge with or into (whether or not NE LP or such Guarantor is the
surviving Person) another Person whether or not affiliated with such Guarantor
except as expressly permitted under and subject to conditions set forth in
Section 5.01 hereof.
In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the Bond
Guaranty endorsed upon the Bonds and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by NE LP and any
other future Guarantor, if any, such successor Person shall succeed to and be
substituted for NE LP and any other future Guarantor, if any, the with the same
effect as if it had been named herein as a Guarantor. Such successor Person
thereupon may cause to be signed any or all of the Bond Guarantees to be
endorsed upon all of the Bonds issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All the Bond
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Bond Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Bond
Guarantees had been issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Indenture or in any of the Bonds shall prevent any consolidation or merger
of NE LP or any other future Guarantor, if any, with or into the Company or NE
LP or any other future Guarantor, if any, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
ARTICLE 13.
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
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SECTION 13.02. NOTICES.
Any notice or communication by the Company, NE LP, NE LLC, the Trustee
or the Collateral Agent to the others is duly given if in writing and delivered
in Person or mailed by first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, to the others' address
If to the Company, NE LP and NE LLC:
ESI Tractebel Acquisition Corp.
Northeast Energy, LP
Northeast Energy, LLC
c/o ESI Energy, Inc.
11760 US Highway One
North Palm Beach, FL 33408
Telecopier No.: (561) 691-3615
Attention: Glenn E. Smith
With a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Telecopier No.: (212) 506-5151
Attention: Daniel A. Mathews
If to the Trustee and the Collateral Agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Telecopier No.: (617) 664-5371
Attention: Corporate Trust Department - ESI Tractebel
The Company, NE LP, NE LLC, or the Trustee or the Collateral Agent, by
notice to the others may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
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Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF BONDS WITH OTHER HOLDERS OF BONDS.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Bonds. The Company, NE
LP, NE LLC the Trustee, the Collateral Agent the Registrar and anyone else shall
have the protection of TIA ss. 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 11.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss.
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
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(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar; Paying Agent or the Collateral Agent may make reasonable
rules and set reasonable requirements for its functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator, partner, member or
stockholder of the Company, NE LP or NE LLC as such shall have any liability for
any Obligations of the Company under the Bonds or the Indenture or NE LP under
the Note or the Bond Guaranty for any claim based on, in respect of, or by
reason of, such Obligations or their creation. Each Holder by accepting a Bond
waives and releases all such liability The waiver and release are part of the
consideration for issuance of the Bonds. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
SECTION 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTE, THE BONDS AND THE BOND GUARANTY WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company, NE LP or NE LLC or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company, NE LP and NE LLC in this Indenture the
Bonds and the Bond Guaranty shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successors.
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SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture, the Note, the Bonds, Pledge
Agreements or the Bond Guaranty shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of February 19, 1998
ESI TRACTEBEL ACQUISITION CORP.
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
Attest:
- -------------------------
Name:
Title:
NORTHEAST ENERGY, LP,
By: ESI NORTHEAST ENERGY GP, INC.,
as a general partner
By: /s/ Glenn E. Smith
-------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
as a general partner
By: /s/ James E. Hammelman
-------------------------
Name: James E. Hammelman
Title: Vice President &
Treasurer
<PAGE>
NORTHEAST ENERGY, LLC,
By: NORTHEAST ENERGY, LP, as its sole member
By: ESI NORTHEAST ENERGY GP, INC.,
as a general partner
By: /s/ Glenn E. Smith
----------------------------
Name: Glenn E. Smith
Title: Vice President
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
as a general partner
By: /s/ James E. Hammelman
----------------------------
Name: James E. Hammelman
Title: Vice President &
Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Chi C. Ma
----------------------------
Name: Chi C. Ma
Title: Assistant Vice President
Attest:
/s/ Traci Hopkins
- -------------------------
Authorized Signatory
Date: February 18, 1998
<PAGE>
EXHIBIT A-1
(Face of Bond)
===============================================================================
(a) CUSIP ............
7.99% Secured Bonds due 2011
No. $
----- -------------
ESI TRACTEBEL ACQUISITION CORP.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of
--------------------------------------------
Dollars on December 30, 2011.
Interest Payment Dates: semi-annually on each June 30 and December 30
Record Dates: June 15 and December 15
DATED: February 19, 1998
ESI TRACTEBEL ACQUISITION CORP.
BY:
---------------------------
Name:
Title:
(SEAL)
Certificate of Authentication
- -----------------------------
This is one of the Global Bonds
referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------
(Authorized Officer)
===============================================================================
<PAGE>
(Back of Bond)
7.99% Secured Bonds due 2011
"THIS GLOBAL BOND IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS BOND) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL BOND MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
BOND MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL BOND MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY."
"THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) BY THE
INITIAL INVESTOR (A) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER
THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (B) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (D)
TO THE COMPANY OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (2) BY SUBSEQUENT INVESTORS AS SET FORTH
IN (1) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR
IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES. THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT
PURCHASER FROM IT OF THE BONDS EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN THE PREVIOUS SENTENCE. NO REPRESENTATION CAN
BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144
FOR RESALES OF THE BONDS."
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
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1. INTEREST. ESI Tractebel Acquisition Corp., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Bond
at 7.99% per annum from the date of issuance until maturity and shall pay the
Registration Default Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay interest
and Registration Default Damages semi-annually on June 30 and December 30 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Bonds will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Bond is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 30, 1998. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Registration Default Damages (without regard to any applicable grace periods)
from time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Bonds
(except defaulted interest) and Registration Default Damages to the Persons who
are registered Holders of Bonds at the close of business on the June 15 or
December 15 next preceding the Interest Payment Date, even if such Bonds are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Bonds will be payable as to principal, premium and Registration
Default Damages, if any, and interest at the office or agency of the Paying
Agent maintained for such purpose within or without the City and State of New
York, or, at the option of the Company, payment of interest and Registration
Default Damages may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds will be required with respect to principal of and
interest, premium and Registration Default Damages on, all Global Bonds and all
other Bonds the Holders of which shall have provided wire transfer instructions
to the Company or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or NE LP may act as Registrar but shall not act as
Paying Agent.
4. INDENTURE AND PLEDGE AGREEMENTS. The Company issued the Bonds under
an Indenture dated as of February 19, 1998 ("Indenture") among the Company, NE
LP and NE LLC and the Trustee. The terms of the Bonds include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Bonds
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Bond
conflicts with the express provisions of the Indenture, the provisions of the
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Indenture shall govern and be controlling. The Bonds are secured obligations of
the Company limited to $220 million in aggregate principal amount, plus amounts,
if any, issued to pay Registration Default Damages on outstanding Bonds as set
forth in Paragraph 2 hereof. The Bonds are secured by a pledge of (a) the
perfected, first priority pledge by NE LP to the Trustee, for the benefit of the
Trustee and the Holders of the Bonds, (i) NE LP's 100% member interest in NE LLC
and (ii) NE LP's 98% limited partner interest in each of NEA and NJEA; (b) the
second priority pledge by NE LP to the Trustee, for the benefit of the Trustee
and the Holders of the Bond, of NE LP's one percent general partner interest in
each of NEA and NJEA; (c) the perfected, first priority pledge by NE LLC to the
Trustee, for the benefit of the Trustee and the Holders of the Bond, of NE LLC's
one percent limited partner interest in each of NEA and NJEA; (d) the perfected,
first priority pledge by the Company to the Trustee, for the benefit of the
Trustee and the Holders of the Bonds, of the Note evidencing the Bond Loan. In
addition, the Bonds are secured by a perfected, first priority lien on the
Accounts and all funds deposited therein and all Permitted Investments credited
thereto granted to the Trustee and the Collateral Agent, for the benefit of the
Trustee, the Collateral Agent and the Holders of the Bonds, by NE LP and NE LLC
pursuant to the Indenture. The Bonds are also secured by (a) the perfected,
first priority pledge by each of ESI Northeast Energy GP, Inc., ESI Northeast
Energy LP, Inc., Tractebel Associates Northeast LP, Inc. and Tractebel Northeast
Generation GP, Inc. (collectively, the "Sponsor Affiliates") to the Trustee, as
collateral agent (in such capacity, the Collateral Agent") for the benefit of
the Collateral Agent, the Trustee and the Holders of the Bonds, of all of such
Sponsor Affiliate's partner interests in NE LP and (b) a perfected, first
priority pledge by each owner of the Company to the Collateral Agent, for the
benefit of the Collateral Agent, the Trustee and the Holders of the Bonds, of
all of the outstanding Capital Stock of the Company pursuant to the Sponsor
Pledge Agreement referred to in the Indenture (together with the Company and
Partner Pledge Agreement, the "Pledge Agreement"). The Pledge Agreements will
secure the payment and performance when due of all of the Obligations of the
Company under the Indenture and the Bonds, and of NE LP's obligations under the
Note and the Bond Guaranty, as provided in the Indenture and the Pledge
Agreements.
5 OPTIONAL REDEMPTION.
(a) The Company shall not have the option to redeem the Bonds
prior to June 30, 2008. Thereafter, the Company at the direction of NE LP shall
have the option to redeem the Bonds, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Registration Default Damages thereon to the date fixed for
redemption, if redeemed during the twelve-month period beginning on June 30 of
the years indicated below:
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<PAGE>
Year Percentage
- ---- ----------
2008........................................................ 101.844%
2009........................................................ 101.229%
2010........................................................ 100.615%
2011 and thereafter......................................... 100.000%
6. MANDATORY REDEMPTION; EXTRAORDINARY MANDATORY REDEMPTION
Except as set forth in this paragraph and in paragraph 7 below and
except for the payment of the principal of the Bonds in semiannual installments
to the Holders thereof, the Company shall not be required to make mandatory
redemption or sinking fund payments with respect to the Bonds. The Company shall
be required to redeem the Bonds, pro rata, at a redemption price equal to the
outstanding principal amount thereof plus accrued and unpaid interest and any
Registration Default Damages to the date fixed for redemption if (1) (a) an
event occurs which triggers the mandatory redemption or repurchase of any or all
of the Project Securities pursuant to the terms of the Project Indenture and (b)
any funds so required to be applied to such redemption or repurchase remain
after giving effect to such redemption or repurchase of Project Securities, and
such excess funds equal at least $2 million and are distributed to NE LP or NE
LLC or (2) a buyout or similar payment is made to a Partnership under any Power
Purchase Agreement and any such funds are distributed to NE LP or NE LLC in
accordance with the terms of the Project Indenture and terms of the Indenture,
provided that, in each such case, only such funds so distributed must be applied
to the extraordinary mandatory redemption.
7. REPURCHASE AT OPTION OF HOLDER.
Upon the occurrence of a Change of Control (which shall not occur if
Moody's and S&P confirm that the then existing ratings of the Bonds will not be
lowered as a result of any of the events that, in the absence of such confirmed
rating, would constitute a Change of Control), the Company shall offer to each
Holder to repurchase all or any part (equal to $100,000 or an integral multiple
of $1,000 in excess thereof) of such Holder's Bonds pursuant to the offer
described below (the "Change of Control Offer") at a purchase price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Registration Default Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within ten days following any Change
of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Bonds on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company shall comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Bonds as a
result of a Change of Control.
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<PAGE>
8. NOTICE OF REDEMPTION. Subject to the book entry system
described in the Indenture, if less than all of the Bonds are to be redeemed or
purchased in an offer to purchase at any time, the Trustee shall select the
Bonds to be redeemed or purchased among the Holders of the Bonds in compliance
with the requirements of the principal national securities exchange, if any, on
which the Bonds are listed or, if the Bonds are not so listed, on a pro rata
basis, by lot or in accordance with any other method the Trustee considers fair
and appropriate; provided that, except in the case of an extraordinary mandatory
redemption, no Bonds will be redeemed or purchased in part if the unredeemed
portion will be in an unauthorized denomination. In the event of partial
redemption by lot, the particular Bonds to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Bonds not previously called
for redemption.
The Trustee shall promptly notify the Company in writing of the Bonds
selected for redemption and, in the case of any Bond selected for partial
redemption, the principal amount thereof to be redeemed. Bonds and portions of
Bonds selected shall be in amounts of $100,000 or whole multiples of $1,000 in
excess thereof; except that if all of the Bonds of a Holder are to be redeemed,
the entire outstanding amount of Bonds held by such Holder, even if not a
multiple of $100,000 or a multiple of $1,000 in excess thereof, shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Bonds called for redemption also apply to portions of
Bonds called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Bonds are in registered
form without coupons in denominations of $100,000 and integral multiples of
$1,000 in excess thereof. The transfer of Bonds may be registered and Bonds may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Bond or portion of a Bond selected for
redemption, except for the unredeemed portion of any Bond being redeemed in
part. Also, the Company need not exchange or register the transfer of any Bonds
for a period of 15 days before a selection of Bonds to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Bond may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Bond Guaranty, the other Financing Agreements or the Bonds
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the then outstanding Bonds voting as a single
class, and any existing default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on or Registration
Default Damages with respect to the Bonds, except a payment default resulting
from acceleration that has been rescinded) or compliance with any provision of
the Indenture, the Bond Guaranty, the other Financing Agreements or the Bonds
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Bonds voting as a single class. Without the consent of
any Holder of a Bond, the Indenture, the Bond Guaranty, the other Financing
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Agreements or the Bonds may be amended or supplemented to cure any ambiguity,
defect or inconsistency; to provide for uncertificated Bonds in addition to or
in place of certificated Bonds or to alter the provisions of Article 2 of the
Indenture (including the related definitions) in a manner that does not
materially adversely affect any Holder; to provide for the assumption of the
Company's obligations to Holders of the Bonds in case of a merger or
consolidation; to make any change that would provide any additional rights or
benefits to the Holders of the Bonds or that does not adversely affect the legal
rights under the Indenture of any such Holder; or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default shall occur, if among
other things: (i) the Company or NE LP, as applicable, defaults in the payment
when due of principal of or premium, if any, on the Bonds or the Note when the
same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise and such default continues
for a period of 15 days; (ii) the Company or NE LP, as applicable, defaults in
the payment when due of interest on or Registration Default Damages, if any,
with respect to the Bonds or the Note and such default continues for a period of
15 days; (iii) the Company, NE LP or NE LLC fails to comply with any of the
provisions of Section 4.07, 4.09, 4.15 or 5.01 hereof; (iv) the Company, NE LP
or NE LLC fails to observe or perform any other covenant, representation,
warranty or other agreement in this Indenture, the Bonds or any of the
Collateral Documents to which it is a party for 60 days after notice to the
Company by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Bonds then outstanding voting as a single class; (v) the Company,
NE LP or NE LLC defaults in the payment when due (after giving effect to any
applicable grace periods) of any principal of or premium, if any, or interest on
any Indebtedness (other than the Bonds or the Note) the principal amount of
which exceeds $3 million in the aggregate; (vi) a final judgment or final
judgments for the payment of money are entered by a court or courts of competent
jurisdiction against the Company, NE LP or NE LLC and such judgment or judgments
remain unpaid or, undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, provided that the aggregate of all such
undischarged judgments exceeds $3 million; (vii) Any of the material provisions
of the Collateral Documents shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any lien granted thereby or the priority thereof ceases or fails for
any reason to be in full force and effect (and such unenforceable provisions or
cessation or failure of a lien is not cured within 10 days after the Company, NE
LP or NE LLC has obtained knowledge thereof); (viii) certain events of
bankruptcy or insolvency with respect to the Company, NE LP or NE LLC occurs;
(ix) any limited partnership or limited liability company agreement of NE LP or
NE LLC as amended from time to time ceases to be valid and binding and in full
force and effect in all material respects; (x) any default by a counterparty
under any of the Material Project Agreements occurs (as defined in the Project
Indenture as in effect on the date of the Indenture) that would likely have a
material adverse effect on the Company, NE LP or NE LLC or the Holders of the
Bonds and such default is not cured within 180 days (or 360 days if the
applicable partnership has promptly commenced and is diligently using its best
efforts to cure such default); (xi) an "Event of Default" occurs defined in the
Project Indenture as in effect on the date of the Indenture) other than as a
result of the breach of an immaterial covenant; and (xii) Project Securities are
accelerated. If any Event of Default (other than bankruptcy or insolvency events
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at default) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the then outstanding Bonds may declare by written notice
all the Bonds to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all outstanding Bonds
will become due and payable without further action or notice. Holders may not
enforce the Indenture or the Bonds except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Bonds may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Bonds notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest. The Holders of a majority in aggregate principal amount of
the Bonds then outstanding by written notice to the Trustee may on behalf of the
Holders of all of the Bonds waive any existing Default or Event of Default and
its consequences under the Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Bonds. The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, partner, member or stockholder of the Company, NE LP or NE LLC as
such shall have any liability for any Obligations of the Company under the Bonds
or the indenture or NE LP under the Note or the Bond Guaranty for any claim
based on, in respect of, or by reason of, such Obligations or their creation.
Each Holder by accepting a Bond waives and releases all such liability The
waiver and release are part of the consideration for issuance of the Bonds.
15. AUTHENTICATION. This Bond shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL BONDS AND
RESTRICTED DEFINITIVE BONDS. In addition to the rights provided to Holders of
Bonds under the Indenture, Holders of Restricted Global Bonds and Restricted
Definitive Bonds shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of the date of the Indenture, between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
A1-8
<PAGE>
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Bonds and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Bonds or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
A1-9
<PAGE>
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
ESI Tractebel Acquisition Corp.
11760 US Highway One
North Palm Beach, FL 33408
Attention: Secretary
A1-10
<PAGE>
ASSIGNMENT FORM
To assign this Bond, fill in the form below: (I) or (we) assign and transfer
this Bond to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Bond on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: __________________
Your Signature: ______________________
(Sign exactly as your name appears on
the face of this Bond)
Signature Guarantee.
A1-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Bond purchased by the Company
pursuant to Section 4.15 of the Indenture, check the box below:
|_| Section 4.15
If you want to elect to have only part of the Bond purchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount you elect to
have purchased: $________
Date: ______________ Your Signature: ______________________
(Sign exactly as your name appears
on the Bond)
Tax Identification No: _______________
Signature Guarantee.
A1-12
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL BOND
The following exchanges of a part of this Global Bond for an interest
in another Global Bond or for a Definitive Bond, or exchanges of a part of
another Global Bond or Definitive Bond for an interest in this Global Bond, have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this
decrease in increase in Global Bond Signature of
Principal Amount Principal Amount following authorized officer
Date of of of such decrease of Trustee or
Exchange this Global Bond this Global Bond (or increase) Bond Custodian
- -------- ---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
A1-13
<PAGE>
[EXHIBIT A-2]
(Face of Regulation S Temporary Global Bond)
================================================================================
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL BOND, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED
BONDS, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER
THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL BOND SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
CUSIP/CINS _____________
7.99% Secured Bonds due 2011
No. ____ $_______________
ESI TRACTEBEL ACQUISITION CORP.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of ___________________________________________
Dollars on December 30, 2011
Interest Payment Dates: June 30 and December 30
Record Dates: June 15 and December 15
Dated: February 19, 1998
ESI TRACTEBEL ACQUISITION CORP.
By:
-------------------------------
Name:
Title:
[(SEAL)]
Certificate of Authentication
- -----------------------------
This is one of the Global
Bonds referred to in the
within-mentioned Indenture:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
---------------------------------
================================================================================
A2-1
<PAGE>
(Back of Regulation S Temporary Global Bond)
7.99% Secured Bonds due 2011
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL BOND, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED BONDS, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL BOND SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR BONDS IN DEFINITIVE
FORM, THIS BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE BOND (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE BOND
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE BOND EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE
HOLDER OF THE BOND EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH BOND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN OF RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THE BOND EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1) ABOVE.
A2-2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. ESI Tractebel Acquisition Corp., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Bond
at 7.99% per annum from the date of issuance until maturity and shall pay the
Registration Default Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay interest
and Registration Default Damages semi-annually on June 30 and December 30 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Bonds will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Bond is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 30, 1998. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Registration Default Damages (without regard to any applicable grace periods)
from time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Bond is exchanged for one or
more Regulation S Permanent Global Bonds, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Bond shall in all other respects be entitled
to the same benefits as other Bonds under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the Bonds
(except defaulted interest) and Registration Default Damages to the Persons who
are registered Holders of Bonds at the close of business on the June 15 or
December 15 next preceding the Interest Payment Date, even if such Bonds are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Bonds will be payable as to principal, premium and Registration
Default Damages, if any, and interest at the office or agency of the Paying
Agent maintained for such purpose within or without the City and State of New
York, or, at the option of the Company, payment of interest and Registration
Default Damages may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds will be required with respect to principal of and
interest, premium and Registration Default Damages on, all Global Bonds and all
other Bonds the Holders of which shall have provided wire transfer instructions
to the Company or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
A2-3
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or NE LP may act as Registrar but shall not act as
Paying Agent.
4. INDENTURE AND PLEDGE AGREEMENTS. The Company issued the Bonds under
an Indenture dated as of February 19, 1998 ("Indenture") among the Company, NE
LP and NE LLC and the Trustee. The terms of the Bonds include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Bonds
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Bond
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Bonds are secured obligations of
the Company limited to $220 million in aggregate principal amount, plus amounts,
if any, issued to pay Registration Default Damages on outstanding Bonds as set
forth in Paragraph 2 hereof. The Bonds are secured by a pledge of (a) the
perfected, first priority pledge by NE LP to the Trustee, for the benefit of the
Trustee and the Holders of the Bonds, (i) NE LP's 100% member interest in NE LLC
and (ii) NE LP's 98% limited partner interest in each of NEA and NJEA; (b) the
second priority pledge by NE LP to the Trustee, for the benefit of the Trustee
and the Holders of the Bond, of NE LP's one percent general partner interest in
each of NEA and NJEA; (c) the perfected, first priority pledge by NE LLC to the
Trustee, for the benefit of the Trustee and the Holders of the Bond, of NE LLC's
one percent limited partner interest in each of NEA and NJEA; (d) the perfected,
first priority pledge by the Company to the Trustee, for the benefit of the
Trustee and the Holders of the Bonds, of the Note evidencing the Bond Loan; and
(e) a perfected, first priority lien on the Accounts and all funds deposited
therein and all Permitted Investments credited thereto granted to the Collateral
Agent, for the benefit of the Collateral Agent, the Trustee and the Holders of
the Bonds, by NE LP and NE LLC pursuant to the Indenture. The Bonds are also
secured by (a) the perfected, first priority pledge by each of ESI Northeast
Energy GP, Inc., ESI Northeast Energy LP, Inc., Tractebel Associates Northeast
LP, Inc. and Tractebel Northeast Generation GP, Inc. (collectively, the "Sponsor
Affiliates") to the Trustee, as collateral agent (in such capacity, the
Collateral Agent") for the benefit of the Collateral Agent, the Trustee and the
Holders of the Bonds, of all of such Sponsor Affiliate's partner interests in NE
LP and (b) a perfected, first priority pledge by each owner of the Company to
the Collateral Agent, for the benefit of the Collateral Agent, the Trustee and
the Holders of the Bonds, of all of the outstanding Capital Stock of the Company
pursuant to the Sponsor Pledge Agreement referred to in the Indenture (together
with the Company and Partner Pledge Agreement, the "Pledge Agreement"). The
Pledge Agreements will secure the payment and performance when due of all of the
Obligations of the Company under the Indenture and the Bonds, and of NE LP's
obligations under the Note and the Bond Guaranty, as provided in the Indenture
and the Pledge Agreements.
A2-4
<PAGE>
5. OPTIONAL REDEMPTION.
The Company shall not have the option to redeem the Bonds prior to June
30, 2008. Thereafter, the Company at the direction of NE LP shall have the
option to redeem the Bonds, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Registration Default Damages thereon to the date fixed for redemption, if
redeemed during the twelve-month period beginning on June 30 of the years
indicated below:
Year Percentage
---- ----------
2008................................................ 101.844%
2009................................................ 101.229%
2010................................................ 100.615%
2011 and thereafter................................. 100.000%
6. MANDATORY REDEMPTION; EXTRAORDINARY MANDATORY REDEMPTION
Except as set forth in this paragraph and in paragraph 7 below and
except for the payment of the principal of the Bonds in semiannual installments
to the Holders thereof, the Company shall not be required to make mandatory
redemption or sinking fund payments with respect to the Bonds. The Company shall
be required to redeem the Bonds, pro rata, at a redemption price equal to the
outstanding principal amount thereof plus accrued and unpaid interest and any
Registration Default Damages to the date fixed for redemption if (1) (a) an
event occurs which triggers the mandatory redemption or repurchase of any or all
of the Project Securities pursuant to the terms of the Project Indenture and (b)
any funds so required to be applied to such redemption or repurchase remain
after giving effect to such redemption or repurchase of Project Securities, and
such excess funds equal at least $2 million and are distributed to NE LP or NE
LLC or (2) a buyout or similar payment is made to a Partnership under any Power
Purchase Agreement and any such funds are distributed to NE LP or NE LLC in
accordance with the terms of the Project Indenture and terms of the Indenture,
provided that, in each such case, only such funds so distributed must be applied
to the extraordinary mandatory redemption.
7. REPURCHASE AT OPTION OF HOLDER.
Upon the occurrence of a Change of Control (which shall not occur if
Moody's and S&P confirm that the then existing ratings of the Bonds will not be
lowered as a result of any of the events that, in the absence of such confirmed
rating, would constitute a Change of Control), the Company shall offer to each
Holder to repurchase all or any part (equal to $100,000 or an integral multiple
of $1,000 in excess thereof) of such Holder's Bonds pursuant to the offer
described below (the "Change of Control Offer") at a purchase price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Registration Default Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within ten days following any Change
of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Bonds on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company shall comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Bonds as a
result of a Change of Control.
A2-5
<PAGE>
8. NOTICE OF REDEMPTION. Subject to the book entry system described in
the Indenture, if less than all of the Bonds are to be redeemed or purchased in
an offer to purchase at any time, the Trustee shall select the Bonds to be
redeemed or purchased among the Holders of the Bonds in compliance with the
requirements of the principal national securities exchange, if any, on which the
Bonds are listed or, if the Bonds are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate; provided that, except in the case of an extraordinary mandatory
redemption, no Bonds will be redeemed or purchased in part if the unredeemed
portion will be in an unauthorized denomination. In the event of partial
redemption by lot, the particular Bonds to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Bonds not previously called
for redemption.
The Trustee shall promptly notify the Company in writing of the Bonds
selected for redemption and, in the case of any Bond selected for partial
redemption, the principal amount thereof to be redeemed. Bonds and portions of
Bonds selected shall be in amounts of $100,000 or whole multiples of $1,000 in
excess thereof; except that if all of the Bonds of a Holder are to be redeemed,
the entire outstanding amount of Bonds held by such Holder, even if not a
multiple of $100,000 or a multiple of $1,000 in excess thereof, shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Bonds called for redemption also apply to portions of
Bonds called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Bonds are in registered form
without coupons in denominations of $100,000 and integral multiples of $1,000 in
excess thereof. The transfer of Bonds may be registered and Bonds may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Bond or portion of a Bond selected for
redemption, except for the unredeemed portion of any Bond being redeemed in
part. Also, the Company need not exchange or register the transfer of any Bonds
for a period of 15 days before a selection of Bonds to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Bond is exchangeable in whole or in
part for one or more Global Bonds only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary
Global Bond for one or more Global Bonds, the Trustee shall cancel this
Regulation S Temporary Global Bond.
A2-6
<PAGE>
10. PERSONS DEEMED OWNERS. The registered Holder of a Bond may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Bond Guaranty, the other Financing Agreements or the Bonds
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the then outstanding Bonds voting as a single
class, and any existing default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on or Registration
Default Damages with respect to the Bonds, except a payment default resulting
from acceleration that has been rescinded) or compliance with any provision of
the Indenture, the Bond Guaranty, the other Financing Agreements or the Bonds
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Bonds voting as a single class. Without the consent of
any Holder of a Bond, the Indenture, the Bond Guaranty, the other Financing
Agreements or the Bonds may be amended or supplemented to cure any ambiguity,
defect or inconsistency; to provide for uncertificated Bonds in addition to or
in place of certificated Bonds or to alter the provisions of Article 2 of the
Indenture (including the related definitions) in a manner that does not
materially adversely affect any Holder; to provide for the assumption of the
Company's obligations to Holders of the Bonds in case of a merger or
consolidation; to make any change that would provide any additional rights or
benefits to the Holders of the Bonds or that does not adversely affect the legal
rights under the Indenture of any such Holder; or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default shall occur, if among
other things: (i) the Company or NE LP as applicable, defaults in the payment
when due of principal of or premium, if any, on the Bonds or the Note when the
same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise and such default continues
for a period of 15 days; (ii) the Company or NE LP as applicable, defaults in
the payment when due of interest on or Registration Default Damages, if any,
with respect to the Bonds or the Note and such default continues for a period of
15 days; (iii) the Company, NE LP or NE LLC fails to comply with any of the
provisions of Section 4.07, 4.09, 4.15 or 5.01 hereof; (iv) the Company, NE LP
or NE LLC fails to observe or perform any other covenant, representation,
warranty or other agreement in this Indenture, the Bonds or any of the
Collateral Documents to which it is a party for 60 days after notice to the
Company by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Bonds then outstanding voting as a single class; (v) the Company,
NE LP or NE LLC defaults in the payment when due (after giving effect to any
applicable grace periods) of any principal of or premium, if any, or interest on
any Indebtedness (other than the Bonds or the Note) the principal amount of
which exceeds $3 million in the aggregate; (vi) a final judgment or final
judgments for the payment of money are entered by a court or courts of competent
jurisdiction against the Company, NE LP or NE LLC and such judgment or judgments
remain unpaid or, undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, provided that the aggregate of all such
undischarged judgments exceeds $3 million; (vii) Any of the material provisions
A2-7
<PAGE>
of the Collateral Documents shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any lien granted thereby or the priority thereof ceases or fails for
any reason to be in full force and effect (and such unenforceable provisions or
cessation or failure of a lien is not cured within 10 days after the Company, NE
LP or NE LLC has obtained knowledge thereof); (viii) certain events of
bankruptcy or insolvency with respect to the Company, NE LP or NE LLC occurs;
(ix) any limited partnership or limited liability company agreement of NE LP or
NE LLC as amended from time to time ceases to be valid and binding and in full
force and effect in all material respects; (x) any default by a counterparty
under any of the Material Project Agreements occurs (as defined in the Project
Indenture as in effect on the date of the Indenture) that would likely have a
material adverse effect on the Company, NE LP or NE LLC or the Holders of the
Bonds and such default is not cured within 180 days (or 360 days if the
applicable partnership has promptly commenced and is diligently using its best
efforts to cure such default); (xi) an "Event of Default" occurs defined in the
Project Indenture as in effect on the date of the Indenture) other than as a
result of the breach of an immaterial covenant; and (xii) Project Securities are
accelerated.. If any Event of Default (other than bankruptcy or insolvency
events at default) occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Bonds may declare by
written notice all the Bonds to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Bonds will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Bonds except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Bonds may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Bonds notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Bonds
then outstanding by written notice to the Trustee may on behalf of the Holders
of all of the Bonds waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Bonds. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, partner, member or stockholder of the Company, NE LP or NE LLC as
such shall have any liability for any Obligations of the Company under the Bonds
or the indenture or NE LP under the Note or the Bond Guaranty for any claim
based on, in respect of, or by reason of, such Obligations or their creation.
Each Holder by accepting a Bond waives and releases all such liability The
waiver and release are part of the consideration for issuance of the Bonds.
A2-8
<PAGE>
15. AUTHENTICATION. This Bond shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL BONDS AND
RESTRICTED DEFINITIVE BONDS. In addition to the rights provided to Holders of
Bonds under the Indenture, Holders of Restricted Global Bonds and Restricted
Definitive Bonds shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of the date of the Indenture between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Bonds and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Bonds or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
ESI Tractebel Acquisition Corp.
11760 US Highway One
North Palm Beach, FL 33408
Attention: Secretary
A2-9
<PAGE>
ASSIGNMENT FORM
To assign this Bond, fill in the form below: (I) or (we) assign and transfer
this Bond to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
- --------------------------------------------------------------------------------
to transfer this Bond on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: _________________
Your Signature: ____________________________
(Sign exactly as your name appears on the face of this Bond)
Signature Guarantee.
A2-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Bond purchased by the Company
pursuant to Section 4.15 of the Indenture, check the appropriate box below:
|_| Section 4.15
If you want to elect to have only part of the Bond purchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount you elect to
have purchased: $___________
- --------------------------------------------------------------------------------
Date: ____________________ Your Signature: _________________________
(Sign exactly as your name appears on the
Bond)
Tax Identification No.: _________________
Signature Guarantee.
A2-11
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL BOND
The following exchanges of a part of this Regulation S Temporary Global
Bond for an interest in another Global Bond, or of other Restricted Global Bonds
for an interest in this Regulation S Temporary Global Bond, have been made:
<TABLE>
<CAPTION>
Principal Amount
of this
Amount of decrease in Amount of increase in Global Bond Signature of
Principal Amount Principal Amount following authorized officer of
of of such decrease Trustee or Bond
Date of Exchange this Global Bond this Global Bond (or increase) Custodian
---------------- ---------------- ---------------- ------------ ---------
<S> <C> <C> <C> <C>
</TABLE>
A2-12
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
ESI Tractebel Acquisition Corp.
11760 US Highway One
North Palm Beach, FL 33408
[Registrar address block]
Re: ESI Tractebel Acquisition Corp. 7.99% Secured Bonds Due 2011
Reference is hereby made to the Indenture, dated as of February 19,
1998 (the "Indenture"), among ESI Tractebel Acquisition Corp., as issuer (the
"Company"), Northeast Energy, LP as guarantor, Northeast Energy, LLC and State
Street Bank and Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Bond[s] or interest in such Bond[s] specified in Annex A hereto, in the
principal amount of $___________ in such Bond[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. |_| Check if Transferee will take delivery of a beneficial interest in the
144A Global Bond or a Definitive Bond Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Bond is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Bond for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Bond
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Bond and/or the Definitive Bond and
in the Indenture and the Securities Act.
B-1
<PAGE>
2. |_| Check if Transferee will take delivery of a beneficial interest in the
Temporary Regulation S Global Bond, the Regulation S Global Bond or a Definitive
Bond pursuant to Regulation S. The Transfer is being effected pursuant to and in
accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly,
the Transferor hereby further certifies that (i) the Transfer is not being made
to a person in the United States and (x) at the time the buy order was
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act; (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed transfer is being
made prior to the expiration of the Restricted Period, the transfer is not being
made to a U.S. Person or for the account or benefit of a U.S. Person (other than
an Initial Purchaser). Upon consummation of the proposed transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Bond will be subject to the restrictions on Transfer enumerated in
the Private Placement Legend printed on the Regulation S Global Bond, the
Temporary Regulation S Global Bond and/or the Definitive Bond and in the
Indenture and the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a beneficial
interest in a Definitive Bond pursuant to any provision of the Securities Act
other than Rule 144A or Regulation S. The Transfer is being effected in
compliance with the transfer restrictions applicable to beneficial interests in
Restricted Global Bonds and Restricted Definitive Bonds and pursuant to and in
accordance with the Securities Act and any applicable blue sky securities laws
of any state of the United States, and accordingly the Transferor hereby further
certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
(b) |_| such Transfer is being effected to the Company or a subsidiary
thereof;
or
(c) |_| such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
B-2
<PAGE>
or
(d) |_| such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that it has not engaged in any general solicitation
within the meaning of Regulation D under the Securities Act and the Transfer
complies with the transfer restrictions applicable to beneficial interests in a
Restricted Global Bond or Restricted Definitive Bonds and the requirements of
the exemption claimed, which certification is supported by a certificate
executed by the Transferee in the form of Exhibit D to the Indenture and an
Opinion of Counsel provided by the Transferor or the Transferee (a copy of which
the Transferor has attached to this certification), to the effect that such
Transfer is in compliance with the Securities Act. Upon consummation of the
proposed transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Bond will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Definitive
Bonds and in the Indenture and the Securities Act.
4. |_| Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Bond or of an Unrestricted Definitive Bond.
(a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Bond will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Bonds, on Restricted
Definitive Bonds and in the Indenture.
(b) |_| Check if Transfer is Pursuant to Regulation S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Bond will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Bonds, on Restricted Definitive Bonds and in the Indenture.
(c) |_| Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Bond will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Bonds or Restricted Definitive Bonds and in the Indenture.
B-3
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
---------------------------------------
[Insert Name of Transferor]
By:
-----------------------------------
Name:
Title:
Dated: ______________, ______
B-4
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Bond (CUSIP ________), or
(ii) |_| Regulation S Global Bond (CUSIP ________); or
(b) |_| a Restricted Definitive Bond.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Bond (CUSIP ________), or
(ii) |_| Regulation S Global Bond (CUSIP __________), or
(iii) |_| Unrestricted Global Bond (CUSIP __________); or
(b) |_| a Restricted Definitive Bond; or
(c) |_| an Unrestricted Definitive Bond,
in accordance with the terms of the Indenture.
B-5
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
ESI Tractebel Acquisition Corp.
11760 US Highway One
North Palm Beach, FL 33408
[Registrar address block]
Re: ESI Tractebel Acquisition Corp. 7.99% Secured Bonds Due 2011
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of February 19,
1998 (the "Indenture"), among ESI Tractebel Acquisition Corp., as issuer (the
"Company"), Northeast Energy, LP as guarantor, Northeast Energy, LLC and State
Street Bank and Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the Bond[s]
or interest in such Bond[s] specified herein, in the principal amount of
$____________ in such Bond[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Bonds or Beneficial Interests in a
Restricted Global Bond for Unrestricted Definitive Bonds or Beneficial Interests
in an Unrestricted Global Bond
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Bond to beneficial interest in an Unrestricted Global Bond. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Bond
for a beneficial interest in an Unrestricted Global Bond in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Bonds and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Bond is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) |_| Check if Exchange is from beneficial interest in a Restricted
Global Bond to Unrestricted Definitive Bond. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Bond for an Unrestricted
Definitive Bond, the Owner hereby certifies (i) the Definitive Bond is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Bonds and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Bond is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
C-1
<PAGE>
(c) |_| Check if Exchange is from Restricted Definitive Bond to
beneficial interest in an Unrestricted Global Bond. In connection with the
Owner's Exchange of a Restricted Definitive Bond for a beneficial interest in an
Unrestricted Global Bond, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Bonds and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) |_| Check if Exchange is from Restricted Definitive Bond to
Unrestricted Definitive Bond. In connection with the Owner's Exchange of a
Restricted Definitive Bond for an Unrestricted Definitive Bond, the Owner hereby
certifies (i) the Unrestricted Definitive Bond is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Bonds and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Bond is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Bonds or Beneficial Interests in Restricted
Global Bonds for Restricted Definitive Bonds or Beneficial Interests in
Restricted Global Bonds
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Bond to Restricted Definitive Bond. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Bond for a Restricted
Definitive Bond with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Bond is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Bond issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Bond and in the Indenture
and the Securities Act.
C-2
<PAGE>
(b) |_| Check if Exchange is from Restricted Definitive Bond to
beneficial interest in a Restricted Global Bond. In connection with the Exchange
of the Owner's Restricted Definitive Bond for a beneficial interest in the
[CHECK ONE] 144A Global Bond, Regulation S Global Bond with an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Bonds and pursuant to and in accordance with the Securities
Act, and in compliance with any applicable blue sky securities laws of any state
of the United States. Upon consummation of the proposed Exchange in accordance
with the terms of the Indenture, the beneficial interest issued will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the relevant Restricted Global Bond and in the Indenture and the
Securities Act.
C-3
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By: _______________________________
Name:
Title:
Dated: ________________, ____
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
ESI Tractebel Acquisition Corp.
11760 US Highway One
North Palm Beach, FL 33408
[Registrar address block]
Re: ESI Tractebel Acquisition Corp. 7.99% Secured Bonds Due 2011
Reference is hereby made to the Indenture, dated as of February 19,
1998 (the "Indenture"), among ESI Tractebel Acquisition Corp., as issuer (the
"Company"), Northeast Energy, LP as guarantor, Northeast Energy, LLC and State
Street Bank and Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) |_| a beneficial interest in a Global Bond, or
(b) |_| a Definitive Bond,
we confirm that:
1. We understand that any subsequent transfer of the Bonds or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Bonds or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Bonds have not been
registered under the Securities Act, and that the Bonds and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Bonds or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (c) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Bond or beneficial interest
in a Global Bond from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
D-1
<PAGE>
3. We understand that, on any proposed resale of the Bonds or
beneficial interest therein, we shall furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Bonds purchased by us will bear a
legend to the foregoing effect. We further understand that any subsequent
transfer by us of the Bonds or beneficial interest therein acquired by us must
be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Bonds, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Bonds or beneficial interest therein purchased
by us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
_______________________________________
[Insert Name of Accredited Investor]
By: ___________________________________
Name:
Title:
Dated: __________________, ____
D-2
<PAGE>
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, Northeast Energy, LP, a Delaware limited
partnership, as Guarantor (the "Guarantor") (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture dated as of February 19, 1998 (the "Indenture")
among ESI Tractebel Acquisition Corp. (the "Company"), the Guarantor, Northeast
Energy, LLC and State Street Bank and Trust Company as trustee (the "Trustee"),
(a) the due and punctual payment of the principal of, premium, if any, and
interest on and Registration Default Damages, if any, with respect to the Bonds
(as defined in the Indenture), whether at maturity, by acceleration, redemption
or otherwise, the due and punctual payment of interest on overdue principal,
premium and Registration Default Damages, and, to the extent permitted by law,
interest, and the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee all in accordance with the terms of the
Indenture and (b) in case of any extension of time of payment or renewal of any
Bonds or any of such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise. The
obligations of the Guarantor to the Holders of Bonds and to the Trustee pursuant
to the Bond Guaranty and the Indenture are expressly set forth in Article 12 of
the Indenture and reference is hereby made to the Indenture for the precise
terms of the Bond Guaranty. Each Holder of a Bond, by accepting the same, (a)
agrees to and shall be bound by such provisions and (b) appoints the Trustee
attorney-in-fact of such Holder for such purpose.
NORTHEAST ENERGY, LLC
By: NORTHEAST ENERGY, LLC
By: ESI NORTHEAST ENERGY GP
INC.,
as a general partner
By:___________________________
Name:
Title:
By: TRACTEBEL NORTHEAST
GENERATION GP INC.,
as a general partner
By:___________________________
Name:
Title:
E-1
<PAGE>
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Entity" and
together with the Bond Guarantor, the "Guarantors"), ESI Tractebel Acquisition
Corp. (or its permitted successor), a Delaware corporation (the "Company"), the
Company, the Bond Guarantor and NE LLC (as defined in the Indenture referred to
herein) and State Street Bank and Trust Company, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of February 19, 1998 providing
for the issuance of an aggregate principal amount of up to $220,000,000 of 7.99%
Bonds due 2011 (the "Bonds");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Entity shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Entity shall unconditionally
guarantee all of the Company's Obligations under the Bonds and the Indenture on
the terms and conditions set forth herein (the "Bond Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Entity and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Bonds as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Entity hereby agrees as
follows:
(a) Along with the Bond Guarantor named in the Indenture, to jointly
and severally Guarantee to each Holder of a Bond authenticated
and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and
enforceability of the Indenture, the Bonds or the obligations of
the Company hereunder or thereunder, that:
(i) the principal of and interest on the Bonds will be promptly
paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of and interest on the Bonds, if any, if
lawful, and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and
F-1
<PAGE>
(ii) in case of any extension of time of payment or renewal of
any Bonds or any of such other obligations, that same will
be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay
the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Bonds or
the Indenture, the absence of any action to enforce the same,
any waiver or consent by any Holder of the Bonds with respect to
any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence presentment, demand of
payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all
demands whatsoever.
(d) This Bond Guaranty shall not be discharged except by complete
performance of the obligations contained in the Bonds and the
Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors, or any
Custodian, Trustee, liquidator or other similar official acting
in relation to either the Company or the Guarantors, any amount
paid by either to the Trustee or such Holder, this Bond
Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect.
(f) The Guaranteeing Entity shall not be entitled to any right of
subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in
Article 6 of the Indenture for the purposes of this Bond
Guaranty, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in
Article 6 of the Indenture, such obligations (whether or not due
and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Bond Guaranty.
F-2
<PAGE>
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights
of the Holders under the Guarantee.
(i) Pursuant to Section 12.02 of the Indenture, after
giving effect to any maximum amount and any other
contingent and fixed liabilities that are relevant
under any applicable Bankruptcy or fraudulent
conveyance laws, and after giving effect to any
collections from, rights to receive contribution from
or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other
Guarantor under Article 12 of the Indenture shall
result in the obligations of such Guarantor under its
Bond Guaranty not constituting a fraudulent transfer
or conveyance.
3. EXECUTION AND DELIVERY. Each Guaranteeing Entity agrees that the
Bond Guaranty shall remain in full force and effect notwithstanding any failure
to endorse on each Bond a notation of such Bond Guaranty.
4. Guaranteeing Entity May Consolidate, Etc. on Certain Terms.
(a) The Guaranteeing Entity may not consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person)
another corporation, Person or entity whether or not affiliated
with such Guarantor unless:
(i) subject to Section 12.05 of the Indenture, the Person
formed by or surviving any such consolidation or merger
(if other than a Guarantor or the Company) unconditionally
assumes all the obligations of such Guarantor, pursuant to
a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Bonds, the
Indenture and the Bond Guaranty on the terms set forth
herein or therein; and
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of the Bond Guaranty
endorsed upon the Bonds and the due and punctual performance of
all of the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor corporation shall
succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such
successor corporation thereupon may cause to be signed any or
all of the Bond Guarantees to be endorsed upon all of the Bonds
issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee. All the Bond
Guarantees so issued shall in all respects have the same legal
rank and benefit under the Indenture as the Bond Guarantees
theretofore and thereafter issued in accordance with the terms
of the Indenture as though all of such Bond Guarantees had been
issued at the date of the execution hereof.
F-3
<PAGE>
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in
the Indenture or in any of the Bonds shall prevent any
consolidation or merger of a Guarantor with or into the Company
or another Guarantor, or shall prevent any sale or conveyance
of the property of a Guarantor as an entirety or substantially
as an entirety to the Company or another Guarantor.
5. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Entity, as such, shall have any liability for any obligations of the Company or
any Guaranteeing Entity under the Bonds, any Bond Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Bonds by
accepting a Bond waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Bonds. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
6. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
7. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
8. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Entity and the Company.
F-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[Guaranteeing Entity]
By: _________________________________
Name:
Title:
[COMPANY]
By: _________________________________
Name:
Title:
[EXISTING GUARANTORS]
By: _________________________________
Name:
Title
[TRUSTEE]
as Trustee
By: ________________________________
Name:
Title:
F-5
<PAGE>
Schedule I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the Indenture as of
the Issue Date:
1. Northeast Energy, LP
F-6
<PAGE>
EXHIBIT G
FORM OF PLEDGE AGREEMENTS
G-1
<PAGE>
EXHIBIT H
FORM OF PROMISSORY NOTE
EVIDENCING BOND LOAN
February 19, 1998
New York, New York
NOTE
FOR VALUE RECEIVED, Northeast Energy, LP, a Delaware limited
partnership (the "NE LP"), promises to pay to ESI Tractebel Acquisition Corp., a
Delaware corporation (the "Company"), or its order, the amount of $220,000,000,
together with interest on the unpaid principal amount at a rate per annum equal
to 7.99% from the date of advance to the date of payment (computed on the basis
of 360-day year of twelve 30-day months). All principal and accrued interest
under this Note shall be due and payable in accordance with the amortization
schedule attached hereto.
If the principal of, premium (if any) and accrued interest on and
Registration Default Damages, if any, with respect to the Bonds is declared or
shall become immediately due and payable pursuant to the Indenture, the
principal of and accrued interest on and Registration Default Damages, if any,
respectively, of this Note shall immediately become due and payable without any
declaration or other action of the holder hereof. If acceleration of the Bonds
is rescinded in accordance with the Indenture, the acceleration of this Note
also shall be rescinded without any act of the holder hereof.
This Note is the promissory note referred to as the promissory note
evidencing the "Bond Loan" in the indenture (the "Indenture"), dated as of
February 19, 1998, among the Company, NE LP, Northeast Energy, LLC and State
Street Bank and Trust Company, as trustee and collateral agent (the "Collateral
Agent") providing for the issuance of the Company's 7.99% Secured Bonds Due 2011
(the "Bonds").
The right to plead any and all statutes of limitations as a defense to
demand hereunder is hereby waived to the extent permitted by law. NE LP, for
itself and its successors and assigns, waives presentment, demand, protest and
notice thereof or of dishonor, and waives the right to be released by reason of
any extension of time or change in the terms of payment or any change,
alteration or release of any security given for the payment hereof. NE LP hereby
acknowledges that this Note may be pledged by the Company to the Collateral
Agent named below.
Except for the security interest in favor of the Collateral Agent
created by the Indenture and the Company and Partner Pledge Agreement (as
defined in the Indenture), so long as any Bonds are outstanding, this Note may
not be pledged, sold, transferred, assigned, participated, conveyed or otherwise
disposed of, and any attempted pledge, sale, transfer, assignment,
participation, conveyance or other disposition shall be null and void, nor may
any Lien (as defined in the Indenture), except the Lien created by the Company
and Partner Pledge Agreement, be created in respect hereof; provided, however,
that nothing herein shall prevent any consolidation, merger, conveyance, lease
or transfer pursuant to Article 5 of the Indenture.
The agreements contained in this Note are intended to be and are for
the benefit of the Company, the Trustee, the Collateral Agent, and the Holders
(as such terms are defined in the Indenture) of the Bonds. For so long as the
Indenture remains in effect, none of the terms hereof may be amended, modified,
waived, extended or renewed without the consent of the Trustee.
H-1
<PAGE>
The principal hereof may not be prepaid in whole or in part; provided,
however, that the outstanding principal amount of this Note automatically shall
be reduced, and automatically shall be deemed repaid, concurrently with, and in
an amount equal to the amount of, each and every payment or prepayment of
principal made or deemed made by the Company on or with respect to the Bonds
(even though NE LP shall not have actually made any payment or prepayment on or
with respect to this Note).
Any and all payments of principal and interest hereunder shall be made
by NE LP to the Company in U.S. dollars.
This Note may be executed in two or more counterparts. Each signed copy
shall be an original, but all of them together represent one and the same
agreement.
This Note shall be governed by and construed in accordance with the
laws of the State of New York.
Very truly yours,
NORTHEAST ENERGY, LP,
By: TRACTEBEL NORTHEAST
GENERATION GP, INC.,
as a general partner
By:______________________________
Name:
Title:
By: ESI NORTHEAST ENERGY GP, INC.,
as a general partner
By:______________________________
Name:
Title:
H-2
<PAGE>
- ---------------------------------
Pay to the Order of:
State Street, as Collateral Agent
ESI TRACTEBEL ACQUISITION CORP.
By: ____________________________
Title: Vice President
H-3
<PAGE>
EXHIBIT I
FORM OF FPL GROUP CAPITAL GUARANTEE
I-1
Exhibit 4.2
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of February 19, 1998
by and among
ESI TRACTEBEL ACQUISITION CORP.
NORTHEAST ENERGY, LP
and
Goldman, Sachs & Co.
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 19, 1998, by and among ESI Tractebel Acquisition
Corp., (the "Company"), Northeast Energy, LP, (the "Bond Guarantor") and
Goldman, Sachs & Co. ( the "Purchaser") who has agreed to purchase the Company's
7.99% Series A Secured Bonds due 2011 (the "Series A Bonds") pursuant to the
Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 12, 1998, (the "Purchase Agreement"), by and among the Company, the
Bond Guarantor, Northeast Energy, LLC ("NE LLC"), ESI Energy, Inc., Tractebel
Power, Inc. and the Purchaser. In order to induce the Purchaser to purchase the
Series A Bonds, each of the Company and the Bond Guarantor has agreed to provide
the registration rights set forth in this Agreement. The execution and delivery
of this Agreement is a condition to the obligations of the Purchaser set forth
in Section 3 of the Purchase Agreement. Capitalized terms used herein and not
otherwise defined shall have the meaning assigned to them by the Indenture,
dated as of February 19, 1998, among the Company, the Bond Guarantor, NE LLC,
and State Street Bank and Trust Company in its capacity as trustee (the
"Trustee") and collateral agent (the "Collateral Agent"), relating to the Series
A Bonds and the Series B Bonds (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Affiliate: As defined in Rule 144 of the Securities Act.
Bond Guarantor: The Bond Guarantor defined in the preamble hereto and
any person which becomes a guarantor of either series of Bonds, in each case
after the date hereof pursuant to the terms of the Indenture.
Bonds: Series A Bonds and Series B Bonds (including guarantees thereof
by the Bond Guarantor).
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Definitive Bonds, as defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Securities Act of the Exchange Offer Registration
Statement relating to the Series B Bonds to be issued in the Exchange Offer, (b)
the maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof and (c) the delivery by the
Company to the Registrar under the Indenture of Series B Bonds in the same
aggregate principal amount as the aggregate principal amount of Series A Bonds
tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Target Date: As defined in Section 3(a) and 4(a) hereof.
<PAGE>
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Series B Bonds (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Bonds that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchaser propose to sell
the Series A Bonds to certain "qualified institutional buyers," as such term is
defined in Rule 144A under the Securities Act and pursuant to Regulation S under
the Securities Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Default Damages: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Bond Guarantor relating to (a) an offering of Series B Bonds pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted Bonds
pursuant to the Shelf Registration Statement, in each case, (i) that is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Regulation S: Regulation S promulgated under the Securities Act.
Restricted Broker-Dealer: Any Broker-Dealer that holds Series B Bonds
that were acquired in the Exchange Offer in exchange for Series A Bonds that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Bonds acquired
directly from the Company or any of its affiliates).
Rule 144: Rule 144 promulgated under the Securities Act.
Securities Act: The Securities Act of 1933, as amended.
2
<PAGE>
Series B Bonds: The Company's 7.99% Series B Secured Bonds due 2011 to
be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Bonds: Each Bond, until the earliest to occur of
(a) the date on which such Bond is exchanged in the Exchange Offer and entitled
to be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (b) the date on which
such Bond has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Bond is disposed of by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained therein)
or (d) the date on which such Bond is distributed to the public pursuant to Rule
144 under the Securities Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Bonds (each, a
"Holder") whenever such Person owns Transfer Restricted Bonds.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Bond Guarantor shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date (the "Exchange Offer Filing Date"), but in no
event later than 90 days after the Closing Date (such 90th day being the "Filing
Deadline"), (ii) use its best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but in no event
later than 180 days after the Closing Date (such 180th day being the
"Effectiveness Target Date"), (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause it to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Securities Act and (C) cause all
necessary filings, if any, in connection with the registration and qualification
of the Series B Bonds to be made under the Blue Sky laws of such jurisdictions
as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the Series B Bonds to be offered in exchange for
the Series A Bonds that are Transfer Restricted Bonds and to permit resales of
Series B Bonds by Broker-Dealers that tendered in the Exchange Offer Series A
Bonds that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Bonds
acquired directly from the Company or any of its Affiliates) as contemplated by
Section 3(c) below.
(b) The Company and the Bond Guarantor shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period
3
<PAGE>
be less than 20 Business Days. The Company and the Bond Guarantor shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Series B Bonds shall be included in the
Exchange Offer Registration Statement. The Company and the Bond Guarantor shall
use their respective best efforts to cause the Exchange Offer to be Consummated
on the earliest practicable date after the Exchange Offer Registration Statement
has become effective, but in no event later than 30 Business Days after the
Effectiveness Target Date.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Bonds that were
acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted Bonds
acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Bonds pursuant to the Exchange Offer; however,
such Broker-Dealer may be deemed to be an "underwriter" within the meaning of
the Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with its initial sale of any
Series B Bonds received by such Broker-Dealer in the Exchange Offer and that the
Prospectus contained in the Exchange Offer Registration Statement may be used to
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Broker-Dealers that the Commission may require in order to permit such
sales pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Bonds held by any
such Broker-Dealer, except to the extent required by the Commission as a result
of a change in policy, rules or regulations after the date of this Agreement.
See the Shearman & Sterling no-action letter (available July 2, 1993).
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for sales of Series B Bonds by Broker-Dealers, the
Company and the Bond Guarantor agree to use their respective best efforts to
keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) hereof
and in conformity with the requirements of this Agreement, the Securities Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of one year from the date on which the Exchange Offer is
Consummated, or such shorter period as will terminate when all Transfer
Restricted Bonds covered by such Registration Statement have been sold pursuant
thereto. The Company and the Bond Guarantor shall promptly provide sufficient
copies of the latest version of such Prospectus to such Broker-Dealers promptly
upon request, and in no event later than one day after such request, at any time
during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Bond Guarantor have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Bonds shall notify the Company within 20 Business Days following the
Consummation of the Exchange Offer that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Series B Bonds acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Bonds acquired directly from the Company or any of its Affiliates, then the
Company and the Bond Guarantor shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a) (ii) above,
(such
4
<PAGE>
earlier date, the "Filing Deadline"), a shelf registration statement pursuant to
Rule 415 under the Securities Act (which may be an amendment to the Exchange
Offer Registration Statement (the "Shelf Registration Statement"), relating to
all Transfer Restricted Bonds, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
Filing Deadline (such 90th day the "Effectiveness Target Date").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law, then
the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above; provided that, in such event, the
Company shall remain obligated to meet the Effectiveness Target Date set forth
in clause (y).
The Company and the Bond Guarantor shall use their respective best
efforts to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Bonds by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section
6(c)(i)) following the date on which such Shelf Registration Statement first
becomes effective under the Securities Act, or such shorter period as will
terminate when all Transfer Restricted Bonds covered by such Registration
Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Bonds may include
any of its Transfer Restricted Bonds in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Company
in writing, within 20 days after receipt of a request therefor, the information
specified in Item 507 or 508 of Regulation S-K, as applicable, of the Securities
Act for use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted Bonds
shall be entitled to Registration Default Damages pursuant to Section 5 hereof
unless and until such Holder shall have provided all such information. Each
selling Holder agrees to promptly furnish additional information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
SECTION 5. REGISTRATION DEFAULT DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Target Date, (iii) the
Exchange Offer has not been Consummated within 30 Business Days after the
Exchange Offer Registration Statement is first declared effective by the
Commission or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "Registration Default"), then the Company and the
Bond Guarantor hereby jointly and severally agree to pay to each Holder of
Transfer Restricted Bonds affected thereby liquidated damages ("Registration
Default Damages") in an amount equal to $.05 per week per
5
<PAGE>
$1,000 in principal amount of Transfer Restricted Bonds held by such Holder for
each week or portion thereof that the Registration Default continues for the
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the Registration Default Damages shall increase by an
additional $.05 per week per $1,000 in principal amount of Transfer Restricted
Bonds with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Registration Default Damages
of $.50 per week per $1,000 in principal amount of Transfer Restricted Bonds;
provided that the Company and the Bond Guarantor shall in no event be required
to pay Registration Default Damages for more than one Registration Default at
any given time. Notwithstanding anything to the contrary set forth herein, (1)
upon filing of the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the Registration
Default Damages payable with respect to the Transfer Restricted Bonds as a
result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Registration Default Damages shall be paid to the Holders
entitled thereto, in the manner provided for the payment of interest in the
Indenture, on each Interest Payment Date, as more fully set forth in the
Indenture and the Bonds. The Bond Guarantor unconditionally and irrevocably
guarantees the due payment of Registration Default Damages, if any, by the
Company to the Holders pursuant to this Section 5. All obligations of the
Company and the Bond Guarantor set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such Security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Bond Guarantor shall comply with all
applicable provisions of Section 6(c) below, shall use their respective best
efforts to effect such exchange and to permit the resale of Series B Bonds by
Broker-Dealers that tendered in the Exchange Offer Series A Bonds that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Bonds acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and shall comply
with all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the
Company raises a substantial question as to whether the Exchange Offer
is permitted by applicable federal law, the Company and the Bond
Guarantor hereby agree to seek a no-action letter or other favorable
decision from the Commission allowing the Company and the Bond
Guarantor to Consummate an Exchange Offer for such Transfer Restricted
Bonds. The Company and the Bond Guarantor hereby agree to pursue the
issuance of such a decision to the Commission staff level. In
connection with the foregoing, the Company and the Bond Guarantor
hereby agree to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon
6
<PAGE>
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Bonds (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange
Offer, a written representation to the Company and the Bond Guarantor
(which may be contained in the letter of transmittal contemplated by
the Exchange Offer Registration Statement) to the effect that (A) it is
not an Affiliate of the Company, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Series B Bonds to be
issued in the Exchange Offer and (C) it is acquiring the Series B Bonds
in its ordinary course of business. Each Holder using the Exchange
Offer to participate in a distribution of the Series B Bonds hereby
acknowledges and agrees that, if the resales are of Series B Bonds
obtained by such Holder in exchange for Series A Bonds acquired
directly from the Company or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply with
the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Bond Guarantor shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Bond Guarantor are registering the Exchange Offer in reliance on
the position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) including a
representation that neither the Company nor the Bond Guarantor has
entered into any arrangement or understanding with any Person to
distribute the Series B Bonds to be received in the Exchange Offer and
that, to the best of the Company's and the Bond Guarantor's information
and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Bonds in its ordinary course of business and has
no arrangement or understanding with any Person to participate in the
distribution of the Series B Bonds received in the Exchange Offer and
(C) any other undertaking or representation required by the Commission
as set forth in any no-action letter obtained pursuant to clause (i)
above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Bond Guarantor shall comply with all
the provisions of Section 6(c) below and shall use their respective best efforts
to effect such registration to permit the sale of the Transfer Restricted Bonds
being sold in accordance with the intended method or methods of distribution
thereof (as indicated in the information furnished to the Company pursuant to
Section 4(b) hereof), and pursuant thereto the Company and the Bond Guarantor
will prepare and file with the Commission a Registration Statement relating to
the registration on any appropriate form under the Securities Act, which form
shall be available for the sale of the Transfer Restricted Bonds in accordance
with the intended method or
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methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the Bond
Guarantor shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Transfer Restricted Bonds
during the period required by this Agreement, the Company and the Bond
Guarantor shall file promptly an appropriate amendment to such
Registration Statement curing such defect, and, if Commission review is
required, use their respective best efforts to cause such amendment to
be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to comply fully with Rules 424, 430A and
462, as applicable, under the Securities Act in a timely manner; and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the selling Holders promptly and, if requested by
such Persons, confirm such advice in writing, (A) when the Prospectus
or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any applicable Registration Statement or
any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement under the Securities Act or of the suspension by
any state securities commission of the qualification of the Transfer
Restricted Bonds for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes and (D)
of the existence of any fact or the happening of any event that makes
any statement of a material fact made in the Registration Statement,
the Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Bonds under
state securities or Blue Sky laws, the Company and the Bond Guarantor
shall use their respective best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
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(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer
Restricted Bonds, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading;
(v) furnish to the Purchaser and each selling Holder named in any
Registration Statement or Prospectus in connection with such sale, if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of
such Registration Statement), which documents will be subject to the
review and comment of such Holders in connection with such sale, if
any, for a period of at least five Business Days, and the Company will
not file any such Registration Statement or Prospectus or any amendment
or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which the
selling Holders of the Transfer Restricted Bonds covered by such
Registration Statement in connection with such sale, if any, shall
reasonably object within five Business Days after the receipt thereof.
A selling Holder shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Securities Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders in connection
with such sale, if any, make the Company's and the Bond Guarantor's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders may
reasonably request;
(vii) make available at reasonable times for inspection by the
selling Holders participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders, all financial and other records, pertinent corporate
documents of the Company and the Bond Guarantor and cause the Company's
and the Bond Guarantor's officers, directors and employees to supply
all information reasonably requested by any such selling Holder,
attorney or accountant in connection with such Registration Statement
or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(viii) if requested by any selling Holders in connection with
such sale, if any, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Bonds; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) furnish to each selling Holder in connection with such sale,
if any, without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of
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<PAGE>
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to each selling Holder, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably may
request; the Company and the Bond Guarantor hereby consent to the use
(in accordance with law) of the Prospectus and any amendment or
supplement thereto by each of the selling Holders in connection with
the offering and the sale of the Transfer Restricted Bonds covered by
the Prospectus or any amendment or supplement thereto;
(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Bonds pursuant to any applicable
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted Bonds in
connection with any sale or resale pursuant to any applicable
Registration Statement and in such connection, the Company and the Bond
Guarantor shall:
(A) upon request of any selling Holder, furnish (or in the case
of paragraphs (2) and (3), use its best efforts to cause to be
furnished) to each selling Holder, upon the effectiveness of the
Shelf Registration Statement or upon Consummation of the Exchange
Offer, as the case may be:
(1) (1) a certificate, dated such date, signed on
behalf of the Company and the Bond Guarantor by (x) the
President or any Vice President and (y) a principal financial
or accounting officer of the Company and such Bond Guarantor,
confirming, as of the date thereof, the matters set forth in
paragraphs (a), (f) and (g) of Section 7 of the Purchase
Agreement and such other similar matters as the selling Holders
may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer, or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Bond Guarantor covering matters similar to
those set forth in paragraph (c) of Section 7 of the Purchase
Agreement and such other matter as the selling Holders may
reasonably request, and in any event including a statement to
the effect that such counsel has participated in conferences
with officers and other representatives of the Company and the
Bond Guarantor, representatives of the independent public
accountants for the Company and the Bond Guarantor and have
considered the matters required to be stated therein and the
statements contained therein; and that such counsel advises
that, on the basis of the foregoing (relying as to materiality
to the extent such counsel deems appropriate upon the
statements of officers and other representatives of the Company
and the Bond Guarantor and without independent check or
verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the
case of the Exchange Offer Registration Statement, as of the
date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in
the case of the opinion dated the date of Consummation of the
Exchange Offer, as
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<PAGE>
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness
of the financial statements, notes and schedules and other
financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's, the Bond Guarantor's and the
Partnerships' independent accountants, in the customary form
and covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 7(e) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with clause (A) above and with any customary conditions contained
in the any agreement entered into by the Company and the Bond
Guarantor pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted Bonds,
cooperate with the selling Holders and their counsel in connection with
the registration and qualification of the Transfer Restricted Bonds
under the securities or Blue Sky laws of such jurisdictions as the
selling Holders may request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions
of the Transfer Restricted Bonds covered by the applicable Registration
Statement; provided, however, that neither the Company nor the Bond
Guarantor shall be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of Series A Bonds
covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Bonds having an aggregate principal amount equal to
the aggregate principal amount of Series A Bonds surrendered to the
Company by such Holder in exchange therefor or being sold by such
Holder; such Series B Bonds to be registered in the name of such Holder
or in the name of the purchaser of such Series B Bonds , as the case
may be; in return, the Series A Bonds held by such Holder shall be
surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted Bonds
that will result in such securities no longer being Transfer Restricted
Bonds, cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates representing Transfer
Restricted Bonds to be sold and not bearing any restrictive legends;
and to register such Transfer Restricted Bonds in such denominations
and such names as the selling Holders may request at least two Business
Days prior to such sale of Transfer Restricted Bonds;
(xv) use their respective best efforts to cause the disposition
of the Transfer Restricted Bonds covered by the Registration Statement
to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Transfer Restricted
Bonds, subject to the proviso contained in clause (xii) above;
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<PAGE>
(xvi) provide a CUSIP number for all Transfer Restricted Bonds
not later than the effective date of a Registration Statement covering
such Transfer Restricted Bonds and provide the Trustee under the
Indenture with printed certificates for the Transfer Restricted Bonds
which are in a form eligible for deposit with the Depository Trust
Company;
(xvii) otherwise use their respective best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Securities Act);
(xviii) make appropriate officers of the Company available to the
selling Holders for meetings with prospective purchasers of the
Transfer Restricted Bonds and prepare and present to potential
investors customary "road show" material in a manner consistent with
other new issuances of other securities similar to the Transfer
Restricted Bonds; and
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute and use its best efforts to
cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified
in a timely manner; and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension
Notice"), such Holder will forthwith discontinue disposition of Transfer
Restricted Bonds pursuant to the applicable Registration Statement until (i)
such Holder's has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "Recommencement Date"). Each
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Bonds that was current at the
time of receipt of the Suspension Notice. The time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by a number of days equal to the number of days
in the period from and including the date of delivery of the Suspension Notice
to the date of delivery of the Recommencement Date.
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<PAGE>
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Bond Guarantor's
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Series B Bonds to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Bond Guarantor and the Holders of
Transfer Restricted Bonds; (v) all application and filing fees in connection
with listing the Series B Bonds on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company and the
Bond Guarantor (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Bond Guarantor's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Bond Guarantor.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Bond
Guarantor will reimburse the Purchaser and the Holders of Transfer Restricted
Bonds being tendered in the Exchange Offer and/or resold pursuant to the "Plan
of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Latham & Watkins, unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Bonds for whose benefit
such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Bond Guarantor (together referred to herein as
the "Indemnifying Parties" and each individually as the "Indemnifying Party")
will, jointly and severally, indemnify and hold harmless (i) each Holder and
(ii) each person, if any, who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder") against any losses, claims, damages or liabilities, joint
or several, to which such Indemnified Holder may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, preliminary prospectus or Prospectus, or any amendment
or supplement thereto, provided by or on behalf of the Company or the Bond
Guarantor to any holder or any prospective purchaser of Series B Bonds, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, and will
reimburse the Indemnified Holder for any legal or other expenses reasonably
incurred by the Indemnified Holder in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however, that
the Company or the Bond Guarantor shall not be liable in any such case to the
extent that any such loss, claim, damage or
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<PAGE>
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Registration Statement,
preliminary prospectus or Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company or the Bond Guarantor by the Indemnified Holder expressly for use
therein.
(b) Each Indemnified Holder of Transfer Restricted Bonds agrees,
severally and not jointly, to indemnify and hold harmless the Indemnifying
Parties against any losses, claims, damages or liabilities to which such
Indemnifying Parties may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Registration Statement, preliminary prospectus or Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Indemnifying Parties by the Indemnified Holder
expressly for use therein; and will reimburse the Indemnifying Parties for any
legal or other expenses reasonably incurred by such Indemnifying Parties in
connection with investigating or defending any such action or claim as such
expenses are incurred. In no event shall any Indemnified Holder be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Indemnified Holder with respect to its sale of Transfer
Restricted Bonds pursuant to a Registration Statement exceeds (i) the amount
paid by such Indemnified Holder for such Transfer Restricted Bonds and (ii) the
amount of any damages that such Indemnified Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to,
or an admission of, fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party
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<PAGE>
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Indemnifying Parties on the one hand and the Indemnified Holders
on the other from their sale of Transfer Restricted Bonds. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Indemnifying Parties on the one hand and the Indemnified Holders on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Indemnifying Parties on
the one hand or the Indemnified Holders on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Indemnifying Parties and the Indemnified Holders
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), the Indemnified Holder
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Transfer Restricted Bonds were offered to investors
exceeds the amount of any damages which the Indemnified Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
(e) The obligations of the Indemnifying Parties under this Section 8
shall be in addition to any liability which the Indemnifying Parties may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls the Indemnified Holder within the meaning of the
Securities Act; and the obligations of the Indemnified Holder under this Section
8 shall be in addition to any liability which the Indemnified Holder may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Indemnifying Parties and to each person, if any, who
controls any Indemnifying Parties within the meaning of the Securities Act.
SECTION 9. RULE 144A
The Company and the Bond Guarantor hereby agree with each Holder, for
so long as any Transfer Restricted Bonds remain outstanding and during any
period in which the Company or such Bond Guarantor is not subject to Section 13
or 15(d) of the Exchange Act, to make available, upon request of any Holder of
Transfer Restricted Bonds, to any Holder or beneficial owner of Transfer
Restricted Bonds in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Bonds designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Transfer Restricted Bonds
pursuant to Rule 144A.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Bond Guarantor acknowledge and agree
that any failure by the Company and/or the Bond Guarantor to comply with their
respective obligations under
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Sections 3 and 4 hereof may result in material irreparable injury to the
Purchaser or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Purchaser or any Holder may obtain such
relief as may be required to specifically enforce the Company's and the Bond
Guarantor's obligations under Sections 3 and 4 hereof. The Company and the Bond
Guarantor further agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor the Bond
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor the Bond Guarantor has previously entered into any
agreement granting any registration rights with respect to its securities to any
Person. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's and the Bond Guarantor's securities under any agreement in effect on
the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Bonds and (ii) in the case of
all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Transfer Restricted
Bonds (excluding Transfer Restricted Bonds held by the Company of its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders
whose securities are being tendered pursuant to the Exchange Offer and that does
not affect directly or indirectly the rights of other Holders whose securities
are not being tendered pursuant to such Exchange Offer may be given by the
Holders of a majority of the outstanding principal amount of Transfer Restricted
Bonds subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the Bond
Guarantor, on the one hand, and the Purchaser, on the other hand, and shall have
the right to enforce such agreements directly to the extent they may deem such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Bond Guarantor:
ESI Tractebel Acquisition Corp.
11760 US Highway One
North Palm Beach, FL 33408
Telecopier No.:
Attention:
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Northeast Energy, LP
c/o ESI Energy, Inc.
11760 US Highway One
North Palm Beach, FL 33408
Telecopier No.:
Attention:
With a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Telecopier No.: (212) 506-5151
Attention: Daniel A. Mathews
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Goldman, Sachs &
Co., on behalf of the Purchaser (in the form attached hereto as Exhibit A) and
shall be addressed to: Attention: Goldman, Sachs & Co., 85 Broad Street New
York, NY 10004.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Bonds; provided, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Bonds in violation of the terms hereof or of the Purchase Agreement
or the Indenture. If any transferee of any Holder shall acquire Transfer
Restricted Bonds in any manner, whether by operation of law or otherwise, such
Transfer Restricted Bonds shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Bonds such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
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(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Bonds. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ESI TRACTEBEL ACQUISITION CORP.
By: /s/ Glenn E. Smith
------------------------
Name: G1enn E. Smith
Title: Vice President
NORTHEAST ENERGY, LP
By its general Partners
ESI NORTHEAST ENERGY GP, INC.
By: /s/ Glenn E. Smith
------------------------
Name: Glenn E. Smith
Title: Vice President
TRACTEBEL NORTHEAST GENERATION GP, INC.
By: /s/ James E. Hammelman
-------------------------
Name: James E. Hammelman
Title: Vice President and
Treasurer
/s/ Goldman, Sachs & Co.
- --------------------------
Goldman, Sachs & Co.
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
From: ESI Tractebel Acquisition Corp.
7.99% secured Bonds Due 2011
Date: ______________, 1998
For your information only (NO ACTION REQUIRED):
Today, ____________, 1998, we filed an A/B Exchange Registration
Statement/a Shelf Registration Statement with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
Exhibit 4.3
COMPANY & PARTNER
PLEDGE AGREEMENT
of
NEA and NJEA Partnership Interests
NE LLC Member Interests
and the Note evidencing the Bond Loan
THIS COMPANY & PARTNER PLEDGE AGREEMENT (this "Agreement") is made and
entered into as of February 19, 1998 by Northeast Energy, LP, a Delaware limited
partnership ("NE LP"), Northeast Energy, LLC, a Delaware limited liability
company and a wholly-owned subsidiary of NE LP ("NE LLC") and ESI Tractebel
Acquisition Corp., a Delaware corporation (the "Company" and together with NE LP
and NE LLC the "Company & Partner Pledgors" and each a "Company and Partner
Pledgor"), each having its principal office at 11760 U.S. Highway One, North
Palm Beach, Florida 33408, in favor of State Street Bank and Trust Company, a
Massachusetts banking corporation ("State Street Bank") having an office at 225
Franklin Street, Boston, Massachusetts, 02110 as collateral agent (the
"Collateral Agent") for State Street Bank, as trustee (the "Trustee") for the
holders (the "Holders") of the 7.99% Secured Bonds Due 2011 of the Company.
Capitalized terms used and not defined herein shall have the meanings given to
such terms in the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, the Company & Partner Pledgors and State Street Bank, as
trustee, have entered into that certain indenture dated as of February 19, 1998
(as amended, amended and restated, supplemented or otherwise modified from time
to time, the "Indenture"), pursuant to which the Company issued $220 million in
aggregate principal amount of 7.99% Secured Bonds due 2011 (together with any
bonds issued in replacement thereof or in exchange or substitution therefor, the
"Bonds"); and
WHEREAS, NE LP and NE LLC are the legal and beneficial owners of all
of the partnership interests, including the "Interests" as defined in the
amended and restated agreement of limited partnership of NEA, dated as of
November 21, 1997 by NE LP and NE LLC (the "NEA Partnership Agreement") set
forth on Schedule I hereto (the "Pledged NEA Interests") of Northeast Energy
Associates, A Limited Partnership, a Massachusetts limited partnership ("NEA");
and
WHEREAS, NE LP and NE LLC are the legal and beneficial owners of all
of the partnership interests, including the "Interests" as defined in the
amended and restated agreement of limited partnership of NJEA, dated as of
November 21, 1997 by NE LP and NE LLC (the "NJEA Partnership Agreement") set
forth on Schedule I hereto (the "Pledged NJEA Interests" and together with the
Pledged NEA Interests, the "Pledged Partnership Interests")
<PAGE>
of North Jersey Energy Associates, A Limited Partnership, a New Jersey limited
partnership ("NJEA"), and
WHEREAS, NE LP is the legal and beneficial owner of all of the member
interests including the "Interest" as defined in the operating agreement of NE
LLC, dated as of November 21, 1997 by NE LP (the "NE LLC Operating Agreement")
set forth on Schedule I hereto (the "Pledged Member Interests") of NE LLC (in
such capacity an "Owned Entity" and together with NEA and NJEA, the "Owned
Entities"); and
WHEREAS, the Company is the legal and beneficial owner of a promissory
note issued by NE LP evidencing NE LP's obligation to repay the Bond Loan from
the Company to NE LP of the proceeds received by the Company from the sale of
the Bonds, together with any note issued in replacement thereof or in exchange
or substitution thereof (the "Pledged Note"); and
WHEREAS, the terms of the Indenture require that each Company &
Partner Pledgor (i) pledge to the Collateral Agent for its benefit, the benefit
of the Trustee and the ratable benefit of the Holders of Bonds, and grant to the
Collateral Agent for its benefit, the benefit of the Trustee and the ratable
benefit of the Holders of Bonds a security interest in, the Pledged Collateral
(as defined herein) and (ii) execute and deliver this Agreement in order to
secure the payment and performance by each Company & Partner Pledgor of all of
the Obligations of the Company, NE LP and NE LLC under the Indenture, the Note,
the Bond Guaranty and the Bonds.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order to
induce the Holders of Bonds to purchase the Bonds, each Company & Partner
Pledgor hereby agrees with the Collateral Agent for its benefit, the benefit of
the Trustee and the ratable benefit of the Holders of Bonds as follows:
SECTION 1. Pledge. Each Company & Partner Pledgor, with respect to the
Pledged Collateral now owned or hereafter acquired by such Company & Partner
Pledgor, hereby pledges to the Collateral Agent for its benefit, the benefit of
the Trustee and for the ratable benefit of the Holders of Bonds, and grants to
the Collateral Agent for its benefit, the benefit of the Trustee and the ratable
benefit of the Holders of Bonds, the following (the "Pledged Collateral"):
(a) a continuing first priority perfected security interest in all of
their right, title and interest in the Pledged Partnership Interests (other
than the 1% general partner interests in each of NEA and NJEA owned by NE
LP, which is covered by clause (b) below), and all products and proceeds of
any of such Pledged Partnership Interests, including, without limitation,
all dividends, cash, rights, and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Pledged Partnership Interests or any of the
foregoing including distributions of "Cash Flow" (as defined in each of the
NEA Partnership Agreement and the NJEA Partnership Agreement); and
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(b) a continuing second priority security interest in all of their
right, title and interest in the general partner interests in each of NEA
and NJEA owned by NE LP and all products and proceeds of any of such 1%
general partner interests of the Pledged Partnership Interests, including,
without limitation, all dividends, cash, rights, and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such Pledged Partnership
Interests or any of the foregoing including distributions of "Cash Flow" (as
defined in each of the NEA Partnership Agreement and the NJEA Partnership
Agreement); and
(c) a continuing first priority perfected security interest in all of
its right, title and interest in the Pledged Member Interests, and all
products and proceeds of any of the Pledged Member Interests, including,
without limitation, all dividends, cash, rights, and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Member Interests or
any of the foregoing including distributions of "Distributable Cash" (as
defined in the NE LLC Operating Agreement);
(d) continuing first priority perfected security interest in all of its
right, title and interest in all additional Equity Interests in the Owned
Entities from time to time acquired by each NE LP and NE LLC in any manner,
and the certificates, if any, representing such additional Equity Interests
(any such additional Equity Interests and other items shall constitute part
of the Pledged Partnership Interests and the Pledged Member Interests);
(e) continuing first priority security interest in all of its right,
title and interest in the Pledged Note and the instrument representing the
Pledged Note, and all products and proceeds of the Pledged Note, including,
without limitation, all interest, principal and premium payments (if any)
and Registration Default Damages (if any), and all instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for the Pledged Note or any of the foregoing.
SECTION 2. Security for Obligations. This Agreement secures the prompt and
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all Obligations of the Company, NE LP and NE LLC
under the Indenture, the Note, the Bond Guaranty and the Bonds (including,
without limitation, interest, premium and Registration Default Damages, if any,
and any other Obligations accruing after the date of any filing by each Company
& Partner Pledgor of any petition in bankruptcy or the commencement of any
bankruptcy, insolvency or similar proceeding with respect to any of the Company
& Partner Pledgors) (the "Secured Obligations").
SECTION 3. Delivery of Pledged Collateral. Each Company & Partner Pledgor
hereby agrees that all certificates or instruments representing or evidencing
the Pledged Collateral shall be immediately delivered to and held at all times
by the Collateral Agent pursuant hereto in the State of New York and shall be in
suitable form for transfer by delivery, or issued in the name of such Company &
Partner Pledgor and accompanied by instruments of transfer or assignment duly
executed in blank and undated and bearing appropriate signature guarantees, and
in either case having attached thereto all requisite federal or state stock
transfer tax stamps, all in form and substance satisfactory to the Collateral
Agent. The Collateral Agent
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<PAGE>
shall have the right to transfer Pledged Collateral into its name, as
Collateral Agent hereunder, or into the name of its nominee.
SECTION 4. Representations and Warranties. Each Company & Partner
Pledgor hereby makes all representations and warranties applicable to such
Company & Partner Pledgor contained in the Indenture. Each Company & Partner
Pledgor further represents and warrants that:
(a) The execution, delivery and performance by each Company & Partner
Pledgor of this Agreement are within each such Company & Partner Pledgor's
full power and authority (corporate or other) have been duly authorized by
all necessary action (corporate or other) and do not contravene, or
constitute a default under, any provision of applicable law or regulation or
of the certificate of incorporation, bylaws, operating agreement or
agreement of limited partnership of each such Company & Partner Pledgor or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon each such Company & Partner Pledgor, or result in the creation
or imposition of any Lien on any assets of each such Company & Partner
Pledgor, other than the Lien contemplated hereby and, with respect to the
pledge by NE LP of its one percent general partnership interest in each NEA
and NJEA, other than the Lien securing NEA's and NJEA's obligations in
respect of the Project Indebtedness.
(b) The Pledged Note has been duly authorized, issued and delivered by
NE LP and constitutes the legal, valid and binding obligation of NE LP,
enforceable against NE LP in accordance with its terms.
(c) The Pledged Note constitutes all of the promissory notes of NE LP in
favor of the Company.
(d) The execution, delivery and performance of the NEA Partnership
Agreement creating the Pledged Partnership Interests has been duly
authorized by NE LP and NE LLC and constitutes the valid and binding
obligations of NE LP and NE LLC in accordance with its terms.
(e) The execution, delivery and performance of the NJEA Partnership
Agreement creating the Pledged Partnership Interests has been duly
authorized by NE LP and NE LLC and constitutes the valid and binding
obligations of NE LP and NE LLC in accordance with its terms.
(f) The execution, delivery and performance of the NE LLC Operating
Agreement creating the Pledged Member Interests has been duly authorized by
NE LP and such NE LLC Operating Agreement constitutes the valid and binding
obligations of NE LP in accordance with its terms.
(g) The Pledged Member Interests constitute all of the authorized,
issued and outstanding Equity Interests of NE LLC and constitute all of the
Equity Interests of NE LLC beneficially owned by NE LP. The Pledged
Partnership Interests constitute all of the authorized Equity Interests of
NEA and NJEA and constitute all of the Equity Interests of the NE LP
beneficially owned by the Owners of NE LP.
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(h) NE LP is the legal, record and beneficial owners of the Pledged
Member Interests, free and clear of any Lien or claims of any Person except
for the security interest created by this Agreement. NE LP and NE LLC are
the legal, record and beneficial owners of the Pledged Partnership
Interests, free and clear of any Lien or claims of any Person except for the
security interest created by this Agreement and except for the first
priority pledge of the general partner interest of each of NEA and NJEA
securing, among other things, the obligations of ESI Tractebel Funding Corp.
(formerly known as IEC Funding Corp.) with respect to the Project Securities
(as defined in the Indenture).
(i) Each Company & Partner Pledgor has full power and authority to enter
into this Agreement and has the right to vote, pledge and grant a security
interest in the Pledged Collateral as provided by this Agreement.
(j) This Agreement has been duly executed and delivered by each Company
& Partner Pledgor and constitutes a legal, valid and binding obligation of
each Company & Partner Pledgor, enforceable against each Company & Partner
Pledgor in accordance with its terms.
(k) Upon the delivery to the Collateral Agent of the Pledged Collateral
and the filing of Uniform Commercial Code (the "UCC") financing statements,
the pledge of the Pledged Collateral (other than the Pledged Collateral set
forth in Section 1(b) hereof with respect to which this Agreement creates a
valid and perfected second priority security interest) pursuant to this
Agreement creates a valid and perfected first priority security interest in
the Pledged Collateral, securing the payment of the Secured Obligations for
the benefit of the Collateral Agent, the Trustee and the Holders of Bonds,
and enforceable as such against all creditors of the Company & Partner
Pledgors and any Persons purporting to purchase any of the Pledged
Collateral from the Company & Partner Pledgors.
(l) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by any Company & Partner Pledgor of the Pledged Collateral pursuant
to this Agreement or for the execution, delivery or performance of this
Agreement by any Company & Partner Pledgor or (ii) for the exercise by the
Collateral Agent of the voting or other rights provided for in this
Agreement or the remedies in respect of the Pledged Collateral pursuant to
this Agreement (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities).
(m) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the best knowledge of
any Company & Partner Pledgor, threatened by or against such Company &
Partner Pledgor or against any of its properties or revenues with respect to
this Agreement or any of the transactions contemplated hereby.
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(n) The pledge of the Pledged Collateral pursuant to this Agreement is
not prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System).
(o) All information set forth herein relating to the Pledged Collateral
is accurate and complete in all respects.
SECTION 5. Further Assurance. The Company & Partner Pledgors will at all
times cause the security interests granted pursuant to this Agreement to
constitute valid perfected first priority security interests in the Pledged
Collateral (except to the extent that the Company and Partner Pledgors cause the
security interest in the general partner interests in NEA and NJEA to constitute
perfected second priority security interests), enforceable as such against all
creditors of Company & Partner Pledgors and (except as otherwise specifically
provided herein) any Persons purporting to purchase any Pledged Collateral from
the Company & Partner Pledgors. Each Company & Partner Pledgor will, promptly
upon request by the Collateral Agent, execute and deliver or cause to be
executed and delivered, or use its best efforts to procure, all stock powers,
proxies, tax stamps, assignments, instruments and other documents, all in form
and substance satisfactory to the Collateral Agent, deliver any instruments to
the Collateral Agent and take any other actions that are necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect, continue the
perfection of, or protect the first priority or second priority, as applicable,
of the Collateral Agent's security interest in, the Pledged Collateral, to
protect the Pledged Collateral against the rights, claims, or interests of third
persons, to enable the Collateral Agent to exercise or enforce its rights and
remedies hereunder, or otherwise to effect the purposes of this Agreement. Each
Company & Partner Pledgor also hereby authorizes the Collateral Agent to file
any financing or continuation statements with respect to the Pledged Collateral
without the signature of such Company & Partner Pledgor to the extent permitted
by applicable law. The Company & Partner Pledgors will pay all costs incurred in
connection with any of the foregoing.
SECTION 6. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be
continuing, each Company & Partner Pledgor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Pledged Member
Interests or the Pledged Partnership Interests or any part thereof for any
purpose not inconsistent with the terms of this Agreement or the Indenture;
provided, however, that such Company & Partner Pledgor shall not exercise or
shall refrain from exercising any such right if such action would have a
material adverse effect on the value of the Pledged Collateral or any part
thereof or be inconsistent with or violate any provisions of this Agreement
or the Indenture.
(b) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions of the Indenture,
each Company & Partner Pledgor shall be entitled to receive, and to utilize
(subject to the provisions of the Indenture) free and clear of the Lien of
this Agreement, all regular and ordinary cash dividends paid from time to
time in respect of the Pledged Member Interests and the Pledged Partnership
Interests.
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(c) Any and all (i) dividends, other distributions, interest and
principal payments paid or payable in the form of instruments and/or other
property (other than cash interest payments permitted under Section 6(b)
hereof and cash dividends permitted under Section 6(c) hereof) received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral, (ii) dividends and other distributions paid or payable
in cash in respect of any Pledged Member Interests or the Pledged
Partnership Interests in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, shall in each
case be forthwith delivered to the Collateral Agent to hold as Pledged
Collateral and shall, if received by a Company & Partner Pledgor, be
received in trust for the benefit of the Collateral Agent, the Trustee and
the Holders of Bonds, be segregated from the other property and funds of
such Company & Partner Pledgor and be forthwith delivered to the Collateral
Agent as Pledged Collateral in the same form as so received (with any
necessary endorsements).
(d) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to each Company & Partner Pledgor all such proxies
and other instruments as such Company & Partner Pledgor may reasonably
request for the purpose of enabling such Company & Partner Pledgor to
exercise the voting and other rights that it is entitled to exercise
pursuant to Sections 6(a) through 6(c) above.
(e) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of each Company & Partner Pledgor to exercise the
voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 6(a) shall cease, and all such rights shall
thereupon become vested in the Collateral Agent, which, to the extent
permitted by law, shall thereupon have the sole right to exercise such
voting and other consensual rights, and (ii) all cash interest payments and
dividends and other distributions payable in respect of the Pledged
Collateral shall be paid to the Collateral Agent and each Company & Partner
Pledgor's right to receive such cash payments pursuant to Sections 6(b) and
6(c) hereof shall immediately cease.
(f) Upon the occurrence and during the continuance of an Event of
Default, each Company & Partner Pledgor shall execute and deliver (or cause
to be executed and delivered) to the Collateral Agent all such proxies,
dividend and interest payment orders and other instruments as the Collateral
Agent may reasonably request for the purpose of enabling the Collateral
Agent to exercise the voting and other rights that it is entitled to
exercise pursuant to Section 6(f) above.
(g) All payments of interest, principal or premium and all dividends and
other distributions that are received by a Company & Partner Pledgor
contrary to the provisions of this Section 6 shall be received in trust for
the benefit of the Collateral Agent and the Holders, shall be segregated
from the other property or funds of such Company & Partner Pledgor and shall
be forthwith delivered to the Collateral Agent as Pledged Collateral in the
same form as so received (with any necessary endorsements).
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<PAGE>
SECTION 7. Covenants. Each Company & Partner Pledgor hereby covenants
and agrees with the Collateral Agent and the Holders of Bonds that it will
comply with all of the obligations, requirements and restrictions applicable to
such Company & Partner Pledgor contained in the Indenture. Each Company &
Partner Pledgor further covenants and agrees, from and after the date of this
Agreement and until the Secured Obligations have been paid in full, as follows:
(a) Each Company & Partner Pledgor agrees that it will not (i) sell,
assign, transfer, convey or otherwise dispose of, or grant any option or
warrant with respect to, any of the Pledged Collateral without the prior
written consent of the Collateral Agent and except as permitted under the
Indenture, (ii) create or permit to exist any Lien upon or with respect to
any of the Pledged Collateral, except for the security interest granted
under this Agreement, and at all times will be the sole beneficial owner
with respect to its Pledged Collateral, (iii) enter into any agreement or
understanding that purports to or that may restrict or inhibit the
Collateral Agent's rights or remedies hereunder, including, without
limitation, the Collateral Agent's right to sell or otherwise dispose of the
Pledged Collateral, (iv) take any action, or permit the taking of any action
by the Owned Entities, with respect to the Pledged Collateral the taking of
which would result in a material impairment of the economic value of the
Pledged Collateral as Collateral or a violation of the Indenture or this
Agreement, including, without limitation, the issuance by the Owned Entities
of any additional Equity Interests or promissory notes or the incurrence by
the Owned Entities of any Indebtedness to Persons other than a Company &
Partner Pledgor (except as permitted by the Indenture), (v) enter into any
agreement amending, modifying or supplementing the interest, principal or
maturity terms of the Pledged Note (except as permitted by the Indenture) in
a manner adverse to the interests of the Collateral Agent, the Trustee and
the Holders of Bonds; (vi) fail to give prompt notice to the Collateral
Agent of any notice of default given by NE LP to the Company under or with
respect to the Pledged Note together with a complete copy of such notice;
(vii) permit the Owned Entities to merge or consolidate with or into another
person or entity or sell or transfer all or substantially all of its assets
to another person or entity, except as permitted under the Indenture and
unless all outstanding Capital Stock, notes, other securities or Equity
Interests of the surviving entity in such merger or consolidation or of the
entity to whom such sale or transfer was made, together with any promissory
notes issued by such entity in favor of such Company & Partner Pledgor are,
upon such merger or consolidation, pledged hereunder to and deposited with
the Collateral Agent or (viii) fail to pay or discharge any tax, assessment
or levy of any nature not later than five days prior to the date of any
proposed sale under any judgment, writ or warrant of attachment with regard
to the Pledged Collateral.
(b) Each Company & Partner Pledgor agrees that immediately upon becoming
the beneficial owner of any additional shares of Capital Stock, notes, other
securities or Equity Interests of the Owned Entities (including as a result
of the merger or consolidation of the Owned Entities with or into another
entity) it will pledge and deliver to the Collateral Agent for its benefit,
the benefit of the Trustee and the ratable benefit of the Holders and grant
to the Collateral Agent for its benefit, the benefit of the Trustee and the
ratable benefit of the Holders, a continuing first priority (or with respect
to the Pledged Collateral set forth in Section 1(b) hereof, a continuing
second priority) security interest in such shares, notes, other
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securities or Equity Interests (as well as instruments of transfer or
assignment duly executed in blank and undated and any necessary stock
transfer tax stamps, all in form and substance satisfactory to the
Collateral Agent). Each Company & Partner Pledgor further agrees that it
will promptly deliver to the Collateral Agent a certificate executed by a
principal executive officer of such Company & Partner Pledgor describing
such additional shares, notes, other securities or Equity Interests and
certifying that the same have been duly pledged and delivered to the
Collateral Agent hereunder.
(c) The Company & Partner Pledgors agree that upon the acquisition or
creation of any new subsidiaries of any Company & Partner Pledgor, such
Company & Partner Pledgors will promptly pledge and deliver to the
Collateral Agent for its benefit, the benefit of the Trustee and the ratable
benefit of the Holders and grant to the Collateral Agent for its benefit,
the benefit of the Trustee and the ratable benefit of the Holders a first
priority security interest in any shares, notes, other securities or Equity
Interests (as well as instruments of transfer or assignment duly executed in
blank and undated and any necessary stock transfer tax stamps, all in form
and substance satisfactory to the Collateral Agent) of such subsidiaries.
SECTION 8. Power of Attorney. In addition to all of the powers granted
to the Collateral Agent pursuant to Section 11.06 of the Indenture, each Company
& Partner Pledgor hereby appoints and constitutes the Collateral Agent as such
Company & Partner Pledgor's attorney-in-fact to exercise all of the following
powers upon and at any time after the occurrence of an Event of Default: (i)
collection of proceeds of any Pledged Collateral; (ii) conveyance of any item of
Pledged Collateral to any purchaser thereof; (iii) giving of any notices or
recording of any Liens under Section 5 hereof; (iv) making of any payments or
taking any acts under Section 9 hereof and (v) paying or discharging taxes or
Liens levied or placed upon or threatened against the Pledged Collateral, the
legality or validity thereof and the amounts necessary to discharge the same to
be determined by the Collateral Agent in its sole discretion, and such payments
made by the Collateral Agent to become the obligations of such Company & Partner
Pledgor to the Collateral Agent, due and payable immediately without demand. The
Collateral Agent's authority hereunder shall include, without limitation, the
authority to endorse and negotiate, for the Collateral Agent's own account, any
checks or instruments in the name of each Company & Partner Pledgor, execute and
give receipt for any certificate of ownership or any document, transfer title to
any item of Pledged Collateral, sign each Company & Partner Pledgor's name on
all financing statements or any other documents deemed necessary or appropriate
to preserve, protect or perfect the security interest in the Pledged Collateral
and to file the same, prepare, file and sign each Company & Partner Pledgor's
name on any notice of Lien, and prepare, file and sign each Company & Partner
Pledgor's name on a proof of claim in bankruptcy or similar document against any
customer of each Company & Partner Pledgor, and to take any other actions
arising from or incident to the powers granted to the Collateral Agent in this
Agreement. This power of attorney is coupled with an interest and is irrevocable
by each Company & Partner Pledgor.
SECTION 9. Collateral Agent May Perform. If any Company & Partner
Pledgor fails to perform any agreement contained herein, the Collateral Agent
may itself perform, or cause performance of, such agreement, and the reasonable
expenses of the Collateral Agent incurred in
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connection therewith shall be payable by such Company & Partner Pledgor under
Section 14 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights and
powers granted to the Collateral Agent hereunder are being granted in order to
preserve and protect the Collateral Agent's, the Trustee's and the Holders' of
Bonds security interest in and to the Pledged Collateral granted hereby and
shall not be interpreted to, and shall not, impose any duties on the Collateral
Agent in connection therewith. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property,
it being understood that the Collateral Agent shall not have any responsibility
for (i) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
SECTION 11. Subsequent Changes Affecting Collateral. Each Company &
Partner Pledgor represents to the Collateral Agent, the Trustee and the Holders
of Bonds that such Company & Partner Pledgor has made its own arrangements for
keeping informed of changes or potential changes affecting the Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, payments of interest and/or principal,
reorganization or other exchanges, tender offers and voting rights), and such
Company & Partner Pledgor agrees that the Collateral Agent, the Trustee and the
Holders of Bonds shall have no responsibility or liability for informing any
Company & Partner Pledgor of any such changes or potential changes or for taking
any action or omitting to take any action with respect thereto. Each Company &
Partner Pledgor covenants that it will not, without the prior written consent of
the Collateral Agent, vote to enable, or take any other action to permit, the
Owned Entities to issue any capital stock, notes, other securities or Equity
Interests or to sell or otherwise dispose of, or grant any option with respect
to, any of the Pledged Collateral or create or permit to exist any Lien upon or
with respect to any of the Pledged Collateral, except for the security interests
granted under this Agreement. Each Company & Partner Pledgor will defend the
right, title and interest of the Collateral Agent, the Trustee and the Holders
of Bonds in and to the Pledged Collateral against the claims and demands of all
Persons.
SECTION 12. Remedies Upon Default.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent on behalf and for the benefit of the
Collateral Agent, the Trustee and the Holders of Bonds shall have, in
addition to all other rights given to such parties by law, by this
Agreement, the Sponsor Pledge Agreement or the Indenture, all of the rights
and remedies with respect to the Pledged Collateral of a secured party under
the UCC as in effect in the State of New York at that time. The Collateral
Agent may, without notice and at its option, transfer or register, and each
Company & Partner Pledgor shall register or cause to be registered upon
request therefor by the Collateral Agent, the Pledged Collateral or any part
thereof on the books of the Owned Entities into the name of the Collateral
Agent or the Collateral Agent's nominee(s), with or without any indication
that such Pledged Collateral is
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subject to the security interest hereunder. In addition, with respect to any
Pledged Collateral that shall then be in or shall thereafter come into the
possession or custody of the Collateral Agent, the Collateral Agent may sell
or cause the same to be sold at any broker's board or at public or private
sale, in one or more sales or lots, at such price or prices as the
Collateral Agent may deem best, for cash or on credit or for future
delivery, without assumption of any credit risk. The purchaser of any or all
Pledged Collateral so sold shall thereafter hold the same absolutely, free
from any claim, encumbrance or right of any kind whatsoever. Unless any of
the Pledged Collateral threatens to decline speedily in value or is or
becomes of a type sold on a recognized market, the Collateral Agent will
give the Company & Partner Pledgors reasonable notice of the time and place
of any public sale thereof, or of the time after which any private sale or
other intended disposition is to be made. Any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
insurance companies, commercial finance companies, or other financial
institutions disposing of property similar to the Pledged Collateral shall
be deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to the Company & Partner
Pledgors as provided below in Section 18.1, at least ten days before the
time of the sale or disposition. Any other requirement of notice, demand or
advertisement for sale is, to the extent permitted by law, waived. The
Collateral Agent or any Holder of Bonds may, in its own name or in the name
of a designee or nominee, buy any of the Pledged Collateral at any public
sale and, if permitted by applicable law, at any private sale. All expenses
(including court costs and reasonable attorneys' fees and disbursements) of,
or incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the
Pledged Collateral.
(b) If the Collateral Agent shall determine to exercise its right
to sell any or all of the Pledged Member Interests or the Pledged
Partnership Interests pursuant to Section 12(a) above, and if in the opinion
of counsel for the Collateral Agent it is necessary, or if in the opinion of
the Collateral Agent it is advisable, to have the Pledged Member Interests
or the Pledged Partnership Interests or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended
(the "Securities Act"), the Company & Partner Pledgors will cause the
applicable Owned Entity to (i) execute and deliver, and cause its directors
and officers to execute and deliver, all at such Owned Entity's expense, all
such instruments and documents, and to do or cause to be done all such other
acts and things as may be necessary or, in the opinion of the Collateral
Agent, advisable to register such Pledged Member Interests or the Pledged
Partnership Interests under the provisions of the Securities Act, (ii) cause
the registration statement relating thereto to become effective and to
remain effective for a period of 180 days from the date of the first public
offering of such Pledged Member Interests, Pledged Partnership Interests or
that portion thereof to be sold and (iii) make all amendments thereto and/or
to the related prospectus that, in the opinion of the Collateral Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. The Company & Partner Pledgors agree to cause
such Owned Entity to comply with the provisions of the securities or "Blue
Sky" laws of any jurisdiction that the Collateral Agent shall designate for
the sale of the Pledged Member Interests or the Pledged Partnership
Interests and to make available to such Owned Entity's security holders, as
soon
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as practicable, an earnings statement (which need not be audited) that will
satisfy the provisions of Section 11(a) of the Securities Act. The Company &
Partner Pledgors will cause such Owned Entity to furnish to the Collateral
Agent such number of copies as the Collateral Agent may reasonably request
of each preliminary and final prospectus, to notify the Collateral Agent
promptly of the happening of any event as a result of which any then
effective prospectus includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of then existing
circumstances, and to cause the Collateral Agent to be furnished with such
number of copies as the Collateral Agent may request of such supplement to
or amendment of such prospectus. The Company & Partner Pledgors will cause
such Owned Entity, to the extent permitted by law, to indemnify, defend and
hold harmless the Collateral Agent, the Trustee and the Holders of Bonds
from and against all losses, liabilities, expenses or claims (including
reasonable legal expenses and the reasonable costs of investigation) that
the Collateral Agent, the Trustee or the Holders of Bonds may incur under
the Securities Act or otherwise, insofar as such losses, liabilities,
expenses or claims arise out of or are based upon any alleged untrue
statement of a material fact contained in such registration statement (or
any amendment thereto) or in any preliminary or final prospectus (or any
amendment or supplement thereto), or arise out of or are based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the
extent that any such losses, liabilities, expenses or claims arise solely
out of or are based upon any such alleged untrue statement made or such
alleged omission to state a material fact included or excluded on the
written direction of the Collateral Agent. The Company & Partner Pledgors
will cause such Owned Entity to bear all costs and expenses of carrying out
its obligations hereunder.
(c) In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected after an Event of Default, each Company & Partner
Pledgor agrees that upon the occurrence or existence of any Event of
Default, the Collateral Agent may, from time to time, attempt to sell all or
any part of the Pledged Collateral by means of a private placement,
restricting the prospective purchasers to those who will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, the Collateral Agent may solicit offers to buy the Pledged
Collateral, or any part of it, for cash, from a limited number of investors
who might be interested in purchasing the Pledged Collateral. Each Company &
Partner Pledgor acknowledges and agrees that any such private sale may
result in prices and terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private
sale shall be deemed to have been made in a commercially reasonable manner.
The Collateral Agent shall be under no obligation to delay a sale of any of
the Pledged Collateral for the period of time necessary to permit a Owned
Entity to register such securities for public sale under the Securities Act,
or under applicable state securities laws, even if such Owned Entity agrees
to do so.
(d) Each Company & Partner Pledgor further agrees to use its best
efforts to do or cause to be done all such other acts as may be necessary to
make such sale or sales of all or any portion of the Pledged Collateral
pursuant to this Section 12 valid and binding and in compliance with any and
all other applicable requirements of law. Each Company &
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Partner Pledgor further agrees that a breach of any of the covenants
contained in this Section 12 will cause irreparable injury to the Collateral
Agent, the Trustee and the Holders of Bonds, that the Collateral Agent, the
Trustee and the Holders of Bonds have no adequate remedy at law in respect
of such breach and, as a consequence, that each and every covenant contained
in this Section 12 shall be specifically enforceable against such Company &
Partner Pledgor, and each Company & Partner Pledgor hereby waives and agrees
not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred
under the Indenture.
SECTION 13. Irrevocable Authorization and Instruction to the Company The
Company & Partner Pledgors hereby authorize and instruct the Owned Entities to
comply with any instruction received by a Owned Entity from the Collateral Agent
that (i) states that an Event of Default has occurred and (ii) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from any Company & Partner Pledgor, and each Company & Partner
Pledgor agrees that such Owned Entity shall be fully protected in so complying.
SECTION 14. Fees and Expenses. The Company & Partner Pledgors will upon
demand pay to the Collateral Agent the amount of any and all reasonable fees and
expenses (including, without limitation, the reasonable fees and disbursements
of its counsel, of any investment banking firm, business broker or other selling
agent and of any other experts and agents retained by the Collateral Agent) that
the Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent and the Holders of
Bonds hereunder or (iv) the failure by any Company & Partner Pledgor to perform
or observe any of the provisions hereof.
SECTION 15. Security Interest Absolute. All rights of the Collateral
Agent and the Holders of Bonds and the security interests created hereunder, and
all obligations of each Company & Partner Pledgor hereunder, shall be absolute
and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any other
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment
or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guarantee, for all or any of the Secured Obligations; or
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Company or any Company & Partner
Pledgor in respect of the Secured Obligations or of this Agreement.
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SECTION 16. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Pledged Collateral and any cash held
shall be applied by the Collateral Agent in the following order of priorities:
first, to payment of the expenses of such sale or other realization,
including reasonable compensation to agents and counsel for the Collateral Agent
and the Trustee, and all expenses, liabilities and advances incurred or made by
the Collateral Agent or the Trustee in connection therewith, and any other
unreimbursed fees and expenses for which the Collateral Agent is to be
reimbursed pursuant to Section 14 hereof;
second, to the ratable payment (based on the principal amount of Bonds
deemed by the Indenture to be outstanding at the time of distribution) of
amounts due and unpaid on such outstanding Bonds for principal, premium, and
Registration Default Damages (if any) and interest without preference or
priority of any kind, according to amounts due and payable on the Bonds for
principal, premium and Registration Default Damages (if any) and interest,
respectively;
third, to the ratable payment (based on the principal amount of Bonds
deemed by the Indenture to be outstanding at the time of distribution) of all
other Secured Obligations, until all Secured Obligations shall have been paid in
full; and
fourth, to payment to the applicable Company & Partner Pledgor or its
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining from such proceeds;
provided that, at the written request of the Trustee, the Collateral Agent shall
pay any proceeds or cash as set forth in clauses first through third of this
Section to the Trustee to be paid and distributed by the Trustee in accordance
with the provisions of the Indenture, the Note and the Bonds, which payment
shall release the Collateral Agent from all responsibility for such payments
except for payments as set forth in clause fourth of this Section.
SECTION 17. Uncertificated Securities. Notwithstanding anything to the
contrary contained herein, if any Pledged Member Interests (whether now owned or
acquired hereafter by any Company & Partner Pledgor) are uncertificated Pledged
Member Interests, such Company & Partner Pledgor shall promptly notify the
Collateral Agent, and shall promptly take all actions required to perfect the
security interest of the Collateral Agent under applicable law. Each Company &
Partner Pledgor further agrees to take such actions as the Collateral Agent
deems necessary or desirable to effect the foregoing and to permit the
Collateral Agent to exercise any of its rights and remedies hereunder, and
agrees to provide an Opinion of Counsel satisfactory to the Collateral Agent
with respect to any such pledge of uncertificated Pledged Member Interests
promptly upon request of the Collateral Agent.
SECTION 18. Miscellaneous Provisions.
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Section 18.1. Notices. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be in the form
and manner as set forth in Section 13.02 of the Indenture, and delivered to the
addresses set forth in such Section, or, in the case of the Collateral Agent to:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts, 02110
Attention: Corporate Trust Department-ESI Tractebel
Telecopy No. (617) 664-5371.
Section 18.2. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by a Company & Partner Pledgor to the Collateral
Agent to take any action or omit to take any action under this Agreement, such
Company & Partner Pledgor shall deliver to the Collateral Agent an Officer's
Certificate and an Opinion of Counsel in accordance with the requirements of
Section 13.04 of the Indenture.
Section 18.3. No Adverse Interpretation of Other Agreements. This
Agreement may not be used to interpret another pledge, security or debt
agreement of any Company & Partner Pledgor, any Owned Entities or any subsidiary
thereof. No such pledge, security or debt agreement may be used to interpret
this Agreement.
Section 18.4. Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
Section 18.5. No Recourse Against Others. Except to the extent provided
in the Indenture, the Sponsor Pledge Agreement and this Agreement, no director,
officer, employee, stockholder or affiliate, as such, of any Company & Partner
Pledgor or any Owned Entity shall have any liability for any obligations of a
Company & Partner Pledgor under this Agreement or for any claim based on, in
respect of or by reason of such obligations or their creation. Each Holder of
Bonds, by accepting a Bond, waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Bonds.
Section 18.6. Headings. The headings of the Articles and Sections of
this Agreement have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 18.7. Counterpart Originals. This Agreement may be signed in two
or more counterparts. Each signed copy shall be an original, but all of them
together represent one and the same agreement. Each counterpart may be executed
and delivered by telecopy, if such delivery is promptly followed by the original
manually signed copy sent by overnight courier.
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Section 18.8. Benefits of Agreement. Nothing in this Agreement, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the Trustee and the Holders of Bonds, any benefit or any
legal or equitable right, remedy or claim under this Agreement.
Section 18.9. Amendments, Waivers and Consents. Any amendment or waiver
of any provision of this Agreement and any consent to any departure by any
Company & Partner Pledgor from any provision of this Agreement shall be
effective only if made or given in compliance with all of the terms and
provisions of the Indenture necessary for amendments or waivers of, or consents
to any departure by such Company & Partner Pledgor from any provision of the
Indenture, as applicable, and neither the Collateral Agent, the Trustee nor any
Holder of Bonds shall be deemed, by any act, delay, indulgence, omission or
otherwise, to have waived any right or remedy hereunder or to have acquiesced in
any Event of Default or in any breach of any of the terms and conditions hereof.
Failure of the Collateral Agent, the Trustee or any Holder of Bonds to exercise,
or delay in exercising, any right, power or privilege hereunder shall not
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Collateral
Agent, the Trustee or any Holder of Bonds of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy that the
Collateral Agent, the Trustee or such Holder of Bonds would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative, may
be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
Section 18.10. Interpretation of Agreement. Time is of the essence in
each provision of this Agreement of which time is an element. All terms not
defined herein or in the Indenture shall have the meaning set forth in the
applicable UCC, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture and is not
dealt with herein with more specificity, the Indenture shall control with
respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the accepting
or acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
Section 18.11. Continuing Security Interest; Transfer. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
(i) remain in full force and effect until the payment in full of all the Secured
Obligations and all the fees and expenses owing to the Collateral Agent and the
Trustee, (ii) be binding upon each Company & Partner Pledgor, its successors and
assigns, and (iii) inure, together with the rights and remedies of the
Collateral Agent and the Trustee hereunder, to the benefit of the Collateral
Agent, the Trustee the Holders of Bonds and their respective successors,
transferees and assigns.
Section 18.12. Reinstatement. This Agreement shall continue to be
effective or be reinstated if at any time any amount received by the Collateral
Agent, the Trustee or any Holder of Bonds in respect of the Secured Obligations
is rescinded or must otherwise be restored or returned by the Collateral Agent,
the Trustee or any Holder of Bonds upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Company & Partner Pledgor or upon
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the appointment of any receiver, intervenor, conservator, trustee or similar
official for any Company & Partner Pledgor or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
Section 18.13. Survival of Provisions. All representations, warranties
and covenants of each Company & Partner Pledgor contained herein shall survive
the execution and delivery of this Agreement, and shall terminate only upon the
full and final payment and performance by the Company of the Secured
Obligations.
Section 18.14. Waivers Each of the Company & Partner Pledgors waives
presentment and demand for payment of any of the Secured Obligations, protest
and notice of dishonor or default with respect to any of the Secured
Obligations, and all other notices to which such Company & Partner Pledgor might
otherwise be entitled, except as otherwise expressly provided herein or in the
Indenture.
Section 18.15. Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Collateral Agent by
the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice
of counsel concerning all such matters. Neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall
be responsible for the validity, effectiveness or sufficiency hereof or of
any document or security furnished pursuant hereto. The Collateral Agent
shall be without liability for acting in good faith at the written direction
of a majority in interest of the Holders of the Bonds and in reliance
thereon. The Collateral Agent and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication,
instrument or document believed by it or them to be genuine and correct and
to have been signed or sent by the proper person or persons and shall be
without liability for any actions it or they take or omit to take in good
faith that the Collateral Agent reasonably believes to be authorized or
within its powers. The Company & Partner Pledgors agree to indemnify and
hold harmless the Collateral Agent, the Holders of Bonds and any other
Person from and against any and all costs, expenses (including the
reasonable fees and disbursements of counsel (including, the allocated costs
of inside counsel)), claims and liabilities incurred by the Collateral
Agent, the Holders of Bonds or such Person hereunder, unless such claim or
liability shall be due to willful misconduct or gross negligence on the part
of the Collateral Agent, the Holders of the Bonds or such Person.
(b) Each Company & Partner Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect
to any action taken by the Collateral Agent or the exercise or non-exercise
by the Collateral Agent of any option, right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Collateral Agent and the Holders of Bonds,
be governed by the Indenture and by such other agreements with
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respect thereto as may exist from time to time among them, but, as between
the Collateral Agent and the Company & Partner Pledgors, the Collateral
Agent shall be conclusively presumed to be acting as agent for the Holders
of Bonds with full and valid authority so to act or refrain from acting, and
the Company & Partner Pledgors shall not be obligated or entitled to make
any inquiry respecting such authority.
Section 18.16. Resignation or Removal of the Collateral Agent. Until
such time as the Secured Obligations shall have been paid in full, the
Collateral Agent may at any time, by giving written notice to the Company &
Partner Pledgors and Holders of Bonds, resign and be discharged of the
responsibilities hereby created, such resignation to become effective upon (i)
the appointment of a successor Collateral Agent and (ii) the acceptance of such
appointment by such successor Collateral Agent. As promptly as practicable after
the giving of any such notice, the Holders of Bonds by vote of a majority in
interest thereof, shall appoint a successor Collateral Agent. If no successor
Collateral Agent shall be appointed and shall have accepted such appointment
within 90 days after the Collateral Agent gives the aforesaid notice of
resignation, the Collateral Agent may apply to any court of competent
jurisdiction to appoint a successor Collateral Agent to act until such time, if
any, as a successor shall have been appointed as provided in this Section 18.16.
Any successor so appointed by such court shall immediately and without further
act be superseded by any successor Collateral Agent appointed by the Holders of
Bonds, as provided in this Section 18.16. Simultaneously with its replacement as
Collateral Agent hereunder, the Collateral Agent so replaced shall deliver to
its successor all documents, instruments, certificates and other items of
whatever kind (including, without limitation, the certificates and instruments
evidencing the Pledged Collateral and all instruments of transfer or assignment)
held by it pursuant to the terms hereof. The Collateral Agent that has resigned
shall be entitled to fees, costs and expenses to the extent incurred or arising,
or relating to events occurring, before its resignation or removal.
Section 18.17. Release; Termination of Agreement.
(a) Subject to the provisions of Section 18.12 hereof, this Agreement
shall terminate (i) upon full and final payment and performance of the
Secured Obligations (and upon receipt by the Collateral Agent of the
Company's written certification that all such Secured Obligations have been
satisfied) and payment in full of all fees and expenses owing by the Company
& Partner Pledgors to the Collateral Agent or (ii) on the day after the
first anniversary of the Legal Defeasance of all of the Secured Obligations
pursuant to Section 8.02 of the Indenture (other than those surviving
Secured Obligations specified therein). At such time, the Collateral Agent
shall, at the request of the Company & Partner Pledgors, reassign and
redeliver to the Company & Partner Pledgors all of the Pledged Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Collateral Agent in accordance with the terms hereof. Such reassignment and
redelivery shall be without warranty by or recourse to the Collateral Agent,
except as to the absence of any prior assignments by the Collateral Agent of
its interest in the Pledged Collateral, and shall be at the expense of the
Company & Partner Pledgors.
18
<PAGE>
(b) Each Company & Partner Pledgor agrees that it will not, except as
permitted by the Indenture, sell or dispose of, or grant any option or
warrant with respect to, any of the Pledged Collateral.
Section 18.18. Final Expression. This Agreement, together with any other
agreement executed in connection herewith, is intended by the parties as a final
expression of their Agreement and is intended as a complete and exclusive
statement of the terms and conditions thereof.
Section 18.19. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; WAIVER OF DAMAGES.
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE LAWS
OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE COMPANY &
PARTNER PLEDGORS, THE COLLATERAL AGENT AND THE HOLDERS OF BONDS IN CONNECTION
WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(ii) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH AND IN PARAGRAPH (vi)
BELOW, EACH OF THE COMPANY & PARTNER PLEDGORS, THE COLLATERAL AGENT AND THE
HOLDERS OF BONDS AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK, BUT EACH OF THE COMPANY & PARTNER PLEDGORS, THE
COLLATERAL AGENT AND THE HOLDERS OF BONDS ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW
YORK. EACH COMPANY & PARTNER PLEDGOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT
IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS.
(iii) EACH COMPANY & PARTNER PLEDGOR AGREES THAT THE COLLATERAL AGENT
SHALL, IN ITS OWN NAME OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF BONDS, HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST SUCH
COMPANY & PARTNER PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY
SELECTED IN GOOD FAITH TO ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE
COLLATERAL AGENT. EACH
19
<PAGE>
COMPANY & PARTNER PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
COLLATERAL AGENT. EACH COMPANY & PARTNER PLEDGOR WAIVES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS.
(iv) EACH OF THE COMPANY & PARTNER PLEDGORS, THE COLLATERAL AGENT AND
THE HOLDERS OF BONDS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(v) EACH COMPANY & PARTNER PLEDGOR IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO SUCH COMPANY & PARTNER PLEDGOR AT ITS ADDRESS SET FORTH IN SECTION
13.02 OF THE INDENTURE, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) BUSINESS DAYS
AFTER SUCH MAILING.
(vi) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT OR
ANY HOLDER OF BONDS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY COMPANY & PARTNER
PLEDGOR IN ANY OTHER JURISDICTION.
(vii) EACH COMPANY & PARTNER PLEDGOR HEREBY AGREES THAT NEITHER THE
COLLATERAL AGENT NOR ANY HOLDER OF BONDS SHALL HAVE ANY LIABILITY TO SUCH
COMPANY & PARTNER PLEDGOR (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR
LOSSES SUFFERED BY SUCH COMPANY & PARTNER PLEDGOR IN CONNECTION WITH, ARISING
OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE
RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE COLLATERAL AGENT OR
SUCH HOLDER OF BONDS, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF
ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL AGENT OR SUCH HOLDER OF BONDS,
AS THE CASE MAY BE, CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
20
<PAGE>
(viii) EACH COMPANY & PARTNER PLEDGOR WAIVES ALL RIGHTS OF NOTICE AND
HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY HOLDER
OF BONDS OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. EACH COMPANY &
PARTNER PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE
COLLATERAL AGENT OR ANY HOLDER OF BONDS IN CONNECTION WITH ANY JUDICIAL PROCESS
OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL
OR OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR ANY HOLDER OF BONDS, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN
SUCH COMPANY & PARTNER PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF BONDS.
Section 18.20. TIA Provision. In the event that the TIA applies to this
Agreement, the provisions required by the TIA shall be deemed to be included
herein and shall supersede any provision hereof which may conflict with the TIA.
Section 18.21. Acknowledgments. Each Company & Partner Pledgor hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement;
(b) neither the Collateral Agent nor any Holder of Bonds has any
fiduciary relationship to such Company & Partner Pledgor, and the
relationship between the Collateral Agent and the Holders of Bonds, on the
one hand, and such Company & Partner Pledgor, on the other hand, is solely
that of a secured party and a creditor; and
(c) no joint venture exists among the Holders of Bonds or among any
Company & Partner Pledgor and the Holders of Bonds.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company & Partner Pledgors and the Collateral
Agent have each caused this Agreement to be duly executed and delivered as of
the date first above written.
COMPANY & PARTNER PLEDGORS:
Northeast Energy, LP,
a Delaware limited partnership
By: Tractebel Northeast Generation GP, Inc.,
a Delaware corporation,
its General Partner
By: /s/ James E. Hammelman
--------------------------
Name: James E. Hammelman
Title: Vice President and Treasurer
By: ESI Northeast Energy GP, Inc.,
a Florida corporation,
its General Partner
By: /s/ Glenn E. Smith
--------------------------
Name: Glenn E. Smith
Title: Vice President
<PAGE>
Northeast Energy, LLC,
a Delaware limited liability company
By: Northeast Energy, LP,
a Delaware limited partnership
By: Tractebel Northeast Generation GP, Inc.,
a Delaware corporation,
its General Partner
By: /s/ James E. Hammelman
-------------------------
Name: James E. Hammelman
Title: Vice President and
Treasurer
By: ESI Northeast Energy GP, Inc.,
a Florida corporation,
its General Partner
By: /s/ Glenn E. Smith
-------------------------
Name: Glenn E. Smith
Title: Vice President
ESI Tractebel Acquisition Corp.,
a Delaware corporation
By: /s/ Glenn E. Smith
-------------------------
Name: Glenn E. Smith
Title: Vice President
<PAGE>
COLLATERAL AGENT:
State Street Bank and Trust Company,
as Collateral Agent
By: /s/ Chi C. Ma
--------------------------------
Name: Chi C. Ma
Title: Assistant Vice President
<PAGE>
SCHEDULE I
PLEDGED PARTNERSHIP INTERESTS AND PLEDGED MEMBER INTERESTS
Interest*
in each of
NEA and NJEA
NE LP 1% (general partner)
NE LP 98% (limited partner)
NE LLC 1% (limited partner)
--------------------
100%
Interest** in
NE LLC
NE LP 100%
- --------
* As defined in the NEA Partnership Agreement or the NJEA Partnership Agreement,
as applicable.
**As defined in the NE LLC Operating Agreement.
Exhibit 4.4
SPONSOR
PLEDGE AGREEMENT
of
Company Stock and
NE LP Partnership Interests
THIS SPONSOR PLEDGE AGREEMENT (this "Agreement") is made and
entered into as of February 19, 1998 by ESI NORTHEAST ENERGY ACQUISITION
FUNDING, INC., a Florida corporation ("ESI Funding"), ESI NORTHEAST ENERGY GP,
INC., a Florida corporation ("ESI GP"), ESI NORTHEAST ENERGY LP, INC., a Florida
corporation ("ESI LP"), each having its principal office at 11760 U.S. Highway
One, North Palm Beach, Florida 33408 TRACTEBEL NORTHEAST GENERATION GP, INC., a
Delaware corporation having its principal office at 1177 West Loop South, Suite
900, Houston, Texas 77027 ("Tractebel GP"), TRACTEBEL ASSOCIATES NORTHEAST LP,
INC., a Delaware corporation having its principal office at 1177 West Loop
South, Suite 900, Houston, Texas 77027 ("Tractebel LP" and together with ESI GP,
ESI LP and Tractebel GP, the "Owners of NE LP") and TRACTEBEL POWER, INC., a
Delaware corporation having its principal office at 1177 West Loop South, Suite
900, Houston, Texas 77027 ("Tractebel" and together with ESI Funding, the
"Shareholders of the Company"), in favor of State Street Bank and Trust Company,
a Massachusetts banking corporation ("State Street Bank") having an office at
225 Franklin Street, Boston, Massachusetts, 02110, as collateral agent (the
"Collateral Agent") for State Street Bank, as trustee (the "Trustee") for the
holders (the "Holders") of the 7.99% Secured Bonds Due 2011 of ESI TRACTEBEL
ACQUISITION CORP., a Delaware corporation (the "Company"). The Owners of NE LP
and the Shareholders of the Company shall be referred to herein collectively as
the "Sponsor Pledgors" and each individually as a "Sponsor Pledgor." Capitalized
terms used and not defined herein shall have the meanings given to such terms in
the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, the Shareholders of the Company are the legal and
beneficial owners of all of the issued and outstanding shares of capital stock
set forth on Schedule I hereto (the "Pledged Shares") of the Company; and
WHEREAS, the Owners of NE LP are the legal and beneficial
owners of all of the partnership interests including the "Interests," as defined
in the Agreement of Limited Partnership of Northeast Energy, LP, dated as of
November 21, 1997 among the Owners of NE LP (the "NE LP Partnership Agreement")
set forth on Schedule I hereto (the "Pledged Partnership Interests") in
Northeast Energy, LP, a Delaware limited partnership ("NE LP" and together with
the Company, the "Owned Entities"); and
<PAGE>
WHEREAS, the Company and State Street Bank, as trustee and
collateral agent, have entered into that certain indenture dated as of February
19, 1998 (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Indenture"), pursuant to which the Company issued $220
million in aggregate principal amount of 7.99% Secured Bonds due 2011 (together
with any bonds issued in replacement thereof or in exchange or substitution
therefor, the "Bonds"); and
WHEREAS, the terms of the Indenture require that each Sponsor
Pledgor (i) pledge to the Collateral Agent for its benefit, for the benefit of
the Trustee and the ratable benefit of the Holders of the Bonds, and grant to
the Collateral Agent for the ratable benefit of the Holders of Bonds a security
interest in, the Pledged Collateral (as defined herein) and (ii) execute and
deliver this Agreement in order to secure the payment and performance by the
Company, NE LP and NE LLC of all of the Obligations of the Company, NE LP and NE
LLC under the Indenture, the Notes, the Bond Guaranty and the Bonds.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order
to induce the Holders of Bonds to purchase the Bonds, each Sponsor Pledgor
hereby agrees with the Collateral Agent for its benefit, the benefit of the
Trustee and the ratable benefit of the Holders of Bonds as follows:
SECTION 1. Pledge. Each Sponsor Pledgor hereby pledges to the
Collateral Agent for its benefit and for the ratable benefit of the Holders of
Bonds, and grants to the Collateral Agent for its benefit, for the benefit of
the Trustee and the ratable benefit of the Holders of Bonds, a continuing
perfected first priority security interest in all of its right, title and
interest now owned or thereafter acquired in the following (the "Pledged
Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all products and proceeds of any of the Pledged Shares,
including, without limitation, all dividends, cash, options, warrants,
rights, instruments, subscriptions and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares or any of the foregoing; and
(b) the Pledged Partnership Interests, and all products and proceeds of
any of the Pledged Partnership Interests, including, without limitation,
all dividends, cash, rights, and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Pledged Partnership Interests or any of the
foregoing including distributions of "Cash Flow" (as defined in the NE LP
Partnership Agreement); and
(c) all additional shares of, and all securities convertible into and
all warrants, options or other rights to purchase, Capital Stock of, or
other Equity Interests in, the Owned Entities from time to time acquired by
each Sponsor Pledgor in any manner, and the certificates, if any,
representing such additional shares and Equity Interests (any such
additional shares and Equity Interests and other items shall constitute
part of the Pledged Shares or the Pledged Partnership Interests, as
applicable, under and as defined in this Agreement), and all products and
proceeds of any of the foregoing, including, without limitation, all
dividends, cash, options, warrants, rights, instruments, subscriptions, and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing.
2
<PAGE>
SECTION 2. Security for Obligations. This Agreement secures the prompt
and complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all Obligations of the Company, NE LP and NE LLC
under the Indenture, the Note, the Bond Guaranty and the Bonds (including,
without limitation, interest, premium and Registration Default Damages, if any,
and any other Obligations accruing after the date of any filing by the Company
of any petition in bankruptcy or the commencement of any bankruptcy, insolvency
or similar proceeding with respect to the Company (the "Secured Obligations").
SECTION 3. Delivery of Pledged Collateral. Each Sponsor Pledgor hereby
agrees that all certificates or instruments representing or evidencing the
Pledged Collateral shall be immediately delivered to and held at all times by
the Collateral Agent pursuant hereto in the State of New York and shall be in
suitable form for transfer by delivery, or issued in the name of such Sponsor
Pledgor and accompanied by instruments of transfer or assignment duly executed
in blank and undated and bearing appropriate signature guarantees, and in either
case having attached thereto all requisite federal or state stock transfer tax
stamps, all in form and substance satisfactory to the Collateral Agent. The
Collateral Agent shall have the right to transfer Pledged Collateral into its
name, as Collateral Agent hereunder, or into the name of its nominee.
SECTION 4. Representations and Warranties. Each Sponsor Pledgor hereby
makes all representations and warranties applicable to such Sponsor Pledgor
contained in the Indenture. Each Sponsor Pledgor further represents and warrants
that:
(a) The execution, delivery and performance by each Sponsor Pledgor of
this Agreement are within each Sponsor Pledgor's full power and authority
(corporate or other), have been duly authorized by all necessary action
(corporate or other), and do not contravene, or constitute a default under,
any provision of applicable law or regulation or of the certificate of
incorporation, bylaws or agreement of limited partnership of such Sponsor
Pledgor or of any agreement, judgment, injunction, order, decree or other
instrument binding upon such Sponsor Pledgor, or result in the creation or
imposition of any Lien on any assets of such Sponsor Pledgor, other than
the Lien contemplated hereby.
(b) The Pledged Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(c) The execution, delivery and performance of the NE LP Partnership
Agreement creating the Pledged Partnership Interests has been duly
authorized by each of the Owners of NE LP and such NE LP Partnership
Agreement constitutes the valid and binding obligations of each such Owner
of NE LP in accordance with its terms.
3
<PAGE>
(d) The Pledged Shares constitute all of the authorized, issued and
outstanding Equity Interests of the Company and constitute all of the
Equity Interests of the Company beneficially owned by the Shareholders of
the Company. The Pledged Partnership Interests constitute all of the
authorized Equity Interests of NE LP and constitute all of the Equity
Interests of the NE LP beneficially owned by the Owners of NE LP.
(e) The Shareholders of the Company are the legal, record and
beneficial owners of the Pledged Shares, free and clear of any Lien or
claims of any Person except for the security interest created by this
Agreement. The Owners of NE LP are the legal, record and beneficial owners
of the Pledged Partnership Interests, free and clear of any Lien or claims
of any Person except for the security interest created by this Agreement.
(f) Each Sponsor Pledgor has full power and authority to enter into
this Agreement and has the right to vote, pledge and grant a security
interest in the Pledged Collateral as provided by this Agreement.
(g) This Agreement has been duly executed and delivered by each Sponsor
Pledgor and constitutes a legal, valid and binding obligation of each
Sponsor Pledgor, enforceable against each Sponsor Pledgor in accordance
with its terms.
(h) Upon the delivery to the Collateral Agent of the Pledged Collateral
and the filing of Uniform Commercial Code (the "UCC") financing statements,
the pledge of the Pledged Collateral pursuant to this Agreement creates a
valid and perfected first priority security interest in the Pledged
Collateral, securing the payment of the Secured Obligations for the benefit
of the Collateral Agent, the Trustee and the Holders of Bonds, and
enforceable as such against all creditors of the Sponsor Pledgors and any
Persons purporting to purchase any of the Pledged Collateral from the
Sponsor Pledgors.
(i) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by any Sponsor Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by any Sponsor Pledgor or (ii) for the exercise by the Collateral Agent of
the voting or other rights provided for in this Agreement or the remedies
in respect of the Pledged Collateral pursuant to this Agreement (except as
may be required in connection with such disposition by laws affecting the
offering and sale of securities).
(j) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the best knowledge
of any Sponsor Pledgor, threatened by or against such Sponsor Pledgor or
against any of its properties or revenues with respect to this Agreement or
any of the transactions contemplated hereby.
(k) The pledge of the Pledged Collateral pursuant to this Agreement is
not prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System).
4
<PAGE>
(l) All information set forth herein relating to the Pledged Collateral
is accurate and complete in all respects.
SECTION 5. Further Assurance. The Sponsor Pledgors will at all times
cause the security interests granted pursuant to this Agreement to constitute
valid perfected first priority security interests in the Pledged Collateral,
enforceable as such against all creditors of Sponsor Pledgors and (except as
otherwise specifically provided herein) any Persons purporting to purchase any
Pledged Collateral from the Sponsor Pledgors. Each Sponsor Pledgor will,
promptly upon request by the Collateral Agent, execute and deliver or cause to
be executed and delivered, or use its best efforts to procure, all stock powers,
proxies, tax stamps, assignments, instruments and other documents, all in form
and substance satisfactory to the Collateral Agent, deliver any instruments to
the Collateral Agent and take any other actions that are necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect, continue the
perfection of, or protect the first priority of the Collateral Agent's security
interest in, the Pledged Collateral, to protect the Pledged Collateral against
the rights, claims, or interests of third persons, to enable the Collateral
Agent to exercise or enforce its rights and remedies hereunder, or otherwise to
effect the purposes of this Agreement. Each Sponsor Pledgor also hereby
authorizes the Collateral Agent to file any financing or continuation statements
with respect to the Pledged Collateral without the signature of such Sponsor
Pledgor to the extent permitted by applicable law. The Sponsor Pledgors will pay
all costs incurred in connection with any of the foregoing.
SECTION 6. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be
continuing, each Sponsor Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Shares or the
Pledged Partnership Interests or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Indenture; provided,
however, that such Sponsor Pledgor shall not exercise or shall refrain from
exercising any such right if such action would have a material adverse
effect on the value of the Pledged Collateral or any part thereof or be
inconsistent with or violate any provisions of this Agreement or the
Indenture.
(b) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions of the Indenture,
each Sponsor Pledgor shall be entitled to receive, and to utilize (subject
to the provisions of the Indenture) free and clear of the Lien of this
Agreement, all regular and ordinary cash dividends paid from time to time
in respect of the Pledged Shares and the Pledged Partnership Interests.
(c) Any and all (i) dividends, other distributions, interest and
principal payments paid or payable in the form of instruments and/or other
property (other than cash interest payments permitted under Section 6(b)
hereof and cash dividends permitted under Section 6(c) hereof) received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral, (ii) dividends and other distributions paid or payable
in cash in respect of any Pledged Shares or the Pledged Partnership
5
<PAGE>
Interests in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or
paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, shall in each
case be forthwith delivered to the Collateral Agent to hold as Pledged
Collateral and shall, if received by a Sponsor Pledgor, be received in
trust for the benefit of the Collateral Agent, the Trustee and the Holders
of Bonds, be segregated from the other property and funds of such Sponsor
Pledgor and be forthwith delivered to the Collateral Agent as Pledged
Collateral in the same form as so received (with any necessary
endorsements).
(d) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to each Sponsor Pledgor all such proxies and other
instruments as such Sponsor Pledgor may reasonably request for the purpose
of enabling such Sponsor Pledgor to exercise the voting and other rights
that it is entitled to exercise pursuant to Sections 6(a) through 6(c)
above.
(e) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of each Sponsor Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise
pursuant to Section 6(a) shall cease, and all such rights shall thereupon
become vested in the Collateral Agent, which, to the extent permitted by
law, shall thereupon have the sole right to exercise such voting and other
consensual rights, and (ii) all cash interest payments and dividends and
other distributions payable in respect of the Pledged Collateral shall be
paid to the Collateral Agent and each Sponsor Pledgor's right to receive
such cash payments pursuant to Sections 6(b) and 6(c) hereof shall
immediately cease.
(f) Upon the occurrence and during the continuance of an Event of
Default, each Sponsor Pledgor shall execute and deliver (or cause to be
executed and delivered) to the Collateral Agent all such proxies, dividend
and interest payment orders and other instruments as the Collateral Agent
may reasonably request for the purpose of enabling the Collateral Agent to
exercise the voting and other rights that it is entitled to exercise
pursuant to Section 6(f) above.
(g) All payments of interest, principal or premium and all dividends
and other distributions that are received by a Sponsor Pledgor contrary to
the provisions of this Section 6 shall be received in trust for the benefit
of the Collateral Agent, the Trustee and the Holders, shall be segregated
from the other property or funds of such Sponsor Pledgor and shall be
forthwith delivered to the Collateral Agent as Pledged Collateral in the
same form as so received (with any necessary endorsements).
SECTION 7. Covenants. Each Sponsor Pledgor hereby covenants and agrees
with the Collateral Agent and the Holders of Bonds that it will comply with all
of the obligations, requirements and restrictions applicable to such Sponsor
Pledgor contained in the Indenture. Each Sponsor Pledgor further covenants and
agrees, from and after the date of this Agreement and until the Secured
Obligations have been paid in full, as follows:
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(a) Each Sponsor Pledgor agrees that it will not (i) sell, assign,
transfer, convey or otherwise dispose of, or grant any option or warrant
with respect to, any of the Pledged Collateral without the prior written
consent of the Collateral Agent and except as permitted under the
Indenture, (ii) create or permit to exist any Lien upon or with respect to
any of the Pledged Collateral, except for the security interest granted
under this Agreement, and at all times will be the sole beneficial owner
with respect to its Pledged Collateral, (iii) enter into any agreement or
understanding that purports to or that may restrict or inhibit the
Collateral Agent's rights or remedies hereunder, including, without
limitation, the Collateral Agent's right to sell or otherwise dispose of
the Pledged Collateral, (iv) take any action, or permit the taking of any
action by the Owned Entities, with respect to the Pledged Collateral the
taking of which would result in a material impairment of the economic value
of the Pledged Collateral as Collateral or a violation of the Indenture or
this Agreement, including, without limitation, the issuance by the Owned
Entities of any additional Equity Interests or promissory notes or the
incurrence by the Owned Entities of any Indebtedness to Persons other than
a Sponsor Pledgor (except as permitted by the Indenture), (v) permit the
Owned Entities to merge or consolidate with or into another person or
entity or sell or transfer all or substantially all of its assets to
another person or entity, except as permitted under the Indenture and
unless all outstanding Capital Stock, notes, other securities or Equity
Interests of the surviving entity in such merger or consolidation or of the
entity to whom such sale or transfer was made are, upon such merger or
consolidation, pledged hereunder to and deposited with the Collateral Agent
or (vi) fail to pay or discharge any tax, assessment or levy of any nature
not later than five days prior to the date of any proposed sale under any
judgment, writ or warrant of attachment with regard to the Pledged
Collateral.
(b) Each Sponsor Pledgor agrees that immediately upon becoming the
beneficial owner of any additional shares of Capital Stock, notes, other
securities or Equity Interests of the Owned Entities (including as a result
of the merger or consolidation of the Owned Entities with or into another
entity) it will pledge and deliver to the Collateral Agent for its benefit,
the benefit of the Trustee and the ratable benefit of the Holders and grant
to the Collateral Agent for its benefit, the benefit of the Trustee and the
ratable benefit of the Holders, a continuing first priority security
interest in such shares, notes, other securities or Equity Interests (as
well as instruments of transfer or assignment duly executed in blank and
undated and any necessary stock transfer tax stamps, all in form and
substance satisfactory to the Collateral Agent). Each Sponsor Pledgor
further agrees that it will promptly deliver to the Collateral Agent a
certificate executed by a principal executive officer of such Sponsor
Pledgor describing such additional shares, notes, other securities or
Equity Interests and certifying that the same have been duly pledged and
delivered to the Collateral Agent hereunder.
(c) The Sponsor Pledgors agree that upon the acquisition or creation of
any new subsidiaries of any Owned Entity, the Sponsor Pledgors will
promptly pledge and deliver to the Collateral Agent for its benefit, the
benefit of the Trustee and the ratable benefit of the Holders and grant to
the Collateral Agent for its benefit, the benefit of the Trustee and the
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ratable benefit of the Holders a first priority security interest in any
shares, notes, other securities or Equity Interests (as well as instruments
of transfer or assignment duly executed in blank and undated and any
necessary stock transfer tax stamps, all in form and substance satisfactory
to the Collateral Agent) of such subsidiaries.
SECTION 8. Power of Attorney. In addition to all of the powers granted
to the Collateral Agent pursuant to Section 11.06 of the Indenture, each Sponsor
Pledgor hereby appoints and constitutes the Collateral Agent as such Sponsor
Pledgor's attorney-in-fact to exercise all of the following powers upon and at
any time after the occurrence of an Event of Default: (i) collection of proceeds
of any Pledged Collateral; (ii) conveyance of any item of Pledged Collateral to
any purchaser thereof; (iii) giving of any notices or recording of any Liens
under Section 5 hereof; (iv) making of any payments or taking any acts under
Section 9 hereof and (v) paying or discharging taxes or Liens levied or placed
upon or threatened against the Pledged Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined by the
Collateral Agent in its sole discretion, and such payments made by the
Collateral Agent to become the obligations of such Sponsor Pledgor to the
Collateral Agent, due and payable immediately without demand. The Collateral
Agent's authority hereunder shall include, without limitation, the authority to
endorse and negotiate, for the Collateral Agent's own account, any checks or
instruments in the name of each Sponsor Pledgor, execute and give receipt for
any certificate of ownership or any document, transfer title to any item of
Pledged Collateral, sign each Sponsor Pledgor's name on all financing statements
or any other documents deemed necessary or appropriate to preserve, protect or
perfect the security interest in the Pledged Collateral and to file the same,
prepare, file and sign each Sponsor Pledgor's name on any notice of Lien, and
prepare, file and sign each Sponsor Pledgor's name on a proof of claim in
bankruptcy or similar document against any customer of each Sponsor Pledgor, and
to take any other actions arising from or incident to the powers granted to the
Collateral Agent in this Agreement. This power of attorney is coupled with an
interest and is irrevocable by each Sponsor Pledgor.
SECTION 9. Collateral Agent May Perform. If any Sponsor Pledgor fails
to perform any agreement contained herein, the Collateral Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Collateral Agent incurred in connection therewith shall be payable by such
Sponsor Pledgor under Section 14 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights and
powers granted to the Collateral Agent hereunder are being granted in order to
preserve and protect the Collateral Agent's, the Trustee's and the Holders' of
Bonds security interest in and to the Pledged Collateral granted hereby and
shall not be interpreted to, and shall not, impose any duties on the Collateral
Agent in connection therewith. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property,
it being understood that the Collateral Agent shall not have any responsibility
for (i) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
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SECTION 11. Subsequent Changes Affecting Collateral. Each Sponsor
Pledgor represents to the Collateral Agent, the Trustee and the Holders of Bonds
that such Sponsor Pledgor has made its own arrangements for keeping informed of
changes or potential changes affecting the Pledged Collateral (including, but
not limited to, rights to convert, rights to subscribe, payment of dividends,
payments of interest and/or principal, reorganization or other exchanges, tender
offers and voting rights), and such Sponsor Pledgor agrees that the Collateral
Agent and the Holders of Bonds shall have no responsibility or liability for
informing any Sponsor Pledgor of any such changes or potential changes or for
taking any action or omitting to take any action with respect thereto. Each
Sponsor Pledgor covenants that it will not, without the prior written consent of
the Collateral Agent, vote to enable, or take any other action to permit, the
Owned Entities to issue any capital stock, notes, other securities or Equity
Interests or to sell or otherwise dispose of, or grant any option with respect
to, any of the Pledged Collateral or create or permit to exist any Lien upon or
with respect to any of the Pledged Collateral, except for the security interests
granted under this Agreement. Each Sponsor Pledgor will defend the right, title
and interest of the Collateral Agent, the Trustee and the Holders of Bonds in
and to the Pledged Collateral against the claims and demands of all Persons.
SECTION 12. Remedies Upon Default.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent on behalf of and for the benefit of the
Collateral Agent, the Trustee and the Holders of Bonds shall have, in
addition to all other rights given to such parties by law, by this
Agreement, the Company and Partner Pledge Agreement or the Indenture, all
of the rights and remedies with respect to the Pledged Collateral of a
secured party under the UCC as in effect in the State of New York at that
time. The Collateral Agent may, without notice and at its option, transfer
or register, and each Sponsor Pledgor shall register or cause to be
registered upon request therefor by the Collateral Agent, the Pledged
Collateral or any part thereof on the books of the Owned Entities into the
name of the Collateral Agent or the Collateral Agent's nominee(s), with or
without any indication that such Pledged Collateral is subject to the
security interest hereunder. In addition, with respect to any Pledged
Collateral that shall then be in or shall thereafter come into the
possession or custody of the Collateral Agent, the Collateral Agent may
sell or cause the same to be sold at any broker's board or at public or
private sale, in one or more sales or lots, at such price or prices as the
Collateral Agent may deem best, for cash or on credit or for future
delivery, without assumption of any credit risk. The purchaser of any or
all Pledged Collateral so sold shall thereafter hold the same absolutely,
free from any claim, encumbrance or right of any kind whatsoever. Unless
any of the Pledged Collateral threatens to decline speedily in value or is
or becomes of a type sold on a recognized market, the Collateral Agent will
give the Sponsor Pledgors reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
insurance companies, commercial finance companies, or other financial
institutions disposing of property similar to the Pledged Collateral shall
be deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to the Sponsor Pledgors as
provided below in Section 18.1, at least ten days before the time of the
sale or disposition. Any other requirement of notice, demand or
advertisement for sale is, to the extent permitted by law, waived. The
Collateral Agent or any Holder of Bonds may, in its own name or in the name
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of a designee or nominee, buy any of the Pledged Collateral at any public
sale and, if permitted by applicable law, at any private sale. All expenses
(including court costs and reasonable attorneys' fees and disbursements)
of, or incident to, the enforcement of any of the provisions hereof shall
be recoverable from the proceeds of the sale or other disposition of the
Pledged Collateral.
(b) If the Collateral Agent shall determine to exercise its
right to sell any or all of the Pledged Shares or the Pledged Partnership
Interests pursuant to Section 12(a) above, and if in the opinion of counsel
for the Collateral Agent it is necessary, or if in the opinion of the
Collateral Agent it is advisable, to have the Pledged Shares or the Pledged
Partnership Interests or that portion thereof to be sold, registered under
the provisions of the Securities Act of 1933, as amended (the "Securities
Act"), the Sponsor Pledgors will cause the applicable Owned Entity to (i)
execute and deliver, and cause its directors and officers to execute and
deliver, all at such Owned Entity's expense, all such instruments and
documents, and to do or cause to be done all such other acts and things as
may be necessary or, in the opinion of the Collateral Agent, advisable to
register such Pledged Shares or the Pledged Partnership Interests under the
provisions of the Securities Act, (ii) cause the registration statement
relating thereto to become effective and to remain effective for a period
of 180 days from the date of the first public offering of such Pledged
Shares, Pledged Partnership Interests or that portion thereof to be sold
and (iii) make all amendments thereto and/or to the related prospectus
that, in the opinion of the Collateral Agent, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules
and regulations of the Securities and Exchange Commission applicable
thereto. The Sponsor Pledgors agree to cause such Owned Entity to comply
with the provisions of the securities or "Blue Sky" laws of any
jurisdiction that the Collateral Agent shall designate for the sale of the
Pledged Shares or the Pledged Partnership Interests and to make available
to such Owned Entity's security holders, as soon as practicable, an
earnings statement (which need not be audited) that will satisfy the
provisions of Section 11(a) of the Securities Act. The Sponsor Pledgors
will cause such Owned Entity to furnish to the Collateral Agent such number
of copies as the Collateral Agent may reasonably request of each
preliminary and final prospectus, to notify the Collateral Agent promptly
of the happening of any event as a result of which any then effective
prospectus includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of then existing
circumstances, and to cause the Collateral Agent to be furnished with such
number of copies as the Collateral Agent may request of such supplement to
or amendment of such prospectus. The Sponsor Pledgors will cause such Owned
Entity, to the extent permitted by law, to indemnify, defend and hold
harmless the Collateral Agent, the Trustee and the Holders of Bonds from
and against all losses, liabilities, expenses or claims (including
reasonable legal expenses and the reasonable costs of investigation) that
the Collateral Agent, the Trustee or the Holders of Bonds may incur under
the Securities Act or otherwise, insofar as such losses, liabilities,
expenses or claims arise out of or are based upon any alleged untrue
statement of a material fact contained in such registration statement (or
any amendment thereto) or in any preliminary or final prospectus (or any
amendment or supplement thereto), or arise out of or are based upon any
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alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the
extent that any such losses, liabilities, expenses or claims arise solely
out of or are based upon any such alleged untrue statement made or such
alleged omission to state a material fact included or excluded on the
written direction of the Collateral Agent. The Sponsor Pledgors will cause
such Owned Entity to bear all costs and expenses of carrying out its
obligations hereunder.
(c) In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the
Pledged Collateral may be effected after an Event of Default, each Sponsor
Pledgor agrees that upon the occurrence or existence of any Event of
Default, the Collateral Agent may, from time to time, attempt to sell all
or any part of the Pledged Collateral by means of a private placement,
restricting the prospective purchasers to those who will represent and
agree that they are purchasing for investment only and not for
distribution. In so doing, the Collateral Agent may solicit offers to buy
the Pledged Collateral, or any part of it, for cash, from a limited number
of investors who might be interested in purchasing the Pledged Collateral.
Each Sponsor Pledgor acknowledges and agrees that any such private sale may
result in prices and terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private
sale shall be deemed to have been made in a commercially reasonable manner.
The Collateral Agent shall be under no obligation to delay a sale of any of
the Pledged Collateral for the period of time necessary to permit a Owned
Entity to register such securities for public sale under the Securities
Act, or under applicable state securities laws, even if such Owned Entity
agrees to do so.
(d) Each Sponsor Pledgor further agrees to use its best
efforts to do or cause to be done all such other acts as may be necessary
to make such sale or sales of all or any portion of the Pledged Collateral
pursuant to this Section 12 valid and binding and in compliance with any
and all other applicable requirements of law. Each Sponsor Pledgor further
agrees that a breach of any of the covenants contained in this Section 12
will cause irreparable injury to the Collateral Agent, the Trustee and the
Holders of Bonds, that the Collateral Agent, the Trustee and the Holders of
Bonds have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 12
shall be specifically enforceable against such Sponsor Pledgor, and each
Sponsor Pledgor hereby waives and agrees not to assert any defenses against
an action for specific performance of such covenants except for a defense
that no Event of Default has occurred under the Indenture.
SECTION 13. Irrevocable Authorization and Instruction to the Company.
The Sponsor Pledgors hereby authorize and instruct the Owned Entities to comply
with any instruction received by a Owned Entity from the Collateral Agent that
(i) states that an Event of Default has occurred and (ii) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from any Sponsor Pledgor, and each Sponsor Pledgor agrees that such
Owned Entity shall be fully protected in so complying.
SECTION 14. Fees and Expenses. The Sponsor Pledgors will upon demand
pay to the Collateral Agent the amount of any and all reasonable fees and
expenses (including, without limitation, the reasonable fees and disbursements
of its counsel, of any investment banking firm, business broker or other selling
agent and of any other experts and agents retained by the Collateral Agent) that
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the Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent and the Holders of
Bonds hereunder or (iv) the failure by any Sponsor Pledgor to perform or observe
any of the provisions hereof.
SECTION 15. Security Interest Absolute. All rights of the Collateral
Agent and the Holders of Bonds and the security interests created hereunder, and
all obligations of each Sponsor Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Secured Obligations; or
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Company or any Sponsor Pledgor in
respect of the Secured Obligations or of this Agreement.
SECTION 16. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Pledged Collateral and any cash held
shall be applied by the Collateral Agent in the following order of priorities:
first, to payment of the expenses of such sale or other realization,
including reasonable compensation to agents and counsel for the Collateral Agent
and the Trustee, and all expenses, liabilities and advances incurred or made by
the Collateral Agent or the Trustee in connection therewith, and any other
unreimbursed fees and expenses for which the Collateral Agent is to be
reimbursed pursuant to Section 14 hereof;
second, to the ratable payment (based on the principal amount of Bonds
deemed by the Indenture to be outstanding at the time of distribution) of
amounts due and unpaid on such outstanding Bonds for principal, premium, and
Registration Default Damages (if any) and interest without preference or
priority of any kind, according to amounts due and payable on the Bonds for
principal, premium and Registration Default Damages (if any) and interest,
respectively;
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third, to the ratable payment (based on the principal amount of Bonds
deemed by the Indenture to be outstanding at the time of distribution) of all
other Secured Obligations, until all Secured Obligations shall have been paid in
full; and
fourth, to payment to the applicable Sponsor Pledgor or its successors
or assigns, or as a court of competent jurisdiction may direct, of any surplus
then remaining from such proceeds;
provided that, at the written request of the Trustee, the Collateral Agent shall
pay any proceeds or cash as set forth in clauses first through third of this
Section to the Trustee to be paid and distributed by the Trustee in accordance
with the provisions of the Indenture, the Note and the Bonds, which payment
shall release the Collateral Agent from all responsibility for such payments
except for payments as set forth in clause fourth of this Section.
SECTION 17. Uncertificated Securities. Notwithstanding anything to the
contrary contained herein, if any Pledged Shares (whether now owned or acquired
hereafter by any Sponsor Pledgor) are uncertificated Pledged Shares, such
Sponsor Pledgor shall promptly notify the Collateral Agent, and shall promptly
take all actions required to perfect the security interest of the Collateral
Agent under applicable law. Each Sponsor Pledgor further agrees to take such
actions as the Collateral Agent deems necessary or desirable to effect the
foregoing and to permit the Collateral Agent to exercise any of its rights and
remedies hereunder, and agrees to provide an Opinion of Counsel satisfactory to
the Collateral Agent with respect to any such pledge of uncertificated Pledged
Shares promptly upon request of the Collateral Agent.
SECTION 18. Miscellaneous Provisions.
Section 18.1. Notices. All notices, approvals, consents or
other communications required or desired to be given hereunder shall be in the
form and manner as set forth in Section 13.02 of the Indenture, and delivered to
the addresses set forth in such Section, or, in the case of the Collateral
Agent, to:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts, 02110
Attention: Corporate Trust Department-ESI Tractebel
Telecopy No. (617) 664-5371.
Section 18.2. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by a Sponsor Pledgor to the
Collateral Agent to take any action or omit to take any action under this
Agreement, such Sponsor Pledgor shall deliver to the Collateral Agent an
Officer's Certificate and an Opinion of Counsel in accordance with the
requirements of Section 13.04 of the Indenture.
Section 18.3. No Adverse Interpretation of Other Agreements.
This Agreement may not be used to interpret another pledge, security or debt
agreement of any Sponsor Pledgor, any Owned Entities or any subsidiary thereof.
No such pledge, security or debt agreement may be used to interpret this
Agreement.
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Section 18.4. Severability. The provisions of this Agreement
are severable, and if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
Section 18.5. No Recourse Against Others. Except to the extent
provided in the Indenture, the Company and Partner Pledge Agreement and this
Agreement, no director, officer, employee, stockholder or affiliate, as such, of
any Sponsor Pledgor or any Owned Entity shall have any liability for any
obligations of a Sponsor Pledgor under this Agreement or for any claim based on,
in respect of or by reason of such obligations or their creation. Each Holder of
Bonds, by accepting a Bond, waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Bonds.
Section 18.6. Headings. The headings of the Articles and
Sections of this Agreement have been inserted for convenience of reference only,
are not to be considered a part hereof and shall in no way modify or restrict
any of the terms or provisions hereof.
Section 18.7. Counterpart Originals. This Agreement may be
signed in two or more counterparts. Each signed copy shall be an original, but
all of them together represent one and the same agreement. Each counterpart may
be executed and delivered by telecopy, if such delivery is promptly followed by
the original manually signed copy sent by overnight courier.
Section 18.8. Benefits of Agreement. Nothing in this
Agreement, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, the Trustee and the Holders of Bonds, any
benefit or any legal or equitable right, remedy or claim under this Agreement.
Section 18.9. Amendments, Waivers and Consents. Any amendment
or waiver of any provision of this Agreement and any consent to any departure by
any Sponsor Pledgor from any provision of this Agreement shall be effective only
if made or given in compliance with all of the terms and provisions of the
Indenture necessary for amendments or waivers of, or consents to any departure
by such Sponsor Pledgor from any provision of the Indenture, as applicable, and
neither the Collateral Agent, the Trustee nor any Holder of Bonds shall be
deemed, by any act, delay, indulgence, omission or otherwise, to have waived any
right or remedy hereunder or to have acquiesced in any Event of Default or in
any breach of any of the terms and conditions hereof. Failure of the Collateral
Agent, the Trustee or any Holder of Bonds to exercise, or delay in exercising,
any right, power or privilege hereunder shall not operate as a waiver thereof.
No single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent, the Trustee or any
Holder of Bonds of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy that the Collateral Agent or such
Holder of Bonds would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or concurrently
and are not exclusive of any rights or remedies provided by law.
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Section 18.10. Interpretation of Agreement. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in the Indenture shall have the meaning set forth in
the applicable UCC, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture and is not
dealt with herein with more specificity, the Indenture shall control with
respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the accepting
or acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
Section 18.11. Continuing Security Interest; Transfer. This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until the payment in full of all
the Secured Obligations and all the fees and expenses owing to the Collateral
Agent and the Trustee, (ii) be binding upon each Sponsor Pledgor, its successors
and assigns, and (iii) inure, together with the rights and remedies of the
Collateral Agent and the Trustee hereunder, to the benefit of the Collateral
Agent, the Trustee the Holders of Bonds and their respective successors,
transferees and assigns.
Section 18.12. Reinstatement. This Agreement shall continue to
be effective or be reinstated if at any time any amount received by the
Collateral Agent, the Trustee or any Holder of Bonds in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the
Collateral Agent, the Trustee or any Holder of Bonds upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of any Sponsor Pledgor or
upon the appointment of any receiver, intervenor, conservator, trustee or
similar official for any Sponsor Pledgor or any substantial part of its assets,
or otherwise, all as though such payments had not been made.
Section 18.13. Survival of Provisions. All representations,
warranties and covenants of each Sponsor Pledgor contained herein shall survive
the execution and delivery of this Agreement, and shall terminate only upon the
full and final payment and performance by the Company of the Secured
Obligations.
Section 18.14. Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to
exercise all powers hereunder that are specifically granted to the
Collateral Agent by the terms hereof, together with such powers as are
reasonably incident thereto. The Collateral Agent may perform any of
its duties hereunder or in connection with the Pledged Collateral by or
through agents or employees and shall be entitled to retain counsel and
to act in reliance upon the advice of counsel concerning all such
matters. Neither the Collateral Agent nor any director, officer,
employee, attorney or agent of the Collateral Agent shall be
responsible for the validity, effectiveness or sufficiency hereof or of
any document or security furnished pursuant hereto. The Collateral
Agent shall be without liability for acting in good faith at the
written direction of a majority in interest of the Holders of the Bonds
and in reliance thereon. The Collateral Agent and its directors,
officers, employees, attorneys and agents shall be entitled to rely on
any communication, instrument or document believed by it or them to be
genuine and correct and to have been signed or sent by the proper
person or persons and shall be without liability for any actions it or
they take or omit to take in good faith that the Collateral Agent
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reasonably believes to be authorized or within its powers. The Sponsor
Pledgors agree to indemnify and hold harmless the Collateral Agent, the
Holders of Bonds and any other Person from and against any and all
costs, expenses (including the reasonable fees and disbursements of
counsel (including, the allocated costs of inside counsel)), claims and
liabilities incurred by the Collateral Agent, the Holders of Bonds or
such Person hereunder, unless such claim or liability shall be due to
willful misconduct or gross negligence on the part of the Collateral
Agent, the Holders of Bonds or such Person.
(b) Each Sponsor Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Collateral Agent
and the Holders of Bonds, be governed by the Indenture and by such
other agreements with respect thereto as may exist from time to time
among them, but, as between the Collateral Agent and the Sponsor
Pledgors, the Collateral Agent shall be conclusively presumed to be
acting as agent for the Holders of Bonds with full and valid authority
so to act or refrain from acting, and the Sponsor Pledgors shall not be
obligated or entitled to make any inquiry respecting such authority.
Section 18.15. Resignation or Removal of the Collateral Agent.
Until such time as the Secured Obligations shall have been paid in full, the
Collateral Agent may at any time, by giving written notice to the Sponsor
Pledgors and Holders of Bonds, resign and be discharged of the responsibilities
hereby created, such resignation to become effective upon (i) the appointment of
a successor Collateral Agent and (ii) the acceptance of such appointment by such
successor Collateral Agent. As promptly as practicable after the giving of any
such notice, the Holders of Bonds by vote of a majority in interest thereof,
shall appoint a successor Collateral Agent. If no successor Collateral Agent
shall be appointed and shall have accepted such appointment within 90 days after
the Collateral Agent gives the aforesaid notice of resignation, the Collateral
Agent may apply to any court of competent jurisdiction to appoint a successor
Collateral Agent to act until such time, if any, as a successor shall have been
appointed as provided in this Section 18.15. Any successor so appointed by such
court shall immediately and without further act be superseded by any successor
Collateral Agent appointed by the Holders of Bonds, as provided in this Section
18.15. Simultaneously with its replacement as Collateral Agent hereunder, the
Collateral Agent so replaced shall deliver to its successor all documents,
instruments, certificates and other items of whatever kind (including, without
limitation, the certificates and instruments evidencing the Pledged Collateral
and all instruments of transfer or assignment) held by it pursuant to the terms
hereof. The Collateral Agent that has resigned shall be entitled to fees, costs
and expenses to the extent incurred or arising, or relating to events occurring,
before its resignation or removal.
Section 18.16. Release; Termination of Agreement.
16
<PAGE>
(a) Subject to the provisions of Section 18.12 hereof, this
Agreement shall terminate (i) upon full and final payment and
performance of the Secured Obligations (and upon receipt by the
Collateral Agent of the Company's written certification that all such
Secured Obligations have been satisfied) and payment in full of all
fees and expenses owing by the Sponsor Pledgors to the Collateral Agent
or (ii) on the day after the first anniversary of the Legal Defeasance
of all of the Secured Obligations pursuant to Section 8.02 of the
Indenture (other than those surviving Secured Obligations specified
therein). At such time, the Collateral Agent shall, at the request of
the Sponsor Pledgors, reassign and redeliver to the Sponsor Pledgors
all of the Pledged Collateral hereunder that has not been sold,
disposed of, retained or applied by the Collateral Agent in accordance
with the terms hereof. Such reassignment and redelivery shall be
without warranty by or recourse to the Collateral Agent, except as to
the absence of any prior assignments by the Collateral Agent of its
interest in the Pledged Collateral, and shall be at the expense of the
Sponsor Pledgors.
(b) Each Sponsor Pledgor agrees that it will not, except as
permitted by the Indenture, sell or dispose of, or grant any option or
warrant with respect to, any of the Pledged Collateral.
Section 18.17. Final Expression. This Agreement, together with
any other agreement executed in connection herewith, is intended by the parties
as a final expression of their Agreement and is intended as a complete and
exclusive statement of the terms and conditions thereof.
Section 18.18. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES.
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
SPONSOR PLEDGORS, THE COLLATERAL AGENT AND THE HOLDERS OF BONDS IN CONNECTION
WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(ii) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH AND IN PARAGRAPH
(vi) BELOW, EACH OF THE SPONSOR PLEDGORS, THE COLLATERAL AGENT AND THE HOLDERS
OF BONDS AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK, BUT EACH OF THE SPONSOR PLEDGORS, THE COLLATERAL AGENT AND THE
17
<PAGE>
HOLDERS OF BONDS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH SPONSOR PLEDGOR
WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT CONSIDERING THE DISPUTE INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(iii) EACH SPONSOR PLEDGOR AGREES THAT THE COLLATERAL AGENT
SHALL, IN ITS OWN NAME OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF BONDS, HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST SUCH
SPONSOR PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED
IN GOOD FAITH TO ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL
AGENT. EACH SPONSOR PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
COLLATERAL AGENT. EACH SPONSOR PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(iv) EACH OF THE SPONSOR PLEDGORS, THE COLLATERAL AGENT AND
THE HOLDERS OF BONDS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(v) EACH SPONSOR PLEDGOR IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO SUCH SPONSOR PLEDGOR AT ITS ADDRESS SET FORTH IN SECTION 13.02 OF
THE INDENTURE, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) BUSINESS DAYS AFTER
SUCH MAILING.
(vi) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL
AGENT OR ANY HOLDER OF BONDS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY SPONSOR
PLEDGOR IN ANY OTHER JURISDICTION.
18
<PAGE>
(vii) EACH SPONSOR PLEDGOR HEREBY AGREES THAT NEITHER THE
COLLATERAL AGENT NOR ANY HOLDER OF BONDS SHALL HAVE ANY LIABILITY TO SUCH
SPONSOR PLEDGOR (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES
SUFFERED BY SUCH SPONSOR PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY
WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED
BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A
COURT THAT IS BINDING ON THE COLLATERAL AGENT OR SUCH HOLDER OF BONDS, AS THE
CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART
OF THE COLLATERAL AGENT OR SUCH HOLDER OF BONDS, AS THE CASE MAY BE,
CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(viii) EACH SPONSOR PLEDGOR WAIVES ALL RIGHTS OF NOTICE AND
HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY HOLDER
OF BONDS OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. EACH SPONSOR PLEDGOR
WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT OR ANY
HOLDER OF BONDS IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN
POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE COLLATERAL AGENT OR ANY HOLDER OF BONDS, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION
THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN SUCH SPONSOR PLEDGOR,
THE COLLATERAL AGENT AND THE HOLDERS OF BONDS.
Section 18.19. TIA Provision. In the event that the TIA
applies to this Agreement, the provisions required by the TIA shall be deemed to
be included herein and shall supersede any provision hereof which may conflict
with the TIA.
Section 18.20. Acknowledgments. Each Sponsor Pledgor hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement;
(b) neither the Collateral Agent nor any Holder of Bonds has
any fiduciary relationship to such Sponsor Pledgor, and the
relationship between the Collateral Agent and the Holders of Bonds, on
the one hand, and such Sponsor Pledgor, on the other hand, is solely
that of a secured party and a creditor; and
(c) no joint venture exists among the Holders of Bonds or
among any Sponsor Pledgor and the Holders of Bonds.
[Signature Page Follows]
19
<PAGE>
IN WITNESS WHEREOF, the Sponsor Pledgors and the Collateral
Agent have each caused this Agreement to be duly executed and delivered as of
the date first above written.
SPONSOR PLEDGORS:
ESI Northeast Energy GP, Inc.,
a Florida corporation
By: /s/ Glenn E. Smith
-----------------------------
Name: Glenn E. Smith
Title: Vice President
ESI Northeast Energy LP, Inc.,
a Florida corporation
By: /s/ Glenn E. Smith
-----------------------------
Name: Glenn E. Smith
Title: Vice President
Tractebel Northeast Generation GP, Inc.,
a Delaware corporation
By: /s/ James E. Hammelman
-----------------------------
Name: James E. Hammelman
Title: Vice President and Treasurer
Tractebel Associates Northeast LP, Inc.,
a Delaware corporation
By: /s/ James E. Hammelman
-----------------------------
Name: James E. Hammelman
Title: Vice President and Treasurer
<PAGE>
ESI Northeast Energy Acquisition Funding, Inc.,
a Florida corporation
By: /s/ Glenn E. Smith
-----------------------------
Name: Glenn E. Smith
Title: Vice President
Tractebel Power, Inc.,
a Delaware corporation
By: /s/ James E. Hammelman
-----------------------------
Name: James E. Hammelman
Title: Vice President and Treasurer
<PAGE>
COLLATERAL AGENT:
State Street Bank and Trust Company,
as Collateral Agent
By: /s/ Chi C. Ma
-----------------------------
Name: Chi C. Ma
Title: Assistant Vice President
<PAGE>
Execution Copy
SCHEDULE I
PLEDGED COLLATERAL
Number of
Shareholders of Pledged Shares Share Certificate Percentage
the Company of the Company Number Outstanding
- ---------------- -------------- ------ -----------
ESI Funding 10 1 50%
Tractebel 10 2 50%
---
100%
Interest* in
Owners of NE LP NE LP
--------------- -----
ESI LP 49%
ESI GP 1%
Tractebel LP 49%
Tractebel GP 1%
---
100%
- ----------
* As defined in the NE LP Partnership Agreement.
A-1
Exhibit 10.6
================================================================================
REIMBURSEMENT AGREEMENT
by and among
FPL GROUP CAPITAL INC.,
TRACTEBEL POWER, INC.,
and
NORTHEAST ENERGY, LP
November 21, 1997
================================================================================
<PAGE>
REIMBURSEMENT AGREEMENT, dated as of November 21, 1997, by and among
FPL GROUP CAPITAL INC., a Florida corporation ("FPL"), TRACTEBEL POWER, INC., a
Delaware corporation ("Tractebel"), and NORTHEAST ENERGY, LP, a Delaware limited
partnership ("Northeast Energy").
PRELIMINARY STATEMENT
Pursuant to Section 4.1 of the Agreement of Limited Partnership of
Northeast Energy, LP (the "Partnership Agreement"), the ESI Partners and the
Tractebel Partners (as such terms are defined in the Partnership Agreement) are
permitted or required to provide Back-up Letters of Credit, Parent Guaranties
and Substitute Letters of Credit pursuant to the Trust Indenture, and letters of
credit and corporate guaranties in connection with the Rule 144A Financing,
which Back-up Letters of Credit, Parent Guaranties, Substitute Letters of
Credit, letters of credit and corporate guaranties shall be in the respective
amounts specified in the Partnership Agreement;
Subject to the terms and conditions of the Partnership Agreement and to
the execution and delivery of this Agreement, FPL and Tractebel intend to enter
into reimbursement agreements with the banks issuing the Back-up Letters of
Credit, the Substitute Letters of Credit and the issuers of such other letters
of credit and to provide the Parent Guaranties and such other corporate
guaranties;
Now, therefore, in order to induce FPL and Tractebel to enter into such
commitments, Northeast Energy hereby agrees as follows:
SECTION 1. DEFINITIONS.
Section 1.1 Defined Terms. All capitalized terms used in this Agreement
and not defined herein shall have the respective meanings assigned to them in
the Partnership Agreement. As used herein, "144A Trust Indenture" shall mean the
indenture to be entered into among Northeast Energy, ESI Tractebel Acquisition
Corp., a Delaware corporation, and the trustee in connection with the
anticipated Rule 144A Financing.
SECTION 2. REIMBURSEMENT.
Section 2.1 Reimbursement of Payment. Upon (a) any drawing under any of
the Back-up Letters of Credit, the Substitute Letters of Credit or the letters
of credit issued in connection with the Rule 144A Financing (the "Rule 144A
letters of credit") and the reimbursement therefor by FPL or Tractebel or (b)
the payment by FPL or Tractebel under any corporate guaranty in connection with
the Rule 144A Financing or under any Parent Guaranty, Northeast Energy agrees to
pay, or cause to be paid, to each of FPL and Tractebel, an amount equal to the
amount so reimbursed or disbursed by each of FPL and Tractebel (collectively,
the "Reimbursement Amounts"). Repayment of the Reimbursement Amounts shall be
paid from funds distributed from the General Subfund of the Partnership
Distribution Fund (as defined in the Trust Indenture). On each date on which
funds are so distributed, such funds shall be paid to FPL and Tractebel, subject
to Section 2.5, pro rata on the basis of the total Reimbursement Amounts owing
to such entities at the time of such distribution. Such payments shall be senior
and prior to any equity distributions to the partners of Northeast Energy.
<PAGE>
Section 2.2 Distribution of Payments From the Debt Service Reserve
Fund. Upon the issuance of new Substitute Letters of Credit pursuant to Section
4.1.4 of the Partnership Agreement and the release of funds with respect thereto
from the Debt Service Reserve Fund, such funds shall, upon distribution thereof
to the Partnership, be promptly paid by the Partnership to FPL and Tractebel in
accordance with Section 2.1 to the extent of any outstanding Reimbursement
Amounts.
Section 2.3. Manner and Place of Payments. All payments to be made to
FPL or Tractebel hereunder or in connection herewith by Northeast Energy shall
be made to such entity at such office or bank as it may designate from to time.
Section 2.4. Interest and other Costs Excluded. The Reimbursement
Amounts shall exclude any interest thereon or costs associated therewith.
Section 2.5. Subordination. Each of FPL and Tractebel agrees (i) that
its rights under this Agreement to demand and receive payment of any
Reimbursement Amounts, and the obligation of Northeast Energy to make payment of
such Reimbursement Amounts, are and shall be subordinated and subject to the
prior payment of any amounts payable under the 144A Trust Indenture to the
extent provided therein, and (ii) that it will enter into such subordination
agreement with respect thereto as may be requested by Northeast Energy and the
trustee under the 144A Trust Indenture.
Section 2.6. Representations and Warranties. Northeast Energy
represents and warrants as of the date hereof as follows:
(a) Powers. Northeast Energy has full power to execute, deliver
and perform its obligations under this Agreement.
(b) Authorization. The execution, delivery and performance by
Northeast Energy of this Agreement has been duly authorized by all
necessary actions on the part of Northeast Energy, does not and will
not conflict with, or result in a violation of, any provision of law,
including the Partnership Agreement, or any order, writ, rule or
regulation of any court or governmental department, commission, board,
bureau, agency or instrumentality binding upon or applicable to
Northeast Energy and does not and will not conflict with, result in a
violation of, or constitute a default under, any agreement or
instrument to which Northeast Energy is a party or by which Northeast
Energy or any of its property is bound.
(c) Binding Effect. This Agreement constitutes a valid and
binding agreement of Northeast Energy enforceable in accordance with
its terms.
2
<PAGE>
SECTION 3. MISCELLANEOUS.
Section 3.1. Amendments, Etc. No amendment, modification or waiver of
any provision of this Agreement nor consent to any departure by the parties
hereto shall in any event be effective unless the same shall be in writing and
signed by Northeast Energy, FPL and Tractebel, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
Section 3.2. Addresses for Notices; Payments to FPL and Tractebel. All
notices and other communications provided for hereunder shall be in writing and
addressed to it at the address for notices to Northeast Energy, FPL or
Tractebel, as applicable, on the signature pages hereto, or as to each party at
such other address as shall be designated by such party in a written notice to
the other parties hereto. All such notices and other communications shall, be
effective when received, except that a notice sent by telecopier and received
after normal business hours shall be deemed to be received the following
business day.
Section 3.3. No Waiver; Remedies. No failure on the part of FPL or
Tractebel to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
Section 3.4. Successors and Assigns; Third Party Beneficiaries. This
Agreement shall be binding upon (a) Northeast Energy, its successors and
assigns, (b) inure to the benefit of and be enforceable by FPL, its affiliates,
and their successors, transferees and assigns and (c) inure to the benefit of
and be enforceable by Tractebel, its affiliates, and their successors,
transferees and assigns; provided, that Northeast Energy may not assign all or
any part of this Agreement without the prior written consent of FPL and
Tractebel.
Section 3.5. Fees and Expenses. Northeast Energy agrees to pay, upon
receipt of an invoice, all reasonable costs and expenses of FPL and/or Tractebel
in connection with the enforcement of Northeast Energy's obligations under
Section 2.1 hereof.
Section 3.6. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 3.7. Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of New York.
Section 3.8. Disputes. Any dispute between or among the parties hereto
shall be resolved pursuant to the provisions of Article VIII of the Partnership
Agreement.
3
<PAGE>
Section 3.9. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 3.10. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Reimbursement
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the above written.
FPL GROUP CAPITAL INC.
By: /s/ L. J. Gelber
-----------------------------------
Name: L. J. Gelber
Title:
TRACTEBEL POWER, INC.
By: /s/ Charles Vetters
-----------------------------------
Name: Charles Vetters
Title: Vice President
NORTHEAST ENERGY, LP
By: ESI Northeast Energy GP, Inc.,
General Partner
By: /s/ Glenn E. Smith
-------------------------
Name: Glenn E. Smith
Title: Vice President
By: Tractebel Northeast
Generation GP, Inc.,
General Partner
By: /s/ Timothy R. Dunne
-------------------------
Name: Timothy R. Dunne
Title: Vice President
5
Exhibit 12.1
ESI TRACTEBEL ACQUISITION CORP.
Ratio of Earnings to Fixed Charges (In Thousands)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Partnerships Combined NE LP Pro forma
-------------------------------------------- -----------------------
Year Ended December 31, Year Ended December 31,
-------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Costs:
Pre-tax income from continuing operations (1,261) (2,979) 26,857 9,924 36,673 (7,224)
Plus:
Fixed charges
Interest expense (debt and energy bank) 46,244 49,744 67,587 52,214 49,836 82,686
Amortization of debt issuance costs 2,599 2,333 2,305 2,373 2,163 605
1/3 Lease expense 138 149 108 122 126 126
------ ------ ------ ------ ------ ------
Total fixed charges 48,981 52,226 70,000 54,709 52,125 83,417
Total earnings 47,720 49,247 96,857 64,633 88,798 76,193
Earnings to Fixed Charge Ratio (1) - - 1.38 1.18 1.70 -
====== ====== ====== ====== ====== =======
</TABLE>
(1) The earnings for 1993, 1994 and pro forma 1997 were inadequate to cover
fixed charges. The coverage deficiencies during 1993, 1994 and pro forma
1997 are $1.261 million, $2.979 million and $7.224 million, respectively.
Exhibit 21.1
Subsidiary of Northeast Energy, LP
Northeast Energy, LLC, a Delaware limited liability company
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-4 of ESI Tractebel Acquisition Corp. of
our report dated March 24, 1998 relating to the combined financial statements of
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy
Associates, A Limited Partnership, which appear in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Historical Combined Financial Data" in such Prospectus. However, it should be
noted that Price Waterhouse LLP has not prepared or certified such "Selected
Historical Combined Financial Data".
/s/ PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 11, 1998
Exhibit 23.3
CONSENT OF INDEPENDENT ENGINEER
We consent to the inclusion in this Registration Statement on Form S-4,
filed with the Securities and Exchange Commission by ESI Tractebel Acquisition
Corp. under the Securities Act of 1933, of our report dated February 12, 1998
and entitled "Bellingham and Sayreville Cogeneration Facilities Due Diligence
Review." We also consent to the reference to our firm in said Registration
Statement under the caption, "Experts."
SARGENT & LUNDY
/s/ A. Morcos
---------------------------------
Name: Andrew Morcos
Title: Sr. Vice President
Chicago, Illinois
May 5, 1998
Exhibit 23.4
CONSENT OF FUEL CONSULTANT
We consent to the inclusion in this Registration Statement on Form S-4,
filed with the Securities and Exchange Commission by ESI Tractebel Acquisition
Corp. under the Securities Act of 1933, of our report dated February 12, 1998
and entitled "Northeast Energy Associates and North Jersey Energy Associates
Cogeneration Projects Fuel Consultant's Report." We also consent to the
reference to our firm in said Registration Statement under the caption,
"Experts."
BENJAMIN SCHLESINGER AND
ASSOCIATES, INC.
/s/ Benjamin Schlesinger
------------------------------------
Name: Benjamin Schlesinger, Ph.D.
Title: President
Bethesda, Maryland
May 5, 1998
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
---------------------------------------------------
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
- ----------------------------------------- -------------------
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
---------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
ESI TRACTEBEL ACQUISITION CORP.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
DELAWARE (65-0827005)
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
NORTHEAST ENERGY, LP
---------------------------------------------------
(Exact name of obligor as specified in its charter)
DELAWARE (65-0811248)
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Glenn E. Smith, Vice President
c/o FPL Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, Florida 33408
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Debt Securities
-------------------------------
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to
the Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a part
hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 7th of May, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Chi Ma
----------------------------
NAME: Chi Ma
TITLE: Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by ESI
Tractebel Acquisition Corporation and Northeast Energy, LP of its Debt
Securities, we hereby consent that reports of examination by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Chi Ma
----------------------------
NAME: Chi Ma
TITLE: Assistant Vice President
Dated: May 7, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
-------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................... 2,220,829
Interest-bearing balances............................................. 10,076,045
Securities..................................................................... 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary................................... 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income ............................. 6,270,348
Allowance for loan and lease losses .................................. 82,820
Allocated transfer risk reserve....................................... 0
Loans and leases, net of unearned income and allowances............... 6,187,528
Assets held in trading accounts................................................ 1,241,555
Premises and fixed assets...................................................... 410,029
Other real estate owned........................................................ 100
Investments in unconsolidated subsidiaries..................................... 38,831
Customers' liability to this bank on acceptances outstanding................... 44,962
Intangible assets.............................................................. 224,049
Other assets................................................................... 1,507,650
----------
Total assets................................................................... 37,449,709
==========
LIABILITIES
Deposits:
In domestic offices................................................... 10,115,205
Noninterest-bearing ......................................... 7,739,136
Interest-bearing ............................................ 2,376,069
In foreign offices and Edge subsidiary................................ 14,791,134
Noninterest-bearing ......................................... 71,889
Interest-bearing ............................................ 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary................................... 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities............... 194,059
Trading liabilities............................................................ 1,036,905
Other borrowed money........................................................... 459,252
Subordinated notes and debentures.............................................. 0
Bank's liability on acceptances executed and outstanding....................... 44,962
Other liabilities.............................................................. 972,782
Total liabilities.............................................................. 35,218,219
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................. 0
Common stock................................................................... 29,931
Surplus........................................................................ 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses)... 1,763,076
Cumulative foreign currency translation adjustments............................ (6,137)
Total equity capital........................................................... 2,231,490
----------
Total liabilities and equity capital.......................................... 37,449,709
----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
Exhibit 99.1
LETTER OF TRANSMITTAL
FOR TENDERS OF
$220,000,000 Aggregate Principal Amount of
7.99% Series A Secured Bonds Due 2011
of
ESI TRACTEBEL ACQUISITION CORP.
Pursuant to the Prospectus dated , 1998 of
ESI Tractebel Acquisition Corp.
and Northeast Energy, LP
--------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1998, UNLESS
EXTENDED. TENDERED SECURITIES MAY BE
WITHDRAWN AT ANY TIME ON OR PRIOR TO THE
EXPIRATION DATE OF THE EXCHANGE OFFER
--------------------------------------------------------------------
To: State Street Bank and Trust Company, The Exchange Agent by Overnight Courier
or Hand:
Two International Place
Boston, MA 02110
Attention: Ms. Kellie Mullen, Corporate Trust Department
Telephone: (617) 664-5587
<TABLE>
<S> <C>
By Registered or Certified By Facsimile:
Mail: (617) 664-5290
Two International Place Attention: Ms. Kellie Mullen, Corporate Trust
Boston, MA 02110 Department
Attention: Ms. Kellie Mullen, Corporate Trust Confirm by telephone: (617) 664-5587
Department
</TABLE>
<PAGE>
Delivery of this Instrument to an address other than as set forth above
will not constitute a valid delivery.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated _________, 1998 (the "Prospectus"), of ESI Tractebel
Acquisition Corp., a Delaware corporation (the "Company") and Northeast Energy,
LP, a Delaware limited partnership ("Northeast"), and this Letter of Transmittal
(the "Letter"), which together constitute the Company's and Northeast's offer
(the "Exchange Offer") to exchange an aggregate principal amount of up to
$220,000,000 7.99% Series B Secured Bonds Due 2011 (the "New Securities"), for a
like principal amount of the Company's issued and outstanding 7.99% Series A
Secured Bonds Due 2011 (the "Old Securities").
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer. The Company reserves the right to extend the Exchange Offer at
its discretion, in which event the term "Expiration Date" shall mean the time
and date when the Exchange Offer as so extended shall expire. The Company shall
notify the holders of the Old Securities of any extension by oral or written
notice prior to 9.00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date.
The New Securities will bear interest from the last interest payment date
of the Old Securities to occur prior to the issue date of the New Securities at
the same rate and upon the same terms as the Old Securities. Holders whose Old
Securities are accepted for exchange will not receive interest on such Old
Securities for any period subsequent to the last interest payment date of the
Old Securities to occur prior to the issue date of the New Securities and will
be deemed to have waived the right to receive any payment in respect of interest
on the Old Securities accrued from and after such interest payment date.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Securities being tendered for exchange. However, the Exchange Offer is
subject to certain conditions. Please see the Prospectus under the section
entitled "THE EXCHANGE OFFER - Certain Conditions to the Exchange Offer".
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Old Securities in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
This Letter is to be completed by a holder of Old Securities either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Securities, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "THE
EXCHANGE OFFER - Exchanging Book-Entry Old Securities" section of the
Prospectus. Holders of Old Securities whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Securities into the
2
<PAGE>
Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and deliver all other documents required by this Letter to the
Exchange Agent on or prior to the Expiration Date, may tender their Old
Securities according to the guaranteed delivery procedures set forth in the
Prospectus under the section entitled "THE EXCHANGE OFFER - Guaranteed Delivery
Procedures".
Holders who wish to tender their Old Securities must complete this Letter
of Transmittal in its entirety.
3
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOX
List below the Old Securities to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Securities should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD SECURITIES (See
Instructions 2, 3 and 8)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es)
of Registered Holder(s) (Attach additional signed list, if necessary)
(Please fill in)
---------------------------------------------------------------------------------------------------------
1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Principal Amount of Old
Securities Tendered (2)
(must be $100,000 or integral
Aggregate Principal Amount multiples of
Certificate Number(s) (1) of Old Securities $1,000 in excess thereof)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certificate numbers not required if Old Securities are being tendered by
book-entry transfer.
(2) Unless otherwise indicated, a holder will be deemed to have tendered ALL of
the Old Securities represented in column 2.
|_| CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
4
<PAGE>
|_| CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):
Window Ticket Number (if any):__________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
If delivered by Book-Entry Transfer, Complete the Following:
Account Number:_______________________
Transaction Code Number:______________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
5
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Securities indicated above. The undersigned has completed, executed and
delivered this Letter to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the Old
Securities tendered hereby, the undersigned hereby sells, assigns and transfers
to, or upon the order of, the Company all right, title and interest in and to
such Old Securities as are being tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company and Northeast Energy, LP and as trustee under the Indenture
for the Old Securities and the New Securities) with respect to the tendered Old
Securities with full power of substitution to (i) deliver certificates for such
Old Securities to the Company and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Company. (ii) present such Old
Securities for transfer on the books of the Company and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of the
beneficial ownership of such Old Securities, all in accordance with the terms of
the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Securities
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that (i) any New Securities acquired in
exchange for Old Securities tendered hereby will have been acquired in the
ordinary course of business of the person receiving such New Securities, whether
or not such person is the undersigned, (ii) neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such New Securities and (iii) neither the holder nor any
such other person is an "affiliate", as described in Rule 405 under the
Securities Act of 1933 (the "1933 Act"), of the Company or Northeast Energy, LP.
The undersigned also acknowledges that, if the undersigned is a
broker-dealer that will receive New Securities for its own account in exchange
for Old Securities that were acquired as a result of market-making activities or
other trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such New Securities; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the 1933 Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment, transfer and sale of the Old Securities
tendered hereby. All authority conferred or
6
<PAGE>
agreed to be conferred in this Letter and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in the instructions contained in this Letter.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Securities when, as and if the Company has given
oral and written notice thereof to the Exchange Agent,
If any tendered Old Securities are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Old
Securities will be returned (or, in the case of Old Securities tendered by
book-entry transfer through the Book-Entry Transfer Facility, will be promptly
credited to an account maintained at the Book-Entry Transfer Facility), without
expense, to the undersigned at the address shown below or at a different address
as may be indicated herein under the "Special Delivery Instructions" as promptly
as practicable after the Expiration Date.
The undersigned understands that tenders of Old Securities pursuant to the
procedures described under the section entitled "THE EXCHANGE OFFER - Procedures
for Tendering Old Securities" in the Prospectus and in the instructions hereto
will constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Securities (and, if applicable,
substitute certificates representing Old Securities for any Old Securities not
exchanged) in the name (s) of the undersigned or, in the case of a book-entry
delivery of Old Securities. please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Securities (and, if applicable, substitute certificates representing Old
Securities for any Old Securities not exchanged) to the undersigned at the
address shown above in the box entitled "Description of Old Securities". In the
event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the New
Securities issued in exchange for the Old Securities accepted for exchange in
the name(s) of, and return any certificates for Old Securities not tendered or
not exchanged to, the person(s) so indicated. The undersigned understands that
the Company has no obligation pursuant to the "Special Issuance Instructions"
and "Special Delivery Instructions" to transfer any Old Securities from the name
of the registered holder(s) thereof if the Company does not accept for exchange
any of the Old Securities so tendered.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD SECURITIES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
SECURITIES AS SET FORTH IN SUCH BOX ABOVE.
7
<PAGE>
- ----------------------------------------- -------------------------------------
SPECIAL ISSUANCE SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
To be completed ONLY if To be completed ONLY if
certificates for Old Securities not certificates for Old Securities not
exchanged and/or New Securities are exchanged and / or New Securities
to be issued in the name of and sent are to be sent to someone other
to someone other than the person or than the person or persons whose
person(s) whose signature(s) signature(s) appear(s) on this
appear(s) on this Letter above, or if Letter above or to such person or
Old Securities delivered by persons at an address other than
book-entry transfer which are not shown in the box entitled
accepted for exchange are to be "Description of Old Securities" on
returned by credit to an account this Letter above.
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Issue: New Securities and/or Old Mail: New Securities and/or Old
Securities to: Securities to:
Name:_________________________________ Name:________________________________
(Please Type or Print) (Please Type or Print)
_________________________________ ________________________________
(Please Type or Print) (Please Type or Print)
Address: ____________________________ Address: ___________________________
____________________________ _____________________________________
(Zip Code)
____________________________ _____________________________________
Employer Identification (Zip Code)
or Social Security Number
(Complete Substitute Form W-9)
|_| Credit unexchanged Old Securities
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth below.
______________________________________
(Book-Entry Transfer Facility Account
Number, if applicable)
- ----------------------------------------- -------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
I hereby TENDER the Old Securities described above in the box entitled
"Description of Old Securities" pursuant to the terms of the Exchange Offer.
Dated:__________________________________________________________________, 1998
X __________________________________________________________________, 1998
X __________________________________________________________________, 1998
Signature(s) of Owner(s) Date
If a holder is tendering any Old Securities, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Old Securities or on a security position listing or by any person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 4.
Name(s):________________________________________________________________________
(Please Type or Print)
________________________________________________________________________________
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
SIGNATURE GUARANTEE
(If required by Instructions 4)
Signature(s) Guaranteed by an Eligible Institution:_____________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Firm)
________________________________________________________________________________
(Area Code and Telephone Numbers)
Dated____________________________________________________________________, 1998
- --------------------------------------------------------------------------------
9
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a registered holder of Old Securities or New
Securities is required to provide the Exchange Agent (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below or otherwise establish a basis for exemption from backup withholding. If
such holder is an individual, the TIN is his social security number. If the
Trustee is not provided with the correct TIN, a $50 penalty may be imposed by
the Internal Revenue Service, and payments made to such holder with respect to
Old Securities or New Securities may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made with respect to Old
Securities or New Securities the holder is required to provide the Exchange
Agent with: (i) the holder's correct TIN by completing the form below,
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
holder is awaiting a TIN) and that (A) such holder is exempt from backup
withholding, (B) the holder has not been notified by the Internal Revenue
Service that the holder is subject to backup withholding as a result of failure
to report all interest or dividends or (C) the Internal Revenue Service has
notified the holder that the holder is no longer subject to backup withholding;
and (ii) if applicable, an adequate basis for exemption.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See "Important Tax Information" above)
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU UNDER THE OLD SECURITIES OR THE NEW SECURITIES.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SUBSTITUTE Part I - PLEASE PROVIDE YOUR TIN Employer Identification
Form W-9 IN THE BOX AT RIGHT AND CERTIFY Number or Social Security
BY SIGNING AND DATING BELOW Number
-------------------------
---------------------------------------------------------------
Department of the Part 2 - Certification - Under penalties Part 3
Treasury Internal of perjury, I certify that:
Revenue Service (1) The number shown on this form Awaiting
is my correct Taxpayer TIN |_|
Identification Number (or I am
waiting for a number to be
issued to me) and
(2) I am not subject to backup
withholding because (i) I am
exempt from backup
withholding, (ii) I have not
been notified by the Internal
Revenue Service ("IRS") that I
am subject to backup
withholding as a result of
failure to report all interest
or dividends, or (iii) the IRS
has notified me that I am no
longer subject to backup
withholding.
---------------------------------------------------------------------
Payee's Request for Certificate instruction: - You must cross out item (2) in Part (2)
Taxpayer above if you have been notified by the IRS that you are subject to
Identification backup withholding because of underreporting interest or dividends
Number ("TIN") on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another
notification from the IRS stating that you are no longer subject to
backup withholding, do not cross out item (2).
SIGNATURE____________________________________________
DATE_________________________________
NAME________________________________________________________________
(Please Print)
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. It is understood that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------, 1998.
Signature and Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMLE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD SECURITIES (IF APPLICABLE) AND ALL OTHER REQUIRED
DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
This letter must be used to forward, and must accompany, all
certificates for Old Securities tendered pursuant to the Exchange Offer.
12
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the
Exchange Offer
I. Delivery of this Letter and Certificates.
This letter is to be completed by holders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "THE EXCHANGE OFFER - Exchanging
Book-Entry Old Securities" section of the Prospectus. Certificates for all
physically tendered Old Securities, or Book-Entry Confirmation, as the case may
be, as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Securities tendered hereby must be in
denominations of principal amount of $100,000 and any integral multiple of
$1,000 in excess thereof.
The method of delivery of this Letter, the Old Securities and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Securities are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. No Letter or Old Securities should be sent to the Company.
Holders who wish to tender their Old Securities and (i) whose Old
Securities are not immediately available, or (ii) who cannot deliver their Old
Securities, this Letter or any other documents required hereby to the Exchange
Agent prior to the Expiration Date or (iii) who cannot comply with the
procedures for book-entry tender on a timely basis must tender their Old
Securities according to the guaranteed delivery procedures set forth in the
Prospectus. Pursuant to such procedures: (i) such tender must be made through an
Eligible Institution (as defined below); (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by mail, hand
delivery or facsimile transmission (immediately followed by mail or hand
delivery)) setting forth the name and address of the holder, the certificate
number(s) of such Old Securities (except in the case of book-entry tenders) and
the principal amount of Old Securities tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, this Letter (or a facsimile hereof)
together with the certificate(s) representing the Old Securities (except in the
case of book-entry tenders) and any other required documents will be deposited
by the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter (or facsimile hereof), as well as all other
documents required by this Letter and the certificate(s) representing all
tendered Old Securities in proper form for transfer or a Book-Entry Confirmation
with respect to such Old Securities, must be received by the Exchange Agent
within five New York Stock Exchange trading days after the Expiration Date, all
as provided in the Prospectus under the section entitled "THE EXCHANGE OFFER --
Guaranteed Delivery Procedures". Any holder who wishes to
13
<PAGE>
tender his Old Securities pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration
Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to holders who wish to tender their Old Securities according to the
guaranteed delivery procedures set forth above. As used in this Letter,
"Eligible Institution" shall mean a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States or which is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
All questions as to the validity, eligibility (including time of receipt),
acceptance and withdrawal of tendered Old Securities will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Securities not
properly tendered or any Old Securities the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Securities. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter)
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Securities must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Securities, nor shall
any of them incur any liability for failure to give such notification. Tenders
of Old Securities will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Securities received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter, as
soon as practicable following the Expiration Date.
See "THE EXCHANGE OFFER" in the Prospectus.
2. Tender by Holder.
Only a holder of Old Securities may tender such Old Securities in the
Exchange Offer. Any beneficial owner whose Old Securities are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
such registered holder to tender on behalf of such beneficial owner. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing this Letter and delivering such owner's Old
Securities, either make appropriate arrangements to register ownership of the
Old Securities in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
3. Partial Tenders and Withdrawals.
Tenders of Old Securities will be accepted only in denominations of
$100,000 and integral multiples of $1,000 in excess thereof. If less than all of
the Old Securities are to be
14
<PAGE>
tendered, the tendering holder(s) should fill in the aggregate principal amount
of Old Securities to be tendered in the box above entitled "Description of Old
Securities Principal Amount of Old Securities Tendered", A reissued certificate
representing the balance of nontendered Old Securities will be sent to such
tendering holder (except in the case of book-entry tenders), unless otherwise
provided in the appropriate box on this Letter, promptly after the Expiration
Date. All of the Old Securities delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
Any holder who has tendered Old Securities may withdraw the tender by
delivering written notice of withdrawal to the Company prior to 5:00 p.m., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at its
address set forth on the first page of this Letter. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Securities to be withdrawn (the "Depositor"); (ii) identify the Old Securities
to be withdrawn (including the certificate number or numbers and principal
amount of such Old Securities (except in the case of book-entry tenders)); (iii)
be signed by the holder in the same manner as the original signature on this
Letter by which such Old Securities were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee (as defined in the Prospectus) register the transfer of such
Old Securities into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Securities are to be registered, if
different from that of the Depositor. If Old Securities have been delivered or
otherwise identified to the Exchange Agent, the name of the registered holder
and the certificate numbers of the particular Old Securities withdrawn must also
be furnished to the Exchange Agent as aforesaid prior to the physical release of
the withdrawn Old Securities. If the Old Securities have been tendered pursuant
to the procedures for book-entry tender set forth in the Prospectus, a notice of
withdrawal must specify, in lieu of certificate numbers, the name and account
number at The Book-Entry Transfer Facility to be credited with the withdrawn Old
Securities. Old Securities properly withdrawn will thereafter be deemed not
validly tendered for purposes of the Exchange Offer, provided, however, that
withdrawn Old Securities may be retendered by again following one of the
procedures described herein at any time prior to 5:00 p.m., New York City time,
on the Expiration Date. All questions as to the validity, form and eligibility
(including time of receipt) of notice of withdrawal will be determined by the
Company, whose determinations will be final and binding on all parties. Neither
the Company, the Exchange Agent nor any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification. See "THE
EXCHANGE OFFER -- Withdrawal Rights" in the Prospectus.
4. Signatures on this Letter, Bond Powers and Endorsements; Guarantee of
Signature.
If this Letter is signed by the registered holder of the Old Securities
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates (if applicable) without any change whatsoever.
If any tendered Old Securities are owned of record by two or more joint
owners, all such owners must sign this Letter.
15
<PAGE>
If any tendered Old Securities are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Securities specified herein and tendered hereby. no endorsements of certificates
or separate bond powers are required. If, however, the New Securities are to be
issued, or any untendered Old Securities are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder(s) appear(s) on the
certificate(s).
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. and. unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Securities or signatures on bond
powers required by this Instruction 4 must be guaranteed by an Eligible
Institution.
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Securities are tendered: (i) by a registered
holder of such Old Securities (which term, for purposes of the Exchange Offer,
includes any participant in the Book-Entry Transfer Facility system whose name
appears on a security position listing as the holder of such Old Securities) who
has not completed the box entitled "Special Issuance Instructions" on this
Letter, or (ii) for the account of an Eligible Institution.
5. Special Issuance and Delivery Instructions.
Tendering holders of Old Securities should indicate in the applicable box
the name and address in or to which New Securities issued pursuant to the
Exchange Offer and/or substitute certificates evidencing Old Securities not
exchanged are to be issued or sent, if different from the name or address of the
Person signing this Letter. In the case of issuance in a different name the
employer identification or social security number of the person named must also
be indicated. Holders tendering Old Securities by book-entry transfer may
request that Old Securities not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such holder may designate hereon. If no
such instructions are given, such Old Securities not exchanged will be returned
to the name or address of the person signing this Letter.
6. Waiver of Conditions.
Subject to the terms and conditions set forth in the Prospectus, the
Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus,
16
<PAGE>
7. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Securities, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old
Securities for exchange.
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
8. Mutilated, Lost, Stolen or Destroyed Old Securities.
Any holder whose Old Securities have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
9. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Information Agent at the telephone number and location listed below.
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY FOR
TENDER OF 7.99% SERIES A SECURED BONDS DUE 2011 OF
ESI TRACTEBEL ACQUISITION CORP.
PURSUANT TO THE EXCHANGE OFFER DATED _________, 1998
This form or one substantially equivalent hereof must be used to accept
the Exchange Offer relating to the 7.99% Series A Secured Bonds Due 2011
(collectively, the "Old Securities") of ESI Tractebel Acquisition Corp. (the
"Company") made pursuant to its Prospectus, dated [ ], 1998 (the "Prospectus"),
if certificates for Old Securities of the Company are not immediately available
or if the procedures for book-entry transfer cannot be completed on a timely
basis or time will not permit all required documents to reach the Company prior
to 5:00 p.m., New York City time, on the Expiration Date of the Exchange Offer.
Such form may be delivered or transmitted by facsimile transmission, mail or
hand delivery to State Street Bank and Trust Company (the "Exchange Agent") as
set forth below. In addition, in order to utilize the guaranteed delivery
procedures to tender Old Securities pursuant to the Exchange Offer, a completed,
signed and dated Letter of Transmittal relating to the Old Securities (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
To: STATE STREET BANK AND TRUST COMPANY, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail Facsimile Transmission By Hand/Overnight Delivery
Number
(617 664-5290)
Two International Place (For Eligible Institutions Two International Place
Boston, MA 02110 - 0778 Only) Boston, MA 02110 - 0778
Attn: Ms. Kellie Mullen, Confirm by Telephone: Attn: Ms. Kellie Mullen,
Corporate Trust Department (617) 664-5587 Corporate Trust Department
</TABLE>
For Information Call: (617) 664-5587
Delivery of this instrument to an address other than as set forth above,
or transmission of instructions via facsimile other than as set forth above,
will not constitute delivery.
1
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Securities set forth below, pursuant to the
guaranteed delivery procedures described in "THE EXCHANGE OFFER - Guaranteed
Delivery Procedures" section of the Prospectus.
The undersigned understand(s) that tenders of Old Securities may be
withdrawn, by written notice of withdrawal received by the Exchange Agent at any
time at or prior to 5:00 P.M., New York City time, on the Expiration Date. In
the event of a termination of the Exchange Offer, the Old Securities tendered
pursuant to the Exchange Offer will be returned to the tendering holders
promptly (or, in the case of Old Securities tendered by book-entry transfer,
such Old Securities will be credited to the account maintained at The Depository
Trust Company ("DTC") from which such Old Securities were delivered). If the
Company makes a material change in the terms of the Exchange Offer or the
information concerning the Exchange Offer, the Company will disseminate
additional materials relating to the Exchange Offer and extend such Exchange
Offer, to the extent required by law.
The undersigned understand(s) that payment by the Exchange Agent for Old
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of such Old
Securities (or Book-Entry Confirmation of the transfer of such Old Securities
into the Exchange Agent's account at DTC) and a Letter of Transmittal (or
facsimile thereof) with respect to such Old Securities properly completed and
duly executed with any required signature guarantees and any other documents
required by the Letter of Transmittal.
All authority conferred or agreed upon by this Notice of Guaranteed
Delivery shall not be affected by, and shall survive, the death or incapacity of
the undersigned, and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, executors, administrators,
trustees in bankruptcy, personal and legal representatives, successors and
assigns of the undersigned.
---------------------------------------
Principal Amount of 7.99% Series A
Secured Bonds Due 2011 Tendered
$_________________
Certificate Nos. (if available)
Account number (if such Old Securities will
be delivered by book-entry transfer
to The Depository Trust Company):
_____________________________________
---------------------------------------
2
<PAGE>
Total Principal Amount of Outstanding
Old Securities Represented by Old
Securities Certificate(s)
$______________________________________
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X____________________________________ ___________________
X____________________________________ ___________________
Signature(s) of Owner(s) Date
Or Authorized Signatory
Area Code and Telephone Number__________________________________________________
3
<PAGE>
Must be signed by the holder(s) of the Old Securities as their name(s)
appear(s) on certificates for Old Securities or on a security position listing,
or by person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
Please print name(s) and address(es)
Name(s) ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Capacity: ___________________________________________________________________
Address(es) ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
4
<PAGE>
GUARANTEE
The undersigned, an Eligible Guarantor Institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that the certificates representing the principal amount of Old
Securities tendered hereby in proper form for transfer, or timely confirmation
of the book-entry transfer of such Old Securities into the Exchange Agent's
account at The Depository Trust Company pursuant to the procedures set forth in
"THE EXCHANGE OFFER-Guaranteed Delivery Procedures" section of the Prospectus,
together with a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof) with any required signature guarantee and any
other documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than five New York Stock
Exchange trading days after the date of execution hereof.
The Eligible Guarantor Institution that completes this form must
communicate the guarantee to the Exchange Agent and must deliver the Letter of
Transmittal and Old Securities to the Exchange Agent within the time period
shown herein. Failure to do so could result in a financial loss to such Eligible
Guarantor Institution.
__________________________________________ __________________________________
Name of Firm Authorized Signature
__________________________________________ __________________________________
Address Title
__________________________________________ Name:_____________________________
Zip Code (Please Type or Print)
Area Code and Telephone No: ______________ Dated:____________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD SECURITIES WITH THIS FORM.
CERTIFICATES FOR OLD SECURITIES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
5
Exhibit 99.3
Exchange Agency Agreement
May , 1998
State Street Bank and Trust Company
Corporate Trust Department
Two International Place - 4th Floor
Boston, Massachusetts 02110
Attention:
Ladies and Gentlemen:
ESI Tractebel Acquisition Corp., a Delaware corporation (the "Company")
is offering to exchange (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in the Prospectus dated _____________1998 (the
"Prospectus"), and the accompanying Letter of Transmittal and instructions
thereto (the "Letter of Transmittal"), its 7.99% Series B Secured Bonds Due 2011
(the "New Notes") for all of its outstanding 7.99% Series A Secured Bonds Due
2011 (the "Old Notes") of the Company of which $220,000,000 principal amount is
outstanding. The New Notes and the Old Notes are together referred to herein as
the "Notes". Capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed to them in the Prospectus or Letter of
Transmittal.
You are hereby appointed and authorized to act as agent (the "Exchange
Agent") to effectuate the exchange of Old Notes for New Notes, on the terms and
subject to the conditions of this agreement (the "Agreement"). In that
connection, the following documents have been delivered to you:
(i) Prospectus;
(ii) the Letter of Transmittal accompanying the Prospectus, to be used
by the holders of Old Notes ("Old Noteholders") in tendering their Old Notes";
and
(iii) the Notice of Guaranteed Delivery to be used by Old Noteholders
whose Old Notes are not immediately available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other required documents to you prior to
the expiration of the Exchange Offer.
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 2
The Exchange Offer will expire at the time and on the date specified in
the Prospectus (the "Expiration Date") unless the Exchange Offer is extended by
the Company, in which case the term "Expiration Date" shall mean the latest date
to which the Exchange Offer is extended.
You are hereby requested, and you hereby agree, to act as follows:
1. You are to accept Old Notes which are accompanied by the appropriate
Letter of Transmittal or facsimile thereof, properly completed and duly executed
in accordance with the instructions thereon and any requisite collateral
documents or, in the case of Old Notes tendered by book-entry transfer, all
other instruments and communications submitted to you in connection with the
Exchange Offer and to hold the same upon the terms and conditions set forth in
this Agreement.
2. You are to examine the Letters of Transmittal, the Old Notes and
other documents delivered or mailed to you by or for Old Noteholders to
ascertain whether (i) the Letters of Transmittal are properly completed and duly
executed in accordance with the instructions set forth therein, (ii) the other
documents are properly completed and duly executed, and (iii) the Old Notes have
otherwise been properly tendered. You need not pass on the legal sufficiency of
any signature or verify any signature guarantee.
3. In the event any Letter of Transmittal or other document has been
improperly executed or completed or any of the certificates are not in proper
form or have been improperly tendered or any book-entry delivery of Old Notes
has been improperly made, or if some other irregularity in connection with the
delivery of Old Notes by a holder thereof exists, you are authorized, upon
consultation with the Company or its counsel, to endeavor to take such action as
may be necessary to cause such irregularity to be corrected. You are authorized,
upon consultation with the Company or its counsel, to request from any person
tendering Old Notes such additional documents or undertakings as you or they
deem appropriate. All questions as to the form of all documents and the
validity, eligibility (including time of receipt) and acceptance of tendered Old
Notes will be determined by the Company, in its sole discretion, whose
determination will be final and binding. The Company reserves the absolute right
to reject any or all tenders of any particular Old Notes, which would, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Exchange Offer or any
defect or irregularity in the tender of any Old Notes, and the Company's
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions set forth therein) will be final. No
tender of Old Notes will be deemed to have been properly made until all defects
and irregularities have been cured or waived.
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 3
4. Tenders of Old Notes may be made only as set forth in the Prospectus
and Letter of Transmittal, and Old Notes shall be considered properly tendered
to you only when:
a. a properly completed and duly executed Letter of Transmittal, with
any required signature guarantees and any other required documents as
set forth in the Letter of Transmittal, is received by you at your
address set forth in the Prospectus and Letter of Transmittal, and Old
Notes are received by you at such addresses or a timely confirmation of
a book-entry transfer of such Old Notes is received by you at or prior
to the Expiration Date at your address set forth in the Prospectus and
Letter of Transmittal; or a properly completed and duly executed Notice
of Guaranteed Delivery substantially in the form provided by the
Company, with an appropriate guarantee of signature and delivery from an
Eligible Institution, is received by you at or prior to the Expiration
Date and Old Notes (in respect of which there have been delivered to you
prior to the Expiration Date a properly completed and duly executed
Notice of Guaranteed Delivery) in proper form for transfer together with
a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other required documents as set forth in the
Letter of Transmittal, are received by you within five New York Stock
Exchange trading days; and
b. the adequacy of the items relating to Old Notes, the Letter of
Transmittal therefor and any Notice of Guaranteed Delivery has been
favorably passed upon as above provided.
Notwithstanding the provisions of the preceding paragraph, Old Notes
which the Company shall approve as having been properly tendered shall be
considered to be properly tendered.
5. Holders of Old Notes may make book-entry delivery of their
securities. You will establish in your name or the name of your nominee an
account with respect to the Old Notes at Depository Trust Company ("DTC") for
purpose of the Exchange Offer to permit book-entry transfers of Old Notes.
Except as otherwise provided below, Old Notes, or any book-entry transfer into
your account at DTC of Old Notes tendered electronically, as well as a properly
completed and duly executed copy of the Letter of Transmittal, and any other
documents required by the Letter of Transmittal, must be received by you or, in
the case of tenders of book-entry transfer, confirmed to you by transfer to your
account on or prior to the Expiration Date.
6. a. A tendering Old Noteholder may withdraw tendered Old Notes in
accordance with the procedures set forth in the Prospectus and Letter of
Transmittal, in which event, except as may be otherwise specified in the
Old Noteholder's notice of withdrawal, all items in your possession
which shall have been received from the Old Noteholder with respect to
those Old Notes shall be promptly returned to or upon the order of the
Old Noteholder and the Old Notes covered by those items shall no longer
be considered to be properly tendered.
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 4
b. A withdrawal may not be rescinded. Withdrawn Old Notes may,
however, be tendered at anytime on or prior to the Expiration Date.
7. You are to record and to hold all tenders received by you and to
promptly notify by telephone after the close of business on each business day,
the following person as to the total number of Old Notes tendered on such day
and the cumulative numbers with respect to the Old Notes received through the
time of such call:
___________________________, Treasurer and Chief Financial Officer of
the Company.
Each daily report should identify: the number and principal amount of Old Notes
represented by (i) certificates, and (ii) Notices of Guaranteed Delivery
actually received by you through the time of the report. The foregoing
information should also be sent to Mr. _______ in a daily letter. In addition,
you will also provide, and cooperate in making available to Mr. _______, such
other information as he or the Company's counsel may reasonably request upon
oral request made from time to time. Your cooperation shall include, without
limitation, the granting by you to the Company, and such other persons as it may
reasonably request, of access to those persons on your staff who are responsible
for receiving tenders of Old Notes in order to insure that immediately prior to
the Expiration Date, the Company shall have received information in sufficient
detail to enable it to decide whether to extend the Exchange Offer.
8. Letters of Transmittal, Notices of Guaranteed Delivery and telegrams,
facsimile transmissions and letters submitted in lieu thereof pursuant to the
Exchange Offer shall be stamped by you as to the date and time of receipt and
shall be retained in your possession until the Expiration Date. As promptly as
practicable after the Expiration Date, you will deliver those items, together
with all properly tendered Old Notes to the Company.
9. You are to follow up and to act upon any amendments, modifications or
supplements to these instructions mutually satisfactory to you and the Company,
and upon any further information in connection with the terms of the Exchange
Offer, any of which may be given to you by the Company, including instructions
with respect to (i) any extension or other modification of the Exchange Offer,
(ii) the amount or manner of payment for any Old Notes exchanged, and (iii) the
cancellation of the Exchange Offer.
10. If under the conditions set forth in the Prospectus and Letter of
Transmittal, the Company becomes obligated to accept Old Notes tendered, it
will, as promptly as practicable thereafter, deposit with you certificates
representing New Notes in the amount determined according to the ratio
prescribed in the Prospectus and Letter of Transmittal. Unless otherwise
indicated under any Special Issuance Instructions or any Special Delivery
Instructions set forth in any Letter of Transmittal, you shall mail the
certificates representing the New Notes and the certificates for any Old Notes
submitted but not tendered for exchange to the registered owner of the
securities at the address shown in the Letter of Transmittal. In the event that
either or both the Special Issuance Instructions and the Special Delivery
Instructions are completed, you shall mail all certificates representing New
Notes (or Old Notes to be returned, if any) to the person or persons so
indicated in the Letter of Transmittal. Certificates shall be post-marked by you
within a reasonable period of time after certificates have been provided to you.
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 5
11. No exchange shall be made as to any Old Notes unless and until such
Old Notes have been properly tendered as provided in Section 4 of this
Agreement.
12. For performing your services hereunder, you shall be entitled to
receive from the Company a fee of $_______. You shall also be reimbursed by the
Company for all reasonable expenses, including counsel fees, if any, and mailing
costs you may incur in connection with the performance of your duties or the
preparation of this Agreement.
13. As Exchange Agent hereunder you:
(a) shall not have duties or obligations other than those
specifically set forth or as may subsequently be agreed to by you and
the Company;
(b) shall not be obligated to take any legal or other action
hereunder which might in your judgment involve any expense or liability
unless you have been furnished with reasonable indemnification;
(c) may rely on and shall be protected in acting upon any
certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and believed by you to be genuine
and to have been signed by the proper party or parties;
(d) may rely on and shall be protected in acting or refraining from
acting upon the written instructions of the Company; and
(e) may consult counsel satisfactory to you (including counsel to
the Company), and the opinion of such counsel shall be full and complete
authorization and protection with respect to any action taken, suffered,
or omitted by you hereunder in good faith and in accordance with the
opinion of such counsel.
(f) you shall not be deemed to have notice of any fact, claim or
demand with respect hereto unless actually known by an officer charged
with responsibility for administering this Agreement or unless in
writing received by you and making specific reference to this Agreement.
14. You undertake the duties and obligations imposed herein upon the
following additional terms and conditions:
(a) you shall perform your duties and obligations hereunder with due
care;
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 6
(b) you shall not be under any responsibility in respect of the
validity or sufficiency (not only as to genuineness, but also as to its
due execution, the genuineness of signatures appearing thereon and as to
the truth and accuracy of any information therein contained) of any
Letter of Transmittal, certificate representing Old Notes, book-entry
transfer of Old Notes or Notice of Guaranteed Delivery; and
(c) neither you nor any of your directors, officers or employees
shall be liable to anyone for any error of judgment, or for any act done
or step taken or omitted to be taken by you or any of your directors,
officers or employees, or for any mistake of fact or law, or for
anything which you or any of your directors, officers or employees, may
do or refrain from doing in connection with or in the administration of
this Agreement, unless and except to the extent the same constitutes
gross negligence or willful misconduct on your part.
15. You are not authorized to make any recommendation on behalf of the
Company as to whether a holder of Old Notes should or should not tender his, her
or its Old Notes.
16. All certificates representing New Notes shall be forwarded by (i)
first-class mail under a blanket surety bond protecting you and the Company from
loss or liability arising out of the non-receipt or non-deliver of such
certificates or (ii) registered mail, insured separately for the replacement
value of such certificates.
17. You are authorized to cooperate with and furnish information to any
organization (and its representatives) designated from time to time by the
Company, in any manner reasonably requested by any of them and acceptable to you
in connection with the Exchange Offer.
18. The Company covenants and agrees to reimburse, indemnify and hold
you harmless against any costs, expenses (including reasonable expenses of your
legal counsel), losses or damages which, without negligence, misconduct or bad
faith on your part may be paid, incurred or suffered by you or to which you may
become subject by reason of or as a result of the administration of your duties
hereunder or by reason of or as a result of your compliance with the
instructions set forth herein or with any written or oral instructions delivered
to you pursuant hereto, or liability resulting from your actions as Exchange
Agent pursuant hereto, including any claims against you by any Old Noteholder.
The Company shall be entitled to participate at its own expense in the defense,
and if the Company so elects at any time after receipt of such notice, the
Company shall assume the defense of any suit brought to enforce any such claim.
In the event that the Company assumes the defense of any such suit, the Company
shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you, unless in your judgment, which must be reasonable,
it is advisable for you to be represented by separate counsel. In no case shall
the Company be liable under this indemnity with respect to any claim or action
against you, unless the Company shall be notified by you, by letter or by cable
or by telecopy confirmed by letter, of the written assertion of a claim against
you or of any action
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 7
commenced against you, promptly after you shall have received any such written
assertion of a claim or shall have been served with a summons or other first
legal process giving information as to the nature and basis of an action, but
failure so to notify the Company shall not relieve the Company from any
liability which it may have otherwise than on account of this indemnity.
19. You hereby acknowledge receipt of each of the documents listed in
items (i) through (iii) of the introduction to this Agreement and further
acknowledge that you have examined the same. Any inconsistency between this
Agreement on the one hand and the documents listed in items (i) through (iii) of
the introduction of this Agreement, as they may from time to time be amended, on
the other, shall be resolved in favor of the latter, except with respect to the
duties, liabilities and indemnification of you as Exchange Agent.
20. All notices, statements and other communications hereunder shall be
in writing, signed by a duly authorized officer of the party sending such
notices, and shall be deemed given when delivered by hand or by certified mail,
postage prepaid, addressed as follows: To the Company:
c/o FPL Energy, Inc.
11760 US Highway One
Suite 600
North Palm Beach, FL 33408
Attention: Glenn E. Smith
Facsimile: (561) 691-3618
Telephone: (561) 691-3500
to you:
State Street Bank and Trust Company
Corporate Trust Division
Two International Place
Boston, MA 02110-0778
Attention: Traci Hopkins
Facsimile: (617) 664-5371
Telephone: (617) 664-5553
or to such other address as either party may furnish hereunder by notice;
provided that notice of change of address shall be deemed given only when
received.
21. This agreement shall be construed and enforced in accordance with
the law of the State of New York applicable to agreements made and to be
performed in the State of New York
<PAGE>
____________________ Exchange Agency Agreement
May , 1998
Page 8
and shall inure to the benefit of, and the obligations created hereby shall be
binding upon, the successors and assigns of the parties hereto.
22. These instructions may be reasonably modified or supplemented by the
Company or by any officer thereof authorized to give notice, approval or waiver
on its behalf.
23. As used herein, "business day" shall mean any day other than a
Saturday or Sunday, or any other day on which you are authorized or required to
be closed for business.
Please acknowledge receipt of this letter and confirm the arrangements
herein provided by signing and returning the enclosed copy.
Very truly yours,
ESI TRACTEBEL ACQUISITION CORP.
By: _________________________________
Name:
Title: Treasurer and Chief Financial
Officer
ACCEPTED AS OF ________ , 1998
STATE STREET BANK AND TRUST COMPANY
As Exchange Agent
By: _________________________________________
Name:
Title:
Exhibit 99.4
ESI TRACTEBEL ACQUISITION CORP.
Offer for all Outstanding
7.99% Series A Secured Bonds due 2011
in Exchange for,
7.99% Series B Secured Bonds due 2011
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
ESI Tractebel Acquisition Corp. (the "Company") is offering, upon and
subject to the terms and conditions set forth in its Prospectus, dated [ ], 1998
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") its 7.99% Series B Secured
Bonds Due 2011 (the "New Securities"), for its outstanding 7.99% Series A
Secured Bonds Due 2011 (the "Old Securities"). The Exchange Offer is being made
in order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated as of February 19, 1998, among the Company,
Northeast Energy, LP and Goldman, Sachs & Co.
We are requesting that you contact your clients for whom you hold Old
Securities regarding the Exchange Offer. For your information and for forwarding
to your clients for whom you hold Old Securities registered in your name or in
the name of your nominee, or who hold Old Securities registered in their own
names, we are enclosing the following documents:
1. Prospectus dated [ ], 1998;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Securities are not immediately available or time
will not permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedures for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Securities registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard to the
Exchange Offer;
1
<PAGE>
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to State Street Bank and Trust Company,
the Exchange Agent for the Old Securities.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on [ ], 1998 unless extended by the Company (the
"Expiration Date"). The Old Securities tendered pursuant to the Exchange Offer
may be withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing The Old Securities should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
If holders of Old Securities wish to tender, but it is impracticable for
them to forward their certificates for Old Securities prior to the expiration of
the Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "THE EXCHANGE OFFER-Guaranteed
Delivery Procedures".
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Securities held by them as nominee or in a fiduciary
capacity.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed to
State Street Bank and Trust Company, the Exchange Agent for the Old Securities,
at its address and telephone number set forth in the front of the Letter of
Transmittal.
Very truly yours,
ESI TRACTEBEL ACQUISITION CORP.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO USE ANY DOCUMENTS OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM
WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
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<F1>Includes depreciation of $24,992
</LEGEND>
<CIK> 0001059025
<NAME> Northeast Energy, LP
<MULTIPLIER> 1,000
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<PERIOD-START> JAN-01-1997
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0
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