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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
REGISTRATION NO. 333-81601
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EAST COAST POWER L.L.C.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4911 52-2143667
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
JOSEPH M. BOLLINGER
711 LOUISIANA STREET 711 LOUISIANA STREET
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 853-6161 (713) 345-9722
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including telephone number
area code, of registrant's principal
executive offices) including area code, of agent for service)
</TABLE>
Copies to:
KEITH R. FULLENWEIDER
VINSON & ELKINS L.L.P.
1001 FANNIN, SUITE 2300
HOUSTON, TEXAS 77002-6760
(713) 758-2222
(713) 758-2346 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
COMPANY MAY NOT EXCHANGE THE NOTES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THE NEW NOTES AND IT IS NOT SOLICITING AN OFFER TO
BUY THE NEW NOTES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1999
$829,937,120
[EAST COAST POWER L.L.C.]
Offer to Exchange
6.737% Series B Senior Secured Notes due 2008
7.066% Series B Senior Secured Notes due 2012
7.536% Series B Senior Secured Notes due 2017
For All Outstanding
6.737% Series A Senior Secured Notes due 2008
7.066% Series A Senior Secured Notes due 2012
7.536% Series A Senior Secured Notes due 2017
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THE NEW NOTES:
- - Terms: The new notes will be freely tradeable and otherwise substantially
identical to the outstanding notes.
- - Listing: The new notes will not be listed on any security exchange or on any
automated dealer quotation system.
THE EXCHANGE OFFER:
- - Expiration: Midnight, New York City time, on January 13, 2000, unless
otherwise extended. The exchange offer will not be extended beyond February
11, 2000.
- - Conditions: The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding notes being tendered.
- - Tendered Notes: All outstanding notes that are validly tendered and not
validly withdrawn will be exchanged for an equal principal amount of new notes
of the same maturity date that are registered under the Securities Act of
1933.
- - Withdrawal: Tenders of outstanding notes may be withdrawn at any time prior to
the expiration of the exchange offer.
- - Tax Consequences: The exchange of outstanding notes for new notes will not be
a taxable event for U.S. federal income tax purposes.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is December 15, 1999.
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This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. You should rely only on the information or
representations provided in this prospectus. We have not authorized any person
to provide information other than that provided in this prospectus. We have not
authorized anyone to provide you with different information. We are not making
an offer of these securities in any jurisdiction where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.
---------------------
The new notes may not be offered or sold in or into the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses (or in other circumstances that do not constitute an offer to
the public in the United Kingdom for the purposes of the Public Offers of
Securities Regulations 1995), and this prospectus may only be issued or passed
on to persons in the United Kingdom if such persons are of a kind described in
article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or if such persons are persons to whom this prospectus
may otherwise lawfully be issued or passed on.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE DIRECTORS OF THE OFFICE OF SECURITIES REGULATION THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE DIRECTORS OF THE OFFICE OF SECURITIES
REGULATION HAVE PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE INVESTOR, CUSTOMER OR
CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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PROSPECTUS SUMMARY
This prospectus summary highlights selected information from this
prospectus but does not contain all of the information that is important to you.
To understand all of the terms of the exchange offer and to attain a more
complete understanding of our business and financial situation, you should read
carefully this entire prospectus. The term "outstanding notes" refers to our
Series A senior secured notes due 2008, 2012 and 2017 that we issued on April
20, 1999. The term "new notes" refers to the Series B senior secured notes
offered in the exchange offer. The term "notes" refers to both the outstanding
notes and the new notes. For an explanation of certain technical terms used in
this prospectus, see "Glossary of Technical Terms."
THE EXCHANGE OFFER
On April 20, 1999, we completed the private offering of the outstanding
notes.
We entered into a registration rights agreement with the initial purchasers
in the private offering in which we agreed to deliver to you this prospectus and
to complete the exchange offer within 270 days after the date we issued the
outstanding notes. You are entitled to exchange in the exchange offer your
outstanding notes for new notes with substantially identical terms.
You should read the discussion under the headings "-- Terms of the New
Notes" and "Description of the New Notes" for further information regarding the
new notes.
We summarize the terms of the exchange offer below. You should read the
discussion under the heading "The Exchange Offer" for further information
regarding the exchange offer and resale of the new notes.
The Exchange Offer.....
As of the date of this prospectus, $833,939,040 aggregate
principal amount of the notes are outstanding. On December
31, 1999, we will make a payment of principal in the
amount of $4,001,920 on the 2008 notes, reducing the
aggregate principal amount of the outstanding notes to
$829,937,120. We are offering to exchange up to
$829,937,120 aggregate principal amount of new notes for
up to $829,937,120 aggregate principal amount of
outstanding notes. Outstanding notes may be exchanged only
for new notes of the same maturity date and only in
integral multiples of $1,000 (except for the 2008 notes,
the exchange of which will reflect partial payments of
principal on June 30, 1999, September 30, 1999 and
December 31, 1999).
Expiration Date........
The exchange offer will expire at midnight, New York City
time, on January 13, 2000, or such later date and time to
which we extend it. We will not extend the exchange offer
beyond February 11, 2000.
Withdrawal of
Tenders................
You may withdraw your tender of outstanding notes at any
time prior to the expiration date. We will return to you,
without charge, promptly after the expiration or
termination of the exchange offer any outstanding notes
that you tendered but that were not accepted for exchange.
Conditions to the
Exchange Offer.........
We will not be required to accept outstanding notes for
exchange if the exchange would violate applicable law or
any legal action has been instituted or threatened that
would impair our ability to proceed with the exchange
offer. The exchange offer is not conditioned upon any
minimum aggregate principal amount of outstanding notes
being tendered. Please read the section "The Exchange
Offer -- Conditions to the Exchange Offer" for more
information regarding the conditions to the exchange
offer.
Procedures for
Tendering Outstanding
Notes..................
If your outstanding notes are held through The Depository
Trust Company and you wish to participate in the exchange
offer, you may do so through the automated tender offer
program of The Depository Trust Company. If you tender
under this program, you will agree to be bound by the
letter of transmittal that we
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are providing with this prospectus as though you had
signed the letter of transmittal. By signing or agreeing
to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any new notes that you receive will be acquired in the
ordinary course of your business;
- you have no arrangement or understanding with any person
or entity to participate in the distribution of the new
notes;
- you are not engaged in and do not intend to engage in
the distribution of the new notes;
- if you are a broker-dealer that will receive new notes
for your own account in exchange for outstanding notes,
you acquired those notes as a result of market-making
activities or other trading activities and you will
deliver a prospectus, as required by law, in connection
with any resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of
the Securities Act.
Special Procedures for
Beneficial Owners......
If you own a beneficial interest in outstanding notes that
are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, and you wish to
tender the outstanding notes in the exchange offer, you
should contact the registered holder promptly and instruct
the registered holder to tender on your behalf.
Guaranteed Delivery
Procedures.............
If you wish to tender your outstanding notes and cannot
comply, prior to the expiration date, with the applicable
procedures under the automated tender offer program of The
Depository Trust Company, you must tender your outstanding
notes according to the guaranteed delivery procedures
described in "The Exchange Offer -- Guaranteed Delivery
Procedures."
U.S. Federal Income Tax
Considerations.........
The exchange of outstanding notes for new notes in the
exchange offer will not be a taxable event for U.S.
federal income tax purposes. Please read "United States
Federal Income Tax Considerations."
Use of Proceeds........
We will not receive any cash proceeds from the issuance of
new notes.
THE EXCHANGE AGENT
We have appointed The Bank of New York as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows: The Bank of New York, Reorganization Section, 101 Barclay St., Floor
7E, New York, New York 10286, attention: Gertrude Jean-Pierre. Eligible
institutions may make requests by facsimile at (212) 815-6339, attention:
Gertrude Jean-Pierre.
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TERMS OF THE NEW NOTES
The new notes will be freely tradeable and otherwise substantially
identical to the outstanding notes. The new notes will not have registration
rights or provisions for additional interest. The new notes will evidence the
same debt as the outstanding notes, and the outstanding notes and the new notes
will be governed by the same indenture.
SECURITIES OFFERED.....
$275,937,120 aggregate principal amount of 6.737% Series B
Senior Secured Notes due 2008
$236,000,000 aggregate principal amount of 7.066% Series B
Senior Secured Notes due 2012
$318,000,000 aggregate principal amount of 7.536% Series B
Senior Secured Notes due 2017
MATURITY DATES.........
2008 new notes: March 31, 2008
2012 new notes: March 31, 2012
2017 new notes: June 30, 2017
PAYMENT DATES..........
March 31, June 30, September 30, and December 31,
beginning March 31, 2000
AVERAGE LIFE...........
2008 new notes: 5.4 years
2012 new notes: 11.0 years
2017 new notes: 15.8 years
RATINGS................
"Baa3" by Moody's Investors Service, "BBB-" by Standard &
Poor's Ratings Services and "BBB-" by Duff & Phelps Credit
Rating Co.
RANKING................
The new notes:
- are senior secured obligations;
- rank senior to all our existing and future subordinated
indebtedness;
- rank pari passu in right of payment with all our
existing and future senior secured indebtedness; and
- are structurally subordinated to all indebtedness and
other liabilities, including trade payables, of our
subsidiaries and are structurally subordinated to the
distribution rights of minority partners in our power
plants.
As of September 30, 1999, our subsidiaries had
approximately $340.8 million of indebtedness outstanding.
COLLATERAL.............
The new notes will be secured by:
- the pledge by our owners of all of their interests in
our company;
- the pledge by us of our interests in certain of our
subsidiaries which indirectly own our interests in the
facilities; and
- the pledge of a $289.6 million intercompany subordinated
note payable by Linden Ltd.
OPTIONAL REDEMPTION....
We may redeem any of the new notes at any time at a
redemption price equal to:
- 100% of the principal amount of the new notes redeemed,
plus
- accrued interest on the new notes redeemed, plus
- a make-whole premium based on rates of comparable
treasury securities, plus 50 basis points.
MANDATORY REDEMPTION...
In the event of a governmental taking or other event of
loss (as defined in "Description of the New Notes") at one
of our facilities, we must use any proceeds actually
received by us in excess of $5.0 million that are not used
to
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repair or replace such facility, to redeem as many new
notes as possible. In such event, the redemption price for
the new notes will be 100% of the principal amount of the
new notes redeemed plus accrued interest.
We must redeem all of the new notes without premium in the
event that a power contract buyout (as defined in
"Description of the New Notes") occurs, resulting in one
or more of the owners of our facilities receiving net
buyout proceeds (as defined in "Description of the New
Notes") in excess of $25.0 million. In such an event, the
redemption price for the new notes will be 100% of the
principal amount of the new notes plus accrued interest.
We may not have sufficient funds available at the time of
any power contact buyout to purchase all of the new notes.
We will not be required to redeem any of the new notes
upon the occurrence of an event of loss or power contract
buyout to the extent that we receive confirmation of the
initial ratings of the notes. We may redeem a portion of
the new notes in order to obtain such confirmation.
CHANGE OF CONTROL......
If Enron, in combination with institutional investors,
ceases to beneficially own a majority of the voting
securities in our company, then, unless we receive
confirmation of the initial ratings of the notes or the
holders of 66 2/3% of the new notes and any additional
notes issued under the indenture approve the change in
ownership, we must offer to purchase all of the new notes
at a purchase price equal to 101% of the principal amount
of the new notes plus accrued interest. We may not have
sufficient funds available at the time of any change of
control to purchase all of the new notes.
DEBT SERVICE RESERVE
ACCOUNT..............
We will be required to maintain a debt service reserve
account funded with enough money to pay principal and
interest due on the new notes on the next two payment
dates. We do not have to fund this account if we provide
acceptable debt service credit support, which may be
either an Enron undertaking or an acceptable letter of
credit. The trustee will disburse funds from this account
or call upon the debt service credit support if we have
failed to provide sufficient funds to pay principal and
interest three business days prior to the payment date. If
the debt service reserve account has excess reserves, the
trustee may, upon our request, pay us the excess amount.
COVENANTS..............
The terms of the new notes will restrict our ability and
the ability of our subsidiaries to:
- incur additional debt;
- incur liens on our property;
- consolidate or merge or sell assets;
- enter into certain transactions with affiliates; and
- take or fail to take certain actions with respect to the
project documents relating to our facilities.
These limitations are subject to a number of important
qualifications and exceptions which are described in
"Description of the New Notes."
RIGHTS UNDER
REGISTRATION RIGHTS
AGREEMENT............
If we fail to complete the exchange offer as required by
the registration rights agreement, we will be obligated to
pay additional interest to holders of the outstanding
notes.
Please read "The Exchange Offer" for more information
regarding your rights as a holder of outstanding notes.
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RISK FACTORS
You should carefully consider "Risk Factors" beginning on page 8 before
participating in the exchange offer. The following is a summary of the most
significant risks relating to an investment in the notes:
- If you fail to exchange your outstanding notes, the existing transfer
restrictions will remain in effect and the market price of your
outstanding notes may be adversely affected.
- We are dependent on our subsidiaries to generate cash flow to service our
debt, and your right to receive payments on the new notes is junior to
the payment rights of creditors of our subsidiaries and distribution
rights of our minority partners in certain of our subsidiaries.
- Our subsidiaries' debt and partnership agreements limit the trustee's
ability to foreclose on the collateral that secures the new notes and on
your ability to realize value from the collateral.
- We depend on a small number of customers and contracts to provide all of
our revenues. If any of our customers is able to amend or terminate its
agreement with us, our revenues, and therefore our ability to make
payments on the new notes could be materially and adversely affected.
- The operation of our facilities involves risks, including equipment
breakdowns, fuel interruptions, underperformance and catastrophic events.
- We and our subsidiaries may incur additional debt, which could adversely
affect you by diluting the value of the collateral to you and by
diverting our cash flow to the payment of additional debt.
- Our business is subject to substantial regulations and permitting
requirements and may be adversely affected by changes in these
regulations or requirements.
- Our revenues may be adversely affected by fuel cost increases and
unavailability of fuel.
- There are risks associated with the Year 2000 computer problem which
could adversely affect the operations of our facilities or those of our
customers or suppliers.
- There is no public market for the new notes, and we do not intend to list
them on any securities exchange or automated quotation system.
OUR COMPANY
We indirectly own equity interests in three combined-cycle natural gas
cogeneration power plants. The power plants are located in Linden, Camden and
Bayonne, New Jersey. A cogeneration power plant is one that uses a single energy
source to produce two or more forms of energy output. Our facilities burn
natural gas to produce both electricity and steam.
We acquired our equity interests in the facilities from the Cogen
Technologies group in February 1999. In this prospectus, we refer to the
acquisition of our interests in these facilities as "the acquisition." Our
activities are limited to the ownership, operation and potential expansion of
our facilities.
We are owned by Enron Corp., the California Public Employees' Retirement
System, El Paso Energy Corporation and Donaldson, Lufkin & Jenrette Securities
Corporation. Enron and CalPERS hold a portion of their interests through Joint
Energy Development Investments II Limited Partnership ("JEDI II"). The general
partner of JEDI II is an indirect wholly owned subsidiary of Enron. The limited
partners of JEDI II are CalPERS and an indirect wholly owned subsidiary of
Enron. El Paso Energy and DLJ hold their interests through Mesquite Investors,
L.L.C. Our officers and employees, who include former officers and employees of
the Cogen Technologies group, manage the day-to-day operations of our company.
Our principal executive offices are located at 711 Louisiana Street,
Houston, Texas 77002. Our telephone number is (713) 853-6161.
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INVESTMENT HIGHLIGHTS
We believe that the combination of our facilities' long-term power purchase
agreements and their location in the key New York City and Pennsylvania-New
Jersey-Maryland power markets makes the notes an attractive investment. Some of
the investment highlights are as follows:
- Power Purchase Agreements -- Each of our facilities has committed its
generating capacity under long-term power purchase agreements with
investment-grade investor-owned utilities as follows:
- Linden -- 645 megawatts through 2017;
- Camden -- 143 megawatts through 2013; and
- Bayonne -- 165 megawatts through 2008.
We believe that our power purchase agreements will provide us with stable
cash flow for three reasons:
- our power purchase agreements are based on fixed-price components for
electricity and capacity, with fuel costs generally passed through to
our power purchasers;
- the current regulatory environment and legal precedent in New York and
New Jersey confirm the sanctity of contracts between independent power
producers and investor-owned utilities and the recovery by such
utilities of costs associated with these contracts; and
- prices under our power purchase agreements are consistently lower than
our power purchasers' cost of generation or do not significantly
impact their overall cost of power supply.
- Gas Transportation and Marketing Synergies -- A primary variable in the
financial performance of our facilities will be the management of fuel
costs and transportation service. As the largest marketer of natural gas
in the United States, Enron is well positioned to help in optimizing the
fuel transportation and supply arrangements for our facilities. Any fuel
management services will be provided on an arm's-length basis.
- Quality and Reliability of Service -- All of our facilities burn natural
gas and operate with modern technology, which gives us a cost advantage
over much of the generation capacity in the region. During 1998, our
facilities' weighted average heat rate, based on total electrical output,
was 9,354 Btu/KWh. In addition, our facilities have strong operating
histories, with average availability factors of at least 93% over the
last five years.
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STRUCTURE AND OWNERSHIP
The following chart depicts the summary structure of our ownership
interests in the facilities and our subsidiaries:
Organizational Chart
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RISK FACTORS
An investment in the new notes involves a significant degree of risk,
including the risks described below. You should carefully consider the following
risk factors and other information in this prospectus before making an
investment decision.
IF YOU FAIL TO EXCHANGE YOUR OUTSTANDING NOTES, THE EXISTING TRANSFER
RESTRICTIONS WILL REMAIN IN EFFECT AND THE MARKET PRICE OF YOUR OUTSTANDING
NOTES MAY BE ADVERSELY AFFECTED.
If you do not exchange your outstanding notes for new notes under the
exchange offer, then you will continue to be subject to the existing transfer
restrictions on the outstanding notes. In general, the outstanding notes may not
be offered or sold unless they are registered or exempt from registration under
the Securities Act and applicable state securities laws. Except as required by
the registration rights agreement, we do not intend to register resales of the
outstanding notes. You should refer to "Prospectus Summary -- The Exchange
Offer" and "The Exchange Offer" for information about how to tender your
outstanding notes.
The tender of outstanding notes under the exchange offer will reduce the
principal amount of the outstanding notes outstanding. This may have an adverse
effect upon, and increase the volatility of, the market price of any outstanding
notes that you continue to hold due to a reduction in liquidity.
WE ARE DEPENDENT ON OUR SUBSIDIARIES TO GENERATE CASH FLOW TO SERVICE OUR DEBT,
AND YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS JUNIOR TO THE PAYMENT
RIGHTS OF CREDITORS OF OUR SUBSIDIARIES AND DISTRIBUTION RIGHTS OF OUR MINORITY
PARTNERS IN CERTAIN OF OUR SUBSIDIARIES.
Our subsidiaries conduct all of our operations and own all of our assets.
As a result, our ability to make required payments on the new notes and our
other debt depends on the performance of the power plants in which our
subsidiaries own interests and our subsidiaries' ability to distribute funds to
us. Our subsidiaries will have no obligation to pay any amounts due on the new
notes, and none of our subsidiaries will guarantee the payment of the new notes.
No other entity besides us, including JEDI II, East Coast Power Holding Company
L.L.C., Enron, CalPERS, Mesquite Investors, El Paso Energy and DLJ, will have
any obligation to pay or guarantee payment of the new notes.
The rights of holders of the new notes will be structurally subordinated to
the rights of our subsidiaries' lenders and our minority partners. A default by
a subsidiary under its debt obligations or the occurrence of a special event
under a partnership agreement (in the case of Linden or Camden) would result in
a block on distributions from the affected subsidiary to us.
The loan agreements entered into by our subsidiaries in connection with the
development, construction and operation of the facilities restrict our
subsidiaries' ability to pay dividends, make distributions or otherwise transfer
funds to us. These loan agreements generally require that, before paying
dividends or making distributions or other transfers, our subsidiaries must pay
other obligations, such as operating expenses, taxes and debt service, and fund
reserve accounts relating to their debt. As of September 30, 1999, our
subsidiaries had $340.8 million of indebtedness outstanding. Our subsidiaries
may incur up to $250 million of additional debt. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of the New Notes -- Certain
Covenants -- Limitation on Indebtedness of Our Subsidiaries."
In addition, the minority partners in our subsidiaries that own the Linden
and Camden facilities receive a portion of the distributable cash from those
power plants before we receive any distributable cash. Upon the occurrence of
certain special events, our minority partners in Linden and Camden may remove
our subsidiary as managing general partner, alter the allocation of cash
distributions and prohibit cash distributions to us. Either of these occurrences
would have a material adverse effect on our ability to pay the new notes and our
other debt. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Linden Structure,
Indebtedness and Cash Distributions" and "-- Camden Structure, Indebtedness and
Cash Distributions."
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OUR SUBSIDIARIES' DEBT AND PARTNERSHIP AGREEMENTS LIMIT THE TRUSTEE'S ABILITY TO
FORECLOSE ON THE COLLATERAL THAT SECURES THE NEW NOTES AND ON YOUR ABILITY TO
REALIZE VALUE FROM THE COLLATERAL.
We cannot assure you that if we default on the new notes, the exercise of
the legal remedies provided in the indenture, including foreclosure on the
pledged interests, will provide sufficient funds to repay amounts due on the new
notes and our other debt. In the event of the bankruptcy, insolvency,
liquidation or reorganization of any of our subsidiaries, any creditors of the
subsidiary (including trade creditors) will be entitled to payment in full from
the assets of the subsidiary before we would be entitled to receive any
distributions from the subsidiary. The ability of the trustee to realize value
upon a foreclosure of the collateral for the new notes is structurally
subordinated to our subsidiaries' creditors and minority partners. If any of our
subsidiaries defaults under its debt, its lenders could accelerate the repayment
of the debt and foreclose on any collateral that secures it.
WE DEPEND ON A SMALL NUMBER OF CUSTOMERS AND CONTRACTS TO PROVIDE ALL OF OUR
REVENUES. IF ANY OF OUR CUSTOMERS IS ABLE TO AMEND OR TERMINATE ITS AGREEMENT
WITH US, OUR REVENUES, AND THEREFORE OUR ABILITY TO MAKE PAYMENTS ON THE NEW
NOTES, COULD BE MATERIALLY AND ADVERSELY AFFECTED.
Our facilities' revenues and, therefore, our cash distributions depend
primarily upon payments received from power purchasers and, to a lesser extent,
steam customers. During 1998, our power purchasers accounted for approximately
97% of the total revenues from our facilities. Con Ed accounted for
approximately 57% of total revenues, and Public Service Electric and Gas Company
of New Jersey and Jersey Central Power & Light Company each accounted for
approximately 20% of total revenues. The loss of any power purchase agreement or
the material failure of any customer to fulfill its obligations could adversely
affect the distributions we receive and, therefore, our ability to pay the new
notes and our other debt.
Any of our power purchasers might attempt to amend or terminate its power
purchase agreement with us if the rates it pays for power exceed market rates or
its actual avoided cost for the power purchased or if it is subject to
financial, regulatory or other pressures or if we default on our obligations
under such agreements. However, our power purchase agreements generally do not
permit amendments or early termination without the consent of our subsidiary
that owns the power plant. Our subsidiaries' existing indebtedness and the
applicable partnership agreements prohibit consents to amendment or early
termination without the consent of their lenders and other parties. In addition,
existing Federal Energy Regulatory Commission ("FERC") and appellate court
precedent protect qualifying facility power purchase agreements from unilateral
amendment or termination and from regulatory modification. Nevertheless, it is
possible that a court or regulatory authority could order an amendment to or
early termination of any of our power purchase agreements following a change in
the relevant legislation, case law or regulations. Such an amendment or
termination could materially and adversely affect the revenues of the particular
facility and, consequently, our ability to pay the new notes.
THE OPERATION OF OUR FACILITIES INVOLVES RISKS, INCLUDING EQUIPMENT BREAKDOWNS,
FUEL INTERRUPTIONS, UNDERPERFORMANCE AND CATASTROPHIC EVENTS.
The operation of power generation and steam production facilities involves
many operating risks, including:
- breakdown or failure of power generation equipment, transmission lines,
pipelines or other necessary equipment or processes;
- interruptions in fuel supply;
- performance below expected levels of output or efficiency; and
- operator error or catastrophic events such as fires, explosions,
earthquakes and floods, which could result in personal injury, loss of
life, severe damage or destruction of the power plant, pollution or
environmental damage and suspension of operations.
While our power plants have strong operating histories with average availability
factors of at least 93%, they have experienced occasional equipment breakdowns
or failures. We can not assure you that future occurrences
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of the events listed above would not significantly decrease or eliminate the
revenues from the affected power plant or significantly increase the costs of
operating the power plant. Any of the events listed above could therefore reduce
or eliminate the funds available for the payment of indebtedness related to the
affected power plant and for distribution to us and payment of the new notes. An
extended unavailability of the capacity resulting from such events may entitle
the purchaser under existing power purchase or steam sales agreements for the
affected power plant to terminate its agreements. In addition, occurrence of
these events could lead to a default under the indebtedness related to the
affected power plant, which could result in us losing our interest in the
affected power plant.
Although we have insurance to protect against some of these risks, the
insurance proceeds may not be adequate to cover lost revenues, increased
expenses or other costs related to the occurrence of the events described above.
Further, we can not assure you that the insurance that we currently have will be
available in the future at commercially reasonable rates.
WE AND OUR SUBSIDIARIES MAY INCUR ADDITIONAL DEBT WHICH COULD ADVERSELY AFFECT
YOU BY DILUTING THE VALUE OF THE COLLATERAL TO YOU AND BY DIVERTING OUR CASH
FLOW TO THE PAYMENT OF ADDITIONAL DEBT.
We may incur additional debt, including additional series of new notes, to
pay for certain capital improvements and expansions of our facilities and to
refinance existing indebtedness. Certain types of this permitted indebtedness
may rank equally with the new notes and share ratably in the collateral which
secures the new notes. This would reduce the benefits of the collateral to you
and your ability to control certain actions taken with respect to the
collateral.
In addition, if certain conditions are met, our subsidiaries may incur up
to an additional $250 million of debt for project expansions, capital
improvements or working capital. This additional debt could result in the
dedication of more of our or our subsidiaries' cash flow to the payment of debt
obligations and exacerbate the other risks described. See "Description of the
New Notes -- Issuance of Additional Notes" and "-- Certain Covenants."
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL REGULATIONS AND PERMITTING REQUIREMENTS
AND MAY BE ADVERSELY AFFECTED BY CHANGES IN THESE REGULATIONS OR REQUIREMENTS.
Our business is subject to extensive energy, environmental and other laws
and regulations at the federal, state and local level affecting many aspects of
our operations. Such laws and regulations generally require the facilities to
obtain and comply with a wide variety of licenses, permits and other approvals.
Our business is also subject to certain laws and regulations which private
individuals may seek to enforce. The U.S. Congress is considering proposals
relating to retail electricity competition and related matters which involve a
fundamental restructuring of the electric power industry. Some states have
already provided for retail competition and the unbundling of the generation,
transmission and distribution businesses within their states. Regulatory
initiatives are well under way in New York and New Jersey that could have
implications for our power purchasers and our relationships with them. We expect
the laws and regulations applicable to our business and the electric power
industry generally to be in a state of transition for the foreseeable future.
Accordingly, we cannot assure you that such laws or regulations will not be
changed or reinterpreted or that new laws or regulations will not be adopted
which could have a material adverse effect on our business and, therefore, our
ability to make payments on the new notes.
We cannot assure you that any of our power plants will comply at all times
with all conditions established by existing permits and approvals or that we
will be able to renew or maintain all permits and approvals required to operate
our power plants. Our failure to renew or maintain any required permits or
approvals or our inability to satisfy any requirement of any permits may result
in increased compliance costs, the need for additional capital expenditures or a
suspension of facility operations. In addition, our facilities are subject to
extensive environmental laws and regulations. It may be costly to comply with
changes or reinterpretations of these laws and regulations if they become more
stringent than they currently are. See "Regulation."
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OUR REVENUES MAY BE ADVERSELY AFFECTED BY FUEL COST INCREASES AND UNAVAILABILITY
OF FUEL.
In order to minimize exposure to fuel price risk, we seek to match our fuel
costs with the fuel component included in our power purchase agreements. Because
our facilities do not have long-term gas supply contracts, we can not assure you
that gas supplies will be available at all times during the terms of our
facilities' power purchase agreements. We also can not assure you that our fuel
costs will not be higher than the fuel component provisions of our power
purchase agreements. If fuel is not available or if our fuel costs are higher
than the fuel component provisions of our power purchase agreements, there could
be a material adverse impact on a facility's cash flow and ability to service
its debt and on distributions to us and our ability to make payments under the
new notes and our other debt. Our Linden facility has incurred fuel costs in
excess of its fuel reimbursement component in its power purchase agreement in
four of the last six years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Power Purchase Agreements."
THERE ARE RISKS ASSOCIATED WITH THE YEAR 2000 COMPUTER PROBLEM WHICH COULD
ADVERSELY AFFECT THE OPERATIONS OF OUR FACILITIES OR THOSE OF OUR CUSTOMERS OR
SUPPLIERS.
Many existing computer systems use only two digits to identify a year in
the date field. These systems were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. We believe that we will be able to achieve substantial Year 2000 readiness
with respect to the mission critical systems that we control. However, we can
not assure you that all of our systems and any systems of third parties on whom
we rely will be adequately remediated so that they are Year 2000 ready by
January 1, 2000. If there are mission-critical Year 2000-related failures that
create substantial disruptions to our business, the adverse impact on our
business could be material. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000."
THERE IS NO PUBLIC MARKET FOR THE NEW NOTES, AND WE DO NOT INTEND TO LIST THEM
ON ANY SECURITIES EXCHANGE OR AUTOMATED QUOTATION SYSTEM.
There is no existing market for the new notes. We cannot provide any
assurance about:
- the liquidity of any markets that may develop for the new notes;
- your ability to sell your new notes; or
- the prices at which you will be able to sell your new notes.
Future trading prices of the new notes will depend on many factors, including
prevailing interest rates, our operating results, the ratings of new notes, and
the market for similar securities. The initial purchasers of the outstanding
notes have advised us that they presently intend to make a market in the new
notes after completion of the exchange offer. However, those purchasers do not
have any obligation to do so and they may discontinue any market-making
activities at any time without any notice.
We do not intend to apply for listing of the new notes on any securities
exchange or for quotation of the new notes in any automated dealer quotation
system.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the outstanding notes, we entered into a
registration rights agreement. Under the registration rights agreement, we
agreed to:
- use our reasonable best efforts to file a registration statement with the
SEC for an exchange of the new notes for the outstanding notes under the
Securities Act and to keep such registration statement effective until
the closing of such exchange offer;
- use our reasonable best efforts to cause the exchange offer to be
consummated within 270 days following the original issuance of the
outstanding notes;
- keep the exchange offer open for acceptance for a period of not less than
30 calendar days after the date notice thereof is mailed to holders of
the outstanding notes, or longer if required by applicable law; and
- accept for exchange all outstanding notes duly tendered and not validly
withdrawn in the exchange offer in accordance with the terms of the
exchange offer registration statement and letter of transmittal.
As soon as practicable after the exchange offer registration statement
becomes effective, we will offer the holders of outstanding notes who are not
prohibited by any law from participating in this exchange offer the opportunity
to exchange their outstanding notes for new notes registered under the
Securities Act that are substantially identical to the outstanding notes, except
that the new notes will not contain terms with respect to transfer restrictions,
registration rights and additional interest.
Under limited circumstances, we will use our reasonable best efforts to
cause the Securities and Exchange Commission to declare effective a shelf
registration statement with respect to the resale of the outstanding notes and
keep the statement effective for up to two years after the effective date of the
shelf registration statement. These circumstances include:
- if any changes in law or their interpretations by the staff of the SEC do
not permit us to effect the exchange offer as contemplated by the
registration rights agreement;
- if the exchange offer is not consummated within 270 days after April 20,
1999 (unless the exchange offer has commenced, in which case if the
exchange offer is not consummated within 90 days after the date on which
the exchange offer commenced);
- if any initial purchaser of the outstanding notes so requests with
respect to outstanding notes held by it within 150 days following
consummation of the exchange offer;
- if any holder of the outstanding notes (other than an initial purchaser)
notifies us that it is not permitted to participate in the exchange offer
or has participated in the exchange offer and has received new notes that
are not freely tradeable; and
- if the initial purchasers do not receive freely tradeable new notes in
exchange for outstanding notes constituting any portion of an unsold
allotment.
Additional interest will accrue on the notes at a rate of 0.5% per annum in
the following circumstances:
- the exchange offer registration statement is not filed with the SEC on or
prior to the 90th calendar day following April 20, 1999;
- the exchange offer registration statement is not declared effective on or
prior to the 240th calendar day following April 20, 1999 or the exchange
offer is not consummated on or prior to the 270th calendar day following
April 20, 1999; or
- a shelf registration statement is not declared effective when required.
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<PAGE> 16
Upon the filing of the exchange offer registration statement, the effectiveness
of the exchange offer registration statement, the consummation of the exchange
offer or the effectiveness of a shelf registration statement, as the case may
be, the interest rate borne by the notes from the date of such filing,
effectiveness or consummation, as the case may be, will be reduced to the
original interest rate. However, if after any such reduction in interest rate a
different event specified in the three clauses above occurs, the interest rate
may again be increased pursuant to the foregoing provisions.
To exchange your outstanding notes for transferable new notes in the
exchange offer, you will be required to make the following representations:
- any new notes will be acquired in the ordinary course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the distribution of
the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
In addition, we may require you to deliver information to be used in
connection with the shelf registration statement in order to have your notes
included in the shelf registration statement and benefit from the provisions
regarding additional interest described in the preceding paragraphs. A holder
who sells outstanding notes under the shelf registration statement generally
will be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers. Such a holder will also be
subject to the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement that are applicable to such a holder, including indemnification
obligations.
The above summary of the registration rights agreement contains all of its
material terms.
RESALE OF NEW NOTES
Based on interpretations of the SEC in no action letters issued to third
parties, we believe that new notes issued under the exchange offer may be
offered for resale, resold and otherwise transferred by you without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- such new notes are acquired in the ordinary course of your business; and
- you do not intend to participate in the distribution of such new notes.
If you tender in the exchange offer with the intention of participating in
any manner in a distribution of the new notes, you:
- cannot rely on such interpretations by the SEC staff; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act containing the selling security
holder's information required by Item 507 of Regulation S-K under the Securities
Act. This prospectus may be used for an offer to resell, resale or other
retransfer of new notes only as specifically described in this prospectus. Only
broker-dealers that acquired the outstanding notes as a result of market-
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<PAGE> 17
making activities or other trading activities may participate in the exchange
offer. Each broker-dealer that receives new notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. Broker dealers that acquired the outstanding
notes from us may not rely on the interpretations of the SEC discussed above and
must comply with the registration and prospectus delivery requirements of the
Securities Act, including being named as selling noteholders in order to resell
the outstanding notes or new notes. Please read "Plan of Distribution" for more
details regarding the transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
notes properly tendered and not withdrawn prior to the expiration date. We will
issue new notes in principal amount equal to the principal amount of outstanding
notes surrendered under the exchange offer. Outstanding notes may be tendered
only for new notes of the same maturity date and only in integral multiples of
$1,000 (except for the 2008 notes, the exchange of which will reflect partial
payments of principal on June 30, 1999, September 30, 1999 and December 31,
1999).
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $833,939,040 aggregate principal amount
of the outstanding notes are outstanding, reflecting the June 30, 1999 and
September 30, 1999 payments of principal on the 2008 notes in the amount of
$12,130,080, or 4.098%, and $3,930,880, or 1.328%, respectively, of the original
principal amount outstanding. An additional payment of principal in the amount
of $4,001,920, or 1.352%, will be made on the 2008 notes on December 31, 1999,
reducing the aggregate principal amount of the outstanding notes to
$829,937,120. This prospectus and the letter of transmittal are being sent to
all registered holders of outstanding notes. There will be no fixed record date
for determining registered holders of outstanding notes entitled to participate
in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act and the rules and regulations of
the SEC. Outstanding notes that are not tendered for exchange in the exchange
offer will remain outstanding and continue to accrue interest and will be
entitled to the rights and benefits such holders have under the indenture
relating to the notes and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes from us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "-- Fees and Expenses" for more
details regarding fees and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at midnight, New York City time, on January
13, 2000, unless, in our sole discretion, we extend it. We will not extend the
exchange offer beyond February 11, 2000.
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EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any outstanding notes by giving oral or written notice of such extension to
their holders. During any such extensions, all outstanding notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer,
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly file
with the SEC a post-effective amendment to the registration statement of which
this prospectus is a part to disclose such amendment. We will distribute the
prospectus included in the post-effective amendment to the registered holders of
the outstanding notes. Depending upon the significance of the amendment and the
manner of disclosure to the registered holders, we will extend the exchange
offer if the exchange offer would otherwise expire during such period.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any new notes for, any outstanding notes, and
we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange, if in our reasonable judgment:
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the representations
described under "-- Purpose and Effect of the Exchange Offer," "-- Procedures
for Tendering" and "Plan of Distribution" and such other representations as may
be reasonably necessary under applicable SEC rules, regulations or
interpretations to make available to us an appropriate form for registration of
the new notes under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion.
If we fail at any time to exercise any of these rights, this failure
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will not mean that we have waived our rights. Each such right will be deemed an
ongoing right that we may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue new notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
How to Tender Generally
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
- have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires; and
- mail or deliver such letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
- comply with the automated tender offer program procedures of The
Depository Trust Company, or DTC, described below.
In addition, either:
- the exchange agent must receive outstanding notes along with the letter
of transmittal;
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at DTC according to the procedure for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address provided above under "Prospectus Summary -- The Exchange Agent" prior to
the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions described in this prospectus and in the
letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MAY REQUEST YOUR
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT
THE ABOVE TRANSACTIONS FOR YOU.
How to Tender if You Are a Beneficial Owner
If you beneficially own outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to tender those notes, you should contact the registered holder promptly
and instruct it to tender on your behalf. If you are a beneficial owner and wish
to tender on your own behalf, you must, prior to completing and executing the
letter of transmittal and delivering your outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the registered holder of
outstanding notes.
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The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures and Signature Guarantees
You must have signatures on a letter of transmittal or a notice of
withdrawal (as described below) guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
that is a member of one of the recognized signature guarantee programs
identified in the letter of transmittal, unless the outstanding notes are
tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondence in
the United States, or an eligible guarantor institution.
When You Need Endorsements or Bond Powers
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power. The bond power must
be signed by the registered holder as the registered holder's name appears on
the outstanding notes and a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an eligible guarantor institution must guarantee the signature on the
bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
Tendering Through DTC's Automated Tender Offer Program
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, to the
effect that:
- DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering outstanding notes that
are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against such participant.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or
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<PAGE> 21
any outstanding notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defect,
irregularities or conditions of tender as to particular outstanding notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, all defects or irregularities in connection with tenders
of outstanding notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of outstanding notes, neither we, the exchange agent nor any other
person will incur any liability for failure to give such notification. Tenders
of outstanding notes will not be deemed made until such defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
When We Will Issue New Notes
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
- outstanding notes or a timely book-entry confirmation of such outstanding
notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Return of Outstanding Notes Not Accepted or Exchanged
If we do not accept any tendered outstanding notes for exchange for any
reason described in the terms and conditions of the exchange offer or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged outstanding notes will be
returned without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described below, such non-exchanged outstanding
notes will be credited to an account maintained with DTC. These actions will
occur as promptly as practicable after the expiration or termination of the
exchange offer.
Your Representations to Us
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any new notes that you receive will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the new notes;
- you are not engaged in and do not intend to engage in the distribution of
the new notes;
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such new notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act.
BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the
outstanding notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution participating in DTC's system
may make book-entry delivery of outstanding notes by causing DTC to transfer
such outstanding notes into the exchange agent's account at DTC in accordance
with DTC's procedures for transfer. Holders of outstanding notes who are unable
to deliver confirmation of the book-entry tender of their
18
<PAGE> 22
outstanding notes into the exchange agent's account at DTC or all other
documents required by the letter of transmittal to the exchange agent on or
prior to the expiration date must tender their outstanding notes according to
the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but your outstanding notes are
not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's automated tender offer program
prior to the expiration date, you may tender if:
- the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an eligible guarantor institution;
- prior to the expiration date, the exchange agent receives from such
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., commercial bank or
trust company having an office or correspondent in the United States, or
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission, mail or
hand delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth your name and address, the registered number(s) of your
outstanding notes and the principal amount of outstanding notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal or facsimile
thereof, together with the outstanding notes or a book-entry
confirmation, and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution
with the exchange agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation, and all
other documents required by the letter of transmittal, within three (3)
New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent you if you wish to tender your outstanding notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at one of
the addressees listed above under "Prospectus Summary -- The Exchange
Agent" or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn and
- identify the outstanding notes to be withdrawn, including the principal
amount of such outstanding notes.
19
<PAGE> 23
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn outstanding notes
and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal, and our determination shall be final
and binding on all parties. We will deem any outstanding notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of outstanding notes tendered by book-entry transfer into
the exchange agent's account at DTC according to the procedures described above,
such outstanding notes will be credited to an account maintained with DTC for
the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following one of
the procedures described under "-- Procedures for Tendering" above at any time
on or prior to the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a note
holder is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to that tendering holder.
20
<PAGE> 24
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your outstanding notes for new notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless they are registered under the Securities Act, or if the offer or
sale is exempt from registration under the Securities Act and applicable state
securities laws. Except as required by the registration rights agreement, we do
not intend to register resales of the outstanding notes under the Securities
Act.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same carrying
value as the outstanding notes, which is the aggregate principal amount of the
outstanding notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. The expenses of the exchange
offer have been accrued and are reflected in the September 30, 1999 balance
sheet as Other Assets (deferred financing costs).
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events based upon our knowledge of facts as of the date of this
prospectus and our assumptions about future events. These forward-looking
statements are subject to various risks and uncertainties that may be outside of
our control. We use words like "anticipate," "estimate," "project," "plan,"
"expect" and similar expressions to help identify forward-looking statements in
this prospectus.
For factors that could affect the validity of our forward-looking
statements, you should read "Risk Factors" beginning on page 8. In light of
these and other risks, uncertainties and assumptions, the actual events or
results may be very different from those expressed or implied in the
forward-looking statements in this prospectus or may not occur. We have no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
OUR OWNERS
GENERAL
Our company is a limited liability company organized in Delaware. We have
three members:
- JEDI II indirectly owns 51% of the Class A membership interests and 1% of
the Class B membership interests;
- Mesquite Investors owns 49% of the Class A membership interests and 49%
of the Class B membership interests; and
- CalPERS owns 50% of the Class B membership interests.
In August 1999, Enron transferred its Class B membership interest
(representing 50% of the total Class B membership interests) to ECP Holding
Company. Also in August 1999, ECP Holding Company transferred a
21
<PAGE> 25
49% Class A membership interest and a 49% Class B membership interest to
Mesquite Investors, an affiliate of El Paso Energy and DLJ. Our limited
liability company agreement was amended and restated in August 1999 to admit
Mesquite Investors as a Class A and Class B Member.
Our members are not obligated to make any other contributions to us. All
distributions will be made to the Class A Members until the Class A Members have
received distributions equal to $80.0 million plus specified rates of return.
After the Class A Members have received their preferential distributions, all
distributions will be made 90% to the Class A Members and 10% to the Class B
Members.
JEDI II
JEDI II was formed in December 1997 to invest in certain projects related
to natural gas, crude oil, coal, electricity and other forms of energy. The
general partner of JEDI II is an indirect wholly owned subsidiary of Enron. The
limited partners of JEDI II are CalPERS and an indirect wholly owned subsidiary
of Enron.
ENRON
Enron is an integrated natural gas and electricity company with
headquarters in Houston, Texas. Enron conducts its operations through its
subsidiaries and affiliates, which are principally engaged in:
- the marketing of natural gas, electricity and other commodities and
related risk management and finance services worldwide;
- the development, construction and operation of power plants, pipelines
and other energy related assets worldwide;
- the transportation of natural gas through pipelines to markets throughout
the United States;
- the generation and transmission of electricity to markets in the
northwestern United States; and
- the delivery of high bandwidth communication applications throughout the
United States.
MESQUITE INVESTORS
Mesquite Investors was formed in July 1999 to invest in energy-related
projects. The members of Mesquite Investors are wholly owned subsidiaries of El
Paso Energy and DLJ.
EL PASO ENERGY
Headquartered in Houston, Texas, El Paso Energy provides energy solutions
coast-to-coast and worldwide through its five business units. El Paso Energy has
operations in:
- interstate natural gas transmission;
- gas gathering and processing;
- international infrastructure development; and
- energy marketing.
22
<PAGE> 26
USE OF PROCEEDS
Our proceeds from the sale of the outstanding notes were $850.0 million. In
connection with the closing of the sale of the outstanding notes, JEDI II made
an equity contribution to our company of $80.0 million. We used these funds as
follows:
- we used $831.0 million to repay a bridge loan to NationsBank, N.A.
incurred in connection with the acquisition, which resulted in the
release of a $25.0 million guaranty by CalPERS;
- we used $62.1 million to repay a portion of a $250.0 million
subordinated note issued to Enron in connection with the
acquisition;
- we used $25.0 million to make a distribution to Enron North America
in respect of its membership interest in our company; and
- we used $11.9 million to pay a purchase price adjustment to the
sellers based on changes in working capital.
We will not receive any cash proceeds from the issuance of the new notes.
In consideration for issuing the new notes, we will receive in exchange a like
principal amount of outstanding notes. The outstanding notes surrendered in
exchange for the new notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the new notes will not result in any change in our
capitalization.
23
<PAGE> 27
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
(in millions):
<TABLE>
<S> <C>
Notes(1).................................................... $ 833.9
Linden Ltd. term loan(2).................................... 199.1
Subordinated note........................................... 187.9
Member's equity............................................. 80.4
--------
Total capitalization........................................ $1,301.3
========
</TABLE>
- ---------------
(1) Includes current portion of $13.5 million.
(2) Includes current portion of $15.1 million and $3.7 million unamortized
premium recognized in connection with the acquisition.
24
<PAGE> 28
SELECTED FINANCIAL DATA
The following table sets forth summary historical financial data for our
company and our predecessor the Acquired Group, which consists of Cogen
Technologies Linden, Ltd. ("Linden Ltd."), Cogen Technologies Camden GP Limited
Partnership ("Camden GP") and McNair Energy Services Corporation ("MESC") and
its wholly owned subsidiary Cogen Technologies NJ, Inc. ("NJ Inc."). We
completed our acquisition of the Acquired Group in February 1999. Our summary
historical balance sheet data as of September 30, 1999 and the summary income
statement data for the period from February 4, 1999 to September 30, 1999 are
derived from the unaudited consolidated financial statements included elsewhere
in this prospectus. The summary historical balance sheet data as of December 31,
1998 and 1997 and the summary historical income statement data for each of the
three years in the period ended December 31, 1998 for the Acquired Group are
derived from combined financial statements which have been audited by Arthur
Andersen LLP and are included elsewhere in this prospectus. The summary
historical balance sheet data as of each of the years in the three-year period
ended December 31, 1996 and the summary historical income statement data for
each of the two years in the period ended December 31, 1995 for the Acquired
Group are derived from combined financial statements which have been audited by
Arthur Andersen LLP and are not included in this prospectus. The summary
historical balance sheet data as of February 4, 1999 and September 30, 1998 and
the summary income statement data for the period ended February 4, 1999 and the
nine months ended September 30, 1998 for the Acquired Group are derived from the
unaudited combined financial statements of the Acquired Group.
Also set forth below are summary historical financial and operating data
for each of Cogen Technologies Linden Venture, L.P. ("Linden Venture"), the
owner and operator of the Linden facility; Camden Cogen L.P. ("Camden Venture"),
the owner and operator of the Camden facility; and Cogen Technologies NJ Venture
("Bayonne Venture"), the owner and operator of the Bayonne facility. The summary
historical balance sheet data as of December 31, 1998 and 1997 and the summary
income statement data for each of the three years in the period ended December
31, 1998 for these entities are derived from the combined financial statements
of Cogen Technologies New Jersey Operating Partnerships which have been audited
by Arthur Andersen LLP and are included elsewhere in this prospectus. The
summary historical balance sheet data as of each of the years in the three-year
period ended December 31, 1996 and the summary historical income statement data
for each of the two years in the period ended December 31, 1995 are derived from
combined financial statements of Cogen Technologies New Jersey Operating
Partnerships which have been audited by Arthur Andersen LLP and are not included
in this prospectus. The summary historical balance sheet data as of September
30, 1999 and 1998 and the summary income statement information for the periods
then ended are derived from the unaudited combined financial statements of Cogen
Technologies New Jersey Operating Partnerships.
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles in other
industries. During the fourth quarter of 1999, it was determined that generally
accepted accounting principles do not permit the accrual of these costs in our
industry. Accordingly, Linden Venture, Camden Venture and Bayonne Venture
retroactively changed their method of accounting for these costs and began
expensing such costs as incurred. The following summary historical financial
data has been prepared based on the restated results after giving retroactive
effect to such change.
You should read the summary historical financial data in conjunction with
the historical and pro forma financial statements which are included elsewhere
in this prospectus. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
As a result of the acquisition, our capital structure and the accounting
basis of our assets and liabilities differ from those of the business acquired.
Accordingly, certain of the financial information for the periods prior to the
acquisition is not comparable to that for periods subsequent to the acquisition.
25
<PAGE> 29
<TABLE>
<CAPTION>
ACQUIRED GROUP (PREDECESSOR)
-------------------------------------------------------------------
OUR COMPANY NINE
----------- MONTHS
2/4/99 1/1/99 ENDED YEAR ENDED DECEMBER 31,
TO TO SEPTEMBER 30, ------------------------------------------
9/30/99 2/4/99 1998 1998 1997 1996 1995 1994
----------- ------ ------------- ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Equity in earnings (losses) of
affiliates
Linden Venture........................ $ 37.4 $(44.8) $ 50.6 $ 73.3 $ 71.8 $ 81.3 $ 61.1 $ 64.2
Camden Venture........................ 2.8 (11.8) 12.7 15.0 14.7 14.2 13.9 11.8
Bayonne Venture....................... 20.8 5.2 31.8 44.6 17.2 19.3 29.3 17.4
-------- ------ ------ ------ ------ ------ ------ ------
61.0 (51.4) 95.1 132.9 103.7 114.8 104.3 93.4
-------- ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Operating overhead...................... -- 0.9 19.8 21.6 11.6 9.6 8.4 6.8
General and administrative.............. 5.5 1.7 8.1 20.2 19.9 10.9 10.4 12.2
-------- ------ ------ ------ ------ ------ ------ ------
5.5 2.6 27.9 41.8 31.5 20.5 18.8 19.0
-------- ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations............. 55.5 (54.0) 67.2 91.1 72.2 94.3 85.5 74.4
Other income (expense):
Interest and other income............... 10.5 0.1 9.6 12.6 15.5 16.7 17.8 13.8
Interest expense........................ (65.6) (2.0) (14.4) (19.3) (21.8) (23.3) (26.5) (25.9)
Allowance for long-term receivable...... -- -- (2.6) -- 10.3 (10.3) 6.5 (6.5)
-------- ------ ------ ------ ------ ------ ------ ------
(55.1) (1.9) (7.4) (6.7) 4.0 (16.9) (2.2) (18.6)
Income (loss) before income taxes......... 0.4 (55.9) 59.8 84.4 76.2 77.4 83.3 55.8
Income taxes............................ -- (1.8) (12.4) (13.3) (4.1) (4.6) (7.9) (2.9)
-------- ------ ------ ------ ------ ------ ------ ------
Net income (loss)......................... $ 0.4 $(57.7) $ 47.4 $ 71.1 $ 72.1 $ 72.8 $ 75.4 $ 52.9
======== ====== ====== ====== ====== ====== ====== ======
BALANCE SHEET DATA AT END OF PERIOD:
Investment in affiliates................ $1,263.0 $83.6 $ 84.3 $ 85.2 $ 79.4 $ 77.4 $ 74.4 $ 74.0
Total assets............................ 1,316.0 261.0 242.0 248.8 254.7 256.2 282.7 282.2
Long-term debt (including current
portion).............................. 1,220.9 205.6 221.3 218.0 230.9 246.9 262.2 276.2
Owner's equity (deficit)................ 80.4 43.8 3.0 18.8 (6.6) (20.4) (12.8) (36.2)
OTHER FINANCIAL DATA:
Distributions received from
affiliates............................ $ 81.5 $20.3 $ 92.1 $128.5 $102.3 $116.7 $106.3 $ 92.2
Ratio of earnings to fixed charges(1)... 1.0 -- 3.6 3.7 1.5 1.5 1.5 2.3
</TABLE>
- ---------------
(1) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes
and fixed charges. Fixed charges consist of interest expense including
amortization of loan fees. For the period ended February 4, 1999 earnings
were insufficient to cover fixed charges by $57.7 million.
26
<PAGE> 30
LINDEN VENTURE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Electricity........................... $200.3 $197.5 $262.8 $283.5 $290.4 $246.9 $259.0
Steam................................. 6.2 8.9 11.3 15.5 15.1 8.7 10.1
------ ------ ------ ------ ------ ------ ------
206.5 206.4 274.1 299.0 305.5 255.6 269.1
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Fuel.................................. 99.8(1) 90.3 118.1 138.1 138.6 104.8 117.5
Operating and maintenance............. 11.9 17.2 22.0 24.1 20.0 26.0 26.3
Depreciation and amortization......... 11.3 11.5 15.4 22.3 22.2 22.3 21.9
General and administrative............ 49.9(2) 7.5 10.1 11.4 10.7 9.1 9.7
Taxes other than income............... 1.3 1.3 1.6 0.6 1.7 2.1 1.8
------ ------ ------ ------ ------ ------ ------
174.2 127.8 167.2 196.5 193.2 164.3 177.2
------ ------ ------ ------ ------ ------ ------
Income from operations.................. 32.3 78.6 106.9 102.5 112.3 91.3 91.9
Interest and other income............. 4.1 0.5 0.8 1.1 0.6 0.8 3.5
Interest expense...................... -- -- -- -- (0.1) (0.1) (0.1)
------ ------ ------ ------ ------ ------ ------
Net income............................ $ 36.4 $ 79.1 $107.7 $103.6 $112.8 $ 92.0 $ 95.3
====== ====== ====== ====== ====== ====== ======
THE ACQUIRED GROUP'S SHARE OF:
Net income.............................. $ 17.3(3) $ 50.6 $ 73.3 $ 71.8 $ 81.3 $ 61.1 $ 64.2
Cash distributions...................... 67.4 53.8 74.0 75.6 77.7 59.4 71.6
BALANCE SHEET DATA AT END OF PERIOD:
Property and equipment, net............. $401.5 $417.0 $413.6 $428.2 $450.1 $470.6 $490.1
Total assets............................ 464.4 470.4 470.6 492.4 514.8 525.8 546.5
Long-term debt (including current
portion).............................. -- -- -- -- -- -- --
Partners' capital....................... 437.6 447.5 445.3 461.2 485.1 501.6 520.3
SELECTED OPERATING INFORMATION:
Megawatt-hours generated (thousands).... 2,968 2,880 3,808 3,891 3,806 3,952 3,991
Average heat rate (without steam
credit)(4)............................ 9,730 9,618 9,588 9,852 9,924 9,768 9,783
Average heat rate (with steam
credit)(4)............................ 8,927 8,766 8,757 8,664 8,938 8,848 9,014
Average equivalent availability......... 98% 97% 96% 94% 89% 91% 94%
Steam produced (millions of pounds)..... 3,411 3,360 4,357 5,073 4,953 4,168 5,172
</TABLE>
- ---------------
(1) Includes a one-time payment of $6.0 million in connection with the
termination of a gas management agreement. See Note 2 to the Audited and
Unaudited Financial Statements of Cogen Technologies New Jersey Operating
Partnerships included in this prospectus.
(2) Includes a one-time payment of $46.4 million in connection with the
termination of a management services agreement. See Note 2 to the Audited
and Unaudited Financial Statements of Cogen Technologies New Jersey
Operating Partnerships included in this prospectus.
(3) The one-time payments in connection with the termination of the gas
management and management services agreement were allocated 100% to the
Acquired Group's share of net income.
(4) Btu/Kilowatt-hour.
27
<PAGE> 31
CAMDEN VENTURE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Electricity.............................. $ 54.4 $ 57.0 $ 73.1 $ 80.2 $ 77.2 $ 67.5 $ 66.0
Steam.................................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
54.4 57.0 73.1 80.2 77.2 67.5 66.0
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Fuel..................................... 24.9(1) 25.6 33.3 39.2 38.4 28.9 30.2
Operating and maintenance................ 9.3 4.6 6.1 7.5 6.0 6.8 5.7
Depreciation and amortization............ 2.8 2.8 3.7 6.9 6.8 6.8 6.7
General and administrative............... 13.7(2) 1.7 2.2 2.6 2.6 2.3 2.1
Taxes other than income.................. 0.3 0.3 0.4 0.6 0.6 0.5 0.7
------ ------ ------ ------ ------ ------ ------
51.0 35.0 45.7 56.8 54.4 45.3 45.4
------ ------ ------ ------ ------ ------ ------
Income from operations..................... 3.4 22.0 27.4 23.4 22.8 22.2 20.6
Interest and other income................ 1.0 0.3 0.4 0.4 0.4 0.4 0.2
Interest expense......................... (5.2) (5.6) (7.4) (7.7) (8.2) (8.4) (8.8)
------ ------ ------ ------ ------ ------ ------
Net income (loss)........................ $ (0.8) $ 16.7 $ 20.4 $ 16.1 $ 15.0 $ 14.2 $ 12.0
====== ====== ====== ====== ====== ====== ======
THE ACQUIRED GROUP'S SHARE OF:
Net income (loss).......................... $ (4.5)(3) $ 12.7 $ 15.0 $ 14.7 $ 14.2 $ 13.9 $ 11.8
Cash distributions......................... 7.8 10.5 15.0 8.6 14.5 15.0 4.3
BALANCE SHEET DATA AT END OF PERIOD:
Property and equipment, net................ $100.4 $103.7 $103.1 $106.3 $108.9 $115.3 $121.8
Total assets............................... 120.9 124.1 121.4 125.3 128.4 133.5 140.7
Long-term debt (including current
portion)................................. 80.1 86.1 84.6 90.2 95.2 99.8 104.0
Partners' capital.......................... 34.7 33.1 31.1 29.0 24.6 27.l 30.7
SELECTED OPERATING INFORMATION:
Megawatt-hours generated (thousands)....... 814 878 1,153 1,208 1,190 1,169 1,127
Average heat rate (without steam
credit)(4)............................... 8,717 8,858 8,791 8,764 8,740 8,662 8,709
Average heat rate (with steam credit)(4)... 8,437 8,623 8,601 8,431 8,422 8,347 8,404
Average equivalent availability............ 88%(5) 96% 96% 97% 98% 98% 94%
Steam produced (millions of pounds)........ 207 220 300 301 310 302 281
</TABLE>
- ---------------
(1) Includes a one-time payment of $1.6 million in connection with the
termination of a gas management agreement. See Note 2 to the Audited and
Unaudited Financial Statements of Cogen Technologies New Jersey Operating
Partnerships included in this prospectus.
(2) Includes a one-time payment of $12.8 million in connection with the
termination of a management services agreement. See Note 2 to the Audited
and Unaudited Financial Statements of Cogen Technologies New Jersey
Operating Partnerships included in this prospectus.
(3) The one-time payments in connection with the termination of the gas
management and management services agreements were allocated 100% to the
Acquired Group's share of net income.
(4) Btu/Kilowatt-hour.
(5) Reflects the impact of a planned major outage which occurred in April and
May of 1999. This major outage is scheduled to occur every six years and
results in a reduction in the average equivalent availability.
28
<PAGE> 32
BAYONNE VENTURE
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Electricity.............................. $ 79.2 $ 84.1 $112.8 $ 92.8 $ 90.4 $ 93.2 $ 82.6
Steam.................................... 2.6 2.8 3.8 3.7 4.9 3.3 3.8
------ ------ ------ ------ ------ ------ ------
81.8 86.9 116.6 96.5 95.3 96.5 86.4
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Fuel..................................... 29.7 28.2 38.6 43.2 45.2 33.4 34.9
Operating and maintenance................ 7.4 12.2 14.4 14.7 8.8 10.2 13.0
Depreciation and amortization............ 2.2 2.3 3.0 6.9 6.9 6.9 6.7
General and administrative............... 2.0 2.3 3.1 2.9 2.8 2.6 2.1
Taxes other than income.................. 0.4 0.3 0.5 0.5 0.5 0.5 0.4
------ ------ ------ ------ ------ ------ ------
41.7 45.3 59.6 68.2 64.2 53.6 57.1
------ ------ ------ ------ ------ ------ ------
Income from operations..................... 40.1 41.6 57.0 28.3 31.1 42.9 29.3
Interest and other income................ 0.3 0.7 1.2 0.1 0.1 0.1 0.1
Interest expense......................... (5.5) (5.8) (7.7) (8.1) (8.5) (8.8) (9.0)
------ ------ ------ ------ ------ ------ ------
Net income............................... $ 34.9 $ 36.5 $ 50.5 $ 20.3 $ 22.7 $ 34.2 $ 20.4
====== ====== ====== ====== ====== ====== ======
THE ACQUIRED GROUP'S SHARE OF:
Net income................................. $ 32.1 $ 32.1 $ 44.8 $ 17.5 $ 19.6 $ 29.6 $ 17.4
Cash distributions......................... 26.6 27.8 39.5 18.1 24.5 31.9 16.3
BALANCE SHEET DATA AT END OF PERIOD:
Property and equipment, net................ $ 68.8 $ 71.6 $ 70.9 $ 73.8 $ 80.6 $ 87.2 $ 92.6
Total assets............................... 99.6 98.8 97.0 99.0 99.8 107.3 111.4
Long-term debt (including current
portion)................................. 65.5 69.3 68.4 71.8 74.9 77.7 80.1
Partners' capital.......................... 26.0 19.1 20.1 14.4 15.1 20.8 23.4
SELECTED OPERATING INFORMATION:
Megawatt-hours generated (thousands)....... 1,060 1,022 1,400 1,330 1,351 1,386 1,225
Average heat rate (without steam
credit)(1)............................... 9,210 9,173 9,183 9,285 9,215 4,184 9,430
Average heat rate (with steam credit)(1)... 8,379 8,256 8,278 8,449 8,370 8,141 8,037
Average equivalent availability............ 96% 94% 95% 94% 97% 98% 91%
Steam produced (millions of pounds)........ 749 781 1,056 927 952 975 1,025
</TABLE>
- ---------------
(1) Btu/Kilowatt-hour.
29
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the historical
and pro forma consolidated financial statements of East Coast Power L.L.C. and
the related notes thereto and the historical combined financial statements of
the Cogen Tech Group and the Cogen Technologies New Jersey Operating
Partnerships and the related notes thereto appearing elsewhere in this
prospectus. Certain information contained in this section, including information
with respect to our plans and expectations for our business, are forward-looking
statements. You should consider carefully the information set forth under the
captions "Forward-Looking Statements" and "Risk Factors" for a discussion of
important factors that could cause actual results to differ materially from any
forward-looking statements contained in this prospectus.
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles in other
industries. During the fourth quarter of 1999, it was determined that generally
accepted accounting principles do not permit the accrual of these costs in our
industry. Accordingly, Linden Venture, Camden Venture and Bayonne Venture
retroactively changed their method of accounting for these costs and began
expensing such costs as incurred. The following discussion has been prepared
based on the restated results after giving retroactive effect to such change.
GENERAL
East Coast Power L.L.C. is a Delaware limited liability company that was
formed in December 1998 by JEDI II, a limited partnership in which Enron Corp.
and CalPERS each own a 50% interest. On February 4, 1999, our limited liability
company agreement was amended and restated to convert JEDI II's initial
membership to that of a Class A Member and to admit Enron North America Corp.
(formerly Enron Capital & Trade Resources Corp.), a wholly owned subsidiary of
Enron, and CalPERS as Class B members. On February 4, 1999, we acquired equity
interests in three power generation facilities located in Linden, Bayonne and
Camden, New Jersey. The facilities have a total nameplate capacity of 1,037
megawatts of generating capacity. In 1998, the facilities produced a total of
6.36 million megawatt hours of electricity and 5.71 billion pounds of steam. Our
activities are limited to the ownership, operation and possible expansion of the
facilities.
On August 13, 1999, Enron North America transferred its Class B membership
interest in our company (representing 50% of the total Class B membership
interests) to ECP Holding Company. Also on August 13, 1999, ECP Holding Company
transferred a 49% Class A membership interest and a 49% Class B membership
interest in our company to Mesquite Investors, L.L.C., a Delaware limited
liability company which is jointly owned by El Paso Energy Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation. Our limited liability
company agreement was amended and restated on August 13, 1999 to admit Mesquite
Investors as a Class A and Class B Member and to provide for certain
preferential distributions to ECP Holding Company in the event of certain
contract restructuring or capital projects.
Certain historical financial information presented in this prospectus
represents the combined results of operation and financial position of the three
entities we acquired in the acquisition (Linden Ltd., Camden GP and McNair
Energy Services Corporation, which comprise the Cogen Tech Group). These
entities were, directly or indirectly, the general partners of the partnerships
that owned the facilities prior to the closing of the acquisition. We refer to
these acquired entities as the "Acquired Group." We accounted for the
acquisition on the basis of purchase accounting. Accordingly, our investment in
the partnerships that own the facilities was increased by an amount equal to the
excess of the purchase price allocated to such partnerships over the historical
basis in the partnerships.
THE ACQUISITION
We acquired our interests in the facilities in February 1999. For the
reasons discussed below, our results of operations for the first quarter of 1999
are not comparable to the results of operations for the Acquired
30
<PAGE> 34
Group for the comparable period last year, and we expect our results of
operations in future periods to continue to differ materially from the
historical results of the Acquired Group.
Operating, General and Overhead Expenses
We expect our general and administrative expense to differ materially from
the operating overhead and general and administrative expense reflected in the
historical operations of the Acquired Group, and such difference is reflected in
our first quarter results as described below. We employ approximately 30
persons, compared with approximately 55 employees of the Acquired Group. We also
expect to realize significant savings compared to historical operations in
travel and entertainment, professional fees, management information systems,
political and charitable contributions and insurance.
We will also experience cost savings compared to the Acquired Group as a
result of transactions consummated at the time of the acquisition. In connection
with the acquisition, Linden Venture and Camden Venture made one-time payments
to terminate agreements with affiliates with respect to management and gas
management fees. The payments made to terminate these agreements were made from
capital contributions from the sellers. There are no charges relating to these
agreements in our financial statements for periods after the closing of the
acquisition. During the year 1998, the nine months ended September 30, 1998 and
the period prior to the acquisition in 1999, equity in earnings of affiliates
for the Acquired Group reflected costs attributable to the terminated agreements
(excluding the costs to buy out such agreements in the 1999 period) of $4.9
million, $3.7 million and $0.3 million, respectively, for Linden Venture and
$1.3 million, $1.0 million and $0.1 million, respectively, for Camden Venture.
The results of operations for the Acquired Group in the year 1998 and the nine
months ended September 30, 1998 also includes operating overhead of $16.3
million for development bonuses earned during the period (including $14.5
million of one-time payments to buy out such development bonuses). The
development bonuses were eliminated in connection with the acquisition and will
not affect our results of operations for periods after the acquisition. Finally,
the results of operations for the Acquired Group in the year 1998 and the nine
months ended September 30, 1998 include general and administrative expense of
$6.0 million and $4.5 million, respectively, relating to the use of a private
aircraft that is not available to our company.
Linden Receivable
Interest and other income of the Acquired Group relates primarily to an
account receivable for amounts owed to Linden Ltd. by a former affiliate. In
connection with the acquisition, the receivable was distributed to the sellers
in their capacity as partners of Linden Ltd. Since the receivable was
essentially an "intercompany" transaction within this group of sellers, amounts
related to the receivable are not relevant to our operations after the
acquisition. Amounts under "Allowance for long-term receivable" relate entirely
to such receivable. The receivable appears on the balance sheet of the Acquired
Group at December 31, 1998 as a $149.0 million account receivable, affiliate.
Interest in Bayonne Venture
In July 1998, NJ Inc. acquired an additional 5.25% partnership interest in
Bayonne Venture from an unaffiliated party for $12.5 million in cash. On a pro
forma basis, assuming this transaction took place on January 1, 1998, the
Acquired Group's equity in the earnings of Bayonne Venture for the year 1998 and
nine months ended September 30, 1998 would have increased by $1.5 million and
net income would have increased by $1.0 million.
LINDEN DISTRIBUTABLE CASH
The Linden Venture partnership agreement divides cash distributions between
our subsidiary Linden Ltd. and our minority partner. Under the partnership
agreement, our minority partner receives 99% of distributable cash up to a
capped amount per month. The capped amount of approximately $4.3 million per
month through September 1998 was reduced to $3.0 million in October 1998. The
reduction in the cap will permit us to receive additional distributions of
approximately $1.3 million per month from Linden Venture through
31
<PAGE> 35
September 2001. After September 2001, the cap amount will increase to between
$4.3 and $4.8 million per month. See "-- Liquidity and Capital
Resources -- Linden Structure, Indebtedness and Cash Distributions."
POWER PURCHASE AGREEMENTS
Our facilities sell their electric output pursuant to long-term power
purchase agreements with investor-owned utilities. Each of our utility power
purchasers has an investment-grade senior debt rating. Our facilities
historically have provided consistent and substantial cash distributions,
reflecting in part the fixed payment components of the power purchase
agreements.
The power purchase agreements for our facilities typically include a fixed
capacity payment, an escalating operations and maintenance payment tied to an
inflation index and a fuel expense component tied to the utility's weighted
average cost of gas ("WACOG") or another measure. The fuel components of the
Camden and Bayonne power purchase agreements historically have been well
correlated to our actual fuel costs. The fuel component in one of the Bayonne
agreements is based on the utility's prior year's WACOG resulting in a lag
between reimbursement of fuel costs and actual costs. This provision has not had
a material impact on the Bayonne Facility although it does create variations
between fuel costs and fuel pricing in any given year.
The fuel component in the Linden power purchase agreement is based on a cap
indexed to the purchaser's, Con Ed's, weighted average cost of gas. Con Ed
reimburses the project for its actual fuel costs throughout the year. At the end
of the contract year (April 30), actual costs are compared to the cap. If Linden
Venture's fuel costs exceed the cap, Linden Venture reimburses Con Ed for the
excess over the next 12 months. If fuel costs are below the cap, Linden Venture
and Con Ed split the difference on a 50/50 basis and Con Ed reimburses Linden
Venture for its share of the savings over the next 12 months. Linden Venture's
fuel costs have exceeded the cap established by Con Ed's WACOG in four of the
past six years. Con Ed purchases gas both for distribution to its local gas
customers and as fuel for its gas-fired generating plants. Con Ed's WACOG for
distribution to its gas customers historically has been higher than its WACOG
for generation. This difference reflects the fact that Con Ed's WACOG includes
both the commodity cost of its gas purchases and transportation charges,
including reservation charges for firm transportation. When Con Ed has had
increased demand for gas to run its power plants, the effect is to lower Con
Ed's WACOG by lowering the per unit cost of gas transportation. Linden Venture's
results in 1997 and 1998 were adversely affected by a nuclear plant outage which
increased Con Ed's gas purchases to run gas-fired power plants and therefore
lowered Con Ed's WACOG. We expect Con Ed's WACOG to increase (adjusted for
commodity prices) after completion of the pending sale of its gas-fired
generation assets later this year. However, the effect of the historical costs
will continue to be felt through the contract year which expires at the end of
April 2000. Distributions to us from Linden Venture will continue to be impacted
by our ability to manage our fuel costs against Con Ed's WACOG. See "Our
Business -- The Linden Facility -- Linden Power Purchase Agreement."
LINDEN STEAM AGREEMENTS
The Linden facility provides steam to Infineum USA L.P. and sells steam to
Bayway Refining Company under separate agreements. The Infineum steam sale
agreement provides that Linden Venture's maximum delivery obligation is 181,000
lbs/hr for the months of October through and including May and 109,000 lbs/hr
for the months of June through and including September. As a result of the
pricing and credit provisions of the Infineum agreement, Infineum does not pay
Linden Venture for any of the steam take up to the contract limit. If Infineum
increases its steam take up to the maximum allowed under the contract,
distributions to our company from Linden Venture could be reduced by
approximately $1.3 million per year.
RESULTS OF OPERATIONS
East Coast Power L.L.C. -- Nine Months Ended September 30, 1999
Our results of operations for the nine months ended September 30, 1999
include the effect of the results of operations of the Acquired Group for the
period subsequent to the acquisition (February 5 to September 30,
32
<PAGE> 36
1999). Unless otherwise indicated, discussions with respect to Linden Venture,
Camden Venture and Bayonne Venture reflect the results of operations for the
full nine-month periods ended September 30, 1999 and 1998.
Our equity in earnings of affiliates for the nine months ended September
30, 1999 totaled $61.0 million, and we received $81.5 million in cash
distributions during the period subsequent to the acquisition.
Linden Venture. Revenues remained flat at $206.5 million for the nine
months ended September 30, 1999 as compared to revenues of $206.4 million
for the nine months ended September 30, 1998. Electricity revenues
increased by $2.8 million due primarily to a higher fuel component.
Electricity revenues in the nine months ended September 30, 1999 reflected
a $8.0 million limitation in the Linden power purchase agreement on the
pass-through of fuel costs compared with a $6.2 million limitation in the
prior period. Steam revenues declined by $2.7 million primarily due to
lower fuel costs, which are a component in the determination of the sales
price of steam, and the change in the amount of steam taken by Infineum.
See "-- Linden Steam Agreements." Costs and expenses totaled $174.2 million
in the nine months ended September 30, 1999, including one-time charges of
$46.4 million to terminate a management services agreement and $6.0 million
to terminate a gas management agreement. These amounts are included in
general and administrative and fuel costs, respectively. Excluding these
charges, costs and expenses decreased to $121.8 million for the nine months
ended September 30, 1999 from $127.8 million for the nine months ended
September 30, 1998, primarily as a result of a $5.7 million decrease in
costs associated with the major planned outage.
Linden Venture had net income of $36.4 million in the nine months
ended September 30, 1999 after $52.4 million of one-time charges discussed
above, compared to net income of $79.1 million in the nine months ended
September 30, 1998. Linden Venture made cash distributions of $96.5 million
in the nine months ended September 30, 1999 compared to $92.7 million in
the nine months ended September 30, 1998. The one-time charges of $52.4
million were allocated 100% to the Acquired Group, resulting in a net
income allocation of $17.3 million to the Acquired Group for the nine
months ended September 30, 1999. Excluding these one-time charges, the
Acquired Group was allocated earnings of $69.7 million in the nine months
ended September 30, 1999 compared to earnings of $50.6 million in the nine
months ended September 30, 1998. The Acquired Group's share of Linden
Venture cash distributions in the nine months ended September 30, 1999 was
$67.4 million compared to $53.8 million in the prior period.
Subsequent to the acquisition, Linden Venture reported earnings of
$78.8 million and made cash distributions of $76.8 million. Our share of
such earnings, $62.1 million, are included in our results of operations for
the nine months ended September 30, 1999, and our share of such cash
distributions, $54.0 million, are included in cash flows for the nine
months ended September 30, 1999. Our equity in the earnings of Linden
Venture, $37.4 million, is reported net of $24.7 million of amortization of
the excess of our investment in Linden Venture over our share of Linden
Venture's equity.
Camden Venture. Revenues decreased from $57.0 million for the nine
months ended September 30, 1998 to $54.4 million for the nine months ended
September 30, 1999, primarily as a result of a major planned outage in 1999
which decreased the plant's available capacity from 96% to 88% for the
period. Costs and expenses totaled $51.0 million in the nine months ended
September 30, 1999, including one-time charges of $12.8 million to
terminate a management services agreement and $1.6 million to terminate a
gas management agreement. These amounts are included in general and
administrative and fuel costs, respectively. Excluding these charges, costs
and expenses increased from $35.0 million in the nine months ended
September 30, 1998 to $36.6 million in the nine months ended September 30,
1999.
Camden Venture had a loss of $0.8 million in the nine months ended
September 30, 1999 after $14.4 million of one-time charges discussed above,
compared to earnings of $16.7 million in the nine months ended September
30, 1998. Camden Venture made cash distributions of $13.3 million in the
nine months ended September 30, 1999 compared to $12.7 million in the nine
months ended September 30, 1998. The one-time charges of $14.4 million were
allocated 100% to the Acquired Group resulting in a net loss allocation of
$4.5 million to the Acquired Group for the nine months ended September 30,
1999. Excluding these one-time charges, the Acquired Group was allocated
earnings of $9.9 million in the nine months ended September 30, 1999
compared to earnings of $12.7 million in the nine months ended
33
<PAGE> 37
September 30, 1998. The Acquired Group's share of Camden Venture cash
distributions in the nine months ended September 30, 1999 was $7.8 million
compared to $10.5 million in the nine months ended September 30, 1998.
Subsequent to the acquisition, Camden Venture reported earnings of
$10.4 million and made cash distributions of $10.9 million ($7.6 million
excluding a $3.3 million special distribution to the limited partner in
connection with the acquisition). Our share of these earnings, $7.3
million, is included in our results of operations for the nine months ended
September 30, 1999, and our share of these cash distributions, $5.7
million, is included in cash flows for the nine months ended September 30,
1999. Our equity in the earnings of Camden Venture, $2.8 million, is
reported net of $4.5 million of amortization of the excess of our
investment in Camden Venture over our share of Camden Venture's equity.
Bayonne Venture. Revenues decreased from $86.9 million in the nine
months ended September 30, 1998 to $81.8 million in the nine months ended
September 30, 1999. Electricity revenues for the nine months ended
September 30, 1998 include a $6.4 million fuel component adjustment related
to 1997 and 1996 operations. Excluding the adjustment, electricity revenues
were $1.5 million higher in the nine months ended September 30, 1999,
primarily reflecting a higher fuel component with respect to sales to one
of the electricity purchasers. Costs and expenses decreased from $45.3
million in the nine months ended September 30, 1998 to $41.7 million in the
nine months ended September 30, 1999, primarily due to a $5.2 million
decrease in costs relating to major overhauls. The other income included in
the nine months ended September 30, 1998 represents interest related to the
previously mentioned fuel component adjustment.
Bayonne Venture had net income of $34.9 million in the nine months
ended September 30, 1999, compared to earnings of $36.5 million in the nine
months ended September 30, 1998, and made cash distributions of $29.0
million in the nine months ended September 30, 1999, compared to $31.9
million in the nine months ended September 30, 1998. The Acquired Group's
share of Bayonne Venture's net income in the nine months ended September
30, 1999 and the nine months ended September 30, 1998, was $32.1 million,
and the Acquired Group's share of Bayonne Venture cash distributions in the
nine months ended September 30, 1999 was $26.6 million compared to $27.8
million in the nine months ended September 30, 1998.
Subsequent to the acquisition, Bayonne Venture reported earnings of
$29.3 million and made cash distributions of $23.7 million. Our share of
these earnings, $26.9 million, is included in our results of operations for
the nine months ended September 30, 1999, and our share of these cash
distributions, $21.8 million, is included in cash flows for the nine months
ended September 30, 1999. Our equity in the earnings of Bayonne Venture,
$20.8 million, is reported net of $6.1 million of amortization of the
excess of our investment in Bayonne Venture over our share of Bayonne
Venture's equity.
General and administrative costs (including operating overhead) for our
company totaled $5.5 million for the nine months ended September 30, 1999,
compared to the Acquired Group's costs of $2.6 million in the one-month period
in 1999 and $27.9 million in the nine months ended September 30, 1998. The
reasons for the lower costs reported by our company are discussed in "-- The
Acquisition -- Operating, General and Overhead Expenses."
We recorded interest expense of $65.6 million for the nine months ended
September 30, 1999. This amount includes $59.7 million in interest expense
related to the bridge loan, the senior secured notes, the Enron subordinated
note and the Linden Ltd. term loan, a $6.4 million write-off and amortization of
deferred costs related to the bridge loan, the Linden Ltd. term loan and the
senior secured notes offset by a $0.5 million amortization of the Linden Ltd.
term loan premium. See "-- Liquidity and Capital Resources -- Acquisition
Financing."
Our loan agreements require us to maintain compliance with certain
financial covenants, among other things. We believe that we are in compliance
with the terms and conditions of the loan agreements as of October 31, 1999.
34
<PAGE> 38
Acquired Group -- Year Ended December 31, 1998 Compared to Year Ended December
31, 1997
Equity in the earnings of affiliates of the Acquired Group increased from
$103.7 million in 1997 to $132.9 million in 1998. Cash distributions to the
Acquired Group from its affiliates increased from $102.3 million to $128.5
million over the same period.
Linden Venture. Revenues decreased from $299.0 million in 1997 to
$274.1 million in 1998. Electricity revenues decreased by $20.7 million
from period to period due primarily to a lower fuel component. Electricity
revenues also reflected a $7.0 million limitation in the Linden power
purchase agreement on the pass-through of fuel costs in 1998 compared with
a $4.7 million limitation in 1997. Steam revenues declined by $4.2 million
from period to period due primarily to a lower fuel price component and
lower steam take. The decline in revenues was more than offset by a $29.3
million decrease in operating costs. This decrease in operating costs was
primarily due to a $20.0 million decrease in fuel costs, a $6.9 million
decrease in depreciation expense as a result of the change in estimated
useful life of the facility and a $2.1 million decrease in operations and
maintenance costs, primarily reflecting a $1.9 million payment made in 1997
to terminate an operations and maintenance agreement and lower maintenance
costs. As a result of the decline in expenses, net income increased from
$103.6 million in 1997 to $107.7 million in 1998. The Acquired Group's
share of net income increased from $71.8 million in 1997 to $73.3 million
in 1998. However, cash distributions to the Acquired Group decreased from
$75.6 million to $74.0 million over the same period, primarily reflecting
changes in working capital.
Camden Venture. Revenues decreased from $80.2 million in 1997 to $73.1
million in 1998 due primarily to a lower fuel component. The decrease in
revenues from period to period was more than offset by a $11.1 million
decrease in operating costs during the period. This decrease in costs was
primarily due to a $5.9 million decrease in fuel costs, a $3.2 million
decrease in depreciation expense due to the change in the estimated life of
the facility and a $1.4 million decline in operations and maintenance
costs, primarily reflecting a $1.4 million payment made in 1997 to
terminate an operations and maintenance agreement. Net income increased
from $16.1 million in 1997 to $20.4 million in 1998. The Acquired Group's
share of net income increased from $14.7 million in 1997 to $15.0 million
in 1998. Income before depreciation increased $1.1 million (all
depreciation is allocated to the limited partner until its capital account
equals zero); however, an increase in debt principal payments, which are a
factor in the amount of net income allocated to the limited partner,
resulted in a decrease in the Acquired Group's share of net income. Cash
distributions to the Acquired Group increased from $8.6 million to $15.0
million from period to period, primarily reflecting lower capital
expenditures for the year.
Bayonne Venture. Revenues increased from $96.5 million in 1997 to
$116.6 million in 1998. Electricity revenues increased by $20.0 million
from period to period due primarily to a $6.4 million fuel component
adjustment related to 1997 and 1996 operations and a higher fuel component.
The fuel component adjustment reflects an adjustment agreed to by one of
the power purchasers in the first quarter of 1998 based upon an audit of
the power purchaser's calculation of the weighted average cost of gas for
prior periods. The fuel component in one of the Bayonne power purchase
agreements is tied to the utility's weighted average cost of gas for the
prior year, resulting in a time lag in the pass-through of fuel costs under
the contract. For example, while the fuel component was higher in 1998 than
1997, the cost of fuel decreased by $4.6 million from 1997 to 1998 due to a
decline in fuel prices. Operations and maintenance costs remained virtually
flat from 1997 to 1998. Depreciation expense decreased $3.9 million from
period to period reflecting the change in the estimated useful life of the
facility. Interest expense declined by $0.4 million from period to period,
reflecting lower debt outstanding, and interest income increased $1.1
million, reflecting interest on the previously discussed fuel component
adjustment. Net income increased from $20.3 million in 1997 to $50.5
million in 1998. The Acquired Group's share of net income increased from
$17.5 million in 1997 to $44.8 million in 1998, and cash distributions to
the Acquired Group increased from $18.1 million to $39.5 million over the
same period.
Operating overhead of the Acquired Group increased from $11.6 million in
1997 to $21.6 million in 1998. Operating overhead in 1998 includes $14.5 million
to "buy out" development bonuses which certain employees were eligible to
receive in subsequent periods and $1.8 million for development bonuses earned
35
<PAGE> 39
during the year. General and administrative expenses of the Acquired Group
increased from $19.9 million in 1997 to $20.2 million in 1998.
Acquired Group -- Year Ended December 31, 1997 Compared to Year Ended December
31, 1996
Equity in the earnings of affiliates of the Acquired Group decreased from
$114.8 million in 1996 to $103.7 million in 1997. Cash distributions to the
Acquired Group from its affiliates decreased from $116.7 million in 1996 to
$102.3 million in 1997.
Linden Venture. Revenues declined from $305.5 million in 1996 to
$299.0 million in 1997, primarily reflecting the effect of a $4.7 million
limitation in the Linden power purchase agreement on the pass-through of
fuel costs in 1997 compared to a $2.3 million benefit in 1996. Fuel costs
decreased by $0.5 million from 1996 to 1997. Operations and maintenance
costs increased $4.1 million from 1996 to 1997 primarily due to a hot gas
path inspection and a $1.9 million payment made in 1997 in connection with
the termination of an operations and maintenance agreement. General and
administrative expenses increased by $0.7 million from 1996 to 1997,
primarily reflecting higher insurance costs. From 1996 to 1997, other
income increased from $0.6 million to $1.1 million, reflecting increased
cash balances. Net income decreased from $112.8 million in 1996 to $103.6
million in 1997. The Acquired Group's share of net income decreased from
$81.3 million in 1996 to $71.8 million in 1997, and cash distributions to
the Acquired Group decreased from $77.7 million in 1996 to $75.6 million in
1997, reflecting the lower earnings.
Camden Venture. Revenues increased from $77.2 million in 1996 to $80.2
million in 1997, primarily due to a higher capacity factor under the Camden
power purchase agreement. From 1996 to 1997, fuel costs increased by $0.8
million, and operations and maintenance costs increased by $1.5 million,
primarily due to a $1.4 million payment in connection with the termination
of an operations and maintenance agreement. Interest expense decreased by
$0.5 million from 1996 to 1997. Net income increased from $15.0 million in
1996 to $16.1 million in 1997. The Acquired Group's share of net income
increased from $14.2 million in 1996 to $14.7 million in 1997. However,
cash distributions to the Acquired Group decreased from $14.5 million in
1996 to $8.6 million in 1997, primarily due to a $4.0 million increase in
capital expenditures primarily due to the investment in a new air inlet
chiller at the Camden Facility in 1997.
Bayonne Venture. Revenues increased from $95.3 million in 1996 to
$96.5 million in 1997, reflecting a $2.4 million increase in electricity
revenues primarily due to the pass-through of a higher fuel cost factor and
a $1.2 million decrease in steam revenues primarily due to a lower fuel
price component and lower steam take. Fuel costs decreased by $2.0 million
from period to period, reflecting the use of alternative fuels in 1996 and
lower fuel prices in 1997. This cost decline was more than offset by a $5.9
million increase in operations and maintenance costs due primarily to a
$2.7 million charge in 1997 for an unplanned overhaul of a gas turbine at
the project and a $1.2 million payment in 1997 in connection with the
termination of an operations and maintenance agreement. Interest expense
declined from $8.5 million in 1996 to $8.1 million in 1997, reflecting
lower debt outstanding. Net income decreased from $22.7 million in 1996 to
$20.3 million in 1997. The Acquired Group's share of net income decreased
from $19.6 million in 1996 to $17.5 million in 1997, and cash distributions
to the Acquired Group decreased from $24.5 million in 1996 to $18.1 million
in 1997, primarily reflecting changes in working capital.
Corporate overhead allocated to the Acquired Group by its affiliates
increased from $9.6 million in 1996 to $11.6 million in 1997, reflecting an
increase in management time relating to the operations and strategic
alternatives with respect to the Acquired Group. General and administrative
costs of the Acquired Group also increased from $10.9 million in 1996 to $19.9
million in 1997, principally reflecting an increase of $7.2 million in charges
for the use of corporate aircraft from 1996 to 1997.
Interest expense declined from $23.3 million in 1996 to $21.8 million in
1997, primarily reflecting lower outstanding long-term debt and fluctuations in
interest rates.
36
<PAGE> 40
LIQUIDITY AND CAPITAL RESOURCES
Acquisition Financing
We financed the acquisition in part with an $831 million bridge loan and a
$250 million subordinated note issued by us to Enron. We repaid all amounts
outstanding under the bridge loan and a portion of the amount outstanding under
the subordinated note with the proceeds of the offering of the outstanding notes
and an equity contribution by JEDI II. The subordinated note bears interest at
9% per annum and matures on July 15, 2017.
On April 20, 1999 we sold $850.0 million of senior secured notes in three
tranches as follows: $296.0 million of 6.737% notes due 2008, $236.0 million of
7.066% notes due 2012 and $318.0 million of 7.536% notes due 2017. The 2008
notes bear interest at 6.737% per year and are repayable in 36 quarterly
installments of varying amounts beginning on June 30, 1999, with the final
payment due March 31, 2008. The June 30, 1999 payment of $12.1 million and the
September 30, 1999 payment of $3.9 million reduced the original principal amount
of the 2008 notes to $279.9 million. The 2012 notes bear interest at 7.066% per
year and are repayable in 17 quarterly installments of varying amounts beginning
on March 31, 2008, with the final payment due March 31, 2012. The 2017 notes
bear interest at 7.536% per year and are repayable in 22 quarterly installments
of varying amounts beginning on March 31, 2012, with the final payment due June
30, 2017. Interest on the outstanding notes is payable quarterly, with the first
interest payment made on June 30, 1999.
The outstanding notes are senior secured obligations which rank senior in
right of payment to all existing and future subordinated indebtedness and pari
passu in right of payment with all existing and future senior secured
indebtedness. In addition, the outstanding notes are structurally subordinated
to all indebtedness and other liabilities, including trade payables, of our
subsidiaries and to the distribution rights of minority partners in the
ventures. The outstanding notes are secured by the pledge by our owners of their
interest in our company, our pledge of our ownership interests in certain of our
subsidiaries that own indirect interests in the facilities and the pledge of
Linden Ltd.'s $289.6 million intercompany subordinated note payable to us.
The terms of the outstanding notes limit our ability to pay dividends,
incur additional indebtedness, make payments on subordinated debt and make
certain other restricted payments. The terms of the outstanding notes also
require us to fund a debt service reserve account unless we provide acceptable
debt service credit support in the form of an Enron undertaking or an acceptable
letter of credit. Enron has provided the required undertaking, and, therefore,
we are not currently funding the debt service reserve account.
Also on April 20, 1999, in accordance with the terms of the limited
liability company agreement, JEDI II made an $80.0 million capital contribution
to us.
The proceeds from the sale of the outstanding notes and the capital
contribution by JEDI II were used to repay the bridge loan, make a $25.0 million
cash distribution to Enron North America, repay $62.1 million of the principal
amount of the Enron subordinated note and make an $11.9 million purchase price
adjustment payment in connection with the acquisition. The repayment of the
bridge loan resulted in the release of the $25.0 million guaranty on the loan by
CalPERS. The release was deemed to be a distribution to CalPERS.
General
We have received a proposal from Bank of America, N.A. with respect to a
$30.0 million subordinated credit facility, which we expect to use to fund our
capital expenditure projects and for general corporate purposes. This credit
facility has been approved by our management committee.
Capital Expenditures
Each of the capital expenditures projects described below is subject to
certain lender, partner and regulatory or third party consents which may delay
or prevent the projects. We are currently planning to finance the projects with
cash flow from operations at the project level and borrowings under the proposed
$30.0 million Bank of America subordinated credit facility.
37
<PAGE> 41
Linden. Linden Venture has proposed capital expenditures of approximately
$21.3 million and $86.6 million in the fourth quarter of 1999 and in the year
2000, respectively. Included in these proposed expenditures is approximately
$19.5 million and $54.9 million in 1999 and 2000, respectively, for the Linden
expansion project; $0.7 million and $10.6 million in 1999 and 2000,
respectively, for the Linden gray water project and $1.1 million and $21.1
million in 1999 and 2000, respectively, for the thermal energy storage project.
In June 1999, we entered into a letter of intent with Tosco Refining
Company that contemplates an expansion of the Linden Facility with the addition
of a sixth turbine generator to provide electricity and steam service to Tosco's
Bayway Refinery. Completion of the transactions contemplated by the letter of
intent are subject to, among other things, further negotiations, completion of
due diligence and receipt of necessary approvals.
Currently, the Linden Facility uses city water as the source for make-up
water. The gray water project is a reverse osmosis treatment plant which will
allow the Linden Facility to satisfy its make-up water needs with recycled
wastewater. The thermal energy storage project is designed to use available
electrical energy during off-peak hours for the production of a cold energy
(i.e., ice) reserve. This energy reserve will then be utilized during peak hours
to cool the inlet air feeding each of the Linden facility's gas turbines,
thereby increasing electrical output. The gray water and thermal energy storage
projects are subject, to, among other things, approval of the expansion to the
Linden facility, further negotiations and receipt of necessary approvals.
Camden. Camden Venture has no planned capital expenditures in 1999 or in
2000.
Bayonne. Bayonne Venture has no planned capital expenditures in 1999 or in
2000.
Existing Project and Subsidiary Debt
The following table summarizes the outstanding long-term indebtedness of
our subsidiaries at September 30, 1999:
<TABLE>
<CAPTION>
CURRENT LONG-TERM TOTAL MATURITY
------- --------- ------ --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Linden Ltd.(1)
Fixed rate............................................ $ 7.2 $ 81.6 $ 88.8 2007
Floating rate......................................... 7.9 88.7 96.6 2007
Working capital....................................... -- 10.0 10.0 2007
----- ------ ------
15.1 180.3 195.4
----- ------ ------
Camden Venture
Term loan -- Tranche A loan........................... 5.5 52.3 57.8 2007
Term loan -- Tranche B loan........................... 1.1 21.2 22.3 2009
----- ------ ------
6.6 73.5 80.1
----- ------ ------
Bayonne Venture
Term loan............................................. 4.1 61.0 65.1 2008
Equipment loan........................................ 0.4 -- 0.4 2000
----- ------ ------
4.5 61.0 65.5
----- ------ ------
Total......................................... $26.2 $314.8 $341.0
===== ====== ======
</TABLE>
- ---------------
(1) Does not include $3.7 million unamortized premium recorded in connection
with the acquisition.
38
<PAGE> 42
Linden Structure, Indebtedness and Cash Distributions
Linden Structure. The following chart shows the Linden ownership structure:
[LINDEN OWNERSHIP STRUCTURE CHART]
The development of the Linden facility was financed through equity
contributions to Linden Venture of $25.0 million from Linden Ltd. and $500.0
million from an owner trust created for the benefit of GECC and Dana Capital
Corporation, its co-investor. The owner trust receives distributions from Linden
Venture on a preferential basis. In addition, the Linden Venture partnership
agreement contains certain provisions that effectively restrict Linden Venture
from, among other things, entering into certain agreements or commitments,
selling or otherwise transferring assets, incurring indebtedness (other than
defined permitted indebtedness), creating or allowing any lien on its property
(other than defined permitted liens) and amending or modifying project
documents.
Linden Indebtedness. At September 30, 1999, Linden Ltd. had outstanding
indebtedness of $195.4 million under the term loan agreement (the "Linden Ltd.
Term Loan") with State Street Bank and Trust Company, as trustee. The Linden
Ltd. Term Loan is secured by the pledge by Linden Ltd. of its general
partnership interest in Linden Venture and certain segregated deposit accounts.
The Linden Ltd. Term Loan is comprised of a fixed rate portion, a floating rate
portion and a working capital portion, all of which mature September 1, 2007. At
September 30, 1999, $88.8 million was outstanding under the fixed rate portion,
$96.6 million was outstanding under the floating rate portion, and $10.0 million
was outstanding under the working capital portion. The fixed rate portion bears
interest at 8.8% with principal and interest payments due quarterly. Principal
payments with respect to the fixed rate portion increase by 2.85% each quarter
with the principal payment due December 1, 1999 being $1.7 million. The floating
rate portion bears interest at LIBOR plus 1.65%, with principal and interest
payments due quarterly. Principal payments with respect to the floating rate
portion increase by 2.85% each quarter, with the principal payment due December
1, 1999 being $1.9 million. The working capital portion bears interest at a one
month financial commercial paper rate plus 0.55%, with interest payable
quarterly.
39
<PAGE> 43
The Linden Ltd. Term Loan contains certain restrictions that significantly
limit or prohibit, among other things, the ability of Linden Ltd. to:
- incur indebtedness;
- make payments of certain indebtedness;
- pay distributions to its owners;
- make investments;
- engage in transactions with affiliates;
- create liens;
- sell assets; and
- engage in acquisitions, mergers and consolidations.
Linden Cash Distributions. The cash remaining after payment of taxes,
operating expenses and maintenance of required reserve funds ("Linden Venture
Distributable Cash") is distributed monthly by Linden Venture to Linden Ltd. and
the owner trust, in accordance with the allocations described below. Portions of
distributions of Linden Venture Distributable Cash to Linden Ltd. are deposited
in an escrow account held by Linden Ltd. for the benefit of the owner trust to
pay monthly (a) debt service requirements under the Linden Ltd. Term Loan and
(b) amounts required to maintain ratios (the "Required Payment Ratios"), for
specified periods, based upon (y) total Linden Venture Distributable Cash,
together with the amount of earnings on the working capital fund and interest
paid by Linden Venture on working capital loans from Linden Ltd. for such
period, to (z) Linden Venture Distributable Cash paid to Linden Ltd. under
Linden Tranche 1 (as defined below), together with debt service payments of
Linden Ltd. on the Linden Ltd. Term Loan, for the same period. No Linden Venture
Distributable Cash may be paid to Linden Ltd. if there exists any default under
the Linden Ltd. Term Loan. The Required Payment Ratios are calculated quarterly
and are required to be at least 1.2 to 1.0.
Linden Venture Distributable Cash is paid to the owner trust and Linden
Ltd. monthly based on three tranches of payments under the Linden Venture
partnership agreement. Linden Ltd. receives 1% and the owner trust, as the
limited partner in Linden Venture, receives 99% of Linden Venture Distributable
Cash up to a capped amount equal to approximately $3.0 million per month through
September 2001 and between $4.3 million and $4.8 million per month after
September 2001 ("Linden Tranche 1"). Linden Tranche 1 distributions are set at a
level such that, over a period of 22.5 years, the owner trust will be repaid an
amount equal to its initial equity investment plus an 8.4% return (including the
allocation of venture tax benefits).
The second tranche ("Linden Tranche 2") is the Linden Venture Distributable
Cash remaining after the Linden Tranche 1 payment, up to an amount equal to
twice the amount of Linden Tranche 1. Linden Tranche 2 distributions are
allocated 99% to Linden Ltd. and 1% to the owner trust. The third tranche
("Linden Tranche 3") is the remaining Linden Venture Distributable Cash in
excess of Tranches 1 and 2 and is distributed 10% to the owner trust and 90% to
Linden Ltd. The distribution of cash according to the terms summarized above
will be in effect until the date (the "Flip Date") which is the earlier of March
17, 2015 or the date upon which the owner trust has achieved a 6.338% return on
its initial equity investment. On the Flip Date, distribution of cash according
to the above mechanism ends, and all Linden Venture Distributable Cash will then
be distributed initially 30% to the owner trust and 70% to Linden Ltd. until the
owner trust has achieved a 6.338% after-tax rate of return, at which time the
owner trust's distributable percentage will be reduced to 20%. The owner trust's
distributable percentage will be further reduced to 10% and finally to 1% when
the owner trust has achieved after-tax rates of return of 7.338% and 8.338%,
respectively.
If there is a positive balance in the Arrears Account (as defined) at any
time prior to the Flip Date, distributions of Linden Venture Distributable Cash
that are normally distributed pursuant to Linden Tranche 2 and Linden Tranche 3
are instead distributed 99% to the owner trust and 1% to Linden Ltd. until the
balance in the Arrears Account equals zero, at which time the normal
distributions of Linden Tranche 2
40
<PAGE> 44
and Linden Tranche 3 resume. If a Tax Indemnity Event (as defined) occurs at any
time, all amounts of Linden Venture Distributable Cash that are normally
distributed to Linden Ltd. are instead distributed to the owner trust until
either the balance in the Tax Indemnity Account (as defined) equals zero or the
owner trust is made whole from a tax standpoint.
Upon the occurrence of a special event under the Linden Venture partnership
agreement, normal distributions are interrupted and Linden Venture Distributable
Cash is instead allocated 99% to the owner trust and 1% to Linden Ltd. Normal
distributions of Linden Venture Distributable Cash resume when the owner trust
receives a specified rate of return on its equity or the Special Event has
ceased to exist, whichever occurs earlier, provided that the Arrears Account
does not have a positive balance. In addition, so long as a Special Event is
ongoing, the owner trust may exercise certain powers with respect to the
management of Linden Venture.
Among other things, the following occurrences with respect to Linden Ltd.
and/or Linden Venture, as applicable, constitute special events which interrupt
normal distributions of Linden Venture Distributable Cash:
- false or misleading representations or warranties or the failure to
perform covenants with respect to certain documents;
- certain defaults in the repayment of certain indebtedness;
- certain failures of counterparties to perform under certain project
documents;
- voluntary or involuntary bankruptcy, receivership or similar proceedings;
- judgments in excess of $1,000,000;
- in certain circumstances, the levying upon, attachment or seizure of
property;
- certain dissolutions and liquidations; and
- the failure to maintain insurance and certain failures to comply with the
terms thereof.
Historical annual distributions from Linden Venture are set forth in the
table below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Linden Venture Distributable Cash
Distributions to owner trust:
Linden Tranche 1.............................. $ 48.7 $ 51.1 $ 50.8
Linden Tranche 2.............................. 0.7 0.8 0.8
Linden Tranche 3.............................. 0.3 0.1 --
--------- --------- ---------
49.7 52.0 51.6
--------- --------- ---------
Linden Venture Distributable Cash
Distributions to Linden Ltd.:
Linden Tranche 1.............................. 0.5 0.5 0.5
Linden Tranche 2.............................. 70.7 74.1 77.2
Linden Tranche 3.............................. 2.8 1.0 --
--------- --------- ---------
74.0(1) 75.6(1) 77.7(1)
--------- --------- ---------
Total distributions........................... $ 123.7 $ 127.6 $ 129.3
========= ========= =========
</TABLE>
- ---------------
(1) Includes amounts escrowed for payment of the Linden Ltd. Term Loan of $29.4
million, $28.9 million and $28.3 million for 1998, 1997 and 1996,
respectively.
41
<PAGE> 45
Camden Structure, Indebtedness and Cash Distributions
Camden Structure. The following chart sets forth the ownership structure of
Camden Venture:
CAMDEN OWNERSHIP STRUCTURE CHART
Camden Indebtedness. Camden Venture is a party to a term loan agreement
with GECC (the "Camden Venture Term Loan"). GECC assigned Tranche A of the
Camden Venture Term Loan to a group of banks and retained Tranche B. The Camden
Venture Term Loan is secured by a lien on the Camden Facility, Camden Venture's
revenues and other assets and a pledge of the general partnership interest of
Camden GP in Camden Venture. At September 30, 1999, the aggregate outstanding
principal balance of Tranche A, which matures May 1, 2007, was $57.8 million. At
September 30, 1999, the outstanding principal balance of Tranche B, which
matures May 1, 2009, was $22.3 million.
Tranche A accrues interest at the per annum rate of either (a) 3-month
LIBOR plus an increasing margin of 1.00% to 1.625% (1.25% for the period
November 3, 1998 to November 1, 2001) or (b) if such loan is in default, a prime
rate plus an increasing margin of 2.375% to 3.0% or the fed funds rate plus
2.5%, whichever is higher, with principal and interest payable quarterly.
Principal payments with respect to Tranche A increase each quarter by varying
amounts ranging from approximately 1.6% to approximately 4.8% of the prior
quarter's payment with the principal payment due February 1, 1999 being $1.3
million. Camden Venture has entered into an interest rate swap agreement with
GECC to fix the LIBOR portion of the interest rate with respect to Tranche A at
5.945%. The swap agreement has a notional amount equal at all times to the
outstanding principal balance of Tranche A. Tranche B accrues interest at the
annual rate of 11.4%, with interest and principal payable quarterly. Principal
payments with respect to Tranche B increase each quarter by varying amounts
ranging from approximately 1.6% to approximately 4.8% of the prior quarter's
payment, through May 1, 2007, with the principal payment due February 1, 1999
being $0.3 million, and the final eight
42
<PAGE> 46
principal payments averaging approximately $1.3 million each. Optional
prepayments on Tranche B are subject to a yield maintenance premium.
The Camden Venture Term Loan contains certain restrictions that
significantly limit or prohibit, among other things, the ability of Camden
Venture or its general partner, Camden GP, to incur indebtedness, make payments
of certain indebtedness, pay distributions to its owners, make investments,
engage in transactions with affiliates, create liens, sell assets, amend
material contracts and engage in acquisitions, mergers and consolidations. In
addition, the Camden Venture Term Loan requires Camden Venture to establish and
maintain security deposit accounts into which its revenues are deposited and
from which reserve accounts are funded and maintained for various obligations,
including the repayment of the Camden Venture Term Loan.
Camden Cash Distributions. Camden Venture Distributable Cash is the cash
remaining after the payment of:
- project expenses;
- fees and expenses owed to lenders, interest rate swap counterparties and
letter of credit issuers under the Camden Venture Term Loan;
- principal and interest on the Camden Venture Term Loan;
- reimbursement obligations owed on letters of credit issued under the
Camden Venture Term Loan; and
- reserve amounts required if the fixed charge coverage ratio of the Camden
Venture Term Loan is less than 1.2 to 1.0.
Absent the existence of a default under the Camden Venture Term Loan, Camden
Venture Distributable Cash is distributed monthly by Camden Venture to Camden GP
and GECC in accordance with the allocations described below.
Camden Venture Distributable Cash is paid to GECC and Camden GP based on
two tranches of payments under the terms of Camden Venture's partnership
agreement. Under the first tranche ("Camden Tranche 1"), Camden Venture pays to
GECC and the other lenders all amounts due for debt service expenses and other
obligations pursuant to the Camden Venture Term Loan. Also under Camden Tranche
1, GECC receives 99% and Camden GP 1% of Camden Venture Distributable Cash up to
a capped amount equal to approximately $0.3 million to $0.4 million per month
through May 2007 and varying amounts thereafter. Camden Tranche 1 distributions
are set at a level such that GECC will be repaid an amount equal to its initial
equity investment plus a 6.8% return thereon (including the allocation of all
venture tax benefits).
The balance of the Camden Venture Distributable Cash following satisfaction
of the Camden Tranche 1 obligations is distributed 99% to Camden GP and 1% to
GECC ("Camden Tranche 2"). The distributions of cash according to the above
mechanism ends April 1, 2010. Thereafter, Camden Venture Distributable Cash will
be distributed 10% to GECC and 90% to Camden GP.
If there is a positive balance in the monthly arrears account,
distributions of Camden Venture Distributable Cash that are normally distributed
pursuant to Camden Tranche 2 are instead distributed 99% to GECC and 1% to
Camden GP until GECC receives a distribution equal to the then current balance
of the monthly arrears account, which is decreased by the amount of such
distribution, at which time normal distributions of Camden Tranche 2 resume. If
there is a positive balance in the quarterly arrears account, distributions of
Camden Venture Distributable Cash that are normally distributed pursuant to
Camden Tranche 2, or which are otherwise distributable as a result of a positive
monthly arrears account balance as previously discussed, are instead distributed
99% to GECC and 1% to Camden GP until GECC receives a distribution equal to the
then current balance of the quarterly arrears account, which is decreased by the
amount of such distribution, at which time distributions as a result of a
positive monthly arrears account balance are made, if applicable. Otherwise,
normal distributions of Camden Tranche 2 resume. If a tax indemnity event occurs
at any time, all amounts of Camden Venture Distributable Cash that are normally
distributed to Camden GP are instead distributed to GECC until either the
balance in the tax indemnity account equals zero or GECC is made whole from a
tax standpoint.
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<PAGE> 47
Upon the occurrence of a special event under the Camden Venture partnership
agreement, normal distributions are interrupted and Camden Venture Distributable
Cash is instead allocated 99% to GECC and 1% to Camden GP. Normal distributions
of Camden Venture Distributable Cash resume when GECC receives a specified rate
of return on its equity or the Special Event has ceased to exist, whichever
occurs earlier, provided that the arrears account does not have a positive
balance. In addition, so long as a Special Event is ongoing, GECC may exercise
certain powers with respect to the management of Camden Venture.
Among other things, the following occurrences with respect to Camden GP
and/or Camden Venture, as applicable, constitute special events which interrupt
normal distributions of Camden Venture Distributable Cash:
- false or misleading representations or warranties or the failure to
perform covenants with respect to certain documents;
- certain defaults in the repayment of certain indebtedness;
- certain failures of counterparties to perform under certain project
documents;
- voluntary or involuntary bankruptcy, receivership or similar proceedings;
- judgments in excess of $1,000,000;
- in certain circumstances, the levying upon, attachment or seizure of
property;
- certain dissolutions and liquidations; and
- the failure to maintain insurance and certain failures to comply with the
terms thereof.
Historical annual distributions from Camden Venture are set out in the
table below:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Payments to GECC and lenders:
Camden Tranche 1............................................ $16.3 $16.0 $15.7
Camden Tranche 2.......................................... 0.1 0.1 0.1
----- ----- -----
16.4 16.1 15.8
----- ----- -----
Camden Venture Distributable Cash Distributions to Camden
GP:
Camden Tranche 1.......................................... 0.1 0.2 0.2
Camden Tranche 2.......................................... 14.9 8.4 14.3
----- ----- -----
15.0 8.6 14.5
----- ----- -----
Total Distributions............................... $31.4 $24.7 $30.3
===== ===== =====
</TABLE>
44
<PAGE> 48
Bayonne Structure, Indebtedness and Cash Distributions
Bayonne Structure. The following chart sets forth the ownership structure
of Bayonne Venture:
[BAYONNE OWNERSHIP STRUCTURE CHART]
The original development and construction of the Bayonne Facility was
financed through a term loan agreement (the "Bayonne Term Loan") with Prudential
Insurance Company of America and approximately $30.0 million in equity
contributed by the partners of Bayonne Venture.
Bayonne Indebtedness. As of September 30, 1999, Bayonne Venture had $65.1
million of outstanding indebtedness under the Bayonne Term Loan. The Bayonne
Term Loan is generally non-recourse to the partners of Bayonne Venture and is
secured by the Bayonne Facility and other Bayonne Venture assets and all the
revenues of Bayonne Venture. This indebtedness matures October 2008 and accrues
interest at the per annum rate of 10.85%, with accrued interest and principal
payable quarterly. The Bayonne Term Loan is non-callable through September 2002,
and thereafter may, at the option of Bayonne Venture, be prepaid at a premium on
the prepaid portion thereof calculated at a decreasing percentage which
commences at 10.85%.
The Bayonne Term Loan contains certain restrictions that significantly
limit or prohibit, among other things, the ability of Bayonne Venture to incur
indebtedness, make payments of certain indebtedness, pay distributions to its
owners, make investments, engage in transactions with affiliates, create liens,
sell assets and engage in acquisitions, mergers and consolidations. In addition,
the Bayonne Term Loan requires Bayonne Venture to create a debt service reserve
fund from net cash flow if Bayonne Venture's annual debt service coverage ratio,
calculated each quarter using the previous twelve months' financial information,
falls below 1.50x. Bayonne Venture must increase the reserve until funds held in
such reserve plus the funds available for debt service equal 1.50x the previous
twelve months' debt service. Any funds held in such reserve may be released as,
and to the extent that, the balance of funds retained in such reserve (if any)
together with Bayonne Venture's net cash flow cause Bayonne Venture's coverage
ratio to exceed 1.50x. Bayonne Venture
45
<PAGE> 49
has not been required to fund the debt service reserve. At September 30, 1999,
Bayonne Venture's debt service coverage ratio as calculated under the Bayonne
Term Loan was 4.3x.
Bayonne Venture has received a commitment letter from Southwest Bank of
Texas with respect to a $5.0 million credit facility, which is expected to be
used to fund the daily operating cash flow needs of the Bayonne facility. This
credit facility has been approved by the partners of Bayonne Venture.
Bayonne Venture Cash Distributions. The cash remaining after payment of
operating expenses, debt service and maintenance of required reserve funds
("Bayonne Venture Distributable Cash") is distributed monthly by Bayonne Venture
to each of the partners of Bayonne Venture according to each partner's
respective ownership percentages in Bayonne Venture. Under the Bayonne Term
Loan, Bayonne Venture is prohibited from making distributions to its partners
except in accordance with an approved operating budget. No distributions of
Bayonne Venture Distributable Cash may be made if there is a default under the
Bayonne Term Loan.
Historical annual distributions from Bayonne Venture are set forth in the
table below.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Bayonne Venture Distributable Cash Distributions:(1)
NJ Inc. (former managing general partner of Bayonne
Venture)............................................... $39.5 $18.1 $24.5
Minority general partners................................. 5.2 2.8 3.8
----- ----- -----
Total Distributions............................... $44.7 $20.9 $28.3
===== ===== =====
</TABLE>
- ---------------
(1) Historical annual distributions from Bayonne Venture to its general partners
do not correlate with the current ownership percentages of such partners due
to the purchase by NJ Inc. of an additional 5.25% interest in Bayonne
Venture in July 1998.
YEAR 2000
Many existing computer systems use only two digits to define a year. These
systems were designed and developed without considering the impact of the
upcoming change in century. When computer systems must process dates both before
and after January 1, 2000, two-digit year "fields" may create processing
ambiguities that can cause errors and system failures, resulting in potentially
serious operational problems. For example, computer programs that have
date-sensitive features may recognize a date represented by "00" as the year
1900, instead of 2000. These errors or failures may have limited effects, or the
effects may be widespread, depending on the computer chip, system or software,
and its location and function. For instance, there are embedded chips contained
within electric and steam generation equipment, and electric transmission and
distribution equipment that may be date-sensitive. In these circumstances where
an embedded chip fails to recognize the correct date, electric and steam
generation operations could be adversely affected.
The effects of the Year 2000 problem are exacerbated because of the
interdependence of computer and telecommunications systems in the United States
and throughout the world. This interdependence exists in virtually all
industries, and is certainly true for our company and our suppliers and
customers.
We use computer hardware and software to control and monitor many of the
major components of our electric and steam generation operations. Embedded chips
also exist in some aspects of generation, transmission and distribution. We have
implemented a program to address these issues to make our computer systems and,
where necessary, our embedded chips capable of processing dates later than 1999
in an effort to mitigate any adverse operational or financial impacts.
State Of Readiness
In June 1999 the facilities successfully implemented the Year 2000 Program
(the "Plan"), which was generally based on an approach developed by FERC.
General Electric is contracted to operate and maintain the facilities and has
been responsible for implementing the Plan and preparing the facilities for the
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Year 2000. The Plan embodies the following elements: awareness, inventory,
assessment, remediation, testing and contingency planning. Our plant managers
each are responsible for the Year 2000 program work at their respective plants,
and the Director of Operations has overall responsibility for all aspects of the
Plan. The following table sets forth the status of each element of the Plan at
each facility. The notation "C" indicates that the particular element has been
completed.
<TABLE>
<CAPTION>
AWARENESS INVENTORY ASSESSMENT REMEDIATION TESTING CONTINGENCY PLANNING
--------- --------- ---------- ----------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Linden............... C C C C C C
Camden............... C C C C C C
Bayonne.............. C C C C C C
</TABLE>
As directed by the Plan, a comprehensive inventory of the three facilities
has been completed, documented and assessed with regard to operational
criticality and Year 2000 readiness. At each facility, over 70 systems were
evaluated to determine their "mission-critical" status, resulting in the review
of over 500 individual components. The following systems were determined to be
mission-critical:
- distributed control systems;
- gas turbine and steam turbine control systems;
- continuous emissions monitoring systems; and
- fire protection systems.
At the Camden and Linden facilities, the distributed control systems were
made Year 2000 ready and have been tested. With respect to the Bayonne facility,
General Electric advised us that the distributed control systems have been
tested and are Year 2000 ready. In addition, we have been in contact with an
outside cogeneration facility of the same General Electric design and age as the
Bayonne facility and that facility has tested its distributed control system and
did not identify any remediation required to be Year 2000 ready.
The Bayonne, Camden, and Linden facilities have General Electric gas
turbine and steam turbine control systems. General Electric has advised us that
the Mark 3, 3A and 4 gas turbine and steam turbine control systems were already
Year 2000 ready. A minor change was made to the Mark 5 gas turbine and steam
turbine controls, and that system is now also Year 2000 ready. The Linden
facility has Mark 3A and 4 Simulators which were tested and did not identify any
remediation required to be Year 2000 ready. The air quality monitoring systems
were redesigned and the related software was rewritten in late 1998 and early
1999 to comply with the new reporting requirements of the Environmental
Protection Agency and the New Jersey Department of Environmental Protection.
These components are now Year 2000 ready. The fire protection and other systems
were found to be free of embedded chips and are, in most cases, analog devices
which are not date sensitive.
Other significant components at the facilities include digital relays,
transmitters, communications equipment and switchgear. Component suppliers have
been contacted and component readiness information has been documented. Where
necessary, components were replaced or upgraded to be Year 2000 ready.
We have also evaluated our exposure to Year 2000 problems of
mission-critical third parties with whom we conduct business. Our
mission-critical third party suppliers and systems are:
- fuel suppliers;
- water suppliers;
- utility transmission systems; and
- telecommunications systems with our utility company customers.
Failures of third party computer systems and embedded chips could have a
material impact on our ability to conduct our business. Third parties that are
considered mission critical have provided us their Year 2000 status, and we
expect them to be Year 2000 ready by late 1999 or before. These mission-critical
third-parties
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have assured us through verbal communications and written correspondence that
they currently are or will be Year 2000 ready. Our management therefore has a
high level of confidence that suppliers and customers have recognized the
potential for problems and are taking prudent action to mitigate risks.
Nonetheless, extended interruptions of the fuel and water supply, disruptions in
the transmission systems and/or losses of communications with our company's
utility company customers could result in the shutdown of the affected facility.
We have expended a total of approximately $200,000 on material and
approximately six man-months of effort preparing for the year-end rollover and
expect to expend an additional one-half man-month of effort to complete our
preparations.
As part of the Plan, we are developing contingency plans that deal with two
aspects of the Year 2000 problem: (1) that despite our good-faith, reasonable
efforts, we may not have satisfactorily remediated all of our internal
mission-critical systems; and (2) that outside systems may not be Year 2000
ready, despite our good-faith, reasonable efforts to work with outside entities.
Our contingency plans are being designed to minimize the disruptions or other
adverse effects resulting from Year 2000 incompatibilities regarding these
mission-critical functions or systems, and to facilitate the early
identification and remediation of mission-critical Year 2000 problems that first
manifest themselves after January 1, 2000. Our company's contingency plan
includes safe shutdown and quick restart scenarios in the event of a Year 2000
or other interruption and provides for the presence of additional operations,
maintenance and management staff at the facilities during the year-end rollover.
This increased presence will provide the necessary manpower to reestablish
control systems operations in the event of a failure and to restart generation
equipment in a timely fashion.
The contingency plans mitigate the risks associated with our
mission-critical third party suppliers and systems as follows:
- Alternate fuel capabilities at all three facilities and flexible
electric/steam generation configurations at two of the facilities add to
our capability to respond to potential problems associated with the
facilities' fuel supply. Our company's contingency plan for fuel supply
requires dual fuel operation during the year-end rollover. Our multi-unit
facilities at Linden and Bayonne will have all of their generators in
operation, with some units burning liquid fuel and the rest burning
natural gas. The Camden facility will remain on natural gas but will have
the ability to transfer to liquid fuel automatically if the natural gas
fuel supply is lost. All of the facilities' generation equipment can
operate an alternate fuel supply. We will have alternate fuel supplies at
each of the facilities in sufficient quantity to allow approximately four
to five days of continuous operation.
- Each of the facilities has alternate water supply sources in the event of
interruptions to their normal supply. Each facility has direct
connections (including backup connections) to the local water utility and
substantial onsite water storage. The onsite storage is used for makeup
water to the steam systems and for fire protection. In addition, the
facilities have cooling tower and storm water storage basins that can be
used in emergency situations to continue operations.
- The Linden facility has a "black start" diesel generator which will allow
it to be in a state of readiness if its utility customer is unable to
accept power. The Camden facility plans to lease a temporary diesel
generator which will allow it to be in a state of readiness if its
utility customer is unable to accept power. The Camden and Linden
facilities will therefore be able to come on-line rapidly following the
restoration of the utility transmission system. The Bayonne facility has
an alternate source of power that is supplied from a substation different
from the one where power from the facility is delivered which should
allow it to be in a state of readiness if its utility customer is unable
to accept power.
- Our contingency plan provides alternate means of communicating
effectively with electric power dispatchers. In the event of
interruptions in land line communications, each facility is equipped with
radio band communication equipment and cellular phones. Although we did
not participate, recent communications readiness/contingency programs
sponsored by FERC and NERC indicate that the year-end rollover will not
interfere with normal operations.
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In addition, all onsite tanks, including potable water, backup fuel and
water treatment chemical tanks, will be filled several days prior to the
year-end rollover. Onsite storage of the necessary chemicals will allow the
facilities to continue to produce demineralized water for their boilers.
Our company's contingency plans also contemplate an assessment of all its
mission-critical internal operational systems that use computer-based controls.
The procedure of implementing a contingency plan will be triggered by the first
occurrence of a Year 2000-related failure, and continue for as long as
circumstances require. It is important to note that a system can fail to
correctly process a new century date well before the actual rollover to
1/1/2000.
Worst Case Scenario
The Commission requires that public companies forecast the most reasonably
likely worst case Year 2000 scenario. In doing so, we are assuming that our Year
2000 plan will not be effective. Analysis of the most reasonably likely worst
case Year 2000 scenarios we may face leads to contemplation of the following
possibilities which, though unlikely in some or many cases, must be included in
any consideration of worst cases:
- widespread failure of electrical, gas, water and similar supplies by
utilities serving us;
- widespread disruption of the services of communications common carriers;
- similar disruption to means and modes of transportation for the Company
and its employees, contractors, suppliers, and customers;
- significant disruption to our ability to gain access to, and remain
working in, office buildings and other facilities; and/or
- the failure of substantial numbers of our mission-critical computer
hardware and software systems, including both internal business systems
and systems (such as those with embedded chips) controlling operational
facilities such as electrical generation, transmission, and distribution.
Among other things, we could face substantial claims by customers or loss of
revenues due to service interruptions, inability to fulfill contractual
obligations, inability to account for certain revenues or obligations or to bill
customers accurately and on a timely basis, and increased expenses associated
with litigation, stabilization of operations following mission-critical
failures, and the execution of contingency plans. We could also experience an
inability by our customers and others to pay, on a timely basis or at all,
obligations owed to us. Under these circumstances, the adverse effect on our
company, and the diminution of our revenues, would be material, although not
quantifiable at this time. Further in this scenario, the cumulative effect of
these failures could have a substantial adverse effect on the economy,
domestically and internationally. The adverse effect on our company, and the
diminution of our revenues, from a domestic or global recession or depression
also is likely to be material, although not quantifiable at this time.
We will continue to monitor business conditions with the aim of assessing
and quantifying material adverse effects, if any, that result or may result from
the Year 2000 problem.
Summary
We believe that we will be able to achieve substantial Year 2000 readiness
with respect to the mission critical systems that we control. However, from a
forward-looking perspective, the extent and magnitude of the Year 2000 problem
as it will affect us, both before and for some period after January 1, 2000, are
difficult to predict or quantify. Accordingly, there can be no assurance that
all of our systems and all outside systems will be adequately remediated so that
they are Year 2000 ready by January 1, 2000, or by some earlier date, so as not
to create a material disruption to our business. If, despite our reasonable
efforts under the Plan, there are mission-critical Year 2000-related failures
that create substantial disruptions to our business, the adverse impact on our
business could be material. Additionally, Year 2000 costs are difficult to
estimate accurately because of unanticipated vendor delays, technical
difficulties, the impact of tests of outside systems and
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<PAGE> 53
similar events. Moreover, the estimated costs of implementing the Plan do not
take into account the costs, if any, that might be incurred as a result of Year
2000-related failures that occur despite our implementation of the Plan.
MARKET RISK DISCLOSURES
Our company's exposure to interest rate risk results from the Linden Ltd.
Term Loan. In regards to the floating rate and working capital portion of this
loan, a 10% fluctuation in LIBOR rates and in financial commercial paper rates
in effect during the first nine months of 1999 would not have a materially
adverse impact on earnings in the last quarter of 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Statement Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," in June 1998. The statement
requires that all derivatives be recognized at fair value as assets or
liabilities and that changes in fair value be recorded in earnings or other
comprehensive income. In July 1999, the FASB adopted SFAS No. 137, which defers
the required adoption date of SFAS No. 133 by one year to fiscal years beginning
after June 15, 2000. Our analysis of the potential impact of this statement has
not been completed.
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OUR BUSINESS
Our sole business is the ownership, operation and potential expansion of
our facilities, which are located in Linden, Camden and Bayonne, New Jersey. The
following information summarizes certain important information with respect to
our facilities:
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Location................... Linden, NJ Camden, NJ Bayonne, NJ
Equipment Type............. 5 GE Frame 7EA gas turbines 1 GE Frame 7EA gas turbine 3 GE Frame 6B gas turbines
3 GE condensing steam 1 GE condensing steam 1 GE SAEC steam turbine
turbines turbine
Nameplate Electric 715 MW 146 MW 176 MW
Capacity.................
Power Purchase
Agreement/Expiration..... Con Ed/2017 PSE&G/2013 JCP&L (75.8%)/2008
PSE&G (24.2%)/2008
Commercial Operations...... May 1992 March 1993 October 1988
Average Heat Rate
(1998)(1)................ 9,588 Btu/KWh 8,791 Btu/KWh 9,183 Btu/KWh
Historical Average
Availability
(1993-1998).............. 93% 96% 95%
Facility Dispatch.......... Dispatchable (restricted) Base load Base load
Facility Design Maximum
Steam Output Capacity.... 1,250,000 lbs/hr 92,000 lbs/hr 225,000 lbs/hr
Facility Design Steam Sales
Capacity................. 1,000,000 lbs/hr 60,000 lbs/hr 125,000 lbs/hr
Steam Sales/Expiration..... Bayway Refining Camden Paperboard/2013 IMTT-Bayonne/Year-to-Year
Company/2017 IMTT-BX/Year-to-Year
Infineum USA L.P./2017
Facility Operator.......... GE GE GE
Fuel Type.................. Natural Gas, Butane Natural Gas, Kerosene, Natural Gas, Kerosene,
Jet-A or L.S. Diesel Jet-A or L.S. Diesel
Approximate Daily Average
Fuel Requirements........ 110,000 MMBtu 30,000 MMBtu 36,000 MMBtu
Fuel Supply................ Spot(2) Spot(2) PSE&G -- CIG Tariff
Gas Transportation/
Expiration............... PSE&G and Elizabethtown/ PSE&G/2013 PSE&G -- CIG Tariff/5 days'
2017 termination
</TABLE>
- ---------------
(1) Without credit for steam production.
(2) The fuel supply for the Linden and Camden facilities is provided under
short-term firm gas supply contracts. The contract price is based on spot
gas prices plus a reservation charge.
THE LINDEN FACILITY
Linden Facility Description. The Linden facility is a 715 MW gas-fired,
combined-cycle cogeneration dispatchable facility located in Linden, New Jersey,
on the site of Bayway Refining Company, adjacent to a chemical plant complex and
technology center owned by Infineum USA L.P. The Linden facility began
commercial operations in May 1992.
During the last five full calendar years, the Linden facility had an
average availability factor of 93%. This facility sells its electric capacity
and energy (up to 645 MW) to The Consolidated Edison Company of New York, Inc.
under a power purchase agreement which expires in 2017. The Linden facility
provides steam to Bayway Refining Company, a subsidiary of Tosco Corporation,
and to Infineum USA L.P., a joint venture among Exxon Chemical Corporation, The
Shell Petroleum Company Limited and Shell Chemical Company, under agreements
which expire in 2017. We have operating and maintenance responsibility for the
Linden facility, but we have contracted with General Electric Company to provide
the day-to-day operation and maintenance of the plant.
The Linden facility is comprised of five GE Frame 7EA gas turbine
generators and three GE condensing steam turbine generators. Natural gas is
burned directly in the gas turbine generators to produce electricity
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and high temperature exhaust gases. The exhaust gases from the gas turbines are
channeled into five Nooter Eriksen heat recovery steam generators to produce
high pressure steam for the steam turbine generators. The steam turbine
generators produce additional electricity and process steam which is sold to
Bayway Refining and Infineum. The steam turbines, in turn, exhaust into a
multi-cell air cooled condenser to return condensate to the plant's water cycle.
The condensate produced by the air cooled condenser reduces the plant's water
consumption by approximately 66%. Condensate from process steam sold to Bayway
Refining and Infineum is not returned to the cycle. All raw makeup water is
purchased from Elizabethtown Water Company.
The Linden facility has been designed to operate 24 hours per day, 365 days
per year, for a total of 8,760 hours per year, at 93% availability, with design
net delivered capacity of 645 MW and export steam generation volume of 1,000,000
pounds per hour.
The 13.8 KV electrical power produced by the generators is stepped up to
345 KV. The SF6 gas insulated switch gear then delivers the electricity to an
underground, parallel connected pair of oil-filled cable ducts, which provide
the outgoing power connection directly to Con Ed, allowing the plant to be
treated as an "in-city" facility. The Linden facility's qualification as an
"in-city facility" is significant because, under current regulations, 80% of the
power used in New York City must be generated by "in-city" generators. This
electric interconnection terminates with Con Ed's Goethals Station on Staten
Island, New York. The total interconnection distance to Con Ed is approximately
1.6 miles. Each cable has potential transmission capacity of 650 MW.
The Linden facility has been designed, and is being maintained and
operated, to meet the strict environmental standards of the State of New Jersey.
The Linden facility uses best available control technology to reduce gas
turbine, water and noise emissions to the levels required and permitted by
federal and state regulators. Nitrogen oxide ("NOx") emissions levels are
controlled through steam injection into the turbine combustion chambers and by
selective catalytic reduction in the heat recovery steam generators. Carbon
monoxide ("CO") emissions are controlled by the design of the combustion
turbines.
Linden Power Purchase Agreement. Linden Venture sells all the electricity
up to the power production capacity produced by the Linden facility, net of
auxiliary plant loads and deliveries of electricity to steam customers, to Con
Ed pursuant to a power purchase agreement (the "Linden PPA"). Certain provisions
of the Linden PPA are summarized below.
Term: Base term of 25 years from May 1, 1992, the date of initial
commercial operations.
Regulatory Approval: Approval by the Public Service Commission of New York
(the "NYPSC") allowing Con Ed full recovery of all payments for the purchase of
electricity under the Linden PPA through its fuel adjustment clause was received
in 1991.
Pricing: Base term pricing is determined by the following components:
Capacity: Con Ed is required to pay a fixed capacity rate of 1.8553c per
KWh delivered or available, subject to a cap of 85% of the Linden
facility's dependable maximum net capability. The dependable maximum net
capability is determined by an annual capability test but may not exceed
an agreed maximum of 645MW. Kilowatt-hours delivered or available in
excess of the 85% cap during the 12 months preceding any off-peak months
can be credited to an off-peak month to the extent the total payments
for that month do not exceed the 85% cap. Linden Venture receives a
credit of 240,000 KWh in any month that Con Ed curtails deliveries, but
curtailment requests occurring in a peak period cannot be credited to an
off-peak period.
Fuel: Con Ed is required to pay actual fuel costs, including steam
commodity, transportation and storage costs attributable to electricity
actually delivered, subject to an annual cap of 2.634c per KWh
delivered, adjusted for changes in Con Ed's annual weighted average cost
of gas since 1989 (3.356c for September 1999). Linden Venture is
entitled to keep 50% of the amount by which actual fuel costs are less
than the annual cap. Actual fuel costs above the annual cap are absorbed
100% by Linden Venture. In addition, Con Ed is required to pay the full
costs attributable to steam generated by an outside source and delivered
to the Linden facility.
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Operating and Maintenance: Con Ed is required to pay an escalating
operations and maintenance ("O&M") rate equal to 0.9c per KWh as of the
inception of the Linden PPA, increasing by a local CPI inflation factor
on a monthly basis (1.268c per KWh for September 1999). The O&M
component is equal to this rate multiplied by KWhs delivered or
available subject to a cap equal to 90% of the Linden facility's
dependable maximum net capability. Kilowatt-hours delivered or available
in excess of the 90% cap during the 12 months preceding any off-peak
months can be credited to such month up to the 90% cap.
Pricing during any renewal periods and during curtailment is determined
by alternate mechanisms as set forth in the Linden PPA.
Curtailment: Con Ed is permitted to reduce the dispatch of the plant by
various amounts in certain periods. At any time during the term of the
Linden PPA, upon four hours' notice, Con Ed may reduce actual deliveries to
82% of the dependable maximum net capability. Upon 12 hours' notice, Con Ed
may reduce actual deliveries to 82% of the dependable maximum net
capability less 150 MW for an eight hour period on weekday nights a maximum
of 100 times a year. During the first 15 years of the Linden PPA, upon 24
hours' notice, Con Ed may reduce actual deliveries to 47% of the dependable
maximum net capability on weekends and certain holidays. In the last 10
years of the Linden PPA, Con Ed has the right, upon 24 hours' notice, to
reduce the dispatch of the plant to 47% of the dependable maximum net
capability on a continuous basis, with limited rights to cycle the plants
to higher loads. Con Ed's obligations to pay capacity and O&M charges are
unaltered by curtailment.
Voltage Support: The Linden facility must supply voltage support within a
specified range, as requested by Con Ed, at the point of interconnection,
to be measured at Con Ed's Goethals Station on Staten Island, New York.
Qualifying Facility Status: During any period in which the Linden facility
ceases, temporarily or permanently, to be a QF, the Linden PPA provides
that Con Ed's rates will be reduced 10%. The FERC may, however, require a
lower rate to be charged during such period. In addition, certain
additional obligations, as set forth in the Linden PPA, are imposed on
Linden Venture in the event of a loss of QF status.
Breach of Contract: Among other events, failure by the Linden facility to
use good faith efforts to resume deliveries after an outage of 120 days
constitutes a breach. Failure to perform for reasons of force majeure is
not deemed a breach.
Force Majeure: Either party to the Linden PPA may suspend performance
thereunder (except for any obligation to make payments) due to the
occurrence of force majeure, provided that the non-performing party
provides notice to the other party within 14 days of becoming aware of the
force majeure event and endeavors to remedy its inability to perform.
Linden Steam Sale Agreements. Steam produced by the Linden facility is sold
to Infineum and Bayway Refining under two separate agreements. Infineum is a
joint venture among Exxon Chemical Corporation, The Shell Petroleum Company
Limited and Shell Chemical Company. Exxon Chemical Corporation is a division of
Exxon Corporation, which has long term debt credit ratings from Moody's
Investors Service and Standard & Poor's Ratings Services of Aaa and AAA,
respectively. The Shell Petroleum Company Limited and Shell Chemical Company are
members of the Royal Dutch/Shell Group, which has a long term debt credit rating
from S&P of AAA. Bayway Refining is owned by Tosco Corporation, which has long
term debt credit ratings from Moody's and S&P of Baa2 and BBB, respectively. The
base term of both steam sale agreements expires in April 2017.
Steam Sales from Infineum to Bayway Refining. Historically, under the
Linden contractual steam arrangements, Bayway Refining has purchased all
steam in excess of Infineum's takes. The Infineum steam sale agreement
provides that Linden Venture's maximum delivery obligation is 181,000
lbs/hr for the months of October through and including May ("peak period")
and 109,000 lbs/hr for the months of June through and including September
("off-peak period"). On a historical basis, Infineum has taken
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approximately 120,000 lbs/hr during the peak period, which it receives at
no cost. However, Infineum recently began taking quantities of steam up to
its maximum contract quantity of 181,000 lbs/hr.
If Infineum elects to take steam up to the maximum contract quantity
during the peak and off-peak periods throughout the contract term, it is
estimated that distributions to our company from Linden Venture could be
reduced by approximately $1.3 million per year over the life of the
contract. It is possible that this amount could increase if Infineum seeks
to take quantities of steam in excess of the maximum contract quantity. The
Infineum steam sale agreement requires Linden Venture to deliver quantities
above the maximum contract quantities to the extent Linden Venture is able
to do so, provided that Linden Venture is not materially adversely affected
under the Linden PPA or Linden Venture's other agreements to sell steam to
other steam users.
Operating Standards for Qualifying Facilities. In order to be a
qualifying cogeneration facility under the Public Utility Regulatory
Policies Act of 1978, the Linden Facility must satisfy an operating
standard and an efficiency standard relating to the production of thermal
energy by the Linden facility. The operating standard requires that at
least 5% of a facility's total energy output must be useful thermal energy
used in an industrial or commercial process. If a facility achieves an
operating standard of 15% or more, then in order to satisfy the efficiency
standard, the useful power output of the facility plus one-half the useful
thermal energy output must be no less than 42.5% of the total energy input
of natural gas to the facility. If a facility achieves an operating
standard that is below 15% (but above 5%), the facility must achieve an
efficiency standard of at least 45%. The operating and efficiency standards
are calculated for the first 12 months of a facility's operations and for
each calendar year subsequent to the year in which the facility first
produces electricity. The facility commenced operations in 1992. From 1993
through 1998, the Linden facility achieved an operating standard no lower
than 28.6% and an efficiency standard no lower than 46.0% in any calendar
year.
In order to maintain its status as a qualifying facility, Linden
Venture relies on the fact that the demand for steam by Bayway Refining and
Infineum is significantly above the level required to achieve the minimum
operating and efficiency standards. The Linden steam sale agreements do not
have minimum steam purchase requirements that are tied to the Linden
facility maintaining qualifying facility status.
Linden Gas Service Agreement. Linden Venture is a party to a gas service
agreement (the "Linden GSA") with PSE&G and Elizabethtown Gas Company (the
"Suppliers"), providing for transportation and partial supply to be furnished
jointly by PSE&G and Elizabethtown Gas Company. Certain provisions of the Linden
GSA are summarized below.
Term: Base term of 25 years. Sales service terminates after 15 years,
unless extended by the Suppliers at the end of the 13th year, in which case
such sales service continues for an additional 10 years. If no such
election is made, the transportation resale service increases to the
maximum quantity during the final 10 years of the base term to replace the
terminated sales service.
Quantities: The base amount of gas provided pursuant to resale service is
85,000 MMBtu/day. The resale amount may be increased or decreased, subject
to a minimum quantity of gas of 73,000 MMBtu/day and a maximum quantity of
143,500 MMBtu/day, over the life of the Linden GSA. Gas delivered pursuant
to sales service is subject to nomination by Linden Venture and can range
from zero to 58,500 MMBtu/day. Sales service is fully interruptible, but
resale service may be curtailed only to the minimum quantity. Delivery of
butane may be used to satisfy the minimum quantity in periods of reduced
resale service quantity. Butane storage and deliverability are sized to
supply the minimum fuel requirements during gas supply interruption. During
such interruptions, the plant can be operated on butane at an output level
of only 300 MW due to butane deliverability restrictions. After the
fifteenth year, the parties may negotiate to adjust the quantities of gas
and butane to reflect changes in electricity purchases by Con Ed.
Obligations: Resale service under the Linden GSA creates an obligation on
Linden Venture to procure a sufficient supply of natural gas to deliver to
the designated interstate pipeline receipt points. Linden
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Venture must contract for a year-round supply of natural gas of 85,000
MMBtu/day plus line loss and compressor fuel. Such supply must be firm from
December through March and must be contractually committed for by the
preceding June 1. The Linden facility must purchase and make available to
the Suppliers certain quantities of butane storage and butane product,
which may be substituted by the Suppliers during curtailment on peak days
during the period November through March. The Suppliers must obtain firm
transportation capacity for a period of at least 15 years and obtain
interruptible transportation as necessary.
Services: Under resale service, Linden Venture purchases gas in the U.S.
Gulf Coast production areas from which the Suppliers have pipeline
transportation capacity. Linden Venture delivers to the pipeline receipt
points of the Suppliers in the production area the base amount of 85,000
MMBtu/ day, plus line loss and compressor fuel, and sells such amount to
the Suppliers at those locations. Suppliers then resell these amounts, less
line loss and compressor fuel, to Linden Venture at the Linden facility's
interconnections with the Suppliers' facilities. Resale service volumes are
at least the minimum quantity, plus line loss and compressor fuel. FERC
Order 636, issued April 1992, prohibits new contracts for such resale
transportation services. The Linden GSA is allowed under the grandfather
provision of FERC Order 636, but it cannot be extended or renewed. Subject
to nominations by Linden Venture, the Suppliers sell additional gas to
Linden Venture from their system supply in an amount that can range from
zero to 58,500 MMBtu/day. Butane also is purchased by Linden Venture from
Bayway Refining for use as back-up fuel if the suppliers fail to deliver
natural gas.
Pricing: Resale service pricing is based on the sum of three components:
- a component based on the price paid by the Suppliers for natural gas
sold to the Suppliers at their receipt points;
- a component based on transportation costs; and
- a component based on a specified service fee which can escalate.
Sales service is priced separately for peak and off-peak service.
Off-peak supply pricing is based on the sum of three components:
- a component equal to the Suppliers' cost of gas;
- a component based on a specified service fee which can escalate with
the Suppliers' base rates; and
- a component equal to 1.5% of the Suppliers' cost of gas.
Peak sales service during the months of December through March above a
specified level includes a price component based on storage costs.
Force Majeure: The Linden GSA may be terminated by the Suppliers for
lack of performance by Linden Venture due to the occurrence of force
majeure if the inability to perform extends for 18 months. This period
of time can be extended if certain fees are paid to the Suppliers by
Linden Venture. The Linden GSA may be terminated by Linden Venture if
the Suppliers experience a force majeure event that extends for six
months.
Linden Operation and Maintenance Agreement. General Electric operates and
maintains the Linden Facility pursuant to an operations and maintenance
agreement with a 12 year term which began in 1997. Linden Venture has the right
to terminate the agreement upon 180 days' notice and the payment of specified
amounts at the end of each of the fourth and seventh years and upon 180 days'
notice at the end of the tenth year.
Linden Site Lease. Linden Venture leases the site for the Linden Facility
from Bayway Refining. The term of the Linden site lease is 25 years from the
date of initial commercial operations of the Linden Facility of May 1992. Bayway
Refining is entitled to terminate the Linden site lease in the event Linden
Venture
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defaults under the Bayway Refining steam sale agreement (subject to various
protections in favor of Linden Venture). The Linden site lease provides Linden
Venture with both a leasehold estate in the Linden site and non-exclusive
easements over other portions of Bayway Refining's property for various
interconnections to the Linden Facility.
THE CAMDEN FACILITY
Camden Facility Description. The Camden facility is a 146 MW gas-fired,
combined-cycle cogeneration facility located in Camden, New Jersey. The Camden
facility began commercial operations in March 1993.
During the last five full calendar years, the Camden facility had an
average availability factor of 96%. This facility sells its electric capacity
and energy (up to 143 MW) to Public Service Electric and Gas Company of New
Jersey under a power purchase agreement which expires in 2013. The Camden
facility sells steam to Camden Paperboard Company under an agreement which
expires in 2013. We have operating and maintenance responsibility for the Camden
facility, but we have contracted with General Electric Company to provide the
day-to-day operation and maintenance of the plant.
The Camden facility is comprised of one GE Frame 7EA gas turbine generator
and one GE extractional condensing steam turbine generator. Natural gas is
burned directly in a combustion turbine generator to produce electricity and
high temperature exhaust gases. These exhaust gases are channeled to a Deltak
heat recovery steam generator to produce high pressure steam for a steam turbine
driven electric generator, providing additional electricity as well as quality
process steam for sale to Camden Paperboard Company. See "-- Camden Steam Sale
Agreement." The steam turbine exhausts into a water cooled surface condenser to
return condensate to the Camden facility's water cycle. All raw makeup water is
purchased from the City of Camden and treated for use by the plant's
state-of-the-art demineralizer system. The Camden facility design has been
optimized based on thermal cycle power output of 143 MW net and average export
steam generation volume of approximately 35,000 lbs/hour.
The 13.8 KV electrical power produced by the generators is stepped up to
230 KV and delivered to a gas insulated breaker and outdoor switchgear for
distribution and transmission into the PSE&G electric grid. An underground
dielectric fluid-cooled cable provides the outgoing power connection to PSE&G.
This cable interconnects with the PSE&G Gloucester Sub-station in Gloucester,
New Jersey, over an interconnection distance of approximately four miles.
The Camden facility has been designed, and is being maintained and
operated, to meet the strict environmental standards of the State of New Jersey.
The Camden facility uses best available control technology to reduce gas turbine
emissions to the level required and permitted by federal and state regulators.
NOx and CO emissions levels are controlled through steam injection into the
turbine combustion chamber and by the design of the combustion turbine. The
Camden facility incorporates a selective catalytic reduction system to further
reduce CO and NOx emissions.
Camden Power Purchase Agreement. Camden Venture sells the electrical
capacity of the Camden facility to PSE&G pursuant to a power purchase agreement
(the "Camden PPA") which also provides for the interconnection of the Camden
Facility with PSE&G's transmission system. Certain provisions of the Camden PPA
are summarized below.
Term: Base term through March 2013.
Regulatory Approval: NJBPU authorization was received in June 1989.
Pricing: Pricing is comprised of a capacity payment and an energy charge,
which has three components, each as described below:
Capacity: PSE&G is required to pay a monthly seasonal capacity payment
for power delivered to PSE&G's receipt point. The payment is escalated
at 5% per annum. The rate as of September 30, 1999 was
$14.6576/KW/month. Payments during the summer peak months will not
exceed the Camden Facility's current nominated capacity of 148.5 MW, and
payments during the winter peak months will not exceed the Camden
facility's current nominated capacity of 151.5 MW. Camden
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Venture has the right to adjust these seasonal capacity levels every
three years, with a cumulative maximum of 10% of the initial nominated
capacity of 135 MW during summer months and 145 MW during winter months.
Adjustments to date have resulted in the cumulative summer maximum being
achieved. In the event that any capacity in excess of the nominated
capacity has been delivered in either the summer or winter peak months,
PSE&G is entitled to a refund of a portion of the capacity charges to
the extent it has paid for such excess capacity.
Energy Fixed: PSE&G is required to pay a fixed energy component of
2.0c/KWh for power delivered to PSE&G's receipt point. The fixed energy
component remains unchanged for 20 years.
Energy Fuel: PSE&G is required to pay a fuel charge for power delivered
to PSE&G's receipt point which escalates monthly based upon PSE&G's
average cost of gas in the CIG tariff. The average cost of gas equals
PSE&G's average gas commodity cost plus a transportation component equal
to PSE&G's interstate pipeline usage charges and one-half of PSE&G's
interstate pipeline reservation charges. For September 1999, the
adjustable component was 2.526c/KWh.
Energy Inflation: PSE&G is required to pay an inflation component for
power delivered to PSE&G's receipt point which escalates annually based
on a GNP index. This component closely tracks a portion of the Camden
facility's pipeline charges and variable O&M costs, which tend to
increase with inflation. For September 1999, the inflation component was
1.254c/KWh.
Security: The tracking account under the Camden PPA tracks the difference
between payments PSE&G has made to Camden Venture and projected payments
based on PJM capacity and energy rates. These projections are fixed and set
out in the Camden PPA. The tracking account reached a maximum of $54
million during 1997 and will decline to zero by 2001. If a breach by PSE&G
were to result in a termination of the Camden PPA, Camden Venture would be
required to pay to PSE&G the amount, if any, by which the balance in the
tracking account exceeds the damages found to be due to Camden Venture as a
result of such breach. PSE&G has been granted a second lien on the Camden
Facility to secure its rights with respect to the security provisions of
the Camden PPA.
Curtailment: PSE&G is obligated to accept all of the Camden facility's net
electrical output, except in the following circumstances:
- the Camden facility fails to comply with certain interconnection,
protection and safety requirements and standards for customer-owned
generating facilities;
- such acceptance would jeopardize the integrity or transmission
facilities of the PSE&G or PJM systems;
- during system emergencies or planned maintenance of the transmission
or interconnection facilities; or
- during "light load" periods, if, due to operational circumstances,
PSE&G would incur costs greater than those that it would have incurred
if it had not made such purchases.
PSE&G has never curtailed deliveries pursuant to these provisions other
than for minimum general system emergencies and other than during "light load"
periods, which have occurred every year.
Qualifying Facility Status: If sections 201 and 210 of the Public Utility
Regulatory Policies Act of 1978 ("PURPA") are no longer in effect or the
Camden facility ceases to qualify as a QF for reasons not within its
control, including a reduction or cessation in thermal energy use, the
Camden PPA will nevertheless continue in effect provided the following
conditions are met:
- the NJBPU does not bar PSE&G from passing the rates through to its
customers;
- federal, state or local laws are not violated; and
- Camden Venture or its owners are not subject to unreasonably
burdensome regulation under the Public Utility Holding Company Act of
1935 ("PUHCA").
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However, in such circumstances, Camden Venture must file the Camden PPA
with the FERC, and the FERC might impose a lower rate. See
"Regulation -- Federal Energy Regulation." If one of the above events does
occur, Camden Venture and PSE&G must negotiate in good faith for an arrangement
with substantially similar economic benefits to each party as are provided under
the Camden PPA. If one of the above PURPA events occurs, and the NJBPU denies
rate pass-through of PSE&G's obligations under the Camden PPA, Camden Venture
and PSE&G must negotiate in good faith to provide a rate with substantially
similar economic benefits to each party, and which the NJBPU will permit PSE&G
to recover from its ratepayers. Any such agreement would be subject to approval
by the FERC. If the parties cannot reach such an agreement, either party may
exercise any other right afforded it under the Camden PPA.
Breach of Contract: Among other events, the failure by Camden Venture to
perform its obligations under the Camden PPA constitutes a breach unless,
within 30 days after notice from PSE&G, Camden Venture cures the breach or
commences and diligently pursues a cure. For any reason other than force
majeure or curtailment, failure to deliver electric power for 240 out of
365 days constitutes a breach. Such occurrences will be deemed events of
default which, if not remedied in 30 days, may be submitted to a regulatory
body with appropriate jurisdiction or arbitration for resolution.
Force Majeure: Either party to the Camden PPA may suspend performance
thereunder (except for any obligation to make payments for expenses already
incurred) due to the occurrence of force majeure, provided that the
non-performing party provides prompt notice to the other party of the force
majeure event and expeditiously takes action to remedy the event excusing
performance.
Camden Steam Sale Agreement. Camden Venture sells steam to Camden
Paperboard, a subsidiary of Caraustar Industries, Inc., which has long term debt
credit ratings from Moody's and S&P of Baa1 and BBB, respectively. The agreement
provides for a base period expiring in March 2013. Under the Camden steam sale
agreement, Camden Venture must sell and deliver steam up to a maximum quantity
of 50,000 lbs/hour. However, Camden Venture has agreed to take all reasonable
steps to provide up to 60,000 lbs/hour if requested by Camden Paperboard. Camden
Paperboard has agreed to accept and utilize a minimum quantity of steam
sufficient to preserve the Camden facility's QF status under PURPA. Camden
Paperboard's obligation is deemed satisfied if it purchases an amount averaging
23,000 lbs/hour from Camden Venture. Camden Paperboard's obligation to take the
minimum steam required for the Camden facility to maintain QF status will be
excused for a maximum of twelve months in the aggregate due to any of the
following:
- an event of force majeure;
- a major plant overhaul;
- retooling or equipment failure; or
- reduced plant capacity at Camden Paperboard's facility due to economic
conditions.
After such period, Camden Paperboard's obligation to take steam will be
unaffected by such events or conditions. Camden Paperboard is required to return
steam condensate in specified quantities and qualities. Steam is priced in two
increments. Camden Paperboard receives the first 35,000 lbs/hour at no cost;
thereafter, it pays one-half the avoided boiler fuel cost per 1,000 lbs/hour in
excess of 35,000 lbs/hour on a monthly basis. The Camden steam sale agreement
may not be assigned or transferred by either party without the prior written
consent of the other party, provided that either party may assign it to an
affiliate or a lender.
Camden Gas Service Agreement. Camden Venture is party to a gas service
agreement with PSE&G (the "Camden GSA"), certain provisions of which are
summarized below.
Term: Base term extends through May 2011.
Quantities: PSE&G must provide the Camden facility with firm gas
transportation (to burner tip) for up to 30,000 MMBtu/day and must
provide interruptible gas transportation service to Camden during peak
period curtailments if interstate pipeline capacity is available. Every
three annual periods following the date of commercial operations, Camden
Venture may adjust the daily quantity
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plus or minus 2,750 MMBtu/day from the original contract quantity of
27,500 MMBtu/day to reflect anticipated changes in the fuel requirements
of the Camden Facility.
Obligations: PSE&G must provide firm transportation for 30,000 MMBtu/day
(plus shrinkage) on a continuous, year-round basis, subject to a maximum
of 25 days of interruption per year on any day the U.S. Weather Bureau
forecasts certain average temperatures at Newark International Airport
in Newark, New Jersey. During such interruptions, the Camden facility
can burn kerosene, Jet-A or L.S. Diesel, although interruptible gas
service may be available via extended service or through other
arrangements that Camden Venture may make for incremental gas supplies.
PSE&G is required to obtain firm gas transportation for at least 15
years to provide the resale service. PSE&G is responsible for obtaining
any additional regulatory approvals that may be required in the future.
Camden Venture is obligated to deliver and sell the contract quantity of
gas to PSE&G at the receipt points and to purchase such gas at the
Camden facility upon delivery by PSE&G. Upon curtailment, the Camden
facility may substitute alternative fuels and also may use up to 22,000
barrels of alternative fuels in lieu of the resale service for up to 25
days per year.
Services: Gas purchased by Camden Venture is sold to PSE&G, with certain
exceptions, at a price equal to Camden Venture's cost and is then
delivered by PSE&G to the Camden Facility and resold to Camden Venture.
FERC Order 636, issued April 1992, prohibits new contracts for such
resale transportation services. The Camden GSA is allowed under the
grandfather provision of FERC Order 636, but it cannot be extended or
renewed.
Pricing: Resale service pricing is based on three components:
- the price per MMBtu at the receipt point;
- PSE&G's average cost of interstate transportation per MMBtu; and
- a service charge provided to PSE&G.
Force Majeure: The Camden GSA may be terminated in certain circumstances
by PSE&G for lack of performance by Camden Venture due to the occurrence
of force majeure if the inability to perform extends for a period of 18
months. Camden Venture may terminate the Camden GSA if PSE&G experiences
a force majeure event for a period of six months.
Camden Operation and Maintenance Agreement. General Electric operates and
maintains the Camden facility pursuant to an operations and maintenance
agreement with a 12 year term which began in 1997. Camden Venture has the right
to terminate the agreement upon 180 days' notice and the payment of specified
amounts at the end of each of the fourth and seventh project years and upon 180
days' notice at the end of the tenth project year.
Camden Site Arrangements. Camden Venture acquired the Camden site, which
consists of two adjacent parcels, in January 1992 prior to the commencement of
construction of the Camden facility.
THE BAYONNE FACILITY
Bayonne Facility Description. The Bayonne facility is a 176 MW gas-fired,
combined-cycle cogeneration facility located on the site of the IMTT facility in
Bayonne, New Jersey. FERC has certified the Bayonne facility as a QF under
PURPA. The Bayonne facility began commercial operations in October 1988.
During the last five full calendar years, the Bayonne facility had an
average availability factor of 95%. This facility sells approximately 76% of its
electric capacity and energy (up to 125 MW) to Jersey Central Power & Light
Company and approximately 24% (up to 40 MW) to PSE&G under separate power
purchase agreements which expire in 2008. The Bayonne facility sells steam to
IMTT-Bayonne and IMTT-BX under separate year-to-year agreements. We have
operating and maintenance responsibility for the Bayonne facility, but we have
contracted with General Electric Company to provide the day-to-day operation and
maintenance of the plant.
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The Bayonne facility is comprised of three GE Frame 6B gas turbine
generators and one GE Single Admission/Extraction Condensing steam turbine
generator. Natural gas is burned directly in a combustion turbine generator to
produce electricity and high temperature exhaust gases. The exhaust gases from
the gas turbines are channeled into three Henry Vogt heat recovery steam
generators to produce high pressure steam for a steam turbine driven electric
generator, providing additional electricity as well as extracting quality
process steam for sale to IMTT-Bayonne and IMTT-BX. The steam turbine exhausts
into a water cooled surface condenser to return condensate to the Bayonne
facility's water cycle. All raw makeup water is purchased from the City of
Bayonne.
The 13.8 KV electrical power produced by the generators is stepped up to
138 KV and delivered by SF6 switchgear to an underground cable which provides
the outgoing power connection to PSE&G. This cable interconnects with PSE&G's
Bayonne Substation in Bayonne, New Jersey, over an interconnection distance of
approximately three miles.
The Bayonne facility has been designed, and is being maintained and
operated, to meet the strict environmental standards of the State of New Jersey.
The Bayonne facility uses best available control technology to reduce gas
turbine, water and noise emissions to the levels required and permitted by
federal and state regulators. NOx emissions levels are controlled through water
injection into the turbine combustion chambers and by selective catalytic
reduction in the heat recovery steam generators. CO emissions are controlled by
the design of the combustion turbines.
The Bayonne facility has been designed based on a thermal cycle power
output of 165 MW net and average export steam generation volume of 125,000
pounds per hour. Recent upgrades to the three gas turbine generators, which were
completed in early 1998, increased the Bayonne facility's output by 6.7 MW.
Transmission Interconnections. Bayonne Venture is party to a transmission
service and interconnection agreement with PSE&G pursuant to which PSE&G agreed
to design, construct, own and operate a 138 KV underground transmission cable
circuit and associated terminal facilities to connect the Bayonne facility with
PSE&G's Public Service System at PSE&G's Bayonne Switching Station. The electric
power transmission facilities of PSE&G are interconnected with those of JCP&L,
and both PSE&G and JCP&L are members of the PJM. The initial term of the
agreement expires in 2008. A determination by the FERC that the Bayonne facility
is no longer a qualifying facility is an event of termination under the
transmission and interconnection agreement.
Bayonne Power Purchase Agreements. Bayonne Venture sells 75.8% of the
Bayonne facility's net electrical output (up to an average annual maximum of 125
MW) to JCP&L pursuant to a power purchase agreement (the "JCP&L PPA"). The
remaining 24.2% of electrical output of the Bayonne facility (up to 40 MW) is
sold to PSE&G pursuant to a power purchase agreement (the "PSE&G PPA"). Certain
provisions of the JCP&L PPA and the PSE&G and PPA are summarized below.
JCP&L PPA.
Term: Base term expires in October 2008.
Regulatory Approval: Approval by the New Jersey Board of Public Utilities
(the "NJBPU") was received in December 1985. The first amendment to the
JCP&L PPA was not submitted to the NJBPU for approval because the changes
were non-substantive. NJBPU approval of the second amendment to the JCP&L
PPA was received in December 1988.
Pricing: Pricing is determined by the sum of the fixed, gas, gross national
product and retail rate components (as explained below) and is adjusted
annually (the "Applicable Rate"). The JCP&L PPA requires that JCP&L pay
120% of the Applicable Rate for all electricity delivered during on-peak
periods and 88.9% of the Applicable Rate for all electricity delivered
during off-peak periods. The peak period is 8:00 am to 8:00 pm, Monday
through Friday, 52 weeks per year. The components are set forth below:
Fixed: The fixed component is 2.80c/KWh for electricity delivered to
receipt points, up to a maximum aggregate of 125 MW/hour on an average
annual basis.
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Gas: The gas component is indexed against changes in JCP&L's weighted
average cost of gas for the prior year. For September 1999, the gas
component was 3.027c/KWh for power delivered to receipt points, up to a
maximum aggregate of 125 MW/hour on an average annual basis.
GNP Deflator: The general price change component reflects inflation
adjustments. For September 1999, this component was approximately
0.973c/KWh for power delivered to receipt points, up to a maximum
aggregate of 125 MW/hour on an average annual basis.
Retail Rate: The local price change component reflects changes in
JCP&L's retail rates. For September 1999, this component was
approximately 0.792c/KWh, for power delivered to receipt points, up to a
maximum aggregate of 125 MW/hour on an average annual basis.
Qualifying Facility Status: The JCP&L PPA does not require the Bayonne
facility to remain a qualifying facility. However, should the Bayonne
facility lose its qualifying facility status, Bayonne Venture would be
required to file the JCP&L PPA with the FERC, and the FERC might impose a
lower rate.
Curtailment: JCP&L may curtail purchases only in the event of force majeure
and other excusable conditions, including emergencies involving the
wheeling system and interruptions, curtailments and reductions required by
prudent electrical practices. We do not anticipate that these limited
curtailment provisions will have a material effect on Bayonne Venture's
revenues under the JCP&L PPA. JCP&L has not curtailed power purchases to
date.
Breach of Contract: Among other events, failure of the Bayonne facility to
deliver electricity for 365 consecutive days, for reasons other than force
majeure, constitutes a breach.
Force Majeure: Either party to the JCP&L PPA may suspend performance
thereunder (except for any obligation arising prior to such event to make
payments) due to the occurrence of force majeure, provided that the
non-performing party provides prompt notice to the other party of the force
majeure event and expeditiously takes action to continue performance,
remedy the event excusing performance and mitigate resulting damages to the
other party.
PSE&G PPA.
Term: Base term expires in November 2008.
Regulatory Approval: NJBPU authorization was received in June 1989.
Pricing: Pricing under the PSE&G PPA is comprised of a capacity payment and
an energy charge which has three components, each as described below:
Capacity: PSE&G is required to pay a monthly seasonal capacity payment
for power delivered to PSE&G's receipt point. The payment is escalated
at 4.9% per annum. As of September 30, 1999, the rate was
$14.13/Kw/month. Payments during the summer peak months will not exceed
PSE&G's proportion of the Bayonne facility's nominated capacity of 150
MW (i.e., 36 MW), and payments during the winter peak months will not
exceed PSE&G's proportion of the Bayonne facility's nominated capacity
of 179 MW (i.e., 43 MW). Bayonne Venture has the right to adjust these
seasonal capacity levels every year, within a range of plus or minus 10%
of the initial or renominated values.
Energy Fixed: PSE&G is required to pay a fixed energy component of
2.0c/KWh for power delivered to PSE&G's receipt point. The fixed energy
component remains unchanged during the base term of the PSE&G PPA.
Energy Fuel: PSE&G is required to pay a fuel energy component for power
delivered to PSE&G's receipt point which escalates monthly in accordance
with PSE&G's Cogeneration Interruptible Gas Rate Schedule ("CIG") as
approved by NJBPU. The CIG rate is based on PSE&G's average cost of gas
and includes an additional component representing transportation through
the local distribution system. For September 1999, the fuel energy
component rate was 2.721c/KWh.
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Energy Inflation: PSE&G is required to pay an inflation component for
power delivered to PSE&G's receipt point which escalates annually based
on a GNP index. This component closely tracks a portion of the Bayonne
facility pipeline charges and variable O&M costs, which tend to increase
with inflation. For September 1999, the inflation component was
0.938c/KWh.
Security: The tracking account under the PSE&G PPA tracks the difference
between payments PSE&G has made to Bayonne Venture and estimated future
capacity and energy rates of the PJM. These estimates are fixed and set out
in the PSE&G PPA. The tracking account reached a maximum of $46 million
during 1997 and will decline to zero by 2005. If a breach by PSE&G were to
result in a termination of the PSE&G PPA, Bayonne Venture would be required
to pay to PSE&G the amount, if any, by which the balance in the tracking
account exceeds the damages found to be due to Bayonne Venture as a result
of such breach. Bayonne Venture has provided a letter of credit to PSE&G
for 10% of the tracking account ($4.6 million at September 30, 1999) to
secure its contingent obligation with respect to the security provisions of
the PSE&G PPA. If the tracking account has not been closed by the end of
the base term, Bayonne Venture may either (i) pay any credit balance due to
PSE&G or (ii) continue sales to PSE&G under terms that will reduce the
balance to zero over a maximum period of five years.
Curtailment: PSE&G may curtail purchases in the following circumstances:
- the Bayonne facility fails to comply with certain interconnection,
protection and safety requirements and standards for customer-owned
generating facilities;
- such acceptance would jeopardize the integrity or transmission
facilities of the PSE&G or PJM systems;
- during system emergencies or planned maintenance of the transmission
or interconnection facilities; or
- during "light load periods" if, due to operational circumstances,
PSE&G would incur costs greater than those that it would have incurred
if it had not made such purchases.
As of the date of this prospectus, PSE&G has curtailed the Bayonne
facility only pursuant to the "light load" provisions.
Qualifying Facility Status: If sections 201 and 210 of PURPA are no longer
in effect or the Bayonne facility ceases to qualify as a QF for reasons not
within its control, including a reduction or cessation in thermal energy
use, the PSE&G PPA will nevertheless continue in effect, provided the
following conditions are met:
- the NJBPU does not bar PSE&G from passing the rates through to its
customers;
- federal, state or local laws are not violated; and
- Bayonne Venture or its owners are not subject to unreasonably
burdensome regulation under PUHCA.
However, in such circumstances, Bayonne Venture must file the PSE&G PPA
with the FERC, and the FERC might impose a lower rate. See
"Regulation -- Federal Energy Regulation." If one of the above events does
occur, Bayonne Venture and PSE&G must negotiate in good faith for an
arrangement with substantially similar economic benefits to each party as
are provided under the PSE&G PPA. If one of the above PURPA events occurs
and the NJBPU denies rate pass-through of PSE&G's obligations under the
PSE&G PPA, Bayonne Venture and PSE&G must negotiate in good faith to
provide a rate with substantially similar economic benefits to each party,
and which the NJBPU will permit PSE&G to recover from its ratepayers. Any
such agreement would be subject to approval by the FERC. If the parties
cannot reach such an agreement, either party may exercise any other right
afforded it under the PSE&G PPA.
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Breach of Contract: Failure by Bayonne Venture to perform its obligations,
including a failure by Bayonne Venture to deliver electric power to PSE&G
for 240 out of 365 consecutive days for any reason other than force majeure
or curtailment, constitutes a breach unless, within 30 days after notice of
breach from PSE&G, Bayonne Venture cures the breach or commences and
diligently pursues a cure.
Force Majeure: Either party to the PSE&G PPA may suspend performance
thereunder (except for any obligation to make payments for expenses already
incurred) due to the occurrence of force majeure, provided that the
non-performing party provides prompt notice to the other party of the force
majeure event and expeditiously takes action to remedy the event excusing
performance.
Bayonne Steam Sale Agreements. Steam produced by the Bayonne facility is
sold to IMTT-Bayonne and IMTT-BX under two separate agreements. IMTT-Bayonne and
IMTT-BX are subsidiaries of Van Ommeren. The IMTT-Bayonne and IMTT-BX steam sale
agreements are described below.
IMTT-Bayonne. Pursuant to the IMTT-Bayonne steam sale agreement,
IMTT-Bayonne agrees to purchase from Bayonne Venture all of the thermal
energy requirements of its tank terminal facility, up to the deemed
maximum steam production of 57,000 lbs/hour, according to a pricing
formula based on IMTT-Bayonne's avoided cost of steam. The IMTT-Bayonne
steam sale agreement also provides for the sale of electricity to
IMTT-Bayonne at Bayonne Venture's option. Bayonne Venture has no current
plans to offer IMTT-Bayonne electricity. The IMTT-Bayonne steam sale
agreement provides for a base term of 10 years, which has expired, and
for automatic renewals thereafter for each subsequent year, unless
either party elects to terminate the agreement at the end of a renewal
year upon 60 days' notice. The IMTT-Bayonne steam sale agreement is
currently in full force and effect.
IMTT-BX. Under the terms of the IMTT-BX steam sale agreement, IMTT-BX
agrees to purchase from Bayonne Venture an average of 50,000 lbs/hour of
steam on an annualized basis, at all times that Bayonne Venture has a
minimum of 65,000 lbs/hour of deliverable steam. The pricing formula is
based on IMTT-BX's avoided cost of steam. IMTT-BX has the right to
reduce its required take of 50,000 lbs/hour to the extent that there are
changes in its operations which result in lower annual steam
requirements. The IMTT-BX steam sale agreement provides for an initial
term of five years, which has expired, and for automatic renewals for
each subsequent year, unless either party provides one year's written
notice of its intent to terminate the agreement. The IMTT-BX steam sale
agreement would then terminate one year after such notice or at an
earlier date upon which the parties mutually agree.
Bayonne Gas Supply Arrangement. Bayonne Venture is party to an agreement
for gas service with PSE&G, which provides that PSE&G will supply gas to Bayonne
Venture pursuant to the terms of the PSE&G CIG, as modified by the Bayonne gas
service agreement. The Bayonne facility requires an average of approximately
36,000 MMBtu/day. Certain provisions of the agreement are summarized below.
Term: Subject to termination upon five days' notice.
Quantities: Bayonne Venture may purchase up to a maximum of 3,000 Mcf/hour
and up to a maximum of 17,600,000 MMBtu/year.
Obligations: The Bayonne facility must maintain QF status.
Service: Interruptible service is provided by PSE&G under certain
conditions that include PSE&G's continuing ability to provide the service
and the Bayonne facility's continuing status as a QF. The Bayonne
facility's supply is subject to 100% interruption during very low
temperature days on eight hours' notice.
In the event that PSE&G interrupts gas service, the Bayonne facility can
utilize kerosene, which is stored at the site in a day tank with a capacity of
250,000 gallons. In addition, the Bayonne facility has approximately 60,000
barrels (equivalent to approximately 10 days' supply at full output) of storage
under lease from
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IMTT -- Bayonne adjacent to the site with direct pipeline transfer capability to
the Bayonne facility's day tank. Additional fuel is stored routinely by fuel
suppliers at the IMTT -- Bayonne terminal facility. Over the preceding four
winters, the Bayonne facility's gas supply has been interrupted a total of ten
days. During those periods of interruption, the plant continued to operate on
kerosene.
Pricing: Bayonne Venture is required to pay a monthly charge per MMBtu of
gas equal to the sum of:
- PSE&G's estimated average commodity cost of gas at the sources of the
gas;
- PSE&G's estimated interstate pipeline commodity charges;
- 50% of PSE&G's estimated interstate pipeline demand charges; and
- PSE&G's local distribution charge.
The average price of gas under the PSE&G CIG in 1998 was $2.978 per MMBtu.
Bayonne Operation and Maintenance Agreement. General Electric operates and
maintains the Bayonne facility pursuant to an operations and maintenance
agreement with a twelve year term that began in 1997. Bayonne Venture has a
right to terminate the Bayonne agreement upon 180 days' notice and the payment
of specified amounts at the end of each of the fourth and seventh project years
and upon 180 days' notice at the end of the tenth project year.
Bayonne Site Lease Agreement. Bayonne Venture leases the site for the
Bayonne facility from IMTT-Bayonne and Bayonne Industries, Inc. The initial term
of the Bayonne site lease is 20 years from May 22, 1986. After the expiration of
the initial term, the Bayonne site lease will automatically renew for two
succeeding terms, the first for two years and the second for 10 years, unless
Bayonne Venture elects to terminate the lease upon nine months' notice. Base
rent for the Bayonne facility is pre-paid for 20 years. The Bayonne site lease
provides Bayonne Venture with both a leasehold estate in the Bayonne site and
non-exclusive easements over other portions of Bayonne Industries' property for
various interconnections to the Bayonne facility.
COMPETITION
Our facilities sell power pursuant to long-term agreements with
investor-owned utilities in New York and New Jersey. Because of the terms of the
power purchase agreements for the facilities, our revenues are not significantly
impacted by competition from other sources of generation. The power generation
industry is rapidly evolving, however, and regulatory initiatives have been
adopted at the federal level and in both New York and New Jersey aimed at
increasing competition in the power generation business. As a result, it is
likely that when the power purchase agreements expire over the period of
2008-2017, the facilities will be required to compete in a significantly
different market in which operating efficiency and other economic factors will
determine success. We are likely to face intense competition from generation
companies throughout the region as well as from the wholesale power markets. See
"Regulation -- Federal Energy Regulation" and "-- State Energy Regulation."
EMPLOYEES
We have three officers who are responsible for the day-to-day management of
our affairs. Our company has approximately 30 employees in total. Upon the
request of our management, Enron may provide tax, human resource, legal, office
space, cash management, information technology, payroll and employee benefit
related services pursuant to our corporate services agreement with Enron. See
"Our Management -- Corporate Services Agreement." Under the Linden, Camden and
Bayonne O&M agreements, General Electric operates and maintains the facilities
and manages all aspects of their operations.
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INSURANCE
We have a comprehensive insurance program underwritten by recognized
insurance companies licensed to do business in the State of New Jersey, which
has been reviewed by an independent insurance consultant. The insurance program
includes:
- commercial general public liability, automobile liability and excess
liability insurance;
- property insurance, including "all risks" property damage (including
boiler and machinery); and
- 12 month business interruption insurance.
Limits and deductibles in respect of these insurance policies are comparable to
those carried by other electric generating facilities of similar size.
LITIGATION
Our subsidiaries are involved in or threatened with other various legal
proceedings from time to time arising in the ordinary course of business. We do
not believe that any liability arising from any such current proceedings will
have a material adverse effect on our consolidated results of operations or
financial position.
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REGULATION
Our Company is subject to complex energy, environmental and other laws and
regulations at the federal, state and local levels in connection with the
ownership and operation of the facilities. Federal laws and regulations govern
transactions by electrical and gas utility companies, the types of fuel which
may be utilized by an electric generating plant, the type of energy which may be
produced by such a plant and the ownership structure of a plant. State utility
regulatory commissions may examine the prudence of the rates and, in some
instances, other terms and conditions under which public utilities purchase
electric power from independent producers and approve the rates for sale of
retail electric power. Energy producing projects also are subject to federal,
state and local laws and administrative regulations which govern the emissions
and other substances produced, discharged or disposed of by a plant and the
geographical location, zoning, land use and operation of a plant.
FEDERAL ENERGY REGULATION
Public Utility Regulatory Policies Act of 1978 and implementing regulations
An electricity generating project must be a QF under FERC regulations in
order to take advantage of certain rate and regulatory incentives provided by
PURPA. PURPA exempts owners of all qualifying cogeneration facilities from PUHCA
regulation based on the ownership and operation of a QF, and exempts most
categories of QFs from most provisions of the Federal Power Act (the "FPA") and,
except under certain limited circumstances, state laws concerning rate or
financial regulation. We believe that each of the facilities currently meets the
requirements under PURPA for QF status.
PURPA provides two primary benefits to owners of QFs. First, QFs generally
are relieved of compliance with extensive federal, state and local regulations
that control the organizational and financial structure of an entity that owns
or operates an electric generating plant and the prices and terms on which
electricity may be sold by the plant to a wholesale purchaser. Secondly, FERC's
regulations promulgated under PURPA require that electric utilities purchase
needed electricity generated by QFs at a price based on the purchasing utility's
"avoided cost" and that the utility sell back-up power to the QF on a
non-discriminatory basis. The term "avoided cost" is defined as the incremental
cost to an electric utility of electric energy or capacity, or both, which, but
for the purchase from QFs, such utility would generate for itself or purchase
from another source. FERC regulations also permit QFs and utilities to negotiate
agreements for utility purchases of power at rates that differ from the
utility's avoided cost. Due to the decrease in energy prices in comparison to
energy prices in the 1980s, when many PURPA avoided cost contracts were
established, many existing QF contracts provide for avoided costs that are
considerably higher than the cost of power available from other sources.
The FERC and the federal appellate courts have rejected utility efforts to
reduce the prices in QF contracts unilaterally, without the consent of the QF
owner. In Freehold Cogeneration Associates, L.P. v. Board of Regulatory
Commissioners of the State of New Jersey et. al., 44 F.3d 1179 (3d Cir. 1995),
cert. denied, 516 U.S. 815 (1995), a ruling which the U.S. Supreme Court
declined to review, the U.S. Court of Appeals for the Third Circuit held that a
state regulatory commission is preempted by PURPA from lowering the rates for
purchases from a QF in a contract that the state commission had previously
approved. Similarly, in New York State Electric & Gas Corp., 71 FERC para.
61,027 (1995), order denying reconsideration, 72 FERC para. 61,067 (1995),
dismissed, 117 F.3d 1473 (1997), the FERC rejected a request by a utility that
the FERC hold that above-current market rates established in contracts between
QFs and a utility violate PURPA. The FERC held that its regulations do not
prohibit rates based on projected avoided costs where the rates subsequently
differ from actual avoided costs at the time of delivery and stated that it
would not disturb QF contracts if the contracts were not challenged as exceeding
avoided costs at the time they were signed.
In order to be a QF, a cogeneration facility must produce not only
electricity but also useful thermal energy for use in an industrial or
commercial process for heating or cooling applications in certain minimum
proportions to the facility's total energy output and must meet certain energy
efficiency standards. A QF also must not be more than 50% owned by an electric
utility company or by an electric utility holding company, or a subsidiary of
such a utility or holding company or any combination thereof. In the case of
partnerships, joint ventures and limited liability companies, the FERC has
defined "ownership" to mean that a utility may not
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receive more than 50% of the stream of economic benefits from the operation of
the QF or possess more than 50% control of the QF. The FERC has interpreted
"control" to mean the ability unilaterally to alter the "stream of benefits" or
enter into QF-related contracts with affiliates. Under the FERC's PURPA
regulations, a holding company that is exempt from PUHCA regulation pursuant to
Section 3(a)(1) of PUHCA is considered a "utility" for purposes of the FERC's
PURPA restrictions on utility ownership. Upon Enron's 1997 acquisition of
Portland General Corp. and its subsidiary Portland General Electric Co., Enron
became a holding company exempt under Section 3(a)(1) of PUHCA and a "utility"
for purposes of the FERC's PURPA ownership regulations. Consequently, the
aggregate of Enron's and any other utilities' ownership interest in a QF cannot
exceed 50%.
Certain factors necessary to maintain QF status are subject to risks
outside our control. For example, loss of a thermal energy customer or failure
of a thermal energy customer to take required amounts of thermal energy from a
cogeneration facility that is a QF could cause the facility to fail to meet
requirements regarding the level of useful thermal energy output. Upon the
occurrence of such an event, we would seek to replace the thermal energy
customer or find another use for the thermal energy which meets PURPA's
requirements, but we cannot assure you that this would be possible.
If one of the plants in which we have an interest should lose its status as
a QF, the plant would no longer be entitled to the exemptions from PUHCA, the
FPA and state law afforded to QFs under PURPA. Loss of such exemptions could:
- trigger certain rights of termination under power purchase agreements;
- subject the plant owner to rate and financial regulation as a public
utility under the FPA and state law; and
- if the plant owner were not an exempt wholesale generator ("EWG"), result
in our company inadvertently becoming a public utility holding company by
virtue of our owning more than 10% of the voting securities of, or
controlling, a facility that would no longer be exempt from PUHCA.
Loss of QF status might also trigger defaults under covenants to maintain QF
status in financing agreements and under the indenture. If a plant in which we
have an interest should lose its status as a QF and the FERC were not to waive
its QF regulations, FERC would require our venture that owns the plant to refund
to the utility power purchaser, an amount equal to the difference between the
contract rate and the utility's hourly marginal variable cost, plus interest,
for the period in which QF status was not retained and power sales were made at
the contract rate. If a power purchase agreement expressly provides for a rate
to apply in circumstances in which the facility is no longer a QF, as do some of
the power purchase agreements for the facilities, the FERC would permit that
rate to be charged, if it is shown that the contract "is the product of market
forces." If such a showing cannot be made, FERC precedent indicates that the
FERC would establish a rate based on the facility's cost-of-service, capped at
the contract rate. See "Our Business -- The Linden Facility -- Linden Power
Purchase Agreement," "-- The Camden Facility -- Camden Power Purchase Agreement"
and "-- The Bayonne Facility -- Bayonne Power Purchase Agreements."
Under current FERC policy, the FERC will continue to make available the
exemptions from PUHCA, the FPA, and state utility regulation available to a QF
that fails to satisfy the applicable standards unless the non-compliance was
marked by long duration or frequent occurrence. In addition, under the Energy
Policy Act of 1992, if the entity that owns a plant can be qualified as an EWG,
the entity will be exempt from PUHCA even if it does not qualify as a QF.
Therefore, another response to the loss or potential loss of QF status is to
qualify the plant as an EWG. Each of the facilities has been qualified as an
EWG. EWG status, however, may not address the potential default issues relating
to maintenance of QF status under power and steam purchase agreements and
financing instruments. EWGs must also apply to the FERC for rate approval for
wholesale transactions and are not permitted to make retail sales of electricity
(such as to the thermal energy customer) unless the facility is also a QF.
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Public Utility Holding Company Act of 1935
Under PUHCA, any corporation, partnership or other legal entity which owns
or controls 10% or more of the outstanding voting securities of a "public
utility company" or a company which is a "holding company" for a public utility
company is subject to registration with the Commission and regulation under
PUHCA, unless eligible for an exemption from regulation under PUHCA. A holding
company of a public utility company that is subject to registration is required
by PUHCA to limit its utility operations to a single integrated utility system
and to divest any other operations not functionally related to the operation of
that utility system. Approval by the SEC is required for nearly all important
financial and business dealings of a registered holding company. Most QFs are
not public utility companies under PUHCA. The Energy Policy Act of 1992, among
other things, amends PUHCA to allow EWGs, under certain circumstances, to own
and operate generation facilities without subjecting the owner or operator to
registration or regulation under PUHCA.
Federal Natural Gas Transportation Regulation
Each of our three power plants is fueled with natural gas. The cost of
natural gas is ordinarily the largest expense (other than debt costs) of a
venture and is critical to the venture's economics. The risks associated with
using natural gas can include:
- the need to arrange transportation of the gas from great distances,
including obtaining removal, export and import authority if the gas is
transported from Canada;
- the possibility of interruption of the gas supply or transportation
(depending on the quality of the gas reserves purchased or dedicated to
the plant, the financial and operating strength of the gas supplier and
whether firm or non-firm transportation is purchased); and
- obligations to take a minimum quantity of gas or pay for it (i.e.,
take-or-pay obligations).
Pursuant to the Natural Gas Act, FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a self-implementing
basis. However, pipeline rates for such services are subject to continuing FERC
oversight.
Proposed Deregulation
The United States Congress is considering proposed legislation which would
repeal PURPA entirely or at least repeal the obligation of utilities to purchase
energy from QFs at avoided costs. Importantly, virtually all of the pending
proposals to repeal PURPA would do so prospectively. That is, they would
"grandfather" or not impair or invalidate existing QF contracts.
Various bills also have proposed the repeal of PUHCA which would eliminate
some of the adverse consequences flowing from a loss of QF status, but also
would likely result in increased competition in the power generation business
and an acceleration of electric industry restructuring.
Many state legislatures and state utility commissions have already
implemented, and others are currently studying, a number of proposals to
restructure the electric retail industry in the United States. Such
restructuring could permit "customer choice" for retail customers. Retail
customers would be given the opportunity to choose their electricity supplier,
thus creating a more competitive energy market. In April 1996, the FERC issued
Order No. 888, which requires utilities to offer eligible wholesale transmission
customers non-discriminatory open access on utility transmission lines on a
comparable basis to the utilities' own use of the lines. Order No. 888 has been
the subject of rehearing and now is undergoing judicial review. Order No. 888
endorses the recovery of legitimate and verifiable "stranded costs" (fixed costs
that will be "stranded" by the ability of wholesale customers to choose new
electric power suppliers). These may include the costs utilities are required to
pay under many QF contracts which some utilities view as excessive when compared
with current market prices. Many utilities are therefore seeking ways to lower
these QF contract prices or rescind the contracts altogether out of concern that
their shareholders will be required to bear all or part of such "stranded
costs." Some utilities have engaged in litigation against QFs to achieve these
ends. In addition,
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future electric rates may be deregulated in a restructured United States
electric industry, and increased competition may result in lower rates and less
profit for sellers of electricity in the United States. The effect of any such
restructuring cannot be fully predicted.
The Clinton administration has announced a proposal to expand retail
competition in the United States electricity markets by the year 2003 under a
plan that would allow consumers to choose which electric company would supply
power to their residences and businesses. Under the proposal, states would be
required to open their markets to retail competition by January 1, 2003.
However, a state could "opt out" of retail competition, thus not allowing retail
customers a choice of supplier if it believes its consumers would be better off
under the status quo or an alternate state-crafted plan. In the event that a
particular state were to elect to maintain the status quo, it would be required
to hold public hearings to explain why competition in the electricity market in
that state would not be in the interests of its residents. A number of states
already have begun the process of opening their electricity markets to
competition. The administration's proposal would allow electric utilities to
recover reasonable "stranded costs," funds invested in nuclear and other
high-cost power plants (including contracts with QFs) that no longer may be
economically viable to operate in a competitive market. Individual states would
determine the amounts of the stranded costs that utilities would be permitted to
recover. The plan also attempts to address environmental concerns by requiring
that 7.5% of the electricity sold in the United States be generated from
renewable energy sources such as the wind or sun by 2010. In addition, the
proposal would supplement an Environmental Protection Agency proposal to limit
power plant emissions of nitrogen oxide (NOx) by giving EPA authority to
establish a NOx trading program. EPA would permit power plants to trade
pollution credits for nitrogen oxides, which combine with other air pollutants
to form ground-level ozone. There can be no assurance that such proposed
legislation will be enacted or, if enacted, as to the effect that it may have on
the power generation industry or our business.
Over the last four years, Congress has considered various pieces of
legislation to restructure the electricity industry, including those described
above, that would require customer choice, repeal PURPA, repeal PUHCA, and the
like. The debate is likely to continue, and perhaps intensify, during the
current Congress. The prospects for the enactment of any new legislation are
uncertain. The effect of enacting any such legislation cannot be predicted with
any degree of certainty. It seems likely that the existing PURPA contracts would
be given favorable treatment in any successful legislative proposal. The
effects, of any possible PUHCA amendments are more difficult to predict. They
could conceivably have a material adverse effect on our company. But it seems
more likely that Congress would want to encourage increased competition in
generation, rather than discourage it. Thus, it can be expected to deal in a
positive way with any likely transitional issues stemming from PUHCA repeal in
an effort to encourage new generating capacity, and new generation owners,
rather than to discourage new competitors.
STATE ENERGY REGULATION
State public utility commissions ("PUCs") have historically had broad
authority to regulate both the rates charged by, and the financial activities
of, electric utilities and to promulgate regulations for implementation of
PURPA. Since a power sales contract becomes a part of a utility's cost structure
(generally reflected in its retail rates), the utility's costs associated with
power sales contracts with independent electricity producers are potentially
under the regulatory purview of PUCs. If a PUC has approved the process by which
a utility secures its power supply, it is generally inclined to "pass through"
the expense associated with an independent power contract to the utility's
retail customers. In addition, retail sales of thermal energy by an independent
power producer may be subject to PUC regulation depending on state law.
Independent power producers which are not QFs under PURPA are considered to be
public utilities in many states and are subject to broad regulation by a PUC,
ranging from the requirement of a certificate of public convenience and
necessity to regulation of organizational, accounting, financial and other
corporate matters. States may assert jurisdiction over the location and
construction of electric generating facilities including QFs and, with the
exception of QFs, over the issuance of securities and the sale or other transfer
of assets by these facilities.
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New Jersey
On April 30, 1997, NJBPU issued an order adopting its Final Report in the
Energy Master Plan process entitled "Restructuring the Electric Power Industry
in New Jersey: Findings and Recommendations." The principal goal of NJBPU
according to its Final Report was to open the electric generation market to
increased competition and thereby reduce generation and production costs. On
July 15, 1997, each of New Jersey's four electric utility companies filed a
restructuring plan, an unbundled rate filing, and a stranded costs filing with
NJBPU pursuant to the requirements of the NJBPU's Final Report. On September 14,
1998, legislation was introduced in the New Jersey Assembly to authorize the
NJBPU to permit competition in the New Jersey energy market. That legislation,
which was adopted by the New Jersey legislature on January 28, 1999 and signed
by the governor on February 7, 1999, provides that August 1, 1999 will be the
starting date for full retail choice, with full implementation no earlier than
June 1 but no later than August 1.
NJBPU concluded in its Final Report that electric utilities "should be
given an opportunity to recover from customers the costs associated with past
financial commitments made by the utility for the purpose of procuring
generating supplies to serve the retail electric customers in their service
territory." NJBPU also concluded, however, "there neither can nor should be a
guarantee provided for 100% recovery of stranded costs." These pronouncements
remain subject to current and future regulatory proceedings and actions by the
New Jersey legislature.
NJ Stranded Costs. The New Jersey legislation includes provisions for the
determination and recovery of stranded costs of electric utilities. Stranded
costs are defined by the legislation in Section 13(c) as "the amount by which
the net cost of an electric public utility's electric generating assets or
electric power purchase commitments, as determined by NJBPU pursuant to this
Act, exceeds the market value of those assets or contractual commitments in a
competitive supply market place and the costs of buydowns or buyouts of power
purchase contracts." NJBPU seeks to address the stranded costs that may be
created as a result of its decision "to open the power generation market up to
competition." NJBPU has determined to "limit the eligibility for stranded cost
surcharge recovery to costs related directly to utility power supply" including,
"utility generation plant, long and short-term power purchase contracts with
other utilities and long-term power purchase contracts with non-utility
generators." Stranded costs arising from the power purchase agreements
pertaining to the facilities discussed herein would appear to qualify for
coverage in the latter category.
The stranded costs filing of each utility will determine the specific
initial level of non-mitigatable stranded costs to be recovered by each utility.
Each of these stranded costs filings has been transmitted to the Office of
Administrative Law for evidentiary hearings. The JCP&L hearing commenced on
December 2, 1997. On May 19, 1999, the NJBPU approved a settlement which
provides for the recovery by JCP&L of $525 million of stranded costs associated
with above-market non-utility generator ("NUG") contracts. The PSE&G hearing
commenced on July 23, 1997. A partial settlement among Enron, PSE&G, the
independent power producer group, certain commercial consumers, a labor union
and certain other parties was approved by the NJBPU with minor modifications in
late April 1999. The settlement provides for the full and timely recovery of the
outer market costs with regard to the NUG contracts. A notice of appeal was
filed in October 1999 by a group of New Jersey industrial intervenors. The
notice does not make any reference to the recovery of the above-market costs of
the NUG contracts.
NJ Above Market Power Purchase Contracts. The JCP&L PPA received initial
regulatory approval on December 16, 1985 and final approval of the contract
amendment on December 8, 1986. The PSE&G PPA received regulatory approval on
July 5, 1989. The Camden PPA (with PSE&G) received initial approval on June 29,
1989 and final approval of contract amendments on February 27, 1991. The
approval orders found all contracts reasonable, fairly negotiated and prudent
through the term of the contract and permit recovery of all costs through the
companies' fuel clauses. Both PSE&G contracts contain a section entitled "Repeal
of PURPA" explaining the process for resolution of possible disallowance of
costs by NJBPU. NJBPU stated in its Final Report that utilities must and should
"take all available measures to mitigate stranded costs caused by the
introduction of retail competition," including the "buy-out or renegotiation of
existing purchased power contracts with non-utility generators." NJBPU has
acknowledged that it appears to lack jurisdiction to order modification of NUGs'
contracts and has determined that the "non-mitigatable costs associated with all
such
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contracts which have previously been reviewed and approved by NJBPU,
notwithstanding the specific date, must be eligible for stranded cost recovery."
NJBPU based its determination that it lacks jurisdiction to order
modification of NUGs' contracts on the decision of the Third Circuit Court of
Appeals in Freehold, which held that:
Once the [NJBPU] approved the power purchase agreement between Freehold and
JCP&L, on the grounds that the rates were consistent with avoided cost, any
action or order by the [NJBPU] to reconsider its approval or to deny the
passage of those rates to JCP&L consumers under purported state authority
was preempted by federal law. (Id., Freehold 44 F.3d at 1194).
NJBPU has interpreted the Freehold decision to mean that without
legislative action at the federal or state level, a state regulator has minimal
ability to subsequently adjust the pricing in such NUGs' contracts once
approved.
Notwithstanding NJBPU's acknowledgment that it appears to lack jurisdiction
to order modification of non-utility generators' contracts under current law, it
has "strongly encouraged all stakeholders to renew their efforts to explore all
reasonable means to mitigate independent power producer's contracts." NJBPU
further stated that the appropriate regulatory and legislative bodies may "wish
to review this issue to provide an added impetus for parties to these contracts
to seriously consider mitigation." JCP&L and PSE&G have reported to NJBPU that
they intend to pursue efforts to mitigate their above-market costs for NUG power
purchase agreements on a voluntary basis.
In conclusion, while New Jersey regulators have provided for recovery of
the "above market" or stranded costs associated with the power purchase
agreements, there will continue to be public scrutiny of those costs and
pressure to renegotiate the power purchase agreements, using all reasonably
available measures.
New York
Retail Electricity. The NYPSC has been conducting a generic "competitive
opportunities" proceeding to determine how to introduce competition into retail
electricity markets in New York. On May 20, 1996, the NYPSC issued a policy
statement in connection with that proceeding in which it endorsed a fundamental
restructuring of the electric industry in New York State. The NYPSC's goals, as
stated in its policy statement, are lower prices for consumers from competition,
increased choice of suppliers and services for customers, information
dissemination to allow educated consumer decisions, maintenance of the
reliability of the electric system, continuation of social/conservation
programs, mitigation of market power and continuation of the obligation to serve
customers. Pursuant to this policy, the NYPSC directed all New York utilities,
including Con Ed, to file proposed transition plans that address market
structure issues, the restructuring of their corporate organization, operational
constraints, a schedule allowing retail customers to choose an alternative
supplier of electricity, a rate plan for the duration of the transition period
and for recovering stranded costs.
Con Ed made such a filing on October 1, 1996. On March 13, 1997, Con Ed and
the NYPSC staff entered into a Settlement Agreement. Certain aspects of the
Settlement Agreement, which was approved by the NYPSC by order issued on
September 23, 1997, are summarized below. The summary of the Settlement
Agreement is qualified by reference to the actual terms thereof, copies of which
are publicly available as an attachment to the order.
The Settlement Agreement provides for a transition to a competitive
electric market by instituting "retail access" over a five-year period, a
five-year rate plan for the transition, a reasonable opportunity to recover
stranded costs, the divestiture by Con Ed of at least 50% of its New York City
fossil-fueled generating capacity (Con Ed subsequently agreed to divest 100% of
this capacity), and, subject to shareholder and other approvals that were
subsequently obtained, a corporate reorganization into a holding company
structure.
With respect to contracts to purchase electricity from a NUG, like Linden
Venture, the Settlement Agreement provides an incentive for Con Ed to mitigate
NUG costs during the transition period. Con Ed will be permitted to retain the
full reductions in fixed NUG costs during the five-year period and 30% of
reductions in variable NUG costs for a period of 18 months resulting from
renegotiation, buyout or buydown of NUG
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contracts exclusive of financing related savings from securitization. Con Ed
will be permitted a reasonable opportunity to recover the amount by which actual
costs of its purchases from NUGs exceed the market value after the transition
period. Any potential disallowance after the transition period will be limited
to the lower of 10% of the above-market costs or $300 million. The potential
disallowance will be offset by NUG contract mitigation achieved by Con Ed after
the beginning of the transition period and 10% of the gross proceeds from
generating unit sales to third parties. Con Ed will be permitted a reasonable
opportunity to recover any costs subject to disallowance that are not offset by
these two factors if it makes good faith efforts in implementing provisions of
the Settlement Agreement leading to the development of a competitive electric
market in its service territory. We believe that Con Ed is likely to
successfully offset all or a very substantial portion of its potential $300
million disallowance based upon recently completed NUG restructurings and the
proceeds from recently completed divestiture auctions. While stranded cost
recovery relating to the Linden PPA is not guaranteed, the Settlement Agreement
and Con Ed's actions and announcements to date appear consistent with our
expectations that Con Ed will achieve full recovery of such costs.
Linden Venture received initial regulatory approval on September 12, 1989
and final approval of contract amendments on May 9, 1991, pursuant to a Con Ed
petition for approval. Approval for the contract and contract amendments was
supported by affirmative recommendations from the NYPSC staff. The approval was
based on estimates that electricity purchased pursuant to the contract would be
less costly than estimates of Con Ed's long-run avoided cost. The NYPSC
authorized Con Ed to recover "all direct purchase costs incurred pursuant to the
Linden PPA through the utility's fuel adjustment clause."
To the extent Linden Venture operates in conformance with the Linden PPA,
Con Ed is entitled to full cost recovery without any subsequent regulatory
requirements. Nevertheless, there are ongoing investigations into certain
aspects of NYPSC regulation of NUG's in New York. The NYPSC has granted
utilities permission to closely monitor the QF status of plants having contracts
with New York utilities. This policy was challenged at the FERC, which affirmed
it with certain modifications. There is also still pending before the NYPSC a
request by the utilities for a clarification of their right to suspend purchases
from QFs due to operational circumstances (i.e., light load), when purchases
from QFs will result in costs greater than those which the utility would incur
if it did not make such purchases because of the inability to curtail other
"must-run" units. However, Con Ed specifically waived this right in the second
amendment to the Linden PPA.
Retail Natural Gas. In November 1998, the NYPSC issued a policy statement
pursuant to which it will encourage local distribution companies to exit the
business of selling natural gas to end users and instead become
transportation-only companies over the next three to seven years, subject to a
New York statutory provision that all end users have access to a "provider of
last resort." As noted in the discussion of the Linden PPA, Con Ed is required
to pay the actual fuel costs attributable to electricity actually delivered from
the Linden facility. Con Ed's fuel cost payment is adjusted for changes in Con
Ed's annual weighted average cost of gas since 1989, with Linden Venture either
absorbing excess costs or receiving an incentive payment for cost savings. If,
pursuant to the NYPSC policy, Con Ed ceases selling gas or reduces its sales
significantly, Con Ed's annual weighted average cost of gas may be altered
significantly and in a manner that is difficult to predict. In such a
circumstance, Con Ed may seek to negotiate a new method for determining Con Ed's
responsibility for fuel costs under the Linden PPA.
ENVIRONMENTAL REGULATION
Our operations are subject to numerous federal, state, and local laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection and restriction upon land use.
These laws and regulations primarily involve:
- the generation, handling, storage, transport, and disposal of hazardous
substances;
- the emission or discharge of air and water pollutants;
- the emission of noise from the facilities; and
- the implementation of safety and health standards with respect to our
facilities or the public or environment in general.
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In addition, these laws and regulations in many cases require us to secure
permits and other regulatory approvals with respect to its ongoing or planned
projects, which often triggers the need to comply with lengthy and complex
permitting or approval procedures, as well as impose ongoing reporting and
compliance obligations. Modified or renewed permits and authorizations may be
required for any physical or operational changes to our facilities. Failure to
comply with these applicable laws and regulations, including any permits or
authorizations required thereunder, may result in the assessment of
administrative, civil, and criminal penalties, imposition of cleanup costs and
liens, and, to a lesser extent, issuance of injunctions to limit or cease
operations. As discussed below, while we believe we are in substantial
compliance with applicable laws and regulations, there can be no assurance that
we will be able to obtain all necessary permits and approvals for proposed
projects or that compliance with new or changed environmental laws and
regulations would not have a material adverse effect on our results of
operations, financial condition, or competitive position.
Federal Clean Air Act (the "CAA")
Our operations are subject to the CAA and comparable state and local
requirements. As originally enacted, the CAA set guidelines for emission
standards for major pollutants (e.g., sulfur dioxide and oxides of nitrogen)
from newly built sources. Amendments to the CAA were adopted in 1990 which
contain provisions that attempt to reduce emissions from existing sources,
particularly previously exempted older power plants, and thus may result in
gradual imposition of certain pollution control requirements with respect to air
emissions from the operations of our facilities. We believe that all of our
plants are in compliance in all material respects with the applicable federal
and state performance standards under the CAA, the 1990 amendments, and
comparable state laws. In addition, the 1990 amendments to the CAA established
the Northeast Ozone Transport Region ("NEOTR") which required various states,
including New Jersey, to adopt more stringent controls on the pollutants that
contribute to the formation of low-level ozone (i.e., volatile organic compounds
and oxides of nitrogen). Pursuant to a 1994 Memorandum of Understanding between
the member states of the NEOTR, New Jersey has recently adopted regulations
implementing a region-wide plan for nitrogen oxide emissions. While our plants
are subject to this rule, and therefore subject to additional operating
requirements, we believe that the new rules do not have a material impact on our
ability to maintain our present level of operations.
Federal Clean Water Act (the "CWA")
Our operations are also subject to the CWA and analogous state laws
relating to the discharge of pollutants to surface and groundwaters. The CWA and
state laws also establish requirements for municipally-owned sewage treatment
plants, including pretreatment requirements for industrial users of those
plants. Local sewerage authorities also have established regulations governing
connections to and discharges into their sewer systems and treatment plants.
Pursuant to these laws and regulations, we are required to obtain permits for
the discharge of our wastewater and stormwater runoff and to develop and
implement spill prevention, control and countermeasure plans with respect to its
handling and storage of oil. We believe that we are in substantial compliance
with the requirements of the CWA and analogous state laws and that any
non-compliance would not have a material adverse effect on our company.
Resource Conservation and Recovery Act ("RCRA")
Our company generates wastes, including hazardous wastes, that are subject
to RCRA and comparable state statutes. RCRA regulates the generation, treatment,
storage, handling, transportation, and disposal of hazardous and non-hazardous
wastes. Moreover, the EPA and various state agencies have limited the approved
methods of disposal for certain hazardous and non-hazardous wastes. We believe
that we are in substantial compliance with RCRA and comparable state statutes,
and we do not expect the cost of disposal of the regulated wastes to be
material.
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or "Superfund")
CERCLA and similar state laws impose liability, without regard to fault or
the legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of a "hazardous
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substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
transported, disposed or arranged for the transport or disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources, and it is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment. The New Jersey Spill Act imposes
similar liability under state law for discharges of hazardous substances,
including petroleum products and, under certain circumstances, authorizes the
collection of treble damages from a responsible party. As of the present time,
we believe that we are not subject to liability for any Superfund or New Jersey
Spill Act matters. We generate wastes, including hazardous wastes, that are
transported offsite for disposal at third party waste disposal sites, however,
and thus we cannot assure you that we will not incur liability under CERCLA or
the New Jersey Spill Act in the future.
We currently own or lease properties that for many years in the past have
been used for oil refining and/or storage activities or other industrial
purposes. Although we believe that we are currently utilizing operating and
disposal practices that are in substantial compliance with applicable
environmental laws and regulations, historical operating and disposal practices
on the properties by third parties not under our control may have resulted in
the disposal or release of hydrocarbons or other wastes upon the properties or
on or under other locations where such wastes have been taken for disposal.
These properties and the wastes disposed thereon may be subject to CERCLA, RCRA,
and analogous state laws including the New Jersey Spill Act. Under such laws, we
could be required to remove or remediate previously disposed wastes (including
wastes disposed of or released by prior owners or operators) or property
contamination (including groundwater contamination by prior owners or operators)
to prevent future contamination.
New Jersey Industrial Site Recovery Act ("ISRA")
Our acquisition of our interests in the facilities resulted in the
triggering of ISRA, obligating the sellers (as the parties who transferred their
legal interests in entities indirectly owning or operating properties qualifying
as "industrial establishments") to comply with requirements under ISRA. In
general, ISRA requires entities who transfer such legal interests to notify the
New Jersey Department of Environmental Protection ("NJDEP") of the triggering of
ISRA and to obtain NJDEP approval prior to the closing of any such transfer of
legal interests. In order to obtain NJDEP approval for a triggering event, the
responsible party must conduct a satisfactory investigation of the environmental
conditions of the industrial establishments and, if necessary, commit to
undertake appropriate remedial measures to address any contamination present at
the industrial establishments. The sellers obtained NJDEP approval for the
transfer of their legal interests in each of the facilities. Based on the
foregoing, we believe that we will not incur any material cost with respect to
ISRA as a result of the acquisition of our interests in the facilities.
Nevertheless, we cannot assure you that any imposition upon our company of ISRA
cleanup requirements due to future events that trigger ISRA would not have a
material adverse effect on us.
New Jersey Toxic Catastrophe Prevention Act ("TCPA")
The TCPA requires owners of facilities that use an "extraordinarily
hazardous substance" to prepare a comprehensive risk management plan pertaining
to its use of such substances. Our Bayonne facility is subject to these
requirements due to its use of anhydrous ammonia in its air pollution control
systems. Similarly, our Camden and Linden facilities are subject to the TCPA due
to their use of aqueous ammonia. We believe that we are in material compliance
with the TCPA requirements.
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OUR MANAGEMENT
We are a member managed limited liability company, which means that our
members are responsible for managing our affairs. Under our limited liability
company agreement, our Class A Members have the authority to manage our business
and affairs. Our executive officers and employees, who include former officers
and employees of the entities we acquired in the acquisition, are responsible
for the day-to-day activities of our company.
Our Class B Members do not have any authority to manage our company.
However, we must have the consent of all Class B Members (or their successors)
to:
- change our business purpose;
- change or create obligations of the other members under our debt
agreements; or
- cause us to merge or consolidate with another company.
EXECUTIVE OFFICERS
We currently have three officers who are appointed by ECP Holding Company
and may be removed by ECP Holding Company at any time. Our officers are
responsible for the day-to-day management of our affairs, including our general
administrative affairs and the operation and maintenance of the facilities in
accordance with annual budgets approved by ECP Holding Company.
Ross D. Ain, 53, has served as President, Business Development of our
company since February 1999. From November 1994 to January 1999, he served as an
executive officer of various companies affiliated with the Acquired Group, most
recently as Vice Chairman of Cogen Technologies Generating Company. Prior to
November 1994, Mr. Ain was engaged in the private practice of law in Washington
D.C. as a partner with the firm of Van Ness Feldman, a Professional Corporation.
Joseph M. Bollinger, 52, has served as President, Generating of our company
since February 1999. From June 1986 to January 1999, he served as an executive
officer of various companies affiliated with the Acquired Group, most recently
as President of Cogen Technologies Generating Company. Prior to June 1986, Mr.
Bollinger held positions in engineering and project management with GE.
Robert J. Licato, 36, has served as Vice President -- Operations and
Secretary of our company since April 1999. From February 1992 to January 1999,
he served in various management positions of companies affiliated with the
Acquired Group, most recently as Director of Operations Support/Projects. Prior
to February 1992, Mr. Licato held positions in engineering and management with
Con Ed.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Mr. Ain and Mr. Bollinger.
Each of these agreements provides for an initial term of one year from the
closing of our acquisition of the facilities and for a renewal term of three
years following the expiration of the initial term.
Pursuant to these agreements, Mr. Ain and Mr. Bollinger each received a
signing bonus of $200,000. During the initial term of their employment
agreements, Mr. Ain and Mr. Bollinger each receive a monthly salary of
$16,666.67. They are also entitled to participate, on the same basis generally
as other employees in the same or similar positions, in all general employee
benefit plans and programs that we have made available to our employees on or
after the closing of our acquisition of the facilities. The agreements also
provide for a minimum bonus of $275,000 in the case of Mr. Ain and $300,000 in
the case of Mr. Bollinger. If either employment agreement is involuntarily
terminated prior to the expiration of the initial term, Mr. Ain or Mr.
Bollinger, as applicable, will receive all of the unpaid compensation discussed
above and, upon the execution of a release of employment-related claims, an
additional payment equal to the sum of twelve times the monthly salary received
during the initial term plus the amount of the signing bonus. If either Mr. Ain
or Mr. Bollinger terminates his employment agreement following a material breach
which remains uncorrected for thirty days, he will receive all of the unpaid
compensation discussed above and an additional payment equal
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to the sum of twelve times the monthly salary received during the initial term
plus the amount of the signing bonus.
Following the expiration of the initial term, Mr. Ain and Mr. Bollinger
will each receive an offer for an additional term of three years on terms
consistent with fair market conditions. If either employment agreement is not
extended for any reason, Mr. Ain or Mr. Bollinger, as applicable, will receive a
single lump-sum payment equal to the sum of twelve times the monthly salary
received during the initial term plus the amount of the signing bonus, reduced
by the amount of monthly salary paid for any continuing employment after the
initial term. However, Mr. Ain or Mr. Bollinger, as applicable, will not be
entitled to this payment if any payments have been made as a result of the
termination of the agreement following an uncorrected breach.
In addition, in connection with the execution of his employment agreement,
Mr. Ain is entitled to receive a retention bonus in the amount of $285,000. This
retention bonus vests 25% on each February 28, beginning February 28, 2000 and
ending February 28, 2003. If Mr. Ain is not employed on any such date, he will
not receive the portion of the retention bonus scheduled to vest on that date.
CORPORATE SERVICES AGREEMENT
At our request, Enron may provide certain corporate, administrative and
support services to our company and our subsidiaries under a corporate services
agreement. Fees paid under the agreement will be provided on a cost-plus basis,
which we believe will approximate the fair market value of the service actually
provided.
Either party may reduce the level of any of the services provided or
terminate the agreement upon 30 days' prior written notice.
RELATED PARTY TRANSACTIONS
Our company and our subsidiaries may from time to time enter into contracts
or other business relationships with one or more of our members or their
affiliates. For example, we expect that Enron will assist us in purchasing
natural gas for our power plants and in arranging for gas transportation
service. Enron may provide backup fuel management, power marketing or other
services to us and our subsidiaries. In addition, Enron has provided credit
support in the form of an undertaking which eliminates our obligation to fund a
debt service reserve account (as described in "Description of the New Notes"),
and Enron has also provided several letters of credit for our benefit. Enron and
El Paso Energy have agreed to share in the costs of providing this credit
support, for which we pay Enron and El Paso Energy a fee. Our limited liability
company agreement provides that the terms of such transactions be comparable or
at least as favorable to us as the terms of arm's length transactions among
unaffiliated parties and that the terms of the transaction be approved by all
Class A Members. In addition, the indenture provides that we may not, and may
not permit any subsidiary to, enter into any material transaction or arrangement
with any affiliate, whether or not in the ordinary course, that is not on terms
and conditions at least as favorable as would be obtained in a comparable arm's
length transaction with a person or entity other than an affiliate, as
determined in good faith by our managing member.
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DESCRIPTION OF THE NEW NOTES
GENERAL
We will issue the new notes under the indenture between our company and The
Bank of New York, as trustee, dated as of April 20, 1999 (the "Issue Date"). You
can find the definitions of certain terms used in this section under "-- Certain
Definitions." The following description is a summary of the material provisions
of the indenture. It does not restate the indenture in its entirety. We urge you
to read the indenture because it and not this description defines your rights as
holders of the new notes. You may obtain a copy of the indenture from us. As
used in this section only, references to "we," "us" and "our company" exclude
our Subsidiaries.
Each series of the outstanding notes and the new notes will constitute a
single class of debt securities under the indenture. If the exchange offer is
consummated, holders of outstanding notes who do not exchange their outstanding
notes for new notes of the same series will vote together with holders of the
new notes for all relevant purposes under the indenture. Accordingly, in
determining whether the required holders have given any notice, consent or
waiver or taken any other action permitted under the indenture, any outstanding
notes that remain outstanding after the exchange offer will be aggregated with
the new notes of the same series, and the holders of the outstanding notes and
the new notes will vote together as a single class. As used in this section, the
term "notes" refers to both the outstanding notes and the new notes. All
references in this prospectus to specified percentages in aggregate principal
amount of the outstanding notes means, at any time after the exchange offer is
consummated, the percentages in aggregate principal amount of the outstanding
notes and the new notes collectively then outstanding.
You may transfer and exchange notes at the office of the registrar and any
co-registrar. The Bank of New York, the trustee under the indenture, is the
initial paying agent and registrar for the notes. We will issue the new notes
only in fully registered form, without coupons, in denominations of $1,000 and
any integral multiple thereof (except for the 2008 notes, the exchange of which
will reflect partial payments of principal on June 30, 1999, September 30, 1999
and December 31, 1999). In certain circumstances, we may require holders to pay
any transfer tax or other similar governmental charge applicable to transfers
and exchanges. See "The Exchange Offer -- Transfer Taxes."
PRINCIPAL, MATURITY AND INTEREST
We will issue the new notes in three series limited to the following
respective total principal amounts: $275,937,120 6.737% Series B Senior Secured
Notes due 2008; $236,000,000 7.066% Series B Senior Secured Notes due 2012; and
$318,000,000 7.536% Series B Senior Secured Notes due 2017. The 2008 new notes
will mature on March 31, 2008; the 2012 new notes will mature on March 31, 2012;
and the 2017 new notes will mature on June 30, 2017.
We will pay interest on the new notes quarterly on each March 31, June 30,
September 30 and December 31, commencing March 31, 2000 (the "Payment Dates").
Interest on the new notes will accrue from the most recent date to which
interest has been paid on the old notes. Interest will be computed on the basis
of a 360-day year comprising twelve 30-day months.
Principal payments on the notes will continue to be made on the Payment
Dates in accordance with the amortization schedule listed below. The percentages
of the original principal amount payable on each Payment Date are:
<TABLE>
<CAPTION>
2008 2012 2017
PAYMENT DATE NOTES NOTES NOTES
- ------------ ------- ------- -------
<S> <C> <C> <C>
June 30, 1999............................................... 4.098% -- --
September 30, 1999.......................................... 1.328% -- --
December 31, 1999........................................... 1.352% -- --
March 31, 2000.............................................. 1.051% -- --
June 30, 2000............................................... 1.071% -- --
September 30, 2000.......................................... 1.090% -- --
</TABLE>
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<TABLE>
<CAPTION>
2008 2012 2017
PAYMENT DATE NOTES NOTES NOTES
- ------------ ------- ------- -------
<S> <C> <C> <C>
December 31, 2000........................................... 1.110% -- --
March 31, 2001.............................................. 1.670% -- --
June 30, 2001............................................... 1.700% -- --
September 30, 2001.......................................... 1.732% -- --
December 31, 2001........................................... 1.763% -- --
March 31, 2002.............................................. 2.862% -- --
June 30, 2002............................................... 2.914% -- --
September 30, 2002.......................................... 2.968% -- --
December 31, 2002........................................... 3.021% -- --
March 31, 2003.............................................. 2.567% -- --
June 30, 2003............................................... 2.614% -- --
September 30, 2003.......................................... 2.662% -- --
December 31, 2003........................................... 2.710% -- --
March 31, 2004.............................................. 2.215% -- --
June 30, 2004............................................... 2.256% -- --
September 30, 2004.......................................... 2.297% -- --
December 31, 2004........................................... 2.338% -- --
March 31, 2005.............................................. 3.594% -- --
June 30, 2005............................................... 3.659% -- --
September 30, 2005.......................................... 3.726% -- --
December 31, 2005........................................... 3.793% -- --
March 31, 2006.............................................. 3.742% -- --
June 30, 2006............................................... 3.811% -- --
September 30, 2006.......................................... 3.879% -- --
December 31, 2006........................................... 3.950% -- --
March 31, 2007.............................................. 3.769% -- --
June 30, 2007............................................... 3.837% -- --
September 30, 2007.......................................... 3.907% -- --
December 31, 2007........................................... 3.978% -- --
March 31, 2008.............................................. 4.966% 1.861% --
June 30, 2008............................................... -- 8.237% --
September 30, 2008.......................................... -- 8.393% --
December 31, 2008........................................... -- 8.552% --
March 31, 2009.............................................. -- 4.365% --
June 30, 2009............................................... -- 4.448% --
September 30, 2009.......................................... -- 4.532% --
December 31, 2009........................................... -- 4.617% --
March 31, 2010.............................................. -- 5.082% --
June 30, 2010............................................... -- 5.178% --
September 30, 2010.......................................... -- 5.277% --
December 31, 2010........................................... -- 5.376% --
March 31, 2011.............................................. -- 6.947% --
June 30, 2011............................................... -- 7.079% --
September 30, 2011.......................................... -- 7.213% --
December 31, 2011........................................... -- 7.350% --
March 31, 2012.............................................. -- 5.493% 1.339%
June 30, 2012............................................... -- -- 5.521%
September 30, 2012.......................................... -- -- 5.631%
December 31, 2012........................................... -- -- 5.744%
March 31, 2013.............................................. -- -- 3.510%
June 30, 2013............................................... -- -- 3.580%
</TABLE>
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<TABLE>
<CAPTION>
2008 2012 2017
PAYMENT DATE NOTES NOTES NOTES
- ------------ ------- ------- -------
<S> <C> <C> <C>
September 30, 2013.......................................... -- -- 3.652%
December 31, 2013........................................... -- -- 3.725%
March 31, 2014.............................................. -- -- 3.623%
June 30, 2014............................................... -- -- 3.696%
September 30, 2014.......................................... -- -- 3.770%
December 31, 2014........................................... -- -- 3.845%
March 31, 2015.............................................. -- -- 4.023%
June 30, 2015............................................... -- -- 4.103%
September 30, 2015.......................................... -- -- 4.186%
December 31, 2015........................................... -- -- 4.270%
March 31, 2016.............................................. -- -- 5.821%
June 30, 2016............................................... -- -- 5.938%
September 30, 2016.......................................... -- -- 6.057%
December 31, 2016........................................... -- -- 6.178%
March 31, 2017.............................................. -- -- 7.047%
June 30, 2017............................................... -- -- 4.741%
------- ------- -------
Total....................................................... 100.00% 100.00% 100.00%
</TABLE>
The principal of, premium, if any, and interest on the notes will be
payable (and the notes will be exchangeable and transferable) at the office or
agency of our company in the Borough of Manhattan, The City of New York
maintained for such purposes (which initially will be the office of the trustee
located at 101 Barclay Street, Floor 21 West, New York, NY 10286, attention:
Corporate Trust Administration) to the Person in whose name such note is
registered on the March 15, June 15, September 15 or December 15 immediately
preceding the applicable Payment Date or, at the option of our company in the
case of any certificated notes, payment may be paid by check mailed to the
address of the person entitled thereto as such address appears in the security
register. The notes will not be entitled to the benefit of any sinking fund.
ISSUANCE OF ADDITIONAL NOTES
The indenture provides for the issuance of additional notes subject to
compliance with the covenants contained in the indenture. Any additional notes
will be part of the same issue as the notes offered hereby, will rank pari passu
in right of payment with the notes and will vote on all matters with the notes
of the same series. For purposes of this "Description of the New Notes,"
reference to the notes does not include additional notes unless otherwise
indicated. No offering of any such additional notes is being or shall in any
manner be deemed to be made by this prospectus. For a description of the
conditions under which we may issue additional notes, see "-- Certain
Covenants -- Limitation on Indebtedness of Our Company."
SECURITY
The notes will be secured by:
- the pledge by ECP Holding Company, CalPERS and Mesquite Investors of
their interests in our company;
- the pledge of our interests in our wholly owned subsidiaries that own
Camden GP (JEDI Camden LP, L.L.C. and JEDI Camden GP, L.L.C.), our wholly
owned subsidiary that indirectly owns Linden Ltd. (JEDI Linden NB,
L.L.C.) and our wholly owned subsidiary that is the managing general
partner in Bayonne Venture (JEDI Bayonne GP, L.L.C. ("Bayonne GP"));
- the pledge by JEDI Linden NB, L.L.C. of its interests in its wholly owned
subsidiaries (JEDI Linden LP, L.L.C. and JEDI Linden, Inc.) and its 99%
owned subsidiary (JEDI Linden GP, L.L.C.) which together, directly or
indirectly, own Linden Ltd.;
- the pledge by JEDI Linden LP, L.L.C. of its limited partnership interests
in Linden Ltd.;
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- the pledge by JEDI Camden LP, L.L.C. of its limited partnership interests
in Camden GP;
- the pledge of our interest in the Linden subordinated note; and
- the pledge of our interest in the Debt Service Reserve Account
(collectively, the "Pledged Interests").
Camden GP and Linden Ltd. are the general partners of the partnerships
which own the Camden Facility and the Linden Facility, respectively. Bayonne
Venture owns the Bayonne Facility.
Any additional notes issued will share equally and ratably in the Pledged
Interests with the notes. The Security Documents restrict the issuance of
additional equity interests in the Company and the other entities in which
equity interests have been pledged unless such additional equity interests are
also pledged to secure the notes.
RANKING
The notes:
- will be senior secured obligations of our company;
- will rank pari passu in right of payment with all other senior secured
obligations of our company and senior in right of payment to all existing
and future subordinated debt of our company;
- will be structurally subordinated to all indebtedness and other
liabilities, including trade payables, of our Subsidiaries; and
- will be structurally subordinated to the rights of the minority partners
in Linden Venture and Camden Venture.
OPTIONAL REDEMPTION
Each series of the notes will be redeemable, at our option, at any time in
whole or from time to time in part, on not less than 30 nor more than 60 days'
prior notice to the holders of such series of notes, on any date prior to its
maturity (a "Redemption Date"), at a redemption price (the "Optional Redemption
Price") equal to:
- 100% of the outstanding principal amount thereof; plus
- accrued and unpaid interest thereon to the Redemption Date; plus
- a Make Whole Premium.
In no event will the Optional Redemption Price ever be less than 100% of the
principal amount of the notes (or portion thereof) being redeemed plus accrued
and unpaid interest thereon to the Redemption Date.
The amount of the Make Whole Premium with respect to any series of notes
(or portion thereof) to be redeemed will be equal to the excess, if any, of:
- the sum of the present values, calculated as of the Redemption Date, of
each remaining scheduled payment of principal and interest thereon
(exclusive of interest accrued to such Redemption Date) discounted from
the date such payment would have been payable, but for redemption, to
such Redemption Date on a quarterly basis (assuming a 360-day year
consisting of twelve 30-day months) at a discount rate equal to the
Treasury Rate plus 50 basis points with respect to the series of notes
being redeemed; over
- the outstanding principal amount of the series of notes (or portion
thereof) being redeemed.
The applicable "Treasury Rate" is a yield based on the yields on U.S.
treasury securities with comparable maturities and principal amounts to that of
the notes being redeemed. We will calculate the applicable Treasury Rate by
taking the arithmetic mean of the yields on U.S. treasury securities published
under the
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heading "Week Ending" under the caption "Treasury Constant Maturities" in
statistical release H.15(519), published weekly by the Federal Reserve System,
with maturities corresponding to the remaining life to maturity of the notes. If
statistical release H.15(519) or a successor publication of the Federal Reserve
Board is not available, we will designate a reasonably comparable index for this
calculation.
If statistical release H.15(519), or any successor or alternative index,
does not have any U.S. treasury securities with maturities corresponding exactly
to the notes to be redeemed, we will use the yields on the two U.S. treasury
securities with maturities most closely corresponding to the remaining life to
maturity of the notes. We will then interpolate or extrapolate, on a straight
line basis, the applicable Treasury Rate based on these two published yields.
The applicable Treasury Rate is to be determined on the third business day
preceding any redemption date and the maturity of U.S. treasury securities will
be rounded to the nearest month to determine those with maturities most closely
corresponding to the notes. The Optional Redemption Price is calculated assuming
a 360-day year consisting of twelve 30-day months.
If less than all of any series of notes are to be redeemed, the particular
notes of such series to be redeemed will be selected not more than 45 days prior
to the redemption date by the trustee either by lot, pro rata or by such method
as the trustee deems fair and appropriate; provided that no notes of $1,000 in
principal amount or less shall be redeemed in part. Notice of redemption will be
mailed to each holder of the series of notes being redeemed at such holder's
address of record. Interest will cease to accrue on any series of notes on and
after the Redemption Date.
MANDATORY REDEMPTION AT PAR
Events of Loss
Upon the occurrence of an Event of Loss, we will be obligated to use the
Remaining Net Loss Proceeds received by our company to redeem the notes and
additional notes, if any, without any premium at a redemption price (the
"Mandatory Redemption Price") equal to 100% of the principal amount of the notes
or additional notes to be redeemed plus accrued and unpaid interest thereon to
the Redemption Date. Remaining Net Loss Proceeds is defined as Net Loss Proceeds
with respect to one or more Events of Loss minus the aggregate amount of all of
such proceeds used toward the restoration, repair, reconstruction or replacement
of the affected Facility.
We will not be obligated to redeem any notes or additional notes upon the
occurrence of an Event of Loss if:
- the aggregate amount of Remaining Net Loss Proceeds from such Event of
Loss does not exceed $5 million; or
- the then current rating of the notes is at least as high as the rating of
the notes on the Issue Date and, after giving effect to such Event of
Loss and the use or contemplated use of the proceeds therefrom as
announced by our company, the Rating Agencies confirm that a Rating
Downgrade will not result.
Under the terms of the indebtedness of certain of our Subsidiaries, and the
terms of the preferred equity interests of certain Subsidiaries, the lenders to
such Subsidiaries and the holders of such preferred equity interests have prior
rights to certain proceeds arising from an Event of Loss. The existence of these
rights substantially reduces the likelihood that proceeds relating to an Event
of Loss would be distributed to us rather than used to repay or redeem the
obligations to such lenders or preferred equity holders or being "trapped" at a
Subsidiary level for an extended period. Therefore, there can be no assurance
that we will be required to redeem any notes or additional notes upon the
occurrence of an Event of Loss.
Power Contract Buyouts
All of the notes will be subject to mandatory redemption without premium at
the Mandatory Redemption Price if an Operating Partnership receives at any time
an aggregate amount of Net Buyout Proceeds in excess
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of $25 million from one or more Power Contract Buyouts related to its Facility,
unless the then current rating of the notes is at least as high as the rating of
the outstanding notes on the Issue Date and, after giving effect to such buyout
and the use or contemplated use of the proceeds therefrom as announced by our
company, the Rating Agencies confirm that a Rating Downgrade will not result;
provided, however, that in lieu of the foregoing we may redeem a portion of the
notes at the Mandatory Redemption Price if the then current rating of the notes
is at least as high as the rating of the outstanding notes on the Issue Date
and, after giving effect to the buyout, the partial redemption and the use or
contemplated use of the proceeds therefrom as announced by our company, the
Rating Agencies confirm that a Rating Downgrade will not result.
If a Power Contract Buyout occurs, there can be no assurance that we will
have available funds sufficient to pay the purchase price for all notes and
additional notes that we are required to purchase pursuant to the foregoing
covenant. Due to our position in the organizational structure, we may not
receive any of the Net Buyout Proceeds received by the Operating Partnership.
The failure of our company to redeem the notes or additional notes required to
be redeemed upon a Power Contract Buyout or to pay the applicable Mandatory
Redemption Price when due would result in an Event of Default and would give the
trustee and the holders of notes and additional notes the rights described under
"-- Events of Default."
Terms of Mandatory Redemption
If the notes are redeemed pursuant to any of the foregoing provisions, the
notes will be redeemed:
- pari passu with any other senior secured debt of our company which
requires redemption or repayment; and
- pro rata among each of the series of the notes and additional notes.
Notice of redemption will be mailed to each holder of the series of notes
or additional notes being redeemed at such holder's address of record. Interest
will cease to accrue on any series of notes or additional notes on and after the
Redemption Date.
PURCHASE AT THE OPTION OF HOLDERS -- CHANGE OF CONTROL
If a Change of Control occurs, then each holder of notes and additional
notes will have the right to require that we purchase all, but not less than
all, of such holder's notes or additional notes, as the case may be, at a
purchase price in cash equal to 101% of the outstanding principal amount of such
notes or additional notes, plus accrued and unpaid interest, if any, to the date
of purchase, pursuant to the offer described below (the "Change of Control
Offer") and the other procedures set forth in the indenture.
Within 30 days following any Change of Control, our company will notify the
trustee thereof and give written notice of such Change of Control to each holder
of notes and additional notes by first-class mail, postage prepaid, at its
address appearing in the security register, stating, among other things:
- that a Change of Control has occurred;
- the purchase price and the expiration date of the Change of Control
Offer, which will be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed or such later date as is
necessary to comply with any applicable requirements under the Exchange
Act of 1934;
- the purchase date, which will be not more than five Business Days
following the expiration date;
- the places where the notes and additional notes to be purchased are to be
surrendered;
- that any note or additional note not tendered will continue to accrue
interest;
- that, unless we default in the payment of the purchase price, any notes
or additional notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest after the Change of Control
purchase date; and
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- certain other procedures that holders of notes and additional notes must
follow to accept a Change of Control Offer or to withdraw such
acceptance, including procedures of The Depository Trust Company.
If a Change of Control Offer is made, there can be no assurance that we
will have available funds sufficient to pay the purchase price for all of the
notes and additional notes that might be tendered by holders of notes and
additional notes seeking to accept the Change of Control Offer. The failure of
our company to make or consummate the Change of Control Offer or to pay the
applicable Change of Control purchase price when due would result in an Event of
Default and would give the trustee and the holders of notes and additional notes
the rights described under "-- Events of Default."
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by our company and
purchases all the notes and additional notes validly tendered and not withdrawn
under such Change of Control Offer.
We will comply with the applicable tender offer rules, including Rule-14e
under the Exchange Act, and any other applicable securities laws and regulations
in connection with a Change of Control Offer. To the extent that the provisions
of any securities laws or regulations conflict with the "Change of Control"
provisions of the indenture, we shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached our obligations under
the "Change of Control" provisions of the indenture by virtue thereof.
CERTAIN COVENANTS
The indenture contains various covenants, including the following:
Limitation on Indebtedness of Our Company
We will not create, incur or suffer to exist any Indebtedness, other than:
- the notes;
- Indebtedness incurred to finance the making of capital improvements to
the Facilities required to maintain compliance with applicable law or
anticipated changes therein; provided that no such Indebtedness may be
incurred unless, at the time of such incurrence, the Independent Engineer
confirms as reasonable (a) a certification by our company that the
proposed capital improvements are reasonably expected to enable such
Facility to comply with applicable law or anticipated changes therein and
(b) the calculations of our company that demonstrate, after giving effect
to the incurrence of such Indebtedness, the minimum Forward Debt Service
Coverage Ratio, (1) for the next four consecutive fiscal quarters, taken
as one annual period, commencing with the quarter in which such
Indebtedness is incurred and (2) for each subsequent fiscal year through
the maturity date of the notes, will not be less than 1.1 to 1;
- Indebtedness incurred to finance the making of capital improvements to
the Facilities so long as after giving effect to the incurrence of such
Indebtedness (a) no Default or Event of Default has occurred and is
continuing and (b) the then current rating of the notes is at least as
high as the rating of the outstanding notes on the Issue Date and the
Rating Agencies confirm that the incurrence of such Indebtedness will not
result in a Rating Downgrade;
- Interest Rate Agreements;
- Subordinated Indebtedness; and
- Indebtedness incurred to refinance, renew, replace, defease or refund, in
whole or part, any Indebtedness specified in the five clauses set forth
above and any Indebtedness incurred pursuant to this clause (plus accrued
interest and fees and expenses related to such financing, renewal,
replacement, defeasance or refunding); provided that any such refinancing
must be on terms no less favorable in the
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aggregate to us than the outstanding Indebtedness refinanced (as
determined by the Managing Member of our company in good faith).
Any Indebtedness will be deemed to have been satisfied and discharged, and
at all relevant times deemed to be neither existing nor outstanding, for all
purposes if there has been irrevocably deposited in trust, for the benefit of
the holders of such Indebtedness, any combination of money or obligations issued
by or guaranteed by the full faith and credit of the United States of America
sufficient to pay all interest and principal, including applicable premium, if
any, when due on such Indebtedness for the sole purpose of payment of such
Indebtedness.
Limitation on Indebtedness of Our Subsidiaries
No Subsidiary of our company will create, incur or suffer to exist any
Indebtedness other than:
- Indebtedness outstanding on the date the outstanding notes were issued
and any Indebtedness incurred to refinance, renew, replace, defease or
refund, in whole or part, any such Indebtedness (plus accrued interest
and fees and expenses related to such financing, renewal, replacement,
defeasance or refunding); provided that any such refinancing must be on
terms no less favorable in the aggregate to our company and our
Subsidiaries than the outstanding Indebtedness refinanced (as determined
by the Managing Member of our company in good faith);
- up to $225 million of Indebtedness incurred to finance capital
improvements to the Facilities, so long as after giving effect to the
incurrence of such Indebtedness (a) no Default or Event of Default has
occurred and is continuing and (b) the then current rating of the notes
is at least as high as the rating of the outstanding notes on the Issue
Date and the Rating Agencies confirm that the incurrence of such
Indebtedness will not result in a Rating Downgrade; and
- up to $25 million of Indebtedness incurred or assumed solely for the
purpose of financing the cost of acquiring or constructing an asset or
for working capital purposes. This "Limitation on Indebtedness of Our
Subsidiaries" covenant does not prohibit intercompany loans between our
company and any of our Subsidiaries or between two of our Subsidiaries.
Limitation on Restricted Payments
We may declare and pay dividends or pay or make any other distributions on
account of our Capital Stock or Subordinated Indebtedness on a quarterly basis;
provided that:
<TABLE>
<S> <C> <C> <C>
(a) no Default or Event of Default has occurred and is continuing;
(b) the amount of such dividends or other distributions paid or made, as
applicable, do not exceed 100% of Net Cash Flow after the Issue Date;
and
(c) (1) for restricted payments made through September 30, 2001, we:
(A) have maintained a Debt Service Coverage Ratio of at least
1.20 to 1 over the four preceding fiscal quarters, taken as
one annual period, and
(B) have projected a Debt Service Coverage Ratio (as certified
by our company to the trustee) for the next four fiscal
quarters, taken as one annual period, of at least 1.20 to 1,
and
(2) for restricted payments made after September 30, 2001, we:
(A) have maintained a Debt Service Coverage Ratio of at least
1.25 to 1 over the four preceding fiscal quarters, taken as
one annual period, and
(B) have projected a Debt Service Coverage Ratio (as certified
by the Company to the trustee) for the next four fiscal
quarters, taken as one annual period, of at least 1.25 to 1.
</TABLE>
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In the event we are prevented from paying dividends or paying or making other
distributions on our Capital Stock or Subordinated Indebtedness pursuant to the
provisions of clause (c) in the preceding sentence, we may not pay dividends or
pay or make distributions in respect of our Capital Stock or Subordinated
Indebtedness until the requirements described in clause (c) above have been met
for two consecutive fiscal quarters (a "restricted payment suspension");
provided, however, that if we meet for any fiscal quarter during a restricted
payment suspension the required Debt Service Coverage Ratio over the four
preceding fiscal quarters, taken as one annual period, and the projected Debt
Service Coverage Ratio for the next four fiscal quarters, taken as one annual
period, as well as the other requirements set forth above, then we may pay a
dividend or pay or make a distribution in respect of our Capital Stock or
Subordinated Indebtedness in an amount not to exceed Net Cash Flow for such
quarter. The fair market value of distributions of assets, other than cash, in
excess of $10 million shall be determined by an Independent Investment Banker,
or if less than $10 million, shall be determined in good faith by the Managing
Member of our company.
Limitation on Asset Sales
Except for a sale of substantially all of our assets as permitted by the
"Limitation on Consolidation, Merger and Sale or Disposition of Assets"
covenant, we may not sell, transfer, assign or otherwise dispose of any
Operating Partnership, Managing General Partner or other Subsidiary of our
company that holds an interest, directly or indirectly, in any Operating
Partnership or Managing General Partner, or any interest in any of the
foregoing, and no Operating Partnership or other Subsidiary of our company may
sell, transfer, assign or otherwise dispose of assets owned by such Operating
Partnership or other Subsidiary, as the case may be, except Excluded
Dispositions unless the then current rating of the notes is at least as high as
the rating of the original notes on the Issue Date and, after giving effect to
such sale, transfer, assignment or other disposition, the Rating Agencies
confirm that a Rating Downgrade will not result.
Maintenance of QF Status
We must maintain and cause each of our Subsidiaries to maintain all the
Facilities in conformity with the requirements under PURPA necessary to retain
QF Status, unless the loss of such status would not have a Material Adverse
Effect.
Limitation on Liens
So long as any notes are outstanding, we may not, and may not permit any
Subsidiary to, create, incur, assume, or suffer to exist any Indebtedness of our
company or any of our Subsidiaries that is secured by any mortgage, security
interest, pledge or lien ("Lien") of or upon any Principal Operating Property,
whether owned on the Issue Date or thereafter acquired, without in any such case
effectively securing the notes (together with, if we shall so determine, any
other Indebtedness of our company ranking equally with the notes) equally and
ratably with such Indebtedness (but only so long as such Indebtedness is so
secured).
The foregoing restriction will not apply to:
- the Pledged Interests;
- any Liens existing on the Issue Date, including any Lien which would
extend to property acquired after the Issue Date pursuant to any
agreement entered into prior to the Issue Date, or any Lien created
pursuant to an "after-acquired property" clause or similar terms in
existence on the Issue Date;
- Liens to secure Indebtedness incurred pursuant to the second or third
clauses of the "Limitation on Indebtedness of Our Subsidiaries" covenant;
- any Lien on any asset existing thereon at the time of acquisition of such
asset and not created in connection with or in contemplation of such
acquisition; provided that the incurrence of such Indebtedness is
permitted under the "Limitation on Indebtedness of Our Company" covenant
or the "Limitation on Indebtedness of Our Subsidiaries" covenant;
- any Lien arising solely by operation of law;
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- any Lien in the form of a tax or other statutory lien; provided that any
such Lien shall be discharged within 60 days after the date it is created
or arises (unless contested in good faith by our company or such
Subsidiary, in which case it shall be discharged within 60 days after
final adjudication);
- any Lien securing Indebtedness of our company or any of our Subsidiaries,
all or a portion of the net proceeds of which are used, substantially
concurrently with the funding thereof (and for purposes of determining
such "substantial concurrence," taking into consideration, among other
things, required notices to be given to holders of outstanding securities
under the indenture (including the notes) in connection with such
refunding, refinancing or repurchase, and the required corresponding
durations thereof), to refinance, refund or repurchase all outstanding
securities under the indenture (including the notes), including the
amount of all accrued interest thereon and reasonable fees and expenses
and premium, if any, incurred by our company or any such Subsidiaries in
connection therewith; and
- any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancing, refundings or
replacements), in whole or in part, of any Lien referred to in the second
through the seventh clauses set forth above; provided, however, that the
principal amount of Indebtedness secured thereby and not otherwise
authorized by such second through seventh clauses, inclusive, shall not
exceed the principal amount of Indebtedness, plus any premium, fee and
related costs and expenses incurred or payable to third parties in
connection with any such extension, renewal, refinancing, refunding or
replacement, so secured at the time of such extension, renewal,
refinancing, refunding or replacement.
Limitation on Consolidation, Merger and Sale or Disposition of Assets
We will not consolidate with or merge with or into any other Person or
sell, transfer or otherwise dispose of our properties as or substantially as an
entirety unless:
- the successor or transferee Person shall be a Person organized and
existing under the laws of the United States of America, any State
thereof or the District of Columbia;
- the successor or transferee Person assumes by supplemental indenture the
due and punctual payment of the principal of, and premium and interest
on, all the notes and the performance of every covenant of the indenture
to be performed or observed by our company;
- immediately after giving effect to such transaction, no Event of Default
or Default shall have occurred and be continuing; and
- we shall deliver to the trustee an Officers' Certificate and an Opinion
of Counsel, each stating that the transaction and any such supplemental
indenture comply with the indenture.
Upon any such consolidation, merger, sale, transfer or other disposition of the
properties of our company as, or substantially as, an entirety, the successor
Person formed by such consolidation or with whom or into which our company is
merged or to which such sale, transfer or other disposition is made shall
succeed to and be substituted for, and may exercise every right and power of,
our company under the indenture with the same effect as if such successor Person
had been named as our company therein, and we will be released from all
obligations under the indenture and the notes.
Limitation on Transactions with Affiliates
We shall not, and shall not permit any Subsidiary to, enter into any
material transaction or arrangement, whether or not in the ordinary course of
business, with any Affiliate that is not on terms and conditions at least as
favorable as would be obtained in a comparable arm's-length transaction with a
Person other than an Affiliate as determined in good faith by the Managing
Member of our company.
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Maintenance of Existence
Subject to the covenant above under "-- Limitation on Consolidation, Merger
and Sale or Disposition of Assets," we shall do or cause to be done all things
necessary (a) to preserve and keep in full force and effect our existence, and
(b) to preserve all material rights and franchises of our company and, so long
as we have a controlling equity interest in an Operating Partnership, each
Operating Partnership; provided, however, that we shall not be required to
preserve any such right or franchise of any such Operating Partnership if either
(a) the preservation thereof is not consistent with our fiduciary obligations or
any of our Subsidiaries' fiduciary obligations with respect thereto (provided
that no such fiduciary obligation shall be deemed to exist if all of the
partnership interests of an Operating Partnership are owned directly or
indirectly by our company) or (b) the Managing Member of our company shall
determine that (1) the preservation thereof is no longer desirable in the
conduct of the business of our company and our Subsidiaries taken as a whole and
(2) the loss thereof would not have a Material Adverse Effect.
Project Documents
We will, and will cause our Subsidiaries to:
- perform and observe in all material respects the covenants and agreements
contained in each of the Project Documents;
- enforce, defend and protect all of our material rights contained in any
of the Project Documents;
- take all reasonable and necessary actions to prevent the termination or
cancellation of any of the Project Documents,
unless the Managing Member of our company determines in good faith that such
failure to perform, observe, enforce, defend, protect or act is in our best
interest.
In addition, we will not, and will cause our Subsidiaries not to:
- breach any obligation under any Project Document to which it is a party
and fail to cure such breach within the applicable cure period provided
for in such Project Document (or, if no cure period is specified in such
Project Document, within 30 days of such breach);
- (a) amend, vary or waive, or consent to any amendment, variation or
waiver of, any terms of any of the Project Documents to which it is a
party, (b) release, surrender, cancel or terminate any rights or
obligations under, or discharge any obligations (other than by
performance) of, the Project Documents to which it is a party or (c)
affirmatively consent to the assignment by any party to certain Project
Documents of such party's right or obligations under such Project
Documents without the consent of holders holding at least 66 2/3% in
aggregate principal amount of the outstanding Note; or
- assign, transfer or otherwise dispose of any of its rights in any of the
Project Documents to which it is a party unless, in each case, such
action would not have a Material Adverse Effect.
Nature of the Business
Our company and our Subsidiaries may not engage in any business other than
the Line of Business.
Certain Other Covenants
The indenture contains certain additional covenants, including but not
limited to:
- an operation and maintenance covenant;
- a maintenance of insurance covenant;
- a taxes and claims covenant;
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- a compliance with law covenant; and
- a maintenance of licenses and approvals covenant.
DEBT SERVICE RESERVE ACCOUNT
We will establish and fund an account with the trustee (the "Debt Service
Reserve Account") in an amount equal at all times to the aggregate principal and
interest payments on the notes scheduled to be paid on the next two Payment
Dates (the "Debt Service Reserve Requirement"). The trustee will disburse funds
from the Debt Service Reserve Account to pay principal, premium, if any, and
interest on the notes if our company has failed to provide sufficient funds to
the Paying Agent to pay such principal, premium and interest on the notes on the
third Business Day prior to the Payment Date. We may elect not to fund the Debt
Service Reserve Account, in whole or in part, or may withdraw all or any portion
of the amount in the Debt Service Reserve Account, to the extent that cash on
deposit in the Debt Service Reserve Account, together with any Debt Service
Credit Support, exceeds the Debt Service Reserve Requirement.
If at any time the balance of the Debt Service Reserve Account exceeds the
Debt Service Reserve Requirement and no Default or Event of Default has occurred
and is continuing, the trustee, on written request of our company, shall pay
over to us or our designees any such excess cash or cancel any excess amount of
Debt Service Credit Support, or both, as requested by our company, to the extent
of such excess.
At any time when the balance of the Debt Service Reserve Account (including
available amounts under Debt Service Credit Support) does not meet the Debt
Service Reserve Requirement, we may not pay dividends or make distributions in
respect of our Capital Stock or Subordinated Indebtedness.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the indenture:
- default in the payment of principal of and premium, if any, on any note
or additional note when due and payable or the failure to redeem any note
or additional note on any mandatory redemption date;
- default in the payment of interest on any note or additional note when
due which continues for 30 days;
- default in the performance or breach of any other covenant or agreement
in the notes or additional notes or in the indenture or any Security
Document and the continuation thereof for 60 days after receipt by us of
notice from the trustee or from the holders of at least 25% of the
outstanding notes;
- bankruptcy, insolvency, reorganization, assignment or receivership of any
Facility Owner;
- acceleration of (a) any of our Indebtedness that ranks pari passu with
the notes or (b) any of our unsecured and/or unsubordinated Indebtedness
in an aggregate amount in excess of $25 million;
- entry of any final judgment or decree for the payment of money against us
(which is non-appealable, which remains unpaid or unstayed for a period
of 90 or more consecutive days or as to which all rights to appeal have
expired or been exhausted) in excess of $10 million, excluding amounts
covered by in-force insurance for which the insurer has admitted
liability; and
- on or after the Issue Date other than in accordance with the provisions
of the indenture or the Security Documents, (a) if for any reason, other
than the satisfaction in full and discharge of the obligations secured
thereby, any Security Document ceases to be or is not in full force and
effect or the trustee ceases to have first priority security interests in
the Collateral and, in each case, such cessation continues for 30 days or
(b) any of the grantors under the Security Documents asserts in writing
that any Security Document has ceased to be or is not in full force and
effect.
If an Event of Default occurs because we fail to pay principal, interest or
premium of any note or additional note and such event is continuing, the trustee
may accelerate the notes and additional notes upon the written direction of
holders of at least 25% in aggregate principal amount of the notes and
additional notes. If any other Event of Default specified above occurs and is
continuing, the trustee may accelerate the notes
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and additional notes upon the written direction of at least 51% of such holders.
If the trustee accelerates the notes in any case, the following amounts shall
immediately be due and payable:
- the entire outstanding principal amount of the notes and additional
notes; and
- accrued interest on, Make-Whole Premium (if any) and other amounts
payable with respect to the notes and additional notes. However, in the
case of an Event of Default because of the bankruptcy or insolvency of
our company, the notes and additional notes shall accelerate
automatically without direction from any holders of the notes or
additional notes and with the same effect as the acceleration described
above.
Any acceleration of the notes or additional notes shall be automatically
rescinded and annulled if:
- we pay or deposit with the trustee a sum sufficient to pay all matured
installments of interest and the principal and any premium which has
become due otherwise than by acceleration; and
- all Defaults shall have been cured or waived.
To rescind acceleration, however, we must pay or deposit such sum with the
trustee before a judgment or decree for the payment of the principal amount of
the notes or additional notes has been obtained.
The indenture provides that the trustee generally will be under no
obligation to exercise any of its rights or powers under the indenture at the
request or direction of any of the holders unless those holders have offered to
the trustee reasonable security or indemnity. Subject to these provisions for
indemnity and other specified limitations contained in the indenture, the
holders of a majority in principal amount of the outstanding notes and
additional notes generally will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
of exercising any trust or power conferred on the trustee. The holders of a
majority in principal amount of the outstanding notes and additional notes
generally will have the right to waive any past Default or Event of Default
(other than a payment default) on behalf of all holders.
The indenture provides that no holder may institute any action against us
under the indenture unless:
- the holder previously has given to the trustee written notice of Default
and its continuance;
- the holders of at least a majority in aggregate principal amount of the
notes and additional notes then outstanding that are affected by the
Event of Default shall have requested the trustee to institute the action
and shall have offered the trustee security or reasonable indemnity; and
- the trustee shall not have instituted the action within 60 days of such
request.
Furthermore, no holder will be entitled to institute any such action if and to
the extent that such action would disturb or prejudice the rights of other
holders. Even though the right of a holder to institute a proceeding with
respect to the indenture is subject to certain conditions precedent, each holder
has the absolute and unconditional right to receive payment of the principal of,
premium, if any, and interest on such note or additional note when due and to
institute suit for the enforcement of any such payment. These rights may not be
impaired without the consent of such holder.
The indenture provides that the trustee is required to give the holders
notice of any Default with respect to the notes or additional notes that is
known to the trustee within 90 days after the occurrence of such Default, unless
the Default is cured or waived. However, except in the case of default in the
payment of principal of, premium, if any, or interest on any notes or additional
notes, the trustee may withhold such notice if it determines in good faith that
it is in the interest of such holders to do so. Following each calendar quarter,
we are required to deliver to the trustee a certificate as to whether or not, to
the knowledge of the officers signing such certificate, we are in compliance
with the conditions and covenants under the indenture (including its Debt
Service Reserve Requirement).
AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the indenture may be made by our company
and the trustee with the consent of the holders of a majority in aggregate
outstanding principal amount of the notes; provided, however,
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that no such modification or amendment may, without the consent of the holder of
each outstanding note affected thereby:
- change the stated maturity of the principal of, or any installment of
interest on, any note, reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof,
change the currency in which any note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the stated maturity thereof (or, in
the case of redemption, on or after the redemption date);
- amend, change or modify the obligation of our company to make and
consummate a Change of Control Offer in the event of a Change of Control
in accordance with the section entitled "Purchase at the Option of
Holders -- Change of Control," including amending, changing or modifying
any definition relating thereto;
- reduce the percentage in principal amount of outstanding notes, the
consent of whose holders is required for any waiver of compliance with
certain provisions of, or certain defaults and their consequences
provided for under, the indenture;
- waive a default in the payment of principal of, premium, if any, or
interest on the notes;
- modify the ranking or priority of the notes;
- permit the release or termination of all or substantially all of the
security afforded by the Liens under the indenture and the Security
Documents, except in accordance with the terms thereof; or
- agree to create any Lien on the Collateral or any part thereof or release
or terminate any of the Liens of the trustee, except in accordance with
the terms of the Security Documents.
The holders of a majority in aggregate principal amount of the notes outstanding
may waive compliance with certain restrictive covenants and provisions of the
indenture.
Without the consent of any holders, at any time and from time to time, we
may enter into one or more indentures supplemental to the indenture with the
trustee for any of the following purposes:
- to evidence the succession of another Person to our company and the
assumption by any such successor of the covenants of our company in the
indenture and the notes;
- to add to the covenants of our company for the benefit of the holders or
to surrender any right or power herein conferred upon us;
- to add additional Events of Defaults;
- to provide for uncertificated notes in addition to or in place of the
certificated Notes;
- to evidence and provide for the acceptance of appointment under the
indenture by a successor trustee;
- to cure any ambiguity, to correct or supplement any provision in the
indenture that may be defective or inconsistent with any other provision
in the indenture, or to make any other provisions with respect to matters
or questions arising under the indenture; provided that such actions
pursuant to this clause do not adversely affect the interests of the
holders in any material respect;
- to mortgage, pledge, hypothecate or grant a security interest in favor of
the trustee for the benefit of the holders as additional security for the
payment and performance of our obligations under the indenture; or
- to comply with any requirement of the Trust Indenture Act or the
Commission in order to effect and maintain the qualification of the
indenture under such act.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, terminate our obligations with
respect to the outstanding notes ("legal defeasance"). Such legal defeasance
means that we will be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding notes and satisfied all of its obligations under
the notes and the indenture, except for:
- the rights of holders to receive payments in respect of the principal of,
premium, if any, and interest on such notes when such payments are due;
- our obligations to issue temporary notes, register the transfer or
exchange of any notes, replace mutilated, destroyed, lost or stolen
notes, maintain an office or agency for payments in respect of the notes
and segregate and hold such payments in trust;
- the rights, powers, trusts, duties and immunities of the trustee; and
- the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to terminate our
obligations with respect to certain covenants set forth in the indenture and
described under "-- Certain Covenants" above, and any omission to comply with
such obligations would not constitute a Default or an Event of Default with
respect to the notes ("covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance:
- we must irrevocably deposit or cause to be deposited with the trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders, money in an amount, or U.S.
Government Obligations that through the scheduled payment of principal
and interest thereon will provide money in an amount, or a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of,
premium, if any, and interest on the outstanding notes at maturity (or
upon redemption, if applicable) of such principal or installment of
interest;
- no Default or Event of Default may have occurred and be continuing on the
date of such deposit or, insofar as an event of bankruptcy under the
fourth clause of "-- Events of Default" above is concerned, at any time
during the period ending on the 91st day after the date of such deposit;
- such legal defeasance or covenant defeasance may not result in a breach
or violation of, or constitute a default under, the indenture or any
other material agreement or instrument to which the Company is a party or
by which it is bound;
- in the case of legal defeasance, we must deliver to the trustee an
opinion of counsel stating that we have received from, or there has been
published by, the Internal Revenue Service a ruling, or since the date
hereof, there has been a change in applicable federal income tax law, to
the effect, and based thereon such opinion must confirm that, the holders
will not recognize income, gain or loss for federal income tax purposes
as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such legal defeasance had not occurred;
- in the case of covenant defeasance, we must have delivered to the trustee
an opinion of counsel to the effect that the holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; and
- we must have delivered to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to either
the legal defeasance or the covenant defeasance, as the case may be, have
been complied with.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
Transfer restrictions will continue to apply to any outstanding notes not
exchanged for new notes in the exchange offer. Please read "The Exchange
Offer -- Consequences of Failure to Exchange." The registrar and the trustee may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and we may require a holder to pay any taxes and fees
required by law or permitted by the indenture. No holder will incur any service
charges, however, for any registration of transfer or exchange of the notes. We
are not required to transfer or exchange any note for a period of 15 days before
a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
RESIGNATION OR REMOVAL OF TRUSTEE
The trustee may resign at any time upon written notice to our company
specifying the day upon which the resignation is to take effect, and such
resignation will take effect immediately upon the later of the appointment of a
successor trustee and such specified day.
The trustee may be removed at any time by an instrument or concurrent
instruments in writing filed with the trustee and signed by the holders, or
their attorneys-in-fact, of at least a majority in principal amount of the then
outstanding notes and additional notes of all series. In addition, so long as no
Event of Default or Default has occurred and is continuing, we may remove the
trustee upon notice to all holders and the trustee and appointment of a
successor trustee.
CONCERNING THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. Under the indenture, the holders of a majority in outstanding
principal amount of the notes and additional notes, if any, will have the right
to direct the time, method and place of conducting any proceeding for exercising
any remedy available to the trustee, subject to certain exceptions. If an Event
of Default has occurred and is continuing, the trustee will exercise such rights
and powers vested in it under the indenture and use the same degree of care and
skill in its exercise as a prudent Person would exercise under the circumstances
in the conduct of such Person's own affairs.
The indenture contains limitations on the rights of the trustee thereunder,
should it become a creditor of our company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The trustee is permitted to engage in
other transactions; provided, however, that, if it acquires any conflicting
interest (as defined in the Trust Indenture Act), it must eliminate such
conflict upon the occurrence of an Event of Default or else resign.
BOOK-ENTRY, DELIVERY AND FORM
Each series of the new notes will initially be represented by one or more
permanent global notes in definitive, fully registered book-entry form that will
be registered in the name of Cede & Co., the global note holder, as nominee of
DTC. The global notes will be deposited on behalf of the acquirors of the new
notes represented thereby with a custodian for DTC for credit to the respective
accounts of the acquirors or to such other accounts as they may direct at DTC.
See "The Exchange Offer -- Book-Entry Transfer."
The Global Notes
We expect that under procedures established by DTC:
- upon deposit of the global notes with DTC or its custodian, DTC will
credit on its internal system portions of the global notes that shall be
comprised of the corresponding respective amounts of the global notes to
the respective accounts of persons who have accounts with such
depositary; and
- ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC or its
nominee, with respect to interests of persons who have
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accounts with DTC ("participants"), and the records of participants, with
respect to interests of persons other than participants.
So long as DTC or its nominee is the registered owner or holder of any of
the notes, DTC or such nominee will be considered the sole owner or holder of
such notes represented by the global notes for all purposes under the indenture
and under the notes represented thereby. No beneficial owner of an interest in
the global notes will be able to transfer such interest except in accordance
with the applicable procedures of DTC in addition to those provided for under
the indenture.
Payments on the notes represented by the global notes will be made to DTC
or its nominee, as the case may be, as the registered owner thereof. None of our
company, the trustee or any paying agent under the indenture will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment on the notes
represented by the global notes, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the global notes as shown in the records of DTC or its nominee. We also expect
that payments by participants to owners of beneficial interests in the global
notes held through such participants will be governed by standing instructions
and customary practice as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payment will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a certificated security for any reason, including
to see notes to persons in states that require physical delivery of such
security or to pledge such securities, such holder must transfer its interest in
the global notes in accordance with the normal procedures of DTC and the
procedures in the indenture.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange as described
below, only at the direction of one or more participants to whose account the
DTC interests in the global notes are credited and only in respect of the
aggregate principal amount as to which such participant or participants has or
have given such direction. However, if there is an event of default under the
indenture, DTC will exchange the global notes for certificated securities that
it will distribute to its participants.
DTC has advised us as follows:
- DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code
and a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered under the provisions
of Section 17A of the Securities Exchange Act of 1934;
- DTC holds securities that its participants deposit with DTC and
facilitates the settlement among participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates;
- Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations;
- DTC is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.;
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- Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either
directly or indirectly; and
- The rules applicable to DTC and its participants are on file with the
SEC.
Although DTC is expected to follow these procedures in order to facilitate
transfers of interests in the global notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC or its direct or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
Certificated Securities
Interests in the global notes will be exchanged for certificated securities
if:
- DTC or any successor depositary (the "Depositary") notifies us that it is
unwilling or unable to continue as depositary for the global notes, or
DTC ceases to be a "clearing agency" registered under the Securities
Exchange Act of 1934, and a successor depositary is not appointed by us
within 90 days;
- an event of default has occurred and is continuing with respect to the
notes and the registrar has received a request from the Depositary to
issue certificated securities in lieu of all or a portion of the global
notes, in which case we will deliver certificated securities within 30
days of such request; or
- we determine not to have the notes represented by global notes.
Upon the occurrence of any of the events described in the preceding sentence, we
will cause the appropriate certificated securities to be delivered.
Neither we nor the trustee will be liable for any delay by the Depositary
or its nominee in identifying the beneficial owners of the related notes. Each
such person may conclusively rely on, and will be protected in relying on,
instructions from such Depositary or nominee for all purposes, including the
registration and delivery, and the respective principal amounts, of the notes to
be issued.
Same-Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes (including principal, premium, if any, and interest) be made by
wire transfer of immediately available funds to the accounts specified by the
global note holder. With respect to certificated notes, we will make all
payments of principal, premium, if any, and interest by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issues is generally settled in clearinghouse or next-day funds. In
contrast, notes represented by the global notes are expected to be eligible to
trade in the PORTAL market and to trade in DTC's Same-day Funds Settlement
System, and any permitted secondary market trading activity in such notes will,
therefore, be required by DTC to be settled in immediately available funds. We
expect that secondary trading in the certificated notes will also be settled in
immediately available funds.
Because of time zone differences, the securities account of a Euroclear
System or Cedel Bank participant purchasing an interest in a global note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear or Cedel) immediately
following the settlement date of DTC. DTC has advised us that cash received in
Euroclear or Cedel as a result of sales of interests in a global note by or
through a Euroclear or Cedel participant to a participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
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GOVERNING LAW
The indenture and the notes will be governed by and construed in accordance
with New York law.
CERTAIN DEFINITIONS
"Acceptable Credit Provider" means a bank or trust company authorized to
engage in the banking business having a combined capital and surplus of at least
$500,000,000 or the equivalent thereof whose long-term unsecured debt is rated
"A-" or higher by S&P or "A3" or higher by Moody's or, if both of such rating
agencies are no longer in business or no longer rating unsecured debt of banks
or trust companies, a comparable rating of another internationally recognized
rating agency selected by our company and reasonably acceptable to the trustee.
"Affiliate" means, as to any Person, any Subsidiary of such Person and any
other Person which, directly or indirectly, controls or is controlled by or
under direct or indirect common control with such specified Person. For the
purposes of this definition, "control," when used with respect to any Person,
means the possession of the power to direct or cause the direction of 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.
Notwithstanding the foregoing, no individual shall be an Affiliate of any Person
solely by reason of his or her being a director, manager, officer or employee of
such Person.
"Base Case Financial Model" means the model so titled in the Independent
Engineer's report prepared in connection with the sale of the outstanding notes,
as amended from time to time and certified by the Independent Engineer for
purposes of calculating the Forward Debt Service Coverage Ratio.
"Bridge Loan" means the $831,000,000 loan to our company entered into in
connection with the acquisition of our interests in the Facilities.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banks or trust companies in the Borough of Manhattan,
The City of New York or in any other city where the corporate trust office of
the trustee may be located, are obligated or authorized by law or executive
order to close.
"CalPERS Security Agreement" means the security agreement dated the Issue
Date between CalPERS and the trustee.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any preferred
stock or interests, but excluding any debt securities convertible into such
equity.
"Cash Distribution" means all cash distributions received by us which are
made in respect and attributable to, and based upon our direct or indirect
equity interests or ownership in the Operating Partnerships, other power
projects and other investments.
"Cashflow" means during any period the sum of:
- all amounts received by us pursuant to distributions from the Operating
Partnerships (other than damages or penalties received by us pursuant to
the Project Documents);
- all proceeds received by us from business interruption insurance;
- all interest income or hedging receipts (net of costs) received by us;
- all other amounts received by us in respect of the Facilities and
Operating Partnerships; and
- any amounts released to us after the Issue Date from the expense account
established in connection with the bridge loan.
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"Change of Control" means a combination of (a) Enron and (b) CalPERS and/or
other third party institutional investors ceases to be the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of at
least a majority of the voting power of all classes of Voting Stock of our
company; provided, however, that a Change of Control shall not be deemed to
occur if (1) the holders of 66 2/3% of the aggregate principal amount of the
outstanding notes (and additional notes) consent to the transaction that results
in such combination of (a) Enron and (b) CalPERS and/or other third party
institutional investors ceasing to be the beneficial owner of at least a
majority of voting power of all classes of Voting Stock of our company or (2)
after giving effect to the transaction that results in such combination of (a)
Enron and (b) CalPERS and/or other third party institutional investors ceasing
to be the beneficial owner of at least a majority of the voting power of all
classes of Voting Stock of our company, the then current rating of the Notes is
at least as high as the rating of the Notes on the Issue Date, and the Rating
Agencies confirm that a Rating Downgrade will not result.
"Common Security Agreement" means the common security agreement dated the
Issue Date among our company, certain of its Subsidiaries and the trustee.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a constant maturity
corresponding to the remaining term of the series of the notes (calculated to
the nearest 1/12th of a year) that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
notes to be redeemed.
"Comparable Treasury Price" means (a) the average of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) on the third business day preceding such redemption
date, as set forth in the daily statistical release (or any successor release)
published by the Federal Reserve Bank of New York and designated "composite 3:30
p.m. Quotations for U.S. Government Securities" or (b) if such release (or any
successor release) is not published or does not contain such prices on such
business day, (1) the average of the Reference Treasury Dealer Quotations for
such Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations for such Redemption Date or (2) if we obtain fewer
than four such Reference Treasury Dealer Quotations, the average of all such
Quotations.
"Debt Service Coverage Ratio" means for any period, without duplication, a
ratio the numerator of which is Net Cashflow for that period, and the
denominator of which is principal, interest and commitment fees, underwriting
fees and other similar fees owed by our company due for such period on the notes
and other Indebtedness which ranks pari passu with the notes (without giving
effect to any amounts paid from the expense account established in connection
with the bridge loan). For purposes of calculating the Debt Service Coverage
Ratio for the first four quarters ending after the Issue Date in connection with
the "Limitation on Restricted Payments" covenant, historical numbers shall be
used for completed quarters (the first quarter being deemed to be the period
from February 4, 1999 to June 30, 1999) and projected numbers shall be used or
relied upon for the remaining quarters.
"Debt Service Credit Support" means (a) an undertaking to advance money to
the trustee for the benefit of the holders by (1) Enron, if and so long as
Enron's senior long-term unsecured debt has an Investment Grade Rating or (2)
any successor to Enron resulting from a Change of Control, merger, consolidation
or similar transaction resulting in a change in the beneficial ownership of our
company, if and so long as such Person's senior long-term unsecured debt has an
Investment Grade Rating or (b) a letter or letters of credit from an Acceptable
Credit Provider.
"Default" means an event or condition that, with giving of notice, lapse of
time or both would become an Event of Default.
"ECP Holding Company Security Agreement" means the security agreement dated
the Issue Date between ECP Holding Company and the trustee.
"Event of Loss" means any compulsory transfer or taking, or taking or
transfer under threat of compulsory transfer or taking, of all or substantially
all of any Facility by any Governmental Authority, or any
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event which causes all or substantially all of any Facility to be damaged,
destroyed or rendered unfit for normal use for any reason whatsoever.
"Excluded Dispositions" means sales, transfers, assignments and other
dispositions as follows:
- assets that in a single transaction or a series of related transactions
do not have a fair market value in excess of $10 million in any calendar
year;
- assets resulting from, included in, covered by, or related to an Event of
Loss or a Power Contract Buyout;
- any sale, exchange of assets or lease by our company or any of our
Subsidiaries (as lessor) made in the ordinary course of business
(excluding any forward sale, sale of receivables or similar
transactions);
- an issuance or sale of equity interests by a Subsidiary of our company to
our company or to another Subsidiary of our company;
- a sale, transfer, assignment or other disposition by our company or a
Subsidiary of our company to our company or another Subsidiary of our
company;
- a dividend or other distribution permitted under the caption "Certain
Covenants -- Limitation on Restricted Payments";
- the sale, exchange, lease by our company or any of our Subsidiaries (as
lessor) or other disposition of obsolete assets not integral to any Line
of Business;
- the abandonment or relinquishment of assets in the ordinary course of
business; and
- creations of liens, grants of security interests or pledges or
assignments to secure Indebtedness that are not prohibited under the
"Limitation on Liens" covenant.
"Facility" means any of the Bayonne Facility, the Camden Facility and the
Linden Facility and any Facility Expansion, as the context may require.
"Facility Expansion" means:
- an expansion in the electric power generating capacity of up to 300 MW at
or adjacent to the Linden Facility;
- an expansion in the electric power generating capacity of up to 500 MW at
or adjacent to the Bayonne Facility; and
- the expansion of transmission, infrastructure, or fuel storage or
transportation facilities at any Facility, together with related power
supply, thermal energy and fuel contracts and ancillary facilities,
services or goods.
"Facility Owner" means, collectively, our company and each of our
Subsidiaries, including the Operating Partnerships and the Managing General
Partners.
"Forward Debt Service Coverage Ratio" means the projected Debt Service
Coverage Ratio over the life of the Notes with the longest maturity using as the
basis for the calculation of the Debt Service Coverage Ratio the amounts so
shown on the Base Case Financial Model, as amended, from time for time and
certified by the Independent Engineer.
"GAAP" means generally accepted accounting principles in the United States
of America, including those set forth in (i) the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants (the "AICPA"), (ii) statements and pronouncements of the Financial
Accounting Standards Board of the AICPA, (iii) such other statements by such
other entity as approved by a significant segment of the accounting profession
and (iv) the rules and regulations of the Commission governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and
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pronouncements in staff accounting bulletins and similar written statements from
the accounting staff of the Commission.
"Governmental Authority" means any United States federal, state, municipal,
local, territorial or other governmental subdivision, department, commission,
board, bureau, agency, regulatory authority, instrumentality or judicial or
administrative body.
"Indebtedness" with respect to any Person means, at any time, without
duplication:
- its liabilities for borrowed money and its redemption obligations in
respect of mandatorily redeemable preferred stock;
- its liabilities for the deferred purchase price of property acquired by
such Person and all liabilities created or arising under any conditional
sale or other title retention agreement with respect to any such property
(excluding, in each of the foregoing cases, accounts payable and other
current liabilities arising in the ordinary course of business);
- all liabilities appearing on its balance sheet in accordance with GAAP in
respect of capital leases;
- all liabilities for borrowed money secured by any Lien with respect to
any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
- all its reimbursement obligations in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money); and
- any guaranty of such Person with respect to liabilities of a type
described in any of the clauses set forth above in this definition.
"Independent Engineer" means Burns and Roe Enterprises, Inc. or another
widely recognized independent engineering firm, engineer and/or industry
consultant who is widely recognized as an expert in electric power or thermal
energy generation or cogeneration retained as independent engineer or consultant
by us.
"Independent Investment Banker" means NationsBanc Montgomery Securities LLC
or its successor or, if such firm is unwilling or unable to select the
Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by us; provided that if neither such Person is
appointed and willing to serve at least 15 Business Days prior to the Redemption
Date, then by an independent investment banking institution of a national
standing appointed by the trustee.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement, in each case, entered into for non-speculative
purposes.
"Investment Grade Rating" means, with respect to any Indebtedness, a rating
of "BBB-" or higher by S&P or "Baa3" or higher by Moody's, or, if any of such
rating agencies is no longer in business or no longer rating such entity's
Indebtedness, a comparable rating of another internationally recognized rating
agency selected by our company and reasonably acceptable to the trustee.
"Issue Date" means April 20, 1999, the date on which the outstanding notes
were originally issued under the indenture.
"Linden subordinated note" means the subordinated promissory note of Linden
Ltd. dated February 5, 1999 payable to us in the original principal amount of
$289,581,328.
"Line of Business" means, with respect to our company and our Subsidiaries:
- the business of construction, development, acquisition, servicing,
ownership, improvement, operation and management of the Facilities,
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- the business of consulting, insurance or advisory activities related to
any business referred to in this definition; and
- any activity or business that is reasonably related thereto.
"Managing General Partners" means Linden Ltd., Camden GP and Bayonne GP.
"Managing Member" means, with respect to our company, ECP Holding Company
or any other Person designated by the members of our company to be our managing
member.
"Material Adverse Effect" means a material adverse effect on:
- the financial position or results of operation of our company and our
Subsidiaries, taken as a whole;
- our ability to perform our obligations under the notes; or
- the ability of a Facility Owner to perform any obligation under a Project
Document that is material to our company and our Subsidiaries taken as a
whole.
"Mesquite Investors Security Agreement" means the security agreement dated
August 13, 1999 between Mesquite Investors and the trustee.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Buyout Proceeds" means all cash proceeds and the fair market value of
all non-cash proceeds received by our company or any of our Subsidiaries
(including the Operating Partnership and the Managing General Partners) (without
duplication) from a Power Contract Buyout, in each case, net of all expenses,
costs and other amounts expended or incurred by or on behalf of the recipient or
recipients (as applicable) of such cash proceeds in connection with the
collection, enforcement, negotiation, settlement, proceedings, administration or
other activity related to the receipt and final collection of such proceeds.
"Net Cashflow" during any period means the amount determined in accordance
with the definition of Cashflow for that period minus the sum of (a) all amounts
paid by or on behalf of our company in respect of administration and overhead
other than any subordinated payments and (b) all taxes paid by us (other than
tax reimbursements paid by us), without duplication; provided, however, that net
cashflow for the quarter ended June 30, 1999 will be deemed to also include all
amounts received by us after February 4, 1999 through the Issue Date minus (a)
interest paid on the bridge loan and (b) all amounts paid by or on behalf of our
company in respect of administration and overhead between February 4, 1999 and
the Issue Date.
"Net Loss Proceeds" means all cash proceeds of insurance received by us on
account of an Event of Loss, all cash awards of compensation and the fair market
value of all non-cash proceeds for the taking by condemnation, eminent domain or
similar proceeding resulting from an Event of Loss, in each case, net of all
expenses, costs and other amounts expended or incurred by or on behalf of the
recipients of such cash proceeds, cash award or non-cash proceeds in connection
with the collection, enforcement, negotiation, settlement, proceedings,
administration or other activity related to the receipt and final collection of
such proceeds; provided, however, in all cases, excluding the receipt of
proceeds of business interruption insurance, environmental damage insurance (to
the extent applied to the remediation or the reimbursement for the cost of
remediation of the environmental damage giving rise to such insurance claim) or
similar types of policies.
"Notes" means, collectively, the 2008 notes, the 2012 notes and the 2017
notes.
"Officers' Certificate" means a certificate signed by an officer or
manager, as the case may be, of our company or any of our Subsidiaries, or any
authorized partner or member of any of them, as the case may be.
"Operating Partnerships" or "Operating Partnership" means collectively or
individually, as the case may be, Linden Venture, Camden Venture and Bayonne
Venture.
"Operating Property" means (a) any interest in real property owned by our
company or our Subsidiaries and (b) any asset owned by our company or our
Subsidiaries that is depreciable in accordance with GAAP, excluding, in either
case, (1) any interest of our company or our Subsidiaries as lessee under any
lease which
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has been or would be capitalized on the books of the lessee in accordance with
GAAP and (2) any interest, asset or property which has a fair market value at
the time of determination of less than $5 million.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the trustee; such counsel may be an employee of, or
counsel to, our company, any of our Subsidiaries or the trustee or any of their
Affiliates.
"Payment Dates" mean March 31, June 30, September 30 and December 31,
commencing June 30, 1999.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization or Governmental Authority.
"Power Contract Buyout" means the termination of, or the negotiated
reduction of capacity or electricity to be sold under, a Power Purchase
Agreement other than pursuant to such agreement's terms and the payment by the
purchaser made in connection therewith.
"Power Purchase Agreement" means any agreement for the sale of electrical
generating capacity or electricity by a Facility other than any such agreement
that has a term of one year or less or that may be canceled or terminated by
either the power purchaser or seller thereunder on less than one year's notice
without substantial economic detriment.
"Principal Operating Property" means any Operating Property that consists
of any of the following: (a) a real estate site on which any Facility is located
and (b) any Facility or any turbine located at any Facility, excluding, however,
from each of clauses (a) and (b), any such assets or properties consisting of
inventories, fuel, furniture, office fixtures and equipment (including computer
and data processing equipment), vehicles and equipment used in, or useful with,
vehicles.
"Project Documents" includes all Power Purchase Agreements, steam
contracts, operating and maintenance agreements, administrative services
contracts, construction contracts (other than purchase orders), transmission
agreements, fuel supply contracts and partnership agreements that relate to a
Facility, other than any such agreement that has a term of one year or less or
that may be canceled or terminated by a party thereto on less than one year's
notice without substantial economic detriment.
"Rating" means the rating of (a) the notes by the Rating Agencies on the
Issue Date and (b) the additional notes on their date of issuance, provided that
if any of the Rating Agencies that initially rated such notes or additional
notes is no longer in business or no longer rating the notes or additional
notes, a comparable rating of another internationally recognized rating
institutions selected in good faith by our Managing Member.
"Rating Agencies" means Moody's and S&P to the extent that at each relevant
time of determination, each of them has an active and current rating in effect
on the notes, or any fewer than all of them to the extent that less than all of
them have a current rating in effect on the notes; provided that if none of them
has a current rating on the notes at any relevant time of determination, at
least 2 other internationally recognized rating institutions selected in good
faith by our Managing Member.
"Rating Downgrade" means a lowering by one or more of the Rating Agencies
of the Ratings.
"Reference Treasury Dealer" means (a) NationsBanc Montgomery Securities LLC
or its successor; provided, however, that if it shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"), we
shall substitute therefore another Primary Treasury Dealer, and (b) any other
Primary Treasury Dealer selected by our company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to us and to the trustee by such Reference Treasury Dealer at 5:00 p.m.
on the third business day preceding such Redemption Date.
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"S&P" means Standard & Poor's Rating Services and its successors.
"Security Documents" means the Mesquite Investors Security Agreement, the
CalPERS Security Agreement, the ECP Holding Company Security Agreement and the
Common Security Agreement.
"Subordinated Indebtedness" means any Indebtedness of our company (whether
outstanding on the date hereof or thereafter incurred) which:
- is subordinate or junior in right of payment to the notes and the
additional notes, if any, pursuant to a written agreement to that effect;
and
- is not subject to acceleration, so long as any notes or additional notes,
if any, are outstanding under the indenture, unless the principal of the
notes or additional notes, if any, have been accelerated under the
indenture.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by:
- such Person;
- such Person and one or more Subsidiaries of such Person; or
- one or more Subsidiaries of such Person.
"Treasury Rate" means, a rate of interest per annum equal to (a) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519) Selected Interest Rates" or any successor release which is published
weekly by the Board of Governors of the Federal Reserve System and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Comparable Treasury Issue (if such maturity is not
within three months before or after the Maturity Date, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue
shall be determined and the Treasury Rate shall be interpolated or extrapolated
from such yields on a straight line basis, rounding to the nearest basis point)
or (b) if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the rate
per annum equal to the quarterly equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Voting Stock" means any class or classes of Capital Stock of a Person
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees, or to elect or designate those generally responsible for
managing the business and affairs under ordinary circumstances, of any Person
(irrespective of whether or not, at the time, securities of any other class or
classes has, or might have, voting power by reason of the happening of any
contingency).
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The discussion below is intended to be a general description of the United
States federal income tax considerations material to an investment in the notes.
It does not take into account the individual circumstances of any particular
investor and does not purport to discuss all of the possible tax consequences of
the purchase, ownership or disposition of the notes and is not intended as tax
advice. Therefore, prospective investors are urged to consult their own tax
advisors with respect to the income tax consequences of an investment in the
notes, including application of state, provincial, local, foreign and other tax
laws.
U.S. HOLDERS
In the opinion of Vinson & Elkins L.L.P., legal counsel to our company, the
following are the material United States federal income tax consequences
associated with the exchange and the acquisition, ownership, and disposition of
the notes. The following summary does not discuss all of the aspects of federal
income taxation that may be relevant to a prospective holder of the notes in
light of his or her particular circumstances, or to certain types of holders
which are subject to special treatment under the federal income tax laws
(including persons who hold the notes as part of a conversion, straddle or
hedge, dealers in securities, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and S corporations). Further, this
summary pertains only to U.S. Holders that will hold the notes as capital assets
within the meaning of section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). A "U.S. Holder" is a beneficial owner of notes that is:
- an individual who is a citizen or resident of the United States;
- a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State thereof (including
the District of Columbia);
- an estate the income of which is subject to U.S. federal income tax
regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust. In
addition, this summary does not describe any tax consequences under
state, local, or foreign tax laws.
This summary is based upon the provisions of the Code, Treasury Regulations
(the "Regulations"), rulings and pronouncements issued by the Internal Revenue
Service ("IRS") and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect the U.S. Holders of the notes. We have not sought and will not seek any
rulings from the IRS with respect to the matters discussed below. We cannot
assure you that the IRS will not take positions concerning the tax consequences
of the purchase, ownership or disposition of the Notes which are different from
those discussed herein.
The Exchange Offer
The exchange of outstanding notes for new notes will not produce, for
federal income tax purposes, recognizable gain or loss to either our company or
a U.S. Holder of a new note because the new notes will be identical in all
material respects to the outstanding notes. The U.S. Holder will have an initial
adjusted tax basis and a holding period in the new note equal to his or her
adjusted tax basis and holding period in the outstanding note.
Payments of Interest
Stated interest paid on each note held by a U.S. Holder will generally be
taxable in accordance with the U.S. Holder's method of accounting for federal
income tax purposes. Special rules governing the treatment of market discount
and amortizable premium are described below. The notes will not be issued with
"original issue discount" for United States federal income tax purposes.
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Market Discount
If a U.S. Holder purchases a note for less than the stated redemption price
of the note at maturity, the difference is considered market discount, unless
such difference is de minimis, i.e., less than one-fourth of one percent of the
stated redemption price of the note at maturity multiplied by the number of
complete years remaining to maturity. Under the market discount rules, any gain
realized by the U.S. Holder on a taxable disposition of a note having market
discount, as well as any partial principal payment made with respect to such a
note, will be treated as ordinary income to the extent of the then accrued
market discount of the note.
Any market discount will accrue ratably from the date of acquisition to the
maturity date of the note, unless the U.S. Holder elects, irrevocably, to accrue
market discount on a constant interest rate method under which marginally less
market discount would accrue in early years and marginally greater amounts would
accrue in later years. The election to accrue market discount on a constant
interest rate method is irrevocable but may be made separately as to each note
held by the holder.
Accrual of market discount will not cause the accrued amounts to be
included currently in a U.S. Holder's taxable income, in the absence of a
disposition of, or principal payment on, the note. A U.S. Holder of such a note
is generally required to defer the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry the note
until the deferred income is realized. A U.S. Holder may elect to currently
include market discount in income as it accrues on either a ratable or constant
interest rate method. In such event, interest expense relating to the
acquisition of a note which would otherwise be deferred would be currently
deductible to the extent otherwise permitted by the Code. The election to
include market discount in income currently, once made, applies to all market
discount obligations acquired by such U.S. Holder on or after the first day of
the first taxable year to which the election applies and all subsequent years
unless revoked with the consent of the IRS.
Amortizable Premium
If a U.S. Holder acquires a note for an amount which is greater than its
principal amount, such U.S. Holder will be considered to have purchased such
note with amortizable bond premium equal to the amount of such excess. The U.S.
Holder may elect to amortize the premium using a constant yield method over the
period from the acquisition date to the maturity date of the note. Amortized
amounts may be offset only against interest paid with respect to the note. Once
made, an election to amortize and offset interest on the note may be revoked
only with the consent of the IRS and will apply to all notes held by the
subsequent U.S. Holder on the first day of the taxable year to which the
election relates and to subsequent taxable years and to all notes subsequently
acquired by such U.S. Holder.
Sale, Redemption or Other Taxable Disposition of Notes
The sale, redemption or certain other taxable dispositions of a note will
result in the recognition of gain or loss to the U.S. Holder in an amount equal
to the difference, if any, between (a) the amount realized upon the disposition
or redemption and (b) the U.S. Holder's adjusted tax basis in such note. A U.S.
Holder's tax basis for determining gain or loss on the disposition or redemption
of a note generally will be the cost of such note to such U.S. Holder, increased
by the amount of any market discount includible in such U.S. Holder's gross
income with respect to such note, and decreased by the amount of any payments
under the note that are part of its stated redemption price at maturity and by
the portion of any premium applied to reduce interest payments as described
above. Such gain or loss will be capital gain or loss (except to the extent the
gain represents market discount on the note not previously included in gross
income, to which extent such gain would be treated as ordinary income). In the
case of an individual U.S. Holder, such capital gain generally will be subject
to a maximum federal tax rate of 20% if the individual has held the note for
more than one year and otherwise will be short-term capital gain or loss. The
deductibility of capital losses is subject to certain limitations. Prospective
investors should consult their own tax advisors in this regard. Payments on such
disposition for accrued stated interest not previously included in income will
be treated as ordinary interest income.
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Purchase or Redemption of Notes
Purchase at the Option of the Holders -- Change of Control. Upon a Change
of Control, we are required to offer to purchase all outstanding notes for a
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest. Under the Regulations, such a Change of Control purchase offer will
not affect the yield or maturity date of the notes unless, based on all the
facts and circumstances as of the issue date, it is significantly more likely
than not that a Change of Control giving rise to the offer will occur. We will
not treat the Change of Control provisions of the notes as affecting the
calculation of the yield to maturity of any note.
Optional Redemption. At our option, we may redeem part or all of the notes
at any time at a redemption price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest thereon to the date of redemption, plus a make
whole premium. For purposes of determining whether the notes are issued with any
original issue discount, the Regulations generally provide that an issuer will
be treated as exercising any such option if its exercise would lower the yield
of the debt instrument. A redemption of the notes at the optional redemption
prices, however, would increase rather than decrease the effective yield of the
debt instrument as calculated from the issue date and accordingly, the optional
redemption provisions of the Notes will not affect the calculation of yield to
maturity of any note.
Should we exercise an option and redeem a note, or upon the mandatory
redemption of a note, the U.S. Holder of the note would be required to treat any
amount paid by us (other than amounts paid as accrued and unpaid interest
thereon) as an amount realized upon the redemption of the note.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to interest
payments on the notes made to U.S. Holders other than certain exempt recipients
(such as corporations) and to proceeds realized by such holders on dispositions
of the notes. A 31% backup withholding tax will apply to such amounts only if
the U.S. Holder:
- fails to furnish its social security or other taxpayer identification
number ("TIN") within a reasonable time after request therefor;
- furnishes an incorrect TIN;
- fails to report properly interest or dividend income; or
- fails under certain circumstances to provide a certified statement,
signed under penalty of perjury, that the TIN provided is its correct
number and that it is not subject to backup withholding.
Any amount withheld from a payment to a U.S. Holder under the backup withholding
rules is allowable as a refund or as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
IRS. Furthermore, certain penalties may be imposed by the IRS on a U.S. Holder
who is required to supply information but who does not do so in the proper
manner. U.S. Holders of the notes should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal tax
consequences of the ownership and disposition of notes applicable to beneficial
owners that are Non-U.S. Holders ("Non-U.S. Holders") of the notes. A "Non-U.S.
Holder" is any person other than:
- an individual who is a citizen or resident of the United States;
- a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State thereof (including
the District of Columbia);
- an estate the income of which is subject to U.S. federal income tax
regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
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This discussion is for general information only and does not deal with all
aspects of U.S. federal income and estate taxation that may be relevant to
Non-U.S. Holders in view of their particular circumstances, nor does it address
the effect of any applicable state and local or foreign tax law. Furthermore,
this summary is based upon provisions of the Code, Regulations, rulings and
pronouncements issued by the IRS and judicial decisions now in effect, all of
which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a manner
that could adversely affect the Non-U.S. Holders of the notes. We have not
sought and will not seek any rulings from the IRS or opinions from counsel with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the purchase,
ownership or disposition of the notes which are different from those discussed
herein. PROSPECTIVE FOREIGN INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE FEDERAL, STATE AND LOCAL, AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF OWNING AND DISPOSING OF THE NOTES.
Payments of Interest from U.S. Sources
Interest paid from U.S. sources on the notes to a Non-U.S. Holder should
qualify as "portfolio interest" on which no withholding of U.S. income tax is
imposed, provided (a) the Non-U.S. Holder:
- does not own, actually or constructively, 10% or more of the total
combined voting power of all classes of our capital stock;
- is not a controlled foreign corporation within the meaning of section
957(a) of the Code that is related directly or indirectly to our company;
- is not a bank which acquired the notes in consideration for an extension
of credit made pursuant to a loan agreement entered into in the ordinary
course of its business; and
- such amounts are not considered payments of "contingent interest"
described in Section 871(h)(4) of the Code (relating primarily to
interest based on or determined by reference to income, profits, cash
flow, sales, dividends or other comparable attributes of our company or a
party related to us), and
(b) we receive a statement that the beneficial owner of the notes is a Non-U.S.
Holder. Such statement is made on an IRS Form W-8, or a successor form, which is
signed by the beneficial owner under penalties of perjury, certifies that the
beneficial owner of the notes is a Non-U.S. person and provides the name and
address of the beneficial owner. Otherwise, interest paid from U.S. sources to a
Non-U.S. Holder of notes will be subject to the withholding of U.S. income tax
at the rate of 30% of the gross amount of interest paid or a lower rate under an
applicable income tax treaty.
Interest paid from U.S. sources to a Non-U.S. Holder may also be exempt
from U.S. federal withholding taxes provided such Non-U.S. Holder delivers (a)
IRS Form 1001, or a successor form, signed by the Non-U.S. Holder of the Note or
such Non-U.S. Holder's agent claiming exemption from or reduction of withholding
under an applicable tax treaty, or (b) IRS Form 4224, or a successor form,
signed by the Non-U.S. Holder of the Note or such Non-U.S. Holder's agent
claiming exemption from withholding tax on income effectively connected with the
conduct of a trade or business within the United States; provided that, in any
such case (x) the applicable form is delivered pursuant to applicable procedures
and is properly transmitted to the person otherwise required to withhold tax and
(y) none of the persons receiving the form has actual knowledge that the
Non-U.S. Holder is not a Non-U.S. Holder or that any certification on the form
is false. Non-U.S. Holders that are classified as partnerships for U.S. federal
income tax purposes but classified as corporations for non-United States tax
purposes may, however, not be entitled to the benefits of an otherwise
applicable tax treaty. Interest that is effectively connected with the conduct
by a Non-U.S. Holder of a trade or business within the United States generally
will be subject to United States federal income tax on a net basis in the manner
described above for U.S. Holders. In addition, a Non-U.S. Holder that is a
corporation may be subject to a branch profits tax in respect of such
effectively connected income equal to 30% or such lower rate as may be specified
in an applicable tax treaty.
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Sale, Redemption or Other Taxable Disposition of the Notes
Generally, a Non-U.S. Holder of a note will not be subject to U.S. federal
income tax on any gain realized on the sale, redemption or other disposition of
a note unless:
- such gain or income is effectively connected with a trade or business in
the United States of the Non-U.S. Holder or, under an applicable tax
treaty, is attributable to a United States permanent establishment
maintained by the Non-U.S. Holder;
- in the case of a Non-U.S. Holder who is an individual, the Non-U.S.
Holder is present in the United States for 183 days or more in the
taxable year of such sale and certain other requirements are met; or
- the Non-U.S. Holder is subject to tax pursuant to the provisions of the
Code applicable to certain former citizens and residents of the United
States.
Information Reporting and Backup Withholding
U.S. information reporting and backup withholding tax (which is a
withholding tax imposed at the rate of 31% on certain payments to persons who
fail to furnish the information required under U.S. information reporting
requirements) generally will not apply to interest paid on the notes to a
Non-U.S. Holder who has provided us (or our agent) with a Form W-8, or a
successor form, provided the payor does not have actual knowledge that the payee
is not a Non-U.S. person.
Payment of the proceeds from a sale of the notes to or through a U.S.
office of a broker will be subject to information reporting and backup
withholding unless the owner certifies as to its status as a Non-U.S. Holder
under penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds from a sale of notes to or through a non-U.S. office of a broker
generally will not be subject to information reporting or backup withholding;
however, if such broker is:
- a United States person;
- a "controlled foreign corporation"; or
- a foreign person that derives 50% or more of its gross income from the
conduct of a trade or business in the United States,
such payment will be subject to information reporting (but currently not backup
withholding, although the issue of whether backup withholding should apply is
under consideration by the IRS) unless such broker has documentary evidence in
its records that the owner is a Non-U.S. Holder and certain other conditions are
met or the owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be credited
against the Non-U.S. Holder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the IRS.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX
IMPLICATIONS OF HOLDING AND DISPOSING OF THE NOTES UNDER APPLICABLE STATE OR
LOCAL LAWS. FOREIGN INVESTORS SHOULD ALSO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES UNIQUE TO INVESTORS WHO ARE NOT U.S. PERSONS.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no action letters
issued to third parties, we believe that you may transfer new notes issued under
the exchange offer in exchange for the outstanding notes if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
- our "affiliates" within the meaning of Rule 405 under the Securities Act;
or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives new notes for its own account in exchange
for outstanding notes, where the outstanding notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes.
The letter of transmittal states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
To date, the staff of the SEC has taken the position that broker-dealers
may fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as this exchange offer, other than a
resale of an unsold allotment from the original sale of the outstanding notes,
with the prospectus contained in the exchange offer registration statement. Each
broker-dealer that receives new notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. This prospectus, and any amendment or
supplement to this prospectus, may be used by a broker-dealer in connection with
resales of new notes received in exchange for outstanding notes where such
outstanding notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the expiration date of the
exchange offer and ending on the close of business 180 days after the expiration
date, we will make this prospectus, and any amendment or supplement to this
prospectus, available to any broker-dealer for use in connection with any such
resale. In addition, until such date all dealers effecting transactions in the
new notes may be required to deliver a prospectus.
If you wish to exchange your outstanding notes for new notes in the
exchange offer, you will be required to make representations to us as described
in "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and
"-- Procedures for Tendering -- Your Representations to Us" in this prospectus
and in the letter of transmittal. In addition, if you are a broker-dealer who
receives new notes for your own account in exchange for outstanding notes that
were acquired by you as a result of market-making activities or other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale by you of such new notes.
We will not receive any proceeds from any sale of new notes by
broker-dealers. Broker-dealers who receive new notes for their own account in
the exchange offer may sell them from time to time in one or more transactions
in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the new notes or a combination of such
methods of resale;
- at market prices prevailing at the time of resale; and
- at prices related to such prevailing market prices or negotiated prices.
107
<PAGE> 111
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any new notes. Any broker-dealer
that resells new notes it received for its own account in the exchange offer and
any broker or dealer that participates in a distribution of such new notes may
be deemed to be an "underwriter" within the meaning of the Securities Act. Any
profit on any resale of new notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the new notes and the tax consequences of the exchange
offer will be passed upon for our company by Vinson & Elkins L.L.P., Houston,
Texas.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements included in this prospectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
AVAILABLE INFORMATION
Upon consummation of the exchange offer, we will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the Commission. Reports and other
information filed by our company with the Commission can be inspected without
charge and copied, upon payment of prescribed rates, at the public reference
facilities maintained by the Commission located at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and the
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material and any part thereof will also be available
by mail from the Public Reference Section of the Commission, located at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and via the
Commission's address on the World Wide Web at http://www.sec.gov.
108
<PAGE> 112
GLOSSARY OF TECHNICAL TERMS
The following terms used in this prospectus have the following meanings:
"Average availability" means the fraction of time (usually expressed as a
percent on an annual or multi-annual basis) within which a generating plant (or
unit) is actually capable of providing service, whether or not it is actually in
service and regardless of the capacity level that can be provided.
"Avoided Costs" means the incremental costs that would be incurred by an
electric utility for electric energy or capacity, or both, which, but for the
purchase from a Qualifying Facility, it would produce or purchase from another
service.
"Base load" plant or facility means a generation unit which is normally
operated to supply all or part of the minimum load of a utility system and
which, consequently, operates at a high load factor.
"Btu" means British thermal units, a unit of energy.
"Cogeneration" means the sequential use of a simple energy source to
produce two or more forms of energy output. For example, our plants burn natural
gas to produce electricity and steam.
"Dispatchable" means the ability of an electric generating unit to be
committed to meet demand for electricity in a fashion determined to be most
efficient by the system controller.
"Equivalent availability" means the ratio (usually expressed as a percent)
of the time a generating unit is ready for, or in, service multiplied by the
capacity level that can be provided, plus the time a generating unit is given
contractual credit for being ready for service multiplied by the contractual
capacity, to the total time interval under consideration multiplied by the
contractual capacity. (It is possible for the equivalent availability to be
above or below 100%.)
"EWG" means an "exempt wholesale generator" in accordance with the Public
Utility Holding Company Act of 1935.
"Gas-fired, combined-cycle cogeneration facility" means a facility in which
a gas turbine, burning natural gas or fuel oil, turns an electrical generator.
The exhaust gases from the turbine are directed into a waste heat recovery
boiler, producing high pressure steam which is run through a steam turbine,
producing additional electricity. After exiting the steam turbine, the low
pressure steam is delivered to the steam host facility for processing and
building heat.
"Kilovolt" or "KV" means one thousand volts.
"Kilowatt" or "KW" means one thousand watts.
"Kilowatt-hour" or "KWh" means a unit of electrical energy equal to one
kilowatt of power supplied or taken from an electric circuit steadily for one
hour.
"Mcf" means one thousand cubic feet.
"Megawatt" or "MW" means one million watts. References to specific amounts
of megawatts in the case of plant capacities are to the "name plate" capacities
on the turbines in the plants.
"Megawatt-hour" or "MWh" means one thousand kilowatt-hours.
"MMBtu" means one million Btu.
"QF" or "qualifying facility" means a "qualifying cogeneration facility" in
accordance with PURPA.
"tracking account" means an accounting device designed to relate a utility
power purchaser's Avoided Cost to the payments it makes on such power purchase
agreement over the life thereof. Often, because of project financing
considerations, payments exceed the initial estimated Avoided Cost in the early
years of a power purchase agreement and come into line with, and are less than,
such estimated Avoided Costs in later years of the agreement. Accordingly, many
power purchase agreements set up the device of a tracking account so that if
there is a termination of the power purchase agreement at a time when the
utility purchaser has paid
109
<PAGE> 113
amounts exceeding its estimated Avoided Costs, the utility can be paid back the
difference. To the extent that the amounts paid by the purchaser exceed its
estimated Avoided Cost, the venture selling the power under the power purchase
agreement is indebted to the purchaser for such amount, which is recorded in the
tracking account.
"ventures" means the ventures or entities in which our subsidiaries have
equity interests and which in turn directly own our independent power plants.
110
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
EAST COAST POWER L.L.C.
Pro Forma Consolidated Statement of Operations of East
Coast Power L.L.C. for the nine months ended September
30, 1999............................................... F-4
Pro Forma Consolidated Statement of Operations of East
Coast Power L.L.C. for the year ended December 31,
1998................................................... F-6
UNAUDITED FINANCIAL STATEMENTS OF EAST COAST POWER L.L.C.
Consolidated Statement of Operations of East Coast Power
L.L.C. for the period February 4, 1999 to September 30,
1999................................................... F-9
Consolidated Balance Sheet of East Coast Power L.L.C. as
of September 30, 1999.................................. F-10
Consolidated Statement of Cash Flows of East Coast Power
L.L.C. for the period February 4, 1999 to September 30,
1999................................................... F-11
Consolidated Statement of Members' Equity of East Coast
Power L.L.C. for the period February 4, 1999 to
September 30, 1999..................................... F-12
Notes to Consolidated Financial Statements of East Coast
Power L.L.C............................................ F-13
AUDITED FINANCIAL STATEMENTS OF EAST COAST POWER L.L.C.
Report of Independent Public Accountants.................. F-19
Consolidated Statement of Operations of East Coast Power
L.L.C. for the period February 4, 1999 to March 31,
1999................................................... F-20
Consolidated Balance Sheet of East Coast Power L.L.C. as
of March 31, 1999...................................... F-21
Consolidated Statement of Cash Flows of East Coast Power
for the period February 4, 1999 to March 31, 1999...... F-22
Consolidated Statement of Members' Equity of East Coast
Power L.L.C. for the period February 4, 1999 to March
31, 1999............................................... F-23
Notes to Consolidated Financial Statements of East Coast
Power L.L.C. .......................................... F-24
UNAUDITED FINANCIAL STATEMENTS OF COGEN TECH GROUP
Combined Statements of Operations of Cogen Tech Group for
the period January 1, 1999 to February 4, 1999 and the
nine months ended September 30, 1998................... F-35
Combined Statement of Cash Flows of Cogen Tech Group for
the period January 1, 1999 to February 4, 1999 and the
nine months ended September 30, 1998................... F-36
Combined Statement of Owners' Equity of Cogen Tech Group
for the period January 1, 1999 to February 4, 1999..... F-37
Notes to Combined Financial Statements of Cogen Tech
Group.................................................. F-38
AUDITED FINANCIAL STATEMENTS OF COGEN TECH GROUP
Report of Independent Public Accountants.................. F-41
Combined Statements of Income of Cogen Tech Group for the
years ended December 31, 1998, 1997 and 1996........... F-42
Combined Balance Sheets of Cogen Tech Group as of December
31, 1998 and 1997...................................... F-43
Combined Statements of Cash Flows of Cogen Tech Group for
the years ended December 31, 1998, 1997 and 1996....... F-44
Combined Statements of Owners' Equity of Cogen Tech Group
for the years ended December 31, 1998, 1997 and 1996... F-45
Notes to Combined Financial Statements of Cogen Tech
Group.................................................. F-46
UNAUDITED FINANCIAL STATEMENTS OF COGEN TECHNOLOGIES NEW
JERSEY OPERATING PARTNERSHIPS
Combined Statements of Income of Cogen Technologies New
Jersey Operating Partnerships for the period from
February 5, 1999 to September 30, 1999, the period from
January 1, 1999 to February 4, 1999 and the nine months
ended September 30, 1998............................... F-57
Combined Balance Sheets of Cogen Technologies New Jersey
Operating Partnerships as of September 30, 1999 and
December 31, 1998...................................... F-58
</TABLE>
F-1
<PAGE> 115
<TABLE>
<S> <C>
Combined Statements of Cash Flows of Cogen Technologies New Jersey Operating Partnerships for the period
from February 5, 1999 to September 30, 1999, the period from January 1, 1999 to February 4, 1999 and the
nine months ended September 30, 1998....................................................................... F-59
Combined Statements of Partners' Capital of Cogen Technologies New Jersey Operating Partnerships for the
period from February 5, 1999 to September 30, 1999 and the period from January 1, 1999 to February 4,
1999.................................................................................................. F-60
Notes to Combined Financial Statements of Cogen Technologies New Jersey Operating Partnerships........... F-61
AUDITED FINANCIAL STATEMENTS OF COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
Report of Independent Public Accountants................................................................. F-64
Combined Statements of Income of Cogen Technologies New Jersey Operating Partnerships for the years ended
December 31, 1998, 1997 and 1996...................................................................... F-65
Combined Balance Sheets of Cogen Technologies New Jersey Operating Partnerships as of December 31, 1998
and 1997.............................................................................................. F-66
Combined Statements of Cash Flows of Cogen Technologies New Jersey Operating Partnerships for the years
ended December 31, 1998, 1997 and 1996................................................................ F-67
Combined Statements of Partners' Capital of Cogen Technologies New Jersey Operating Partnerships for the
years ended December 31, 1998, 1997 and 1996.......................................................... F-68
Notes to Combined Financial Statements of Cogen Technologies New Jersey Operating Partnerships........... F-69
</TABLE>
F-2
<PAGE> 116
EAST COAST POWER L.L.C.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
East Coast Power L.L.C. (the "Company") was formed in December 1998 in
connection with the acquisition of the Cogen Tech Group (the "Acquired Group").
The following unaudited pro forma consolidated financial statements give effect
to (i) the acquisition of the Acquired Group by the Company in February 1999 and
certain related transactions, (ii) the acquisition by an entity acquired by the
Company of an additional indirect 5.25% partnership interest in Cogen
Technologies NJ Venture ("Bayonne Venture") in July 1998 and (iii) the issuance
of $850.0 million of outstanding notes in April 1999, based on the historical
combined financial statements of the Acquired Group and the historical
consolidated financial statements of the Company, under the assumptions and
adjustments set forth in the notes hereto. The amounts shown in the column
entitled Acquired Group reflect the combined financial statements of Cogen
Technologies Linden, Ltd. ("Linden Ltd."), Cogen Technologies Camden GP Limited
Partnership ("Camden GP") and McNair Energy Services Corporation ("MESC") and
its wholly owned subsidiary Cogen Technologies NJ, Inc. ("NJ Inc."). As a result
of the acquisition, the Company acquired all of the equity interests in Linden
Ltd., Camden GP and MESC.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1998 and the nine months ended September 30, 1999 assume such
transactions were consummated at the beginning of the period presented. The
unaudited pro forma consolidated financial statements have been prepared for
informational purposes only and are not necessarily indicative of the actual or
future results of operations or financial condition that would have been
achieved had the transaction occurred at the dates assumed. The unaudited pro
forma consolidated financial statements should be read together with the
historical combined financial statements of the Acquired Group and the related
notes thereto, the historical consolidated financial statements of the Company
and the related notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations, included elsewhere in this
prospectus.
The adjustments contained in the unaudited pro forma consolidated
statements of operations do not give effect to any nonrecurring costs directly
associated with such transactions that might be incurred within the next twelve
months and do not give effect to any potential cost savings and synergies that
could result from such transactions.
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
changed their method of accounting for these costs and began expensing such
costs as incurred. The following unaudited proforma consolidated financial
statements have been prepared based on the restated results after giving
retroactive effect to such change.
F-3
<PAGE> 117
EAST COAST POWER L.L.C.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
ACQUIRED
GROUP COMPANY
JANUARY 1 TO FEBRUARY 4 TO COMPANY
FEBRUARY 4, SEPTEMBER 30, PRO FORMA PRO
1999(1) 1999 ADJUSTMENTS FORMA(1)
------------ ------------- ----------- --------
(IN MILLIONS OF DOLLARS EXCEPT FOR RATIOS)
) (RESTATED
<S> <C> <C> <C> <C>
Revenues
Equity in earnings (loss) of
Cogen Technologies Linden Venture,
L.P. ................................. $(44.8) $ 37.4 $ (3.0)(2) $(10.4)
Camden Cogen Venture L.P. .............. (11.8) 2.8 (0.6)(2) (9.6)
Cogen Technologies NJ Venture........... 5.2 20.8 (0.8)(2) 25.2
------ ------ ------ ------
(51.4) 61.0 (4.4) 5.2
Costs and Expenses
Operating overhead......................... 0.9 -- -- 0.9
General and administrative................. 1.7 5.5 -- 7.2
------ ------ ------ ------
2.6 5.5 -- 8.1
------ ------ ------ ------
Income (Loss) from Operations................ (54.0) 55.5 (4.4) (2.9)
Other Income (Expense)
Interest and other income.................. 0.1 10.5 (8.9)(3) 1.7
11.7(4)
(18.5)(5)
(1.6)(6)
Interest expense........................... (2.0) (65.6) (0.3)(7) (76.3)
------ ------ ------ ------
Loss Before Income Taxes..................... (55.9) 0.4 (22.0) (77.5)
Income taxes............................... (1.8) -- 1.8(8) --
------ ------ ------ ------
Net Loss..................................... $(57.7) $ 0.4 $(20.2) $(77.5)
====== ====== ====== ======
Ratio of Earnings to Fixed Charges(9)........ --
======
</TABLE>
- ---------------
(1) The pro forma results for the Company have not been adjusted for the
following items:
In connection with the acquisition, Cogen Technologies Linden Venture,
L.P. ("Linden Venture") and Camden Cogen L.P. ("Camden Venture") made
one-time payments totaling $66.8 million to terminate certain agreements
with affiliates with respect to the payment of management and gas
management fees. Such management and gas management fees were paid based on
a percentage of gross revenues and gas purchases, respectively. The
termination fees for such agreements were paid from contributions by the
sellers. Costs included in the Acquired Group historical and the Company
pro forma amounts for equity in earnings of affiliates associated with the
agreements which were terminated are $52.4 million for Linden Venture and
$14.4 million for Camden Venture, which represents the termination payments
plus the current period expenses with respect to such agreements.
The Acquired Group's operating overhead includes $0.3 million of
development bonuses which were previously granted to employees and were
being charged to expense as earned. Since all such bonuses were bought out
prior to the acquisition, the Company will not incur charges relating to
the development bonuses in future periods.
Prior to the acquisition, the Acquired Group used a corporate aircraft
owned by an affiliate and was charged for such use based on the affiliate's
cost to own and operate the aircraft and the Acquired Group's proportionate
usage. Such aircraft was not acquired by the Company and is not available
for use by the Company. The Acquired Group's general and administrative
expense includes $0.4 million with
F-4
<PAGE> 118
respect to the use of such aircraft. The Company does not anticipate
incurring similar charges in the future.
(2) In connection with the acquisition, the Company has allocated a portion of
the purchase price to its equity investment in each of Linden Venture,
Camden Venture and Bayonne Venture. Under generally accepted accounting
principles, the difference between the purchase price allocated to each
venture and the historical equity in each venture will be amortized over the
remaining lives of the facilities, as indicated in the table below. The
adjustments reflect amortization with respect to the period prior to the
acquisition. In the acquisition, the Company allocated the purchase price of
$1,096.2 million to the fair value of assets acquired and liabilities
assumed as follows (in millions of dollars):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD FOR
ALLOCATED EXCESS OF FAIR
BOOK FAIR VALUE OVER BOOK
ASSETS ACQUIRED/LIABILITIES ASSUMED VALUE VALUE VALUE
----------------------------------- ----- --------- ---------------
<S> <C> <C> <C>
Linden Venture........................................ $ 56.8 $ 918.6 23 years
Camden Venture........................................ 17.7 179.0 24 years
Bayonne Venture....................................... 9.1 185.9 20 years
Cash.................................................. 17.7 17.7 --
Accounts Receivable................................... 8.6 8.6 --
Deferred Financing Costs.............................. 1.4 1.4 8 years
Linden Ltd. Term Loan................................. (205.6) (209.9) 8 years
Other Liabilities..................................... (4.6) (5.1) --
--------
Purchase Price........................................ $1,096.2
========
</TABLE>
The purchase price reflected in the above table has been preliminarily
allocated based on estimated fair values at the date of acquisition pending
final determination of acquisition costs and certain acquired balances. As
of September 30, 1999 management is not aware of any matters which could
significantly impact this allocation.
(3) Reflects the reversal of an $8.9 million payment received with respect to
the cancellation of the interest rate swap in April 1999. The interest rate
swap was related to the bridge loan and represented a $600.0 million
notional swap with a February 11, 2009 maturity date. Under the terms of the
swap, the Company was the fixed-rate payor (5.65%) and the floating rated
receiver (LIBOR).
(4) Reflects the reversal of historical interest expense with respect to: (i)
the bridge loan ($10.4 million); (ii) a $62.1 million principal payment on
the subordinated note ($1.2 million); and (iii) the Camden GP term loan
($0.1 million). The bridge loan was repaid with proceeds from the issuance
of the outstanding notes, and the related interest rate swap was canceled.
$62.1 million of the principal amount of the subordinated note was repaid
with proceeds from the issuance of the outstanding notes, and the Camden GP
term loan was repaid prior to the acquisition.
(5) Reflects interest expense associated with the outstanding notes for the
period January 1 to April 20 assuming interest rates as follows: $296
million at 6.737%, $236 million at 7.066% and $318 million at 7.536%.
(6) Reflects interest expense associated with $187.9 million principal amount of
the subordinated note for the period January 1 to February 4 at 9%.
(7) Reflects the amortization of $12.9 million of deferred debt issuance costs
related to the issuance of the notes. Such costs are being deferred and
amortized pro rata over the life of the notes, $4.5 million over 9 years,
$3.6 million over 13 years and $4.8 million over 18 years. The adjustment
reflects amortization for the period from January 1 to April 20.
(8) Reflects the effect of reversing historical taxes for MESC. The Company will
be taxed as a partnership.
(9) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes
and fixed charges. Fixed charges consist of interest expense including
amortization of loan fees. For the pro-forma period ended September 30, 1999
earnings were insufficient to cover fixed charges by $77.5 million.
F-5
<PAGE> 119
EAST COAST POWER L.L.C.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------
ACQUIRED COMPANY
GROUP PRO FORMA PRO
HISTORICAL(1) ADJUSTMENTS FORMA(1)
-------------- ------------ ---------
(IN MILLIONS OF DOLLARS EXCEPT FOR RATIOS)
) (RESTATED
<S> <C> <C> <C>
Revenues
Equity in earnings of affiliates:
Cogen Technologies Linden Venture, L.P. ............ $ 73.3 $ (37.1)(2) $ 36.2
Camden Venture L.P. ................................ 15.0 (6.8)(2) 8.2
(9.1)(2)
Cogen Technologies NJ Venture....................... 44.6 2.0(3) 37.5
------ ------- ------
132.9 (51.0) 81.9
------ ------- ------
Cost and Expenses
Operating overhead..................................... 21.6 -- 21.6
General and administrative............................. 20.2 -- 20.2
------ ------- ------
41.8 -- 41.8
------ ------- ------
Income (Loss) from Operations............................ 91.1 (51.0) 40.1
Other Income (Expense):
Interest and other income.............................. 12.6 (11.8)(4) 0.8
(59.8)(5)
(16.9)(6)
(1.0)(7)
(5.7)(8)
1.3(9)
Interest expense....................................... (19.3) 0.8(10) (100.6)
------ ------- ------
Income (Loss) Before Income Taxes........................ 84.4 (144.1) (59.7)
Income taxes........................................... (13.3) 13.3(11) --
------ ------- ------
Net Income (Loss)........................................ $ 71.1 $(130.8) $(59.7)
====== ======= ======
Ratio of Earnings to Fixed Charges(12)................... --
======
</TABLE>
- ---------------
(1) The pro forma results for the Company have not been adjusted for the
following matters:
In connection with the acquisition, Cogen Technologies Linden Venture,
L.P. ("Linden Venture") and Camden Cogen L.P. ("Camden Venture") made
one-time payments totaling $66.8 million to terminate certain agreements
with affiliates with respect to the payment of management and gas
management fees. Such management and gas management fees were paid based on
a percentage of gross revenues and gas purchases, respectively. The
termination fees for such agreements were paid from contributions by the
sellers. Costs included in the historical and pro forma amounts for equity
in earnings of affiliates associated with the agreements which were
terminated are $4.9 million for Linden Venture and $1.3 million for Camden
Venture for the year ended December 31, 1998.
The Acquired Group's operating overhead includes $14.5 million of
one-time payments to "buy out" development bonuses which were previously
granted to employees and were being charged to expense as earned. Since all
such bonuses were bought out prior to the acquisition, the Company will not
incur charges relating to the development bonuses in future periods. The
Acquired Group's operating overhead also includes $1.8 million for the year
ended December 31, 1998, with respect to development bonuses earned during
the period.
F-6
<PAGE> 120
Prior to the acquisition, the Acquired Group used a corporate aircraft
owned by an affiliate and was charged for such use based on the affiliate's
cost to own and operate the aircraft and the Acquired Group's proportionate
usage. Such aircraft was not acquired by the Company and is not available
for use by the Company. The Acquired Group's general and administrative
expense includes $6.0 million for the year ended December 31, 1998, with
respect to the use of such aircraft.
The Company does not anticipate incurring similar charges in the
future.
(2) In connection with the acquisition, the Company has allocated a portion of
the purchase price to its equity investment in each of Linden Venture,
Camden Venture and Bayonne Venture. Under generally accepted accounting
principles, the difference between the purchase price allocated to each
venture and the historical equity in each venture will be amortized over
the remaining lives of the facilities, as indicated in the table below. The
adjustments reflect one year of amortization. In the acquisition, the
Company allocated the purchase price of $1,096.2 million to the fair value
of assets acquired and liabilities assumed as follows (in millions):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD FOR
ALLOCATED EXCESS OF FAIR
BOOK FAIR VALUE OVER
ASSETS ACQUIRED/LIABILITIES ASSUMED VALUE VALUE BOOK VALUE
----------------------------------- ------- --------- --------------
<S> <C> <C> <C>
Linden Venture..................................... $ 56.8 $ 918.6 23 years
Camden Venture..................................... 17.7 179.0 24 years
Bayonne Venture.................................... 9.1 185.9 20 years
Cash............................................... 17.7 17.7 --
Accounts Receivable................................ 8.6 8.6 --
Deferred Financing Costs........................... 1.4 1.4 8 years
Linder Ltd. Term Loan.............................. (205.6) (209.9) 8 years
Other Liabilities.................................. (4.6) (5.1) --
--------
Purchase Price........................... $1,096.2
========
</TABLE>
The purchase price reflected in the above table has been preliminarily
allocated based on estimated fair values at the date of acquisition pending
final determination of acquisition costs and certain acquired balances. As
of September 30, 1999 management is not aware of any matters which could
significantly impact this allocation.
(3) Reflects the equity in the earnings of Bayonne Venture attributable to a
5.25% partnership interest in Bayonne Venture which was acquired from an
unaffiliated entity in July 1998. Historical amounts include equity
earnings with respect to such interest for the period August 1998 through
December 1998. The pro forma adjustment represents equity earnings with
respect to such interest for the period January 1998 through July 1998.
(4) Reflects the elimination of interest income related to a receivable owed to
Linden Ltd. from Cogen Technologies Financial Services, L.P., which was
distributed to the sellers in connection with the acquisition. The Company
did not acquire Cogen Technologies Financial Services, L.P.
(5) Reflects interest expense associated with the outstanding notes assuming
interest rates as follows: $296 million at 6.737%, $236 million at 7.066%
and $318 million at 7.536%.
(6) Reflects interest expense associated with $187.9 million principal amount
of the subordinated note at 9%.
(7) Reflects the amortization of $12.9 million of deferred debt issuance costs
related to the issuance of the Notes. Such costs are being deferred and
amortized pro rata over the life of the Notes, $4.5 million over 9 years,
$3.6 million over 13 years and $4.8 million over 18 years. The adjustment
reflects one year of amortization.
(8) Reflects the write-off of debt issuance fees associated with the bridge
loan because these pro forma financial statements reflect the repayment of
the bridge loan.
(9) Reflects the reversal of historical interest expense associated with the
Camden GP term loan. The Camden GP term loan was paid in full prior to the
closing of the acquisition.
F-7
<PAGE> 121
(10) Reflects the amortization of the $4.3 million premium with respect to
Linden Ltd.'s long-term debt assumed in the acquisition.
(11) Reflects the effect of reversing historical taxes for MESC. The Company
will be taxed as a partnership.
(12) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as income (loss) from continuing operations before
income taxes and fixed charges. Fixed charges consist of interest expense
including amortization of loan fees. For the pro-forma period ended
December 31, 1998 earnings were insufficient to cover fixed charges by
$59.7 million.
F-8
<PAGE> 122
EAST COAST POWER L.L.C.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 4, 1999
TO SEPTEMBER 30,
1999
-------------------
<S> <C>
Revenues
Equity in earnings of
Cogen Technologies Linden Venture, L.P................. $ 37.4
Camden Cogen L.P....................................... 2.8
Cogen Technologies NJ Venture.......................... 20.8
------
61.0
Cost and Expenses
General and administrative................................ 5.5
------
Income from Operations...................................... 55.5
Other Income (Expense)
Interest and other income................................. 10.5
Interest expense.......................................... (65.6)
------
Net Income.................................................. $ 0.4
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 123
EAST COAST POWER L.L.C.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Current Assets
Cash and cash equivalents................................. $ 24.8
Restricted cash........................................... 13.8
Other current assets...................................... 0.4
--------
39.0
--------
Investments in Affiliates
Cogen Technologies Linden Venture, L.P.................... 902.0
Camden Cogen L.P.......................................... 176.1
Cogen Technologies NJ Venture............................. 184.9
--------
1,263.0
--------
Other Assets................................................ 14.0
--------
$1,316.0
========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 0.3
Accounts payable, affiliate............................... 2.3
Current maturities on long-term debt...................... 28.6
Interest payable.......................................... 3.4
Other current liabilities................................. 8.7
--------
43.3
Long-Term Debt.............................................. 1,192.3
Commitments and Contingencies (Note 6)
Members' Equity............................................. 80.4
--------
$1,316.0
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 124
EAST COAST POWER L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 4,
1999 TO
SEPTEMBER 30,
1999
--------------
<S> <C>
Operating Activities:
Net Income................................................ $ 0.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of affiliates
Cogen Technologies Linden Venture, L.P............... (37.4)
Camden Cogen L.P..................................... (2.8)
Cogen Technologies NJ Venture........................ (20.8)
Distributions received from affiliates
Cogen Technologies Linden Venture, L.P............... 54.0
Camden Cogen L.P..................................... 5.7
Cogen Technologies NJ Venture........................ 21.8
Amortization of deferred financing costs............... 6.4
Amortization of Linden Ltd. term loan premium.......... (0.6)
Changes in other operating assets and liabilities
Decrease in accounts receivable........................ 8.6
Increase in other current assets....................... (0.3)
Increase in accounts payable........................... 0.3
Increase in accounts payable, affiliate................ 2.3
Increase in interest payable........................... 0.4
Net change in other assets and liabilities............. (1.2)
---------
Net Cash Provided by Operating Activities................... 36.8
---------
Investing Activities:
Acquisition of Acquired Group (net of cash acquired of
$17.7)................................................. (821.0)
Purchase of Enron Corp. common stock...................... (250.0)
---------
Net Cash Used in Investing Activities....................... (1,071.0)
---------
Financing Activities:
Long-term borrowings under bridge loan.................... 831.0
Long-term borrowings under Enron Subordinated Note........ 250.0
Long-term borrowings under senior secured notes........... 850.0
Principal payments on long-term debt...................... (919.5)
Financing costs........................................... (18.7)
Contributions received.................................... 105.0
Distributions Paid........................................ (25.0)
---------
Net Cash Provided by Financing Activities................... 1,072.8
---------
Increase in Cash and Cash Equivalents....................... 38.6
Cash and Cash Equivalents at Beginning of Period............ --
---------
Cash and Cash Equivalents at End of Period.................. $ 38.6
=========
Cash Paid for Interest...................................... $ 59.4
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 125
EAST COAST POWER L.L.C.
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
------- ------- ------
<S> <C> <C> <C>
Balance at February 4, 1999................................. $ -- $ -- $ --
Contributions............................................. 80.0 25.0 105.0
Distributions............................................. -- (25.0) (25.0)
Net Income................................................ 0.4 -- 0.4
----- ------ ------
Balance at September 30, 1999............................... $80.4 $ -- $ 80.4
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 126
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
East Coast Power L.L.C. (the "Company") is a Delaware limited liability
company that was formed on December 18, 1998 by Joint Energy Development
Investments II Limited Partnership ("JEDI II"), a limited partnership in which
Enron Corp. ("Enron") and the California Public Employees' Retirement System
("CalPERS") each own a 50% interest. On February 4, 1999, the limited liability
company agreement of the Company was amended and restated to convert JEDI II's
initial membership to that of a Class A Member and to admit Enron North America
Corp. ("Enron North America"), formerly Enron Capital & Trade Resources Corp., a
wholly-owned subsidiary of Enron Corp., and CalPERS as Class B Members. On
August 13, 1999, Enron North America transferred its Class B membership interest
in the Company (representing 50% of the total Class B membership interests) to
East Coast Power Holding Company L.L.C. ("ECP Holding Company"). Also on August
13, 1999, ECP Holding Company transferred a 49% Class A membership interest and
a 49% Class B membership interest in the Company to Mesquite Investors, L.L.C.
("Mesquite Investors"), a Delaware limited liability company and an affiliate of
El Paso Energy Corporation. The limited liability company agreement of the
Company was amended and restated on August 13, 1999 to admit Mesquite Investors
as a Class A and Class B Member and to provide that ECP Holding Company is
entitled to certain preferential distributions in the event of certain contract
restructuring or capital projects. The Company and its wholly owned subsidiaries
own equity interests in and control and operate three power generation
facilities located in New Jersey (the "facilities").
All distributions from the Company will be made to the Class A Members
until the Class A Members have received distributions equal to $80.0 million
plus specified rates of return. After the Class A Members have received their
preferential distributions, all distributions will be made 90% to the Class A
Members and 10% to the Class B Members.
The Company had no assets or liabilities and conducted no operations prior
to February 4, 1999. On February 4, 1999 the Company indirectly acquired equity
interests in the facilities (the "acquisition") through the acquisition of
entities (collectively, the "Acquired Group") that were under the common control
of Robert C. McNair, members of his immediate family and related trusts ("McNair
Interests"). The Acquired Group included McNair Energy Services Corporation
("MESC"), a Texas corporation, and its wholly owned subsidiary Cogen
Technologies NJ, Inc. ("NJ Inc."), a New Jersey corporation, Cogen Technologies
Linden, Ltd. ("Linden Ltd."), a Texas limited partnership, and Cogen
Technologies Camden GP Limited Partnership ("Camden GP"), a Delaware limited
partnership.
Linden Ltd. is the managing general partner of Cogen Technologies Linden
Venture, L.P. ("Linden Venture"), a Delaware limited partnership that owns and
operates a 715-megawatt cogeneration facility in Linden, New Jersey. Camden GP
is the managing general partner of Camden Cogen L.P. ("Camden Venture"), a
Delaware limited partnership that owns and operates a 146-megawatt cogeneration
facility in Camden, New Jersey. JEDI Bayonne GP, L.L.C. is the managing general
partner of Cogen Technologies NJ Venture ("Bayonne Venture"), a New Jersey
general partnership that owns and operates a 176-megawatt cogeneration facility
in Bayonne, New Jersey. The Company's interest in Linden Ltd., Camden GP and
Bayonne Venture are held through wholly-owned limited liability companies, which
were formed for the specific and limited purpose of holding the interests in
these entities. The financial position and results of operations of these
limited liability companies are reflected in the consolidated financial
statements of the Company.
Cash distributions, net income and net losses are allocated to the partners
of Linden Venture, Camden Venture, and Bayonne Venture (collectively, the
"Ventures") in accordance with the Ventures' partnership agreements.
F-13
<PAGE> 127
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Basis of Consolidation and Presentation
The accompanying unaudited consolidated financial statements reflect, in
the opinion of management, all adjustments, consisting only of normal and
recurring adjustments, necessary to present fairly the consolidated financial
position of the Company and its wholly-owned subsidiaries as of September 30,
1999 and the results of its operations, cash flows and changes in its members'
equity for the period from which it commenced operations on February 4, 1999 to
September 30, 1999. All material transactions between the consolidated entities
have been eliminated. Interim period results are not necessarily indicative of
the results of operations or cash flows for a full year period.
These financial statements should be read in conjunction with the audited
financial statements of the Company.
The Company's investments in Linden Venture, Camden Venture and Bayonne
Venture (collectively, the "Ventures") are accounted for using the equity method
of accounting since the other partners have substantive participating rights
with respect to the partnerships' operations.
Cash and Cash Equivalents/Restricted Cash
All highly liquid short-term investments with original maturities of three
months or less are considered to be cash equivalents. At September 30, 1999,
$13.8 million of the Company's cash was held by Linden Ltd. and all of such cash
was restricted either to service Linden Ltd.'s debt or, if necessary, to make
working capital loans to Linden Venture.
Investments in Affiliates
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
changed their method of accounting for these costs and began expensing such
costs as incurred. The Company's financial statements, including applicable
information contained herein, were restated to give effect to this change. As a
result of this change, the Company's net income was decreased by $1.0 million
for the period from February 4, 1999 to September 30, 1999. Members' equity at
February 4, 1999 was unaffected as the Company conducted no operations prior to
such date.
Derivative Financial Instruments
From time to time the Company uses derivatives to manage interest rate
risk. The Company's policy is to use derivatives for risk management purposes
only and does not enter into such contracts for trading purposes. To date, the
Company has entered into one interest rate swap agreement with Enron North
America, which was cancelled on April 14, 1999.
Instruments used as hedges must be effective in managing risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in the market values or cash
flows of hedge instruments must have a high degree of inverse correlation with
changes in market values or cash flows of the underlying hedged items.
Derivatives that meet the hedge criteria are accounted for under the deferral or
accrual method as discussed in Note 5.
F-14
<PAGE> 128
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities, if any, and the periods in
which certain items of revenue and expense are included. Actual results may
differ from such estimates.
Income Taxes
As limited liability companies and partnerships, the Company and its
consolidated subsidiaries are not subject to state or federal income taxes. Such
taxes accrue to the owners of the Company and, accordingly, income taxes have
not been recognized in the consolidated financial statements.
Recent Accounting Pronouncements
The Financial Statement Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," in June 1998. The statement
requires that all derivatives be recognized at fair value as assets or
liabilities and that changes in fair value be recorded in earnings or other
comprehensive income. In July 1999, the FASB adopted SFAS No. 137 that defers
the required adoption date of SFAS No. 133 by one year to fiscal years beginning
after June 15, 2000. The Company's analysis of the potential impact of this
statement has not been completed.
(2) THE ACQUISITION
As discussed in Note 2 to the Company's March 31, 1999 financial
statements, in a series of transactions on February 4 and 5, 1999, the Company
acquired the assets and liabilities of the Acquired Group. For financial
statement purposes the acquisition was accounted for as a purchase and,
accordingly, the results of operations of the assets acquired are included in
the Company's consolidated financial statements with effect from the date of
acquisition. The aggregate purchase price, including the costs of the
acquisition, has been allocated to the assets and liabilities acquired based on
their estimated fair value.
The following table reflects the Company's estimate of this allocation
based upon the latest information available:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD FOR
EXCESS OF
ALLOCATED FAIR VALUE
BOOK FAIR OVER BOOK
ASSET ACQUIRED/LIABILITIES ASSUMED VALUE VALUE VALUE
---------------------------------- ------ --------- ------------
<S> <C> <C> <C>
Linden Venture.............................................. 56.8 918.6 23 years
Camden Venture.............................................. 17.7 179.0 24 years
Bayonne Venture............................................. 9.1 185.9 20 years
Cash........................................................ 17.7 17.7 --
Accounts Receivable......................................... 8.6 8.6 --
Deferred Financing Costs.................................... 1.4 1.4 8 years
Linden Ltd. Term Loan....................................... (205.6) (209.9) 8 years
Other Liabilities........................................... (4.6) (5.1) --
-------
Purchase Price.............................................. 1,096.2
=======
</TABLE>
The purchase price reflected in the above table has been preliminarily
allocated based on estimated fair values at the date of acquisition pending
final determination of acquisition costs and certain acquired balances.
F-15
<PAGE> 129
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
As of September 30, 1999 management is not aware of any matters which could
significantly impact this allocation.
(3) CAPITAL TRANSACTIONS
Capital Contribution
On April 20, 1999, in accordance with the terms of the Company's limited
liability agreement, JEDI II made a $80.0 million capital contribution to the
Company.
Bridge Loan
In connection with the acquisition, on February 4, 1999 the Company
borrowed $831.0 million under the terms of the bridge loan agreement. The bridge
loan included a $105.0 million tranche bearing interest at LIBOR plus 0.35% and
a $726.0 million tranche bearing interest at LIBOR plus 1.25%. The applicable
LIBOR rate is the one, three, six or, if commercially available, nine or twelve
month rates as elected by the Company. All amounts outstanding under the bridge
loan were repaid on April 20, 1999 using a portion of the proceeds from the sale
by the Company of $850.0 million of senior secured notes. The repayment resulted
in the release of the pledges and assignments serving the bridge loan.
Senior Secured Notes
On April 20, 1999, the Company sold $850.0 million of senior secured notes
(the "Notes") in three tranches as follows: $296.0 million of 6.737% Notes due
2008 (the "2008 Notes"), $236.0 million of 7.066% Notes due 2012 (the "2012
Notes") and $318.0 million of 7.536% Notes due 2017 (the "2017 Notes"). The 2008
Notes bear interest at 6.737% per annum and are repayable in 36 quarterly
installments of varying amounts beginning on June 30, 1999 with the final
payment due March 31, 2008. The 2012 Notes bear interest at 7.066% per annum and
are repayable in 17 quarterly installments of varying amounts beginning on March
31, 2008 with the final payment due March 31, 2012. The 2017 Notes bear interest
at 7.536% per annum and are repayable in 22 quarterly installments of varying
amounts beginning on March 31, 2012 with the final payment due June 30, 2017.
Interest on the Notes is payable quarterly beginning June 30, 1999.
The Notes are senior secured obligations which rank senior to all existing
and future subordinated indebtedness; rank pari passu in right of payment with
all existing and future senior secured indebtedness; and are structurally
subordinated to all indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries and to the distribution rights of
minority partners in the Ventures. The Notes are secured by the pledge by the
owners of the Company of their interest in the Company, the pledge by the
Company of its ownership interests in certain of the subsidiaries that own
interests in the facilities and the pledge of Linden Ltd.'s $289.6 million
intercompany subordinated note payable to the Company.
The Notes may be redeemed at any time at a redemption price that includes a
make-whole premium based on comparable treasury securities plus 50 basis points.
The Notes are mandatorily redeemable at prices specified in the indenture upon
the occurrence of certain events, including certain loss events, power contract
buyouts or change of control. In addition, the terms of the Notes limit the
Company's ability to pay dividends, incur additional indebtedness, make payments
on subordinated debt and make certain other restricted payments. The terms of
the Notes also require the Company to maintain compliance with certain financial
covenants, including funding a debt service reserve account unless it provides
acceptable debt service credit support in the form of an Enron undertaking or an
acceptable letter of credit. Enron has provided the required undertaking, and
the Company is not currently funding the debt service reserve account. The
Company believes it is in compliance with the terms and conditions of the Notes.
F-16
<PAGE> 130
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Use of Proceeds
The proceeds from the sale of the Notes and the capital contribution by
JEDI II were used to repay the bridge loan, make a $25.0 million cash
distribution to Enron North America, repay $62.1 million of the principal amount
of the Enron subordinated note and make a $12.0 million purchase price
adjustment payment in connection with the acquisition. The repayment of the
bridge loan resulted in the release of the $25.0 million guaranty on the loan by
CalPERS. The release was deemed to be a distribution to CalPERS.
(4) INVESTMENT IN AFFILIATES
The following table presents summary income statement information for the
Company's affiliates for the periods January 1, 1999 to February 4, 1999 and
February 5, 1999 to September 30, 1999 (in millions of dollars):
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
--------------------------------- --------------------------------- ---------------------------------
FEBRUARY 5 JANUARY 1 FEBRUARY 5 JANUARY 1 FEBRUARY 5 JANUARY 1
TO SEPTEMBER 30, TO FEBRUARY 4, TO SEPTEMBER 30, TO FEBRUARY 4, TO SEPTEMBER 30, TO FEBRUARY 4,
1999 1999 1999 1999 1999 1999
---------------- -------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Electricity......... $176.4 $ 23.9 $46.2 $ 8.2 $68.1 $11.1
Steam............... 5.6 0.6 -- -- 2.2 0.4
------ ------ ----- ------ ----- -----
182.0 24.5 46.2 8.2 70.3 11.5
------ ------ ----- ------ ----- -----
Costs and Expenses
Fuel................ 83.6 16.2 20.1 4.8 26.1 3.6
Operating and
maintenance...... 10.2 1.7 8.8 0.5 6.5 0.9
Depreciation and
amortization..... 9.9 1.4 2.4 0.4 1.9 0.3
General and
administrative... 2.4 47.5 0.7 13.0 1.7 0.3
Taxes, other than
income........... 1.1 0.2 0.3 -- 0.4 --
------ ------ ----- ------ ----- -----
107.2 67.0 32.3 18.7 36.6 5.1
------ ------ ----- ------ ----- -----
Income (Loss) from
Operations.......... 74.8 (42.5) 13.9 (10.5) 33.7 6.4
------ ------ ----- ------ ----- -----
Other Income (Expense)
Interest and other
income........... 4.0 0.1 1.0 -- 0.3 --
Interest expense.... -- -- (4.5) (0.7) (4.7) (0.8)
------ ------ ----- ------ ----- -----
Net Income (Loss)..... $ 78.8 $(42.4) $10.4 $(11.2) $29.3 $ 5.6
====== ====== ===== ====== ===== =====
</TABLE>
(5) DERIVATIVE FINANCIAL INSTRUMENTS
The Company entered into a $600.0 million notional amount interest rate
swap agreement with Enron North America to hedge its exposure to the floating
interest rates of the Bridge Loan. The agreement was a contract to exchange
fixed and floating interest rate payments periodically over the term of the
Bridge Loan without the exchange of the underlying notional amount. Differences
paid or received were accrued in the financial statements as part of interest
expense on the underlying debt over the life of the agreement. On April 14, 1999
the interest rate swap was cancelled and the Company received a payment of $8.9
million in
F-17
<PAGE> 131
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
connection with the cancellation. This amount has been included in other income
for the period. There are no outstanding derivative financial instruments at
September 30, 1999.
(6) COMMITMENTS AND CONTINGENCIES
In June 1999, the Company entered into a letter of intent with Tosco
Refining Company that contemplates an expansion of the Linden Facility through
the addition of a sixth turbine generator to provide electricity and steam
service to Tosco's Bayway Refinery. Completion of the transactions contemplated
by the letter of intent are subject to, among other things, further
negotiations, completion of due diligence and receipt of necessary approvals.
The McNair Interests have indemnified the Company against any and all
damages, losses, liabilities and expenses with respect to an environmental
lawsuit filed in Louisiana state court against a predecessor entity of MESC.
There are certain claims and legal actions pending against the Company, its
subsidiaries and its equity investees. While the outcome of such proceedings
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the financial condition or results of
operations of the Company.
(7) SUBSEQUENT EVENTS
On November 4, 1999, in accordance with the terms of the Company's limited
liability agreement, the Company made a $25.3 million distribution to JEDI II.
F-18
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To East Coast Power L.L.C.:
We have audited the accompanying consolidated balance sheet of East Cost
Power L.L.C. (a Delaware limited liability company) as of March 31, 1999, and
the related consolidated statements of income, members' equity and cash flows
for the period from February 4, 1999 to March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of East Coast Power L.L.C. as
of March 31, 1999, and the results of their operations and their cash flows for
the period from February 4, 1999 to March 31, 1999 in conformity with generally
accepted accounting principles.
As explained in Note 1 to the financial statements, East Coast Power L.L.C.
has given retroactive effect to the change in East Coast Power L.L.C.'s equity
affiliates' accounting policies for costs associated with planned outages for
major plant overhauls.
ARTHUR ANDERSEN LLP
Houston, Texas
December 13, 1999
F-19
<PAGE> 133
EAST COAST POWER L.L.C.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 4, 1999
TO MARCH 31, 1999
-------------------
<S> <C>
Revenues
Equity in earnings of
Cogen Technologies Linden Venture, L.P................. $ 6.1
Camden Cogen L.P....................................... 2.0
Cogen Technologies NJ Venture.......................... 6.7
------
14.8
Cost and Expenses
General and administrative................................ 1.4
------
Income from Operations...................................... 13.4
Other Income (Expense)
Interest and other income................................. 0.3
Interest expense.......................................... (17.2)
------
Net Loss.................................................... $ (3.5)
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 134
EAST COAST POWER L.L.C.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS OF DOLLARS)
(RESTATED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Current Assets
Cash and cash equivalents................................. $ 7.3
Restricted cash........................................... 17.9
Accounts receivable....................................... 8.6
Contributions receivable.................................. 80.0
Other current assets...................................... 0.3
--------
114.1
--------
Investments in Affiliates
Cogen Technologies Linden Venture, L.P.................... 915.6
Camden Cogen L.P.......................................... 179.2
Cogen Technologies NJ Venture............................. 189.1
--------
1,283.9
--------
Other Assets................................................ 24.9
--------
$1,422.9
========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 0.2
Accounts payable, affiliate............................... 2.5
Current maturities on long-term debt...................... 37.5
Interest payable.......................................... 8.7
Distributions payable..................................... 25.0
Other current liabilities................................. 22.4
--------
96.3
Long-Term Debt.............................................. 1,250.1
Commitments and Contingencies (Note 8)
Members' Equity............................................. 76.5
--------
$1,422.9
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 135
EAST COAST POWER L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 4,
1999 TO
MARCH 31,
1999
--------------
<S> <C>
Operating Activities:
Net loss.................................................. $ (3.5)
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of affiliates
Cogen Technologies Linden Venture, L.P............... (6.1)
Camden Cogen L.P..................................... (2.0)
Cogen Technologies NJ Venture........................ (6.7)
Distributions received from affiliates
Cogen Technologies Linden Venture, L.P............... 9.1
Camden Cogen L.P..................................... 1.8
Cogen Technologies NJ Venture........................ 3.0
Amortization of deferred financing costs............... 2.8
Changes in other operating assets and liabilities
Increase in other current assets....................... (0.3)
Increase in accounts payable........................... 0.2
Increase in accounts payable, affiliate................ 0.9
Increase in interest payable........................... 5.7
Increase in other current liabilities.................. 1.0
Net change in other assets and liabilities............. (0.3)
---------
Net Cash Provided by Operating Activities................... 5.6
---------
Investing Activities:
Acquisition of Acquired Group (net of cash acquired of
$17.7)................................................. (807.1)
Purchase of Enron Corp. common stock...................... (250.0)
---------
Net Cash Used in Investing Activities....................... (1,057.1)
---------
Financing Activities:
Long-term borrowings under bridge loan.................... 831.0
Long-term borrowings under Enron subordinated note........ 250.0
Principal payments on long-term debt...................... (3.3)
Financing costs........................................... (5.1)
Contributions received.................................... 25.0
---------
Net Cash Provided by Financing Activities................... 1,097.6
---------
Increase in Cash and Cash Equivalents....................... 46.1
Cash and Cash Equivalents at Beginning of Period............ --
---------
Cash and Cash Equivalents at End of Period (includes $20.9
million which is classified as Other Assets).............. $ 46.1
=========
Cash Paid for Interest...................................... $ 8.7
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 136
EAST COAST POWER L.L.C.
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
------- ------- ------
<S> <C> <C> <C>
Balance at February 4, 1999................................. $ -- $ -- $ --
Contributions............................................. 80.0 25.0 105.0
Distributions............................................. -- (25.0) (25.0)
Net loss.................................................. (3.5) -- (3.5)
----- ------ ------
Balance at March 31, 1999................................... $76.5 $ -- $ 76.5
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 137
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
East Coast Power L.L.C. (the "Company") is a Delaware limited liability
company that was formed on December 18, 1998 by Joint Energy Development
Investments II Limited Partnership ("JEDI II"), a limited partnership in which
Enron Corp. and the California Public Employees' Retirement System ("CalPERS")
each own a 50% interest. On February 4, 1999, the limited liability company
agreement of the Company was amended and restated to convert JEDI II's initial
membership to that of a Class A Member and to admit Enron North America Corp.
("Enron North America"), formerly Enron Capital & Trade Resources Corp., a
wholly-owned subsidiary of Enron Corp., and CalPERS as Class B Members. The
Company and its wholly owned subsidiaries own equity interests in and control
and operate three power generation facilities located in New Jersey (the
"facilities").
The Class B Members are entitled to preferential distributions in an amount
equal to $25.0 million each plus interest prior to any distributions to the
Class A Member. After the Class B Members have received these preferential
distributions, all distributions will be made to the Class A Member until the
Class A Member has received distributions equal to $80.0 million plus specified
rates of return. After the Class A Member has received its preferential
distributions, all distributions will be made 90% to the Class A Member and 10%
to the Class B Members.
The Company had no assets or liabilities and conducted no operations prior
to February 4, 1999. On February 4, 1999 the Company indirectly acquired equity
interests in the facilities (the "acquisition") through the acquisition of
entities (collectively, the "Acquired Group") that were under the common control
of Robert C. McNair, members of his immediate family and related trusts. The
Acquired Group included McNair Energy Services Corporation ("MESC"), a Texas
corporation, and its wholly owned subsidiary Cogen Technologies NJ, Inc. ("NJ
Inc."), a New Jersey corporation, Cogen Technologies Linden, Ltd. ("Linden
Ltd."), a Texas limited partnership, and Cogen Technologies Camden GP Limited
Partnership ("Camden GP"), a Delaware limited partnership.
Linden Ltd. is the managing general partner of Cogen Technologies Linden
Venture, L.P. ("Linden Venture"), a Delaware limited partnership that owns and
operates a 715-megawatt cogeneration facility in Linden, New Jersey. Camden GP
is the managing general partner of Camden Cogen L.P. ("Camden Venture"), a
Delaware limited partnership that owns and operates a 146-megawatt cogeneration
facility in Camden, New Jersey. JEDI Bayonne GP, L.L.C. is the managing general
partner of Cogen Technologies NJ Venture ("Bayonne Venture"), a New Jersey
general partnership that owns and operates a 176-megawatt cogeneration facility
in Bayonne, New Jersey. The Company's interest in Linden Ltd., Camden GP and
Bayonne Venture are held through wholly-owned limited liability companies which
were formed for the specific and limited purpose of holding the interests in
these entities. The financial position and results of operations of these
limited liability companies are reflected in the consolidated financial
statements of the Company.
Cash distributions, net income and net losses are allocated to the partners
of Linden Venture, Camden Venture, and Bayonne Venture (collectively, the
"Ventures") in accordance with the Ventures' partnership agreements, as
discussed in Note 4.
Basis of Consolidation and Presentation
The accompanying consolidated financial statements present the consolidated
financial position of the Company and its wholly-owned subsidiaries as of March
31, 1999 and the results of its operations, cash flows and changes in its
members' equity for the period from which it commenced operations on February 4,
1999 to March 31, 1999. All material transactions between the consolidated
entities have been eliminated.
F-24
<PAGE> 138
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's investments in the Ventures are accounted for using the
equity method of accounting since the other partners have substantive
participating rights with respect to the partnerships' operations.
Cash and Cash Equivalents/Restricted Cash
All highly liquid short-term investments with original maturities of three
months or less are considered to be cash equivalents. At March 31, 1999, $13.0
million of the Company's cash was held by Linden Ltd. and all of such cash was
restricted either to service Linden Ltd.'s debt or, if necessary, to make
working capital loans to Linden Venture. Also at March 31, 1999, the use of
$25.8 million of the Company's cash was restricted to use in the payment of
costs and expenses associated with the acquisition and the Notes discussed in
Note 3. Of the $25.8 million in restricted cash, $20.9 million is expected to be
used to pay financing costs and has been classified in Other Assets in the
Company's balance sheet at March 31, 1999.
Investments in Affiliates
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
changed their method of accounting for these costs and began expensing such
costs as incurred. The Company's financial statements, including applicable
information contained herein, were restated to give effect to this change. As a
result of this change, the Company's net loss was decreased by $0.1 million for
the period from February 4, 1999 to March 31, 1999. Members' equity at February
4, 1999 was unaffected as the Company conducted no operations prior to such
date.
Derivative Financial Instruments
From time to time the Company uses derivatives to manage interest rate
risk. The Company's policy is to use derivatives for risk management purposes
only and does not enter into such contracts for trading purposes. To date, the
Company has entered into one interest rate swap agreement with Enron North
America, which was outstanding at March 31, 1999.
Instruments used as hedges must be effective in managing risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the contract. Accordingly, changes in the market values or cash
flows of hedge instruments must have a high degree of inverse correlation with
changes in market values or cash flows of the underlying hedged items.
Derivatives that meet the hedge criteria are accounted for under the deferral or
accrual method as discussed in Note 6.
Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and accounts receivable. Cash accounts are held by
major financial institutions and accounts receivable are from parties who are
affiliated with Robert C. McNair.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities, if any, and the periods in
which certain items of revenue and expense are included. Actual results may
differ from such estimates.
F-25
<PAGE> 139
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
As limited liability companies and partnerships, the Company and its
consolidated subsidiaries are not subject to state or federal income taxes. Such
taxes accrue to the owners of the Company and, accordingly, such income taxes
have not been recognized in the consolidated financial statements.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," in June 1998. The statement requires that
all derivatives be recognized at fair value as assets or liabilities and that
changes in fair value be recorded in earnings or other comprehensive income. In
May 1999, FASB proposed an amendment to SFAS No. 133 that would defer its
required adoption date by one year to fiscal years beginning after June 15,
2000. The Company's analysis of the potential impact of this statement has not
been completed.
(2) THE ACQUISITION
In a series of transactions on February 4 and 5, 1999, the Company acquired
the assets and liabilities of the Acquired Group. For financial statement
purposes the acquisition was accounted for as a purchase and, accordingly, the
results of operations of the assets acquired are included in the Company's
consolidated financial statements with effect from the date of acquisition. The
aggregate purchase price, including the costs of the acquisition, has been
allocated to the assets and liabilities acquired based on their estimated fair
value. A portion of the purchase price has been allocated to the acquired equity
investments in Linden Venture, Camden Venture and Bayonne Venture. The
difference between the purchase price allocated to each venture and the
historical equity in such ventures is being amortized over the remaining useful
lives of the facilities, which range from 20 to 24 years.
In connection with the acquisition, on February 4, 1999, the Company
borrowed $831.0 million under the terms of a credit agreement with NationsBank
N.A. (the "bridge loan") and $250.0 million under the terms of a Credit and
Subordination Agreement with Enron Corp. (the "Enron subordinated note"). The
$250.0 million borrowed under the Enron subordinated note was used to purchase
shares of Enron Corp. common stock which were used as consideration in the
acquisition.
In addition, on February 4, 1999, the Company received a $25.0 million
contribution from CalPERS in the form of a guaranty on the bridge loan, and on
February 5, 1999, the Company received a contribution valued at $25.0 million
from Enron North America in the form of an indirect interest in one of the
facilities. Such contributions were received in respect to the Class B
memberships of Enron North America and CalPERS.
F-26
<PAGE> 140
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the acquisition, the Company allocated the purchase price of $1,096.2
million to the fair value of assets acquired and liabilities assumed, as follows
(in millions of dollars):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD FOR
ALLOCATED EXCESS OF FAIR
BOOK FAIR VALUE OVER BOOK
ASSETS ACQUIRED/LIABILITIES ASSUMED VALUE VALUE VALUE
----------------------------------- ----- --------- ---------------
<S> <C> <C> <C>
Linden Venture............................................ $ 56.8 $ 918.6 23 years
Camden Venture............................................ 17.7 179.0 24 years
Bayonne Venture........................................... 9.1 185.4 20 years
Cash...................................................... 17.7 17.7 --
Accounts Receivable....................................... 8.6 8.6 --
Deferred Financing Costs.................................. 1.4 1.4 8 years
Linden Ltd. Term Loan..................................... (205.6) (209.9) 8 years
Other Liabilities......................................... (4.6) (4.6) --
--------
Purchase Price............................................ $1,096.2
========
</TABLE>
The purchase price reflected in the above table has been preliminarily
allocated based on estimated fair values at the date of acquisition pending
final determination of acquisition costs and certain acquired balances.
The acquisition of the Acquired Group is presented in the Consolidated
Statement of Cash Flows net of $17.7 million of cash acquired and does not
reflect the following noncash items: (i) $250.0 million of Enron Corp. common
stock used as consideration in the acquisition; (ii) $20.5 million of costs
associated with the acquisition which were accrued at March 31, 1999; and (iii)
$214.5 million of liabilities assumed in the acquisition.
The following unaudited proforma results of operations for the three months
ended March 31, 1999 have been prepared as if the acquisition had occurred
January 1, 1999. The pro forma results include amortization of the excess of the
purchase price allocated to the Ventures over the historical equity in the
Ventures, interest expense on borrowings related to the acquisition and the
reversal of income taxes since the Company is not subject to such taxes. The
historical combined results of operations represent the combined results of
operations of the Acquired Group for the period January 1, 1999 to February 4,
1999 and the Company for the period February 4, 1999 to March 31, 1999. The
proforma results of operations do not purport to be indicative of the results
that would have occurred had the acquisition occurred January 1, 1999, nor do
they purport to be indicative of the results of future operations.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
THE
ACQUIRED GROUP COMPANY PRO FORMA
1/1/99 TO 2/4/99 1/1/99 TO
2/4/99 TO 3/31/99 3/31/99
-------------- ---------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Revenues........................................ (51.4)(1) 14.8 (41.0)
Income (loss) from operations................... (54.0) 13.4 (45.0)
Income (loss) before income taxes............... (55.9) (3.5) (74.3)
Net income (loss)............................... (57.7) (3.5) (74.3)
</TABLE>
- ---------------
(1) The equity in earnings of affiliates included in the results of operations
of the Acquired Group for the period January 1, 1999 to February 4, 1999
includes the effect of $66.8 million in one-time payments made by Linden
Venture and Camden Venture to terminate certain management services and gas
management contracts.
F-27
<PAGE> 141
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUBSEQUENT EVENTS
Interest Rate Swap
On April 14, 1999 the interest rate swap with Enron North America was
canceled and the Company received a payment of $8.9 million in connection with
the cancellation.
Financing Transactions
On April 20, 1999 the Company sold $850.0 million of senior secured notes
(the "Notes") in three tranches as follows: $296.0 million of 6.737% Notes due
2008 (the "2008 Notes"), $236.0 million of 7.066% Notes due 2012 (the "2012
Notes") and $318.0 million of 7.536% Notes due 2017 (the "2017 Notes"). The 2008
Notes bear interest at 6.737% per annum and are repayable in 36 quarterly
installments of varying amounts beginning on June 30, 1999 with the final
payment due March 31, 2008. The 2012 Notes bear interest at 7.066% per annum and
are repayable in 17 quarterly installments of varying amounts beginning on March
31, 2008 with the final payment due March 31, 2012. The 2017 Notes bear interest
at 7.536% per annum and are repayable in 22 quarterly installments of varying
amounts beginning on March 31, 2012 with the final payment due June 30, 2017.
Interest on the Notes is payable quarterly with the first interest payment due
June 30, 1999.
The Notes are senior secured obligations which rank senior to all existing
and future subordinated indebtedness; rank pari passu in right of payment with
all existing and future senior secured indebtedness; and are structurally
subordinated to all indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries and to the distribution rights of
minority partners in the Ventures. The Notes are secured by the pledge by the
owners of the Company of their interest in the Company, the pledge by the
Company of its ownership interests in certain of the subsidiaries that own
interests in the facilities and the pledge of Linden Ltd.'s $289.6 million
intercompany subordinated note payable to the Company.
The Notes may be redeemed at any time at a redemption price that includes a
make-whole premium based on comparable treasury securities plus 50 basis points.
The Notes are mandatorily redeemable at prices specified in the indenture upon
the occurrence of certain events, including certain loss events, power contract
buyouts or change of control. In addition, the terms of the Notes limit the
Company's ability to pay dividends, incur additional indebtedness, make payments
on subordinated debt and make certain other restricted payments. The terms of
the Notes also require the Company to fund a debt service reserve account unless
it provides acceptable debt service credit support in the form of an Enron
undertaking or an acceptable letter of credit. Enron has provided the required
undertaking, and the Company is not currently funding the debt service reserve
account. Aggregate maturities for the Notes for the next five years (for the
twelve-month period ended March 31) are as follows: 2000 -- $23.2 million;
2001 -- $14.6 million; 2002 -- $23.8 million; 2003 -- $34.0 million; and
2004 -- $30.2 million.
Also on April 20, 1999, in accordance with the terms of the limited
liability company agreement, JEDI II made a $80.0 million capital contribution
to the Company. Such amount is reflected in the Company's March 31, 1999 balance
sheet as Contributions Receivable.
The proceeds from the sale of the Notes and the capital contribution by
JEDI II were used to repay the bridge loan, make a $25.0 million cash
distribution to Enron North America (which is reflected in the Company's March
31, 1999 balance sheet as Distributions Payable), repay $62.1 million of the
principal amount of the Enron subordinated note and make a $12.0 million
purchase price adjustment payment in connection with the acquisition. The
repayment of the bridge loan resulted in the release of the $25.0 million
guaranty on the loan by CalPERS. The release was deemed to be a distribution to
CalPERS.
F-28
<PAGE> 142
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expansion of the Linden Facility
In June 1999, the Company entered into a letter of intent with Tosco
Refining Company that contemplates an expansion of the Linden Facility through
the addition of a sixth turbine generator to provide electricity and steam
service to Tosco's Bayway Refinery. Completion of the transactions contemplated
by the letter of intent are subject to, among other things, further
negotiations, completion of due diligence and receipt of necessary approvals.
Mesquite Investors Transaction
On August 13, 1999, Enron North America transferred its Class B membership
interest in the Company (representing 50% of the total Class B membership
interests) to East Coast Power Holding Company L.L.C. ("ECP Holding Company").
Also on August 13, 1999, ECP Holding Company transferred a 49% Class A
membership interest and a 49% Class B membership interest in the Company to
Mesquite Investors, L.L.C., a Delaware limited liability company and an
affiliate of El Paso Energy Corporation ("Mesquite Investors"). The limited
liability company agreement of the Company was amended and restated August 13,
1999 to admit Mesquite Investors as a Class A and Class B Member and to provide
that ECP Holding Company is entitled to certain preferential distributions in
the event of certain contract restructurings or capital projects.
(4) INVESTMENT IN AFFILIATES
The following table reflects the changes in the Company's investments in
affiliates for the period February 4, 1999 to March 31, 1999 (in millions of
dollars):
<TABLE>
<CAPTION>
LINDEN CAMDEN BAYONNE
VENTURE VENTURE VENTURE
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period......................... $ -- $ -- $ --
Acquisition of interests............................... 918.6 179.0 185.4
Equity in earnings..................................... 12.3 3.1 8.2
Amortization of excess cost............................ (6.2) (1.1) (1.5)
Distributions received................................. (9.1) (1.8) (3.0)
------ ------ ------
$915.6 $179.2 $189.1
====== ====== ======
</TABLE>
The following table presents summary balance sheet information for the
Company's affiliates at March 31, 1999 (in millions of dollars):
<TABLE>
<CAPTION>
LINDEN CAMDEN BAYONNE
VENTURE VENTURE VENTURE
------- ------- -------
<S> <C> <C> <C>
Assets
Current assets....................................... $ 53.7 $ 20.2 $ 29.8
Property, plant and equipment, net................... 409.7 102.2 70.2
Other assets......................................... -- -- 0.2
------ ------ ------
$463.4 $122.4 $100.2
====== ====== ======
Liabilities and Partners' Capital
Current liabilities.................................. $ 23.7 $ 11.8 $ 11.0
Long-term debt....................................... -- 76.9 63.1
Other long-term liabilities.......................... 0.6 -- --
Partners' capital.................................... 439.1 33.7 26.1
------ ------ ------
$463.4 $122.4 $100.2
====== ====== ======
</TABLE>
F-29
<PAGE> 143
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents summary income statement information for the
Company's affiliates for the periods January 1, 1999 to February 4, 1999 and
February 5, 1999 to March 31, 1999 (in millions of dollars):
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
----------------------------- ----------------------------- -----------------------------
FEBRUARY 5 JANUARY 1 FEBRUARY 5 JANUARY 1 FEBRUARY 5 JANUARY 1
TO MARCH 31, TO FEBRUARY 4, TO MARCH 31, TO FEBRUARY 4, TO MARCH 31, TO FEBRUARY 4,
1999 1999 1999 1999 1999 1999
------------ -------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Electricity.......... $37.4 $ 23.9 $11.2 $ 8.2 $17.2 $11.1
Steam................ 0.8 0.6 -- -- 0.7 0.4
----- ------ ----- ------ ----- -----
38.2 24.5 11.2 8.2 17.9 11.5
----- ------ ----- ------ ----- -----
Costs and Expenses
Fuel................. 16.1 16.2 4.7 4.8 5.7 3.6
Operating and
maintenance....... 3.1 1.7 0.9 0.5 1.2 0.9
Depreciation and
amortization...... 2.5 1.4 0.5 0.4 0.4 0.3
General and
administrative.... 0.9 47.5 0.2 13.0 0.5 0.3
Taxes, other than
income............ 0.3 0.2 0.1 -- 0.1 --
----- ------ ----- ------ ----- -----
22.9 67.0 6.4 18.7 7.9 5.1
----- ------ ----- ------ ----- -----
Income (Loss) from
Operations........... 15.3 (42.5) 4.8 (10.5) 10.0 6.4
Other Income (Expense)
Interest and other
income............ 0.8 0.1 0.1 -- -- --
Interest expense..... -- -- (1.0) (0.7) (1.1) (0.8)
----- ------ ----- ------ ----- -----
Net Income (Loss)...... $16.1 $(42.4) $ 3.9 $(11.2) $ 8.9 $ 5.6
===== ====== ===== ====== ===== =====
</TABLE>
The results of operations of Linden Venture and Camden Venture for the
period ended February 4, 1999 include the effect of one-time payments in
connection with the termination of certain gas management and management
services agreements of $52.4 million and $14.4 million, respectively.
The following table presents statement of cash flows information for the
Company's affiliates for the periods January 1, 1999 to February 4, 1999 and
February 5, 1999 to March 31, 1999 (in millions of dollars):
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
----------------------------- ----------------------------- -----------------------------
FEBRUARY 5 JANUARY 1 FEBRUARY 5 JANUARY 1 FEBRUARY 5 JANUARY 1
TO MARCH 31, TO FEBRUARY 4, TO MARCH 31, TO FEBRUARY 4, TO MARCH 31, TO FEBRUARY 4,
1999 1999 1999 1999 1999 1999
------------ -------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used
in) operating
activities.............. $ 22.1 $(42.7) $ 7.2 $(13.1) $11.4 $ 3.1
Cash provided by (used
in) investing
activities............ -- -- -- -- -- --
Cash provided by (used
in) financing
activities............ (12.4) 32.7 (5.4) 13.9 (6.2) (4.1)
------ ------ ----- ------ ----- -----
Increase (decrease) in
cash and cash
equivalents........... $ 9.7 $(10.0) $ 1.8 $ 0.8 $ 5.2 $(1.0)
====== ====== ===== ====== ===== =====
</TABLE>
F-30
<PAGE> 144
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of Linden Venture's partnership agreement, monthly cash
distributions are allocated, 1% to Linden Ltd. and 99% to the limited partner up
to a specified rate of return (approximately $3.0 million per month from October
1998 through September 2001 and between $4.3 million and $4.8 million per month
thereafter) ("Tranche 1"), then 99% to Linden Ltd. and 1% to the limited partner
up to a capped amount, which is twice the amount of Tranche 1, and the remainder
90% to Linden Ltd. and 10% to the limited partner. During the period subsequent
to the acquisition, Linden Ltd. received 73% of Linden Venture's cash
distributions. Linden Venture's income before depreciation is allocated to the
partners on the basis of cash distributed with any excess primarily allocated
99% to Linden Ltd. Losses are allocated 100% to Linden Ltd. until its capital
account equals zero, then to the limited partner until its capital account
equals zero, with any remainder allocated 100% to Linden Ltd. Depreciation up to
$525.0 million is allocated 5% to Linden Ltd. and 95% to the limited partners.
All remaining depreciation is allocated 99% to Linden Ltd. During the period
subsequent to the acquisition, Linden Ltd. was allocated 76% of Linden Venture's
net income.
Under the terms of Camden Venture's partnership agreement, monthly cash
distributions are allocated 1% to Camden GP and 99% to the limited partner up to
a specified cumulative rate of return (approximately $0.4 million per month
through May 2007 and varying amounts thereafter) and the remaining available
cash for the month is allocated 99% to Camden GP and 1% to the limited partner.
Once the limited partner has received its specified rate of return, cash
distributions will be allocated 90% to Camden GP and 10% to the limited partner.
Camden Venture's debt agreements contain covenants which, among other things,
limit Camden Venture's ability to make cash distributions. During the period
subsequent to the acquisition, Camden GP received 84% of Camden Venture's cash
distributions (excluding a $3.3 million distribution associated with the
acquisition to the limited partner). Camden Venture's income before depreciation
is allocated as follows: (i) an amount equal to debt principal payments, 100% to
the limited partner; (ii) an amount equal to and allocated on the same basis as
cash distributed; and (iii) any remainder generally 99% to Camden GP and 1% to
the limited partner. Losses are allocated 100% to Camden GP until its capital
account equals zero, then to the limited partner until its capital account
equals zero, the remainder to Camden GP. Depreciation is allocated 100% to the
limited partner until its capital account equals zero and the remainder to
Camden GP. During the period subsequent to the acquisition, Camden GP was
allocated 78% of Camden Venture's net income.
Under the terms of Bayonne Venture's joint venture agreement partners are
allocated profits and losses and receive cash distributions based on ownership
percentage. Bayonne Venture's debt agreements contain covenants which, among
other things, limit Bayonne Venture's ability to make cash distributions. The
Company is allocated 91.75% of Bayonne Venture's profits and losses and receives
91.75% of all cash distributions.
(5) LONG-TERM DEBT
Bridge Loan
In connection with the acquisition, on February 4, 1999 the Company
borrowed $831.0 million under the terms of the bridge loan agreement. The bridge
loan included a $105.0 million tranche bearing interest at LIBOR plus 0.35% and
a $726.0 million tranche bearing interest at LIBOR plus 1.25%. The applicable
LIBOR rate is the one, three, six or, if commercially available, nine or twelve
month rates as elected by the Company. Amounts outstanding under the bridge loan
were secured by the same collateral as the Notes. All amounts outstanding under
the bridge loan were repaid on April 20, 1999 using a portion of the proceeds
from the sale of the Notes and the pledges and assignments serving the bridge
loan were released.
Enron Subordinated Note
In connection with the acquisition, on February 4,1999 the Company borrowed
$250.0 million under the terms of the Enron subordinated note. Amounts
outstanding under the Enron subordinated note bear interest
F-31
<PAGE> 145
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at 9% per annum and interest is payable quarterly. The principal amount is
repayable in 32 installments of varying amounts beginning March 31, 2008, with
the final payment due on December 31, 2015. The Enron subordinated note is
subordinated to the bridge loan and the Notes.
The Enron subordinated note contains provisions that allow the lender to
assign all or a portion of its interest in the loan to third parties. In the
event of such an assignment the lender may, in consultation with the Company,
adjust the interest rate and term and other terms and provisions of the
agreement, other than the aggregate principal amount of the loan, to achieve an
assignment which is satisfactory to the lender. The Enron subordinated note also
contains provisions that, among other things, may limit the Company's ability to
make distributions to its members. The Company believes it is in compliance with
the terms and conditions of the note.
On April 20, 1999 the Company repaid $62.1 million of the principal amount
of the Enron subordinated note with a portion of the proceeds from the sale of
the Notes. The prepayment reduced the required principal payments on a pro rata
basis.
Linden Ltd.
In September 1992 Linden Ltd. entered into a $250.0 million Amended and
Restated Term Loan Agreement with State Street Bank & Trust Co. which matures in
September 2007. At March 31, 1999 $202.3 million was outstanding under the terms
of the agreement, comprised of a fixed rate portion ($100.2 million), a floating
rate portion ($92.1 million) and a working capital portion ($10.0 million).
Under the terms of the agreement the fixed rate portion bears interest at 8.8%
(an unamortized premium balance of $4.3 million is being amortized using the
interest method, resulting in an effective interest rate of approximately 9.6%
per annum), the floating rate portion bears interest at LIBOR plus 1.65% and the
working capital portion bears interest at a one month financial commercial paper
rate plus 0.55%. Principal and interest payments are made quarterly in varying
amounts. Borrowings under the agreement are secured by Linden Ltd.'s interest in
Linden Venture. The agreement contains certain restrictions that limit or
prohibit, among other things, the ability of Linden Ltd. to incur indebtedness,
pay distributions, make investments, engage in transactions with affiliates,
create liens, sell assets and engage in acquisitions, mergers and
consolidations.
Aggregate maturities for the next five years (for the twelve-month period
ended March 31) are as follows: 2000 -- $14.3 million; 2001 -- $16.0 million;
2002 -- $17.9 million; 2003 -- $20.0 million; and 2004 -- $22.4 million.
Camden GP
In February 1992 Camden GP entered into a $36.5 million Term Loan Agreement
with General Electric Capital Corporation. Borrowings under the agreement, which
totaled $14.8 million, bore interest at LIBOR plus 4.25% and were secured by
Camden GP's holdings in Camden Venture. On February 4, 1999, prior to the
acquisition, Camden GP repaid the outstanding balance under the loan agreement
($12.5 million, including prepayment penalties and accrued interest of $0.3
million). The funds necessary to make the repayments were provided by
contributions from the general and limited partners of Camden GP.
(6) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has entered into a $600.0 million notional amount interest rate
swap agreement with Enron North America to hedge its exposure to the floating
interest rates of the bridge loan. The agreement is a contract to exchange fixed
and floating interest rate payments periodically over the term of the bridge
loan without the exchange of the underlying notional amount. Differences paid or
received are accrued in the financial statements as part of interest expense on
the underlying debt over the life of the agreement. During
F-32
<PAGE> 146
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the period ended March 31, 1999 the Company recorded interest expense of $0.5
million in connection with the interest rate swap.
(7) RELATED PARTY TRANSACTIONS
Enron North America provides the Company with services such as legal,
finance and human resources. In addition the Company is allocated certain
expenses such as building rent and miscellaneous office services. The Company
believes such charges for services and allocations of expenses represent those
that would be obtained in the market. During the period ended March 31, 1999 the
amount charged to the Company with respect to such costs and services totaled
$0.2 million.
The Company's employees participate in a noncontributory defined benefit
retirement plan maintained by Enron and in Enron plans that provide certain
medical, life insurance, dental and other benefits to eligible employees. During
the period ended March 31, 1999 costs with respect to such employee benefit
plans totaled $31,000.
Various commercial lenders have issued letters of credit at the request of
Enron on behalf of the Company. At March 31, 1999 there were letters of credit
in the amount of $22.3 million outstanding.
At March 31, 1999 amounts due to Enron Corp. and Enron North America, which
are reflected in the consolidated balance sheet as Accounts payable, affiliates,
totaled $2.5 million, including $1.6 million due to Enron North America with
respect to certain items related to the acquisition.
In connection with the acquisition and at the request of Enron, Bank of
America issued two letters of credit on behalf of the Company: (i) a $22.25
million letter of credit issued to the lenders under the Linden Ltd. term loan
which secures the obligations under that loan; and (ii) a $4.5 million letter of
credit issued to Public Service Electric & Gas Company of New Jersey which
secures certain obligations pursuant to Camden Venture's power purchase
agreement.
(8) COMMITMENTS AND CONTINGENCIES
The McNair Interests have indemnified the Company against any and all
damages, losses, liabilities and expenses with respect to an environmental
lawsuit filed in Louisiana state court against a predecessor entity of MESC.
There are certain claims and legal actions pending against the Company, its
subsidiaries and its equity investees. While the outcome of such proceedings
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the financial condition or results of
operations of the Company.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments"
requires the disclosure, to the extent practicable, of the fair value of
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value disclosed herein is not representative of the amount that could
be realized or settled. The following table reflects the fair value of long-term
debt at March 31, 1999 (in millions of dollars):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
East Coast Power
Bridge Loan............................................... $831.0 $831.0
Enron Subordinated Note................................... 250.0 250.0
Linden Ltd.................................................. 206.6 205.7
</TABLE>
F-33
<PAGE> 147
EAST COAST POWER L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of Linden Ltd.'s fixed-rate long-term debt has been
determined based on the differential between the fixed interest rate and
interest rates of long-term treasury securities at the date of the borrowing and
the balance sheet date. The fair value of the Enron subordinated note reflects
certain provisions of the agreement related to the assignment of the note. The
carrying amount of floating rate debt approximates fair value due to the
market-sensitive interest rate on such debt.
At March 31, 1999 the Company had a $600.0 million interest rate swap
agreement with respect to the bridge loan. The agreement was canceled in April
1999 and the Company received an $8.9 million payment in respect of the
cancellation.
The carrying amount of current assets and liabilities are considered to be
reasonable estimates of their fair values due to their short-term nature. The
carrying amount of the long-term receivable from an affiliate is considered to
be a reasonable estimate of fair value since interest is earned at market rates.
F-34
<PAGE> 148
COGEN TECH GROUP
COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1, FOR THE NINE
1999 TO MONTHS ENDED
FEBRUARY 4, SEPTEMBER 30,
1999 1998
--------------- --------------
<S> <C> <C>
Revenues
Equity in earnings (loss) of
Cogen Technologies Linden Venture, L.P................. $(44.8) $ 50.6
Camden Cogen L.P....................................... (11.8) 12.7
Cogen Technologies NJ Venture.......................... 5.2 31.8
------ ------
(51.4) 95.1
Cost and Expenses
Operating overhead........................................ 0.9 19.8
General and administrative................................ 1.7 8.1
------ ------
2.6 27.9
------ ------
Income (Loss) from Operations............................... (54.0) 67.2
Other Income (Expense)
Interest and other income................................. 0.1 9.6
Interest expense.......................................... (2.0) (14.4)
Allowance for long term receivable........................ -- (2.6)
------ ------
Income (Loss) Before Income Taxes........................... (55.9) 59.8
Income taxes.............................................. (1.8) (12.4)
------ ------
Net Income (Loss)........................................... $(57.7) $ 47.4
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 149
COGEN TECH GROUP
COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1, FOR THE NINE
1999 TO MONTHS ENDED
FEBRUARY 4, SEPTEMBER 30,
1999 1998
--------------- -------------
<S> <C> <C>
Operating Activities
Net income (loss)......................................... $(57.7) $ 47.4
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Equity in (earnings) losses of affiliates
Cogen Technologies Linden Venture, L.P............... 44.8 (50.6)
Camden Cogen L.P..................................... 11.8 (12.7)
Cogen Technologies NJ Venture........................ (5.2) (31.8)
Distributions received from affiliates
Cogen Technologies Linden Venture, L.P............... 13.4 53.8
Camden Cogen L.P..................................... 2.1 10.5
Cogen Technologies NJ Venture........................ 4.8 27.8
Deferred income taxes.................................. 0.7 3.3
Allowance for long-term receivable, affiliate............. -- 2.6
Changes in operating assets and liabilities............... (9.9) (5.6)
------ ------
Net Cash Provided by Operating Activities................... 4.8 44.7
------ ------
Investing Activities
Investment in Cogen Technologies NJ Venture............... -- (12.5)
Decreases in long-term receivable, affiliate.............. -- 62.6
Increases in long-term receivable, affiliate.............. -- (44.7)
Contributions to affiliates............................... (70.1) --
------ ------
Net Cash Provided by (Used in) Investing Activities......... (70.1) 5.4
------ ------
Financing Activities
Principal payments on long-term borrowings................ (12.4) (9.5)
Contributions received.................................... 82.7 --
Cash distributions........................................ -- (40.6)
------ ------
Net Cash Provided by (Used in) Financing Activities......... $ 70.3 $(50.1)
------ ------
Increase in Cash and Cash Equivalents....................... 5.0 --
Cash and Cash Equivalents at Beginning of Period............ 12.7 12.6
------ ------
Cash and Cash Equivalents at End of Period.................. $ 17.7 $ 12.6
====== ======
Cash Payments for
Income Taxes.............................................. $ 4.0 $ 7.2
====== ======
Interest.................................................. $ 0.8 $ 15.2
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE> 150
COGEN TECH GROUP
COMBINED STATEMENT OF OWNERS' EQUITY (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1,
1999 TO
FEBRUARY 4,
1999
---------------
<S> <C>
Balance at January 1, 1999, as previously reported.......... $ 16.7
Effect on prior periods of restatement (see Note 1)......... 2.1
------
Balance at January 1, 1999, as restated..................... 18.8
Contributions............................................. 82.7
Net loss.................................................. (57.7)
------
Balance at February 4, 1999................................. $ 43.8
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 151
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The combined financial statements of the Cogen Tech Group (the "Acquired
Group") includes McNair Energy Services Corporation ("MESC") and its wholly
owned subsidiary Cogen Technologies NJ, Inc., a Delaware corporation ("NJ
Inc."), Cogen Technologies Linden, Ltd. ("Linden Ltd.") and Cogen Technologies
Camden GP Limited Partnership ("Camden GP"). The financial statements of the
Acquired Group are presented on a combined basis since all such entities were
under the common control and management of Robert C. McNair, members of his
immediate family and related trusts (the "McNair Interests") during the period
presented. All material transactions between the combined entities have been
eliminated.
The accompanying unaudited combined financial statements of the Acquired
Group reflect, in the opinion of management, all adjustments, consisting only of
normal and recurring adjustments, necessary to present fairly the Acquired
Group's results of operations and cash flows for the period January 1, 1999 to
February 4, 1999 and the nine months ended September 30, 1998. Interim period
results are not necessarily indicative of the results of operations or cash
flows for a full-year period. These financial statements and the notes thereto
should be read in conjunction with the audited financial statements of the
Acquired Group included elsewhere in this prospectus.
In a series of transactions that are discussed below, certain contracts of
Linden Ltd. and Camden GP were terminated and the interests in Linden Ltd.,
Camden GP and MESC held by the McNair Interests were acquired by East Coast
Power L.L.C. ("the Company"). The Company is a Delaware limited liability
company formed by Joint Energy Development Investments II Limited Partnership, a
limited partnership in which Enron Corp. and the California Public Employees'
Retirement System each own a 50% interest.
Linden Ltd.
Linden Ltd. is a Texas limited partnership whose general partner prior to
the February 4, 1999 transactions discussed below, RCM Holdings, Inc., is owned
100% by the McNair Interests. Under the terms of Linden Ltd.'s partnership
agreement, RCM Holdings, Inc. was allocated 82% of Linden Ltd.'s profits and
losses and received 82% of all cash distributions. Linden Ltd. provides
planning, operational and financial management services as managing general
partner of Cogen Technologies Linden Venture, L.P. ("Linden Venture"), a
Delaware limited partnership that owns and operates a 715-megawatt cogeneration
facility in Linden, New Jersey.
On February 4, 1999, Linden Venture terminated its management services
agreement with Linden Ltd. and Linden Ltd. terminated its management services
agreement with RCM Management Services, L.P. ("RCM Management"). To terminate
such agreement, Linden Ltd. made a capital contribution to Linden Venture of
$46.4 million and Linden Venture made a one-time payment to Linden Ltd. of $46.4
million. Subsequently, Linden Ltd. made a one-time payment to RCM Management of
$46.4 million. Also on February 4, 1999, Linden Venture terminated a gas
management agreement with an affiliate. To terminate such agreement, Linden Ltd.
made a capital contribution of $6.0 million Linden Venture and Linden Venture
made a one-time payment to the affiliate of $6.0 million. These transactions are
reflected in the financial statements of Linden Ltd. in the period ended
February 4, 1999. Such transactions have no effect on the liquidity or financial
condition of Linden Ltd. since the amounts necessary to make the payments were
provided by contributions from the partners.
Subsequently on February 4, 1999, the Company acquired 47.5% of the general
and limited partnership interests in Linden Ltd. for $146.6 million in cash and
$250.0 million in Enron Corp. common stock. Following that transaction, Linden
Ltd. redeemed the 52.5% of the general and limited partnership interests not
controlled by East Coast Power in return for the distribution of $289.4 million
in cash and a $149.0 million account receivable from an affiliate. The cash
portion of the redemption was paid using the proceeds from a
F-38
<PAGE> 152
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
$289.4 million loan from Morgan Stanley & Co. Incorporated. The loan, plus
accrued interest of $0.2 million, was repaid on February 5, 1999 using the
proceeds of a loan from the Company.
Camden GP
Camden GP is a Delaware limited partnership whose general partner prior to
the February 4, 1999 transactions discussed below, Cogen Technologies Camden
Inc. ("CTCI") is owned 100% by the McNair Interests. Under the terms of Camden
GP's partnership agreement, Camden Inc. was allocated 82% of Camden GP's profits
and losses and received 82% of all cash distributions. CTCI provided planning,
operational and financial management services as managing general partner of
Camden Cogen L.P. ("Camden Venture"), a Delaware limited partnership that owns
and operates a 146-megawatt cogeneration facility in Camden, New Jersey.
On February 4, 1999, Camden Venture terminated its management services
agreement with Camden GP and Camden GP terminated its management services
agreement with RCM Management. To terminate such agreement, Camden GP made a
capital contribution to Camden Venture of $12.8 million and Camden Venture made
a one-time payment to Camden GP of $12.8 million. Subsequently, Camden GP made a
one-time payment to RCM Management of $12.8 million. Also on February 4, 1999,
Camden Venture terminated a gas management agreement with an affiliate. To
terminate such agreement, Camden GP made a capital contribution of $1.6 million
to Camden Venture and Camden Venture made a one-time payment to the affiliate of
$1.6 million. These transactions are reflected in the financial statements of
Camden GP in the period ended February 4, 1999. Such transactions have no effect
on the liquidity or financial condition of Camden GP since the amounts necessary
to make the payments were provided by contributions from the partners.
Also on February 4, 1999, Camden GP repaid the outstanding balance under
its term loan agreement ($12.5 million, including prepayment penalties and
accrued interest of $0.3 million). The funds necessary to make the repayments
were provided by contributions from the general and limited partners.
Subsequently on February 4, 1999, the Company acquired 100% of the general
and limited partnership interests in Camden GP for $140.0 million in cash.
MESC
MESC is a Texas corporation that prior to the February 4, 1999 transactions
discussed below was owned approximately 82% by the McNair Interests. MESC owned
100% of NJ Inc., which provided planning, operational and financial management
services as managing general partner for Cogen Technologies NJ Venture ("Bayonne
Venture"), a New Jersey general partnership that owns and operates a
176-megawatt cogeneration facility in Bayonne, New Jersey.
On February 4, 1999, NJ Inc. was merged with and into MESC. Also on
February 4, MESC redeemed 90% of its outstanding common shares for $216.0
million in notes (the "MESC Notes"). Subsequently on February 4, Enron North
America Corp. ("Enron North America"), formerly Enron Capital & Trade Resources
Corp., a wholly owned subsidiary of Enron Corp., acquired all of the outstanding
common shares of MESC for $24.0 million in cash. On February 5, MESC was merged
with and into Enron North America and Enron North America contributed its
interest in Bayonne Venture to the Company. In addition, the Company retired the
$216.0 million of MESC Notes.
Investments in Affiliates
The Acquired Group's investments in Linden Venture, Camden Venture and
Bayonne Venture are accounted for using the equity method of accounting since
the other partners have substantive participating rights with respect to the
partnerships' operations.
F-39
<PAGE> 153
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
changed their method of accounting for these costs and began expensing such
costs as incurred. The Company's financial statements, including applicable
information contained herein, were restated to give effect to this change. The
Acquired Group's net loss was not impacted in the period from January 1, 1999 to
February 4, 1999 and net income was decreased by $7.1 million, net of applicable
taxes of $1.4 million, for the nine months ended September 30, 1998, as a result
of this change. In addition, as of January 1, 1999, owners' equity was increased
by $2.1 million.
(2) COMMITMENTS AND CONTINGENCIES
Six plaintiffs, individually on behalf of themselves and as representatives
of a class of persons similarly situated, filed an environmental lawsuit in
Louisiana state court against 92 defendants, including McNair Transport, Inc.
(predecessor to MESC). In the lawsuit, plaintiffs allege that defendants caused
environmental contamination at two sites in Iberville Parish, Louisiana.
Plaintiffs, who are alleged to have worked at the sites or resided near the
sites, claim personal injuries, increased risk and fear of future disease, and
property damage. Plaintiffs seek actual and exemplary damages of an unspecified
amount. Defendants removed the case to federal court, and the lawsuit is
currently pending in the United States District Court for the Middle District of
Louisiana. On October 2, 1998, the court denied class certification to the
plaintiffs, and limited discovery on the merits of the case has occurred in
1999. Discovery in the merits is expected to continue in 2000. On October 1,
1999, a substantially identical suit was filed in state court in Louisiana on
behalf of 320 additional plaintiffs. Defendants have removed the case to federal
court, and the suit is now pending in the United States District Court for the
Western District of Louisiana. Defendants have also asked the court to transfer
the suit to the United States District Court for the Middle District of
Louisiana, where it may be consolidated with the original suit. Management is
unable at this time to evaluate the merits of the plaintiffs' claims, if any, or
to estimate potential costs or liability.
There are certain other claims and legal actions pending against the
Acquired Group and its equity investees. While the outcome of such proceedings
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the financial condition or results of
operations of the Acquired Group.
F-40
<PAGE> 154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To East Coast Power L.L.C.:
We have audited the accompanying combined balance sheets of Cogen Tech
Group (a group of cogeneration investing entities owned by Robert C. McNair and
affiliates) as of December 31, 1998 and 1997, and the related combined
statements of income, owners' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of Cogen Tech Group's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cogen Tech Group as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, Cogen Tech Group has
given retroactive effect to the change in Cogen Tech Group's equity affiliates'
accounting policies for costs associated with planned outages for major plant
overhauls.
ARTHUR ANDERSEN LLP
Houston, Texas
December 13, 1999
F-41
<PAGE> 155
COGEN TECH GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS OF DOLLARS)
) (RESTATED
<S> <C> <C> <C>
Revenues
Equity in Earnings of
Cogen Technologies Linden Venture, L.P................. $ 73.3 $ 71.8 $ 81.3
Camden Cogen L.P....................................... 15.0 14.7 14.2
Cogen Technologies NJ Venture.......................... 44.6 17.2 19.3
------ ------ ------
132.9 103.7 114.8
------ ------ ------
Costs and Expenses
Operating overhead........................................ 21.6 11.6 9.6
General and administrative................................ 20.2 19.9 10.9
------ ------ ------
41.8 31.5 20.5
------ ------ ------
Income from Operations...................................... 91.1 72.2 94.3
Other Income (Expense)
Interest and other income................................. 12.6 15.5 16.7
Interest expense.......................................... (19.3) (21.8) (23.3)
Allowance for long-term receivable........................ -- 10.3 (10.3)
------ ------ ------
Income Before Income Taxes.................................. 84.4 76.2 77.4
Income taxes.............................................. (13.3) (4.1) (4.6)
------ ------ ------
Net Income.................................................. $ 71.1 $ 72.1 $ 72.8
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 156
COGEN TECH GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
--------- ---------
(IN MILLIONS OF DOLLARS)
) (RESTATED
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 12.7 $ 12.6
Accounts receivable, affiliate............................ 0.2 --
Other current assets...................................... -- 0.1
------ ------
12.9 12.7
------ ------
Investments in Affiliates
Cogen Technologies Linden Venture, L.P.................... 62.6 63.3
Camden Cogen L.P.......................................... 13.9 13.9
Cogen Technologies NJ Venture............................. 8.7 2.2
------ ------
85.2 79.4
------ ------
Other Assets
Accounts receivable, affiliate............................ 149.0 160.8
Other..................................................... 1.7 1.8
------ ------
150.7 162.6
------ ------
$248.8 $254.7
====== ======
LIABILITIES AND OWNERS' EQUITY
Current Liabilities
Accounts payable, affiliate............................... $ -- $ 11.7
Current maturities on long-term debt...................... 14.5 12.9
Income taxes payable...................................... 4.4 0.1
Interest payable.......................................... 1.8 2.0
------ ------
20.7 26.7
Long-Term Debt.............................................. 203.5 218.0
Other Long-Term Liabilities................................. -- 11.1
Deferred Income Taxes....................................... 5.8 5.5
Commitments and Contingencies (Note 7)
Owners' Equity.............................................. 18.8 (6.6)
------ ------
$248.8 $254.7
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 157
COGEN TECH GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS OF DOLLARS)
) (RESTATED
<S> <C> <C> <C>
Operating Activities
Net income................................................ $ 71.1 $ 72.1 $ 72.8
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of affiliates:
Cogen Technologies Linden Venture, L.P............... (73.3) (71.8) (81.3)
Camden Cogen L.P..................................... (15.0) (14.7) (14.2)
Cogen Technologies NJ Venture........................ (44.6) (17.2) (19.3)
Distributions received from affiliates:
Cogen Technologies Linden Venture, L.P............... 74.0 75.6 77.7
Camden Cogen L.P..................................... 15.0 8.6 14.5
Cogen Technologies NJ Venture........................ 39.5 18.1 24.5
Deferred income taxes.................................. 0.3 1.1 1.2
Allowance for long-term receivable..................... -- (10.3) 10.3
Changes in other operating assets and liabilities
Decrease (increase) in accounts receivable,
affiliate............................................. (0.2) 5.2 1.4
Decrease (increase) in other current assets............ 0.1 0.7 0.2
Increase (decrease) in accounts payable, affiliate..... (11.7) (1.4) (9.3)
Increase (decrease) in interest payable................ (0.2) 0.3 (0.4)
Increase (decrease) in income taxes payable............ 4.3 0.1 0.3
Net change in other assets and liabilities............. 0.1 0.3 (0.1)
------ ------ ------
Net Cash Provided by Operating Activities................. 59.4 66.7 78.3
------ ------ ------
Investing Activities
Investment in Cogen Technologies NJ Venture............... (12.5) -- --
Decreases in long-term receivable, affiliate.............. 68.7 70.0 37.2
Increases in long-term receivable, affiliate.............. (56.9) (62.2) (20.0)
------ ------ ------
Net Cash Provided by (Used in) Investing Activities......... (0.7) 7.8 17.2
------ ------ ------
Financing Activities
Principal payments on long-term borrowings................ (12.9) (16.0) (15.3)
Cash distributions........................................ (45.7) (58.3) (80.4)
------ ------ ------
Net Cash Used in Financing Activities....................... (58.6) (74.3) (95.7)
------ ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents........ 0.1 0.2 (0.2)
Cash and Cash Equivalents at Beginning of Year.............. 12.6 12.4 12.6
------ ------ ------
Cash and Cash Equivalents at End of Year.................... $ 12.7 $ 12.6 $ 12.4
====== ====== ======
Cash Payments for
Income taxes.............................................. $ 7.9 $ 2.6 $ 3.4
====== ====== ======
Interest.................................................. $ 19.5 $ 21.4 $ 23.4
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 158
COGEN TECH GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<S> <C>
Balance at January 1, 1996, as previously reported.......... $(16.0)
Effect on prior periods of restatement (see Note 1)......... 3.2
------
Balance at January 1, 1996, as restated..................... (12.8)
Net income................................................ 72.8
Distributions............................................. (80.4)
------
Balance at December 31, 1996................................ (20.4)
Net income................................................ 72.1
Distributions............................................. (58.3)
------
Balance at December 31, 1997................................ (6.6)
Net income................................................ 71.1
Distributions............................................. (45.7)
------
Balance at December 31, 1998................................ 18.8
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 159
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The combined financial statements of the Cogen Tech Group (the "Acquired
Group") includes McNair Energy Services Corporation ("MESC") and its wholly
owned subsidiary Cogen Technologies NJ, Inc., a Delaware corporation ("NJ
Inc."), Cogen Technologies Linden, Ltd. ("Linden Ltd.") and Cogen Technologies
Camden GP Limited Partnership ("Camden GP"). The financial statements of the
Acquired Group are presented on a combined basis since all such entities were
under the common control and management of the McNair Interests for all periods
presented. All material transactions between the combined entities have been
eliminated.
Linden Ltd. is a Texas limited partnership whose general partner, RCM
Holdings, Inc., is owned 100% by the McNair Interests. Under the terms of Linden
Ltd.'s partnership agreement, RCM Holdings, Inc. is allocated 82% of Linden
Ltd.'s profits and losses and receives 82% of all cash distributions. Linden
Ltd. provides planning, operational and financial management services as
managing general partner of Cogen Technologies Linden Venture, L.P. ("Linden
Venture"), a Delaware limited partnership that owns and operates a 715-megawatt
cogeneration facility in Linden, New Jersey. The allocation of Linden Venture's
income and cash distributions to Linden Ltd. is discussed in Note 3.
Camden GP is a Delaware limited partnership whose general partner, Cogen
Technologies Camden Inc. ("CTCI") is owned 100% by the McNair Interests. Under
the terms of Camden GP's partnership agreement, Camden Inc. is allocated 82% of
Camden GP's profits and losses and receives 82% of all cash distributions. CTCI
provides planning, operational and financial management services as managing
general partner of Camden Cogen L.P. ("Camden Venture"), a Delaware limited
partnership that owns and operates a 146-megawatt cogeneration facility in
Camden, New Jersey. The allocation of Camden Venture's earnings and cash
distributions to Camden GP is discussed in Note 3.
MESC is a Texas corporation that is owned approximately 82% by Robert C.
McNair, members of his immediate family and related trusts (the "McNair
Interests") and owns 100% of NJ Inc. NJ Inc. provides planning, operational and
financial management services as managing general partner for Cogen Technologies
NJ Venture ("Bayonne Venture"), a New Jersey general partnership that owns and
operates a 176-megawatt cogeneration facility in Bayonne, New Jersey. The
allocation of Bayonne Venture's earnings and cash distributions to NJ Inc. is
discussed in Note 3.
The Acquired Group's investments in Linden Venture, Camden Venture and
Bayonne Venture are accounted for using the equity method of accounting since
the other partners have substantive participating rights with respect to the
partnerships' operations.
Cash and Cash Equivalents/Restricted Cash
All highly liquid short-term investments with original maturities of three
months or less are considered to be cash equivalents. At December 31, 1998 and
1997, all of the Acquired Group's cash was held by Linden Ltd., and all such
cash was restricted either to service Linden Ltd.'s debt or, if necessary, to
make working capital loans to Linden Venture.
Investments in Affiliates
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
F-46
<PAGE> 160
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
changed their method of accounting for these costs and began expensing such
costs as incurred. The Company's financial statements, including applicable
information contained herein, were restated to give effect to this change. As a
result of this change, the Acquired Group's net income was adjusted by $(2.9)
million, $(2.0) million and $3.8 million, net of applicable taxes of $1.3
million, $0.1 million and $(0.5) million, for the years ended December 31, 1998,
1997 and 1996, respectively. In addition, as of January 1, 1996, owners' equity
was increased by $3.2 million.
Credit Risk
Financial instruments which potentially subject the Acquired Group to
credit risk consist primarily of cash and accounts receivable. Cash accounts are
held by major financial institutions, and accounts receivable are with related
parties.
Income Taxes
Federal and state income taxes with respect to Linden Ltd. and Camden GP
are not levied at the partnership or corporate levels but rather on the
individual partner or shareholder level. Accordingly, such income taxes have not
been recognized in the combined financial statements for such entities. MESC
accounts for federal and state income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Deferred tax assets and liabilities are recognized based on anticipated future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities, if any, and the periods in
which certain items of revenue and expense are included. Actual results may
differ from such estimates.
Earnings Per Share
Historical earnings per share have been omitted from the combined
statements of income since such information is not meaningful and the
historically combined company is not a separate legal entity with a singular
capital structure.
(2) SUBSEQUENT EVENTS
On February 4, 1999, Linden Venture and Camden Venture terminated their
respective management services agreements with Linden Ltd. and Camden GP and
Linden Ltd. and Camden GP terminated their respective management services
agreements with RCM Management Services, L.P. ("RCM Management"). To terminate
such agreements, Linden Ltd. and Camden GP made capital contributions to Linden
Venture and Camden Venture of $46.4 million and $12.8 million, respectively, and
Linden Venture and Camden Venture made one-time payments to Linden Ltd. and
Camden GP of $46.4 million and $12.8 million, respectively. Subsequently, Linden
Ltd. and Camden GP made one-time payments to RCM Management of $46.4 million and
$12.8 million, respectively. These transactions will be reflected in the
financial statements of Linden Ltd., Camden GP, Linden Venture and Camden
Venture in the first quarter of 1999. Such transactions have no effect on the
liquidity or financial condition of such entities since the amounts necessary to
make the payments were provided by contributions from the partners.
On February 4, 1999, Linden Venture and Camden Venture terminated certain
gas management agreements with an affiliate. To terminate such agreements,
Linden Ltd. and Camden GP made capital
F-47
<PAGE> 161
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
contributions of $6.0 million and $1.6 million to Linden Venture and Camden
Venture, respectively, and Linden Venture and Camden Venture made one-time
payments to the affiliate of $6.0 million and $1.6 million, respectively. These
transactions will be reflected in the financial statements of Linden Venture and
Camden Venture in the first quarter of 1999. Such transactions have no effect on
the liquidity or financial condition of such entities since the amounts
necessary to make the payments were provided by contributions from the partners.
On February 4, 1999, East Coast Power acquired 47.5% of the general and
limited partnership interests in Linden Ltd. for $146.6 million in cash and
$250.0 million in Enron Corp. common stock. Subsequently on February 4, Linden
Ltd. redeemed the 52.5% of the general and limited partnership interests not
controlled by East Coast Power in return for the distribution of $289.4 million
in cash and a $149.0 million account receivable from an affiliate. The cash
portion of the redemption was paid using the proceeds from a $289.4 million loan
from Morgan Stanley & Co. Incorporated. The loan, plus accrued interest of $0.2
million, was repaid on February 5, 1999 using the proceeds from a loan from East
Coast Power.
On February 4, 1999, East Coast Power acquired 100% of the general and
limited partnership interests in Camden GP for $140.0 million in cash.
On February 4, 1999, Camden GP repaid the outstanding balance under its
term loan agreement ($12.5 million, including prepayment penalties and accrued
interest of $0.3 million). The funds necessary to make the repayments were
provided by contributions from the general and limited partners.
On February 4, 1999, NJ Inc. was merged with and into MESC. Also on
February 4, MESC redeemed 90% of its outstanding common shares for $216.0
million in Notes (the "MESC Notes"). Subsequently on February 4, Enron North
America Corp. ("Enron North America"), formerly Enron Capital & Trade Resources
Corp., a wholly owned subsidiary of Enron Corp., acquired all of the outstanding
common shares of MESC for $24.0 million in cash. On February 5, MESC was merged
with and into Enron North America and Enron North America contributed its
interest in Bayonne Venture to East Coast Power L.L.C. ("East Coast Power"). In
addition, East Coast Power assumed and subsequently retired the $216.0 million
of MESC Notes. East Coast Power is a Delaware limited liability company formed
by JEDI II, a limited partnership in which Enron Corp. and the California Public
Employees' Retirement System each own a 50% interest.
F-48
<PAGE> 162
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS IN AFFILIATES
The following table reflects the changes in the Acquired Group's
investments in affiliates (in millions of dollars):
<TABLE>
<CAPTION>
LINDEN CAMDEN BAYONNE
VENTURE VENTURE VENTURE(1)
------- ------- ----------
<S> <C> <C> <C>
Balance at December 31, 1995............................. $ 63.5 $ 8.1 $ (2.8)
Equity in earnings....................................... 81.3 14.2 19.6
Distributions............................................ (77.7) (14.5) (24.5)
Amortization of excess cost.............................. -- -- (0.3)
------ ------ ------
Balance at December 31, 1996............................. 67.1 7.8 (8.0)
Equity in earnings....................................... 71.8 14.7 17.5
Distributions............................................ (75.6) (8.6) (18.1)
Amortization of excess cost.............................. -- -- (0.3)
------ ------ ------
Balance at December 31, 1997............................. 63.3 13.9 (8.9)
Investment............................................... -- -- 12.5
Equity in earnings....................................... 73.3 15.0 44.8
Distributions............................................ (74.0) (15.0) (39.5)
Amortization of excess cost.............................. -- -- (0.2)
------ ------ ------
Balance at December 31, 1998............................. $ 62.6 $ 13.9 $ 8.7
====== ====== ======
</TABLE>
- ---------------
(1) Through December 31, 1997, NJ Inc. received distributions from Bayonne
Venture that were $11.1 million in excess of its proportionate share of
Bayonne Venture's partners' capital before distributions ($10.5 million at
December 31, 1996 and $5.6 million at December 31, 1995). All partners share
in liquidation rights to the extent of their individual capital accounts;
accordingly, such excess is classified as a long-term liability in the
December 31, 1997 balance sheet. The amount reflected as Investments in
affiliates, Bayonne Venture at December 31, 1997 represents NJ Inc.'s
unamortized cost in excess of its equity in the underlying net assets of
Bayonne Venture, and such amount is being amortized over the remaining life
of Bayonne Venture's power purchase agreements.
In July 1998, NJ Inc. purchased an additional 5.25% limited partnership
interest in Bayonne Venture for $12.5 million in cash from an unaffiliated
party. On a pro forma basis, assuming the transaction took place on January 1,
1998, such transaction would have increased the Acquired Group's equity in the
earnings of Bayonne Venture for the year ended December 31, 1998 by $1.5 million
and the Acquired Group's net income for such period by $1.0 million. NJ Inc.'s
cost in excess of its equity in the underlying net assets of Bayonne Venture at
the time of the purchase, $2.6 million, is being amortized over ten years.
F-49
<PAGE> 163
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents summary balance sheet information for the
Acquired Group's affiliates at December 31, 1998 and 1997 (in millions of
dollars):
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
--------------- --------------- ---------------
1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets............................ $ 57.0 $ 64.2 $ 18.3 $ 19.0 $25.9 $25.0
Property, plant and equipment, net........ 413.6 428.2 103.1 106.3 70.9 73.8
Other assets.............................. -- -- -- -- 0.2 0.2
------ ------ ------ ------ ----- -----
$470.6 $492.4 $121.4 $125.3 $97.0 $99.0
====== ====== ====== ====== ===== =====
Liabilities and Partners' Capital
Current liabilities....................... $ 23.8 $ 29.1 $ 11.8 $ 11.6 $12.8 $16.7
Long-term debt............................ -- -- 78.5 84.7 64.1 67.9
Other long-term liabilities............... 1.5 2.1 -- 0.0 -- --
Partners' capital......................... 445.3 461.2 31.1 29.0 20.1 14.4
------ ------ ------ ------ ----- -----
$470.6 $492.4 $121.4 $125.3 $97.0 $99.0
====== ====== ====== ====== ===== =====
</TABLE>
The following table presents summary income statement information for the
Acquired Group's affiliates for the years ended December 31, 1998, 1997 and 1996
(in millions of dollars):
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
------------------------ --------------------- ----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Electricity................. $262.8 $283.5 $290.4 $73.1 $80.2 $77.2 $112.8 $92.8 $90.4
Steam....................... 11.3 15.5 15.1 -- -- -- 3.8 3.7 4.9
------ ------ ------ ----- ----- ----- ------ ----- -----
274.1 299.0 305.5 73.1 80.2 77.2 116.6 96.5 95.3
------ ------ ------ ----- ----- ----- ------ ----- -----
Costs and Expenses:
Fuel........................ 118.1 138.1 138.6 33.3 39.2 38.4 38.6 43.2 45.2
Operating & maintenance..... 22.0 24.1 20.0 6.1 7.5 6.0 14.4 14.7 8.8
Depreciation &
amortization............. 15.4 22.3 22.2 3.7 6.9 6.8 3.0 6.9 6.9
General & administrative.... 10.1 11.4 10.7 2.2 2.6 2.6 3.1 2.9 2.8
Taxes, other than income.... 1.6 0.6 1.7 0.4 0.6 0.6 0.5 0.5 0.5
------ ------ ------ ----- ----- ----- ------ ----- -----
167.2 196.5 193.2 45.7 56.8 54.4 59.6 68.2 64.2
------ ------ ------ ----- ----- ----- ------ ----- -----
Income from Operations........ 106.9 102.5 112.3 27.4 23.4 22.8 57.0 28.3 31.1
Other Income (Expense)
Interest and other income... 0.8 1.1 0.6 0.4 0.4 0.4 1.2 0.1 0.1
Interest expense............ -- -- (0.1) (7.4) (7.7) (8.2) (7.7) (8.1) (8.5)
------ ------ ------ ----- ----- ----- ------ ----- -----
Net Income.................... $107.7 $103.6 $112.8 $20.4 $16.1 $15.0 $ 50.5 $20.3 $22.7
====== ====== ====== ===== ===== ===== ====== ===== =====
</TABLE>
F-50
<PAGE> 164
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents statement of cash flows information for the
Acquired Group's affiliates for the years ended December 31, 1998, 1997 and 1996
(in millions of dollars):
<TABLE>
<CAPTION>
LINDEN VENTURE CAMDEN VENTURE BAYONNE VENTURE
------------------------ ---------------------- ---------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash provided by operating
activities..................... $120.4 $134.4 $130.4 $24.2 $21.7 $21.9 $51.2 $26.9 $30.0
Cash used in investing
activities................... (0.8) (0.4) (1.7) (0.5) (4.4) (0.4) (0.1) -- (0.3)
Cash used in financing
activities................... (123.7) (127.6) (129.3) (23.9) (16.7) (22.1) (47.2) (24.0) (31.2)
------ ------ ------ ----- ----- ----- ----- ----- -----
Increase (decrease) in cash and
cash equivalents............. $ (4.1) $ 6.4 $ (0.6) $(0.2) $ 0.6 $(0.6) $ 3.9 $ 2.9 $(1.5)
====== ====== ====== ===== ===== ===== ===== ===== =====
</TABLE>
Under the terms of Linden Venture's partnership agreement, monthly cash
distributions are allocated, 1% to Linden Ltd. and 99% to the limited partner up
to a specified rate of return (approximately $3.0 million per month from October
1998 through September 2001 and between $4.3 million and $4.8 million per month
thereafter) ("Tranche 1"), then 99% to Linden Ltd. and 1% to the limited partner
up to a capped amount, which is twice the amount of Tranche 1, and the remainder
90% to Linden Ltd. and 10% to the limited partner. During 1998, 1997 and 1996,
Linden Ltd. received 60%, 59% and 60%, respectively, of Linden Venture's cash
distributions. Linden Venture's income before depreciation is allocated to the
partners on the basis of cash distributed with any excess primarily allocated
99% to Linden Ltd. Losses are allocated 100% to Linden Ltd. until its capital
account equals zero, then to the limited partner until its capital account
equals zero, with any remainder allocated 100% to Linden Ltd. Depreciation up to
$525.0 million is allocated 5% to Linden Ltd. and 95% to the limited partners.
All remaining depreciation is allocated 99% to Linden Ltd. During 1998, 1997 and
1996, Linden Ltd. was allocated 68%, 69% and 72%, respectively, of Linden
Venture's net income.
Under the terms of Camden Venture's partnership agreement, monthly cash
distributions are allocated 1% to Camden GP and 99% to the limited partner up to
a specified cumulative rate of return (approximately $0.3 million to $0.4
million per month through May 2007 and varying amounts thereafter) and the
remaining available cash for the month is allocated 99% to Camden GP and 1% to
the limited partner. Once the limited partner has received its specified rate of
return, cash distributions will be allocated 90% to Camden GP and 10% to the
limited partner. During 1998, 1997 and 1996, Camden GP received 82%, 74% and
83%, respectively, of Camden Venture's cash distributions. Camden Venture's
income before depreciation is allocated as follows: (i) an amount equal to debt
principal payments, 100% to the limited partner; (ii) an amount equal to and
allocated on the same basis as cash distributed; and (iii) any remainder
generally 99% to Camden GP and 1% to the limited partner. Losses are allocated
100% to Camden GP until its capital account equals zero, then to the limited
partner until its capital account equals zero, the remainder to Camden GP.
Depreciation is allocated 100% to the limited partner until its capital account
equals zero and the remainder to Camden GP. During 1998, 1997 and 1996, Camden
GP was allocated 74%, 91% and 94%, respectively, of Camden Venture's net income.
Under the terms of Bayonne Venture's joint venture agreement, NJ Inc. is
allocated profits and losses and receives cash distributions based on its
ownership percentage. Through July 1998, NJ Inc. was allocated 86.5% of Bayonne
Venture's profits and losses and received 86.5% of all cash distributions.
Subsequent to the acquisition of an additional 5.25% interest in July 1998, NJ
Inc. has been allocated 91.75% of Bayonne Venture's profits and losses and
received 91.75% of all cash distributions. For the year ended December 31, 1998,
NJ Inc. was allocated 89.0% of Bayonne Venture's profits and losses and received
88.4% of all cash distributions.
F-51
<PAGE> 165
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT
In September 1992, Linden Ltd. entered into a $250.0 million Amended and
Restated Term Loan Agreement with State Street Bank & Trust Co. which matures in
September 2007 and is comprised of a fixed rate portion, a floating rate portion
and a working capital portion. Under the terms of the agreement the fixed rate
portion bears interest at 8.8%, the floating rate portion bears interest at
LIBOR plus 1.65% and the working capital portion bears interest at the one month
financial commercial paper rate (as reported in Federal Statistical Release H.15
(514) or successor publication) plus 0.55%. Borrowings under the agreement are
secured by Linden Ltd.'s partnership interest in Linden Venture. Principal and
interest payments are made quarterly at varying amounts in accordance with the
terms of the agreement. The agreement contains certain restrictions that limit
or prohibit, among other things, the ability to incur indebtedness, make
payments of certain indebtedness, pay distributions, make investments, engage in
transactions with affiliates, create liens, sell assets and engage in
acquisitions, mergers and consolidations.
In February 1992, Camden GP entered into a $36.5 million Term Loan
Agreement with General Electric Capital Corporation (the "Camden GP Term Loan
Agreement") which matures in May 2010. Borrowings under the agreement, which
totaled $14.8 million, bear interest at the London Interbank Offering Rate
(LIBOR) plus 4.25% and are secured by Camden GP's holdings in Camden Venture.
Principal and interest payments are made quarterly at varying amounts in
accordance with the terms of the agreement.
At December 31, 1996, NJ Inc. had outstanding $4.4 million under the terms
of a term loan agreement with The Prudential Insurance Company of America. Such
amount was repaid in 1997.
Long-term debt at December 31, 1998 and 1997 consisted of the following (in
millions of dollars):
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Linden Ltd.
Fixed rate...................................... $ 6.7 $ 87.0 $ 6.0 $ 93.7
Floating rate................................... 7.2 94.7 6.4 101.9
Working capital................................. -- 10.0 -- 10.0
----- ------ ----- ------
13.9 191.7 12.4 205.6
----- ------ ----- ------
Camden GP......................................... 0.6 11.8 0.5 12.4
----- ------ ----- ------
$14.5 $203.5 $12.9 $218.0
===== ====== ===== ======
</TABLE>
Aggregate total maturities during the next five years are as follows:
1999 -- $14.5 million; 2000 -- $16.2 million; 2001 -- $18.1 million;
2002 -- $20.3 million; and 2003 -- $22.7 million.
(5) RELATED PARTY TRANSACTIONS
Linden Ltd. has advanced funds to Cogen Technologies Financial Services,
L.P. ("Financial Services"), an investment company which is controlled by the
McNair Interests, which amounted to $149.0 million and $160.8 million at
December 31, 1998 and 1997, respectively. Such amount is classified as a
long-term receivable in the combined balance sheets. The receivable bears
interest at 8.8%, and Linden Ltd. has earned net interest of $11.8 million in
1998, $14.6 million in 1997 and $15.6 million in 1996.
Financial Services has used the funds to make advances to other affiliates
for general working capital needs and has invested in treasury Notes, treasury
bills and certain marketable securities. The market value of Financial Services'
investments in marketable securities, which is the only liquid asset the
partnership holds, supports Financial Services' ability to repay the amounts
advanced by Linden Ltd. In those instances when the market value of Financial
Services' marketable securities is below the amount of Linden Ltd.'s receivable,
F-52
<PAGE> 166
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
creating doubt about the collectibility of the receivable, Linden Ltd. provides
a valuation allowance to reflect the shortfall. To the extent the market value
of the underlying marketable securities recovers, the provision is reversed.
Linden Ltd. recorded provisions (reversal of provisions) with respect to its
receivable from Financial Services of $(10.3 million) in 1997 and $10.3 million
in 1996. At December 31, 1998 and 1997, the cumulative allowance recognized with
respect to such receivable was zero.
From time to time advances are made between Financial Services and Camden
GP. At December 31, 1997, $1.9 million was payable to Financial Services by
Camden GP, and at December 31, 1998, $0.2 million was payable by Financial
Services to Camden GP. Advances bear interest at 9.3%, and during 1998, 1997 and
1996 Camden GP recorded interest income totaling $0.2 million, $0.6 million and
$0.9 million, respectively.
Camden GP provides planning, operational and financial management services
to Camden Venture for a monthly management fee equal to 1.5% of Camden Venture's
gross revenues. Such fees charged to Camden Venture in 1998, 1997 and 1996
totaled $1.1 million, $1.2 million and $1.2 million, respectively. Linden Ltd.
provides similar services to Linden Venture for a monthly management fee equal
to 1.5% of Linden Venture's gross revenues. Such fees charged to Linden Venture
in 1998, 1997 and 1996 totaled $4.2 million, $4.6 million and $4.5 million,
respectively. RCM Management Services, L.P. ("RCM Management"), which is
controlled by the McNair Interests, provides planning, operational and financial
management services to Camden GP and Linden Ltd. for a monthly management fee
equal to 1.5% of the gross revenues of Camden Venture and Linden Venture,
respectively. Such fees charged were as follows in 1998, 1997 and 1996: (i)
Camden GP -- $1.1 million, $1.2 million and $1.2 million, respectively; and (ii)
Linden Ltd. -- $4.2 million, $4.6 million and $4.5 million, respectively.
Under the terms of an agreement between RCM Management and NJ Inc., RCM
Management provides planning, operational and financial management services
directly to Bayonne Venture for a monthly management fee equal to 1.5% of
Bayonne Venture's gross revenues. Such fees charged to Bayonne Venture totaled
$1.7 million, $1.4 million and $1.4 million in 1998, 1997 and 1996,
respectively. Under the terms of such agreement, Bayonne Venture has assumed the
cost and pays such fee directly to RCM Management.
Cogen Technologies Capital Company, L.P. ("Cogen Capital"), in which the
McNair Interests have a 1% general partner and an approximate 81% limited
partner interest, charges Camden GP, Linden Ltd., and NJ Inc. for certain
management, financial and administrative support services. Such fees charged
were as follows in 1998, 1997 and 1996: (i) Linden Ltd. -- $28.3 million, $21.2
million and $13.7 million, respectively; (ii) Camden GP -- $5.8 million, $4.3
million and $2.9 million, respectively; and (iii) NJ Inc. -- $7.0 million, $5.2
million and $3.3 million, respectively. The costs of such services are
accumulated primarily based on employee time allocations and are charged to
specific entities based on electricity generation capacity. NJ Inc. charged
Cogen Capital $5.9 million in 1998, $2.2 million in 1997 and $2.0 million in
1996 for certain management, financial and administrative support services. The
costs of such services are accumulated primarily based on employee time
allocations.
See Note 2 with respect to the cancellation of certain agreements with
related parties.
F-53
<PAGE> 167
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
As explained in Note 1, certain entities in the Acquired Group are
tax-paying entities. Income tax expense for such entities for the years ended
December 31, 1998, 1997 and 1996 consisted of (in millions of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Current
Federal................................................... $12.0 $2.6 $3.1
State..................................................... 1.0 0.4 0.3
----- ---- ----
13.0 3.0 3.4
----- ---- ----
Deferred
Federal................................................... 0.1 0.3 1.2
State..................................................... 0.2 0.8 --
----- ---- ----
0.3 1.1 1.2
----- ---- ----
Total............................................. $13.3 $4.1 $4.6
===== ==== ====
</TABLE>
Deferred tax liabilities (assets) at December 31, 1998 and 1997 are
composed of the following differences between financial and tax reporting
amounts (in millions of dollars):
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
Deferred income tax liabilities
Tax depreciation in excess of book depreciation........... $5.7 $ 6.4
State tax depreciation in excess of book depreciation..... 0.1 --
Deferred income tax assets
Alternative minimum tax credit carryforward............... -- (0.8)
Book depreciation in excess of state tax depreciation..... -- (0.1)
---- -----
Net deferred income tax liability........................... $5.8 $ 5.5
==== =====
</TABLE>
A reconciliation of income tax expense computed by applying the statutory
federal income tax rate to income before income taxes for the years ended
December 31, 1998, 1997 and 1996 is presented in the following table (in
millions of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rate...................... $12.5 $3.4 $4.4
Increase resulting from:
State income taxes, net of federal effect................. 0.8 0.2 0.2
Other..................................................... -- 0.5 --
----- ---- ----
$13.3 $4.1 $4.6
===== ==== ====
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
Six plaintiffs, individually on behalf of themselves and as representatives
of a class of persons similarly situated, filed an environmental lawsuit in
Louisiana state court against 92 defendants, including McNair Transport, Inc.
(predecessor to MESC). In the lawsuit, plaintiffs allege that defendants caused
environmental contamination at two sites in Iberville Parish, Louisiana.
Plaintiffs, who are alleged to have worked at the sites or resided near the
sites, claim personal injuries, increased risk and fear of future disease, and
property damage. Plaintiffs seek actual and exemplary damages of an unspecified
amount. Defendants removed the
F-54
<PAGE> 168
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
case to federal court, and the lawsuit is currently pending in the United States
District Court for the Middle District of Louisiana. On October 2, 1998, the
court denied class certification to the plaintiffs, and discovery on the merits
of the case is expected to begin in the first quarter of 1999. Management is
unable at this time to evaluate the merits of the plaintiffs' claims, if any, or
to estimate potential costs or liability.
There are certain other claims and legal actions pending against the
Acquired Group and its equity investees. While the outcome of such proceedings
cannot be predicted with certainty, management does not expect these matters to
have a material adverse effect on the financial condition or results of
operations of the Group.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments"
requires the disclosure, to the extent practicable, of the fair value of
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value disclosed herein is not representative of the amount that could
be realized or settled, nor does the fair value amount consider tax
consequences, if any, of realization or settlement. The following table reflects
the fair value of long-term debt at December 31, 1998 and 1997 (in millions of
dollars):
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Long-Term Debt
Camden GP....................................... $ 12.4 $ 12.4 $ 12.9 $ 12.9
Linden Ltd...................................... 205.6 229.3 218.0 225.5
</TABLE>
The fair value of fixed-rate long-term debt has been determined based on
the differential between the interest rates of long-term treasury securities of
equivalent maturities and the effective interest rates on the debt at the date
of the borrowing plus the interest rates on similar treasury securities at the
balance sheet date. With respect to floating rate debt, the carrying amount
approximates fair value due to the market-sensitive interest rate on such debt.
The carrying amount of current assets and liabilities are considered to be
reasonable estimates of their fair values due to their short-term nature. The
carrying amount of the long-term receivable from an affiliate is considered to
be a reasonable estimate of fair value since interest is earned at market rates.
F-55
<PAGE> 169
COGEN TECH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(9) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1 QTR 2 QTR 3 QTR 4 QTR YEAR
------ ------ ----- ----- ------
<S> <C> <C> <C> <C> <C>
1998
Revenues.................................. $ 31.8 $ 26.0 $37.6 $37.5 $132.9
Costs and expenses........................ (14.2) (12.7) (8.1) (6.8) (41.8)
Income from operations.................... 17.6 13.3 29.5 30.7 91.1
Other income (expense).................... (1.9) (1.6) (1.8) (1.4) (6.7)
Income taxes.............................. (4.6) (0.5) (3.9) (4.3) (13.3)
Net income................................ 11.1 11.2 23.8 25.0 71.1
Gross profit(1)........................... 22.6 18.4 34.6 35.7 111.3
1997
Revenues.................................. $ 26.7 $ 21.9 $32.9 $22.2 $103.7
Costs and expenses........................ (7.8) (7.2) (8.2) (8.3) (31.5)
Income from operations.................... 18.9 14.7 24.7 13.9 72.2
Other income (expense)(2)................. (3.9) 7.8 1.1 (1.0) 4.0
Income taxes.............................. (0.6) (1.5) (1.3) (0.7) (4.1)
Net income................................ 14.4 21.0 24.5 12.2 72.1
Gross profit(1)........................... 23.9 19.3 29.8 19.2 92.2
</TABLE>
- ---------------
(1) Income from operations plus general and administrative expense.
(2) Includes benefit (charge) for allowance on long-term receivable as follows:
1 Qtr -- ($1.8 million); 2 Qtr -- $9.2 million; 3 Qtr -- $2.6 million; 4
Qtr -- $0.3 million; Year -- $10.3 million.
F-56
<PAGE> 170
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FEBRUARY 5, JANUARY 1, NINE MONTHS
1999 TO 1999 TO ENDED
SEPTEMBER 30, FEBRUARY 4, SEPTEMBER 30,
1999 1999 1998
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Electricity........................................... $290.7 $ 43.2 $338.6
Steam................................................. 7.8 1.0 11.7
------ ------ ------
298.5 44.2 350.3
------ ------ ------
Costs and Expenses
Fuel.................................................. 129.8 24.6 144.1
Operating and maintenance............................. 25.5 3.1 34.0
Depreciation and amortization......................... 14.2 2.1 16.6
General and administrative............................ 4.8 60.8 11.5
Taxes, other than income.............................. 1.8 0.2 1.9
------ ------ ------
176.1 90.8 208.1
------ ------ ------
Income (Loss) from Operations........................... 122.4 (46.6) 142.2
Other Income (Expense)
Interest and other income............................. 5.3 0.1 1.5
Interest expense...................................... (9.2) (1.5) (11.4)
------ ------ ------
Net Income (Loss)....................................... $118.5 $(48.0) $132.3
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 171
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- ------------
(IN MILLIONS OF DOLLARS)
(RESTATED)
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 44.3 $ 39.1
Accounts receivable....................................... 51.5 42.7
Inventories............................................... 16.0 16.7
Other current assets...................................... 2.2 2.7
------- -------
114.0 101.2
------- -------
Property, Plant and Equipment, at cost...................... 827.0 827.6
Accumulated depreciation.................................. (256.3) (240.0)
------- -------
570.7 587.6
------- -------
Other Assets................................................ 0.2 0.2
------- -------
$ 684.9 $ 689.0
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable.......................................... $ 34.4 $ 29.1
Accounts payable, affiliate............................... -- 0.4
Current maturities on long-term debt...................... 11.1 10.4
Short-term debt........................................... -- 0.9
Interest payable.......................................... 3.0 3.1
Other current liabilities................................. 3.5 4.4
------- -------
52.0 48.3
Long-Term Debt.............................................. 134.5 142.6
Other Long-Term Liabilities................................. -- 1.6
Commitments and Contingencies (Note 3)
Partners' Capital........................................... 498.4 496.5
------- -------
$ 684.9 $ 689.0
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 172
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM NINE
FEBRUARY 5, JANUARY 1, MONTHS
1999 TO 1999 TO ENDED
SEPTEMBER 30, FEBRUARY 4, SEPTEMBER 30,
1999 1999 1998
------------- ----------- -------------
<S> <C> <C> <C>
Operating Activities
Net income (loss)...................................... $ 118.5 $(48.0) $ 132.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 14.2 2.1 16.6
Changes in other operating assets and liabilities
Net change in other assets and liabilities.......... 2.4 (6.8) (11.9)
------- ------ -------
Net Cash Provided by (Used in) Operating Activities...... 135.1 (52.7) 137.0
------- ------ -------
Investing Activities
Additions to property, plant and equipment............. (0.3) -- (0.6)
------- ------ -------
Net Cash Used in Investing Activities.................... (0.3) -- (0.6)
------- ------ -------
Financing Activities
Net change in borrowings............................... (8.0) (0.3) (4.6)
Cash contributions by partners......................... -- 70.1 --
Cash distributions to partners......................... (111.4) (27.3) (137.3)
------- ------ -------
Net Cash Provided by (Used in) Financing Activities...... (119.4) 42.5 (141.9)
------- ------ -------
Net Increase (Decrease) in Cash and Cash Equivalents..... 15.4 (10.2) (5.5)
Cash and Cash Equivalents at Beginning of Period......... 28.9 39.1 39.5
------- ------ -------
Cash and Cash Equivalents at End of Period............... $ 44.3 $ 28.9 $ 34.0
======= ====== =======
Cash Paid for Interest................................... $ 7.1 $ 3.7 $ 11.5
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 173
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' CAPITAL (UNAUDITED)
(IN MILLIONS OF DOLLARS)
(RESTATED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- ------
<S> <C> <C> <C>
Balance at January 1, 1999, as previously stated............ $ 79.0 $416.2 $495.2
Effect on prior periods of restatement (see Note 1)......... 1.6 (0.3) 1.3
Balance at January 1, 1999, as restated..................... 80.6 415.9 496.5
Contributions............................................. 70.1 -- 70.1
Net income (loss)......................................... (51.4) 3.4 (48.0)
Distributions............................................. (20.3) (7.0) (27.3)
------ ------ ------
Balance at February 4, 1999................................. 79.0 412.3 491.3
Net income................................................ 96.3 22.2 118.5
Distributions............................................. (81.5) (29.9) (111.4)
------ ------ ------
Balance at September 30, 1999............................... $ 93.8 $404.6 $498.4
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 174
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The combined financial statements of the Cogen Technologies New Jersey
Operating Partnerships (the "Operating Partnerships") includes (i) Cogen
Technologies NJ Venture ("Bayonne Venture"); (ii) Camden Cogen L.P. ("Camden
Venture"); and (iii) Cogen Technologies Linden Venture, L.P. ("Linden Venture").
The Operating Partnerships are engaged in the operation of natural gas-fired
cogeneration facilities in the state of New Jersey. The financial statements of
the Operating Partnerships are presented on a combined basis since all such
entities are under common equity ownership and management by general partners
that are under common control. All material transactions between the combined
entities have been eliminated.
At December 31, 1998, the Operating Partnerships were under the common
control of Robert C. McNair, members of his immediate family and related trusts
(the "McNair Interests"). At December 31, 1998, the McNair Interests (i)
indirectly owned approximately 82% of NJ Inc., the managing partner of Bayonne
Venture, (ii) owned 100% of the 82% general partner of Cogen Technologies Camden
GP Limited Partnership ("Camden GP"), the managing partner of Camden Venture,
and (iii) owned 100% of the 82% general partner of Cogen Technologies Linden,
Ltd. ("Linden Ltd."), the managing partner of Linden Venture.
On February 4, 1999, East Coast Power L.L.C. ("East Coast Power") acquired
100% of the general and limited partnership interests in Camden GP and Linden
Ltd. Also on February 4, Enron Capital & Trade Resources Corp., a wholly owned
subsidiary of Enron Corp., acquired 91.75% of the partnership interests in
Bayonne Venture (including the interests controlled by the McNair Interests) and
contributed such interests to East Coast Power. East Coast Power subsequently
contributed its interest in Bayonne Venture to JEDI Bayonne GP, L.L.C. ("Bayonne
GP"), a limited liability company in which East Coast Power owns 100% of the
membership interests, and Bayonne GP was named managing partner of Bayonne
Venture. East Coast Power is a Delaware limited liability company formed by
Joint Energy Development Investments II Limited Partnership ("JEDI II"), a
limited partnership in which Enron Corp. and the California Public Employees'
Retirement System each own a 50% interest.
Bayonne Venture, a New Jersey general partnership, owns and operates a
176-megawatt cogeneration facility in Bayonne, New Jersey. Through July 1998,
the managing partner was allocated 86.5% of Bayonne Venture's profits and losses
and received 86.5% of all cash distributions. At such time an additional 5.25%
interest in Bayonne Venture was acquired and subsequent to such acquisition the
managing partner has been allocated 91.75% of Bayonne Venture's profits and
losses and has received 91.75% of all cash distributions.
Camden Venture, a Delaware limited partnership, owns and operates a
146-megawatt cogeneration facility in Camden, New Jersey. Camden GP is the
managing partner of Camden Venture. Under the terms of Camden Venture's
partnership agreement, monthly cash distributions are allocated 99% to the
limited partner and 1% to Camden GP up to a specified cumulative rate of return
(approximately $0.3 million to $0.4 million per month through May 2007 and
varying amounts thereafter) and the remaining available cash for the month is
allocated 99% to Camden GP and 1% to the limited partner. Once the limited
partner has received its specified rate of return, cash distributions will be
allocated 90% to Camden GP and 10% to the limited partner. During the first nine
months of 1999 and 1998, Camden GP received 78% (excluding a $3.3 million
special distribution to the limited partner related to the East Coast Power
acquisition) and 83%, respectively, of Camden Venture's cash distributions.
Camden Venture's income before depreciation is allocated as follows: (i) an
amount equal to debt principal payments, 100% to the limited partner; (ii) an
amount equal to and allocated on the same basis as cash distributed; and (iii)
any remainder is generally allocated 99% to Camden GP and 1% to the limited
partner. Losses are allocated 100% to Camden GP until its capital account equals
zero and then 100% to the limited partner until its capital account equals zero
and then 100% to Camden GP. Depreciation is allocated 100% to the limited
partner until its capital account equals zero and then to Camden GP. During the
first nine months of 1999 and 1998, Camden GP was allocated 73% (excluding the
$14.4 million of one-time payments in connection with the termination of the gas
management
F-61
<PAGE> 175
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
and management services agreements that were allocated 100% to Camden GP's share
of income) and 76%, respectively, of Camden Venture's net income.
Linden Venture, a Delaware limited partnership, owns and operates a
715-megawatt cogeneration facility in Linden, New Jersey. Linden Ltd. is the
managing partner of Linden Venture. Under the terms of Linden Venture's
partnership agreement, cash is distributed monthly, 1% to Linden Ltd. and 99% to
the limited partner up to a specified rate of return (approximately $4.3 million
per month through September 1998, approximately $3.0 million per month from
October 1998 through September 2001 and between $4.3 million and $4.8 million
per month thereafter) ("Tranche 1"), then 99% to Linden Ltd. and 1% to the
limited partner up to an amount equal to twice the amount of Tranche 1 and the
remainder 90% to Linden Ltd. and 10% to the limited partner. During the first
nine months of 1999 and 1998, Linden Ltd. received 70% and 58%, respectively, of
Linden Venture's cash distributions. Linden Venture's income before depreciation
is allocated to the partners on the basis of cash distributed with any excess
primarily allocated 99% to Linden Ltd. Losses are allocated 100% to Linden Ltd.
until its capital account equals zero and then to the limited partners until
their capital accounts equal zero with any remainder allocated 100% to Linden
Ltd. Depreciation up to $525.0 million is allocated 5% to Linden Ltd. and 95% to
the limited partners. All remaining depreciation is allocated 99% to Linden Ltd.
During the first nine months of 1999 and 1998, Linden Ltd. was allocated 79%
(excluding the $52.4 million of one-time payments in connection with the
termination of the gas management and management services agreements that were
allocated 100% to Linden Ltd.'s share of income) and 64%, respectively, of
Linden Venture's net income.
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
changed their method of accounting for these costs and began expensing such
costs as incurred. The Company's financial statements, including applicable
information contained herein, were restated to give effect to this change. As a
result of this change, the Operating Partnerships' net loss was decreased by
$0.5 million for the period from January 1, 1999 to February 4, 1999 and net
income was decreased by $1.2 million and $6.2 million for the period from
February 5, 1999 to September 30, 1999 and for the nine months ended September
30, 1998, respectively. In addition, as of January 1, 1999 partners' capital was
increased by $1.3 million.
The accompanying unaudited combined financial statements of the Operating
Partnerships reflect, in the opinion of management, all adjustments, consisting
only of normal and recurring adjustments, necessary to present fairly the
Operating Partnerships' financial position at September 30, 1999 and the
Operating Partnerships' results of operations and cash flows for the period
January 1, 1999 to February 4, 1999, the period February 5, 1999 to September
30, 1999 and the nine-month period ended September 30, 1998. Interim period
results are not necessarily indicative of the results of operations or cash
flows for a full-year period.
These financial statements and the notes thereto should be read in
conjunction with the audited financial statements of the Operating Partnerships
included elsewhere in this prospectus.
(2) RELATED PARTY TRANSACTIONS
On February 4, 1999, Linden Venture and Camden Venture terminated their
respective management services agreements with Linden Ltd. and Camden GP. To
terminate such agreements, Linden Ltd. and Camden GP made capital contributions
to Linden Venture and Camden Venture, respectively, and Linden Venture and
Camden Venture made one-time payments to Linden Ltd. and Camden GP of $46.4
million and $12.8 million, respectively. Also on February 4, Linden Venture and
Camden Venture terminated certain gas
F-62
<PAGE> 176
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
management agreements with an affiliate. To terminate such agreements, Linden
Ltd. and Camden GP made capital contributions to Linden Venture and Camden
Venture, respectively, and Linden Venture and Camden Venture made one-time
payments to the affiliate of $6.0 million and $1.6 million, respectively. These
transactions are reflected in the results of operations in the period January 1,
1999 to February 4, 1999. Such transactions have no effect on the liquidity or
financial condition of such entities since the amounts necessary to make the
payments were provided by contributions from the partners.
(3) COMMITMENTS AND CONTINGENCIES
In 1997 Linden Venture initiated an arbitration proceeding against Ebasco
Constructors, Inc. and ENSERCH (the "Respondents") for alleged design
deficiencies and warranty claims with respect to the construction of the Linden
Facility. In April 1999, the proceeding was settled and Linden Venture was
relieved of its obligation to pay certain liabilities and received a cash
payment of $1.2 million.
In June 1999, Linden Venture entered into a letter of intent with Tosco
Refining Company that contemplates an expansion of the Linden Facility through
the addition of a sixth turbine generator to provide electricity and steam
service to Tosco's Bayway Refinery. Completion of the transactions contemplated
by the letter of intent are subject to, among other things, further
negotiations, completion of due diligence and receipt of necessary approvals.
There are other claims and legal actions pending against the Operating
Partnerships. While the outcome of such proceedings cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the financial condition or results of operations of the Operating
Partnerships.
F-63
<PAGE> 177
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To East Coast Power L.L.C.:
We have audited the accompanying combined balance sheets of Cogen
Technologies New Jersey Operating Partnerships (a group of cogeneration
partnerships in which Robert C. McNair and affiliates have an interest) as of
December 31, 1998 and 1997, and the related combined statements of income,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
partnerships' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cogen Technologies New
Jersey Operating Partnerships as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, Cogen Technologies New
Jersey Operating Partnerships has given retroactive effect to the change in
accounting policies for costs associated with planned outages for major plant
overhauls.
ARTHUR ANDERSEN LLP
Houston, Texas
December 13, 1999
F-64
<PAGE> 178
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS OF DOLLARS)
) (RESTATED
<S> <C> <C> <C>
Revenues
Electricity............................................... $448.7 $456.5 $458.0
Steam..................................................... 15.1 19.2 20.0
------ ------ ------
463.8 475.7 478.0
------ ------ ------
Costs and Expenses
Fuel...................................................... 190.0 220.5 222.2
Operating and maintenance................................. 42.5 46.3 34.8
Depreciation and amortization............................. 22.1 36.1 35.9
General and administrative................................ 15.4 16.9 16.1
Taxes, other than income.................................. 2.5 1.7 2.8
------ ------ ------
272.5 321.5 311.8
------ ------ ------
Income from Operations...................................... 191.3 154.2 166.2
Other Income (Expense)
Interest and other income................................. 2.4 1.6 1.1
Interest expense.......................................... (15.1) (15.8) (16.8)
------ ------ ------
Net Income.................................................. $178.6 $140.0 $150.5
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 179
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN MILLIONS OF DOLLARS)
(RESTATED)
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 39.1 $ 39.5
Accounts receivable....................................... 42.7 44.6
Inventories............................................... 16.7 21.2
Other current assets...................................... 2.7 2.9
------- -------
101.2 108.2
------- -------
Property, Plant and Equipment, at cost...................... 827.6 826.2
Accumulated depreciation.................................. (240.0) (217.9)
------- -------
587.6 608.3
------- -------
Other Assets................................................ 0.2 0.2
------- -------
$ 689.0 $ 716.7
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable.......................................... $ 29.1 $ 38.6
Accounts payable, affiliate............................... 0.4 --
Current maturities on long-term debt...................... 10.4 9.4
Short-term debt........................................... 0.9 --
Interest payable.......................................... 3.1 3.2
Other current liabilities................................. 4.4 6.1
------- -------
48.3 57.3
Long-Term Debt.............................................. 142.6 152.6
Other Long-Term Liabilities................................. 1.6 2.2
Commitments and Contingencies (Note 5)
Partners' Capital........................................... 496.5 504.6
------- -------
$ 689.0 $ 716.7
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE> 180
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(IN MILLIONS OF DOLLARS)
(RESTATED)
<S> <C> <C> <C>
Operating Activities
Net income................................................ $ 178.6 $ 140.0 $ 150.5
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 22.1 36.1 35.9
Changes in other operating assets and liabilities
Decrease (increase) in accounts receivable............. 1.9 8.3 (10.6)
Decrease (increase) in inventories..................... 4.5 (3.8) (1.6)
Decrease (increase) in other current assets............ 0.2 0.3 (0.4)
Increase (decrease) in accounts payable................ (9.5) (1.6) 10.5
Increase (decrease) in accounts payable, affiliate..... 0.4 (0.5) (2.8)
Increase (decrease) in interest payable................ (0.1) (0.3) (0.1)
Increase (decrease) in other current liabilities....... (1.7) 5.9 2.9
Net change in other assets and liabilities............. (0.6) (1.4) (2.0)
------- ------- -------
Net Cash Provided by Operating Activities................... 195.8 183.0 182.3
------- ------- -------
Investing Activities
Additions to property, plant and equipment................ (1.4) (4.8) (2.4)
------- ------- -------
Net Cash Used in Investing Activities....................... (1.4) (4.8) (2.4)
------- ------- -------
Financing Activities
Principal payments on long-term borrowings................ (9.0) (8.1) (7.4)
Net change in short-term debt............................. 0.9 -- --
Cash distributions to partners............................ (186.7) (160.2) (175.2)
------- ------- -------
Net Cash Used in Financing Activities....................... (194.8) (168.3) (182.6)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents........ (0.4) 9.9 (2.7)
Cash and Cash Equivalents at Beginning of Year.............. 39.5 29.6 32.3
------- ------- -------
Cash and Cash Equivalents at End of Year.................... $ 39.1 $ 39.5 $ 29.6
======= ======= =======
Cash Payments for Interest.................................. $ 15.3 $ 16.0 $ 16.9
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
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COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- -------
(IN MILLIONS OF DOLLARS)
(RESTATED)
<S> <C> <C> <C>
Balance at January 1, 1996, as previously reported.......... $ 62.4 $483.4 $ 545.8
Effect on prior periods of restatement (see Note 1)......... 3.6 0.1 3.7
Balance at January 1, 1996, as restated..................... 66.0 483.5 549.5
Net income................................................ 115.1 35.4 150.5
Distributions............................................. (116.7) (58.5) (175.2)
------- ------ -------
Balance at December 31, 1996................................ 64.4 460.4 524.8
Net income................................................ 104.0 36.0 140.0
Distributions............................................. (102.3) (57.9) (160.2)
------- ------ -------
Balance at December 31, 1997................................ 66.1 438.5 504.6
Net income................................................ 133.1 45.5 178.6
Purchase (sale)of interests............................... 9.9 (9.9) --
Distributions............................................. (128.5) (58.2) (186.7)
------- ------ -------
Balance at December 31, 1998................................ $ 80.6 $415.9 $ 496.5
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
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COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The combined financial statements of the Cogen Technologies New Jersey
Operating Partnerships (the "Operating Partnerships") includes (i) Cogen
Technologies NJ Venture ("Bayonne Venture"); (ii) Camden Cogen L.P. ("Camden
Venture"); and (iii) Cogen Technologies Linden Venture, L.P. ("Linden Venture").
The Operating Partnerships are engaged in the operation of natural gas-fired
cogeneration facilities in the state of New Jersey. The financial statements of
the Operating Partnerships are presented on a combined basis since all such
entities were under common equity ownership and management by general partners
that were under the common control of the McNair Interests (as defined herein)
at December 31, 1998. All material transactions between the combined entities
have been eliminated.
Bayonne Venture, a New Jersey general partnership, owns and operates a
176-megawatt cogeneration facility in Bayonne, New Jersey. Cogen Technologies
NJ, Inc. ("NJ Inc."), a Delaware corporation which is owned 100% by McNair
Energy Services Corporation ("MESC"), a Texas corporation that at December 31,
1998 was owned approximately 82% by Robert C. McNair, members of his immediate
family and related trusts (the "McNair Interests"), is the managing partner of
Bayonne Venture and provides planning, operational and financial management
services. Through July 1998, NJ Inc. was allocated 86.5% of Bayonne Venture's
profits and losses and received 86.5% of all cash distributions. At such time NJ
Inc. acquired an additional 5.25% interest in Bayonne Venture and subsequent to
such acquisition NJ Inc. has been allocated 91.75% of Bayonne Venture's profits
and losses and has received 91.75% of all cash distributions. During 1998 NJ
Inc. was allocated 89.0% of Bayonne Venture's profits and losses and received
88.4% of all cash distributions.
Camden Venture, a Delaware limited partnership, owns and operates a
146-megawatt cogeneration facility in Camden, New Jersey. Cogen Technologies
Camden GP Limited Partnership ("Camden GP"), whose 82% general partner was owned
100% by the McNair Interests at December 31, 1998, is the managing partner of
Camden Venture and provides planning, operational and financial management
services. Under the terms of Camden Venture's partnership agreement, monthly
cash distributions are allocated 99% to the limited partner and 1% to Camden GP
up to a specified cumulative rate of return (approximately $0.3 million to $0.4
million per month through May 2007 and varying amounts thereafter) and the
remaining available cash for the month is allocated 99% to Camden GP and 1% to
the limited partner. Once the limited partner has received its specified rate of
return, cash distributions will be allocated 90% to Camden GP and 10% to the
limited partner. During 1998, 1997 and 1996, Camden GP received $15.0 million,
$8.6 million and $14.5 million, respectively, which represented 82%, 74% and
83%, respectively, of Camden Venture's cash distributions. Camden Venture's
income before depreciation is allocated as follows: (i) an amount equal to debt
principal payments, 100% to the limited partner; (ii) an amount equal to and
allocated on the same basis as cash distributed; and (iii) any remainder is
generally allocated 99% to Camden GP and 1% to the limited partner. Losses are
allocated 100% to Camden GP until its capital account equals zero and then 100%
to the limited partner until its capital account equals zero and then 100% to
Camden GP. Depreciation is allocated 100% to the limited partner until its
capital account equals zero and then to Camden GP. During 1998, 1997 and 1996,
Camden GP was allocated 74%, 91% and 94%, respectively, of Camden Venture's net
income.
Linden Venture, a Delaware limited partnership, owns and operates a
715-megawatt cogeneration facility in Linden, New Jersey. Cogen Technologies
Linden, Ltd. ("Linden Ltd."), whose 82% general partner is owned 100% by the
McNair Interests, is the managing partner of Linden Venture and provides
planning, operational and financial management services. Under the terms of
Linden Venture's partnership agreement, cash is distributed monthly, 1% to
Linden Ltd. and 99% to the limited partner up to a specified rate of return
(approximately $4.3 million per month through September 1998, approximately $3.0
million per month from October 1998 through September 2001 and between $4.3
million and $4.8 million per month thereafter) ("Tranche 1"), then 99% to Linden
Ltd. and 1% to the limited partner up to an amount equal to twice the
F-69
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COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
amount of Tranche 1 and the remainder 90% to Linden Ltd. and 10% to the limited
partner. During 1998, 1997 and 1996, Linden Ltd. received $74.0 million, $75.6
million and $77.7 million, respectively, which represented 60%, 59% and 60%,
respectively, of Linden Venture's cash distributions. Linden Venture's income
before depreciation is allocated to the partners on the basis of cash
distributed with any excess primarily allocated 99% to Linden Ltd. Losses are
allocated 100% to Linden Ltd. until its capital account equals zero and then to
the limited partners until their capital accounts equal zero with any remainder
allocated 100% to Linden Ltd. Depreciation up to $525.0 million is allocated 5%
to Linden Ltd. and 95% to the limited partners. All remaining depreciation is
allocated 99% to Linden Ltd. During 1998, 1997 and 1996, Linden Ltd. was
allocated 68%, 69% and 72%, respectively, of Linden Venture's net income.
Costs associated with planned outages for major plant overhauls have
historically been accrued in advance and charged to operations on a
straight-line basis over periods of 1 to 6 years prior to the overhaul,
consistent with established generally accepted accounting principles ("GAAP") in
other industries. During the fourth quarter of 1999, it was determined that GAAP
does not permit the accrual of these costs in the Company's industry.
Accordingly, Linden Venture, Camden Venture and Bayonne Venture retroactively
changed their method of accounting for these costs and began expensing such
costs as incurred. The Company's financial statements, including applicable
information contained herein, were restated to give effect to this change. As a
result of this change, the Operating Partnerships' net income was decreased by
$4.7 million and $2.1 million for the years ended December 31, 1998 and 1997,
respectively, and was increased by $4.4 million for the year ended December 31,
1996. In addition, as of January 1, 1996 partners' capital was increased by $3.7
million.
Cash and Cash Equivalents/Restricted Cash
All highly liquid short-term investments with original maturities of three
months or less are considered to be cash equivalents. At December 31, 1998 and
1997, $26.7 million and $23.3 million, respectively, of the Operating
Partnerships' cash was held in accounts to secure certain current liabilities.
Inventories
Spare parts inventories at December 31, 1998 and 1997 were $12.9 million
and $16.5 million, respectively, and at such dates kerosene and butane
inventories were $3.8 million and $4.7 million, respectively. Inventories are
valued at average cost.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Effective January 1, 1998,
the Operating Partnerships made certain changes in the estimates used for the
purpose of computing depreciation. The estimated useful life of the facilities
was increased from a range of 20 to 25 years, which coincided with the primary
term of the long-term power purchase agreements under which the Operating
Partnerships sell electricity, to 30 years. In addition, the Operating
Partnerships increased the estimated salvage value of the facilities from zero
to 10%. Such changes were made to recognize the usefulness of the facilities
beyond the primary term of the power purchase agreements and the residual value
of the facilities upon the termination of operations. Such changes in the useful
life resulted in increases in 1998 operating and net income of $9.2 million and
changes to residual value resulted in increases in 1998 operating and net income
of $5.0 million.
During the first quarter of 1996, the Operating Partnerships adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
SFAS No. 121 requires, among other things, that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The application of SFAS No.
121 has had no impact on the Operating Partnerships' financial position or
results of operations.
F-70
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COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the change in the Operating Partnerships' method of accounting
for costs associated with planned outages for major overhauls, such costs have
been retroactively expensed at the time they were incurred. Routine and
unplanned maintenance and repairs are also expensed as incurred. For the years
ended December 31, 1998, 1997 and 1996, $16.5 million, $15.9 million and $7.3
million, respectively, was charged to expense with respect to routine and
unplanned maintenance and repairs.
Revenue Recognition
The Operating Partnerships operate under long-term power purchase
agreements with major utilities. Pursuant to the terms of such agreements, the
utilities pay a price per kilowatt hour for the entire term of the agreement
that generally includes: (i) a constant capacity rate per kilowatt hour; (ii) an
inflation component; and (iii) a fuel cost component. Accordingly, the Operating
Partnerships recognize electricity revenues at the above rates in the periods
the electricity is delivered.
Steam revenues are recognized as they are earned pursuant to the underlying
sales agreements.
Deferred Revenues
Pursuant to the power purchase agreement between Consolidated Edison
Company of New York, Inc. ("ConEd") and Linden Venture, ConEd makes prepayments
to Linden Venture for butane inventory. At December 31, 1998 and 1997 such
prepayments totaled $1.6 million and $2.2 million, respectively, and are
included in Other Long-Term Liabilities in the balance sheet. The butane
inventory is expensed and the revenue is recognized when the butane is consumed.
Income Taxes
Income taxes with respect to the Operating Partnerships are not levied at
the partnership level but rather on the individual partners. Accordingly, no
income taxes have been recognized in the combined financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities, if any, and the periods in
which certain items of revenue and expense are included. Actual results may
differ from such estimates.
(2) SUBSEQUENT EVENTS
On February 4, 1999, Linden Venture and Camden Venture terminated their
respective management services agreements with Linden Ltd. and Camden GP. To
terminate such agreements, Linden Ltd. and Camden GP made capital contributions
to Linden Venture and Camden Venture, respectively, and Linden Venture and
Camden Venture made one-time payments to Linden Ltd. and Camden GP of $46.4
million and $12.8 million, respectively. Also on February 4, Linden Venture and
Camden Venture terminated certain gas management agreements with an affiliate.
To terminate such agreements, Linden Ltd. and Camden GP made capital
contributions to Linden Venture and Camden Venture, respectively, and Linden
Venture and Camden Venture made one-time payments to the affiliate of $6.0
million and $1.6 million, respectively. These transactions will be reflected in
the financial statements of Linden Venture and Camden Venture in the first
quarter of 1999. Such transactions have no effect on the liquidity or financial
condition of such entities since the amounts necessary to make the payments were
provided by contributions from the partners.
On February 4, 1999, NJ Inc. was merged with and into MESC and MESC was
designated managing general partner of Bayonne Venture. Subsequently, East Coast
Power L.L.C. ("East Coast Power") acquired
F-71
<PAGE> 185
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
all of the outstanding common shares of MESC. Also on February 4, East Coast
Power acquired control of Camden GP and Linden Ltd. East Coast Power is a
Delaware limited liability company formed by Joint Energy Development
Investments II Limited Partnership ("JEDI II"), a Delaware limited partnership
in which Enron Corp. and the California Public Employees' Retirement System each
own a 50% interest.
(3) FINANCING AND DEBT
Long-term debt at December 31, 1998 and 1997 consisted of the following (in
millions of dollars):
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Bayonne Venture
Term Loan.................................... $ 3.9 $ 64.1 $3.5 $ 67.9
Equipment Loan............................... 0.4 -- 0.4 --
----- ------ ---- ------
4.3 64.1 3.9 67.9
----- ------ ---- ------
Camden Venture
Term loan-Tranche A.......................... 5.1 56.4 4.6 61.5
Term loan-Tranche B.......................... 1.0 22.1 0.9 23.2
----- ------ ---- ------
6.1 78.5 5.5 84.7
----- ------ ---- ------
$10.4 $142.6 $9.4 $152.6
===== ====== ==== ======
</TABLE>
Aggregate total maturities during the next five years are as follows:
1999 -- $10.4 million; 2000 -- $11.0 million; 2001 -- $12.1 million;
2002 -- $13.3 million; and 2003 -- $14.7 million.
Under the terms of a 1987 twenty-year term loan agreement with The
Prudential Insurance Company of America, Bayonne Venture had an outstanding
principal balance of $68.0 million at December 31, 1998. The principal bears
interest at 10.85% per annum, and principal and interest are payable quarterly
through October 2008. All of Bayonne Venture's property, rights and interests
are pledged as collateral under the terms of this agreement.
Under the terms of a 1986 loan agreement with Bayonne Industries, Bayonne
Venture had an outstanding balance of $0.4 million at December 31, 1998
(including accrued interest of $0.2 million). The principal balance and accrued
interest is payable upon the execution of a new steam sale agreement. The
principal balance bears interest at the prime rate of First National Bank of
Chicago plus 1%.
Camden Venture's Tranche A loan with a group of banks bears interest at
rates which increase over the term of the agreement from 1.0% to 1.625% above
the three-month LIBOR rate (1.25% for the period November 3, 1998 to November 1,
2001). Principal and interest are payable quarterly through May 1, 2007. Camden
Venture has entered into an interest rate swap agreement with General Electric
Capital Corporation ("GECC") which fixes the LIBOR rate at 5.945%. The swap
agreement has a notional amount equal at all times to the outstanding principal
balance of the Tranche A loan. The effect of the swap on interest expense for
the years ended December 31, 1998, 1997 and 1996 was to increase such expense by
$0.2 million, $0.2 million and $0.3 million, respectively. The Tranche B loan
with GECC bears interest at 11.4% with principal and interest payable quarterly
through May 1, 2009.
Under the terms of an agreement between Bayonne Venture and a bank, the
bank has agreed to lend to Bayonne Venture a principal amount not to exceed $5.0
million on a revolving credit basis with the proceeds to be used to satisfy
short-term working capital requirements. Outstanding principal amounts bear
interest at 0.5% per annum below the bank's prime rate and Bayonne Venture must
pay a commitment fee of 0.25% on the average unused principal amount. At
December 31, 1998, $0.9 million was outstanding under the terms of
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<PAGE> 186
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the agreement. In February 1999, Bayonne Venture repaid all amounts outstanding
under the terms of the agreement and the agreement was terminated.
GECC provides standby letters of credit for Linden Venture to secure
various obligations with Con Ed and Bayway Refining Company. As of December 31,
1998 and 1997 letters of credit totaling $10.0 million and $57.2 million,
respectively, were outstanding. GECC receives a monthly fee equal to 0.75% of
each outstanding letter of credit. Such fees totaled $0.3 million, $0.7 million
and $1.0 million in 1998, 1997 and 1996, respectively.
A bank provides a letter of credit for Bayonne Venture to secure certain
obligations to Public Service Electric & Gas Company ("PSE&G"). As of December
31, 1998 and 1997 letters of credit in the amounts of $4.6 million and $4.4
million, respectively, were outstanding. The letter of credit expires in May
1999.
GECC provides a letter of credit for Camden Venture to secure certain
obligations under the Tranche A loans. As of December 31, 1998 and 1997 letters
of credit in the amounts of $4.8 million were outstanding. The letter of credit
expires in May 2007.
The term loan agreements of Camden Venture and Bayonne Venture contain
certain restrictions that limit or prohibit, among other things, the ability to
incur indebtedness, make payments of certain indebtedness, pay distributions,
make investments, engage in transactions with affiliates, create liens, sell
assets and engage in acquisitions, mergers and consolidations.
(4) RELATED PARTY TRANSACTIONS
Camden GP provides planning, operational and financial management services
to Camden Venture for a monthly fee equal to 1.5% of Camden Venture's gross
revenues. Such fees charged to Camden Venture in 1998, 1997 and 1996 totaled
$1.1 million, $1.2 million and $1.2 million, respectively. Linden Ltd. provides
similar services to Linden Venture for a monthly management fee equal to 1.5% of
Linden Venture's gross revenues. Such fees charged to Linden Venture in 1998,
1997 and 1996 totaled $4.2 million, $4.6 million and $4.5 million, respectively.
RCM Management Services, L.P. ("RCM Management"), which is controlled by the
McNair Interests, provides similar services to Bayonne Venture for a monthly
management fee equal to 1.5% of Bayonne Venture's gross revenues. Such fees
charged to Bayonne Venture in 1998, 1997 and 1996 totaled $1.7 million, $1.4
million and $1.4 million, respectively.
Periodically Cogen Technologies Financial Services, L.P. ("Financial
Services") advances funds to the Operating Partnerships for working capital
purposes. At December 31, 1998 such amount totaled $0.4 million.
Camden Venture and Linden Venture pay a natural gas management fee of $0.02
per thousand cubic feet of gas purchased to an affiliate. During 1998, 1997 and
1996, Camden Venture was charged $0.2 million, $0.2 million and $0.2 million,
respectively, and Linden Venture was charged $0.7 million, $0.7 million and $0.7
million, respectively, for such services.
Bayonne Venture purchases natural gas and standby electricity from PSE&G
(an affiliate of one of Bayonne Venture's limited partners). In 1998, 1997 and
1996 such purchases totaled $38.2 million, $42.2 million and $39.9 million,
respectively. In addition, Bayonne Venture pays wheeling charges to PSE&G, and
in 1998, 1997 and 1996 such charges totaled $1.5 million, $1.4 million and $1.4
million, respectively.
CT Global Insurance, Ltd. ("CT Global"), which is controlled by the McNair
Interests, provides property and general liability insurance coverage to the
Operating Partnerships. During 1998, 1997 and 1996, the Operating Partnerships
paid CT Global $0.8 million, $0.7 million and $1.7 million, respectively, for
such insurance coverage.
See Note 2 with respect to the cancellation of certain agreements with
related parties.
F-73
<PAGE> 187
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES
Bayonne Venture
Bayonne Venture has contracted to sell approximately 76% of its electrical
capacity to Jersey Central Power & Light Company ("JCP&L") pursuant to a 20-year
power purchase agreement which expires in 2008, with a ten-year renewal period
subject to the approval of both parties. The agreement establishes the sales
price of the electricity based on a fixed rate component plus factors for
inflation and JCP&L's cost of natural gas and retail sales prices. The remainder
of Bayonne Venture's output is sold to PSE&G pursuant to a 20-year power
purchase agreement which expires in 2008, with two five-year renewal periods
subject to the approval of both parties. The agreement provides for payments to
Bayonne Venture consisting of a capacity payment plus an energy payment which
includes a fixed component plus factors for inflation and fuel costs.
Bayonne Venture and PSE&G entered into a revised transmission service and
interconnection agreement (the "Transmission and Interconnection Agreement") on
April 27, 1987, under which PSE&G agreed to design, construct, own and operate a
138 kilovolt underground transmission cable circuit and associated terminal
facilities (jointly the "Interconnection") to connect the Bayonne Facility with
PSE&G's Public Service System at PSE&G's Bayonne Switching Station. The initial
term of the agreement is 20 years. Upon the expiration of the initial term, the
Transmission and Interconnection Agreement shall automatically be extended for a
succeeding term of 10 years, unless either party elects, upon three years'
notice, to terminate the Transmission and Interconnection Agreement at the close
of the initial term.
NJ Inc. entered into an agreement for the sale of steam and electricity (as
amended, the "IMTT Steam Sale Agreement") with IMTT-Bayonne on June 13, 1985,
which was amended on May 22, 1986. The IMTT Steam Sale Agreement, which was
subsequently assigned by NJ Inc. to Bayonne Venture, provides for the sale to
IMTT- Bayonne of 100% of its steam needs at its tank terminal facility and, at
Bayonne Venture's option, the sale of electricity. Bayonne Venture has no
current plans to offer IMTT-Bayonne electricity under the IMTT Steam Sale
Agreement. The IMTT Steam Sale Agreement has a base term of 10 years, which has
expired, with automatic renewal thereafter for each following year unless either
party elects to terminate the agreement at the end of a renewal year upon 60
days notice. IMTT-Bayonne agrees to purchase from Bayonne Venture all of the
thermal energy requirements of its tank terminal facility up to the deemed
maximum steam production of 57,000 lbs/hour according to a pricing formula based
on IMTT-Bayonne's avoided cost of steam.
Bayonne Venture and Exxon entered into an Agreement for the Sale of Steam
(the "Exxon Steam Sale Agreement") on February 27, 1987, which was amended on
August 21, 1988. Under the terms of the Exxon Steam Sale Agreement, Exxon agreed
to purchase from the Bayonne Facility an average of 50,000 lbs/hour of steam on
an annualized basis. The Exxon Steam Sale Agreement provides for an initial term
of five years (now expired). Thereafter, the Exxon Steam Sale Agreement
continues on a year to year basis unless either party exercises its rights to
terminate as provided in the Exxon Steam Sale Agreement. Beginning in the fifth
year of the agreement, either party is entitled to serve written notice on the
other of its interest to terminate the agreement. The Exxon Steam Sale Agreement
would then terminate one year after the notice or at an earlier date upon which
the parties mutually agree. Exxon used the steam at its adjacent terminal
facility for industrial purposes. Exxon sold its terminal facility in Bayonne to
IMTT-BX on April 1, 1993. As a result, IMTT-BX assumed Exxon's rights and
obligations under the Exxon Steam Sale Agreement and is currently performing
under the agreement.
Bayonne Venture currently purchases its natural gas requirements from PSE&G
pursuant to the provisions of an agreement with a base term of one year with
automatic renewals subject to termination upon five days notice. Bayonne Venture
will purchase up to a maximum of 3,000 decatherms per hour and up to a maximum
of 17,600,000 decatherms per year. Interruptible service shall be provided under
certain conditions that include PSE&G's continuing ability to provide service
and the Bayonne Facility's continuing status as a
F-74
<PAGE> 188
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Qualifying Facility. The Bayonne Facility's supply is subject to 100%
interruption on eight hours notice. Bayonne Venture is required to pay a monthly
charge per MMBtu of gas equal to the sum of (i) PSE&G's estimated average
commodity cost of gas; (ii) PSE&G's interstate pipeline commodity charges, (iii)
50% of PSE&G's interstate pipeline demand charges; and (iv) PSE&G's local
distribution charge.
Bayonne Venture, IMTT-Bayonne and Bayonne Industries, Inc. ("Bayonne
Industries") entered into a ground lease agreement dated as of May 22, 1986 (the
"Bayonne Site Lease") with respect to the Bayonne Facility site within the
IMTT-Bayonne facility (the "Bayonne Site"). The Bayonne Site Lease provides
Bayonne Venture with both a leasehold estate in the Bayonne Site and
non-exclusive easements over other portions of Bayonne Industries' property for
various interconnections to the Bayonne Facility.
The initial term of the Bayonne Site Lease is 20 years from the date of the
Bayonne Site Lease. The Bayonne Site Lease will automatically renew after
expiration of the initial term, for two succeeding terms, the first for two
years and the second for 10 years, unless Bayonne Venture elects to terminate
the lease. Base rent for the Bayonne Facility is pre-paid for 20 years.
In June 1997, Bayonne Venture paid a termination fee of $1.2 million, which
is included in operating and maintenance expense in the combined statement of
income, to cancel an operating and maintenance agreement with another company
and signed a new twelve-year operating and maintenance agreement with General
Electric Company ("GE"). The agreement provides for all operating and routine
maintenance of the facility at direct costs plus a minimum fee ($16 thousand per
month beginning in August 1998) and the payment of bonuses if certain operating
targets are met. During 1998 and 1997, Bayonne Venture paid $0.2 million and
$0.1 million, respectively, in bonuses under the terms of the agreement with GE.
Camden Venture
Camden Venture's electrical capacity is sold to PSE&G pursuant to a 20-year
power purchase agreement which expires in March 2013, with two five-year renewal
periods. The agreement provides for payments to Camden Venture consisting of a
capacity payment plus an energy payment which includes a fixed component plus
factors for inflation and fuel costs. Camden Venture sells steam to Camden
Paperboard Company pursuant to a 20-year power purchase agreement which expires
in 2010, with two five-year renewal periods subject to the approval of both
parties.
All of Camden Venture's property, rights, titles and interests are pledged
as collateral to secure the term loan discussed in Note 3 and to secure certain
obligations under the power purchase agreement with PSE&G.
Camden Venture has a 20-year gas service agreement with PSE&G under the
terms of which PSE&G provides firm transportation for 30,000 MMBtu of natural
gas per day.
In June 1997 Camden Venture paid a termination fee of $1.4 million, which
is included in operating and maintenance expense in the combined statement of
income, to cancel an operating and maintenance agreement with another company
and signed a new twelve-year operating and maintenance agreement with GE. The
agreement provides for all operating and routine maintenance of the facility at
direct costs plus a minimum fee of approximately $16,000 per month beginning in
August 1998 and the payment of bonuses if certain operating targets are met.
During 1998 and 1997, Camden Venture paid $0.2 million and $0.1 million,
respectively, in bonuses under the terms of the agreement with GE.
Linden Venture
Linden Venture sells its electrical capacity to ConEd pursuant to a 25-year
power purchase agreement which expires in May 2017, with two five-year renewal
periods subject to the approval of both parties. The agreement establishes a
sales price of the electricity based primarily on capacity, fuel costs and
operating and maintenance costs.
F-75
<PAGE> 189
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Linden Venture has a 25-year gas service agreement with PSE&G and
Elizabethtown Gas Company under the terms of which such companies provide firm
transportation for all of Linden Venture's natural gas requirements as well as a
portion of its natural gas supply.
In June 1997 Linden Venture paid a termination fee of $1.9 million, which
is included in operating and maintenance expense in the combined statement of
income, to cancel an operating and maintenance agreement with another company
and signed a new twelve-year operating and maintenance agreement with GE. The
agreement provides for all operating and routine maintenance of the facility at
direct costs plus a minimum fee of approximately $31,000 per month beginning in
August 1998 and the payment of bonuses if certain operating targets are met.
During 1998 and 1997, Linden Venture paid $0.3 million and $0.1 million,
respectively, in bonuses under the terms of the agreement with GE.
Linden Venture has an agreement to lease the property on which its
facilities are constructed until the year 2017, with an option to extend the
lease until the year 2048. Minimum lease payments for 1999 are approximately
$0.4 million and subsequent annual lease payments will be escalated by the
change in the Consumer Price Index. Lease expense during each of 1998, 1997 and
1996 was $0.4 million.
Other
In July 1998, in connection with an arbitration proceeding brought in 1997
by Linden Venture at the American Arbitration Association against Ebasco
Constructors, Inc. and ENSERCH ("Respondents"), Respondents filed a revised
counterclaim against Linden Venture in the amount of $16.0 million. Prior to the
filing of such revised counterclaim, the arbitration panel had reduced Linden
Venture's claim against the Respondents to $9.0 million and had reduced
Respondents' initial counterclaim to $3.9 million. The initial claims brought by
Linden Venture against Respondents were for alleged design deficiencies and
warranty claims with respect to the construction of the Linden Facility. The
Respondents' counterclaim alleged delay and disruption to the performance of the
construction contract. While the outcome of this proceeding cannot be predicted
with certainty, management does not expect this matter to have a material
adverse effect on the financial condition or results of operations of the
Operating Partnerships.
There are other claims and legal actions pending against the Operating
Partnerships. While the outcome of such proceedings cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the financial condition or results of operations of the Operating
Partnerships.
(6) MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Major Customers
The Operating Partnerships' operating revenues primarily relate to sales to
three customers pursuant to long-term contracts. The following table reflects
customers who accounted for more than 10% of the Operating Partnerships'
revenues in the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
ConEd....................................................... 57% 60% 61%
PSE&G....................................................... 20% 21% 21%
JCP&L....................................................... 20% 15% 15%
</TABLE>
Concentration of Credit Risk
Financial instruments which potentially subject the Operating Partnerships
to credit risk consist of cash and accounts receivable. Cash accounts are held
by major financial institutions. Accounts receivable are primarily concentrated
with the three major utilities which purchase the Operating Partnerships'
electricity under long-term agreements. The Operating Partnerships do not
require collateral or other security to support
F-76
<PAGE> 190
COGEN TECHNOLOGIES NEW JERSEY OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
accounts receivable. Accounts receivable are net of Bayonne Venture's allowance
for doubtful accounts of $0.3 million at December 31, 1998 and 1997. The
Operating Partnerships have no other financial instruments which subject them to
credit risk.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments"
requires the disclosure, to the extent practicable, of the fair value of
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value disclosed herein is not representative of the amount that could
be realized or settled, nor does the fair value amount consider tax
consequences, if any, of realization or settlement. The following table reflects
the fair value of long-term debt at December 31, 1998 and 1997 (in millions of
dollars):
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Long-Term Debt
Camden Venture.................................... $84.6 $86.0 $90.2 $89.4
Bayonne Venture................................... 68.4 85.3 71.8 86.3
</TABLE>
The fair value of fixed-rate long-term debt has been determined based on
the differential between the interest rates of long-term treasury securities of
equivalent maturities and the effective interest rates on the debt at the date
of the borrowing plus the interest rates on similar treasury securities at the
balance sheet date. With respect to floating rate debt, the carrying amount
approximates fair value due to the market-sensitive interest rate on such debt.
The fair value of Camden Venture's interest rate swap is estimated to be
$1.9 million, the approximate amount that GECC would pay to terminate the
agreement at December 31, 1998, based on interest rates in effect at that time.
The carrying amount of current assets and liabilities are considered to be
reasonable estimates of their fair values due to their short-term nature.
(8) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1 QTR 2 QTR 3 QTR 4 QTR YEAR
------ ------ ------ ------ -------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1998
Revenues....................................... $123.0 $110.9 $116.4 $113.5 $ 463.8
Costs and expenses............................. (75.2) (69.7) (63.3) (64.3) (272.5)
Income from operations......................... 47.8 41.2 53.1 49.2 191.3
Other income (expense)......................... (2.9) (3.4) (3.5) (2.9) (12.7)
Net income..................................... 44.9 37.8 49.6 46.3 178.6
Gross profit(1)................................ 52.1 44.7 56.6 53.3 206.7
1997
Revenues....................................... $124.3 $109.9 $117.9 $123.6 $ 475.7
Costs and expenses............................. (85.0) (75.2) (71.9) (89.4) (321.5)
Income from operations......................... 39.3 34.7 46.0 34.2 154.2
Other income (expense)......................... (3.7) (3.7) (3.5) (3.3) (14.2)
Net income..................................... 35.6 31.0 42.5 30.9 140.0
Gross profit(1)................................ 43.6 38.8 49.8 38.9 171.1
</TABLE>
- ---------------
(1) Income from operations plus general and administrative expenses.
F-77
<PAGE> 191
- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 8
The Exchange Offer..................... 12
Forward-Looking Statements............. 21
Our Owners............................. 21
Use of Proceeds........................ 23
Capitalization......................... 24
Selected Financial Data................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 30
Our Business........................... 51
Regulation............................. 66
Our Management......................... 75
Description of the New Notes........... 77
United States Federal Income Tax
Considerations....................... 102
Plan of Distribution................... 107
Legal Matters.......................... 108
Independent Public Accountants......... 108
Available Information.................. 108
Glossary of Technical Terms............ 109
Index to Financial Statements.......... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
PROSPECTUS
$829,937,120
[EAST COAST POWER L.L.C.]
OFFER TO EXCHANGE
6.737% Series B Senior Secured Notes due 2008
7.066% Series B Senior Secured Notes due 2012
7.536% Series B Senior Secured Notes due 2017
FOR ALL OUTSTANDING
6.737% Series A Senior Secured Notes due 2008
7.066% Series A Senior Secured Notes due 2012
7.536% Series A Senior Secured Notes due 2017
DECEMBER 15, 1999
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 192
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 18-108 of the Delaware Limited Liability Company Act provides:
Subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may, and shall
have the power to, indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever.
Section 6.04 of the Company's Second Amended and Restated Limited Liability
Company Agreement provides:
Indemnification. (a) To the fullest extent permitted by Law, the Company
shall indemnify the officers of the Company and the Class A Members and their
respective officers, directors, employees, agents and controlling Persons, and
each Class B Member and its officers, directors, employees, agents and
controlling Persons (each, an "Indemnified Person"), on request by the
Indemnified Person, and hold each of them harmless from and against all losses,
costs, liabilities, damages and expenses (including reasonable costs of suit and
attorney's fees) any of them may incur as an officer, a Member of the Company or
as a controlling Person of such Member, in performing the obligations of an
officer or the Class A Member with respect to the Company, or in exercising
rights of a Class B Member, INCLUDING ANY MATTER ARISING OUT OF OR RESULTING
FROM THE INDEMNIFIED PERSON'S OWN SIMPLE, PARTIAL, OR CONCURRENT NEGLIGENCE,
except for any such loss, cost, liability, damage or expense primarily
attributable to the Indemnified Person's breach or reckless disregard of
fiduciary duties, gross negligence, willful misconduct, fraud or material breach
of this Agreement. If an Indemnified Person becomes involved in any action,
proceeding or investigation with respect to which indemnity may be available
under this Section 6.04, the Company may reimburse the Indemnified Person for
its reasonable legal and other expenses (including the cost of investigation and
preparation) as they are incurred, provided, that the Indemnified Person shall
promptly repay to the Company the amount of any such expense paid if it is
ultimately determined that the Indemnified Person was not entitled to
indemnification hereunder. Any amounts payable in respect of indemnification
hereunder shall be recoverable only from the assets of the Company.
(b) Promptly after receipt by an Indemnified Person of notice of any claim
or the commencement of any action with respect to which indemnity may be
available under this Section 6.04, the Indemnified Person shall, if a claim in
respect thereof is to be made against the Company under this Section 6.04,
notify the Company in writing of the claim or the commencement of the action;
provided, that the failure to notify the Company shall not relieve it from any
liability which it may have to an Indemnified Person other than under this
Section 6.03 except to the extent that the Company is prejudiced thereby. If any
such claim or action shall be brought against an Indemnified Person, and it
shall notify the Company thereof, the Company shall be entitled to participate
therein, and, to the extent that it wishes, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Person. After notice from the
Company to the Indemnified Person of its election to assume the defense of such
claim or action, the Company shall not be liable to the Indemnified Person under
this Sections 6.04 for any legal or other expenses subsequently incurred by the
Indemnified Person in connection with the defense thereof; provided, that all of
the Indemnified Persons shall have the right to employ one counsel to represent
them if, in the opinion of counsel to the Indemnified Persons (which, in the
case of Investor, may be its internal counsel), there are available to them
defenses not available to the Company and in that event the fees and expenses of
such separate counsel shall be paid by the Company. In no event shall the
Company be required to indemnify an Indemnified Person with respect to amounts
paid in settlement of a claim unless such claim was settled with the consent of
the Company.
II-1
<PAGE> 193
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following instruments and documents are included as Exhibits to this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 -- Second Amended and Restated Limited Liability Company
Agreement of East Coast Power L.L.C., dated as of August
13, 1999 among East Coast Power Holding Company L.L.C.,
the California State Public Employees' Retirement System
and Mesquite Investors, L.L.C.
4.1 -- Indenture between East Coast Power L.L.C. and The Bank of
New York, as trustee, dated as of April 20, 1999.
4.3 -- Registration Rights Agreement dated April 14, 1999, among
East Coast Power L.L.C., NationsBanc Montgomery
Securities LLC, Credit Suisse First Boston Corporation,
Lehman Brothers Inc. and SG Cowen Securities Corporation.
4.4 -- CalPERS Security Agreement dated as of April 20, 1999,
made by California Public Employees' Retirement System,
as Grantor, to The Bank of New York, as trustee.
4.5 -- Common Security Agreement dated as of April 20, 1999,
made by the signatories thereto, as Grantors, to The Bank
of New York, as trustee, and to The Bank of New York, as
Account Collateral Securities Intermediary.
4.6(a) -- East Coast Power Holding Company Security Agreement dated
as of April 20, 1999, made by East Coast Power Holding
Company L.L.C., as Grantor, to The Bank of New York, as
trustee.
4.6(b) -- First Amendment to East Coast Power Holding Company
Security Agreement, dated as of August 13, 1999, made by
East Coast Power Holding Company L.L.C., as Grantor, to
The Bank of New York, as trustee.
4.7 -- ECT Merchant Investments Corp. Security Agreement dated
as of April 20, 1999, made by ECT Merchant Investments
Corp., as Grantor, to The Bank of New York, as trustee.
4.8 -- Mesquite Security Agreement, dated as of August 13, 1999,
made by Mesquite Investors, L.L.C., as Grantor, to The
Bank of New York, as trustee.
5.1 -- Opinion of Vinson & Elkins L.L.P. regarding Legality.
*8.1 -- Opinion of Vinson & Elkins, L.L.P. regarding Tax Matters.
10.1 -- Transaction Agreement dated as of October 25, 1998, among
Enron Corp., Enron Capital & Trade Resources Corp., RCM
Holdings, Inc., Cogen Technologies Camden, Inc., Cogen
Technologies Capital Company, L.P., Cogen Technologies
Limited Partners Joint Venture, the Partners of Cogen
Technologies Limited Partners Joint Venture and the
Shareholders of McNair Energy Services Corporation.
10.2 -- Amendment No. 1 dated as of November 6, 1998, to
Transaction Agreement dated as of October 25, 1998.
10.3 -- Amendment No. 2 dated as of November 13, 1998, to
Transaction Agreement dated as of October 25, 1998.
10.4 -- Amendment No. 3 dated as of February 1, 1999, to
Transaction Agreement dated as of October 25, 1998.
10.5 -- Corporate Services Agreement effective as of February 5,
1999, between East Coast Power L.L.C. and Enron Capital &
Trade Resources Corp.
10.6 -- Amended and Restated Credit Support Agreement dated as of
August 13, 1999, among East Coast Power L.L.C., Enron
Corp. and the Lenders.
</TABLE>
II-2
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.7(a) -- Promissory Note, dated as of August 13, 1999, by East
Coast Power L.L.C. in favor of Enron Corp.
10.7(b) -- Promissory Note, dated as of August 13, 1999, by East
Coast Power L.L.C. in favor of El Paso Energy Corp.
10.8(a) -- Power Purchase Agreement dated as of April 14, 1989, by
and between Consolidated Edison Company of New York, Inc.
and Cogen Technologies, Inc. (n/k/a RCM Holdings, Inc.)
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
(b) -- Assignment of Power Purchase Agreement dated as of July
21, 1989, by Cogen Technologies, Inc. to Cogen
Technologies Linden, Ltd. with the consent of
Consolidated Edison Company of New York, Inc. on August
3, 1989.
(c) -- Assignment of Power Purchase Agreement dated as of
December 22, 1989, by Cogen Technologies Linden, Ltd. to
Cogen Technologies Linden Venture, L.P. with the consent
of Consolidated Edison Company of New York, Inc. on
December 22, 1989.
10.9 -- First Amendment dated September 17, 1990 to Power
Purchase Agreement dated April 14, 1989 between
Consolidated Edison Company of New York, Inc. and Cogen
Technologies Linden Venture, L.P. (incorporated by
reference to Exhibit 10.2 to Registration Statement on
Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.10 -- Second Amendment dated December 22, 1993 to Power
Purchase Agreement dated April 14, 1989 between
Consolidated Edison Company of New York, Inc. and Cogen
Technologies Linden Venture, L.P. (incorporated by
reference to Exhibit 10.3 to Registration Statement on
Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.11 -- Gas Service Agreement by and among Cogen Technologies
Linden Venture, L.P., Public Service Electric and Gas
Company and Elizabethtown Gas Company dated July 13, 1990
(incorporated by reference to Exhibit 10.4 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
25, 1998).
10.12 -- Agreement between Cogen Technologies Linden Venture, L.P.
and Exxon Corporation for the Sale of Steam dated August
1, 1990, as amended and restated by agreement by and
between Cogen Technologies Linden Venture, L.P. and
Infineum USA L.P. dated as of January 1, 1999.
10.13 -- Agreement between Cogen Technologies Linden Venture, L.P.
and Bayway Refining Company for the Sale of Steam
effective as of April 8, 1993.
10.14 -- Backup Fuel Storage and Supply Agreement between Cogen
Technologies Linden Venture, L.P. and Exxon Corporation
dated October 4, 1991 (incorporated by reference to
Exhibit 10.6 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.15(a) -- Ground Lease Agreement dated as of August 1, 1990, by and
between Cogen Technologies Linden Venture, L.P. and Exxon
Corporation (incorporated by reference to Exhibit 10.7 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
(b) -- Amendment of Ground Lease Agreement by Letter Agreement
dated as of September 27, 1991, by Exxon Corporation,
agreed to by Cogen Technologies Linden Venture, L.P. and
consented to by General Electric Power Funding
Corporation.
</TABLE>
II-3
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
(c) -- Amendment to Ground Lease Agreement dated as of July 31,
1992, by and between Cogen Technologies Linden Venture,
L.P. and Exxon Corporation.
(d) -- Assignment of Cogen Lease dated as of April 8, 1993, by
and between Exxon Corporation and Bayway Refining Company
(as confirmed by Confirmation of Assignment of Cogen
Lease dated as of April 8, 1993, by and between Exxon
Corporation and Bayway Refining Company).
(e) -- Second Amendment to Ground Lease Agreement dated as of
April 13, 1994, by and between Bayway Refining Company
and Cogen Technologies Linden Venture, L.P.
10.16 -- Operation and Maintenance Agreement by and between Cogen
Technologies Linden Venture, L.P. and General Electric
Company dated June 6, 1997 (incorporated by reference to
Exhibit 10.8 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.17 -- Amended and Restated Term Loan Agreement, dated as of
September 15, 1992, between Cogen Technologies Linden,
Ltd. and State Street Bank and Trust Company of
Connecticut, National Association, as trustee
(incorporated by reference to Exhibit 10.9 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.18 -- First Amendment, dated April 30, 1993, to the Amended and
Restated Term Loan Agreement, dated as of September 15,
1992, between Cogen Technologies Linden, Ltd. and State
Street Bank and Trust Company of Connecticut, National
Association, as trustee (incorporated by reference to
Exhibit 10.10 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.19 -- Second Amendment, dated as of February 4, 1999, to the
Amended and Restated Term Loan Agreement, dated as of
September 15, 1992, between Cogen Technologies Linden,
Ltd. and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee.
10.20 -- Amended and Restated Agreement of Limited Partnership of
Cogen Technologies Linden Venture, L.P., dated as of
September 15, 1992 (incorporated by reference to Exhibit
10.11 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.21 -- First Amendment, dated April 30, 1993, to the Amended and
Restated Agreement of Limited Partnership of Cogen
Technologies Linden Venture, L.P., dated as of September
15, 1992 (incorporated by reference to Exhibit 10.12 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.22 -- Second Amendment, dated as of February 4, 1999, of the
Amended and Restated Agreement of Limited Partnership of
Cogen Technologies Linden Venture, L.P., dated as of
September 15, 1992.
10.23 -- Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd., effective as of June 28, 1989 (incorporated
by reference to Exhibit 10.13 to Registration Statement
on Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.24 -- First Amendment, dated as of February 14, 1990, to the
Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd. (incorporated by reference to Exhibit 10.14
to Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
</TABLE>
II-4
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.25 -- Second Amendment, dated as of July 31, 1990, to the
Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd. (incorporated by reference to Exhibit 10.15
to Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.26 -- Third Amendment, dated as of February 4, 1999, to the
Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd.
10.27 -- Redemption and Conversion of Partnership Interests and
Fourth Amendment to the Agreement of Limited Partnership
of Cogen Technologies Linden, Ltd., dated as of February
4, 1999.
10.28 -- Easement Agreement dated June 21, 1991 among Cogen
Technologies Linden Venture, L.P., Texas Eastern
Cryogenics, Inc., Texas Eastern Transmission Corporation
and Houston Center Corporation and Assignment and
Conveyance dated December 22, 1993 (incorporated by
reference to Exhibit 10.16 to Registration Statement on
Form S-1/A (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on August 14, 1998).
10.29 -- Easement Crossing Agreement dated as of December 17,
1990, by and between Coastal Pipeline Company and Cogen
Technologies Linden Venture, L.P., assigned to
Consolidated Edison Company of New York, Inc. pursuant to
the Assignment and Conveyance Agreement dated as of
December 22, 1993, by and between Cogen Technologies
Linden Venture, L.P. and Consolidated Edison Company of
New York, Inc.
10.30 -- Letter Agreement dated June 12, 1991 between Cogen
Technologies Linden Venture, L.P. and Colonial Pipeline
Company.
10.31 -- Indenture dated as of May 9, 1991 between the People of
the State of New York, acting by their Commissioner of
the Office of General Services and Cogen Technologies
Linden Venture, L.P.
10.32 -- Amended and Restated Security Deposit Agreement and
Escrow Agreement dated as of September 17, 1992 among
Cogen Technologies Linden Venture, L.P., Cogen
Technologies Linden, Ltd., State Street Bank and Trust
Company of Connecticut as Limited Partner and as Lender
and Midatlantic National Bank, as amended by Amendment
dated April 30, 1993 (incorporated by reference to
Exhibit 10.17 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.33 -- Assignment and Security agreement dated February 15, 1990
between Cogen Technologies Linden, Ltd. and General
Electric Power Funding Corporation and Assignment
Agreement, dated as of September 15, 1992, among General
Electric Power Funding Corporation, State Street Bank and
Trust Company or Connecticut, National Association, as
trustee, and Cogen Technologies Linden, Ltd.
(incorporated by reference to Exhibit 10.19 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.34 -- Collateral Agency Agreement dated as of February 15, 1990
between Cogen Technologies Linden, Ltd. and General
Electric Power Funding Corporation and Assignment
Agreement, dated as of September 15, 1992, among General
Electric Power Funding Corporation, State Street Bank and
Trust Company or Connecticut, National Association, as
trustee, and Cogen Technologies Linden, Ltd.
(incorporated by reference to Exhibit 10.20 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
</TABLE>
II-5
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.35 -- Letter of Credit and Reimbursement Agreement dated as of
September 17, 1992 between Cogen Technologies Linden
Venture, L.P. and General Electric Capital Corporation
(incorporated by reference to Exhibit 10.27 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.36 -- Power Purchase and Interconnection Agreement, dated April
15, 1988, between Public Service Electric and Gas Company
and Camden Cogen, L.P. (incorporated by reference to
Exhibit 10.30 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.37 -- First Amendment, dated June 12, 1990, to the Power
Purchase and Interconnection Agreement, dated April 15,
1988, between Public Service Electric and Gas Company and
Camden Cogen, L.P. (incorporated by reference to Exhibit
10.31 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.38 -- Second Amendment, dated August 21, 1990, to the Power
Purchase and Interconnection Agreement, dated April 15,
1988, between Public Service Electric and Gas Company and
Camden Cogen, L.P. (incorporated by reference to Exhibit
10.32 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.39 -- Gas Service Agreement, dated May 15, 1991, between Camden
Cogen L.P. and Public Service Electric and Gas Company
(incorporated by reference to Exhibit 10.33 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
25, 1998).
10.40 -- First Amendment, dated November 1, 1991, to the Gas
Service Agreement dated May 15, 1991 between Camden Cogen
L.P. and Public Service Electric and Gas Company
(incorporated by reference to Exhibit 10.34 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.41(a) -- Energy Purchase Agreement, dated December 18, 1989,
between Camden Cogen, L.P. and Camden Paperboard
Corporation (incorporated by reference to Exhibit 10.35
to Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
(b) -- First Amendment dated as of March 5, 1992, to Energy
Purchase Agreement dated December 18, 1989.
10.42 -- Amendment and Restatement dated as of April 1, 1993 of
the Construction and Term Loan Agreement dated as of
February 4, 1992 among Camden Cogen, L.P., the lenders
from time to time parties to the Agreement, and General
Electric Capital Corporation (incorporated by reference
to Exhibit 10.36 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.43 -- Amendment No. 1 dated as of December 22, 1993, by and
among Camden Cogen L.P., the lenders from time to time
parties to the Agreement, The Bank of Tokyo Trust
Company, The Toronto-Dominion Bank Trust Company and
General Electric Capital Corporation, to the Amendment
and Restatement dated as of April 1, 1993 of the
Construction and Term Loan Agreement dated as of February
4, 1992 among Camden Cogen L.P. and General Electric
Capital Corporation (incorporated by reference to Exhibit
10.37 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
</TABLE>
II-6
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.44 -- Amendment No. 2 dated as of July 31, 1998, by and among
Camden Cogen L.P., The Bank of Tokyo-Mitsubishi Trust
Company (f/k/a The Bank of Tokyo Trust Company),
Commerzbank AG, New York Branch, Commerzbank AG, Atlanta
Agency, The Fuji Bank Limited, Credit Lyonnais, New York
Branch and General Electric Capital Corporation, to the
Amendment and Restatement dated as of April 1, 1993 of
the Construction and Term Loan Agreement dated as of
February 4, 1992 among Camden Cogen L.P. and General
Electric Capital Corporation.
10.45 -- Amendment No. 3 dated as of February 4, 1999, by and
among Camden Cogen L.P., the Tranche A Lenders and
Tranche B Lenders, The Bank of Tokyo-Mitsubishi Trust
Company (f/k/a The Bank of Tokyo Trust Company),
Commerzbank AG, New York Branch, and General Electric
Capital Corporation, to the Amendment and Restatement
dated as of April 1, 1993 of the Construction and Term
Loan Agreement dated as of February 4, 1992 among Camden
Cogen L.P. and General Electric Capital Corporation.
10.46 -- Agreement of Limited Partnership of Cogen Technologies
Camden GP Limited Partnership, dated as of July 26, 1991
(incorporated by reference to Exhibit 10.40 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.47 -- First Amendment, dated December 1, 1991, to the Agreement
of Limited Partnership of Cogen Technologies Camden GP
Limited Partnership, dated as of July 26, 1991
(incorporated by reference to Exhibit 10.41 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.48 -- Second Amendment, dated as of February 4, 1999, to the
Agreement of Limited Partnership of Cogen Technologies
Camden GP Limited Partnership, dated as of July 26, 1991.
10.49 -- Amended and Restated Agreement of Limited Partnership of
Camden Cogen L.P., dated as of February 9, 1993
(incorporated by reference to Exhibit 10.42 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.50 -- Amendment No. 1 dated as of April 1, 1993 to the Amended
and Restated Agreement of Limited Partnership of Camden
Cogen L.P., dated as of February 9, 1993 (incorporated by
reference to Exhibit 10.43 to Registration Statement on
Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.51 -- Amendment No. 2 dated as of December 22, 1993 to the
Amended and Restated Agreement of Limited Partnership of
Camden Cogen L.P., dated as of February 9, 1993
(incorporated by reference to Exhibit 10.44 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.52 -- Amendment No. 3 dated as of February 4, 1999, to the
Agreement of Limited Partnership of Camden Cogen L.P.,
dated as of February 9, 1993.
10.53 -- Operation and Maintenance Agreement by and between Camden
Cogen L.P. and General Electric Company dated June 6,
1997 (incorporated by reference to Exhibit 10.45 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
</TABLE>
II-7
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.54(a) -- Mortgage dated February 4, 1992 between General Electric
Capital Corporation and Camden Cogen L.P., as amended by
First Amendment to Mortgage dated April 19, 1993 and
Assignment of Mortgage dated December 22, 1993
(incorporated by reference to Exhibit 10.46 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
(b) -- Assignment of Mortgage by Toronto Dominion (Texas), Inc.
to Commerzbank AG, New York Branch, dated as of July 31,
1998.
10.55 -- Second Amended and Restated Security Deposit Agreement
dated December 22, 1993 among Bank of Tokyo Trust
Company, Toronto-Dominion Bank Trust Company, Camden
Cogen L.P., General Electric Capital Corporation and
Cogen Technologies Camden GP Limited Partnership and
Successor Security Deposit Agreement dated December 22,
1993 (incorporated by reference to Exhibit 10.47 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.56 -- Amendment No. 1, dated as of July 31, 1998, by and among
Camden Cogen L.P., Toronto Dominion (Texas), Inc.(f/k/a
The Toronto-Dominion Bank Trust Company), The
Toronto-Dominion Bank, General Electric Capital
Corporation, Cogen Technologies Camden GP Limited
Partnership, The Bank of Tokyo-Mitsubishi Trust Company
(f/k/a The Bank of Tokyo Trust Company), Commerzbank AG,
New York Branch, Commerzbank AG, Atlanta Agency, The Fuji
Bank Limited and Credit Lyonnais, New York Branch, to the
Second Amended and Restated Security Deposit Agreement
dated as of December 22, 1993.
10.57 -- Second Successor Security Deposit Agent Agreement dated
as of July 31, 1998, by and among Commerzbank AG, New
York Branch, Commerzbank AG, Atlanta Agency, The Bank of
Tokyo- Mitsubishi Trust Company (f/k/a The Bank of Tokyo
Trust Company), Camden Cogen L.P., Cogen Technologies
Camden GP Limited Partnership, The Fuji Bank Limited,
Credit Lyonnais, New York Branch, Toronto Dominion
(Texas), Inc. (f/k/a The Toronto-Dominion Bank Trust
Company), The Toronto-Dominion Bank and General Electric
Capital Corporation (superseding Successor Security
Deposit Agent Agreement dated as of December 22, 1993, by
and among The Toronto-Dominion Bank Trust Company, Cogen
Technologies Camden GP Limited Partnership, General
Electric Capital Corporation, Camden Cogen L.P.,
Midatlantic National Bank, The Bank of Tokyo Trust
Company and The Toronto-Dominion Bank).
10.58 -- Second Successor Agency Agreement dated as of July 31,
1998, by and among Commerzbank AG, New York Branch,
Commerzbank AG, Atlanta Agency, The Bank of
Tokyo-Mitsubishi Trust Company, General Electric Capital
Corporation, Toronto Dominion (Texas), Inc., The Fuji
Bank Limited, Credit Lyonnais, New York Branch, The
Toronto-Dominion Bank and consented to by Camden Cogen
L.P.
10.59 -- Security Agreement dated as of February 4, 1992, between
General Electric Capital Corporation and Camden Cogen
L.P., as amended by Amendment No. 1 dated April 1, 1993
and Amendment No. 2 dated December 22, 1993 (incorporated
by reference to Exhibit 10.48 to Registration Statement
on Form S-1/A (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on August 14, 1998).
</TABLE>
II-8
<PAGE> 200
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.60 -- Pledge and Security Agreement dated as of February 4,
1992, between General Electric Capital Corporation and
Cogen Technologies Camden Inc., as amended by Amendment
No. 1 dated April 1, 1993 and Amendment No. 2 dated
December 22, 1993 (incorporated by reference to Exhibit
10.49 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.61 -- Mortgage from Camden Cogen L.P., Mortgagor, to General
Electric Power Funding Corporation, Mortgagee, dated as
of February 4, 1992 (incorporated by reference to Exhibit
10.50 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.62 -- Second Mortgage from Camden Cogen L.P., Mortgagor, to
Public Service Electric and Gas Company, Mortgagee, dated
as of February 4, 1992 (incorporated by reference to
Exhibit 10.51 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.63 -- Interest Rate and Currency Exchange Agreement dated April
1, 1993 between General Electric Capital Corporation and
Camden Cogen L.P., as amended by Amendment No. 1 dated as
of December 22, 1993 and Confirmation Letter dated April
1, 1993 and Amendment No. 1 dated December 22, 1993
(incorporated by reference to Exhibit 10.52 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.64 -- Agreement for the Sale of Steam and Electricity dated
June 13, 1985 between IMTT-Bayonne and Cogen Technologies
NJ, Inc., as amended by Amendment dated May 22, 1986 and
Consent to Assignment dated December 15, 1988
(incorporated by reference to Exhibit 10.54 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.65 -- Easement Agreement dated as of April 1, 1993, by and
between Camden Cogen L.P. and Public Service Electric and
Gas Company.
10.66 -- Easement Agreement dated as of December 18, 1992, by and
between MacAndrews & Forbes Company and Camden Cogen
L.P., as amended by Amendment to Easement Agreement dated
as of March 22, 1993, by and between Mafco Worldwide
Corporation (f/k/a Mac Andrews & Forbes Company) and
Camden Cogen L.P.
10.67 -- Easement Agreement dated as of February 22, 1993, by and
between Camden Paperboard Corporation and Camden Cogen
L.P.
10.68 -- Agreement for the Sale of Steam dated as of February 27,
1987 between Cogen Technologies NJ Venture and Exxon
Company U.S.A., as amended by Amendment dated August 21,
1988, assigned to General Electric Power Funding
Corporation pursuant to an Assignment Agreement dated as
of February 27, 1987, by and between Cogen Technologies
NJ Venture and General Electric Power Funding Corporation
(incorporated by reference to Exhibit 10.55 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.69 -- Letter Agreement for Gas Service between Public Service
Electric and Gas Company and Cogen Technologies NJ
Venture dated October 10, 1986 (incorporated by reference
to Exhibit 10.56 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
</TABLE>
II-9
<PAGE> 201
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.70 -- Water Supply Agreement between the City of Bayonne and
Cogen Technologies NJ Venture dated June 1, 1988
(incorporated by reference to Exhibit 10.57 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.71 -- Lease Agreement between Bayonne Industries, Inc.,
IMTT-Bayonne and Cogen Technologies NJ Venture dated
October 18, 1986 (incorporated by reference to Exhibit
10.58 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.72 -- Easement from Bayonne Industries, Inc. and IMTT-Bayonne
to Cogen Technologies NJ Venture dated October 20, 1986,
as amended by First Amendment dated December 15, 1988
(incorporated by reference to Exhibit 10.59 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.73 -- Power Purchase and Operations Coordination Agreement
between Public Service Electric and Gas Company and Cogen
Technologies NJ Venture dated June 5, 1989 (incorporated
by reference to Exhibit 10.60 to Registration Statement
on Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.74 -- Agreement for Purchase of Electric Power between Cogen
Technologies NJ, Inc. and Jersey Central Power & Light
Company dated October 29, 1985 (incorporated by reference
to Exhibit 10.61 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.75 -- First Amendment dated September 5, 1986 to Agreement for
Purchase of Electric Power between Cogen Technologies NJ,
Inc. and Jersey Central Power & Light Company dated
October 29, 1985 (incorporated by reference to Exhibit
10.62 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.76 -- Assignment Agreement dated as of September 8, 1986, by
and between Cogen Technologies NJ, Inc. and Cogen
Technologies NJ Venture.
10.77 -- Second Amendment dated August 1, 1988 to Agreement for
Purchase of Electric Power between Cogen Technologies NJ
Venture and Jersey Central Power & Light Company dated
October 28, 1985 (incorporated by reference to Exhibit
10.63 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.78 -- Operation and Maintenance Agreement by and between Cogen
Technologies NJ Venture and General Electric Company
dated June 6, 1997 (incorporated by reference to Exhibit
10.64 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.79 -- Revised Transmission Service and Interconnection
Agreement between Public Service Electric and Gas Company
and Cogen Technologies NJ Venture dated April 27, 1987
(incorporated by reference to Exhibit 10.65 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.80 -- Term Loan Agreement dated as of November 1, 1987 between
Cogen Technologies NJ Venture and The Prudential
Insurance Company of America (incorporated by reference
to Exhibit 10.66 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
</TABLE>
II-10
<PAGE> 202
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.81 -- First Amendment dated December 15, 1988 to the Term Loan
Agreement dated as of November 1, 1987 between Cogen
Technologies NJ Venture and The Prudential Insurance
Company of America (incorporated by reference to Exhibit
10.67 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.82 -- Second Amendment dated July 31, 1996 to the Term Loan
Agreement dated as of November 1, 1987 between Cogen
Technologies NJ Venture and The Prudential Insurance
Company of America (incorporated by reference to Exhibit
10.68 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.83 -- Amended and Restated Joint Venture Agreement of Cogen
Technologies NJ Venture dated August 25, 1986, by and
among Cogen Technologies NJ, Inc., Enron Cogeneration
Five Company, CEA Bayonne, Inc. (the name of which was
changed to PSEG Bayonne Inc. and was recently merged into
Cogen Technologies NJ, Inc.), PSVO Bayonne, Inc. and
Transco Cogeneration Company (incorporated by reference
to Exhibit 10.71 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.84 -- Option Agreement between Bayonne Industries, Inc. and
Cogen Technologies NJ, Inc. dated May 22, 1986
(incorporated by reference to Exhibit 10.72 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.85 -- Purchase and Sale Agreement among Bayonne Industries,
Inc., IMTT-Bayonne and Cogen Technologies NJ, Inc. dated
May 22, 1986 (incorporated by reference to Exhibit 10.73
to Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.86 -- Steam Producing Facilities Lease Agreement between Cogen
Technologies NJ, Inc. and IMTT-Bayonne dated May 22, 1986
and Consent to Assignment dated December 15, 1998
(incorporated by reference to Exhibit 10.74 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.87 -- Mortgage and Security Agreement between The Prudential
Insurance Company of America and Cogen Technologies NJ
Venture dated December 15, 1988 (incorporated by
reference to Exhibit 10.75 to Registration Statement on
Form S-1/A (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on August 14, 1998).
10.88 -- Security Agreement and Assignment between The Prudential
Insurance Company of America and Cogen Technologies NJ
Venture dated December 15, 1988, as amended by Amendment
dated April 27, 1995 and Waiver of Consent by The
Prudential Insurance Company of America dated July 28,
1995 (incorporated by reference to Exhibit 10.76 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.89 -- Disbursement and Security Agreement between The
Prudential Insurance Company of America, Midatlantic
National Bank and Cogen Technologies NJ Venture dated
December 15, 1988, as amended by Amendment No. 1 dated
February 9, 1989 (incorporated by reference to Exhibit
10.77 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.90 -- Kerosene Fuel Storage Agreement dated May 17, 1994
between IMTT-Bayonne and Cogen Technologies NJ Venture
(incorporated by reference to Exhibit 10.78 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
</TABLE>
II-11
<PAGE> 203
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.91 -- License Agreement for Wire, Pipe and Cable Transverse
Crossings and Longitudinal Occupations dated as of August
21, 1992, by and between Consolidated Rail Corporation
and Camden Cogen L.P.
10.92 -- Lease Agreement dated as of May 22, 1986, by and among
Bayonne Industries, Inc., IMTT-Bayonne and Cogen
Technologies NJ, Inc.
10.93 -- Letter Agreement dated as of March 15, 1990 by and
between Texas Eastern Cryogenics, Inc. and Cogen
Technologies, Inc. (n/k/a RCM Holdings, Inc.).
10.94 -- Agreement for Maintenance and Operations of IMTT-Bayonne
Chem South Boilers dated as of April 3, 1998, by and
between IMTT-Bayonne and Cogen Technologies NJ Venture,
as amended by Letter Agreement dated as of April 3, 1998,
by and between General Electric O&M Services and Cogen
Technologies NJ Venture, as assigned to The Prudential
Insurance Company of America pursuant to a Security
Agreement and Assignment dated as of December 15, 1988,
by and between Cogen Technologies NJ Venture and The
Prudential Insurance Company of America, and consented to
by IMTT-Bayonne pursuant to a Consent to Assignment dated
as of April 3, 1998, by IMTT-Bayonne in favor of Cogen
Technologies NJ Venture.
10.95 -- Security Agreement dated as of May 22, 1986, by and
between Cogen Technologies NJ, Inc. and Bayonne
Industries, Inc.
10.96 -- Assignment and Security Agreement, dated February 4,
1992, made by Cogen Technologies Camden GP Limited
Partnership in favor of General Electric Capital
Corporation (incorporated by reference to Exhibit 10.79
to Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
25, 1998).
10.97 -- Purchase Agreement, dated as of August 2, 1999, between
East Coast Power Holding Company, L.L.C. and Mesquite
Investors, L.L.C.
10.98 -- Contribution Agreement, dated as of August 2, 1999, among
ECT Merchant Investments Corp., Enron Capital Management
II Limited Partnership, Enron Capital Management III
Limited Partnership, Joint Energy Development Investments
II Limited Partnership, East Coast Power Holding Company
L.L.C., the California Public Employees' Retirement
System and Mesquite Investors, L.L.C.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1).
*25.1 -- Statement of Eligibility of Trustee.
27.1 -- Financial Data Schedule.
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Letter to Clients.
*99.3 -- Form of Letter to Registered Holders and DTC
Participants.
*99.4 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed herewith.
(b) Financial Statement Schedules
None.
II-12
<PAGE> 204
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statements (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registration pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in the documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-13
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on December 15, 1999.
EAST COAST POWER L.L.C.
By /s/ JOSEPH M. BOLLINGER
-----------------------------------
Name: Joseph M. Bollinger
Title: President, Generating
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROSS D. AIN President, Business December 15, 1999
- ----------------------------------------------------- Development
Ross D. Ain (principal executive officer)
/s/ JOSEPH M. BOLLINGER President, Generating December 15, 1999
- ----------------------------------------------------- (principal
Joseph M. Bollinger executive, financial and
accounting officer)
/s/ J. CLIFFORD BAXTER Director of Enron Capital II December 15, 1999
- ----------------------------------------------------- Corp., the indirect general
J. Clifford Baxter partner of the Company's
majority Class A Member
/s/ JAMES V. DERRICK, JR. Director of Enron Capital II December 15, 1999
- ----------------------------------------------------- Corp., the indirect general
James V. Derrick, Jr. partner of the Company's
majority Class A Member
/s/ KEVIN P. HANNON Director of Enron Capital II December 15, 1999
- ----------------------------------------------------- Corp., the indirect general
Kevin P. Hannon partner of the Company's
majority Class A Member
</TABLE>
II-14
<PAGE> 206
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 -- Second Amended and Restated Limited Liability Company
Agreement of East Coast Power L.L.C., dated as of August
13, 1999 among East Coast Power Holding Company L.L.C.,
the California State Public Employees' Retirement System
and Mesquite Investors, L.L.C.
4.1 -- Indenture between East Coast Power L.L.C. and The Bank of
New York, as trustee, dated as of April 20, 1999.
4.3 -- Registration Rights Agreement dated April 14, 1999, among
East Coast Power L.L.C., NationsBanc Montgomery
Securities LLC, Credit Suisse First Boston Corporation,
Lehman Brothers Inc. and SG Cowen Securities Corporation.
4.4 -- CalPERS Security Agreement dated as of April 20, 1999,
made by California Public Employees' Retirement System,
as Grantor, to The Bank of New York, as trustee.
4.5 -- Common Security Agreement dated as of April 20, 1999,
made by the signatories thereto, as Grantors, to The Bank
of New York, as trustee, and to The Bank of New York, as
Account Collateral Securities Intermediary.
4.6(a) -- East Coast Power Holding Company Security Agreement dated
as of April 20, 1999, made by East Coast Power Holding
Company L.L.C., as Grantor, to The Bank of New York, as
trustee.
4.6(b) -- First Amendment to East Coast Power Holding Company
Security Agreement, dated as of August 13, 1999, made by
East Coast Power Holding Company L.L.C., as Grantor, to
The Bank of New York, as trustee.
4.7 -- ECT Merchant Investments Corp. Security Agreement dated
as of April 20, 1999, made by ECT Merchant Investments
Corp., as Grantor, to The Bank of New York, as trustee.
4.8 -- Mesquite Security Agreement, dated as of August 13, 1999,
made by Mesquite Investors, L.L.C., as Grantor, to The
Bank of New York, as trustee.
5.1 -- Opinion of Vinson & Elkins L.L.P. regarding Legality.
*8.1 -- Opinion of Vinson & Elkins, L.L.P. regarding Tax Matters.
10.1 -- Transaction Agreement dated as of October 25, 1998, among
Enron Corp., Enron Capital & Trade Resources Corp., RCM
Holdings, Inc., Cogen Technologies Camden, Inc., Cogen
Technologies Capital Company, L.P., Cogen Technologies
Limited Partners Joint Venture, the Partners of Cogen
Technologies Limited Partners Joint Venture and the
Shareholders of McNair Energy Services Corporation.
10.2 -- Amendment No. 1 dated as of November 6, 1998, to
Transaction Agreement dated as of October 25, 1998.
10.3 -- Amendment No. 2 dated as of November 13, 1998, to
Transaction Agreement dated as of October 25, 1998.
10.4 -- Amendment No. 3 dated as of February 1, 1999, to
Transaction Agreement dated as of October 25, 1998.
10.5 -- Corporate Services Agreement effective as of February 5,
1999, between East Coast Power L.L.C. and Enron Capital &
Trade Resources Corp.
10.6 -- Amended and Restated Credit Support Agreement dated as of
August 13, 1999, among East Coast Power L.L.C., Enron
Corp. and the Lenders.
10.7(a) -- Promissory Note, dated as of August 13, 1999, by East
Coast Power L.L.C. in favor of Enron Corp.
</TABLE>
<PAGE> 207
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.7(b) -- Promissory Note, dated as of August 13, 1999, by East
Coast Power L.L.C. in favor of El Paso Energy Corp.
10.8(a) -- Power Purchase Agreement dated as of April 14, 1989, by
and between Consolidated Edison Company of New York, Inc.
and Cogen Technologies, Inc. (n/k/a RCM Holdings, Inc.)
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
(b) -- Assignment of Power Purchase Agreement dated as of July
21, 1989, by Cogen Technologies, Inc. to Cogen
Technologies Linden, Ltd. with the consent of
Consolidated Edison Company of New York, Inc. on August
3, 1989.
(c) -- Assignment of Power Purchase Agreement dated as of
December 22, 1989, by Cogen Technologies Linden, Ltd. to
Cogen Technologies Linden Venture, L.P. with the consent
of Consolidated Edison Company of New York, Inc. on
December 22, 1989.
10.9 -- First Amendment dated September 17, 1990 to Power
Purchase Agreement dated April 14, 1989 between
Consolidated Edison Company of New York, Inc. and Cogen
Technologies Linden Venture, L.P. (incorporated by
reference to Exhibit 10.2 to Registration Statement on
Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.10 -- Second Amendment dated December 22, 1993 to Power
Purchase Agreement dated April 14, 1989 between
Consolidated Edison Company of New York, Inc. and Cogen
Technologies Linden Venture, L.P. (incorporated by
reference to Exhibit 10.3 to Registration Statement on
Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.11 -- Gas Service Agreement by and among Cogen Technologies
Linden Venture, L.P., Public Service Electric and Gas
Company and Elizabethtown Gas Company dated July 13, 1990
(incorporated by reference to Exhibit 10.4 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
25, 1998).
10.12 -- Agreement between Cogen Technologies Linden Venture, L.P.
and Exxon Corporation for the Sale of Steam dated August
1, 1990, as amended and restated by agreement by and
between Cogen Technologies Linden Venture, L.P. and
Infineum USA L.P. dated as of January 1, 1999.
10.13 -- Agreement between Cogen Technologies Linden Venture, L.P.
and Bayway Refining Company for the Sale of Steam
effective as of April 8, 1993.
10.14 -- Backup Fuel Storage and Supply Agreement between Cogen
Technologies Linden Venture, L.P. and Exxon Corporation
dated October 4, 1991 (incorporated by reference to
Exhibit 10.6 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.15(a) -- Ground Lease Agreement dated as of August 1, 1990, by and
between Cogen Technologies Linden Venture, L.P. and Exxon
Corporation (incorporated by reference to Exhibit 10.7 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
(b) -- Amendment of Ground Lease Agreement by Letter Agreement
dated as of September 27, 1991, by Exxon Corporation,
agreed to by Cogen Technologies Linden Venture, L.P. and
consented to by General Electric Power Funding
Corporation.
(c) -- Amendment to Ground Lease Agreement dated as of July 31,
1992, by and between Cogen Technologies Linden Venture,
L.P. and Exxon Corporation.
</TABLE>
<PAGE> 208
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
(d) -- Assignment of Cogen Lease dated as of April 8, 1993, by
and between Exxon Corporation and Bayway Refining Company
(as confirmed by Confirmation of Assignment of Cogen
Lease dated as of April 8, 1993, by and between Exxon
Corporation and Bayway Refining Company).
(e) -- Second Amendment to Ground Lease Agreement dated as of
April 13, 1994, by and between Bayway Refining Company
and Cogen Technologies Linden Venture, L.P.
10.16 -- Operation and Maintenance Agreement by and between Cogen
Technologies Linden Venture, L.P. and General Electric
Company dated June 6, 1997 (incorporated by reference to
Exhibit 10.8 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.17 -- Amended and Restated Term Loan Agreement, dated as of
September 15, 1992, between Cogen Technologies Linden,
Ltd. and State Street Bank and Trust Company of
Connecticut, National Association, as trustee
(incorporated by reference to Exhibit 10.9 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.18 -- First Amendment, dated April 30, 1993, to the Amended and
Restated Term Loan Agreement, dated as of September 15,
1992, between Cogen Technologies Linden, Ltd. and State
Street Bank and Trust Company of Connecticut, National
Association, as trustee (incorporated by reference to
Exhibit 10.10 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.19 -- Second Amendment, dated as of February 4, 1999, to the
Amended and Restated Term Loan Agreement, dated as of
September 15, 1992, between Cogen Technologies Linden,
Ltd. and State Street Bank and Trust Company of
Connecticut, National Association, as Trustee.
10.20 -- Amended and Restated Agreement of Limited Partnership of
Cogen Technologies Linden Venture, L.P., dated as of
September 15, 1992 (incorporated by reference to Exhibit
10.11 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.21 -- First Amendment, dated April 30, 1993, to the Amended and
Restated Agreement of Limited Partnership of Cogen
Technologies Linden Venture, L.P., dated as of September
15, 1992 (incorporated by reference to Exhibit 10.12 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.22 -- Second Amendment, dated as of February 4, 1999, of the
Amended and Restated Agreement of Limited Partnership of
Cogen Technologies Linden Venture, L.P., dated as of
September 15, 1992.
10.23 -- Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd., effective as of June 28, 1989 (incorporated
by reference to Exhibit 10.13 to Registration Statement
on Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.24 -- First Amendment, dated as of February 14, 1990, to the
Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd. (incorporated by reference to Exhibit 10.14
to Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.25 -- Second Amendment, dated as of July 31, 1990, to the
Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd. (incorporated by reference to Exhibit 10.15
to Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
</TABLE>
<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.26 -- Third Amendment, dated as of February 4, 1999, to the
Agreement of Limited Partnership of Cogen Technologies
Linden, Ltd.
10.27 -- Redemption and Conversion of Partnership Interests and
Fourth Amendment to the Agreement of Limited Partnership
of Cogen Technologies Linden, Ltd., dated as of February
4, 1999.
10.28 -- Easement Agreement dated June 21, 1991 among Cogen
Technologies Linden Venture, L.P., Texas Eastern
Cryogenics, Inc., Texas Eastern Transmission Corporation
and Houston Center Corporation and Assignment and
Conveyance dated December 22, 1993 (incorporated by
reference to Exhibit 10.16 to Registration Statement on
Form S-1/A (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on August 14, 1998).
10.29 -- Easement Crossing Agreement dated as of December 17,
1990, by and between Coastal Pipeline Company and Cogen
Technologies Linden Venture, L.P., assigned to
Consolidated Edison Company of New York, Inc. pursuant to
the Assignment and Conveyance Agreement dated as of
December 22, 1993, by and between Cogen Technologies
Linden Venture, L.P. and Consolidated Edison Company of
New York, Inc.
10.30 -- Letter Agreement dated June 12, 1991 between Cogen
Technologies Linden Venture, L.P. and Colonial Pipeline
Company.
10.31 -- Indenture dated as of May 9, 1991 between the People of
the State of New York, acting by their Commissioner of
the Office of General Services and Cogen Technologies
Linden Venture, L.P.
10.32 -- Amended and Restated Security Deposit Agreement and
Escrow Agreement dated as of September 17, 1992 among
Cogen Technologies Linden Venture, L.P., Cogen
Technologies Linden, Ltd., State Street Bank and Trust
Company of Connecticut as Limited Partner and as Lender
and Midatlantic National Bank, as amended by Amendment
dated April 30, 1993 (incorporated by reference to
Exhibit 10.17 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.33 -- Assignment and Security agreement dated February 15, 1990
between Cogen Technologies Linden, Ltd. and General
Electric Power Funding Corporation and Assignment
Agreement, dated as of September 15, 1992, among General
Electric Power Funding Corporation, State Street Bank and
Trust Company or Connecticut, National Association, as
trustee, and Cogen Technologies Linden, Ltd.
(incorporated by reference to Exhibit 10.19 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.34 -- Collateral Agency Agreement dated as of February 15, 1990
between Cogen Technologies Linden, Ltd. and General
Electric Power Funding Corporation and Assignment
Agreement, dated as of September 15, 1992, among General
Electric Power Funding Corporation, State Street Bank and
Trust Company or Connecticut, National Association, as
trustee, and Cogen Technologies Linden, Ltd.
(incorporated by reference to Exhibit 10.20 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
</TABLE>
<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.35 -- Letter of Credit and Reimbursement Agreement dated as of
September 17, 1992 between Cogen Technologies Linden
Venture, L.P. and General Electric Capital Corporation
(incorporated by reference to Exhibit 10.27 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.36 -- Power Purchase and Interconnection Agreement, dated April
15, 1988, between Public Service Electric and Gas Company
and Camden Cogen, L.P. (incorporated by reference to
Exhibit 10.30 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.37 -- First Amendment, dated June 12, 1990, to the Power
Purchase and Interconnection Agreement, dated April 15,
1988, between Public Service Electric and Gas Company and
Camden Cogen, L.P. (incorporated by reference to Exhibit
10.31 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.38 -- Second Amendment, dated August 21, 1990, to the Power
Purchase and Interconnection Agreement, dated April 15,
1988, between Public Service Electric and Gas Company and
Camden Cogen, L.P. (incorporated by reference to Exhibit
10.32 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.39 -- Gas Service Agreement, dated May 15, 1991, between Camden
Cogen L.P. and Public Service Electric and Gas Company
(incorporated by reference to Exhibit 10.33 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
25, 1998).
10.40 -- First Amendment, dated November 1, 1991, to the Gas
Service Agreement dated May 15, 1991 between Camden Cogen
L.P. and Public Service Electric and Gas Company
(incorporated by reference to Exhibit 10.34 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.41(a) -- Energy Purchase Agreement, dated December 18, 1989,
between Camden Cogen, L.P. and Camden Paperboard
Corporation (incorporated by reference to Exhibit 10.35
to Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
(b) -- First Amendment dated as of March 5, 1992, to Energy
Purchase Agreement dated December 18, 1989.
10.42 -- Amendment and Restatement dated as of April 1, 1993 of
the Construction and Term Loan Agreement dated as of
February 4, 1992 among Camden Cogen, L.P., the lenders
from time to time parties to the Agreement, and General
Electric Capital Corporation (incorporated by reference
to Exhibit 10.36 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.43 -- Amendment No. 1 dated as of December 22, 1993, by and
among Camden Cogen L.P., the lenders from time to time
parties to the Agreement, The Bank of Tokyo Trust
Company, The Toronto-Dominion Bank Trust Company and
General Electric Capital Corporation, to the Amendment
and Restatement dated as of April 1, 1993 of the
Construction and Term Loan Agreement dated as of February
4, 1992 among Camden Cogen L.P. and General Electric
Capital Corporation (incorporated by reference to Exhibit
10.37 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
</TABLE>
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.44 -- Amendment No. 2 dated as of July 31, 1998, by and among
Camden Cogen L.P., The Bank of Tokyo-Mitsubishi Trust
Company (f/k/a The Bank of Tokyo Trust Company),
Commerzbank AG, New York Branch, Commerzbank AG, Atlanta
Agency, The Fuji Bank Limited, Credit Lyonnais, New York
Branch and General Electric Capital Corporation, to the
Amendment and Restatement dated as of April 1, 1993 of
the Construction and Term Loan Agreement dated as of
February 4, 1992 among Camden Cogen L.P. and General
Electric Capital Corporation.
10.45 -- Amendment No. 3 dated as of February 4, 1999, by and
among Camden Cogen L.P., the Tranche A Lenders and
Tranche B Lenders, The Bank of Tokyo-Mitsubishi Trust
Company (f/k/a The Bank of Tokyo Trust Company),
Commerzbank AG, New York Branch, and General Electric
Capital Corporation, to the Amendment and Restatement
dated as of April 1, 1993 of the Construction and Term
Loan Agreement dated as of February 4, 1992 among Camden
Cogen L.P. and General Electric Capital Corporation.
10.46 -- Agreement of Limited Partnership of Cogen Technologies
Camden GP Limited Partnership, dated as of July 26, 1991
(incorporated by reference to Exhibit 10.40 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.47 -- First Amendment, dated December 1, 1991, to the Agreement
of Limited Partnership of Cogen Technologies Camden GP
Limited Partnership, dated as of July 26, 1991
(incorporated by reference to Exhibit 10.41 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.48 -- Second Amendment, dated as of February 4, 1999, to the
Agreement of Limited Partnership of Cogen Technologies
Camden GP Limited Partnership, dated as of July 26, 1991.
10.49 -- Amended and Restated Agreement of Limited Partnership of
Camden Cogen L.P., dated as of February 9, 1993
(incorporated by reference to Exhibit 10.42 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.50 -- Amendment No. 1 dated as of April 1, 1993 to the Amended
and Restated Agreement of Limited Partnership of Camden
Cogen L.P., dated as of February 9, 1993 (incorporated by
reference to Exhibit 10.43 to Registration Statement on
Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.51 -- Amendment No. 2 dated as of December 22, 1993 to the
Amended and Restated Agreement of Limited Partnership of
Camden Cogen L.P., dated as of February 9, 1993
(incorporated by reference to Exhibit 10.44 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.52 -- Amendment No. 3 dated as of February 4, 1999, to the
Agreement of Limited Partnership of Camden Cogen L.P.,
dated as of February 9, 1993.
10.53 -- Operation and Maintenance Agreement by and between Camden
Cogen L.P. and General Electric Company dated June 6,
1997 (incorporated by reference to Exhibit 10.45 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.54(a) -- Mortgage dated February 4, 1992 between General Electric
Capital Corporation and Camden Cogen L.P., as amended by
First Amendment to Mortgage dated April 19, 1993 and
Assignment of Mortgage dated December 22, 1993
(incorporated by reference to Exhibit 10.46 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
(b) -- Assignment of Mortgage by Toronto Dominion (Texas), Inc.
to Commerzbank AG, New York Branch, dated as of July 31,
1998.
10.55 -- Second Amended and Restated Security Deposit Agreement
dated December 22, 1993 among Bank of Tokyo Trust
Company, Toronto-Dominion Bank Trust Company, Camden
Cogen L.P., General Electric Capital Corporation and
Cogen Technologies Camden GP Limited Partnership and
Successor Security Deposit Agreement dated December 22,
1993 (incorporated by reference to Exhibit 10.47 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.56 -- Amendment No. 1, dated as of July 31, 1998, by and among
Camden Cogen L.P., Toronto Dominion (Texas), Inc.(f/k/a
The Toronto-Dominion Bank Trust Company), The
Toronto-Dominion Bank, General Electric Capital
Corporation, Cogen Technologies Camden GP Limited
Partnership, The Bank of Tokyo-Mitsubishi Trust Company
(f/k/a The Bank of Tokyo Trust Company), Commerzbank AG,
New York Branch, Commerzbank AG, Atlanta Agency, The Fuji
Bank Limited and Credit Lyonnais, New York Branch, to the
Second Amended and Restated Security Deposit Agreement
dated as of December 22, 1993.
10.57 -- Second Successor Security Deposit Agent Agreement dated
as of July 31, 1998, by and among Commerzbank AG, New
York Branch, Commerzbank AG, Atlanta Agency, The Bank of
Tokyo- Mitsubishi Trust Company (f/k/a The Bank of Tokyo
Trust Company), Camden Cogen L.P., Cogen Technologies
Camden GP Limited Partnership, The Fuji Bank Limited,
Credit Lyonnais, New York Branch, Toronto Dominion
(Texas), Inc. (f/k/a The Toronto-Dominion Bank Trust
Company), The Toronto-Dominion Bank and General Electric
Capital Corporation (superseding Successor Security
Deposit Agent Agreement dated as of December 22, 1993, by
and among The Toronto-Dominion Bank Trust Company, Cogen
Technologies Camden GP Limited Partnership, General
Electric Capital Corporation, Camden Cogen L.P.,
Midatlantic National Bank, The Bank of Tokyo Trust
Company and The Toronto-Dominion Bank).
10.58 -- Second Successor Agency Agreement dated as of July 31,
1998, by and among Commerzbank AG, New York Branch,
Commerzbank AG, Atlanta Agency, The Bank of
Tokyo-Mitsubishi Trust Company, General Electric Capital
Corporation, Toronto Dominion (Texas), Inc., The Fuji
Bank Limited, Credit Lyonnais, New York Branch, The
Toronto-Dominion Bank and consented to by Camden Cogen
L.P.
10.59 -- Security Agreement dated as of February 4, 1992, between
General Electric Capital Corporation and Camden Cogen
L.P., as amended by Amendment No. 1 dated April 1, 1993
and Amendment No. 2 dated December 22, 1993 (incorporated
by reference to Exhibit 10.48 to Registration Statement
on Form S-1/A (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on August 14, 1998).
</TABLE>
<PAGE> 213
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.60 -- Pledge and Security Agreement dated as of February 4,
1992, between General Electric Capital Corporation and
Cogen Technologies Camden Inc., as amended by Amendment
No. 1 dated April 1, 1993 and Amendment No. 2 dated
December 22, 1993 (incorporated by reference to Exhibit
10.49 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.61 -- Mortgage from Camden Cogen L.P., Mortgagor, to General
Electric Power Funding Corporation, Mortgagee, dated as
of February 4, 1992 (incorporated by reference to Exhibit
10.50 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.62 -- Second Mortgage from Camden Cogen L.P., Mortgagor, to
Public Service Electric and Gas Company, Mortgagee, dated
as of February 4, 1992 (incorporated by reference to
Exhibit 10.51 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.63 -- Interest Rate and Currency Exchange Agreement dated April
1, 1993 between General Electric Capital Corporation and
Camden Cogen L.P., as amended by Amendment No. 1 dated as
of December 22, 1993 and Confirmation Letter dated April
1, 1993 and Amendment No. 1 dated December 22, 1993
(incorporated by reference to Exhibit 10.52 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.64 -- Agreement for the Sale of Steam and Electricity dated
June 13, 1985 between IMTT-Bayonne and Cogen Technologies
NJ, Inc., as amended by Amendment dated May 22, 1986 and
Consent to Assignment dated December 15, 1988
(incorporated by reference to Exhibit 10.54 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.65 -- Easement Agreement dated as of April 1, 1993, by and
between Camden Cogen L.P. and Public Service Electric and
Gas Company.
10.66 -- Easement Agreement dated as of December 18, 1992, by and
between MacAndrews & Forbes Company and Camden Cogen
L.P., as amended by Amendment to Easement Agreement dated
as of March 22, 1993, by and between Mafco Worldwide
Corporation (f/k/a Mac Andrews & Forbes Company) and
Camden Cogen L.P.
10.67 -- Easement Agreement dated as of February 22, 1993, by and
between Camden Paperboard Corporation and Camden Cogen
L.P.
10.68 -- Agreement for the Sale of Steam dated as of February 27,
1987 between Cogen Technologies NJ Venture and Exxon
Company U.S.A., as amended by Amendment dated August 21,
1988, assigned to General Electric Power Funding
Corporation pursuant to an Assignment Agreement dated as
of February 27, 1987, by and between Cogen Technologies
NJ Venture and General Electric Power Funding Corporation
(incorporated by reference to Exhibit 10.55 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.69 -- Letter Agreement for Gas Service between Public Service
Electric and Gas Company and Cogen Technologies NJ
Venture dated October 10, 1986 (incorporated by reference
to Exhibit 10.56 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
</TABLE>
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.70 -- Water Supply Agreement between the City of Bayonne and
Cogen Technologies NJ Venture dated June 1, 1988
(incorporated by reference to Exhibit 10.57 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.71 -- Lease Agreement between Bayonne Industries, Inc.,
IMTT-Bayonne and Cogen Technologies NJ Venture dated
October 18, 1986 (incorporated by reference to Exhibit
10.58 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.72 -- Easement from Bayonne Industries, Inc. and IMTT-Bayonne
to Cogen Technologies NJ Venture dated October 20, 1986,
as amended by First Amendment dated December 15, 1988
(incorporated by reference to Exhibit 10.59 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.73 -- Power Purchase and Operations Coordination Agreement
between Public Service Electric and Gas Company and Cogen
Technologies NJ Venture dated June 5, 1989 (incorporated
by reference to Exhibit 10.60 to Registration Statement
on Form S-1 (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on May 26, 1998).
10.74 -- Agreement for Purchase of Electric Power between Cogen
Technologies NJ, Inc. and Jersey Central Power & Light
Company dated October 29, 1985 (incorporated by reference
to Exhibit 10.61 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.75 -- First Amendment dated September 5, 1986 to Agreement for
Purchase of Electric Power between Cogen Technologies NJ,
Inc. and Jersey Central Power & Light Company dated
October 29, 1985 (incorporated by reference to Exhibit
10.62 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.76 -- Assignment Agreement dated as of September 8, 1986, by
and between Cogen Technologies NJ, Inc. and Cogen
Technologies NJ Venture.
10.77 -- Second Amendment dated August 1, 1988 to Agreement for
Purchase of Electric Power between Cogen Technologies NJ
Venture and Jersey Central Power & Light Company dated
October 28, 1985 (incorporated by reference to Exhibit
10.63 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.78 -- Operation and Maintenance Agreement by and between Cogen
Technologies NJ Venture and General Electric Company
dated June 6, 1997 (incorporated by reference to Exhibit
10.64 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.79 -- Revised Transmission Service and Interconnection
Agreement between Public Service Electric and Gas Company
and Cogen Technologies NJ Venture dated April 27, 1987
(incorporated by reference to Exhibit 10.65 to
Registration Statement on Form S-1 (Registration No.
333-53533) of Cogen Technologies, Inc., filed on May 26,
1998).
10.80 -- Term Loan Agreement dated as of November 1, 1987 between
Cogen Technologies NJ Venture and The Prudential
Insurance Company of America (incorporated by reference
to Exhibit 10.66 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
</TABLE>
<PAGE> 215
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.81 -- First Amendment dated December 15, 1988 to the Term Loan
Agreement dated as of November 1, 1987 between Cogen
Technologies NJ Venture and The Prudential Insurance
Company of America (incorporated by reference to Exhibit
10.67 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.82 -- Second Amendment dated July 31, 1996 to the Term Loan
Agreement dated as of November 1, 1987 between Cogen
Technologies NJ Venture and The Prudential Insurance
Company of America (incorporated by reference to Exhibit
10.68 to Registration Statement on Form S-1 (Registration
No. 333-53533) of Cogen Technologies, Inc., filed on May
26, 1998).
10.83 -- Amended and Restated Joint Venture Agreement of Cogen
Technologies NJ Venture dated August 25, 1986, by and
among Cogen Technologies NJ, Inc., Enron Cogeneration
Five Company, CEA Bayonne, Inc. (the name of which was
changed to PSEG Bayonne Inc. and was recently merged into
Cogen Technologies NJ, Inc.), PSVO Bayonne, Inc. and
Transco Cogeneration Company (incorporated by reference
to Exhibit 10.71 to Registration Statement on Form S-1
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on May 26, 1998).
10.84 -- Option Agreement between Bayonne Industries, Inc. and
Cogen Technologies NJ, Inc. dated May 22, 1986
(incorporated by reference to Exhibit 10.72 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.85 -- Purchase and Sale Agreement among Bayonne Industries,
Inc., IMTT-Bayonne and Cogen Technologies NJ, Inc. dated
May 22, 1986 (incorporated by reference to Exhibit 10.73
to Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.86 -- Steam Producing Facilities Lease Agreement between Cogen
Technologies NJ, Inc. and IMTT-Bayonne dated May 22, 1986
and Consent to Assignment dated December 15, 1998
(incorporated by reference to Exhibit 10.74 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.87 -- Mortgage and Security Agreement between The Prudential
Insurance Company of America and Cogen Technologies NJ
Venture dated December 15, 1988 (incorporated by
reference to Exhibit 10.75 to Registration Statement on
Form S-1/A (Registration No. 333-53533) of Cogen
Technologies, Inc., filed on August 14, 1998).
10.88 -- Security Agreement and Assignment between The Prudential
Insurance Company of America and Cogen Technologies NJ
Venture dated December 15, 1988, as amended by Amendment
dated April 27, 1995 and Waiver of Consent by The
Prudential Insurance Company of America dated July 28,
1995 (incorporated by reference to Exhibit 10.76 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
10.89 -- Disbursement and Security Agreement between The
Prudential Insurance Company of America, Midatlantic
National Bank and Cogen Technologies NJ Venture dated
December 15, 1988, as amended by Amendment No. 1 dated
February 9, 1989 (incorporated by reference to Exhibit
10.77 to Registration Statement on Form S-1/A
(Registration No. 333-53533) of Cogen Technologies, Inc.,
filed on August 14, 1998).
10.90 -- Kerosene Fuel Storage Agreement dated May 17, 1994
between IMTT-Bayonne and Cogen Technologies NJ Venture
(incorporated by reference to Exhibit 10.78 to
Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
14, 1998).
</TABLE>
<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.91 -- License Agreement for Wire, Pipe and Cable Transverse
Crossings and Longitudinal Occupations dated as of August
21, 1992, by and between Consolidated Rail Corporation
and Camden Cogen L.P.
10.92 -- Lease Agreement dated as of May 22, 1986, by and among
Bayonne Industries, Inc., IMTT-Bayonne and Cogen
Technologies NJ, Inc.
10.93 -- Letter Agreement dated as of March 15, 1990 by and
between Texas Eastern Cryogenics, Inc. and Cogen
Technologies, Inc. (n/k/a RCM Holdings, Inc.).
10.94 -- Agreement for Maintenance and Operations of IMTT-Bayonne
Chem South Boilers dated as of April 3, 1998, by and
between IMTT-Bayonne and Cogen Technologies NJ Venture,
as amended by Letter Agreement dated as of April 3, 1998,
by and between General Electric O&M Services and Cogen
Technologies NJ Venture, as assigned to The Prudential
Insurance Company of America pursuant to a Security
Agreement and Assignment dated as of December 15, 1988,
by and between Cogen Technologies NJ Venture and The
Prudential Insurance Company of America, and consented to
by IMTT-Bayonne pursuant to a Consent to Assignment dated
as of April 3, 1998, by IMTT-Bayonne in favor of Cogen
Technologies NJ Venture.
10.95 -- Security Agreement dated as of May 22, 1986, by and
between Cogen Technologies NJ, Inc. and Bayonne
Industries, Inc.
10.96 -- Assignment and Security Agreement, dated February 4,
1992, made by Cogen Technologies Camden GP Limited
Partnership in favor of General Electric Capital
Corporation (incorporated by reference to Exhibit 10.79
to Registration Statement on Form S-1/A (Registration No.
333-53533) of Cogen Technologies, Inc., filed on August
25, 1998).
10.97 -- Purchase Agreement, dated as of August 2, 1999, between
East Coast Power Holding Company, L.L.C. and Mesquite
Investors, L.L.C.
10.98 -- Contribution Agreement, dated as of August 2, 1999, among
ECT Merchant Investments Corp., Enron Capital Management
II Limited Partnership, Enron Capital Management III
Limited Partnership, Joint Energy Development Investments
II Limited Partnership, East Coast Power Holding Company
L.L.C., the California Public Employees' Retirement
System and Mesquite Investors, L.L.C.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Company.
*23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1).
*25.1 -- Statement of Eligibility of Trustee.
27.1 -- Financial Data Schedule.
*99.1 -- Form of Letter of Transmittal.
*99.2 -- Form of Letter to Clients.
*99.3 -- Form of Letter to Registered Holders and DTC
Participants.
*99.4 -- Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 8.1
December 13, 1999
East Coast Power L.L.C.
711 Louisiana Street
Houston, Texas 77002
Ladies and Gentlemen:
We participated in the preparation of the Registration Statement on
Form S-4 dated June 25, 1999 (and all subsequent amendments) filed with the
Securities and Exchange Commission by East Coast Power L.L.C. (the "Company")
with respect to the Company's offer to exchange 6.737% Series B Senior Secured
Notes Due 2008, 7.066% Series B Senior Secured Notes Due 2012 and 7.536% Series
B Senior Secured Notes Due 2017 for all outstanding 6.737% Series A Senior
Secured Notes Due 2008, 7.066% Series A Senior Secured Notes Due 2012 and 7.536%
Series A Senior Secured Notes Due 2017, respectively (the "Registration
Statement")(1), including the discussion set forth in the Registration Statement
under the heading "United States Federal Income Tax Considerations". The
discussion and the legal conclusions with respect to United States federal
income tax matters set forth therein reflect our opinion, and we believe they
are accurate and complete in all material respects.
Our opinion is based and conditioned upon the initial and continuing
accuracy of the facts and assumptions set forth in the Registration Statement.
Our opinion is also based upon provisions of the United States Internal Revenue
Code of 1986, as amended, regulations promulgated or proposed thereunder and
interpretations thereof by the Internal Revenue Service and the courts, all as
of the date of the Registration Statement, all of which are subject to change
with prospective or retroactive effect, and our opinion could be adversely
affected or rendered obsolete by any such change.
We hereby consent to the use of our name in the Registration Statement
and to the filing of this opinion as part of the Registration Statement. This
consent does not constitute an admission that we are "experts" within the
meaning of such term as used in the Securities Act of 1933.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
VINSON & ELKINS L.L.P.
- --------------------
(1) All capitalized terms used but not defined herein have the meaning
ascribed to them in the Registration Statement.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
December 13, 1999
<PAGE> 1
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [_]
-------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-------------
East Coast Power L.L.C.
(Exact name of obligor as specified in its charter)
Delaware 52-2143667
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
711 Louisiana Street
Houston, Texas 77002
(Address of principal executive offices) (Zip code)
-------------
Senior Secured Notes due 2008
Senior Secured Notes due 2012
Senior Secured Notes due 2017
(Title of the indenture securities)
========================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 2nd day of December, 1999.
THE BANK OF NEW YORK
By: /s/ MICHAEL CULHANE
---------------------------------
Name: MICHAEL CULHANE
Title: VICE PRESIDENT
<PAGE> 1
EXHIBIT 99.1
EAST COAST POWER L.L.C.
LETTER OF TRANSMITTAL
FOR
OFFER TO EXCHANGE
6.737% SERIES B SENIOR SECURED NOTES DUE 2008
7.066% SERIES B SENIOR SECURED NOTES DUE 2012 AND
7.536% SERIES B SENIOR SECURED NOTES DUE 2017
FOR ALL OUTSTANDING
6.737% SERIES A SENIOR SECURED NOTES DUE 2008
7.066% SERIES A SENIOR SECURED NOTES DUE 2012 AND
7.536% SERIES A SENIOR SECURED NOTES DUE 2017
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME,
ON JANUARY 13, 2000, UNLESS EXTENDED BY
EAST COAST POWER L.L.C. (THE "EXPIRATION DATE").
THE EXCHANGE AGENT
FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
The Bank of New York
Reorganization Section, Attention: Gertrude Jean-Pierre
Floor 7E
101 Barclay Street
New York, New York 10286
</TABLE>
By Facsimile Transmission (for Eligible Institutions only):
(212) 815-6339
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated December 15, 1999 (the "Prospectus") of East Coast Power L.L.C., a
Delaware limited liability company (the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together describe the Company's
offer (the "Exchange Offer") to exchange its Series B Senior Secured Notes due
2008, 2012 and 2017 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount of its issued and outstanding Series A Senior Secured Notes due 2008,
2012 and 2017 (the "Original Notes"). Capitalized terms used but not defined
herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The Company
shall notify the Exchange Agent and each registered holder of the Original Notes
of any extension by oral or written notice prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
-1-
<PAGE> 2
This Letter of Transmittal is to be used by a holder of Original Notes if
Original Notes are to be forwarded herewith. An Agent's Message (as defined in
the next sentence) is to be used if delivery of Original Notes is to be made by
book-entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Procedures for Tendering." The term "Agent's Message" means a message,
transmitted by the Book-Entry Transfer Facility and received by the Exchange
Agent and forming a part of the confirmation of a book-entry transfer
("Book-Entry Confirmation"), which states that the Book-Entry Transfer Facility
has received an express acknowledgment from a participant tendering Original
Notes which are the subject of such Book-Entry Confirmation and that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Company may enforce such agreement against such
participant. Holders of Original Notes whose Original Notes are not immediately
available, or who are unable to deliver their Original Notes and all other
documents required by this Letter of Transmittal to the Exchange Agent on or
prior to the Expiration Date, or who are unable to complete the procedure for
book-entry transfer on a timely basis, must tender their Original Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The term "holder" with respect to the Exchange Offer means any person in
whose name Original Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Original
Notes must complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
-2-
<PAGE> 3
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
1. The undersigned hereby tenders to the Company the Original Notes
described above pursuant to the Company's offer of $1,000 principal amount of
registered Exchange Notes, in exchange for each $1,000 principal amount of the
Original Notes, upon the terms and subject to the conditions contained in the
Prospectus, receipt of which is hereby acknowledged, and this Letter of
Transmittal.
2. The undersigned hereby represents and warrants that it has full
authority to tender, exchange, assign and transfer the Original Notes described
above. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of Original Notes.
3. The undersigned understands that the tender of the Original Notes
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
4. The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corp., SEC No-Action (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
and Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that the
Exchange Notes issued in exchange for the Original Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than a broker-dealer who purchased Original Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act and any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders are not participating in, and have no arrangement with any person
to participate in, the distribution of such Exchange Notes.
5. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the Exchange Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the holder;
(ii) the holder is not engaging in and does not intend to engage in a
distribution of such Exchange Notes;
(iii) the holder does not have an arrangement or understanding with
any person to participate in the distribution of such Exchange Notes; and
(iv) the holder is not an "affiliate," as such term is defined under
Rule 405 promulgated under the Securities Act, of the Company.
6. The undersigned may, if unable to make all of the representations and
warranties contained in Item 5 above and as otherwise permitted in the
Registration Rights Agreement (as defined below), elect to have its Original
Notes registered in the shelf registration statement described in the
registration rights agreement (the "Registration Rights Agreement") dated as of
April 14, 1999 among the Company and the Initial Purchasers. Such election may
be made by checking the box under "Special Registration Instructions" on page 7.
By making such election, the undersigned agrees, as a holder of Transfer
Restricted Securities participating in a shelf registration, to indemnify and
hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who signs such Registration Statement, each person who
controls the Company within the meaning of either the Securities Act or the
Securities Exchange Act of 1934, as amended (the
-3-
<PAGE> 4
"Exchange Act"), and each other holder of Transfer Restricted Securities, from
and against any and all losses, claims, damages or liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus, or in any supplement thereto or amendment
thereof, or caused by the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; but only with respect to information relating to the undersigned
furnished in writing by or on behalf of the undersigned expressly for use in the
Registration Statement, the Prospectus or any amendments or supplements thereto.
Any such indemnification shall be governed by the terms and subject to the
conditions set forth in the Registration Rights Agreement, including, without
limitation, the provisions regarding notice, retention of counsel, contribution
and payment of expenses set forth therein. The above summary of the
indemnification provision of the Registration Rights Agreement is not intended
to be exhaustive and is qualified in its entirety by the Registration Rights
Agreement.
7. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Original Notes, it represents that the
Original Notes to be exchanged for the Exchange Notes were acquired as a result
of market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and delivering a prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If the undersigned is a broker-dealer and Original Notes held
for its own account were not acquired as a result of market-making or other
trading activities, such Original Notes cannot be exchanged pursuant to the
Exchange Offer.
8. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
9. Unless otherwise indicated herein under "Special Delivery Instructions,"
please issue the certificates for the Exchange Notes in the name of the
undersigned.
-4-
<PAGE> 5
List below the Original Notes to which this Letter of Transmittal relates.
If the space below is inadequate, list the registered numbers and principal
amount on a separate signed schedule and affix the list to this Letter of
Transmittal.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AGGREGATE PRINCIPAL AMOUNT
AS (IT/THEY) APPEAR(S) ON THE ORIGINAL NOTES REPRESENTED BY ORIGINAL NOTES
- ------------------------------------------------------------------------------------------------------------
CERTIFICATE AMOUNT OF
NUMBER(S) ORIGINAL NOTES PRINCIPAL AMOUNT
OF ORIGINAL NOTES* TENDERED TENDERED
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL PRINCIPAL**
- ------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Original Notes will be deemed to have tendered the
entire aggregate principal amount represented by such Original Notes. All tenders must be in integral
multiples of $1,000.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(If additional space is required, attach a continuation sheet in substantially
the above form.)
METHOD OF DELIVERY
[ ] Check here if tendered Original Notes are enclosed herewith.
[ ] Check here if tendered Original Notes are being delivered by book-entry
transfer made to an account maintained by the Exchange Agent with a
Book-Entry Transfer Facility and complete the following:
Name of Tendering Institution:
Account Number:
Transaction Code Number:
[ ] Check here if tendered Original Notes are being delivered pursuant to a
Notice of Guaranteed Delivery and complete the following:
Name(s) of Registered Holder(s):
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Eligible Institution that guaranteed delivery:
Account Number (If delivered by book-entry transfer):
-5-
<PAGE> 6
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed only (i) if Original Notes in a principal amount not tendered,
or Exchange Notes issued in exchange for Original Notes accepted for exchange,
are to be issued in the name of someone other than the undersigned, or (ii) if
Original Notes tendered by book-entry transfer which are not exchanged are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility.
Issue Exchange Notes and/or Original Notes to:
Name ---------------------------------------------------------------------------
(Type or Print)
Address ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
(Complete Substitute Form W-9)
Credit Unexchanged Original Notes
Delivered by Book-Entry Transfer
to the Book-Entry Transfer Facility
Set Forth Below:
- --------------------------------------------------------------------------------
Book-Entry Transfer Facility
Account Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if the Exchange Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than as indicated above.
Mail [ ] Issue [ ] (check appropriate boxes)
Certificates to:
Name ---------------------------------------------------------------------------
(Type or Print)
Address ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
- --------------------------------------------------------------------------------
-6-
<PAGE> 7
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if (i) the undersigned satisfies the conditions set
forth in Item 6 above, (ii) the undersigned elects to register its Original
Notes in the shelf registration statement described in the Registration Rights
Agreement and (iii) the undersigned agrees to indemnify certain entities and
individuals as set forth in Item 6 above. (See Item 6.)
[ ] By checking this box the undersigned hereby (i) represents that it is unable
to make all of the representations and warranties set forth in Item 5 above,
(ii) elects to have its Original Notes registered pursuant to the shelf
registration statement described in the Registration Rights Agreement and
(iii) agrees to indemnify certain entities and individuals identified in,
and to the extent provided in, Item 6 above.
SPECIAL BROKER-DEALER INSTRUCTIONS
[ ] Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Prospectus and 10 copies of any amendments or supplements
thereto.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
(Zip Code)
- --------------------------------------------------------------------------------
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT
ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
(Signature(s) of Registered Holders of Original Notes)
- ------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: __________
(The above lines must be signed by the registered holder(s) of Original
Notes as name(s) appear(s) on the Original Notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by a properly
completed bond power from the registered holder(s), a copy of which must be
transmitted with this Letter of Transmittal. If Original Notes to which this
Letter of Transmittal relate are held of record by two or more joint holders,
then all such holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5 regarding completion of this
Letter of Transmittal, printed below.)
Name(s)
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
- ---------------------------------------------------------------------------
-7-
<PAGE> 8
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
- -------------------------------------------------------------------------
Dated: ______________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES OR BOOK-ENTRY
CONFIRMATIONS.
All physically delivered Original Notes or any confirmation of a book-entry
transfer to the Exchange Agent's account at the Book-Entry Transfer Facility of
Original Notes tendered by book-entry transfer (a "Book-Entry Confirmation"), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or Agent's Message or facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. THE METHOD OF DELIVERY OF THE TENDERED ORIGINAL NOTES, THIS
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS
AT THE ELECTION AND RISK OF THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW,
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Original Notes and whose Original Notes
are not immediately available or who cannot deliver their Original Notes, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date or who cannot complete the procedure for
book-entry transfer on a timely basis and deliver an Agent's Message, must
tender their Original Notes according to the guaranteed delivery procedures set
forth in the Prospectus. Pursuant to such procedures a tender may be effected if
the Exchange Agent has received at its office, on or prior to the Expiration
Date, a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the name(s) in which
the Original Notes are registered and the certificate number(s) of the Original
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that, within three business days after the date of execution of
such letter, telegram or facsimile transmission by the Eligible Institution,
such Original Notes, in proper form for transfer (or a confirmation of
book-entry transfer of such Original Notes into the Exchange Agent's account at
DTC), will be delivered by such Eligible Institution together with a properly
completed and duly executed Letter of Transmittal (and any other required
documents). Unless Original Notes being tendered by the above-described method
are deposited with the
-8-
<PAGE> 9
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required documents),
the Company may, at its option, reject the tender.
Any holder of Original Notes who wishes to tender Original Notes pursuant
to the guaranteed delivery procedures described above must ensure that the
Exchange Agent receives the Notice of Guaranteed Delivery prior to midnight, New
York City time, on the Expiration Date. Upon request of the Exchange Agent, a
Notice of Guaranteed Delivery will be sent to holders who wish to tender their
Original Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. TENDER BY HOLDER.
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. Any beneficial holder of Original Notes who is not the
registered holder and who wishes to tender should arrange with the registered
holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Original Notes, either make appropriate arrangements to register ownership of
the Original Notes in such holder's name or obtain a properly completed bond
power from the registered holder.
4. PARTIAL TENDERS.
Tenders of Original Notes will be accepted only in integral multiples of
$1,000 (except for the 2008 Notes, the exchange of which will reflect partial
payments of principal on June 30, 1999, September 30, 1999 and December 31,
1999). If less than the entire principal amount of any Original Notes is
tendered, the tendering holder should fill in the principal amount tendered in
the third column of the box entitled "Description of Original Notes Tendered"
above. The entire principal amount of Original Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Original Notes is not tendered, then Original
Notes for the principal amount of Original Notes not tendered and Exchange Notes
issued in exchange for any Original Notes accepted will be sent to the holder at
his or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, promptly after the Original Notes
are accepted for exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal (or facsimile hereof) is signed by the record
holder(s) of the Original Notes tendered hereby, the signature must correspond
with the name(s) as written on the face of the Original Notes without
alteration, enlargement or any change whatsoever. If this Letter of Transmittal
(or facsimile hereof) is signed by a participant in the Book-Entry Transfer
Facility, the signature must correspond with the name as it appears on the
security position listing as the holder of the Original Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Original Notes listed and tendered hereby and
the Exchange Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Original Notes is to be reissued) to the
registered holder, the said holder need not and should not endorse any tendered
Original Notes, nor provide a separate bond power. In any other case, such
holder must either properly endorse the Original Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Original Notes listed, such
Original Notes must be endorsed or accompanied by appropriate bond powers, in
each case signed as the name of the registered holder or holders appears on the
Original Notes.
If this Letter of Transmittal (or facsimile hereof) or any Original Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the
-9-
<PAGE> 10
Company, evidence satisfactory to the Company of their authority to act must be
submitted with this Letter of Transmittal.
Endorsements on Original Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Original Notes
tendered herein (or by a participant in the Book-Entry Transfer Facility whose
name appears on a security position listing as the owner of the tendered
Original Notes) and the Exchange Notes are to be issued directly to such
registered holder(s) (or, if signed by a participant in the Book-Entry Transfer
Facility, deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Registration Instructions" has been completed, or (ii)
such Original Notes are tendered for the account of an Eligible Institution. In
all other cases, all signatures on this Letter of Transmittal (or facsimile
hereof) must be guaranteed by an Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering holders should indicate, in the applicable box or boxes, the name
and address (or account at the Book-Entry Transfer Facility) to which Exchange
Notes or substitute Original Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
Tax law requires that a holder of any Original Notes which are accepted for
exchange must provide the Company (as payor) with its correct taxpayer
identification number ("TIN"), which, in the case of a holder who is an
individual is his or her social security number. If the Company is not provided
with the correct TIN, the holder may be subject to a $50 penalty imposed by
Internal Revenue Service. (If withholding results in an overpayment of taxes, a
refund may be obtained). Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Original Notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number of Substitute Form W-9" for information on which
TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligations regarding backup
withholding.
7. VALIDITY OF TENDERS.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Original Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Exchange Offer or any
defect or irregularity in the tender of any Original Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects
-10-
<PAGE> 11
or irregularities with respect to tenders of Original Notes, neither the
Company, the Exchange Agent, nor any other person shall be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give such notification. Tenders of Original Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Original Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
8. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or part, any of
the conditions to the Exchange Offer set forth in the Prospectus.
9. NO CONDITIONAL TENDER.
No alternative, conditional, irregular or contingent tender of Original
Notes on transmittal of this Letter of Transmittal will be accepted.
10. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES.
Any holder whose Original Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Requests for assistance or for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
12. WITHDRAWAL.
Tenders may be withdrawn only pursuant to the limited withdrawal rights set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE ORIGINAL NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN
ORIGINAL HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE
OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
-11-
<PAGE> 12
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN Social Security Number
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY OR ------------------------------------
BY SIGNING AND DATING BELOW. Employer Identification Number
------------------------------------------------------------------------------------------
Department of the PART 2 -- Certification Under penalties of perjury, I certify that:
Treasury -- (1) The number shown on this form is my correct Taxpayer Identification Number (or I am
Internal Revenue waiting for a number to be issued to me) and
Service (2) I am not subject to backup withholding either because I have not been notified by the
PAYER'S REQUEST FOR Internal Revenue Service ("IRS") that I am subject to backup withholding as a result
TAXPAYER IDENTIFICATION of failure to report all interest or dividends, or the IRS has notified me that I am
NUMBER (TIN) no longer subject to backup withholding.
Certificate Instructions -- You must cross out item (2) in Part 2 above if you have been
notified by the IRS that you are subject to backup withholding because of under reporting
interest or dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding, do not cross out item (2).
------------------------------------------------------------------------------------------
SIGNATURE ____________ PART 3 --
DATE __________________ Awaiting TIN [ ]
Please complete the Certificate of
Awaiting Taxpayer Identification Number
below.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payor within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
Signature ____________________ Date ________________________
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States citizen
or resident (or I am signing for a foreign corporation, partnership, estate or
trust).
Signature ____________________ Date ________________________
-12-
<PAGE> 1
EXHIBIT 99.2
EAST COAST POWER L.L.C.
LETTER TO CLIENTS
FOR
TENDER OF ALL OUTSTANDING
6.737% SERIES A SENIOR SECURED NOTES DUE 2008
7.066% SERIES A SENIOR SECURED NOTES DUE 2012 AND
7.536% SERIES A SENIOR SECURED NOTES DUE 2017
IN EXCHANGE FOR
6.737% SERIES B SENIOR SECURED NOTES DUE 2008
7.066% SERIES B SENIOR SECURED NOTES DUE 2012 AND
7.536% SERIES B SENIOR SECURED NOTES DUE 2017
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JANUARY
13, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE").
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO
MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE UNLESS PREVIOUSLY ACCEPTED
FOR EXCHANGE.
To Our Clients:
We are enclosing herewith a Prospectus, dated December 15, 1999, of East
Coast Power L.L.C., a Delaware limited liability company (the "Company"), and a
related Letter of Transmittal, which together constitute the Company's offer
(the "Exchange Offer") to exchange its Series B Senior Secured Notes due 2008,
2012 and 2017 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount of its issued and outstanding Series A Senior Secured Notes due 2008,
2012 and 2017 (the "Original Notes"), upon the terms and subject to the
conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Original
Notes being tendered.
We are the holder of record of Original Notes held by us for your own
account. A tender of such Original Notes can be made only by us as the record
holder and pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender Original
Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Original Notes held by us for your account pursuant to the terms and conditions
of the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations and warranties contained in the Letter of
Transmittal.
Very truly yours,
PLEASE RETURN YOUR INSTRUCTIONS TO US IN THE ENCLOSED ENVELOPE WITHIN AMPLE
TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION
DATE.
<PAGE> 2
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER PARTICIPANT
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
December 15, 1999 (the "Prospectus") of East Coast Power L.L.C., a Delaware
limited liability company (the "Company"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer") to exchange its 6.737% Series B Senior
Secured Notes due 2008, 7.066% Series B Senior Secured Notes due 2012 and 7.536%
Series B Senior Secured Notes due 2017 (the "Exchange Notes"), for all of its
outstanding 6.737% Series A Senior Secured Notes due 2008, 7.066% Series A
Senior Secured Notes due 2012 and 7.536% Series A Senior Secured Notes due 2017
(the "Original Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Original Notes held by you for the account of
the undersigned.
The aggregate face amount of the Original Notes held by you for the account
of the undersigned is (FILL IN AMOUNT):
$ of the 6.737% Series A Senior Secured Notes due 2008
$ of the 7.066% Series A Senior Secured Notes due 2012
$ of the 7.536% Series A Senior Secured Notes due 2017.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] To TENDER the following Original Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF ORIGINAL NOTES TO BE TENDERED) (IF
ANY):
[ ] NOT to TENDER any Original Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Original Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
Exchange Notes acquired in exchange for Original Notes pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not the undersigned, (ii) the
undersigned is not engaging in and does not intend to engage in a distribution
of the Exchange Notes, (iii) the undersigned does not have any arrangement or
understanding with any person to participate in the distribution of Exchange
Notes, and (iv) neither the undersigned nor any such other person is an
"affiliate" (within the meaning of Rule 405 under the Securities Act of 1933, as
amended) of the Company. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Original Notes, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
2
<PAGE> 3
SIGN HERE
Name of beneficial owner(s):
- --------------------------------------------------------------------------------
Signature(s)
Name(s):
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(Please Print)
Address:
- --------------------------------------------------------------------------------
Telephone number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- ----------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
3
<PAGE> 1
EXHIBIT 99.3
EAST COAST POWER L.L.C.
LETTER TO REGISTERED HOLDERS AND
DEPOSITORY TRUST COMPANY PARTICIPANTS
FOR
TENDER OF ALL OUTSTANDING
6.737% SERIES A SENIOR SECURED NOTES DUE 2008,
7.066% SERIES A SENIOR SECURED NOTES DUE 2012 AND
7.536% SERIES A SENIOR SECURED NOTES DUE 2017
IN EXCHANGE FOR
6.737% SERIES B SENIOR SECURED NOTES DUE 2008,
7.066% SERIES B SENIOR SECURED NOTES DUE 2012 AND
7.536% SERIES B SENIOR SECURED NOTES DUE 2017
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON JANUARY
13, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE").
ORIGINAL NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME
PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE UNLESS PREVIOUSLY
ACCEPTED FOR EXCHANGE.
To Registered Holders and Depository Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by East Coast Power L.L.C., a Delaware limited liability company (the
"Company"), to exchange its Series B Senior Secured Notes due 2008, 2012 and
2017 (the "Exchange Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding Series A Senior Secured Notes due 2008, 2012 and 2017
(the "Original Notes") upon the terms and subject to the conditions set forth in
the Company's Prospectus, dated December 15, 1999, and the related Letter of
Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated December 15, 1999;
2. Letter of Transmittal (together with accompanying Substitute Form
W-9 Guidelines);
3. Notice of Guaranteed Delivery;
4. Letter which may be sent to your clients for whose account you hold
Original Notes in your name or in the name of your nominee; and
5. Letter which may be sent from your clients to you with such
client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Original
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Original Notes will
represent to the Company that (i) the Exchange Notes acquired in exchange for
Original Notes pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
the undersigned, (ii) the undersigned is not engaging in and does not intend to
engage in a distribution of the Exchange Notes, (iii) the undersigned does not
have any arrangement or understanding with any person to
<PAGE> 2
participate in the distribution of Exchange Notes, and (iv) neither the
undersigned nor any such other person is an "affiliate" (within the meaning of
Rule 405 under the Securities Act of 1933, as amended) of the Company. If the
holder is a broker-dealer that will receive Exchange Notes for its own account
in exchange for Original Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Original Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Original Notes pursuant to the Exchange Offer.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
EAST COAST POWER L.L.C.
2
<PAGE> 1
EXHIBIT 99.4
EAST COAST POWER L.L.C.
NOTICE OF GUARANTEED DELIVERY OF SERIES A SENIOR SECURED NOTES
DUE 2008, 2012 AND 2017
As set forth in the Prospectus dated December 15, 1999 (as the same may be
amended or supplemented from time to time, the "Prospectus") of East Coast Power
L.L.C. (the "Company") under the caption "The Exchange Offer -- Procedures for
Tendering" and in the Letter of Transmittal for Offer to Exchange Series B
Senior Secured Notes due 2008, 2012 and 2017 (the "Letter of Transmittal"), this
form or one substantially equivalent hereto must be used to accept the Exchange
Offer (as defined below) of the Company if: (i) certificates for the
above-referenced notes (the "Original Notes") are not immediately available,
(ii) time will not permit all required documents to reach the Exchange Agent (as
defined below) on or prior to the Expiration Date (as defined in the Prospectus)
or (iii) the procedures for book-entry transfer cannot be completed on or prior
to the Expiration Date. Such form may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or letter to the Exchange Agent.
TO: THE BANK OF NEW YORK (THE "EXCHANGE AGENT")
For Information by Telephone:
(212) 815-5920
The Bank of New York
Reorganization Section, Attention: Gertrude Jean-Pierre
Floor 7E
101 Barclay Street
New York, NY 10286
By Facsimile Transmission (for Eligible Institutions Only):
(212) 815-6339
(Facsimile confirmation)
(212) 815-5920
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR NUMBER OTHER THAN THOSE SHOWN
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the principal amount of Original Notes set forth below pursuant to
the guaranteed delivery procedures described in the Prospectus and the Letter of
Transmittal.
The undersigned understands and acknowledges that the Exchange Offer will
expire at midnight, New York City time, on January 13, 2000, unless extended by
the Company. With respect to the Exchange Offer, "Expiration Date" means such
time and date, or if the Exchange Offer is extended, the latest time and date to
which the Exchange Offer is so extended by the Company.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<PAGE> 2
DESCRIPTION OF ORIGINAL NOTES TENDERED
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT
CERTIFICATE NUMBER(S) (IF KNOWN) OF ORIGINAL NOTES OR REPRESENTED BY PRINCIPAL AMOUNT
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY ORIGINAL NOTES TENDERED
<S> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total:
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
Signature(s):
- --------------------------------------------- Name(s):
---------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Address: Capacity (full title), if signing
(Zip Code) in a representative capacity:
Area Code and Telephone Number:
Taxpayer Identification or Social
Dated: ------------------------------ Security Number:
</TABLE>
GUARANTEE OF DELIVERY
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees (a) that the above-named person(s) own(s)
the above-described securities tendered hereby within the meaning of Rule 10b-4
under the Securities Exchange Act of 1934, (b) that such tender of the
above-described securities complies with Rule 10b-4, and (c) that delivery to
the Exchange Agent of certificates tendered hereby, in proper form for transfer,
or delivery of such certificates pursuant to the procedure for book-entry
transfer, in either case with delivery of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) and any other required documents,
is being made within three business days after the date of execution of a Notice
of Guaranteed Delivery of the above-named person.
(Name of Firm)
Sign here:
(Authorized Signature)
Name:
(Please Type or Print)
(Area Code and Telephone Number)
Address Zip Code ______________
Dated:
2
