UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 1-14161
KEYSPAN 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)
MARKETSPAN CORPORATION
(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 July 29, 1999
$.01 par value 139,292,752
<PAGE>
KEYSPAN CORPORATION AND SUBSIDIARIES
INDEX
-----
Part I. FINANCIAL INFORMATION Page No.
--------
Item I. Financial Statements
Condensed Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statement of Income -
Three and Six Months Ended June 30,
1999 and 1998 5
Condensed Consolidated Statement of Cash Flows -
Three and Six Months Ended June 30,
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 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 36
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings 37
Item 4. Submission of Matters to a Vote of
Security Holders 40
Item 6 - Exhibits and Reports on Form 8-K 41
Signature 43
2
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
JUNE 30,1999 December 31, 1998
------------------ -------------------
(UNAUDITED) (Audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and temporary cash investments $ 307,295 $ 942,776
Customer accounts receivable 201,017 320,836
Other accounts receivable 203,568 230,479
Allowance for uncollectible accounts (24,142) (20,026)
Special deposits 108,377 145,684
Gas in storage, at average cost 95,178 145,277
Materials and supplies, at average cost 75,835 74,193
Other 122,848 72,818
------------------ -------------------
1,089,976 1,912,037
------------------ -------------------
EQUITY INVESTMENTS 308,578 289,193
------------------ -------------------
PROPERTY
Electric 1,322,162 1,109,199
Gas 3,330,828 3,257,726
Other 361,595 345,007
Accumulated depreciation (1,540,284) (1,480,038)
Gas exploration and production, at cost 1,052,428 994,104
Accumulated depletion (481,478) (447,733)
------------------ -------------------
4,045,251 3,778,265
------------------ -------------------
DEFERRED CHARGES
Regulatory assets 311,577 279,524
Goodwill 241,316 254,040
Other 388,480 382,043
------------------ -------------------
941,373 915,607
------------------ -------------------
TOTAL ASSETS $ 6,385,178 $ 6,895,102
================== ===================
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
JUNE 30,1999 December 31, 1998
------------------ -------------------
(UNAUDITED) (Audited)
LIABILITIES AND CAPITALIZATION
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,000 $ 398,000
Current redemption of preferred stock 363,000 -
Accounts payable and accrued expenses 421,875 519,288
Dividends payable 66,095 66,232
Taxes accrued 8,939 69,742
Customer deposits 30,075 29,774
Interest accrued 15,306 19,965
------------------ -------------------
906,290 1,103,001
------------------ -------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Regulatory liabilities 26,235 27,854
Deferred federal income tax 163,948 71,549
Operating reserves 486,952 457,459
Other 80,239 75,740
------------------ -------------------
757,374 632,602
------------------ -------------------
CAPITALIZATION
Common stock, $.01 par value, authorized
450,000,000 shares; outstanding 140,120,152
and 144,628,654 shares stated at 2,973,388 2,973,388
Retained earnings 496,242 474,188
Accumulated foreign currency adjustment 4,783 (952)
Treasury stock purchased (546,448) (423,716)
------------------ -------------------
Total common equity 2,927,965 3,022,908
Preferred stock 84,485 447,973
Long-term debt 1,637,491 1,619,067
------------------ -------------------
TOTAL CAPITALIZATION 4,649,941 5,089,948
------------------ -------------------
MINORITY INTEREST IN SUBSIDIARY COMPANY 71,573 69,551
------------------ -------------------
TOTAL LIABILITIES AND CAPITALIZATION $ 6,385,178 $ 6,895,102
================== ===================
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(IN THOUSANDS OF DOLLARS ,EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
------------ ---------- ------------ -----------
REVENUES
<S> <C> <C> <C> <C>
Gas Distribution $ 277,482 $ 152,904 $ 993,312 $ 424,798
Gas Exploration and Production 35,021 11,713 61,541 11,713
Electric Services 189,734 68,365 364,271 68,365
Electric Distribution - 330,011 - 885,693
Energy Related Services 37,125 6,386 78,557 6,386
------------ ---------- ------------ -----------
Total Revenues 539,362 569,379 1,497,681 1,396,955
OPERATING EXPENSES
Purchased gas 96,819 63,189 408,073 191,590
Fuel and purchased power - 91,762 - 257,786
Operations and maintenance 242,066 187,940 485,148 320,102
Depreciation, depletion and amortization 59,382 43,990 117,568 88,199
Electric regulatory amortizations - (40,005) - (79,875)
Operating taxes 77,145 97,768 181,038 214,880
------------ ---------- ------------ -----------
Total Operating Expenses 475,412 444,644 1,191,827 992,682
------------ ---------- ------------ -----------
OPERATING INCOME 63,950 124,735 305,854 404,273
------------ ---------- ------------ -----------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments 2,509 (207) 5,481 (207)
Interest income 7,746 12,895 18,789 16,609
Minority interest (1,887) (568) (2,191) (568)
Transaction related expenses,net - (6,450) - (6,450)
Other (2,820) 10,177 (551) 13,797
------------ ---------- ------------ -----------
Total Other Income 5,548 15,847 21,528 23,181
------------ ---------- ------------ -----------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES 69,498 140,582 327,382 427,454
------------ ---------- ------------ -----------
INTEREST CHARGES 33,756 76,825 68,340 176,852
------------ ---------- ------------ -----------
INCOME TAXES
Current (39,505) 121,184 7,141 143,757
Deferred 52,258 (94,677) 85,691 (46,344)
------------ ---------- ------------ -----------
Total Income Taxes 12,753 26,507 92,832 97,413
------------ ---------- ------------ -----------
NET INCOME 22,989 37,250 166,210 153,189
Preferred stock dividend requirements 8,690 11,216 17,379 24,163
------------ ---------- ------------ -----------
EARNINGS FOR COMMON STOCK $ 14,299 $ 26,034 $ 148,831 $ 129,026
Foreign Currency Adjustment 2,425 (1,429) 5,735 (1,429)
============ ========== ============ ===========
COMPREHENSIVE INCOME $ 16,724 $ 24,605 $ 154,566 $ 127,597
============ ========== ============ ===========
AVERAGE COMMON
SHARES OUTSTANDING (000) 140,749 134,166 141,865 127,916
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ 0.10 $ 0.19 $ 1.05 $ 1.01
============ ========== ============ ===========
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(IN THOUSANDS OF DOLLARS)
THREE MONTHS Three Months SIX MONTHS Six Months
ENDED Ended ENDED Ended
JUNE 30, 1999 June 30, 1998 JUNE 30, 1999 June 30, 1998
--------------- -------------- ---------------- -------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income $ 22,989 $ 37,250 $ 166,210 $ 153,189
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Depreciation, depletion and amortization 59,382 43,990 117,568 88,199
Electric regulatory amortization - (40,005) - (79,875)
Deferred income tax 52,258 (94,677) 85,691 (46,344)
Income from equity investments (2,509) 207 (5,481) 207
Dividends from equity investments - - 4,296 -
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable 217,523 90,418 146,397 82,095
Materials and supplies, fuel oil and gas in storage (54,475) (3,766) 48,252 66,858
Accounts payable and accrued expenses (75,596) (9,864) (161,065) (89,652)
Interest accrued (2,433) 67,486 (4,647) 56,306
Special deposits 12,449 65,947 37,307 37,588
Pensions and other post retirement benefits - (285,212) - (285,212)
Other (30,539) (113,481) (35,856) (96,360)
------------- -------------- ---------------- ---------------
Net Cash Provided by (Used in) Operating Activities 199,049 (241,707) 398,672 (113,001)
------------- -------------- ---------------- ---------------
INVESTING ACTIVITIES
Capital expenditures (310,031) (100,199) (396,362) (155,935)
Net cash from KeySpan Acquisition - 165,168 - 165,168
Net proceeds from LIPA Transaction - 2,314,588 - 2,314,588
Other (3,563) (8,390) 12,451 (17,679)
------------- -------------- ---------------- ---------------
Net Cash (Used in) Provided by Investing Activities (313,594) 2,371,167 (383,911) 2,306,142
------------- -------------- ---------------- ---------------
FINANCING ACTIVITIES
Proceeds from sale of common stock - 6,514 - 11,068
Treasury stock purchased (68,671) - (122,732) -
Issuance of preferred stock - 75,000 - 75,000
Issuance of long-term debt 8,000 - 15,000 -
Payment of long-term debt (397,000) (100,000) (397,000) (100,000)
Preferred stock dividends paid (8,690) (12,926) (17,379) (25,873)
Common stock dividends paid (63,323) (90,353) (127,683) (144,385)
Other 186 (16,965) (448) (17,297)
------------- -------------- ---------------- ---------------
Net Cash (Used in) Financing Activities (529,498) (138,730) (650,242) (201,487)
------------- -------------- ---------------- ---------------
Net (Decrease) or Increase in Cash and Cash Equivalents $ (644,043) $ 1,990,730 $ (635,481)$ 1,991,654
============= ============== ================ ===============
Cash and cash equivalents at beginning of period $ 951,338 $ 180,919 $ 942,776 $ 179,995
Net (Decrease) or Increase in cash and cash equivalents (644,043) 1,990,730 (635,481) 1,991,654
============= ============== ================ ===============
Cash and Cash Equivalents at End of Period $ 307,295 $ 2,171,649 $ 307,295 $ 2,171,649
============= ============== ================ ===============
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
KeySpan 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, own and sell capacity and energy to LIPA from the Company's
generating facilities located on Long Island and manage fuel supplies
for LIPA to fuel the Company's Long Island generating facilities
through long-term service contracts that range from eight to fifteen
years. Moreover, on June 18, 1999, Company subsidiaries became the
owner, lessee and operator of the 2,168 megawatt Ravenswood electric
generation facility located in Long Island City, Queens. (See Note 10
"Contractual Obligations and Contingencies" for a description of the
Ravenswood Acquisition.)
7
<PAGE>
Other Company subsidiaries are involved in gas and oil exploration and
production; wholesale and retail gas and electric marketing; appliance,
heating, ventilation and air conditioning services; and large
energy-system ownership, installation and management. Further, certain
subsidiaries have investments in natural gas pipelines and gas
distribution facilities; midstream natural gas processing and gathering
facilities and gas storage facilities, domestically and
internationally. (See Note 8 "Business Segments" for additional
information.)
2. BASIS OF PRESENTATION
The financial statements presented herein reflect the results of
operations of the consolidated Company for the three and six months
ended June 30, 1999. 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 for the three and six months ended June 30, 1998
reflect the results of operations of the consolidated Company from May
29, 1998 through June 30, 1998. Periods prior to May 29, 1998, (i.e.,
January 1, 1998 through May 28, 1998)reflect results of operations of
LILCO only. 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.
The weighted average number of common shares outstanding used in the
calculation of earnings per share for the three and six months ended
June 30, 1999 and 1998 reflect the issuance of common stock to
consummate the KeySpan Acquisition and the reduction associated with
repurchases of common stock.
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 June 30,
1999, and the results of its operations and cash flows for the three
and six months ended June 30, 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 the Transition Period ended 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. 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 profitable or unprofitable, and losses are generally
incurred in the quarter ended September 30.
The Company's gas distribution subsidiaries each operate under a
utility tariff that contains 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 derived from billings to LIPA for the
management and operation 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 Form 10K for the Transition Period ended
December 31, 1998.) In addition, electric revenues, since June 18,
1999, also include revenues from the Ravenswood facility. Revenues from
electric generation are not affected by weather since billings are
based on fully allocated capacity.
Prior to the LIPA Transaction, electric 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
8
<PAGE>
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.
As of June 30, 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 June 30, 1999, the Company had recorded goodwill in the amount of
$241.3 million, representing the excess of acquisition cost over the
fair value of net assets acquired related to its purchases of certain
consolidated and unconsolidated subsidiaries, including $166.3 million,
net of accumulated amortization of $4.6 million relating to the KeySpan
Acquisition. Goodwill is being amortized over 15 to 40 years.
6. ENVIRONMENTAL MATTERS
The Company has recorded a liability of approximately $129 million
associated with investigation and remedial obligations with respect to
14 of the Company's former manufactured gas plant ("MGP")sites, three
of which are designated as "Class II Sites." Three MGP sites (one Class
II Site) are associated with Brooklyn Union's operations or its
predecessors; 11 MGP sites are associated with the operations of
Brooklyn Union of Long Island or its predecessors (two of which are
designated
9
<PAGE>
as Class II Sites). With respect to the Brooklyn Union MGP sites, a
total of approximately $47.8 million has been accrued, representing the
best estimate of remedial costs for two sites that are subject to
Administrative Orders on Consent ("AOC's") with the New York State
Department of Environmental Conservation ("DEC") and the minimum range
of an estimate for the investigation and/or remediation of other sites.
Discussions with the DEC are ongoing with regards to investigation of
other sites. With respect to Brooklyn Union of Long Island MGP sites, a
total of approximately $81.2 million has been accrued as a minimum of
an estimated range of costs for the 11 sites that will be
investigated/remediated pursuant to AOC's with the DEC. Two AOC's were
executed on March 31, 1999 for Brooklyn Union of Long Island MGP sites.
One AOC addressed two MGP sites classified as Class II Sites on the
State registry of inactive hazardous waste sites. The other AOC
addressed four other MGP sites. Both AOC'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. Brooklyn Union of Long Island also expects to enter into
an AOC with the DEC requiring the Company to conduct preliminary site
assessments for the five other former MGP sites that are no longer
owned by the Company.
Under prior rate orders, the Public Service Commission of the State of
New York ("NYPSC") has allowed recovery of costs related to certain
Brooklyn Union MGP sites. At June 30, 1999, the Company has a total
remaining regulatory asset of approximately $100 million. The Company
believes that current rate plans in effect for both Gas Distribution
subsidiaries 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.
10
<PAGE>
The Company's regulatory assets of $311.6 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 $185.5 million, or
approximately $1.32 per share of common stock, which would be
classified as an extraordinary item.
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
in Queens and Long Island, 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 segment is engaged in gas and oil
exploration and production, and the development and acquisition of
domestic natural gas and oil properties. This segment consists of our
64% equity interest in THEC, an independent natural gas and oil
exploration company, as well as KeySpan Exploration and Production LLC,
our wholly owned subsidiary engaged in a joint venture with THEC.
Subsidiaries in the Energy Related Investments segment include our 20%
equity interest 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, through the Gulf Midstream Services
Partnership ("GMS"). These subsidiaries are accounted for under the
equity method since the Company's ownership
11
<PAGE>
interests are 50% or less. Accordingly, equity income from these
investments is reflected in Other Income and (Deductions) in the
Condensed Consolidated Income Statement.
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"). 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 appliance, heating,
ventilation and air conditioning services to customers primarily within
the Company's service territory. KESol was established in April 1998
and Fritze was acquired in November 1998.
The Other segment primarily represents unallocated administrative
expenses of the Company, preferred stock dividends, and earnings from
the investment of cash 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 June 30, 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 our formation of and
investment in KeySpan Exploration and Production LLC and the Electric
Services segment whose assets increased by $230.0 million due to the
acquisition of the 2,168 megawatt Ravenswood electric generation
facility located in Long Island City, Queens, a portion of which has
been leased to a Company subsidiary under a master lease financing
arrangement. (See Note 10 "Contractual Obligations and Contingencies"
for more details.) The segment information presented below reflects
amounts reported in the Condensed Consolidated Financial Statements,
excluding special charges, for the three and six months ended June 30,
1999 and 1998.
12
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<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 (In Thousands of Dollars)
===================================================================================================================================
Gas Exploration Energy Related Energy Related
Gas Distribution Electric Servies and Production Investments Services Other Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 277,482 $ 189,734 $ 35,021 $ $ 37,125 $ $ 539,362
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of Gas 96,819 - - - - - 96,819
Operations and
Maintenance 88,148 108,120 6,326 1,580 37,327 565 242,066
Depreciation
Depletion &
Amortization 24,351 10,337 17,972 286 703 5,733 59,382
Operating Taxes 45,836 28,447 113 1 - 2,748 77,145
Intercompany
Billings 867 10,398 - - - (11,265) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expense $ 256,021 $ 157,302 $ 24,411 $ 1,867 $ 38,030 $ (2,219) $ 475,412
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income $ 21,461 $ 32,432 $ 10,610 $ (1,867) $ (905) $ 2,219 $ 63,950
===================================================================================================================================
Earnings for
Common Stock $ 1,220 $ 15,037 $ 3,326 $ 2,448 $ (254) $ (7,478) $ 14,299
===================================================================================================================================
Basic and Diluted
EPS $ 0.01 $ 0.11 $ 0.02 $ 0.02 $ 0.00 $ (0.06) $ 0.10
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 (In Thousands of Dollars)
===================================================================================================================================
Gas Exploration Energy Related Energy Related
Gas Distribution Electric Servies and Production Investments Services Other Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 152,904 $ 398,376 $ 11,713 $ 28 $ 6,358 $ - $ 569,379
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of Gas 63,189 91,762 - - - - 154,951
Operations and
Maintenance 61,329 114,378 2,138 600 6,701 2,794 187,940
Depreciation
Depletion &
Amortization 8,817 26,220 6,781 - 162 2,010 43,990
Electric
Regulatory
Amortization - (40,005) - - - - (40,005)
Operating Taxes 25,672 70,805 45 - 168 1,078 97,768
Intercompany
Billings 3,494 1,172 - - - (4,666) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expense $ 162,501 $ 264,332 $ 8,964 $ 600 $ 7,031 $ 1,216 $ 444,644
====================================================================================================================================
Operating Income $ (9,597) $ 134,044 $ 2,749 $ (572) $ (673) $ (1,216) $ 124,735
====================================================================================================================================
Earnings for
Common Stock $ (16,381) $ 51,155 $ 1,028 $ 48 $ (317) $ (3,049) $ 32,484(a)
====================================================================================================================================
Basic and Diluted
EPS $ (0.12) $ 0.38 $ 0.01 $ 0.00 $ 0.00 $ (0.03) $ 0.24(a)
====================================================================================================================================
</TABLE>
(a) Excludes $6.5 million or $0.05 per diluted share of non-recurring
charges associated with the LIPA Transaction.
13
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (In Thousands of Dollars)
===================================================================================================================================
Gas Exploration Energy Related Energy Related
Gas Distribution Electric Services and Production Investments Services Other Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 993,312 $ 364,271 $ 61,541 $ - $ 78,557 $ - $1,497,681
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas 408,073 - - - - - 408,073
Operations and
Maintenance 187,228 200,288 12,285 2,669 80,555 2,123 485,148
Depreciation
Depletion &
Amortization 48,605 20,265 35,029 618 1,472 11,579 117,568
Operating Taxes 118,289 57,440 146 8 3 5,152 181,038
Intercompany
Billings 3,917 21,041 - - - (24,958) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expense $ 766,112 $ 299,034 $ 47,460 $ 3,295 $ 82,030 $ (6,104) $1,191,827
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income $ 227,200 $ 65,237 $ 14,081 $ (3,295) $ (3,473) $ 6,104 $ 305,854
====================================================================================================================================
Earnings for
Common Stock $ 121,909 $ 31,621 $ 3,804 $ 2,750 $ (1,693) $ (9,560) $ 148,831
====================================================================================================================================
Basic and Diluted
EPS $ 0.86 $ 0.22 $ 0.03 $ 0.02 $ (0.01) $ (0.07) $ 1.05
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 (In Thousands of Dollars)
===================================================================================================================================
Gas Exploration Energy Related Energy Related
Gas Distribution Electric Services and Production Investments Services Other Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 424,798 $ 954,058 $ 11,713 $ 28 $ 6,358 $ $ 1,396,955
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas 191,590 257,786 - - - - 449,376
Operations and
Maintenance 93,408 214,461 2,138 600 6,701 2,794 320,102
Depreciation
Depletion &
Amortization 19,522 59,724 6,781 - 162 2,010 88,199
Electric
Regulatory
Amortization - (79,875) - - - - (79,875)
Operating Taxes 50,381 163,208 45 - 168 1,078 214,880
Intercompany
Billings 3,494 1,172 - - - (4,666) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expense $ 358,395 $ 616,476 $ 8,964 $ 600 $ 7,031 $ 1,216 $ 992,682
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income $ 66,403 $ 337,582 $ 2,749 $ (572) $ (673) $(1,216) $ 404,273
====================================================================================================================================
Earnings for
Common Stock $ 23,162 $ 114,604 $ 1,028 $ 48 $ (317) $(3,049) $ 135,476(a)
====================================================================================================================================
Basic and Diluted
EPS $ 0.1 $ 0.90 $ 0.01 $ 0.00 $ 0.00 $ (0.03) $ 1.06(a)
====================================================================================================================================
</TABLE>
(a) Excludes $6.5 million or $0.05 per diluted share of non-recurring charges
associated with the LIPA Transaction.
14
<PAGE>
9. EXTINGUISHMENT OF LONG-TERM DEBT
On June 15, 1999 the Company, in accordance with the LIPA Agreement,
extinguished its obligations to LIPA under a promissory note relating to the
7.30% Debentures due July 15, 1999. The Company's obligation for these
debentures of $411.5 million consisted of the principal amount of $397.0
million and $14.5 million of interest accrued and unpaid.
10. CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
On June 18, 1999 the Company completed its acquisition of the 2,168 megawatt
Ravenswood electric generating facility located in Long Island City, Queens,
New York from Consolidated Edison Company of New York, Inc. ("Con Ed"), for
approximately $597
million.
As a means of financing this acquisition, the Company entered into a lease
agreement with a special purpose, unaffiliated financing entity that acquired
a portion of the facility directly from Con Ed and leased it to a subsidiary
of the Company under a ten year lease. The Company has guaranteed all payment
and performance obligations of its subsidiary under the lease. Another
subsidiary of the Company provides all operating, maintenance and construction
services for the facility. The lease program was established in order for the
Company to finance approximately $425 million of the acquisition cost of the
facility. The lease qualifies as an operating lease for 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 were provided from cash on hand. The Company has recorded an asset of
approximately $230 million, representing its ownership interest in the assets
acquired.
The Company has assumed all of Con Ed's historical contingent environmental
obligations relating to facility operations other than liabilities arising
from pre-closing disposal of waste at off-site locations and any monetary
fines arising from Con Ed's pre-closing conduct. These environmental exposures
are generally divided between (1) future capital expenditures, in the nature
of property and leasehold improvements, necessary to address compliance
obligations and (2) expenditures to investigate and, as necessary, remediate
certain on-site contamination which may or may not result in leasehold
improvements. Given the recent nature of the acquisition, our
15
<PAGE>
actual knowledge of facility conditions is in the developmental stage and
implementation plans and estimates are, therefore, preliminary.
Presently, there are four AOC's issued to Con Ed by the DEC. The Company has
contractually agreed to assume Con Ed's remaining obligations at the
Ravenswood facility under these AOC's. Generally, the Company's derivative
obligations are expected to include investigation and remediation of certain
petroleum releases, inspection and any necessary corrective action for certain
aboveground storage tanks and underground piping, potential upgrades to
existing cooling water intake structures, and implementation of an air
emissions opacity reduction program. The Company is currently negotiating a
consolidated AOC with the DEC that will clarify the scope and timing of these
activities.
The Company has identified certain capital expenditures for environmental
compliance purposes at Ravenswood that are reasonably likely to occur. To
address an anticipated shortfall of NOx emissions allowances beginning in May
2003, the Company may incur immaterial capital costs for additional air
pollution control equipment. Alternatively, the Company may elect to purchase
additional allowances. The Company probably will be required to upgrade the
Ravenswood cooling intake structures to meet the best available technology
requirements of the Federal Clean Water Act. The extent and cost of any
upgrades are uncertain and will depend upon the results of analysis of certain
studies.
Pursuant to its derivative AOC obligations, the Company will complete the
investigation and remediation of certain petroleum and other hazardous
material releases at Ravenswood, as necessary. The Company will also address
similar releases not covered by the AOC's. The Ravenswood facility is located
on a former MGP site. The Company has no current obligation to investigate or
remediate the property for contamination resulting from historical MGP
operations, although there may be a need to perform certain site remediation
as part of an overall improvement of property related to the installation of
new generation capacity. Based on information currently available for
environmental contingencies related to the Ravenswood acquisition, the Company
has accrued $5 million as the minimum liability to be incurred.
16
<PAGE>
The Company intends to seek regulatory approvals to upgrade the Ravenswood
facility through the installation of a gas-fired combined cycle generation
unit with a capacity of approximately 250 megawatts of electricity that would
increase electric generation capacity at the plant by 12%. The new capacity
could be operational by 2002 depending upon the timeliness and responsiveness
of regulatory approvals.
11. NEW FINANCIAL ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133." SFAS No. 137 defers the
effective date of SFAS No. 133 from fiscal years beginning after July 15, 1999
to fiscal years beginning after July 15, 2000. The Company will therefore,
adopt SFAS No. 133 in the first quarter of fiscal year 2001. SFAS No. 133
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 does not expect any
material earnings effect from adoption of this statement.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of operations for the three and six months ended June 30, 1999 reflect
the operations of the consolidated Company, which includes all KSE-acquired
companies, Brooklyn Union of Long Island and subsidiaries providing electric
services. As required under purchase accounting rules for the KeySpan
Acquisition, results of operations for the three months ended June 30, 1998
reflect the results of LILCO only for the period April 1, 1998 through May 28,
1998 and results of the consolidated Company from May 29, 1998 through June 30,
1998. Results of operations for the six months ended June 30, 1998 reflect the
results of LILCO only for the period January 1, 1998 through May 28, 1998 and
results of the consolidated Company from May 29, 1998 through June 30, 1998.
(Capitalized terms used in the discussions to follow but not otherwise defined,
have the same meaning as when used in the Footnotes to the Condensed
Consolidated Financial Statements included under Item 1.)
EARNINGS SUMMARY
Consolidated earnings for the quarter ended June 30, 1999 were $14.3 million, or
$0.10 per diluted share, compared to earnings of $26.0 million, or $0.19 per
diluted share, in the corresponding quarter last year. During the quarter ended
June 30, 1998, the Company incurred special charges associated with the LIPA
Transaction of $6.5 million or $0.05 per diluted share. Consolidated earnings,
excluding special charges, for the quarter ended June 30, 1998 were $32.5
million or $0.24 per diluted share. (See Note 8. to the Condensed Consolidated
Financial Statements "Business Segments" for a summary of earnings for each
business segment.)
Consolidated earnings for the six months ended June 30, 1999 were $148.8
million, or $1.05 per diluted share, compared to earnings of $129.0 million, or
$1.01 per diluted share, in the corresponding period last year. Consolidated
earnings, excluding special charges, for the six months ended June 30, 1998 were
$135.5 million or $1.06 per diluted share. (See Note 8. to the Condensed
Consolidated Financial Statements "Business Segments" for a summary of earnings
for each business segment.)
Due to the change in the structure of the Company's business as a result of the
LIPA Transaction and the requirements of purchase accounting rules applicable to
the KeySpan Acquisition, results of operations for the periods ended June 30,
1999 are not comparable to the results of operations for the periods ended June
30, 1998. Therefore, for comparative purposes, we will combine the results of
18
<PAGE>
operations, excluding special charges associated with the LIPA Transaction, of
KSE and LILCO for the entire three and six month periods ended June 30, 1998.
These combined results are intended to reflect the results of the Company as if
the KeySpan Acquisition occurred on the first day of the reporting period, i.e.,
January 1, 1998. This "proforma, combined company basis" format will be used to
explain variations in operating results between periods in the discussions to
follow.
On a proforma, combined company basis, earnings for the three and six months
ended June 30, 1998 were $36.0 million and $219.3 million, respectively. The
following table sets forth consolidated net income for the quarter and six
months ended June 30, 1999 and the proforma, combined company basis consolidated
net income for the three and six months ended June 30, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Results of Operations Three Months Ended Three Months Ended Six Months Ended Six Months Ended
(In Thousands of Dollars) June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gas Distribution $ 1,220 ($11,539) $121,909 $108,722
Gas Exploration and Production 3,326 3,472 3,804 7,805
Electric Services 15,037 51,155 31,621 114,604
Energy Related Investments 2,448 (1,198) 2,750 (1,864)
Energy Related Services (254) (2,071) (1,693) (5,728)
Other (7,478) (3,851) (9,560) (4,233)
- -------------------------------------------------------------------------------------------------------------
Earnings for Common Stock $14,299 $35,968 $148,831 $219,306
=============================================================================================================
</TABLE>
Gas Distribution earnings for the quarter and six months ended June 30, 1999 as
compared to the same periods in 1998, on a proforma, combined company basis
reflect the benefits of significantly lower operating expenses offset, in part,
by lower net revenues (revenues less gas costs and revenue taxes) due to rate
reductions associated with the KeySpan Acquisition. As previously indicated, Gas
Distribution earnings for the quarter ended June 30 generally are marginally
profitable or unprofitable due to the seasonal nature of gas heating sales.
Earnings from the Gas Exploration and Production segment for the quarter ended
June 30, 1999 remained relatively constant as compared to the corresponding
period in 1998, on a proforma, combined company basis. The benefits from
slightly higher production volumes and decreased operating expenses were offset
by slightly lower average realized gas prices and increased interest expense of
$2.2 million due to higher levels of debt outstanding. Earnings for the six
months ended June 1999 as compared to the same period in 1998, primarily reflect
significantly lower average
19
<PAGE>
realized gas prices (experienced during the quarter ended March 1999) as
compared to the same period in 1998 and higher interest expense of $5 million.
The change in the Company's asset base and electric operations resulting from
the LIPA Transaction contributed to the comparative reduction in Electric
Services earnings, which now reflect primarily service-fee revenues under
various service contracts with LIPA. The Company's operating margins under the
agreements with LIPA are lower than those experienced prior to the LIPA
Transaction. Earnings for the quarter and six months ended June 30, 1999 also
include earnings of $2.9 million from our acquisition of the Ravenswood
facility. The purchase of Ravenswood was completed on June 18, 1999. (See Note
10 to the Condensed Consolidated Financial Statements "Contractual Obligations
and Contingencies.")
Comparative earnings from the Energy Related Investments segment for the quarter
and six months ended June 30, 1999 as compared to the corresponding periods last
year, on a proforma, combined company basis, primarily reflect earnings from our
investment in Gulf Midstream Services Partnership ("GMS"), formed in December
1998, and more favorably results from our investments in Northern Ireland. In
addition, for the quarter and six months ended June 30, 1998 results of
operations from this segment reflect after-tax costs of $1.6 million and $3.2
million, respectively, to settle certain contracts associated with the sale, in
1997, of our domestic cogeneration investments and related fuel management
operations.
Operating results from the Energy Related Services segment for the quarter and
six months ended June 30, 1999 as compared to the corresponding periods last
year, on a proforma, combined company basis reflect the benefits derived from
the continued integration of companies acquired during the past two years and
more favorable results from gas and electric marketing services. These benefits
were offset by losses incurred by subsidiaries providing appliance and repair
services, due to the start-up nature of their operations in highly competitive
markets.
Earnings from the Other segment for the quarter and six months ended June 30,
1999 reflect 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.
20
<PAGE>
REVENUES
GAS DISTRIBUTION
Utility firm gas and transportation sales volumes for the quarter and six months
ended June 30, 1999, were 29,650 MDTH and 116,189 MDTH, respectively. Total gas
sales and transportation, which includes sales and transportation to
interruptible and off-system customers, were 38,648 MDTH and 142,027 MDTH for
the quarter and six months ended June 30, 1999, respectively.
On a proforma, combined company basis, firm gas and transportation sales volumes
for the quarter and six months ended June 30, 1998, were 30,120 MDTH and 106,213
MDTH, respectively. On a proforma, combined company basis total gas sales and
transportation for the quarter and six months ended June 30, 1998 were 40,105
MDTH and 139,223 MDTH, respectively.
Weather, as measured by annual degree days, was 9.2% warmer than normal for the
six months ended June 30, 1999 as compared to 18.3% warmer than normal for the
corresponding period last year. Firm gas sales normalized for weather were 2.5%
higher in the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998, reflecting ongoing gas sales growth.
Gas Distribution revenues for the quarter and six months ended June 30, 1999
were $277.5 million and $993.3 million, respectively, compared to $152.9 million
and $424.8 million for the comparable periods in 1998. The increase in revenues
for the quarter and six months was principally the result of the inclusion of
Brooklyn Union revenues for the entire quarter and six months ended June 30,
1999. Reported revenues for the quarter and six months ended June 30, 1998
include Brooklyn Union revenues for the period May 29, 1998 through June 30,
1998 only. On a proforma, combined company basis, total Gas Distribution
revenues for the quarter and six months ended June 30, 1998 were $303.7 million
and $1,063.7 million, respectively. Set forth below are net gas revenues on a
proforma, combined company basis:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
- -------------------------------------------------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Gas Distribution
<S> <C> <C>
Revenues $ 277,482 $ 303,714 $ 993,312 $ 1,063,681
Cost of Gas 96,819 115,439 408,073 447,155
Revenue Taxes 18,425 20,436 62,621 67,042
- ------------------------------------------------------------------------------------------------------------------
Net Revenues $ 162,238 $ 167,839 $ 522,618 $ 549,484
==================================================================================================================
</TABLE>
21
<PAGE>
The decrease in comparative net gas revenues of $5.6 million and $26.9 million
for the three and six months respectively, was due primarily to rate reductions
associated with 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. Reduced net revenues resulting from the
reductions amounted to $4.8 million for the quarter ended June 30, 1999 and
$19.2 million for the six months ended June 30, 1999. Further, revenues derived
from Brooklyn Union's appliance and repair services are included in Gas
Distribution revenues for the period January 1, 1998 through 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 1999 do not include revenues
from such services. As required by the NYPSC, on July 1, 1999, Brooklyn Union of
Long Island discontinued providing non-safety related appliance repair services.
These services are now offered by KESol to customers within Brooklyn Union of
Long Island's service territory. Net revenues as a percentage of Gas
Distribution sales were approximately 53% and 52% for the six months ended June
30, 1999 and 1998, respectively.
GAS EXPLORATION AND PRODUCTION
Gas Exploration and Production revenues for the quarter and six months ended
June 30, 1999 were $35.0 million and $61.5 million respectively, as compared to
$11.7 million for the quarter and six months ended June 30, 1998. For the
periods ended June 30, 1998, Gas Exploration and Production revenues are
reflected for the period May 29, 1998 through June 30, 1998 only.
On a proforma combined company basis, revenues from this segment were $35.1
million and $68.0 million for the quarter and six months ended June 30, 1998,
respectively. Revenues for the quarter ended June 30, 1999 as compared to the
same period last year reflect the benefits derived from a 6% increase in
production volumes, offset by a 6% decrease in average realized gas prices.
Revenues for the six months ended June 1999 as compared to the same period in
1998 primarily reflect significantly lower average realized gas prices in the
quarter ended March 1999. The effective price realized (average wellhead price
received for production including hedging gains and losses) generally has been
increasing recently and was $2.03 per MCF for the quarter ended June 30, 1999
compared to $2.17 per MCF for the corresponding quarter of 1998. The average
wellhead price was also $2.03 per MCF in the current quarter compared to $2.13
per MCF for the quarter ended June 30, 1998. The effective wellhead prices for
the six months ended June 30, 1999
22
<PAGE>
and 1998 were $1.82 per MCF and $2.15 per MCF, respectively. Gas production for
the three and six months ended June 30, 1999 was 17.2 BCFe and 33.7 BCFe,
respectively as compared to 16.2 BCFe and 31.6 BCFe for the three and six months
ended June 30, 1998, respectively. At December 31, 1998, THEC had total natural
gas reserves of approximately 480 BCFe, primarily in the Gulf of Mexico and
Texas.
ELECTRIC SERVICES
Electric Services revenues of $189.7 million and $364.3 million for the quarter
and six months ended June 30, 1999 represent revenues under various LIPA Service
Agreements and approximately two weeks of revenues from our Ravenswood
investment. Revenues of $398.4 million for the quarter ended June 30, 1998
reflect Electric Distribution revenues of LILCO only for the period April 1,
1998 through May 28, 1998 and Electric Services revenues for the period May 29,
1998 through June 30, 1998 under various LIPA Service Agreements. Revenues of
$954.1 million for the six months ended June 30, 1998 reflect Electric
Distribution revenues of LILCO only for the period January 1, 1998 through May
28, 1998 and Electric Services revenues under various LIPA Service Agreements
for the period May 29, 1998 through June 30, 1998.
The decrease in electric revenues for the three and six months ended June 30,
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 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 $105.6
million for the quarter and $204.9 million for the six months ended June 30,
1999. These revenues are derived from the performance, by KeySpan Electric
Services, LLC, 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
23
<PAGE>
interest in the Nine Mile Point Nuclear Power Station, Unit 2
("NMP2").
Revenues realized by KeySpan Generation, LLC under the Power Supply Agreement
("PSA") were $74.0 million for the quarter and $147.0 million for the six months
ended June 30, 1999 and are 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").
Revenues realized by KeySpan Energy Trading Services, LLC under the Energy
Management Agreement ("EMA") were $1.4 million for the quarter and $3.7 million
for the six months ended June 30, 1999 and result 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.
Revenues realized from the Ravenswood facility from June 18, 1999 through June
30, 1999 were $8.7 million. (See Note 10 "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 $37.1 million and $78.6
million for the quarter and six months ended June 30, 1999 respectively, as
compared to $6.4 million for the comparable periods in 1998. For the periods
ended June 30, 1998, Energy Related Services revenues are reflected for the
period May 29, 1998 through June 30, 1998 only.
Revenues on a proforma, combined company basis from this segment were $17.3
million for the quarter ended June 30, 1998 and $32.1 million for the six months
ended June 30, 1998, respectively. The increase in comparative revenues for the
periods ended June 30, 1999 was due primarily to the inclusion of revenues from
Fritze of $10.4 million and $20.9 million for the quarter and six months ended
June 30, 1999, respectively. Moreover, revenues from KEM and KES increased for
both the quarter and six months ended June 30, 1999 as compared to the
comparable periods last year due to the benefits derived from companies acquired
during the past two years and the growth in the number of customers purchasing
energy from KES.
24
<PAGE>
OPERATING EXPENSES
Total operating expenses were $475.4 million for the quarter ended June 30, 1999
as compared to $444.6 million for the quarter ended June 30, 1998. For the six
months ended June 30, 1999 total operating expenses were $1,191.8 million as
compared to $992.7 million for the six months ended June 30, 1998. Comparative
total operating expenses reflect the change in the structure of the Company's
business and the timing of the LIPA Transaction and KeySpan Acquisition.
Operating expenses, excluding the cost of gas and revenue taxes (i.e., net
operating expenses), were $360.2 million and $721.1 for the three and six months
ended June 30, 1999, respectively. On a proforma, combined company basis, net
operating expenses, excluding special charges, were $480.3 million and $1,053.8
million for the quarter and six months ended June 30, 1998. The discussion that
follows presents a comparison of net operating expenses, excluding special
charges, on a proforma, combined company basis, by major segment for the quarter
and six months ended June 30, 1999 compared to the corresponding periods last
year.
GAS DISTRIBUTION
Net operating expenses were $140.8 million, or 51% of Gas Distribution revenues,
for the quarter ended June 30, 1999 as compared to $164.4 million, or 54% of Gas
Distribution revenues, for the quarter ended June 30, 1998 on a proforma,
combined company basis. For the six months ended June 30, 1999 net operating
expenses were $295.4 million as compared to $337.8 million for the six months
ended June 30, 1998 on a proforma, combined company basis. The decrease of $23.6
million and $42.4 million for the quarter and six months ended June 30, 1999 as
compared to the corresponding periods last year was 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 operating and maintenance expense for the six months ended June
30, 1999. Brooklyn Union of Long Island discontinued 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) currently being reflected in utility
tariff rates and contracts with LIPA;
25
<PAGE>
however, no assurances can be given as to what level of savings
will be realized.
GAS EXPLORATION AND PRODUCTION
Gas Exploration and Production operating expenses for the quarter ended June 30,
1999 were $24.4 million, or 70% of Gas Exploration and Production revenues, as
compared to $26.8 million, or 76% of Gas Exploration and Production revenues,
for the corresponding period last year on a proforma, combined company basis.
Operating expenses were $47.5 million for the six months ended June 30, 1999 as
compared to $52.7 million for the six months ended June 30, 1998 on a proforma,
combined company basis. The comparative decrease in expenses for the quarter and
six months was 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 SEC applicable to gas exploration and development operations
accounted for under the full cost method. As a result, THEC's depletion rate for
the quarter and six months ended June 30, 1999 was $1.05 per MCFe of production
and $1.04 per MCFe of production, respectively, as compared to $1.25 per MCFe of
production for both the quarter and six months ended June 30, 1998.
ELECTRIC SERVICES
Operating expenses for the quarter and six months ended June 30, 1999 were
$157.3 million and $299.0 million, respectively as compared to $264.3 million
and $616.5 million for the quarter and six months ended June 30, 1998,
respectively. 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 responsible for paying directly
the cost of fuel and purchased power. Further, for the quarter and six months
ended June 30, 1999 depreciation expense decreased by $15.9 million and $39.5
million, respectively, and operating taxes decreased by $42.4 million and $105.8
million, respectively, as compared to the corresponding periods last year. 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. Offsetting these decreases was the effect on operating expenses
associated with electric regulatory amortizations, primarily the Rate Moderation
Component ("RMC"), which reduced operating expenses by $40.0 million in the
quarter ended June 30, 1998 and by $79.9 million in the six months ended June
30, 1998.
ENERGY RELATED SERVICES
Operating expenses for the quarter ended June 30, 1999 were $38.0 million, as
compared to $20.7 million for the quarter ended June 30, 1998 on a proforma,
combined company basis. Operating expenses
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were $82.0 million for the six months ended June 30, 1999 as compared to $41.2
million for the six months ended June 30, 1998 on a proforma, combined company
basis. The comparative increase in operating expenses for both periods 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.
OTHER INCOME AND DEDUCTIONS
Other income for the quarter and six months ended June 30, 1999 includes
primarily earnings from the investment of the proceeds from the LIPA Transaction
and equity earnings from subsidiaries comprising the Energy Related Investments
segment, offset by a charge of $6 million to accrue carrying charges on certain
rate settlement items previously recorded. For the three and six months ended
June 30, 1998, other income includes benefits of approximately $10 million
primarily related to certain electric regulatory incentives that have been
discontinued due to the LIPA Transaction.
OTHER EXPENSES
Interest expense for the three and six months ended June 30, 1999 reflects the
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, 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. Since the LIPA
Transaction occurred on May 28, 1998, interest expense for the three and six
months ended June 30, 1998 reflects only one month of the reduced level of
outstanding debt. However, interest expense for the three and six months ended
June 30, 1999 reflects the reduction in outstanding debt for the entire periods.
Outstanding debt at June 30, 1999 was $1.6 billion as compared to $4.5 billion
(LILCO only) prior to the LIPA Transaction.
Income tax expense for the quarter and six months ended June 30, 1999 reflects
the level of pre-tax income in both periods and an adjustment to deferred tax
expense and current tax expense for the utilization of a previously deferred net
operating loss carryforward ("NOL") recorded in 1998. In 1998, the Company
recorded, as a deferred tax asset, a benefit of $52.2 million for a NOL that it
will apply in its 1999 federal income tax return. In the quarter ended June 30,
1999, the Company reversed the deferred
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tax asset and recorded the NOL benefit in its current tax provision in
anticipation of applying this NOL to this year's federal income tax payment.
LIQUIDITY, CAPITAL REQUIREMENTS AND DIVIDENDS
LIQUIDITY
The increase in cash flow from operations for the three and six months ended
June 30, 1999 as compared to the corresponding periods last year, reflects
continued strong results from core utility operations and the benefits from the
integration of KSE-acquired companies. Further, cash flow from operations in
1999 reflects the benefit of the $52.2 million NOL on quarterly federal income
tax payments for 1999, as previously discussed. Moreover, in May 1998, $250
million was funded into other postretirement Voluntary Employee Beneficiary
Trusts and as a result, cash flow from operations for the three and six months
ended June 30, 1998 was adversely affected.
At June 30, 1999, the Company had cash and temporary cash investments of $307.3
million and had available unsecured bank lines of credit of $300 million. In
addition, THEC has an unsecured available line of credit with a commercial bank
that provides for a current commitment of $200 million. This line can be
increased to $250 million, subject to certain conditions. During the quarter
ended June 30, 1999, THEC incurred borrowings of $8.0 million under this
facility, at which time $148 million was outstanding. Subsequent to June 30,
1999, THEC had borrowed an additional $4 million, bringing borrowings under this
facility to $152 million.
CAPITAL REQUIREMENTS
On June 15, 1999 the Company extinguished its promissory note to LIPA relating
to the 7.30% Debentures due July 15, 1999. The Company's obligation for these
debentures of $411.5 million consisted of the principal amount of $397.0 million
and $14.5 million of interest accrued and unpaid. (See Note 9. to the Condensed
Consolidated Financial Statements "Extinguishment of Long-Term Debt.")
The Company acquired the Ravenswood facility on June 18, 1999. As a means of
financing the acquisition, the Company entered into a lease agreement with a
special purpose, unaffiliated financing entity that acquired a portion of the
facility directly from Con Ed and leased it to a subsidiary of the Company. The
lease program was established in order for the Company to finance up to $425
million of the $597 million acquisition cost of the facility. The balance of the
funds needed to acquire the facility were provided from cash on hand. (See Note
10. to the Condensed Consolidated
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Financial Statements "Contractual Obligations and Contingencies" for more
details on the lease agreement.)
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 permits the
Company to use up to an additional $500 million of cash for the purchase of
common shares. As of July 29, 1999, the Company had repurchased 19.6 million of
its common shares for $568.9 million. In addition, the Company has commenced an
"odd-lot" program whereby holders of less than 100 shares of the Company's
common stock may sell their shares to the Company or "round-up" their holdings
to 100 shares. The Company intends to continue repurchasing its common stock on
the open market.
As a result of the LIPA Transaction, the Company had a significant amount of
cash which it has used to, among other things, repurchase shares of its common
stock on the open market, expand its operations through increased investments in
energy related activities, such as gas processing plants and gas exploration,
and acquire the Ravenswood facility. Management expects to access the financial
markets during the fourth quarter of fiscal 1999 and during fiscal 2000 in order
to issue approximately $500 million of debt securities. It is anticipated that a
combination of tax-exempt debt obligations through the New York State Energy
Research Development Authority ("NYSERDA"), and publicly traded unsecured debt
obligations will be issued. Moreover, the debt may be issued through one or more
wholly owned subsidiaries. It is anticipated that these securities will be
issued to replace debt obligations that have matured, as previously discussed,
and/or provide working capital. In addition, the Company intends to enter into
certain interest rate swap transactions to hedge a portion of its outstanding
fixed rate debt. The specific timing of these transactions will be determined in
light of market conditions and other factors.
In addition, THEC may sell, in one or more offerings, shares of common and
preferred stock, and/or unsecured debt securities. The aggregate initial
offering price of the securities that will be issued are not expected to exceed
$250 million. The specific timing of these offerings, as well as the prices and
terms of the securities to be issued, will be determined in light of market
conditions and other factors. THEC indicated that the net proceeds received from
the sale of any securities will be used for the repayment of debt and general
corporate purposes. The Company intends to, at a minimum, maintain its current
64% ownership
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interest of THEC and therefore, will purchase additional shares as necessary to
maintain this level of ownership interest.
The Company is currently evaluating its entire capital structure to determine
the appropriate levels of debt and equity. Further, the Company is evaluating
certain credit facilities and may issue commercial paper during the fourth
quarter. The Company anticipates that this evaluation process will be completed
toward the latter part of 1999. At this point in time, except as indicated, the
Company cannot determine the outcome of this evaluation process.
Through a subsidiary, the Company owns a 300-mile fiber optic network on Long
Island and in New York City and is currently in the process of evaluating its
options with respect to the use of this network. Specifically, the options under
consideration include entering into a partnership with or acquiring a
telecommunications company; using excess capacity on the fiber-optic network to
provide services to other carriers, including telecommunications companies,
Internet providers, cable television, as well as providing high-capacity
transmission to commercial customers; or expanding the fiber-optic business
network by bundling energy and telecommunications products and services for
commercial customers.
The Company also continues to explore opportunities for expansion of its
operations through one or more of the following types of transactions: mergers
with or acquisitions of other utilities or entities; investments in new gas
pipelines (and related assets) and gas exploration; or the purchase and/or
construction of additional electric power plants. However, no assurance can be
given that any additional transactions will occur or that such transactions, if
completed, will be integrated with the Company's operations or prove to be
profitable.
DIVIDENDS
On June 21, 1999, the Board of Directors declared a quarterly cash dividend of
$0.445 per share on its outstanding common stock payable on August 1, 1999 to
shareholders of record on July 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 NYPSC and six other parties that in
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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 Annual Report
on Form 10-K for the Transition Period ended December 31, 1998.)
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 that the remaining minimum cost of
its MGP-related environmental cleanup activities, including costs associated
with Ravenswood, will be approximately $134 million and has recorded a related
liability for such amount. Further, as of June 30, 1999, the Company has
expended a total of $13.2 million. (See Note 6. "Environmental Matters" and Note
10. "Contractual Obligations and Contingencies" to the Condensed Consolidated
Financial Statements.)
YEAR 2000 ISSUES
The Company's computer applications are generally based on two digits and have
required additional programming to recognize the start of the new millennium.
Embedded hardware systems have also been updated in order to properly operate
into the year 2000. The remediation and testing of critical systems necessary
for the reliable and safe delivery of electricity and gas have been completed.
System Readiness
A corporate-wide project has been in progress since 1997 to review Company
software, hardware, embedded systems and associated compliance plans. The
project 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 following
areas: electric production, distribution, and transmission; gas distribution;
and communications. The readiness of suppliers and vendor systems has also been
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 have been addressed through a mission critical
process review methodology. Each of the Company's mission critical processes has
been reviewed to: identify and inventory sub-components; assess for year 2000
compliance;
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establish repair plans as necessary; and test in a year 2000 environment.
Mission critical functions consist of both service critical functions and
business critical functions. Service critical functions relate to our ability to
procure gas from suppliers and deliver the gas to our customers in a safe and
reliable manner; and to generate electricity and maintain the electric
transmission and distribution system for LIPA. As of July 1, 1999, inventory,
assessment, repair, testing and the development of contingency plans for these
systems have been completed. Business critical systems, which includes metering,
billing and certain financial and accounting systems, are 96% complete in
remediation and 90% complete in testing. Testing of the last of these systems
will be complete by November 1, 1999. Reports have been filed with the NYPSC
documenting, in detail, this status.
Vendors and business partners needed to support the mission critical 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. However, many vendors and business
partners have not responded to repeated requests for their year 2000 readiness
status. Included in the Company's overall contingency plans, are contingency
plans that address vendor and business partners year 2000 risks.
Risk Scenarios and Contingency Plans
The Company has analyzed each of the mission critical processes to identify
possible year 2000 risks. Each mission critical process will be certified by the
responsible corporate officer as being year 2000 ready. The most reasonably
likely worst case scenarios have been identified. Operating procedures have been
reviewed to ensure that risks are minimized when entering the year 2000 and
other high risk dates. Contingency plans have been completed to address possible
failure points in each mission critical process. These plans will continue to be
reviewed and revised as necessary. Revisions may be required based on the status
of critical vendors and business partners. Testing of these contingency plans
will continue to 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
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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 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 have been developed,
where appropriate, for loss of critical system elements.
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 is coordinating
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 address methods for
manually monitoring these functions and/or utilizing alternative communication
methods.
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In addition to the above, the Company has also planned 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 do not perform as expected and contingency plans
fail, the 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 $30.8 million to address
the year 2000 issue. As of June 30, 1999, $21.5 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. 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
other IT projects. Presently, the Company expects that cash flow from operations
and cash on-hand will be sufficient to fund any remaining 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
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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.
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. 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. At June
30, 1999, the Company has approximately $230 million invested in these
affiliates.
Also, during the period from January 1, 1999 to June 30, 1999, Brooklyn Union
utilized derivative instruments, primarily swaps, to "lock-in" approximately 40%
of its profit margins related to sales to its large-volume customers. The
utility tariff applicable to certain large-volume customers permits gas to be
sold at prices established monthly within a specified range expressed as a
percentage of prevailing alternate fuel oil prices. Whenever hedge positions are
in effect, the Company's subsidiaries are exposed to credit risk in the event of
nonperformance by counter parties to derivative contracts, as well as
nonperformance by the counter parties of the transactions against which they are
hedged. The Company believes that the credit risk related to the swap
instruments is no greater than that associated with the primary commodity
contracts which they hedge, and that reduction of the exposure to price risk
lowers the Company's overall business risk.
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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 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,
and on June 25, 1999, the federal court issued an order dismissing this action.
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
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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. On
June 30, 1999, following a hearing to consider the fairness of the settlement,
the court gave final approval of the settlement. The parties have submitted to
the court a judgment of settlement and on July 1, 1999 the court approved that
judgment. On August 3, 1999 an intervener plaintiff filed a notice of appeal of
that order and final judgment. Pending the outcome of the appeal, the parties
intend to make an application to the federal court for an order and final
judgment, dismissing the remaining federal court actions 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 of discontinuation to the court.
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, and again in June 1999, the plaintiffs
amended their complaint. The amended complaint contains allegations relating to
the Payments and adds the
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recipients of the Payments as defendants. In June 1999, the Company was served
with the second amended complaint. The Company intends to file a motion to
dismiss the second 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 20, 1999 (Annual
Meeting). The persons named below were elected as Directors by holders of the
Company's Common Stock, casting votes in favor or withholding votes as
indicated:
VOTES VOTES
DIRECTOR IN FAVOR WITHHELD
LILYAN H. AFFINITO 106,283,893 14,873,860
GEORGE BUGLIARELLO 106,386,066 14,771,687
ROBERT B. CATELL 106,496,729 14,661,024
HOWARD R. CURD 106,473,146 14,684,607
RICHARD N. DANIEL 106,567,865 14,589,888
DONALD H. ELLIOTT 106,519,662 14,638,091
ALAN H. FISHMAN 106,590,334 14,567,419
JAMES R. JONES 106,468,778 14,688,975
STEPHEN W. MCKESSY 106,534,614 14,623,139
EDWARD D. MILLER 106,579,640 14,578,113
BASIL A. PATERSON 106,353,423 14,804,330
JAMES Q. RIORDAN 106,458,082 14,699,671
FREDERIC V. SALERNO 106,509,267 14,648,486
VINCENT TESE 106,478,822 14,678,931
The voting results of the other items that were approved by shareholders at the
Annual Meeting are as follows:
1. Ratification of the appointment of Arthur Andersen LLP as independent
auditors for the period January 1, 1999 to December 31, 1999.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
COMMON SHARES 119,885,950 601,527 670,276 NOT APPLICABLE
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2. Approval of an amendment of the Company's Certificate of Incorporation to
change the Company's name to KeySpan Corporation.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
COMMON SHARES 119,681,554 824,064 652,135 NOT APPLICABLE
3. Approval of the Company's Employee Discount Stock Purchase Plan.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
COMMON SHARES 94,063,633 4,485,779 1,485,805 21,122,536
4. Approval of the Company's Long-Term Performance Incentive Compensation
Plan.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
COMMON SHARES 75,968,065 22,006,732 2,060,420 21,122,536
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*3.1 Certificate of Incorporation of the Company effective
April 16, 1998, Amendment to
Certificate of Incorporation of the Company effective May
26, 1998, Amendment to
Certificate of Incorporation of the Company effective May
26, 1998, Amendment to
Certificate of Incorporation of the Company effective
April 7, 1999, and Amendment to
Certificate of Incorporation of the Company effective May 20, 1999.
*10.1 Guaranty, dated as of June 9, 1999, from the Company in favor of
LIC Funding, Limited Partnership.
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*10.2 Lease Agreement, dated as of June 9, 1999, between LIC
Funding, Limited Partnership and KeySpan-Ravenswood, Inc.
(Section 12(b)(i), (ii) and (iii) and Section 12(c)(i),
(ii) and (iii), have been omitted from the material and
filed separately with the Securities and Exchange
Commission pursuant to a request for confidential
treatment. These sections appear on pages 60 and 61 of
the complete document).
*10.3 Long-Term Performance Incentive Compensation Plan
effective May 20, 1999.
*27 Financial Data Schedule
(b) Reports on Form 8-K
In its Report on Form 8-K dated May 20, 1999, the Company reported that it
changed its corporate name from MarketSpan Corporation to KeySpan Corporation.
In its Report on Form 8-K dated June 22, 1999, the Company reported that on June
18, 1999 it acquired the 2,168 megawatt Ravenswood electric generation facility
from the Consolidated Edison Company of New York, Inc.
- -------------------------
*Filed Herewith
41
<PAGE>
KEYSPAN 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.
KEYSPAN CORPORATION
(Registrant)
Date August 13, 1999 s/ Ronald S. Jendras
------------------------------
Ronald S. Jendras
Vice President, Controller
and Chief Accounting Officer
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BL HOLDING CORP.
UNDER SECTION 402 OF THE
BUSINESS CORPORATION LAW OF THE STATE OF NEW YORK
I, Thomas D. Balliett, being a natural person over the age of 18
years, for the purpose of forming a corporation pursuant to Section 402 of the
New York Business Corporation Law (the "NYBCL"), do hereby certify as follows:
ARTICLE I
NAME
The name of the corporation (the "Corporation") is "BL Holding Corp."
ARTICLE II
PURPOSE
The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be organized under the
NYBCL, but the Corporation is not formed to engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency or other body without such consent or approval first being obtained.
ARTICLE III
OFFICE
The office of the Corporation is to be located in the County of
Nassau, State of New York.
ARTICLE IV
CAPITAL STOCK
SECTION 1. The aggregate number of shares which the Corporation
shall have authority to issue shall be 450,000,000 shares of Common Stock, par
value $.01 per share and 100,000,000 shares of Preferred Stock, par value $.01
per share.
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SECTION 2. The amount of capital stock of the Corporation shall be
$5,500,000.
SECTION 3. Shares of Preferred Stock may be issued from time to time
in one or more series as may be determined from time to time by the Board of
Directors. Except in respect of the particulars to be fixed by the Board of
Directors as provided below, all shares of Preferred Stock shall be of equal
rank. All shares in any one series of Preferred Stock shall be alike in every
particular except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative. The
voting rights, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each series and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series. The Board of Directors shall have the
authority to fix by resolution duly adopted prior to the issuance of any shares
of a particular series of Preferred Stock designated by the Board of Directors,
the voting rights, if any, of the holders of shares of such series and the
designations, preferences and relative, participating, optional and other
special rights of each series and the qualifications, limitations and
restrictions thereof (the "Preferred Stock Designation").
Without limiting the generality of the foregoing authority of the Board of
Directors, the Board of Directors from time to time may:
a. establish and designate a series of Preferred Stock, which may be
distinguished by number, letter or title from other Preferred Stock of the
Corporation or any series thereof;
b. fix and thereafter increase or decrease (but not below the number of
shares thereof then outstanding) the number of shares that shall constitute
such series;
c. provide for dividends on shares of such series and if provision is made
for dividends, determine the dividend rate and the dates on which
dividends, if declared, shall be payable, whether the dividends shall be
cumulative and, if cumulative, for what date or dates dividends shall
accrue, and the other conditions, if any, including rights of priority, if
any, upon which the dividends shall be paid;
d. provide as to whether the shares of such series shall be redeemable,
and if redeemable, the terms, limitations and restrictions with respect to
such redemption, including without limitation, the manner of selecting
shares for redemption if less than all shares are to be redeemed, the time
or times and the price or prices at which the shares of such series shall
be subject to redemption, in whole or in part, and the amount, if any, in
addition to any accrued dividends thereon which the holders of shares of
any series shall be entitled to receive upon the redemption thereof, which
amount may vary at different redemption dates and may be different with
respect to shares redeemed through the operation of any purchase,
retirement or sinking fund and with respect to shares otherwise redeemed;
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<PAGE>
e. fix the amount, in addition to any accrued dividends thereon, which the
holders of shares of such series shall be entitled to receive upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, which amount may vary at different dates and may vary
depending on whether such liquidation, dissolution or winding up is
voluntary or involuntary, and to determine any other rights, if any, to
which holders of the shares of such series shall be entitled in the event
of any liquidation, dissolution or winding up of the Corporation;
f. establish whether the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and if so, the terms,
limitations and restrictions with respect thereto, including without
limitation, whether such purchase, retirement or sinking fund shall be
cumulative or noncumulative, the extent to and the manner in which such
funds shall be applied to the purchase, retirement or redemption of the
shares of such series for retirement or to other corporate purposes and
the terms and provisions relative to the operation thereof;
g. determine the extent of the voting rights, if any, of the shares of such
series and determine whether the shares of such series having voting rights
shall have multiple votes per share;
h. provide whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of capital
stock of the Corporation, including Common Stock, Preferred Stock or of
any series thereof, and if convertible or exchangeable, establish the
conversion or exchange price or rate, the adjustments thereof, and the
other terms and conditions, if any, on which such shares shall be
convertible or exchangeable; and
i. provide for any other preferences, any relative participating,
optional or other special rights, any qualifications, limitations or
restrictions thereof, or any other term or provision of shares of such
series as the Board of Directors may deem appropriate or desirable.
Shares of Preferred Stock may be issued by the Corporation for such
consideration as is determined by the Board of Directors.
SECTION 4. The Common Stock shall be subject to the express terms of
the Preferred Stock and any series thereof. The holders of shares of Common
Stock shall be entitled to one vote for each such share upon all proposals
presented to the shareholders on which the holders of Common Stock are entitled
to vote. Except as otherwise provided by law or by the resolution or resolutions
adopted by the Board of Directors designating the rights, powers and preferences
of any series of Preferred Stock, the Common Stock shall have the exclusive
right to vote for the election of Directors and for all other purposes, and
holders of Preferred Stock shall
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<PAGE>
not be entitled to receive notice of any meeting of shareholders at which they
are not entitled to vote. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to any Preferred Stock Designation.
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
ARTICLE V
SHAREHOLDER ACTION
Any action required or permitted to be taken by the shareholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law and subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of shareholders of the
Corporation for any purpose or purposes may be called only by the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof
approved by a majority of the total number of Directors which the Corporation
would have if there were no vacancies (the "Whole Board") and any power of
shareholders to call a special meeting is specifically denied. No business other
than that stated in the notice shall be transacted at any special meeting.
ARTICLE VI
ELECTION OF DIRECTORS
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of Directors of the Corporation need not be by
written ballot.
ARTICLE VII
BOARD OF DIRECTORS
SECTION 1. NUMBER, ELECTION AND TERMS. Except as otherwise fixed by
or pursuant to the provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional Directors under
specified circumstances, the number of the Directors of the Corporation shall be
fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the Whole Board. No decrease in the number of Directors, however,
shall shorten the term of any incumbent Director. Directors shall be elected by
the shareholders of the Corporation
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<PAGE>
at their annual meeting except as herein otherwise provided for newly created
directorships and vacancies, to serve for one year or until their successors are
elected or chosen and qualified.
SECTION 2. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES;
SHAREHOLDER PROPOSAL OF BUSINESS. Advance notice of shareholder nominations for
the election of Directors and of the proposal of business by shareholders shall
be given in the manner provided in the ByLaws of the Corporation, as amended and
in effect from time to time.
SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise provided for or fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect Directors under specified circumstances, newly created directorships
resulting from any increase in the number of Directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the Board
of Directors, and not by the shareholders. Any Director elected in accordance
with the preceding sentence shall hold office for the remainder of such
unexpired term or until such Director's successor shall have been duly elected
and qualified. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 4. REMOVAL. Subject to the rights of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect Directors under specified circumstances, any Director may
be removed from office only for cause by the affirmative vote of the holders of
at least a majority of the voting power of all shares of the Corporation
entitled to vote generally in the election of Directors (the "Voting Stock")
then outstanding, voting together as a single class.
SECTION 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VII.
ARTICLE VIII
BY-LAWS
The By-Laws may be altered or repealed and new By-Laws may be
adopted (1) at any annual or special meeting of shareholders, by the affirmative
vote of the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereat, provided, however, that any proposed
alteration or repeal of, or the adoption of any By-Law inconsistent with,
Section 2.2, 2.7 or 2.10 of Article II of the By-Laws or with Section 3.9 or
3.11 of Article III of the By-Laws, by the shareholders shall require the
affirmative vote of the holders of at least
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<PAGE>
80% of the voting power of all Voting Stock then outstanding, voting together as
a single class; and provided, further, however, that in the case of any such
shareholder action at a special meeting of shareholders, notice of the proposed
alteration, repeal or adoption of the new By-Law or By-Laws must be contained in
the notice of such special meeting, or (2) by the affirmative vote of a majority
of the Whole Board; provided that any proposed alteration or repeal of, or the
adoption of any By-Law inconsistent with, Section 4.9 or 4.11 of the Article IV
of the By-Laws by the Board of Directors shall require the vote of two-thirds of
the Whole Board.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
New York at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and, except as set forth in Articles XIV and XV,
all rights, preferences and privileges of whatsoever nature conferred upon
shareholders, Directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the Voting Stock then outstanding, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with or repeal Article V, VII, VIII or this sentence.
ARTICLE X
AGENT FOR SERVICE OF PROCESS
The Secretary of State of the State of New York is designated as
agent of the Corporation upon whom process against the Corporation may be
served. The post office address to which the Secretary of State shall mail a
copy of any process against the Corporation served upon him is: c/o C T
Corporation System, 1633 Broadway, New York, New York 10019.
ARTICLE XI
REGISTERED AGENT
The name and address of the registered agent which is to be the
agent of the corporation upon whom process against it may be served, is CT
Corporation System, 1633 Broadway, New York, New York 10019.
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<PAGE>
ARTICLE XII
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE XIII
NO PREEMPTIVE RIGHTS
The holders of equity shares and the holders of voting shares (as
each term is defined in Section 622 of the NYBCL) of the Corporation shall not
have any preemptive rights.
ARTICLE XIV
LIMITED LIABILITY; INDEMNIFICATION
SECTION 1. Each person who was or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, or
appeal thereof, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a Director or officer
of the Corporation or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a Director, officer, employee or agent or in any
other capacity while serving as a Director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the NYBCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including, but not limited to, all attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a Director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; PROVIDED, HOWEVER, that, except
as provided in Section 2 of this Article XIV, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 1 shall be a contract right and shall
include the right to be paid by the Corporation the expenses (including, without
limitation, attorneys' fees) incurred in defending any such proceeding in
advance of its final disposition; PROVIDED, HOWEVER, that, if the NYBCL
requires, the payment of such expenses incurred by a Director or officer in his
or her capacity as a Director or officer (and not in any other capacity in which
service was or is rendered by such person while a Director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery
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<PAGE>
to the Corporation of an undertaking, by or on behalf of such Director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such Director or officer is not entitled to be indemnified under this
Article XIV or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of Directors and
officers, or on such other terms and conditions as the Board of Directors may
deem necessary or desirable.
SECTION 2. If a claim under Section 1 of this Article XIV is not
paid in full by the Corporation within thirty days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including, without limitation, attorneys' fees) of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the NYBCL for the Corporation to in
demnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, or any part thereof, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the NYBCL, nor an actual determination by the Corporation
(including its Board of Directors, or any part thereof, independent legal
counsel, or its shareholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
SECTION 3. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article XIV shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of shareholders or disinterested
Directors or otherwise.
SECTION 4. The Corporation may maintain insurance, at its expense,
to protect itself and any Director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, to the fullest extent allowed
by law, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the NYBCL.
ARTICLE XV DIRECTOR LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or
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its shareholders for damages for any breach of duty in such capacity except that
the liability of a Director shall not be so limited if (1) a judgment or other
final adjudication adverse to him estab lishes that his acts or omissions were
in bad faith or involved intentional misconduct or a knowing violation of law or
that he personally gained in fact a financial profit or other advantage to which
he was not legally entitled or that his acts violated Section 719 of the NYBCL,
or (2) his acts or omissions occurred prior to the adoption of this provision.
No amendment to or repeal of this Article XV shall apply to or have any effect
on the liability or alleged liability of any Director of the Corporation for or
with respect to any acts or omissions of such Director occurring prior to such
amendment or repeal. If the NYBCL is amended hereafter to expand or limit the
liability of a director, then the liability of a Director of the Corporation
shall be expanded to the extent required or limited to the extent permitted by
the NYBCL, as so amended.
IN WITNESS WHEREOF, I have executed this Certificate of
Incorporation this 15th day of April, 1998.
/S/ THOMAS D. BALLIETT
----------------------
Thomas D. Balliett, Esq.
Incorporator
919 Third Avenue
New York, NY 10022
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<PAGE>
ACKNOWLEDGEMENT
STATE OF NEW YORK, )
) ss.:
COUNTY OF NEW YORK, )
On this 15 day of April, 1998, personally came before me Thomas D.
Balliett, a person known to me to be the person who executed the foregoing
Certificate of Incorporation, and he acknowledged that he signed said
Certificate of Incorporation and acknowledged the same as his free act and deed.
Given under my hand and seal the day and year first above written.
/s/ Judi Wasserman
------------------
Notary Public
[seal]
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<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BL HOLDING CORP.
Under Section 805 of the Business Corporation Law
of the State of New York
-----------
BL Holding Corp., a corporation organized and existing under the laws of
the State of New York (the "Corporation"), does hereby certify as follows:
FIRST: The name of the Corporation is BL Holding Corp.
SECOND: The certificate of incorporation of the Corporation was filed
by the New York Department of State on April 16, 1998.
THIRD: The certificate of incorporation is hereby amended to change
the name of the Corporation and to change the par value of the Preferred Stock
of the Corporation, each as authorized by the New York Business Corporation Law,
to wit:
Article I relating to the name of the Corporation is amended to read
in its entirety as follows:
"ARTICLE I
NAME
"The name of the corporation shall be: MarketSpan Corporation."
<PAGE>
Sections 1 and 2 of Article IV relating to the capital stock of the
Corporation are amended to read in their entirety as follows:
"SECTION 1. The aggregate number of shares which the
Corporation shall have the authority to issue shall be (i)
450,000,000 shares of Common Stock, par value $.01 per share, (ii)
16,000,000 shares of Preferred Stock, par value $25 per share, (iii)
1,000,000 shares of Preferred Stock, par value $100 per share and
(iv) 83,000,000 shares of Preferred Stock, par value $.01 per share.
SECTION 2. The amount of capital stock of the Corporation
shall be $505,330,000."
FOURTH: The foregoing amendments to the certificate of incorporation
were duly adopted by a Unanimous Written Consent of the Board of Directors of
the Corporation and by a Unanimous Written Consent of the shareholders of the
Corporation, in accordance with Section 803 of the New York Business Corporation
Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
signed this Certificate of Amendment and each affirms that the statements made
herein are true under the penalties of perjury.
Dated: May 21, 1998
BL HOLDING CORP.
By: /s/ William J. Catacosinos
------------------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
By: /s/ Kathleen Marion
-----------------------
Name: Kathleen Marion
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MARKETSPAN CORPORATION
Under Section 805 of the Business Corporation Law
of the State of New York
-----------
MarketSpan Corporation, a corporation organized and existing under the
laws of the State of New York (the "Corporation"), does hereby certify as
follows:
FIRST: The present name of the Corporation is MarketSpan Corporation. The
Corporation was formed under the name "BL Holding Corp."
SECOND: The Certificate of Incorporation of the Corporation was filed with
the New York Department of State on April 16, 1998. A Certificate of Amendment
of the Certificate of Incorporation was filed with the New York Department of
State on May 26, 1998.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is as follows:
To add provisions stating the number, designation, relative rights,
preferences, and limitations of the shares of the Series A ESOP
Convertible Preferred Stock, Series AA Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, as fixed by the Board of Directors of
the Corporation.
FOURTH: To accomplish the foregoing amendment, Article IV of the
Certificate of Incorporation of the Corporation, relating to the capital stock
of the Corporation is hereby amended as follows:
A Section 5 shall be inserted at the end of such Article IV, and such
Section 5 shall read in its entirety as follows:
<PAGE>
"SECTION 5. The designations, and relative, distribution, dividend, liquidation
and other rights, preferences and limitations of each series of Preferred Stock
are as follows:
PART A. SERIES A ESOP CONVERTIBLE PREFERRED STOCK
1. Designation and Issuance
(A) One hundred thousand (100,000) shares of Preferred Stock are hereby
designated as Series A ESOP Convertible Preferred Stock (hereinafter referred to
as "Series A Preferred Stock"). Such number of shares may be increased or
decreased by resolution of the Board of Directors, but no such decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
that of the shares then outstanding plus the number of shares issuable upon
exercise of any rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation. All shares of Series A Preferred Stock
redeemed or purchased by the Corporation shall be retired and shall be restored
to the status of authorized but unissued shares of Preferred Stock.
(B) Shares of Series A Preferred Stock shall be issued only to a trustee
or trustees acting on behalf of an employee benefit plan of the Corporation or
any subsidiary or affiliated entity (a "Plan"). In the event of any sale,
transfer or other disposition (hereinafter for purposes of this Part A, a
"transfer") of shares of Series A Preferred Stock to any person other than any
trustee or trustees of any Plan, the shares of Series A Preferred Stock so
transferred, upon such transfer and without any further action by the
Corporation or the holder, shall be automatically converted into shares of
Common Stock at the Conversion Price (as hereinafter defined) and on the terms
otherwise provided for the conversion of shares of Series A Preferred Stock into
shares of Common Stock pursuant to Subsection 5 of this Part A and no such
transferee shall have any of the voting powers, preferences and relative,
participating, optional or special rights ascribed to shares of Series A
Preferred Stock hereunder but, rather, only the powers and rights pertaining to
the Common Stock into which such shares of Series A Preferred Stock shall be so
converted. In the event of such a conversion, such transferee shall be treated
for all purposes as the record holder of the shares of Common Stock into which
the Series A Preferred Stock shall have been converted as of the date of such
conversion. Certificates representing shares of Series A Preferred Stock shall
be legended to reflect such restrictions on transfer. Notwithstanding the
foregoing provisions of this Subsection 1, shares of Series A Preferred Stock
(i) may be converted into shares of Common Stock as provided by Subsection 5 of
this Part A and the shares of Common Stock issued upon such conversion may be
transferred by the holder thereof as permitted by law and (ii) shall be
redeemable by the Corporation upon the terms and conditions provided by
Subsections 6, 7 and 8 of this Part A.
2. Dividends and Distributions
(A)(1) Subject to the provisions for adjustment hereinafter set forth in
this Part A, the holders of shares of Series A Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors out of funds legally
available therefor, cash dividends ("Regular
<PAGE>
Preferred Dividends") in an amount per share initially equal to $6.00 per share
per annum, subject to adjustment from time to time as hereinafter provided, and
no more, except as provided in paragraph (A)(2) of this Subsection 2 (such
amount, as adjusted from time to time, being hereinafter referred to, for
purposes of this Part A, as the "Regular Preferred Dividend Rate"), payable
semiannually in arrears, one-half on March 1, and one-half on September 1 of
each year (each a "Series A Dividend Payment Date") commencing on September 1,
1998, to holders of record at the start of business on such Series A Dividend
Payment Date. Regular Preferred Dividends shall begin to accrue on outstanding
shares of Series A Preferred Stock from the date of issuance of such shares of
Series A Preferred Stock. Regular Preferred Dividends shall accrue on a daily
basis, based on the Regular Preferred Dividend Rate in effect on such date,
whether or not the Corporation shall have earnings or surplus at the time,
computed on the basis of a 360-day year of 30-day months in case of any period
less than a full semiannual period. Accrued but unpaid Regular Preferred
Dividends shall cumulate as of the Series A Dividend Payment Date on which they
first become payable, but no interest shall accrue on accumulated but unpaid
Regular Preferred Dividends.
(2) In the event that for any period of six (6) months preceding any
Series A Dividend Payment Date the aggregate fair value (as determined by the
Board of Directors) of all dividends and other distributions declared per share
of Common Stock during such six month period multiplied by the number of shares
of Common Stock into which a share of Series A Preferred Stock was convertible
on the appropriate dividend payment date for the Common Stock shall exceed the
amount of the Regular Preferred Dividends accrued on a share of Series A
Preferred Stock during such six month period, the holders of shares of the
Series A Preferred Stock shall be entitled to receive, when and as declared by
the Board of Directors out of funds legally available therefore, cash dividends
(the "Supplemental Preferred Dividends") in an amount per share (with
appropriate adjustments to reflect any stock split or combination of shares or
other adjustment provided for in Subsection 9 of this Part A) equal to the
amount of such excess up to but not exceeding (x) the product of two percent
(2%) times the average of the Fair Market Values of the number of shares of
Common Stock into which a share of Series A Preferred Stock was convertible on
the day next preceding the ex-dividend date for each such dividend and the
distribution date for each such distribution on the Common Stock of the
Corporation minus (y) such amount of accrued Regular Preferred Dividends. The
calculation of each Supplemental Preferred Dividend shall be subject to
adjustment corresponding to the adjustments provided in Subsection 9 of this
Part A. Supplemental Preferred Dividends shall accrue and cumulate as of the
close of each relevant six month period and shall be payable on the Series A
Dividend Payment Date next following the close of any such six month period, but
no interest shall accrue on accumulated but unpaid Supplemental Preferred
Dividends and no Supplemental Preferred Dividends shall accrue in respect of any
period of less than six months.
(B)(1) No full dividends shall be declared or paid or set apart for
payment on any shares ranking, as to dividends, on a parity with or junior to
the Series A Preferred Stock, for any period unless full cumulative dividends
(which for all purposes of this resolution shall include Regular Preferred
Dividends and Supplemental Preferred Dividends) have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Series A Preferred Stock for all Series A
Dividend Payment Dates occurring on
<PAGE>
or prior to the date of payment of such full dividends. When dividends are not
paid in full, as aforesaid, upon the shares of Series A Preferred Stock and any
other shares ranking, as to dividends, on a parity with Series A Preferred
Stock, all dividends declared upon shares of Series A Preferred Stock shall be
declared pro rata so that the amount of dividends declared per share on Series A
Preferred Stock and such other parity shares shall in all cases bear to each
other the same ratio that accumulated dividends per share on the shares of
Series A Preferred Stock and such other parity shares bear to each other. Except
as otherwise provided herein, holders of shares of Series A Preferred Stock
shall not be entitled to any dividends, whether payable in cash, property or
shares, in excess of full cumulative dividends, as herein provided, on Series A
Preferred Stock.
(B)(2) So long as any shares of Series A Preferred Stock are outstanding,
no dividend (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Common Stock
or other shares ranking junior to Series A Preferred Stock as to dividends and
upon liquidation and other than as provided in paragraph (B)(1) of this
Subsection 2) shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other shares
ranking junior to or on a parity with Series A Preferred Stock as to dividends
or upon liquidation, nor shall any Common Stock or any other shares of the
Corporation ranking junior to or on a parity with Series A Preferred Stock as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Corporation (except by conversion
into or exchange for shares of the Corporation ranking junior to Series A
Preferred Stock as to dividends and upon liquidation) unless, in each case, the
full cumulative dividends on all outstanding shares of Series A Preferred Stock
shall have been paid.
(3) Any dividend payment made on shares of Series A Preferred Stock shall
first be credited against the earliest accumulated but unpaid dividend due with
respect to shares of Series A Preferred Stock.
3. Liquidation Preference
(A) In the event of any dissolution or liquidation of the Corporation,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Corporation (whether capital or surplus) shall be made to or set
apart for the holders of any series or class or classes of stock of the
corporation ranking junior to Series A Preferred Stock upon dissolution or
liquidation, the holders of Series A Preferred Stock shall be entitled to
receive the Liquidation Price (as hereinafter defined) per share in effect at
the time of dissolution or liquidation, plus an amount equal to all dividends
accrued (whether or not accumulated) and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payments. The Liquidation Price per share which holders of Series A
Preferred Stock shall receive upon dissolution or liquidation shall be equal to
$100, subject to adjustment as hereinafter provided in this Part A. If, upon any
dissolution or liquidation of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of Series A Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares ranking as to dissolution or
liquidation, on a parity with Series A Preferred Stock, then such
<PAGE>
assets, or the proceeds thereof, shall be distributed among the holders of
Series A Preferred Stock and any such other shares ratably in accordance with
the respective amounts which would be payable on such shares of Series A
Preferred Stock and any such other shares if all amounts payable thereon were
paid in full. For the purposes of this Subsection 3, a consolidation or merger
of the Corporation with one or more corporations shall not be deemed to be a
dissolution or liquidation, voluntary or involuntary.
(B) Subject to the rights of the holders of shares of any series or class
or classes of stock ranking on a parity with or prior to Series A Preferred
Stock, upon any dissolution or liquidation of the Corporation, after payment
shall have been made in full to the holders of Series A Preferred Stock as
provided in this Subsection 3, but not prior thereto, any other series or class
or classes of stock ranking junior to Series A Preferred Stock upon dissolution
or liquidation shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of Series A Preferred Stock shall not be
entitled to share therein.
4. Ranking and Voting of Shares
(A) Any shares of the Corporation shall be deemed to rank:
(1) on a parity with Series A Preferred Stock as to dividends or as to
distribution of assets upon dissolution or liquidation, whether or not the
dividend rates, dividend payment dates, or redemption or liquidation prices per
share thereof be different from those of Series A Preferred Stock, if the
holders of such class of stock and Series A Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable upon dissolution or
liquidation, as the case may be, in proportion to their respective dividend or
liquidation amounts, as the case may be, without preference or priority one over
the other, and
(2) junior to Series A Preferred Stock as to dividends or as to the
distribution of assets upon dissolution or liquidation, if such shares shall be
Common Stock or if the holders of Series A Preferred Stock shall be entitled to
receipt of dividends or of amounts distributable upon dissolution or
liquidation, as the case may be, in preference or priority to the holders of
such shares.
(B) The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(1) Except as otherwise required by law or set forth herein, holders of
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for the taking of any corporate
action, including the issuance of any preferred stock now or hereafter
authorized; PROVIDED, HOWEVER, that the vote of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, voting separately as a series,
shall be necessary to approve any alteration, amendment or repeal of any
provision of the Certificate of Incorporation or any alteration, amendment or
repeal of any provision of the Certificate of Incorporation relating to the
<PAGE>
designation, preferences and rights of Series A Preferred Stock (including any
such alteration, amendment or repeal effected by any merger or consolidation in
which the Corporation is the surviving or resulting corporation), if such
amendment, alteration or repeal would alter or change the powers, preferences,
or special rights of the Series A Preferred Stock so as to affect them
adversely.
5. Conversion into Common Stock
(A) Holders of shares of Series A Preferred Stock shall be entitled, at
any time prior to the close of business on the date fixed for redemption of such
shares pursuant to Subsections 6, 7, or 8 of this Part A, to cause any or all of
such shares to be converted into shares of Common Stock. The number of shares of
Common Stock into which each share of the Series A Preferred Stock may be
converted shall be determined by dividing the Liquidation Price in effect at the
time of conversion by the Conversion Price (as hereinafter defined) in effect at
the time of conversion. The Conversion Price per share at which shares of Common
Stock shall be issuable upon conversion of any shares of Series A Preferred
Stock shall be 115% of the Current Market Price of the Common Stock on the first
day on which the Common Stock is publicly traded, subject to adjustment as
hereinafter provided in this Part A.
(B) Any holder of shares of Series A Preferred Stock desiring to convert
such shares into shares of Common Stock shall surrender, if certificated, the
certificate or certificates representing the shares of Series A Preferred Stock
being converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), or if
uncertificated, a duly executed stock power relating thereto, at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation or the
transfer agent for the Series A Preferred Stock, accompanied by written notice
of conversion. Such notice of conversion shall specify (i) the number of shares
of Series A Preferred Stock to be converted and the name or names in which such
holder wishes the Common Stock and any shares of Series A Preferred Stock not to
be so converted to be issued, and (ii) the address to which such holder wishes
delivery to be made of a confirmation of such conversion, if uncertificated, or
any new certificates which may be issued upon such conversion if certificated.
(C) Upon surrender, if certificated, of a certificate representing a share
or shares of Series A Preferred Stock for conversion, or if uncertificated, of a
duly executed stock power relating thereto, the Corporation shall issue and send
by hand delivery (with receipt to be acknowledged) or by first class mail,
postage prepaid, to the holder thereof or to such holder's designee, at the
address designated by such holder, if certificated, a certificate or
certificates for, or if uncertificated, confirmation of, the number of shares of
Common Stock to which such holder shall be entitled upon conversion. In the
event that there shall have been surrendered shares of Series A Preferred Stock,
only part of which are to be converted, the Corporation shall issue and deliver
to such holder or such holder's designee, if certificated, a new certificate or
certificates representing the number of shares of Series A Preferred Stock which
shall not have been
<PAGE>
converted, or if uncertificated, confirmation of the number of shares of Series
A Preferred Stock which shall not have been converted.
(D) The issuance by the Corporation of shares of Common Stock upon a
conversion of shares of Series A Preferred Stock into shares of Common Stock
made at the option of the holder thereof shall be effective as of the earlier of
(i) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock issued upon conversion thereof if
certificated or confirmation if uncertificated or (ii) the commencement of
business on the second business day after the surrender of the certificate or
certificates, if certificated, or a duly executed stock power, if
uncertificated, for the shares of Series A Preferred Stock to be converted. On
and after the effective date of conversion, the person or persons entitled to
receive Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock, but no
allowance or adjustment shall be made in respect of dividends payable to holders
of Common Stock of record on any date prior to such effective date. The
Corporation shall not be obligated to pay any dividends which shall have been
declared and shall be payable to holders of shares of Series A Preferred Stock
on a Series A Dividend Payment Date if such Series A Dividend Payment Date for
such dividend shall be on or subsequent to the effective date of conversion of
such shares.
(E) The Corporation shall not be obligated to deliver to holders of Series
A Preferred Stock any fractional share or shares of Common Stock issuable upon
any conversion of such shares of Series A Preferred Stock, but in lieu thereof
may make a cash payment in respect thereof in any manner permitted by law.
(F) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock or treasury Common Stock, solely for
issuance upon the conversion of shares of Series A Preferred Stock as herein
provided, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series A Preferred Stock then
outstanding.
6. Redemption at the Option of the Corporation
(A) The Series A Preferred Stock shall be redeemable, in whole or in part,
at the option of the Corporation at any time after January 1, 2004, out of funds
legally available therefor, at the following redemption prices per share (or if
pursuant to paragraph (C) of this Subsection 6, at the redemption price set
forth therein):
<TABLE>
<CAPTION>
DURING THE TWELVE-MONTH
PERIOD BEGINNING PRICE PER SHARE
---------------- ---------------
<S> <C>
Jan. 1, 2004 102% of the Liquidation Price in effect on date fixed for redemption
Jan. 1, 2005 101% of the Liquidation Price in effect on date fixed for redemption
Jan. 1, 2006 100% of the Liquidation Price in effect on date fixed for redemption
</TABLE>
<PAGE>
and thereafter at 100% of the Liquidation Price per share in effect on the date
fixed for redemption, plus, in each case (including in the case of redemptions
pursuant to paragraph (C) or (D) of this Subsection 6), an amount equal to all
accrued (whether or not accumulated) and unpaid dividends thereon to the date
fixed for redemption. Payment of the redemption price shall be made by the
Corporation in cash or shares of Common Stock, or a combination thereof, as
permitted by paragraph (D) of this Subsection 6. From and after the date fixed
for redemption, dividends on shares of Series A Preferred Stock called for
redemption will cease to accrue, such shares will no longer be deemed to be
outstanding and all rights in respect of such shares of the Corporation shall
cease, except the right to receive the redemption price. If less than all of the
outstanding shares of Series A Preferred Stock are to be redeemed, the
Corporation shall either redeem a portion of the shares of each holder
determined pro rata based on the number of shares held by each holder or shall
select the shares to be redeemed by lot, as may be determined by the Board of
Directors of the Corporation.
(B) Unless otherwise required by law, notice of redemption will be sent to
the holders of Series A Preferred Stock at the address shown on the books of the
Corporation or any transfer agent for Series A Preferred Stock by first class
mail, postage prepaid, mailed not less than twenty (20) days nor more than sixty
(60) days prior to the redemption date. Each notice shall state: (i) the
redemption date; (ii) the total number of shares of the Series A Preferred Stock
to be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates, if certificated,
for such shares are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; (vi) the conversion rights of the shares to be redeemed, the
period within which conversion rights may be exercised, and the Conversion Price
and number of shares of Common Stock issuable upon conversion of a share of
Series A Preferred Stock at the time. Upon surrender of the certificates, if
certificated, for any shares so called for redemption, or upon the date fixed
for redemption, if uncertificated, such shares if not previously converted shall
be redeemed by the Corporation on the date fixed for redemption and at the
redemption price set forth in this Subsection 6.
(C) Notwithstanding anything to the contrary in paragraph (A) of this
Subsection 6, in the event that the Plan is terminated, the Corporation may, in
its sole discretion, call for redemption any or all of the then outstanding
Series A Preferred Stock at a redemption price calculated on the basis of the
redemption prices provided in paragraph (A) of this Subsection 6, increased, in
each such case, by 50% of the amount thereof in excess of 100%.
(D) The Corporation, at its option, may make payment of the redemption
price required upon redemption of shares of Series A Preferred Stock in cash or
in shares of Common Stock, or in a combination of such shares and cash, any such
shares of Common Stock to be valued for such purpose at their Fair Market Value
as defined in paragraph 9(G)(2) of this Part A; PROVIDED, HOWEVER, that in
calculating their Fair Market Value the Adjustment Period shall be deemed to be
the five (5) consecutive trading days preceding the date of redemption.
7. Redemption at the Option of the Holder
<PAGE>
(A) Unless otherwise provided by law, shares of Series A Preferred Stock
shall be redeemed by the Corporation out of funds legally available therefor for
cash or, if the Corporation so elects, in shares of Common Stock, or a
combination of such shares and cash, any such shares of Common Stock to be
valued for such purpose as provided by paragraph (D) of Subsection 6 of this
Part A, at a redemption price equal to the higher of (x) the Liquidation Price
per share in effect on the date fixed for redemption or (y) the Fair Market
Value of the number of shares of Common Stock into which each share of Series A
Preferred Stock is convertible at the time the notice of such redemption is
given plus in either case an amount equal to accrued (whether or not
accumulated) and unpaid dividends thereon to the date fixed for redemption, at
the option of the holder, at any time and from time to time upon notice to the
Corporation given not less than five (5) business days prior to the date fixed
by the holder in such notice of redemption, when and to the extent necessary for
such holder to provide for distributions required to be made under, or to
satisfy an investment election provided to participants in accordance with, the
Profit Sharing Plan incorporated in the Employee Savings Plans holder or his
affiliates, or any successor plan or when the holder elects to redeem shares of
Series A Preferred Stock in respect of any Regular or Supplemental Preferred
Dividend (a "Dividend Redemption"). In the case of any Dividend Redemption, such
holder shall give the notice specified above within (5) business days after the
related Series A Dividend Payment Date and such redemption shall be effective as
to such number of shares of Series A Preferred Stock as shall equal (x) the
aggregate amount of such Regular or Supplemental Preferred Dividend with respect
to shares of Series A Preferred Stock allocated or credited to the accounts of
participants in the Plan, or any successor plan divided by (y) the redemption
price specified above.
8. Consolidation, Merger, etc.
(A) In the event that the Corporation shall consummate any consolidation
or merger or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged solely for
or changed, reclassified or converted solely into shares of any successor or
resulting company (including the Corporation) that constitute "qualifying
employer securities" that are common stock with respect to a holder of Series A
Preferred Stock within the meanings of Section 409(1) of the Code and Section
407(d)(5) of ERISA, or any successor provision of law, and, if applicable, for a
cash payment in lieu of fractional shares, if any, then, in such event, the
terms of such consolidation or merger or similar transaction shall provide that
the shares of Series A Preferred Stock of such holder shall be converted into or
exchanged for and shall become preferred shares of such successor or resulting
company, having in respect of such company insofar as possible the same powers,
preferences and relative, participating, optional or other special rights
(including the redemption rights provided by Subsections 6, 7, and 8 of this
Part A), and the qualifications, limitations or restrictions thereon, that the
Series A Preferred Stock had immediately prior to such transaction; PROVIDED,
HOWEVER, that after such transaction each share of stock into which the Series A
Preferred Stock is so converted or for which it is exchanged shall be
convertible, pursuant to the terms and conditions provided by Subsection 5 of
this Part A, into the number and kind of qualifying employer securities
receivable by a holder of the number of shares of Common Stock into which such
shares of Series A Preferred Stock could have been converted pursuant to
Subsection 5 of this Part A immediately prior to such transaction and provided,
further, that if by virtue of the
<PAGE>
structure of such transaction, a holder of Common Stock is required to make an
election with respect to the nature and kind of consideration to be received in
such transaction, which election cannot practicably be made by the holders of
the Series A Preferred Stock, then such election shall be deemed to be solely
for "qualifying employer securities" (together, if applicable, with a cash
payment in lieu of fractional shares) with the effect provided above on the
basis of the number and kind of qualifying employer securities receivable by a
holder of the number of shares of Common Stock into which the shares of Series A
Preferred Stock could have been converted pursuant to Subsection 5 of this Part
A immediately prior to such transaction (it being understood that if the kind or
amount of qualifying employer securities receivable in respect of each share of
Common Stock upon such transaction is not the same for each such share, then the
kind and amount of qualifying employer securities deemed to be receivable in
respect of each share of Common Stock for purposes of this proviso shall be the
kind and amount so receivable per share of Common Stock by a plurality of such
shares). The rights of the Series A Preferred Stock as preferred shares of such
successor resulting company shall successively be subject to adjustments
pursuant to Subsection 9 of this Part A after any such transaction as nearly
equivalent to the adjustments provided for by such Subsection prior to such
transaction. The Corporation shall not consummate any such merger, consolidation
or similar transaction unless all the terms of this paragraph 8(A) are complied
with.
(B) In the event that the Corporation shall consummate any consolidation
or merger or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged for or
changed, reclassified or converted into other shares or securities or cash or
any other property, or any combination thereof, other than any such
consideration which is constituted solely of qualifying employer securities that
are common stock (as referred to in paragraph (A) of this Subsection 8) and cash
payments, if applicable, in lieu of fractional shares, outstanding shares of
Series A Preferred Stock shall, without any action on the part of the
Corporation or any holder thereof (but subject to paragraph (C) of this
Subsection 8), be automatically converted immediately prior to the consummation
of such merger, consolidation or similar transaction into shares of Common Stock
at the conversion rate then in effect so that each share of Series A Preferred
Stock shall, by virtue of such transaction and on the same terms as apply to the
holders of Common Stock, be converted into or exchanged for the aggregate amount
of shares, securities, cash or other property (payable in like kind) receivable
by a holder of the number of shares of Common Stock into which such shares of
Series A Preferred Stock could have been converted immediately prior to such
transaction if such holder of Common Stock failed to exercise any rights of
election as to the kind or amount of shares, securities, cash or other property
receivable upon such transaction (provided that, if the kind or amount of
shares, securities, cash or other property receivable upon such transaction is
not the same for each non-electing share, then the kind and amount of shares,
securities, cash or other property receivable upon such transaction for each
non-electing share shall be the kind and amount so receivable per share by a
plurality of non-electing shares).
(C) In the event the Corporation shall enter into any agreement providing
for any consolidation or merger or similar transaction described in paragraph
(B) of this Subsection 8, then the Corporation shall as soon as practicable
thereafter (and in any event at least ten (10) days before consummation of such
transaction) give notice of such agreement and the material terms
<PAGE>
thereof to each holder of Series A Preferred Stock and each such holder shall
have the right to elect, by written notice to the Corporation, to receive, upon
consummation of such transaction (if and when such transaction is consummated),
out of funds legally available therefor, from the Corporation or the successor
of the Corporation, in redemption and retirement of such Series A Preferred
Stock, in lieu of any cash or other securities which such holder would otherwise
be entitled to receive under paragraph 8(B) of this Part A, a cash payment equal
to the redemption price specified in paragraph (A) of Subsection 6 of this Part
A in effect on the date of the consummation of such transaction plus an amount
equal to all accrued (whether or not accumulated) and unpaid dividends. No such
notice of redemption shall be effective unless given to the Corporation prior to
the close of business of the fifth business day prior to consummation of such
transaction, unless the Corporation or the successor of the Corporation shall
waive such prior notice, but any notice or redemption so given prior to such
time may be withdrawn by notice of withdrawal given to the Corporation prior to
the close of business on the fifth business day prior to consummation of such
transaction.
9. Anti-dilution Adjustments
(A)(1)Subject to the provisions of paragraph 9(E) of this Part A, in the
event the Corporation shall, at any time or from time to time while any of the
shares of the Series A Preferred Stock are outstanding, (i) pay a dividend or
make a distribution in respect of the Common Stock in shares of Common Stock or
(ii) subdivide the outstanding shares of Common Stock into a greater number of
shares, in each case whether by reclassification of shares, recapitalization of
the Corporation (excluding a recapitalization or reclassification effected by a
merger or consolidation to which Subsection 8 of this Part A applies) or
otherwise, then, in such event, the Board of Directors shall, to the extent
legally permissible, declare a dividend in respect of the Series A Preferred
Stock in shares of Series A Preferred Stock (a "Special Dividend") in such a
manner that a holder of Series A Preferred Stock will become a holder of that
number of shares of Series A Preferred Stock equal to the product of the number
of such shares held prior to such event times a fraction (the "Sec. 9(A)
Non-Dilutive Share Fraction"), the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock outstanding immediately before
such event. A Special Dividend declared pursuant to this paragraph 9(A)(1) shall
be effective, upon payment of such dividend or distribution in respect of the
Common Stock, as of the record date for the determination of shareholders
entitled to receive such dividend or distribution (on a retroactive basis), and
in the case of a subdivision shall become effective immediately as of the
effective date thereof. Concurrently with the declaration of the Special
Dividend pursuant to this paragraph 9(A)(1), the Conversion Price, the
Liquidation Price and the Regular Preferred Dividend Rate of all shares of
Series A Preferred Stock shall be adjusted by dividing the Conversion Price, the
Liquidation Price and the Regular Preferred Dividend Rate, respectively, in
effect immediately before such event by the Sec. 9(A) Non-Dilutive Share
Fraction.
(2) The Corporation and the Board of Directors shall each use its best
efforts to take all necessary or appropriate action for declaration of the
Special Dividend provided in paragraph 9(A)(1) of this Part A but shall not be
required to call a special meeting of shareholders in order to implement the
provisions thereof. If for any reason the Board of Directors is precluded from
<PAGE>
giving full effect to the Special Dividend provided in paragraph 9(A)(1) of this
Part A, then no such Special Dividend shall be declared, but instead the
Conversion Price shall automatically be adjusted by dividing the Conversion
Price in effect immediately before the event by the Sec. 9(A) Non-Dilutive Share
Fraction and the Liquidation Price and the Regular Preferred Dividend Rate will
not be adjusted. An adjustment to the Conversion Price made pursuant to this
paragraph 9(A)(2) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of holders entitled to
receive such dividend or distribution (on a retroactive basis), and in the case
of a subdivision shall become effective immediately as of the effective date
thereof. If subsequently the Board of Directors is able to give full effect to
the Special Dividend as provided in paragraph 9(A)(1) of this Part A, then such
Special Dividend will be declared and other adjustments will be made in
accordance with the provisions of paragraph 9(A)(1) of this Part A and the
adjustment in the Conversion Price as provided in this paragraph 9(A)(2) will
automatically be reversed and nullified prospectively.
(3) Subject to the provisions of paragraph 9(E) of this Part A, in the
event the Corporation shall, at any time or from time to time while any of the
shares of the Series A Preferred Stock are outstanding, combine the outstanding
shares of Common Stock into a lesser number of shares, whether by
reclassification of shares, recapitalization of the Corporation (excluding a
recapitalization or reclassification effected by a merger, consolidation or
other transaction to which Subsection 8 of this Part A applies) or otherwise,
then, in such event, the Conversion Price shall automatically be adjusted by
dividing the Conversion Price in effect immediately before such event by the
Sec. 9(A) Non-Dilutive Share Fraction and the Liquidation Price and the Regular
Preferred Dividend Rate will not be adjusted. An adjustment to the Conversion
Price made pursuant to this paragraph 9(A)(3) shall be given effect immediately
as of the effective date of such combination.
(B)(1)Subject to the provisions of paragraph 9(E) of this Part A, in the
event the Corporation shall, at any time or from time to time while any of the
shares of Series A Preferred Stock are outstanding, issue to holders of shares
of Common Stock as a dividend or distribution, including by way of a
reclassification of shares or a recapitalization of the Corporation, any right
or warrant to purchase shares of Common Stock (but not including as a right or
warrant for this purpose any security convertible into or exchangeable for
shares of Common Stock) for a consideration having a Fair Market Value (as
hereinafter defined) per share less than the Fair Market Value of a share of
Common Stock on the date of issuance of such right or warrant, then, in such
event, the Board of Directors shall, to the extent legally permissible, declare
a dividend in respect of the Series A Preferred Stock in shares of Series A
Preferred Stock (a "Special Dividend") in such a manner that a holder of Series
A Preferred Stock will become a holder of that number of shares of Series A
Preferred Stock equal to the product of the number of such shares held prior to
such event times a fraction (the "Sec. 9(B) Non-Dilutive Share Fraction"), the
numerator of which is the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the maximum number
of shares of Common Stock that could be acquired upon exercise in full of all
such rights and warrants and the denominator of which is the number of shares of
Common Stock outstanding immediately before such issuance of warrants or rights
plus the number of shares of Common Stock which could be purchased at the Fair
Market Value of a share of Common Stock at the time of such issuance for the
maximum
<PAGE>
aggregate consideration payable upon exercise in full of all such rights and
warrants. A Special Dividend declared pursuant to this paragraph 9(B)(1) shall
be effective upon such issuance of rights or warrants. Concurrently with the
declaration of the Special Dividend pursuant to this paragraph 9(B)(1), the
Conversion Price, the Liquidation Price and the Regular Preferred Dividend Rate
of all shares of Series A Preferred Stock shall be adjusted by dividing the
Conversion Price, the Liquidation Price and the Regular Preferred Dividend Rate,
respectively, in effect immediately before such event by the Sec. 9(B)
Non-Dilutive Share Fraction.
(2) The Corporation and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are reasonably
necessary or appropriate for declaration of the Special Dividend provided in
paragraph 9(B)(1) but shall not be required to call a special meeting of
shareholders in order to implement the provisions thereof. If for any reason the
Board of Directors is precluded from giving full effect to the Special Dividend
provided in paragraph 9(B)(1) of this Part A, then no such Special Dividend
shall be declared, but instead the Conversion Price shall automatically be
adjusted by dividing the Conversion Price in effect immediately before the event
by the Sec. 9(B) Non-Dilutive Share Fraction and the Liquidation Price and the
Preferred Dividend Rate will not be adjusted. An adjustment to the Conversion
Price made pursuant to this paragraph 9(B)(2) of this Part A shall be given
effect upon such issuance of rights or warrants. If subsequently the Board of
Directors is able to give full effect to the Special Dividend as provided in
paragraph 9(B)(1) of this Part A, then such Special Dividend will be declared
and other adjustments will be made in accordance with the provisions of
paragraph 9(B)(1) of this Part A and the adjustment in the Conversion Price as
provided in this paragraph 9(B)(2) will automatically be reversed and nullified
prospectively.
(C) (1) (i) Subject to the provisions of paragraph 9(E) of this Part A, in
the event the Corporation shall, at any time or from time to time while any of
the shares of Series A Preferred Stock are outstanding, issue, sell or exchange
shares of Common Stock (other than pursuant to (x) any right or warrant to
purchase or acquire shares of Common Stock (including as such a right or warrant
any security convertible into or exchangeable for shares of Common Stock), (y)
any rights agreement designated by the Board of Directors, or (z) any employee
or director incentive, compensation or benefit plan or arrangement of the
Corporation or any subsidiary of the Corporation heretofore or hereafter
adopted) at a purchase price per share less than the Fair Market Value of a
share of Common Stock on the date of such issuance, sale or exchange, then, in
such event, the Board of Directors shall, to the extent legally permissible,
declare a dividend in respect of the Series A Preferred Stock in shares of
Series A Preferred Stock (a "Special Dividend") in such a manner that a holder
of Series A Preferred Stock will become the holder of that number of shares of
Series A Preferred Stock equal to the product of the number of such shares held
prior to such event times a fraction (the "Sec. 9(C)(1)(i) Non-Dilutive Share
Fraction"), the numerator of which is the number of shares of Common Stock
outstanding immediately before such issuance, sale or exchange plus the number
of shares of Common Stock so issued, sold or exchanged and the denominator of
which is the number of shares of Common Stock outstanding immediately before
such issuance, sale or exchange plus the number of shares of Common Stock which
could be purchased at the Fair Market Value of a share of Common Stock at the
time of such issuance, sale or exchange for the maximum aggregate consideration
paid therefor.
<PAGE>
(ii) In the event that the Corporation shall, at any time or from time to
time while any Series A Preferred Stock is outstanding, issue, sell or exchange
any right or warrant to purchase or acquire shares of Common Stock (including as
such a right or warrant of any security convertible into or exchangeable for
shares of Common Stock other than pursuant to (x) any employee or director
incentive, compensation or benefit plan or arrangement of the Corporation or any
subsidiary of the Corporation heretofore or hereafter adopted, (y) any rights
agreement designated by the Board of Directors, and (z) any dividend or
distribution on shares of Common Stock contemplated in paragraph (9)(A)(1) of
this Part A for a consideration having a Fair Market Value, on the date of such
issuance, sale or exchange, less than the Non-Dilutive Amount (as hereinafter
defined), then, in such event, the Board of Directors shall, to the extent
legally permissible, declare a dividend in respect of the Series A Preferred
Stock in shares of Series A Preferred Stock (a "Special Dividend") in such a
manner that a holder of Series A Preferred Stock will become the holder of that
number of shares of Series A Preferred Stock equal to the product of the number
of such shares held prior to such event times a fraction (the "Sec. 9(C)(1)(ii)
Non- Dilutive Share Fraction"), the numerator of which is the number of shares
of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock that could be
acquired upon exercise in full of all such rights and warrants and the
denominator of which is the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of shares
of Common Stock which could be purchased at the Fair Market Value of a share of
Common Stock at the time of such issuance for the total of (x) the maximum
aggregate consideration payable at the time of the issuance, sale or exchange of
such right or warrant and (y) the maximum aggregate consideration payable upon
exercise in full of all such rights or warrants.
(iii) A Special Dividend declared pursuant to this paragraph 9(C)(1) shall
be effective upon the effective date of such issuance, sale or exchange.
Concurrently with the declaration of the Special Dividend pursuant to this
paragraph 9(C)(1), the Conversion Price, the Liquidation Price and the Regular
Preferred Dividend Rate of all shares of Series A Preferred Stock shall be
adjusted by dividing the Conversion Price, the Liquidation Price and the Regular
Preferred Dividend Rate, respectively, in effect immediately before such event
by the Sec. 9(C)(1)(i) Non- Dilutive Share Fraction or Sec. 9(C)(1)(ii)
Non-Dilutive Share Fraction, as the case may be.
(2) The Corporation and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are reasonably
necessary or appropriate for declaration of the Special Dividend provided in
paragraph 9(C)(1)(i) or (ii) of this Part A but shall not be required to call a
special meeting of shareholders in order to implement the provisions thereof. If
for any reason the Board of Directors is precluded from giving full effect to
any Special Dividend provided in paragraph 9(C)(1) of this Part A, then no such
Special Dividend shall be declared, but instead the Conversion Price shall
automatically be adjusted by dividing the Conversion Price in effect immediately
before the event by the Sec. 9(C)(1)(i) Non-Dilutive Share Fraction or Sec.
9(C)(1)(ii) Non-Dilutive Share Fraction, as the case may be, and the Liquidation
Price and the Regular Preferred Dividend Rate will not be adjusted. An
adjustment to the Conversion Price made pursuant to this paragraph 9(C)(2) shall
be given effect upon the effective date of such issuance, sale or exchange. If
subsequently the Board of Directors is able to give full effect to the Special
Dividend as provided in paragraph 9(C)(1) of this Part A, then such
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Special Dividend will be declared and other adjustments will be made in
accordance with the provisions of paragraph 9(C)(1) of this Part A and the
adjustment in the Conversion Price as provided in this paragraph 9(C)(2) will
automatically be reversed and nullified prospectively.
(D)(1)Subject to the provisions of paragraph 9(E), in the event the
Corporation shall, at any time or from time to time while any of the shares of
Series A Preferred Stock are outstanding, make an Extraordinary Distribution (as
hereinafter defined of this Part A) in respect of the Common Stock, whether by
dividend, distribution, reclassification of shares or recapitalization of the
Corporation (including capitalization or reclassification effected by a merger
or consolidation to which Subsection 8 of this Part A does not apply) or effect
a Pro Rata Repurchase (as hereinafter defined in this Part A) of Common Stock,
then, in such event, the Board of Directors shall, to the extent legally
permissible, declare a dividend of Series A Preferred Stock (a "Special
Dividend") in such a manner that a holder of Series A Preferred Stock will
become a holder of that number of shares of Series A Preferred Stock equal to
the product of the number of such shares held prior to such event times a
fraction (the "Sec. 9(D) Non-Dilutive Share Fraction"), the numerator of which
is the product of (a) the number of shares of Common Stock outstanding
immediately before such Extraordinary Distribution or Pro Rata Repurchase minus,
in the case of a Pro Rata Repurchase, the number of shares of Common Stock
repurchased by the Corporation multiplied by (b) the Fair Market Value of a
share of Common Stock on the day before the ex-dividend date with respect to an
Extraordinary Distribution which is paid in cash and on the distribution date
with respect to an Extraordinary Distribution which is paid other than in cash,
or on the applicable expiration date (including all extensions thereof) of any
tender offer which is a Pro Rata Repurchase or on the date of purchase with
respect to any Pro Rata Repurchase which is not a tender offer, as the case may
be, and the denominator of which is (i) the product of (x) the number of shares
of Common Stock outstanding immediately before such Extraordinary Distribution
or Pro Rata Repurchase multiplied by (y) the Fair Market Value of a share of
Common Stock on the day before the ex-dividend date with respect to an
Extraordinary Distribution which is paid in cash and on the distribution date
with respect to an Extraordinary Distribution which is paid other than in cash,
or on the applicable expiration date (including all extensions thereof) of any
tender offer which is a Pro Rata Repurchase, or on the date of purchase with
respect to any Pro Rata Repurchase which is not a tender offer, as the case may
be, minus (ii) the Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case may be. The
Corporation shall send each holder of Series A Preferred Stock (i) notice of its
intent to make any Extraordinary Distribution and (ii) notice of any offer by
the Corporation to make a Pro Rata Repurchase, in each case at the same time as,
or as soon as practicable after, such offer is first communicated to holders of
Common Stock or, in the case of an Extraordinary Distribution, the announcement
of a record date in accordance with the rules of any stock exchange on which the
Common Stock is listed or admitted to trading. Such notice shall indicate the
intended record date and the amount and nature of such dividend or distribution,
or the number of shares subject to such offer for a Pro Rata Repurchase and the
purchase price payable by the Corporation pursuant to such offer, as well as the
Conversion Price and the number of shares of Common Stock into which a share of
Series A Preferred Stock may be converted at such time. Concurrently with the
Special Dividend paid pursuant to this paragraph 9(D)(1), the Conversion Price,
the Liquidation Price and the Regular Preferred Dividend Rate of all shares of
Series A Preferred Stock shall be adjusted by dividing the Conversion Price, the
<PAGE>
Liquidation Price and the Regular Preferred Dividend Rate, respectively, in
effect immediately before such Extraordinary Distribution or Pro Rata Repurchase
by the Sec. 9(D) Non-Dilutive Share Fraction determined pursuant to this
paragraph 9(D)(1).
(2) The Corporation and the Board of Directors shall each use its best
efforts to take all necessary steps or to take all actions as are reasonably
necessary or appropriate for declaration of the Special Dividend provided in
paragraph 9(D)(1) of this Part A but shall not be required to call a special
meeting of shareholders in order to implement the provisions thereof. If for any
reason the Board of Directors is precluded from giving full effect to the
Special Dividend provided in paragraph 9(D)(1) of this Part A, then no such
Special Dividend shall be declared, but instead the Conversion Price shall
automatically be adjusted by dividing the Conversion Price in effect immediately
before the event by the Sec. 9(D) Non-Dilutive Share Fraction, and the
Liquidation Price and the Regular Preferred Dividend Rate will not be adjusted.
If subsequently the Board of Directors is able to give full effect to the
Special Dividend as provided in paragraph 9(D)(1) of this Part A, then such
Special Dividend will be declared and other adjustments will be made in
accordance with the provisions of paragraph 9(D)(1) of this Part A and the
adjustment in the Conversion Price as provided in this paragraph 9(D)(2) will
automatically be reversed and nullified prospectively.
(E) Notwithstanding any other provision of this Subsection 9, the
Corporation shall not be required to make (i) any Special Dividend or any
adjustment of the Conversion Price, the Liquidation Price or the Regular
Preferred Dividend Rate unless such adjustment would require an increase or
decrease of at least one percent (1%) in the number of shares of Series A
Preferred Stock outstanding or, (ii) if no additional shares of Series A
Preferred Stock are issued, any adjustment of the Conversion Price unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Conversion Price. Any lesser adjustment shall be carried forward and shall
be made no later than the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least one percent (1%) of
the number of Series A Preferred Shares outstanding or, if no additional shares
of Series A Preferred Stock are being issued, an increase or decrease of at
least one percent (1%) of the Conversion Price, whichever the case may be.
(F) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the number of
shares of Series A Preferred Stock outstanding or the Conversion Price pursuant
to the foregoing provisions of this Subsection 9, the Board of Directors of the
Corporation may, in its sole discretion, consider whether such action is of such
a nature that some type of equitable adjustment should be made in respect of
such transaction. If in such case the Board of Directors of the Corporation
determines that some type of adjustment should be made, an adjustment shall be
made effective as of such date as determined by the Board of Directors of the
Corporation. The determination of the Board of Directors of the Corporation as
to whether some type of adjustment should be made pursuant to the foregoing
provisions of this paragraph 9(F), and, if so, as to what adjustment should be
made and when, shall be final and binding on the Corporation and all
shareholders of the Corporation. The Corporation shall be entitled to make
<PAGE>
such additional adjustments, in addition to those required by the foregoing
provisions of this Subsection 9, as shall be necessary in order that any
dividend or distribution in shares of capital stock of the Corporation,
subdivision, reclassification or combination of shares of the Corporation or any
recapitalization of the Corporation shall not be taxable to holders of the
Common Stock.
(G) For purposes of this Part A, the following definitions shall apply:
(1) "Extraordinary Distribution" shall mean any dividend or other
distribution to holders of Common Stock (effected while any of the shares of
Series A Preferred Stock are outstanding) of (i) cash or (ii) any shares of
capital stock of the Corporation (other than shares of Common Stock), other
securities of the Corporation (other than securities of the type referred to in
paragraph (B) of this Subsection 9), evidences of indebtedness of the
Corporation or any other person or any other property (including shares of any
subsidiary of the Corporation), or any combination thereof, where the aggregate
amount of such cash dividend or other distribution together with the amount of
all cash dividends and other distributions made during the preceding period of
twelve (12) months, when combined with the aggregate amount of all Pro Rata
Repurchases (for this purpose, including only that portion of the aggregate
purchase price of such Pro Rata Repurchase which is in excess of the Fair Market
Value of the Common Stock repurchased as determined on the applicable expiration
date) (including all extensions thereof) of any tender offer or exchange offer
which is a Pro Rata Repurchase, or the date of purchase with respect to any
other Pro Rata Repurchase which is not a tender offer or exchange offer made
during such period, exceeds twelve and one-half percent (12 1/2%) of the
aggregate Fair Market Value of all shares of Common Stock outstanding on the day
before the ex-dividend date with respect to such Extraordinary Distribution
which is paid in cash and on the distribution date with respect to an
Extraordinary Distribution which is paid other than in cash. The Fair Market
Value of an Extraordinary Distribution for purposes of paragraph (D) of this
Subsection 9 shall be the sum of the Fair Market Value of such Extraordinary
Distribution plus the aggregate amount of any cash dividends or other
distributions which are not Extraordinary Distributions made during such twelve
month period and not previously included in the calculation of an adjustment
pursuant to paragraph (D) of this Subsection 9, but shall exclude the aggregate
amount of regular quarterly dividends declared by the Board of Directors and
paid by the Corporation in such twelve month period.
(2) "Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Corporation or any other
issuer which are publicly traded, the average of the Current Market Prices (as
hereinafter defined in this Part A) of such shares or securities for each day of
the Adjustment Period (as hereinafter defined in this Part A). "Current Market
Price" of publicly traded shares of Common Stock or any other class of capital
stock shall mean the last reported sales price, regular way, or, in case no sale
takes place on such day, the average of the reported closing bid and asked
prices, regular way, in either case as reported on the New York Stock Exchange
Composite Tape or, if such security is not listed or admitted to trading on the
New York Stock Exchange, on the principal national securities exchange on which
such security is listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, on the NASDAQ National Market
System or, if such security is not quoted on such National Market System, the
average of the closing bid and asked prices on each such day
<PAGE>
in the over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on each such day shall not have been reported through NASDAQ,
the average of the bid and asked prices for such day as furnished by any New
York Stock Exchange member firm regularly making a market in such security
selected for such purpose by the board of Directors of the Corporation on each
trading day during the Adjustment Period. "Adjustment Period" shall mean the
period of five consecutive trading days, selected by the Board of Directors of
the Corporation, during the (20) trading days preceding, and including, the date
as of which the Fair Market Value of a security is to be determined. The "Fair
Market Value" of any security which is not publicly traded or of any other
property shall mean the fair value thereof as determined by an independent
investment banking or appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board of Directors of the
Corporation, or, if no such investment banking or appraisal firm is in the good
faith judgment of the Board of Directors available to make such determination,
as determined in good faith by the Board of Directors of the Corporation.
(3) "Non-Dilutive Amount" in respect of an issuance, sale or exchange by
the Corporation of any right or warrant to purchase or acquire shares of Common
Stock (including any security convertible into or exchangeable for shares of
Common Stock) shall mean the difference between (i) the product of the Fair
Market Value of a share of Common Stock on the day preceding the first public
announcement of such issuance, sale or exchange multiplied by the maximum number
of shares of Common Stock which could be acquired on such date upon the exercise
in full of such rights or warrants (including upon the conversion or exchange of
all such convertible or exchangeable securities), whether or not exercisable (or
convertible or exchangeable) at such date, and (ii) the aggregate amount payable
pursuant to such right or warrant to purchase or acquire such maximum number of
shares of Common Stock; PROVIDED, HOWEVER, that in no event shall the
Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence,
in the case of a security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to purchase or acquire
shares of Common Stock shall be the Fair Market Value of such security on the
date of the issuance, sale or exchange of such security by the Corporation.
(4) "Pro Rata Repurchase" shall mean any purchase of shares of Common
Stock by the Corporation or any subsidiary thereof, whether for cash, shares of
capital stock of the Corporation, other securities of the Corporation, evidences
of indebtedness of the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation), or any combination
thereof, effected while any of the shares of Series A Preferred Stock are
outstanding, pursuant to any tender offer or exchange offer subject to Section
13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; PROVIDED, HOWEVER, that no purchase
of shares by the Corporation or any subsidiary thereof made in open market
transactions shall be deemed a Pro Rata Repurchase. For purposes of this
paragraph 9(G), shares shall be deemed to have been purchased by the Corporation
of any subsidiary thereof "in open market transactions" if they have been
purchased substantially in accordance with the requirements of Rule 10b-18 as in
effect under the Exchange Act on the date shares of Series A Preferred Stock are
initially issued by the Corporation or on such other terms
<PAGE>
and conditions as the Board of Directors of the Corporation shall have
determined are reasonably designed to prevent such purchases from having a
material effect on the trading market for the Common Stock.
(H) Whenever an adjustment increasing the number of shares of Series A
Preferred Stock outstanding is required pursuant to this Part A, the Board of
Directors shall take action as is necessary so that a sufficient number of
shares of Series A Preferred Stock are designated with respect to such increase
resulting from such adjustment. Whenever an adjustment to the Conversion Price,
the Liquidation Price or the Regular Preferred Dividend Rate of the Series A
Preferred Stock is required pursuant hereto, the Corporation shall forthwith
place on file with the transfer agent for the Common Stock and the Series A
Preferred Stock, if there be one, and with the Treasurer of the Corporation, a
statement signed by the Treasurer or any Assistant Treasurer of the Corporation
stating the adjusted Conversion Price, Liquidation Price and Regular Preferred
Dividend Rate determined as provided herein. Such statement shall set forth in
reasonable detail such facts as shall be necessary to show the reason and the
manner of computing such adjustment, including any determination of Fair Market
Value involved in such computation. Promptly after each adjustment to the number
of shares of Series A Preferred Stock outstanding, the Conversion Price, the
Liquidation Price or the Regular Preferred Dividend Rate, the Corporation shall
mail a notice thereof of the then prevailing number of shares of Series A
Preferred Stock outstanding, the Conversion Price, the Liquidation Price and the
Regular Preferred Dividend Rate to each holder of shares of Series A Preferred
Stock.
10. Miscellaneous
(A) All notices referred to in this Part A shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of receipt
thereof or three (3) business days after the mailing thereof if sent by
registered mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage pre-paid, addressed: (i) if to
the Corporation, to its office at 175 East Old Country Road, Hicksville, New
York 11801 (Attention: Treasurer) or to the transfer agent for the Series A
Preferred Stock, or other agent of the Corporation designated as permitted
hereby or (ii) if to any holder of the Series A Preferred Stock or Common Stock,
as the case may be, to such holder at the address of such holder as listed in
the stock record books of the Corporation (which may include the records of any
transfer agent for the Series A Preferred Stock or Common Stock, as the case may
be) or (iii) to such other address as the Corporation or any such holder, as the
case may be, shall have designated by notice similarly given.
(B) The term "Common Stock" as used in this Part A means the Corporation's
Common Stock, par value $.01 per share, as the same exists at the date of filing
of this Certificate pursuant to Section 805 of the Business Corporation Law of
the State of New York, or any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to without par value, or from without par value
to par value. In the event that, at any time as a result of an adjustment made
pursuant to Subsection 9 of this Part A, the holder of any shares of the Series
A Preferred Stock upon thereafter surrendering such shares for conversion shall
become entitled to receive any shares or
<PAGE>
other securities of the Corporation other than shares of Common Stock, the
anti-dilution provisions contained in Subsection 9 of this Part A shall apply in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock, and the provisions of Subsections 1 through 8 and 10 of
this Part A with respect to the Common Stock shall apply on like or similar
terms to any such other shares or securities.
(C) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series A Preferred Stock or shares of Common Stock or other securities issued
on account of Series A Preferred Stock pursuant thereto or certificates
representing such shares or securities. The Corporation shall not, however, be
required to pay any such tax which may be payable in respect to any transfer
involved in the issuance or delivery of shares of Series A Preferred Stock or
Common Stock or other securities in a name other than that in which the shares
of Series A Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery of payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
(D) In the event that a holder of shares of Series A Preferred Stock shall
not by written notice designate the name in which shares of Common Stock to be
issued upon conversion of such shares should be registered or to whom payment
upon redemption of shares of Series A Preferred Stock should be made or the
address to which the certificate or certificates representing such shares, or
such payment, should be sent, the Corporation shall be entitled to register such
shares, and make such payment, in the name of the holder of such Series A
Preferred Stock as shown on the records of the Corporation and to send the
certificate or certificates or other documentation representing such shares, or
such payment, to the address of such holder shown on the records of the
Corporation.
(E) The Corporation my appoint, and from time to time discharge and
change, a transfer agent for the Series A Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
A Preferred Stock.
PART B. SERIES AA PREFERRED STOCK
1. Number and Designation of Series. A series consisting initially of
fourteen million five hundred and twenty thousand (14,520,000) shares of the
Preferred Stock of the par value of $25 per share is designated Preferred Stock,
7.95%, Series AA" (hereinafter called the "Series AA Preferred Stock").
<PAGE>
2. Dividend Rate. The dividend rate per annum of the shares of Series AA
Preferred Stock is $1.9875 per share. Dividends shall be calculated on the basis
of a 30-day month and a year of 360 days.
3. Dividend Payment Dates. The dividend payment dates for the shares of
Series AA Preferred Stock are the first days of March, June, September and
December; the initial dividend period for such shares shall commence on the day
when shares are issued and thereafter the dividend periods for such shares shall
be the quarterly periods beginning on such dates commencing September 1, 1998.
4. Optional Redemption. The Series AA Preferred Stock will not be subject
to optional redemption.
5. Mandatory Redemption. Subject to the restrictions set forth in
Subsection 6 of this Part B, the Corporation shall redeem on June 1, 2000, all
of the outstanding shares of Series AA Preferred Stock at $25 per share, plus
accrued and unpaid dividends to the date of redemption. In the case of a
redemption of Series AA Preferred Stock as specified in this Subsection 5, the
Corporation shall take the action and provide the notice specified in paragraph
(d) of Subsection 11 of this Part B.
6. Restrictions on Mandatory Redemption. Unless full cumulative dividends
for all past dividend periods and for the then current dividend period shall
have been paid or declared and set apart for payment on the then outstanding
Series AA Preferred Stock, the Corporation shall not redeem pursuant to
Subsection 5 of this Part B less than all of the then outstanding shares of
Series AA Preferred Stock.
7. Restrictions on Payments on Junior Stock. The Corporation shall not
declare or pay or set apart any dividend for the Common Stock or any other class
of stock ranking junior to the Series AA Preferred Stock, or make any payment on
account of, or set apart money for a sinking or analogous fund for, the
purchase, redemption or other retirement of the Common Stock or any other class
of stock ranking junior to the Series AA Preferred Stock, or make any
distribution in respect thereof, either directly or indirectly, and whether in
cash or property or obligations or stock of the Corporation, unless at the date
of declaration in the case of any such dividend, or at the date of any such
other payment, setting apart or distribution, full cumulative dividends for all
past dividend periods and for the then current dividend period shall have been
paid or declared and set apart for payment on the then outstanding Series AA
Preferred Stock, other than shares of Series AA Preferred Stock previously or
then to be called for redemption.
8. Restrictions on Sinking Fund Payments on Other Stock. The Corporation
shall not redeem or purchase any shares ranking on a parity with the Series AA
Preferred Stock as to assets or dividends, pursuant to any sinking fund
requirement (which terms shall include any analogous requirement) for the
redemption or purchase of such shares, and shall not set apart money for any
such requirement, at any time when the redemption required by Subsection 5 of
this Part B shall be in arrears; except that, at any time when the redemption
required by Subsection 5 of this Part B shall be in arrears and when arrears
exist in respect of any sinking fund or analogous
<PAGE>
requirement for any shares ranking as aforesaid on a parity with the Series AA
Preferred Stock, the Corporation may redeem or purchase for the respective
requirements shares of Series AA Preferred Stock and such other shares, pro
rata, as nearly as practicable, according to the amounts in dollars of the
arrears in the redemptions or purchases required for the respective
requirements.
9. Acquisition of Series AA Preferred Stock. Except as provided in this
Part B, the Corporation may, at its option, purchase, redeem or otherwise
acquire any shares of Series AA Preferred Stock.
10. Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up of
the Corporation. The applicable redemption price payable upon any voluntary
dissolution, liquidation, or winding up of the Corporation as specified in the
second paragraph of paragraph (c) of Subsection 11 of this Part B shall be the
par value of the Series AA Preferred Stock.
11. Other Provisions.
(a) The holders of shares of Series AA Preferred Stock shall be
entitled to receive, if and when declared payable by the Board of Directors out
of assets legally available for the payment of dividends, cumulative cash
dividends at such rate per share and payable quarterly on such dates as shall be
fixed by resolution adopted by the Board of Directors prior to the issuance of
such shares of Series AA Preferred Stock. Dividends on each share of Series AA
Preferred Stock shall commence to accrue on and be cumulative from the first day
of the current dividend period within which such share was issued. If for any
past dividend period or periods dividends shall not have been paid or declared
and set apart for payment upon all outstanding shares of Series AA Preferred
Stock at the rate per annum applicable thereto, the deficiency shall be fully
paid or declared and set apart for payment (at any time without reference to any
payment date) before any dividend shall be declared or paid or set apart for the
Common Stock or any other class of stock ranking junior to the Series AA
Preferred Stock. Accumulations of dividends shall not bear interest. In case the
stated dividends are not paid in full, the shares of Series AA Preferred Stock
shall share ratably with all other series of Preferred Stock ranking on a parity
with the Series AA Preferred Stock in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be payable on
said shares of Series AA Preferred Stock and all other series of Preferred Stock
ranking on a parity with the Series AA Preferred Stock if all dividends were
declared and paid in full.
(b) The holders of the Series AA Preferred Stock shall not be
entitled to receive any dividends thereon other than the dividends referred to
in paragraph (a) of this Subsection 11.
(c) Upon any involuntary dissolution, liquidation, or winding up of
the Corporation, the holders of shares of Series AA Preferred Stock shall be
entitled to receive out of the assets of the Corporation, the par value of their
shares, plus, in the case of each share, an amount equal to all dividends on
such share accrued and unpaid thereon to the date of payment upon such
dissolution, liquidation or winding up of the Corporation, before any
distribution of
<PAGE>
the assets to be distributed shall be made to the holders of the Common Stock or
any other class of stock ranking junior to the Series AA Preferred Stock.
Upon any voluntary dissolution, liquidation, or winding up of the
Corporation, the holders of shares of Series AA Preferred Stock shall be
entitled to receive out of the assets of the Corporation the then applicable
redemption price of their shares, plus, in the case of each share, an amount
equal to all dividends on such share accrued and unpaid thereon to the date of
payment upon such dissolution, liquidation or winding up of the Corporation,
before any distribution of the assets to be distributed shall be made to the
holders of the Common Stock or any other class of stock ranking junior to the
Series AA Preferred Stock. In case the amounts payable on liquidation are not
paid in full, the shares of all Series AA Preferred Stock and all other series
ranking on a parity with the Series AA Preferred Stock shall share ratably in
any distribution of assets other than by way of dividends in accordance with the
sums which would be payable on such distribution if all sums payable were
discharged in full.
After payment to the holders of Series AA Preferred Stock of the
preferential amounts to which they are entitled upon an involuntary or upon a
voluntary dissolution, liquidation or winding up, as the case may be, as
hereinabove provided in this Part B, the holders of Series AA Preferred Stock,
as such, shall have no right or claim to any of the remaining assets of the
Corporation, either upon any distribution of surplus assets, or upon involuntary
or upon voluntary dissolution, liquidation or winding up.
The sale, lease, exchange, assignment, transfer or conveyance of all
or substantially all the property of the Corporation to, or the merger or
consolidation of the Corporation into or with, any other corporation shall not
be deemed to be an involuntary or a voluntary dissolution, liquidation or
winding up for the purposes of this paragraph (c).
(d) Not less than thirty (30) nor more than sixty (60) days previous
to the date fixed for mandatory redemption pursuant to Subsection 5 of this Part
B, notice of the time and place thereof shall be given to the holders of record
of the Series AA Preferred Stock so to be redeemed, by mail and publication in a
newspaper, printed in the English language and customarily published on each
business day, of general circulation in the Borough of Manhattan, City and State
of New York, in such manner as may be prescribed by the By-laws of the
Corporation or by resolution of the Board of Directors; PROVIDED, that the
accidental failure to mail any such notice to one or more of such holders shall
not affect the validity of such redemption as to the other holders, and that
such notice shall be deemed to have been duly given to any holder of the Series
AA Preferred Stock within the meaning of the foregoing provision when the same
shall have been published as aforesaid and a copy deposited in the United States
mails, postage prepaid, addressed to such holder at his last-known address as it
appears on the books of the Corporation; and, PROVIDED FURTHER, that such notice
shall include a statement to the effect that privileges of conversion or
exchange, if any, not theretofore expiring, will expire at the close of business
on the full business day next preceding the date fixed for redemption. At any
time after notice of redemption has been given in the manner prescribed by the
By-laws of the Corporation or by resolution of the Board of Directors to the
holders of Series AA Preferred Stock so to be redeemed, the Corporation may
deposit funds sufficient for such redemption with a solvent bank
<PAGE>
or trust company having its principal office in the Borough of Manhattan, City
and State of New York and having a combined capital and surplus of at least
$5,000,000 named in such notice payable on the date fixed for redemption, as
aforesaid, and in the amounts aforesaid, to the respective orders of the holders
of the shares of Series AA Preferred Stock so to be redeemed, on endorsement to
the Corporation or otherwise, as may be required, and upon surrender of the
certificates for such shares. Upon the deposit of said money as aforesaid, or,
if no such deposit is made, upon said redemption date (unless the Corporation
defaults in making payment of the redemption price) such holders shall cease to
be shareholders with respect to said shares of Series AA Preferred Stock, and
from and after the making of said deposit, or, if no such deposit is made, after
the redemption date (the Corporation not having defaulted in making the payment
of the redemption price), the said holders shall have no interest in or claims
against the Corporation with respect to said shares of the Series AA Preferred
Stock, except only the right to receive said moneys on the date fixed for
redemption, as aforesaid, from said bank or trust company, or from the
Corporation, as the case may be, without interest thereon, upon endorsement, if
required, and surrender of the certificates as aforesaid and the right to
exercise, on or before the close of business on the full business day next
preceding the date fixed for redemption, privileges of conversion or exchange,
if any, not theretofore expiring. Any moneys deposited by the Corporation as
aforesaid which shall not be required for such redemption because of the
exercise of any such right of conversion or exchange subsequent to the date of
such deposit shall be repaid to the Corporation forthwith. In case the holder of
any Series AA Preferred Stock redeemed as aforesaid shall not, within six (6)
years after said deposit, claim the amount deposited as above stated for the
redemption thereof, the depositary shall, upon demand, pay over to the
Corporation such amount so deposited and the depositary thereupon shall be
relieved from all responsibility to such holder.
Subject to the provisions of this Part B, the Board of Directors
shall have authority to prescribe from time to time the manner in which Series
AA Preferred Stock shall be redeemed and cancelled.
Nothing herein contained in this Part B shall limit or deprive the
Corporation of the right to redeem or purchase any shares of Series AA Preferred
Stock in any other manner now or hereafter permitted by law.
(e) Except as provided in this Part B and except as some provision
of law expressly confers a right to vote regardless of any provision to the
contrary in this Certificate or other certificate filed pursuant to law, the
holders of Series AA Preferred Stock shall not be entitled to any notice of
meetings of shareholders of the Corporation, or to vote, or to any voting rights
whatsoever as shareholders of the Corporation, and are hereby specifically
excluded from the right to vote in a proceeding for authorizing any guaranty
pursuant to Section 908 of the Business Corporation Law, for sale of the
franchises and property pursuant to Section 909 of the Business Corporation Law,
for establishing priorities or creating preferences among the various classes of
stock pursuant to Section 801 of the Business Corporation Law, for consolidation
or merger pursuant to Section 901 of the Business Corporation Law, for voluntary
dissolution pursuant to Section 1001 of the Business Corporation Law, or for
change of name pursuant to the Business
<PAGE>
Corporation Law, or in the election of directors or in any other proceeding or
at any shareholders' meeting.
The foregoing provisions of paragraph (e) of this Subsection 11 are
subject to the following:
(1) So long as any shares of Series AA Preferred Stock are
outstanding, the Corporation shall not without authorization (given in person or
by proxy, in writing or at a meeting duly called for that purpose in accordance
with Section 605 of the Business Corporation Law of the State of New York or as
otherwise permitted by law) by at least two-thirds of the votes entitled to be
cast by the holders of the total number of shares of Series AA Preferred Stock
then outstanding:
(A) amend, alter, change or repeal any of the express terms of
the Series AA Preferred Stock then outstanding in a manner to affect
the holders of such shares adversely otherwise than to increase the
authorized number of shares of Series AA Preferred Stock; or
(B) create or authorize any class of stock having a preference
superior to the preferences of the Series AA Preferred Stock as to
assets or dividends, or create or authorize any security convertible
into shares of stock of any such kind; or
(C) issue any shares of, or ranking on a parity with, the Series
AA Preferred Stock under this Certificate, unless for any twelve (12)
consecutive calendar months within the fifteen (15) calendar months
immediately preceding the calendar month within which such additional
shares shall be issued, the net earnings of the corporation liable for
the payment of interest charges on the Corporation's interest bearing
indebtedness, determined after provision for depreciation and all
taxes, and in accordance with sound accounting practice, shall have
been at least one and one-half (1-1/2) times the aggregate of the
annual interest charges on the interest bearing indebtedness of the
Corporation and annual dividend requirements on all shares of, or
ranking on a parity with, Series AA Preferred Stock to be outstanding
immediately after the proposed issue of such shares of, or ranking on
a parity with, the Series AA Preferred Stock. There shall be excluded
from the foregoing computation, interest charges on all such
indebtedness and dividends on all stock which is to be retired in
connection with the issue of such shares of, or ranking on a parity
with, the Series AA Preferred Stock. Where such shares of, or ranking
on a parity with, the Series AA Preferred Stock are to be issued in
connection with the acquisition of new property, the net earnings of
the property so acquired may be included on a pro forma basis in the
foregoing computation, computed on the same basis as the net earnings
of the Corporation.
Nothing in this clause (C) however shall prevent the
Corporation from issuing shares of, or ranking on a parity with, the Series AA
Preferred Stock in connection with the purchase, redemption or other acquisition
of or any exchange for shares of, or ranking on a parity with, the Series AA
Preferred Stock, if the aggregate amount of annual dividends payable on the
shares to be issued and the aggregate amount payable on such shares in case of
voluntary
<PAGE>
dissolution shall not exceed said respective amounts payable on the shares of,
or ranking on a parity with, the Series AA Preferred Stock which are to be
purchased, redeemed or otherwise acquired.
(2) So long as any shares of Series AA Preferred Stock are
outstanding, the Corporation shall not without authorization (given in person or
by proxy, in writing or at a meeting duly called for that purpose in accordance
with Section 605 of the Business Corporation Law of the State of New York or as
otherwise permitted by law) by a majority of the votes entitled to be cast by
the holders of the total number of shares of Series AA Preferred Stock of the
Corporation then outstanding:
(A) sell, lease, exchange, assign, transfer or convey all or
substantially all of the property or business of the Corporation or
merge or consolidate into or with any other company; PROVIDED,
HOWEVER, that nothing herein contained shall require such
authorization in respect of the merger or consolidation of the
Corporation into or with any other company if the company resulting
from such merger or consolidation will, immediately after such merger
or consolidation, have only such authorized classes of stock and such
outstanding shares of stock as would have been permitted immediately
prior to such merger or consolidation under the provisions hereof
without any further consent of the holders of the Series AA Preferred
Stock, and if each holder of the Series AA Preferred Stock immediately
preceding such merger or consolidation shall receive the same number
of shares, with the same rights and preferences, of the resulting
company. For the purposes of this clause (A) insofar as any earnings
test may be applicable, the earnings, interest charges on debt and
dividend requirements of the merging or consolidating companies shall
be determined on a combined basis; or
(B) increase the authorized number of shares of Series AA
Preferred Stock.
(3) If and when dividends payable on any shares of Series AA
Preferred Stock shall be in default in an amount equivalent to or exceeding four
(4) full quarterly dividends, thereafter and until all dividends on the shares
of Series AA Preferred Stock in default shall have been paid or declared and set
aside for payment, the holders of the shares of Series AA Preferred Stock,
voting separately as a class and regardless of series, shall be entitled to
elect the smallest number of directors necessary to constitute a majority of the
full Board of Directors, and, subject to the provisions of Article IV, Section
5, Part C, Subsection 7 hereof, the holders of the shares of the Common Stock,
voting separately as a class, shall be entitled to elect the remaining directors
of the Corporation, anything herein or in the By-laws to the contrary
notwithstanding. The terms of office of all persons who may be directors of the
Corporation shall terminate upon the election of a majority of the Board of
Directors by the holders of the shares of Series AA Preferred Stock, whether or
not the holders of the shares of the Common Stock shall then have elected the
remaining directors of the Corporation.
(4) If and when all dividends then in default on the shares of
Series AA Preferred Stock then outstanding shall be paid or declared and set
aside for payment (and such dividends shall be declared and paid out of any
funds legally available therefor as soon as
<PAGE>
reasonably practicable), the holders of shares of Series AA Preferred Stock
shall be divested of the special right with respect to the election of directors
provided in paragraph (e)(3) of this Subsection 11, and the voting power, with
respect thereto, shall, subject to the provisions of Article IV, Section 5, Part
C, Subsection 7 hereof, revert to the holders of the shares of the Common Stock;
but always subject to the same provisions for vesting such special right in the
holders of the shares of Series AA Preferred Stock in case of further like
default or defaults in dividends thereon as provided in paragraph (e)(3) of this
Subsection 11. Upon the termination of any such special right upon payment or
setting aside for payment of all accumulated and defaulted dividends on the
shares of Series AA Preferred Stock, the terms of office of all persons who may
been elected directors of the Corporation by vote of the holders of the shares
of Series AA Preferred Stock, as a class, pursuant to such special right shall
forthwith terminate, and the resulting vacancies shall be filled by the vote of
a majority of the remaining directors.
(5) In the case of any vacancy in the office of a director
occurring among the directors elected by the holders of the shares of Series AA
Preferred Stock, as a class, pursuant to the foregoing provisions of this Part
B, the remaining directors elected by such holders, by affirmative vote of a
majority thereof, or the remaining director so elected if there be but one, may
elect a successor or successors to hold office for the unexpired terms of the
director or directors whose place or places shall be vacant, and such successor
or successors shall be deemed to have been elected by such holders.
(6) Whenever under the provisions of this Part B, the right
shall have accrued to the holders of the shares of Series AA Preferred Stock to
elect directors, the Board of Directors shall within ten (10) days after
delivery to the Corporation at its principal office of a request to such effect
signed by any holder of shares of Series AA Preferred Stock entitled to vote,
call a special meeting of the shareholders to be held within fifty (50) days
from the delivery of such request for the purpose of electing directors (unless
under the provisions of the By-laws of the Corporation as then in effect, an
annual meeting of shareholders of the Corporation is to be held within sixty
(60) days after the vesting in the holders of the Series AA Preferred Stock of
the right to elect directors). At all meetings of shareholders held for the
purpose of electing directors during such time as the holders of the shares of
Series AA Preferred Stock shall have the special right, voting separately and as
a class, to elect directors pursuant hereto, the presence in person or by proxy
of the holders of a majority of the outstanding shares of any other class
entitled to vote at such meeting shall be required to constitute a quorum of
that other class for the election of directors, and the presence in person or by
proxy of the holders of shares representing a majority of the votes entitled to
be cast by the holders of the total number of shares of Series AA Preferred
Stock then outstanding shall be required to constitute a quorum of such class
for the election of directors; PROVIDED, HOWEVER, that the absence of a quorum
of the holders of stock of any such class shall not prevent the election of
directors at any such meeting (or at any government thereof) by the other such
class or classes if the necessary quorum of the holders of stock of such class
or classes is present in person or by proxy at such meeting; in the absence of a
quorum of the holders of stock of any class of stock a majority of those holders
of the stock of such class who are present in person or by proxy shall have
power to adjourn the meeting for the election of the directors to be elected by
such class from time to time without notice other than announcement at the
meeting until a quorum shall be present in person or by proxy, but such
adjournment shall not be made to
<PAGE>
a date beyond the date for the mailing of notice of the next annual meeting of
the Corporation or special meeting in lieu thereof.
(7) Whenever the holders of Series AA Preferred Stock shall be
entitled, as a class, to vote, authorize, consent or otherwise act, they shall
be entitled to cast one-quarter of one vote for each share of Series AA
Preferred Stock held by them.
(f) The holders of shares of Series AA Preferred Stock at any
time outstanding shall have no preemptive or preferential right to subscribe for
or purchase any shares of stock, or rights or options to purchase shares of
stock whether now or hereafter authorized, or any securities convertible into or
exchangeable for shares of stock or into rights or options to purchase shares of
stock of the Corporation of any class.
PART C. SERIES B PREFERRED STOCK
AND
SERIES C PREFERRED STOCK
1. Designations and Numbers of Shares.
(a) CLASS B PREFERRED STOCK. Five hundred and fifty-three thousand
(553,000) shares of the Class B Preferred Stock of the Corporation are
hereby constituted as a series of preferred stock, $100 par value per
share, stated value $100 per share (the "Class B Stated Value"), and
designated as "Class B Preferred Stock" (hereinafter called the "Class B
Preferred Stock").
(b) CLASS C PREFERRED STOCK. One hundred and ninety-seven thousand
(197,000) shares of the Class C Preferred Stock of the Corporation are
hereby constituted as a series of preferred stock, $100 par value per
share, stated value $100 per share (the "Class C Stated Value"), and
designated as "Class C Preferred Stock" (hereinafter called the "Class C
Preferred Stock" and, collectively, with the Class B Preferred Stock, the
"Designated Preferred Stock").
As used herein, the term "Applicable Stated Value" shall mean, with
respect to the Class B Preferred Stock or the Class C Preferred Stock, as
the case may be, the Class B Stated Value or the Class C Stated Value,
respectively. The term "Applicable Dividend Rate" shall mean, with respect
to the Class B Preferred Stock or the Class C Preferred Stock, as the case
may be, 7.07% or 7.17%, respectively.
2. Rank.
Each series of Designated Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation, winding up
or dissolution of the Corporation, rank senior to all classes of common
stock of the Corporation, and to each other class or series of capital
stock of the Corporation ranking junior to such series of
<PAGE>
Designated Preferred Stock, whether now or hereafter created (collectively
referred to with the common stock of the Corporation as "Junior
Securities"). Subject to Subsection 9 of this Part C, each series of
Designated Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding up or dissolution of the
Corporation, rank on a parity with the other series of Designated
Preferred Stock and any other class or series of capital stock of the
Corporation hereafter created which expressly provides that it ranks on a
parity with each series of Designated Preferred Stock as to dividend
distributions or distributions upon the liquidation, winding up or
dissolution of the Corporation ("Parity Securities"). Subject to
Subsection 9 of this Part C, each series of Designated Preferred Stock
shall, with respect to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Corporation, rank junior to
each class or series of capital stock of the Corporation hereafter created
which expressly provides that it ranks senior to such series of Designated
Preferred Stock as to dividend distributions or distributions upon the
liquidation, winding up or dissolution of the Corporation ("Senior
Securities").
3. Dividends.
(a) Beginning on the date of issuance of shares of each series of
Designated Preferred Stock, the Holders of the outstanding shares of each
series of Designated Preferred Stock shall be entitled to receive, when,
as and if declared by the Board of Directors, out of funds legally
available therefor, cash dividends on each share of such series of
Designated Preferred Stock, at a per annum rate equal to the Applicable
Dividend Rate, payable quarterly. All dividends shall be cumulative,
whether or not the Corporation has earnings, and whether or not such
dividends are declared, on a daily basis from the Designated Preferred
Stock Issue Date and shall be payable quarterly for each Quarterly
Dividend Period, payable ratably per share of each such series
outstanding, in arrears on each Designated Dividend Payment Date and
commencing on the first Designated Dividend Payment Date. Each dividend
shall be payable to the Holders of each series of Designated Preferred
Stock of record as they appear on the stock books of the Corporation on
such record dates, not less than ten (10) nor more than forty-five (45)
days preceding the related Designated Dividend Payment Date, as shall be
fixed by the Board of Directors. Holders of shares of any series of
Designated Preferred Stock shall not be entitled to any dividend in excess
of full cumulative dividends, as herein provided, on the Designated
Preferred Stock; PROVIDED, HOWEVER, that the Corporation's obligation to a
transferee of shares of any series of Designated Preferred Stock arises
only if such transfer, sale or other disposition is made in accordance
with the terms and conditions of this Part C and of Section 8.1 of the
Investor Purchase Agreement. No interest shall be payable in respect of
any dividends on any series of the Designated Preferred Stock which may be
in arrears.
(b) All dividends paid with respect to shares of any series of
Designated Preferred Stock pursuant to paragraph 3(a) of this Part C shall
be paid ratably on such series of Designated Preferred Stock to the
Holders thereof entitled thereto.
<PAGE>
(c) Dividends on account of arrears for any past Dividend Period may
be declared and paid at any time, without reference to any regular
Dividend Payment Date, to Holders of each series of Designated Preferred
Stock of record on such date, not less than ten (10) days nor more than
forty-five (45) days prior to the payment thereof, as may be fixed by the
Board of Directors.
(d) Except as provided in the next sentence, no dividends shall be
declared by the Board of Directors or paid or funds set apart for payment
of dividends by the Corporation on any Parity Securities for any period
unless all cumulative dividends shall have been or contemporaneously are
declared and paid in full, or declared and a sum in cash set apart
sufficient for such payment, on each series of Designated Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment of
such full dividends on such Parity Securities. If dividends are not
declared or paid in full, as afore said, upon, or funds are not set apart
for payment of dividends on, the shares of each series of Designated
Preferred Stock and any Parity Securities, dividends may nonetheless be
declared or paid upon shares of such series of Designated Preferred Stock
and any Parity Securities, but only so long as such dividends are declared
ratably on such series of Designated Preferred Stock so that the amount of
dividends declared per share on the shares of such series of Designated
Preferred Stock and such Parity Securities shall in all cases bear to each
other the same ratio that accrued and unpaid dividends per share on the
shares of such series of Designated Preferred Stock and such Parity
Securities bear to each other.
(e) So long as any shares of any series of Designated Preferred
Stock are outstanding, the Corporation shall not (i) declare, pay or set
apart for payment any dividend on any Junior Securities or make, and shall
not permit any of its subsidiaries to make, any payment on account of, or
set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any Junior Securities or any
warrants, rights, calls or options exercisable for or convertible into any
Junior Securities or (ii) make any distribution in respect thereof, either
directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property (other than distributions or dividends in
Junior Securities to the holders of Junior Securities), unless in any such
case referred to in clause (i) or (ii) of this paragraph 3(e) all
cumulative dividends determined in accordance herewith for all Dividend
Periods terminating on or prior to the date of such payment, distribution,
purchase or redemption have been paid in full in cash on the Designated
Preferred Stock.
(f) Dividends payable on shares of any series of Designated
Preferred Stock for any full Quarterly Dividend Period shall be in the
amount of $1.7675 per share with respect to the Series B Preferred Stock
and $1.7925 per share with respect to the Series C Preferred Stock.
Dividends payable on shares of any series of Designated Preferred Stock
for any period less than a full Quarterly Dividend Period, or for the
Initial Dividend Period, shall be computed on the basis of a 360-day year
of twelve 30-day months and the actual number of days elapsed in the
period for which such dividends are payable. If any Designated Dividend
Payment Date occurs on a day that is not a Business Day, any
<PAGE>
accrued dividends otherwise payable on such Designated Dividend Payment
Date shall be paid on the next succeeding Business Day.
(g) Notwithstanding the foregoing provisions of this Subsection 3,
in the event that at any time following the date hereof (whether before or
after redemption of the Series B Preferred Stock or Series C Preferred
Stock) there is for any reason a change in the DRD Rate (including without
limitation any such change enacted after this date, but effective
retroactively) that is effective with respect to any Holder, the
applicable dividend rates on the Designated Preferred Stock shall be
automatically adjusted for each Holder, effective as of the effective date
of such change (or, if later, as of the Closing Date), to the dividend
rate per annum determined by multiplying the applicable dividend rate on
each series of the Designated Preferred Stock applicable immediately prior
to such change by the Adjustment Fraction; PROVIDED, HOWEVER, that any
adjustment to the applicable dividend rates resulting from a change in the
DRD Rate enacted and effective after December 1, 1999 shall not exceed 20
basis points; PROVIDED, FURTHER, HOWEVER, that in no event shall the
applicable dividend rates be reduced below the applicable dividend rates
specified in paragraph 1(b) of this Part C. The Corporation will pay
additional dividends on the Designated Preferred Stock from the effective
date of each such change at the applicable dividend rate as so adjusted
from time to time. If for any reason (e.g., a retroactive effective date)
the effective date of a change in the DRD Rate is prior to one or more
Designated Dividend Payment Dates for which dividend payments were due and
payable on the Designated Preferred Stock, additional dividend payments
shall be payable in the amount by which dividends computed at such
adjusted rate exceeds the dividends actually theretofore paid by the
Corporation on the Designated Preferred Stock for such prior Designated
Dividend Payment Dates. Additional dividends payable by the Corporation
pursuant to the preceding sentence shall be paid on the date fixed by the
Corporation no later than 30 days after the enactment of such change in
the DRD Rate and shall be increased by an amount determined as if interest
were payable on the unpaid amount commencing on the prior Designated
Dividend Payment Dates to which each such additional dividends relate and
ending on the date such additional dividends are paid, at the applicable
dividend rate after giving effect to the Adjustment Fraction.
4. Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the Holders of shares of any
series of Designated Preferred Stock then outstanding shall be entitled to
be paid, out of the assets of the Corporation available for distribution
to its shareholders, $100 per share of such series of Designated Preferred
Stock, plus an amount in cash equal to accrued and unpaid dividends
thereon to the date of final distribution, before any payment shall be
made or any assets distributed to the holders of any Junior Securities,
including, without limitation, the Common Stock of the Corporation. After
such amount is paid in full, no further distributions or payments shall be
made in respect of such series of Designated Preferred Stock, such series
of Designated Preferred Stock shall no longer be deemed to be outstanding
or be entitled to any other powers, preferences, rights or privileges,
including
<PAGE>
voting rights, and, upon the Corporation's written request, such series of
Designated Preferred Stock shall be surrendered for cancellation to the
Corporation.
(b) If the assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the Holders of outstanding shares
of each series of Designated Preferred Stock and the holders of all
outstanding shares of Parity Securities, then the holders of all such
shares shall share equally and ratably in such distribution of assets of
the Corporation in accordance with the amounts which would be payable on
such shares if the amount to which the Holders of outstanding shares of
such series of Designated Preferred Stock and the holders of outstanding
shares of all Parity Securities are entitled were paid in full.
(c) Written notice of any liquidation, dissolution or winding up of
the affairs of the Corporation, stating the payment date or dates when and
the place or places where the amounts distributable in such circumstances
shall be payable, shall be given by first class mail, postage prepaid, not
less than thirty (30) days prior to any payment date stated therein, to
the Holders of each series of Designated Preferred Stock at their
respective addresses as the same shall appear on the stock books of the
Corporation.
(d) For the purposes of this Subsection 4 (and subject to Subsection
9 of this Part C), neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with or into one or more
corporations or other entities shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation.
5. Optional Redemption.
(a) The shares of Designated Preferred Stock shall not be redeemable
or otherwise purchased by the Corporation prior to the fifth anniversary
of the Designated Preferred Stock Issue Date. On and after the fifth
anniversary of the Designated Preferred Stock Issue Date, the Corporation
may, at its option, redeem at any time or from time to time, in whole or
in part, in the manner provided in this Subsection 5, any or all of the
shares of the Designated Preferred Stock, at a redemption price equal to
$100 per share plus an amount in cash equal to all accrued and unpaid
dividends thereon to the date of redemption plus the Make-Whole Premium.
(b) In the event of a redemption of only a portion of the then
outstanding shares of the Designated Preferred Stock, the Corporation
shall effect such redemption ratably according to the number of shares of
Designated Preferred Stock held by each Holder of Designated Preferred
Stock.
(c) Not less than twenty (20) days nor more than sixty (60) days
prior to the date fixed for any redemption of the Designated Preferred
Stock, written notice of redemption (the "Redemption Notice") shall be
given by first-class mail, postage prepaid,
<PAGE>
to each Holder of each series of Designated Preferred Stock to be
redeemed, at such Holder's address as the same appears on the stock books
of the Corporation; PROVIDED that neither the failure to give such notice
nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of any series of Designated Preferred Stock
to be redeemed except as to the Holder or Holders to whom the Corporation
has failed to give said notice or except as to the Holder or Holders whose
notice was defective. The Redemption Notice shall state: (i) the
redemption price; (ii) whether all or less than all the outstanding shares
of the Designated Preferred Stock are to be redeemed and the total number
of shares of the Designated Preferred Stock being redeemed; (iii) the
number of shares of Designated Preferred Stock held by the Holder being
redeemed; (iv) the date fixed for redemption; (v) that, subject to the
provisions of the Investor Purchase Agreement, the Holder is to surrender
to the Corporation, at the place or places where certificates for shares
of Designated Preferred Stock are to be surrendered for redemption, in the
manner and at the place designated, his certificate or certificates
representing the shares of Designated Preferred Stock to be redeemed; and
(vi) that dividends on the shares of the Designated Preferred Stock to be
redeemed shall cease to accrue on the date fixed for redemption unless the
Corporation defaults in the payment of the redemption price. Such
Redemption Notice shall also include a calculation of the applicable
estimated Make- Whole Premiums due in connection with such redemption
(calculated as if the date of such notice were the date of the
redemption), setting forth the details of such computation. Two Business
Days prior to such redemption, the Corporation shall deliver to each
Holder of each series of Designated Preferred Stock a certificate of a
senior financial officer of the Corporation specifying the calculation of
such Make-Whole Premiums as of the specified redemption date.
(d) Subject to the Investor Purchase Agreement, each Holder of
shares of any series of Designated Preferred Stock called for redemption
shall surrender to the Corporation the certificate or certificates
representing his shares of such series of Designated Preferred Stock to be
redeemed at the place designated in the Redemption Notice, and upon such
surrender the full redemption price for such shares shall be payable in
cash to such Holder, and each surrendered certificate shall be canceled
and retired. In the event that less than all of the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the Holder thereof.
(e) In connection with any redemption pursuant to this Subsection 5
or Subsection 6 of this Part C below, unless the Corporation defaults in
the payment in full of the applicable redemption price, dividends on the
shares of each series of Designated Preferred Stock called for redemption
shall cease to accrue on the date fixed for redemption, and the Holders of
such shares shall cease to have any further rights with respect thereto on
the date fixed for redemption, other than the right to receive the
redemption price, without interest.
<PAGE>
6. Mandatory Redemption.
On the Applicable Mandatory Redemption Date (as defined below), all
of the outstanding shares of the applicable series of Designated Preferred
Stock shall be redeemed, at a redemption price equal to $100 per share
plus an amount in cash equal to all accrued and unpaid dividends thereon
to the date of redemption. "Applicable Mandatory Redemption Date" means,
with respect to the Series B Preferred Stock or the Series C Preferred
Stock, the seventh anniversary or the tenth anniversary, respectively, of
the Designated Preferred Stock Issue Date.
7. Voting Rights.
(a) The Holders of shares of each series of Designated Preferred
Stock shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the Corporation, except
as otherwise required by law or as set forth below in this Subsection 7 or
in Subsection 9 below.
(b) In the event that the Corporation shall have failed to pay
dividends accumulated on any series of Designated Preferred Stock for any
four (4) consecutive Dividend Periods and such dividends remain unpaid or
shall fail to redeem any series of Designated Preferred Stock on the
Applicable Mandatory Redemption Date, then the number of directors of the
Corporation shall be increased by two and the Holders of outstanding
shares of the Designated Preferred Stock, voting as a class, shall be
entitled to elect such two additional directors. Such voting right shall
continue until such time as all accumulated dividends on each series of
Designated Preferred Stock have been paid or such series of Designated
Preferred Stock has been redeemed, as the case may be. Within ten (10)
days after such voting power shall have become so vested in the Designated
Preferred Stock, the Board of Directors of the Corporation shall call a
special meeting of the Holders of Designated Preferred Stock for the
purpose of electing the two directors, at the place, upon the notice and
at the time provided by the Corporation's By-Laws for a special meeting of
shareholders. In lieu of holding such meeting, the Holders of record of a
majority of the total number of outstanding shares of Designated Preferred
Stock may, by action taken by written consent as permitted by law and the
Certificate of Incorporation and By-laws of the Corporation, elect such
additional directors. In the event of a vacancy in the case of a director
elected by the Holders of Designated Preferred Stock (unless at the time
such vacancy occurs all accumulated dividends on each series of Designated
Preferred Stock shall have been paid in full), the remaining director
elected by the Holders of Designated Preferred Stock (or appointed to fill
a vacancy by a director so elected) shall appoint a successor to fill such
vacancy or, if no director elected by the Holders of Designated Preferred
Stock (or appointed to fill a vacancy by a director so elected) remains,
the vacancies shall be filled by election at a special meeting of the
Holders of Designated Preferred Stock or by written consent of the Holders
of record of a majority of the total number of outstanding shares of
Designated Preferred Stock, as permitted by law and the Certificate of
Incorporation and By-laws of the Corporation. Either of the two additional
directors may be removed at any time with cause by, and shall not be
removed
<PAGE>
otherwise than by, the Holders of Designated Preferred Stock. The
directors elected by the Holders of Designated Preferred Stock shall serve
until the next annual meeting of the shareholders of the Corporation or
until their successors shall be elected and shall qualify; PROVIDED,
HOWEVER, that whenever during the term of office of the directors so
elected, all accumulated dividends on each series of Designated Preferred
Stock shall have been paid or such series of Designated Preferred Stock
has been redeemed, as the case may be, the term of office of such
directors shall forthwith terminate and the number of directors of the
Corporation shall be decreased by two. The foregoing right to elect
directors upon the failure of the Corporation to redeem any series of
Designated Preferred Stock shall be in addition to all other rights and
remedies available to the Holders of Designated Preferred Stock upon such
failure.
(c) In any case in which the Holders of shares of Designated
Preferred Stock shall be entitled to vote pursuant to this Subsection 7 or
pursuant to applicable law, each Holder of shares of Designated Preferred
Stock shall be entitled to one vote for each share of Designated Preferred
Stock held.
8. Conversion or Exchange.
The Holders of shares of each series of Designated Preferred Stock
shall not have any rights or obligations to convert such shares into or exchange
such shares for shares of any other class or classes or of any other series of
any class or classes of capital stock of the Corporation or any other securities
of the Corporation.
9. Restrictions.
So long as any shares of any series of the Designated Preferred
Stock are outstanding, the Corporation shall not without authorization (given in
person or by proxy, in writing or at a meeting duly called for that purpose in
accordance with Section 605 of the Business Corporation Law of the State of New
York or as otherwise permitted by law) by at least two-thirds of the votes
entitled to be cast by the Holders of the total number of shares of each series
of Designated Preferred Stock then outstanding:
(a) amend, alter, change or repeal any of the express terms of any
series of the Designated Preferred Stock then outstanding in any manner
that would adversely affect the Holders of such shares;
(b) create or authorize any class of stock having a preference
superior to the preferences of any series of Designated Preferred Stock as
to assets or dividends, or create or authorize any security convertible
into shares of stock of any such kind; or
(c) sell, lease, exchange, assign, transfer or convey all or
substantially all of the property or business of the Corporation or merger
or consolidate into or with any other Person; PROVIDED, HOWEVER, that
nothing herein contained shall require such authorization in respect of
the merger, consolidation, sale, lease, exchange, assignment, transfer or
<PAGE>
conveyance of all or substantially all of the assets of the Corporation if
(i) the Person which survives such merger, consolidation, sale, lease,
exchange, assignment, transfer or conveyance of assets is, immediately
after such merger, consolidation or sale of assets, a solvent corporation
organized in the United States of America and have only such authorized
classes of stock and such outstanding shares of stock as would have been
permitted immediately prior to such merger, consolidation, sale, lease,
exchange, assignment, transfer or conveyance under the provisions hereof
without any further consent of the Holders of the Designated Preferred
Stock; and (ii) each Holder of the Designated Preferred Stock immediately
preceding such merger or consolidation shall receive the same number of
shares, with the same rights and preferences of the resulting company.
10. Definitions.
The following terms shall have the meanings set forth below for
purposes of this Part C:
"Adjustment Fraction" means the following percentage:
1 - ((1 - DRD) X 0.4)
1 - ((1 - DRDn) x 0.4)
where: DRD = the DRD Rate immediately before the change in the DRD
Rate DRDn = the DRD Rate immediately after the change in the
DRD Rate.
For purposes of the preceding sentence all DRD Rates shall be expressed in
decimal form. The Adjustment Fraction will be rounded to three decimal
places with rounding up if the fourth decimal place is 0.0005 or higher,
and rounding down otherwise.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day other than Saturday, Sunday or a day on
which banking institutions in the City of New York are authorized by law,
regulation or executive order to remain closed.
"Certificate of Incorporation" means the Corporation's Certificate
of Incorporation, as amended from time to time.
"Corporation" means this corporation.
"Designated Dividend Payment Date" means each August 1 , November 1,
February 1, and May 1 following the Designated Preferred Stock Issue Date.
"Designated Preferred Stock Issue Date" means the date on which the
Designated Preferred Stock is originally issued by the Corporation.
<PAGE>
"Discounted Value" means, with respect to any shares of any series
of Designated Preferred Stock, the amount obtained by discounting all
Remaining Scheduled Payments with respect to such shares of such series of
Designated Preferred Stock from their respective scheduled due dates to
the Optional Redemption Date, in accordance with accepted financial
practice and at a discount factor (applied on the same periodic basis as
that on which dividends with respect to such series of Designated
Preferred Stock are payable) equal to the Reinvestment Yield with respect
to the Applicable Stated Value of such shares of Designated Preferred
Stock.
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
"Domestic Corporation" means a corporation organized under the laws
of the United States or any State.
"DRD Rate" means the percentage of dividends received by a Domestic
Corporation from another Domestic Corporation that the recipient Domestic
Corporation is entitled to deduct for United States federal income tax
purposes pursuant to Section 243 of the Internal Revenue Code of 1986, as
amended, or any successor provision, without regard to the degree of
ownership in the payor Domestic Corporation and without regard to any
generally applicable limitations on such deduction.
"Holder" means a Person in whose name a share of Designated
Preferred Stock is registered.
"Initial Dividend Period" means the dividend period commencing on
the Designated Preferred Stock Issue Date and ending on the day before the
first Designated Dividend Payment Date to occur thereafter.
"Investor Purchase Agreement" means the Investor Securities Purchase
Agreement dated as of May 15, 1998 among Long Island Lighting Corporation
and certain Holders of the Designated Preferred Stock.
"Make-Whole Premium" means, with respect to any shares of any series
of Designated Preferred Stock, an amount equal to the excess, if any, of
(a) the Discounted Value of the Remaining Scheduled Payments with respect
to such shares of Designated Preferred Stock over (b) the Applicable
Stated Value of such shares of such series of Designated Preferred Stock;
PROVIDED that the Make-Whole Premium may in no event be less than zero.
"Optional Redemption Date" means, with respect to the any share of
any series of Designated Preferred Stock, the date on which the
Corporation redeems such share in accordance with paragraph 5(a) of this
Part C.
<PAGE>
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any
such entity or substantially all of the assets of any such entity,
subdivision or business).
"Quarterly Dividend Period" shall mean each of the quarterly periods
ending on the last day of July, October, January and April of each year.
"Redemption Date" means, with respect to any shares of any series of
Designated Preferred Stock, the date on which such shares of such series
of Designated Preferred Stock are redeemed by the Corporation.
"Reinvestment Yield" means, with respect to the Applicable Stated
Value of any shares of any series of Designated Preferred Stock, 0.5% over
the yield to maturity implied by (a) the yields reported, as of 10:00 A.M.
(New York City time) on the second Business Day preceding the Optional
Redemption Date with respect to such Applicable Stated Value, on the
display designated as "Page 678" on the Dow Jones Markets Service (or such
other display as may replace Page 678 on Dow Jones Markets Service) for ac
tively traded U.S. Treasury securities having a maturity equal to the
Remaining Life of such Applicable Stated Value as of such Optional
Redemption Date, or (b) if such yields are not reported as of such time or
the yields reported as of such time are not ascertainable, the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day preceding
the Optional Redemption Date with respect to such Applicable Stated Value,
in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having
a constant maturity equal to the Remaining Life of such Applicable Stated
Value as of such Optional Redemption Date. Such implied yield will be
determined, if necessary, by (i) converting U.S. Treasury bill quotations
to bond-equiva lent yields in accordance with accepted financial practice
and (ii) interpolating linearly between (A) the actively traded U.S.
Treasury security with the duration closest to and greater than the
Remaining Life and (B) the actively traded U.S. Treasury security with the
duration closest to and less than the Remaining Life.
"Remaining Life" means, with respect to the Applicable Stated Value
of any shares of Designated Preferred Stock, the number of years
(calculated to the nearest one-twelfth year) that will elapse between the
Optional Redemption Date with respect to such Stated Value and the
Applicable Mandatory Redemption Date.
"Remaining Scheduled Payments" means, with respect to any shares of
any series of Designated Preferred Stock, the payment of the Applicable
Stated Value of such shares of such series of Designated Preferred Stock
and dividends thereon that would be due after the Optional Redemption Date
with respect to such Applicable Stated Value if no payment of such
Applicable Stated Value were made prior to the Applicable Mandatory
Redemption Date; PROVIDED that if such Optional Redemption Date is not a
date on which dividends are
<PAGE>
due to be made under the terms hereof, then the amount of the next
succeeding dividend payment will be reduced by the amount of accrued
dividends to such Optional Redemption Date and required to be paid on such
Optional Redemption Date.
"Stated Value" means with respect to each share of any series of
Designated Preferred Stock, $100."
FIFTH: The foregoing amendments to the Certificate of Incorporation were
duly adopted by a Unanimous Written Consent of the Board of Directors of the
Corporation and by a Unanimous Written Consent of the shareholders of the
Corporation, in accordance with Section 803 of the New York Business Corporation
Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
signed this Certificate of Amendment and each affirms that the statements made
herein are true under the penalties of perjury.
Dated: May 26, 1998
MARKETSPAN CORPORATION
By: /S/ WJ CATACOSINOS
----------------------
Name: Dr. William J. Catacosinos
Title: Chief Executive Officer
By: /S/ KATHLEEN A. MARION
--------------------------
Name: Kathleen Marion
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MARKETSPAN CORPORATION
Under Section 805 of the Business Corporation Law
of the State of New York
MarketSpan Corporation, a corporation organized and existing under the
laws of the State of New York (the "Corporation"), does hereby certify as
follows:
FIRST: The present name of the Corporation is MarketSpan Corporation. The
Corporation was formed under the name "BL Holding Corp."
SECOND: The Certificate of Incorporation of the Corporation was filed with
the New York Department of State on April 16, 1998. Certificates of Amendment of
the Certificate of Incorporation were filed with the New York Department of
State on May 26, 1998 and June 1, 1998.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is as follows:
To add provisions stating the number, designation, relative rights,
preferences and limitations of the shares of the Series D Preferred Stock,
as fixed by the Board of Directors of the Corporation.
FOURTH: To accomplish the foregoing amendment, Article IV of the
Certificate of Incorporation of the Corporation, relating to the capital stock
of the Corporation, is hereby amended as follows:
A Part D shall be inserted at the end of Section 5 of Article IV, and such
Part D shall read in its entirety as follows:
"PART D SERIES D PREFERRED STOCK
Section 1. Designation and Amount. Two million (2,000,000) shares of
Preferred Stock, par value $.01 per share, are hereby designated as Series D
Preferred Stock (the "Series D Preferred Stock"). Such number of shares may be
increased or decreased by resolution of the
<PAGE>
Board of Directors; provided that no decrease shall reduce the number of shares
of Series D Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series D
Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock (or any similar stock) ranking prior and
superior to the shares of Series D Preferred Stock with respect to dividends,
the holders of shares of Series D Preferred Stock in preference to the holders
of Common Stock, par value $0.01 per share (the "Common Stock"), or of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series D Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set
forth, one hundred (100) times the aggregate per share amount of all cash
dividends, and one hundred (100) times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series D Preferred Stock. In the event
the Corporation shall at any time after March 30, 1999 (the "Rights Declaration
Date") (i) declare any dividend on the Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series D Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
D Preferred Stock as provided in Paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Series D Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series D Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of
<PAGE>
such shares of Series D Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series D Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series D Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series D Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than thirty (30) days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series D Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series D Preferred Stock shall entitle the holder thereof to one
hundred (100) votes on all matters submitted to a vote of the shareholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on the Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series D Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of shareholders of the
Corporation.
(C) (i) If at any time dividends on any Series D Preferred Stock shall be
in arrears in an amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and for the
current quarterly dividend period on all shares of Series D Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Preferred Stock (including holders of the
Series D Preferred Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
<PAGE>
(ii) During any default period, such voting rights of holders of
Series D Preferred Stock may be exercised initially at a special meeting called
pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of
shareholders, and thereafter at annual meetings of shareholders, provided that
neither such voting right nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain cases, the authorized number of
Directors shall be exercised unless the holders of ten percent (10%) in number
of shares of Preferred Stock outstanding shall be present in person or by proxy.
The absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Preferred Stock of such voting right. At any meeting
at which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right, voting
as a class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two (2) Directors or, if such right is
exercised at an annual meeting, to elect two (2) Directors. If the number which
may be so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by them of
the required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior to or pari passu
with the Series D Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any shareholder or shareholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the Chairman of the Board or the President of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than twenty
(20) days and not later than sixty (60) days after such order or request, such
meeting may be called on similar notice by any shareholder or shareholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding. Notwithstanding the provisions of this
Paragraph (C)(iii), no such special meeting shall be called during the period
within sixty (60) days immediately preceding the date fixed for the next annual
meeting of the shareholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of Preferred
Stock shall have exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their successors shall
have been elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided in
Paragraph (C)(ii) of this Section (3) be filled by vote of a
<PAGE>
majority of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have become vacant.
References in this Paragraph (C) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred Stock
as a class shall terminate, and (z) the number of Directors shall be such number
as may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of Paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of incorporation
or by-laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein or as otherwise provided by law, holders of
Series D Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series D Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series D Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series D Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
except dividends paid ratably on the Series D Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series D Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series D Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series D
<PAGE>
Preferred Stock, or any shares of stock ranking on a parity with the Series D
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under Paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares.Any shares of Series D Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein, in the Certificate
of Incorporation, or in any other Certificate of Amendment creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series D Preferred Stock unless, prior thereto, the holders
of shares of Series D Preferred Stock shall have received $100 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series D Liquidation
Preference"). Following the payment of the full amount of the Series D
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series D Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series D
Liquidation Preference by (ii) one hundred (100) (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number, the "Adjustment Number"). Following the payment of the full amount of
the Series D Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series D Preferred Stock and Common Stock, respectively,
holders of Series D Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to one (1) with respect to
such Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series D Liquidation Preference and the
liquidation preferences of all other
<PAGE>
series of Preferred Stock, if any, which rank on a parity with the Series D
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, eIn case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series D Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter sets forth) equal to one hundred (100) times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series D Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series D Preferred Stock shall not
be redeemable.
Section 9. Ranking. The Series D Preferred Stock shall rank junior to all
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets, unless the terms of any such series shall
provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series D Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series D Preferred Stock, voting
separately as a class.
<PAGE>
Section 11. Fractional Shares.Series D Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series D Preferred Stock."
FIFTH: The foregoing amendments to the Certificate of Incorporation of the
Corporation were authorized by a majority of the Board of Directors of the
Corporation pursuant to the authority vested in it by the Certificate of
Incorporation and pursuant to Section 502 of the Business Corporation Law of the
State of New York, at a meeting of the Board of Directors duly held on the 30th
day of March, 1999.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
signed this Certificate of Amendment this 30th day of March, 1999 and each
affirms that the statements made herein are true under the penalties of perjury.
MARKETSPAN CORPORATION
By: /s/ Craig J. Matthews
------------------------------------------
Name: Craig J. Matthews
Title: President
By:/s/ Robert R. Wieczorek
--------------------------------------
Name: Robert R. Wieczorek
Title: Vice President, Secretary, Treasurer
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF MARKETSPAN CORPORATION
Under Section 805 of the Business Corporation Law
of the State of New York
MarketSpan Corporation, a corporation organized and existing under the
laws of the State of New York (the "Corporation"), does hereby certify as
follows:
FIRST: The present name of the Corporation is MarketSpan Corporation. The
Corporation was formed under the name "BL Holding Corp."
SECOND: The Certificate of Incorporation of the Corporation was filed with
the New York Department of State on April 16, 1998. Certificates of Amendment of
the Certificate of Incorporation were filed with the New York Department of
State on May 26, 1998, June 1, 1998 and April 7, 1999.
THIRD: The amendment of the Certificate of Incorporation of the Corporation
effected by this Certificate of Amendment is as follows:
Article I relating to the name of the Corporation is amended to read in
its entirety as follows:
"ARTICLE I
NAME
The name of the corporation (the "Corporation") is KeySpan Corporation."
FOURTH: The foregoing amendment to the certificate of incorporation was
duly adopted by a majority vote of the Board of Directors of the Corporation
followed by vote of a majority of all outstanding shares entitled to vote
thereon at a meeting of shareholders of the Corporation duly held on the 20th
day of May, 1999, in accordance with Section 803 of the New York Business
Corporation Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
signed this Certificate of Amendment this 20th day of May, 1999 and each affirms
that the statements made herein are true under the penalties of perjury.
MARKETSPAN CORPORATION
By: /s/ Craig G. Matthews
----------------------------------------------
Name: Craig G. Matthews
Title:President and Chief Operating Officer
By: /s/ Robert R. Wieczorek
--------------------------------------------
Name: Robert R. Wieczorek
Title:Vice President, Secretary and Treasurer
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF MARKETSPAN CORPORATION
Under Section 805 of the Business Corporation Law
of the State of New York
Filer:Brian Nurse, Esq.
Cullen and Dykman
177 Montague Street
Brooklyn, New York 111201-3611
GUARANTY
GUARANTY, dated as of June 9, 1999 (this "Guaranty"), from KEYSPAN
CORPORATION (d/b/a KeySpan Energy), a New York corporation (the "Guarantor"), in
favor of LIC FUNDING, LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Lessor"), and its successors and assigns.
WHEREAS, the Guarantor wishes to induce the Lessor to enter into a
certain Lease (as defined below) with a Subsidiary (as defined below) of the
Guarantor; and
WHEREAS, the Lessor is unwilling to enter into the Lease unless the
Guarantor enters into this Guaranty;
NOW, THEREFORE, in order to induce the Lessor to enter into the Lease,
the Guarantor hereby agrees as follows:
SECTION 1
DEFINED TERMS;
RULES OF CONSTRUCTION
1.1Definitions. As used in this Guaranty, capitalized terms defined and
used herein or in Exhibit A but not otherwise defined herein or in Exhibit A
shall have the meanings set forth in the Lease.
1.2Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
1.3Use of Certain Terms. Unless the context of this Guaranty requires
otherwise, the plural includes the singular, the singular includes the plural,
and "including" has the inclusive meaning of "including without limitation." The
words "hereof," "herein," "hereby," "hereunder" and other similar terms of this
Guaranty refer to this Guaranty as a whole and not exclusively to any particular
provision of this Guaranty. All pronouns and any variations thereof shall be
deemed to refer to masculine, feminine or neuter, singular or plural, as the
identity of the Person or Persons may require.
1.4Headings and References. Section and other headings are for reference
only, and shall not affect the interpretation or meaning of any provision of
this Guaranty. Unless otherwise provided, references to Articles, Sections,
Schedules and Exhibits shall be deemed references to Articles, Sections,
Schedules and Exhibits of this Guaranty. References to this Guaranty and any
other Operative Document include this Guaranty and the other Operative Documents
as the same may be modified, amended, restated or supplemented from time to time
pursuant to the provisions hereof or thereof. A reference to any law shall mean
that law as it may be amended, modified or supplemented from time to time, and
any successor law. A reference to a Person includes the successors and assigns
of such Person, but such reference shall not increase, decrease or otherwise
modify in any way the provisions in this Guaranty governing the assignment of
rights and obligations under or the binding effect of any provision of this
Guaranty.
SECTION 2
GUARANTY
2.1Guaranty. Subject to the terms and conditions in this Guaranty, the
Guarantor absolutely, unconditionally and irrevocably guarantees to the Lessor
and each Related Assignee that (i) all Payment Obligations will be promptly paid
in full as and when due in accordance with the terms thereof whether at the
stated due date, by acceleration or otherwise, and (ii) the Lessee will duly and
punctually perform, comply with and observe all Covenant Obligations as and when
required in accordance with the terms thereof, in each case, without regard to
whether such Obligation is direct or indirect, absolute or contingent, now or
hereafter existing or owing, voluntary or involuntary, created or arising by
contract, operation of law or otherwise or incurred or payable before or after
commencement of any proceedings by or against the Lessee under any bankruptcy
law.
If an event permitting the exercise of remedies under the Operative
Documents shall at any time have occurred and be continuing and such exercise,
or any consequences thereof provided in the Operative Documents, shall at such
time be prevented by reason of the pendency against the Lessee of a case or
proceeding under a bankruptcy or insolvency law, the Guarantor agrees that,
solely for purposes of this Guaranty and its obligations hereunder, the
Obligations and all other amounts payable under the Operative Documents shall be
deemed to have been declared in default, with all attendant consequences as
provided in the Operative Documents as if such declaration of default and the
consequences thereof had been accomplished in accordance with the terms of the
Operative Documents, and the Guarantor shall forthwith pay any amounts
guaranteed hereunder, without further notice or demand.
2.2Guaranty Absolute. This Guaranty is an absolute, unlimited and
continuing guaranty of performance and payment (and not of collection) of the
Obligations. This Guaranty is in no way conditioned upon any attempt to collect
from the Lessee or upon any other event or contingency, and shall be binding
upon and enforceable against the Guarantor without regard to the validity,
regularity or enforceability of any Operative Document or the Notes, or of any
term thereof.
The obligations of the Guarantor set forth herein constitute the full
recourse obligations of the Guarantor enforceable against it to the full extent
of all its assets and properties, notwithstanding any provision in the Lease
limiting the liability of any Person, or any agreement by a trustee or a
Noteholder under a Financing Arrangement to look for payment with respect
thereto, solely to certain property and other collateral as described in the
Operative Documents. Without limiting the foregoing, it is agreed and understood
that (a) repeated and successive demands may be made and recoveries may be had
hereunder as and when, from time to time, the Lessee shall be in default with
respect to the Obligations under the terms of the Lease, and (b) notwithstanding
the recovery hereunder for or in respect of any given default with respect to
the Obligations by the Lessee under the Lease, this Guaranty shall remain in
full force and effect and shall apply to each and every subsequent default with
respect to the Obligations.
2.3Reinstatement. In case any Operative Document shall be terminated as
a result of the rejection thereof by any trustee, receiver or liquidating agent
of the Lessee or any of its properties in any bankruptcy, insolvency,
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar proceeding, the Guarantor's obligations hereunder shall continue to
the same extent as if such agreement had not been so rejected. The Guarantor
agrees that this Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time payment to the Lessor or any Related Assignee of
the Obligations or any part thereof is rescinded or must otherwise be returned
by the Lessor or such Related Assignee upon the insolvency, bankruptcy or
reorganization of the Lessee, or otherwise, as though such payment to the Lessor
or such Related Assignee had not been made.
2.4Enforcement. The Guarantor shall pay all costs, expenses and damages
incurred (including reasonable attorneys' fees and disbursements) in connection
with the enforcement of the Obligations to the extent that such costs, expenses
and damages are not paid by the Lessee, and in connection with the enforcement
of the obligations of the Guarantor under this Guaranty.
2.5Guaranty Not Subject to Setoff, etc. The obligations of the Guarantor
hereunder shall not be subject to any counterclaim, setoff, deduction or defense
(other than payment or performance) based upon any claim the Guarantor or the
Lessee may have against the Lessor or any Related Assignee or any claim the
Guarantor may have against the Lessee or any other Person and shall remain in
full force and effect without regard to, and shall not be released, discharged,
reduced or in any way affected by any circumstance or condition whatsoever
(whether or not the Guarantor shall have any knowledge or notice thereof) which
might constitute a legal or equitable discharge or defense including, but not
limited to, (a) the amending, modifying, supplementing or terminating (by
operation of law or otherwise), expressly or impliedly, of any Operative
Document, or any other instrument applicable to the Lessee or to its
Obligations, or any part thereof; (b) any failure on the part of the Lessee to
perform or comply with any term of any Operative Document or any failure of any
other Person to perform or comply with any term of any Operative Document; (c)
any waiver, consent, change, extension, indulgence or other action or any action
or inaction under or in respect of any Operative Document or this Guaranty,
whether or not the Lessor, the Lessee or the Guarantor has notice or knowledge
of any of the foregoing; (d) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceeding with
respect to the Lessor, the Guarantor or the Lessee, or their respective
properties or their creditors, or any action taken by any trustee or receiver or
by any court in any such proceeding; (e) any furnishing or acceptance of
additional security or any release of any security (and the Guarantor authorizes
the Lessor or each Related Assignee to furnish, accept or release said
security); (f) any limitation on the liability or Obligations of the Lessee
under any Operative Document (except as expressly set forth therein) or any
termination (by operation of law or otherwise), cancellation (by operation of
law or otherwise), frustration or unenforceability, in whole or in part, of any
Operative Document or the Notes, or any term thereof; (g) any lien, charge or
encumbrance on or affecting the Guarantor's, the Lessor's or the Lessee's
respective assets and properties; (h) any act, omission or breach on the part of
the Lessor or any Related Assignee under any Operative Document, or any other
agreement at any time existing between the Lessor and the Lessee or any other
law, governmental regulation or other agreement applicable to the Lessor or any
Obligation; (i) any claim as a result of any other dealings among the Lessor,
any Related Assignee, the Guarantor, any Noteholder or any of them; (j) the
assignment or transfer of this Guaranty, any Operative Document (whether or not
in accordance with and subject to the terms thereof) or any other agreement or
instrument referred to in any Operative Document or applicable to the Lessee or
the Obligations by the Lessor to any other Person; (k) any change in the name of
the Lessor, any Related Assignee, the Lessee or any other Person; (l) any
subleasing or further subleasing of the Facility or any other Parcel of Property
or Unit of Equipment or any part thereof, or any redelivery, repossession, sale,
transfer or other disposition, surrender or destruction of the Facility or any
other Parcel of Property or Unit of Equipment or any part thereof; (m) the
transfer, assignment, mortgaging or purported transfer, assignment or mortgaging
of all or any part of the interest of the Lessor, its successors or assigns, or
the Lessee in the Facility or any other Parcel of Property or Unit of Equipment
or any part thereof or the failure to record a mortgage on or with respect to
all or any part of the Lessor's interest in the Facility or any part thereof or
any other Recordable Document; (n) any failure of title with respect to the
interest of the Lessor or the Lessee, or their respective successors and
assigns, in the Facility or any other Parcel of Property or Unit of Equipment or
any part thereof; (o) any defect in the compliance with specifications,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, or any interruption or cessation in the use of, the Facility or
any other Parcel of Property or Unit of Equipment or any part thereof by the
Lessee or any other Person for any reason whatsoever (including without
limitation any governmental prohibition or restriction, condemnation,
requisition, seizure or any other act on the part of any governmental or
military authority, or any act of God or of the public enemy, or any Event of
Loss), and regardless of the duration thereof (even though such duration would
otherwise constitute a frustration of the Lease), whether or not without fault
on the part of the Lessee or any other Person; (p) any merger or consolidation
of the Lessee or the Guarantor into or with any other Person or any direct or
indirect sale, lease or transfer of any other assets of the Lessee or the
Guarantor to any other Person; (q) any change in the ownership of any shares of
capital stock of the Guarantor or the Lessee (including any such change which
results in the Guarantor no longer owning capital stock of the Lessee); or (r)
any other event or circumstance whatsoever (other than indefeasible payment and
performance in full of the Obligations).
2.6Waiver. The Guarantor unconditionally waives: (a) notice of any of
the matters referred to in Section 2 hereof; (b) all notices which may be
required by statute, rule of law or otherwise (except as expressly required to
be given to the Guarantor by any Operative Document) to preserve any rights
against the Guarantor hereunder, including notice of the acceptance of this
Guaranty by the Lessor or any Related Assignee, or the creation, renewal,
extension, modification or accrual of the Obligations or notice of any other
matters relating thereto, any presentment, demand, notice of dishonor, protest
or nonpayment of any damages or other amounts payable under any Operative
Document; (c) any requirement for the enforcement, assertion or exercise of any
right, remedy, power or privilege under or in respect of any Operative Document,
including diligence in collection or protection of or realization upon the
Obligations or any part thereof or any collateral therefor; (d) any requirement
of diligence; (e) any requirement to mitigate the damages resulting from a
default or termination under any Operative Document, except that this shall not
relieve the Lessor of any such obligation; (f) the occurrence of every other
condition precedent to which the Guarantor or the Lessee may otherwise be
entitled, except as provided in any Operative Document; and (g) the right to
require the Lessor or any Related Assignee to proceed against the Lessee or any
other Person liable on the Obligations, to proceed against or exhaust security
held from the Lessee or any other Person, or to pursue any other remedy in the
Lessor's or such Related Assignee's power whatsoever, and the Guarantor waives
the right to have the property of the Lessee first applied to the discharge of
the Obligations.
The Lessor or any Related Assignee may, at its election, exercise any
right or remedy it might have against the Lessee or any security held by the
Lessor or such Related Assignee, including the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of the Guarantor hereunder, except to the extent the
Obligations have been indefeasibly paid or satisfied, and the Guarantor waives
any defense arising out of the absence, impairment or loss of any right of
reimbursement, contribution or subrogation or any other right or remedy of the
Guarantor against the Lessee or any such security, whether resulting from such
election by the Lessor or such Related Assignee or otherwise. The Guarantor
waives any defense arising by reason of any disability or other defense of the
Lessee, or by reason of the cessation from any cause whatsoever of the
liability, either in whole or in part, of the Lessee to the Lessor for the
Obligations.
The Guarantor understands that the Lessor's or any Related Assignee's
exercise of certain rights and remedies contained in the Operative Documents may
affect or eliminate the Guarantor's rights of subrogation against the Lessee and
that the Guarantor may therefore incur partially or totally nonreimbursable
liability hereunder; nevertheless, the Guarantor hereby authorizes and empowers
the Lessor, its successors, endorsees and/or assignees (including each Related
Assignee) to exercise in its or their sole discretion, any rights and remedies,
or any combination thereof, which may then be available, it being the purpose
and intent of the Guarantor that its obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances.
The Guarantor assumes the responsibility for being and keeping informed
of the financial condition of the Lessee and of all other circumstances bearing
upon the risk of nonpayment of the Obligations and agrees that neither the
Lessor nor any Related Assignee shall have any duty to advise the Guarantor of
information regarding any condition or circumstance or any change in such
condition or circumstance. The Guarantor acknowledges that neither the Lessor
nor any Related Assignee has made any representation to the Guarantor concerning
the financial condition of the Lessee.
SECTION 3
COVENANTS OF THE GUARANTOR
3.1Affirmative Covenants. So long as any Operative Document is in effect
or the Lessee owes any amount thereunder, the Guarantor covenants as follows:
3.1.1 Financial and Business Information. The Guarantor will
deliver or otherwise make available to the Lessor and each Qualifying Assignee
through electronic media (provided that the Guarantor shall give prior written
notice to each such Person of such availability and shall, notwithstanding such
availability, make timely delivery to each such Person upon its request either
generally or from time to time):
(a)Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Guarantor (other than
the last quarterly fiscal period of each such fiscal year), copies of
(i) a consolidated balance sheet of the Guarantor and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income and cash flows of
the Guarantor and its Subsidiaries, for such quarter and (in the
case of the second and third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
copies of the Guarantor's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the SEC shall be deemed to satisfy
the requirements of this Section 3.1.1 if such Quarterly Report also complies
with the requirements of clauses (i) and (ii) of this Section 3.1.1(a);
(b)Annual Statements -- as soon as available and in any event
within 120 days after the end of each fiscal year of the Guarantor,
copies of
(i) a consolidated balance sheet of the Guarantor and
its Subsidiaries as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Guarantor and its
Subsidiaries for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that
the delivery within the time period specified above of the Guarantor's Annual
Report on Form 10-K for such fiscal year (together with the Guarantor's annual
report to shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act) prepared in accordance with the requirements therefor and filed
with the SEC shall be deemed to satisfy the requirements of this Section
3.1.1(b) if such Annual Report also complies with the requirements of clauses
(i) and (ii) of this Section 3.1.1(b);
(c)SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Guarantor or any Material Subsidiary to
public securities holders generally and (ii) each regular, periodic or
current report and each registration statement (without exhibits except
as expressly requested by such Qualifying Assignee and other than
registration statements on Form S-8 or any successor form), and each
final prospectus and all amendments thereto filed by the Guarantor or
any Material Subsidiary with the SEC;
(d)Notice of Potential Lease Default, Lease Event of Default or
Recording Event -- promptly, and in any event within five days after a
Responsible Officer's becoming aware of the existence of any Potential
Lease Default, Lease Event of Default or Recording Event, a written
notice specifying the nature and period of existence thereof and what
action the Guarantor or the Lessee is taking or proposes to take with
respect thereto;
(e)ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer's becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Guarantor or an ERISA Affiliate proposes to take with respect
thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived pursuant
to such regulations as in effect on the date hereof; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Guarantor or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Guarantor or any
ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty
or excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Guarantor or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, could reasonably
be expected to have a Material Adverse Effect; and
(f)Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Guarantor, any
of its Material Subsidiaries or the Lessee or relating to the ability of
the Guarantor to perform its obligations under this Guaranty or the
Consent and Agreement (as defined in the Note Purchase Agreement) of
Guarantor or the ability of the Lessee to perform its obligations under
the Lease as from time to time may be reasonably requested by any
Qualifying Assignee, acting through the Related Assignee.
3.1.2 Officer's Certificates. Each set of financial statements
delivered to a Qualifying Assignee pursuant to Section 3.1.1(a) or Section
3.1.1(b) hereof shall be accompanied by a certificate of a Senior Financial
Officer to the effect that such officer has reviewed the relevant terms hereof
and has made, or caused to be made, under his or her supervision, a review of
the transactions and conditions of the Guarantor, its Material Subsidiaries and
the Lessee from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Potential Lease Default, Lease Event of
Default or Recording Event or, if any such condition or event existed or exists
(including without limitation any such event or condition resulting from the
failure of the Guarantor, any Material Subsidiary or the Lessee to comply with
any Environmental Requirement), specifying the nature and period of existence
thereof and what action the Guarantor, such Material Subsidiary or the Lessee
shall have taken or proposes to take with respect thereto.
3.1.3 Inspection. The Guarantor shall permit the representatives
of each Qualifying Assignee:
(a)No Recording Event or Lease Default -- if no Recording Event
(other than a Recording Event described in clause (iv) of the definition
thereof), or Lease Event of Default then exists, at the expense of such
Qualifying Assignee and upon reasonable prior notice to the Guarantor
and compliance with the Guarantor's safety procedures, to visit the
principal executive office of the Guarantor, to discuss the affairs,
finances and accounts of the Guarantor, its Material Subsidiaries and
the Lessee with the Guarantor's officers, and (with the consent of the
Guarantor, which consent will not be unreasonably withheld) its
independent public accountants; and
(b)Recording Event or Lease Default -- if a Recording Event
(other than a Recording Event described in clause (iv) of the definition
thereof), or Lease Event of Default then exists, at the expense of the
Guarantor to visit and inspect any of the offices or properties of the
Guarantor, any Material Subsidiary or the Lessee, to examine all their
respective books of account, records, reports and other papers (other
than information that the Guarantor is prohibited from disclosing under
applicable laws), to make copies and extracts therefrom, and to discuss
their respective affairs, finances and accounts with their respective
officers and independent public accountants (and by this provision the
Guarantor authorizes said accountants to discuss the affairs, finances
and accounts of the Guarantor, its Material Subsidiaries and the
Lessee), all at such times and as often as may be requested (and subject
to the requirement that each such representative sign the Guarantor's
customary confidentiality agreement with respect to any proprietary
information sought to be examined or discussed and compliance with the
Guarantor's or any Material Subsidiary's safety procedures).
3.1.4 Compliance with Law. Without limiting the requirements of
Section 2 of the Lease, the Guarantor will and will cause each of its Material
Subsidiaries and the Lessee to comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, Environmental Requirements, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
3.1.5 Insurance. Without limiting the requirements of Section 10
of the Lease, the Guarantor will and will cause each of its Material
Subsidiaries to maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
3.1.6 Maintenance of Properties. Without limiting the
requirements of Section 9 of the Lease, the Guarantor will and will cause each
of its Material Subsidiaries to maintain and keep, or cause to be maintained and
kept, in accordance with Prudent Gas Utility Practice, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section 3.1.6 shall not
prevent the Guarantor or any Material Subsidiary from discontinuing the
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and the Guarantor has concluded that
such discontinuance would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
3.1.7 Payment of Taxes and Claims. The Guarantor will and will
cause each of its Material Subsidiaries and the Lessee to file all tax returns
required to be filed in any jurisdiction and to pay and discharge all taxes
shown to be due and payable on such returns and all other taxes, assessments,
governmental charges or levies imposed on them or any of their properties,
assets, income or franchises, to the extent such taxes and assessments have
become due and payable and before they have become delinquent and all claims for
which sums have become due and payable that have or might become a Lien on
properties or assets of the Guarantor or any Material Subsidiary or the Lessee,
provided that neither the Guarantor nor any Material Subsidiary need pay any
such tax, assessment, charge, levy or claim if (a) the amount, applicability or
validity thereof is contested by the Guarantor or such Material Subsidiary on a
timely basis in good faith and in appropriate proceedings, and the Guarantor or
a Material Subsidiary has established adequate reserves therefor in accordance
with GAAP on the books of the Guarantor or such Material Subsidiary or (b) the
nonpayment of all such taxes, assessments, charges, levies or claims in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
3.1.8 Corporate Existence, etc. Subject to Section 3.2.1, the
Guarantor will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 3.2.1, the Guarantor will at all times
preserve and keep in full force and effect the corporate existence of each of
its Material Subsidiaries and all rights and franchises of the Guarantor and its
Material Subsidiaries unless, in the good faith judgment of the Guarantor, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise would not, individually or in the
aggregate, have a Material Adverse Effect.
3.2Negative Covenants. So long as any Operative Document is in effect or
the Lessee owes any amount thereunder, the Guarantor will not, and will not
permit any Material Subsidiary to:
3.2.1 Mergers. Etc. Directly or indirectly merge or consolidate
with or into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to, any Person, except that:
(a)any Material Subsidiary may merge or consolidate with or
dispose of assets to or acquire assets from any other Material
Subsidiary; and
(b)any Material Subsidiary may merge into or consolidate with or
transfer assets to the Guarantor, and the Guarantor or any Material
Subsidiary may merge or consolidate with or transfer assets to any other
Person;
provided that in each case, immediately after giving effect thereto, (x) no
Event of Default shall occur and be continuing, (y) in any case of any such
merger, consolidation or transfer of assets to which the Guarantor is not a
party, a Subsidiary of the Guarantor shall be the continuing or surviving Person
or transferee of such assets, and (z) in any case of any such merger,
consolidation or transfer of assets to which the Guarantor is a party, (A) if
the Guarantor is the continuing or surviving Person, (I) the Guarantor shall be
rated at least Baa3 by Moody's Investors Service, Inc. (or any successor agency)
and at least BBB- by Standard & Poor's Ratings Services (or any successor
agency), (II) the Guarantor shall have, on a pro forma basis, a Consolidated Net
Worth at least equivalent to its Consolidated Net Worth immediately prior
thereto and (III) the Guarantor shall continue to own and operate, directly or
indirectly, the Core Gas Distribution Business, or (B) if the Guarantor is not
the continuing or surviving Person nor the Person who acquires by transfer,
lease or otherwise all or substantially all of the assets of the Guarantor, (I)
the continuing or surviving Person or transferee shall continue to own and
operate, directly or indirectly, the Core Gas Distribution Business, (II) the
continuing or surviving Person or transferee shall be rated at least Baa3 by
Moody's Investors Service, Inc. (or any successor agency) and at least BBB- by
Standard & Poor's Ratings Services (or any successor agency), (III) the
continuing or surviving Person or transferee shall have, on a pro forma basis, a
Consolidated Net Worth at least equivalent to the Guarantor's Consolidated Net
Worth immediately prior thereto, (IV) the continuing or surviving Person or
transferee shall assume, by execution and delivery of instruments reasonably
satisfactory to the Lessor and each Related Assignee, the obligations of the
Guarantor under this Guaranty and shall become successor to the Guarantor for
purposes of this Guaranty, but the Guarantor shall not thereby be released,
without the consent of the Lessor and each Qualifying Assignee, from its
obligations under this Guaranty and (V) the continuing or surviving Person or
transferee shall deliver to the Lessor and each Qualifying Assignee an opinion
of counsel of such continuing or surviving Person or transferee, in form and
substance reasonably satisfactory to the Lessor and each Related Assignee, with
respect to the enforceability of this Guaranty against such continuing or
surviving Person or transferee.
3.2.2 Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any Material Subsidiary to sell, lease, transfer or
otherwise dispose of (other than in connection with a transaction authorized by
Section 3.2.1) any substantial part of its assets; provided that the foregoing
shall not prohibit any sale, lease, transfer or disposition which (i) would not
materially impair the ability of the Guarantor to perform its obligations under
this Guaranty and (ii) together with all other such sales, leases, transfers or
dispositions, could not reasonably be expected to have a Material Adverse
Effect. Notwithstanding anything to the contrary contained in this Guaranty and
without limiting the generality of the foregoing, the Guarantor (or any
successor formed by a consolidation or merger with, or the transferee of all or
substantially all of the assets of, the Guarantor permitted under Section 3.2.1
hereof) shall at all times continue to own and operate, directly or indirectly,
the Core Gas Distribution Business.
SECTION 4
REPRESENTATIONS AND WARRANTIES
The Guarantor represents and warrants to the Lessor and each Related
Assignee (effective as of the Effective Date for the Facility) that:
4.1Organization; Power and Authority. The Guarantor is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Guarantor has full power and
authority to own or hold under lease the properties it purports to own or hold
under lease, to transact the business it transacts and to execute and deliver
and perform the provisions of this Guaranty.
4.2Authorization, etc. This Guaranty has been duly authorized by all
necessary corporate and shareholder action on the part of the Guarantor, and
this Guaranty constitutes a legal, valid and binding obligation of the Guarantor
enforceable against the Guarantor in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4.3Disclosure. The Private Placement Memorandum dated April 1999 (such
Private Placement Memorandum together with any financial statements attached
thereto, the "Memorandum"), relating to the transactions contemplated hereby
fairly describes, in all material respects, the business and properties of the
Guarantor and its Material Subsidiaries. None of this Guaranty, the Memorandum,
and the financial statements listed in Schedule 4.5 to this Guaranty, taken as a
whole, contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made. Except as disclosed in the
Memorandum or in the financial statements listed in Schedule 4.5 to this
Guaranty, since December 31, 1998, there has been no change in the financial
condition, operations, business or properties of the Guarantor or any Material
Subsidiary except changes that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
4.4Organization and Ownership of Shares of Material Subsidiaries.
Schedule 4.4 to this Guaranty contains (except as noted therein) complete and
correct lists of (i) the Material Subsidiaries, showing, as to each such
Material Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital stock or
similar equity interests outstanding owned by the Guarantor and each other
Subsidiary of the Guarantor and (ii) the Guarantor's directors and senior
officers.
All of the outstanding shares of capital stock or similar equity
interests of each Material Subsidiary shown in Schedule 4.4 as being owned by
the Guarantor and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Guarantor or another Subsidiary free and
clear of any Lien (except as otherwise disclosed in Schedule 4.4).
Each Material Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Material Subsidiary has
the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.
No Material Subsidiary is a party to or otherwise subject to any legal
restriction or any agreement (other than this Guaranty, the agreements listed on
Schedule 4.4 and customary limitations imposed by corporate law statutes and
applicable regulatory requirements) restricting the ability of such Material
Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to the Guarantor or any of its Subsidiaries that owns
outstanding shares of capital stock of such Material Subsidiary.
4.5Financial Statements. The Guarantor has delivered to the Lessor and
each Note Purchaser copies of the consolidated financial statements of the
Guarantor listed on Schedule 4.5 to this Guaranty. All of such financial
statements (including in each case the related schedules and notes) fairly
present in all material respects the consolidated financial position of the
Guarantor and its Subsidiaries as of the respective dates specified in such
Schedule 4.5 and the consolidated results of their operations and cash flows for
the respective periods so specified and have been prepared in accordance with
GAAP consistently applied throughout the periods involved except as set forth in
the notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).
4.6Compliance with Laws, Other Instruments, etc. The execution, delivery
and performance by the Guarantor of this Guaranty will not (a) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Guarantor or any of its
Subsidiaries under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other Material
agreement or instrument to which the Guarantor or any of its Subsidiaries is
bound or by which the Guarantor or any of its Subsidiaries or any of their
respective properties may be bound or affected, (b) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree or ruling of any court, arbitrator or Governmental Authority applicable
to the Guarantor or any of its Subsidiaries or (c) violate any provision of any
statute or other rule or regulation of any Governmental Authority applicable to
the Guarantor or any of its Subsidiaries.
4.7Governmental Authorizations, etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Guarantor of this Guaranty.
4.8Litigation; Observance of Agreements, Statutes and Orders. (a) Except
as disclosed in Schedule 4.8(a) to this Guaranty, there are no actions, suits or
proceedings pending or, to the knowledge of the Guarantor, threatened against or
affecting the Guarantor or any of its Subsidiaries or any property of the
Guarantor or any of its Subsidiaries in any court or before any arbitrator of
any kind or before or by any Governmental Authority that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Schedule 4.8(b) to this Guaranty, neither the
Guarantor nor any of its Subsidiaries is in default under any term of any
agreement or instrument to which it is a party or by which it is bound, or any
order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority applicable to it, or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Requirements) of
any Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
4.9Taxes. The Guarantor and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the amount
of which is not individually or in the aggregate Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Guarantor or any of its
Subsidiaries, as the case may be, has established adequate reserves in
accordance with GAAP.
4.10 Title to Property; Leases. The Guarantor and its Material
Subsidiaries have good and sufficient title to their respective properties that
individually or in the aggregate are Material, including all such properties
reflected in the most recent audited balance sheet described in Schedule 4.5 to
this Guaranty or purported to have been acquired by the Guarantor or any
Material Subsidiary after the date of such balance sheet (except as sold or
otherwise disposed of in the ordinary course of business). The Lease and all
other leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
4.11 Licenses, Permits, Y2K, etc. Except as disclosed in Schedule
4.11(a) to this Guaranty:
(i) the Guarantor and its Material Subsidiaries own or
possess all licenses, permits, franchises, authorizations,
patents, proprietary software, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually
or in the aggregate are Material, without known conflict with the
rights of others;
(ii) to the best knowledge of the Guarantor, no product of
the Guarantor or any Material Subsidiary infringes in any
Material respect on any license, permit, franchise,
authorization, patent, proprietary software, copyright, service
mark, trademark, trade name or other right owned by any other
Person; and
(iii) to the best knowledge of the Guarantor, there is no
Material violation by any Person of any right of the Guarantor or
any of its Material Subsidiaries with respect to any patent,
proprietary software, copyright, service mark, trademark, trade
name or other right owned or used by the Guarantor or any of its
Material Subsidiaries.
(a)The Guarantor and its Subsidiaries are in the process of (i)
reviewing and assessing all areas within their respective businesses and
operations (including those affected by information received from
suppliers and vendors) that would reasonably be expected to be adversely
affected by the Year 2000 Problem, (ii) developing a plan and timetable
for addressing the Year 2000 Problem on a timely basis, and (iii) where
a plan is substantially complete, implementing that plan substantially
in accordance with that timetable. The Guarantor reasonably believes
that all of its computer applications that are Material to the
businesses and operations of the Guarantor and its Subsidiaries will on
a timely basis be Year 2000 Compliant, except to the extent that a
failure to do so would not reasonably be expected to have a Material
Adverse Effect. The Guarantor has asked its Material vendors and
suppliers about their plans for and progress in identifying and
addressing problems that their computer systems may face in correctly
processing date information related to the Year 2000 Problem and is
developing contingency plans for any essential vendors and suppliers who
fail to give the Guarantor sufficient credible information of their
readiness as it affects the Guarantor's ability to be Year 2000
Compliant. As used in this Section 4.11(b), the term "Year 2000
Compliant" means all computer applications of the Guarantor that are
Material to the businesses and operations of the Guarantor and its
Subsidiaries will on a timely basis be able to perform properly
date-sensitive functions involving all dates on and after January 1,
2000; and the term "Year 2000 Problem" means the risk that computer
applications used by the Guarantor or any of its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions
involving certain dates on and after January 1, 2000.
4.12 Compliance with ERISA. (a) The Guarantor and each ERISA Affiliate
have operated and administered each Plan in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and would not
reasonably be expected to result in a Material Adverse Effect. Neither the
Guarantor nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in section 3 of ERISA), and no event,
transaction or condition has occurred or exists that would reasonably be
expected to result in the incurrence of any such liability by the Guarantor or
any ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Guarantor or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not, individually or in the aggregate, be Material.
(b) The present value of the aggregate benefit liabilities under each of
the Plans (other than Multiemployer Plans), determined on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most recent
actuarial valuation report, did not exceed the aggregate current value of the
assets of such Plan allocable to such benefit liabilities. The term "benefit
liabilities" has the meaning specified in section 4001 of ERISA and the terms
"current value" and "present value" have the meaning specified in section 3 of
ERISA.
(c) The Guarantor and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined as of the
last day of the Guarantor's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Guarantor and its Subsidiaries is reflected in the financial
statements listed in Schedule 4.5 to this Guaranty as of the respective dates
thereof.
(e) The execution and delivery of this Guaranty will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section
4975(c)(1)(A)-(D) of the Code. The representation by the Guarantor in the first
sentence of this Section 4.12(e) is made in reliance upon and subject to the
accuracy of the representations of the Note Purchasers in Section 2.2 of the
Note Purchase Agreement as to the sources of the funds used to pay the purchase
price of the Notes to be purchased by them thereunder.
4.13 Offering of the Notes and this Guaranty, Etc. Neither the Guarantor
nor anyone authorized to act on its behalf has offered this Guaranty or the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than the Note Purchasers and not more than 110 other
institutional investors (all such other investors being "accredited investors"
as defined under Rule 501(a) of the Securities Act). Neither the Guarantor nor
anyone authorized to act on its behalf has taken, or will take, any action that
would subject the execution and delivery of this Guaranty or the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
4.14 Existing Indebtedness. Neither the Guarantor nor any Subsidiary is
in default, and no waiver of default is currently in effect, in the payment of
any principal or interest on any Indebtedness of the Guarantor or such
Subsidiary and no event or condition exists with respect to any Indebtedness of
the Guarantor or any Subsidiary that would permit one or more Persons to cause
such Indebtedness to become due and payable before its stated maturity, except
in each case for any default, event or condition which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
SECTION 5
MISCELLANEOUS
5.1Payments. Each payment by the Guarantor under this Guaranty shall be
made in immediately available funds to or on the order of the Lessor or any
Related Assignee, as the case may be, in each case without setoff or
counterclaim; provided that, no such payment shall be deemed a waiver of any
rights the Guarantor may have against the Lessor or the Lessee.
5.2Parties. This Guaranty shall inure to the benefit of the Lessor and
each Related Assignee (including the Noteholders) and its and their respective
successors, assigns or transferees, and shall be binding upon the Guarantor and
its successors and assigns. The Guarantor may not delegate any of its duties
under this Guaranty without the prior written consent of the Lessor and each
Related Assignee or except as otherwise permitted by Section 3.2.1. Upon notice
to the Guarantor, the Lessor and its successors, assigns and transferees may
assign its or their rights and benefits under this Guaranty to (a) any financial
institutions providing financing to the Lessor in connection with the Lease or
any trustee for such financial institutions, and (b) any purchaser or transferee
of all or a substantial portion of the rights and interests of the Lessor and
its successors, assigns or transferees in and to the Facility or any Parcel of
Property or Unit of Equipment. The Guarantor acknowledges receipt of notice of
such assignment to The Bank of New York, as trustee, in connection with the
Lessor's financing of the Facility.
5.3Notices. All notices, offers, acceptances, approvals, waivers,
requests, demands and other communications hereunder shall be in writing, shall
be addressed as provided below and shall be considered as properly given (a) if
delivered in person, (b) if sent by express courier service (including Federal
Express, Emery, DHL, Airborne Express, and other similar express delivery
services), (c) in the event overnight delivery services are not readily
available, if mailed through the United States Postal Service, postage prepaid,
registered or certified with return receipt requested, or (d) if sent by
telecopy and confirmed; provided, that in the case of a notice by telecopy, the
sender shall in addition confirm such notice by writing sent in the manner
specified in clauses (a), (b) or (c) of this Section 5.3. All notices shall be
effective upon receipt by the addressee; provided, however, that if any notice
is tendered to an addressee and the delivery thereof is refused by such
addressee, such notice shall be effective upon such tender. For the purposes of
notice, the addresses of the parties shall be as set forth below; provided,
however, that any party shall have the right to change its address for notice
hereunder to any other location by giving written notice to the other party and
the Related Assignee in the manner set forth herein. The initial addresses of
the parties hereto are as follows:
If to the Lessor:
LIC Funding, Limited Partnership
c/o LIC Capital, Inc.,
as General Partner
c/o ML Leasing Equipment Corp.
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Attention: Jean M. Tomaselli
Telecopier: (212) 449-2854
Telephone: (212) 449-7925
With a copy to:
ML Leasing Equipment Corp.
Controller's Office
World Financial Center
South Tower - 14th Floor
225 Liberty Street
New York, New York 10080
Attention: Kira Toone
Telecopier: (212) 236-7584
Telephone: (212) 236-7203
If to the Guarantor:
KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201
Attention: General Counsel
Telecopier: (718) 403-1000
Telephone: (718) 696-7139
5.4Remedies. The Guarantor stipulates that the remedies at law in
respect of any default or threatened default by the Guarantor in the performance
of or compliance with any of the terms of this Guaranty are not and will not be
adequate, and that any of such terms may be specifically enforced by a decree
for specific performance or by an injunction against violation of any such terms
or otherwise.
5.5Right to Deal with the Lessee. At any time and from time to time,
without terminating, affecting or impairing the validity of this Guaranty or the
obligations of the Guarantor hereunder, the Lessor or any Related Assignee may
deal with the Lessee in the same manner and as fully and as if this Guaranty did
not exist and shall be entitled, among other things, to grant the Lessee,
without notice or demand and without affecting the Guarantor's liability
hereunder, such extension or extensions of time to perform, renew, compromise,
accelerate or otherwise change the time for payment of or otherwise change the
terms of payment or any part thereof contained in or arising under any Operative
Document, or to waive any Obligation of the Lessee to perform any act or acts as
the Lessor or any Related Assignee may deem advisable.
5.6Subrogation. The Guarantor will not exercise any rights which it may
acquire by way of subrogation hereunder, by any payment made hereunder or
otherwise, until all of the Obligations have been indefeasibly paid in full in
cash and performed in full. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all of the Obligations shall
not have been paid in full in cash, such amount shall be held in trust for the
benefit of the Lessor and the trustee under any Financing Arrangement and shall
forthwith be paid as provided in Section 5.1 hereof to be credited and applied
upon the Obligations, whether matured or unmatured, in accordance with the terms
of the Operative Documents. If (a) the Guarantor shall make payment to the
Lessor or any successor, assignee or transferee of the Lessor of all or any part
of the Obligations and (b) all the Obligations shall be indefeasibly paid in
full in cash, the Lessor or any such successor, assignee or transferee of the
Lessor will, at the Guarantor's request and expense, execute and deliver to the
Guarantor appropriate documents, without recourse as set forth in Section 31 of
the Lease, and without representation or warranty, necessary to evidence the
transfer by subrogation to the Guarantor of an interest in the Obligations
resulting from such payment by the Guarantor.
5.7Survival of Representations, Warranties, etc. All representations,
warranties, covenants and agreements made herein and in statements or
certificates delivered pursuant hereto shall survive any investigation or
inspection made by or on behalf of the Lessor or any Related Assignee (including
any Noteholder) and shall continue in full force and effect, notwithstanding any
termination or unenforceability of the Lease or any other Operative Document or
the Notes, until all of the obligations of the Guarantor under this Guaranty
shall be fully performed in accordance with the terms hereof, including without
limitation the payment and performance in full of all Obligations.
5.8GOVERNING LAW; WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. THE
GUARANTOR EXPRESSLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM RELATED TO THIS GUARANTY OR ANY OTHER OPERATIVE DOCUMENT. THE
GUARANTOR ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION 5.8 HAVE BEEN
BARGAINED FOR AND THAT THE GUARANTOR HAS BEEN REPRESENTED BY COUNSEL IN
CONNECTION THEREWITH.
5.9Severability. If any term of this Guaranty or any application thereof
shall be invalid or unenforceable, the remainder of this Guaranty and any other
application of such term shall not be affected thereby. Any term of this
Guaranty may be amended, modified, waived, discharged or terminated only by an
instrument in writing signed by the Guarantor and Lessor, and consented to by
the trustee under any Financing Arrangement.
5.10 Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.11 No Merger. There shall be no merger of this Guaranty and the Lease
by reason of the fact that the same person, firm or entity is, directly or
indirectly, the Guarantor and a lessee under the Lease or acquires or holds the
leasehold estate created by the Lease or any part of such leasehold estate.
5.12 No Solicitation of Noteholders. Neither the Guarantor nor any of
its Subsidiaries will make any solicitation or request of the Lessor, the
Related Assignee or any Noteholder for or with respect to any proposed waiver or
amendment of any of the provisions of this Guaranty or any of the other Finance
Documents (as defined in the Note Purchase Agreement) unless the Lessor and each
Noteholder shall be informed thereof by the Guarantor and shall be afforded the
opportunity of considering the same and shall be supplied by the Guarantor with
sufficient information to enable it to make an informed decision with respect
thereto. Neither the Guarantor nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fees or otherwise, or grant any security to
the Lessor or any Noteholder as consideration for, as an inducement to or in
connection with the Lessor or such Noteholder entering into any waiver or
amendment of any of the provisions of this Guaranty or any of the other Finance
Documents unless such remuneration is concurrently paid or security is
concurrently granted, on the same terms, to the Lessor and ratably to the
holders of all of the Notes then outstanding.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Guaranty to
be executed and delivered as of the day and year first above written.
KEYSPAN CORPORATION
(d/b/a KeySpan Energy),
as Guarantor
By:___________________________
Name:
Title:
Acknowledged and Agreed:
LIC FUNDING, LIMITED PARTNERSHIP
By: LIC Capital, Inc.,
its General Partner
By: ____________________________
Name:
Title:
<PAGE>
A-5
343675-v14 0064428-0045
343675-v14 0064428-0045
EXHIBIT A
DEFINED TERMS
"COVENANT OBLIGATIONS" means all obligations, covenants and undertakings
of the Lessee contained in the Operative Documents, other than Payment
Obligations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Guarantor
under Section 414 of the Code.
"EVENT OF DEFAULT" means any of the following events shall occur and be
continuing:
(a) The Guarantor shall fail to pay any amount due under this
Guaranty when the same becomes due and payable; or
(b) Any representation or warranty made by the Guarantor in this
Guaranty or by the Guarantor (or any of its officers) in connection with
this Guaranty or any Financing Arrangement shall prove to have been
incorrect in any material respect when made; or
(c) The Guarantor shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 3.1.1, Section 3.1.5 or
Section 3.2 of this Guaranty, or (ii) any other term, covenant or
agreement contained in this Guaranty on its part to be performed or
observed if the failure to perform or observe such other term, covenant
or agreement shall remain unremedied for thirty (30) days after written
notice thereof shall have been given to the Guarantor by the Lessor or
any Related Assignee; provided, that if such default is of a nature that
is not capable of being cured within such thirty (30) day period and the
Guarantor shall have diligently commenced curing such default and
proceeds diligently and in good faith thereafter to complete curing such
default, such thirty (30) day period shall be extended to ninety (90)
days; or
(d) The entry of a decree or order for relief in respect of the
Guarantor or a Material Subsidiary by a court having jurisdiction in the
premises in an involuntary case under the Federal bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Guarantor or a Material Subsidiary or of any substantial
part of the respective property of the Guarantor or a Material
Subsidiary, or ordering the winding up or liquidation of the affairs of
the Guarantor or a Material Subsidiary, and the continuance of any such
decree or order unstayed and in effect for a period of sixty (60)
consecutive days; or
(e) The suspension or discontinuance of the business operations
of the Guarantor or a Material Subsidiary, the insolvency (however
evidenced) of the Guarantor or a Material Subsidiary or the admission by
the Guarantor or a Material Subsidiary of insolvency or bankruptcy, or
the commencement by the Guarantor or a Material Subsidiary of a
voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or the consent by the Guarantor or a
Material Subsidiary to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
other similar official of the Guarantor or a Material Subsidiary or of
any substantial part of the respective property of the Guarantor or a
Material Subsidiary, or the making by the Guarantor or a Material
Subsidiary of an assignment for the benefit of creditors, or the failure
of the Guarantor or a Material Subsidiary generally to pay its debts as
such debts become due, or the taking of corporate action by the
Guarantor or a Material Subsidiary in furtherance of any such action; or
(f) A default or event of default, the effect of which is to
permit the holder or holders of any Indebtedness of the Guarantor or a
Material Subsidiary in excess of $5,000,000 in the aggregate, or a
trustee or agent on behalf of such holder or holders, to cause such
Indebtedness to become due prior to its stated maturity, shall occur and
be continuing under the provisions of any agreement pursuant to which
such Indebtedness was created or any instrument evidencing such
Indebtedness, or any obligation of the Guarantor or such Material
Subsidiary for the payment of such Indebtedness shall become or be
declared to be due and payable prior to its stated maturity, or shall
not be paid when due (after giving effect to any applicable grace
period); or
(g) Any final non-appealable judgment for the payment of money in
excess of $5,000,000 shall be rendered against the Guarantor or any of
its Material Subsidiaries by any court of competent jurisdiction and the
same shall remain undischarged for a period of thirty (30) consecutive
days during which execution of such judgment or judgments shall not be
effectively stayed.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"INDEMNIFICATION OBLIGATIONS" means any amount or amounts due to any
Indemnified Person from the Lessee pursuant to Section 11 of the Lease.
"LEASE" means the Lease Agreement dated as of June 9, 1999 between LIC
Funding, Limited Partnership, as Lessor, and KeySpan-Ravenswood, Inc., as
Lessee, as the same may be amended or supplemented from time to time in
accordance with its terms and the terms of the Collateral Indenture.
"LEASE EVENT OF DEFAULT" means an Event of Default under the Lease.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Guarantor and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Guarantor and its Subsidiaries taken as a whole, or (b) the ability of the
Lessee to perform its obligations under the Lease or any other Operative
Document to which it is a party, or (c) the ability of the Guarantor to perform
its obligations under this Guaranty, or (d) the validity or enforceability of
this Guaranty or any other Operative Document.
"MATERIAL SUBSIDIARY" means "Material Subsidiary" as defined in the Lease.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"NOTE" means any of the 6.91% Senior Notes due 2009, issued by the
Lessor pursuant to the Note Purchase Agreement.
"NOTEHOLDER" means the Person in whose name a Note is registered from
time to time.
"NOTE PURCHASER" has the meaning specified in the Note Purchase Agreement.
"NOTE PURCHASE AGREEMENT" means, collectively, the several Note Purchase
Agreements, each dated as of June 9, 1999, between the Lessor and the purchasers
named in Schedule I thereto, as the same may be amended, restated, modified or
supplemented from time to time.
"OBLIGATIONS" means Payment Obligations and Covenant Obligations,
individually and collectively.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Guarantor whose responsibilities extend
to the subject matter of such certificate.
"OPERATIVE DOCUMENTS" means this Guaranty, the Lease, any Consent, the
Facility Support Agreement, the SNDA (as defined in the Note Purchase
Agreement), the Landlord's Consent (as defined in the Note Purchase Agreement),
the Site Lease, each Ground Lease, and each agreement, certificate or instrument
delivered by the Guarantor or the Lessee pursuant to the terms of any of the
foregoing.
"PAYMENT OBLIGATIONS" means all amounts stated in the Operative
Documents to be payable by the Lessee, including without limitation (but without
duplication), amounts in respect of (i)(A) an Event of Loss, Event of Default or
Event of Lease Termination (as each such term is defined in the Lease) and (B)
any other termination or expiration of the Lease, including without limitation,
a termination of the Lease or purchase of the Facility or a Parcel of Property
or Unit of Equipment, as the case may be, pursuant to the terms of Section 12,
Section 13, Section 14, Section 15, Section 16 and Section 29 of the Lease; (ii)
Basic Rent, Additional Rent, Acquisition Cost and Debt Yield-Maintenance
Premium; (iii) a Recording Event under Section 8(i) of the Lease; and (iv) all
amounts of Indemnification Obligations, in each case, notwithstanding any
rejection of the Lease by the Lessee or a trustee in any Federal or state
bankruptcy, insolvency or other similar proceeding and any limit imposed in any
such proceeding or by statute or other applicable law on the amounts payable
under the Lease by the Lessee.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, limited liability company,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Guarantor or any ERISA Affiliate
or with respect to which the Guarantor or any ERISA Affiliate may have any
liability.
"POTENTIAL DEFAULT" means any event that, with the giving of notice,
lapse of time or both, would constitute an Event of Default.
"POTENTIAL LEASE DEFAULT" means a Potential Default under the Lease.
"PROPERTY"or "PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.
"PRUDENT GAS UTILITY PRACTICE" means, as the context may require, at a
particular time any of the practices, methods and acts (including, without
limitation, methods or acts engaged in or approved by at least a substantial
portion of the gas utility industry prior thereto) which, in the exercise of a
Material Subsidiary's reasonable judgment in light of the facts and the
characteristics of the property of such Material Subsidiary known at the time
the decision was made, would have been expected to accomplish the desired result
at the lowest reasonable cost consistent with reliability, safety, expedition
and good customer relations. "Prudent Gas Utility Practice" is not intended to
be limited to the optimum practice, method or act, to the exclusion of all
others, but rather to be a spectrum of reasonable and prudent practices, methods
or acts.
"QUALIFYING ASSIGNEE" means each (a) Noteholder or other Person
originally providing credit support to the Lessor pursuant to a Financing
Arrangement (together with the Affiliates of such Noteholder or other Person and
any collateral trustee or agent for any thereof), and (b) transferee of such
Noteholder or other Person which holds at least 1% (or in the case of Section
3.1.1 (a) through (e), 0.5%) of the total unpaid principal amount of
indebtedness under such Financing Arrangement.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Guarantor with responsibility for the administration of the
relevant portion of this Guaranty.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer, assistant treasurer or comptroller of the
Guarantor.
"SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries
owns more than 50% of the voting stock or other equity interest of such Person .
Unless the context otherwise clearly requires, any reference to a "Subsidiary"
is a reference to a Subsidiary of the Guarantor.
<PAGE>
2
343675-v14 0064428-0045
343675-v14 0064428-0045
SCHEDULE 4.4
ORGANIZATION AND OWNERSHIP OF SHARES OF MATERIAL SUBSIDIARIES
Material Subsidiaries
Brooklyn Union Gas Company, a New York corporation, is a wholly owned subsidiary
of KeySpan Energy Corp. (a wholly owned subsidiary of the Guarantor).
KeySpan Gas East Corporation d/b/a Brooklyn Union of Long Island, a New York
corporation, is a wholly owned subsidiary of the Guarantor.
Guarantor's Directors
Robert B. Catell
Lilyan H. Affinito
George Bugliarello
Howard R. Curd
Richard N. Daniel
Donald H. Elliot
Alan H. Fishman
James R. Jones
Stephen W. McKessy
Edward D. Miller
Basil A. Paterson
James Q. Riordan
Frederic V. Salerno
Vincent Tese
Guarantor's Executive Officers
Robert B. Catell - Chief Executive Officer
Anthony J. DiBrita - Senior Vice President of Gas Operations
Lawrence S. Dryer - Vice President of Internal Audit
Robert J. Fani - Senior Vice President of Gas Marketing and Sales
William K. Feraudo - Senior Vice President
Ronald S. Jendras - Vice President, Controller and Chief Accounting Officer
Frederick M. Lowther - General Counsel
David J. Manning - Senior Vice President of Corporate Affairs
Craig G. Matthews - President and Chief Operating Officer
H. Neil Nichols - Senior Vice President
Anthony Nozzolillo - Senior Vice President of the Company's Electric Business
Unit
Wallace P. Parker, Jr. - Senior Vice President of Human Resources
David L. Phillips - Senior Vice President of Strategic Planning & Corporate
Development
Lenore F. Puleo - Senior Vice President of Customer Relations
Cheryl Smith - Senior Vice President and Chief Information Officer
Michael J. Taunton - Vice President of Investor Relations
Robert R. Wieczorek - Vice President, Secretary and Treasurer
Steven L. Zelkowitz - Senior Vice President and Deputy General Counsel
Restrictions on Payment of Dividends
There are no agreements restricting the ability of any Material Subsidiary to
pay dividends out of profits or make any other similar distributions of profits
to the Guarantor or any of its Subsidiaries that owns outstanding shares of
capital stock of any Material Subsidiary, except as set forth in the reports,
schedules, forms, statements and other documents filed by the Guarantor with the
Securities and Exchange Commission, and publicly available prior to the date of
this Guaranty.
<PAGE>
SCHEDULE 4.5
FINANCIAL STATEMENTS
Copies of the Guarantor's audited financial statements dated December 31, 1998
and the unaudited financial statements dated March 31, 1999 are attached hereto.
<PAGE>
SCHEDULE 4.8
LITIGATION
None, except as set forth in the statements under the captions "Item 1. Business
Environmental Matters," "Item 3. Legal Proceedings," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Environmental" and "Note 8. Contractual Obligations, Financial Instruments and
Contingencies" of the Annual Report of the Guarantor or any Subsidiary of the
Guarantor for the year ended December 31, 1998 on Form 10-K and the statements
under the captions "Note 6. Environmental Matters" of "Item 1. Financial
Statements," "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Environmental" and "Item 1. Legal
Proceedings" of Part II of the Quarterly Report of the Guarantor or any
Subsidiary of the Guarantor for the quarter ended March 31, 1999 on Form 10-Q
filed with the Securities and Exchange Commission, and publicly available prior
to the date of this Guaranty.
<PAGE>
SCHEDULE 4.11
LICENSES, PERMITS, Y2K
NONE
*SECTION 12(b)(i), (ii) AND (iii) AND SECTION 12(c) (i), (ii) AND (iii), HAVE
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THESE SECTIONS APPEAR ON PAGES
60 AND 61 OF THE COMPLETE DOCUMENT.
LEASE AGREEMENT
Lease Agreement, dated as of June 9, 1999 (as the same may be amended,
restated, modified or supplemented from time to time, "this Lease"), between LIC
Funding, Limited Partnership, a Delaware limited partnership, as lessor (the
"Lessor"), and KeySpan-Ravenswood, Inc., a New York corporation, as lessee (the
"Lessee").
SECTION 1. DEFINED TERMS.
Unless the context otherwise requires, each term defined in this Section
1 shall, when used in this Lease, have the meaning indicated:
"Accrued Default Obligations" has the meaning set forth in Section 19
hereof.
"Acquisition Certificate" means the written certification in the form of
Exhibit D hereto of the Lessee to be delivered to the Lessor and the Related
Assignee in connection with any requested acquisition of the Facility and any
other Parcel of Property or Unit of Equipment pursuant to paragraph (b) of
Section 5 hereof, certifying with respect to the Facility or such Property or
Equipment that (i) the insurance then carried on the Facility or such Property
or Equipment complies with the terms of this Lease, (ii) all past and current
taxes and assessments applicable to the Facility or such Property or Equipment
have been paid in full, (iii) all utility services, manuals, equipment
inspection reports, maintenance records, easements, rights of way, facilities,
Intellectual Property Rights and permits, licenses and approvals which are
necessary for operation and occupancy of the Facility or such Property or
Equipment have been obtained and are in full force and effect, (iv) there are no
Liens on the Facility or such Property or Equipment that are not Permitted
Liens, (v) all representations and warranties made in this Lease and in
connection with the acquisition of the Facility or such Property or Equipment
are and remain true and correct on and as of the date of the acquisition of the
Facility or such Property or Equipment, (vi) no Event of Default or Potential
Default has occurred or will occur and be continuing on the date of the
acquisition of the Facility or such Property or Equipment, and (vii) the
Facility or such Property or Equipment is capable of being operated and
maintained in compliance with all Legal Requirements.
"Acquisition Cost" means, (i) with respect to any Unit of Equipment, an
amount equal to the sum of (a) the vendor's invoice price therefor, including
any progress payments, costs of labor, delivery or installation, sales, use,
excise or similar taxes and any other charges included in such invoice, after
deduction for any refundable discounts or credits actually used by the Lessor,
(b) similar amounts paid or payable with respect to such Unit to parties other
than the vendor of such Unit, (c) similar costs incurred with respect to such
Unit by the Lessee, and (d) legal, printing, reproduction, closing and other
normally capitalizable administrative fees and expenses paid by the Lessee and
approved by the Lessor; and (ii) with respect to the Facility or any other
Parcel of Property, an amount equal to the amounts included in (i)(d) above
which are applicable to the Facility or such Parcel plus (a) the seller's
contract price therefor or, in the absence of a seller's contract price, the
appraised value thereof, (b) closing costs, including, without limitation, title
insurance premiums, survey and survey inspection charges, recording and filing
fees, title closer fees, vendee's attorneys' fees and brokerage commissions, (c)
other costs related to the acquisition, including, without limitation,
appraisal, architectural, engineering, soil analysis, environmental analysis and
market analysis fees, and (d) any amounts paid in addition to, and not as a
credit against the contract price, including, without limitation, payments made
in satisfaction of prior liens, and payment of any transfer, transfer gains or
similar taxes imposed in respect of the conveyance, transfer or sale of such
Property. The Acquisition Cost of the Facility or any other Property or
Equipment may be reduced from time to time pursuant to paragraph (b) of Section
13 or paragraph (b) of Section 16 hereof.
"Additional Property" means such equipment and tangible personal
property as is located adjacent to (but not at) the Facility and owned by the
Lessee or its Affiliates (which may not be located on land that is owned by the
Lessee) and all related appliances, appurtenances, accessions, furnishings,
piping, conduits, transmission lines, materials, parts and other tangible
personal property of any type associated with and relating thereto (including
all replacements of such appliances, appurtenances, accessions, furnishings,
materials, parts and other personal property), which is required in connection
with the operation of the Facility or any Turbine Unit. Additional Property
shall be comprised only of the equipment and personal property described in
Exhibit I hereto, together with all replacements thereof. Neither the cost of
acquisition, installation and construction nor the value of the Additional
Property shall be included in determining Acquisition Cost or Basic Rent; and
the acquisition, installation, construction, ownership, operation and
maintenance by the Lessee of the Additional Property, and the inclusion of the
definition of Additional Property in this Lease, shall not change or enlarge any
other definition in this Lease, including, without limitation, the definitions
of Acquisition Cost, Basic Rent, Capacity, Facility, Facility Site and Facility
Assets.
"Additional Rent" has the meaning set forth in paragraph (d) of Section 7
hereof.
"Adjustment Factor" has the meaning set forth in paragraph (b)(i) of
Section 13 hereof.
"Affiliate" of any Person means any other Person controlling, controlled
by or under direct or indirect common control with such Person. For the purposes
of this definition, "control," when used with respect to any specified Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Air Permits" means the City of New York, the State of New York and U.S.
Environmental Protection Agency permits or other Governmental Actions relating
to the emission of air Contaminants required for the operation of the Facility
or a Turbine Unit in order for the Facility or such Turbine Unit to operate
under the Environmental Requirements.
"Appraisal Procedure" means the following procedure whereby an
independent appraiser shall be appointed by the Lessor and the Lessee, with the
consent of the Related Assignee, to determine the amount of wear and tear in
excess of that attributable to normal use of the Facility or any other Property
or Equipment to which the provisions of (b)(iii) or (c)(iii)
apply. If no such appraiser is appointed by the mutual agreement of the Lessor
and the Lessee within ten (10) days of the written request of either the Lessor
or the Lessee that an appraiser be appointed, the Lessor and the Lessee shall
each appoint an independent appraiser within fifteen (15) days thereafter, and
the two appraisers so appointed shall appoint a third independent appraiser.
Each appraiser appointed pursuant to the foregoing procedure shall, within ten
(10) days after appointment of the last appraiser, independently determine the
amount of wear and tear in excess of that attributable to normal use. If the
Lessor or the Lessee shall fail to appoint an independent appraiser within the
above-mentioned fifteen (15) day period, the appraiser appointed by the other
party shall determine such amount. If a single appraiser is appointed, such
appraiser's determination shall be final. If three appraisers are appointed, the
amounts determined by the three appraisers shall be averaged, the amount which
differs the most from such average shall be excluded, the remaining two amounts
shall be averaged and such average shall be final. The expenses of all
appraisers shall be paid by the Lessee. Each appraiser appointed pursuant to an
"Appraisal Procedure" shall be a qualified engineering firm and, if the
Appraisal Procedure shall relate to the Facility or any Turbine Unit, shall have
experience in appraising electric generating facilities.
"Appraiser" means Arthur Andersen LLP.
"Assignment" means each assignment agreement referred to in Section 21
hereof, between the Lessor and a third party, pursuant to which the Lessor
assigns certain of its rights under this Lease to such third party, as the same
may be amended, restated, modified or supplemented from time to time.
"Basic Rent" means, with respect to the Facility or any other Parcel of
Property or Unit of Equipment, as the case may be:
(a) At each Basic Rent Payment Date during the Initial Term and the
Extended Term, and in respect of the semi-annual period ending on June 20th or
December 20th in which such Basic Rent Payment Date occurs, the sum of (X) plus
(Y) plus (Z), where (X), (Y) and (Z) have the following meanings:
(X) (i) the Equity Capital for the Facility or such other
Parcel of Property or Unit of Equipment, as the case may
be, before payment of the applicable Basic Rent for such
semi-annual period, multiplied by
(ii) a fraction having a numerator equal to 180 and a
denominator of 360, multiplied by
(iii)the decimal equivalent of a percentage equal to the
LIBOR Rate plus 2%.
(Y) (i) the Debt Capital for the Facility or such other Parcel
of Property or Unit of Equipment, as the case may be,
before payment of the applicable Basic Rent for such
semi-annual period, multiplied by
(ii) a fraction having a numerator equal to 180 and a
denominator of 360, multiplied by
(iii)the decimal equivalent of a percentage equal to the
Semi-Annual Cost of Debt for the Facility or such other
Parcel of Property or Unit of Equipment, as the case may
be.
(Z) an amount equal to the Management Fee.
(b) For any partial semi-annual period during the Initial Term and any
Extended Term, an amount equal to the sum of (X) plus (Y) plus (Z), where (X),
(Y) and (Z) have the following meanings:
(X) (i) the Equity Capital for the Facility or such other Parcel of
Property or Unit of Equipment, as the case may be, multiplied by
(ii) a fraction having a numerator equal to the number of days
the Facility or such other Parcel or Unit is under lease
during such partial semi-annual period (provided that, all
full calendar months during such partial semi-annual
period shall be computed on the basis of a 30-day month)
and a denominator of 360, multiplied by
(iii)the applicable decimal referred to in paragraph
(a)(X)(iii) above, provided that, if the Effective Date
for the Facility or such other Parcel or Unit falls on or
after the Lease Rate Date during such partial semi-annual
period such decimal shall be the decimal determined as of
the next succeeding Lease Rate Date.
(Y) (i) the Debt Capital for the Facility or such other Parcel
of Property or Unit of Equipment, as the case may be,
multiplied by
(ii) a fraction having a numerator equal to the number of days
the Facility or such other Parcel or Unit is under lease
during such partial semi-annual period (provided that, all
full calendar months during such partial semi-annual
period shall be computed on the basis of a 30-day month)
and a denominator of 360, multiplied by
(iii)the decimal equivalent of a percentage equal to the
Semi-Annual Cost of Debt for the Facility or such other
Parcel of Property or Unit of Equipment, as the case may
be; provided that, if the Effective Date for the Facility
or such other Parcel or Unit falls on or after the Lease
Rate Date during such partial semi-annual period, such
Semi-Annual Cost of Debt shall be determined as of the
next succeeding Lease Rate Date.
(Z) an amount equal to the Management Fee.
(c) For each semi-annual period during the Renewal Term, if any, an
amount equal to the fair market rental value thereof, determined as provided in
paragraph (c) of Section 13 hereof.
"Basic Rent Payment Date" means June 20th and December 20th during the
Initial Term and any Extended Term and Renewal Term, commencing on December 20,
1999, or, if such day is not a Business Day, the next succeeding Business Day.
"Brooklyn Union East" means KeySpan Gas East Corporation (d/b/a Brooklyn
Union of Long Island), a New York corporation and a subsidiary of the Guarantor.
"Brooklyn Union Gas" means The Brooklyn Union Gas Company, a New York
corporation and a subsidiary of the Guarantor.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York are authorized by law to
close.
"Capacity" means (i) with respect to the Facility, the rated capacity of
the Facility (at normal operating conditions) to generate electricity, which is
initially expected to be approximately 1,742 megawatts, and (ii) with respect to
any other Turbine Unit, the rated capacity of such Turbine Unit (at normal
operating conditions) to generate electricity.
"Cash Proceeds" has the meaning set forth in paragraph (a) of Section 12
hereof.
"CERCLA" has the meaning set forth in paragraph (u)(iii) of Section 2(i)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder from time to time.
"Collateral Indenture" means the Indenture of Trust, Security Agreement
and Assignment dated as of the date hereof, entered into by the Lessor and the
Collateral Trustee, pursuant to which the Lessor has granted a security interest
in certain collateral of the Lessor to the Collateral Trustee, as the same may
be amended, restated, modified or supplemented from time to time in accordance
with the terms thereof.
"Collateral Trustee" means The Bank of New York, in its capacity as
trustee for the holders of the Notes under the Collateral Indenture, and its
successors.
"Computation Period" has the meaning set forth in the definition of
Semi-Annual Cost of Debt in this Section 1.
"Con Edison" means Consolidated Edison Company of New York, Inc., a New
York corporation.
"Consent" means each consent of the Lessee to an Assignment, pursuant to
which the Lessee consents to the terms of such Assignment insofar as they relate
to this Lease and the Facility or any other Parcel of Property or Unit of
Equipment, as the same may be amended, restated, modified or supplemented from
time to time.
"Consolidated Net Worth" means the total consolidated stockholders'
equity, capital stock, preferred stock and minority interests of the Guarantor
and its subsidiaries, determined in accordance with GAAP.
"Contaminant" means any pollutant, hazardous substance, radioactive
substance, toxic substance, hazardous waste, medical waste, radioactive waste,
special waste, industrial waste, petroleum or petroleum-derived substance or
waste, asbestos, PCBs or any hazardous or toxic constituent thereof or any
substance regulated or identified under Environmental Requirements as
potentially harmful to human health, natural resources or the environment.
"Core Gas Distribution Business" means the distribution and sale at
retail to customers of natural gas in the New York City boroughs of Brooklyn,
Queens and Staten Island and the Long Island counties of Nassau and Suffolk, as
such business is conducted by Brooklyn Union Gas and Brooklyn Union East on the
date hereof and more fully described in the Private Placement Memorandum.
"Debt Capital" means, with respect to the Facility or any other Parcel
of Property or Unit of Equipment, as the case may be, at the time of
determination, an amount equal to the Acquisition Cost thereof minus the Equity
Capital in respect thereof.
"Debt Yield-Maintenance Premium" means an amount equal to the amount of
Make-Whole Premium (as defined in the Note Purchase Agreement) payable by the
Lessor (net of any amounts payable to the Lessor under the Derivative Option)
pursuant to the terms of the Note Purchase Agreement.
"Derivative Option" means the Option, dated as of the date hereof,
between the Lessor and Merrill Lynch Capital Services, Inc., as the same may be
amended, restated, modified, or supplemented from time to time.
"Easements" means the easements and licenses granted to the Lessor by
the Lessee pursuant to the Ground Lease, as such easements and licenses may be
amended, restated, modified or supplemented from time to time in accordance with
the terms hereof.
"Effective Date" means, with respect to the Facility and any other
Parcel of Property or Unit of Equipment, the date on which the Facility or such
Parcel or Unit becomes subject to this Lease, as evidenced by execution by the
Lessor of a Unit Leasing Record with respect to the Facility or such Parcel or
Unit.
"Engineering Report" means the 1998 assessments prepared by Stone &
Webster with respect to the Facility.
"Environmental Approvals" means all Governmental Actions, Air Permits
and other authorizations required under applicable Environmental Requirements.
"Environmental Consultant" means Pilko & Associates, Inc., or such other
environmental consulting firm qualified to evaluate environmental risks
associated with the Facility, the Additional Property or any other Parcel of
Property or Unit of Equipment, as selected by the Lessee and reasonably
satisfactory in all respects to the Lessor and the Related Assignee.
"Environmental Damages" means all claims, judgments, damages (including
without limitation punitive and consequential damages), losses, penalties,
fines, interest, fees, liabilities (including without limitation strict
liability), taxes, obligations, encumbrances, liens, costs and expenses
(including, without limitation, costs and expenses of investigation and defense
of any claim relating to or in any way arising out of the Facility, the
Additional Property or any other Parcel of Property or Unit of Equipment,
whether or not such claim is ultimately defeated, and of any good faith
settlement or judgment), of whatever kind or nature, contingent or otherwise,
matured or unmatured, foreseeable or unforeseeable, including, without
limitation, reasonable attorneys' fees and disbursements and consultants' fees,
any of which are asserted, imposed or incurred at any time pursuant to
Environmental Requirements, including, without limitation:
(i) Damages arising from the existence of Contaminants at any
location or compliance or noncompliance with, or violation of, Environmental
Requirements;
(ii) Damages for personal injury or threatened personal injury
(including without limitation sickness, disease or death), or injury or
threatened injury to property or natural resources, foreseeable or
unforeseeable, including, without limitation, the cost of demolition and
rebuilding of any improvements on real property;
(iii) Reasonable fees incurred for the services of attorneys,
consultants, contractors, doctors, experts, laboratories and all other
reasonable costs incurred in connection with any damages as described in
subparagraph (i) of this definition, and the investigation or remediation of
Contaminants or the suspected presence of Contaminants or the violation or
threatened violation of Environmental Requirements, including, but not limited
to, the preparation of any feasibility studies or reports or the performance of
any investigation, cleanup, treatment, remediation, removal, response,
abatement, containment, closure, storage, disposal, transport, restoration or
monitoring work required by any federal, state, local or foreign governmental
agency or political subdivision, or otherwise expended in connection with such
conditions, and including, without limitation, any reasonable attorneys' fees,
costs and expenses incurred in enforcing this Lease or collecting any sums due
hereunder; and
(iv) Liability to any third Person or Governmental Authority to
indemnify such Person or Governmental Authority for costs expended in connection
with the items referenced in subparagraphs (i), (ii) and (iii) of this
definition.
"Environmental Event" has the meaning set forth in paragraph (ii)(g) of
Section 2 hereof.
"Environmental Lien" means a Lien in favor of any Governmental Authority
for any (a) liability under any Environmental Requirement, or (b) damages
arising from, or costs incurred by, such Governmental Authority in response to a
Release or threatened Release of a Contaminant into the environment.
"Environmental Matters" means any matter, fact or situation relating to
or arising from (a) any violation or alleged violation of, or compliance or
noncompliance with, an Environmental Requirement, (b) any Release or threatened
Release of any Contaminant on, under or from the Facility or any other Property
or Equipment or the presence of any Contaminant which has come to be located on,
from or under the Facility, the Additional Property or any other Property or
Equipment from another location, or (c) any injury to human health or safety or
the environment by reason of the matters described in clauses (a) and (b) above.
"Environmental Report" means an environmental report issued to the
Lessor and the Related Assignee and is otherwise satisfactory to the Lessor and
the Related Assignee in all respects, prepared by the Environmental Consultant.
"Environmental Requirements" means all applicable federal, state, local
and foreign laws (including duties under the common law), statutes, codes,
ordinances, rules, regulations, directives, Governmental Actions, authorizations
or orders relating to the environment, natural resources or human health,
including, but not limited to those relating to (a) the use, handling or Release
of any Contaminant or (b) worker health. Environmental Requirements shall
include all Environmental Requirements now or hereafter enacted, made or issued,
whether or not presently contemplated; provided, that for purposes of paragraph
(i)(u) of Section 2 hereof, Environmental Requirements shall include only those
Environmental Requirements enacted, made or issued as of the time such
representations and warranties shall be made or deemed made.
"Equity Capital" means, with respect to the Facility or any other Parcel
of Property or Unit of Equipment, as the case may be, at the time of
determination, the aggregate amount of cash contributions to the Lessor's
capitalization made by the general partner and the limited partners of the
Lessor used to pay a part of the Acquisition Cost thereof, plus any
undistributed return on such cash contributions, less the aggregate amount of
any returns of such cash contributions made to such partners at such time;
provided that, for purposes of the definition of "Basic Rent" and "Debt Capital"
in this Lease, the reference therein to "Equity Capital" shall not include any
undistributed return on such cash contributions.
"Equipment" means personal property of any type leased or to be leased
hereunder and, when leased, evidenced by Unit Leasing Records, and all related
appliances, appurtenances, accessions, furnishings, materials and parts leased
or to be leased by the Lessor to the Lessee as provided herein and including all
replacements and subsequent replacements of such related appliances,
appurtenances, accessions, furnishings, materials and parts. "Unit", when
referring to the personal property leased under this Lease, means a particular
item of Equipment, as the context may require. This definition of "Equipment"
does not include any Additional Property.
"Event of Default" has the meaning set forth in Section 18 hereof.
"Event of Lease Termination" has the meaning set forth in Section 14
hereof.
"Event of Loss" means, with respect to the Facility or any other Parcel
of Property or Unit of Equipment, any of the following events: (a) loss of all
or a substantial portion of the Facility or such other Parcel or Unit, as the
case may be, or the use thereof due to destruction, damage beyond economical
repair or other damage which renders the Facility or such Parcel or Unit, as the
case may be, permanently unfit for the use contemplated by this Lease or any
other Operative Document on a commercially feasible basis; (b) any event which
results in an insurance settlement with respect to the Facility or such other
Parcel or Unit, as the case may be, on the basis of a total loss or constructive
total loss; and (c) the condemnation or taking or requisition of title or use
for an indefinite period or a period in excess of one hundred and eighty (180)
days by any Governmental Authority which constitutes the taking of all or a
substantial portion of the Facility or such other Parcel or Unit such that the
remainder is not sufficient to permit operation of the Facility or such Parcel
or Unit on a commercially feasible basis. A loss of a "substantial portion" of
the Facility or any other Parcel or Unit shall be deemed to occur if, in the
reasonable judgment of the Lessor and the Related Assignee, after such event,
(i) the Lessee will not be able to materially perform its obligations under this
Lease with respect to the Facility or such other Parcel or Unit, as the case may
be, or (ii) a material diminution in the value, utility or remaining economic
useful life of the Facility or such Parcel or Unit, as the case may be, will
occur.
"EWG" means an "exempt wholesale generator", as defined in Section
32(a)(1) of the 1935 Act or any related Legal Requirement.
"Extended Term" has the meaning set forth in paragraph (b) of Section 6
hereof.
"Facility" means the real and personal property and the improvements and
equipment (including all related appliances, appurtenances, accessions,
controls, interconnection facilities, transmission lines, wiring, furnishings,
materials and parts, and other related facilities and equipment, along with any
replacements thereof) thereon (including, without limitation, each of Unit 1,
Unit 2 and Unit 3), which constitute an approximately 1,742 megawatt electric
generating facility located in the Borough of Queens, New York, as more
particularly described in Exhibits E and F hereto, including without limitation
the Facility Assets, the leasehold interest of the Lessor under the Site Lease
and the Easements and other rights granted or assigned to Lessor under the Site
Lease. To the extent that portions of the Facility are personal or real
property, respectively, the provisions of this Lease with respect to Equipment
or Property, respectively, shall be applicable thereto, except as may be
otherwise expressly indicated. This definition of "Facility" does not include
any Additional Property.
"Facility Assets" means the buildings, equipment, machinery, apparatus,
fixtures, structures, appurtenances, installations and other tangible personal
property comprising the Facility, including, but not limited to, Unit 1, Unit 2
and Unit 3, which are conveyed to the Lessor pursuant to the Purchase Agreement
Assignment and all replacements and renewals pursuant to the terms of this Lease
located upon or affixed to the Facility Site. This definition of "Facility
Assets" does not include any Additional Property.
"Facility Site" shall mean the real property situated in the Borough of
Queens, Long Island City, New York, upon which the Facility Assets are located,
as more particularly described on Exhibit F hereto, including the respective
Easements and licenses relating thereto and necessary to operate and maintain
the Facility.
"Facility Support Agreement" means the Facility Support Agreement, dated
as of the date hereof, between the Lessor and the Lessee, as the same may be
amended, restated, modified or supplemented from time to time.
"FERC" means the Federal Energy Regulatory Commission, or any successor
agency thereto.
"Financing Arrangement" means, with respect to the Facility or any other
Parcel of Property or Unit of Equipment, as the case may be, each credit
agreement, note purchase agreement, loan agreement, security agreement,
indenture, mortgage, deed of trust, and each other agreement or arrangement
between the Lessor and a lender or lenders to the Lessor or other Person or
Persons providing credit support to the Lessor or to debt issued by or on behalf
of the Lessor related to the financing or (subject to the Lessee's consent)
refinancing of the Facility or such other Parcel of Property or Unit of
Equipment, as the case may be, as any of the same may be amended, restated,
modified or supplemented from time to time (except for any such amendment,
restatement, modification or supplement which affects any obligation of the
Lessee hereunder, unless approved in writing by the Lessee).
"FPA" has the meaning set forth in paragraph (o) of Section 2(i) hereof.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, applied on a consistent basis.
"Governmental Action" has the meaning set forth in paragraph (d) of Section
2(i) hereof.
"Governmental Authority" means any agency, department, court or other
administrative, legislative or regulatory authority of any federal, state, local
or foreign governmental body.
"Ground Lease" means (i) with respect to the Facility, the Site Lease
and (ii) with respect to any other Parcel of Property, each ground lease (in
each case, which must be a Mortgageable Ground Lease) pursuant to which a
leasehold interest in such Parcel is being leased to the Lessor.
"Guaranty" means the Guaranty, dated as of the date hereof, from the
Guarantor to the Lessor, as the same may be amended, restated, modified or
supplemented from time to time.
"Guarantor" means KeySpan Corporation (d/b/a KeySpan Energy), a New York
corporation (the parent of the Lessee), and its successors.
"Indebtedness" means for any Person (i) all indebtedness or other
obligations of such Person for borrowed money and all indebtedness of such
Person with respect to any other items (other than income taxes payable,
deferred taxes, deferred credits and accounts payable which are not more than
thirty (30) days past due, or if more than thirty (30) days past due, are being
contested pursuant to a Permitted Contest) which would, in accordance with GAAP,
be classified as a liability on the balance sheet of such Person, (ii) all
obligations of such Person to pay the deferred purchase price of property or
services, including any such obligations created under or arising out of any
conditional sale or other title retention agreement, (iii) all obligations of
such Person (contingent or otherwise) under reimbursement or similar agreements
with respect to the issuance of letters of credit, (iv) all indebtedness or
other obligations of such Person under or in respect of any swap, cap, collar or
other financial hedging arrangement, (v) all indebtedness or other obligations
of any other Person of the type specified in clause (i), (ii), (iii) or (iv)
above, the payment or collection of which such Person has guaranteed (except by
reason of endorsement for collection in the ordinary course of business) or in
respect of which such Person is liable, contingently or otherwise, including,
without limitation, liable by way of agreement to purchase products or
securities, to provide funds for payment, to maintain working capital or other
balance sheet conditions or otherwise to assure a creditor against loss, and
(vi) all indebtedness or other obligations of any other Person of the type
specified in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien, upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, whether or not such Person
has assumed or becomes liable for the payment of such indebtedness or
obligations.
"Indemnified Person" has the meaning set forth in Section 11 hereof.
"Initial Term" has the meaning set forth in paragraph (a) of Section 6
hereof.
"Insurance Requirements" means all insurance required to be obtained
with respect to the Facility and any other Property or Equipment from time to
time pursuant to Section 10 hereof and all terms of any insurance policy
covering or applicable to the Facility and such other Property or Equipment, all
requirements of the issuer of any such policy, all statutory requirements and
all orders, rules, regulations and other requirements of any governmental body
related to insurance applicable to the Facility and such other Property or
Equipment, including without limitation the Board of Fire Underwriters.
"Intellectual Property Rights" means, collectively, all patents, patent
applications, trademarks (whether registered or not), trademark applications,
trade names, proprietary computer software or copyrights (or any licenses,
permits or agreements with respect to any of the foregoing) necessary to
construct, operate, lease or use the Facility or any Property or Equipment or
any part thereof.
"ISO" means the New York Independent System Operator.
"Leasehold Mortgage" means the leasehold mortgage to be executed and
delivered by the Lessor with respect to the Ground Lease relating to the
Facility pursuant to Section 8(i) hereof or with respect to any other Parcel of
Property, as the case may be.
"Lease Rate Date" has the meaning set forth in paragraph (b) of Section 7
hereof.
"Lease Term" means, with respect to the Facility and any other Parcel of
Property or Unit of Equipment, the Initial Term plus the Extended Term thereof,
if any.
"Legal Requirements" means, at the time of determination, all then
effective laws, judgments, decrees, ordinances and regulations and any other
governmental rules, orders and determinations and all requirements having the
force of law, now or hereinafter enacted, made or issued, whether or not
presently contemplated, and all agreements, covenants, conditions and
restrictions, applicable to the Facility and any other Parcel of Property or
Unit of Equipment and/or the ownership, operation or use thereof, including,
without limitation, all zoning laws, ordinances, regulations and building codes,
all requirements of labor laws and Environmental Requirements, compliance with
which is required at any time from the date hereof through the Lease Term and
any Renewal Term, whether or not such compliance shall require structural,
unforeseen or extraordinary changes to the Facility or such other Parcel or Unit
and or the operation, occupancy or use thereof.
"Lessee" has the meaning set forth in the first paragraph of this Lease.
"Lessor" means LIC Funding, Limited Partnership or any successor or
successors to all of its rights and obligations as the Lessor hereunder and, for
purposes of Section 11 hereof, shall include any partnership (general or
limited), corporation, limited liability company, trust, individual or other
entity which computes its liability for income or other taxes on a consolidated
basis with LIC Funding, Limited Partnership or the income of which for purposes
of such taxes is, or may be, determined or affected directly or indirectly by
the income of the Lessor or its successor or successors.
"LIBOR Rate" means the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/16th of 1%) quoted by The Bank of New York to the
Lessor at or before 10:00 a.m. (New York, New York time) (or as soon thereafter
as practicable), for the offering to The Bank of New York by prime banks in the
London Eurodollar interbank market, at the time of determination and in
accordance with the then usual practice in such market, of deposits in dollars
for delivery on such date and having a maturity equal to one month. Each
determination by the Lessor of the LIBOR Rate shall be conclusive and binding,
absent manifest error, and may be computed using any reasonable averaging and
attribution method.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), or other security agreement
of any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Management Agreement" means the Management Agreement, dated as of the
date hereof, between the Lessor and Merrill Leasing, as the same may be amended,
restated, modified or supplemented from time to time.
"Management Fee" means:
(a) At each Basic Rent Payment Date during the Initial Term, the sum of
an amount equal to the sum of:
(i) the Acquisition Cost, multiplied by
(ii) a fraction having a numerator equal to 180 and a
denominator of 360, multiplied by
(iii)the decimal equivalent of a percentage equal to 0.14%.
(b) At each Basic Rent Payment Date during the Extended Term, the sum of
an amount equal to the sum of:
(i) the Acquisition Cost, multiplied by
(ii) a fraction having a numerator equal to 180 and a
denominator of 360, multiplied by
(iii)the decimal equivalent of a percentage equal to 0.13%.
"Material Contracts" means any contract entered into by the Lessee with
one or more Persons that is material to the sale of electric capacity and/or
energy produced at the Facility or any Turbine Unit or to the operation or
maintenance of the Facility or any Turbine Unit or any service in connection
therewith, including, without limitation, electric capacity and energy sales
contracts, operation and maintenance contracts, fuel supply contracts,
transmission service contracts, goods and services contracts and all contracts
or subcontracts that are material to the provision of the services, materials,
supplies and benefits contemplated by the Facility Support Agreement. The
Material Contracts existing at the date hereof are listed on Exhibit H hereto.
"Material Subsidiary" means each of Brooklyn Union Gas and Brooklyn
Union East, and any other Affiliate of the Guarantor which is engaged in the
Core Gas Distribution Business.
"Merrill Leasing" means ML Leasing Equipment Corp., a Delaware corporation.
"Merrill Lynch" means Merrill Lynch & Co., Inc., a Delaware corporation.
"Mortgageable Ground Lease" means, with respect to the Facility, the
Site Lease, and means, with respect any other Parcel of Property to be subleased
to the Lessee, a ground lease which is delivered to the Lessor for execution by
the Lessor, or assigned to the Lessor by an assignment in form and substance
satisfactory to the Lessor, and having such terms and characteristics as may be
required by the Lessor and any Related Assignee, which terms and characteristics
shall include, without limitation, the following: (a) free assignability to (i)
any lender as security for a borrowed money obligation of the Lessor and, upon
foreclosure of such security, freely assignable by such lender to any third
party, and (ii) any purchaser in connection with a sale of such other Parcel of
Property pursuant to the provisions of this Lease (the Lessor and any Related
Assignee being released from liability upon such assignment); (b) a term
(including renewals) of at least ten (10) years in excess of the Lease Term of
such other Parcel of Property to which such ground lease relates; (c) no
provisions for percentage or variable rent; (d) permit any lawful use; (e) no
provision for a security deposit; (f) a requirement that any Related Assignee or
any lender will receive copies of all notices of default delivered under or
pursuant to such ground lease; (g) a provision that any Related Assignee or any
lender shall have the right to cure any defaults thereunder (whether monetary or
nonmonetary in nature), and in the event of such cure to receive a new ground
lease on the same terms as the original ground lease; (h) a no recourse section
in accordance with the language set forth in Section 31 hereof; (i) a
prohibition of any mortgages or other Liens on the underlying fee, except
Permitted Liens; and (j) no provision requiring the Lessor to indemnify any
Person. A Mortgageable Ground Lease shall be delivered with such estoppel
certificates, recognition and attornment agreements, or confirmation of
customary mortgagee protection as are reasonably acceptable to the Lessor and
any Related Assignee. The Site Lease is a Mortgageable Ground Lease and each
other Ground Lease shall be a Mortgageable Ground Lease.
"1935 Act" means the Public Utility Holding Company Act of 1935, as
amended from time to time, and the rules and regulations from time to time
issued, published or promulgated pursuant thereto.
"Notes" means the 6.91% Senior Notes due 2009 in an aggregate principal
amount of $412,250,000, issued by the Lessor pursuant to the Note Purchase
Agreement.
"Note Purchase Agreement" means, collectively, the several Note Purchase
Agreements, each dated as of June 9, 1999, between the Lessor and the purchasers
of the Notes, as the same may be amended, restated, modified or supplemented
from time to time.
"Operative Documents" means this Lease, the Guaranty, each Ground Lease,
each Consent, the Facility Support Agreement, the Purchase Agreement, the
Purchase Agreement Assignment, the SNDA (as defined in the Note Purchase
Agreement), the Landlord's Consent (as defined in the Note Purchase Agreement)
and each agreement, certificate, instrument or other writing delivered by the
Lessee or the Guarantor in connection with any of the foregoing.
"PCBs" means polychlorinated biphenyls.
"Permitted Contest" has the meaning set forth in paragraph (a) of Section
28 hereof.
"Permitted Liens" means the following Liens and other matters now or
hereafter affecting title to the Facility or any other Parcel of Property or
Unit of Equipment: (i) Liens securing the payment of taxes, assessments and
other governmental charges or levies which are either not delinquent or, if
delinquent, are being contested by the Lessee in good faith as a Permitted
Contest (provided that the Lessee is in compliance with any security
requirements under paragraph (b) of Section 28 hereof relating thereto); (ii)
with respect to the Facility and the Additional Property, zoning and planning
restrictions, subdivision and platting restrictions; (iii) with respect to any
other Parcel of Property, easements, rights-of-way, licenses, reservations,
covenants, conditions, waivers and restrictions on the use of such Parcel of
Property, minor encroachments or minor irregularities of title none of which
individually or in the aggregate could reasonably be expected to materially
impair the intended use or value of such Parcel; (iv) reservations of mineral
interests, none of which can reasonably be expected to impair the intended use,
actual use, operation, leasing, ownership or value of the Facility; (v)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Lessee or the validity of which are being
contested in good faith as a Permitted Contest and which, in the aggregate, do
not exceed $5,000,000; (vi) the title matters set forth in the title policies or
specimen title policies issued in favor of the Lessor by various title
companies, on the date hereof or the Effective Date in respect of any other
Parcel of Property or Unit of Equipment, as the case may be; (vii) with respect
to the Facility and the Additional Property, all matters disclosed on the survey
prepared by GEOD Corporation or, with respect to any other Parcel of Property,
all matters disclosed on the survey prepared with respect to such Parcel of
Property and any other facts that would be disclosed by an accurate survey and
physical inspection of such Parcel of Property; (viii) restrictions and
regulations imposed by the ISO, any Governmental Authority or any local, state,
regional, national or international reliability council; (ix) with respect to
the Facility and the Additional Property, the Liens created by the Lessor
pursuant to or as contemplated by the Collateral Indenture or any Finance
Document (as defined in the Note Purchase Agreement), and with respect to other
Property or Equipment, the Liens on or in respect of such other Property or
Equipment created by the Lessor pursuant to or as contemplated by this Lease or
any Financing Arrangement; (x) leases and licenses in effect with respect to the
Facility, the Additional Property or any Parcel of Property which are permitted
by this Lease or which are delivered to and accepted by the Lessor and the
Related Assignee prior to the Facility's or such Parcel's Effective Date; and
(xi) such other or additional matters as may be approved in writing by the
Lessor and, in the case of the Facility or the Additional Property, the Related
Assignee, and in the case of any other Property or Equipment, any Related
Assignee with respect thereto; provided, that solely for the duration of the
Post-Closing Period, the term "Permitted Liens" shall include such other Liens
which would not, individually or in the aggregate, reasonably be expected to
materially impair the continued use and operation of the Facility.
"Person" means any individual, corporation, partnership, limited
liability company, private limited company, joint venture, association,
joint-stock company, trust, unincorporated organization of government or any
agency or political subdivision thereof.
"Pilko Environmental Report" means the Phase I Environmental Assessment
of Ravenswood Generating Station prepared by Pilko & Associates, Inc., dated May
28, 1999, as supplemented by letter from Pilko & Associates, Inc., dated June 8,
1999.
"Possessory Remedy" has the meaning set forth in paragraph (o) of Section
2(i) hereof.
"Post-Closing Period" has the meaning set forth in paragraph (i) of Section
2(ii) hereof.
"Potential Default" means any event which, but for the lapse of time, or
giving of notice, or both, would constitute an Event of Default.
"Private Placement Memorandum" means the Confidential Private Placement
Memorandum dated April 1999, prepared with respect to the offering of the notes
sold pursuant to the Note Purchase Agreement, together with Appendices A, B and
C attached thereto.
"Property" means any and all parcels of land together with all buildings
and other improvements (including, without limitation, the attachments,
appliances, equipment, machinery and other affixed property which, in each case,
would constitute "fixtures" under Section 9-313(l)(a) of the Uniform Commercial
Code) now or hereafter located on such parcels of land, leased or to be leased
hereunder and, when leased, evidenced by Unit Leasing Records, and the
respective easements, rights and appurtenances relating to such parcels of land,
buildings and improvements. "Parcel" or "Parcel of Property" means a specific
parcel or parcels of Property. This definition of "Property" does not include
any Additional Property.
"Prudent Utility Practice" means, as the context may require, at a
particular time any of the practices, methods and acts (including, without
limitation, methods or acts engaged in or approved by at least a substantial
portion of the electric utility industry prior thereto) which, (i) in the
exercise of the Lessee's reasonable judgment in light of the facts and the
characteristics of the Facility or other Property or Equipment known at the time
the decision was made, would have been expected to accomplish the desired result
at the lowest reasonable cost consistent with reliability, safety and
expedition, good customer relations and, except as otherwise permitted by the
last sentence of paragraph (c) of Section 8 hereto, applicable Legal
Requirements and (ii) are consistent with the practices, methods and acts
employed by the Lessee with respect to electric generating facilities of similar
design, construction and regulatory status as, and at such time similarly
situated to, the Facility or such other Property or Equipment. "Prudent Utility
Practice" is not intended to be limited to the optimum practice, method or act,
to the exclusion of all others, but rather to be a spectrum of reasonable and
prudent practices, methods or acts.
"Purchase Agreement" means the Generating Plant and Gas Turbine Asset
Purchase and Sale Agreement, dated as of January 28, 1999, as amended on May 24,
1999, and as further amended by the Purchase Agreement Assignment, between Con
Edison and the Guarantor, including the schedules and exhibits thereto.
"Purchase Agreement Assignment" means the Second Amendment, Consent,
Assignment and Assumption Agreement, dated as of June 18, 1999, among the
Guarantor, the Lessee, KeySpan-Ravenswood Services Corp., Con Edison and the
Lessor, pursuant to which the Guarantor assigns to the Lessor certain of the
Guarantor's rights under the Purchase Agreement to acquire the Facility Assets,
as the same may be amended, restated, modified or supplemented from time to
time.
"Recordable Documents" has the meaning set forth in paragraph (i) of
Section 8 hereof.
"Recording Event" has the meaning set forth in paragraph (i) of Section 8
hereof.
"Related Assignee" means, (A) with respect to the Facility, the
Collateral Trustee, and (B) with respect to any other Parcel of Property or Unit
of Equipment, the respective trustee or agent under Financing Arrangements
pursuant to which such trustee or agent provided, and/or acted in a fiduciary
capacity for lenders which provided, credit support or other financing to the
Lessor and to which an interest in this Lease or in any other Parcel of Property
or Unit of Equipment was assigned conditionally or otherwise by the Lessor in
accordance with Section 21. For purposes of paragraphs (d), (e), (f) and (o) of
Section 2(i), paragraphs (d) and (e) of Section 5, paragraph (b) of Section 9,
paragraph (a) of Section 10, the last sentence of clause (ii) of paragraph (d)
of Section 10, clause (iv) (other than the last reference to the Related
Assignee therein) of paragraph (d) of Section 10, paragraph (h) of Section 10,
Section 11, Section 14, clause (iv) of paragraph (j) of Section 18, the second
reference in paragraph five of Section 19, paragraph (b) of Section 21, Section
27, and clause (iii) of paragraph (a) of Section 28 hereof, the term "Related
Assignee" shall include each of the purchasers and holders from time to time of
the Notes and for purposes of paragraphs (d), (f), (g) and (h) of Section 2(ii),
paragraph (b) of Section 5, paragraphs (d), (h), (i)(x) and (i)(A) and (D) of
Section 8, paragraph (e) of Section 9, paragraphs (b), (c), (e) and (f) of
Section 10 and clauses (x) and (xi) of the definition of "Permitted Liens", the
term "Related Assignee" shall include each of the Qualifying Noteholders (as
defined in the Note Purchase Agreement). In addition, if any action, inaction,
matter, consent or approval under this Lease is required to be performed or not
to be performed or occurs and the same will directly or indirectly affect both
the Facility and any other Parcel of Property or Unit of Equipment, then the
applicable references to the "Related Assignee" shall be deemed to include each
Related Assignee with respect to the Facility, Parcel of Property or Unit of
Equipment, as applicable.
"Release" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migrating into
the indoor or outdoor environment of any Contaminant through or in the air,
soil, surface water, groundwater, or any structure.
"Remedial Action" means actions required or otherwise undertaken by a
Governmental Authority, or which are appropriate as a matter of prudent business
practice and commercial reasonableness, to (i) investigate, remediate, contain,
isolate, remove, treat or in any other way address Contaminants in the indoor or
outdoor environment; (ii) address the threatened Release of Contaminants; (iii)
investigate if a Release or threat of a Release has occurred or to determine the
extent of a Release; (iv) perform a risk analysis relating to Contaminants that
have been Released; or (v) perform post-remedial investigation, monitoring,
operation, maintenance and care.
"Removable Improvements" has the meaning set forth in paragraph (b) of
Section 8 hereof.
"Renewal Term" has the meaning set forth in paragraph (c) of Section 13
hereof.
"Responsible Officer" shall mean the President, any Vice President, the
Treasurer or any Assistant Treasurer of the Lessee, or any other officer of the
Lessee primarily responsible for the administration of the obligations of the
Lessee with respect to this Lease.
"SEC" means the Securities and Exchange Commission, or any successor agency
thereto.
"Segregated Unit" has the meaning set forth in paragraph (a) of Section 13
hereof.
"Semi-Annual Cost of Debt" means, with respect to the Facility or any
other Parcel of Property or Unit of Equipment leased hereunder, the weighted
average percentage cost per annum (including as part of such cost any fees
payable under or pursuant to any Financing Arrangements relating to the Facility
or such Parcel or Unit) of borrowings outstanding under the applicable Financing
Arrangements (whether or not interest is accruing at a default rate) at any
time, in each case, during the period from and including the 16th day of the
calendar month in which the semi-annual period for which Basic Rent is being
computed begins to and including the 15th day of the calendar month in which
such semi-annual period ends (the "Computation Period") to finance or refinance
the acquisition and ownership of the Facility or such Property or Equipment, as
the case may be.
"Site Lease" means the Ground Lease and Easement Agreement, dated as of
June 18, 1999, between the Lessee, as ground lessor, and the Lessor, as ground
lessee, pursuant to which a leasehold interest in the Facility Site is being
leased and non-terminable rights to the Additional Property are being granted to
the Lessor, as the same may be amended, restated, modified or supplemented from
time to time.
"Taking" has the meaning set forth in paragraph (a) of Section 16 hereof.
"Termination Covenants" means the following covenants made by the Lessee
to the Lessor as a condition to the sale of the Facility or any other Parcel of
Property or Unit of Equipment pursuant to Section 12 hereof: on the date of such
sale (a) no Event of Default, Potential Default, Event of Loss or Event of Lease
Termination shall have occurred and be continuing and the Lessee shall have
delivered to the Lessor and the Related Assignee a certificate of a Responsible
Officer to such effect, (b) the Facility, the Additional Property or such Parcel
or Unit shall not be undergoing any repairs, additions or alterations that could
reasonably be expected to diminish (by more than a de minimus amount) the fair
market value, utility or remaining economic useful life which the Facility, the
Additional Property or such Parcel or Unit would have had at such time had such
repair, addition or alteration not been undergoing (assuming the Facility, the
Additional Property or such Parcel or Unit is in the condition required hereby),
(c) the Facility, the Additional Property or such Parcel or Unit shall be in
compliance with all Legal Requirements, (d) the Lessee shall, at its expense,
deliver to the Lessor an Environmental Report prepared by the Environmental
Consultant satisfactory in scope and content to the Lessor and the Related
Assignee in their reasonable discretion, to the effect that (i) no Environmental
Matters exist with respect to the Facility, the Additional Property or such
Parcel or Unit as a result of the construction, operation and maintenance of the
Facility, the Additional Property or such Parcel or Unit and (ii) the Facility,
the Additional Property or such Parcel or Unit may be commercially operated in
compliance with Environmental Requirements and (e) the Lessee shall deliver to
the Lessor and the Related Assignee a report of an independent engineer
reasonably satisfactory to the Lessor and the Related Assignee, to the effect
that (i) the Facility or such Parcel or Unit has been maintained in all material
respects in accordance with the terms and conditions of Section 9 of this Lease,
(ii) the Facility or such Parcel or Unit is capable of being operated in
accordance with (A) the Capacity of the Facility or such Unit, as the case may
be, taking into account ordinary wear and tear resulting from the operation of
the Facility or such Unit, (B) Prudent Utility Practice and (C) all applicable
Environmental Requirements, and (iii) the proposed sale of such other Parcel or
Unit will not adversely affect the operation of the Facility.
"Termination Event Date" has the meaning set forth in Section 14 hereof.
"Termination Notice" has the meaning set forth in paragraph (a) of Section
12 hereof.
"Termination Settlement Date" has the meaning set forth in Section 14
hereof.
"Turbine Unit" means Unit 1, Unit 2 or Unit 3, or, if the context
otherwise requires, any other Unit of Equipment which is an electric generating
facility, as the case may be.
"Unit 1" means the Property and the improvements and Equipment
(including all related appliances, appurtenances, accessions, controls,
interconnection facilities, transmission lines, wiring, furnishings, materials
and parts, and other related facilities and equipment, along with any
replacements thereof) constructed thereon, which constitute an approximately 385
megawatt steam turbine generator, as more particularly described in Exhibit E
hereto.
"Unit 2" means the Property and the improvements and Equipment
(including all related appliances, appurtenances, accessions, controls,
interconnection facilities, transmission lines, wiring, furnishings, materials
and parts, and other related facilities and equipment, along with any
replacements thereof) constructed thereon, which constitute an approximately 385
megawatt steam turbine generator, as more particularly described in Exhibit E
hereto.
"Unit 3" means the Property and the improvements and Equipment
(including all related appliances, appurtenances, accessions, controls,
interconnection facilities, transmission lines, wiring, furnishings, materials
and parts, and other related facilities and equipment, along with any
replacements thereof) constructed thereon, which constitute an approximately 972
megawatt steam turbine generator, as more particularly described in Exhibit E
hereto.
"Unit Leasing Record" means an instrument, substantially in the form of
Exhibit B hereto, evidencing the lease of the Facility or any other Parcel or
Parcels of Property or Unit or Units of Equipment under this Lease.
"Unit Purchase Price" has the meaning set forth in paragraph (b) of Section
13 hereof.
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.
(i) The Lessee represents and warrants to the Lessor:
(a) Corporate Matters. The Lessee (i) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of New York, (ii) has all requisite power, authority and legal right to own and
operate its properties and to conduct its business as presently conducted and
proposed to be conducted after giving effect to the transactions contemplated
hereby and to execute, deliver and perform its obligations under this Lease, any
other Operative Document to which it is a party and any Material Contract, and
(iii) is duly qualified to do business as a foreign corporation in good standing
in each jurisdiction in which its ownership or leasing of properties or the
conduct of its business requires such qualification, except where the failure to
so qualify would not impair the ability of the Lessee to perform its obligations
under the Operative Documents to which it is a party.
(b) Binding Agreements. This Lease and each other Operative Document to
which it is a party have been duly authorized, executed and delivered by the
Lessee and, assuming the due authorization, execution and delivery or acceptance
of this Lease and such Operative Documents by the other parties thereto, this
Lease and each such Operative Document are legal, valid and binding obligations
of the Lessee, enforceable according to their respective terms, except (i) as
the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditor's or
lessor's rights generally and (ii) for the application of equitable principles,
whether applied by a court of equity or law.
(c) Compliance with Other Instruments. The execution and delivery by the
Lessee of this Lease and any other Operative Document to which it is a party and
the performance by the Lessee of the transactions contemplated hereby and
thereby, and the performance of any Material Contract, will not result in any
violation of any term of the certificate of incorporation or the by-laws of the
Lessee, do not require stockholder approval or the approval or consent of any
trustee or holders of Indebtedness of the Lessee except such as have been
obtained prior to the date hereof and will not conflict with or result in a
breach of any terms or provisions of, or constitute a default under, or result
in the creation or imposition of any Lien (other than a Permitted Lien) upon any
property or assets of the Lessee under, any indenture, mortgage or other
material agreement or instrument to which the Lessee is a party or by which it
or any of its property is bound, or any existing applicable law, rule,
regulation, license, judgment, order or decree of any Governmental Authority or
court having jurisdiction over the Lessee or any of its activities or
properties.
(d) Governmental Consents. There are no consents, licenses, orders,
authorizations, approvals, Environmental Approvals, permits, waivers, extensions
or variances of, or notices to or registrations or filings with any Governmental
Authority (each a "Governmental Action") which are required under Legal
Requirements applicable to the Lessee or any of its Affiliates in connection
with the valid execution, delivery and performance of this Lease or any other
Operative Document, and no Governmental Action (i) is required to be obtained
during the term of this Lease with respect to the Facility, the Additional
Property or any other Property or Equipment, solely by reason of any
participation by the Lessor, any Related Assignee, the Lessee, Merrill Lynch,
Merrill Leasing or any Affiliate of the foregoing in connection with the
transactions contemplated by this Lease, any other Operative Document, the
Purchase Agreement, the Purchase Agreement Assignment, or any bill of sale,
deed, assignment, assumption or ownership agreement relating to the Facility,
the Additional Property or any other Property or Equipment, or (ii) is required
in connection with the acquisition, operation, ownership, leasing or financing
of the Facility, the Additional Property or any other Property or Equipment (or
any part thereof) or the sale or delivery of electric capacity and energy from
the Facility or any Turbine Unit, except such Governmental Actions (A) as have
been duly filed, obtained, given or accomplished, with true copies thereof
delivered to the Lessor and the Related Assignee (except for filings to be made
upon the occurrence of a Recording Event), (B) as may be required by applicable
law not now in effect, (C) as are building, occupancy or other routine
Governmental Actions, including without limitation the transfer into the name of
the Lessee of existing Governmental Actions with respect to the Facility, which
are described on Exhibit G hereto and are obtainable in the ordinary course of
business, but only if the failure to obtain such Governmental Actions by the
date hereof could not (x) impair the ability of the Lessee to perform its
obligations under this Lease or the other Operative Documents to which it is a
party, (y) reasonably be expected to materially impair the ability of the
Facility or any Turbine Unit to perform in commercial operation and to operate
substantially at its Capacity or (z) result in an Event of Lease Termination or
an event described in clause (A), (B) or (C) of Section 15(c) hereof, (D) as may
be required upon the exercise of Possessory Remedies, or (E) which, if not
obtained or effected, would not, individually or in the aggregate, (x) impair
the ability of the Lessee to perform its obligations under this Lease or the
other Operative Documents to which it is a party, (y) reasonably be expected to
materially impair the ability of the Facility or any Turbine Unit to perform in
commercial operation and to operate substantially at its Capacity or (z) result
in an Event of Lease Termination or an event described in clause (A), (B) or (C)
of Section 15(c) hereof. Governmental Actions referred to in clause (A) are
listed in Exhibit G hereto and are in full force and effect and, except as
otherwise set forth on Exhibit G hereto, no such Governmental Action is the
subject of appeal or reconsideration or other review, and the time in which to
make an appeal or request the reconsideration of any such Governmental Action
has expired without any appeal or request for review or reconsideration having
been taken or made.
(e) Changes. Since March 31, 1999, there has been no material adverse
change in the business, assets, properties, revenues, financial condition or
operations of the Lessee, nor any change which could reasonably be expected to
have a material adverse effect on (i) the ability of the Lessee to observe and
perform its obligations under this Lease or the other Operative Documents to
which it is a party in a timely manner or (ii) the rights or interests of the
Lessor or any Related Assignee under the Operative Documents.
(f) Litigation. There is no action, suit, proceeding or investigation at
law or in equity by or before any court, governmental body, agency, commission
or other tribunal now pending or, to the best knowledge of the Lessee,
threatened against or affecting the Lessee or any property or rights of the
Lessee which (i) questions the validity or enforceability of any Operative
Document, (ii) could reasonably be expected to materially adversely affect the
Facility, the Additional Property or any other Parcel of Property or Unit of
Equipment, (iii) could reasonably be expected to have a material adverse effect
on the business, assets, properties, revenues, financial condition or operations
of the Lessee or (iv) if adversely determined, would (x) materially impair the
ability of the Lessee to perform its obligations under the Operative Documents
to which it is a party or (y) result in an Event of Lease Termination or an
event described in clause (A), (B) or (C) of Section 15(c) hereof. The
representations and warranties of the Lessee set forth in this paragraph (f)
shall not apply to environmental matters, with respect to which the
representations and warranties set forth in paragraph (u) of Section 2(i) hereof
shall exclusively apply.
(g) No Default, Etc. No Event of Lease Termination has occurred, and no
event has occurred and no condition exists which would constitute a Potential
Default or an Event of Default under this Lease.
(h) Compliance with Legal Requirements and Insurance Requirements. The
operation, use and physical condition of the Facility, the Additional Property
and any other Property and Equipment (i) are in full compliance with all
Insurance Requirements and all premiums due with respect to such Insurance
Requirements have been paid and (ii) are in full compliance with all Legal
Requirements, except any Legal Requirements the noncompliance with which,
individually or in the aggregate, would not (x) impair the ability of the Lessee
to perform its obligations under this Lease or the other Operative Documents to
which it is a party, (y) reasonably be expected to materially impair the ability
of the Facility and each Turbine Unit to perform in commercial operation
substantially at its Capacity or (z) result in an Event of Lease Termination or
an event described in clause (A), (B) or (C) of Section 15(c) hereof. The
representations and warranties of the Lessee set forth in this paragraph (h)
shall not apply to environmental matters, with respect to which the
representations and warranties set forth in paragraph (u) of Section 2(i) hereof
shall exclusively apply.
(i) Liens. Neither the Facility, the Additional Property nor any other
Parcel of Property or Unit of Equipment is subject to any Lien, except Permitted
Liens, and none of such Permitted Liens could reasonably be expected to
materially interfere with the use or possession of the Facility, the Additional
Property or such Parcel or Unit or the use or exercise by the Lessor of its
rights under this Lease or any other document contemplated hereby or entered
into in connection herewith.
(j) Status of Lessee. All of the Lessee's common stock is owned
beneficially and of record by the Guarantor.
(k) Guaranty. The Guaranty has been duly authorized, executed and
delivered by the Guarantor and is a legal, valid and binding obligation of the
Guarantor, enforceable according to its terms, except (i) as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditor's or lessor's
rights generally and (ii) for the application of equitable principles, whether
applied by a court of equity or law.
(l) Facility Support Agreement. The Facility Support Agreement has been
duly authorized, executed and delivered by the Lessee and, assuming the due
authorization, execution and delivery of the Facility Support Agreement by the
Lessor, is a legal, valid and binding obligation of the Lessee, enforceable
according to its terms, except (i) as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditor's or lessor's rights generally and (ii)
for the application of equitable principles, whether applied by a court of
equity or law.
(m) Ground Lease. The Site Lease and each other Ground Lease has been
duly authorized, executed and delivered by the Lessee, as the fee owner, and is
a legal, valid and binding obligation of the Lessee enforceable according to its
terms, except (i) as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's or lessor's rights generally and (ii) for the
application of equitable principles, whether applied by a court of equity or
law. The Site Lease and each other Ground Lease is a Mortgageable Ground Lease
except to the extent agreed to in writing by the Lessor and Related Assignee,
and is in full force and effect.
(n) 1935 Act. The Lessee is not subject to regulation by the SEC under
the 1935 Act as a "public-utility company" or a "holding company", within the
meaning of the 1935 Act.
(o) Regulation. Neither the Lessor, any Related Assignee nor any of
their respective Affiliates shall, solely by reason of (i) its entering into
this Lease or any other document contemplated hereby, (ii) the acquisition,
ownership, leasing or financing of the Facility or any Turbine Unit (or any part
thereof) or (iii) the operation by the Lessee or any Affiliate of the Lessee of
the Facility or any Turbine Unit in accordance with and as contemplated by the
Material Contracts and this Lease, be deemed during the Lease Term or any
Renewal Term to be, and be subject to financial, rate, utility or other similar
regulation as, a public utility, or an electric utility or a public utility
holding company under any Legal Requirement (including any Legal Requirement (A)
under the 1935 Act, (B) imposed by any state or local public utility commission
or other similar regulatory body, authority or group having jurisdiction over
the Lessor or the Lessee or any such transactions or activities, or (C) under
the Federal Power Act, as amended (the "FPA")), except (other than in the case
of (A)) in connection with the exercise of any remedy under which the Lessor or
the Related Assignee or any of their respective Affiliates would operate,
possess or control the Facility or any Turbine Unit (a "Possessory Remedy"). All
Governmental Actions necessary to accomplish this result are listed on Exhibit G
hereto and have been duly obtained, given or accomplished, with true copies
thereof delivered to the Lessor.
(p) Operation of the Facility and Turbine Units. Except as set forth in
the Engineering Report or on Schedule 2(i)(p) hereto, to the best knowledge of
the Lessee, (i) the operation and maintenance programs relating to the Facility
and each Turbine Unit are consistent with Prudent Utility Practice, (ii) the
Facility and each Turbine Unit have the capacity and functional ability to
perform in commercial operation substantially at its Capacity and in accordance
with Prudent Utility Practice and (iii) there is no present event or condition
which would materially adversely affect the capability of the Facility or any
Turbine Unit to operate substantially at its Capacity. (w) No real property or
equipment of any kind other than the Additional Property is required in
connection with the operation of the Facility, (x) the Easements granted to the
Lessor under the Site Lease provide the Lessor with access to the Facility and
each Turbine Unit or the Additional Property, as applicable, (y) no
condemnation, eminent domain or similar proceeding has been commenced or, to the
Lessee's knowledge, is contemplated with respect to all or any portion of the
Facility Site or the Additional Property or for the relocation of roadways
providing access to the Facility Site and (z) the Facility Site contains valid
and enforceable rights of pedestrian and vehicular access to an open public road
by an Easement appurtenant to and running with the Facility Site.
A true, correct and accurate list of all Facility Assets that the Lessor
owns is attached hereto as Exhibit E. A true, correct and accurate list of all
Additional Property is attached hereto as Exhibit I.
True and correct copies of the Engineering Report have been delivered to
the Lessor and the Related Assignee, and all material Governmental Actions
relating to the operation or maintenance of the Facility and each Turbine Unit
are listed on Exhibit G hereto and, to the extent obtained on or before the date
hereof, have been delivered to the Lessor and the Related Assignee.
(q) Title to Facility and Facility Assets. Good, marketable and valid
title to, or a valid leasehold interest in, the Facility (including, without
limitation, the Facility Assets) and any other Property or Equipment has been
duly, validly and effectively conveyed and transferred to the Lessor free and
clear of all Liens, except Permitted Liens, which representation and warranty is
given by the Lessee to induce the Lessor to acquire the Facility and such other
Property or Equipment and to lease such assets to the Lessee pursuant to this
Lease. The Lessee has good, marketable and valid title to or, except for the
revocable consents described on Exhibit G hereto, non-terminable rights to use
the Additional Property and the Site Lease duly provides the Lessor with
non-terminable use and access rights to the Additional Property.
(r) Utility Availability. All utilities required for the operation of
the Facility and any other Property and Equipment, including, but not limited
to, potable water supply, gas, electric and telephone facilities, are (i) with
respect to the Facility, to the best knowledge of the Lessee, available for use
at the boundaries of the Facility Site, (ii) with respect to any other Property
and Equipment, to the best knowledge of the Lessee, available for use at the
boundaries of, or a reasonable distance from, the Parcel of Property as to which
a Ground Lease has been executed and (iii) in any case, arrangements on
commercially reasonable terms have been made for the provision of such services
to the Facility or such other Parcel of Property, as the case may be.
(s) Accuracy of Appraisals. (i) Any written information furnished by the
Lessee to the Appraiser for use by the Appraiser in its appraisal report with
respect to the Facility or any other Property or Equipment was accurate in all
material respects when furnished and is accurate in all material respects as of
the date hereof. (ii) The projections furnished by the Lessee to the Appraiser
for use by the Appraiser in its appraisal report with respect to the Facility
were prepared in good faith and the Lessee believes that the assumptions used in
preparing such projections are reasonable.
(t) Intellectual Property. To the best knowledge of the Lessee, all
patents, copyrights, trademarks, trade secrets, computer software or other
intellectual property rights that are material and are required for the
operation of the Facility and any Property or Equipment in accordance with and
as contemplated by this Lease, the Facility Support Agreement and the Material
Contracts, have been timely obtained and are and will remain in full force and
effect. To the best knowledge of the Lessee, the Lessee owns or has the right to
use all technology, licenses, patents and other proprietary rights that are
material and are required to perform the Lessee's obligations under the Material
Contracts without any conflict with the rights of others.
(u) Environmental Representations. Except as expressly identified in the
Pilko Environmental Report and except for such matters which, individually, are
not reasonably likely to result in or require remedial activities or fines or
penalties in excess of $10,000:
(i) Except as set forth on Schedule 2(i)(u) hereto, to the best
knowledge of the Lessee, the Lessee, the Facility, the Additional Property and
other Property and Equipment are in compliance with, and have at all times been
in compliance with, applicable Environmental Requirements with respect to the
business and operations of the Facility, the Additional Property and any other
Property and Equipment, and no material capital expenditures are anticipated to
maintain or achieve compliance with Environmental Requirements;
(ii) The Lessee has obtained or has taken appropriate and timely
steps, as required by Environmental Requirements, to obtain all Environmental
Approvals required in connection with the ownership and operation of the
Facility, the Additional Property and other Property and Equipment, all such
Environmental Approvals already obtained are in good standing, and the Lessee
and the Facility, the Additional Property or such other Property and Equipment
are currently in material compliance with all terms and conditions of such
Environmental Approvals. To the best knowledge of the Lessee, no change in the
facts or circumstances reported or assumed in the applications for or the
granting of such Environmental Approvals exists. There are not any proceedings
pending or, to the best knowledge of the Lessee, threatened which would
jeopardize the validity of any such Environmental Approvals;
(iii) Except as set forth on Schedule 2(i)(u) hereto, the Lessee
has not received from any party, and has no knowledge of, any written notice of
violation of, or potential liability under, any Environmental Requirement or any
written request for information with respect thereto, nor has the Lessee been
notified or is otherwise aware that it or any predecessor in interest or title
is a potentially responsible party under the Federal Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") or any similar state law
with respect to the Facility, the Additional Property or any other Property or
Equipment;
(iv) Except as set forth on Schedule 2(i)(u) hereto, with respect
to the business and operations of the Facility, the Additional Property and any
other Property and Equipment, the Lessee is not subject to any outstanding
judgment, decree or judicial order relating to compliance with any Environmental
Requirement or to investigation or cleanup of Contaminants under any applicable
Environmental Requirement;
(v) Except as set forth in Schedule 2(i)(u) hereto, there are no
claims, actions, proceedings or investigations pending, or, to the best
knowledge of the Lessee, threatened against or relating to the Lessee, the
Facility, the Additional Property or any other Property and Equipment, with
respect to the exposure at the Facility, the Additional Property and such other
Property and Equipment of any person to Contaminants, or otherwise arising under
Environmental Requirements;
(vi) No Environmental Lien has attached to any portion of the
Facility, the Additional Property or other Property and Equipment;
(vii) Except as set forth on Schedule 2(i)(u) hereto, to the best
knowledge of the Lessee, there has been no Release of any Contaminants for which
a Remedial Action must be taken at, to, under, from or affecting the Facility,
the Additional Property or other Property and Equipment;
(viii) To the best knowledge of the Lessee, there is not
constructed, placed, deposited, stored, disposed nor located on, under or
affecting the Facility, the Additional Property or other Property and Equipment
any asbestos in any form which has become or threatens to become friable in
violation of Environmental Requirements;
(ix) Except as set forth on Schedule 2(i)(u) hereto, to the best
knowledge of the Lessee, the underground and above-ground storage tanks (whether
or not currently in use), located on, under or affecting the Facility, the
Additional Property, the Facility Site or other Property and Equipment are in
compliance with applicable Environmental Requirements;
(x) Based on the review by the Lessee and its agents of the
matters referred to in Schedule 2(i)(u) hereto, the Lessee has no reason to
believe as of the date of this Lease that such matters, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on (1)
the ability of the Lessee to observe and perform its obligations under this
Lease or the other Operative Documents to which it is a party in a timely
manner, (2) the ability of the Guarantor to perform its obligations under the
Guaranty in a timely manner, (3) the business, assets, properties, financial
condition or operations of the Guarantor, (4) the rights or interests of the
Lessor or the Related Assignee under this Lease or the applicable Financing
Arrangements or (5) the leasing, ownership or value of the Facility.
(ii) The Lessee covenants to the Lessor:
(v) Corporate Existence. The Lessee will remain a validly existing
corporation in good standing under the laws of the State of New York until the
expiration or other termination of this Lease and the indefeasible payment of
all amounts owing hereunder.
(w) Liens. The Lessee will not create, incur, assume or permit to exist
any Lien upon (i) the Facility, the Additional Property or other Property and
Equipment, other than Permitted Liens or those Liens placed thereon by, or
arising from, the Lessor's own actions, or (ii) any of its rights or obligations
with respect to any Ground Lease, the Facility Support Agreement or any Material
Contract other than any Lien granted to the Lessor and assigned by the Lessor to
the Related Assignee. Notwithstanding the foregoing, the Lessee may create a
Lien upon the Additional Property provided that it delivers to the Lessor and
each Related Assignee a subordination and non-disturbance agreement in form and
substance reasonably satisfactory to the Lessor and each Related Assignee.
(x) Subsidiaries. The Lessee will not acquire or create an equity
interest in any Person.
(y) Delivery of Information. The Lessee shall deliver to the Lessor and
each Related Assignee, from time to time, (i) promptly after a Responsible
Officer of the Lessee obtains knowledge of any Event of Default, Potential
Default, Event of Loss or Event of Lease Termination hereunder, a certificate of
a Responsible Officer of the Lessee specifying the nature and period of
existence of such Event of Default, Potential Default, Event of LOSS or Event of
Lease Termination hereunder, and what action, if any, the Lessee has taken, is
taking, or proposes to take with respect thereto, (ii) promptly after a
Responsible Officer of the Lessee obtains knowledge of any material adverse
change in the business, assets, properties, financial condition or operations of
the Lessee, or of any liabilities or obligations arising as a result of tortious
action or Environmental Damages or in respect of governmental fines or
obligations (other than taxes) or liabilities or obligations arising as a result
of Environmental Matters, or of any litigation of the type described in
paragraph (f) of Section 2(i) hereof, a certificate of a Responsible Officer of
the Lessee describing such change, liabilities, obligations or litigation, as
the case may be, and what action, if any, the Lessee has taken, is taking, or
proposes to take with respect thereto, (iii) simultaneously with the delivery by
the Guarantor of each set of quarterly financial statements pursuant to the
Guaranty, a certificate of a Responsible Officer of the Lessee stating, to the
best knowledge of such Responsible Officer after reasonable inquiry, whether
there exists on the date of such certificate any Event of Default, Potential
Default, Event of Loss or Event of Lease Termination hereunder, and if any Event
of Default, Potential Default, Event of Loss or Event of Lease Termination
hereunder exists, specifying the nature and period of existence thereof and what
action, if any, the Lessee has taken, is taking, or proposes to take with
respect thereto, (iv) promptly after a Responsible Officer of the Lessee obtains
knowledge of any legal, governmental or regulatory proceeding that could have a
material adverse effect on (1) the operation, maintenance, leasing, ownership,
use, value or regulatory status of the Facility or any other Parcel of Property
or Unit of Equipment, (2) the ability of the Lessee to observe and perform its
obligations under this Lease or any other Operative Document to which it is a
party in a timely manner, (3) the business, assets, properties, financial
condition or operations of the Lessee, or (4) the rights or interests of the
Lessor or Related Assignee under this Lease, a certificate of a Responsible
Officer of the Lessee, describing each such proceeding and what action, if any,
the Lessee has taken, is taking, or proposes to take with respect thereto and
(v) with reasonable promptness, such other data and information relating to the
business, operations, affairs, financial condition, assets or properties of the
Lessee or relating to the ability of the Lessee to perform its obligations
hereunder as from time to time may be reasonably requested by the Lessor or the
Related Assignee.
(z) 1935 Act. The Lessee shall not become subject to regulation by the
SEC under the 1935 Act as a "public-utility company" or a "holding company",
within the meaning of the 1935 Act.
(aa) Regulation. Neither the Lessor nor any Related Assignee nor any of
their respective Affiliates shall, solely by reason of (i) its entering into
this Lease or any other document contemplated hereby, (ii) the acquisition,
ownership, leasing or financing of the Facility or any Turbine Unit (or any part
thereof) or (iii) the operation by the Lessee or any Affiliate of the Lessee of
the Facility or any Turbine Unit in accordance with and as contemplated by the
Material Contracts and this Lease, be deemed during the term of this Lease, to
be, and be subject to financial, rate, utility or other similar regulation as, a
public utility, or an electric utility or a public utility holding company under
a Legal Requirement (including any Legal Requirement (A) under the 1935 Act, (B)
imposed by any state or local public utility commission or other similar
regulatory body, authority or group having jurisdiction over the Lessor or the
Lessee or any such transactions or activities or (C) under the FPA), except
(other than in the case of (A)) in connection with the exercise of any
Possessory Remedy.
(bb) Environmental Covenants:
(i) The Lessee, the Facility, the Additional Property and any
other Property and Equipment shall comply in all material respects, and the
Lessee shall use its best efforts to cause the compliance by any contractors
engaged in connection with the Facility or any other Property or Equipment, with
all applicable Environmental Requirements, including without limitation, with
respect to the treatment, remediation, removal, transport, storage and/or
disposal of any Contaminant.
(ii) The Lessee shall maintain all Environmental Approvals
necessary for the operation of the Facility, the Additional Property and any
other Property or Equipment and shall remain in material compliance with all
Environmental Approvals.
(iii) The Lessee shall not cause or suffer or permit the
attachment of any Environmental Lien to the Facility, the Additional Property or
any other Property or Equipment or any portion thereof.
(iv) The Lessee shall not cause or suffer or permit the Release
or threatened Release at, to or from the Facility, the Additional Property, any
Property or Equipment, of any Contaminant for which a material Remedial Action
must be taken.
(v) The Lessee shall not cause the transportation or arrange for
the disposal of any Contaminant from the Facility, the Additional Property or
any other Property or Equipment except in compliance with the Environmental
Requirements.
(vi) The Lessee shall not cause or suffer or permit the use of
any asbestos-containing material or any article containing PCBs in connection
with the Facility, the Additional Property or any other Property or Equipment in
violation of the Environmental Requirements.
(vii) Notice of Environmental Events:
(A)The Lessee shall promptly, but in any case within fifteen (15)
Business Days of receiving actual or constructive notice thereof, notify the
Lessor and the Related Assignee if, after the date of this Lease, (1) any
Environmental Matter relating to the Release of Contaminants in, on, beneath,
from or involving the Facility, the Additional Property or any other Property or
Equipment or any part thereof has occurred, or any proceeding has been brought
by a third party under Environmental Requirements (other than proceedings
described in subsection (2) hereof), in each case that could reasonably be
expected to result in Environmental Damages in excess of $500,000, or (2) the
Lessee has received notification that it, the Facility, the Additional Property
or any other Property or Equipment or any part thereof is the subject of a
judicial or administrative proceeding arising under the Environmental
Requirements in which a Governmental Authority is a party, unless the Lessee
reasonably believes that such proceeding will result in no monetary sanctions,
or in monetary sanctions, exclusive of interest and costs, of less than
$100,000, or (3) any Environmental Matter otherwise relating to compliance with
an Environmental Requirement has occurred that could reasonably be expected to
result in Environmental Damages in excess of $1,000,000 (each of (1), (2) and
(3) an "Environmental Event"). Notice as required hereunder shall be deemed to
have been given with respect to Environmental Matters identified in Schedule
2(i)(u) or in the Pilko Environmental Report; provided, however, that this
presumption shall not apply to any adverse development in any such Environmental
Matter that occurs, or of which Lessee becomes aware, after the date hereof,
which adverse development would, regardless of prior notice, in and of itself
constitute an Environmental Event.
(B)Following the receipt of a notice pursuant to (A) above, the
Lessor and the Related Assignee, in each case in their sole discretion, may
require the Lessee to conduct, or cause to be conducted, an environmental
investigation of the Facility, the Additional Property or such Property or
Equipment, the scope of which investigation shall be limited to evaluating the
scope and magnitude of the Environmental Event and to provide a copy of the
investigation report to the Lessor and the Related Assignee. The Lessor and the
Related Assignee, after receipt of the investigation report, may in each case,
in their reasonable discretion, require an investigation of the Environmental
Event by the Environmental Consultant.
(C)The Lessee shall take, or cause to be taken at no cost to the
Lessor or any Related Assignee, such actions as may be necessary to comply in
all respects with all applicable Environmental Requirements and to alleviate any
unreasonable risk to human health or the environment if the same arises from a
condition on or in respect of the Facility, the Additional Property or any other
Property or Equipment or any part thereof, whether existing prior to, on or
after the date of this Lease, provided, however, that it shall have the right to
contest any such Environmental Requirements pursuant to Section 28 hereof in
good faith, and provided further, that the Lessee in all cases shall promptly
address any unreasonable risk to human health or the environment. At the request
of the Lessor or the Related Assignee during the Initial Term or any Extended
Term, the Lessee shall give periodic progress reports on its compliance efforts
and actions.
(D)The Lessee shall, no later than January 15 and July 15 of each
year following the date hereof, provide the Lessor and the Related Assignee with
a report describing the Environmental Events that have occurred during the
previous six months (but with respect to the first such report, that have
occurred since the date hereof), regardless of whether notice of such events was
given under subsection (A) of this paragraph (g)(vii) of Section 2(ii).
(cc) Information. The Lessee shall furnish to the Lessor and the
Related Assignee:
(i) all material written communications relating to any pending
or, to the best knowledge of the Lessee, threatened investigations, claims or
proceedings with respect to any Governmental Action or proposing to amend,
modify or affect any Governmental Action then required to be in effect; and
(ii) written notice of the occurrence of any event giving rise
(or that could reasonably be expected to give rise) to a claim under any
insurance policy maintained pursuant to the terms of this Lease in an amount
greater than $5,000,000 together with copies of any document relating thereto
(including copies of any such claim), in the possession or control of the
Lessee.
(dd) Post-Closing Conditions.
(i) As promptly as practicable but in no event later than two
hundred and forty (240) days following the Effective Date (the "Post-Closing
Period"), the Lessee shall:
(x) furnish to the Lessor and each Related Assignee true and correct
copies of all UCC search reports relating to the Facility;
(y) release or cause the release or termination of any Liens on or
otherwise affecting the Facility, other than Permitted Liens (without
reference to the last proviso to the definition of "Permitted Liens"); and
(z) deliver or cause to be delivered to the Lessor and each Related
Assignee such opinions of counsel to the Lessee and other documents or
instruments relating to the first priority of the Lien created under the
Financing Arrangements and the absence of any Liens on or otherwise
affecting the Facility, other than Permitted Liens (without reference to
the last proviso to the definition of "Permitted Liens"), each in form and
substance reasonably satisfactory to the Lessor and each Related Assignee,
as the Lessor or any Related Assignee shall request.
(ii) Not later than one hundred and eighty (180) days following
the Effective Date, the Lessee shall complete the undertakings set forth in
Exhibit J hereto.
(iii) Provided that the Lessee is proceeding diligently and in
good faith to satisfy its post-closing obligations under clause (i) of paragraph
(i) of this Section 2(ii), solely for the duration of the Post-Closing Period,
an Event of Default under paragraph (k) of Section 18 hereof shall be deemed not
to exist by virtue of operation of clause (i) of paragraph (i) of this Section
2(ii).
SECTION 3. LEASE OF THE FACILITY AND OTHER PROPERTY AND EQUIPMENT.
(a) Subject to the terms and conditions hereof, including without
limitation Section 5 hereof, the Lessor shall lease to the Lessee, and the
Lessee shall lease from the Lessor pursuant to this Lease, the Facility and any
other Parcel of Property or Unit of Equipment of the type described on Exhibit A
hereto, when and as the Lessee has need of such other Property or Equipment;
provided that, in the case of such other Property or Equipment:
(i) such Property or Equipment is available for purchase;
(ii) the Lessor has approved the purchase order or acquisition
with respect to such Equipment or the acquisition with respect to such Property
(which approval shall be in the sole discretion of the Lessor);
(iii) at the time any such Property or Equipment is to be ordered
or leased hereunder there exists no Event of Default or Potential Default; and
(iv) the sum of (A) the Acquisition Cost of such Property or
Equipment and (B) the aggregate Acquisition Cost of the Facility and all other
Property or Equipment leased hereunder at any time would not, at the time any
such Property or Equipment is to be leased hereunder, exceed such amount as the
Lessor, the Related Assignee and the Lessee may from time to time agree.
(b) The lease of the Facility and each other Parcel of Property or Unit
of Equipment to the Lessee under this Lease shall be evidenced by a Unit Leasing
Record. The Lessee shall prepare and execute a Unit Leasing Record with respect
to the Facility and each other Parcel of Property or Unit of Equipment (which
Unit Leasing Record may relate to more than one Parcel of Property or Unit of
Equipment) and deliver it promptly to the Lessor. Contemporaneously with the
payment required by paragraph (b) of Section 5 hereof, the Lessor shall execute
the acceptance of such Unit Leasing Record and promptly return one copy of such
Unit Leasing Record to the Lessee.
(c) The Lessee shall prepare each Unit Leasing Record pursuant to the
procedures provided by the Lessor. Each Unit Leasing Record shall give a full
description of the Facility or each Parcel of Property or Unit of Equipment
covered thereby, the Acquisition Cost of the Facility or each such Parcel or
Unit, the Lease Term for the Facility or each such Parcel or Unit and such other
details as the Lessor and the Lessee may from time to time agree.
(d) Execution by the Lessee of a Unit Leasing Record shall constitute
(i) acknowledgment by the Lessee that the Facility or other Property or
Equipment specified in such Unit Leasing Record has been delivered to the Lessee
in good condition and has been accepted for lease hereunder by the Lessee as of
the Effective Date, (ii) acknowledgment by the Lessee that the Facility or other
Property or Equipment specified in such Unit Leasing Record is subject to all of
the covenants, terms and conditions of this Lease, and (iii) certification by
the Lessee that the representations, warranties and covenants contained in
Section 2 of this Lease as they relate to the Lessee, the Guarantor and the
Facility or any other Property or Equipment specified in such Unit Leasing
Record, as applicable, are true and correct on and as of the Effective Date as
though made on and as of the Effective Date and that there exists on the
Effective Date no Event of Default or Potential Default.
SECTION 4. INTENT OF THE PARTIES; OPERATING LEASE.
(a) It is the intent of the Lessee and the Lessor that: (i) this Lease
constitutes an operating lease from the Lessor to the Lessee for purposes of the
Lessee's financial reporting, (ii) this Lease and other transactions
contemplated hereby preserve the ownership of the Facility and any other
Property or Equipment in the Lessee for federal, state and local income tax and
bankruptcy purposes, and (iii) this Lease grants to the Lessor a Lien on the
Facility. The Lessee and the Lessor agree that the Lessor shall be deemed to
have a valid and binding security interest in and Lien on the Facility and all
other Property and Equipment, free and clear of all Liens, other than Permitted
Liens, as security for the obligations of the Lessee under this Lease (it being
understood and agreed that the Lessee does hereby grant a Lien, and convey,
transfer, assign, mortgage and warrant to the Lessor and its successors,
transferees and assigns, for the benefit of the Lessor and its successors,
transferees and assigns, on the Facility and all other Property and Equipment
and any proceeds or products thereof, to have and hold the same as collateral
security for the payment and performance of the obligations of the Lessee under
this Lease).
(b) Specifically, without limiting the generality of paragraph (a) of
this Section 4, the Lessee and the Lessor intend and agree that in the event of
any insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State thereof affecting the Lessee, the Lessor, any
Related Assignee or any collection actions relating thereto, the transactions
evidenced by this Lease shall be regarded as loans made by the Lessor to the
Lessee.
(c) LIC Capital, Inc., the general partner of the Lessor, has been
incorporated as a close corporation under the laws of the State of Delaware by
an individual completely unaffiliated with the Lessee. Such individual and all
the officers and directors of LIC Capital, Inc., have the full power, authority
and legal right to direct the management and operations of the Lessor. The
Lessor has been formed as a limited partnership under the laws of the State of
Delaware by LIC Capital, Inc., and is not directly or indirectly affiliated with
the Lessee. The Lessee did not participate in the incorporation of LIC Capital,
Inc. or the formation of the Lessor.
SECTION 5. DELIVERY; ABSOLUTE OBLIGATION.
(a) The Lessee shall acquire or order and accept the Facility and any
other Parcel of Property or Unit of Equipment pursuant to the procedures
provided by the Lessor. The Lessor shall not be liable to the Lessee for any
failure to obtain, or delay in obtaining, the Facility or any other Property or
Equipment or any delay in the delivery of title to the Lessor or possession of
the Facility or such other Property or Equipment to the Lessee.
(b) The Lessor's acceptance for lease of the Facility or any other
Parcel of Property or Unit of Equipment by the Lessee and the Lessor is subject
to receipt by the Lessor, in the case of Property and Equipment (other than the
Facility), at least seven (7) business days prior to the requested acquisition,
and, in the case of the Facility, prior to the requested acquisition, of:
(i) in the case of a Unit of Equipment, the vendor's invoice or
invoices and, if required by the Lessor and the Related Assignee, a bill of
sale, for such Unit of Equipment (in the case of the Facility and the Facility
Assets, the Purchase Agreement Assignment), and in the case of a Parcel of
Property, the executed contract of sale and deed with respect to each fee
interest in such Parcel of Property (or with respect to a leasehold interest in
a Parcel of Property, the executed Ground Lease or with respect to the leasehold
interest in the Facility, the executed Site Lease), and such estoppel
certificates, consents, recognition and attornment agreements and confirmation
of customary mortgagee protection as are reasonably acceptable to the Lessor and
the Related Assignee);
(ii) invoices or other evidence satisfactory to the Lessor for
any amounts included in the Acquisition Cost of such Parcel or Unit payable to
parties other than the vendor;
(iii) invoices or other evidence satisfactory to the Lessor for
any amounts included in the Acquisition Cost of such Parcel or Unit that have
been paid to the vendor or other parties by the Lessee and for any costs
included in the Acquisition Cost of such Parcel or Unit incurred by the Lessee;
(iv) with respect to the Facility, the Additional Property and
each other Parcel of Property, a current appraisal in form and substance
acceptable and addressed to the Lessor and each Related Assignee from the
Appraiser or another independent appraiser with respect to the value of the
Facility, the Additional Property or such Property, as the case may be, at such
date and at the end of the Lease Term;
(v) with respect to the Facility, the Additional Property and
each other Parcel of Property, a satisfactory Environmental Report, it being
expressly agreed that the Lessor or any Related Assignee shall have the right to
require a supplemental or additional environmental study if the Lessor or any
Related Assignee reasonably requires additional assurance or information as to
any matter contained or not addressed in such Environmental Report, and with
respect to any other Property or Equipment, such environmental information and
certifications as the Lessor or any Related Assignee shall reasonably request;
(vi) with respect to the Facility and the Additional Property, a
current as-built survey in form and substance satisfactory to the Lessor and the
Related Assignee and, with respect to each other Parcel of Property, a current
as-built survey made in accordance with the minimum standard detail requirements
for land title surveys jointly established and adopted by the American Land
Title Association and the American Congress on Surveying and Mapping by a
licensed registered public land surveyor, showing the lines of all streets
abutting the Facility, the Additional Property or such Property and the width
thereof, all access and other easements appurtenant to or used in connection
with the Facility, the Additional Property (including the Easements) or such
Property, all roadways, paths, driveways, easements, encroachments, overhanging
projections, and similar encumbrances, whether recorded (and if so, reference to
the recording data), apparent from a physical inspection of the Facility or such
Property or otherwise known to the surveyor, and if the Property is described by
reference to a filed map, a legend relating the survey to such map, and a
certification whether the Facility or such Property is located in a flood zone;
(vii) the Acquisition Certificate;
(viii) other than in the case of the Facility, a reaffirmation of
the Guaranty by the Guarantor;
(ix) with respect to the Facility, an original executed deed and
a bill of sale with respect to the Facility Assets, an original of the Site
Lease, two original executed counterparts of a memorandum of such Site Lease and
of this Lease, in each case in statutory recordable form for the jurisdiction in
which the Facility is located, and an original executed counterpart of the
Purchase Agreement Assignment, and, with respect to each Parcel of Property
(other than the Facility), two original executed counterparts of a memorandum of
this Lease, an original of the deed or of the Ground Lease, as applicable, with
respect to each Parcel of Property (other than the Facility) pursuant to which
the interest of the Lessor in such Parcel of Property is created, in each case
in statutory recordable form for the jurisdiction in which such Parcel is
located;
(x) with respect to the Facility, the Additional Property and
each other Parcel of Property, a title insurance commitment from a title
insurance company satisfactory to the Lessor, subject to no title exceptions or
other matters other than those approved by the Lessor and the Related Assignee,
and committing to insure the Lessor's and the Related Assignee's interest in the
Facility and such Parcel of Property upon delivery to the title insurance
company of the title and financing documents to be recorded, and, except as
otherwise provided in Section 8(i) hereof or in the applicable Financing
Arrangements, the actual issuance and prompt delivery of such policies to the
Lessor and the Related Assignee;
(xi) two original executed counterparts of a Unit Leasing Record
with respect to the Facility or such other Parcel or Unit duly prepared and
executed by the Lessee;
(xii) accurate wiring instructions for all amounts to be paid by
the Lessor in connection with such acquisition;
(xiii) the report required under Section 10(f) hereof, together
with certificates of insurance or other evidence reasonably acceptable to the
Lessor and the Related Assignee certifying that (1) the insurance then carried
or maintained on the Facility, the Additional Property or such Parcel or Unit
complies with the requirements of Section 10 hereof and (2) the provisions of
Section 10 hereof are adequate and reasonable protection of the Lessor and the
Related Assignee;
(xiv) opinions of counsel for the Lessee, in form and substance
reasonably satisfactory to the Lessor and the Related Assignee;
(xv) an assignment of or security interest in Governmental
Actions needed for the equipping, maintenance, operation or use of the Facility
or such Parcel or Unit (or any part thereof), and heretofore obtained, or now
owned or held, by the Lessee to the extent that such Governmental Actions may be
assigned in accordance with applicable law;
(xvi) copies of each Material Contract, in each case certified by
a Responsible Officer of the Lessee to be true copies of the originals as
executed; and
(xvii) such other documentation as the Lessor or the Related
Assignee may reasonably require.
Upon receipt and approval of all documents required by the preceding
clauses, the Lessor shall (A) pay to such vendor the amount of the vendor's
invoice or invoices and/or the purchase price specified in the contract of sale
for such Parcel or Unit except to the extent previously paid by the Lessee, (B)
pay to such other parties such amounts payable, except to the extent previously
paid by the Lessee and (C) reimburse or pay to the Lessee for such amounts paid
to the vendor or other parties by the Lessee, for such costs incurred by the
Lessee and, if agreed between the Lessor and the Lessee, for the appraised value
of the Property or Equipment; provided, however, that in no event shall the sum
of all payments made pursuant to clauses (A), (B) and (C) above exceed the
Acquisition Cost of such Property or Equipment.
(c) The Lessee shall ensure that the installation or erection of any
Equipment is in accordance with the specifications and requirements of the
vendor thereof.
(d) The obligations of the Lessee to pay all amounts payable pursuant to
this Lease (including specifically and without limitation amounts payable under
Sections 7, 11, 12, 13, 14, 15, 16 and 29 hereof) shall be absolute and
unconditional under any and all circumstances of any character, and such amounts
shall be paid without notice, demand, defense, setoff, deduction or counterclaim
and without abatement, suspension, deferment, diminution or reduction of any
kind whatsoever, except as herein expressly otherwise provided. The obligation
of the Lessee to lease and pay Basic Rent, any Debt Yield-Maintenance Premium
and Additional Rent and any other amounts due hereunder for the Facility and for
any and all other Property or Equipment leased pursuant to this Lease and any
amounts payable upon the termination of this Lease or upon an Event of Loss, an
event of Taking or an Event of Lease Termination is without any warranty or
representation, express or implied, as to any matter whatsoever on the part of
the Lessor or any Related Assignee or any Affiliate of either, or anyone acting
on behalf of any of them.
THE LESSEE HAS SELECTED THE FACILITY AND SHALL SELECT ALL PROPERTY OR
EQUIPMENT ACQUIRED OR ORDERED ON THE BASIS OF ITS OWN JUDGMENT. NEITHER THE
LESSOR NOR ANY RELATED ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE ACTING
ON BEHALF OF ANY OF THEM MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND
WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY,
TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY,
CONFORMITY TO SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF THE FACILITY OR ANY
PROPERTY OR EQUIPMENT, OR AS TO WHETHER THE FACILITY OR SUCH PROPERTY OR
EQUIPMENT OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH
ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.
AS BETWEEN THE LESSEE AND THE LESSOR, ANY RELATED ASSIGNEE OR ANY
INDEMNIFIED PERSON, THE LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL
DEFENSES, SET-OFFS, DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR
FUTURE, AS TO THE LESSEE'S OBLIGATION TO PAY BASIC RENT AND ALL OTHER AMOUNTS
PAYABLE HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:
(A)THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE,
MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR
CHARACTERISTIC OF THE FACILITY OR ANY PROPERTY OR EQUIPMENT, LATENT OR NOT;
(B)ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR
OTHER RIGHT WHICH THE LESSEE MAY HAVE AGAINST THE LESSOR, ANY RELATED ASSIGNEE
OR ANY INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY
OTHER TRANSACTION OR MATTER;
(C)ANY DEFECT IN TITLE OR OWNERSHIP OF THE FACILITY OR ANY
PROPERTY OR EQUIPMENT OR ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH
RESPECT TO THE FACILITY OR ANY PROPERTY OR EQUIPMENT;
(D)ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR
DESTRUCTION OF, OR DAMAGE TO, THE FACILITY OR ANY PROPERTY OR EQUIPMENT, IN
WHOLE OR IN PART, OR CESSATION OF THE USE OR POSSESSION OF THE FACILITY OR ANY
PROPERTY OR EQUIPMENT BY THE LESSEE FOR ANY REASON WHATSOEVER AND OF WHATEVER
DURATION, OR ANY CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE,
TAKING OR FORFEITURE OF THE FACILITY OR ANY PROPERTY OR EQUIPMENT, IN WHOLE OR
IN PART;
(E)ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP,
OCCUPANCY OR POSSESSION OF THE FACILITY OR ANY PROPERTY OR EQUIPMENT BY THE
LESSEE;
(F)ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING BY OR
AGAINST THE LESSEE OR THE LESSOR OR ANY RELATED ASSIGNEE;
(G)ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER TERMINATION
OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS,
AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;
(H)THE INVALIDITY OR UNENFORCEABILITY OF THIS LEASE OR ANY OTHER INFIRMITY
HEREIN OR ANY LACK OF POWER OR AUTHORITY OF THE LESSOR OR THE LESSEE TO ENTER
INTO THIS CONTRACT;
(I)THE INVALIDITY OR UNENFORCEABILITY OF ANY BILL OF SALE OF THE
FACILITY OR ANY PROPERTY OR EQUIPMENT EXECUTED IN CONNECTION WITH THIS LEASE OR
ANY OTHER INFIRMITY THEREIN OR LACK OF POWER OR AUTHORITY OF ANY PARTY THERETO
TO ENTER INTO SUCH BILL OF SALE; OR
(J)ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR
NOT SIMILAR TO ANY OF THE FOREGOING.
THE LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE
CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND
OR SURRENDER THIS LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF. Each
payment of Basic Rent, any Debt Yield-Maintenance Premium, Additional Rent and
any other amount due hereunder made by the Lessee shall be final, and the
Lessee, without waiving any other remedies it may have, will not seek or have
any right to recover all or any part of such payment from the Lessor or any
Related Assignee for any reason whatsoever.
(e) Notwithstanding any other provision contained in this Lease, it is
specifically understood and agreed that neither the Lessor nor any Related
Assignee nor any Affiliate of either, nor anyone acting on behalf of any of them
makes any warranties or representations or has any responsibility to disclose
any relevant information, or has any other responsibility or duty, nor, except
as set forth in Section 22 of this Lease, has the Lessor or any Related Assignee
or any Affiliate of either, or anyone acting on behalf of any of them made any
covenants or undertakings, as to the accounting treatment to be accorded the
Lessee or as to the U.S. Federal or any state income or any other tax
consequences, if any, to the Lessee as a result of or by virtue of the
transactions contemplated by this Lease.
SECTION 6. INITIAL TERM; EXTENDED TERM.
(a) The "Initial Term" with respect to the Facility or any other Parcel
of Property or Unit of Equipment leased hereunder shall commence on the
Effective Date set forth in the Unit Leasing Record for the Facility or such
Property or Equipment and shall continue through June 20, 2004, unless
terminated earlier pursuant to Section 12, 13, 14, 15, 16, 19 or 29 hereof.
(b) The "Extended Term" with respect to the Facility or any other Parcel
of Property or Unit of Equipment shall commence on the later of the Effective
Date set forth in the Unit Leasing Record with respect thereto and the first day
after the last day of the Initial Term of the Facility or such Parcel or Unit
and shall continue through June 20, 2009, unless terminated earlier pursuant to
Section 12, 13, 14, 15, 16, 19 or 29 hereof.
(c) Notwithstanding anything contained in this Section 6, the provisions
of Sections 10 and 11 hereof and paragraph (a) of Section 15 hereof shall apply
with respect to any Property or Equipment from the time such Property or
Equipment is ordered by the Lessee, with the approval of the Lessor, pursuant to
procedures supplied by the Lessor.
SECTION 7. RENT AND OTHER PAYMENTS.
(a) The Lessee hereby agrees to pay the Lessor on each Basic Rent
Payment Date, in immediately available funds, as provided in paragraph (e) of
this Section 7, Basic Rent for the semi-annual period (or part thereof) ending
in the month in which such Basic Rent Payment Date occurs (which semi-annual
periods shall end on June 20 and December 20 in each calendar year), with
respect to the Facility and each other Parcel of Property or Unit of Equipment;
provided that, if the Effective Date is on or after the Lease Rate Date in any
first semi-annual period of the Initial Term with respect to the Facility or
such Parcel or Unit, Basic Rent for such partial semi-annual period shall be
payable on the next succeeding Basic Rent Payment Date.
(b) The Lessor shall furnish to the Lessee on the 16th day of the
calendar month prior to each calendar month in which a Basic Rent Payment Date
falls the Semi-Annual Cost of Debt for such semi-annual period, or, if such day
is not a Business Day, on the next succeeding Business Day (the "Lease Rate
Date"). Prior to each Basic Rent Payment Date the Lessor shall furnish the
Lessee with a summary of the calculations of Basic Rent for such Basic Rent
Payment Date.
(c) The Lessee hereby agrees to pay on demand all amounts (other than
Basic Rent) payable hereunder, including, without limitation, all amounts
payable to any Indemnified Person pursuant to Section 11 hereof.
(d) Without prejudice to the full exercise by the Lessor of its rights
under Sections 18 and 19 hereof, the Lessee shall pay to the Lessor from time to
time, on demand, as additional rent ("Additional Rent") (i) amounts required to
reimburse the Lessor for its obligations, costs and expenses (not previously
included in Basic Rent) incurred in acquiring, financing (including equity
financing and maintaining security for and exercising remedies in connection
with any such financing and costs incurred in connection with obligations of the
Lessor under or in respect of the Derivative Option) and leasing the Facility
and any other Property or Equipment (including, without limitation, all
obligations, costs and expenses of the Lessor arising in connection with the
termination of any Financing Arrangement (whether as a result of a default
thereunder or otherwise), all interest (including, without limitation, interest
at any default rate), the Debt Yield-Maintenance Premium and other costs, fees
and expenses incurred by the Lessor under any Financing Arrangement (including
any such accruing after the commencement of a bankruptcy or similar proceeding),
rent under the Site Lease and any other Ground Lease, amounts owing under any
other Operative Document and all obligations of the Lessor under or in respect
of any interest rate swap, cap, collar, option or other financial hedging
arrangement approved by the Lessee (such approval not to be unreasonably
withheld) and any amounts payable by the Lessor under any such arrangement to
reduce the notional amount thereof by the amount of any prepayment of any
borrowing to which such interest rate swap, cap, collar, option or other
financial hedging arrangement relates), and (ii) to the extent legally
enforceable, an amount computed by multiplying (A) all sums not paid by the
Lessee to the Lessor as provided in this Lease on or before the date such
payments are due, by (B) the decimal equivalent of the Semi-Annual Cost of Debt
as most recently furnished by the Lessor, and by (C) a fraction having a
numerator equal to the number of days in the period from but excluding such due
date to and including the date of payment thereof (provided that all full
calendar months during such period shall be computed on the basis of a 30-day
month) and a denominator of 360. The Lessee shall also pay to the Lessor on
demand an amount equal to any expenses incurred by the Lessor in collecting such
unpaid sums.
(e) Basic Rent, any Debt Yield-Maintenance Premium and Additional Rent
and any other amount payable by the Lessee to the Lessor shall be paid such that
immediately available funds in the full amount due are available on the date
due, to the account of the Lessor at such bank, or to such account of such other
Person at such bank, or otherwise as the Lessor may from time to time designate.
SECTION 8. RESTRICTED USE; COMPLIANCE WITH LAWS, FURTHER ASSURANCES.
(a) So long as no Event of Default shall have occurred and be
continuing, the Lessee may use the Facility and the Property or Equipment in the
regular course of its business for any lawful purpose, provided that the Lessee
agrees that the Facility will be used to produce and sell electric power. The
Lessee will not do or permit any act or thing which could reasonably be expected
to materially impair the value or usefulness of the Facility, the Additional
Property or any Parcel of Property or Unit of Equipment, except for ordinary
wear and tear resulting from the normal use thereof consistent with Prudent
Utility Practice.
(b) The Lessee shall promptly and duly execute, deliver and, subject to
paragraph (i) of this Section 8, file and record, at the Lessee's expense, all
such documents, statements, filings and registrations, and take such further
action, as the Lessor or the Related Assignee shall from time to time reasonably
request in order to establish, perfect and maintain the Lessor's title to and
interest in the Facility and any Property or Equipment and the Related
Assignee's interest in this Lease or in the Facility or any Property or
Equipment as against the Lessee or any third party in any applicable
jurisdiction. Equipment, machinery, apparatus, fixtures, structures and
installations may be substituted for portions of the Facility or the Additional
Property, as the case may be (other than Removable Improvements) if (i) the
Lessor and the Related Assignee consent to such substitution, such consent not
to be unreasonably withheld or denied or (ii) such substitution is performed by
the Lessee in the normal course of operating and maintaining the Facility or the
Additional Property and could not reasonably be expected to (x) materially
adversely affect the Lessee's ability to perform its obligations under any
Operative Document to which it is a party, (y) materially impair the value,
utility or remaining economic useful life of the Facility (assuming the Facility
is in the condition required hereby), or (z) result in an Event of Lease
Termination or an event described in clause (A), (B) or (C) of Section 15(c)
hereof. As equipment, machinery, apparatus, fixtures, structures and
installations are added to, or substituted for, Facility Assets (other than
Removable Improvements), title to such additional or substitute equipment,
machinery, apparatus, fixtures, structures and installations shall automatically
be transferred to the Lessor and such equipment, machinery, apparatus, fixtures,
structures and installations shall become Facility Assets and shall be subject
to this Lease and title to the existing equipment, machinery, apparatus,
fixtures, structures and installations which are being substituted for (other
than Removable Improvements) shall be released by the Lessor to the Lessee. The
Lessee may, so long as no Potential Default, Event of Default, Event of Loss or
Event of Lease Termination has occurred and is continuing, remove any Removable
Improvement in its entirety. "Removable Improvement", for the purposes hereof,
shall mean any part that (i) is in addition to, and not in replacement of or
substitution for (x) any part originally incorporated or installed in or
attached to the Facility on the Effective Date or (y) any part in replacement
of, or substitution for, any such part, (ii) is not required to be incorporated
or installed in or attached or added to the Facility pursuant to the terms of
any Operative Document or pursuant to applicable Legal Requirements and (iii)
can be removed from the Facility (x) without adversely affecting the ability of
the Facility to operate in accordance with the Operative Documents and (y)
without materially impairing the value, utility or remaining economic useful
life which the Facility would have had at such time had such part not been
incorporated or installed in or attached to the Facility (assuming the Facility
is in the condition required hereby). Upon the removal by the Lessee of any
Removable Improvement as provided in the immediately preceding two sentences,
title thereto shall, without further act, vest in the Lessee and such Removable
Improvement will no longer be deemed part of the Facility. Any Removable
Improvement not removed by the Lessee prior to the return of the Facility to the
Lessor hereunder shall remain the property of the Lessor. Nothing in this
Section 8(b) shall be deemed to prohibit the Lessee in the normal course of
operating and maintaining the Facility from substituting or adding equipment,
machinery, apparatus, fixtures, structures and installations which are not of
the same specifications or quality as the items being replaced or supplemented,
but only if such substitution or addition is consistent with Prudent Utility
Practice and could not reasonably be expected to result in an Event of Lease
Termination or an event described in clause (A), (B) or (C) of Section 15(c)
hereof. The Lessee may, after notice in writing to the Lessor and at the
Lessee's own cost and expense, change the place of principal location of any
Equipment other than Facility Assets. Notwithstanding the foregoing, no change
of location shall be undertaken (except for purposes of undertaking maintenance
or repairs to such Equipment or for temporary relocation of any Equipment to
premises in the State of New York owned or leased by the Lessee or an Affiliate
of the Lessee; provided that the Lessee delivers to the Lessor and the Related
Assignee an agreement of such owner or lessee acknowledging the respective
rights and interests of the Lessor and the Related Assignee in such Equipment)
unless and until all Legal Requirements shall have been met and the Lessee shall
have executed, delivered and filed or recorded all documents, statements,
filings and registrations as the Lessor or the Related Assignee shall reasonably
request in connection therewith. At least once each year prior to the
anniversary of the date of this Lease, and more frequently at the reasonable
request of the Lessor, the Lessee shall advise the Lessor and the Related
Assignee in writing where all Equipment leased hereunder as of such date is
principally located.
(c) The Lessee shall use all commercially reasonable precautions,
consistent with Prudent Utility Practice, to prevent loss or damage to the
Facility or any other Property or Equipment and to prevent injury to third
persons or property of third persons. The Lessee shall cooperate fully with the
Lessor and all insurance companies providing insurance pursuant to Section 10
hereof in the investigation and defense of any claims or suits arising from the
ownership or operation of any Equipment or ownership, use, or occupancy of the
Facility or any other Property; provided, that nothing contained in this
paragraph (c) shall be construed as imposing on the Lessor any duty to
investigate or defend any such claims or suits. The Facility, the Additional
Property and all other Property and Equipment shall comply, and the Lessee shall
comply and shall use its best efforts to cause all Persons using or operating
Equipment or using or occupying the Facility, the Additional Property or any
Property to comply, with all Insurance Requirements and Legal Requirements
applicable to the Facility, the Additional Property or such other Property or
Equipment and to the acquiring, titling, registering, leasing, insuring, using,
occupying, operating and disposing of the Facility, the Additional Property or
such other Property or Equipment, and the licensing of operators thereof, except
for any Legal Requirements the non-compliance with which, individually or in the
aggregate, would not (x) impair the ability of the Lessee to perform its
obligations under this Lease or the other Operative Documents to which it is a
party, (y) reasonably be expected to materially impair the ability of the
Facility or any other Turbine Unit, as the case may be, to perform in commercial
operation substantially at its Capacity or (z) reasonably be expected to result
in an Event of Lease Termination or an event described in clause (A), (B) or (C)
of Section 15(c) hereof.
(d) The Lessor and any Related Assignee or any authorized representative
of either may during reasonable business hours, and subject to compliance with
applicable safety procedures of the Lessee, from time to time inspect the
Facility, the Additional Property or any Property or Equipment and deeds,
registration certificates, certificates of title and related documents covering
the Facility, the Additional Property or such Property or Equipment wherever the
same may be located, but neither the Lessor nor any Related Assignee shall have
any duty to make any such inspection.
(e) The Lessee shall not, without the prior written consent of the
Lessor and the Related Assignee permit, or suffer to exist, any Lien, other than
Permitted Liens or those Liens placed thereon by, or arising from, the Lessor's
own actions, nor may it assign any right or interest herein or in the Facility
or any other Property or Equipment. The Lessee shall not relinquish possession
of the Facility or any Additional Property or any other Property or Equipment,
except to any contractor for use in performing repair work for the Lessee on the
Facility or such Property or Equipment; provided, that such relinquishment of
possession shall in no way affect the obligations of the Lessee or the rights of
the Lessor hereunder and with respect to the Facility or such Property or
Equipment. The Lessee may sublease the Facility or any Parcel of Property or
Unit of Equipment or lease any Additional Property; provided, that (A) the terms
of the instrument of sublease and the identity of the sublessee shall be subject
to the prior written approval of the Lessor and any Related Assignee, (B) each
such sublease shall expressly be made subject and subordinate to the provisions
hereof and shall, at the sole option of the Lessor and any Related Assignee, by
its terms be subject to termination upon the termination for any reason of this
Lease, (C) no such sublease shall modify or limit any right or power of the
Lessor or any Related Assignee hereunder or affect or reduce any obligation of
the Lessee hereunder, and all such obligations shall continue in full force and
effect as obligations of a principal and not of a guarantor or surety, as though
no such subletting had been made, and (D) any such sublease made otherwise than
as expressly permitted by this paragraph (e) shall be void and of no force and
effect. As additional security to the Lessor for the performance of the Lessee's
obligations under this Lease, the Lessee hereby assigns to the Lessor all of its
right, title and interest in and to all subleases permitted hereby and agrees to
cause any sublessee to enter into attornment agreements with the Lessor as the
Lessor or the Related Assignee shall request. The Lessor shall have the present
and continuing right to collect and enjoy all rents and other sums of money
payable under any such sublease, and the Lessee hereby irrevocably assigns such
rents and other sums to the Lessor for the benefit and protection of the Lessor;
provided, that unless a Potential Default or an Event of Default shall have
occurred and be continuing hereunder, the Lessee shall be entitled to collect
and enjoy such rents and other sums. The Lessee shall, within thirty (30) days
after the execution of any such sublease, deliver a conformed copy thereof to
the Lessor and the Related Assignee. Nothing contained in this Lease shall be
construed as constituting the consent or request of the Lessor, express or
implied, to or for the performance by any contractor, laborer, materialman or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to the Facility
or any Property or Equipment or any part thereof. Notice is hereby given that
the Lessor will not be liable for any labor, services or materials furnished or
to be furnished to the Lessee, or to anyone holding the Facility or any Property
or Equipment or any part thereof through or under the Lessee, and that no
mechanics' or other liens for any such labor, services or materials shall attach
to or affect the interest of the Lessor in and to the Facility or any Property
or Equipment.
(f) Upon the reasonable request of the Lessor or the Related Assignee,
the Lessee shall affix or cause to be affixed to each Unit of Equipment, in the
place designated by the Lessor or such Related Assignee (or, if no such place
shall have been designated, in a prominent place), labels, plates or other
markings stating that such Unit of Equipment is owned by the Lessor. The Lessee
shall not without the prior permission of the Lessor or such Related Assignee
change or remove (or permit to be changed or removed or otherwise permit a
decrease in the visibility of) any insignia or lettering which is on any
Equipment at the time of delivery thereof or which is thereafter placed thereon
indicating the Lessor's ownership thereof.
(g) If any Lien or charge of any kind or any judgment, decree or order
of any court or other Governmental Authority (including, without limitation, any
state or local tax lien affecting the Facility, the Additional Property or any
Property or Equipment), whether or not valid, shall be asserted or entered which
could reasonably be expected to interfere with the due and timely payment of any
sum payable or the exercise of any of the rights or the performance of any of
the duties or responsibilities under this Lease, the Lessee shall, upon
obtaining knowledge thereof or upon receipt of notice to that effect from the
Lessor, promptly take such action as may be necessary to prevent or terminate
such interference.
(h) (A) The Lessee shall not take any action which (x) would cause the
Facility or any Turbine Unit to cease to be an "eligible facility" within the
meaning of Section 32(a)(2) of the 1935 Act or (y) would cause the Lessor to
cease to be an EWG under the 1935 Act, and (B) the Lessee shall at its own
expense take all actions as may from time to time be necessary so that neither
the Lessor, any Related Assignee nor any of their respective Affiliates will
(other than in connection with a Possessory Remedy), solely as a result of (i)
entering into this Lease or any other document contemplated hereby, (ii) the
acquisition, ownership, leasing or financing of the Facility or any Turbine Unit
(or any part thereof) or (iii) the operation by the Lessee or any Affiliate of
the Lessee of the Facility or any Turbine Unit in accordance with and as
contemplated by the Material Contracts and this Lease be deemed to be, and be
subject to financial, rate, utility or other similar regulation as, a public
utility, an electric utility or a public utility holding company under any Legal
Requirement, and the Lessee shall promptly and duly prepare and, if necessary,
execute and file, and prepare for execution and filing by the Lessor or any
Affiliate of the Lessor, such notices, applications and other documents as shall
be necessary so that the Lessor, each Related Assignee and each of their
respective Affiliates, as the case may be, shall be free of all such regulation.
The Lessor shall reasonably cooperate with the Lessee in connection with the
preparation, execution and filing of such notices, applications and other
documents as necessary for the Lessee to perform its obligations under this
Section 8(h).
(i) Upon the first to occur of (w) the Guarantor being rated less than
Baa3 by Moody's Investors Service, Inc. (or any successor agency) or less than
BBB- by Standard & Poor's Ratings Services (or any successor agency), (x) the
Lessee failing to pay any amount payable by the Lessee under this Lease and such
failure continuing for more than ten (10) days after notice thereof shall be
given to the Lessee by the Lessor or the Related Assignee, (y) the Guarantor's
Consolidated Net Worth falling below $1.6 billion or (z) the mortgage recording
tax due in connection with the recording of any Recordable Document (as
hereinafter defined) being eliminated or reduced to a rate that would result in
a mortgage recording tax equal to or less than $2 million or becoming
unenforceable in the City of New York, Queens County, New York State (each, a
"Recording Event"), (A) the Lessee shall within three (3) Business Days pay to
the Lessor the full amount of any filing fees, mortgage recording tax, transfer
and other taxes due in connection with the recording of the Recordable Documents
and cause to be provided, at its sole expense, a title insurance policy from a
title insurance company satisfactory to the Lessor and each Related Assignee,
subject to no title exceptions or other matters other than those approved by the
Lessor and each Related Assignee, and insuring the Lessor's and each Related
Assignee's interest in the Facility and any other Parcel of Property, (B) the
Lessor and the Lessee shall execute or cause to be executed the Recordable
Documents in recordable form, (C) within three (3) Business Days after receipt
from the Lessee of the filing fees, mortgage recording tax, transfer and other
taxes (or evidence satisfactory to the recording office that such taxes have
been paid) due in connection with the recording of the Recordable Documents, the
Lessor or the Related Assignee shall record or cause to be recorded, at the
Lessee's sole cost and expense, such instruments or documents , including
without limitation this Lease (or memorandum thereof), the Site Lease (or
memorandum thereof), the SNDA, the Landlord's Consent (each as defined in the
Note Purchase Agreement), any deed in respect of the Facility or any part
thereof, the Leasehold Mortgage and any security agreement, indenture, mortgage,
deed of trust, assignment of rents and any other instrument directly or
indirectly relating to the Lessor's financing of the Facility, including without
limitation Uniform Commercial Code financing statements related thereto
(collectively, the "Recordable Documents"), and (D) the Lessee shall deliver or
cause to be delivered to each Related Assignee such opinions of counsel relating
to the enforceability of the Recordable Documents and this Lease, each in form
and substance satisfactory to each Related Assignee, as any Related Assignee
shall request. The Related Assignee shall be entitled to record or cause to be
recorded, at its cost and expense, any of the Recordable Documents at any time
prior to a Recording Event; provided, that the Lessee shall not be liable to
indemnify or reimburse the Related Assignee under Section 11 or otherwise for
such mortgage recording tax until the occurrence of a Recording Event described
in clause (w), (x), (y) or (z) (in the case of a reduction and in such reduced
amount) of this Section 8(i). Nothing contained in this Section 8(i) shall be
deemed to limit the Lessee's indemnification obligations under Section 11 of
this Lease.
SECTION 9. MAINTENANCE, IMPROVEMENT AND REPAIR OF THE FACILITY, PROPERTY OR
EQUIPMENT.
(a) Upon the request of the Lessee, the Lessor will, so long as no Event
of Default or Event of Lease Termination shall have occurred and be continuing,
assign or otherwise make available to the Lessee any and all rights the Lessor
may have under any vendor's or manufacturer's warranties or undertakings with
respect to any equipment constituting a part of the Facility or any other
Property or Equipment.
(b) The Lessee shall pay all costs, expenses, fees and charges incurred
in connection with the ownership, use or occupancy of the Facility or any other
Parcel of Property or the ownership, use and operation of any other Unit of
Equipment. The Lessee shall operate and maintain the Facility and all other
Property and Equipment in accordance with Prudent Utility Practice. Except as
otherwise provided in Section 15 hereof, the Lessee shall at all times, at its
own expense, and subject to ordinary wear and tear, keep the Facility and all
other Property or Equipment in good operating order, repair and condition in
accordance with Prudent Utility Practice. Except as otherwise provided in
Section 15 hereof, the foregoing undertaking to maintain the Facility and all
other Property or Equipment in good repair shall apply regardless of the cause
necessitating repair and regardless of whether the Lessee has possession of the
Facility or such other Property or Equipment, and as between the Lessor and the
Lessee all risks of damage to the Facility and all other Property or Equipment
are assumed by the Lessee. With respect to the Facility or any other Parcel of
Property or Unit of Equipment, the undertaking to maintain in good repair shall
include, without limitation, all interior and exterior repairs required by
Prudent Utility Practice, whether structural or nonstructural, foreseen or
unforeseen, ordinary or extraordinary and all common area maintenance including,
without limitation, removal of dirt, snow, ice, rubbish and other obstructions
and maintenance of sidewalks and landscaping. In addition, the Lessee shall, at
its own expense, operate, service, maintain and repair the Facility and any
other Parcel of Property or Unit of Equipment and replace all necessary or
useful parts or components thereof, in each case in accordance with Prudent
Utility Practice, and such operating standards as shall be required to take
advantage of and enforce all available warranties to the extent such warranties
are material to the value or operation of the Facility and any other Parcel of
Property or Unit of Equipment.
(c) The Lessee shall pay: (i) all taxes (including mortgage recording
tax, transfer and other taxes pursuant to Section 8(i) hereof), assessments,
levies, fees, water and sewer rents and charges, and all other governmental
charges, general and special, ordinary and extraordinary, foreseen and
unforeseen, which are, at any time, imposed or levied upon or assessed against
(A) the Facility (including without limitation the tax lot or lots on which the
Facility Site is located, even if such tax lot or lots cover more property than
the Facility Site, and even if such tax lot or lots cover real property not
owned or leased by the Lessee), or any other Parcel or Unit, (B) any Basic Rent,
any Additional Rent or other sum payable hereunder or (C) this Lease, the
leasehold estate hereby created, the Recordable Documents, or which arises in
respect of the ownership, operation, occupancy, financing, possession or use of
the Facility or Parcel; (ii) all gross receipts or similar taxes (i.e., taxes
based upon gross income which fail to take into account all customary
deductions) (e.g., ordinary operating expenses, depreciation and interest)
relating to the Facility or any other Parcel or Unit imposed or levied upon,
assessed against or measured by any Basic Rent, or any Additional Rent or other
sum payable hereunder; (iii) all sales, value added, use and similar taxes at
any time levied, assessed or payable on account of the acquisition, leasing or
use of the Facility or any other Parcel or Unit; and (iv) all charges of
utilities and communications services serving the Facility or any other Parcel
or Unit. The Lessee shall not be required to pay any franchise, estate,
inheritance, income or similar tax of the Lessor (other than any tax referred to
in clause (ii) above unless such tax is imposed in lieu of an income or
franchise tax) unless such tax is imposed, levied or assessed in substitution
for any other tax, assessment, charge or levy which the Lessee is required to
pay pursuant to this paragraph (c); provided, however, that if at any time
during the term of this Lease, the method of taxation shall be such that there
shall be levied, assessed or imposed on the Lessor a capital levy or other tax
directly on the rents received therefrom, or upon the value of the Facility or
any other Parcel or Unit or any present or any future improvement or
improvements on the Facility or any other Parcel or Unit, then all such taxes,
assessments, levies or charges or the part thereof so measured or based, shall
be payable by the Lessee, and the Lessee shall pay and discharge the same as
herein provided. The Lessee will furnish to the Lessor, promptly after demand
therefor, proof of payment of all items referred to above which are payable by
the Lessee. If any such assessments may legally be paid in installments, the
Lessee may pay such assessment in installments. The Lessee will pay and
discharge, or cause to be paid and discharged, all taxes, assessments and
governmental charges or levies imposed upon it or its income or properties,
prior to the date on which penalties attach thereto, except to the extent that
any such tax, assessment, governmental charge or levy is the subject of a
Permitted Contest.
(d) Any improvements or additions to any Equipment shall become and
remain the property of the Lessor, except that any addition to Equipment made by
the Lessee shall remain the property of the Lessee if it can be removed from
such Equipment without impairing the functioning of such Equipment or its resale
value, excluding such addition. Subject to the provisions of Section 8(b)
hereof, any improvements or additions which do not remain property of the Lessee
shall be evidenced by a revised Unit Leasing Record.
(e) So long as no Event of Default or Event of Lease Termination shall
have occurred and be continuing, the Lessee may, at its expense, make additions
to and alterations to the Facility (including the Facility Assets), the
Additional Property or any other Parcel of Property; provided, that upon
completion of such additions or alterations (or within a reasonable period of
time thereafter, consistent with Prudent Utility Practice) (i) neither the fair
market value of the Facility or such Parcel of Property shall be materially
lessened thereby nor the condition of the Facility or such Parcel of Property
materially impaired below the value, utility or condition thereof immediately
prior to such action (assuming the Facility or such Parcel was then of a
condition and repair required to be maintained pursuant to paragraph (b) of
Section 9 hereof), (ii) such additions or alterations shall not result in a
change of use of the Facility, the Additional Property or such Parcel, (iii)
such work shall be completed in accordance with Prudent Utility Practice and in
compliance with all applicable Legal Requirements in all material respects and
all Insurance Requirements, (iv) such work could not reasonably be expected to
result in an Event of Lease Termination or an event described in clause (A), (B)
or (C) of Section 15(c) hereof, (v) in the case of the Facility, the Facility
will be capable of producing electricity substantially at or above the level of
its capability prior to the undertaking of such additions and alterations and
the Lessee will be able to fully perform its obligations under this Lease and
the other Operative Documents to which it is a party and (vi) no exterior walls
of any building or other improvement constituting a part of the Facility or
Parcel shall be demolished unless (A) the Lessee has made adequate provision
according to nationally recognized sound and prudent engineering and
architectural standards to preserve and maintain the structural integrity of the
Facility or such Parcel and for the restoration of the Facility or such Parcel
to a structurally sound architectural whole and (B) if such addition or
alteration costs more than $10,000,000 with respect to the Facility or any such
Parcel, the obligations of the Lessee to preserve, maintain and restore are
bonded, for the benefit of the Lessor and the Related Assignee and in an amount
not less than one hundred percent (100%) of the amount reasonably estimated by
an independent qualified architect licensed in New York, or a contractor of
recognized standing and reputation, to be necessary to accomplish such
preservation, maintenance and restoration, by a nationally recognized insurance
company rated in one of the two highest categories by the then current Best
Insurance Reports (or if such is no longer published, a similar insurance
industry standard publication) or otherwise reasonably assured to the Lessor's
satisfaction. Any and all such additions and alterations shall be and remain
part of the Facility or such Parcel and shall be subject to this Lease.
(f) Except as otherwise provided in Section 15 hereof, the Facility and
any other Property or Equipment shall be maintained, repaired, refurbished or
replaced by the Lessee when necessary in order to ensure that the Facility and
such Property or Equipment or replacements for any Property or Equipment leased
hereunder are of the kind, quality and in the quantities included in the Unit
Leasing Record (provided that the Lessee may replace any Property or Equipment
leased hereunder with equipment, machinery, apparatus, fixtures, structures and
installations of different kind, quality and in different quantities if such
replacement equipment, machinery, apparatus, fixtures, structures and
installations is consistent with Prudent Utility Practice and would not, in the
Lessee's good faith judgment, diminish in any material respect the value of the
Facility or such Property or Equipment) will be in such condition and sufficient
to allow the Facility and any other Property or Equipment to be operated in
accordance with Prudent Utility Practice and any other standards required by
this Lease. The Lessee shall comply in all material respects with all applicable
Federal, state and local laws and regulations relating to the records of the
Facility, the Additional Property or such Property or Equipment, as the case may
be. The Lessee shall obtain or cause to be obtained in a timely manner and
maintain or cause to be maintained in full force and effect all Governmental
Actions (other than those which, if not obtained or effected, would not,
individually or in the aggregate, (x) impair the ability of the Lessee to
perform its obligations under this Lease or the other Operative Documents to
which it is a party, (y) reasonably be expected to materially impair the ability
of the Facility or any other Turbine Unit, as the case may be, to perform in
commercial operation and to operate substantially at its Capacity or (z) result
in an Event of Lease Termination or an event described in clause (A), (B) or (C)
of Section 15(c) hereof) required for the ownership, leasing, operation and
maintenance of the Facility and any other Property or Equipment (including,
without limitation, any Turbine Unit or any part thereof) in accordance with and
as contemplated by the Facility Support Agreement and this Lease and as
otherwise necessary to perform its obligations under the Facility Support
Agreement and this Lease and will promptly upon the request of the Lessor or the
Related Assignee provide a copy of each such Governmental Action to the Lessor
and the Related Assignee. The Lessee shall obtain and maintain, or cause to be
obtained and maintained, all patents, licenses and proprietary rights and
technology that are necessary in connection with the acquisition, operation and
maintenance of the Facility, the Additional Property and any other Property or
Equipment (including, without limitation, any Turbine Unit or any part thereof).
SECTION 10. INSURANCE.
(a) The Lessee shall procure at its own cost and expense and maintain,
or cause to be procured and maintained, in full force and effect at all times
throughout the term of this Lease with respect to the Facility, the Additional
Property and all other Property and Equipment, insurance policies with
responsible insurance companies authorized to do business in the State of New
York with a Best Insurance Reports rating of "A" or better and a financial size
category of "VIII" or higher, or if not rated by Best, a Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. claims paying
ability rating of BBB+ or higher (or such other company acceptable to the Lessor
and the Related Assignee), with limits and coverage provisions sufficient to
satisfy the requirements (if any) set forth in the Material Contracts, but in no
event less than the limits and coverage provisions set forth below:
(i) Workers' Compensation Insurance. Workers' compensation
insurance in accordance with and as required under the laws of the State of New
York. A maximum deductible or self-insured retention of $1,000,000 per
occurrence shall be allowed.
(ii) Employer's Liability Insurance. Employer's liability
insurance, if the Lessee has any employees, providing compensation for
occupational diseases and for injuries sustained by or death resulting to
employees of the Lessee or its subcontractors as required by law, including the
laws of each state wherein any work is performed under the Lease and where
employment contracts of such employees were made, including employer's liability
insurance coverage with a $10,000,000 minimum limit per accident. A maximum
deductible or self-insured retention of $1,000,000 per occurrence shall be
allowed.
(iii) General Liability Insurance. Liability insurance on an
occurrence (or claims-made form) basis against claims for personal injury
(including bodily injury and death) and property damage. Such insurance shall
provide coverage for products-completed operations, blanket contractual,
explosion, collapse and underground coverage, broad form property damage,
personal injury insurance, and the hostile fire exception to the pollution
liability exclusion with a $5,000,000 minimum limit per occurrence for combined
bodily injury and property damage. A maximum deductible or self-insured
retention of $5,000,000 per occurrence shall be allowed.
(iv) Automobile Liability Insurance. Automobile liability
insurance against claims for personal injury (including bodily injury and death)
and property damage covering all owned, leased non-owned and hired motor
vehicles, including loading and unloading, with a $5,000,000 minimum limit per
occurrence for combined bodily injury and property damage and containing
appropriate no-fault insurance provisions wherever applicable. A maximum
deductible or self-insured retention of $5,000,000 per occurrence shall be
allowed.
(v) Excess Insurance. Excess liability insurance on an occurrence
(or claims-made form) basis covering claims in excess of the underlying
insurance described in the foregoing clauses (ii), (iii) and (iv), with a
$100,000,000 minimum limit per occurrence; provided, however, in the event the
available limit of liability is less than $50,000,000 due to claims against such
excess liability insurance, the Lessee shall purchase additional coverage so
that the available limit of liability under such excess liability insurance is
not less than $100,000,000.
The amounts of insurance required in the foregoing clauses (ii),
(iii), (iv) and this clause (v) may be satisfied by the Lessee purchasing
coverage in the amounts specified or by any combination of primary and excess
insurance, so long as the total amount of insurance meets the requirements
specified above.
(vi) Physical Damage Insurance to the Facility, the Additional
Property and any other Property. Property damage insurance on an "all risk"
basis, boiler and machinery insurance on a comprehensive basis (covering all
production machinery, including but not limited to pressure vessels, electrical
turbines, generators, transformers and other related equipment, motors, air
tanks, boilers, machinery, pressure piping or any other similar objects)
including coverage against damage or loss caused by earth movement (including
but not limited to earthquake, landslide, subsidence and volcanic eruption)
fire, lightning and flood and providing coverage for (1) the Facility, the
Additional Property and each Parcel of Property in an amount equal to the
greater of (A) one hundred percent (100%) of the "full insurable replacement
value" of the Facility or such Parcel or (B) the Acquisition Cost of the
Facility or such Parcel, (2) transit including ocean marine transit, if
applicable, with sub-limits of $5,000,000, (3) foundations and other property
below the surface of the ground and (4) attorneys' fees, engineering and other
consulting costs, and permit fees directly incurred in order to repair or
replace damaged insured property in a minimum amount of $1,000,000. For purposes
of this clause (vi) and clause (vii), "full insurable replacement value" shall
mean the full replacement value of the Facility or any Parcel of Property
including any improvements, equipment, spare parts, fuel and supplies, without
deduction for physical depreciation and/or obsolescence. All such insurance may
have deductibles of not greater than $5,000,000 per occurrence. Such insurance
shall (x) not include any coinsurance provision, (y) provide for increased cost
of construction and loss to undamaged property as the result of enforcement of
building laws or ordinances with sub-limits not less than 10% of the "full
insurable replacement value" of the Facility, the Additional Property or such
other Parcel, and (z) include debris removal with sub-limits not less than
$1,000,000 or 25% of the loss, whichever is greater. The earth movement and
flood coverage may be of the type usually carried by corporations engaged in the
same or similar business, similarly situated with the Lessee or its Affiliates,
and owning or operating similar equipment and which cover risks of the kind
customarily insured against by such corporations, and in substantially the
amount applicable to similar equipment owned, leased or held by the Lessee or
its Affiliates. The property damage coverage shall not contain an exclusion for
freezing, mechanical breakdown, loss or damage covered under any guarantee or
warranty, or resultant damage caused by faulty workmanship, design or materials.
If the insurance company providing the physical damage insurance
is different from the insurance company providing the boiler and machinery
insurance required in this Section 10, then a joint loss agreement between such
companies will be required and included as part of the respective policies.
(vii) Physical Damage Insurance to Equipment. Physical damage
insurance with respect to all Equipment (other than any Equipment which is part
of the Facility), which is of the type usually carried by corporations engaged
in the same or similar business, similarly situated with the Lessee or its
Affiliates, and owning or operating similar equipment and which cover risks of
the kind customarily insured against by such corporations, and in substantially
the amount applicable to similar equipment owned, leased or held by the Lessee
or its Affiliates; provided, that such insurance shall at all times be in a
minimum aggregate amount not less than the Acquisition Cost of such Equipment.
(b) Endorsements. All policies of insurance required by this Section 10
shall provide for waivers of subrogation by the insurers in favor of the Lessor,
Merrill Lynch, Merrill Leasing, the general partner of the Lessor and its
shareholders, officers and directors, the limited partners of the Lessor and the
Related Assignee and their respective officers, directors, members, trustees and
employees.
All policies of liability insurance required to be maintained by
the Lessee under clauses (a)(iii), (iv) and (v) of this Section 10 shall
be endorsed as follows:
(1) To provide a severability of interest or cross liability
clause;
(2) Such that the insurance shall be primary and not excess to
or contributing with any insurance or self-insurance
maintained by the Lessor, Merrill Lynch, Merrill Leasing,
the general partner of the Lessor and its shareholders,
officers and directors, the limited partners of the Lessor
or the Related Assignee; and
(3) To name the Lessor, Merrill Lynch, Merrill Leasing, the
general partner of the Lessor and its shareholders,
officers and directors, the limited partners of the Lessor
and the Related Assignee and their respective officers,
directors, members, trustees and employees as additional
insureds.
All policies of insurance required to be maintained by the Lessee under
clauses (a)(vi) and (vii) of this Section 10 shall name the Related Assignee as
a loss payee and (subject to the provisions of clause (d)(ii) of this Section
10) shall name the Lessor, Merrill Lynch, Merrill Leasing, the general partner
of the Lessor and its shareholders, officers and directors, the limited partners
of the Lessor and their respective officers and employees as additional loss
payees, as their respective interests in the Facility or any other Property or
Equipment may appear.
(c) Waiver of Subrogation. The Lessee hereby waives any and all claims
for recovery from the Lessor, Merrill Lynch, Merrill Leasing, the general
partner of the Lessor and its shareholders, officers and directors, the limited
partners of the Lessor and the Related Assignee and their respective officers,
directors, members, trustees and employees for any and all loss or damage
covered by any of the insurance policies to be maintained under this Lease to
the extent that such loss or damage is recovered under any such policy. Inasmuch
as the foregoing waiver will preclude the assignment of any such claim to the
extent of such recovery, by subrogation (or otherwise), to an insurance company
(or other Person), the Lessee shall give written notice of the terms of such
waiver to each insurance company which has issued, or which may issue in the
future, any such policy of insurance (if such notice is required by the
insurance policy) and shall cause each such insurance policy to be properly
endorsed by the issuer thereof, or to otherwise contain one or more provisions
that prevent the invalidation of the insurance coverage provided thereunder by
reason of such waiver.
(d) Additional Requirements.
(i) The Lessee shall promptly notify the Lessor and each Related
Assignee of any loss in excess of $5,000,000 covered by any insurance maintained
pursuant to clauses (a)(vi) and (vii) of this Section 10.
(ii) All policies of insurance required to be maintained pursuant
to clauses (a)(vi) and (vii) of this Section 10 shall provide that the proceeds
of such policies shall be payable solely to the Related Assignee pursuant to a
standard first mortgage endorsement substantially equivalent to the Lenders Loss
Payable Endorsement 438BFU or ISO endorsement CP12181091, without contribution.
The Lessor and the Related Assignee shall have the right to join the Lessee in
adjusting any loss in excess of $5,000,000. All policies (other than in respect
to liability or workers compensation insurance) shall insure the interests of
the Lessor, Merrill Lynch, Merrill Leasing, the general partner of the Lessor,
the limited partners of the Lessor and the Related Assignee regardless of any
breach or violation by the Lessee or Lessor of any warranties, declarations or
conditions contained in such policies, any action or inaction of the Lessee or
the Lessor or others, or any foreclosure relating to the Facility, the
Additional Property or any other Parcel of Property or Unit of Equipment or any
change in ownership of all or any portion of the Facility or such other Parcel
or Unit.
(iii) A loss under any insurance required to be carried under
clauses (a)(vi) or (vii) of this Section 10 shall be adjusted with the insurance
companies, including the filing in a timely manner of appropriate proceedings by
the Lessee, subject to the approval of the Lessor and the Related Assignee if
such loss is in excess of $5,000,000. In addition the Lessee may in its
reasonable judgment consent to the settlement of any loss; provided that, in the
event that the amount of the loss exceeds $5,000,000, the terms of such
settlement shall be consented to by the Lessor and the Related Assignee.
(iv) All policies of insurance required to be maintained pursuant
to paragraph (a) of this Section 10 shall be endorsed so that if at any time
they should be canceled, or coverage shall be reduced in a manner which
adversely affects the interests of the Lessor, Merrill Lynch, Merrill Leasing,
the general partner of the Lessor, the limited partners of the Lessor or the
Related Assignee, such cancellation or reductions shall not be effective as to
the Lessor, Merrill Lynch, Merrill Leasing, the general partner of the Lessor,
officers and directors, the limited partners of the Lessor and the Related
Assignee until sixty (60) days (except for non-payment of any premium, which
shall be for ten (10) days), after receipt by the Lessor and the Related
Assignee of written notice from such insurer of such cancellation or reduction.
(v) The Lessee may, at its own cost and expense, prosecute any
claim against any insurer or contest any settlement proposed by any insurer, and
the Lessee may bring any such prosecution or contest in the name of the Lessor,
the Lessee, or both, and the Lessor will join therein at the Lessee's request,
provided that the Lessee shall indemnify the Lessor against any losses, costs or
expenses (including reasonable attorneys' fees) which the Lessor may incur in
connection with such prosecution or contest.
(e) Evidence of Insurance. On the date of this Lease with respect to the
Facility and the Additional Property, on the Effective Date with respect to any
other Property or Equipment and on an annual basis at least ten (10) days prior
to each policy anniversary, the Lessee shall furnish the Lessor and each Related
Assignee with (i) approved certification of all insurance required under this
Section 10 and (ii) a schedule of the insurance policies held by or for the
benefit of the Lessee and required to be in force by the provisions of paragraph
(a) of this Section 10. Such certification shall be executed by each insurer or
by an authorized representative of each insurer where it is not practical for
such insurer to execute the certificate itself. Such certification shall
identify underwriters, the type of insurance, the insurance limits and the
policy term and shall specifically list the special provisions enumerated for
such insurance required by paragraph (a) of this Section 10. Upon request, the
Lessee will promptly furnish the Lessor and each Related Assignee with copies of
all insurance policies, binders and cover notes or other evidence of such
insurance relating to the insurance required to be maintained by the Lessee. The
schedule of insurance shall include, to the extent such information is not
included on the insurance certificates, the name of the insurance company,
policy number, type of insurance, major limits of liability and expiration date
of the insurance policies.
(f) Reports. Upon the request of the Lessor or any Related Assignee,
concurrently with the furnishing of the certification referred to in paragraph
(e) above, the Lessee shall furnish the Lessor and such Related Assignee with a
report of an independent broker, signed by an officer of the broker, stating
that in the opinion of such broker, the insurance then carried or to be renewed
is in accordance with the terms of paragraphs (a), (b), (d) and (m) of this
Section 10 and attaching an updated copy of the schedule of insurance required
by paragraph (e) above. In addition, the Lessee will advise the Lessor and
Related Assignee in writing promptly of any default in the payment of any
premium and of any other act or omission on the part of the Lessee which may
invalidate or render unenforceable, in whole or in part, any insurance being
maintained by the Lessee pursuant to paragraph (a) of this Section 10.
(g) Failure to Maintain Insurance. In the event the Lessee fails to
maintain the full insurance coverage required by paragraph (a) of this Section
10, the Lessor or the Related Assignee, upon thirty (30) days' prior notice
(unless the aforementioned insurance would lapse within such period, in which
event notice should be given as soon as reasonably possible) to the Lessee of
any such failure, may (but shall not be obligated to) take out the required
policies of insurance and pay the premiums on the same.
(h) No Duty of the Lessor or the Related Assignee to Verify or Review.
No provision of this Section 10, or any provision of this Lease, shall impose on
the Lessor or the Related Assignee any duty or obligation to verify the
existence or adequacy of the insurance coverage maintained by the Lessee, nor
shall the Lessor or the Related Assignee be responsible for any representations
or warranties made by or on behalf of the Lessee to any insurance company or
underwriter. Any failure on the part of the Lessor or the Related Assignee to
pursue or obtain the evidence of insurance required by this Lease from the
Lessee and/or failure of the Lessor or the Related Assignee to point out any
non-compliance of such evidence of insurance shall not constitute a waiver of
any of the insurance requirements in this Lease.
(i) Application of Insurance Proceeds for Loss or Taking. As between the
Lessor and the Lessee it is agreed that any insurance payments received as the
result of the occurrence of (i) any event of loss described in paragraph (c) of
Section 15 hereof with respect to the Facility or any other Parcel of Property
or Unit of Equipment, or (ii) any event of Taking described in paragraph (a) of
Section 16 hereof, shall be paid to an account of the Lessor established in
connection with the Facility or such Parcel or Unit, as the case may be, and
disposed of as set forth in paragraph (c) of Section 15 hereof.
(j) Application of Insurance Proceeds for Other than Loss or Taking. As
between the Lessor and the Lessee, so long as no Event of Default, Potential
Default under paragraphs (a), (d) or (h) of Section 18 hereof, Event of Loss or
Event of Lease Termination shall have occurred and be continuing, the insurance
proceeds of any property damage or loss to the Facility or any other Parcel of
Property or Unit of Equipment or any event of Taking described in paragraph (b)
of Section 16 hereof will be held in an account of the Lessor established in
connection with the Facility or such other Parcel or Unit, as the case may be,
and applied in payment (or to reimburse the Lessee) for repairs or replacement
in accordance with the terms of paragraph (b) of Section 15 hereof. The Lessee
shall be entitled, subject to its compliance with the immediately succeeding
sentence, (i) to receive the amounts so deposited against certificates, invoices
or bills satisfactory to the Lessor, delivered to the Lessor from time to time
as such work or repair progresses, and (ii) to direct the investment of the
amounts so deposited as provided in paragraph (k) of this Section 10. To the
extent that the Lessor estimates that the cost of such work or repair shall
exceed the amount of such proceeds, the Lessee shall make adequate provisions
for the payment thereof, which provisions shall be acceptable to the Lessor and
the Related Assignee. Any moneys remaining in the aforesaid account after final
payment for repairs has been made shall be paid to the Lessee.
(k) Investment. The Lessor, at the Lessee's instruction, shall invest
the amounts deposited with the Lessor pursuant to paragraph (j) of this Section
10 in any investments permitted under a Financing Arrangement. Such investments
shall mature in such amounts and on such dates so as to provide that amounts
shall be available on the draw dates sufficient to pay the amounts requested by
and due to the Lessee. Any interest earned on investments of such funds shall be
paid to the Lessee. The Lessor shall not be liable for any loss resulting from
the liquidation of each and every such investment and the Lessee shall bear the
risk of such loss, if any.
(l) Application in Default. Any amount referred to in paragraphs (i),
(j) or (k) of this Section 10 which is payable to the Lessee shall not be paid
to the Lessee or, if it has been previously paid to the Lessee, shall not be
retained by the Lessee, if at the time of such payment an Event of Default,
Potential Default under paragraphs (a), (d) or (h) of Section 18 hereof, Event
of Loss or Event of Lease Termination shall have occurred and be continuing. In
such event, all such amounts shall be paid to and held by the Lessor as security
for the obligations of the Lessee hereunder or, at the Lessor's option, applied
by the Lessor toward payment of any of such obligations of the Lessee at the
time due hereunder as the Lessor may elect. At such time as there shall not be
continuing any Event of Default, Potential Default under the paragraphs (a), (d)
or (h) of Section 18 hereof, Event of Loss or Event of Lease Termination, all
such amounts at the time held by the Lessor in excess of the amount, if any,
which the Lessor shall have elected to apply as above provided shall be paid to
the Lessee.
(m) "Claims Made" Policies for Certain Types of Insurance. If any
liability insurance required under the provisions of this Section 10 is allowed
to be written on a "claims made" basis, then such insurance shall include the
following:
(i) the retroactive date (as such term is specified in each of
such policies) shall be no later than the date of this Lease; and
(ii) each time any policy written on a "claims made" basis is not
renewed or the retroactive date of such policy is to be changed, the Lessee
shall obtain or cause to be obtained for each such policy or policies the
broadest extended reporting period coverage, or "tail" reasonably available in
the commercial insurance market for each such policy or policies, as determined
in the reasonable judgment of the Lessor and the Related Assignee, but in no
event less than two years after the expiration of such policy or policies.
(n) Use or Operation of the Facility, and other Property and Equipment.
The LESSEE covenants that it will not use or operate the Facility or any other
Equipment or use or occupy the Facility or any other Property or permit the use
or occupancy of the Facility or any other Property or the use or operation of
the Facility or any other Equipment at a time when the insurance required by
this Section 10 is not in force.
SECTION 11. INDEMNITIES.
(a) The Lessee shall indemnify, protect, defend and hold harmless the
Lessor, each general and limited partner of the Lessor, Merrill Lynch, Merrill
Leasing, each Related Assignee, and their respective successors or assigns, and
each Affiliate of each of them, and their respective officers, directors,
trustees, incorporators, shareholders, partners (general and limited, including,
without limitation, the general and limited partners of the Lessor), employees,
agents and servants (each of the foregoing an "Indemnified Person") from and
against all liabilities (including, without limitation, Environmental Damages
and strict liability in tort), taxes, losses, obligations, claims (including,
without limitation, Environmental Damages and strict liability in tort), damages
(including, without limitation, direct, indirect, consequential, special and
punitive damages payable to third parties), penalties, causes of action, suits,
costs and expenses (including, without limitation, attorneys', experts',
consultants' and accountants' fees and expenses) or judgments of any nature
relating to or in any way arising out of:
(i) the ordering, delivery, acquisition, purchase agreement for
the acquisition, construction, title on acquisition, rejection, installation,
possession, titling, retitling, registration, custody by the Lessee of title and
registration documents, ownership, use, non-use, misuse, lease under the Site
Lease or any Ground Lease, any Operative Document, financing including any
indentures related thereto (including, without limitation, all obligations of
the Lessor under or in respect of the Derivative Option and any interest rate
swap, cap, collar, option or other financial hedging arrangement and any amounts
payable by the Lessor under any such arrangement to reduce the notional amount
thereof by the amount of any prepayment of any borrowing to which such interest
rate swap, cap, collar, option or other financial hedging arrangement relates),
lease, sublease, security interest in, operation, transportation, repair or
control of the Facility, the Additional Property or any other Property or
Equipment leased or to be leased hereunder, (i) except to the extent that such
costs are included in the Acquisition Cost of the Facility, the Additional
Property or such other Property or Equipment or have been paid by the Lessee as
Basic Rent or Additional Rent, (ii) except for any general administrative
expenses of the Lessor, (iii) except the income taxes with respect to which
indemnification is excluded under paragraph (b) of this Section 11 and (iv)
except that this indemnity shall not duplicate any payment required to be made
by the Lessee pursuant to paragraph (b)(iii)(A) or (c)(iii)(A) of Section 12 of
this Lease;
(ii) the assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of the Facility, the Additional Property or any other Property or
Equipment; provided, however, that, upon request of the Lessee, the Lessor will
make available to the Lessee the Lessor's rights under any similar
indemnification arising from any manufacturer's or vendor's warranties or
undertakings with respect to any equipment constituting a part of the Facility
or any other Property or Equipment;
(iii) any violation, or alleged violation, by the Lessee of this
Lease or of any other Operative Documents to which the Lessee is a party or of
any contracts or agreements to which the Lessee is a party or by which it is
bound or of any laws, rules, regulations, orders, writs, injunctions, decrees,
consents, approvals, exemptions, authorizations, licenses and withholdings of
objection, of any governmental or public body or authority and all other Legal
Requirements applicable to the Facility, the Additional Property or any other
Property or Equipment;
(iv) Environmental Damages relating to or in any way arising out
of the Facility, the Additional Property or any other Parcel of Property or Unit
of Equipment, including, without limitation:
A. any violation or alleged violation of, or
compliance or noncompliance with, any Environmental Requirements
(i) in connection with the ownership or operation of the
Facility, the Additional Property or any other Property or
Equipment or (ii) any prior owner or operator of the Facility
Site, the Additional Property or any other Property in connection
with the ownership or operation of the Facility Site, the
Additional Property or any other Property;
B. any Release or threatened Release at, to or from
any location of any Contaminants, or Remedial Action or
corrective action (as the latter term is used in Section 3004(u),
3004(v), and 3008(h) of the Resource Conservation and Recovery
Act or any equivalent state, local or foreign law) to address any
Contaminants, (i) generated, treated, recycled, stored,
processed, used or disposed by or on behalf of the Lessee at or
in connection with the Facility, the Additional Property or any
other Property or Equipment, (ii) generated, treated, recycled,
stored, processed, used or disposed by or on behalf of any prior
owner or operator of the Facility Site, the Additional Property
or any other Property in connection with the ownership or
operation of the Facility Site, the Additional Property or any
other Property, (iii) transported by or on behalf of the Lessee
or any other Person to or from the Facility, the Additional
Property or any other Property for treatment, recycling,
processing, use or disposal at any location, or (iv) removed by
any Person from any portion of the Facility, the Additional
Property or any other Property;
C. the presence of any Contaminant at, in, on or under the
Facility, the Additional Property or any other Property or
Equipment;
D. the failure to report, disclose or remediate any
of the foregoing or to comply with any applicable consent order
or voluntary agreement with any Governmental Authority relating
to any of the foregoing; and
E. allegations of any of the foregoing; and
(v) [intentionally omitted]
(vi) the failure for any reason, whether voluntary or
involuntary, by act or omission, and irrespective of whether or when a Recording
Event occurs, to have executed and recorded any Recordable Document in the
appropriate locations necessary to perfect the security interests created under,
or to transfer the real property interests conveyed by, the Recordable
Documents, as the case may be, at any time from the date of this Lease until the
repayment in full by the Lessor of all obligations outstanding under any
Financing Arrangement.
(b) The Lessee agrees to indemnify, protect, defend and hold harmless
each Indemnified Person for matters arising from and against all U.S. Federal,
state, county, municipal, foreign or other fees and taxes of whatsoever nature,
including, but not limited to, license, qualification, franchise, rental,
withholding, sales, use, net income, gross income, gross receipts, ad valorem,
business, personal property, real estate, value added, excise, motor vehicle,
occupation fees and stamp or other taxes or tolls of any nature whatsoever, and
penalties and interest thereon, whether assessed, levied against or payable by
the Lessor or otherwise, with respect to the Facility or any other Property or
Equipment or the acquisition, purchase, sale, rental, use, operation, control or
ownership of the Facility or any other Property or Equipment (including, without
limitation, any claim by any Governmental Authority for transfer tax, transfer
gains tax, mortgage recording tax, filing or other similar taxes or fees in
connection with the acquisition of the Facility or any other Property or
Equipment by the Lessor or otherwise in connection with this Lease) or measured
in any way by the value thereof or by the business of, investment in, or
ownership by the Lessor with respect thereto; provided that this indemnity shall
not apply to (x) Federal, state or local net income or franchise taxes imposed
directly upon any of the limited or general partners of LIC Funding, Limited
Partnership, except that such indemnity shall apply to (1) such net income taxes
imposed by a state or local government or other taxing authority thereof (A) as
a result of the location or use of the Facility or any other Property or
Equipment within the jurisdiction of such government or taxing authority or (B)
to the extent imposed in whole or in part by reason of a relationship or
asserted relationship between such government or other taxing authority and the
Facility or any other Property or Equipment or the transactions contemplated
herein or (2) such net income taxes to the extent imposed as a result of the
inability to claim, or disallowance or other loss of deductions customarily
allowed in computing net income (e.g., interest expense, financing,
administrative, ordinary operating expenses and other fees and expenses) or (y)
the New York Unincorporated Business Tax.
(c) The Lessee shall forthwith upon demand, reimburse any Indemnified
Person for any sum or sums expended with respect to any of the foregoing or,
upon request from any Indemnified Person, shall pay such amounts directly. Any
payment made to or on behalf of any Indemnified Person pursuant to this Section
11 shall be increased to such amount as will, after taking into account all
taxes imposed with respect to the accrual or receipt of such payment (as the
same may be increased pursuant to this sentence), equal the amount of the
payment, reduced by the amount of any savings in such taxes actually realized by
the Indemnified Person as a result of the payment or accrual of the amounts in
respect of which the payment to or on behalf of the Indemnified Person hereunder
is made. To the extent that the Lessee in fact indemnifies any Indemnified
Person under the indemnity provisions of this Lease, the Lessee shall be
subrogated to such Indemnified Person's rights in the affected transaction and
shall have a right to determine the settlement of claims therein.
(d) The indemnities contained in this Section 11 shall not be affected
by, and shall survive, any termination or expiration of this Lease.
(e) Notwithstanding any provisions of this Section 11 to the contrary,
the Lessee shall not indemnify and hold harmless any Indemnified Person against
any claims and liabilities to the extent arising from the gross negligence or
willful misconduct of such Indemnified Person.
(f) In the event the Lessor or any Indemnified Person shall be a party
defendant to any investigation or litigation arising out of any provision
contained in this Lease for which the Lessee has given indemnification, the
Lessor or such other Indemnified Person shall give prompt notice thereof to the
Lessee by telephone and in writing and shall consult and cooperate, at the
Lessee's expense with the Lessee, and if the Lessor or such other Indemnified
Person shall not have appeared or pleaded to any such action then the Lessor or
such other Indemnified Person, as the case may be, does hereby empower any
attorney of any court of record appointed by the Lessee (who shall give prompt
written notice to the Lessor or such other Indemnified Person of such
appointment), with the prior written consent of the Lessor or such other
Indemnified Person, which consent shall not be unreasonably withheld, to appear
for the Lessor or such other Indemnified Person and in good faith and with due
diligence defend such action, to enter counterclaims, to institute actions
against third parties and to do all things necessary or desirable in the
judgment of such attorney after consultation with the Lessor or such other
Indemnified Person and the Lessee to preserve the rights of the Lessor or such
other Indemnified Person and the Lessee, all at the Lessee's own cost and
expense. In the event that an Indemnified Person shall have reasonably concluded
that there are defenses available to the Indemnified Person which conflict with
those available to the Lessee, the Lessee shall not have the right to assume the
defense of any such action on behalf of the Indemnified Person if such
Indemnified Person chooses to defend such action, and all reasonable costs,
expenses and attorneys' fees incurred by the Indemnified Person in defending
such action shall be borne by the Lessee; provided, that in no event shall the
Lessee be liable for the fees and expenses of more than one counsel representing
all Related Assignees with respect to the Facility or any other Property or
Equipment, as applicable, in respect of any action. Notwithstanding the
assumption of its defense by the Lessee pursuant to this paragraph (f), any
Indemnified Person shall have the right to employ separate counsel and to
participate in its defense, but, except as set forth in the immediately
preceding sentence, the fees and expenses of such counsel shall be borne by the
Indemnified Person. In addition, the Lessee will not be liable for any
settlement of any claim, action, proceeding or suit unless the Lessee has
consented thereto in writing (such consent not to be unreasonably withheld). Any
decision by an Indemnified Person to employ its own counsel rather than counsel
selected by the Lessee (whether or not at the Lessee's expense) shall in no way
affect any rights of such Indemnified Person otherwise arising under this Lease.
No failure or delay of the Lessor or such other Indemnified Person to give the
notice required by this Section 11 shall excuse the obligation of the Lessee to
indemnify the Lessor or such other Indemnified Person with respect to such
litigation except to the extent that any increase in liability is a direct
result of such failure or delay.
<PAGE>
*SECTION 12(b)(i), (ii) AND (iii) AND SECTION 12(c)(i), (ii) AND (iii), HAVE
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THESE SECTIONS APPEAR ON PAGES
60 AND 61 OF THE COMPLETE DOCUMENT.
SECTION 12. LESSEE'S RIGHT TO TERMINATE.
(a) So long as the Lessee can satisfy the Termination Covenants and the
provisions of this Section 12, and subject to the last sentence of paragraph (a)
of Section 13 hereof, the Lessee shall have the right, upon eighteen (18)
months' notice (the "Termination Notice") to the Lessor and the Related
Assignee, to terminate the lease of the Facility in its entirety or any other
Parcel of Property or Unit of Equipment on the Basic Rent Payment Date at the
end of the Initial Term or the Extended Term, by arranging, at its own cost and
expense, for the sale of the Facility or any other Property or Equipment in an
arm's length transaction on the date of termination and, subject to the
provisions of paragraph (b) of this Section 12, the receipt by the Lessor of
cash in an amount equal to the sale price thereof (the "Cash Proceeds"). In the
event the Lessee delivers the eighteen month notice described in the immediately
preceding sentence, the Lessee shall be required, on the date it delivers such
notice, to pay to the Lessor all amounts owing by the Lessor under the
Derivative Option to enable the Lessor to exercise the option described therein.
In the event the Lessee is unable to satisfy the Termination Covenants, the
Lessee shall not terminate this Lease pursuant to this paragraph (a) as to the
Facility in its entirety or any other Property or Equipment unless the Lessee
has obtained the prior written consent of the Lessor to such termination of this
Lease and the sale of the Facility or such other Property or Equipment and the
Related Assignee has been given notice of such termination and consent. In
addition, if an Event of Default or Event of Lease Termination has occurred and
is continuing, and, prior to the termination of this Lease, in whole or in part,
pursuant to this paragraph (a), the Lessor arranges for the sale of the Facility
or such other Property or Equipment to a third party purchaser, the Termination
Notice shall be invalidated and the Lessee shall no longer have the right to
cause the termination of the lease of the Facility or such Property or Equipment
and sale of the Facility or such Property or Equipment to its designee in
accordance with the terms of this paragraph (a). At the time the Facility or
other Property or Equipment is sold pursuant to this paragraph (a), the Lessor
shall deliver the documents described in paragraph (g) of Section 30 hereof, and
the Lessor's rights and obligations in respect of the Site Lease and the
Easements, or the Ground Lease, as applicable to the leased assets being sold,
as the case may be, shall be assumed by the purchaser, with the Lessor released
from liability in respect thereof. In addition, as a condition to the sale of
the Facility or any Turbine Unit, (i) the Lessee shall assign to the purchaser,
at no cost and to the extent permitted by applicable law, all right, title and
interest of the Lessee in, to and under all Governmental Actions and
Intellectual Property Rights needed for the equipping, maintenance, operation or
use of the Facility or such Turbine Unit (or any part thereof) and obtained and
held by the Lessee at that time, (ii) the Lessee shall assign to the purchaser,
at no cost, and the purchaser shall assume, all right, title and interest of the
Lessee in, to and under the Material Contracts related to such Facility or
Turbine Unit, and in the event any additional consent of any party to any such
Material Contract is required as a precondition thereunder to an assignment to
any such non-foreclosure purchaser designated by the Lessee, to use its best
efforts to obtain any such required consent to such proposed non-foreclosure
assignment and assumption of the Material Contracts, (iii) the Lessee shall
assign to the purchaser, at no cost, all right, title and interest of the Lessee
in, to and under all service agreements in existence at that time in connection
with the equipping, maintenance, service, fueling, operation or use of the
Facility or such Turbine Unit and, in the event any additional consent of any
party other than an Affiliate of the Lessee is required for such assignment, the
Lessee shall use its best efforts to obtain such required consent, (iv) as a
condition to the sale of the Facility in its entirety, the purchaser shall be
entitled to succeed to the Lessor's rights and obligations under the Facility
Support Agreement and (v) as a condition to the sale of any Turbine Unit, the
purchaser shall be entitled to receive an agreement with the Lessee,
substantially similar to the terms of the Facility Support Agreement, relating
to such Turbine Unit and the facilities and services related thereto. In the
event the Lessee fails to obtain any consents required in clause (ii) or (iii)
of the immediately preceding sentence, at the request of such purchaser, the
Lessee shall agree to (1) at the expense of such purchaser, continue to perform
under and maintain in full force and effect the Material Contracts and service
agreements and pay all sums received under the Material Contracts and service
agreements to such purchaser, (2) at the expense of such purchaser, and subject
to the receipt of indemnification reasonably acceptable to the Lessee, take all
actions requested by such purchaser with respect to such Material Contracts and
service agreements (including all actions with respect to the enforcement of the
Lessee's rights and remedies under such Material Contracts and service
agreements), and (3) not amend, modify, supplement, waive a provision of, grant
any consent under or terminate any such Material Contract or service agreement
without the prior written consent of such purchaser.
(b) *
(c) *
(d) All payments and credits referred to in paragraphs (b) and (c) above
shall be made on the termination date of the lease of the Facility or such other
Property or Equipment, as the case may be, pursuant to this Section 12, and the
parties shall account to each other for such payments and credits, and the
Lessee shall pay to the Lessor (without duplication) (i) all Basic Rent accrued
in respect of the Facility or such other Property or Equipment sold, (ii) if
such termination occurs pursuant to paragraph (b) of this Section 12, the Debt
Yield-Maintenance Premium payable in respect of the Facility or such other
Property or Equipment sold, (iii) any Additional Rent owing in respect of the
Facility or such other Property or Equipment sold, (iv) all amounts payable
pursuant to Sections 11, 25 and 27 hereof, (v) all losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, commissions, filing fees and sales or transfer taxes) sustained by the
Lessor by reason of such sale, and (vi) all other amounts owing hereunder (after
taking into account the application under the Financing Arrangements of such
purchase price and other payments hereunder), each as of the termination date.
Upon indefeasible receipt by the Lessor of the Cash Proceeds and all other
amounts then due and owing hereunder, including, without limitation, the amount
of excess wear and tear determined pursuant to paragraph (b)(iii) or (c)(iii) of
this Section 12, as the case may be, the Lessor shall transfer title to the
Facility or such other Property or Equipment to the purchaser at the sale
designated by the Lessee. The "Cash Proceeds" referred to in paragraphs (b) and
(c) of this Section 12 shall mean the cash proceeds of sale without reduction
for any amounts paid by the Lessee. In the event of a sale pursuant to this
Section 12, neither the Lessee nor any Affiliate of the Lessee shall purchase
the Facility or such other Property or Equipment sold.
(e) In its notice given pursuant to paragraph (a) of this Section 12,
the Lessee shall advise the Lessor if the sale provided for in such notice will
result in the applicability of paragraph (b)(iii) or (c)(iii) of this Section
12. If the Lessee advises the Lessor that either such paragraph will be
applicable, the Lessor shall have the right to arrange for a sale of the
Facility or such other Property or Equipment to be made to a purchaser
designated by the Lessor, pursuant to paragraph (b) or (c) of this Section 12,
as the case may be, if such purchaser will pay an amount greater than the amount
offered by the Lessee's purchaser. Unless the Lessor shall arrange for such sale
and shall give the Lessee notice thereof within sixty (60) days of the Lessor's
receipt of the Lessee's notice, the Lessee may proceed with the sale to a
purchaser designated by it. Within thirty (30) days of the Lessee's receipt of
the Lessor's notice provided for in the preceding sentence, the Lessee may
arrange for such sale to be made to another purchaser designated by it pursuant
to paragraph (b) or (c) of this Section 12, if such purchaser shall pay an
amount sufficient to render paragraph (b)(iii) or (c)(iii) of this Section 12
inapplicable.
<PAGE>
SECTION 13. LESSEE'S RIGHTS OF PURCHASE AND RENEWAL.
(a) The Lessee shall have the right, upon ninety (90) days' written
notice to the Lessor and the Related Assignee, to purchase the Lessor's interest
in the Facility (or any Turbine Unit) or any other Parcel of Property or Unit of
Equipment on (i) on the last Business Day of the Initial Term or (ii) on any
Basic Rent Payment Date during the Extended Term or any Renewal Term for an
amount equal to its Acquisition Cost; provided, however, that, if an Event of
Default or Event of Lease Termination has occurred and is continuing, the Lessor
may arrange for a sale of the entire Facility to a third party purchaser,
provided, that the Lessee shall have the right to effect a purchase of the
entire Facility pursuant to this paragraph (a) not less than sixty (60) days
prior to the Lessor's sale to a third party; provided, further, that the
purchase option contained in this paragraph (a) shall only be available to the
Lessee if the purchase price will not in the circumstances in which such payment
is made constitute a preferential payment or avoidable transfer or otherwise be
subject to recapture pursuant to the provisions of the Federal Bankruptcy Code
in a bankruptcy proceeding by or against the Lessee and will not otherwise
result in the payment being subject to recapture from the Lessor as a result of
an act or omission of the Lessee or as a result of the Lessee's status. In
connection with, and as a condition to, any purchase under this paragraph (a) on
the date upon which such purchase occurs, the Lessee shall pay to the Lessor
(without duplication) (i) the Acquisition Cost of the Facility or such Unit or
other Property or Equipment, (ii) all Basic Rent accrued through the date of
purchase in respect of the Facility or such Unit or other Property or Equipment
sold, (iii) the Debt Yield-Maintenance Premium payable in respect of the
Facility or such Unit or other Property or Equipment sold, (iv) any Additional
Rent owing in respect of the Facility or such Unit or other Property or
Equipment sold, (v) all amounts payable pursuant to Sections 11, 25 and 27
hereof, (vi) all losses, damages, costs and expenses (including, without
limitation, attorneys' fees and expenses, commissions, filing fees and sales or
transfer taxes) sustained by the Lessor by reason of such purchase, and (vii)
all other amounts owing hereunder (after taking into account the application
under any Financing Arrangement of such purchase price and other payments
hereunder). At the time the Facility or such Unit or other Property or Equipment
is sold pursuant to this paragraph (a), the Lessor shall deliver the documents
described in paragraph (g) of Section 30 hereof, and (x) if the entire Facility
is sold, the Lessor's rights and obligations in respect of the Site Lease and
the Easements shall be assumed by the Lessee, and (y) if any other Property or
Equipment is sold, the Lessor's rights and obligations in respect of any
applicable Ground Lease shall be assumed by the Lessee, in each case with the
Lessor released from liability in respect thereof. If any of Unit l, Unit 2 or
Unit 3 and any Equipment exclusively related thereto (a "Segregated Unit") is
sold, the Segregated Unit shall cease to be subject to the terms and provisions
of this Lease (other than paragraph (b) below) and the terms "Facility" and
"Facility Assets" shall thereafter be deemed to exclude the Segregated Unit, but
the Site Lease and Easements (including the Lessee's leasehold interests therein
established under this Lease) shall continue in full force and effect with
respect to the entire Facility Site and all Easements. In addition, upon the
Lessee's purchase of any Segregated Unit, the Lessee shall not be permitted to
cause a sale of the remaining portion of the Facility to a third party pursuant
to Section 12 hereof until such time as the Facility is in compliance with the
standards described in clauses (x) and (y) of paragraph (b)(ii) below.
(b) If the Lessee purchases any Segregated Unit pursuant to Section 13
(a) (other than as part of the purchase of the entire Facility), the purchase
price for such Segregated Unit (the "Unit Purchase Price") shall equal the total
Acquisition Cost for the Facility at the time of such purchase, multiplied by a
fraction the numerator of which is the Capacity (expressed in megawatts) of the
Segregated Unit and the denominator of which is the Capacity (expressed in
megawatts) of the entire Facility at the time of such purchase. Upon the
purchase of such Segregated Unit, the applicable Unit Leasing Record shall be
revised to reflect a reduction in the Acquisition Cost for the Facility equal to
the Unit Purchase Price for such Segregated Unit. The Lessee's right to acquire
any Segregated Unit pursuant to Section 13 (a) is subject to receipt by the
Lessor and each Related Assignee, at least ten (10) Business Days prior to the
requested date of acquisition, of:
(i) a current appraisal addressed to the Lessor and each Related
Assignee from the Appraiser (or another independent appraiser acceptable to the
Lessor and each Related Assignee in their sole discretion) with respect to (x)
the value of the Facility after giving effect to the purchase of the Segregated
Unit and (y) the value of the Facility without giving effect to such purchase,
both at the date of such purchase and at the end of the Lease Term; and the
appraised values of the Facility (excluding the Segregated Unit) at both such
dates shall at least equal the appraised value of the Facility (including the
Segregated Unit) multiplied by a fraction (the "Adjustment Factor") the
numerator of which is the Capacity (expressed in megawatts) of the Facility
(excluding the Segregated Unit) and the denominator of which is the Capacity
(expressed in megawatts) of the Facility (including the Segregated Unit);
(ii) a report of an independent engineering firm with national
reputation and experience in the electric generating industry that addresses the
impact of excluding the Segregated Unit from the combined operations of the
remaining portion of Facility and concludes that, upon completion of such work
as may be required to implement the exclusion of the Segregated Unit from the
Facility (or within a reasonable period of time thereafter, consistent with
Prudent Utility Practice), (x) the operational integrity, safety and reliability
of the remaining portion of Facility will not be impaired in any material
respect below the condition thereof immediately prior to such exclusion and (y)
the remaining portion of the Facility will have the functional ability to
perform in commercial operation substantially at a capacity (expressed in
megawatts) at least equal to the Capacity of the Facility immediately prior to
such exclusion, multiplied by the Adjustment Factor;
(iii) a certificate from a Responsible Officer of the Lessee
certifying that (x) any work that may be required to implement the exclusion of
the Segregated Unit from the Facility will be completed (at the Lessee's sole
cost and expense), and the remaining portion of the Facility will be capable of
operating, in accordance with Prudent Utility Practice and in compliance with
all applicable Legal Requirements in all material respects and all Insurance
Requirements and (y) after giving effect to the purchase of the Segregated Unit,
the Lessee will be able to fully perform its obligations under this Lease and
the other Operative Documents; and
(iv) such other documentation as the Lessor or any Related
Assignee may reasonably request.
(c) Subject to arranging for refinancing of the Lessor's debt
obligations upon terms reasonably acceptable to the Lessor, and so long as (i)
no Event of Default, Event of Loss or Event of Lease Termination has occurred
and is continuing and (ii) all amounts owing under any Financing Arrangement
have been paid in full (after taking into account the application under any
Financing Arrangement of all payments hereunder), the Lessee shall have the
right, upon ninety (90) days' written notice to the Lessor, to renew the lease
of the Facility or such other Property or Equipment for an additional term (the
"Renewal Term") to be determined by the Lessee, commencing on the first day of
the calendar month following the last day of the Extended Term, on the same
terms and conditions (including, without limitation, being subject to all rights
and remedies of the Lessor and any Related Assignee relating to Events of
Default, Events of Loss and Events of Lease Termination) as existed during the
Lease Term, at the fair market value rental.
(d) The fair market value rental of the Facility or any other Parcel of
Property or Unit of Equipment for purposes of paragraph (c) of this Section 13
shall be an amount equal to 0.125% per month of the Acquisition Cost of the
Facility or such other Parcel or Unit, as the case may be.
(e) In the event the lease of the Facility or any other Property or
Equipment is not renewed at the end of the Extended Term with respect to the
Facility or such other Property or Equipment in accordance with the provisions
of paragraph (c) of this Section 13, the Lessee shall be required to select one
of the following two options: (i) to purchase, on the last day of the Extended
Term, the Lessor's interest in the Facility or such other Property or Equipment,
as the case may be, for cash at its Acquisition Cost, in accordance with the
provisions of paragraph (a) of this Section 13 or (ii) to arrange for the
Facility or such other Property or Equipment to be sold in accordance with the
provisions of Section 12 hereof and with the consequences therein provided
(including, without limitation, indefeasible receipt by the Lessor of the Cash
Proceeds and all other amounts due and owing to the Lessor thereunder), except
that such sale must occur on the last day of such Extended Term; provided,
however, that if the Facility or such other Property or Equipment is not sold
pursuant to Section 12 hereof prior to the last day of the Extended Term of the
Facility or such other Property or Equipment, as the case may be, the Lessee
shall be deemed to have selected the option described in clause (i) of this
sentence.
SECTION 14. TERMINATION UPON CERTAIN EVENTS.
This Lease shall terminate and the Lessee shall be required to purchase
the Facility and all other Parcels of Property and Units of Equipment from the
Lessor upon the happening of the following events during the term of this Lease
with respect to the Facility or such other Parcels of Property and Units of
Equipment (each an "Event of Lease Termination"): (A) solely as a result of this
Lease, a Financing Arrangement, the Material Contracts and the transactions
contemplated hereby or thereby, the Lessor becomes (or with the passage of time
would become), or is declared by the SEC to be, subject to financial, rate,
utility or other similar regulation as a public utility, an electric utility or
a public utility holding company under the 1935 Act, or the Lessor, Merrill
Lynch, Merrill Leasing, any Related Assignee, any Affiliate of the foregoing or
their respective officers, directors, shareholders, members, trustees, partners
(general and limited, including, without limitation, the general and limited
partners of the Lessor) or employees shall become subject to such regulation
under the 1935 Act; (B) solely as a result of this Lease, a Financing
Arrangement, the Material Contracts and the transactions contemplated hereby or
thereby, the Lessor becomes (or with the passage of time would become), and is
declared by the Secretary of Energy (or any successor thereto) or the FERC to
be, subject to financial, rate, utility or other similar regulation under the
FPA as a public utility, an electric utility or a public utility holding company
or the Lessor, Merrill Lynch, Merrill Leasing, any Related Assignee, any
Affiliate of the foregoing or their respective officers, directors,
shareholders, members, trustees, partners (general and limited, including,
without limitation, the general and limited partners of the Lessor) or employees
shall become subject to such regulation by the FERC; (C) solely as a result of
this Lease, a Financing Arrangement, the Material Contracts and the transactions
contemplated hereby or thereby, the Lessor becomes (or with the passage of time
would become), and is declared by any relevant governmental body or similar
entity under the laws of any state or locality having jurisdiction over the
Lessor, the Lessee or any such transactions or activities, to be, subject to
financial, rate, utility or other similar regulation as a public utility, an
electric utility or a public utility holding company or the Lessor, Merrill
Lynch, Merrill Leasing, any Related Assignee, any Affiliate of the foregoing or
their respective officers, directors, shareholders, members, trustees, partners
(general and limited, including, without limitation, the general and limited
partners of the Lessor) or employees shall become subject to such regulation
under any such laws; (D) after the date hereof, any law or regulation or
interpretation of any law or regulation shall be adopted or enforced by any
governmental or regulatory authority (including, without limitation, the
Secretary of Energy, the SEC, the FERC, the public service commission of any
state or any similar commission of any locality having jurisdiction over the
Lessor, the Lessee or any such transactions), and as a result of such adoption
or enforcement, approval of this Lease, a Financing Arrangement and the
transactions contemplated hereby or thereby shall be required and shall not have
been obtained within any grace period after such adoption or enforcement or, as
a result of which adoption or enforcement of this Lease, a Financing Arrangement
and any transaction contemplated hereby or thereby, including any payments to be
made by or to the Lessee or the ownership of the Facility or any other Equipment
or Property or interest therein by the Lessor, shall be or become unlawful or
unenforceable or the performance of this Lease, a Financing Arrangement or the
transactions contemplated hereby or thereby shall be rendered impracticable in
any material way; or (E) the occurrence of any event or circumstance relating to
Environmental Matters, Environmental Damages or Environmental Requirements with
respect to the Facility or any Parcel of Property or Unit of Equipment that
could reasonably be expected to have a material adverse effect on (i) the
ability of the Lessee to observe and perform its obligations under this Lease or
the other Operative Documents to which it is a party in a timely manner, (ii)
the ability of the Guarantor to perform its obligations under the Guaranty in a
timely manner, (iii) the business, assets, properties, financial condition or
operations of the Guarantor, (iv) the rights or interests of the Lessor or the
Related Assignee under this Lease or the applicable Financing Arrangements or
(v) the leasing, ownership or value of the Facility . Upon the date of the
occurrence of any Event of Lease Termination (the first such date being herein
called the "Termination Event Date"), this Lease shall terminate, except with
respect to obligations and liabilities of the Lessee, actual or contingent,
which arose under this Lease on or prior to the Termination Event Date and
except for the Lessee's obligations set forth in Sections 7, 8, 9, 10, 15, 16,
17, 18, 19, 25 and 27 hereof, and in this Section 14, all of which obligations
will continue until the delivery of a bill of sale, a deed or similar
documentation by the Lessor and the payment by the Lessee provided for herein,
and except that the Lessee's obligations under Section 11 hereof shall continue
as set forth herein, and forthwith also upon such termination, the entire
interest of the Lessor in the Facility and all other Property and Equipment
shall automatically transfer to and be vested in the Lessee, without the
necessity of any action by either the Lessor or the Lessee, but subject to the
rights of any Related Assignee. Promptly upon learning of any pending or
threatened action, the effect of which could result in an Event of Lease
Termination described under subclause (D), the Lessee shall notify the Lessor
and each Related Assignee of such action. As soon as possible after either the
Lessor or the Lessee shall learn of the happening of any Event of Lease
Termination (for purposes of this provision, if there shall be any grace period
applicable to an Event of Lease Termination described under subclause (D), such
Event of Lease Termination shall be deemed to have happened upon the day next
preceding the date on which such applicable grace period expires), such party
shall give notice thereof to the other party hereto which notice shall (i)
acknowledge that this Lease has terminated, subject to the continuing
obligations of the Lessee mentioned above, and that the Lessor's interest in the
Facility and all other Property and Equipment has transferred to and vested in
the Lessee, subject as aforesaid and (ii) state that on the twentieth day of the
calendar month next succeeding the Termination Event Date (the "Termination
Settlement Date"), the Lessee shall be obligated to pay to the Lessor, as the
purchase price for the Lessor's interest in the Facility and all other Property
and Equipment, the sum of the Acquisition Cost of the Facility and all other
Property and Equipment as of the Termination Settlement Date. In connection with
any purchase under this Section 14, on the Termination Settlement Date, the
Lessee shall pay to the Lessor, in addition to any purchase price payable, all
other amounts owing hereunder, including, without limitation but without
duplication, (i) all Basic Rent accrued through the date of termination of this
Lease and the Debt Yield-Maintenance Premium payable in respect of the Facility
or such other Property or Equipment, (ii) any Additional Rent owing, (iii) all
amounts payable pursuant to Sections 11, 25 and 27 hereof, (iv) all losses,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses, commissions, filing fees and sales or transfer
taxes) sustained by the Lessor by reason of such purchase and (v) all other
amounts owing hereunder, each taking into account the application under a
Financing Arrangement of such purchase price and other payments hereunder), each
as of the Termination Settlement Date. Upon the delivery of notice of
termination of this Lease as provided in this Section 14, the Lessee shall
become obligated to make the payment required on the Termination Settlement Date
to the same extent as if it had acknowledged in writing its obligation to do so.
The Lessee's obligation to make such payment shall be unconditional and
unaffected by any event or matter whatsoever and shall survive the termination
of this Lease. At the time the Facility or such other Property and Equipment is
sold pursuant to this Section 14, the Lessor shall deliver the documents
described in paragraph (g) of Section 30 hereof, and the Lessor's rights and
obligations in respect of the Site Lease, the Easements and any Ground Lease
shall be assumed by the Lessee, with the Lessor released from liability in
respect thereof.
SECTION 15. LOSS OF OR DAMAGE TO PROPERTY OR EQUIPMENT.
(a) The Lessee hereby assumes all risk of loss of or damage to the
Facility and any other Property or Equipment, however caused. No loss of or
damage to the Facility or any other Property or Equipment shall impair any
obligation of the Lessee under this Lease, which shall continue in full force
and effect regardless of such loss or damage.
(b) In the event of damage of any kind whatsoever to the Facility or any
other Property or Equipment (unless the same is determined by the Lessee to be
damaged beyond repair), the Lessee shall promptly notify the Lessor and the
Related Assignee in writing of such event and shall, at its own cost and
expense, consistent with Prudent Utility Practice, promptly place the same in
good operating order, repair and condition and restore the Facility to at least
substantially the same value and usefulness that existed prior to such damage.
The Lessee's right to any proceeds paid under any insurance policy or policies
required under Section 10 of this Lease with respect to any such damage to the
Facility or any other Property or Equipment which has been so placed by the
Lessee in good operating order, repair and condition is governed by paragraph
(j) of Section 10 hereof.
(c) If (A) an Event of Loss with respect to the Facility or any other
Property or Equipment has occurred and is continuing, (B) the Facility or such
other Property or Equipment is attached (other than on a claim against the
Lessor as to which the Lessee is not obligated to indemnify the Lessor) and the
attachment is not removed within one hundred eighty (180) days, or (C) a Taking
of the Facility or such other Property or Equipment as described in Section 16
(a) hereof shall occur, then in any such event, (i) the Lessee shall promptly
notify the Lessor and the Related Assignee in writing of such event, (ii) within
one hundred eighty (180) days of such event the Lessee shall pay to the Lessor
an amount equal to the Acquisition Cost of the Facility or such other Property
or Equipment and (iii) the Initial Term, Extended Term or Renewal Term of the
Facility or such Property or Equipment shall continue until the Lessor receives
payment from the Lessee of the amount payable pursuant to this paragraph (c)
including, without limitation, (1) all Basic Rent accrued through the date of
payment, (2) any Additional Rent owing, (3) all amounts payable pursuant to
Sections 11, 25 and 27 hereof, (4) all losses, damages, costs and expenses
(including, without limitation, attorneys' fees and expenses, commissions,
filing fees and sales or transfer taxes) sustained by the Lessor by reason of
such event and (5) all other amounts owing hereunder after taking into account
the application under a Financing Arrangement of such payments hereunder, and
shall thereupon terminate. Upon the indefeasible payment by the Lessee of all
amounts referred to in the immediately preceding sentence, (i) all insurance and
condemnation proceeds (net of all collection costs) shall be paid by the Lessor
to the Lessee, (ii) the Lessee shall be subrogated to the Lessor's rights
resulting from the events described in clauses (A) through (C) above, and (iii)
the Lessor shall convey title to the Facility or such other Property or
Equipment pursuant to the documents described in paragraph (g) of Section 30
hereof, including, without limitation, the Lessor's interest in the Site Lease,
the Easements and any Ground Lease applicable to the Facility or such other
Property or Equipment, to the Lessee, free and clear of any Lien pursuant to any
Financing Arrangement.
SECTION 16. CONDEMNATION AND DEDICATION OF THE FACILITY AND PROPERTY;
EASEMENTS.
(a) If the use, occupancy or title to all or a substantial portion of
the Facility or any other Parcel of Property is taken, requisitioned or sold in,
by or on account of actual or threatened eminent domain proceedings or other
action by any person or authority having the power of eminent domain (such
events collectively referred to as a "Taking"), then the Lessee shall make the
payment provided in, and the Initial Term, Extended Term or Renewal Term shall
terminate as provided in, paragraph (c) of Section 15 hereof. The Lessee's
obligation to make such payment shall survive the expiration or termination of
this Lease. The portion of the proceeds from any award or sale made in
connection with such Taking attributable to the Lessor's interest in the
Facility or any other Property shall be retained by the Lessor and, upon the
indefeasible payment by the Lessee of all amounts referred to in paragraph (c)
of Section 15 hereof, such amount shall be paid to the Lessee. A Taking shall be
deemed to affect a "substantial portion" of the Facility or any other Property
if, in the reasonable judgment of the Lessor and the Related Assignee, after
such Taking, (i) the Lessee is not able to fully perform its obligations under
this Lease or (ii) a material diminution in the value, utility or remaining
economic useful life of the Facility or such other Property will occur.
(b) If less than a substantial portion of the Facility or any other
Parcel of Property is subject to a Taking, then this Lease shall continue in
effect as to the portion of the Facility or Parcel not taken and, so long as (i)
no Potential Default, Event of Default, Event of Loss or Event of Lease
Termination has occurred and is continuing, and (ii) the Lessor and the Related
Assignee shall determine that restoration of the Facility or such other Property
is consistent with Prudent Utility Practice and that sufficient funds are
available to complete such restoration, any net proceeds shall be paid to the
Lessee for the restoration of the Facility or such other Property in accordance
with paragraph (j) of Section 10 hereof; provided that, if either of the
conditions set forth in clause (i) or (ii) above are not satisfied, then the net
proceeds shall be paid to the Lessor and if and to the extent that such proceeds
are not applied to (or paid to the Lessee in reimbursement for) the restoration
of the Facility or such Property, the Acquisition Cost shall be reduced by the
Lessor by the amount of such proceeds. Thereupon, the applicable Unit Leasing
Record shall be revised to reflect such reduction in Acquisition Cost.
(c) So long as no Event of Default hereunder has occurred and is
continuing, the Lessee shall have the right (i) to grant minor easements for the
benefit of the Facility or any other Parcel of Property, (ii) to voluntarily
dedicate or convey, as required, portions of the Facility or any other Parcel of
Property for road, highway and other public purposes and (iii) to voluntarily
execute petitions to have the Facility or any other Parcel of Property or a
portion thereof annexed to any municipality or included within any utility,
highway or other improvement or service district, provided that no more than
minor restoration is required. If any monetary consideration is paid for such
easement or dedication, the Lessee shall be entitled to receive or retain such
consideration.
The Lessee shall exercise the above power to grant without the joinder
of the Lessor, except that the Lessor will cooperate, without unreasonable delay
and at the Lessee's expense, as necessary, and join in the execution of any
appropriate instrument or shall execute any separate instrument as necessary. As
a condition precedent to the Lessee's exercise of any of the Lessee's powers
under this Section 16, (i) the Lessee shall give the Lessor five (5) Business
Days' prior written notice of the proposed action and (ii) the Lessee shall
provide to the Lessor a certificate of the Lessee stating that such action will
not adversely affect either the fair market value of the Facility or such other
Property or the use of the Facility or such other Property for its intended
purpose, will not affect the Lessor's ability to exercise its rights and
remedies under this Lease and that the Lessee undertakes to remain obligated
under this Lease to the same extent as if the Lessee had not exercised its
powers under this Section 16 and the Lessee will perform all obligations under
such instrument and shall prepare all required documents and provide all other
instruments and certificates as the Lessor may reasonably request.
SECTION 17. SURRENDER OF PROPERTY OR EQUIPMENT.
(a) Subject to the provisions of Sections 12, 13, 14, 15, 16, 19 and 29
hereof, upon termination of the lease of the Facility or any other Property or
Equipment hereunder, the Lessee shall surrender the Facility or such other
Property or Equipment to the Lessor. Equipment shall be surrendered by
delivering the same to the Lessor at such location as the Lessor and the Lessee
may agree and, if they are unable to agree, at such location as the Lessor may
reasonably direct. Such Property or Equipment shall be surrendered in the
condition required by paragraph (b) of Section 9 of this Lease. Any cost of
removal and delivery of Equipment to the Lessor, shall be paid by the Lessee.
(b) The Lessee shall be obligated to obtain all Governmental Actions
necessary for such surrender. In connection with the Lessee's surrender of
possession of the Facility or any other Property or Equipment to the Lessor, the
Lessee shall furnish to the Lessor (i) copies certified by a Responsible Officer
of the Lessee of all Governmental Action necessary to effect such surrender and
receipt of possession and permitting the Lessor (without the Lessor being
required to change its business structure or otherwise to suffer any rule or
potential adverse effect on its business or that of its Affiliates as a result
of such surrender and receipt of possession) to possess the Facility or such
Property or Equipment with or without the continued involvement of the Lessee,
which Governmental Action shall be in full force and effect, (ii) an opinion of
counsel reasonably satisfactory to the Lessor, to the effect that (1) the Lessee
has obtained all Governmental Action necessary to effect such surrender by the
Lessee and receipt of possession by the Lessor of the Facility or such Property
or Equipment without the Lessor being required to change its business or
otherwise to suffer any real or potential adverse effect on its business or that
of its Affiliates as a result of such surrender and receipt of possession and
without regard to the continued involvement of the Lessee and (2) such
Governmental Action is in full force and effect and not subject to any judicial
or administrative contest, challenge or review and (iii) all logs, manuals,
inspection data, books and records or copies thereof and other information,
which are necessary to operate the Facility or such Property or Equipment and
which are in accordance with Prudent Utility Practice customarily retained (or
that the Lessee actually did retain) or are required by law to be retained with
respect to similar property and equipment, including, without limitation, all
software and manuals applicable to the Facility or such Property or Equipment
and all design plans, know-how, records and information used by the Lessee
during the prior 12 months of operation of the Facility or such Property or
Equipment.
SECTION 18. EVENTS OF DEFAULT.
Any of the following events of default shall constitute an "Event of
Default" and shall give rise to the rights on the part of the Lessor described
in Section 19 hereof:
(a) Failure of the Lessee to pay amounts due to the Lessor at the time
of any scheduled sale of the Facility or any other Parcel of Property, Unit of
Equipment or Turbine Unit hereunder, failure of the Lessee to pay Basic Rent for
more than five (5) days after such payment is due pursuant to Section 7 hereof,
or failure of the Lessee to pay any other amount payable by the Lessee hereunder
for more than ten (10) days after such payment is due; or
(b) Failure to comply with the Insurance Requirements, or default in the
performance of the covenants contained in paragraphs (a), (b), (c), (e) or (i)
of Section 2(ii) hereof, paragraph (i) of Section 8 hereof, or paragraph (n) of
Section 10 hereof; or
(c) Default in the performance of any other obligation or covenant of
the Lessee pursuant to this Lease or any other Operative Document to which the
Lessee is a party and the continuance of such default for thirty (30) days after
the Lessee obtains actual knowledge thereof; provided, that if such default is
of a nature that is not capable of being cured within such thirty (30) day
period and the Lessee shall have diligently commenced curing such default and
proceeds diligently and in good faith thereafter to complete curing such
default, such thirty (30) day period shall be extended to ninety (90) days;
provided, further, that if such default is a default in the performance of any
obligation or covenant of the Lessee relating to Environmental Matters (other
than any obligation or covenant of the Lessee under paragraph (g)(vii) of
Section 2(ii)), such thirty (30) day period shall be extended for so long as (x)
such default is susceptible to being cured, (y) the Lessee shall have diligently
commenced curing such default and proceeds diligently and in good faith
thereafter to complete curing such default in accordance with all applicable
requirements of any Governmental Authority with jurisdiction over the matter and
the Lessee and (z) such default could not reasonably be expected to have a
material adverse effect on (1) the ability of the Lessee to observe and perform
its obligations under this Lease or the other Operative Documents to which it is
a party in a timely manner, (2) the ability of the Guarantor to perform its
obligations under the Guaranty in a timely manner, (3) the business, assets,
properties, financial condition or operations of the Guarantor, (4) the rights
or interests of the Lessor or the Related Assignee under this Lease or the
applicable Financing Arrangements or (5) the leasing, ownership or value of the
Facility; or
(d) The entry of a decree or order for relief in respect of the Lessee
or the Guarantor by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Lessee or the Guarantor or of
any substantial part of the Lessee's or the Guarantor's property, or ordering
the winding up or liquidation of the Lessee's or the Guarantor's affairs, and
the continuance of any such decree or order unstayed and in effect for a period
of sixty (60) consecutive days; or
(e) The suspension or discontinuance of the Lessee's or the Guarantor's
business operations, the Lessee's or the Guarantor's insolvency (however
evidenced) or the Lessee's or the Guarantor's admission of insolvency or
bankruptcy, or the commencement by the Lessee or the Guarantor of a voluntary
case under the Federal bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
or the consent by the Lessee or the Guarantor to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Lessee or the Guarantor or of any substantial
part of the Lessee's or the Guarantor's property, or the making by the Lessee or
the Guarantor of an assignment for the benefit of creditors, or the failure of
the Lessee or the Guarantor generally to pay their debts as such debts become
due, or the taking of corporate action by the Lessee or the Guarantor in
furtherance of any such action; or
(f) A default or event of default, the effect of which is to permit the
holder or holders of any Indebtedness of the Lessee, the Guarantor or a Material
Subsidiary in excess of $5,000,000 in the aggregate, or a trustee or agent on
behalf of such holder or holders, to cause such Indebtedness to become due prior
to its stated maturity, shall occur and be continuing under the provisions of
any agreement pursuant to which such Indebtedness was created or instrument
evidencing such Indebtedness or any obligation of the Lessee, the Guarantor or
such Material Subsidiary for the payment of such Indebtedness shall become or be
declared to be due and payable prior to its stated maturity, or shall not be
paid when due (after giving effect to any applicable grace period); or
(g) Any representation or warranty made by the Lessee in this Lease or
in any other Operative Document to which the Lessee is a party shall prove to
have been false or inaccurate in any material respect on or as of the date made
or deemed made, unless, solely in the case of the representations and warranties
contained in paragraphs (d), (f), (h), (r) and (t) of Section 2(i) hereof) each
of the following shall exist:
(i) such representation or warranty is of a nature that it is
capable of being cured within thirty (30) days after the Lessee became aware of
the falsity or inaccuracy of such representation or warranty;
(ii) the Lessee shall have diligently commenced curing such
default and is proceeding diligently and in good faith to cure such false or
inaccurate representation or warranty and shall have cured such default within
such thirty (30) day period;
(iii) no Responsible Officer shall have been aware that such
representation or warranty was false or inaccurate when such representation or
warranty was made or deemed made; and
(iv) such false or inaccurate representation or warranty has not
resulted in a material adverse effect on (i) the use, operation, leasing,
ownership or value of the Facility or any Property or Equipment, (ii) the
ability of the Lessee to observe and perform its obligations under this Lease or
any other Operative Document to which the Lessee is a party in a timely manner,
(iii) the business, properties or financial condition of the Lessee, or (iv) the
rights or interests of the Lessor or any Related Assignee under this Lease and
has not created a reasonable likelihood of the Lessor or any Related Assignee
incurring Environmental Damages; or
(h) Any final non-appealable judgment for the payment of money in excess
of $5,000,000 shall be rendered against the Lessee, the Guarantor or a Material
Subsidiary by any court of competent jurisdiction and the same shall remain
undischarged for a period of thirty (30) days during which execution of such
judgment or judgments shall not be effectively stayed; or
(i) The Guaranty ceases to be in full force and effect or the Guarantor
asserts the same in writing or an Event of Default (as defined in the Guaranty)
shall occur and be continuing; or
(j) [intentionally omitted]
(k) Subject to Section 8(i) hereof, the Financing Arrangements cease to
create a valid and perfected first priority Lien, subject to Permitted Liens, in
any portion of the Facility or any other Property or Equipment, this Lease or
the rights or interests thereunder (to the extent such documents purport to
create such a Lien).
SECTION 19. RIGHTS UPON DEFAULT.
Upon the occurrence and continuation of any Event of Default the Lessor
may do any one or more of the following:
(a) Terminate the lease of the Facility or any or all Property or Equipment
leased hereunder;
(b) Whether or not the lease of the Facility or any other Property or
Equipment is terminated, take immediate possession of and remove any or all
equipment or property of the Lessor in the possession of the Lessee, wherever
situated, and for such purpose, enter upon any premises without liability to the
Lessee for so doing;
(c) Whether or not any action has been taken under paragraph (a) or (b)
above, sell the Facility or any other Property or Equipment (with or without the
concurrence or request of the Lessee);
(d) Hold, use, occupy, operate, maintain, repair, remove, lease or keep
idle the Facility or any or all other Property or Equipment as the Lessor in its
sole discretion may determine, without any duty to account to the Lessee with
respect to any such action or inaction or for any proceeds thereof or to
mitigate damages; and
(e) Exercise any other right or remedy which may be available under
applicable law and in general proceed by appropriate judicial proceedings,
either at law or in equity, to enforce the terms hereof or to recover damages
for the breach hereof.
Suit or suits for the recovery of any default in the payment of any sum
due hereunder or for damages may be brought by the Lessor from time to time at
the Lessor's election, and nothing herein contained shall be deemed to require
the Lessor to await the date whereon this Lease or the term hereof would have
expired by limitation had there been no such default by the Lessee or no such
termination or cancellation.
The receipt of any payments under this Lease by the Lessor with
knowledge of any breach of this Lease by the Lessee or of any default by the
Lessee in the performance of any of the terms, covenants or conditions of this
Lease, shall not be deemed to be a waiver of any provision of this Lease.
No receipt of moneys by the Lessor from the Lessee after the termination
or cancellation hereof in any lawful manner shall reinstate, continue or extend
the Lease Term or any Renewal Term, or affect any notice theretofore given to
the Lessee, or operate as a waiver of the right of the Lessor to enforce the
payment of Basic Rent or Additional Rent or other charges payable hereunder, or
operate as a waiver of the right of the Lessor to recover possession of the
Facility or any other Unit of Equipment or Parcel of Property by proper suit,
action, proceedings or remedy; it being agreed that, after the service of notice
to terminate or cancel this Lease, and the expiration of the time therein
specified, if the default has not been cured in the meantime, or after the
commencement of suit, action or summary proceedings or of any other remedy, or
after a final order, warrant or judgment for the possession of the Facility or
any other Unit of Equipment or Parcel of Property, the Lessor may demand,
receive and collect any moneys payable hereunder, without in any manner
affecting such notice, proceedings, suit, action, order, warrant or judgment;
and any and all such moneys so collected shall be deemed to be payments on
account of the Lessee's liability hereunder. Acceptance of the keys to the
Facility or any other Parcel of Property, or any similar act, by the Lessor, or
any Lessee or employee, during the term hereof, shall not be deemed to be an
acceptance of a surrender of the Facility or any other Parcel of Property unless
the Lessor shall consent thereto in writing.
After any Event of Default, the Lessee shall be liable for, and the
Lessor may recover from the Lessee, without duplication, (i) all Basic Rent
accrued through the date of receipt of all liquidated damages payable upon
termination of this Lease and the Debt Yield-Maintenance Premium payable, (ii)
any Additional Rent owing, (iii) all amounts payable pursuant to Sections 11, 25
and 27 hereof, (iv) all losses, damages, costs and expenses (including, without
limitation, attorneys' fees and expenses, commissions, filing fees and sales or
transfer taxes and all costs and expenses related to (x) the conduct of
investigations, studies, sampling and/or testing of the Facility and any other
Property and (y) the taking of any action, including, without limitation, any
remedial measures or removal with respect to the Facility and any other
Property, each as required by the Related Assignee pursuant to the terms of a
Financing Arrangement) sustained by the Lessor or by the Related Assignee by
reason of such Event of Default and the exercise of the Lessor's remedies with
respect thereto, including without limitation, in the event of a sale by the
Lessor of the Facility or any other Property or Equipment pursuant to this
Section 19, all costs and expenses associated with such sale and (v) all other
amounts owing hereunder (after taking into account the application under a
Financing Arrangement of any payments made under this Section 19) excluding, in
all cases, costs or expenses included in Acquisition Cost. The amounts payable
in clauses (i) through (v) above are hereinafter sometimes referred to as the
"Accrued Default Obligations".
After termination of this Lease as a result of an Event of Default
pursuant to Section 19(a) hereof, the Lessor may sell its interest in the
Facility and any other Property and Equipment upon any terms that the Lessor
deems satisfactory, free of any rights of the Lessee or any Person claiming
through or under the Lessee (including, without limitation, any rights
hereunder). In the event of any such sale, in addition to the Accrued Default
Obligations, the Lessor shall be entitled to recover from the Lessee, as
liquidated damages and not as a penalty, an amount equal to the Acquisition Cost
of the Facility and all other Property and Equipment under this Lease. In the
case of the sale of the Facility, proceeds of such sale received by the Lessor
shall be credited against the Accrued Default Obligations and the Acquisition
Cost of the Facility the Lessee is required to pay under this Section 19. In the
case of other Property and Equipment, proceeds of sale of such Property and
Equipment received by the Lessor shall be credited against the Accrued Default
Obligations and the Acquisition Cost of such other Property and Equipment the
Lessee is required to pay under this Section 19. If such proceeds, together with
any amounts paid by the Lessee under the preceding paragraph, exceed the sum of
(i) the Accrued Default Obligations and (ii) the Acquisition Cost of the
Facility and all Property and Equipment, such excess shall be paid by the Lessor
to the Lessee. As an alternative to any such sale, in addition to the Accrued
Default Obligations, the Lessor may require the Lessee to pay to the Lessor, and
the Lessee shall pay to the Lessor, as liquidated damages and not as a penalty,
an amount equal to the Acquisition Cost of the Facility and all other Property
and Equipment under this Lease. If the Lessor subsequently sells its interest in
the Facility or such other Property or Equipment, the proceeds of any such sale
(net of any unreimbursed costs or liabilities incurred by the Lessor or the
Related Assignee with respect to the Facility or such other Property or
Equipment after the termination of the Lease, which are not included in the
Accrued Default Obligations) shall be distributed as provided in the third and
fourth sentences of this paragraph. In addition, if the Lessee converts the
Facility or any other Property or Equipment or any part thereof after an Event
of Default, or if the Facility or any other Property or Equipment is lost or
destroyed at the time of the Event of Default, in addition to the Accrued
Default Obligations, the Lessor may require the Lessee to pay to the Lessor, and
the Lessee shall pay to the Lessor, as liquidated damages and not as a penalty,
an amount equal to the Acquisition Cost of the Facility and all other Property
and Equipment under this Lease. In the event the Lessor receives indefeasible
payment pursuant to this paragraph from the Lessee of the Acquisition Cost of
the Facility and all other Property and Equipment and the Accrued Default
Obligations, the Lessor shall transfer all of the Lessor's right, title and
interest in and to the Facility and such other Property and Equipment to the
Lessee.
Upon the occurrence and continuance of any Event of Default, the Lessee
shall (unless the Lessee has purchased the Facility pursuant to this Section
19), upon the request of the Lessor or the Related Assignee, exercise all
commercially reasonable efforts (i) to provide the Lessor (or a designated
assignee of the Lessor or the Related Assignee) with all easements, licenses,
manuals, manufacturer's warranties and other matters and services necessary to
enable the Facility and any Turbine Unit to operate as an EWG in connection with
the sale of electricity to third parties on commercially reasonable terms no
less favorable to the Lessor than those that existed prior to such Event of
Default, (ii) to provide the Lessor (or a designated assignee of the Lessor or
the Related Assignee) with any Governmental Actions and Intellectual Property
Rights that are necessary to enable the Facility and any Turbine Unit to operate
as an EWG in connection with the sale of electricity to third parties on
commercially reasonable terms no less favorable to the Lessor than those that
existed prior to such Event of Default, (iii) to provide the Lessor (or a
designated assignee of the Lessor or the Related Assignee) with any other
permits or licenses required to enable such party to operate the Facility and
any Turbine Unit as an EWG in connection with the sale of electricity to third
parties on commercially reasonable terms no less favorable to the Lessor than
those that existed immediately prior to such Event of Default and (iv) to
provide the Lessor (or a designated assignee of the Lessor or the Related
Assignee) with any other fuel supply agreements, transmission agreements,
service agreements and contracts or subcontracts relating to the provision of
services, materials, supplies and benefits contemplated by the Facility Support
Agreement in existence at such time to enable such party to operate the Facility
and any Turbine Unit as an EWG in connection with the sale of electricity to
third parties on commercially reasonable terms no less favorable to the Lessor
than those that existed immediately prior to such Event of Default. The Lessee's
obligations contained in this subsection shall survive the expiration or other
termination of this Lease until the Lessor receives payment of (1) all amounts
owing pursuant to this Lease, (2) all losses, damages, costs and expenses
(including, without limitation, attorneys' fees and expenses, commissions,
filing fees and sales or transfer taxes) sustained by the Lessor, (3) all
amounts owing under all Financing Arrangements and (4) any unreimbursed costs
incurred by the Lessor or the Related Assignee with respect to the Facility
after the term of this Lease, net of any revenues received from the operation of
the Facility.
In the event of a sale pursuant to this Section 19, upon indefeasible
receipt by the Lessor of the amounts payable hereunder, the Lessor shall
transfer all of the Lessor's right, title and interest in and to the Facility
and all other Property and Equipment to the Lessee or a purchaser other than the
Lessee, as the case may be.
No remedy referred to in this Section 19 is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy referred to
above or otherwise available to the Lessor at law or in equity, and the exercise
in whole or in part by the Lessor of any one or more of such remedies shall not
preclude the simultaneous or later exercise by the Lessor of any or all such
other remedies.
No waiver by the Lessor of any Event of Default hereunder shall in any
way be, or be construed to be, a waiver of any future or subsequent Event of
Default.
In addition to its other rights in this Section 19, the Lessor may
exercise its various rights under the Facility Support Agreement or transfer
such rights to the purchaser in a sale and the Lessee acknowledges hereby its
agreement to perform its obligations thereunder.
With respect to the termination of this Lease as to the Facility or any
other Parcel of Property as a result of an Event of Default, the Lessee hereby
waives service of any notice of intention to re-enter. To the extent permitted
by applicable law, the Lessee hereby waives any and all rights to recover or
regain possession of the Facility or any other Parcel of Property or to
reinstate this Lease as permitted or provided by or under any statute, law or
decision now or hereafter in force and effect.
SECTION 20. EQUIPMENT TO BE PERSONAL PROPERTY.
It is the intention and understanding of the Lessor and the Lessee that
all Equipment shall be and at all times remain personal property. The Lessee
shall obtain and record such instruments and take such steps as may be necessary
to prevent any Person from acquiring any rights in Equipment paramount to the
rights of the Lessor by reason of such Equipment being deemed to be real
property.
SECTION 21. SALE OR ASSIGNMENT BY LESSOR.
(a) The Lessor shall have the right to finance the acquisition and
ownership of the Facility or any other Property or Equipment by selling or
assigning its right, title and interest in this Lease, including without
limitation any or all amounts due from the Lessee or any third party under this
Lease and granting a security interest in this Lease, the Facility or any other
Property or Equipment to the Collateral Trustee or, to the extent and for the
purposes permitted hereby to a lender or lenders under a Financing Arrangement;
provided, that any such sale or assignment shall be subject to the rights and
interests of the Lessee under this Lease, and provided further, that any such
sale or assignment or grant of a security interest in this Lease for the benefit
of a Person other than the Collateral Trustee shall be limited to amounts due in
respect of only the Property or Equipment leased to or financed by such Person
(but in no event including any of the Facility or any of the Facility Assets) or
a security interest in such Property or Equipment (other than the Facility or
the Facility Assets).
(b) Any Related Assignee shall, except as otherwise agreed by the Lessor
and such Related Assignee, have all the rights, powers, privileges and remedies
of the Lessor hereunder, and the Lessee's obligations as between itself and such
Related Assignee hereunder shall not be subject to any claims or defense that
the Lessee may have against the Lessor. Upon written notice to the Lessee of any
such assignment, the Lessee shall thereafter make payments of Basic Rent,
Additional Rent and other sums due hereunder in respect of the Facility to the
Collateral Trustee and, in respect of any other Property or Equipment, to the
Related Assignee, to the extent specified in such notice, and such payments
shall discharge the obligation of the Lessee to the Lessor hereunder to the
extent of such payments. Anything contained herein to the contrary
notwithstanding, no Related Assignee shall be obligated to perform any duty,
covenant or condition required to be performed by the Lessor hereunder, and any
such duty, covenant or condition shall be and remain the sole obligation of the
Lessor.
SECTION 22. INCOME TAXES.
Except as may be required in Section 8(i) hereof, the Lessor agrees that
the Lessor will not file any Federal, state or local income, franchise or
similar tax returns during or with respect to the Initial Term, or any Extended
Term or Renewal Term or take any position with respect to any such return (on
audit or otherwise) with respect to the Facility or any other Property or
Equipment that are inconsistent with the treatment of the Lessee as owner of the
Facility or of such other Property or Equipment for Federal, state and local
income tax purposes. The Lessor agrees to covenant in its partnership agreement
that neither the general partner nor the limited partners shall file any
Federal, state or local income tax returns that are inconsistent with the
treatment of the Lessee as owner of the Facility or of such other Property or
Equipment for Federal, state and local income tax purposes. The Lessor further
covenants and agrees that none of its partners will be or become a utility
principally engaged in the business of supplying water, steam, gas or
electricity during the term of this Lease.
SECTION 23. NOTICES AND REQUESTS.
All notices, offers, acceptances, approvals, waivers, requests, demands
and other communications hereunder or under any other instrument, certificate or
other document delivered in connection with the transactions described herein
shall be in writing, shall be addressed as provided below and shall be
considered as properly given (a) if delivered in person, (b) if sent by express
courier service (including, without limitation, Federal Express, Emery, DHL,
Airborne Express, and other similar express delivery services), (c) in the event
overnight delivery services are not readily available, if mailed through the
United States Postal Service, postage prepaid, registered or certified with
return receipt requested, or (d) if sent by telecopy and confirmed; provided
that, in the case of a notice by telecopy, the sender shall in addition confirm
such notice by writing sent in the manner specified in clause (a), (b) or (c) of
this Section 23. All notices shall be effective upon receipt by the addressee;
provided, however, that, if any notice is tendered to an addressee and the
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender. For the purposes of notice, the addresses of the parties shall
be as set forth below; provided, however, that any party shall have the right to
change its address for notice hereunder to any other location by giving written
notice to the other party in the manner set forth herein. The initial addresses
of the parties hereto are as follows:
If to the Lessor:
LIC Funding, Limited Partnership
c/o LIC Capital, Inc.
c/o ML Leasing Equipment Corp.
North Tower
World Financial Center
250 Vesey Street
New York, New York 10281
Attention: Jean M. Tomaselli
Telephone: (212) 449-7925
Telecopy: (212) 449-2854
With a copy of each such notice to be simultaneously given, delivered or served
to Kira Toone at the following address:
ML Leasing Equipment Corp.
Controller's Office
World Financial Center
South Tower - 14th Floor
225 Liberty Street
New York, New York 10080
Attention: Kira Toone
Telephone: (212) 236-7203
Telecopy: (212) 236-7584
If to the Lessee:
KeySpan-Ravenswood, Inc.
c/o KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201
Attention: General Counsel
Telephone: (718) 403-1000
Telecopy: (718) 696-7139
With a copy of all notices under this Section 23 to each Related Assignee at
such address as such Related Assignee may specify by written notice to the
Lessor and the Lessee.
SECTION 24. COVENANT OF QUIET ENJOYMENT.
During the Initial Term, or any Extended Term or Renewal Term of the
Facility or any other Property or Equipment hereunder and so long as no Event of
Default shall have occurred and be continuing, the Lessor recognizes the
Lessee's right to quiet enjoyment of the Facility and of any other Property or
Equipment on the terms and conditions provided in this Lease without any
interference from the Lessor or anyone claiming through or under the Lessor.
SECTION 25. RIGHT TO PERFORM FOR LESSEE.
(a) If the Lessee fails to perform or comply with any of its covenants
or agreements contained in this Lease, and any period to cure such failure has
expired without the Lessee curing such failure, the Lessor may, upon notice to
the Lessee but without waiving or releasing any obligations or default, itself
perform or comply with such covenant or agreement, and the amount of the
reasonable expenses of the Lessor incurred in connection with such performance
or compliance shall be payable by the Lessee, not later than ten (10) days after
written notice by the Lessor.
(b) Without in any way limiting the obligations of the Lessee hereunder,
the Lessee hereby irrevocably appoints the Lessor as its agent and attorney at
the time at which the Lessee is obligated to deliver possession of the Facility
or any other Parcel of Property or Unit of Equipment to the Lessor, to demand
and take possession of the Facility or such other Parcel of Property or Unit of
Equipment in the name and on behalf of the Lessee from whomsoever shall be at
the time in possession thereof.
SECTION 26. MERGER, CONSOLIDATION OR SALE OF ASSETS, ETC.
The Lessee may not consolidate with or merge into any other corporation
or sell all or substantially all of its assets to any Person, except that the
Lessee may consolidate with or merge into any other corporation which is an
Affiliate of the Lessee, or sell all or substantially all of its assets to any
Person which is an Affiliate of the Lessee; provided, that (a) the surviving
corporation or transferee Person shall assume, by execution and delivery of
instruments satisfactory to the Lessor and the Related Assignee, the obligations
of the Lessee hereunder and become successor to the Lessee, (b) the Lessee shall
not thereby be released from its obligations hereunder, (c) the Guarantor shall
own beneficially and of record greater than fifty percent (50%) of the capital
stock of the surviving corporation or transferee Person, (d) the Guaranty shall
be applicable to the obligations under this Lease with respect to the surviving
corporation or transferee Person, and (e) no Potential Default or Event of
Default shall occur by reason of giving effect to such merger, consolidation or
sale. The terms and provisions of this Lease shall be binding upon and inure to
the benefit of the Lessee and its respective successors and assigns.
SECTION 27. EXPENSES.
The Lessee shall pay all of the reasonable out-of-pocket costs and
expenses incurred by the Lessor and each Related Assignee in connection with the
Operative Documents, the Recordable Documents (upon the occurrence of a
Recording Event) and any amendments, supplements or restatements of any thereof,
including, without limitation, the reasonable fees and disbursements of counsel
to the Lessor and counsel to any Related Assignee.
SECTION 28. PERMITTED CONTESTS.
(a) The Lessee shall not be required, nor shall the Lessor have the
right, to pay, discharge or remove any tax, assessment, levy, fee, rent, charge
or Lien, or to comply or cause the Facility or any other Parcel of Property or
Unit of Equipment to comply with any Legal Requirements or Environmental
Requirements applicable to the Facility or any other Parcel of Property or Unit
of Equipment or the occupancy, use or operation thereof, so long as no Event of
Default or Potential Default exists under this Lease and, in the reasonable
judgment of the Lessee's counsel, the Lessee shall have reasonable grounds to
contest the existence, amount, applicability or validity thereof by appropriate
proceedings, which proceedings in the reasonable judgment of the Lessor and the
Related Assignee, (i) shall not involve any material danger that the Facility or
any other Parcel of Property or Unit of Equipment or any Basic Rent or any
Additional Rent would be subject to sale, forfeiture or loss, as a result of
failure to comply therewith, (ii) shall not affect the payment of any Basic Rent
or any Additional Rent or other sums due and payable hereunder or result in any
such sums being payable to any Person other than the Lessor or any Related
Assignee, (iii) will not place either the Lessor or any Related Assignee in any
danger of civil liability for which the Lessor or Related Assignee is not
adequately indemnified or subject the Lessor or any Related Assignee to any
danger of criminal liability, (iv) if involving taxes, shall suspend the
collection of taxes, and (v) shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which the Lessee or
the Facility or any other Parcel of Property or Unit of Equipment is subject and
shall not constitute a default thereunder (the "Permitted Contest"). The Lessee
shall conduct all Permitted Contests in good faith and with due diligence and
shall promptly after the final determination (including appeals) of any
Permitted Contest pay and discharge all amounts which shall be determined to be
payable therein. The Lessor shall cooperate in good faith with the Lessee with
respect to all Permitted Contests conducted by the Lessee pursuant to this
Section 28.
(b) In the event the Lessor or any Related Assignee deems, in its
reasonable discretion, that its interests under this Lease or in the Facility or
any other Parcel of Property or Unit of Equipment are not adequately protected
in connection with a Permitted Contest brought by the Lessee under this Section
28, the Lessee shall give such reasonable security, as may be demanded by the
Lessor or any Related Assignee, to ensure payment of such tax, assessment, levy,
fee, rent, charge or Lien and compliance with Legal Requirements and to prevent
any sale or forfeiture of the Facility or any other Parcel of Property or Unit
of Equipment, any Basic Rent or any Additional Rent by reason of such nonpayment
or noncompliance. The Lessee hereby agrees that the Lessor may assign such
security provided by the Lessee to the Related Assignee.
(c) At least ten (10) days prior to the commencement of any Permitted
Contest, the Lessee shall notify the Lessor and the Related Assignee in writing
of any such proceeding in which the amount in contest exceeds $3,000,000, and
shall describe such proceeding in reasonable detail. In the event that a taxing
authority or subdivision thereof proposes an additional assessment or levy of
any tax for which the Lessee is obligated to reimburse the Lessor under this
Lease, or in the event that the Lessor is notified of the commencement of an
audit or similar proceeding which could result in such an additional assessment,
then the Lessor shall in a timely manner notify the Lessee and the Related
Assignee in writing of such proposed levy or proceeding.
SECTION 29. LEASEHOLD INTERESTS.
(a) The Lessee hereunder covenants and agrees to perform and to observe
all of the terms, covenants, provisions, conditions and agreements of each
Ground Lease (including the Site Lease) on the Lessor's part as lessee
thereunder to be performed and observed (including, without limitation, payment
of all rent, additional rent and other amounts payable by the Lessor as lessee
under any Ground Lease) to the end that all things shall be done which are
necessary to keep unimpaired the rights of the Lessor as lessee under any Ground
Lease and as grantee with respect to the Easements, and to maintain the
leasehold interest and position of the Lessor with respect to the Facility or
any Parcel of Property. The Lessee further covenants that it shall cause to be
exercised any renewal option contained in the Ground Lease which relates to
renewal occurring in whole or in part during the term of this Lease.
(b) The Lessee covenants and agrees pursuant to Section 11 hereof to
indemnify and hold harmless the Lessor and any Related Assignee from and against
any and all liability, loss, damage, suits, penalties, claims and demands of
every kind and nature (including, without limitation, reasonable attorneys' fees
and expenses) by reason of the Lessee's failure to comply with any Ground Lease,
the Easements or the provisions of this Section 29.
(c) The Lessor and the Lessee agree that the Lessor shall have no
obligation or responsibility to provide services or equipment required to be
provided or repairs or restorations required to be made in accordance with the
provisions of any Ground Lease by the lessee or grantee thereunder. The Lessor
shall in no event be liable to the Lessee nor shall the obligations of the
Lessee hereunder be impaired or the performance thereof excused because of any
failure or delay on the part of the Lessor as the lessee under any Ground Lease
or as grantee with respect to the Easements in providing such services or
equipment or making such restorations or repairs and such failure or delay shall
not constitute a basis for any claim against the Lessor or any offset against
any amount payable to the Lessor under this Lease.
(d) If the Lessor's interest under the Site Lease or any Ground Lease
shall expire, terminate or otherwise be extinguished (including without
limitation by virtue of a rejection of the Site Lease or any Ground Lease in a
bankruptcy proceeding), the lease of the Facility Site or any other Parcel of
Property to which such Ground Lease relates shall thereupon terminate as
provided in this paragraph (d). Upon such expiration, termination or
extinguishment, the Lessee shall be required to purchase the Lessor's interest
in the Facility or such other Parcel of Property at its Acquisition Cost. If the
Lessee shall be required to purchase the Lessor's interest in the Facility or
such other affected Parcel, then (i) on the Basic Rent Payment Date next
succeeding such event, the Lessee shall pay to the Lessor (without duplication)
an amount equal to the Acquisition Cost of the Facility or such other Property,
all Basic Rent accrued through such date, the Debt Yield-Maintenance Premium
payable with respect to the Facility or such other Property and any Additional
Rent and other amounts owing hereunder, (ii) the Lease Term or Renewal Term of
the Facility or such other Property shall continue until the date on which the
Lessor receives payment from the Lessee of the amount payable pursuant to this
paragraph (d) and shall then terminate upon the payment of such amounts and
(iii) the Lessor shall on such date transfer title to the Lessor's interest in
the Facility or such other Parcel to the Lessee.
(e) The Lessee shall ensure that each Ground Lease shall be a
Mortgageable Ground Lease.
SECTION 30. MISCELLANEOUS.
(a) All agreements, indemnities, representations and warranties, and the
obligation to pay Basic Rent, any Debt Yield-Maintenance Premium, Additional
Rent, Acquisition Cost and other amounts contained in this Lease (including
without limitation all amounts payable upon the termination of this Lease) shall
survive the expiration or other termination hereof or the rejection of this
Lease in any bankruptcy proceeding.
(b) This Lease and the Unit Leasing Records covering the Facility and
other Property or Equipment leased pursuant hereto and the instruments,
documents or agreements referred to herein constitute the entire agreement
between the parties and no representations, warranties, promises, guarantees or
agreements, oral or written, express or implied, have been made by any party
hereto with respect to this Lease, the Facility and other Property or Equipment,
except as provided herein or therein.
(c) This Lease may not be amended, modified or terminated, nor may any
obligation hereunder be waived orally, and no such amendment, modification,
termination or waiver shall be effective for any purpose unless it is in
writing, signed by the party against whom enforcement thereof is sought. A
waiver on one occasion shall not be construed to be a waiver with respect to any
other occasion.
(d) The captions in this Lease are for convenience of reference only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof. Any provision of this Lease which is prohibited by law or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and the parties hereto shall negotiate in good
faith appropriate modifications to reflect such changes as may be required by
law, and, as nearly as possible, to produce the same economic, financial and tax
effects as the provision which is prohibited or unenforceable; and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee and the Lessor hereby waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect. THIS LEASE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW
YORK. THE LESSEE AND THE LESSOR AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY
THE LAW OF THE STATE OF NEW YORK, THIS LEASE, AND THE RIGHTS AND DUTIES OF THE
LESSEE AND THE LESSOR HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW)
IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, IN RESPECT OF ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. THE LESSEE AGREES THAT SERVICE OF
PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR
NOTICES SET FORTH IN THIS LEASE OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW
YORK. THE LESSOR AND THE LESSEE EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS LEASE OR THE TRANSACTIONS
CONTEMPLATED HEREBY. THE LESSOR AND THE LESSEE ACKNOWLEDGE THAT THE PROVISIONS
OF THIS PARAGRAPH (D) OF SECTION 30 HAVE BEEN BARGAINED FOR AND THAT THEY HAVE
BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.
(e) In connection with any sale of the Facility, any Property or
Equipment or any Turbine Unit pursuant to Section 12, 13, 14, 15, 19 or 29 of
this Lease, when the Lessor transfers title, such transfer shall be on an as-is,
non-installment sale basis, without warranty by, or recourse to, the Lessor
other than that the Lessor is transferring title free of any Lien created
pursuant to any Financing Arrangement.
(f) In connection with the sale or purchase of the Facility, any
Property or Equipment or any Turbine Unit pursuant to Section 12, 13, 14, 15, 19
or 29, the Lessee shall pay or shall cause the purchaser thereof to pay in
addition to the purchase price, all transfer taxes, transfer gains taxes,
mortgage recording tax, if any, recording and filing fees and all other similar
taxes, fees, expenses and closing costs (including reasonable attorneys' fees)
in connection with the conveyance of the Facility or such other Property or
Equipment or Turbine Unit to the Lessee or any purchaser.
(g) In connection with the purchase of the Facility, any Property or
Equipment or any Turbine Unit by the Lessee or any third party pursuant to the
provisions of this Lease, the Lessor shall deliver to the Lessee or such third
party, as the case may be, a bill of sale, deed or similar document assigning
and conveying to the Lessee or such third party, as the case may be, and the
Lessee or such third party, as the case may be, shall accept an assignment of,
the Lessor's interest in the Site Lease, the Easements, and, if applicable, any
other Ground Lease or other documents to be without warranty by, or recourse to,
the Lessor, but free of the Lien created pursuant to any Financing Arrangement
(provided that the purchase price paid by the Lessee to the Lessor, exclusive of
the other amounts payable hereunder in connection with such purchase, shall
equal the Acquisition Cost of the Facility or such Property, Equipment or
Turbine Unit).
(h) Each time that the Acquisition Cost of the Facility or any other
Property or Equipment is decreased pursuant to the terms of this Lease, the
Lessor shall promptly revise the applicable Unit Leasing Record to reflect such
decrease and shall provide the Lessee and the Related Assignee with a copy of
such revised Unit Leasing Record.
SECTION 31. NO RECOURSE.
The Lessor's obligations hereunder are intended to be the obligations of
the limited partnership and of the corporation which is the general partner
thereof only and no recourse for the payment of any amount due under this Lease,
any Ground Lease, the Site Lease or any other agreement contemplated hereby, or
for any claim based hereon or thereon or otherwise in respect thereof, shall be
had against any limited partner of the Lessor or any incorporator, shareholder,
officer, director or Affiliate, as such, past, present or future of such
corporate general partner or of any corporate limited partner or of any
successor corporation to such corporate general partner or to any corporate
limited partner of the Lessor, or against any direct or indirect parent
corporation of such corporate general partner or of any limited partner of the
Lessor or any other subsidiary or Affiliate of any such direct or indirect
parent corporation or any incorporator, shareholder, officer or director, as
such, past, present or future, of any such parent or other subsidiary or
Affiliate. Nothing contained in this Section 31 shall be construed to limit the
exercise or enforcement, in accordance with the terms of this Lease and any
other documents referred to herein, of rights and remedies against the limited
partnership or the corporate general partner of the Lessor or the assets of the
limited partnership or the corporate general partner of the Lessor.
SECTION 32. NO MERGER.
There shall be no merger of this Lease or of the leasehold estate hereby
created with the fee estate or any other interest in the Facility or in any
other Parcel of Property or any portion thereof by reason of the fact that the
same person acquires or holds, directly or indirectly, this Lease or the
leasehold estate hereby created or any interest herein or in such leasehold
estate as well as the fee estate in the Facility or in any other Parcel of
Property or any interest in such fee estate.
<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to
be executed and delivered by their duly authorized officers as of the day and
year first above written.
LIC Funding, Limited Partnership
By LIC Capital, Inc.,
its General Partner
By __________________________
Name:
Title:
KeySpan-Ravenswood, Inc.
By __________________________
Name:
Title:
<PAGE>
CONFIDENTIAL AND PROPRIETARY
LEASE AGREEMENT
Dated as of June 9, 1999
LIC Funding, Limited Partnership
as Lessor
AND
KeySpan-Ravenswood, Inc.
as Lessee
THIS LEASE MAY BE ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF THE LESSOR. SEE SECTION 21.
This Lease has been manually executed in 40 counterparts, numbered consecutively
from 1 through 40 of which this is No. _____. To the extent, if any, that this
Lease constitutes chattel paper (as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction), no security
interest in this Lease may be created or perfected through the transfer or
possession of any counterpart other than the original executed counterpart which
shall be the counterpart identified as counterpart No. 1.
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINED TERMS................................................1
SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE. 19
SECTION 3. LEASE OF THE FACILITY AND OTHER PROPERTY
AND EQUIPMENT...............................................30
SECTION 4. INTENT OF THE PARTIES; OPERATING LEASE......................31
SECTION 5. DELIVERY; ABSOLUTE OBLIGATION...............................32
SECTION 6. INITIAL TERM; EXTENDED TERM.................................36
SECTION 7. RENT AND OTHER PAYMENTS.....................................37
SECTION 8. RESTRICTED USE; COMPLIANCE WITH LAWS, FURTHER
ASSURANCES..................................................38
SECTION 9. MAINTENANCE, IMPROVEMENT AND REPAIR OF THE
FACILITY, PROPERTY OR EQUIPMENT.............................43
SECTION 10. INSURANCE...................................................46
SECTION 11. INDEMNITIES.................................................52
SECTION 12. [CONFIDENTIAL TREATMENT]....................................56
SECTION 13. LESSEE'S RIGHTS OF PURCHASE AND RENEWAL.....................59
SECTION 14. TERMINATION UPON CERTAIN EVENTS.............................62
SECTION 15. LOSS OF OR DAMAGE TO PROPERTY OR EQUIPMENT..................64
SECTION 16. CONDEMNATION AND DEDICATION OF THE FACILITY AND
PROPERTY; EASEMENTS.........................................65
SECTION 17. SURRENDER OF PROPERTY OR EQUIPMENT..........................66
SECTION 18. EVENTS OF DEFAULT...........................................67
SECTION 19. RIGHTS UPON DEFAULT.........................................69
SECTION 20. EQUIPMENT TO BE PERSONAL PROPERTY...........................73
SECTION 21. SALE OR ASSIGNMENT BY LESSOR................................73
SECTION 22. INCOME TAXES................................................74
SECTION 23. NOTICES AND REQUESTS........................................74
SECTION 24. COVENANT OF QUIET ENJOYMENT.................................75
SECTION 25. RIGHT TO PERFORM FOR LESSEE.................................76
SECTION 26. MERGER, CONSOLIDATION OR SALE OF ASSETS, ETC................76
SECTION 27. EXPENSES....................................................76
SECTION 28. PERMITTED CONTESTS..........................................77
SECTION 29. LEASEHOLD INTERESTS.........................................78
SECTION 30. MISCELLANEOUS...............................................79
SECTION 31. NO RECOURSE.................................................80
SECTION 32. NO MERGER...................................................81
KEYSPAN ENERGY
LONG-TERM PERFORMANCE
INCENTIVE COMPENSATION PLAN
1. ADOPTION AND PURPOSE
MarketSpan Corporation d/b/a KeySpan Energy (the "Company") hereby adopts this
Long-Term Performance Incentive Compensation Plan, subject to the approval
required under Section 17 (the "Plan"). The purposes of the Plan are to promote
the interests of the Company and its stockholders by (a) attracting and
retaining key employees, directors and consultants of the Company and its
Subsidiaries (as defined below); (b) motivating such persons by means of
performance-related incentives to achieve long-range performance goals; and (c)
enabling such persons to participate in the long-term growth and financial
success of the Company.
2. DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
"Award" means, individually or collectively, a grant under this Plan of Stock
Options or Restricted Shares or a Performance Stock Award. The issuance of
Restricted Shares pursuant to a Performance Stock Award shall not be a new Award
under this Plan.
"Award Agreement" means a written agreement entered into between the Company and
a Participant setting forth the terms and conditions of an Award made to such
Participant under this Plan, in the form prescribed by the Committee.
"Beneficial Owner or Beneficial Ownership" shall have the meaning ascribed to
such terms in Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
"Board" means the Board of Directors of the Company.
"Business Combination" shall have the meaning specified in Section 12(b)(iii).
"Change of Control" shall have the meaning specified in Section 12(b).
"Code" means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such section
or regulation, any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Committee" means the Compensation and Nominating Committee of the Board, or
such other committee appointed by the Board, each member of which shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act
and shall be an "outside director" within the meaning of Section 162(m) of the
Code. The Committee shall be composed of at least two (2) such directors.
"Common Stock" means the common stock of the Company.
"Company" means MarketSpan Corporation d/b/a KeySpan Energy, a New York
corporation.
"Consultant" means any Person who is not a Director or an employee of the
Company or a Subsidiary and who provides bona fide services to the Company or a
Subsidiary, provided that such services are not rendered in connection with the
offer or sale of securities in a capital-raising transaction.
<PAGE>
"Director" means a member of the Board of Directors of the Company or a
Subsidiary who is not an employee of the Company or a Subsidiary.
"Effective Date" means the effective date of this Plan as defined in Section 17.
"Employee" means a key employee of the Company or a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended. Reference
to a specific section of the Exchange Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Fair Market Value" means the closing price of the Common Stock as reported on
the New York Stock Exchange on the relevant valuation date or, if there were no
Common Stock transactions on the valuation date, on the next preceding date on
which there were Common Stock transactions.
"Incentive Stock Option" has the meaning specified in Section 6(b).
"Incumbent Board" shall have the meaning specified in Section 12(b)(ii).
"Negative Discretion" means other factors to be applied by the Committee in
reducing the number of Restricted Shares to be issued pursuant to a Performance
Stock Award if the Performance Goals have been met or exceeded if, in the
Committee's sole judgment, such application is appropriate in order to act in
the best interest of the Company and its shareholders.
"Outstanding Company Common Stock" shall have the meaning specified in Section
12(b)(i).
"Outstanding Company Voting Securities" shall have the meaning specified in
Section 12(b)(i).
"Participant" means an Employee, Director or Consultant who has been granted an
Award under this Plan.
"Performance Goals" means, with respect to any Performance Period, performance
goals based on any of the following criteria and established by the Committee
prior to the beginning of such Performance Period or performance goals based on
any of the following criteria and established by the Committee after the
beginning of such Performance Period that meet the requirements to be considered
pre-established performance goals under Section 162(m) of the Code: earnings or
earnings growth; earnings per share; return on equity, assets, capital employed
or investment; revenues or revenue growth; gross profit; gross margin; operating
profit; operating margin; operating cash flow; stock price appreciation and
total shareholder return. Such Performance Goals may be particular to a
Participant or the division, department, branch, line of business, Subsidiary or
other unit in which the Participant works, or may be based on the performance of
the Company generally.
"Performance Period" means the period of time designated by the Committee
applicable to a Performance Stock Award during which the Performance Goals shall
be measured.
"Performance Stock Award" shall have the meaning specified in Section 6(d).
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a group as
defined in Section 13(d) thereof.
"Plan" means this KeySpan Energy Long-Term Performance Incentive Compensation
Plan.
<PAGE>
"Plan Year" means an annual period coinciding with the Company's fiscal year.
"Reporting Person" means an officer or director of the Company subject to the
reporting requirements of Section 16 of the Exchange Act.
"Restricted Shares" shall have the meaning specified in Section 6(c).
"Restriction Period" shall have the meaning specified in Section 6(c).
"Securities Act" means the Securities Act of 1933, as amended. Reference to a
specific section of the Securities Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Stock Option" has the meaning specified in Section 6(a).
"Subsidiary" means any corporation or other entity, whether domestic or foreign,
in which the Company has or obtains, directly or indirectly, a proprietary
interest of more than 50% by reason of stock ownership or otherwise.
3. ELIGIBILITY
Any Employee, Director or Consultant selected by the Committee is eligible to
receive an Award.
4. PLAN ADMINISTRATION
(a) This Plan shall be administered by the Committee. The Committee shall
periodically make determinations with respect to participation in this Plan and,
except as otherwise required by law or this Plan, the grant terms of Awards
including vesting schedules, price, performance standards (including Performance
Goals), length of relevant performance, restriction or option period, dividend
rights, post-retirement and termination rights, and such other terms and
conditions as the Committee deems appropriate. Except as otherwise required by
this Plan, the Committee shall have authority to interpret and construe the
provisions of this Plan and the Award Agreements and make determinations
pursuant to any Plan provision or Award Agreement, which determinations shall be
final and binding on all persons.
(b) The Committee, in its sole discretion and on such terms and conditions as it
may provide, may delegate all or any part of its authority and powers under this
Plan to one or more directors or officers of the Company; provided, however,
that the Committee may not delegate its authority and powers (i) with respect to
Reporting Persons, or (ii) in any way which would jeopardize this Plan's
qualification under Section 162(m) of the Code or Rule 16b-3 of the Exchange
Act.
(c) All determinations and decisions made by the Committee, the Board and any
delegate of the Committee pursuant to Section 4(b) shall be final, conclusive,
and binding on all persons, and shall be given the maximum deference permitted
by law.
5. STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
(a) The stock subject to the provisions of this Plan shall either be shares of
authorized but unissued Common Stock, shares of Common Stock held as treasury
stock or previously issued shares of Common Stock reacquired by the Company,
including shares purchased on the open market. Subject to adjustment in
accordance with the provisions of Section 10, the total number of shares of
Common Stock with respect to which Awards may be granted under this Plan may not
exceed 10,500,000 shares.
<PAGE>
(b) Subject to adjustment in accordance with Section 10, and subject to Section
5(a), the total number of shares of Common Stock with respect to which Stock
Options and Performance Stock Awards may be granted in any Plan Year to any
Participant shall not exceed 750,000 shares.
(c) For purposes of calculating the total number of shares of Common Stock
available for grants of Awards, the grant of an Award of Restricted Shares or a
Performance Stock Award shall be deemed to be equal to the maximum number of
shares of Common Stock which may be issued under the Award.
(d) Subject to Section 5(b), there shall again be available for Awards under
this Plan, all of the following: (i) shares of Common Stock represented by
Awards which have been canceled, forfeited, surrendered, terminated or expire
unexercised during preceding Plan Years; and (ii) the excess amount of variable
Awards which become fixed at less than their maximum limitations.
6. AWARDS UNDER THIS PLAN
Subject to the provisions of this Plan, the Committee shall have the sole and
complete authority to determine the Employees, Directors and Consultants to whom
Awards shall be granted and the type, terms and conditions of such Awards (which
need not be the same for each Participant). As the Committee may determine, the
following types of Awards may be granted under this Plan on a stand alone,
combination or tandem basis:
(a) Stock Option. A right to buy a specified number of shares of Common Stock at
a fixed exercise price during a specified time, and subject to such other terms
and conditions, all as the Committee may determine; provided that the exercise
price of any Stock Option shall not be less than 100% of the Fair Market Value
of the Common Stock on the date of grant of the Award.
(b) Incentive Stock Option. An award in the form of a Stock Option to an
Employee which shall comply with the requirements of Section 422 of the Code or
any successor Section as it may be amended from time to time.
(c) Restricted Shares. A transfer of shares of Common Stock to a Participant,
for such consideration and subject to such restrictions, if any, on transfer or
other incidents of ownership, for such periods of time (with respect to each
Award, a "Restriction Period") as the Committee may determine. The stock
certificate or certificates representing Restricted Shares shall be registered
in the name of the Participant to whom such Restricted Shares shall have been
awarded. During the Restriction Period, certificates representing the Restricted
Shares shall bear a restrictive legend to the effect that ownership of the
Restricted Shares, and the enjoyment of all rights appurtenant thereto, are
subject to the restrictions, terms and conditions provided in the Plan and the
applicable Award Agreement. Such certificates shall remain in the custody of the
Company and the Participant shall deposit with the Company stock powers or other
instruments of assignment, each endorsed in blank, so as to permit retransfer to
the Company of all or any portion of the Restricted Shares that shall be
forfeited or otherwise not become vested in accordance with the Plan and the
applicable Award Agreement.
Restricted Shares shall constitute issued and outstanding shares of Common Stock
for all corporate purposes. The Participant will have the right to vote such
Restricted Shares, to receive and retain all dividends and distributions paid or
distributed on such Restricted Shares, and to exercise all other rights, powers
and privileges of a holder of Common Stock with respect to such Restricted
Shares; except that (i) the Participant will not be entitled to delivery of the
stock certificate or certificates representing such Restricted Shares until the
Restriction Period shall have expired and unless all other vesting requirements
with respect thereto shall have been fulfilled or waived; (ii) the Company will
retain custody of the stock certificate or certificates representing the
Restricted Shares during the Restriction Period; (iii) any such dividends and
distributions paid in shares of Common Stock shall constitute Restricted Shares
and be subject to all of the same restrictions during the Restriction Period as
the Restricted Shares with respect to which they were paid; (iv) the Participant
may not sell, assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Shares or his or her interest in any of them during the Restriction
Period; and (v) a breach of any restrictions, terms
<PAGE>
or conditions provided in the Plan or established by the Committee with respect
to any Restricted Shares will cause a forfeiture of such Restricted Shares on
the terms and conditions established by the Committee.
(d) Performance Stock Awards. A right, granted to a Participant, to receive
Restricted Shares (as defined in Section 6(c) hereof) that are not to be issued
to the Participant until after the satisfaction of the Performance Goals during
a Performance Period.
7. PERFORMANCE STOCK AWARDS
(a) Administration. Performance Stock Awards may be granted to Participants
either alone or in addition to other Awards granted under this Plan. The
Committee shall determine the Participants to whom Performance Stock Awards
shall be awarded for any Performance Period, the duration of the applicable
Performance Period, the number of Restricted Shares to be awarded at the end of
a Performance Period to Participants if the Performance Goals are met or
exceeded (which Restricted Shares may, but need not, contain restrictions on
transfer or other incidents of ownership as permitted in Section 6(c)), and the
terms and conditions of the Performance Stock Award in addition to those
contained in this Section 7.
(b) Payment of Award. During or after the end of a Performance Period, the
financial performance of the Company during such Performance Period shall be
measured against the Performance Goals. If the Performance Goals are not met, no
Restricted Shares shall be issued pursuant to the Performance Stock Award. If
the Performance Goals are met or exceeded, the Committee shall certify that fact
in writing in the Committee minutes or elsewhere and certify the number of
Restricted Shares to be issued under each Performance Stock Award in accordance
with the related Award Agreement. The Committee may, in its sole discretion,
apply Negative Discretion to reduce the number of Restricted Shares to be issued
under a Performance Stock Award.
8. OTHER TERMS AND CONDITIONS
(a) Assignability. Except as otherwise determined by the Committee, no Stock
Option or Performance Stock Award shall be assignable or transferable except by
will or by the laws of descent and distribution and during the lifetime of a
Participant, Stock Options shall be exercisable only by such Participant.
(b) Award Agreement. Each Award under this Plan shall be evidenced by an Award
Agreement.
(c) Rights as a Shareholder. Except as otherwise provided in this Plan or in any
Award Agreement, a Participant shall have no rights as a shareholder with
respect to shares of Common Stock covered by an Award until the date the
Participant is the holder of record of such shares.
(d) No Obligation to Exercise. The grant of an Award shall impose no obligation
upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards for which
a payment is due from a Participant may be payable: (i) in U.S. dollars by
personal check, bank draft or money order payable to the order of the Company,
by money transfers or direct account debits; (ii) through the delivery or deemed
delivery based on attestation to the ownership of shares of Common Stock with a
Fair Market Value equal to the total payment due from the Participant; (iii) by
a combination of the methods described in (i) and (ii) above; or (iv) by such
other methods as the Committee may deem appropriate.
(f) Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require a Participant to remit to the Company, an amount sufficient
to satisfy federal, state and local taxes (including the Participant's FICA
obligation) required to be withheld with respect to an Award or any dividends or
other distributions payable with respect thereto. Subject to the requirements of
Rule 16b-3 of the Exchange Act, the Committee, in its
<PAGE>
sole discretion and pursuant to such procedures as it may specify from time to
time, may permit a Participant to satisfy such tax withholding obligation, in
whole or in part, by (i) electing to have the Company withhold otherwise
deliverable shares of Common Stock having a Fair Market Value not exceeding the
minimum amount required to be withheld, or (ii) delivering to the Company shares
of Common Stock then owned by the Participant. The amount of the withholding
obligation satisfied by shares of Common Stock withheld or delivered shall be
the Fair Market Value of such shares determined as of the date that the taxes
are required to be withheld.
(g) Restrictions on Sale and Exercise. If and to the extent required to comply
with rules promulgated under Section 16 of the Exchange Act, (i) no Award
providing for exercise, a vesting period, a Restriction Period or the attainment
of performance standards shall permit unrestricted ownership of shares of Common
Stock by the Participant for at least six months from the date of grant, and
(ii) shares of Common Stock acquired pursuant to an Award granted under this
Plan may not be sold or otherwise disposed of for at least six months after the
date of the grant of the Award.
(h) Requirements of Law. The granting of Awards and the issuance of shares of
Common Stock upon the exercise of Awards shall be subject to all applicable
requirements imposed by federal and state securities and other laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any stock
exchanges upon which the Common Stock may be listed. As a condition precedent to
the issuance of shares of Common Stock pursuant to the grant or exercise of an
Award, the Company may require the Participant to take any reasonable action to
meet such requirements.
(i) Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and
cash otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
(j) Unfunded Plan. Neither the Company nor any Subsidiary shall be required to
segregate any cash or any shares of Common Stock which may at any time be
represented by Awards and the Plan shall constitute an "unfunded" plan of the
Company. Neither the Company nor any Subsidiary shall, by any provisions of the
Plan, be deemed to be a trustee of any Common Stock or any other property, and
the liabilities of the Company and any Subsidiary to any Participant pursuant to
the Plan shall be those of a debtor pursuant to such contract obligations as are
created by or pursuant to the Plan, and the rights of any Participant or
beneficiary under the Plan shall be limited to those of a general creditor of
the Company or the applicable Subsidiary, as the case may be. In its sole
discretion, the Board may authorize the creation of trusts or other arrangements
to meet the obligations of the Company under the Plan, provided, however, that
the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
(k) Legends. In addition to any legend contemplated by Section 6(c), each
certificate evidencing Common Stock subject to an Award shall bear such legends
as the Committee deems necessary or appropriate to reflect or refer to any
terms, conditions or restrictions of the Award applicable to such shares,
including, without limitation, any to the effect that the shares represented
thereby may not be disposed of unless the Company has received an opinion of
counsel, acceptable to the Company, that such disposition will not violate any
federal or state securities laws.
(l) Company's Rights. The grant of Awards pursuant to the Plan shall not affect
in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
(m) Designation of Beneficiaries. If permitted by the Committee, a Participant
may designate a beneficiary or beneficiaries in the event of the death of the
Participant and may change such designation from time to time by filing a
written designation of beneficiary or beneficiaries with the Committee on a form
to be prescribed by it, provided that no such designation shall be effective
unless so filed prior to the death of such Participant.
<PAGE>
9. AMENDMENTS
(a) Except as otherwise provided in this Plan, the Board may at any time
terminate and, from time to time, may amend or modify this Plan. Any such action
of the Board may be taken without the approval of the Company's shareholders,
but only to the extent that such shareholder approval is not required by
applicable law or regulation, including specifically Rule 16b-3 under the
Exchange Act and Section 162(m) of the Code.
(b) No amendment, modification or termination of this Plan shall in any manner
adversely affect any Awards theretofore granted to a Participant under this Plan
without the consent of such Participant. No amendment or modification of this
Plan may change any Performance Goal, or increase the benefits payable for
achievement of a Performance Goal, once established for a Performance Stock
Award.
10.RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may be granted
to Participants, the number of shares thereof covered by each outstanding Award,
and the price per share thereof in each such Award, shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, stock dividend, combination or exchange of
shares, exchange for other securities, reclassification, reorganization,
redesignation, merger, consolidation, recapitalization or other such change. Any
such adjustment may provide for the elimination of fractional shares.
11.NO RIGHT TO EMPLOYMENT
No person shall have any claim or right to be granted an Award, and the grant of
an Award shall not be construed as giving a Participant the right to be retained
in the employ of the Company or a Subsidiary. Nothing in this Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or any
Subsidiary.
12.CHANGE OF CONTROL
(a) Notwithstanding anything contained in this Plan or any Award Agreement to
the contrary, in the event of a Change of Control, as defined below, the
following shall occur with respect to any and all Awards outstanding as of such
Change of Control:
(i) automatic lapse of all restrictions and acceleration of any time periods
relating to the exercise or vesting of Stock Options and Restricted Shares so
that such Awards become immediately exercisable (and shall remain exercisable
until the end of the original expiration period fixed in the Award Agreement) or
vested in full; and automatic satisfaction of Performance Goals on a pro rata
basis with respect to the maximum number of Restricted Shares issuable pursuant
to a Performance Stock Award, or on such other basis as set forth in the Award
Agreement, so that such pro rata or other portion of such Restricted Shares
becomes immediately vested; and
(ii) all Awards become non-cancellable.
(b) A "Change of Control" of the Company shall be deemed to have occurred upon
the happening of any of the following events:
(i) The acquisition by any Person of Beneficial Ownership of 20% or more of
either (x) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following
<PAGE>
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Person controlled by the Company, or (D) any
acquisition by any Person pursuant to a transaction which complies with clauses
(A), (B), and (C) of paragraph (iii) below; or
(ii) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the Effective Date whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company or the
acquisition of assets of another corporation (a "Business Combination"), in each
case, unless, following such Business Combination, (A) all of substantially all
of the individuals and entities who were the Beneficial Owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the Outstanding Company Common Stock
and the combined voting power of the Outstanding Company Voting Securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more, of, respectively, the Outstanding Company
Common Stock of the corporation resulting from such Business Combination or the
combined voting power of the Outstanding Company Voting Securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination, and (C) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
13.GOVERNING LAW
To the extent that federal laws do not otherwise control, this Plan shall be
construed in accordance with and governed by the law of the State of New York.
14.CAPTIONS
Captions are provided herein for convenience of reference only, and shall not
serve as a basis for interpretation or construction of this Plan.
15.RESERVATION OF SHARES
The Company, during the term of the Plan, will at all times reserve and keep
available the number of shares of Common Stock as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain the
necessary approvals from any regulatory body having jurisdiction or approval
deemed necessary by the Company's
<PAGE>
counsel to the lawful issuance and sale of any shares of Common Stock under the
Plan shall relieve the Company of any liability in respect of the nonissuance or
sale of such shares of Common Stock as to which such requisite authority shall
not have been obtained.
16.SAVINGS CLAUSE
This Plan is intended to comply in all respects with applicable law and
regulation, including, with respect to those Participants who are Reporting
Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable in any
respect under applicable law and regulation (including Rule 16b-3), the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by law, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan to
be construed in compliance with all applicable laws (including Rule 16b-3) so as
to foster the intent of this Plan. Notwithstanding anything in this Plan to the
contrary, the Committee, in its sole and absolute discretion, may bifurcate this
Plan so as to restrict, limit or condition the use of any provision of this Plan
to Participants who are Reporting Persons without so restricting, limiting or
conditioning this Plan with respect to other Participants. All Awards of Stock
Options and Performance Stock Awards are intended to comply with Section 162(m)
of the Code.
17.EFFECTIVE DATE AND TERM
The effective date (the "Effective Date") of this Plan shall be the date of its
approval by the Company's shareholders. If such approval is not obtained on or
before December 31, 1999, this Plan shall terminate on such date. No new Awards
shall be granted under this Plan after the tenth anniversary of the Effective
Date. Unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award granted hereunder may, and the authority of the Board or
the Committee under this Plan shall, continue after the authority for grant of
new Awards hereunder has been exhausted.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Income, Balance Sheet and Statement of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,045,251
<OTHER-PROPERTY-AND-INVEST> 308,578
<TOTAL-CURRENT-ASSETS> 1,089,976
<TOTAL-DEFERRED-CHARGES> 941,373
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,385,178
<COMMON> 1,402
<CAPITAL-SURPLUS-PAID-IN> 2,425,538
<RETAINED-EARNINGS> 501,025
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,927,965
363,000
84,485
<LONG-TERM-DEBT-NET> 1,637,491
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,371,237
<TOT-CAPITALIZATION-AND-LIAB> 6,385,178
<GROSS-OPERATING-REVENUE> 539,362
<INCOME-TAX-EXPENSE> 10,380
<OTHER-OPERATING-EXPENSES> 477,785
<TOTAL-OPERATING-EXPENSES> 488,165
<OPERATING-INCOME-LOSS> 51,197
<OTHER-INCOME-NET> 5,548
<INCOME-BEFORE-INTEREST-EXPEN> 56,745
<TOTAL-INTEREST-EXPENSE> 33,756
<NET-INCOME> 22,989
8,690
<EARNINGS-AVAILABLE-FOR-COMM> 14,299
<COMMON-STOCK-DIVIDENDS> 63,323
<TOTAL-INTEREST-ON-BONDS> 34,290
<CASH-FLOW-OPERATIONS> 199,049
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
