UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1416
MARKETSPAN CORPORATION
(Exact name of Registrant as specified in its charter)
New York 11-3431358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 East Old Country Road, Hicksville, New York 11801
One MetroTech Center, Brooklyn, New York 11201
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 755-6650 (Hicksville)
(718) 403-1000 (Brooklyn)
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at May 3, 1999
$.01 par value 141,349,252
<PAGE>
MARKETSPAN CORPORATION AND SUBSIDIARIES
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item I. Financial Statements
Condensed Consolidated Balance Sheet -
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statement of Income -
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31,1999 and 1998 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis Of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 30
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings 30
Item 6 - Exhibits and Reports on Form 8-K 33
Signature 34
2
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------------- ------------------
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and temporary cash investments $ 951,338 $ 942,776
Customer accounts receivable 302,400 142,307
Accrued revenues 158,062 178,529
Other accounts receivable 158,163 230,479
Allowance for uncollectible accounts (24,827) (20,026)
Special deposits 120,826 145,684
Gas in storage, at average cost 57,611 145,277
Materials and supplies, at average cost 59,038 74,193
Other 66,283 72,818
----------------- ------------------
1,848,894 1,912,037
----------------- ------------------
EQUITY INVESTMENTS 349,353 341,346
----------------- ------------------
PROPERTY
Electric 1,111,958 1,109,199
Gas 3,284,819 3,257,726
Common 347,597 345,007
Accumulated depreciation (1,506,594) (1,480,038)
Gas exploration and production, at cost 1,029,673 994,104
Accumulated depletion (465,057) (447,733)
----------------- ------------------
3,802,396 3,778,265
----------------- ------------------
DEFERRED CHARGES
Regulatory assets 289,339 279,524
Goodwill 202,233 201,887
Other 383,916 382,043
----------------- ------------------
875,488 863,454
----------------- ------------------
TOTAL ASSETS $ 6,876,131 $ 6,895,102
================= ==================
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
------------------- --------------------
(UNAUDITED) (AUDITED)
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $ 398,000 $ 398,000
Accounts payable and accrued expenses 453,299 519,288
Dividends payable 66,095 66,232
Taxes accrued 56,712 69,742
Customer deposits 29,964 29,774
Interest accrued 17,735 19,965
---------------- ----------------
1,021,805 1,103,001
---------------- ----------------
DEFERRED CREDITS AND OTHER LIABILITIES
Regulatory liabilities 26,521 53,137
Deferred federal income tax 107,526 71,549
Pensions, claims & other reserves 459,699 457,459
Other 72,674 50,457
---------------- ----------------
666,420 632,602
---------------- ----------------
CAPITALIZATION
Common stock, $.01 par value, authorized 450,000,000 shares;
outstanding 142,745,254 and 144,628,654 shares,
respectively, stated at 2,973,388 2,973,388
Retained earnings 545,272 474,188
Accumulated foreign currency adjustment 2,358 (952)
Treasury stock purchased (477,777) (423,716)
---------------- ----------------
Total common equity 3,043,241 3,022,908
Preferred stock 447,319 447,973
Long-term debt 1,627,638 1,619,067
---------------- ----------------
5,118,198 5,089,948
---------------- ----------------
MINORITY INTEREST IN SUBSIDIARY COMPANY 69,708 69,551
---------------- ----------------
TOTAL LIABILITIES AND CAPITALIZATION $ 6,876,131 $ 6,895,102
================ ================
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(IN THOUSANDS OF DOLLARS ,EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS Three Months
ENDED Ended
MARCH 31, 1999 March 31, 1998
---------------------- ----------------------
REVENUES
<S> <C> <C>
Gas Distribution $ 715,830 $ 271,894
Gas Exploration and Production 26,520 -
Electric Services 174,537 -
Electric Distribution - 555,682
Energy Related Services 41,432 -
---------------------- ----------------------
Total Revenues 958,319 827,576
---------------------- ----------------------
OPERATING EXPENSES
Purchased gas 311,254 128,401
Fuel and purchased power - 166,024
Operations and maintenance 243,082 132,162
Depreciation, depletion and amortization 58,186 44,209
Electric regulatory amortizations - (39,870)
Operating taxes 103,893 117,112
---------------------- ----------------------
Total Operating Expenses 716,415 548,038
---------------------- ----------------------
OPERATING INCOME 241,904 279,538
---------------------- ----------------------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments 2,972 -
Interest income 11,043 3,714
Minority interest (304) -
Other 2,269 3,620
---------------------- ----------------------
Total Other Income 15,980 7,334
---------------------- ----------------------
INCOME BEFORE INTEREST CHARGES AND INCOME TAXES 257,884 286,872
---------------------- ----------------------
INTEREST CHARGES 34,584 100,027
---------------------- ----------------------
INCOME TAXES
Current 46,646 22,573
Deferred 33,433 48,333
---------------------- ----------------------
Total Income Taxes 80,079 70,906
---------------------- ----------------------
NET INCOME 143,221 115,939
Preferred stock dividend requirements 8,689 12,947
---------------------- ----------------------
EARNINGS FOR COMMON STOCK $ 134,532 $ 102,992
Foreign Currency Adjustment 3,310 -
====================== ======================
COMPREHENSIVE INCOME $ 137,842 $ 102,992
====================== ======================
AVERAGE COMMON SHARES OUTSTANDING (000) 142,981 121,667
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.94 $ 0.85
====================== ======================
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
5
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(IN THOUSANDS OF DOLLARS)
<CAPTION>
THREE MONTHS Three Months
ENDED Ended
MARCH 31, 1999 March 31, 1998
---------------------- ----------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 143,221 $ 115,939
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Depreciation, depletion and amortization 58,186 44,209
Electric regulatory amortization - (39,870)
Deferred income tax 33,433 48,333
Income from equity investments (2,972) -
Dividends from equity investments 4,296 -
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable and accrued revenues (67,635) (8,323)
Materials and supplies, fuel oil and gas in storage 102,612 70,624
Accounts payable and accrued expenses (85,303) (79,788)
Interest accrued (2,230) (11,180)
Special deposits 24,858 (28,359)
Other (5,280) 17,121
---------------------- ----------------------
Net Cash Provided by Operating Activities 203,186 128,706
---------------------- ----------------------
INVESTING ACTIVITIES
Capital expenditures (86,331) (55,736)
Miscellaneous investment 12,438 (9,289)
---------------------- ----------------------
Net Cash Used in Investing Activities (73,893) (65,025)
---------------------- ----------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock - 4,554
Treasury stock purchased (54,061) -
Issuance of long-term debt 7,000 -
Preferred stock dividends paid (8,689) (12,947)
Common stock dividends paid (64,360) (54,032)
Other (621) (332)
---------------------- ----------------------
Net Cash Used in Financing Activities (120,731) (62,757)
---------------------- ----------------------
Net Increase in Cash and Cash Equivalents 8,562 924
====================== ======================
Cash and cash equivalents at beginning of period $ 942,776 $ 179,995
Net Increase in cash and cash equivalents 8,562 924
====================== ======================
Cash and Cash Equivalents at End of Period $ 951,338 $ 180,919
====================== ======================
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
MarketSpan Corporation, d/b/a KeySpan Energy(the "Company"), a New York
corporation, is the successor to Long Island Lighting Company ("LILCO"),
as a result of the transaction with the Long Island Power Authority
("LIPA")and following the acquisition of KeySpan Energy Corporation
("KSE"). The Company is a "predominately intrastate" public utility
holding company exempt from most of the provisions of the Public Utility
Holding Company Act of 1935, as amended.
On May 28, 1998, the Company completed two business combinations as a
result of which it (i) became the successor operator of the non-nuclear
electric generating facilities, gas distribution operations and common
plant formerly owned by LILCO and entered into long-term service
agreements to operate the electric transmission and distribution ("T&D")
system acquired by LIPA (the "LIPA Transaction"); and (ii) acquired KSE,
the parent company of The Brooklyn Union Gas Company ("Brooklyn
Union")(the "KeySpan Acquisition").
With the exception of a small portion of Queens county, the Company's
subsidiaries are the only providers of gas distribution services in the
New York City counties of Kings, Richmond and Queens and the Long Island
counties of Nassau and Suffolk. Brooklyn Union provides gas distribution
services to customers in the New York City boroughs of Brooklyn, Queens
and Staten Island, and KeySpan Gas East Corporation d/b/a Brooklyn Union
of Long Island ("Brooklyn Union of Long Island"), a Company subsidiary,
provides gas distribution services to customers in the Long Island
counties of Nassau and Suffolk and the Rockaway Peninsula of Queens
county.
In addition, Company subsidiaries operate the electric T&D system owned by
LIPA, sell capacity and energy to LIPA from the Company's generating
facilities and manage fuel supplies for LIPA to fuel the Company's
generating facilities through long-term service contracts that range from
eight to fifteen years.
In 1998, the Company's Board of Directors authorized filings to permit the
Company to conduct its business under the name KeySpan Energy. The Company
has asked its shareholders to approve, at its May 20, 1999 Annual Meeting
of Shareholders,
7
<PAGE>
an amendment to its certificate of incorporation to formally change the
name of the Company to KeySpan Corporation.
2. BASIS OF PRESENTATION
The financial statements presented herein reflect the consolidated
statements of the Company. For financial reporting purposes, LILCO is
deemed the acquiring company pursuant to a purchase accounting transaction
in which KSE was acquired. Consequently, the financial statements
presented herein reflect the results of operations of the consolidated
Company for three months ended March 31, 1999 and of LILCO only for the
three months ended March 31, 1998. Since the acquisition of KSE was
accounted for as a purchase, purchase accounting adjustments, including
goodwill, have been reflected in the financial statements included herein.
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 31, 1999,
and the results of its operations for the three months ended March 31,
1999 and 1998, and cash flows for the three months ended March 31, 1999
and 1998. Certain reclassifications were made to conform prior period
financial statements with the current period financial statement
presentation. Other than as noted, adjustments were of a normal, recurring
nature.
As permitted by the rules and regulations of the Securities and Exchange
Commission ("SEC"), the Condensed Consolidated Financial Statements do not
include all of the accounting information normally included with financial
statements prepared in accordance with generally accepted accounting
principles. Accordingly, the Condensed Consolidated Financial Statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for December
31, 1998.
3. REVENUES
The Gas Distribution segment of the Company is influenced by seasonal
weather conditions. Annual gas revenues are substantially realized during
the heating season (November 1 to April 30) as a result of the large
proportion of heating sales, primarily residential, compared with total
sales.
8
<PAGE>
Accordingly, results of operations for gas distribution operations
historically are most favorable in the three months ended March 31, with
results of operations being next most favorable in the three months ended
December 31. Results for the quarter ended June 30 are marginally
unprofitable, and losses are usually incurred in the quarter ended
September 30.
Gas Distribution subsidiaries operate under gas utility tariffs that
contain a weather normalization adjustment that largely offsets shortfalls
or excesses of firm net revenues (i.e., revenues less gas costs and
revenue taxes) during a heating season due to variations from normal
weather.
Electric Services revenues are primarily derived from billings to LIPA for
management of LIPA's T&D system, electric generation, and fuel management.
(For a description of the various services agreements with LIPA see the
Company's December 31, 1998 Form 10-K.)
Prior to the LIPA Transaction, Electric Distribution revenues were
comprised of cycle billings rendered to residential, commercial and
industrial customers and the accrual of electric revenues for services
rendered to customers not billed at month-end. In addition, LILCO's rate
structure provided for a revenue reconciliation mechanism which eliminated
the impact on earnings of electric sales that were above or below the
levels reflected in rates.
4. GAS EXPLORATION AND PRODUCTION
The Houston Exploration Company ("THEC"), a 64% owned subsidiary of the
Company which is engaged in gas and oil exploration and production, uses
the full cost method of accounting for its investment in natural gas and
oil properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of natural gas and oil reserves
are capitalized into a "full cost pool". To the extent that such
capitalized costs (net of accumulated depreciation, depletion and
amortization) less deferred taxes, exceed the present value (using a 10%
discount rate) of estimated future net cash flows from proved natural gas
and oil reserves and the lower of cost or fair value of unproved
properties, such excess costs are charged to operations.
9
<PAGE>
As of March 31, 1999, THEC estimates, using prices in effect as of such
date, that the ceiling limitation imposed under full cost accounting rules
exceeded actual capitalized costs.
5. GOODWILL
At March 31, 1999, the Company had recorded goodwill in the amount of
$202.2 million, representing the excess of acquisition cost over the fair
value of net assets acquired related to its purchases of certain
consolidated subsidiaries. Goodwill is being amortized over 20 to 40
years. The Company has recorded goodwill of $177.0 million, net of
accumulated amortization of $3.7 million relating to the KeySpan
Acquisition.
Further, certain subsidiaries own as their principal assets investments,
including goodwill, representing ownership interests of 50% or less in
energy-related businesses that are accounted for under the equity method.
Goodwill, at March 31, 1999, was $51.8 million for certain investments in
North America and Northern Ireland and has been recorded as a Deferred
Debit in the consolidated financial statements. The amortization period
for such goodwill is over 15 and 40 years, respectively.
6. ENVIRONMENTAL MATTERS
The Company has recorded a liability of approximately $130 million
associated with investigation and remedial obligations with respect to
nine of the Company's former manufactured gas plants ("MGP"). Three of
these MGP sites are associated with Brooklyn Union's operations or its
predecessors; six MGP sites are associated with the operations of Brooklyn
Union of Long Island or its predecessors. With respect to the former
Brooklyn Union MGP sites, a total of approximately $48 million has been
accrued representing the best estimate of remedial costs for one site and
the minimum range of an estimate for the investigation and/or remediation
of the other sites. With respect to Brooklyn Union of Long Island MGP
sites, a total of approximately $82 million has been accrued as a minimum
of an estimated range of costs for the six sites which will be
investigated/remediated pursuant to Administrative Orders on Consent
("ACO's") with the New York State Department of Environmental Conservation
("DEC"). Two ACO's were executed on March 31, 1999 for Brooklyn Union of
Long Island MGP sites.
10
<PAGE>
One ACO addressed two MGP sites classified as "Class II Sites" on the
State registry of inactive hazardous waste sites. The other ACO addressed
the four other MGP sites. Both ACO's generally require Brooklyn Union of
Long Island to investigate the condition of each site and conduct
remediation activities depending on the results of the investigation. The
investigation of the Class II listed sites will proceed first, to be
followed by the investigation of the four other sites in three month
intervals.
Under prior rate orders, the Public Service Commission of the State of New
York ("NYPSC") has allowed recovery of investigation costs related to
certain Brooklyn Union MGP sites. Therefore, at March 31, 1999, the
Company had reflected a total remaining regulatory asset of approximately
$100 million. The Company believes that current rate plans in effect
provide for recovery of environmental costs attributable to the Gas
Distribution segment.
7. REGULATORY ASSETS AND LIABILITIES
The Company's regulated subsidiaries are subject to the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting
for the Effects of Certain Types of Regulation". Regulatory assets arise
from the allocation of costs and revenues to accounting periods for
utility ratemaking purposes differently from bases generally applied by
nonregulated companies. Regulatory assets and liabilities are recognized
in accordance with SFAS-71.
The Company's regulatory assets of $289.3 million are primarily comprised
of regulatory tax assets, costs associated with the KeySpan Acquisition,
certain environmental remediation and investigation costs and
postretirement benefits other than pensions. In the opinion of management,
regulatory assets are fully recoverable in rates.
In the event that the provisions of SFAS-71 were no longer applicable, the
Company estimates that the related write-off of net regulatory assets
(regulatory assets less regulatory liabilities) could result in a charge
to net income of approximately $170.8 million, or approximately $1.19 per
share of common stock, which would be classified as an extraordinary item.
11
<PAGE>
8. BUSINESS SEGMENTS
The Company has six reportable segments: Gas Distribution, Electric
Services, Gas Exploration and Production, Energy Related Investments,
Energy Related Services and Other. The Gas Distribution segment consists
of Brooklyn Union and Brooklyn Union of Long Island. The Electric Services
segment consists of subsidiaries that own and operate oil and gas fired
generating plants, and through long-term contracts, manage the electric
T&D system, the fuel and electric purchases, and the off-system electric
sales for LIPA. The Gas Exploration and Production reportable segment is
engaged in gas and oil exploration and production, and the development and
acquisition of domestic natural gas and oil properties. Subsidiaries
included in the Energy Related Investments segment have investments in
natural gas pipelines, midstream natural gas processing and gathering
facilities and gas storage facilities. These subsidiaries are accounted
for under the equity method since the Company's ownership interests are
50% or less. Accordingly, equity income from these investments is
reflected in Other Income in the Condensed Consolidated Income Statement.
The Energy Related Services segment consists of subsidiaries that
primarily provide gas and electric marketing and related energy systems
installation, appliance service contracts and management services to
customers, primarily in the New York City metropolitan area. The Other
segment primarily represents unallocated administrative expenses of the
Company and earnings from the investment of proceeds from the LIPA
Transaction.
The accounting policies of the segments are the same as those used for the
preparation of the Condensed Consolidated Financial Statements. The
Company's segments are strategic business units that are managed
separately because of their different operating and regulatory
environments. As of March 31, 1999 the total assets of each reportable
segment have not changed materially from those levels reported at December
31, 1998 except for the Gas Exploration and Production segment whose
assets increased by $14.5 million due to the formation of KeySpan
Exploration and Production LLC, a Company subsidiary engaged in a joint
venture with THEC. Segment information is as follows:
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 (In Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------
Gas Electric Gas Exploration Energy Related Energy Related
Distribution Services and Production Investments Services Other Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $715,830 $ 174,537 $ 26,520 $ - $ 41,432 $ - $ 958,319
- ------------------------------------------------------------------------------------------------------------------------------
Cost of Gas 311,254 - - - - - 311,254
Operations and
Maintenance 99,081 92,167 5,959 1,089 43,228 1,558 243,082
Depreciation
Depletion &
Amortization 24,255 9,928 17,057 332 769 5,845 58,186
Operating Taxes 72,453 28,991 33 7 3 2,406 103,893
Intercompany
Billings 3,049 10,645 - - - (13,694) -
- ------------------------------------------------------------------------------------------------------------------------------
Total Expenses $510,092 $ 141,731 $ 23,049 $ 1,428 $ 44,000 $(3,885) $ 716,415
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income $205,738 $ 32,806 $ 3,471 $ (1,428) $ (2,568) $ 3,885 $ 241,904
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (In Thousands of Dollars)
- --------------------------------------------------------------------------------
Gas Electric
Distribution Distribution Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 271,894 $ 555,682 $ 827,576
- --------------------------------------------------------------------------------
Cost of Gas and Fuel 128,401 166,024 294,425
Operations and
Maintenance 32,079 100,083 132,162
Depreciation & Amortization 10,705 33,504 44,209
Electric Amortization - (39,870) (39,870)
Operating Taxes 24,709 92,403 117,112
- --------------------------------------------------------------------------------
Total Expense $ 195,894 $ 352,144 $ 548,038
- --------------------------------------------------------------------------------
Operating Income $ 76,000 $ 203,538 $ 279,538
================================================================================
</TABLE>
13
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9. SHAREHOLDER RIGHTS PLAN
On March 30, 1999 the Board of Directors of the Company adopted a
Shareholder Rights Plan (the "Plan") designed to protect shareholders in
the event of a proposed takeover of the Company. The Plan creates a
mechanism that would dilute the ownership interest of a potential
unauthorized acquirer. The Plan establishes one preferred stock purchase
"right" for each outstanding share of common stock to shareholders of
record on April 14, 1999. Each right, when exercisable, entitles the
holder to purchase 1/100th of a share of Series D Preferred Stock, at a
price of $95.00. The rights generally become exercisable following the
acquisition of more than 20 percent of the Company's common stock without
the consent of the Company's Board of Directors. Prior to becoming
exercisable, the rights are redeemable by the Board of Directors for $0.01
per right. If not so redeemed, the rights will expire on March 30, 2009.
10. NEW FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company will adopt SFAS No. 133 in the first quarter of fiscal
year 2000. The Company does not expect any material earnings effect from
adoption of this statement as it presently utilizes derivatives for
hedging activities.
11. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
In January 1999, the Company entered into a definitive agreement with
Consolidated Edison Company of New York, Inc. ("Con Ed"), to purchase, for
approximately $597 million, subject to adjustment, the 2,168-megawatt
Ravenswood electric generating facility located in Long Island City,
Queens, New York. Consummation of this transaction is subject to various
regulatory approvals, the timing of which cannot be determined.
As a means of financing this acquisition, the Company anticipates entering
into a lease agreement with a special purpose, unaffiliated financing
entity that will acquire a
14
<PAGE>
portion of the facility directly from Con Ed and lease it to a subsidiary
of the Company. The Company will be required to guarantee all payment and
performance obligations of its subsidiary under the lease. The lease
program is being established in order for the Company to finance up to
$425 million of the acquisition cost of the facility and is intended to
qualify as an operating lease for the Company's financial reporting
purposes while preserving the Company's ownership of the facility for
Federal and state income tax purposes. The balance of the funds needed to
acquire the facility are expected to be provided from cash on hand.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results for the quarter ended March 31, 1999, as detailed below, reflected the
operations of the consolidated Company, which includes all KSE-acquired
companies, Brooklyn Union of Long Island and other subsidiaries providing
services to LIPA. However, as required under purchase accounting rules, results
for the quarter ended March 31, 1998 reflected results of LILCO prior to the
KeySpan Acquisition and LIPA Transaction, and do not include results of KSE.
Earnings Summary
Consolidated earnings for the quarter ended March 31, 1999 were $134.5 million,
or $0.94 per diluted share, compared to earnings of $103.0 million, or $.85 per
diluted share, in the corresponding quarter last year. Earnings for the quarter
ended March 31, 1999 included results from all KSE-acquired companies. Results
for the quarter ended March 31, 1998, do not include results of KSE. On a
proforma, combined company basis, i.e. combining the results of KSE and LILCO as
previously reported, earnings for the quarter ended March 31, 1998 were $183.3
million.
Gas Distribution earnings for the quarter ended March 31, 1999 were $120.7
million, or $0.84 per diluted share, compared to $39.5 million, or $0.33 per
diluted share, for the quarter ended March 31, 1998. The increase in Gas
Distribution earnings reflected the inclusion of earnings of Brooklyn Union for
the quarter ended March 31, 1999. Gas Distribution earnings for the quarter
ended March 31, 1998 reflected results from Brooklyn Union of Long Island only.
On a proforma, combined company basis, earnings for the quarter ended March 31,
1998 were $120.3 million. Comparative results for the 1999 quarter reflected
lower net revenues, i.e. revenues less gas costs and revenue taxes, due to rate
reductions that were effective on the date of the KeySpan Acquisition, offset
primarily by lower operating expenses and lower interest expense.
The Gas Exploration and Production segment consists primarily of the Company's
64% equity interest in THEC, an independent natural gas and oil exploration
company. Earnings associated with Gas Exploration and Production were $0.5
million for the quarter ended March 31, 1999. Earnings for the quarter ended
March 31, 1998, which are not reflected in the financial statements presented
herein, were $4.3 million. Comparative earnings were significantly affected by
lower gas prices in 1999 and increased interest expense of $2.7 million due to
higher levels of debt outstanding.
16
<PAGE>
Earnings from Electric Services were $16.6 million, or $0.12 per diluted share,
for the quarter ended March 31, 1999 compared to $63.5 million, or $0.52 per
diluted share, for the quarter ended March 31, 1998. The change in the Company's
asset base and electric operations resulting from the LIPA Transaction
contributed to the comparative reduction in earnings, which now reflect
service-fee revenues under various service contracts with LIPA. The Company's
operating margins under such arrangements are lower than those experienced prior
to the LIPA Transaction.
The Energy Related Investments segment primarily consists of the Company's 20%
investment in the Iroquois Gas Transmission System LP, a 50% interest in The
Premier Transco Pipeline and a 24.5% interest in Phoenix Natural Gas both in
Northern Ireland, and investments in certain midstream natural gas assets in
Western Canada owned jointly with Gulf Canada Resources Limited, called Gulf
Midstream Services Partnership ("GMS"). Earnings from this segment were $0.3
million for the quarter ended March 31, 1999, compared to a loss of $0.7 million
for the quarter ended March 31, 1998. Results for the quarter ending March 31,
1998, are not reflected in the financial statements presented herein.
The Company's Energy Related Services segment primarily includes KeySpan Energy
Management Inc. ("KEM"), KeySpan Energy Services Inc. ("KES"), KeySpan Energy
Solutions, LLC ("KESol") and KeySpan Fritze, LLC ("Fritze"). Results from this
segment reflected a loss of $1.4 million, or $0.01 per diluted share, as
compared to a loss of $3.7 million for the quarter ended March 31, 1998. Results
for the quarter ended March 31, 1998, are not reflected in the financial
statements presented herein . KEM owns, designs and/or operates energy systems
for commercial and industrial customers and provides energy-related services to
clients located primarily within the New York City metropolitan area. KES
markets gas and electricity, and arranges transportation and related services,
largely to retail customers, including those served by the Company's two gas
distribution subsidiaries. KESol and Fritze provide various technical and
maintenance services to customers primarily within the Company's service
territory. KESol was established in April 1998 and Fritze was acquired in
November 1998. Operating results from this segment reflected the benefits
derived from the continued integration of companies acquired during the past two
years. These benefits were offset by losses incurred by subsidiaries providing
appliance and repair services, and gas and electric marketing services due to
the start-up nature of their operations in highly competitive markets. The
Company will continue to realign these non-utility operations to maximize
earnings potential, and where appropriate, possibly discontinue non-profitable
activities.
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For the quarter ended March 31, 1999, the Other segment recorded a loss of $2.1
million or $0.01 per diluted share reflecting charges, including preferred stock
dividends, incurred by the corporate and administrative areas of the Company
that have not been allocated to the various business segments, offset, in part,
by interest income earned on investments of the proceeds from the LIPA
Transaction. Unallocated administrative costs for the quarter ended March 31,
1998 were $0.4 million and are not included in the financial statements
presented herein.
Revenues
GAS DISTRIBUTION
Utility firm gas and transportation sales volumes for the quarter ended March
31, 1999, were 86,539 MDTH, compared to 23,120 MDTH in the corresponding period
last year. Total gas sales, which includes sales to interruptible and off-system
customers, were 103,379 MDTH for the quarter ended March 31, 1999, compared to
30,186 MDTH in the corresponding period last year. The increase reflects the
inclusion of Brooklyn Union's gas customer base as a result of the KeySpan
Acquisition. Sales for the quarter ended March 31, 1998, as reported, do not
include sales made by Brooklyn Union.
On a proforma, combined company basis, firm gas and transportation sales volumes
for the quarter ended March 31, 1998, were 76,093 MDTH and total gas sales were
99,118 MDTH. The comparative increases in firm gas and transportation sales
volumes and total gas sales were due to colder weather experienced this quarter
as compared to the corresponding period last year and gas sales increases due to
customer additions. Weather, as measured by annual degree days, was 8.2% warmer
than normal for the quarter ended March 31, 1999 as compared to 19.4% warmer
than normal for the corresponding period last year. Firm gas sales normalized
for weather were 4% higher in the quarter ended March 1999 as compared to the
quarter ended March 1998 reflecting gas sales growth.
Gas Distribution revenues for the quarter ended March 31, 1999 were $715.8
million compared to $271.9 million for the comparable period in 1998. The
increase in revenues of $443.9 million was principally the result of the
inclusion of Brooklyn Union revenues in 1999. The comparative March 1998 period
included revenues of Brooklyn Union of Long Island only. On a proforma, combined
company basis, total Gas Distribution revenues for the quarter ended March 31,
1998 were $760.0 million. Set forth below are net gas revenues on a proforma,
combined company basis:
18
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<TABLE>
<CAPTION>
(In Millions of Dollars)
- --------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
- --------------------------------------------------------------------------------
Gas Distribution
<S> <C> <C>
Revenues $715.8 $760.0
Cost of Gas (311.3) (331.7)
Revenue Taxes (44.2) (46.6)
- --------------------------------------------------------------------------------
Net Revenues $360.3 $381.7
================================================================================
</TABLE>
The decrease in net gas revenues of $21.4 million was due primarily to rate
reductions which were implemented at the time of the KeySpan Acquisition.
Brooklyn Union reduced rates to its core customers by $23.9 million on an annual
basis effective May 29, 1998 and Brooklyn Union of Long Island reduced its rates
to core customers by $12.2 million annually effective February 5, 1998 and by an
additional $6.3 million annually effective May 29, 1998. Total rate reductions
for the quarter ended March 31, 1999 amounted to $14.4 million. Further,
revenues derived from Brooklyn Union's appliance and repair services are
included in Gas Distribution revenues for the quarter ended March 31, 1998. In
April 1998, Brooklyn Union "spun-off" its appliance and repair services to KESol
and as a result, Gas Distribution revenues for the quarter ended March 31, 1999
do not include revenues from such services. As required by the NYPSC, Brooklyn
Union of Long Island will cease providing non-safety related appliance repair
services on July 1, 1999, and such services will then be offered by KESol to
customers within Brooklyn Union of Long Island's service territory. Net revenues
for the current quarter also included a marginal increase due to gas sales
growth. Net revenues as a percentage of Gas Distribution sales were
approximately 50% for the quarter ended March 31, 1999 and 1998.
GAS EXPLORATION AND PRODUCTION
Gas Exploration and Production revenues for the quarter ended March 31, 1999
were $26.5 million and solely reflected the operations of THEC. For proforma
comparative purposes, revenues from THEC were $32.9 million for the quarter
ended March 31, 1998; however, these revenues are not reflected in the financial
statements presented herein. The decrease in THEC revenues of $6.4 million is
due to a decrease in average realized gas prices. The effective price realized
(average wellhead price received for production including hedging gains and
losses) was $1.61 per MCF in the quarter ended
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March 31, 1999 compared to $2.13 per MCF in the corresponding quarter of 1998.
The average wellhead price also was $1.61 per MCF in the current quarter
compared to $2.06 per MCF in the first quarter of 1998. Gas production for the
three months ended March 31, 1999 was 16.5 BCFe as compared to 15.4 BCFe for the
three months ended March 31, 1998. At March 31, 1999, THEC had total natural gas
reserves of approximately 480 BCFe primarily in the strategic "supply basin" of
the Gulf of Mexico and Texas.
ELECTRIC SERVICES
Electric Services revenues of $174.5 million for the quarter ended March 31,
1999 represented revenues under various LIPA Service Agreements. For the
comparable 1998 period, revenues of $555.7 million included Electric
Distribution revenues of LILCO only, prior to giving effect to the LIPA
Transaction.
The decrease in electric revenues of $381.2 million for the three months ended
March 31, 1999 when compared to the same period in 1998, was the result of the
LIPA Transaction. Prior to the LIPA Transaction, LILCO provided fully integrated
electric services to its customers. Included within the rates charged to
customers was a return on the capital investment in the generation and T&D
assets, as well as recovery of the electric business costs to operate the
system. Upon completion of the LIPA Transaction, the nature of the Company's
electric business has changed from that of owner of an electric generation and
T&D system, with a significant capital investment, to a new role as owner of the
non-nuclear generation facilities and as manager of the T&D system now owned by
LIPA. In its new role, the Company's capital investment is significantly reduced
and accordingly, its revenues under the LIPA contracts reflect that reduction.
Revenues resulting from the LIPA Service Agreements included the following:
Revenues realized under the Management Services Agreement("MSA") were $99.1
million for the quarter ended March 31, 1999. These revenues were derived from
the performance of the day-to-day operation and maintenance of LIPA's T&D
system, management of construction additions to the T&D system, and management
of LIPA's interest in the Nine Mile Point Nuclear Power Station, Unit 2
("NMP2").
Revenues under the Power Supply Agreement ("PSA"), were $73.0 million for the
quarter ended March 31, 1999 and were derived from the sale of capacity and
energy to LIPA from the Company's generating facilities at rates approved by the
Federal Energy Regulatory Commission ("FERC").
20
<PAGE>
Revenues realized under the Energy Management Agreement ("EMA") were $2.4
million for the quarter ended March 31, 1999 and resulted from the management of
fuel supplies for LIPA to fuel the Company's generating facilities, the
management of energy purchases on a least-cost basis to meet LIPA's needs and
the management of off- system electric sales.
Projected results of operations from the Company's pending acquisition of the
2,168 megawatt Ravenswood electric generating facility should enhance both
Electric Services revenues and earnings towards the later part of fiscal 1999.
The Company currently anticipates finalizing the purchase of the Ravenswood
facility late in the second quarter of 1999. (See Note 11. "Contractual
Obligations and Contingencies" to the Condensed Consolidated Financial
Statements for more details on the Ravenswood acquisition.)
ENERGY RELATED SERVICES
Revenues from the Energy Related Services segment were $41.4 million for the
quarter ended March 31, 1999. For proforma comparative purposes, revenues from
this segment were $14.8 million for the quarter ended March 31, 1998; however
these revenues are not included in the financial statements presented herein.
The increase in comparative revenues for the quarter ended March 31, 1999 of
$26.6 million was due to additional KEM revenues of $7.5 million, increased KES
revenues of $3.6 million and the inclusion of revenues from KESol and Fritze.
The increase in revenues from KEM reflected benefits derived from companies
acquired during the past two years, while the increase in revenues from KES
reflected the growth in the number of customers purchasing energy from KES.
Operating Expenses
Consolidated operating expenses, excluding the cost of gas and revenue taxes
(i.e., net operating expenses), were $360.9 million for the quarter ended March
31, 1999 as compared to $407.1 million for the quarter ended March 31, 1998.
KSE's operating expenses are not reflected in the financial statements for the
quarter ended March 31, 1998. On a proforma, combined company basis, net
operating expenses were $573.6 million for the quarter ended March 31, 1998.
Below is a comparison of net operating expenses by major segment for the quarter
ended March 31, 1999 compared to the corresponding quarter last year, including
costs for 1998 that are not reflected in the financial statements presented
herein.
21
<PAGE>
GAS DISTRIBUTION
Net operating expenses were $154.6 million, or 22% of Gas Distribution revenues,
for the quarter ended March 31, 1999 as compared to $173.4 million, or 23% of
Gas Distribution revenues, for the quarter ended March 31, 1998 on a proforma,
combined company basis. The decrease of $18.8 million is due to a significant
reduction in operations and maintenance expense reflecting, primarily, the
benefits derived from cost reduction measures and operating efficiencies
employed during the past few years. Such measures included, but were not limited
to, the early retirement program completed in 1998, and similar measures
employed in prior years by Brooklyn Union. Further, Brooklyn Union's "spin-off"
of non-safety related appliance repair services to KESol in 1998 contributed to
the reduction in operations and maintenance expense for the quarter ended March
31, 1999. Brooklyn Union of Long Island will cease providing non-safety related
appliance repair services on July 1, 1999.
The Company is committed to realizing the forecasted $1 billion of net operating
synergy savings (over a ten-year period) already being reflected in utility
tariff rates and contracts with LIPA; however, no assurances can be given as to
what savings will be obtained.
GAS EXPLORATION AND PRODUCTION
Gas Exploration and Production operating expenses for the quarter ended March
31, 1999 were $23.0 million, or 87% of Gas Exploration and Production revenues,
as compared to $25.9 million, or 79% of Gas Exploration and Production revenues,
for the corresponding period last year. Operating expenses associated with this
segment for the quarter ended March 31, 1998 are not reflected in the financial
statements presented herein. The comparative decrease in expenses is primarily
due to a decrease in depletion expense. In December 1998, THEC recorded a
pre-tax impairment charge of $130 million to reduce the value of its proved gas
reserves in accordance with the asset ceiling test limitations of the Securities
and Exchange Commission applicable to gas exploration and development operations
accounted for under the full cost method. As a result, THEC's depletion rate for
the quarter ended March 31, 1999 was $1.04 per MCFe of production as compared to
$1.25 per MCFe of production for the quarter ended March 31, 1998. Expenses as a
percentage of revenues has increased in 1999 due to lower gas prices and
associated revenues as previously discussed.
ELECTRIC SERVICES
Operating expenses were $141.7 million for the quarter ended March 31, 1999 as
compared to $352.1 million for the quarter ended March 31, 1998. The decrease in
operating expenses was due primarily to the elimination of electric fuel
expense. As a result of the LIPA Transaction, and in accordance with the terms
of the EMA, LIPA is
22
<PAGE>
responsible for paying directly the cost of fuel and purchased power. Further,
depreciation expense decreased by $23.6 million and operating taxes decreased by
$63.4 million. Due to the LIPA Transaction, significant property related assets
were sold to LIPA and, as a result, related depreciation and property taxes are
no longer incurred by the Company. Further, Electric Service revenues largely
are no longer subject to state revenue taxes since electric operations are no
longer regulated. Offsetting these decreases was the effect on operating
expenses for the quarter ended March 31, 1998 from the change in the method of
amortizing the Rate Moderation Component ("RMC"). The change in the RMC
calculation had the effect of reducing operating expenses by $42.7 million in
the quarter ended March 31, 1998. A comparison of the percentage of electric
operating expenses to electric revenues for the two quarters is not meaningful,
since the LIPA Transaction has changed the nature of the Company's electric
business substantially.
ENERGY RELATED SERVICES
Operating expenses for the quarter ended March 31, 1999 were $44.0 million, as
compared to $20.5 million for the quarter ended March 31, 1998. Operating
expenses associated with this segment are not reflected in the quarter ended
March 31, 1998 reported herein. The comparative increase in operating expenses
was due to the formation and commencement of operations of KESol, the
acquisition of Fritze in November 1998 and the integration of operations of
other acquired companies during the past few years and increased purchased gas
costs of KES. The increases in operating expenses significantly reduced the
benefits derived from increased revenues previously discussed.
Other Income and Deductions
Other income for the quarter ended March 31, 1999 included, primarily, earnings
from the investment of the proceeds from the LIPA Transaction and equity
earnings from subsidiaries comprising the Energy Related Investment segment.
Equity earnings from the Energy Related Investment segment are not reflected in
the results for the March 31, 1998 quarter reported herein.
Other Expenses
Interest expense of $34.6 million for the quarter ended March 31, 1999, as
compared to $100.0 million for the quarter ended March 31, 1998, reflected a
significantly reduced level of outstanding debt resulting from the LIPA
Transaction. This benefit was offset, in part, by the interest expense from the
KSE-acquired companies. Upon consummation of the LIPA Transaction, LIPA assumed
substantially all of the outstanding debt of LILCO. The Company,
23
<PAGE>
in return, issued promissory notes to LIPA for its continuing obligation to pay
principal and interest on certain series of debt that were assumed by LIPA. As a
result, outstanding debt at March 31, 1999 was approximately $2.0 billion as
compared to approximately $4.5 billion (LILCO only) at March 31, 1998. Income
tax expense reflects the higher level of pre-tax income for the quarter ended
March 31, 1999 as compared to the corresponding quarter last year.
Liquidity - Financial Condition and Dividends
Cash flow from operating activities reflects strong results from core utility
operations and the benefits from the integration of KSE-acquired companies. Cash
flow from operating activities does not include results from KSE-acquired
companies for the three months ended March 31, 1998.
At March 31, 1999, the Company had cash and temporary cash investments of $951.3
million and had available unsecured bank lines of credit of $300 million. In
addition, THEC has an available line of credit with a commercial bank that was
amended to provide for a maximum commitment of $250 million, subject to certain
conditions and limitations. During the quarter ended March 31, 1999, THEC had
borrowings of $7.0 million from this facility, at which time $140 million was
outstanding. Subsequent to March 31, 1999, THEC borrowed an additional $5
million, bringing borrowings under this facility to $145.4 million.
As a result of the LIPA Transaction, the Company has a significant amount of
cash which it has used and intends to continue to use for, among other things,
the repurchase of shares of its common stock on the open market (as discussed in
greater detail below) and the expansion of its operations through one or more of
the following types of transactions: mergers with or acquisitions of other
utilities; investments in new gas pipelines (and related assets such as storage
fields and processing plants) and gas exploration; or the purchase and/or
construction of additional electric power plants. However, no assurance can be
given that any of the foregoing types of transactions will occur or that such
transactions, if completed, will be integrated with the Company's operations or
prove to be profitable.
In 1998, the Company's Board of Directors authorized the repurchase of a portion
of the Company's outstanding common stock. The initial authorization permitted
the repurchase of up to 10 percent of the Company's then outstanding stock, or
approximately 15 million common shares. A second authorization permitted the
Company to use an additional $500 million of cash for the purchase
24
<PAGE>
of common shares. As of May 3, 1999, the Company repurchased 17.5 million of its
common shares for $513.9 million.
The Company intends to use a combination of existing cash balances and
internally generated cash from operations to the maximum extent practicable to
satisfy dividend requirements and on-going enhancements to its gas distribution
system. The Company expects to access the financial markets during 1999 to
satisfy approximately $400 million of maturing debt obligations. Further, as a
means of financing the acquisition of the 2,168-megawatt Ravenswood electric
generating facility, the Company anticipates entering into a lease agreement
with a special purpose, unaffiliated financing entity that will acquire a
portion of the facility directly from Con Ed and lease it to a subsidiary of the
Company. The lease program is being established in order for the Company to
finance up to $425 million of the estimated $597 million acquisition cost of the
facility. The balance of the funds needed to acquire the facility are expected
to be provided from cash on hand. (See Note 11. "Contractual Obligations and
Contingencies" to the Condensed Consolidated Financial Statements for more
details on the proposed lease agreement.)
The Company is currently evaluating its capital structure to determine the
appropriate levels of debt and equity and anticipates that this evaluation
process will be completed toward the latter part of 1999. At this point in time,
however, the Company cannot determine the outcome of this evaluation process.
On March 30, 1999, the Board of Directors declared a quarterly cash dividend of
$0.445 per share on its outstanding common stock payable on May 1, 1999 to
shareholders of record on April 14, 1999. The Company is currently paying a
dividend at an annual rate of $1.78 per common share. The Company's dividend
policy is reviewed annually by the Board of Directors. The amount and timing of
all dividend payments is subject to the discretion of the Board of Directors and
will depend upon business conditions, results of operations, financial
conditions and other factors.
Gas Distribution - Rate Matters
By orders dated February 5, 1998 and April 14, 1998 the NYPSC approved a
Stipulation and Agreement ("Stipulation") among Brooklyn Union, LILCO, the Staff
of the Department of Public Service and six other parties that in effect
approved the KeySpan Acquisition and established gas rates for both Brooklyn
Union and Brooklyn Union of Long Island that are currently in effect. (For more
information on these agreements refer to the Company's December 31, 1998 Form
10-K.)
25
<PAGE>
Environmental Matters
The Company is subject to various Federal, State and local laws and regulatory
programs related to the environment. Ongoing environmental compliance
activities, which have not been material, are charged to operation and
maintenance activities. The Company estimates the minimum cost of its
MGP-related environmental cleanup activities will be approximately $130 million
and has recorded a related liability for such amount. Further, as of March 31,
1999, the Company has expended a total of $14.2 million. (See Note 6.,
"Environmental Matters" to the Condensed Consolidated Financial Statements.)
Year 2000 Issues
The Company has evaluated the extent to which modifications to its computer
software, hardware and databases will be necessary to accommodate the year 2000.
The Company's computer applications are generally based on two digits and do
require some additional programming to recognize the start of the new
millennium.
System Readiness
A corporate-wide program has been established to review Company software,
hardware, embedded systems and associated compliance plans. The program includes
both information technology ("IT") and non-IT systems. Non-IT systems are
basically vendor supplied embedded systems that are critical to the daily
operations of the Company. These systems are generally in the areas of electric
production, distribution, transmission, gas distribution and communications. The
readiness of suppliers and vendor systems is also under review. The project is
under the direction of the Year 2000 Program Office, chaired by the Vice
President, Technology Operations and Corporate Y2K Officer.
The critical areas of operations are being addressed through a business process
review methodology. Each of the Company's critical business processes is being
reviewed to: identify and inventory sub-components; assess for year 2000
compliance; establish repair plans as necessary; and test in a year 2000
environment. The inventory phase for both the IT systems and non-IT systems is
complete. The total assessment phase is 100% complete for the IT systems, and as
of March 31, 1999, over 83% complete for non-IT systems.
Hardware, software and embedded systems are being tested and certified to be
year 2000 ready. As of March 31, 1999, repair was 84% complete and testing was
39% complete for IT systems. Non-IT
26
<PAGE>
systems were 62% repaired and 25% tested. Components needed to support the
critical business processes and associated business contingency plans are
expected to be year 2000 ready by July 1, 1999.
Vendors and business partners needed to support the critical business processes
are also being reviewed for their year 2000 readiness. At this time, none of
these vendors have indicated to the Company that they will be materially
adversely affected by the year 2000 problem.
Risk Scenarios and Contingency Plans
The Company has analyzed each of the critical business processes to identify
possible year 2000 risks. Each critical business process will be certified by
the responsible corporate officer as being year 2000 ready. However, the most
reasonably likely worst case scenarios are also being identified. Business
operating procedures are being reviewed to ensure that risks are minimized when
entering the year 2000 and other high risk dates. Contingency plans are being
developed to address possible failure points in each critical business process,
and are scheduled to be completed by July 1999. Testing of systems and
contingency plans will be performed internally, as well as with neighboring
utilities and business partners.
While the Company must plan for the following possible worst case scenarios,
management believes that these events are improbable:
LOSS OF GAS PIPELINE DELIVERY
The Company's gas utility subsidiaries receive gas delivery from multiple
national and international pipelines and therefore the effects of a loss in any
one pipeline can be mitigated through the use of other pipelines. Complete loss
of all the supply lines is not considered a reasonable scenario. Nevertheless,
the impact of the loss of any one pipeline is dependent on temperature and
vaporization rate. Should gas supply be decreased due to the loss of a pipeline,
each of the Company's gas utility subsidiaries also has a local liquefied
natural gas facility under its direct control that stores sufficient gas to
offset the temporary loss of any one pipeline. The partial loss of gas supply
will not affect the Company's ability to supply electricity since most of the
plants have the ability to operate on oil.
LOSS OF ELECTRIC GENERATION OR ELECTRIC TRANSMISSION AND DISTRIBUTION Electric
utilities are physically connected on a regional basis to manage electric load.
This interconnection is often referred to as the regional grid. Presently the
Company is working, on behalf of
27
<PAGE>
LIPA, with other regional utilities to develop a coordinated operating plan.
Should there be an instability in the grid, the Company has the ability to
remove LIPA's facilities and operate independently.
Certain electric system components such as individual generating units, T&D
control facilities, and the electric energy management system have the potential
to be affected by the year 2000 problem. The Company has inventoried both its
and LIPA's electric system components and developed a plan to certify mission
critical processes as year 2000 ready. As manager of the T&D facilities, the
Company is responsible for ensuring that these facilities operate properly and
that related systems are year 2000 ready. Under the terms of the various LIPA
contracts, LIPA will reimburse the Company for certain year 2000 costs incurred
by the Company for these facilities. Contingency plans are being developed,
where appropriate, for loss of critical system elements. The Company presently
estimates that contingency plans regarding its electric facilities should be
completed by July 1999.
LOSS OF TELECOMMUNICATIONS
The Company has a substantial dependency on many telecommunication systems and
services for both internal and external communication providers. External
communications with the public and the ability of customers to contact the
Company in cases of emergency response is essential. The Company intends to
coordinate its emergency response efforts with the offices of emergency
management of the various local governments within its service territory.
Internally, there are a number of critical processes in both the gas and
electric operating areas that rely on external communication providers.
Contingency plans will address methods for manually monitoring these functions
and/or utilizing alternative communication methods. These contingency plans
should be finalized by July 1999.
In addition to the above, the Company is also planning for the following
scenarios: short term reduction in system power generating capability;
limitation to fuel oil operations; reduction in quality of power output; loss of
automated meter reading; loss of ability to read customer meters, prepare bills
and collect and process customer payments; and loss of the purchasing/materials
management system.
The Company believes that, with modifications to existing software and
conversions to new hardware and software, the year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed on time, and
contingency plans fail, the
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year 2000 issue could have a material adverse impact on the operations of the
Company, the extent of which cannot currently be determined.
Cost of Remediation
The Company expects to spend a total of approximately $36 million to address the
year 2000 issue. As of March 31, 1999, $19.3 million had been expended on the
project. The largest percentage expended is attributable to the assessment,
repair and testing of corporate IT supported computer software and in-house
written applications, which total $15.2 million. In 1999, the IT year 2000 costs
are expected to be 8.3% of the IT budget. The year 2000 issue has not directly
resulted in delaying any IT projects. Presently, the Company expects that cash
flow from operations and cash on-hand will be sufficient to fund the year 2000
project expenditures.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Form 10-Q concerning expectations, beliefs,
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts, are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Without limiting the
foregoing, all statements relating to the Company's anticipated capital
expenditures, future cash flows and borrowings, pursuit of potential future
acquisition opportunities and sources of funding are forward-looking statements.
Such forward-looking statements reflect numerous assumptions and involve a
number of risks and uncertainties and actual results may differ materially from
those discussed in such statements. Among the factors that could cause actual
results to differ materially are: available sources and cost of fuel; federal
and state regulatory initiatives that increase competition, threaten cost and
investment recovery, and impact rate structures; the ability of the Company to
successfully reduce its cost structure; the successful integration of the
Company's subsidiaries; the degree to which the Company develops unregulated
business ventures; the ability of the Company to identify and make complementary
acquisitions, as well as the successful integration of such acquisitions;
inflationary trends and interest rates; the ability of the Company and its
significant vendors to modify their computer software, hardware and databases to
accommodate the year 2000; and other risks detailed from time to time in other
reports and other documents filed by the Company and its predecessors with the
Securities and Exchange Commission. For any of these statements, the Company
claims the protection of the safe harbor for forward-looking information
contained in the Private Securities Litigation Reform Act of 1995, as amended.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company and its subsidiaries are subject to various risk exposures and
uncertainties associated with their operations. The primary risk exposures are
related to firm gas contracts, financial instruments, various regulatory
initiatives of the NYPSC and FERC, the increasingly competitive energy
environment, and foreign currency fluctuations. Except for foreign currency
fluctuations, the Company's exposure to the aforementioned market risks has
remained substantially unchanged from December 31, 1998. However, due to the
increased level of investment in Canadian affiliates in December 1998 and its
continued investment in Northern Ireland, the Company's exposure to foreign
currency fluctuations has increased. Nevertheless, this risk exposure is
relatively immaterial in relation to the Company's overall financial condition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Subsequent to the closing of the LIPA Transaction and KeySpan Acquisition,
former shareholders of LILCO commenced 13 class action lawsuits in the New York
State Supreme Court, Nassau County, against the Company and each of the former
officers and directors of LILCO . These actions were consolidated in August
1998. The consolidated action alleges that, in connection with certain payments
LILCO had determined were payable in connection with the LIPA Transaction and
KeySpan Acquisition to LILCO's chairman, and to former officers of LILCO (the
"Payments"): (i) the named defendants breached their fiduciary duty owed to
LILCO and KSE former and/or current Company shareholders as a result of the
Payments; (ii) the named defendants intended to defraud such shareholders by
means of manipulative, deceptive and wrongful conduct, including materially
inaccurate and incomplete news reports and filings with the SEC; and (iii) the
named defendants recklessly and/or negligently failed to disclose material facts
associated with the Payments.
In addition, three shareholder derivative actions have been commenced pursuant
to which such shareholders seek the return of
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the Payments or damages resulting from among other things, an alleged breach of
fiduciary duty on the part of the former LILCO officers and directors. One
action was brought on behalf of LILCO in federal court. The Company moved to
dismiss this action in September 1998. The other two actions were brought on
behalf of the Company in New York State Supreme Court, Nassau County. In one of
these state court actions, the Company's directors and the recipients of the
Payments are also named as defendants.
Finally, two class action securities suits were filed in federal court alleging
that certain officers and directors of LILCO violated the federal securities
laws by failing to properly disclose that the LIPA Transaction and KeySpan
Acquisitions would trigger the Payments. These actions were consolidated in
October 1998.
On April 28, 1999, the Company signed a Stipulation and Agreement of Settlement
to settle the above-referenced actions, except for the federal court derivative
action, in exchange for (i) $7.9 million to be distributed (less plaintiffs'
attorneys fees) to certain former LILCO and KSE shareholders and certain
MarketSpan shareholders and (ii) the Company's agreement to implement certain
corporate governance and executive compensation procedures. In this respect, the
Company has agreed to, among other things, certain requirements with respect to
the composition of its Audit and Compensation and Nominating Committees and has
agreed to be bound by a number of enumerated principles in connection with the
establishment and payment of executive compensation and severance benefits.
These requirements, which are also required to be detailed in the Company's
proxy statements for annual meetings of shareholders, may not be altered or
rescinded prior to January 1, 2002. Further, the entire $7.9 million settlement
commitment will be funded from insurance. The parties have submitted the
settlement to the Nassau County Supreme Court for its review and approval, and a
settlement fairness hearing has been scheduled for June 30, 1999. If that Court
approves the settlement, the parties will then make an application to the
federal court for an order and final judgment, dismissing the three federal
court actions, including the federal court derivative action, based, among other
things, on the binding effect of the state court judgment.
In addition to the above-mentioned actions, a class action lawsuit has also been
filed in the New York State Supreme Court, Suffolk County, by the County of
Suffolk, on behalf of itself and other Suffolk County ratepayers, against
LILCO's former officers and/or directors. The County of Suffolk alleges that the
Payments were improper, and seeks to recover the Payments for the benefit of
Suffolk County ratepayers. The Company moved to consolidate this action with the
above-mentioned consolidated action in October 1998. On May 4, 1999, the parties
submitted a stipulation to the
31
<PAGE>
court which, if approved, would discontinue this action without prejudice.
In October 1998, the County of Suffolk and the Towns of Huntington and Babylon
commenced an action against LIPA, the Company, the NYPSC and others in the
United States District Court for the Eastern District of New York (the
"Huntington Lawsuit"). The Huntington Lawsuit alleges, among other things, that
LILCO ratepayers (i) have a property right to receive or share in the alleged
capital gain that resulted from the transaction with LIPA (which gain is alleged
to be at least $1 billion); and (ii) that LILCO was required to refund to
ratepayers the amount of a Shoreham-related deferred tax reserve (alleged to be
at least $800 million) carried on the books of LILCO at the consummation of the
LIPA Transaction. In December 1998, the plaintiffs amended their complaint. The
amended complaint contains allegations relating to the Payments and adds the
recipients of the Payments as defendants. In January 1999, the Company was
served with the amended complaint. The Company intends to file a motion to
dismiss the amended complaint.
Finally, certain other proceedings have been commenced relating to the Payments
and disclosures made by LILCO with respect thereto. These proceedings include
investigations by the New York State Attorney General, the NYPSC and LIPA, joint
hearings conducted by two committees of the New York State Assembly, and an
informal, non-public inquiry by the SEC. In December 1998, the Company settled
with LIPA and the NYPSC. The agreement includes a payment of $5.2 million by the
Company to LIPA that will be used by LIPA to supply postage-paid bill return
envelopes to customers for the next three years. The Company also agreed to
fully reimburse and indemnify LIPA for costs incurred by LIPA, amounting to
approximately $765,000, for attorneys and other consultants involved in the
investigation. Such amounts are not covered by insurance. In March 1999, the
Company settled with the New York Attorney General. The Company agreed to
implement and adhere to the corporate governance and executive compensation
procedures in accordance with the settlement of the shareholder actions and pay
the New York Attorney General $1.5 million. One half of the $1.5 million will be
covered by insurance. To date, no action has been taken by the SEC.
At this time the Company is unable to determine the outcome of the ongoing
proceedings, or any of the remaining lawsuits described above.
32
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*(10.1) Generating Plant and Gas Turbine Asset Purchase and Sale Agreement for
Ravenswood Generating Plants and Gas Turbines, dated as of January 28,
1999, by and between the Company and Consolidated Edison Company of New
York, Inc.
(10.2) Exploration Agreement, dated as of March 15, 1999, by and between The
Houston Exploration Company and KeySpan Exploration and Production, LLC
(filed as an exhibit to the Houston Exploration Company's Form 10-Q for
the quarter ended March 31, 1999 and incorporated herein by reference).
*(27) Financial Data Schedule on Schedule U-T for the quarter ended March 31,
1999.
------------------
* Filed herewith.
(b) Reports on Form 8-K
In its Report on Form 8-K dated February 4, 1999, the Company reported that it
had entered into an agreement with Consolidated Edison Company of New York,
Inc., to acquire the 2,168 megawatt Ravenswood electric generation facility.
In its Report on Form 8-K dated February 12, 1999, the Company reported that it
had issued a press release concerning, among other things, the year end
operating results of The Houston Exploration Company, in which the Company has a
64% share ownership.
In its Report on Form 8-K dated March 30, 1999, the Company reported that its
Board of Directors had adopted a Shareholder Rights Plan to protect the
interests of its shareholders in the event of a proposed takeover of the Company
not approved by the Company's Board of Directors.
33
<PAGE>
MARKETSPAN CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
there unto duly authorized.
MARKETSPAN CORPORATION
(Registrant)
Date May 14, 1999 /s/ Ronald S. Jendras
------------------------------
Ronald S. Jendras
Vice President, Controller
and Chief Accounting Officer
GENERATING PLANT
AND GAS TURBINE
ASSET PURCHASE AND SALE AGREEMENT
FOR
RAVENSWOOD GENERATING PLANTS AND GAS TURBINES
LOCATED AT LONG ISLAND CITY, QUEENS COUNTY, NEW YORK
By and Between
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
and
MARKETSPAN CORPORATION
doing business as
KEYSPAN ENERGY
Dated as of January 28, 1999
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Definitions.................................. 1
SECTION 1.02. Accounting Terms............................. 13
ARTICLE II
Purchase and Sale; Assumption of Certain Liabilities
SECTION 2.01. Purchase and Sale............................ 13
SECTION 2.02. Auctioned Assets and Retained Assets....... 13
SECTION 2.03. Assumed Obligations and Retained
Liabilities............................. 18
SECTION 2.04. Third Party Consents......................... 22
ARTICLE III
Purchase Price
SECTION 3.01. Purchase Price............................... 22
SECTION 3.02. Post-Closing Adjustment...................... 22
SECTION 3.03. Allocation of Purchase Price................. 24
ARTICLE IV
The Closing
SECTION 4.01. Time and Place of Closing.................... 25
SECTION 4.02. Payment of Purchase Price and
Estimated Adjustment Amount............. 26
ARTICLE V
Representations and Warranties of Seller
SECTION 5.01. Organization; Qualification.................. 26
SECTION 5.02. Authority Relative to This Agreement....... 26
SECTION 5.03. Consents and Approvals; No
Violation.............................. 26
SECTION 5.04. Year 2000.................................... 28
SECTION 5.05. Personal Property............................ 28
SECTION 5.06. Real Estate.................................. 28
SECTION 5.07. Leases....................................... 28
SECTION 5.08. Certain Contracts and
Arrangements........................... 28
SECTION 5.09. Legal Proceedings............................ 29
SECTION 5.10. Permits; Compliance with Law................. 29
SECTION 5.11. Environmental Matters........................ 30
SECTION 5.12. Labor Matters................................ 31
SECTION 5.13. ERISA; Benefit Plans......................... 31
SECTION 5.14. Taxes ..................................... 32
SECTION 5.15. Independent Engineering
Assessments............................ 33
SECTION 5.16. Undisclosed Liabilities...................... 33
SECTION 5.17. Brokers...................................... 33
SECTION 5.18. Insurance.................................... 33
ARTICLE VI
Representations and Warranties of Buyer
SECTION 6.01. Organization................................. 34
SECTION 6.02. Authority Relative to This
Agreement.............................. 34
SECTION 6.03. Consents and Approvals; No
Violation.............................. 35
SECTION 6.04. Availability of Funds........................ 36
SECTION 6.05. Brokers...................................... 36
ARTICLE VII
Covenants of the Parties
SECTION 7.01. Conduct of Business Relating to
the Auctioned Assets.................... 37
SECTION 7.02. Access to Information........................ 39
SECTION 7.03. Consents and Approvals;
Transferable Permits................... 40
SECTION 7.04. Further Assurances........................... 42
SECTION 7.05. Public Statements............................ 44
SECTION 7.06. Tax Matters.................................. 44
SECTION 7.07. Bulk Sales or Transfer Laws.................. 45
SECTION 7.08. Storage...................................... 45
SECTION 7.09. Information Resources........................ 45
SECTION 7.10. Witness Services............................. 46
SECTION 7.11. Consent Orders............................... 46
SECTION 7.12. Nitrogen Oxide Allowances.................... 46
SECTION 7.13. Trade Names............................... 47
ARTICLE VIII
Conditions
SECTION 8.01. Conditions Precedent to Each Party's
Obligation To Effect the Purchase
and Sale................................ 47
SECTION 8.02. Conditions Precedent to Obligation
of Buyer To Effect the Purchase
and Sale................................ 48
SECTION 8.03. Conditions Precedent to Obligation
of Seller To Effect the Purchase
and Sale................................ 49
ARTICLE IX
Employee Matters
SECTION 9.01. Employee Matters............................. 51
SECTION 9.02. Continuation of Equivalent Benefit
Plans/Credited Service.................. 52
SECTION 9.03. Pension Plan................................. 54
SECTION 9.04. 401(k) Plan.................................. 55
SECTION 9.05. Welfare Plans................................ 56
SECTION 9.06. Short- and Long-Term Disability.............. 57
SECTION 9.07. Life Insurance and Accidental Death
and Dismemberment Insurance............. 57
SECTION 9.08. Severance.................................... 57
SECTION 9.09. Workers Compensation......................... 59
ARTICLE X
Indemnification and Dispute Resolution
SECTION 10.01. Indemnification............................. 59
SECTION 10.02. Third Party Claims Procedures............... 62
ARTICLE XI
Termination
SECTION 11.01. Termination................................. 63
ARTICLE XII
Miscellaneous Provisions
SECTION 12.01. Expenses.................................... 63
SECTION 12.02. Amendment and Modification;
Extension; Waiver...................... 64
SECTION 12.03. No Survival of Representations or
Warranties............................. 64
SECTION 12.04. Notices..................................... 64
SECTION 12.05. Assignment; No Third Party
Beneficiaries.......................... 65
SECTION 12.06. Governing Law............................... 66
SECTION 12.07. Counterparts................................ 66
SECTION 12.08. Interpretation.............................. 66
SECTION 12.09. Jurisdiction and Enforcement................ 67
SECTION 12.10. Entire Agreement............................ 68
SECTION 12.11. Severability................................ 68
SECTION 12.12. Conflicts................................... 69
SCHEDULES AND EXHIBITS
Schedule 2.02(a)(ii) Spare Parts
Schedule 2.02(a)(iii)(A) Buyer Personal Property Located on
Buyer Real Estate
Schedule 2.02(a)(iii)(B) Buyer Personal Property Located on
Seller Real Estate
Schedule 2.02(a)(iv) Assigned Contracts
Schedule 2.02(a)(v) Transferable Permits
Schedule 2.02(a)(vi) SO2 Allowances
Schedule 2.02(b)(ii)(A) Seller Personal Property Located on
Buyer Real Estate
Schedule 2.02(b)(ii)(C) Communications Equipment
Schedule 2.03(a)(iv) Seller Consent Orders
Schedule 5.03(a) Contracts Requiring Third
Party Consents
Schedule 5.08(a) Material Contracts
Schedule 5.10(a)(i) Exceptions Under Permits
Schedule 5.10(a)(ii) Non-Environmental Violations
Schedule 5.10(b) Nontransferable Permits and
Environmental Permits
Schedule 5.11 Environmental Matters
Schedule 5.13 Benefit Plans
Schedule 5.15(a) Exceptions to Independent Engineering
Assessment
Schedule 5.15(b) Changes to Auctioned Assets
Schedule 5.16 Other Undisclosed Liabilities
Schedule 9.01(a) Job Titles
Schedule 9.01(b) Collective Bargaining Agreements
Exhibit A-1 Form of Ravenswood-Vernon Zoning Lot
Development Agreement between Seller
and Buyer
Exhibit A-2 Form of Ravenswood-Rainey Zoning Lot
Development Agreement between Seller
and Buyer
Exhibit B Form of Deed of Conveyance
Exhibit C Form of FIRPTA Affidavit
Exhibit D Form of Opinion of John D. McMahon,
Esq., General Counsel of Seller
Exhibit E Form of Opinion of Counsel to Buyer
Exhibit F Summary of Terms and Conditions for "A"
House Ground Lease and Easement between
Seller and Buyer
Exhibit G Form of Transition Capacity Agreement
between Seller and Buyer
Exhibit H Summary of Terms and Conditions for
Fuel Supply Agreement for 74th Street
Generating Station between Seller and
Buyer
Exhibit I Summary of Terms and Conditions for "A"
House Operation and Maintenance
Agreement between Seller and Buyer
Exhibit J Form of Ravenswood-Rainey Declaration
of Subdivision Easements
Exhibit K Form of Ravenswood-Vernon Declaration
of Subdivision Easements
Exhibit L Form of Guarantee Agreement
Exhibit M Form of Opinion of Counsel to Guarantor
GENERATING PLANT AND GAS TURBINE ASSET PURCHASE
AND SALE AGREEMENT (including the Schedules hereto, this
"Agreement"), dated as of January 28, 1999, by and
between CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a
New York corporation ("Seller"), and MARKETSPAN
CORPORATION doing business as KEYSPAN ENERGY, a New York
corporation ("Buyer", collectively with Seller, the
"Parties").
WHEREAS Seller has offered the Auctioned Assets (as defined
herein) for sale at auction pursuant to the Order Authorizing the Process
for Auctioning of Generation Plant issued by the PSC (as defined herein)
and effective as of July 21, 1998; and
WHEREAS Buyer desires to purchase, and Seller desires to sell,
the Auctioned Assets upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and
intending to be legally bound hereby, the Parties agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. (a) As used in this
Agreement, the following terms have the following meanings:
""A" House Ground Lease and Easement" means the ground lease
and easement in respect of certain land underlying and surrounding the
Ravenswood "A" Steam House to be entered into between Buyer and Seller,
the material terms of which shall be substantially as set forth in Exhibit
F.
""A" House Operation and Maintenance Agreement" means the
operation and maintenance agreement in respect of the Ravenswood "A" steam
house to be entered into between Buyer and Seller, the material terms of
which shall be substantially as set forth in Exhibit I.
"Accountants" shall have the meaning set forth in Section
3.02(b).
"Adjustment Amount" shall have the meaning set forth in
Section 3.02(a).
"Adjustment Date" shall have the meaning set forth in
Section 3.02(c).
"Adjustment Statement" shall have the meaning set forth in
Section 3.02(a).
"Affected Employees" shall have the meaning set forth in
Section 9.01(a).
"Affected Union Employees" shall have the meaning set forth
in Section 9.01(b).
"Affiliate" shall have the meaning set forth in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934, as amended.
"Agreement" shall have the meaning set forth in the
Preamble.
"Allocation" shall have the meaning set forth in Section
3.03.
"Ancillary Agreements" means the Continuing Site Agreement,
the Declaration of Easements Agreement, the Declarations of Subdivision
Easements, the Zoning Lot Development Agreements, the Transition Capacity
Agreement, the deeds contemplated by Section 8.02(e)(i) and any other
agreement to which Buyer and Seller are party and which is expressly
identified by its terms as an Ancillary Agreement hereunder.
"Applicable Law" shall have the meaning set forth in
Section 3.03.
"Assumed Consent Order Obligations" shall have the meaning set
forth in Section 2.03(a)(iv).
"Assumed Obligations" shall have the meaning set forth in
Section 2.03(a).
"Auctioned Assets" shall have the meaning set forth in
Section 2.02(a).
"Benefit Plans" shall have the meaning set forth in Section
5.13.
"Bidder Confidentiality Agreements" shall have the meaning
set forth in Section 7.02(b).
"Business Day" means any day other than Saturday, Sunday and
any day which is a legal holiday or a day on which banking institutions in
New York are authorized or required by law or other action of a
Governmental Authority to close.
"Buyer" shall have the meaning set forth in the Preamble.
"Buyer Assets" shall have the meaning set forth in Section
2.03(a)(x).
"Buyer Benefit Plans" shall have the meaning set forth in
Section 9.02(c).
"Buyer Facilities" shall have the meaning given to such term
in the Declaration of Easements Agreement.
"Buyer Indemnitees" shall have the meaning set forth in
Section 10.01(a).
"Buyer Material Adverse Effect" shall have the meaning set
forth in Section 6.03(a).
"Buyer Real Estate" shall have the meaning set forth in
Section 2.02(a)(i).
"Buyer Required Regulatory Approvals" shall have the meaning
set forth in Section 6.03(b).
"Buyer's 401(k) Plans" shall have the meaning set forth in
Section 9.04(a).
"Buyer's Pension Plans" shall have the meaning set forth in
Section 9.03(a).
"Buyer's Welfare Plans" shall have the meaning set forth in
Section 9.05(a).
"Closing" shall have the meaning set forth in Section 4.01.
"Closing Date" shall have the meaning set forth in Section
4.01.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collective Bargaining Agreement" shall have the meaning
set forth in Section 9.01(b).
"Communications Equipment" means the equipment, systems,
switches and lines used in connection with voice, data and other
communications activities.
"Confidentiality Agreement" means the Confidentiality
Agreement dated August 24, 1998 between Seller and Buyer.
"Continued Employee" shall have the meaning set forth in
Section 9.01(a).
"Continued Non-Union Employee" shall have the meaning set
forth in Section 9.02(a).
"Continued Union Employee" shall have the meaning set forth
in Section 9.01(b).
"Continuing Site Agreement" means the Continuing Site
Agreement dated as of even date herewith between Seller and Buyer.
"Contracts" shall have the meaning set forth in Section
2.02(a)(iv).
"Conveyance Plans" shall have the meaning set forth in
Section 2.02(a)(i).
"Declaration of Easements Agreement" means the Declaration of
Easements Agreement dated as of even date herewith between Seller and
Buyer.
"Declarations of Subdivision Easements" means the
Ravenswood-Vernon Declaration of Subdivision Easements and the
Ravenswood-Rainey Declaration of Subdivision Easements.
"Emission Reduction Credits" means credits, in units that are
established by the environmental regulatory agency with jurisdiction over
the source or facility that has obtained the credits, resulting from a
reduction in the emissions of air pollutants from an emitting source or
facility (including, and to the extent allowable under applicable law,
reductions from retirements, control of emissions beyond that required by
applicable law and fuel switching), that: (i) have been certified by
NYSDEC as complying with the law and regulations of the State of New York
governing the establishment of such credits (including that such emissions
reductions are real, enforceable, permanent and quantifiable); or (ii)
have been certified by any other applicable regulatory authority as
complying with the law and regulations governing the establishment of such
credits (including that such emissions reductions are real, enforceable,
permanent and quantifiable). Emission Reduction Credits include certified
air emissions reductions, as described above, regardless of whether the
regulatory agency certifying such reductions designates such certified air
emissions reductions by a name other than "emissions reduction credits".
"Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, exceptions, conservation easements, rights-of-way, deed
restrictions, encumbrances and charges of any kind.
"Environmental Laws" means all former, current and future
Federal, state, local and foreign laws (including common law), treaties,
regulations, rules, ordinances, codes, decrees, judgments, directives or
orders (including consent orders) and Environmental Permits, in each case,
relating to pollution or protection of the environment or natural
resources, including laws relating to Releases or threatened Releases, or
otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, arrangement for disposal,
transport, recycling or handling, of Hazardous Substances.
"Environmental Liability" means all liabilities, obligations,
damages, losses, claims, actions, suits, judgments, orders, fines,
penalties, fees, expenses and costs, including: (i) remediation costs,
engineering costs, environmental consultant fees, laboratory fees,
permitting fees, investigation costs and defense costs and reasonable
attorneys' fees and expenses; (ii) any claims, demands and causes of
action relating to or resulting from any personal injury (including
wrongful death), property damage (real or personal) or natural resource
damage; and (iii) any penalties, fines or costs associated with the
failure to comply with any Environmental Law.
"Environmental Permits" means the permits, licenses, consents,
approvals and other governmental authorizations with respect to
Environmental Laws relating primarily to the power generation operations
of the Generating Plants or the Gas Turbines.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in
Section 5.13.
"Estimated Adjustment Amount" shall have the meaning set
forth in Section 4.02.
"FERC" means the Federal Energy Regulatory Commission.
"Federal Power Act" shall have the meaning set forth in
Section 5.03(b).
"Filed Seller SEC Documents" means the reports, schedules,
forms, statements and other documents filed by Seller with the Securities
and Exchange Commission since January 1, 1997, and publicly available
prior to the date of this Agreement.
"Final Allocation" shall have the meaning set forth in
Section 3.03.
"Fuel Supply Agreement" means the fuel supply agreement to be
entered into between Buyer and Seller, the material terms of which shall
be substantially as set forth in Exhibit H.
"GAAP" shall have the meaning set forth in Section 1.02.
"Guarantee Agreement" means the Guarantee Agreement to be
entered into between Guarantor and Seller substantially in the form of
Exhibit L.
"Guarantor" means MarketSpan Corporation doing business as
KeySpan Energy.
"Gas Turbines" means the gas turbine units comprised of the
Ravenswood GT1 through GT11 units.
"Generating Facilities" means the Generating Plants, the Gas
Turbines and any additional generating plants, gas turbines or other
generating facilities constructed by Buyer after the Closing Date at the
site of any Auctioned Assets.
"Generating Plants" means the three steam turbine generating
units designated as Ravenswood units 1, 2 and 3.
"Governmental Authority" means any court, administrative or
regulatory agency or commission or other governmental entity or
instrumentality, domestic, foreign or supranational or any department
thereof.
"Hazardous Substances" means (i) any petrochemical or
petroleum products, crude oil or any fraction thereof, ash, radioactive
materials, radon gas, asbestos in any form, urea formaldehyde foam
insulation or polychlorinated biphenyls, (ii) any chemicals, materials,
substances or wastes defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials,"
"restricted hazardous materials," "extremely hazardous substances," "toxic
substances," "contaminants" or "pollutants" or words of similar meaning
and regulatory effect contained in any Environmental Law or (iii) any
other chemical, material, substance or waste which is prohibited, limited
or regulated by any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Income Tax" means any Federal, state, local or foreign Tax or
surtax (i) based upon, measured by or calculated with respect to net
income, profits or receipts (including the New York State Gross Receipts
Tax (including the excess dividends tax), the New York City Public
Utilities Excise Tax, any and all municipal gross receipts Taxes, capital
gains Taxes and minimum Taxes) or (ii) based upon, measured by or
calculated with respect to multiple bases (including corporate franchise
taxes) if one or more of the bases on which such Tax may be based,
measured by or calculated with respect to, is described in clause (i), in
each case, together with any interest, penalties, or additions to such
Tax.
"Indemnifiable Loss" shall have the meaning set forth in
Section 10.01(a).
"Indemnifying Party" shall have the meaning set forth in
Section 10.01(c).
"Indemnitee" shall have the meaning set forth in Section
10.01(c).
"Independent Engineering Assessments" shall have the
meaning set forth in Section 5.15.
"Interconnection Facilities" means those items of switching
equipment, switchyard controls, protective relays and related facilities
of Seller that are used by Seller in connection with the provision of
Interconnection Services.
"Interconnection Services" means the service provided by
Seller to Buyer to interconnect the Generating Facilities to the
Transmission System.
"Inventory Survey" shall have the meaning set forth in
Section 3.02(a).
"ISO" means the New York Independent System Operator.
"Local 1-2" shall have the meaning set forth in Section
9.01(a).
"Local 1-2 Collective Bargaining Agreement" shall have the
meaning set forth in Section 9.01(a).
"Material Adverse Effect" means any change, or effect on the
Auctioned Assets, that is materially adverse to the business, operations
or condition (financial or otherwise) of the Auctioned Assets, taken as a
whole, other than (i) any change or effect resulting from changes in the
international, national, regional or local wholesale or retail energy,
capacity or ancillary services electric power markets, (ii) any change or
effect resulting from changes in the international, national, regional or
local markets for fuel, (iii) any change or effect resulting from changes
in the national, regional or local electric transmission systems, (iv) any
change or effect resulting from any bid cap, price limitation, market
power mitigation measure, including the Mitigation Measures, or other
regulatory or legislative measure in respect of transmission services or
the wholesale or retail energy, capacity or ancillary services markets
adopted or approved (or failed to be adopted or approved) by FERC, the PSC
or any other Governmental Authority or proposed by any person, (v) any
change or effect resulting from any regulation, rule, procedure or order
adopted or proposed (or failed to be adopted or proposed) by or with
respect to, or related to, the ISO, (vi) any change or effect resulting
from any action or measure taken or adopted, or proposed to be taken or
adopted, by any local, state, regional, national or international
reliability organization and (vii) any materially adverse change in or
effect on the Auctioned Assets which is cured by Seller before the Closing
Date.
"Mitigation Measures" shall have the meaning set forth in
Section 6.03(b).
"MMS" means the Material Management System, which is an
information resources system served by Seller's mainframe computer.
"NYSDEC" means the New York State Department of
Environmental Conservation.
"Off-Site" means any location except (i) the Auctioned Assets
and (ii) any location to or under which Hazardous Substances present or
Released at the Auctioned Assets have migrated.
"Offering Memorandum" means the Offering Memorandum dated
August 1998 describing the Generating Plants and the Gas Turbines, and the
materials delivered with such Offering Memorandum, as such Offering
Memorandum and such materials may have been amended or supplemented.
"Operating Records" shall have the meaning set forth in
Section 2.02(a)(viii).
"Party" shall have the meaning set forth in the Preamble.
"Permits" means the permits, licenses, consents, approvals and
other governmental authorizations (other than with respect to
Environmental Laws) relating primarily to the power generation operations
of the Generating Plants or the Gas Turbines.
"Permitted Exceptions" means (i) all exceptions, restrictions,
easements, charges, rights-of-way and monetary and nonmonetary
encumbrances which are set forth in any Permits or Environmental Permits,
(ii) statutory liens for current taxes or assessments not yet due or
delinquent or the validity of which is being contested in good faith by
appropriate proceedings, (iii) mechanics', carriers', workers', repairers'
and other similar liens arising or incurred in the ordinary course of
business relating to obligations as to which there is no default on the
part of Seller or the validity of which are being contested in good faith
by appropriate proceedings, (iv) zoning, entitlement, conservation
restriction and other land use and environmental regulations by
Governmental Authorities, (v) the title matters set forth in the
Certificate of Title No. NY971420 issued by the Title Company, as amended,
(vi) all matters disclosed on the survey prepared by GEOD Corporation and
any other facts that would be disclosed by an accurate survey and physical
inspection of the Buyer Real Estate,(vii) Encumbrances, easements or other
restrictions created pursuant to or provided for in any Ancillary
Agreement, (viii) restrictions and regulations imposed by the ISO, any
Governmental Authority or any local, state, regional, national or
international reliability council and (ix) such other Encumbrances or
imperfections in or failure of title which would not, individually or in
the aggregate, reasonably be expected to materially impair the continued
use and operation of the Auctioned Assets as currently conducted.
"person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization or
Governmental Authority.
"PPMIS" means the Power Plant Maintenance Information System,
which is an information resources system served by Seller's mainframe
computer.
"Prorated Items" shall have the meaning set forth in
Section 2.03(a)(viii).
"Protective Relaying System" means the system relating to the
Generating Facilities comprised of components collectively used to detect
defective power system elements or other conditions of an abnormal nature,
initiate appropriate control circuit action in response thereto and
isolate the appropriate system elements in order to minimize damage to
equipment and interruption to service.
"PSC" means the New York State Public Service Commission.
"Purchase Price" shall have the meaning set forth in
Section 3.01.
"Ravenswood-Rainey Declaration of Subdivision Easements" means
the Ravenswood-Rainey Declaration of Subdivision Easements to be made by
Seller substantially in the form of Exhibit J, except for changes required
by any Governmental Authority to the extent that no such change materially
and adversely impairs the continued use and operation of the Auctioned
Assets as currently conducted.
"Ravenswood-Vernon Declaration of Subdivision Easements" means
the Ravenswood-Vernon Declaration of Subdivision Easements to be made by
Seller substantially in the form of Exhibit K, except for changes required
by any Governmental Authority to the extent that no such change materially
and adversely impairs the continued use and operation of the Auctioned
Assets as currently conducted.
"Release" means any release, spill, emission, leaking,
dumping, injection, pouring, deposit, disposal, discharge, dispersal,
leaching or migration into the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata) or within any
building, structure, facility or fixture.
"Restraints" shall have the meaning set forth in Section
8.01(b).
"Retained Assets" shall have the meaning set forth in
Section 2.02(b).
"Retained Liabilities" shall have the meaning set forth in
Section 2.03(b).
"Revenue Meters" means all meters measuring demand, energy and
reactive components, and all pulse isolation relays, pulse conversion
relays and associated totalizing and remote access pulse recorder
equipment, in each case, required to measure the transfer of energy
between the Parties.
"Segregated Reimbursement Accounts" shall have the meaning
set forth in Section 9.05(b).
"Seller" shall have the meaning set forth in the Preamble.
"Seller Assets" shall have the meaning set forth in Section
2.03(b)(x).
"Seller Consent Orders" shall have the meaning set forth in
Section 2.03(a)(iv).
"Seller Facilities" shall have the meaning given to such term
in the Declaration of Easements Agreement.
"Seller Indemnitees" shall have the meaning set forth in
Section 10.01(b).
"Seller Real Estate" means all real property and leaseholds or
other interests in real property of Seller (including the premises on
which the Substations are located), other than Buyer Real Estate.
"Seller Required Regulatory Approvals" shall have the meaning
set forth in Section 5.03(b).
"Seller's 401(k) Plans" shall have the meaning set forth in
Section 9.04(a).
"Seller's Pension Plans" shall have the meaning set forth
in Section 9.03(a).
"Seller's Reimbursement Account Plans" shall have the meaning
set forth in Section 9.05(b).
"SO2 Allowances" means allowances that have been allocated to
Seller for the Generating Plants or the Gas Turbines by the Administrator
of the United States Environmental Protection Agency under Title IV of the
Clean Air Act authorizing the emission of one ton of sulfur dioxide per
allowance during or after the year 2000.
"Substations" shall have the meaning set forth in Section
2.02(b)(i).
"Tax Benefit" means, with respect to any Indemnifiable Loss
for any person, the positive excess, if any, of the Tax liability of such
person without regard to such Indemnifiable Loss over the Tax liability of
such person taking into account such Indemnifiable Loss, with all other
circumstances remaining unchanged.
"Tax Cost" means, with respect to any indemnity payment for
any person, the positive excess, if any, of the Tax liability of such
person taking such indemnity payment into account over the Tax liability
of such person without regard to such payment, with all other
circumstances remaining unchanged.
"Tax Return" means any return, report, information return or
other document (including any related or supporting information) required
to be supplied to any authority with respect to Taxes.
"Taxes" means all taxes, surtaxes, charges, fees, levies,
penalties or other assessments imposed by any United States Federal, state
or local or foreign taxing authority, including Income Tax, excise,
property, sales, transfer, franchise, special franchise, payroll,
recording, withholding, social security or other taxes, or any liability
for taxes incurred by reason of joining in the filing of any consolidated,
combined or unitary Tax Returns, in each case including any interest,
penalties or additions attributable thereto; provided, however, that
"Taxes" shall not include sewer rents or charges for water.
"Termination Date" shall have the meaning set forth in
Section 11.01(b).
"Third Party Claim" shall have the meaning set forth in
Section 10.02(a).
"Title Company" means Commonwealth Land Title Insurance
Company or any other reputable title insurance company licensed to do
business in New York.
"Transferable Permits" shall have the meaning set forth in
Section 2.02(a)(v).
"Transferring Employee Records" shall have the meaning set
forth in Section 2.02(a)(viii).
"Transferring Employees" shall have the meaning set forth
in Section 2.02(a)(viii).
"Transition Capacity Agreement" means the Transition Capacity
Agreement to be entered into between Seller and Buyer, substantially in
the form of Exhibit G.
"Transmission System" shall have the meaning set forth in
Section 2.02(b)(i).
"Zoning Lot Development Agreements" means the
Ravenswood-Vernon Zoning Lot Development Agreement between Seller and
Buyer in the form of Exhibit A-1 and the Ravenswood-Rainey Zoning Lot
Development Agreement between Seller and Buyer in the form of Exhibit
A-2 hereto.
SECTION 1.02. Accounting Terms. Any accounting terms used in
this Agreement or the Ancillary Agreements shall, unless otherwise
specifically provided, have the meanings customarily given them in
accordance with United States generally accepted accounting principles
("GAAP") and all financial computations hereunder or thereunder shall,
unless otherwise specifically provided, be computed in accordance with
GAAP consistently applied.
ARTICLE II
Purchase and Sale; Assumption of Certain Liabilities
SECTION 2.01. Purchase and Sale. Upon the terms and subject to
the satisfaction of the conditions contained in this Agreement, at the
Closing, Seller agrees to sell, assign, convey, transfer and deliver to
Buyer, and Buyer agrees to purchase, assume and acquire from Seller all
the Auctioned Assets. In the case of any Auctioned Assets not located at
the Generating Plants or Gas Turbines (including supplies, materials and
spare parts inventory), Buyer agrees that (i) from and after the Closing,
except to the extent specifically otherwise provided in the Ancillary
Agreements, Buyer will bear all risk of casualty or loss with regard to
such Auctioned Assets (regardless of whether they remain on Seller's
property or otherwise in Seller's possession) and (ii) Seller shall store
such Auctioned Assets in accordance with Section 7.08.
SECTION 2.02. Auctioned Assets and Retained Assets. (a)
Auctioned Assets. The term "Auctioned Assets" means all the assets, real
and personal property, goodwill and rights of Seller of whatever kind and
nature, whether tangible or intangible, in each case, primarily relating
to the power generation operations of the Generating Plants or the Gas
Turbines, other than the Retained Assets, including:
(i) all real property and leaseholds or other interests in
real property of Seller relating primarily to the power generation
operations of the Generating Plants or the Gas Turbines described as
Parcel A and D as shown on ALTA/ACSM Land Title Survey Conveyance
Plan relating to the Ravenswood Generating Station, dated January 9,
1999, in each case, as may hereafter be amended in immaterial
respects (collectively, the "Conveyance Plans"), together with all
buildings, improvements, structures and fixtures thereon, subject to
Permitted Exceptions or Encumbrances otherwise disclosed to Buyer in
this Agreement or the Ancillary Agreements with respect thereto (the
"Buyer Real Estate");
(ii) subject to Section 2.04, all inventories of fuels,
supplies, materials and spare parts relating primarily to the power
generation operations of the Generating Plants or the Gas Turbines,
together with and subject to (A) all Permitted Exceptions or
Encumbrances otherwise disclosed to Buyer in this Agreement or the
Ancillary Agreements with respect thereto and (B) all warranties
against manufacturers and vendors relating thereto, including the
spare parts listed on Schedule 2.02(a)(ii), in each case, other than
assets that become obsolete or that are used, consumed, replaced or
disposed in the ordinary course of business consistent with past
practice or as permitted by this Agreement;
(iii) subject to Section 2.04, (A) the machinery, equipment,
facilities, furniture and other personal property (other than
vehicles) relating primarily to the power generation operations of
the Generating Plants or the Gas Turbines, including a stand-alone
local area network, coal handling equipment and other items of
personal property located on Buyer Real Estate or temporarily
removed from Buyer Real Estate for repairs, servicing or maintenance
and listed on Schedule 2.02(a)(iii)(A) and (B) machinery, equipment,
facilities, furniture and other personal property located on Seller
Real Estate or temporarily removed from Seller Real Estate for
repairs, servicing or maintenance and listed on Schedule
2.02(a)(iii)(B), in each case, (1) together with and subject to (x)
all Permitted Exceptions or Encumbrances otherwise disclosed to
Buyer in this Agreement or the Ancillary Agreements with respect
thereto and (y) all warranties against manufacturers or vendors
relating thereto and (2) other than assets that become obsolete or
that are used, consumed, replaced or disposed in the ordinary course
of business consistent with past practice or as permitted by this
Agreement;
(iv) subject to Section 2.04, all right, title and interest of
Seller in, to and under all contracts, agreements, personal property
leases (whether Seller is lessor or lessee thereunder), commitments
and all other legally binding arrangements (other than Seller
Consent Orders), whether oral or written, set forth on Schedule
2.02(a)(iv) or otherwise relating primarily to the power generation
operations of the Generating Plants or the Gas Turbines and entered
into by Seller in accordance with Section 7.01 (the "Contracts"), in
each case, to the extent in full force and effect on the Closing
Date;
(v) subject to Section 7.03(c), the Permits and Environmental
Permits that are transferred or transferable by Seller to Buyer
(collectively, the "Transferable Permits"), including the
Transferable Permits set forth on Schedule 2.02(a)(v), in each case,
to the extent in full force and effect on the Closing Date;
(vi) the SO2 Allowances listed on Schedule 2.02(a)(vi);
(vii) all nitrogen oxide allowances allocated to the Generating
Plants or the Gas Turbines by NYSDEC under the New York State
Nitrogen Oxides Budget Program that have not been used on or prior
to the Closing Date (it being understood that, for purposes of this
Agreement, one nitrogen oxide allowance shall be deemed "used" for
each ton of actual nitrogen oxide emitted from the Generating Plants
or Gas Turbines between May 1 of any year and September 30 of such
year, inclusive);
(viii) (A) all data, information, books, operating records,
operating, safety and maintenance manuals, engineering design plans,
blueprints and as-built plans, specifications, procedures, facility
compliance plans, environmental procedures and similar records of
Seller relating primarily to the power generation operations of the
Generating Plants or the Gas Turbines, to the extent in Seller's
possession or readily available (collectively, "Operating Records"),
and (B) all personnel files relating to employees of Seller to be
employed by Buyer after the Closing Date in accordance with Article
IX (the "Transferring Employees"), to the extent in Seller's
possession and readily available and to the extent such files
pertain to (1) skill and development training and resumes, (2)
seniority histories, (3) salary and benefit information, (4)
Occupational Safety and Health Act medical reports, (5) active
medical restriction forms and (6) any other matters, disclosure of
which by Seller to Buyer is permitted under applicable law without
the consent of the Transferring Employee, but not including any
performance evaluations or disciplinary records (collectively, the
"Transferring Employee Records"); provided, however, that Seller
shall be permitted to retain copies, or originals to the extent it
provides Buyer with copies of same, of all Operating Records and
Transferring Employee Records; and
(ix) (A) except as provided in Section 2.02(b)(iv), the
software relating primarily to the power generation operations of
the Generating Plants or the Gas Turbines (provided, however, that
Buyer acknowledges that it will require licenses from third parties
in order to be legally entitled to use such software), and (B) a
non-exclusive, royalty-free license to use solely in connection with
the Auctioned Assets the software or other copyrighted material
owned by Seller located at Buyer Real Estate.
(b) Retained Assets. The term "Retained Assets" means:
(i) the transmission and distribution facilities owned,
controlled or operated by Seller for purposes of providing
point-to-point transmission service, network integration service and
distribution service and other related purposes, including the real
property and equipment located at the Vernon Substation and the
Rainey Substation (collectively, the "Substations"), used in
controlling continuity between the Generating Plants and Gas
Turbines and the transmission and distribution facilities and for
other purposes (the "Transmission System");
(ii)(A) except as set forth in Section 2.02(a)(iii), all
Interconnection Facilities and other transmission, distribution and
substation machinery, equipment and facilities and related support
equipment located on Buyer Real Estate or Seller Real Estate or
temporarily removed from Buyer Real Estate or Seller Real Estate for
repairs, servicing or maintenance, including items listed on
Schedule 2.02(b)(ii)(A); (B) all Revenue Meters installed by Seller;
(C) Communications Equipment and related support equipment (1)
located on Buyer Real Estate or temporarily removed from Buyer Real
Estate for repairs, servicing or maintenance and listed on Schedule
2.02(b)(ii)(C) or acquired by Seller after the date of this
Agreement and designated by Seller as a Retained Asset or (2)
located on Seller Real Estate or temporarily removed from Seller
Real Estate for repairs, servicing or maintenance; and (D) all
Protective Relaying Systems not located on Buyer Real Estate;
(iii) all cash, cash equivalents, bank deposits and accounts
receivable held or owned by Seller;
(iv) (A) all mainframe computer systems of Seller, (B) the
code to all software described in Section 2.02(a)(ix)(B), and (C)
all software, copyrights, know-how or other proprietary information
relating primarily to any other Retained Assets or any Retained
Liabilities, including software, copyrights, know-how or other
proprietary information licensed to Buyer pursuant to Section
2.02(a)(ix)(B);
(v) the names "Consolidated Edison", "Con Edison", "Con Ed",
"Consolidated Edison Company", "Consolidated Edison Company of New
York, Inc.", "Consolidated Edison, Inc.", "New York Edison",
"Brooklyn Edison", "Staten Island Edison" and "Edison" and any
related or similar trade names, trademarks, service marks or logos
(and any rights to and in the same, including any right to use the
same);
(vi) subject to Section 7.06(d), any refund or credit related
to Taxes attributable to taxable periods (or portions thereof) prior
to the Closing Date, and sewer rents or water charges or any other
liabilities or obligations paid prior to the Closing Date in respect
of the Auctioned Assets;
(vii) all personnel records (other than Transferring Employee
Records) and all other records (other than Operating Records);
(viii) (A) all Emission Reduction Credits held or possessed by
Seller and (B) SO2 Allowances held or possessed by Seller and not
listed on Schedule 2.02(a)(vi); and
(ix) any other asset that is not described with particularity
in this Agreement as an Auctioned Asset.
SECTION 2.03. Assumed Obligations and Retained Liabilities.
(a) Assumed Obligations. At the Closing, Buyer shall assume, and from and
after the Closing, shall discharge, all of the liabilities and
obligations, direct or indirect, known or unknown, absolute or contingent,
which relate to the Auctioned Assets or are otherwise specified below,
other than the Retained Liabilities (collectively, the "Assumed
Obligations"), including:
(i) except as set forth in Section 2.03(b)(ii), any
liabilities and obligations under the Contracts;
(ii) any liabilities and obligations for goods delivered or
services rendered on or after the Closing Date relating to the
Auctioned Assets;
(iii) except as set forth in Sections 2.03(b)(iii) or (iv),
any Environmental Liability arising out of or in connection with (A)
any violation or alleged violation of, or noncompliance or alleged
noncompliance with, any Environmental Laws, prior to, on or after
the Closing Date, with respect to the ownership or operation of the
Auctioned Assets, notwithstanding that, as contemplated by Section
7.03(c), Seller may remain the "holder of record" with respect to
certain Transferable Permits, (B) the condition of any Auctioned
Assets prior to, on or after the Closing Date, including any actual
or alleged presence, Release or threatened Release of any Hazardous
Substance at, on, in, under or migrating onto or from, the Auctioned
Assets, prior to, on or after the Closing Date (except for any such
Release from equipment or property owned or operated by Seller and
located on, or constituting, Seller Real Estate adjacent to Buyer
Real Estate that (1) occurs on or after the Closing Date and (2) is
caused by Seller or its Affiliates), (C) any Release or threatened
Release of any Hazardous Substance on or after the Closing Date from
the Buyer Facilities or otherwise originating from, or relating to,
any equipment owned or used by Buyer that is located on Seller Real
Estate or (D) the transportation, storage, Release, threatened
Release or recycling of, or arrangement for such activities with
respect to, Hazardous Substances generated in respect of the
Auctioned Assets at or to any location, on or after the Closing
Date;
(iv) any liabilities and obligations relating to the Auctioned
Assets under the consent orders listed on Schedule 2.03(a)(iv) (the
"Seller Consent Orders") and identified thereon as "Assumed Consent
Order Obligations" (the "Assumed Consent Order Obligations");
(v) except as set forth in Section 2.03(b)(iv), any
liabilities and obligations with respect to the Permits to the
extent arising or accruing on or after the Closing Date;
(vi) (A) all wages, overtime, employment taxes, severance pay,
transition payments, workers compensation benefits, occupational
safety and health liabilities or other similar liabilities and
obligations in respect of Transferring Employees to the extent
arising or accruing on or after the Closing Date, and (B) all other
liabilities and obligations with respect to the Transferring
Employees for which Buyer is responsible pursuant to Article IX;
(vii) (A) any liabilities and obligations (other than any
Environmental Liabilities which are Retained Liabilities) in respect
of any personal injury or property damage claim relating to,
resulting from or arising out of the Generating Plants or Gas
Turbines or (B) any liabilities and obligations in respect of any
discrimination, wrongful discharge or unfair labor practice claim by
any Transferring Employee, in the case of each of the foregoing
clauses (A) and (B), to the extent arising or accruing on or after
the Closing Date;
(viii) any liabilities and obligations, with respect to the
periods that include the Closing Date, with respect to real or
personal property rent, taxes based on the ownership or use of
property, utilities charges and similar charges that primarily
relate to the Generating Plants or the Gas Turbines (collectively,
the "Prorated Items"), to the extent such Prorated Items relate to
the period from and after the Closing Date, including (A) personal
property taxes, real estate and occupancy taxes, assessments and
other charges (which shall be apportioned as provided in the Zoning
Lot Development Agreements),(B) rent and all other items payable by
Seller under any Contract, (C) any fees with respect to any
Transferable Permit and (D) sewer rents and charges for water,
telephone, electricity and other utilities, in each case calculated
by multiplying the amount of any such Prorated Item by a fraction
the numerator of which is the number of days in such period from and
after the Closing Date and the denominator of which is the number of
days in such period;
(ix) any liabilities and obligations in respect of Taxes
(other than Prorated Items) attributable to the Auctioned Assets
arising or accruing during taxable periods (or portions thereof)
beginning on or after the Closing Date;
(x) any liabilities and obligations in respect of damage to
property or personal injury or death relating to, resulting from or
arising out of any property, machinery, equipment, facilities or
systems from time to time owned by Buyer or its Affiliates subject
to the Ancillary Agreements or employed by Buyer in connection with
the performance of the Ancillary Agreements ("Buyer Assets"), or any
Protective Relaying System owned by Seller as contemplated by the
Continuing Site Agreement, regardless of whether the property damage
or personal injury is caused by a Seller Indemnitee or a Buyer
Indemnitee; and
(xi) any liabilities and obligations under the Ancillary
Agreements in respect of the Auctioned Assets to the extent arising
on or after the Closing Date.
(b) Retained Liabilities. Buyer shall not assume or be
obligated to pay, perform or otherwise discharge the following liabilities
or obligations (the "Retained Liabilities"):
(i) any liabilities and obligations of Seller primarily
relating to any Retained Assets (other than as contemplated by
Section 2.03(a)(x));
(ii) any payment obligations of Seller, including under
Contracts, for goods delivered or services rendered prior to the
Closing Date;
(iii) (A) any Environmental Liability of Seller arising out of
or in connection with the transportation, storage, Release,
threatened Release or recycling of, or arrangement for such
activities with respect to, Hazardous Substances at or to any
Off-Site location, prior to the Closing Date, (B) any Environmental
Liability of Seller arising out of or in connection with any Release
or threatened Release of any Hazardous Substance on or after the
Closing Date from the Seller Facilities or otherwise originating
from, or relating to, any equipment owned or used by Seller that is
located on Buyer Real Estate and (C) any liabilities and obligations
relating to Auctioned Assets under the Seller Consent Orders, except
Assumed Consent Order Obligations;
(iv) any monetary fines (excluding (A) natural resource
damages, (B) cleanup or remediation costs and (C) other costs of a
similar nature) imposed by a Governmental Authority to the extent
arising out of or relating to acts or omissions of Seller in respect
of the Auctioned Assets prior to the Closing Date;
(v) (A) all wages, overtime, employment taxes, severance pay,
transition payments, workers compensation benefits, occupational
safety and health liabilities or other similar liabilities and
obligations in respect of Transferring Employees to the extent
arising or accruing prior to the Closing Date and (B) all other
liabilities and obligations with respect to the Transferring
Employees for which Seller is responsible pursuant to Article IX;
(vi) (A) any liabilities and obligations (other than any
Environmental Liabilities which are Assumed Obligations) in respect
of any personal injury or property damage claim relating to the
Generating Plants or Gas Turbines or (B) any liabilities and
obligations in respect of any discrimination, wrongful discharge or
unfair labor practice claim by any Transferring Employee, in the
case of each of the foregoing clauses (A) and (B), to the extent
arising out of or relating to acts or omissions of Seller prior to
the Closing Date;
(vii) any liabilities and obligations, with respect to the
period prior to the Closing Date, for the Prorated Items, calculated
as set forth in Section 2.03(a)(viii);
(viii) any liabilities and obligations in respect of Taxes
(other than Prorated Items) attributable to the Auctioned Assets
arising or accruing during taxable periods (or portions thereof)
ending before the Closing Date, including Income Taxes attributable
to income realized by Seller pursuant to the transactions
contemplated by this Agreement;
(ix) any liabilities and obligations arising after the date of
this Agreement in respect of which Seller has provided pursuant to
Section 7.01(d)(ii) that such liabilities and obligations shall not
be assumed or retained by Buyer;
(x) any liabilities and obligations in respect of damage to
property or personal injury or death relating to, resulting from or
arising out of any property, machinery, equipment, facilities or
systems from time to time owned by Seller or its Affiliates subject
to the Ancillary Agreements or employed by Seller in connection with
the performance of the Ancillary Agreements ("Seller Assets"),
regardless of whether the property damage or personal injury is
caused by a Seller Indemnitee or a Buyer Indemnitee; and
(xi) any liabilities and obligations under the Ancillary
Agreements in respect of the Retained Assets.
SECTION 2.04. Third Party Consents. (a) Notwithstanding
Section 2.02(a)(ii), (iii) or (iv), to the extent that Seller's rights
under any Contract or warranty may not be assigned without the consent of
another person which consent has not been obtained, this Agreement shall
not constitute an agreement to assign the same if an attempted assignment
would constitute a breach thereof or be unlawful, and Seller, at its
expense, shall use its reasonable best efforts to obtain prior to the
Closing any such required consents.
(b) Seller and Buyer agree that if any consent to an
assignment of any such Contract or warranty shall not be obtained or if
any attempted assignment would in Seller's reasonable opinion be
ineffective or would impair any material rights and obligations of Buyer
under such Contract or warranty, as applicable, so that Buyer would not
acquire the benefit of all such rights and obligations, Seller, to the
maximum extent permitted by law and such Contract or warranty, as
applicable, shall after the Closing appoint Buyer to be Seller's
representative and agent with respect to such Contract or warranty, as
applicable, and Seller shall, to the maximum extent permitted by law and
such Contract or warranty, as applicable, enter into such reasonable
arrangements with Buyer as are necessary to provide Buyer with the
benefits and obligations of such Contract or warranty, as applicable.
Seller and Buyer shall cooperate and shall each use their reasonable best
efforts after the Closing to obtain an assignment of each such Contract or
warranty, as applicable, to Buyer.
ARTICLE III
Purchase Price
SECTION 3.01. Purchase Price. The purchase price for the
Auctioned Assets shall be $596,840,000 (the "Purchase Price").
SECTION 3.02. Post-Closing Adjustment. (a) Within 20 Business
Days after the Closing, Seller shall prepare and deliver to Buyer a
statement (an "Adjustment Statement") which reflects the book cost, as
reflected on the books of Seller as of the Closing Date, of all fuel
inventory and supplies, materials and spare parts inventory included in
the Auctioned Assets (the "Adjustment Amount") and, upon request of Buyer,
related accounting material used by Seller to prepare the Adjustment
Statement. The Adjustment Amount will be based, in respect of fuel, on the
actual fuel inventory on the Closing Date and, in respect of supplies,
materials and spare parts, on an inventory survey conducted within ten
Business Days prior to the Closing Date, in each case, consistent with the
inventory procedures of Seller in effect as of the date of this Agreement
(the "Inventory Survey"). Seller will permit an employee, or
representative, of Buyer to observe the Inventory Survey. The Adjustment
Statement shall be prepared using (i) GAAP and (ii) the same rolling
average unit costs that Seller has historically used to calculate the book
cost of its fuel and supplies, materials and spare parts inventory. Buyer
agrees to cooperate with Seller in connection with the preparation of the
Adjustment Statement and related information, and shall provide to Seller
such access, books, records and information as may be reasonably requested
from time to time.
(b) Buyer may dispute the quantity delivered or quality of any
inventory item shown on the Adjustment Statement, or the mathematical
calculations reflected therein, by notifying Seller in writing of the
disputed amount, and the basis of such dispute, within 20 Business Days of
Buyer's receipt of the Adjustment Statement; provided, however, that in
respect of the quality of any inventory item, Buyer may not dispute
Seller's normal and customary methods for accounting for excess inventory.
Buyer shall have no right to dispute any other matter in respect of the
Adjustment Statement, including historical rolling average unit costs used
to calculate the book cost of the inventory or the appropriateness, under
GAAP or otherwise, of using such historical rolling average unit cost to
determine the book cost of any particular item of inventory. In the event
of a dispute with respect to the quantity or quality of any inventory item
shown on the Adjustment Statement, or the mathematical calculations
reflected therein, Buyer and Seller shall attempt to reconcile their
differences and any resolution by them as to any disputed amounts shall be
final, binding and conclusive on the Parties. If Buyer and Seller are
unable to reach a resolution of such differences within 20 Business Days
of receipt of Buyer's written notice of dispute to Seller, Buyer and
Seller shall submit the amounts remaining in dispute for determination and
resolution to PricewaterhouseCoopers LLP or any other accounting firm of
recognized national standing reasonably acceptable to Seller and Buyer
(the "Accountants"), which shall be instructed to determine and report to
the Parties, within 20 Business Days after such submission, upon such
remaining disputed amounts, and such report shall be final, binding and
conclusive on the Parties with respect to the amounts disputed. Buyer and
Seller shall each pay one-half of the fees and disbursements of the
Accountants in connection with the resolution of such disputed amounts.
(c) If the Adjustment Amount is greater or less than the
Estimated Adjustment Amount, then on the Adjustment Date (as defined
below), (i) to the extent that the Adjustment Amount exceeds the Estimated
Adjustment Amount, Buyer shall pay to Seller the amount of such excess and
(ii) to the extent that the Adjustment Amount is less than the Estimated
Adjustment Amount, Seller shall pay to Buyer the amount of such
deficiency. "Adjustment Date" means (1) if Buyer does not disagree in any
respect with the Adjustment Statement, the twenty-third Business Day
following Buyer's receipt of the Adjustment Statement or (2) if Buyer
shall disagree in any respect with the Adjustment Statement, the third
Business Day following either the resolution of such disagreement by the
Parties or a final determination by the Accountants in accordance with
Section 3.02(b). Any amount paid under this Section 3.02(c) shall be paid
with interest for the period commencing on the Closing Date through the
date of payment, calculated at the prime rate of the Chase Manhattan Bank
in effect on the Closing Date, and in cash by wire transfer of immediately
available funds.
SECTION 3.03. Allocation of Purchase Price. Buyer shall
deliver to Seller at Closing a preliminary allocation among the Auctioned
Assets of the Purchase Price and among such other consideration paid to
Seller pursuant to this Agreement that is properly includible in Buyer's
tax basis for the Auctioned Assets for Federal income tax purposes, and,
as soon as practicable following the Closing (but in any event within 10
Business Days following the final determination of the Adjustment Amount),
Buyer shall prepare and deliver to Seller a final allocation of the
Purchase Price and additional consideration described in the preceding
clause, and the post-closing adjustment pursuant to Section 3.02, among
the Auctioned Assets (the "Allocation"). The Allocation shall be
consistent with Section 1060 of the Code and the Treasury Regulations
thereunder. Seller hereby agrees to accept Buyer's Allocation unless
Seller determines that such Allocation was not prepared in accordance with
Section 1060 of the Code and the regulations thereunder ("Applicable
Law"). If Seller so determines, Seller shall within 20 Business Days
thereafter propose any changes necessary to cause the Allocation to be
prepared in accordance with Applicable Law. Within 10 Business Days
following delivery of such proposed changes, Buyer shall provide Seller
with a statement of any objections to such proposed changes, together with
a reasonably detailed explanation of the reasons therefor. If Buyer and
Seller are unable to resolve any disputed objections within 10 Business
Days thereafter, such objections shall be referred to the Accountants,
whose review will be limited to whether Buyer's Allocation of such
disputed items regarding the Allocation was prepared in accordance with
Applicable Law. The Accountants shall be instructed to deliver to Seller
and Buyer a written determination of the proper allocation of such
disputed items within 20 Business Days. Such determination shall be
conclusive and binding upon the parties hereto for all purposes, and the
Allocation shall be so adjusted (the Allocation, including the adjustment,
if any, to be referred to as the "Final Allocation"). The fees and
disbursements of the Accountants attributable to the Allocation shall be
shared equally by Buyer and Seller. Each of Buyer and Seller agrees to
timely file Internal Revenue Service Form 8594, and all Federal, state,
local and foreign Tax Returns, in accordance with such Final Allocation
and to report the transactions contemplated by this Agreement for Federal
Income Tax and all other tax purposes in a manner consistent with the
Final Allocation. Each of Buyer and Seller agrees to promptly provide the
other party with any additional information and reasonable assistance
required to complete Form 8594, or compute Taxes arising in connection
with (or otherwise affected by) the transactions contemplated hereunder.
Each of Buyer and Seller shall timely notify the other Party and each
shall timely provide the other Party with reasonable assistance in the
event of an examination, audit or other proceeding regarding the Final
Allocation.
ARTICLE IV
The Closing
SECTION 4.01. Time and Place of Closing. Upon the terms and
subject to the satisfaction of the conditions contained in Article VIII,
the closing of the sale of the Auctioned Assets contemplated by this
Agreement (the "Closing") will take place on such date as the Parties may
agree, which date shall be as soon as practicable, but no later than ten
Business Days, following the date on which all of the conditions set forth
in Article VIII have been satisfied or waived, at the offices of Cravath,
Swaine & Moore in New York City or at such other place or time as the
Parties may agree. The date and time at which the Closing actually occurs
is hereinafter referred to as the "Closing Date".
SECTION 4.02. Payment of Purchase Price and Estimated
Adjustment Amount. At the Closing, Buyer will pay or cause to be paid to
Seller by wire transfer of immediately available funds to an account
previously designated in writing by Seller an amount in United States
dollars equal to (a) the Purchase Price plus or minus (b) Seller's good
faith estimate of the Adjustment Amount (the "Estimated Adjustment
Amount"), which estimate shall be provided to Buyer no later than five
Business Days prior to the Closing.
ARTICLE V
Representations and Warranties of Seller
Seller represents and warrants to Buyer as follows:
SECTION 5.01. Organization; Qualification. Seller is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of New York and has all requisite corporate power
and authority to own, lease and operate the Auctioned Assets and to carry
on the business of the Auctioned Assets as currently conducted.
SECTION 5.02. Authority Relative to This Agreement. Seller has
all necessary corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Seller of
this Agreement and the Ancillary Agreements and the consummation by Seller
of the transactions contemplated hereby and thereby have been duly and
validly authorized by the Board of Trustees of Seller or by a committee
thereof to whom such authority has been delegated and no other corporate
proceedings on the part of Seller are necessary to authorize this
Agreement or the Ancillary Agreements or the consummation of the
transactions contemplated hereby or thereby. This Agreement and the
Ancillary Agreements have been duly and validly executed and delivered by
Seller and, assuming that this Agreement and the Ancillary Agreements
constitute valid and binding agreements of Buyer and each other party
thereto, subject to the receipt of the Seller Required Regulatory
Approvals and the Buyer Required Regulatory Approvals, constitute valid
and binding agreements of Seller, enforceable against Seller in accordance
with their respective terms.
SECTION 5.03. Consents and Approvals; No Violation. (a)
Subject to obtaining the Seller Required Regulatory Approvals and the
Buyer Required Regulatory Approvals, neither the execution and delivery of
this Agreement or the Ancillary Agreements by Seller nor the sale by
Seller of the Auctioned Assets pursuant to this Agreement will (i)
conflict with or result in any breach of any provision of the Certificate
of Incorporation or By-laws of Seller, (ii) except as set forth on
Schedule 5.03(a), result in a default (or give rise to any right of
termination, cancelation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Seller is a
party or by which Seller, or any of the Auctioned Assets, may be bound,
except for such defaults (or rights of termination, cancelation or
acceleration) as to which requisite waivers or consents have been obtained
or which would not, individually or in the aggregate, create a Material
Adverse Effect or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller, or the Auctioned Assets,
except for such violations which would not, individually or in the
aggregate, create a Material Adverse Effect.
(b) Except for (i) application by Seller to, and the approval
of, the PSC, pursuant to ss. 70 of the Public Service Law of the State of
New York, of the transfer to Buyer of the Auctioned Assets, (ii) the
filings by Seller and Buyer required by the HSR Act and the expiration or
earlier termination of all waiting periods under the HSR Act, (iii)
application by Seller to, and the approval of, FERC under (A) Section 203
of the Federal Power Act of 1935 (the "Federal Power Act") with respect to
the transfer of Auctioned Assets constituting jurisdictional assets under
the Federal Power Act and (B) Section 205 of the Federal Power Act with
respect to the Continuing Site Agreement (to the extent necessary) and any
wholesale power sales agreement to be entered into by Seller and Buyer,
including the Transition Capacity Agreement,(iv) the issuance of approval
by the New York City Department of Buildings and, to the extent required,
the New York City Department of Business Services of the tax lot
subdivision contemplated by this Agreement in a form suitable for
submission to the New York City Department of Finance for the issuance of
tax lot numbers and (v) declarations, filings or registrations with, or
notices to, or authorizations, consents or approvals of, any Governmental
Authority which become applicable to Seller or the transactions
contemplated hereby or by the Ancillary Agreements as a result of the
specific regulatory status or jurisdiction of incorporation or
organization of Buyer (or any of its Affiliates) or as a result of any
other facts that specifically relate to the business or activities in
which Buyer (or any of its Affiliates) is or proposes to be engaged
(collectively, the "Seller Required Regulatory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of any Governmental Authority is necessary for the
consummation by Seller of the transactions contemplated hereby or by the
Ancillary Agreements, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals (A) which,
if not obtained or made, would not, individually or in the aggregate,
create a Material Adverse Effect or (B) which relate to the Transferable
Permits.
(c) To the knowledge of Seller, there is no reason that it
should fail to obtain the Seller Required Regulatory Approvals.
SECTION 5.04. Year 2000. Seller has informed Buyer of the
status, as of the date of this Agreement, of measures to prevent computer
software, hardware and embedded systems used in connection with the
Auctioned Assets from experiencing malfunctions or other usage problems in
connection with years beginning with "20", except for such malfunctions or
other usage problems which would not, individually or in the aggregate,
create a Material Adverse Effect.
SECTION 5.05. Personal Property. Except for Permitted
Exceptions, Seller has good and marketable title, free and clear of all
Encumbrances, to all personal property included in the Auctioned Assets.
SECTION 5.06. Real Estate. The Conveyance Plans contain
descriptions of the Buyer Real Estate. Copies of the most recent real
property surveys and title insurance information in the possession of
Seller with respect to the Buyer Real Estate or any portion thereof have
heretofore been delivered by Seller to Buyer or made available for
inspection by Buyer, receipt of which is hereby acknowledged by Buyer.
SECTION 5.07. Leases. As of the date of this Agreement, Seller
is neither a tenant nor a licensee under any real property leases which
(a) are to be transferred and assigned to Buyer on the Closing Date and
(b) (i) provide for annual payments of more than $100,000 or (ii) are
material to the Auctioned Assets.
SECTION 5.08. Certain Contracts and Arrangements. (a) Except
for (i) any contract or agreement listed on Schedule 2.02(a)(iv) or
Schedule 5.08(a) and (ii) Contracts which will expire prior to the Closing
Date or that are permitted to be entered into under this Agreement, Seller
is not a party to any contract which is material to the business or
operations of the Auctioned Assets.
(b) Each Contract (i) constitutes a valid and binding
obligation of Seller, and, to the knowledge of Seller, constitutes a valid
and binding obligation of the other parties thereto, (ii) to the knowledge
of Seller, is in full force and effect and (iii) other than Contracts
covered by Section 2.04, to the knowledge of Seller, may be transferred to
Buyer pursuant to this Agreement and will continue in full force and
effect thereafter, in each case, without breaching the terms thereof or
resulting in the forfeiture or impairment of any rights thereunder, except
for such breaches, forfeitures or impairments which would not,
individually or in the aggregate, create a Material Adverse Effect.
(c) There is not, under any of the Contracts, any default or
event which, with notice or lapse of time or both, would constitute a
default by Seller, except for such events of default and other events as
to which requisite waivers or consents have been obtained or which would
not, individually or in the aggregate, create a Material Adverse Effect.
SECTION 5.09. Legal Proceedings. Except as set forth in the
Filed Seller SEC Documents, as of the date of this Agreement, there are no
claims, actions, proceedings or investigations pending or, to the
knowledge of Seller, threatened against or relating to Seller which would,
individually or in the aggregate, be reasonably expected to create a
Material Adverse Effect. With respect to the business or operations of the
Auctioned Assets, Seller is not, as of the date of this Agreement, subject
to any outstanding judgment, rule, order, writ, injunction or decree of
any court, governmental or regulatory authority which would create a
Material Adverse Effect. The representations and warranties of Seller set
forth in this Section 5.09 shall not apply to, and do not cover, any
environmental matters which, with respect to any representations and
warranties of Seller, are exclusively governed by Section 5.11.
SECTION 5.10. Permits; Compliance with Law. (a) Except as set
forth on Schedule 5.10(a)(i), Seller holds, and is in compliance with, all
Permits necessary to conduct the business and operations of the Auctioned
Assets as currently conducted, and, to the knowledge of Seller, Seller is
otherwise in compliance with all laws, statutes, orders, rules,
regulations, ordinances or judgments of any Governmental Authority
applicable to the business and operations of the Auctioned Assets, except
for such failures to hold or comply with such Permits, or such failures to
be in compliance with such laws, statutes, orders, rules, regulations,
ordinances or judgments, which would not, individually or in the
aggregate, create a Material Adverse Effect. Except as set forth on
Schedule 5.10(a)(ii), Seller has not received any written notification
that it is in violation of any of such Permits or laws, statutes, orders,
rules, regulations, ordinances or judgments, except for notifications of
violations which would not, individually or in the aggregate, create a
Material Adverse Effect. The representations and warranties of Seller set
forth in this Section 5.10 shall not apply to, and do not cover, any
environmental matters which, with respect to any representations and
warranties of Seller, are exclusively governed by Section 5.11.
(b) Notwithstanding the last sentence of Section 5.10(a),
except as set forth on Schedule 5.10(b), there are no material Permits or
material Environmental Permits that, in each case, are not Transferable
Permits and are required for Buyer to conduct the business and operations
of the Auctioned Assets as currently conducted.
SECTION 5.11. Environmental Matters. (a) Except as set forth
in Schedule 5.11 or disclosed in the Filed Seller SEC Documents, Seller
holds, and is in compliance with, the Environmental Permits required for
Seller to conduct the business and operations of the Auctioned Assets as
currently conducted under applicable Environmental Laws, and, to the
knowledge of Seller, Seller is otherwise in compliance with applicable
Environmental Laws with respect to the business and operations of the
Auctioned Assets, except for such failures to hold or comply with such
Environmental Permits, or such failures to be in compliance with such
Environmental Laws, which would not, individually or in the aggregate,
create a Material Adverse Effect.
(b) Except as set forth in Schedule 5.11 or disclosed in the
Filed Seller SEC Documents, Seller has not received any written notice of
violation of any Environmental Law or any written request for information
with respect thereto, or been notified that it is a potentially
responsible party under the Federal Comprehensive Environmental Response,
Compensation, and Liability Act or any similar state law with respect to
any real property included in the Buyer Real Estate or in any lease
forming part of the Auctioned Assets, except for such matters under such
laws as would not, individually or in the aggregate, create a Material
Adverse Effect.
(c) Except as set forth in Schedule 5.11 or disclosed in the
Filed Seller SEC Documents, with respect to the business and operations of
the Auctioned Assets, Seller is not subject to any outstanding judgment,
decree or judicial order relating to compliance with any Environmental Law
or to investigation or cleanup of Hazardous Substances under any
applicable Environmental Law, except for (i) the Seller Consent Orders and
(ii) such judgments, decrees or judicial orders that would not,
individually or in the aggregate, create a Material Adverse Effect.
(d) Except as set forth in Schedule 5.11 or disclosed in the
Filed Seller SEC Documents, as of the date of this Agreement, there are no
claims, actions, proceedings or investigations pending, or to the
knowledge of Seller, threatened against or relating to Seller, with
respect to the exposure at the Auctioned Assets of any person to Hazardous
Substances, which, if adversely determined, would, individually or in the
aggregate, create a Material Adverse Effect.
SECTION 5.12. Labor Matters. Seller has previously made
available to Buyer copies of all collective bargaining agreements to which
Seller is a party or is subject and which relate to the business or
operations of the Auctioned Assets. With respect to the business and
operations of the Auctioned Assets, as of the date of this Agreement, (a)
Seller is in compliance with all applicable laws regarding employment and
employment practices, terms and conditions of employment and wages and
hours, (b) Seller has not received written notice of any unfair labor
practice complaint against Seller pending before the National Labor
Relations Board, (c) there is no labor strike, slowdown or stoppage
actually pending or, to the knowledge of Seller, threatened against or
affecting Seller, (d) Seller has not received notice that any
representation petition respecting the employees of Seller has been filed
with the National Labor Relations Board, (e) no arbitration proceeding
arising out of or under collective bargaining agreements is pending
against Seller and (f) Seller has not experienced any primary work
stoppage since at least December 31, 1996, except, in the case of each of
the foregoing clauses (a) through (f), for such matters as would not,
individually or in the aggregate, create a Material Adverse Effect.
SECTION 5.13. ERISA; Benefit Plans. Schedule 5.13 sets forth a
list of all material deferred compensation, profit-sharing, retirement and
pension plans and all material bonus and other material employee benefit
or fringe benefit plans maintained, or with respect to which contributions
have been made, by Seller with respect to current or former employees
employed in connection with the power generation operations of the
Generating Plants and the Gas Turbines (collectively, "Benefit Plans").
Seller and each trade or business (whether or not incorporated) which are
or have ever been under common control, or which are or have ever been
treated as a single employer, with Seller under Section 414(b), (c), (m)
or (o) of the Code (an "ERISA Affiliate") have fulfilled their respective
obligations under the minimum funding requirements of Section 302 of
ERISA, and Section 412 of the Code, with respect to each Benefit Plan
which is an "employee pension benefit plan" as defined in Section 3(2) of
ERISA and each such plan is in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, except for such
failures to fulfill such obligations or comply with such provisions which
would not, individually or in the aggregate, create a Material Adverse
Effect. Neither Seller nor any ERISA Affiliate has incurred any liability
under Section 4062(b) of ERISA, or any withdrawal liability under Section
4201 of ERISA, to the Pension Benefit Guaranty Corporation in connection
with any Benefit Plan which is subject to Title IV of ERISA which
liability remains outstanding, and there has not been any reportable event
(as defined in Section 4043 of ERISA) with respect to any such Benefit
Plan (other than a reportable event with respect to which the 30-day
notice requirement has been waived by the PBGC). Neither Seller nor any
ERISA Affiliate or parent corporation, within the meaning of Section
4069(b) or Section 4212(c) of ERISA, has engaged in any transaction,
within the meaning of Section 4069(b) or Section 4212(c) of ERISA. No
Benefit Plan and no "employee pension benefit plan" (as defined in Section
3(2) of ERISA) maintained by Seller or any ERISA Affiliate or to which
Seller or any ERISA Affiliate has contributed is a multiemployer plan.
SECTION 5.14. Taxes. With respect to the Auctioned Assets and
trades or businesses associated with the Auctioned Assets, (a) all Tax
Returns required to be filed have been filed and (b) all Taxes shown to be
due on such Tax Returns, and all Taxes otherwise owed, have been paid in
full, except to the extent that any failure to file or any failure to pay
any Taxes would not, individually or in the aggregate, create a Material
Adverse Effect. No written notice of deficiency or assessment has been
received from any taxing authority with respect to liabilities for Taxes
of Seller in respect of the Auctioned Assets which has not been fully paid
or finally settled or which is not being contested in good faith through
appropriate proceedings, except for any such notices regarding Taxes which
would not, individually or in the aggregate, create a Material Adverse
Effect. There are no outstanding agreements or waivers extending the
applicable statutory periods of limitation for Taxes associated with the
Auctioned Assets for any period, except for any such agreements or waivers
which would not, individually or in the aggregate, create a Material
Adverse Effect.
SECTION 5.15. Independent Engineering Assessments. (a) Seller
has reviewed the 1998 assessments prepared by Stone & Webster with respect
to the Generating Plants and the Gas Turbines (the "Independent
Engineering Assessments"), and, except as set forth on Schedule 5.15(a),
to the knowledge of Seller, as of the date of the Independent Engineering
Assessments, there was no untrue statement of a material fact or omission
of any material fact therein that would reasonably suggest that the
condition of the Generating Plants and the Gas Turbines, taken as a whole,
as of such date was materially and adversely different from that described
in such Independent Engineering Assessments.
(b) Except as set forth on Schedule 5.15(b), since the date of
the Independent Engineering Assessments, there has not been, subject to
ordinary wear and tear and to routine maintenance, any casualty, physical
damage, destruction or physical loss with respect to, or, to the knowledge
of Seller, any adverse change in the physical condition of, any Generating
Plant or Gas Turbine, except for such casualty, physical damage,
destruction, physical loss or adverse change which would not, individually
or in the aggregate, create a Material Adverse Effect.
SECTION 5.16. Undisclosed Liabilities. With respect to the
Auctioned Assets, there are no liabilities or obligations of any nature or
kind (absolute, accrued, contingent or otherwise) that would have been
required to be set forth on a balance sheet in respect of the Auctioned
Assets or in the notes thereto prepared in accordance with GAAP, as
applied by Seller in connection with its December 31, 1997 balance sheet,
except for any such liabilities or obligations which (a) are disclosed in
or contemplated or permitted by this Agreement or the Ancillary Agreements
(including the Assumed Obligations), (b) are disclosed in the Offering
Memorandum, (c) are disclosed in the Filed Seller SEC Documents, (d) have
been incurred in the ordinary course of business, (e) are disclosed on
Schedule 5.16 or (f) which would not, individually or in the aggregate,
create a Material Adverse Effect.
SECTION 5.17. Brokers. No broker, finder or other person is
entitled to any brokerage fees, commissions or finder's fees in connection
with the transaction contemplated hereby by reason of any action taken by
Seller, except Morgan Stanley & Co. Incorporated, which is acting for and
at the expense of Seller.
SECTION 5.18. Insurance. Seller carries policies of insurance
covering fire, workers' compensation, property all-risk, comprehensive
bodily injury, property damage liability, automobile liability, product
liability, completed operations, explosion, collapse, contractual
liability, personal injury liability and other forms of insurance relating
to the Auctioned Assets, or otherwise self-insures in accordance with all
statutory and regulatory criteria against any such liabilities, which
insurance is in such amounts, has such deductibles and retentions and is
underwritten by such companies as would be obtained by a reasonably
prudent electric power business.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET
FORTH IN THIS ARTICLE V, THE AUCTIONED ASSETS ARE BEING SOLD AND
TRANSFERRED "AS IS, WHERE IS", AND SELLER IS NOT MAKING ANY OTHER
REPRESENTATIONS OR WARRANTIES WRITTEN OR ORAL, STATUTORY, EXPRESS OR
IMPLIED, CONCERNING SUCH AUCTIONED ASSETS OR WITH RESPECT TO THIS
AGREEMENT OR THE ANCILLARY AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, INCLUDING, IN PARTICULAR WITH RESPECT TO THE AUCTIONED
ASSETS, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED BY
SELLER AND WAIVED BY BUYER. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE
INFORMATION SET FORTH IN, OR CONTEMPLATED BY, THE OFFERING MEMORANDUM
(EXCEPT TO THE EXTENT EXPRESSLY INCORPORATED BY REFERENCE INTO THIS
AGREEMENT).
ARTICLE VI
Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows:
SECTION 6.01. Organization. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as is
now being conducted.
SECTION 6.02. Authority Relative to This Agreement. Buyer has
all necessary corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is party and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery by Buyer of this Agreement and such Ancillary Agreements and
the consummation by Buyer of the transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of
Buyer and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement or such Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby. This
Agreement and such Ancillary Agreements have been duly and validly
executed and delivered by Buyer and, assuming that this Agreement and the
Ancillary Agreements constitute valid and binding agreements of Seller and
each other party thereto, subject to the receipt of the Buyer Required
Regulatory Approvals and the Seller Required Regulatory Approvals, this
Agreement and the Ancillary Agreements constitute valid and binding
agreements of Buyer, enforceable against Buyer in accordance with their
respective terms.
SECTION 6.03. Consents and Approvals; No Violation. (a)
Subject to obtaining the Buyer Required Regulatory Approvals and the
Seller Required Regulatory Approvals, neither the execution and delivery
of this Agreement or the Ancillary Agreements to which it is party by
Buyer nor the purchase by Buyer of the Auctioned Assets pursuant to this
Agreement will (i) conflict with or result in any breach of any provision
of the Certificate of Incorporation or By-laws (or other similar governing
documents) of Buyer, (ii) result in a default (or give rise to any right
of termination, cancelation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Buyer or any
of its subsidiaries is a party or by which any of their respective assets
may be bound or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer, or any of its assets,
except in the case of clauses (ii) and (iii) for such failures to obtain a
necessary consent, defaults and violations which would not, individually
or in the aggregate, have a material adverse effect on the ability of
Buyer to consummate the transactions contemplated by, and discharge its
obligations under, this Agreement and the Ancillary Agreements (a "Buyer
Material Adverse Effect").
(b) Except for (i) approval of the PSC pursuant to ss. 70 of
the Public Service Law of the State of New York, of the transfer to Buyer
of the Auctioned Assets, (ii) the filings by Buyer and Seller required by
the HSR Act and the expiration or earlier termination of all waiting
periods under the HSR Act, (iii) application by Buyer to, and the
approval
of, FERC under (A) Section 203 of the Federal Power Act with respect to
the transfer of Auctioned Assets constituting jurisdictional assets under
the Federal Power Act and (B) Section 205 of the Federal Power Act with
respect to (1) the Continuing Site Agreement (to the extent necessary) and
any wholesale power sales agreement to be entered into by Seller and
Buyer, including the Transition Capacity Agreement, and (2) authorization
to sell capacity and energy from Generating Plants and Gas Turbines at
market-based rates (provided, however, that Buyer acknowledges that
"market-based rates" for the purpose of this Agreement means rates that
are subject to any bid cap, price limitation or other market power
mitigation measure imposed by FERC or PSC in respect of the New York State
or New York City wholesale and retail energy and capacity electric power
markets or any other restriction imposed by FERC or PSC with respect to
the power generation operations and assets of Buyer, including the FERC
Order Accepting Market Power Mitigation Measures dated September 22, 1998,
as modified (Docket No. ER98-3169-000) (the "Mitigation Measures")), (iv)
qualification of Buyer, with respect to the Auctioned Assets, as an exempt
wholesale generator under the Energy Policy Act of 1992 and (v) the
issuance of approval by the New York City Department of Buildings and, to
the extent required, the New York City Department of Business Services of
the tax lot subdivision contemplated by this Agreement in a form suitable
for submission to the New York City Department of Finance for the issuance
of tax lot numbers (collectively, the "Buyer Required Regulatory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of any Governmental Authority is
necessary for the consummation by Buyer of the transactions contemplated
hereby or by the Ancillary Agreements, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals (A)
which, if not obtained or made would not, individually or in the
aggregate, have a Buyer Material Adverse Effect or (B) which relate to the
Transferable Permits.
(c) To the knowledge of Buyer, there is no reason that it
should fail to obtain the Buyer Required Regulatory Approvals.
SECTION 6.04. Availability of Funds. Buyer has sufficient
funds available to it or has received binding written commitments (copies
of which have heretofore been delivered to Seller) from one or more
nationally recognized financial institutions to provide sufficient funds
on the Closing Date to pay the Purchase Price and Estimated Adjustment
Amount.
SECTION 6.05. Brokers. No broker, finder or other person is
entitled to any brokerage fees, commissions or finder's fees in connection
with the transaction contemplated hereby by reason of any action taken by
Buyer, except Merrill Lynch & Co., Inc., which is acting for and at the
expense of Buyer.
ARTICLE VII
Covenants of the Parties
SECTION 7.01. Conduct of Business Relating to the Auctioned
Assets. (a) Except with the prior written consent of Buyer (such consent
not to be unreasonably withheld) or as required to effect the purchase and
sale of the Auctioned Assets and related transactions contemplated by this
Agreement, during the period from the date of this Agreement to the
Closing Date, Seller will operate the Auctioned Assets in the usual,
regular and ordinary course and in accordance with good industry practice
and applicable legal requirements, and continue to pay accounts payable
which relate to the Auctioned Assets in a timely manner, consistent with
past practice.
(b) Notwithstanding the foregoing, except as contemplated in
this Agreement or the Ancillary Agreements, prior to the Closing Date,
without the prior written consent of Buyer (such consent not to be
unreasonably withheld), Seller will not:
(i) except for Permitted Exceptions, grant any Encumbrance on
the Auctioned Assets securing any indebtedness for borrowed money or
guarantee or other liability for the obligations of any person;
(ii) make any material change in the levels of fuel inventory
and supplies, materials and spare parts inventory customarily
maintained by Seller with respect to the Auctioned Assets, other
than consistent with past practice (including the use of spare parts
in connection with certain power generation assets of Seller
described in the Offering Memorandum other than the Generating
Plants or Gas Turbines);
(iii) sell, lease (as lessor), transfer or otherwise dispose
of, any of the Auctioned Assets, other than assets that become
obsolete or assets used, consumed or replaced in the ordinary course
of business consistent with past practice (including the use of
spare parts in connection with certain power generation assets of
Seller described in the Offering Memorandum other than the
Generating Plants or Gas Turbines);
(iv) terminate, materially extend or otherwise materially
amend any of the Contracts (other than in accordance with their
respective terms) or waive any default by, or release, settle or
compromise any material claim against, any other party thereto;
(v) amend any of the Transferable Permits, other than (A)
Transferable Permits not material to the operations of the Auctioned
Assets as currently conducted, (B) as reasonably necessary to
complete the transfer of Permits as contemplated hereby, (C) routine
renewals or non-material modifications or amendments and (D)
modifications, alterations and amendments contemplated by Section
7.03(b);
(vi) enter into any Contract for the purchase, sale or storage
of fuel with respect to the Auctioned Assets (whether commodity or
transportation) with a term in excess of 12 months, if the aggregate
future liability or receivable outstanding on the date for
measurement for the purpose of this covenant for all such Contracts
would be in excess of $2 million, not including any such Contract
terminable by notice of not more than 30 days without penalty or
cost (other than de minimis administrative costs); provided,
however, that Seller may enter into Contracts for the storage of
fuel with respect to the Auctioned Assets with a term ending not
later than December 31, 2000 and otherwise on terms consistent with
Seller's past practice;
(vii) (A) establish, adopt, enter into or amend any Collective
Bargaining Agreement or Benefits Plans, except (1) if such action
would not create a Material Adverse Effect or (2) as required under
applicable law or under the terms of any Collective Bargaining
Agreement or (B) grant to any Affected Employee any increase in
compensation, except (1) in the ordinary course of business
consistent with past practice or (2) to the extent required by the
terms of any Collective Bargaining Agreement, employment agreement
in effect as of the date of this Agreement or applicable law;
(viii) enter into any Contract with respect to the Auctioned
Assets for goods or services not addressed in clauses (i) through
(vii) with a term in excess of 12 months, if the aggregate future
liability or receivable outstanding on the date for measurement for
the purpose of this covenant for all such Contracts would be in
excess of $2 million, not including any such Contract terminable by
notice of not more than 30 days without penalty or cost (other than
de minimis administrative costs); provided, however, that
notwithstanding any other provision of this Agreement to the
contrary, Seller may (A) enter into any Contract reasonably
necessary to effect the physical, legal or operational separation of
the sites on which the Auctioned Assets are located or to otherwise
implement the change of ownership contemplated hereby, or
subdivision, of such sites or implement the provisions of the
Ancillary Agreements and (B) enter into and record the Declarations
of Subdivision Easements; or
(ix) enter into any Contract with respect to the Auctioned
Assets relating to any of the transactions set forth in the
foregoing clauses (i) through (viii).
(c) Without limiting the generality of Sections 7.01(a) and
(b), to the extent Section 7.01(a) or (b) prohibits Seller from entering
into any Contract for goods and services in connection with maintenance or
capital expenditures, Buyer agrees that Seller may request Buyer's consent
to enter into such Contract, such consent not to be unreasonably withheld,
and to the extent Buyer so consents, all liabilities and obligations under
such Contract shall constitute Assumed Obligations and Buyer shall
otherwise reimburse Seller for all its expenditures thereunder.
(d) Notwithstanding anything in this Section 7.01 to the
contrary, Seller may take any action, incur any expense or enter into any
obligation with respect to the Auctioned Assets to the extent that (i) all
obligations and liabilities arising with respect thereto do not constitute
Assumed Obligations or (ii) Seller otherwise provides that such
obligations and liabilities shall not be assumed or retained by Buyer.
SECTION 7.02. Access to Information. (a) Between the date of
this Agreement and the Closing Date, Seller will, subject to the
Confidentiality Agreement, during ordinary business hours and upon
reasonable notice (i) give Buyer and its representatives reasonable
access
(A) to all books, records, plants, offices and other facilities and
properties constituting the Auctioned Assets, including for the purpose of
observing the operation by Seller of the Auctioned Assets and (B) to the
Auctioned Assets that are not located at the Generating Plants or Gas
Turbines and to applicable employees of the Seller, in each case for the
purpose of preparing to store spare parts after the Closing, (ii) permit
Buyer to make such reasonable inspections thereof as Buyer may reasonably
request, (iii) furnish Buyer with such financial and operating data and
other information with respect to the Auctioned Assets as Buyer may from
time to time reasonably request, (iv) furnish Buyer upon request a copy of
each material report, schedule or other document with respect to the
Auctioned Assets filed by Seller with, or received by Seller from, the PSC
or FERC; provided, however, that (A) any such activities shall be
conducted in such a manner as not to interfere unreasonably with the
operation of the Auctioned Assets, (B) Seller shall not be required to
take any action which would constitute a waiver of the attorney-client
privilege and (C) Seller need not supply Buyer with (1) any information or
access which Seller is under a legal obligation not to supply or (2) any
information which Seller has previously supplied to Buyer. Notwithstanding
anything in this Section 7.02 to the contrary, (I) Seller will not be
required to provide such information or access to any employee records
other than Transferring Employee Records, (II) Buyer shall not have the
right to perform or conduct any environmental sampling or testing at, in,
on, around or underneath the Auctioned Assets and (III) Seller shall not
be required to provide such access or information with respect to any
Retained Asset or Retained Liabilities.
(b) Unless otherwise agreed to in writing by Buyer, Seller
shall, for a period commencing on the Closing Date and terminating three
years after the Closing Date, keep confidential and shall cause its
representatives to keep confidential all Confidential Information (as
defined in the Confidentiality Agreement) on the terms set forth in the
Confidentiality Agreement. Except as contemplated by the following
sentence, Seller shall not release any person from any confidentiality
agreement now existing with respect solely to the Auctioned Assets or
waive or amend any provision thereof. After the Closing Date, upon
reasonable request of Buyer, Seller shall, to the maximum extent permitted
by law and the applicable Bidder Confidentiality Agreement (as defined
below), appoint Buyer to be Seller's representative and agent in respect
of confidential information relating to the Auctioned Assets under the
confidentiality agreements ("Bidder Confidentiality Agreements") between
Seller and prospective purchasers of certain generation assets of Seller
of which the Auctioned Assets form part.
(c) From and after the Closing Date, Buyer shall retain all
Operating Records (whether in electronic form or otherwise) relating to
the Auctioned Assets on or prior to the Closing Date. Buyer also agrees
that, from and after the Closing Date, Seller shall have the right, upon
reasonable request to Buyer, to receive from Buyer copies of any Operating
Records or other information in Buyer's possession relating to the
Auctioned Assets on or prior to the Closing Date and required by Seller in
order to comply with applicable law. Seller shall reimburse Buyer for its
reasonable costs and expenses incurred in connection with the foregoing
sentence.
SECTION 7.03. Consents and Approvals; Transferable Permits.
(a) Seller and Buyer shall cooperate with each other and (i) prepare and
file (or otherwise effect) as soon as practicable all applications,
notices, petitions and filings with respect to and (ii) use their
reasonable best efforts (including (x) negotiating in good faith
modifications and amendments to this Agreement and the Ancillary
Agreements and (y) Buyer agreeing, and causing its Affiliates to agree, to
propose and implement procedures for processing requests for gas
transportation in an expeditious manner (including procedures for
evaluating requests to connect with local gas delivery facilities in New
York City and for dispute resolution relating thereto) and such other
market power mitigation measures as may be appropriate) to obtain (A) the
Seller Required Regulatory Approvals and the Buyer Required Regulatory
Approvals and (B) any other consents, approvals or authorizations of any
other Governmental Authorities or third parties that are necessary to
consummate the transactions contemplated by this Agreement or the
Ancillary Agreements. Without limiting the generality of the foregoing,
(1) each Party agrees to, upon the other Party's request, support such
other Party's applications for regulatory approvals of the purchase and
sale of the Auctioned Assets contemplated by this Agreement, (2) Buyer
agrees not to seek any relief from, or modifications or amendments in
respect of, any bid cap, price limitation or other market power mitigation
measure or other restriction with respect to any power generation
operations and assets described in or contemplated by Section
6.03(b)(iii)(B)(2) until after the Closing Date and (3) Buyer and Seller
agree to defend any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the Ancillary Agreements,
or the consummation of the transactions contemplated hereby or thereby,
including seeking to have any stay or temporary restraining order entered
by any Governmental Authority vacated or reversed.
(b) Upon execution of this Agreement, Seller shall commence
the process of transferring to Buyer the Transferable Permits, including
completing and filing applications and related documents with the
appropriate Governmental Authorities. Seller hereby reserves the right to
modify, alter or amend any Transferable Permit or to refuse to correct
violations or deficiencies in respect of any Transferable Permit as long
as such modification, alteration, amendment or refusal would not,
individually or in the aggregate, create a Material Adverse Effect. Seller
shall use its reasonable best efforts to give notice to Buyer of any
modification, alteration or amendment to any Transferable Permit.
(c) Seller shall use its reasonable best efforts to cooperate
with Buyer in the transfer of Transferable Permits to Buyer by Closing. If
the transfer of any Transferable Permit cannot be completed by Closing,
Buyer is hereby authorized, but not required, to act as Seller's
representative and agent in respect of such Transferable Permit and to do
all things necessary for effecting transfer of such Transferable Permit as
soon after the Closing as is practicable, with Seller remaining the
Transferable Permit "holder of record" in such case until such transfer is
completed. In the case of each such Transferable Permit, Seller shall, to
the maximum extent permitted by law and such Transferable Permit, enter
into such reasonable arrangements with Buyer as are necessary to provide
Buyer with the benefits and obligations of such Transferable Permit. If
Buyer is able to complete the transfer of any Transferable Permit after
Closing without the occurrence of any event that, if such event had
occurred between the execution of this Agreement and the Closing, would
have created, individually or in the aggregate, a Material Adverse Effect,
Seller may substitute Buyer in its place and stead as the Party
responsible for completing the transfer of such Transferable Permit.
SECTION 7.04. Further Assurances. (a) Subject to the terms and
conditions of this Agreement, each of the Parties will use its reasonable
best efforts to take, or cause to be taken, as soon as possible, all
action, and to do, or cause to be done, as soon as possible, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the sale of the Auctioned Assets pursuant to this Agreement as
soon as possible, including using its reasonable best efforts to ensure
satisfaction of the conditions precedent to each Party's obligations
hereunder. Prior to Buyer's submission of any application with a
Governmental Authority for a regulatory approval, Buyer shall submit such
application to Seller for review and comment and Buyer shall incorporate
into such application any revisions reasonably requested by Seller.
Neither of the Parties will, without prior written consent of the other
Party, take or fail to take, or permit their respective Affiliates to take
or fail to take, any action, which would reasonably be expected to prevent
or materially impede, interfere with or delay the consummation, as soon as
possible, of the transactions contemplated by this Agreement or the
Ancillary Agreements. Without limiting the generality of the foregoing,
each of the Parties shall use its reasonable best efforts to negotiate in
good faith as soon as possible after the date of this Agreement, and enter
into (i) the "A" House Ground Lease and Easement, the "A" House Operation
and Maintenance Agreement and the Fuel Supply Agreement, the terms of
which shall be substantially as set forth in Exhibits F, I and H,
respectively and (ii) any other agreement reasonably necessary to
consummate the sale of the Auctioned Assets pursuant to this Agreement as
soon as possible.
(b) From time to time after the date hereof, without further
consideration and at its own expense, (i) Seller will execute and deliver
such instruments of assignment or conveyance as Buyer may reasonably
request to more effectively vest in Buyer Seller's title to the Auctioned
Assets (subject to Permitted Exceptions and the other terms of this
Agreement) and (ii) Buyer will execute and deliver such instruments of
assumption as Seller may reasonably request in order to more effectively
consummate the sale of the Auctioned Assets and the assumption of the
Assumed Obligations pursuant to this Agreement.
(c) Seller shall not sponsor or support any recommendation or
application to effect prior to April 1, 2002 (i) a reduction in the
locational generation capacity requirement that 80% of New York City peak
electric loads must be met with in-City generation capacity, as in effect
as of the date of this Agreement, unless such reduction is justified by a
significant change in the transmission import capability into New York
City whether as a result of actions by Seller or others, (ii) a reduction
in the $105/kW-year bid and price cap in respect of capacity under the
Mitigation Measures, as in effect as of the date of this Agreement or
(iii) a change in the method of determining required system capability set
forth in NYPP Billing Procedure 4-11 (Installed Reserve Requirements), as
in effect as of the date of this Agreement that would reduce the
installed
reserve requirements for the winter capability period applicable to summer
peaking systems if such reduction would also reduce the annual price for
installed capacity that Buyer could otherwise obtain.
(d) Seller shall join or support Buyer's application to the
PSC for the certification required under Section 32(c) of the Public
Utility Holding Company Act of 1935 in order for Buyer to obtain
qualification, with respect to the Auctioned Assets, as an exempt
wholesale generator under the Energy Policy Act of 1992.
(e) Seller and Buyer shall cooperate in good faith to
establish a transition committee to consider operational and business
issues related to the purchase and sale of the Auctioned Assets.
(f) Prior to the Closing Date, Seller shall cooperate in good
faith with Buyer to enable Buyer to obtain insurance in respect of the
Auctioned Assets comparable to that maintained by Seller as of the date of
this Agreement.
(g) Seller and Buyer shall cooperate in good faith to enable
Buyer to obtain fuel storage capacity with respect to the Auctioned
Assets.
SECTION 7.05. Public Statements. The Parties shall consult
with each other prior to issuing any public announcement, statement or
other disclosure with respect to this Agreement, the Ancillary Agreements
or the transactions contemplated hereby or thereby, including any
statement appearing in any filing contemplated hereby or thereby, and
shall not issue any such public announcement, statement or other
disclosure prior to such consultation, except as may be required by law.
SECTION 7.06. Tax Matters. (a) All transfer and sales taxes
(including any petroleum business taxes and similar excise taxes on sales
of petroleum based products) incurred in connection with this Agreement
and the transactions contemplated hereby shall be borne by Buyer. Buyer
shall prepare and file in a timely manner any and all Tax Returns or other
documentation relating to such taxes; provided, however, that, to the
extent required by applicable law, Seller will join in the execution of
any such Tax Returns or other documentation relating to any such taxes.
Buyer shall provide to Seller copies of each Tax Return described in the
proviso in the preceding sentence at least 30 days prior to the date such
Tax Return is required to be filed.
(b) At Seller's election, but on no less than 10 Business
Days' notice to Buyer, the transfer of the Auctioned Assets and the
receipt of the Purchase Price shall be made through a qualified
intermediary in a manner satisfying the requirements of Treasury
Regulation Section 1.1031(k)-1(g), so long as such election by Seller does
not create a Material Adverse Effect and Seller indemnifies Buyer for its
additional costs and expenses incurred by reason of such election.
(c) Each Party shall provide the other Party with such
assistance as may reasonably be requested by the other Party in connection
with the preparation of any Tax Return, any audit or other examination by
any taxing authority, or any judicial or administrative proceedings
relating to liability for Taxes, and each Party shall retain and provide
the other Party with any records or information which may be relevant to
such return, audit, examination or proceedings. Any information obtained
pursuant to this Section 7.06(c) or pursuant to any other Section hereof
providing for the sharing of information or review of any Tax Return or
other instrument relating to Taxes shall be kept confidential by the
parties hereto.
(d) If either Buyer or Seller receives a refund of Taxes in
respect of the Auctioned Assets for a taxable period including the Closing
Date, Buyer shall pay to Seller the portion of any such refund
attributable to the portion of such taxable period prior to the Closing
Date, and Seller shall pay to Buyer the portion of any such refund
attributable to the portion of such taxable period on and after the
Closing Date.
SECTION 7.07. Bulk Sales or Transfer Laws. Buyer acknowledges
that Seller will not comply with the provisions of any bulk sales or
transfer laws of any jurisdiction in connection with the transactions
contemplated by this Agreement. Buyer hereby waives compliance by Seller
with the provisions of the bulk sales or transfer laws of all applicable
jurisdictions.
SECTION 7.08. Storage. Seller shall store for Buyer the
Auctioned Assets described in the second sentence of Section 2.01 until
the date that is six months after the Closing Date or, in respect of all
or a portion of such Auctioned Assets, until one or more earlier dates
proposed by Buyer with reasonable advance notice, which schedule shall be
reasonably acceptable to Seller. Buyer agrees to reimburse Seller for its
reasonable costs and expenses in connection with such storage. Buyer
agrees that Seller shall have no responsibility or liability for the
actual removal of such Auctioned Assets from the actual storage location,
and that Buyer shall have sole responsibility therefor. Notwithstanding
the provisions of Section 10.01, Buyer agrees that Seller shall have no
liability for loss or damage with respect to the matters contemplated by
this Section 7.08 or such Auctioned Assets, and Buyer agrees to hold each
Seller Indemnitee harmless from and against all loss or damage or
Indemnifiable Losses, and to indemnify each Seller Indemnitee from and
against all loss or damage or Indemnifiable Losses incurred, asserted
against or suffered as a result of any storage or other services provided
by Seller pursuant to this Section 7.08, in each case, except to the
extent any such loss or damage or Indemnifiable Loss results in whole or
in part from the gross negligence or wilful or wanton acts or omissions to
act of any Seller Indemnitee (or any contractor or subcontractor of
Seller).
SECTION 7.09. Information Resources. From the Closing Date
until the date that is three months thereafter, Seller shall provide Buyer
with access to Seller's mainframe computer only to the extent reasonably
necessary to enable Buyer to use the PPMIS and MMS (in read only mode)
systems and applications solely in connection with the Auctioned Assets.
Buyer agrees that it will not use any such access for any purpose other
than for the use of the PPMIS and MMS systems and applications solely in
connection with the Auctioned Assets. Buyer acknowledges that, as long as
it retains access to Seller's mainframe computer, Seller, its employees
and third parties may have access to Buyer's information resources
systems
and applications (including the PPMIS and MMS systems and applications
served by Seller's mainframe computer). Notwithstanding the provisions of
Section 10.01, Buyer agrees that Seller shall have no liability or
obligation whatsoever with respect to the matters contemplated by this
Section 7.09, and Buyer agrees to hold each Seller Indemnitee harmless
from and against all loss or damage or Indemnifiable Losses, and to
indemnify each Seller Indemnitee from and against all loss or damage or
Indemnifiable Losses incurred, asserted against or suffered as a result of
Buyer's access to Seller's mainframe computer pursuant to this Section
7.09, in each case, except to the extent any such loss or damage or
Indemnifiable Loss results in whole or in part from the gross negligence
or wilful or wanton acts or omissions to act of any Seller Indemnitee (or
any contractor or subcontractor of Seller).
SECTION 7.10. Witness Services. At all times from and after
the Closing Date, each Party shall use reasonable best efforts to make
available to the other Party, upon reasonable written request, its and its
subsidiaries' then current or former officers, directors, employees
(including former employees of Seller) and agents as witnesses to the
extent that (i) such persons may reasonably be required by such requesting
Party in connection with any claim, action, proceeding or investigation in
which such requesting Party may be involved and (ii) there is no conflict
between Buyer and Seller in such claim, action, proceeding or
investigation. Such other Party shall be entitled to receive from such
requesting Party, upon the presentation of invoices for such witness
services, payments for such amounts, relating to supplies, disbursements
and other out-of-pocket expenses and direct and indirect costs of
employees who are witnesses, as may be reasonably incurred in providing
such witness services.
SECTION 7.11. Consent Orders. Buyer and Seller agree to
cooperate with each other and NYSDEC to facilitate the entry of a consent
order between NYSDEC and Buyer, wherein Buyer will agree to assume and
perform the Assumed Consent Order Obligations.
SECTION 7.12. Nitrogen Oxide Allowances. Seller agrees to
negotiate in good faith with NYSDEC for nitrogen oxide allowances to be
allocated to the Auctioned Assets for any period subsequent to the year
2002.
SECTION 7.13. Trade Names. Seller shall not object to the use
by Buyer of any trade names, trademarks, service marks or logos (and any
rights to and in the same, including any right to use the same) primarily
relating to the Generating Facilities that contain the word "Ravenswood".
ARTICLE VIII
Conditions
SECTION 8.01. Conditions Precedent to Each Party's Obligation
To Effect the Purchase and Sale. The respective obligations of each Party
to effect the purchase and sale of the Auctioned Assets shall be subject
to the satisfaction or waiver by such Party on or prior to the Closing
Date of the following conditions, unless, in the case of Section 8.01(c)
below, the PSC determines that such condition need not be included or
complied with:
(a) the Seller Required Regulatory Approvals and Buyer
Required Regulatory Approvals shall have been obtained and all
conditions to effectiveness prescribed therein or otherwise by law,
regulation or order shall have been satisfied; provided, however,
that if at the time any Seller Required Regulatory Approval or Buyer
Required Regulatory Approval is obtained, a Party reasonably expects
a request for rehearing or a challenge thereto to be filed or if a
request for rehearing or a challenge thereto has been filed, in each
case, which, if successful, would cause such Seller Required
Regulatory Approval or Buyer Required Regulatory Approval, as the
case may be, to be reversed, stayed, enjoined, set aside, annulled,
suspended or substantially modified, then such Party may by notice
to the other Party within five Business Days after receipt of such
Seller Required Regulatory Approval or Buyer Required Regulatory
Approval, as the case may be, delay the Closing until the time for
requesting rehearing has expired or until such challenge is decided,
in each case, whether or not any appeal thereof is pending; provided
further, however, that if the Closing is delayed pursuant to the
foregoing provision, the Termination Date shall be automatically
extended for a period of time equal to the period of such delay;
(b) no preliminary or permanent injunction or other order or
decree by any Federal or state court of competent jurisdiction and
no statute or regulation enacted by any Governmental Authority
prohibiting the consummation of the purchase and sale of the
Auctioned Assets (collectively, "Restraints") shall be in effect;
(c) the ISO shall have become operational to the extent
reasonably necessary to monitor market power in respect of the
Auctioned Assets; and
(d) delivery of the Continuing Site Agreement, the Declaration
of Easements Agreement, each Declaration of Subdivision Easements,
each Zoning Lot Development Agreement and the "A" House Ground Lease
and Easement to the Title Company for
recording.
SECTION 8.02. Conditions Precedent to Obligation of Buyer To
Effect the Purchase and Sale. The obligation of Buyer to effect the
purchase and sale of the Auctioned Assets contemplated by this Agreement
shall be subject to the satisfaction or waiver by Buyer on or prior to the
Closing Date of the following additional conditions:
(a) Seller shall have performed in all material respects its
covenants and agreements contained in this Agreement which are
required to be performed on or prior to the Closing Date;
(b) the representations and warranties of Seller which are set
forth in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date, as if made at and as of
such time (except to the extent expressly made as of an earlier
date, in which case as of such date), except where the failure of
such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) would not, individually
or in the aggregate, create a Material Adverse Effect;
(c) Buyer shall have received a certificate from an authorized
officer of Seller, dated the Closing Date, to the effect that, to
the best of such officer's knowledge, the conditions set forth in
Sections 8.02(a) and (b) have been satisfied;
(d) all material Permits and Environmental Permits required
for Buyer to conduct the business and operations of the Auctioned
Assets as currently conducted shall have been transferred or will be
transferable to Buyer, or shall have been obtained or will be
obtainable by Buyer, or shall have been made available to Buyer in
accordance with Section 7.03(c), on, prior to or within a reasonable
period of time after the Closing Date;
(e) Buyer shall have received (i) the deeds of conveyance
substantially in the form of Exhibit B, (ii) a Foreign Investment in
Real Property Tax Act Certification and Affidavit substantially in
the form of Exhibit C and (iii) an opinion from John D. McMahon,
Esq., General Counsel of Seller or other counsel reasonably
acceptable to Buyer, dated the Closing Date, substantially in the
form set forth in Exhibit D;
(f) execution and delivery by Seller of each of (i) the
Transition Capacity Agreement and the Zoning Lot Development
Agreements and (ii) the Fuel Supply Agreement, the "A" House Ground
Lease and Easement and the "A" House Operation and Maintenance
Agreement, each in a form and on terms reasonably satisfactory to
Buyer;
(g) the Title Company shall be willing to issue to Buyer a New
York form of ALTA (1992) Owner's Title Insurance Policy insuring fee
title to the Buyer Real Estate in an amount equal to that portion of
the Purchase Price properly allocable to Buyer Real Estate, subject
only to the Permitted Exceptions; and
(h) Buyer shall have received originals of the ALTA/ACSM Land
Title Surveys which include the Buyer Real Estate in addition to
other property signed by the surveyor with Buyer's name and the name
of not more than one other Party designated by Buyer added to the
certification set forth thereon.
SECTION 8.03. Conditions Precedent to Obligation of Seller To
Effect the Purchase and Sale. The obligation of Seller to effect the
purchase and the sale of the Auctioned Assets contemplated by this
Agreement shall be subject to the satisfaction or waiver by Seller on or
prior to the Closing Date of the following additional conditions:
(a) Buyer shall have performed in all material respects its
covenants and agreements contained in this Agreement which are
required to be performed on or prior to the Closing Date;
(b) the representations and warranties of Buyer which are set
forth in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date, as if made at and as of
such time (except to the extent expressly made as of an earlier
date, in which case as of such date), except where the failure of
such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or
"Buyer Material Adverse Effect" set forth therein) would not,
individually or in the aggregate, create a Buyer Material Adverse
Effect;
(c) Seller shall have received a certificate from an
authorized officer of Buyer, dated the Closing Date, to the effect
that, to the best of such officer's knowledge, the conditions set
forth in Sections 8.03(a) and (b) have been satisfied;
(d) Seller shall have received an opinion substantially in the
form of Exhibit E dated as of the Closing Date and from counsel
reasonably acceptable to Seller;
(e) execution and delivery by Buyer of each of (i) the
Transition Capacity Agreement and the Zoning Lot Development
Agreements and (ii) the Fuel Supply Agreement, the "A" House Ground
Lease and Easement and the "A" House Operation and Maintenance
Agreement, each in a form reasonably satisfactory to
Seller;
(f) Buyer shall have provided evidence in form and substance
reasonably satisfactory to Seller of compliance by Buyer with its
obligations under Article IX;
(g) if Buyer has assigned its rights, interests and
obligations in accordance with Section 12.05(a)(ii)(A),
(i) the Guarantee Agreement shall be in full force
and effect;
(ii) the Guarantor shall have performed in all material
respects its covenants and agreements contained in the
Guarantee Agreement which are required to be performed on or
prior to the Closing Date;
(iii) the representations and warranties of the
Guarantor which are set forth in the Guarantee Agreement shall
be true and correct as of the date of the Guarantee Agreement
and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in
which case as of such date), except where the failure of such
representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality"
or "Guarantor Material Adverse Effect" set forth therein)
would not, individually or in the aggregate, create a
Guarantor Material Adverse Effect (as defined therein);
(iv) Seller shall have received a certificate from an
authorized officer of the Guarantor, dated the Closing Date,
to the effect that, to the best of such officer's knowledge,
the conditions set forth in Sections 8.03(g)(ii) and (iii)
have been satisfied; and
(v) Seller shall have received an opinion substantially
in the form of Exhibit M dated the Closing Date and from
counsel reasonably acceptable to Seller.
ARTICLE IX
Employee Matters
SECTION 9.01. Employee Matters. (a) Buyer shall offer
equivalent employment at the Auctioned Assets to those employees of Seller
regularly assigned by Seller to work at the Auctioned Assets or at the
Ravenswood "A" Steam House on the Closing Date in the job titles and
facilities listed in Schedule 9.01(a)(all such employees described above
and those individuals described in the following sentence being
hereinafter referred to as "Affected Employees"). Affected Employees
include each such employee of Seller who is not actively at work on the
Closing Date due solely to a temporary short-term absence, whether paid or
unpaid, in accordance with applicable policies of Seller, including as a
result of vacation, holiday, personal time, leave of absence, union leave,
short- or long-term disability leave, military leave or jury duty.
Affected Employees shall cease to be employees of Seller on the Closing
Date and their period of employment by Buyer shall begin on the Closing
Date. Seller shall be responsible for any obligation to provide employee
benefits to an Affected Employee prior to such employee's period of
employment by Buyer.
All such offers of employment will be made (i) in accordance
with all applicable laws and regulations, and (ii) for employees
represented by Utility Workers' Union of America AFL-CIO and its Local
Union 1-2 ("Local 1-2"), in accordance with the Local 1-2 Collective
Bargaining Agreement (as defined in Schedule 9.01(b)). Each Affected
Employee who becomes employed by Buyer pursuant to this Section 9.01(a)
shall be referred to herein as a "Continued Employee".
Buyer may commence discussions concerning offers for
employment beginning on the Closing Date to Affected Employees at any time
following the date of this Agreement.
(b) Schedule 9.01(b) sets forth the collective bargaining
agreements, and amendments thereto, to which Seller is a party in
connection with the Auctioned Assets (the "Collective Bargaining
Agreement"). Affected Employees who are included in the collective
bargaining unit covered by the Collective Bargaining Agreement are
referred to herein as "Affected Union Employees". Each Continued Employee
who is an Affected Union Employee shall be referred to herein as a
"Continued Union Employee". On the Closing Date, Buyer will assume the
terms and conditions of the Collective Bargaining Agreement, except as set
forth in Section 9.02(b) below, as it relates to Affected Union Employees
until the expiration date of the Collective Bargaining Agreement. Buyer
will comply with its legal obligations with respect to collective
bargaining under Federal labor law for the employees at the Auctioned
Assets in the job titles or related work responsibilities of the Affected
Union Employees, and Buyer will comply with all applicable obligations
thereunder as the new owner of the Auctioned Assets. Buyer shall recognize
Local 1-2 as the exclusive collective bargaining representative of the
employees at the Auctioned Assets in the job titles or related work
responsibilities of the Affected Union Employees and Buyer agrees that,
should any other business entity (regardless of its relationship to Buyer)
acquire all or a portion of the Auctioned Assets from Buyer prior to the
expiration date of the Collective Bargaining Agreement, Buyer will require
such business entity to (i) offer employment to Affected Union Employees
employed by Buyer at the Auctioned Assets immediately prior to the change
in ownership, (ii) recognize Local 1-2 as the exclusive collective
bargaining representative of Buyer's employees at the Auctioned Assets in
the job titles and work responsibilities of the Affected Union Employees,
and (iii) assume the terms and conditions of the Collective Bargaining
Agreement as it relates to Affected Union Employees from the date of such
acquisition through the expiration date of the Collective Bargaining
Agreement.
SECTION 9.02. Continuation of Equivalent Benefit
Plans/Credited Service. (a) For not less than three years following the
Closing Date, Buyer shall maintain compensation (including base pay and
bonus compensation) and employee benefits and employee benefit plans and
arrangements for each Continued Employee who is not a Continued Union
Employee (a "Continued Non-Union Employee") which are at least equivalent
to those provided pursuant to the compensation, employee benefits and
employee benefit plans and arrangements in effect on the Closing Date for
the Affected Employees who are not Affected Union Employees. Such total
compensation shall be based upon (x) such employee's existing individual
base pay, (y) such employee's authorized overtime, if applicable, and (z)
the average bonus and benefit component for such employee's salary plan
level, as consistently applied by Seller, apportioned according to such
employee's base pay. No provision of this Agreement shall affect any
Continued Non-Union Employee's status as an employee-at-will.
(b) From the Closing Date until the expiration date of the
Collective Bargaining Agreement, Buyer shall provide to each Continued
Union Employee benefits and employee benefit plans and arrangements which
are equivalent to those provided under such Collective Bargaining
Agreement. Such benefits, plans and arrangements include the following:
(i) hospital, medical, dental, vision care and prescription drug benefits
(including employee contributions to be made on a pre-tax basis), (ii)
health care and dependent care flexible spending accounts; (iii)
employer-provided basic group term life and accidental death and
dismemberment insurance; (iv) employee-paid group universal life and
spousal and dependent child life insurance; (v) sick allowance (short term
disability) and long term disability benefits; (vi) business travel
accident insurance and crime protection insurance; (vii) occupational
accidental death insurance; (viii) adoption benefits and child care and
elder care referral benefits; (ix) tuition aid benefits; (x) vacation and
holidays; (xi) employee stock purchase plan (including employer matching
contributions) and (xii) defined benefit pension and 401(k) plan benefits.
In providing such benefits, Buyer shall have the right, subject to any
applicable laws, to use different providers from those used by Seller and
to establish Buyer's own benefit plans or use Buyer's existing benefit
plans. For purposes hereof, except as provided in Section 9.04(b), Buyer
shall have no obligation to maintain a fund holding or measured by common
stock of Seller's parent under any of Buyer's plans or arrangements,
notwithstanding any such fund maintained by Seller under its plans and
arrangements.
(c) Continued Employees shall be given credit by Buyer for all
service with Seller and its Affiliates under all existing or future
employee benefit and fringe benefit plans, programs and arrangements of
the Buyer ("Buyer Benefit Plans") in which they become participants. The
service credit given by Buyer shall be for purposes of eligibility,
vesting, eligibility for early retirement and early retirement subsidies,
benefit accrual and service-related level of benefits. Buyer shall assume
and honor all vacation, sick and personal days accrued and unused by
Continued Employees through the Closing Date in accordance with Seller's
applicable policies and arrangements.
SECTION 9.03. Pension Plan. (a) Effective as of the Closing
Date, Buyer shall have in effect defined benefit pension plans ("Buyer's
Pension Plans") intended to be (i) qualified pursuant to Section 401(a) of
the Code and (ii) nonqualified, in order to provide for benefits which
would otherwise be payable under the applicable qualified plan but for the
application of Sections 401(a)(17) and 415 of the Code, providing benefits
as of the Closing Date identical in all material respects (except for such
changes as may be required by law) to the benefits provided to them under
Seller's Pension Plans (as defined below), in particular (x) for Continued
Non-Union Employees, such Buyer's Pension Plans to provide benefits
identical in all material respects to those benefits provided under
Seller's Retirement Plan for Management Employees and Seller's
Supplemental Retirement Income Plan, and (y) for Continued Union
Employees, such Buyer's Pension Plans to provide benefits identical in all
material respects to those provided under Seller's Pension and Benefits
Plan (collectively, "Seller's Pension Plans"), in each case, as of the
Closing Date. Buyer acknowledges and agrees that one such material respect
is to count age after termination of employment for purposes of satisfying
requirements for early retirement eligibility and early retirement
subsidies.
(b) Continued Employees participating in Seller's Pension
Plans immediately prior to the Closing Date shall become participants in
Buyer's Pension Plans as of the Closing Date. Without limiting the
generality of Section 9.02(c), Continued Employees shall receive credit
for all compensation and service with Seller (subject to the terms of
Seller's Pension Plans) for purposes of eligibility for participation,
vesting, eligibility for early retirement and early retirement subsidies
and benefit accrual under Buyer's Pension Plans. Seller shall be
responsible for Continued Employees' pension benefits accrued up to the
Closing Date, and Buyer shall be responsible for pension benefits accrued
by such Continued Employees on and after the Closing Date as provided
herein. Buyer may offset against the accrued benefits determined under
Buyer's Pension Plans the accrued benefits determined under Seller's
Pension Plans. For the purpose of this Section 9.03(b), "accrued benefit"
means the amount that would be paid as a life annuity at normal retirement
age irrespective of the date of actual distribution from either Seller's
or Buyer's Pension Plans. Seller shall make pension distributions to
Continued Employees of the vested portion of their accrued benefits in
accordance with the terms of Seller's Pension Plans as in effect from time
to time. As soon as reasonably practicable following the Closing Date,
Seller shall provide Buyer a list showing, as of the Closing Date, the
accrued benefit of each Continued Employee under Seller's Pension Plans.
(c) In the event that any other business entity (regardless of
its relationship to Buyer) acquires all or a portion of the Auctioned
Assets from Buyer at any time prior to the third anniversary of the
Closing Date in the case of Continued Non-Union Employees and prior to the
expiration date of the Collective Bargaining Agreement in the case of
Continued Union Employees, Buyer will require such entity to maintain the
defined benefit plans, provide the benefits and recognize compensation and
service with Seller and Buyer to the same extent as Buyer is required
under Sections 9.03(a) and (b) above.
SECTION 9.04. 401(k) Plan. (a) Effective as of the Closing
Date, Buyer shall have in effect tax-qualified defined contribution plans
that include a qualified cash or deferred arrangement within the meaning
of Section 401(k) of the Code ("Buyer's 401(k) Plans") that will provide
benefits that are identical in all material respects (except for such
changes as may be required by law) to those provided by (i) Seller's
Thrift Savings Plan for Management Employees, in the case of Continued
Non-Union Employees, and (ii) Seller's Retirement Income Savings Plan for
Weekly Employees, in the case of Continued Union Employees (such Seller
plans herein referred to collectively as "Seller's 401(k) Plans"), in each
case, as of the Closing Date. Each Continued Employee participating in
Seller's 401(k) Plans immediately prior to the Closing Date shall become a
participant in Buyer's 401(k) Plans as of the Closing Date. Continued
Employees shall receive credit for all service with Seller for purposes of
eligibility and vesting under Buyer's 401(k) Plans.
(b) At such time after the Closing Date as Seller is
reasonably satisfied that Buyer's 401(k) Plans meet the requirements for
qualification under Section 401(a) of the Code, Seller shall cause to be
transferred to Buyer's 401(k) Plans in a trust-to-trust transfer in common
stock of Seller's parent (as provided in the following sentence) and cash
(or other property reasonably acceptable to Buyer) an amount equal to the
value of the assets held in the accounts of all Continued Employees
(including any outstanding loan balances of Continued Employees in
Seller's 401(k) Plans), subject to any qualified domestic relations
orders. In connection therewith, Buyer shall establish an investment fund
under Buyer's 401(k) Plans to which shall be transferred the shares of
common stock of Seller's parent (or any successor thereto) which, as of
the date of transfer, are credited to the accounts of the Continued
Employees under Seller's 401(k) Plans. After the Closing Date and prior to
any such transfer, Buyer shall cooperate with Seller in the administration
of distributions to and loan repayments by Continued Employees. Prior to
such transfer of assets, Seller shall vest any unvested benefits of
Continued Employees under Seller's 401(k) Plans. Following any such
transfer of assets, Buyer shall assume all obligations and liabilities of
Seller under Seller's 401(k) Plans with respect to such Continued
Employees, and Seller shall have no further liability to Buyer or any
Continued Employee with respect thereto.
SECTION 9.05. Welfare Plans. (a) Continued Employees and their
dependents who are eligible to participate in Seller's current welfare
benefits plans, programs or arrangements shall be eligible to participate
in the welfare benefits plans, programs or arrangements maintained or
established by Buyer ("Buyer's Welfare Plans"), effective as of the
Closing Date. Effective as of the Closing Date, any and all limitations as
to pre-existing conditions and actively-at-work exclusions and waiting
periods under Buyer's Welfare Plans shall be waived by Buyer with respect
to Continued Employees and their eligible dependents to the extent
satisfied under Seller's applicable Welfare Plans. In addition, effective
as of the Closing Date, Buyer shall cause Buyer's Welfare Plans to
recognize any out-of-pocket health care expenses incurred by Continued
Employees and their eligible dependents prior to the Closing Date and
during the calendar year in which such Closing Date occurs for purposes of
determining their deductibles and out-of-pocket maximums under Buyer's
Welfare Plans. Seller shall retain responsibility under Seller's welfare
plans for claims relating to expenses incurred by Continued Employees and
their eligible dependents prior to the Closing Date. Buyer shall have
responsibility under Buyer's Welfare Plans for claims relating to expenses
incurred by Continued Employees and their eligible dependents on and after
the Closing Date.
(b) Effective as of the Closing Date, Buyer shall have in
effect health care and dependent care reimbursement account plans for the
benefit of each Continued Employee, the terms of which shall (i) be
identical in all material respects to the Flexible Reimbursement Account
Plans for Management and Weekly Employees of Seller ("Seller's
Reimbursement Account Plans") as in effect on the Closing Date and (ii)
give full effect to, and continue in effect, salary reduction elections
made under Seller's Reimbursement Account Plans. Prior to the Closing
Date, Seller shall cause the accounts of Continued Employees under
Seller's Reimbursement Account Plans to be segregated into separate health
care and dependent care reimbursement accounts (the "Segregated
Reimbursement Accounts"), and such Segregated Reimbursement Accounts shall
be transferred to and assumed by Buyer as of the Closing Date.
(c) Buyer shall, subject to any applicable laws, provide a
retiree health program identical in all material respects to Seller's
retiree health program as in effect on the Closing Date to each Continued
Employee who terminates his employment with Buyer within three years after
the Closing Date, in the case of a Continued Non-Union Employee, and on or
prior to the expiration date of the Collective Bargaining Agreement, in
the case of a Continued Union Employee, and, in each case, who at the time
of such termination of employment satisfies the eligibility requirements
for such retiree health program provided by Buyer; provided, however, that
Seller shall remain liable, pursuant to Seller's retiree health program,
for all Continued Employees who satisfy, as of the Closing Date, the
eligibility requirements then in effect for Seller's retiree health
program.
SECTION 9.06. Short- and Long-Term Disability. Effective as of
the Closing Date, Buyer shall have in effect short- and long-term
disability plans for the benefit of Continued Employees, the cost of which
to Continued Employees shall be the same as under, and the terms of which
are identical in all material respects to, Seller's applicable plans as in
effect as of the Closing Date. Any and all waiting periods and
pre-existing condition clauses shall be waived under Buyer's short-and
long-term disability plans with respect to Continued Employees.
SECTION 9.07. Life Insurance and Accidental Death and
Dismemberment Insurance. Effective as of the Closing Date, Buyer shall
have in effect group term life insurance, group universal life insurance,
accidental death and dismemberment insurance, occupational accidental
death insurance, business travel accident insurance and crime protection
insurance plans for the benefit of Continued Employees, the cost of which
to Continued Employees shall be the same as under, and terms of which are
identical in all material respects to, Seller's applicable plans that
provide such benefits to Continued Employees immediately prior to the
Closing Date.
SECTION 9.08. Severance. (a) Effective as of the Closing Date,
Buyer shall have in effect a severance plan covering Continued Non-Union
Employees that contains terms identical in all material respects to those
under Seller's Severance Pay Plan for Management Employees as of the
Closing Date.
(b) Buyer shall, subject to any applicable laws, provide a
special separation allowance for any Continued Employee whose employment
with Buyer is terminated involuntarily by Buyer other than for cause on or
prior to, in the case of Continued Non-Union Employees, three years after
the Closing Date and, in the case of Continued Union Employees, the
expiration date of the Collective Bargaining Agreement. Such allowance
shall be not less than the sum of four weeks pay plus one week pay for
each completed year of service (as determined by aggregating each affected
individual's respective service with Seller and Buyer) and shall be
payable by Buyer in a lump sum within 30 days after termination of
employment. In addition, in the case of each Continued Non-Union Employee
described in the first sentence of this Section 9.08(b), Buyer shall pay
the Continued Non-Union Employee a lump sum equal to the excess of (i) the
actuarial equivalent of the Employee's "potential benefit" under the
applicable Buyer's Pension Plans, which such Employee would receive if
such Employee's employment continued until three years after the Closing
Date and such Employee's base and incentive compensation for such deemed
additional period was the same as in effect on the date of such Employee's
termination of employment with Buyer, over (ii) the actuarial equivalent
of such Employee's "actual benefit" under the applicable Buyer's Pension
Plans, as of the date of such Employee's termination of employment from
Buyer. For the purpose of the foregoing sentence, (i) the term "potential
benefit" shall refer to the monthly pension that would have been payable
to the applicable Employee commencing on the first day of the month
following the latest of (A) the last day of the deemed additional period,
(B) Employee's attainment of age 55, or (C) the earlier of (l) the first
date as of which the sum of such Employee's age and years of service, as
taken into account in determining the actuarial reduction for commencement
prior to normal retirement age that is to be applied to his accrued
benefit under the applicable Buyer's Pension Plans, equals 75 or (2) such
Employee's attainment of age 65, (ii) the term "actual benefit" shall
refer to the monthly pension payable to such Employee under the applicable
Buyer's Pension Plans commencing as of the date determined in accordance
with clause (i) of this sentence, and (iii) the actuarial equivalent of
the "potential benefit" and the "actual benefit" shall each be a lump sum
payable as of the date of such Employee's termination of employment from
Buyer, determined on the basis of the interest rate used to determine the
amount of lump sum distributions and, to the extent applicable, other
actuarial assumptions then in effect under the applicable Buyer's Pension
Plans. Buyer shall also provide outplacement services to such terminated
Continued Non-Union Employee appropriate to the level of the Employee's
position and job responsibilities. Buyer shall also continue to provide or
cause to be provided to any such terminated Continued Employee health
insurance coverage and group term and universal life insurance coverage at
the same rates as for active Continued Employees for a period equal to the
number of weeks of separation allowance which any such terminated
Continued Employee is entitled to from Buyer. Buyer shall have the right
to require a release in form reasonably satisfactory to Buyer as a
condition for eligibility to receive such separation allowance. The
allowance shall not apply to Continued Employees whose employment is
terminated due to death or expiration of sick allowance or other
authorized leave of absence or who terminate employment voluntarily. If at
any time during the three-year period following the Closing Date, Buyer
shall assign a Continued Non-Union Employee to work on a regular basis at
a location that is more than fifty miles from the location to which such
Employee is assigned as of the Closing Date, Buyer shall offer such
Employee the option to terminate employment and receive the severance
benefits set forth in this Section 9.08(b) in lieu of the reassignment.
SECTION 9.09. Workers Compensation. Effective as of the
Closing Date, Buyer shall have in effect a workers compensation program
for Continued Employees that shall provide coverage identical in all
material respects to Seller's workers compensation program as of the
Closing Date.
ARTICLE X
Indemnification and Dispute Resolution
SECTION 10.01. Indemnification. (a) Seller will indemnify and
hold harmless Buyer and its Affiliates and their respective directors,
officers, employees and agents (collectively with Buyer and its
Affiliates, the "Buyer Indemnitees") from and against any and all claims,
demands or suits by any person, and all losses, liabilities, damages,
obligations, payments, costs and expenses (including reasonable legal fees
and expenses and including costs and expenses incurred in connection with
investigations and settlement proceedings) (each, an "Indemnifiable
Loss"), as incurred, asserted against or suffered by any Buyer Indemnitee
relating to, resulting from or arising out of:
(i) any breach by Seller of any covenant or agreement of
Seller contained in this Agreement or, prior to their expiration in
accordance with Section 12.03, the representations and warranties
contained in Sections 5.01, 5.02, 5.03 and 5.17;
(ii) the Retained Liabilities;
(iii) noncompliance by Seller with any bulk sales or transfer
laws as provided in Section 7.07; or
(iv) any breach by Seller of any Ancillary Agreement.
(b) Buyer will indemnify and hold harmless Seller and its
Affiliates and their respective directors, officers, trustees, employees
and agents (collectively with Seller and its Affiliates, the "Seller
Indemnitees") from and against any and all Indemnifiable Losses, as
incurred, asserted against or suffered by any Seller Indemnitee relating
to, resulting from or arising out of:
(i) any breach by Buyer of any covenant or agreement of Buyer
contained in this Agreement or, prior to their expiration in
accordance with Section 12.03, the representations and warranties
contained in Sections 6.01, 6.02, 6.03 and 6.05;
(ii) the Assumed Obligations;
(iii) any obligation resulting from any action or inaction of
Buyer (A) under any Contract or warranty pursuant to Section 2.04(b)
(whether acting as principal or representative and agent for Seller
pursuant to Section 2.04(b) or otherwise) or (B) pursuant to any
Transferable Permit in respect of which Seller remains the holder of
record after the Closing Date pursuant to Section 7.03(c); or
(iv) any breach by Buyer of any Ancillary Agreement.
(c) The amount of any Indemnifiable Loss shall be reduced to
the extent that the relevant Buyer Indemnitee or Seller Indemnitee (each,
an "Indemnitee") receives any insurance proceeds with respect to an
Indemnifiable Loss and shall be (i) increased to take account of any Tax
Cost incurred by the Indemnitee arising from the receipt of indemnity
payments hereunder (grossed up for such increase) and (ii) reduced to take
account of any Tax Benefit realized by the Indemnitee arising from the
incurrence or payment of any such Indemnifiable Loss. If the amount of any
Indemnifiable Loss, at any time subsequent to the making of an indemnity
payment in respect thereof, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any
claim, recovery, settlement or payment by or against any other person, the
amount of such reduction, less any costs, expenses or premiums incurred in
connection therewith, will promptly be repaid by the Indemnitee to the
Party required to provide indemnification hereunder (the "Indemnifying
Party") with respect to such Indemnifiable Loss.
(d) To the fullest extent permitted by law, neither Party nor
any Buyer Indemnitee or any Seller Indemnitee shall be liable to the other
Party or any other Buyer Indemnitee or Seller Indemnitee for any claims,
demands or suits for consequential, incidental, special, exemplary,
punitive, indirect or multiple damages connected with or resulting from
any breach after the Closing Date of this Agreement or the Ancillary
Agreements (other than breach of this Article X), or any actions
undertaken in connection with or related hereto or thereto, including any
such damages which are based upon breach of contract, tort (including
negligence and misrepresentation), breach of warranty, strict liability,
statute, operation of law or any other theory of recovery.
(e) The rights and remedies of Seller and Buyer under this
Article X are, solely as between Seller and Buyer, exclusive and in lieu
of any and all other rights and remedies which Seller and Buyer may have
under this Agreement, the Ancillary Agreements (except as expressly
provided in the Continuing Site Agreement or the Declaration of Easements
Agreement) or otherwise for monetary relief with respect to (i) any breach
of, or failure to perform, any covenant or agreement set forth in this
Agreement or the Ancillary Agreements by Seller or Buyer, (ii) any breach
of any representation or warranty by Seller or Buyer, (iii) the Assumed
Obligations or the Retained Liabilities, (iv) noncompliance by Seller with
any bulk sales or transfer laws and (v) any obligation in respect of
Section 2.04 or Section 7.03. Each Party agrees that the previous sentence
shall not limit or otherwise affect any non-monetary right or remedy which
either Party may have under this Agreement or the Ancillary Agreements or
otherwise limit or affect either Party's right to seek equitable relief,
including the remedy of specific performance.
(f) Buyer and Seller agree that, notwithstanding Section
10.01(e), each Party shall retain, subject to the other provisions of this
Agreement, including Sections 10.01(d) and 12.03, all remedies at law or
in equity with respect to (i) fraud or wilful or intentional breaches of
this Agreement or the Ancillary Agreements and (ii) gross negligence or
wilful or wanton acts or omissions to act of any Indemnitee (or any
contractor or subcontractor thereof) on or after the Closing Date.
SECTION 10.02. Third Party Claims Procedures. (a) If any
Indemnitee receives notice of the assertion of any claim or of the
commencement of any claim, action, or proceeding made or brought by any
person who is not a Party or an Affiliate of a Party (a "Third Party
Claim") with respect to which indemnification is to be sought from an
Indemnifying Party, the Indemnitee will give such Indemnifying Party
reasonably prompt written notice thereof, but in any event not later than
20 Business Days after the Indemnitee's receipt of notice of such Third
Party Claim; provided, however, that a failure to give timely notice will
not affect the rights or obligations of any Indemnitee except if, and only
to the extent that, as a result of such failure, the Indemnifying Party
was actually prejudiced. Such notice shall describe the nature of the
Third Party Claim in reasonable detail and will indicate the estimated
amount, if practicable, of the Indemnifiable Loss that has been or may be
sustained by the Indemnitee.
(b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected
by the Indemnifying Party; provided, however, that such counsel is not
reasonably objected to by the Indemnitee; and provided further that the
Indemnifying Party first admits in writing its liability to the Indemnitee
with respect to all material elements of such claim. Should the
Indemnifying Party so elect to assume the defense of a Third Party Claim,
the Indemnifying Party will not be liable to the Indemnitee for any legal
expenses subsequently incurred by the Indemnitee in connection with the
defense thereof. If the Indemnifying Party elects to assume the defense of
a Third Party Claim, the Indemnitee will (i) cooperate in all reasonable
respects with the Indemnifying Party in connection with such defense, (ii)
not admit any liability with respect to, or settle, compromise or
discharge, any Third Party Claim without the Indemnifying Party's prior
written consent and (iii) agree to any settlement, compromise or discharge
of a Third Party Claim which the Indemnifying Party may recommend and
which by its terms obligates the Indemnifying Party to pay the full amount
of the liability in connection with such Third Party Claim and releases
the Indemnitee completely in connection with such Third Party Claim. In
the event the Indemnifying Party shall assume the defense of any Third
Party Claim, the Indemnitee shall be entitled to participate in (but not
control) such defense with its own counsel at its own expense. If the
Indemnifying Party does not assume the defense of any such Third Party
Claim, the Indemnitee may defend the same in such manner as it may deem
appropriate, including settling such claim or litigation after giving
notice to the Indemnifying Party of the terms of the proposed settlement
and the Indemnifying Party will promptly reimburse the Indemnitee upon
written request. Anything contained in this Agreement to the contrary
notwithstanding, no Indemnifying Party shall be entitled to assume the
defense of any Third Party Claim if such Third Party Claim seeks an order,
injunction or other equitable relief or relief for other than monetary
damages against the Indemnitee which, if successful, would materially
adversely affect the business of the Indemnitee.
ARTICLE XI
Termination
SECTION 11.01. Termination. (a) This Agreement may be
terminated at any time prior to the Closing by an instrument in writing
signed on behalf of each of the Parties.
(b) This Agreement may be terminated by Seller or Buyer if the
Closing shall not have occurred on or before the date that is 12 months
from the date of this Agreement (the "Termination Date"); provided,
however, that the right to terminate this Agreement pursuant to this
Section ll.01(b) shall not be available to any Party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date.
(c) This Agreement may be terminated by either Seller or Buyer
if any Restraint having any of the effects set forth in Section 8.01(b)
shall be in effect and shall have become final and nonappealable;
provided, however, that the Party seeking to terminate this Agreement
pursuant to this Section 11.01(c) shall have used its reasonable best
efforts to prevent the entry of and to remove such Restraint.
ARTICLE XII
Miscellaneous Provisions
SECTION 12.01. Expenses. Except to the extent specifically
provided herein, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the
Party incurring such costs and expenses, whether or not the transactions
contemplated hereby are consummated.
SECTION 12.02. Amendment and Modification; Extension; Waiver.
This Agreement may be amended, modified or supplemented only by an
instrument in writing signed on behalf of each of the Parties. Either
Party may (i) extend the time for the performance of any of the
obligations or other acts of the other Party, (ii) waive any inaccuracies
in the representations and warranties of the other Party contained in this
Agreement or (iii) waive compliance by the other Party with any of the
agreements or conditions contained in this Agreement. Any agreement on the
part of a Party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such Party. The
failure of a Party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
SECTION 12.03. No Survival of Representations or Warranties.
Each and every representation and warranty contained in this Agreement,
other than the representations and warranties contained in Sections 5.01,
5.02, 5.03 and 5.17 and 6.01, 6.02, 6.03 and 6.05 (which representations
and warranties shall survive for 18 months from the Closing Date), shall
expire with, and be terminated and extinguished by the Closing and no such
representation or warranty shall survive the Closing Date. From and after
the Closing Date, none of Seller, Buyer or any officer, director, trustee
or Affiliate of any of them shall have any liability whatsoever with
respect to any such representation or warranty. The expiration of the
representations and warranties contained in Sections 5.01, 5.02, 5.03 and
5.17 and 6.01, 6.02, 6.03 and 6.05 shall not affect the Parties'
obligations under Article X if the Indemnitee provided the Indemnifying
Party with proper notice of the claim or event for which indemnification
is sought prior to such expiration.
SECTION 12.04. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given (as of the time of
delivery or, in the case of a telecopied communication, of confirmation)
if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the Parties at the
following addresses (or at such other address for a Party as shall be
specified by like notice):
if to Seller, to:
Consolidated Edison Company of New York, Inc.
4 Irving Place
New York, NY 10003
Telecopy No.: (212) 677-0601
Attention: General Counsel
with a copy on or prior to the Closing Date to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Telecopy No.: (212) 474-3700
Attention: George W. Bilicic, Jr., Esq.
if to Buyer, to:
MarketSpan Corporation d/b/a
KeySpan Energy
One MetroTech Center
Brooklyn, New York 11201-3850
Telecopy No.: (718) 696-7139
Attention: General Counsel
with a copy on or prior to the Closing Date to:
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street NW
Washington, D.C. 20037-1526
Telecopy No.: (202) 887-0689
Attention: Kenneth Simon, Esq.
SECTION 12.05. Assignment; No Third Party Beneficiaries. (a)
This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any Party,
including by operation of law, without the prior written consent of the
other Party, except (i) in the case of Seller (A) to an Affiliate of
Seller or a third party in connection with the transfer of the
Transmission System to such Affiliate or third party or (B) to a lending
institution or trustee in connection with a pledge or granting of a
security interest in all or any part of the Transmission System and this
Agreement and (ii) in the case of Buyer (A) prior to the Closing, to a
wholly-owned subsidiary so long as Buyer shall have duly executed and
delivered the Guarantee Agreement and such assignment is for all of
Buyer's rights, interests and obligations hereunder, (B) to an Affiliate
of Buyer in connection with the transfer of the Auctioned Assets to such
Affiliate and (C) to a lending institution or trustee in connection with a
pledge or granting of a security interest in the Auctioned Assets and this
Agreement; provided, however, that no assignment or transfer of rights or
obligations by either Party shall relieve it from the full liabilities and
the full financial responsibility, as provided for under this Agreement,
unless and until the transferee or assignee shall agree in writing to
assume such obligations and duties and the other Party has consented in
writing to such assumption; provided, further, that such consent shall not
be required with respect to any assignment by Buyer pursuant to subclause
(ii)(A) above.
(b) Notwithstanding any provision in this Agreement to the
contrary, prior to the Closing Buyer may, with the prior written consent
of Seller, assign its rights, interests or obligations hereunder to a
special purpose entity for financing purposes in connection with the
acquisition of the Auctioned Assets; provided, however, that no such
assignment of rights, interests or obligations by Buyer shall relieve it
from the full liabilities and obligations hereunder unless Buyer shall
deliver a guarantee agreement in form and substance satisfactory to Seller
in respect of such liabilities and obligations.
(c) Nothing in this Agreement is intended to confer upon any
other person except the Parties any rights or remedies hereunder or shall
create any third party beneficiary rights in any person, including, with
respect to continued or resumed employment, any employee or former
employee of Seller (including any beneficiary or dependent thereof). No
provision of this Agreement shall create any rights in any such persons in
respect of any benefits that may be provided, directly or indirectly,
under any employee benefit plan or arrangement except as expressly
provided for thereunder.
SECTION 12.06. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable
principles of conflicts of law).
SECTION 12.07. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 12.08. Interpretation. When a reference is made in
this Agreement to an Article, Section, Schedule or Exhibit, such reference
shall be to an Article or Section of, or Schedule or Exhibit to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation" or equivalent words. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of
this Agreement. All terms defined in this Agreement shall have the defined
meanings when used in the Ancillary Agreements and any certificate or
other document made or delivered pursuant hereto or thereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and
to the masculine as well as to the feminine and neuter genders of such
term. Any agreement, instrument, statute, regulation, rule or order
defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement, instrument, statute, regulation,
rule or order as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent
and (in the case of statutes, regulations, rules or orders) by succession
of comparable successor statutes, regulations, rules or orders and
references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and
assigns.
SECTION 12.09. Jurisdiction and Enforcement. (a) Each of the
Parties irrevocably submits to the exclusive jurisdiction of (i) the
Supreme Court of the State of New York, New York County and (ii) the
United States District Court for the Southern District of New York, for
the purposes of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the Parties
agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York
or, if such suit, action or proceeding may not be brought in such court
for jurisdictional reasons, in the Supreme Court of the State of New York,
New York County. Each of the Parties further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered
mail at the address specified for such Party in Section 12.04 (or such
other address specified by such Party from time to time pursuant to
Section 12.04) shall be effective service of process for any action, suit
or proceeding brought against such Party in any such court. Each of the
Parties irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in (i) the Supreme Court of the
State of New York, New York County, or (ii) the United States District
Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in
any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
(b) The Parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement or any Ancillary
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the Parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement or any Ancillary Agreement and to enforce specifically the terms
and provisions of this Agreement or any Ancillary Agreement, this being in
addition to any other remedy to which they are entitled at law or in
equity.
SECTION 12.10. Entire Agreement. This Agreement, the
Confidentiality Agreement and the Ancillary Agreements including the
Exhibits, Schedules, documents, certificates and instruments referred to
herein or therein and other contracts, agreements and instruments
contemplated hereby or thereby, embody the entire agreement and
understanding of the Parties in respect of the transactions contemplated
by this Agreement. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set forth
or referred to herein or therein. This Agreement and the Ancillary
Agreements supersede all prior agreements and understandings between the
Parties with respect to the transactions contemplated by this Agreement
other than the Confidentiality Agreement.
SECTION 12.11. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the Parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties
as closely as possible to the fullest extent permitted by applicable law
in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
SECTION 12.12. Conflicts. Except as expressly otherwise
provided herein or therein, in the event of any conflict or inconsistency
between the terms of this Agreement and the terms of any Ancillary
Agreement, the terms of this Agreement shall prevail.
IN WITNESS WHEREOF, Seller and Buyer have caused this
Agreement to be signed by their respective duly authorized officers as of
the date first above written.
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,
by /s/Joan S. Freilich
-------------------------
Name: Joan S. Freilich
Title:Executive Vice President and CFO
MARKETSPAN CORPORATION doing
business as KEYSPAN ENERGY,
by /s/ Howard A. Kosel
------------------------
Name: Howard A. Kosel
Title:Vice President
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