SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 For the fiscal year ended December 31, 1998
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from --------- to--------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-6047 GPU, Inc. 13-5516989
(a Pennsylvania corporation)
300 Madison Avenue
Morristown, New Jersey 07962-1911
Telephone (973) 455-8200
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Registrant Title of each class which registered
- ---------- ------------------- ----------------
GPU, Inc. Common Stock, par value
$2.50 per share New York Stock Exchange
Jersey Central Power & Cumulative Preferred
Light Company Stock, $100 stated value
4% Series New York Stock Exchange
7.88% Series E New York Stock Exchange
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Name of each exchange
Registrant Title of each class which registered
- ---------- ------------------- ----------------
Jersey Central Power & First Mortgage Bonds:
Light Company (cont.) 6 3/8% Series due 2003 New York Stock Exchange
7 1/8% Series due 2004 New York Stock Exchange
7 1/2% Series due 2023 New York Stock Exchange
6 3/4% Series due 2025 New York Stock Exchange
Monthly Income Preferred
Securities, 8.56%
Series A, $25 stated
Value (a) New York Stock Exchange
Metropolitan Edison Monthly Income Preferred
Company Securities, 9% Series A,
$25 stated value (b) New York Stock Exchange
Pennsylvania Electric Cumulative Preferred
Company Stock, $100 stated value:
4.40% Series B Philadelphia Stock
Exchange
3.70% Series C Philadelphia Stock
Exchange
4.05% Series D Philadelphia Stock
Exchange
4.70% Series E Philadelphia Stock
Exchange
4.50% Series F Philadelphia Stock
Exchange
4.60% Series G Philadelphia Stock
Exchange
Monthly Income Preferred
Securities, 8 3/4%
Series A, $25 stated
value (c) New York Stock Exchange
(a) Issued by JCP&L Capital, L.P., and unconditionally guaranteed by Jersey
Central Power & Light Company.
(b) Issued by Met-Ed Capital, L.P., and unconditionally guaranteed by
Metropolitan Edison Company.
(c) Issued by Penelec Capital, L.P., and unconditionally guaranteed by
Pennsylvania Electric Company.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of each registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrants' voting stock held by
non-affiliates based on the closing price of $42.125 on February 3, 1999 was:
Registrant Amount
---------- ------
GPU, Inc. $5,383,065,371
The number of shares outstanding of each of the registrants' classes of
voting stock as of February 3, 1999 was as follows:
Shares
Registrant Title Outstanding
- ---------- ----- -----------
GPU, Inc. Common Stock, $2.50 par value 127,787,902
Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270
Metropolitan Edison Company Common Stock, no par value 859,500
Pennsylvania Electric Company Common Stock, $20 par value 5,290,596
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1999 Annual Meeting of Stockholders of GPU, Inc.
(Part III)
- -----------------------------------------------------------------------------
This combined Form 10-K is separately filed by GPU, Inc., Jersey Central
Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
<PAGE>
TABLE OF CONTENTS
Page
Number
------
Part I
Item 1. Business 1
Item 2. Properties 46
Item 3. Legal Proceedings 49
Item 4. Submission of Matters to a Vote of Security Holders 49
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 50
Item 6. Selected Financial Data 50
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 51
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 51
Item 8. Financial Statements and Supplementary Data 51
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 51
Part III
Item 10. Directors and Executive Officers of the Registrant 52
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners
and Management 61
Item 13. Certain Relationships and Related Transactions 62
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 62
Signatures 76
<PAGE>
PART I
ITEM 1. BUSINESS.
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935 (1935 Act). GPU, Inc. does
not directly operate any utility properties, but owns all the outstanding common
stock of three domestic electric utilities serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service, transmission and distribution operations of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
generation operations of the GPU Energy companies are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). The "GPUI Group," as
referred to in this report, develops, owns, operates and funds the acquisition
of generation, transmission and distribution facilities worldwide through GPU
International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc.,
a subsidiary of GPU Capital, Inc. (Hereafter, GPU International, Inc. and GPU
Power, Inc. and their subsidiaries, which will develop, own, operate and fund
the acquisition of generation facilities worldwide, will be referred to as the
"GPUI Group" and GPU Capital, Inc. and GPU Electric, Inc. and their
subsidiaries, which will develop, own, operate and fund the acquisition of
transmission and distribution systems outside the United States, will be
referred to as "GPU Electric.") Other subsidiaries of GPU, Inc. include GPU
Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU
Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
GPU is subject to regulation by the Securities and Exchange Commission
(SEC) under the 1935 Act. The GPU Energy companies' retail rates, conditions of
service, and issuance of securities are subject to regulation in the state in
which each utility operates - in New Jersey by the New Jersey Board of Public
Utilities (NJBPU) and in Pennsylvania by the Pennsylvania Public Utility
Commission (PaPUC). The Nuclear Regulatory Commission (NRC) regulates the
construction, ownership and operation of nuclear generating stations. The GPU
Energy companies are also subject to wholesale rate and other regulation by the
Federal Energy Regulatory Commission (FERC) under the Federal Power Act. In
addition, certain foreign subsidiaries and affiliates are subject to limited
rate and other regulation (see REGULATION section).
Financial information with respect to the business segments of GPU is
provided in Note 15, Segment Information, of the Combined Notes to the
Consolidated Financial Statements.
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical facts are forward-looking and, accordingly, involve
risks and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Although such
forward-looking statements have been based on reasonable assumptions, there is
no assurance that the expected results will be achieved.
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Some of the factors that could cause actual results to differ materially
include, but are not limited to: the effects of regulatory decisions; changes in
law and other governmental actions and initiatives; the impact of deregulation
and increased competition in the industry; industry restructuring; expected
outcomes of legal proceedings; the completion of generation asset divestiture;
fuel prices and availability; the effects of the Year 2000 issue (see LIQUIDITY
AND CAPITAL RESOURCES section of Management's Discussion and Analysis); and
uncertainties involved with foreign operations including political risks and
foreign currency fluctuations.
SIGNIFICANT DEVELOPMENTS
The following are significant developments which have had, or will continue
to have, an impact on GPU:
Pennsylvania Restructuring
In 1996, Pennsylvania adopted comprehensive legislation (Customer Choice
Act) which provides for the restructuring of the electric utility industry. In
June 1997, Met-Ed and Penelec filed with the PaPUC their restructuring plans to
implement competition and customer choice in Pennsylvania. In October 1998, the
PaPUC adopted Restructuring Orders approving Settlement Agreements entered into
by Met-Ed, Penelec, the PaPUC and all but two of the intervenors in the
restructuring proceeding who appealed the Restructuring Orders. One of these
appeals remains pending and is scheduled to be heard in April 1999. For
additional information, see Note 5, Accounting for Extraordinary and
Non-recurring Items, of the Combined Notes to the Consolidated Financial
Statements. The major elements of the Restructuring Orders are as follows:
- A transmission and distribution tariff rate which provides adequate
funding for maintaining the reliability of Met-Ed and Penelec's
electric distribution systems;
- A rate reduction from January 1, 1999 through December 31, 1999, for
all customers, whether they choose an alternate supplier or not,
reflecting Met-Ed and Penelec's obligation to make refunds to customers
from 1998 revenues (2.5% for Met-Ed customers and 3% for Penelec
customers from December 1996 levels);
- The ability of all customers to participate in electric choice on
January 1, 1999 - two years sooner than called for in Pennsylvania's
Customer Choice Act;
- Customers will receive a "shopping credit" that will result in savings
if they buy electricity from an alternate supplier that charges less
than the shopping credit. The average shopping credit in 1999 will be
4.350 cents per KWH for Met-Ed and 4.404 cents per KWH for Penelec.
Actual prices will vary by customer rate class;
- Assurance of full recovery of the above-market costs of
government-mandated contracts to buy electricity from nonutility
generators (NUGs) (Beginning in 2005, the amount collected will be
adjusted every five years over the life of each contract);
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- A rate cap for the cost of delivering electricity (transmission and
distribution) until 2004;
- A rate cap for electricity purchased from Met-Ed and Penelec, as
providers of last resort, until 2010;
- PaPUC approval for Met-Ed and Penelec to sell all of their generating
stations, including Three Mile Island Unit 1 (TMI-1);
- Recovery of $658 million in stranded costs for Met-Ed over 12 years and
$332 million for Penelec over 11 years, primarily for NUGs. Future NUG
operating costs for which rate recovery has been assured may be
adjusted every five years over the life of each NUG contract. (These
amounts reflect the effects of using the estimated net proceeds from
selling Met-Ed and Penelec's generating plants to reduce stranded costs
and will be adjusted based on actual net sale proceeds);
- $2.7 million and $3.4 million for assistance in 1999 to low-income
customers of Met-Ed and Penelec, respectively; increasing to $6.4
million and $6.9 million, respectively, in 2002;
- A sustainable energy fund to promote the development and use of
renewable energy and clean energy technologies with one-time payments
in 1998 of $5.7 million from Met-Ed and of $6.4 million from Penelec;
- The ability of some customers to choose another licensed supplier to
provide metering services beginning January 1, 1999, and billing
services beginning January 1, 2000;
- A phase-in of competitive bidding beginning no later than June 1, 2000,
for other suppliers to be the "provider of last resort" for customers
who do not shop; and
- The dismissal of all pending litigation regarding restructuring in
accordance with the Settlement Agreements.
New Jersey Restructuring
In January 1999, New Jersey enacted legislation to deregulate the state's
electricity market. The legislation generally provides for, among other things,
the following:
- Customer choice of electric generation supplier for all consumers
beginning no later than August 1, 1999;
- A 5% rate reduction for all customers beginning August 1, 1999, with
another 5% rate reduction to be phased in over the next three years.
The rate reduction must be maintained for one year after the end of the
three year phase-in;
- - the aggregation of electric generation service by a government or
private aggregator;
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- the unbundling of customer bills;
- the ability to recover stranded costs; and
- the ability to securitize stranded costs.
In April 1997, the NJBPU issued its final Findings and Recommendations for
Restructuring the Electric Power Industry in New Jersey (Findings and
Recommendations), which formed the basis for the legislation enacted in 1999. As
required by the Findings and Recommendations, in July 1997 JCP&L filed with the
NJBPU a proposed restructuring plan, including stranded cost, unbundled rate and
restructuring filings. Highlights of the plan include:
- The ability of electric retail customers to choose their supplier in
accordance with the schedule initially proposed by the NJBPU in the
Findings and Recommendations.
- Unbundled rates which would apply to all distribution customers, with
the exception of a Production Charge payable by customers who do not
choose an alternative energy supplier. The proposed unbundled rate
structure would include:
-- a fixed monthly Customer Charge for the costs associated with
metering, billing and customer account administration.
-- a Delivery Charge consisting of, among other things, capital and
O&M costs associated with the transmission and distribution
system.
-- a Market Energy and Capacity Charge for electricity provided to
customers for whom JCP&L continues to act as their electric
generation supplier. JCP&L would be the supplier of last resort
for customers who cannot or do not wish to purchase energy from an
alternative supplier.
-- a Societal Benefits Charge to recover demand-side management
costs, manufactured gas plant remediation costs, and nuclear
decommissioning costs.
-- a Market Transition Charge to recover non-NUG stranded
generation costs.
-- a NUG Transition Charge (NTC) to recover ongoing above-market NUG
costs over the life of the contracts and provide a mechanism to
flow through to customers the benefits of future NUG mitigation
efforts.
- - The unbundling plan also called for an estimated 10% rate reduction,
which included certain components that are not recognized as rate
reductions by the 1999 legislation or are otherwise no longer
available. In addition to this rate reduction, JCP&L customers
would receive an additional rate reduction of approximately 6% to be
phased in over the next five years as a result of energy tax
legislation signed into law in July 1997.
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- In addition to the sale or continued operation of the Oyster Creek
Nuclear Generating Station (Oyster Creek), JCP&L is exploring the early
retirement of the plant to mitigate costs associated with its continued
operation. A final decision on the plant's future will not be made
until the NJBPU rules on JCP&L's restructuring filing. Nevertheless,
JCP&L had proposed that the NJBPU approve an early retirement of Oyster
Creek in September 2000, for ratemaking purposes, with the following
ratemaking treatment:
-- The market value of Oyster Creek's generation output would be
recovered in the Production Charge.
-- The above-market operating costs would be recovered as a component
of the Delivery Charge through September 2000. If the plant is
operated beyond that date, these costs would not be included in
customer rates.
-- Existing Oyster Creek regulatory assets would, like other
regulatory assets, continue to be recovered.
-- Oyster Creek decommissioning costs would, like TMI-1
decommissioning costs, be recovered as a component of the Societal
Benefits Charge.
-- JCP&L's net investment in Oyster Creek would be recovered as a
levelized annuity, effective with the commencement of retail
choice through its original expected operating life in 2009.
- Stranded costs at the time originally proposed by the NJBPU for initial
customer choice, on a present value basis, were estimated at $1.6
billion, of which $1.5 billion was for above-market NUG contracts. The
$1.6 billion excludes above-market generation costs related to Oyster
Creek.
Numerous parties have intervened in this proceeding and have contested
various aspects of JCP&L's filings, including, among other things, recovery by
JCP&L of plant capital additions since its last base rate case in 1992,
projections of future electricity prices on which stranded cost recovery
calculations are based, the appropriate level of return and the appropriateness
of earning a return on stranded investment.
Consultants retained by the NJBPU Staff, the Division of Ratepayer Advocate
and other parties have proposed that JCP&L's stranded cost recoveries should be
substantially lower than the levels JCP&L is seeking. Certain of these issues
may be impacted by the 1999 legislation and the results of the sale by JCP&L of
its generating facilities (see Generation Divestiture below).
In addition, in a February 1998 order, the NJBPU substantially affirmed an
Administrative Law Judge (ALJ) ruling which required that rates be unbundled
based on the 1992 cost of service levels which were the basis for JCP&L's last
base rate case, but clarified that (1) JCP&L could update its 1992 cost of
service study to reflect adjustments consistent with the 1997 NJBPU approved
Stipulation of Final Settlement which, among other things, recognized certain
increased expense levels and reductions to base rates and
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(2) all of the other updated post-1992 cost information that JCP&L had submitted
in the proceeding should remain in the record, which the NJBPU will utilize
after issuance of the ALJ's initial decision to establish a reasonable level of
rates going forward.
Furthermore, the NJBPU emphasized in its order that the final unbundled
rates established as a result of this proceeding will be lower than the current
bundled rates. This directive has been recognized in JCP&L's July 1997
restructuring plan which proposed annual revenue reductions totaling
approximately $185 million. The NJBPU will render final and comprehensive
decisions on the precise level of aggregate rate reductions required in order to
accomplish its primary goals of introducing retail competition and lowering
electricity costs for consumers.
If the NJBPU were to accept the positions of various parties or their
consultants, or were ultimately to deny JCP&L's request to recover post-1992
capital additions and increased expenses, it would have a material adverse
impact on JCP&L's stranded cost recovery, restructuring proceeding and future
earnings.
Hearings with respect to the stranded cost and unbundled rate filings have
been completed. In September 1998, the ALJ issued a recommended decision
containing the following major elements:
- The ALJ did not consider current cost levels as the basis for
unbundling rates, but instead used 1992 costs. With the exception of
JCP&L's investment in a new combustion turbine plant, the ALJ denied
recovery of post-1992 rate case capital additions but recommended that
the NJBPU reconsider these matters.
- The ALJ recommended that the Oyster Creek investment be recovered over
a period of between four and eleven years, but once the plant is
retired for ratemaking purposes, no return should be provided on the
unamortized investment.
- The ALJ recommended that the 2.1% rate reduction implemented in April
1997 as part of JCP&L's Stipulation of Final Settlement, as approved by
the NJBPU in 1997, should not be part of the rate reduction mandated by
the NJBPU.
- The ALJ endorsed a market line higher than that proposed by JCP&L.
- The ALJ approved recovery of actual NUG costs through a NUG Transition
Charge, over the lives of the contracts.
- The ALJ accepted JCP&L's proposal for recovery of nuclear
decommissioning costs through a Societal Benefits Charge, but
disallowed the inclusion of fossil decommissioning costs in the
calculation of stranded costs.
- - The ALJ accepted JCP&L's generation asset divestiture plan and the
position that the net proceeds be applied to reduce other stranded
costs.
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The NJBPU has stated that it intends to issue a final order with respect to
the stranded cost and unbundled rate filings of JCP&L by April 14, 1999.
Evidentiary hearings before the NJBPU with respect to the separate
restructuring filings were held jointly with the other New Jersey utilities, and
briefing has been completed. The NJBPU has stated that it intends to issue a
generic final order with respect to the restructuring filings for all New Jersey
utilities in the second quarter of 1999.
Generation Divestiture
In October 1997, GPU announced its intention to begin a process to sell,
through a competitive bid process, up to all of the fossil-fuel and
hydroelectric generating facilities owned by the GPU Energy companies. These
facilities, comprised of 26 operating stations, support organizations and
development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW; Penelec 2,100 MW) of capacity and have a net book value of approximately
$1.1 billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at
December 31, 1998.
In August 1998, after the completion of an auction process, Penelec and New
York State Electric & Gas Corporation (NYSEG) entered into definitive agreements
with Edison Mission Energy (Edison) to sell the Homer City Station for a total
purchase price of approximately $1.8 billion. The Homer City Station is a 1,884
MW three unit coal-fired generation station located in Indiana County,
Pennsylvania. In March 1999, the sale of Homer City to EME Homer City
Generation, L.P., a subsidiary of Edison, was completed. Penelec and NYSEG each
owned a 50% interest in the station and shared equally in the net sale proceeds.
In November 1998, the GPU Energy companies entered into definitive
agreements with Sithe Energies and FirstEnergy Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a
total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed
$677 million; Penelec $604 million). Penelec's 20% undivided ownership interest
in the Seneca Pumped Storage Facility (Seneca) is being sold to FirstEnergy for
$43 million, which is included in this amount. The sales are expected to be
completed by mid-1999, subject to the timely receipt of the necessary regulatory
and other approvals. Sithe has agreed to assume the collective bargaining
agreements covering union employees and to fill bargaining positions on the
basis of seniority. Sithe has also agreed to use reasonable efforts to offer
positions to Genco non-bargaining employees. The GPU Energy companies have
agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec
$4 million) of employee severance costs for employees not hired by Sithe.
In October 1998, the GPU Energy companies entered into definitive
agreements to sell TMI-1 to AmerGen Energy Company, LLC (AmerGen), which is a
joint venture between PECO Energy and British Energy. Terms of the purchase
agreements are summarized as follows:
- - The total cash purchase price is approximately $100 million, which
represents $23 million to be paid at closing, and $77 million for the
nuclear fuel in the reactor to be paid in five equal annual
installments beginning one year after the closing. The purchase price
and closing payment are subject to certain adjustments for capital
expenditures and other items.
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- AmerGen will make contingent payments of up to $80 million for the
period January 1, 2002 through December 31, 2010 depending on the
actual energy market clearing prices through 2010.
- GPU will purchase the energy and capacity from TMI-1 from the closing
through December 31, 2001, at predetermined rates.
- At closing, GPU will make additional deposits into the TMI-1
decommissioning trusts to bring the trust totals up to $320 million and
AmerGen will then assume all liability and obligation for
decommissioning TMI-1.
- GPU will continue to own and hold the license for Three Mile Island
Unit 2 (TMI-2). No liability for TMI-2 or its decommissioning will be
assumed by AmerGen. AmerGen will, however, maintain TMI-2 under
contract with GPU.
- AmerGen will employ all employees located at TMI-1 at closing, and will
also have the opportunity to offer positions to GPUN's headquarters
staff. GPU will be responsible for all severance payments associated
with these employees for a one-year period following closing. AmerGen
will assume the current collective bargaining agreement covering TMI-1
union employees.
The sale is subject to various conditions, including the receipt of
satisfactory federal and state regulatory approvals. NRC approval of the TMI-1
license transfer to AmerGen, as well as certain rulings from the Internal
Revenue Service, will be necessary with respect to the maintenance or transfer
of the decommissioning trusts. There can be no assurance as to the outcome of
these matters.
The net proceeds from these generation asset sales will be used to reduce
the capitalization of the respective GPU Energy companies, repurchase GPU, Inc.
common stock, fund previously incurred liabilities in accordance with the
Pennsylvania settlement, and may also be applied to reduce short-term debt,
finance further acquisitions, and reduce acquisition debt of the GPUI Group.
In addition to the continued operation of Oyster Creek, JCP&L has been
exploring the sale or early retirement of the plant to mitigate costs associated
with its continued operation. GPU does not anticipate making a final decision on
the plant before the NJBPU rules on JCP&L's restructuring filing.
GPUI Group
In January 1998, following its acquisition of PowerNet Victoria (PowerNet)
in late 1997, GPU Electric sold its 50% share in Solaris Power (Solaris) to The
Australian Gas Light Company for A$208 million (approximately U.S. $135.2
million) and 10.36% of the outstanding common stock of Allgas Energy Limited
(Allgas, the natural gas distributor in Queensland, Australia), in order to
comply with cross-ownership restrictions in the Australian State of Victoria.
The Allgas shares had a market value of A$14.6 million (approximately U.S. $9.5
million) at the date of sale. As a result of the Solaris sale, GPU recorded an
after-tax gain of $18.3 million. In July 1998, GPU Electric sold its Allgas
shares for A$25.8 million (approximately U.S. $16 million).
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In February 1998, GPU International sold a one-half interest in the
Mid-Georgia cogeneration project (Mid-Georgia, a 300 MW facility located in
Kathleen, Georgia) to Sonat Energy Services Company. As a result, GPU recorded
an after-tax gain on the sale of $5.8 million in the first quarter of 1998. In
June 1998, Mid-Georgia began commercial operation under a 30-year power purchase
agreement to sell capacity and energy on a dispatchable basis to Georgia Power.
In November 1998, Midlands Electricity plc (Midlands) announced the sale of
its electric supply business to National Power plc. GPU and Cinergy Corp.
jointly acquired Midlands in 1996. National Power will acquire all the assets of
Midlands' supply business and assume its liabilities, including obligations
under all Midlands' power purchase agreements, for $300 million ($150 million
for GPU's share) plus an adjustment for working capital at financial closing,
which is expected in the second quarter of 1999. Midlands will continue to own
its distribution business, as well as interests in various generation stations.
In March 1999, GPU Electric acquired Emdersa, an Argentine holding company
that owns three electric distribution companies, for $435 million. The three
companies serve approximately 335,000 customers throughout a territory of
approximately 124,300 square miles in northwest Argentina.
Common Stock Repurchase
In January 1999, the GPU, Inc. Board of Directors authorized the repurchase
of up to $350 million of GPU, Inc. common stock. The repurchases will initially
be funded with borrowings. Through March 1, 1999, GPU, Inc. has repurchased
614,300 shares of common stock at an average price of $41.62 per share.
INDUSTRY DEVELOPMENTS
Electric utility customers have traditionally been served by vertically
integrated regulated monopolies. The electric utility industry is moving away
from a traditional rate regulated environment based on cost recovery to some
combination of a competitive marketplace and modified regulation. The enactment
of the Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the
entry of competitors into the electric generation business. The Energy Policy
Act of 1992 (EPAct) furthered competition among utilities and NUGs in the
wholesale electric generation market, accelerating industry restructuring. The
FERC, in its Order 888 and related proceedings, has required utilities to
provide open access and comparable transmission service to third parties.
Pennsylvania and New Jersey have now adopted comprehensive legislation which
provides for the restructuring of the electric utility industry.
Operating in a competitive environment places pressures on utility profit
margins and credit quality. Utilities with significantly higher cost structures
than are supportable in the marketplace will experience reduced earnings as they
attempt to meet their customers' demands for lower-priced electricity.
Competitive forces continue to influence some retail pricing.
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In light of restructuring in New Jersey and Pennsylvania, customers are pursuing
competitively priced electricity from other providers. This increasing
competition in the electric utility industry has already led the major credit
rating agencies to apply more stringent guidelines in making credit rating
determinations.
The current market price of electricity being below the cost of some
utility-owned generation and power purchase commitments, combined with the
ability of some customers to choose their energy suppliers, has created stranded
costs in the electric utility industry. These stranded costs, while generally
recoverable in a regulated environment, are at risk in a deregulated and
competitive environment. The PaPUC's Restructuring Orders issued in 1998 granted
Met-Ed and Penelec recovery of a substantial portion of their stranded costs.
New Jersey legislation passed in January 1999 also provides a mechanism for the
recovery of stranded costs. See COMPETITIVE ENVIRONMENT AND RATE MATTERS section
of Management's Discussion and Analysis.
As part of its strategy of achieving earnings growth, GPU is continuing to
investigate investment opportunities in various domestic and foreign power
projects and foreign utility systems, and intends to make additional investments
and/or acquisitions which would be financed with new debt or new equity.
GPU has identified the following strategic objectives to guide it over the
next several years: (1) reposition GPU based on changing industry risks; (2)
build upon GPU's core competency in regulated infrastructure (mainly the
transmission and distribution of electricity); (3) divest the merchant
generation business; (4) seek growth through the acquisition of domestic and
international regulated infrastructure assets (i.e. electric, natural gas,
water, telecommunications); (5) continue to develop the contract generation
business (generation for which contracts to sell power to third parties have
been executed) through the GPUI Group; and (6) continue to participate in the
retail energy and supply business to determine if a viable economic opportunity
exists through GPU AR.
GPU's strategies may include business combinations with other companies,
internal restructurings involving the complete or partial separation of its
wholesale and retail businesses and acquisitions of other businesses. No
assurances can be given as to whether any potential transactions of the type
described above may actually occur, or as to the ultimate effect thereof on the
financial condition or competitive position of GPU.
GPU expects to be in a regulated business (the transmission and
distribution of electricity). In the future, GPU's ability to seek rate
increases will be more limited than it has been in the past and, notwithstanding
increases in costs, rates may be capped for varying periods. Since GPU intends,
to a large extent, to exit the merchant generation business, it will need to
meet capacity obligations and supply energy largely from contracted purchases
and purchases in the open market. In addition, inflation may have various
effects on GPU since it will be a factor in revenue calculations in some
jurisdictions, but may cause increased operating costs with GPU having a limited
ability to pass these costs to its customers because of capped rates in other
areas. Management is in the process of identifying and addressing these market
risks, however, there can be no assurance that GPU will be able to recover
through these capped rates all of the costs of the electricity required to be
purchased for customers.
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GPU has been active both on the federal and state levels in helping to
shape electric industry restructuring while seeking to protect the interests of
its shareholders and customers, and is attempting to assess the impact that
these competitive pressures and other changes will have on its financial
condition and results of operations.
OTHER DEVELOPMENTS
YEAR 2000 ISSUE
GPU is addressing the Year 2000 issue by undertaking a comprehensive review
of its computers, software and equipment with embedded systems such as
microcontrollers (together, "Year 2000 Components"), and of its business
relationships with third parties, including key customers, lenders, trading
partners, vendors, suppliers and service providers. Remediation plans and
corrective actions are in progress. The remediation plans include, among other
things, the modification or replacement of Year 2000 Components which are not
ready for use beyond 1999. In addition, GPU has begun to develop contingency
plans for mission-critical systems. GPU's Year 2000 project is not expected to
cause any material delay in the completion of other planned projects by
information technology services.
In January 1999, an independent consultant retained by GPU to review the
adequacy of GPU's Year 2000 plans favorably rated the GPU Energy companies in
their progress toward achieving Year 2000 readiness as measured against the
consultant's "best practices" model. The consultant also identified certain
weaknesses that GPU is currently addressing.
The PaPUC has entered an Order mandating that Pennsylvania jurisdictional
utilities have their mission-critical systems Year 2000 compliant by March 31,
1999. In November 1998, an ALJ assigned to the proceeding conducted hearings to
support recommendations demanding that the PaPUC relax its March 31, 1999
mandate in certain cases. Met-Ed and Penelec have jointly submitted testimony to
the proceeding and participated in the hearings. While there can be no assurance
as to the outcome of this matter, including if the PaPUC will modify its March
31, 1999 compliance date, GPU believes that its current Year 2000 plans are
adequate relative to its mission-critical systems. In addition to the PaPUC
mandate, inquiries concerning GPU's Year 2000 readiness have been made by the
NJBPU, the NRC, the U.S. Department of Energy (DOE), and by numerous third
parties with which GPU has business relationships.
Costs
The GPU Energy companies currently estimate that they will spend
approximately $43.3 million (JCP&L $18.6 million; Met-Ed $12 million; Penelec
$12.7 million) on the Year 2000 issue, which includes $8.1 million (JCP&L $2.7
million; Met-Ed $2.7 million; Penelec $2.7 million) that is being spent as a
part of the purchase and implementation of a new integrated information system
(Project Enterprise), as described below. The $43.3 million also includes $7.4
million (JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1 million)
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that would have been spent in any event for maintenance and cyclical replacement
plans. Approximately 55% of the expected costs involve the modification or
replacement of Year 2000 Components; and 45% are for labor (including contract
labor) and other project expenses. These costs are being funded by the GPU
Energy companies from their operations.
Through December 31, 1998, the GPU Energy companies have spent a total of
approximately $20.6 million (JCP&L $8.6 million; Met-Ed $6 million; Penelec $6
million) (of the $43.3 million) in connection with the Year 2000 issue, of which
$15.9 million (JCP&L $6.5 million; Met-Ed $4.7 million; Penelec $4.7 million)
was spent in 1998.
The GPUI Group currently expects to spend approximately $9 million to
address the Year 2000 issue, primarily to replace or modify equipment at
Midlands. Through December 31, 1998, a total of approximately $2.5 million has
been spent, substantially all of which was spent in 1998.
The Project Enterprise system, referenced above, is designed to help the
GPU Energy companies manage business growth and meet the mandates of electric
utility deregulation. The system is scheduled to be substantially operational
for the GPU Energy companies and GPUS by March 1999 and fully operational for
these companies by June 1999. GPUN and Genco are not installing Project
Enterprise before the year 2000, but rather are making modifications to their
systems to achieve Year 2000 readiness. For critical systems, these
modifications are expected to be completed by March 31, 1999, and for remaining
systems by July 31, 1999.
Milestones
GPU has established Inventory, Assessment, Remediation, Testing and
Monitoring as the primary phases for its Year 2000 program. The Inventory phase
of the program has been completed. The milestones for Assessment, Remediation,
Testing and Monitoring are as follows:
Assessment Remediation Testing Monitoring
GPU Energy
and GPUS Completed 03/31/1999 03/31/1999 03/31/2000
Genco Completed 11/15/1999 11/15/1999 05/31/2000
GPUN 03/31/1999 10/31/1999 10/31/1999 03/31/2000
GPUI Group 06/30/1999 09/30/1999 09/30/1999 03/31/2000
Genco expects to complete modifications and testing of Year 2000 Components
involved in 90% of its generation capacity by May 31, 1999. Modifications and
testing of the remaining components, primarily for two generating units, will be
completed during maintenance outages scheduled in the fall of 1999. GPUN expects
to complete modifications and testing for most of its systems and components by
July 1, 1999. Modifications and testing of the remaining components at TMI-1,
which is scheduled for a refueling outage in September 1999, are not expected to
be completed until late October 1999.
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Third Party Qualification
Due to the interdependence of computer systems and the reliance on other
organizations for supplies, materials or services, GPU is addressing the Year
2000 issue as it relates to the readiness of third parties. As part of its Year
2000 strategy, GPU is contacting key customers, lenders, trading partners,
vendors, suppliers and service providers to assess whether they are adequately
addressing the Year 2000 issue.
With respect to computer software and equipment with embedded systems, GPU
has analyzed where it is dependent upon third party data and has identified
several critical areas: (1) the Pennsylvania-New Jersey-Maryland (PJM)
Interconnection; (2) electric generation suppliers, such as cogeneration
operators and NUGs; (3) Electronic Data Interchange (EDI) with trading partners;
(4) Electronic Funds Transfer (EFT) with financial institutions; (5) vendors;
and (6) customers.
The following summarizes the actions that have taken place with critical
third parties:
- - PJM - Data link testing has been completed. Major testing of system
upgrades is scheduled for completion during the first quarter of 1999.
- - Electric generation suppliers - GPU has contacted all critical electric
generation suppliers and information concerning their readiness has been
received from approximately 81%. Those that have responded have readiness
dates that extend into September 1999.
- - EDI/EFT - GPU has sent readiness questionnaires to all critical
organizations with which it exchanges data electronically and conducts
electronic funds transfers. GPU has received responses from approximately
23% of those contacted. Testing with critical trading partners is scheduled
for completion during the first quarter of 1999.
- - Vendors - GPU has contacted all critical vendors and approximately 61% have
responded as to their readiness.
- - Customers - A customer readiness assessment was initiated during the fourth
quarter of 1998 and approximately 64% of critical customers have been
contacted. GPU has received responses from 20% of those contacted.
Scenarios and Contingencies
If GPU, or critical third parties upon whom GPU relies, are unable to
successfully address their Year 2000 issues on a timely basis, certain
computers, equipment, systems and applications may not function properly, which
could have a material adverse effect on GPU's operations and financial
condition. While GPU cannot predict what effect, if any, the Year 2000 issue
will have on its operations, one possible scenario could include, among other
things, interruptions in delivering electric service, and a temporary inability
to process transactions, provide bills or operate electric generating stations.
GPU currently has no loss estimates related to Year 2000 risks that could
potentially result from any such scenario.
While there can be no assurance as to the outcome of this matter, GPU
believes that its Year 2000 preparations will be successful relative to its
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mission-critical Year 2000 Components. In addition, GPU is developing
contingency plans in accordance with the contingency planning schedule proposed
by the North American Electric Reliability Council. These plans, which are
currently expected to be finalized in mid- to late-1999, will include
supplementing present general emergency procedures with specific measures for
Year 2000 problems and the placing of troubleshooting teams at sites where
critical components are located.
THE GPU ENERGY COMPANIES' SUPPLY PLAN
Under traditional retail regulation, supply planning in the electric
utility industry is directly related to projected sales growth in a utility's
franchise service territory. In light of retail access legislation enacted in
Pennsylvania and New Jersey, the extent to which competition will affect the GPU
Energy companies' supply plan remains uncertain (see COMPETITIVE ENVIRONMENT AND
RATE MATTERS section of Management's Discussion and Analysis). As the GPU Energy
companies prepare to operate in a competitive environment, their supply planning
strategy will focus on providing for the needs of existing retail customers who
do not choose a competitive supplier and continue to receive energy supplied by
the GPU Energy companies and whom the GPU Energy companies continue to have an
obligation to serve.
The GPU Energy companies' capacity (in megawatts) and sources of energy (in
gigawatt-hours) for 1998 are as follows:
Capacity Sources of Energy
MW % GWH %
Coal 3,024 27 19,675 38
Nuclear 1,405 13 11,358 22
Gas, hydro & oil 2,322 21 888 2
Nonutility generation 1,687 15 10,952 21
Utility contracts 2,638 24 5,177 10
Spot market & interchange purchases - - 3,605 7
------ --- ------ ---
Total 11,076 100 51,655 100
====== === ====== ===
After the sale of the GPU Energy companies' generating facilities has been
completed, GPU will have 819 MW of capacity and related energy from Oyster Creek
and Yards Creek remaining to meet customer needs (see the Oyster Creek section
of NUCLEAR FACILITIES for a discussion of the possible sale or early retirement
of Oyster Creek). The GPU Energy companies also have contracts with NUG
facilities totaling 1,687 MW and JCP&L has agreements with other utilities to
provide for up to 629 MW of capacity and related energy (see Note 13,
Commitments and Contingencies, of the Combined Notes to the Consolidated
Financial Statements). The GPU Energy companies have agreed to purchase all of
the capacity and energy from TMI-1 through December 31, 2001. In addition, the
GPU Energy companies have the right to call the capacity of the Homer City
station (942 MW) for two years and the capacity of the generating stations sold
to Sithe (4,117 MW) for three years, from the dates of sale. The GPU Energy
companies' remaining capacity and energy needs will focus on short- to
intermediate-term commitments (one month to three years) during periods of
expected high energy price volatility and reliance on spot market purchases
during other periods. Management is in the process of identifying and addressing
the GPU Energy companies' future capacity and energy needs, and the impact of
customer shopping and changes in demand (see the Managing the Transition section
of COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion
and Analysis).
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Provider of Last Resort
Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers may shop
for their generation supplier beginning January 1, 1999. A PaPUC approved
competitive bid process will assign provider of last resort (PLR) service for
20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1,
2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed generation
suppliers referred to as Competitive Default Service (CDS). If no qualified bids
for CDS are received at or below their generation rate caps, Met-Ed and Penelec
will continue to provide PLR service at the rate cap levels until 2010 unless
modified by the PaPUC. Any retail customers assigned to CDS may return to Met-Ed
and Penelec as the default PLR at no additional charge. Met-Ed and Penelec may
meet any remaining PLR obligation at rates not less than the lowest rate charged
by the winning CDS provider, but no higher than Met-Ed and Penelec's rate cap.
The restructuring legislation enacted in New Jersey requires that JCP&L be the
PLR for at least three years starting with the implementation of customer choice
on August 1, 1999. JCP&L is entitled to recover reasonable and prudently
incurred costs for PLR service. Within the three-year period, the NJBPU is to
determine whether to make PLR service available on a competitive basis.
THE GPU ENERGY COMPANIES
The electric generation and transmission facilities of the GPU Energy
companies are physically interconnected and are operated as a single integrated
and coordinated system serving a population of approximately five million in New
Jersey and Pennsylvania. For the year 1998, the GPU Energy companies' revenues
were about equally divided between Pennsylvania customers and New Jersey
customers. During 1998, sales to customers by customer class were as follows:
% Operating Revenues % KWH Sales
-------------------- -----------
Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec
----- ---- ------- ------- ----- ----- ------ -------
Residential 42 45 41 35 35 41 35 27
Commercial 35 39 30 33 34 40 28 31
Industrial 21 15 28 28 29 19 36 37
Other* 2 1 1 4 2 - 1 5
--- --- --- --- --- --- --- ---
100 100 100 100 100 100 100 100
=== === === === === === === ===
* Rural electric cooperatives, municipalities, street and highway
lighting, and others.
The GPU Energy companies also make interchange and spot market sales of
electricity to other utilities. Reference is made to GPU Energy Companies'
Statistics and Company Statistics on pages F-3, F-120, F-130, and F-140, for
additional information concerning sales and revenues. Revenues of JCP&L, Met-Ed
and Penelec derived from their largest single customers accounted for less than
2%, 2% and 1%, respectively, of their electric operating revenues for the year
and their 25 largest customers, in the aggregate, accounted for approximately
9%, 12% and 12%, respectively, of such revenues.
The area served by the GPU Energy companies extends from the Atlantic Ocean
to Lake Erie, is generally comprised of small communities, rural and suburban
areas and includes a wide diversity of industrial enterprises, as
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well as substantial farming areas. JCP&L provides retail service in northern,
western and east central New Jersey, having an estimated population of
approximately 2.6 million. Met-Ed provides retail electric service in all or
portions of 14 counties, in the eastern and south central parts of Pennsylvania,
having an estimated population of almost one million. Met-Ed also sells
electricity at wholesale to four municipalities having an estimated population
of over 11,400. Penelec provides retail and wholesale electric service within a
territory located in western, northern and south central Pennsylvania extending
from the Maryland state line northerly to the New York state line, with a
population of about 1.2 million, approximately 28% of which is concentrated in
23 cities and boroughs, all with populations over 5,000. Penelec also provides
wholesale service to six municipalities in Pennsylvania, five municipalities in
New Jersey, and the Allegheny Electric Cooperative, Inc., which serves 13 rural
electric cooperatives in Pennsylvania and one in New Jersey. Penelec, as lessee
of the property of the Waverly Electric Light & Power Company, also serves a
population of about 13,400 in Waverly, New York and vicinity.
The GPU Energy companies' transmission facilities are physically
interconnected with neighboring nonaffiliated utilities in Pennsylvania, New
Jersey, Maryland, New York and Ohio. The interconnection facilities are used for
substantial capacity and energy interchange and purchased power transactions, as
well as emergency assistance. The GPU Energy companies are members of the PJM
Power Pool and the Mid-Atlantic Area Council, an organization providing
coordinated review of the planning by utilities in the PJM area. In 1997, the
PJM Power Pool converted to a limited liability company governed by an
independent board of managers and the FERC approved the supporting PJM
companies' proposal to permit the PJM Power Pool to be recognized as an
Independent System Operator. Also in 1997, the FERC directed the GPU Energy
companies to implement a single-system transmission rate, effective April 1,
1998. The implementation of a single-system rate is not expected to affect total
transmission revenues. It would, however, increase the pricing for transmission
service in Met-Ed and Penelec's service territories and reduce the pricing for
transmission service in JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling
requiring a single-system transmission rate. The Restructuring Orders for Met-Ed
and Penelec provide for a transmission and distribution rate cap exception to
recover the increase in the transmission rate from Met-Ed and Penelec's retail
customers in the event the FERC denies this request. The FERC's ruling will also
have the effect of reducing JCP&L's transmission rates. There can be no
assurance as to the outcome of this matter.
GPUI GROUP
The GPUI Group owns, operates, develops and invests in electric power
generation, transmission and distribution facilities throughout the world. It
has also made investments in certain advanced technologies related to the
electric power industry. The GPUI Group has ownership interests in transmission
and distribution businesses in England and Australia. It also has ownership
interests in nine operating cogeneration plants in the U.S. totaling 1,147
megawatts (MW) (of which the GPUI Group's equity interest represents 498 MW) of
capacity, and ten operating generating facilities
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located in foreign countries totaling 3,879 MW (of which the GPUI Group's equity
interest represents 730 MW) of capacity. It also has investments in four
generating facilities under construction totaling 1,698 MW (of which the GPUI
Group's equity interest represents 301 MW) of capacity. When appropriate, the
GPUI Group also engages in the purchase or sale of interests in particular
businesses.
At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group
was $590 million; GPU, Inc. has also guaranteed up to an additional $761 million
of outstanding GPUI Group obligations. GPU, Inc. has SEC authorization to
finance investments in foreign utility companies (FUCOs) and exempt wholesale
generators (EWGs) up to an aggregate amount equal to 100% of GPU's average
consolidated retained earnings, or approximately $2.2 billion as of December 31,
1998. At December 31, 1998, GPU, Inc. has remaining authorization to finance
approximately $979 million of additional investments in FUCOs and EWGs, of which
approximately $435 million has been committed to the purchase of Emdersa.
Management expects that the GPUI Group will provide a substantial portion
of GPU's future earnings growth and intends to make additional investments in
its business activities. The timing and amount of these investments, however,
will depend upon the availability of appropriate opportunities and financing
capabilities.
NONUTILITY AND OTHER POWER PURCHASES
Pursuant to the mandates of PURPA and state regulatory directives, the GPU
Energy companies have been required to enter into power purchase agreements with
NUGs for the purchase of energy and capacity for remaining periods of up to 22
years. The following table shows actual payments from 1996 through 1998, and
estimated payments from 1999 through 2003.
Payments Under NUG Agreements
(in millions)
Total JCP&L Met-Ed Penelec
* 1996 $730 $370 $168 $192
* 1997 759 384 172 203
* 1998 788 403 174 211
1999 798 399 170 229
2000 816 404 169 243
2001 805 413 166 226
2002 819 425 169 225
2003 827 422 173 232
* Actual.
As of December 31, 1998, NUG facilities covered by agreements having 1,687
MW (JCP&L 918 MW; Met-Ed 364 MW; Penelec 405 MW) of capacity were in service.
While a few of these NUG facilities are dispatchable, most are must-run and
generally obligate the GPU Energy companies to purchase, at the contract price,
the output up to the contract limits.
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The emerging competitive generation market has created uncertainty
regarding the forecasting of the GPU Energy companies' energy supply needs,
which has caused the GPU Energy companies to change their supply strategy to
seek shorter-term agreements offering more flexibility. The GPU Energy
companies' future supply plan will likely focus on short- to intermediate-term
commitments (one month to three years) during periods of expected high energy
price volatility and reliance on spot market purchases during other periods. The
projected cost of energy from new generation supply sources has also decreased
due to improvements in power plant technologies and lower forecasted fuel
prices. As a result of these developments, the rates under virtually all of the
GPU Energy companies' NUG agreements are substantially in excess of current and
projected prices from alternative sources.
The 1998 PaPUC Restructuring Orders and the legislation in New Jersey
provide for full recovery of the above-market costs of NUG agreements. The GPU
Energy companies will continue efforts to reduce the above-market costs of these
agreements and will, where beneficial, attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable agreements. There can be no assurance as to the extent to which
these efforts will be successful.
In 1997, the NJBPU approved a Stipulation of Final Settlement which, among
other things, provides for the recovery of costs associated with the buyout of
the Freehold Cogeneration project. The Stipulation of Final Settlement provides
for recovery through the levelized energy adjustment clause of: (1) buyout costs
up to $130 million, and (2) 50% of any costs from $130 million to $140 million,
over a seven-year period for the termination of the Freehold power purchase
agreement. The NJBPU approved the cost recovery on an interim basis subject to
refund, pending further review by the NJBPU. There can be no assurance as to the
outcome of this matter.
In 1998, Met-Ed and Penelec entered into definitive buyout agreements with
two NUG project developers. These agreements are contingent upon Met-Ed and
Penelec obtaining a final and non-appealable PaPUC order allowing for the full
recovery of the buyout payments through retail rates. The Restructuring Orders
established terms and conditions that would enable the buyout agreements to
proceed; however, until the pending appeal of the Restructuring Orders is
resolved, there can be no assurance as to the outcome of these matters.
The GPU Energy companies are recovering certain of their NUG costs
(including certain buyout costs) from customers. The Restructuring Orders
provide assurance of full recovery of these costs for Met-Ed and Penelec. Met-Ed
and Penelec recorded a liability of $1.8 billion for their above-market NUG
costs, which is fully offset by Regulatory assets, net on the Consolidated
Balance Sheets. The restructuring legislation in New Jersey includes provisions
for the recovery of costs under NUG agreements and NUG buyout costs. (See
COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and
Analysis for additional discussion.)
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CAPITAL PROGRAMS
GPU Energy Companies
During 1998, the GPU Energy companies' capital spending was $328 million
(JCP&L $155 million; Met-Ed $75 million; Penelec $89 million; Other $9 million),
and was used primarily for new customer connections and to expand and improve
existing transmission and distribution (T&D) facilities. In 1998, expenditures
for maturing obligations were $43 million (JCP&L $13 million; Penelec $30
million). Expenditures for maturing obligations are expected to total $83
million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999. In
1999, capital expenditures are estimated to be $397 million, primarily for
ongoing system development and to implement an integrated information system.
Management estimates that a substantial portion of the GPU Energy companies'
1999 capital outlays will be satisfied through internally generated funds. The
GPU Energy companies' principal categories of estimated capital expenditures for
1999 are as follows:
(in millions)
Total JCP&L Met-Ed Penelec Other
Generation - Nuclear $ 26 $ 10 $11 $ 5 $ -
Non-nuclear 11 2 2 7 -
--- --- -- -- --
Total Generation 37 12 13 12 -
Transmission & Distribution 271 142 66 63 -
Other 89 29 18 23 19
--- --- -- -- --
Total $397 $183 $97 $98 $19
=== === == == ==
Capital expenditures for the GPU Energy companies are estimated to be $365
million in 2000 (JCP&L $184 million; Met-Ed $81 million; Penelec $81 million;
Other $19 million). Expenditures for maturing obligations are expected to total
$131 million (JCP&L $51 million; Met-Ed $50 million; Penelec $30 million) in
2000. The GPU Energy companies estimate that a substantial portion of their
anticipated total capital needs in 2000 will be satisfied through internally
generated funds.
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock and
short-term debt the companies may issue (see LIMITATIONS ON ISSUING ADDITIONAL
SECURITIES section).
The GPU Energy companies' 1998 capital expenditures exclude nuclear fuel
additions provided under capital leases that amounted to $38 million (JCP&L $33
million; Met-Ed $3 million; Penelec $2 million). When consumed, the presently
leased material, which amounted to $126 million (JCP&L $85 million; Met-Ed $27
million; Penelec $14 million) at December 31, 1998, is expected to be replaced
by additional leased material at an annual rate of approximately $36 million
(JCP&L $9 million; Met-Ed $18 million; Penelec $9 million). In the event the
needed nuclear fuel cannot be leased, the associated capital requirements would
have to be met by other means. Upon closing of the sale of TMI-1 to AmerGen, the
GPU Energy companies will terminate the related fuel lease and pay all
outstanding amounts due under the related credit facility (see Managing the
Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS section of
Management's Discussion and Analysis).
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GPUI Group
The GPUI Group's capital spending was $140 million in 1998, which was used
primarily to improve PowerNet's facilities and to make additional investments in
EWGs and FUCOs. For 1999, capital expenditures are forecasted to be $39 million,
primarily for ongoing development of PowerNet's transmission system and to make
additional investments in EWGs and FUCOs. In 1998, expenditures for maturing
obligations were $538 million, and are expected to total $481 million in 1999,
and $534 million in 2000. Management estimates that the GPUI Group's 1999
capital outlays will be satisfied through both internally generated funds and
external financings.
In addition, during 1999 and 2000, GPU, Inc. may make additional capital
contributions and provide credit support (in amounts which may be substantial)
to the GPUI Group as investment opportunities arise.
FINANCING ARRANGEMENTS
GPU, Inc.
In February 1998, GPU, Inc. sold seven million shares of common stock. The
net proceeds of $269 million were used primarily to reduce indebtedness
associated with the PowerNet and Midlands acquisitions, and the balance was used
for other corporate purposes. Further significant investments by the GPUI Group,
or otherwise, may require GPU, Inc. to issue additional debt and/or common stock
(see GPUI GROUP section for a discussion of GPU, Inc.'s remaining investment
authorization).
GPU has $1.8 billion of committed credit facilities, which include various
committed lines of credit totaling $207 million, an unsecured Revolving Credit
Agreement, and three other Credit Agreements, as discussed below.
GPU Capital has entered into a $1 billion 364-day senior revolving credit
facility to support the issuance of commercial paper. GPU Capital is the largest
of three issuers ($1 billion) in a $1.45 billion commercial paper program. The
other issuers are GPU Australia Holdings, Inc. ($350 million) and GPU, Inc.
which has requested SEC authorization to issue and sell up to $100 million under
this program. GPU Capital, along with GPU Australia Holdings, will use the
proceeds from the sale of commercial paper to finance up to $1.35 billion of
investments in FUCOs and EWGs. The facility fee of .15 of 1% on the GPU Capital
credit facility is based on GPU's current senior debt ratings and is payable
annually. A separate $360 million credit facility serves as the backstop for the
GPU Australia Holdings commercial paper program.
GPU International has a separate Credit Agreement providing for borrowings
through December 1999 of up to $30 million outstanding at any time. Up to $15
million may be utilized to provide letters of credit. An annual facility fee
ranging from .085% to .4% on the total amount of the Credit Agreement and a
letter of credit fee ranging from .265% to 1.6% on the outstanding letters of
credit are payable by GPU International.
The Revolving Credit Agreement between GPU, Inc., the GPU Energy companies
and a consortium of banks is subject to various covenants. The agreement expires
May 6, 2001. A facility fee of .125 of 1% is payable
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annually. Borrowing rates and the facility fee are based on the long-term
debt ratings of GPU, Inc. and the GPU Energy companies.
GPU, Inc. has requested SEC authorization to issue and sell up to $100
million of commercial paper through December 2003. GPU, Inc. expects that the
proceeds from the issuance of the commercial paper will be used for general
corporate purposes and to make additional investments in EWGs and FUCOs. GPU,
Inc. also has received SEC approval to issue and sell up to $300 million of
unsecured debentures through 2001.
In January 1999, the GPU, Inc. Board of Directors authorized the repurchase
of up to $350 million of GPU, Inc. common stock. The repurchases will initially
be funded with borrowings.
GPU Energy Companies
Met-Ed and Penelec have obtained regulatory approval through December 31,
2000 to issue senior notes (both secured by FMBs and unsecured) and preferred
securities in aggregate amounts of $250 million and $725 million, respectively,
of which up to $125 million for each company may consist of preferred
securities. JCP&L is seeking similar regulatory approval through December 31,
2000 to issue senior notes and preferred securities in the aggregate amount of
$300 million, of which up to $200 million may consist of preferred securities.
Current plans call for the GPU Energy companies to issue senior notes and
preferred securities during the next three years to fund the redemption of
maturing senior securities, refinance outstanding senior securities and finance
construction activities. Following the initial issuance of senior notes, the GPU
Energy companies would not issue any additional FMBs other than as collateral
for the senior notes. The senior notes will provide that, when the note trustee
holds 80% or more of all FMBs, the FMBs held by the note trustee will be
cancelled and all future senior notes would be issued on an unsecured basis. The
senior note indentures will prohibit the GPU Energy companies from issuing any
debt which is senior to the senior notes.
JCP&L and Penelec also have authorization to issue first mortgage bonds
(FMBs), including secured medium-term notes, and preferred stock through June
1999. Met-Ed has similar authority through December 1999. Aggregate amounts
available for issuance under the JCP&L, Met-Ed and Penelec programs are $145
million, $190 million and $70 million, respectively, of which $100 million for
JCP&L and Met-Ed and $70 million for Penelec may consist of preferred stock. The
GPU Energy companies do not, however, expect to issue any additional senior
securities under these existing authorizations, but rather expect to issue
senior notes.
The GPU Energy companies' bond indentures and/or articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock and
short-term debt the companies may issue. The GPU Energy companies' interest and
preferred dividend coverage ratios are currently in excess of indenture and
charter restrictions. The amount of FMBs that the GPU Energy companies could
issue based on the bondable value of property additions is in excess of amounts
currently authorized. The GPU Energy companies have regulatory authority to
incur short-term debt, a portion of which may be through the issuance of
commercial paper.
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In 1998, Penelec redeemed $30 million principal amount of FMBs and JCP&L
redeemed $15 million stated value of cumulative preferred stock pursuant to
mandatory and optional sinking fund provisions. In March 1999, Penelec called
for redemption $600 million of its FMBs. The redemption will be funded with
proceeds from the sale of the Homer City Station.
In January 1999, Met-Ed and Penelec called for redemption all of their
outstanding shares of cumulative preferred stock. The shares were redeemed on
February 19, 1999 at a price of $12.6 million and $17.6 million for Met-Ed and
Penelec, respectively.
The GPU Energy companies' cost of capital and ability to obtain external
financing are affected by their security ratings, which are periodically
reviewed by the credit rating agencies. The GPU Energy companies' FMBs are
currently rated at an equivalent of "BBB+" or higher by the major credit rating
agencies, while the preferred stock and mandatorily redeemable preferred
securities have been assigned an equivalent of "BBB" or higher. In addition, the
GPU Energy companies' commercial paper is rated as having good credit quality.
GPUI Group
In 1998, GPU Capital entered into a commercial paper credit facility
(guaranteed by GPU, Inc.) to finance up to $1 billion of investments in FUCOs
and EWGs. GPU expects that the proceeds from the sale of commercial paper will
be used to repay a portion of the outstanding foreign acquisition debt and to
finance future investments in FUCOs and EWGs. In January 1999, GPU Capital
issued $375 million of commercial paper which was used primarily to reduce
Midlands acquisition debt. In March 1999, GPU Capital issued an additional $375
million of commercial paper to fund a portion of the $435 million acquisition
cost for Emdersa. Also in 1998, Austran Holdings, Inc. (Austran), a wholly
owned subsidiary of GPU Electric, entered into a A$500 million (approximately
U.S. $306 million) commercial paper program. PowerNet has guaranteed Austran's
obligations under this program. As of December 31, 1998, Austran had outstanding
approximately A$458 million (approximately U.S. $280 million) under the
commercial paper program, the proceeds which will be used to refinance the
maturing portion of the senior debt credit facility used to finance the PowerNet
acquisition. The Austran borrowings are classified as noncurrent on the
Consolidated Balance Sheet since it is management's intent to reissue the
commercial paper on a long-term basis.
In 1998, GPU Electric sold its 50% stake in Solaris, the net sales proceeds
of which were used to reduce by $112 million the Solaris and PowerNet
acquisition debt. The balance of the proceeds was applied for other corporate
purposes.
In 1998, PowerNet and Midlands acquisition debt was reduced by an
additional $40 million and $189 million, respectively, from proceeds provided by
the sale of GPU, Inc. common stock. GPU may further reduce Midlands and PowerNet
acquisition debt with a portion of the proceeds from the sale of the GPU Energy
companies' generating facilities (see Managing the Transition section of
COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and
Analysis).
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LIMITATIONS ON ISSUING ADDITIONAL SECURITIES
The GPU Energy companies' FMB indentures and/or charters contain provisions
which limit the total amount of securities evidencing secured indebtedness
and/or unsecured indebtedness which the GPU Energy companies may issue, the more
restrictive of which are discussed below.
The GPU Energy companies' FMB indentures require that, for a period of any
twelve consecutive months out of the fifteen calendar months immediately
preceding the issuance of additional FMBs, net earnings (before income taxes,
with other income limited to 5% of operating income before income taxes for
JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall have
been at least twice the annual interest requirements on all FMBs to be
outstanding immediately after such issuance. They also restrict the ratio of the
principal amount of FMBs which may be issued to not more than 60% of available
bondable value of property additions, but in general, permit the GPU Energy
companies to issue additional FMBs against a like principal amount of previously
issued and retired FMBs.
At December 31, 1998, these net earnings requirements would have permitted
JCP&L, Met-Ed and Penelec to issue $2.3 billion, $544 million and $606 million,
respectively, principal amount of additional FMBs at an assumed 6 1/2% interest
rate. However, the GPU Energy companies had bondable value of property additions
sufficient to permit JCP&L, Met-Ed and Penelec to issue only approximately $361
million, $345 million and $215 million, respectively, principal amount of
additional FMBs. In addition, JCP&L, Met-Ed and Penelec could issue
approximately $361 million, $100 million and $198 million, respectively, of FMBs
against retired FMBs.
In general, the FMB indentures permit the GPU Energy companies to direct
the trustee to utilize cash on deposit to purchase callable or maturing bonds
and to purchase bonds in the market at not more than 105% of their principal
amount, plus accrued interest. Penelec's FMB indenture, however, authorizes
Penelec to direct the trustee to redeem bonds (on a pro-rata basis for all bonds
outstanding) at par.
Among other restrictions, JCP&L's charter provides that without the consent
of the holders of two-thirds of the outstanding preferred stock, no additional
shares of preferred stock may be issued unless, for a period of any twelve
consecutive months out of the fifteen calendar months immediately preceding such
issuance, the after-tax net earnings available for the payment of interest on
indebtedness shall have been at least one and one-half times the aggregate of
(a) the annual interest charges on indebtedness and (b) the annual dividend
requirements on all shares of preferred stock to be outstanding immediately
after such issuance. At December 31, 1998, these provisions would have permitted
JCP&L to issue $1.5 billion stated value of cumulative preferred stock at an
assumed 7.25% dividend rate.
JCP&L's charter also provides that, without the consent of the holders of a
majority of the total voting power of JCP&L's outstanding preferred stock, JCP&L
may not issue or assume any securities representing short-term unsecured
indebtedness, except to refund certain outstanding unsecured securities issued
or assumed by JCP&L or to redeem all outstanding preferred stock, if immediately
thereafter the total principal amount of all outstanding unsecured debt
securities having an initial maturity of less than ten years (or within
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three years of maturity for all unsecured indebtedness having original
maturities in excess of ten years) would exceed 10% of the aggregate of (a) the
total principal amount of all outstanding secured indebtedness issued or assumed
by JCP&L and (b) the capital and surplus of JCP&L. At December 31, 1998, these
restrictions would have permitted JCP&L to have approximately $285 million of
unsecured indebtedness outstanding.
JCP&L has obtained authorization from the SEC to incur short-term debt
(including indebtedness under the Credit Agreement and commercial paper program)
up to its charter limitation.
In February 1999, Met-Ed and Penelec redeemed all their cumulative
preferred stock. As a result, their charters no longer restrict the amount of
preferred stock or unsecured indebtedness Met-Ed and Penelec may have
outstanding. Met-Ed and Penelec have each applied to the SEC for authorization
to incur short-term debt of up to $150 million.
REGULATION
As a registered holding company, GPU, Inc. is subject to regulation by the
SEC under the 1935 Act. GPU is also subject to regulation under the 1935 Act
with respect to accounting, the issuance of securities, the acquisition and sale
of utility assets, securities or any other interest in any business, the
entering into, and performance of, service, sales and construction contracts,
and certain other matters. The SEC has determined that the electric facilities
of the GPU Energy companies constitute a single integrated public utility system
under the standards of the 1935 Act. The 1935 Act also limits the extent to
which GPU may engage in nonutility businesses or acquire additional utility
businesses. Each of the GPU Energy companies' retail rates, conditions of
service, issuance of securities and other matters are subject to regulation in
the state in which each operates in New Jersey by the NJBPU and in Pennsylvania
by the PaPUC. Additionally, Penelec, as lessee, operates the facilities serving
the village of Waverly, New York. Penelec's retail rates for New York customers,
as well as Penelec's New York operations and property, are subject to regulation
by the New York Public Service Commission. Although Penelec does not render
electric service in Maryland, the Public Service Commission of Maryland has
jurisdiction over the portion of Penelec's property located in that state.
Moreover, with respect to wholesale rates, the transmission of electric energy,
accounting, the construction and maintenance of hydroelectric projects and
certain other matters, the GPU Energy companies are subject to regulation by the
FERC under the Federal Power Act. The NRC regulates the construction, ownership
and operation of nuclear generating stations and other related matters. JCP&L is
also subject, in certain respects, to regulation by the PaPUC in connection with
its participation in the ownership and operation of certain facilities located
in Pennsylvania. See Electric Generation and Environmental Matters for
additional information.
Midlands, the GPUI Group's electric distribution affiliate in England, is
subject to regulation by the Office of Electricity Regulation. Midlands' network
charges are subject to regulatory review at intervals of up to five years as
determined by the regulator. The results of the next regulatory
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review are expected to be effective on April 1, 2000. The supply business
franchise license currently relates only to customers having an annual maximum
demand of less than 100 KW. Customers with a higher maximum demand are able to
buy their electricity from any electricity supplier. This option is being
extended to include all customers in Midlands' franchise area by April 1999.
PowerNet, the GPUI Group's electric transmission company in Australia, is
subject to regulation by the Office of the Regulator General. PowerNet's network
and connection charges are subject to regulatory review every five or more
years, with the next review scheduled in 2002 for application in 2003.
Empresa Guaracachi S.A., the GPUI Group's electric generation company in
Bolivia, is subject to regulation under the Electricity Law of 1994. Twice each
year, the Superintendency of Electricity recalculates the prices that Empresa
Guaracachi S.A. and other electric generators may charge for capacity based upon
an estimated cost of constructing a new generating unit. In addition, energy
prices are recalculated semi-annually based upon a projected cost of generation,
including fuel and nonfuel variable operation and maintenance costs.
Emdersa, a holding company that owns three electric distribution
companies, Edesa, Edelar and Edesal, is subject to regulation by the Government
of Argentina. Rates for electricity distribution in Argentina are established
based on the cost of purchased electricity plus a distribution margin. The rate
structure allows distribution companies to retain the benefit of any operational
efficiencies they are able to achieve until tariffs are reset, generally every
five years. Edesal (San Luis distributor) received its first rate review in June
1998. It is expected that Edelar (La Rioja distributor) and Edesa (Salta
distributor) will receive their rate reviews in June 2000 and August 2001,
respectively.
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects -- TMI-1 and Oyster Creek, both of which are operating generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2
are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50%
and 25%, respectively. Oyster Creek is owned by JCP&L. At December 31, 1998, the
GPU Energy companies' net investment, including nuclear fuel, in TMI-1 was $71
million (JCP&L $18 million; Met-Ed $36 million; Penelec $17 million) and $682
million for Oyster Creek. JCP&L's net investment in TMI-2 at December 31, 1998
was $66 million. JCP&L is collecting revenues for TMI-2 on a basis which
provides for the recovery of its remaining investment in the plant by 2008. In
1998, Met-Ed and Penelec received PaPUC Restructuring Orders, discontinued the
application of Statement of Financial Accounting Standards No. 71 and adopted
the provisions of Statement of Financial Accounting Standards No. 101 and
Emerging Issues Task Force Issue 97-4 with respect to their electric generation
operations. Accordingly, Met-Ed and Penelec wrote-off their remaining investment
in TMI-2 of $1 million and $7 million, respectively.
Costs associated with the operation, maintenance and retirement of nuclear
plants have continued to be significant and less predictable than costs
associated with other sources of generation, in large part due to
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changing regulatory requirements, safety standards, availability of nuclear
waste disposal facilities and experience gained in the construction and
operation of nuclear facilities. The GPU Energy companies may also incur costs
and experience reduced output at their nuclear plants because of the prevailing
design criteria at the time of construction and the age of the plants' systems
and equipment. In addition, for economic or other reasons, operation of these
plants for the full term of their operating licenses cannot be assured. Also,
not all risks associated with the ownership or operation of nuclear facilities
may be adequately insured or insurable. Consequently, the recovery of costs
associated with nuclear projects, including replacement power, any unamortized
investment at the end of each plant's useful life (whether scheduled or
premature), the carrying costs of that investment and retirement costs, is not
assured.
Oyster Creek
The operating license for the Oyster Creek station, a 619 MW boiling water
reactor, expires in 2009. Oyster Creek operated at a 78% capacity factor for
1998. Its next refueling outage is scheduled to begin in the fall of 2000. In
addition to the sale or continued operation of the Oyster Creek facility, JCP&L
has been exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. GPU does not anticipate making a final
decision on the plant before the NJBPU rules on JCP&L's restructuring filing. If
a decision is made to retire the plant early, retirement would likely occur in
2000. Although management believes that the current rate structure would allow
for the recovery of and return on its net investment in the plant and provide
for decommissioning costs, there can be no assurance that such costs will be
fully recoverable.
TMI-1
The operating license for TMI-1, a 786 MW pressurized water reactor,
expires in 2014. TMI-1 operated at a capacity factor of 99% for 1998. Its next
refueling outage is scheduled to begin in the fall of 1999. GPU has entered into
definitive agreements to sell TMI-1 to AmerGen. Highlights of the agreements are
presented in the COMPETITIVE ENVIRONMENT AND RATE MATTERS section of
Management's Discussion and Analysis.
TMI-2
As a result of the 1979 TMI-2 accident, individual claims for alleged
personal injury (including claims for punitive damages), which are material in
amount, were asserted against GPU, Inc. and the GPU Energy companies.
Approximately 2,100 of such claims were filed in the United States District
Court for the Middle District of Pennsylvania. Some of the claims also seek
recovery for injuries from alleged emissions of radioactivity before and after
the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies had (a) primary financial protection in the form
of insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating plan
providing for up to an aggregate of $335 million in
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premium charges under such plan, and (c) an indemnity agreement with the NRC for
up to $85 million, bringing their total financial protection up to an aggregate
of $560 million. Under the secondary level, the GPU Energy companies are subject
to a retrospective premium charge of up to $5 million per reactor, or a total of
$15 million.
In 1995, the U.S. Court of Appeals for the Third Circuit ruled that the
Price-Anderson Act provides coverage under its primary and secondary levels for
punitive as well as compensatory damages, but that punitive damages could not be
recovered against the Federal Government under the third level of financial
protection. In so doing, the Court of Appeals referred to the "finite fund" (the
$560 million of financial protection under the Price-Anderson Act) to which
plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
In 1996, the District Court granted a motion for summary judgment filed by
GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100 pending
claims. The Court ruled that there was no evidence which created a genuine issue
of material fact warranting submission of plaintiffs' claims to a jury. The
plaintiffs have appealed the District Court's ruling to the Court of Appeals for
the Third Circuit, before which the matter is pending. There can be no assurance
as to the outcome of this litigation.
Based on the above, GPU, Inc. and the GPU Energy companies believe that any
liability to which they might be subject by reason of the TMI-2 accident will
not exceed their financial protection under the Price-Anderson Act.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the DOE.
In 1990, the GPU Energy companies submitted a report, in compliance with
NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this plan,
the GPU Energy companies intend to complete the funding for Oyster Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The
TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in
long-term storage and being decommissioned at the same time as TMI-1. Based on
NRC studies, a comparable funding target was developed for TMI-2 which took the
accident into account. Under the NRC regulations, the funding targets (in 1998
dollars) are as follows:
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(in millions)
Oyster
TMI-1 TMI-2 Creek
JCP&L $ 67 $106 $328
Met-Ed 134 214 -
Penelec 67 106 -
--- --- ---
Total $268 $426 $328
=== === ===
The funding targets, while not considered cost estimates, are reference
levels designed to assure that licensees demonstrate adequate financial
responsibility for decommissioning. While the NRC regulations address activities
related to the removal of the radiological portions of the plants, they do not
address costs related to the removal of nonradiological structures and
materials.
A consultant to GPUN performed site-specific studies of TMI-1 (1995), TMI-2
(1995) and Oyster Creek (1995 and 1998), that considered various decommissioning
methods and estimated the cost of decommissioning the radiological portions and
the cost of removal of the nonradiological portions of each plant, using the
prompt removal/dismantlement method. GPUN management has reviewed the
methodology and assumptions used in these studies, is in agreement with them,
and believes the results are reasonable. The NRC may require an acceleration of
the decommissioning funding for Oyster Creek if the plant is retired early. The
retirement cost estimates under the 1995 site-specific studies, assuming
decommissioning at the end of the plants' license terms, are as follows (in 1998
dollars):
(in millions)
Oyster
GPU TMI-1 TMI-2 Creek
Radiological decommissioning $346 $421 $572
Nonradiological cost of removal 85 34* 31
--- --- ---
Total $431 $455 $603
=== === ===
* Net of $12.3 million spent as of December 31, 1998.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage.
The 1995 Oyster Creek site-specific study was updated in 1998 in response
to the previously announced potential early closure of the plant in the year
2000. An early shutdown would increase the retirement costs shown above to $611
million ($580 million for radiological decommissioning and $31 million for
nonradiological cost of removal). Both estimates include substantial spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982 (see OTHER COMMITMENTS AND CONTINGENCIES section of Note 13, Commitments
and Contingencies, of the Combined Notes to the Consolidated Financial
Statements).
In October 1998, GPU entered into definitive agreements to sell TMI-1 to
AmerGen. The agreements provide, among other things, that upon closing, the GPU
Energy companies will fund the TMI-1 decommissioning trusts up to $320 million
and AmerGen will assume all TMI-1 decommissioning liabilities. If all
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the necessary regulatory approvals, as well as certain Internal Revenue Service
rulings, are obtained, the transfer of all the TMI-1 decommissioning liabilities
and expenses to AmerGen will take place at the financial closing.
The ultimate cost of retiring the GPU Energy companies' nuclear facilities
may be different from the cost estimates contained in these site-specific
studies. Such costs are subject to (a) the escalation of various cost elements
(for reasons including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability of
nuclear waste disposal facilities.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Customer
collections are contributed to external trust funds. These deposits, including
the related earnings, are classified as Nuclear decommissioning trusts, at
market on the Consolidated Balance Sheets.
TMI-1 and Oyster Creek:
The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek
retirement costs of $5.2 million and $22.5 million, respectively. These annual
revenues are based on the 1995 site-specific study estimates.
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of
$8.5 million based on both the NRC funding target for radiological
decommissioning costs and a 1988 site-specific study for nonradiological costs
of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for
its share of TMI-1 retirement costs, on a basis consistent with that granted
Met-Ed. In the Restructuring Orders, the PaPUC granted recovery of an interim
level of TMI-1 decommissioning costs as part of the Competitive Transition
Charge (CTC). This amount will be adjusted in Phase II of Met-Ed and Penelec's
restructuring proceedings, once the net proceeds from the generation asset
divestiture are determined.
The amounts charged to depreciation expense in 1998 and the provisions for
the future expenditure of these funds, which have been made in accumulated
depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
Amount expensed in 1998:
JCP&L $ 5 $ 22
Met-Ed 9 -
Penelec 4 -
--- ---
Total $ 18 $ 22
=== ===
Accumulated depreciation provision at December 31, 1998:
JCP&L $ 49 $273
Met-Ed 75 -
Penelec 34 -
--- ---
Total $158 $273
=== ===
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Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable from customers.
TMI-2:
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, 1998 and 1997 are $484 million (JCP&L $121 million; Met-Ed $242
million; Penelec $121 million) and $449 million (JCP&L $112 million; Met-Ed $225
million; Penelec $112 million), respectively. These amounts are based upon the
1995 site-specific study estimates (in 1998 and 1997 dollars, respectively)
discussed above and an estimate for remaining incremental monitored storage
costs of $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million)
for 1998 and $16 million (JCP&L $4 million; Met-Ed $8 million; Penelec $4
million) for 1997, as a result of TMI-2's entering long-term monitored storage
in 1993. The GPU Energy companies are incurring annual incremental monitored
storage costs of approximately $1.8 million (JCP&L $450 thousand; Met-Ed $900
thousand; Penelec $450 thousand).
Offsetting the $484 million liability at December 31, 1998 is $252 million
(JCP&L $23 million; Met-Ed $147 million; Penelec $82 million) which management
believes is probable of recovery from customers and included in Regulatory
assets, net on the Consolidated Balance Sheets, and $266 million (JCP&L $103
million; Met-Ed $120 million; Penelec $43 million) in trust funds for TMI-2 and
included in Nuclear decommissioning trusts, at market on the Consolidated
Balance Sheets. Earnings on trust fund deposits are included in amounts shown on
the Consolidated Balance Sheets under Regulatory assets, net. TMI-2
decommissioning costs charged to depreciation expense in 1998 amounted to $13
million (JCP&L $2 million; Met-Ed $10 million; Penelec $1 million).
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific estimates. In addition, JCP&L is recovering its share of
TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders
granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of
the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset
those amounts that are above the level provided for in the CTC.
At December 31, 1998, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $75 million (JCP&L $19 million; Met-Ed
$37 million; Penelec $19 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1998 dollars). In connection
with rate case resolutions at the time, JCP&L, Met-Ed and Penelec have made
contributions to irrevocable external trusts relating to their shares of the
accident-related portions of the decommissioning liability in the amounts of $15
million, $40 million and $20 million, respectively. These contributions were not
recoverable from customers and have been expensed. The GPU Energy companies will
not pursue recovery from customers for any amounts contributed in excess of the
$75 million accident-related portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs,
and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
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INSURANCE
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages, some of which will change as certain
generating assets are sold. Losses or liabilities that are not completely
insured, unless allowed to be recovered through ratemaking, could have a
material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations, these insurance policies
generally require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination and debris removal expenses. Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $9.7 billion. Coverage for
the first $200 million of such liability is provided by private insurance. The
remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could result
in assessments of up to $88 million per incident for each of the GPU Energy
companies' two operating reactors, subject to an annual maximum payment of $10
million per incident per reactor. In addition to the retrospective premiums
payable under the Price-Anderson Act, the GPU Energy companies are also subject
to retrospective premium assessments of up to $26.8 million in any one year
under insurance policies applicable to nuclear operations and facilities.
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after a 17-week waiting period at $3.5
million per week, and after 23 weeks of an outage, continues for three years
beginning at $1.8 million and $2.6 million per week for the first year for
Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for
years two and three.
ELECTRIC GENERATION AND ENVIRONMENTAL MATTERS
Fuel
The GPU Energy companies utilized fuels in the generation of electric
energy during 1998 in approximately the following percentages:
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1998 Actuals
Total JCP&L Met-Ed Penelec
Coal 62% 25% 58% 87%
Nuclear 35% 69% 38% 13%
Gas, Oil & Hydro* 3% 6% 4% -
* Includes pumped storage (which is a net user of electricity).
Approximately 38% (JCP&L 59%; Met-Ed 31%; Penelec 29%) of the GPU Energy
companies' total energy requirements in 1998 were supplied by utility contracts,
NUG purchases, and interchange from other utilities.
For 1999, the GPU Energy companies estimate that their use of fuels in the
generation of electric energy will be in the following percentages:
1999 Estimates**
Total JCP&L Met-Ed Penelec
Coal 38% 10% 44% 71%
Nuclear 61% 90% 55% 28%
Gas, Oil & Hydro* 1% - 1% 1%
* Includes pumped storage.
** Assumes mid-1999 sale of fossil-fuel and hydroelectric generating
facilities, and year-end 1999 sale of TMI-1.
Approximately 52% (JCP&L 61%; Met-Ed 38%; Penelec 56%) of the GPU Energy
companies' 1999 energy requirements are expected to be supplied by utility
contracts, NUG purchases, and interchange from other utilities.
Fossil: The GPU Energy companies have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain generating
stations in which they have ownership interests (JCP&L - 16.67% ownership
interest in Keystone; Met-Ed - 16.45% ownership interest in Conemaugh; Penelec -
50% ownership interest in Homer City). The contracts, which expire at various
dates between 1999 and 2007, require the purchase of either fixed or minimum
amounts of the stations' coal requirements. The price of the coal under the
contracts is based on adjustments of indexed cost components. The GPU Energy
companies' share of the cost of coal purchased under these agreements is
expected to aggregate $212 million (JCP&L $27 million; Met-Ed $57 million;
Penelec $128 million) for 1999. These contracts will be assumed by the
purchasers, upon the closings of the sales of the GPU Energy companies' fossil
generation facilities.
At the present time, adequate supplies of fossil fuels are readily
available to the GPU Energy companies, but this situation could change rapidly
as a result of actions over which they have no control.
Nuclear: The preparation of nuclear fuel for generating station use
involves various manufacturing stages for which GPU contracts separately.
Stage I involves the mining and milling of uranium ores to produce natural
uranium concentrates. Stage II provides for the chemical conversion of the
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natural uranium concentrates into uranium hexafluoride. Stage III involves the
process of enrichment to produce enriched uranium hexafluoride from the natural
uranium hexafluoride. Stage IV provides for the fabrication of the enriched
uranium hexafluoride into nuclear fuel assemblies for use in the reactor core at
the nuclear generating station.
In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU
Energy companies have entered into contracts with, and have been paying fees to,
the DOE for the future disposal of spent nuclear fuel in a repository or interim
storage facility. Following its purchase of TMI-1, AmerGen will assume all
liability for disposal costs related to spent fuel generated after the sale. In
1996, the DOE notified the GPU Energy companies and other standard contract
holders that it will be unable to begin acceptance of spent nuclear fuel for
disposal by 1998, as mandated by the NWPA. The DOE requested recommendations
from contract holders for handling the delay. In January 1997, the GPU Energy
companies, along with other electric utilities and state agencies, petitioned
the U.S. Court of Appeals to, among other things, permit utilities to cease
payments into the Federal Nuclear Waste Fund until the DOE complies with the
NWPA. In November 1997, the Court denied this request. The DOE's inability to
accept spent nuclear fuel could have a material impact on GPU's results of
operations, as additional costs may be incurred to build and maintain interim
on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage capacity
to accommodate spent nuclear fuel through the end of its licensed life. In June
1997, a consortium of electric utilities, including GPUN, filed a license
application with the NRC seeking permission to build an interim above-ground
disposal facility for spent nuclear fuel in northwestern Utah. There can be no
assurance as to the outcome of these matters.
Environmental Matters
GPU is subject to a broad range of federal, state and local environmental
and employee health and safety legislation and regulations. In addition, the GPU
Energy companies are subject to licensing of hydroelectric projects by the FERC
and of nuclear power projects by the NRC. Such licensing and other actions by
federal agencies with respect to GPU's domestic operations are also subject to
the National Environmental Policy Act.
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but not
limited to acid rain, water quality, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
GPU records liabilities (on an undiscounted basis) where it is probable
that a loss has been incurred and the amount of the loss can be reasonably
estimated, and adjusts these liabilities as required to reflect changes in
circumstances. At December 31, 1998, the GPU Energy companies have liabilities
recorded on their balance sheets for environmental matters totaling $90 million,
as follows:
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Company Site Description Amount (in millions)
JCP&L MGP sites $52
Penelec Seward station 12
All Ash disposal and other sites 26*
----
Total $90
====
* (JCP&L $6; Met-Ed $5; Penelec $15)
Under the agreements entered into for the purchase of the GPU Energy
companies' generating facilities, the buyers, in general, have agreed to assume
all on-site environmental liabilities other than up to $6 million of costs for
the Seward Station, which liability Penelec has retained.
In 1998, the GPU Energy companies made capital expenditures of
approximately $10 million (JCP&L $1 million; Met-Ed $5 million; Penelec $4
million) in response to environmental considerations and have budgeted
approximately $3 million (Met-Ed $2 million; Penelec $1 million) for this
purpose in 1999. The incremental annual operating and maintenance costs for such
equipment is not expected to be material. For further information, see the
Water, Residual Waste and Hazardous/Toxic Wastes sections below.
Water: The federal Water Pollution Control Act (Clean Water Act) generally
requires, with respect to existing steam electric power plants, the application
of the best conventional or practicable pollutant control technology available
and compliance with state-established water quality standards. Additionally,
water quality-based effluent limits (more stringent than "technology" limits)
may be applied to utility wastewater discharges based on receiving stream
quality. With respect to future plants, the Clean Water Act requires the
application of the "best available demonstrated control technology, processes,
operating methods or other alternatives."
The U.S. Environmental Protection Agency (EPA) has adopted regulations that
establish thermal and other limitations for effluents discharged from both
existing and new steam electric generating stations. Standards of performance
are developed, and enforcement of effluent limitations is accomplished, through
the issuance of discharge permits by the EPA, or states authorized by the EPA,
which specify limitations to be applied. Discharge permits are required for all
of the GPU Energy companies' steam generating stations and other stations that
discharge wastewater to surface water bodies.
The discharge permit for the Oyster Creek station may, among other things,
require the installation of a closed-cycle cooling system, such as a cooling
tower, to meet New Jersey state water quality-based thermal effluent
limitations. Although construction of such a system is not required in order to
meet the EPA's regulations setting effluent limitations for the Oyster Creek
station (such regulations would accept the use of the once-through cooling
system now in operation at this station), a closed-cycle cooling system may be
required in order to comply with the water quality standards imposed by the New
Jersey Department of Environmental Protection (NJDEP) for water quality
certification and incorporated in the station's discharge permit. If a cooling
tower is required, the capital costs could exceed $150 million. In October 1994,
following six years of studies, the NJDEP issued a new Discharge to Surface
Water Permit for the Oyster Creek station. The new permit grants JCP&L a
variance from the New Jersey Surface Water Quality
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Standards. The variance allows the continued operation of the existing
once-through cooling system without modifications such as cooling towers. The
variance is effective through October 1999. If this variance is not extended,
JCP&L would retire the plant rather than construct a cooling tower. The NJDEP
could revoke the variance at any time upon failure to comply with the permit
conditions.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP) that
contaminants from coal mine refuse piles were identified in storm water run-off
at Penelec's Seward station property. Penelec signed a modified Consent Order,
which became effective December 1996, and a third Amendment in December 1998,
that establish a schedule for submitting a plan for long-term remediation, based
on future operating scenarios. Penelec currently estimates that the remediation
of the Seward station property will range from $12 million to $20 million and
has a recorded liability of $12 million at December 31, 1998. These cost
estimates are subject to uncertainties based on continuing discussions with the
PaDEP as to the method of remediation, the extent of remediation required and
available cleanup technologies. Penelec expects recovery of these remediation
costs in Phase II of its restructuring proceeding and has recorded a
corresponding regulatory asset of approximately $12 million at December 31,
1998.
In 1997, York Haven Power Company, a wholly-owned subsidiary of Met-Ed,
entered into an agreement with various agencies to construct a fish passage
facility at the York Haven hydroelectric project by April 2000. This agreement
is part of the FERC license. The present estimated installed cost of the
facility is $9.0 million, for which Met-Ed has agreed to remain responsible
following the sale of the York Haven project.
The GPU Energy companies are also subject to environmental and water
diversion requirements adopted by the Delaware River Basin Commission and the
Susquehanna River Basin Commission, as administered by those commissions or the
PaDEP and the NJDEP.
Nuclear: Reference is made to the Nuclear Facilities section for
information regarding the TMI-2 accident, its aftermath and the GPU Energy
companies' other nuclear facilities.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste (radwaste) disposal facility in New
Jersey, which was expected to commence operation by the end of 2003. GPUN's
total share of the cost for developing, constructing and site licensing the
facility was estimated to be $58 million. Through December 31, 1998, GPUN has
made payments of $6 million. JCP&L is recovering the costs to construct this
facility from customers, and $27 million has been collected to date. In February
1998, the New Jersey Low-Level Radwaste Facility Siting Board (Siting Board)
voted to suspend the siting process in New Jersey. The Siting Board is in the
process of determining what activities are required by law to be continued, and
the level of funding required to support these activities. The Siting Board
intended to return the unused funds to the generators, but the Governor has
overruled this decision. Legislation is pending in New Jersey, however, that
would mandate returning the unused funds to the generators, of which GPUN's
share is approximately $2.6 million. GPUN cannot determine at this time what
effect, if any, this matter will have on its operations.
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Pennsylvania, Delaware, Maryland and West Virginia have established the
Appalachian Compact to construct a facility for the disposal of low-level
radwaste in those states, including low-level radwaste from TMI-1. To date,
pre-construction costs of $33 million, out of an estimated $88 million, have
been paid. Eleven nuclear plants have so far shared equally in the
pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1.
Pennsylvania has suspended the search for a low-level radwaste disposal site in
the state. GPUN cannot determine at this time what effect, if any, this may have
on its operations.
GPUN is currently shipping low-level radwaste to the Barnwell, South
Carolina radwaste disposal site. Continuing delays in the completion of the
Appalachian Compact disposal facility, and the suspension of the siting process
in New Jersey, will require GPUN to perform an evaluation of its ability to
safely store radwaste beyond these dates.
The GPU Energy companies have provided for future contributions to the
Decontamination and Decommissioning Fund for the cleanup of uranium enrichment
plants operated by the Federal Government. GPU's total liability at December 31,
1998 amounted to $28 million (JCP&L $18 million; Met-Ed $7 million; Penelec $3
million). The remaining amount recoverable from ratepayers at December 31, 1998
is $29 million (JCP&L $18 million; Met-Ed $7 million; Penelec $4 million).
Air: With respect to air quality, the GPU-owned or operated generating
stations are subject to certain state environmental regulations of the NJDEP and
the PaDEP. The stations are also subject to certain federal environmental
regulations of the EPA. One of the major sets of regulations that governs air
quality is the Federal Clean Air Act of 1970 (CAA).
CAA Title I sets National Ambient Air Quality Standards (NAAQS) for certain
criteria pollutants. The criteria pollutants are ozone, sulfur dioxide (SO2),
nitrogen dioxide, particulate matter, carbon monoxide and lead. In particular,
this Title has established the Northeast Ozone Transport Region (OTR), which
includes 12 northeast states and the District of Columbia, to address the
transport of those pollutants leading to non-attainment of the ozone NAAQS in
the Northeast. Ozone control is facilitated by the control of pollutant
precursors, which are nitrogen oxide (NOx) and volatile organic compounds
(VOCs). Fossil fuel-fired electric generating stations are major sources of NOx
emissions. Pennsylvania and New Jersey are part of the OTR, and will be required
to control NOx emissions to a level that will provide for the attainment of the
ozone standard in the Northeast. As an initial step, major stationary sources of
NOx were required to implement Reasonably Available Control Technology (RACT) by
May 31, 1995. The PaDEP established regulations that RACT be implemented on a
case-by-case basis and thus is unique for each unit or facility. RACT proposals
were prepared and submitted to the PaDEP in 1994. GPU has opted for the
installation of low NOx burners and/or other control technology, and in some
cases, limitations on annual operations, in order to achieve the reductions
required by the PaDEP RACT regulations. The NJDEP's RACT regulations establish
maximum allowable emission rates for utility boilers based on fuel used and
boiler type, and on combustion turbines based on the type of fuel used. Existing
units are eligible for emissions averaging upon approval of an averaging plan by
the NJDEP. GPU is in compliance with RACT regulations in both New Jersey and
Pennsylvania.
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A Memorandum of Understanding (MOU) among the members of the Ozone
Transport Commission (OTC) calls for inner and outer zones, with seasonal NOx
emission reductions from 1990 emission levels of 65% and 55%, respectively, by
May 1, 1999. JCP&L, Met-Ed and Penelec will spend an estimated $30,000, $340,000
and $200,000, respectively, to meet the 1999 reductions set by the OTC. The MOU
also calls for a 75% reduction from 1990 emission levels for the inner and outer
zones by May 2003. EPA regulations have been finalized for a 22 state region
which call for utility reductions of 85% from projected 2007 NOx emissions.
These requirements will supercede Phase III of the MOU. A market-based NOx
trading system is proposed to allow for the transfer of excess reductions
encouraging alternate compliance strategies.
Under mandatory, routine review of the ozone NAAQS, the EPA issued new
standards in July 1997 that will significantly increase the areas in the country
which are not in attainment of the NAAQS. A timeline for implementation of the
new standards calls for attainment designations by 2000; state implementation
plans (SIP) by 2001 and 2003 for attainment and non-attainment areas,
respectively; and attainment, with possible extensions, by 2011.
The area around the Warren station has been designated as non-attainment
for the SO2 NAAQS. The EPA and the PaDEP have both approved the use of a
non-guideline air quality model, which is more representative and less
conservative than the EPA guideline model, to evaluate the ambient air quality
impacts of the station. This modeling has demonstrated attainment for the area,
with no required reduction in Warren station emissions. At Shawville station,
the approved use of the same non-guideline model shows attainment of the SO2
NAAQS within current Pennsylvania default SO2 emission limits.
The vicinity of the Chestnut Ridge Energy Complex, which includes the Homer
City, Conemaugh, Keystone and Seward stations, is officially designated as being
in attainment of the SO2 NAAQS; however, both the EPA and the PaDEP have
questioned the area's attainment of this standard. The EPA and the PaDEP have
both approved the use of the same non-guideline model discussed above to
evaluate the ambient air quality impacts of these generating stations. A
proposed attainment and maintenance plan has been submitted to the PaDEP which
includes allowable emission rates which are currently being achieved by the
affected facilities.
Attainment of the SO2 NAAQS has been taken into account as part of the
design of the Conemaugh station scrubbers. In addition, Met-Ed has initiated
ambient air quality modeling studies for its Portland and Titus stations. While
the results are uncertain, these studies may result in a revised Pennsylvania
SIP with source-specific emission limitations in order to attain NAAQS for SO2.
Based on the results of the studies pursuant to compliance with NAAQS,
significant SO2 reductions may be required at one or more of these stations,
which could result in significant capital and additional operating expenditures.
Under a court ordered review of the NAAQS for particulate matter, the EPA
released new standards in July 1997, which could significantly increase the
areas in the country that are not in attainment of the standard. The particulate
matter NAAQS primarily impact NOx and SO2 emission sources. It is
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possible that once attainment status is defined by the EPA and the reductions
required under other provisions of the CAA are realized, compliance with the
particulate matter NAAQS could require further reductions in NOx and/or SO2
emissions.
Certain other environmental regulations limit the amount of particulate
matter emitted into the environment. GPU has installed equipment at its
coal-fired generating stations and may find it necessary to either upgrade or
install additional equipment at certain of its stations to meet new particulate
emission requirements. Also, the proposed revision to the particulate matter
NAAQS could trigger reduction requirements.
Title III of the CAA deals with emissions of hazardous air pollutants
(HAPs). As part of Title III, the EPA is charged with conducting a study to
determine if fossil fuel-fired electric steam generating units pose a serious
threat to public health due to emissions of HAPs. The study will seek to
determine whether regulation of utility sources is appropriate and necessary. If
the study results prove, through risk analysis, that regulation is required, a
Maximum Achievable Control Technology standard will be developed for utility
sources. An interim study report was published in October 1996. In general, the
study did not find unacceptable health risks from utility sources, but
recommended further analysis of long-range transport of HAPs and the impact of
mercury emissions. The interim report does not include the EPA's official
recommendation as to the necessity of HAP regulation for utilities. An
information collection request under the CAA has been issued for the sampling
and analysis of mercury and chlorides in the various coal supplies. This will
provide further data to EPA to determine if mercury and/or chlorides control
will be mandated.
Title IV of the CAA requires substantial reductions in SO2 emissions to
meet a national cap beginning in the years 1995 and 2000 (Phases I and II,
respectively). As a result, it will be necessary to install and operate emission
control equipment, switch to slightly lower sulfur coal at some of their
coal-fired plants, or purchase emission allowances in order to achieve
compliance. Title IV also imposes requirements for the installation of NOx
controls. To comply with Titles I and IV of the CAA, the GPU Energy companies
expect to spend up to $243 million (JCP&L $44 million; Met-Ed $96 million;
Penelec $103 million) for air pollution control equipment by the year 2000, of
which approximately $242 million (JCP&L $44 million; Met-Ed $95 million; Penelec
$103 million) has been spent as of December 31, 1998 (these amounts include
costs to meet the 1999 reductions set by the OTC, as discussed on page 37). The
capital costs of equipment are for the installation of flue gas desulfurization
systems (scrubbers), low NOx burner technology, selective noncatalytic reduction
and particulate removal upgrades.
The Conemaugh, Portland and Shawville stations are Phase I affected units.
The second of two scrubbers was installed at the Conemaugh station during 1995,
as part of GPU's plans to comply with SO2 emission limitations. For the Portland
station, Met-Ed plans to meet its Phase I compliance obligation through the use
of SO2 emission allowances. The Shawville station will require lower sulfur coal
and/or the purchase of emission allowances to meet its Phase I requirements.
Since these coal fired units are Phase I affected, they are also subject to the
Title IV NOx requirements.
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The Homer City, Keystone and Titus stations have been declared early
election units under federal regulations. This limits the Title IV NOx
requirement to the Phase I NOx emission rates until 2008. GPU's current strategy
for Phase II SO2 compliance is the use of fuel switching and the purchase of
emission allowances at the Keystone and the Homer City Unit 3 stations, with
periodic reviews of the cost effectiveness of the installation of scrubbers.
Switching to lower sulfur coal and/or the purchase of emission allowances is
currently planned for the Titus, Seward, Portland, Shawville and Warren stations
as well. Homer City units 1 and 2 will use existing coal cleaning technology and
the purchase of emission allowances. Additional control modifications are not
expected to be necessary for Phase II compliance at the Conemaugh and Sayreville
stations.
Title IV of the CAA also requires Phase I and Phase II affected units to
install a continuous emission monitoring system (CEMS) and provide quality
assurance for the data related to SO2, NOx, opacity and volumetric flow. In
addition, Title VIII of the CAA requires all affected sources to monitor carbon
dioxide emissions. Monitoring systems have been installed and certified on
JCP&L, Met-Ed and Penelec's Phase I and Phase II affected units as required by
EPA, NJDEP and PaDEP regulations.
The PaDEP has a CEMS enforcement policy to ensure consistent compliance
with air quality regulations under federal and state statutes. The CEMS
enforcement policy includes matters such as visible emissions, SO2 emission
standards, NOx emissions and a requirement to maintain certified CEMS equipment.
In addition, this policy provides a mechanism for the payment of certain
prescribed amounts to the Pennsylvania Clean Air Fund (Clean Air Fund) for
excess air pollutant emissions or monitoring failures. With respect to the
operation of Met-Ed and Penelec's generating stations, it is not anticipated
that payments to be made to the Clean Air Fund due to CEM penalties will be
material in amount. The CAA has also expanded the enforcement options available
to the EPA and the states and contains more stringent enforcement provisions and
penalties. Moreover, citizen suits can seek civil penalties for violations of
this Act.
CAA Title V required that comprehensive permit applications be submitted by
major stationary sources to the permitting authorities in 1995. Title V may
dramatically increase the level of effort required to track compliance and
tabulate emissions of the numerous processes regulated by the new permits once
issued. The states' Title V program also established new emission fee
structures. In 1998, the Pennsylvania stations paid $1.1 million in emissions
fees, and the New Jersey fees totaled approximately $33,000. Emission fees are
based on the level of actual emissions and are assessed on a per ton basis.
In the fall of 1993, the Clinton Administration announced its Climate
Change Action Plan (Plan), intended to reduce greenhouse gas emissions to 1990
levels by the year 2000. The Plan relies heavily on voluntary action by
industry. GPU has joined approximately 630 other electric utility companies
which have signed accords or are otherwise cooperating with the DOE under the
Climate Challenge Program, which is the electric utility's response to the Plan.
As a result of this and other programs, the CO2 emissions from GPU-owned
generating facilities have been at or below 1990 levels since 1992.
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The 1997 Kyoto Protocol calls for the U.S. to reduce its CO2 emissions to
7% below 1990 levels by 2008 to 2012. The President has stated that he will not
ask the Senate to ratify the agreement until the developing nations also agree
to emission targets.
Electromagnetic Fields: There have been a number of studies regarding the
possibility of adverse health effects from electric and power frequency magnetic
fields that are found everywhere there is electricity. While some of the studies
have indicated some association between exposure to magnetic fields and cancer,
other studies have indicated no such association. The studies have not shown any
causal relationship between exposure to magnetic fields and cancer, or any other
adverse health effects. In 1990, the EPA issued a draft report that identifies
magnetic fields as a possible carcinogen, although it acknowledged that there is
still scientific uncertainty surrounding these fields and their possible link to
adverse health effects. On the other hand, a 1992 White House Office of Science
and Technology policy report states that "there is no convincing evidence in the
published literature to support the contention that exposures to extremely low
frequency electric and magnetic fields generated by sources such as household
appliances, video display terminals, and local power lines are demonstrable
health hazards." In 1994, results of a large-scale epidemiology study of
electric utility workers suggested a statistical relationship between brain
cancer and the class of workers who received the highest exposure. These
findings conflicted with two earlier large-scale studies that found no such
relationship. In 1996, the National Research Council of the National Academy of
Sciences released a report which concluded that, "Based on a comprehensive
evaluation of published studies relating to the effects of power-frequency
electric and magnetic fields on cells, tissues and organisms (including humans),
... the current body of evidence does not show that exposure to these fields
presents a human-health hazard. Specifically, no conclusive and consistent
evidence shows that exposure to residential electric and magnetic fields produce
cancer, adverse neurobehavioral effects, or reproductive and developmental
effects." Additional studies are presently underway.
Certain parties have alleged that exposure to electric and magnetic fields
associated with the operation of transmission and distribution facilities will
produce adverse impacts upon public health and safety and upon property values.
Furthermore, regulatory actions under consideration by the NJDEP and bills
introduced in the Pennsylvania legislature could, if enacted, establish a
framework under which the intensity of the fields produced by electric
transmission and distribution lines would be limited or otherwise regulated.
The GPU Energy companies cannot determine at this time what effect, if any,
this matter will have on their results of operations and financial position.
Residual Waste: PaDEP regulations governing ash disposal sites require,
among other things, groundwater assessments of landfills if existing groundwater
monitoring indicates the possibility of degradation. The assessments could
require the installation of additional monitoring wells and the evaluation of
one year's data. If the assessments show degradation of the groundwater, Penelec
and Met-Ed would be required to develop abatement plans, which may include the
lining of currently unlined facilities. To date, Penelec has not identified any
cases requiring abatement. In 1998, Penelec
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reported to the PaDEP that it had exceeded the discharge limit at the Homer City
Station ash disposal site. A groundwater assessment is required to evaluate the
cause and to determine the need for abatement measures. Although Met-Ed's Titus
station ash disposal site was upgraded in 1991 and meets many of the lined
facility requirements, degradation has been identified at the site. In 1996,
Met-Ed filed an abatement plan with the PaDEP in conjunction with its
re-permitting application (see discussion below), which states that the problem
will be abated once the station is closed and projected site closure procedures
have been performed. The PaDEP has since required a more detailed groundwater
assessment to evaluate the groundwater condition at the site. Also, Met-Ed's
Portland station ash disposal site requires significant modifications, since the
permit received from the PaDEP in December 1998 requires a synthetic liner and
leachate collection and treatment system.
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) operating ash
disposal sites, including projected site closure procedures and related cost
estimates. The cost estimates for the closure of these sites range from
approximately $17 million to $22 million, and a liability of $17 million (JCP&L
$1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the
Consolidated Balance Sheets at December 31, 1998. JCP&L has requested recovery
of its share of closure costs in its restructuring plan filed with the NJBPU in
July 1997. Met-Ed and Penelec expect recovery of these costs in Phase II of
their restructuring proceedings. As a result, a regulatory asset of $17 million
(JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the
Consolidated Balance Sheets at December 31, 1998.
Other PaDEP residual waste compliance requirements involve storage
impoundments, which also will eventually require groundwater monitoring systems
and potential assessments of the impact on groundwater. Groundwater abatement
may be necessary at locations where pollution problems are identified. The
removal of all the residual waste ("clean closure") has been done at some
impoundments to eliminate the need for future monitoring and abatement
requirements. Storage impoundments must have implemented groundwater monitoring
plans by 2002, but the PaDEP can require this at any time prior to this date or,
at its discretion, defer full compliance beyond 2002 for some storage
impoundments. A 1997 change in the PaDEP's regulations required submittal of
groundwater monitoring plans for residual waste storage impoundments by July
1997. The GPU Energy companies have submitted plans for all their relevant
stations and the PaDEP has begun to implement these plans at the Conemaugh,
Homer City and Keystone stations.
Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the
EPA has adopted certain regulations governing the use, storage, testing,
inspection and disposal of electrical equipment that contain polychlorinated
biphenyls (PCBs). Such regulations permit the continued use and servicing of
certain electrical equipment (including transformers and capacitors) that
contain PCBs. GPU has met all requirements of the TSCA to allow the continued
use of equipment containing PCBs and has taken substantive voluntary actions to
reduce the amount of PCB-containing electrical equipment.
Prior to 1953, the GPU Energy companies owned and operated MGP sites in New
Jersey and Pennsylvania. Waste contamination associated with the operation and
dismantlement of these MGP sites is, or may be, present both on-site and
off-site. Claims have been asserted against the GPU Energy
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companies for the cost of investigation and remediation of these sites. The
amount of such remediation costs and penalties may be significant and may not be
covered by insurance. JCP&L has entered into agreements with the NJDEP for the
investigation and remediation of 17 formerly owned MGP sites. JCP&L has also
entered into various cost-sharing agreements with other utilities for most of
the sites. As of December 31, 1998, JCP&L has spent approximately $32 million in
connection with the cleanup of these sites. In addition, JCP&L has recorded an
estimated environmental liability of $52 million relating to expected future
costs of these sites (as well as two other properties). This estimated liability
is based upon ongoing site investigations and remediation efforts, which
generally involve capping the sites and pumping and treatment of ground water.
Moreover, the cost to clean up these sites could be materially in excess of the
$52 million due to significant uncertainties, including changes in acceptable
remediation methods and technologies.
In 1997, JCP&L's request to establish a Remediation Adjustment Clause for
the recovery of MGP remediation costs was approved by the NJBPU. At December 31,
1998, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of
$44 million. JCP&L is continuing to pursue reimbursement from its insurance
carriers for remediation costs already spent and for future estimated costs. In
1994, JCP&L filed a complaint with the Superior Court of New Jersey against
several of its insurance carriers, relative to these MGP sites. Settlement has
been reached with all but one of those insurance companies.
In 1997, the EPA filed a complaint against GPU, Inc. in the United States
District Court for the District of Delaware for enforcement of its unilateral
order issued against GPU, Inc. to clean up the former Dover Gas Light Company
(Dover) manufactured gas production site in Dover, Delaware. Dover was part of
the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc. emerged
from the AGECO/AGECORP reorganization proceedings. All of the common stock of
Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated
entity, and was subsequently acquired by Chesapeake Utilities Corporation
(Chesapeake). According to the complaint, the EPA is seeking up to $0.5 million
in past costs, $4.2 million for the cleanup of the Dover site and approximately
$19 million in penalties. GPU, Inc. has responded to the EPA complaint stating
that such claims should be dismissed because, among other things, they are
barred by the operation of the Final Decree entered by the United States
District Court for the Southern District of New York at the conclusion of the
1946 reorganization proceedings of AGECO/AGECORP. Chesapeake has also sued GPU,
Inc. for a contribution to the cleanup of the Dover site. In December 1997, the
Court refused to dismiss the complaint; GPU, Inc. has requested that the Court
reconsider its decision. The parties continue to engage in settlement
discussions. There can be no assurance as to the outcome of these proceedings.
The Federal Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize
the EPA to issue orders compelling responsible parties to take cleanup action at
any location that is determined to present an imminent and substantial danger to
the public or to the environment because of an actual or threatened release of
one or more hazardous substances. Pennsylvania and New Jersey have enacted
legislation giving similar authority to the PaDEP and the NJDEP,
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respectively. In addition, federal and state law provides for payment by
responsible parties for damage to natural resources. Because of the nature of
the GPU Energy companies' business, various by-products and substances are
produced and/or handled that are classified as hazardous under one or more of
these statutes. GPU generally provides for the treatment, disposal or recycling
of such substances through licensed independent contractors, but these statutory
provisions also impose potential responsibility for certain cleanup costs on the
generators of the wastes. GPU has been formally notified by the EPA and state
environmental authorities that it is among the potentially responsible parties
(PRPs) who may be jointly and severally liable to pay for the costs associated
with the investigation and remediation at hazardous and/or toxic waste sites in
the following number of instances (in some cases, more than one company is named
for a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
8 4 2 1 1 13
In addition, certain of the GPU companies have been requested to
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not been
formally named as PRPs, although the EPA and state authorities may nevertheless
consider them as PRPs. Certain of the GPU companies have also been named in
lawsuits requesting damages (which are material in amount) for hazardous and/or
toxic substances allegedly released into the environment. A discussion of five
PRP sites, where it is probable that a loss has been incurred, follows:
JCP&L, Met-Ed and GPUN are among the more than 800 PRPs under CERCLA who
may be liable to pay for costs associated with the investigation and remediation
of the Maxey Flats disposal site, located in Fleming County, Kentucky. A
negotiated settlement among all parties has been finalized and cleanup efforts
have begun. The interim remediation work is estimated to cost $63 million, for
which all responsible parties will be jointly and severally liable. The GPU
Energy companies' estimated share of these costs, which is based upon a
percentage of the total volume of waste believed shipped to the site, is JCP&L
$1.1 million, Met-Ed $400 thousand and GPUN $150 thousand, which amounts are
reflected on the Consolidated Balance Sheets accordingly.
JCP&L has been named as a PRP by the NJDEP for allegedly disposing of
hazardous waste at the Global Landfill, a dump site located in New Jersey. JCP&L
signed a Consent Decree, along with about 50 other PRPs, to investigate the site
and conduct site remediation. The current estimated cost of the remediation is
$33 million. A final allocation of JCP&L's share has not yet been made. However,
JCP&L's interim estimated allocation is $500,000, for which JCP&L has recorded a
liability.
Met-Ed received a PRP notice from the PaDEP asserting that it had disposed
of hazardous waste at the Industrial Solvents & Chemical Company site, a former
solvents recycler. This site is being remediated under the Pennsylvania
Hazardous Sites Cleanup Act. Met-Ed has made immaterial payments to the PRP
group for the water line installation and the removal of tanks, drums and other
materials at the site. Met-Ed has agreed to settle this matter for the amounts
already paid. Final settlement negotiations are in progress.
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Penelec is part of a group of 10 PRPs who have entered into a Consent
Decree with Pennsylvania and a settlement with the EPA to pay for costs
associated with the remediation of a dump site located in Mill Creek Township
near Erie, Pennsylvania. Penelec has paid approximately $114,000 in costs for
the settlement with Pennsylvania and $600,000 in costs for the settlement with
the EPA. Penelec's share of the remaining costs for the site is estimated to be
$500,000 (including costs to cap the site), for which a liability has been
recorded at December 31, 1998.
Penelec has been named as a PRP by the EPA, along with over 1,000 other
PRPs, for allegedly disposing of hazardous materials at the Jack's Creek/Sitken
site, a former metals recycling and smelting operation in Mifflin County,
Pennsylvania. Penelec has joined a PRP group, which is exploring a settlement
with the EPA, but cannot predict the ultimate outcome of the negotiations.
The ultimate cost of remediation of all these and other hazardous waste
sites will depend upon changing circumstances as site investigations continue,
including (a) the existing technology required for site cleanup, (b) the
remedial action plan chosen and (c) the extent of site contamination and the
portion attributed to the GPU company involved.
FRANCHISES AND CONCESSIONS
JCP&L operates pursuant to franchises in the territory served by it and has
the right to occupy and use the public streets and ways of the state with its
poles, wires and equipment upon obtaining the consent in writing of the owners
of the soil, and also to occupy the public streets and ways underground with its
conduits, cables and equipment, where necessary, for its electric operation.
JCP&L has the requisite legal franchise for the operation of its electric
business within the State of New Jersey, including in incorporated cities and
towns where designations of new streets, public ways, etc., may be obtained upon
application to such municipalities. JCP&L holds a FERC license expiring in 2013
authorizing it to operate and maintain Yards Creek in which JCP&L has a 50%
ownership interest.
Met-Ed and Penelec have the necessary franchise rights to furnish electric
service in the various respective municipalities or territories in which each
company now supplies such services. These electric franchise rights, which are
generally nonexclusive rights, consist generally of (a) charter rights and (b)
certificates of public convenience issued by the PaPUC and/or "grandfather
rights". Such electric franchise rights are free from unduly burdensome
restrictions and unlimited as to time, except in a few relatively minor cases
and except as otherwise described below. The secondary franchise granted by the
Borough of Boyertown to Met-Ed contains a provision that the Borough shall have
the right at any time to purchase the electric system in the Borough at a
valuation to be fixed by appraisers. Met-Ed holds a FERC license expiring in
2014 for the continued operation and maintenance of the York Haven hydroelectric
project. Penelec holds a license from the FERC, which expires in 2002, for the
continued operation and maintenance of the Piney hydroelectric project. In
addition, Penelec and the Cleveland Electric Illuminating Company hold a license
expiring in 2015 for Seneca in which Penelec has a 20% undivided interest. For
the same station, Penelec and the Cleveland Electric Illuminating Company hold a
Limited Power Permit issued by the Pennsylvania Water and Power Resources Board
which is unlimited as to
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time. For purposes of the Homer City station, Penelec and New York State
Electric & Gas Corporation hold a Limited Power Permit issued by the
Pennsylvania Water and Power Resources Board which expires in 2017, but is
renewable by the permittees until they have recovered all capital invested by
them in the project. Penelec also holds a Limited Power Permit issued by the
Pennsylvania Water and Power Resources Board for its Shawville station which
expires in 2003, but is renewable by Penelec until it has recovered all capital
invested in the project.
EMPLOYEE RELATIONS
At January 29, 1999, GPU, Inc. and consolidated affiliates had 8,931
full-time employees (JCP&L 2,257; Met-Ed 2,639; Penelec 1,772; GPUI Group 461;
all other companies 1,802). The nonsupervisory production and maintenance
employees of the GPU Energy companies and certain of their nonsupervisory
clerical employees are represented for collective bargaining purposes by local
unions of the International Brotherhood of Electrical Workers (IBEW) at JCP&L,
Met-Ed and Penelec and the Utility Workers Union of America (UWUA) at Penelec.
JCP&L and Met-Ed's three-year contracts with the IBEW expire on October 31,
1999 and April 30, 2000, respectively. Penelec has renegotiated a four-year
contract with the IBEW, expiring on May 14, 2002. The IBEW membership has
ratified the new contract subject to reaching agreement on employee transition
arrangements to be implemented upon GPU's divestiture of its fossil fuel and
hydroelectric generating facilities. Penelec's three-year contract with the UWUA
expires on June 30, 2001.
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ITEM 2. PROPERTIES.
GPU Energy Companies' Generating Stations
At December 31, 1998, the generating stations of the GPU Energy companies
had an aggregate effective capability of 6,751,000 net kilowatts (KW), as
follows:
Name of GPU Energy Year of Net KW
Station Company Installation (Summer)
------- ---------- ------------ --------
COAL-FIRED:
Homer City(a) Penelec 1969-1977 942,000
Shawville Penelec 1954-1960 597,000
Portland Met-Ed 1958-1962 401,000
Keystone(b) JCP&L 1967-1968 283,000
Conemaugh(c) Met-Ed 1970-1971 280,000
Titus Met-Ed 1951-1953 243,000
Seward Penelec 1950-1957 196,000
Warren Penelec 1948-1949 82,000
NUCLEAR:
TMI-1(d) All 1974 786,000
Oyster Creek JCP&L 1969 619,000
GAS/OIL-FIRED:
Sayreville JCP&L 1930-1958 229,000
Combustion
Turbines(e) All 1960-1997 1,444,000
Other(f) All 1968-1977 298,000
Hydroelectric(g) Met-Ed/Penelec 1905-1969 64,000
PUMPED STORAGE:(h)
Yards Creek JCP&L 1965 200,000
Seneca Penelec 1969 87,000
---------
TOTAL 6,751,000
=========
Aggregate Effective Capability of the GPU Energy Companies
Net KW
(Summer) (Winter)
JCP&L 2,729,000 3,139,000
Met-Ed 1,738,000 1,861,000
Penelec 2,284,000 2,365,000
--------- ---------
TOTAL 6,751,000 7,365,000
========= =========
(a) Represents Penelec's undivided 50% interest in the station.
(b) Represents JCP&L's undivided 16.67% interest in the station.
(c) Represents Met-Ed's undivided 16.45% interest in the station.
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(d) Jointly owned by JCP&L, Met-Ed and Penelec in percentages of 25%, 50% and
25%, respectively.
(e) JCP&L - 912,000 KW, Met-Ed - 400,000 KW and Penelec 132,000 KW.
(f) Consists of internal combustion and combined-cycle units (JCP&L - 290,000
KW, Met-Ed - 2,000 KW and Penelec - 6,000 KW).
(g) Consists of Met-Ed's York Haven station (19,000 KW) and Penelec's Piney
(27,000 KW) and Deep Creek stations (18,000 KW).
(h) Represents the GPU Energy companies' undivided interests in these stations
which are net users rather than net producers of electric energy.
The GPU Energy companies' coal-fired, hydroelectric (other than the Deep
Creek station) and pumped storage stations (other than the Yards Creek station)
are located in Pennsylvania. The TMI-1 nuclear station is also located in
Pennsylvania. The GPU Energy companies' gas-fired and oil-fired stations (other
than some combustion turbines in Pennsylvania), the Yards Creek pumped storage
station and the Oyster Creek nuclear station are located in New Jersey. The Deep
Creek hydroelectric station is located in Maryland.
Substantially all of the GPU Energy companies' properties are subject to
the lien of their respective FMB indentures.
The all-time peak loads of the GPU Energy companies are as follows:
(In KW)
Company Date Peak Load
GPU Energy companies Jul. 15, 1997 9,555,000*
JCP&L Jul. 22, 1998 4,817,000
Met-Ed Jul. 15, 1997 2,224,000
Penelec Jan. 19, 1997 2,652,000
* System peak load.
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GPUI Group Generating Facilities
At December 31, 1998, the GPUI Group had ownership interests in 19
operating natural gas-fired cogeneration and other nonutility power production
facilities located both domestically and internationally, with an aggregate
capability of 5,025,100 KW as follows:
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
U.S. Facilities
Mid Georgia GA 1998 300,000 150,000
Selkirk NY 1992-94 350,000 66,900
Lake* FL 1993 110,000 109,900
Pasco* FL 1993 109,000 54,400
Onondaga* NY 1993 80,000 80,000
Syracuse* NY 1992 80,000 3,500
Marcal* NJ 1989 65,000 32,500
Camarillo* CA 1988 26,500 300
Chino* CA 1987 26,000 300
--------- ---------
Total 1,146,500 497,800
--------- ---------
Foreign Facilities
Teesside** England 1993 1,875,000 249,400
Redditch** England 1991 29,000 14,500
Hereford** England 1980 15,000 7,500
Humber** England 1997 750,000 70,500
Enersis Group** Portugal 1987-95 70,000 17,500
Micdos** Spain 1975-95 33,000 7,100
Termobarran-
quilla* Colombia 1972-96 890,000 254,600
Guaracachi* Bolivia 1975-94 165,000 82,500
Aranjuez* Bolivia 1974-94 36,900 18,500
Karachipampa* Bolivia 1982 14,700 7,400
--------- ---------
Total 3,878,600 729,500
--------- ---------
Total capability 5,025,100 1,227,300
========= =========
* The GPUI Group has operating responsibility for these facilities.
** The GPUI Group's ownership interests in these facilities are through its
investment in Midlands.
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Transmission and Distribution System
At December 31, 1998, the GPU Energy companies owned the following
transmission and distribution facilities:
JCP&L Met-Ed Penelec Total
Transmission and Distribution
Substations 304 248 474 1,026
========== ========== ========== ==========
Aggregate Installed Transformer
Capacity of Substations
(in kilovoltamperes - KVA) 21,104,035 11,618,960 15,804,854 48,527,849
========== ========== ========== ==========
Transmission System:
Lines (In Circuit Miles):
500 KV 18 188 235 441
345 KV - - 149 149
230 KV 570 383 650 1,603
138 KV - 3 11 14
115 KV 232 385 1,330 1,947
69 KV, 46 KV and 34.5 KV 1,769 469 364 2,602
---------- ---------- ---------- ----------
Total 2,589 1,428 2,739 6,756
========== ========== ========== ==========
Distribution System:
Line Transformer Capacity (KVA) 10,348,078 6,176,550 7,031,077 23,555,705
========== ========== ========== ==========
Pole Miles of Overhead Lines 16,080 12,613 22,656 51,349
========== ========== ========== ==========
Trench Miles of Underground
Cable 7,311 2,287 2,013 11,611
========== ========== ========== ==========
In addition, PowerNet which serves all of Victoria, Australia covering an
area of approximately 87,900 square miles and a population of 4.5 million, owns
a total of 4,062 miles of overhead and underground lines. Midlands, which
provides service to 2.3 million customers in a 5,135 square mile area in
England, owns a total of 39,544 miles of overhead and underground lines.
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to Significant Developments - Pennsylvania Restructuring;
New Jersey Restructuring; Nuclear Facilities - TMI-2 and Electric Generation and
Environmental Matters under Item 1 and to Note 13, Commitments and
Contingencies, of the Combined Notes to the Consolidated Financial Statements
contained in Item 8 for a description of certain pending legal proceedings
involving GPU.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by
GPU, Inc. During 1998, JCP&L, Met-Ed and Penelec paid dividends on their common
stock to GPU, Inc. in the following amounts: JCP&L $195 million, Met-Ed $85
million and Penelec $65 million.
In accordance with JCP&L, Met-Ed and Penelec's FMB indentures, as
supplemented, the retained earnings at December 31, 1998 that are restricted as
to the payment of dividends on their common stock are as follows:
JCP&L - $1.7 million Met-Ed - $3.4 million Penelec - $10.1 million
Stock Trading
GPU, Inc. is listed as GPU on the New York Stock Exchange. On February
9, 1999, there were 37,537 registered holders of GPU, Inc. common stock.
Dividends
GPU, Inc. common stock dividend declaration dates are the first Thursdays
of December, April, June, and October. Dividend payment dates fall on the last
Wednesdays of February, May, August and November. Dividend declarations and
quarterly stock price ranges for 1998 and 1997 are set forth below.
Common Stock
Dividends Declared Price Ranges*
1998 1997
1998 1997 Quarter High/Low High/Low
----- ----- ------- ------------------ -----------------
April $.515 $.50 First $44 11/16 $38 11/16 $36 1/8 $32
June .515 .50 Second 44 7/16 36 1/2 36 7/16 30 3/4
October .515 .50 Third 43 5/16 35 3/16 36 9/16 32 3/4
December .515 .50 Fourth 47 3/16 41 3/8 42 3/4 35 3/8
* Based on New York Stock Exchange Composite Transactions as reported in the
Wall Street Journal.
ITEM 6. SELECTED FINANCIAL DATA.
See pages F-1 and F-2 for references to each registrant's Selected
Financial Data required by this item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See pages F-1 and F-2 for references to each registrant's Management's
Discussion and Analysis of Financial Condition and Results of Operations
required by this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See page F-23 for references to GPU, Inc.'s Quantitative and Qualitative
Disclosures About Market Risk required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 and F-2 for references to each registrant's Financial
Statements and Quarterly Financial Data (unaudited) required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification of Directors
Information regarding GPU, Inc.'s directors is incorporated by reference
to the BOARD OF DIRECTORS section of GPU, Inc.'s Proxy Statement for the 1999
Annual Meeting of Stockholders. The current directors of JCP&L, Met-Ed and
Penelec, their ages, positions held and business experience during the past five
years are as follows:
Year First Elected
------------------
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- ------ --------
JCP&L/Met-Ed/Penelec:
F. D. Hafer (a) 58 Chairman of the Board and 1996 1978 1994
Chief Executive Officer
D. Baldassari (b) 49 President 1982 1996 1996
D. W. Myers (c) 54 Vice President - Finance 1994 1996 1996
and Rates, and
Comptroller
C. B. Snyder (d) 53 Director 1997 1997 1997
JCP&L only:
G. E. Persson (e) 67 Director 1983
S. C. Van Ness (f) 65 Director 1983
S. B. Wiley (g) 69 Director 1982
(a) Mr. Hafer is also Chairman, Chief Executive Officer, President and a
director of GPU, Inc. and GPUS; Chairman of the Board and a director of
GPUN; Chairman, Chief Executive Officer, and a director of Genco;
Chairman and a director of GPU International, Inc. (GPUI), GPU Power,
Inc. (GPU Power), GPU Capital, Inc. and its subsidiary GPU Electric,
Inc. (GPU Electric); and a director of GPU AR, GPU Telcom and Saxton
Nuclear Experimental Corporation, all subsidiaries of GPU, Inc. He is
a director of Avon Energy Partners Holdings, Midlands Electricity plc,
and GPU PowerNet PTY Ltd. Mr. Hafer also served as President of Met-Ed
from 1986 to 1996 and as President of Penelec from 1994 to 1996. Mr.
Hafer is a director of Utilities Mutual Insurance Company, a director
and past president of the Manufacturers Association of Berks County and
Chairman of the Board of the Pennsylvania Electric Association. Mr.
Hafer is also a director of Kutztown University Foundation, Leadership
Pennsylvania and the Reading Hospital and Medical Center and a trustee
of the Caron Foundation and immediate past chairman and member of the
Board of Trustees of the Foundation for a Drug-Free Pennsylvania.
(b) Mr. Baldassari was elected President of JCP&L in 1992, and President of
Met-Ed and Penelec in 1996. Mr. Baldassari is also President, Chief
Executive Officer and a director of GPU Telcom; and a director of GPUS,
GPUN, Genco, Saxton Nuclear Experimental Corporation, and First Morris
Bank of Morristown, NJ.
(c) Mr. Myers was elected Vice President - Finance and Rates, and Comptroller
of Met-Ed and Penelec in 1996, and has also served as Vice President
Finance and Rates, and Comptroller of JCP&L since 1994. Prior to that, he
served as Vice President and Treasurer of GPU, Inc., GPUS, JCP&L, Met-Ed
and Penelec since 1993.
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(d) Mrs. Snyder was elected Executive Vice President - Corporate Affairs of
GPUS in 1998. She is also a director of GPUS, GPU AR and GPU PowerNet PTY
Ltd. Previously, she served as Senior Vice President - Corporate Affairs
of GPUS, Vice President - Public Affairs of JCP&L since 1996, and Vice
President - Public Affairs of Met-Ed and Penelec since 1994. Prior to
1994, she was Regional Director of Met-Ed since 1991.
(e) Mrs. Persson serves as liaison (Special Assistant Director) between the
N.J. Division of Consumer Affairs and various state boards. Prior to 1995,
she was owner and President of Business Dynamics Associates of Red Bank,
NJ. Mrs. Persson is a member of the United States Small Business
Administration National Advisory Board, the New Jersey Small Business
Advisory Council, the Board of Advisors of Brookdale Community College and
the Board of Advisors of Georgian Court College.
(f) Mr. Van Ness is an attorney with the firm of Huberd, Van Ness, Cayri and
Goodell of Princeton, NJ since 1998. Prior to that he was affiliated with
the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of
Trenton, NJ since 1990. He is also a director of The Prudential Insurance
Company of America.
(g) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and Sirota
of Morristown, NJ since 1973. He is also Chairman of First Morris Bank of
Morristown, NJ.
The directors of the GPU companies are elected at their respective annual
meetings of stockholders to serve until the next meeting of stockholders and
until their respective successors are duly elected and qualified. There are no
family relationships among the directors of the GPU companies.
Identification of Executive Officers
The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec,
their ages, positions held and business experience during the past five years
are as follows:
Year First
Name Age Position Elected
- ---- --- -------- ----------
GPU, Inc.:
- ---------
F. D. Hafer (a) 58 Chairman, President and Chief 1996
Executive Officer
I. H. Jolles (b) 60 Senior Vice President and General 1990
Counsel
B. L. Levy (c) 43 Senior Vice President and Chief 1991
Financial Officer and President,
GPU Capital, Inc. and GPU Electric
P. E. Maricondo (d) 52 Vice President, Comptroller and 1998
Chief Accounting Officer
T. G. Howson (e) 50 Vice President and Treasurer 1994
M. A. Nalewako (f) 64 Secretary 1988
T. G. Broughton (g) 53 President, GPUN 1996
R. L. Wise (h) 55 President, Genco, GPUI and GPU Power 1994
D. Baldassari (i) 49 President, JCP&L, Met-Ed, Penelec 1992
C. B. Snyder (j) 53 Executive Vice President - 1997
Corporate Affairs, GPUS
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Year First Elected
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- --------------
JCP&L/Met-Ed/Penelec:
- ---------------------
F. D. Hafer (a) 58 Chairman, and Chief 1996 1978 1994
Executive Officer
D. Baldassari (i) 49 President and Chief 1992 1996 1996
Operating Officer
I. H. Jolles (b) 60 Vice President and 1996 1996 1996
General Counsel
B. L. Levy (c) 43 Vice President and 1998 1998 1998
Chief Financial Officer
T. G. Howson (e) 50 Vice President 1994 1994 1994
and Treasurer
C. Brooks (k) 49 Vice President - Human and 1997 1997 1997
Technical Resources
D. J. Howe (l) 48 Vice President - 1996 1996 1996
Customer Services
C. A. Mascari (m) 51 Vice President - Power 1997 1997 1997
Services
D. W. Myers (n) 54 Vice President - 1994 1996 1996
Finance and Rates
and Comptroller
G. R. Repko (o) 53 Vice President - Business 1996 1994 1986
Development
R. J. Toole (p) 56 Vice President - 1990 1989 1996
Generation
R. S. Zechman (q) 55 Vice President - 1996 1990 1994
Engineering and Operations
S. L. Guibord (r) 50 Secretary 1996 1996 1996
(a) See Note (a) on page 52.
(b) Mr. Jolles is also Executive Vice President, General Counsel and a director
of GPUS, General Counsel of GPUN and Genco, and a director of GPUS, GPUI,
GPU Power, GPU Capital, Inc., GPU Electric, Midlands Electricity plc and
GPU PowerNet PTY Ltd. He is also a director of Utilities Mutual Insurance
Company.
(c) Mr. Levy was elected Senior Vice President and Chief Financial Officer of
GPU, Inc. as well as Executive Vice President of GPUS and Vice President of
JCP&L, Met-Ed and Penelec in 1998. Mr. Levy is also a director of GPUI, GPU
Power, GPU Capital, Inc., GPU Electric, Avon Energy Partners Holdings,
Midlands Electricity plc, and GPU PowerNet PTY Ltd. Mr. Levy is also
President of GPU Capital, Inc. and GPU Electric. He served as President,
Chief Executive Officer and director of GPUI since 1991.
(d) Mr. Maricondo was elected Vice President, Comptroller and Chief Accounting
Officer of GPU, Inc. and GPUS in 1998. Prior to that he served as Vice
President - Internal Auditing of GPUS since 1997 and as Vice President and
Comptroller of GPUN from 1993.
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(e) Mr. Howson is also Vice President and Treasurer of Genco, GPUN, GPU AR,
Saxton Nuclear Experimental Corporation, and GPU Telcom.
(f) Mrs. Nalewako is also Secretary of GPUS and Genco and Assistant Secretary
of GPUN, JCP&L, Met-Ed and Penelec.
(g) Mr. Broughton is also a director of GPUN. He previously served as Executive
Vice President of GPUN since 1995. Prior to that, he served as Vice
President - TMI of GPUN since 1991.
(h) Mr. Wise is also a director of Genco, GPUI, GPU Power and GPU Electric. He
previously served as President, Fossil Generation - GPUS since 1994. Prior
to that, Mr. Wise served as President and a director of Penelec since 1986.
He is also a director of US Bancorp Trust Company, US Bancorp, Inc., U.S.
National Bank of Johnstown, PA., and Utilities Mutual Insurance Company.
(i) See Note (b) on page 52.
(j) See Note (d) on page 53.
(k) Mr. Brooks previously served as Vice President - Collect and Disburse Money
of Genco since 1996. Prior to that, he was Vice President Materials and
Services of GPUS since 1990.
(l) Mr. Howe previously served as Director of Marketing and Pricing of JCP&L
since 1994. Prior to that, he was Director of Competitive Strategies and
Initiatives of JCP&L since 1993.
(m) Mr. Mascari previously served as Vice President - System Planning of GPUS
since 1994. Prior to that, he was Vice President - Nuclear Assurance of
GPUN since 1992.
(n) See Note (c) on page 52.
(o) Mr. Repko has also served as Vice President - Customer Services of Met-Ed
and Penelec since 1994. Prior to that, he served as Vice President -
Division Operations of Penelec from 1986 to 1993.
(p) Mr. Toole is also a Vice President and a director of Genco.
(q) Mr. Zechman has also served as Vice President - Administrative Services of
Met-Ed since 1992.
(r) Mr. Guibord has also served as Corporate Compliance Auditing Director of
GPUS since 1994. Prior to that, he was a General Attorney at JCP&L. Mr.
Guibord also serves as Secretary of GPUN, GPU AR, Saxton Nuclear
Experimental Corporation, and GPU Telcom.
The executive officers of the GPU companies are elected each year by their
respective Boards of Directors at the first meeting of the Board held following
the annual meeting of stockholders. Executive officers hold office until the
next meeting of directors following the annual meeting of stockholders and until
their respective successors are duly elected and qualified. There are no family
relationships among the executive officers.
55
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item with respect to GPU, Inc. is
incorporated by reference to the EXECUTIVE COMPENSATION section of GPU, Inc.'s
Proxy Statement for the 1999 Annual Meeting of Stockholders. The following table
sets forth remuneration paid, as required by this Item, to the Chief Executive
Officer and the five other most highly compensated executive officers of JCP&L,
Met-Ed and Penelec for the year ended December 31, 1998.
The managements of JCP&L, Met-Ed and Penelec were combined in a 1996
reorganization. Accordingly, the amounts shown below represent the aggregate
remuneration paid to such executive officers by JCP&L, Met-Ed and Penelec during
1996, 1997 and 1998.
Remuneration of Executive Officers
<TABLE>
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term Compensation
-------------------------------
Annual Compensation Awards
-------------------- ---------
<CAPTION>
Payouts
Other Securities -------
Name and Annual Underlying LTIP All Other
Principal Compens- Options Payouts Compens-
Position Year Salary($) Bonus($) ation($)(1) Granted(#) ($)(2) ation($)
---- -------- ------- -------- --------- ------- -------
F. D. Hafer
Chairman of the
Board and Chief
<S> <C> <C> <C> <C> <C> <C> <C>
Executive Officer (3) (3) (3) (3) (3) (3) (3)
D. Baldassari
President (4) (4) (4) (4) (4) (4) (4)
<S> <C> <C> <C> <C> <C> <C> <C>
R. S. Zechman 1998 170,000 60,000 538 4,850 18,669 17,623(5)
Vice President - 1997 162,538 32,000 637 - 20,085 15,843
Engineering 1996 152,596 44,000 596 - 19,470 14,051
& Operations
D. J. Howe 1998 170,000 55,000 - 4,850 - 14,033(6)
Vice President - 1997 162,308 32,000 - - - 11,524
Customer Services 1996 134,539 42,240 - - - 6,582
C. A. Mascari 1998 170,000 50,000 - 4,850 21,002 20,762(7)
Vice President - 1997 156,228 32,000 - - 18,727 16,997
Power Services 1996 133,800 44,000 - - - 12,649
C. Brooks 1998 170,000 50,000 592 4,850 20,536 15,593(8)
Vice President - 1997 148,277 32,000 664 - 20,922 13,783
Human & Technical 1996 135,700 42,500 565 - 18,445 12,173
Resources
<FN>
(1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP") compensation
paid in the year the award vests.
(2) Consists of Performance Cash Incentive Awards paid on the 1991, 1992 and
1993 restricted stock awards which have vested under the 1990 Stock Plan.
These amounts are designed to compensate recipients of restricted
stock/unit awards for the amount of federal and state income taxes that are
payable upon vesting of the restricted stock/unit awards. The restricted
units issued in 1995, 1996, 1997 and 1998 under the 1990 Stock Plan are
performance based. The 1998 awards are shown in "Long-Term
</FN>
56
</TABLE>
<PAGE>
Incentive Plans - Awards in Last Fiscal Year" table (the "LTIP table").
Dividend equivalents are earned on the aggregate restricted units awarded
under the 1990 Stock Plan and reinvested in additional units.
The aggregate number and value (based on the stock price per share at
December 31, 1998) of unvested and deferred vested stock-equivalent
restricted units (including reinvested dividend equivalents) includes the
amounts shown on the LTIP table, and at the end of 1998 were:
Aggregate Units Aggregate Value
F. D. Hafer see note (3) see note (3)
D. Baldassari see note (4) see note (4)
R. S. Zechman 5,281 $233,363
D. J. Howe 3,475 153,552
C. A. Mascari 6,419 283,636
C. Brooks 4,979 219,991
(3) Mr. Hafer was compensated by GPUS for his overall service on behalf of GPU
and accordingly was not compensated directly by the other subsidiary
companies for his services. Information with respect to Mr. Hafer's
compensation is included in the EXECUTIVE COMPENSATION section of GPU,
Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which
is incorporated herein by reference.
(4) Information with respect to Mr. Baldassari's compensation is included in
the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the
1999 Annual Meeting of Stockholders, which is incorporated herein by
reference.
(5) Consists of GPU's matching contributions under the Savings Plan ($6,400),
matching contributions under the non-qualified deferred compensation plan
($1,680), above-market interest accrued on the retirement portion of
deferred compensation ($72), and earnings on LTIP compensation not paid in
the current year ($9,471).
(6) Consists of GPU's matching contributions under the Savings Plan ($6,400),
matching contributions under the non-qualified deferred compensation plan
($1,680), above-market interest accrued on the retirement portion of
deferred compensation ($84), and earnings on LTIP compensation not paid in
the current year ($5,869).
(7) Consists of GPU's matching contributions under the Savings Plan ($6,400),
matching contributions under the non-qualified deferred compensation plan
($1,680), above-market interest accrued on the retirement portion of
deferred compensation ($1,060), and earnings on LTIP compensation not paid
in the current year ($11,622).
(8) Consists of GPU's matching contributions under the Savings Plan ($6,400),
above-market interest accrued on the retirement portion of deferred
compensation ($325), and earnings on LTIP compensation not paid in the
current year ($8,868).
Option Grants In Last Fiscal Year
The following table summarizes option grants made during 1998 to the Named
Executive Officers. All of these options were granted with an exercise price
equal to the fair market value of GPU stock on the date of grant.
57
<PAGE>
Individual Grants
Number of
Securities % of Total
Underlying Options Grant Date
Options Granted to Exercise or Present
Grant Granted(1) Employees in Base Price Expiration Value(2)
Name Date (#) Fiscal Year ($/Sh) Date ($)
----------- ----- --------- ----------- ----------- ---------- --------
F. D. Hafer (3) (3) (3) (3) (3) (3)
D. Baldassari (4) (4) (4) (4) (4) (4)
R. S. Zechman 06/04/98 4,850 1.4% $36.625 06/04/08 $21,049
D. J. Howe 06/04/98 4,850 1.4% 36.625 06/04/08 21,049
C. A. Mascari 06/04/98 4,850 1.4% 36.625 06/04/08 21,049
C. Brooks 06/04/98 4,850 1.4% 36.625 06/04/08 21,049
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Value
The following table summarizes the number and value of all unexercised
options held by the Named Executive Officers. In 1998, no options were exercised
by any Named Executive Officer.
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year-End (#) at Fiscal Year-End ($)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
F. D. Hafer (3) (3) (3) (3)
D. Baldassari (4) (4) (4) (4)
R. S. Zechman - 4,850 - 36,678
D. J. Howe - 4,850 - 36,678
C. A. Mascari - 4,850 - 36,678
C. Brooks - 4,850 - 36,678
(1) Options become exercisable in three equal annual installments beginning on
the first anniversary of the date of the grant. These grants will fully
vest upon termination of employment resulting from death or disability.
Options may be exercised after retirement in accordance with the terms of
the 1998 Stock Option Agreement. In the event of a change in control during
the option term, all options will be canceled and the executive officer
will receive a cash payment in an amount equal to the excess of the average
current market price over the exercise price.
(2) Options are valued using a Black-Scholes option pricing model, a
mathematical formula widely used to value options. The model as applied
used the applicable grant dates and the exercise prices shown on the table,
and the fair market value of Common Stock on the respective grant dates,
which was in each case the same as the exercise price. For the June 4
grant, the model assumed (i) a risk-free rate of return of 5.78%, which
approximates the rate on 10-year U.S. Treasury zero coupon bonds on the
grant date; (ii) a stock price volatility of 17.26%, based on the average
historical volatility for the 36-month period ending on the grant date;
(iii) an average dividend yield of 5.68%, based on the average yield for a
36-month period; and (iv) the exercise of all options on the final day of
their 10-year terms. No discount from the theoretical value
58
<PAGE>
was taken to reflect the restrictions on the transfer of the options and
the likelihood of the options being exercised in advance of the final day
of their terms.
(3) Information with respect to Mr. Hafer's options is included in the
EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999
Annual Meeting of Stockholders, which is incorporated herein by reference.
(4) Information with respect to Mr. Baldassari's options is included in the
EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999
Annual Meeting of Stockholders, which is incorporated herein by reference.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
This table shows the LTIP awards made to the Named Executive Officers for
the performance period January 1, 1998 through December 31, 2002.
Performance Estimated future payouts
Number of or other under non-stock price-
shares, period until based plans(1)
-------------------------------
units or maturation Threshold Target Maximum
Name other rights payout (#) (#) (#)
--------- ----------- ------------ --------- ------- --------
F. D. Hafer (2) (2) (2) (2) (2)
D. Baldassari (2) (2) (2) (2) (2)
R. S. Zechman 1,060 5 year vesting 530 1,060 2,120
D. J. Howe 1,060 5 year vesting 530 1,060 2,120
C. A. Mascari 1,060 5 year vesting 530 1,060 2,120
C. Brooks 1,060 5 year vesting 530 1,060 2,120
(1) The restricted units awarded in 1998 under the 1990 Stock Plan provide for
a performance adjustment to the aggregate number of units vesting for the
recipient, including the accumulated reinvested dividend equivalents, based
on the annualized GPU Total Shareholder Return (TSR) percentile ranking
against all companies in the Standard & Poor's Electric Utility Index for
the period between the award and vesting dates. With a 55th percentile
ranking, the performance adjustment would be 100% as reflected in the
"Target" column. In the event that the percentile ranking is below the 55th
percentile, the performance adjustment would be reduced in steps reaching
0% below the 40th percentile. The minimum payout or "Threshold" begins at
the 40th percentile, which results in a payout of 50% of target. A ranking
below the 40th percentile would result in no award. Should the TSR
percentile ranking exceed the 59th percentile, then the performance
adjustment would be increased in steps reaching 200% at the 90th percentile
as reflected in the "Maximum" column. Under the 1990 Stock Plan, regular
quarterly dividends are reinvested in additional units that are subject to
the vesting restrictions of the award. Actual payouts under the Plan would
be based on the aggregate number of units awarded and the units accumulated
through dividend reinvestment at the time the restrictions lapse.
(2) Information with respect to Mr. Hafer's and Mr. Baldassari's long-term
incentive plans is included in the EXECUTIVE COMPENSATION section of GPU,
Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which
is incorporated herein by reference.
59
<PAGE>
Proposed Remuneration of Executive Officers
None of the Named Executive Officers in the Summary Compensation Table has
an employment contract. The compensation of executive officers is determined
from time to time by the Personnel & Compensation Committee of the GPU, Inc.
Board of Directors.
Retirement Plans
The GPU Companies' pension plans provide for pension benefits, payable for
life after retirement, based upon years of creditable service with the GPU
Companies and the employee's career average compensation as defined below.
Federal law limits the amount of an employee's pension benefits that may be paid
from a qualified trust established pursuant to a qualified pension plan (such as
the GPU Companies' plans). The GPU Companies also have adopted non-qualified
plans providing that the portion of a participant's pension benefits which, by
reason of such limitations, cannot be paid from such a qualified trust shall be
paid directly on an unfunded basis by the participant's employer.
The following table illustrates the amount of aggregate annual pension from
funded and unfunded sources resulting from employer contributions to the
qualified trust and direct payments payable upon retirement in 1999 (computed on
a single life annuity basis) to persons in specified compensation and years of
service classifications:
ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4)
BASED UPON CAREER AVERAGE COMPENSATION
(1999 Retirement)
Career
Average
Compen- Years of Service
----------------------------------------------------------
sation(1) 15 20 25 30 35 40
--------- -------- -------- -------- -------- -------- ----------
$ 50,000 $ 13,879$ 18,506 $ 23,132$ 27,759$ 32,385 $ 36,761
100,000 28,879 38,506 48,132 57,759 67,385 76,361
150,000 43,879 58,506 73,132 87,759 102,385 115,961
200,000 58,879 78,506 98,132 117,759 137,385 155,561
250,000 73,879 98,506 123,132 147,759 172,385 195,161
300,000 88,879 118,506 148,132 177,759 207,385 234,761
350,000 103,879 138,506 173,132 207,759 242,385 274,361
400,000 118,879 158,506 198,132 237,759 277,385 313,961
450,000 133,879 178,506 223,132 267,759 312,385 353,561
500,000 148,879 198,506 248,132 297,759 347,385 393,161
550,000 163,879 218,506 273,132 327,759 382,385 432,761
600,000 178,879 238,506 298,132 357,759 417,385 472,361
650,000 193,879 258,506 323,132 387,759 452,385 511,961
700,000 208,879 278,506 348,132 417,759 487,385 551,561
750,000 223,879 298,506 373,132 447,759 522,385 591,161
800,000 238,879 318,506 398,132 477,759 557,385 630,761
(1) Career Average Compensation is the average annual compensation
received from January 1, 1984 to retirement and includes Salary and
Bonus. The career average compensation amounts for the following Named
Executive Officers differ by more than 10% from the three year average
annual
60
<PAGE>
compensation set forth in the Summary Compensation Table and are as
follows: Messrs. Hafer - $355,761; Baldassari - $223,671; Zechman -
$129,791; Howe - $108,014; Mascari - $129,386; and Brooks - $123,784.
(2) Years of Creditable Service at December 31, 1998: Messrs. Hafer - 36 years;
Baldassari - 29 years; Zechman - 29 years; Howe - 22 years; Mascari - 25
years; and Brooks - 25 years.
(3) Based on an assumed retirement at age 65 in 1999. To reduce the above
amounts to reflect a retirement benefit assuming a continual annuity to a
surviving spouse equal to 50% of the annuity payable at retirement,
multiply the above benefits by 90%. The estimated annual benefits are not
subject to any reduction for Social Security benefits or other offset
amounts.
(4) Annual retirement benefits under the basic pension per the above table
cannot exceed 55%, as defined in the pension plan, of the average
compensation during the highest paid 36 calendar months. As of December 31,
1998, none of the Named Executive Officers exceed the 55% limit.
Remuneration of JCP&L Directors
Nonemployee directors receive an annual retainer of $15,000, a fee of
$1,000 for each Board meeting attended, and a fee of $1,000 for each Committee
meeting attended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item for GPU, Inc. is incorporated by
reference to the SECURITY OWNERSHIP section of GPU, Inc.'s Proxy Statement for
the 1999 Annual Meeting of Stockholders.
All of the outstanding shares of JCP&L (15,371,270), Met-Ed (859,500) and
Penelec (5,290,596) common stock are owned beneficially and of record by their
parent, GPU, Inc., 300 Madison Avenue, Morristown, NJ 07962.
The following table sets forth, as of February 1, 1999, the beneficial
ownership of equity securities (and stock-equivalent units) of each of the
directors and each of the executive officers named in the Summary Compensation
Table, and of all directors and executive officers of each of the respective GPU
Energy companies as a group. The shares of Common Stock owned by all directors
and executive officers as a group constitute less than 1% of the total shares
outstanding.
61
<PAGE>
Amount and Nature of Beneficial
Ownership
Shares(1) Stock-Equivalent
------------ ----------------
Name Title of Security Direct Indirect Units(2)
---- ----------------- ------ -------- --------
JCP&L/Met-Ed/Penelec:
F. D. Hafer GPU Common Stock 9,795 146 25,677
D. Baldassari GPU Common Stock 4,766 - 14,999
R. S. Zechman GPU Common Stock 2,147 - 5,281
D. J. Howe GPU Common Stock 481 - 3,475
C. A. Mascari GPU Common Stock - 5 6,419
C. Brooks GPU Common Stock 805 138 4,979
C. B. Snyder GPU Common Stock 344 - 5,403
JCP&L Only:
G. E. Persson GPU Common Stock None
S. C. Van Ness GPU Common Stock None
S. B. Wiley GPU Common Stock None
All Directors and
Executive Officers
as a Group GPU Common Stock 40,518 289 118,064
(1) The number of shares owned and the nature of such ownership, not being
within the knowledge of GPU, have been furnished by each individual.
(2) Restricted units, which do not have voting rights, represent rights
(subject to vesting) to receive shares of Common Stock under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries (the "1990 Stock Plan").
These amounts also include restricted units which have vested under the
1990 Stock Plan, but which were deferred pursuant to that Plan by Mr.
Mascari - 1,266 units. See Summary Compensation Table above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See pages F-1 and F-2 for references to Financial Statements and
Financial Statement Schedules required by this item.
1. Exhibits:
3-A Articles of Incorporation of GPU, as amended through March 27,
1990 - Incorporated by reference to Exhibit 3-A, 1989 Annual
Report on Form 10-K, SEC File No. 1-6047.
3-A-1 Articles of Amendment to Articles of Incorporation of GPU
dated May 5, 1995 - Incorporated by reference to Exhibit A-4,
Certificate Pursuant to Rule 24, SEC File No. 70-8569.
3-A-2 Articles of Incorporation of GPU, Inc. as amended August 1,
1996 - Incorporated by reference to Exhibit 3-A-2, 1996 Annual
Report on Form 10-K, SEC File No. 1-6047.
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<PAGE>
3-B By-Laws of GPU, Inc. as amended December 4, 1997 -Incorporated
by reference to Exhibit 3-B, 1997 Annual Report on Form 10-K,
SEC File No. 1-6047.
3-C Restated Certificate of Incorporation of JCP&L, as amended -
Incorporated by reference to Exhibit 3-A, 1990 Annual Report
on Form 10-K, SEC File No. 1-3141.
3-C-1 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 - Incorporated by
reference to Exhibit A-2(a), Certificate Pursuant to Rule 24,
SEC File No. 70-7949.
3-C-2 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 - Incorporated by
reference to Exhibit A-2(a)(i), Certificate Pursuant to Rule
24, SEC File No. 70-7949.
3-D By-Laws of JCP&L, as amended - Incorporated by reference to
Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No.
1-3141.
3-E Restated Articles of Incorporation of Met-Ed - Incorporated by
reference to Exhibit B-18, 1991 Annual Report of GPU on Form
U5S, SEC File No. 30-126.
3-F By-Laws of Met-Ed dated July 27, 1995, as amended Incorporated
by reference to Exhibit 3-F, 1995 Annual Report on Form 10-K,
SEC File No. 1-446.
3-G Restated Articles of Incorporation of Penelec as amended
through March 10, 1992 - Incorporated by reference to Exhibit
3A, 1991 Annual Report on Form 10-K, SEC File No.
1-3522.
3-H By-Laws of Penelec dated May 22 1997, as amended Incorporated
by reference to Exhibit B-45, 1997 Annual Report of GPU on
Form U5S, SEC File No. 30-126.
4-A Indenture of JCP&L, dated March 1, 1946, between JCP&L and
United States Trust Company of New York, Successor Trustee,
as amended and supplemented by eight supplemental
indentures dated December 1, 1948 through June 1, 1960 -
Incorporated by reference to JCP&L's Instruments of
Indebtedness Nos. 1 to 7, inclusive, and 9 and 10 filed as
part of Amendment No. 1 to 1959 Annual Report of GPU on
Form U5S, SEC File Nos. 30-126 and 1-3292.
4-A-1 Ninth Supplemental Indenture of JCP&L, dated November 1, 1962
- Incorporated by reference to Exhibit 2-C, Registration No.
2-20732.
4-A-2 Tenth Supplemental Indenture of JCP&L, dated October 1, 1963 -
Incorporated by reference to Exhibit 2-C, Registration No.
2-21645.
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<PAGE>
4-A-3 Eleventh Supplemental Indenture of JCP&L, dated October 1,
1964 - Incorporated by reference to Exhibit 5-A-3,
Registration No. 2-59785.
4-A-4 Twelfth Supplemental Indenture of JCP&L, dated November 1,
1965 - Incorporated by reference to Exhibit 5-A-4,
Registration No. 2-59785.
4-A-5 Thirteenth Supplemental Indenture of JCP&L, dated August 1,
1966 - Incorporated by reference to Exhibit 4-C, Registration
No. 2-25124.
4-A-6 Fourteenth Supplemental Indenture of JCP&L, dated September 1,
1967 - Incorporated by reference to Exhibit 5-A-6,
Registration No. 2-59785.
4-A-7 Fifteenth Supplemental Indenture of JCP&L, dated October 1,
1968 - Incorporated by reference to Exhibit 5-A-7,
Registration No. 2-59785.
4-A-8 Sixteenth Supplemental Indenture of JCP&L, dated October 1,
1969 - Incorporated by reference to Exhibit 5-A-8,
Registration No. 2-59785.
4-A-9 Seventeenth Supplemental Indenture of JCP&L, dated June 1,
1970 - Incorporated by reference to Exhibit 5-A-9,
Registration No. 2-59785.
4-A-10 Eighteenth Supplemental Indenture of JCP&L, dated December 1,
1970 - Incorporated by reference to Exhibit 5-A-10,
Registration No. 2-59785.
4-A-11 Nineteenth Supplemental Indenture of JCP&L, dated February 1,
1971 - Incorporated by reference to Exhibit 5-A-11,
Registration No. 2-59785.
4-A-12 Twentieth Supplemental Indenture of JCP&L, dated November 1,
1971 - Incorporated by reference to Exhibit 5-A-12,
Registration No. 2-59875.
4-A-13 Twenty-first Supplemental Indenture of JCP&L, dated August 1,
1972 - Incorporated by reference to Exhibit 5-A-13,
Registration No. 2-59785.
4-A-14 Twenty-second Supplemental Indenture of JCP&L, dated August 1,
1973 - Incorporated by reference to Exhibit 5-A-14,
Registration No. 2-59785.
4-A-15 Twenty-third Supplemental Indenture of JCP&L, dated October 1,
1973 - Incorporated by reference to Exhibit 5-A-15,
Registration No. 2-59785.
4-A-16 Twenty-fourth Supplemental Indenture of JCP&L, dated December
1, 1973 - Incorporated by reference to Exhibit
5-A-16, Registration No. 2-59785.
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<PAGE>
4-A-17 Twenty-fifth Supplemental Indenture of JCP&L, dated November
1, 1974 - Incorporated by reference to Exhibit
5-A-17, Registration No. 2-59785.
4-A-18 Twenty-sixth Supplemental Indenture of JCP&L, dated March 1,
1975 - Incorporated by reference to Exhibit 5-A-18,
Registration No. 2-59785.
4-A-19 Twenty-seventh Supplemental Indenture of JCP&L, dated July 1,
1975 - Incorporated by reference to Exhibit 5-A-19,
Registration No. 2-59785.
4-A-20 Twenty-eighth Supplemental Indenture of JCP&L, dated October
1, 1975 - Incorporated by reference to Exhibit 5-A-20,
Registration No. 2-59785.
4-A-21 Twenty-ninth Supplemental Indenture of JCP&L, dated February
1, 1976 - Incorporated by reference to Exhibit
5-A-21, Registration No. 2-59785.
4-A-22 Supplemental Indenture No. 29A of JCP&L, dated May 31, 1976
- Incorporated by reference to Exhibit 5-A-22, Registration
No. 2-59785.
4-A-23 Thirtieth Supplemental Indenture of JCP&L, dated June 1, 1976
- Incorporated by reference to Exhibit 5-A-23, Registration
No. 2-59785.
4-A-24 Thirty-first Supplemental Indenture of JCP&L, dated May 1,
1977 - Incorporated by reference to Exhibit 5-A-24,
Registration No. 2-59785.
4-A-25 Thirty-second Supplemental Indenture of JCP&L, dated January
20, 1978 - Incorporated by reference to Exhibit
5-A-25, Registration No. 2-60438.
4-A-26 Thirty-third Supplemental Indenture of JCP&L, dated January 1,
1979 - Incorporated by reference to Exhibit A-20(b),
Certificate Pursuant to Rule 24, SEC File No. 70-6242.
4-A-27 Thirty-fourth Supplemental Indenture of JCP&L, dated June 1,
1979 - Incorporated by reference to Exhibit A-28, Certificate
Pursuant to Rule 24, SEC File No. 70-6290.
4-A-28 Thirty-sixth Supplemental Indenture of JCP&L, dated October 1,
1979 - Incorporated by reference to Exhibit A-30, Certificate
Pursuant to Rule 24, SEC File No. 70-6354.
4-A-29 Thirty-seventh Supplemental Indenture of JCP&L, dated
September 1, 1984 - Incorporated by reference to Exhibit
A-1(cc), Certificate Pursuant to Rule 24, SEC File No.
70-7001.
4-A-30 Thirty-eighth Supplemental Indenture of JCP&L, dated July 1,
1985 - Incorporated by reference to Exhibit A-1(dd),
Certificate Pursuant to Rule 24, SEC File No. 70-7109.
65
<PAGE>
4-A-31 Thirty-ninth Supplemental Indenture of JCP&L, dated April 1,
1988 - Incorporated by reference to Exhibit A-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-7263.
4-A-32 Fortieth Supplemental Indenture of JCP&L, dated June 14, 1988
- Incorporated by reference to Exhibit A-1(ff), Certificate
Pursuant to Rule 24, SEC File No. 70-7603.
4-A-33 Forty-first Supplemental Indenture of JCP&L, dated April 1,
1989 - Incorporated by reference to Exhibit A-1(gg),
Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-34 Forty-second Supplemental Indenture of JCP&L, dated July 1,
1989 - Incorporated by reference to Exhibit A-1(hh),
Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-35 Forty-third Supplemental Indenture of JCP&L, dated March 1,
1991 - Incorporated by reference to Exhibit 4-A-35,
Registration No. 33-45314.
4-A-36 Forty-fourth Supplemental Indenture of JCP&L, dated March 1,
1992 - Incorporated by reference to Exhibit 4-A-36,
Registration No. 33-49405.
4-A-37 Forty-fifth Supplemental Indenture of JCP&L, dated October 1,
1992 - Incorporated by reference to Exhibit 4-A-37,
Registration No. 33-49405.
4-A-38 Forty-sixth Supplemental Indenture of JCP&L, dated April 1,
1993 - Incorporated by reference to Exhibit C-15, 1992 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-39 Forty-seventh Supplemental Indenture of JCP&L, dated April 10,
1993 - Incorporated by reference to Exhibit C-16, 1992 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-40 Forty-eighth Supplemental Indenture of JCP&L, dated April 15,
1993 - Incorporated by reference to Exhibit C-17, 1992 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-41 Forty-ninth Supplemental Indenture of JCP&L, dated October 1,
1993 - Incorporated by reference to Exhibit C-18, 1993 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-42 Fiftieth Supplemental Indenture of JCP&L, dated August 1, 1994
- Incorporated by reference to Exhibit C-19, 1994 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated August 15,
1996 - Incorporated by reference to Exhibit 4-A-43, 1996
Annual Report on Form 10-K, SEC File No. 1-6047.
4-B Indenture of Met-Ed, dated November 1, 1944 with United
States Trust Company of New York, Successor Trustee, as
amended and supplemented by fourteen supplemental
indentures dated February 1, 1947 through May 1, 1960 -
Incorporated by reference to Met-Ed's Instruments of
Indebtedness Nos. 1 to 14, inclusive and 16, filed as part
of Amendment No. 1 to 1959 Annual Report of GPU on Form
U5S, SEC File Nos. 30-126 and 1-3292.
66
<PAGE>
4-B-1 Supplemental Indenture of Met-Ed, dated December 1, 1962
Incorporated by reference to Exhibit 2-E(1), Registration No.
2-59678.
4-B-2 Supplemental Indenture of Met-Ed, dated March 20, 1964
Incorporated by reference to Exhibit 2-E(2), Registration No.
2-59678.
4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965
Incorporated by reference to Exhibit 2-E(3), Registration No.
2-59678.
4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966
Incorporated by reference to Exhibit 2-B-4, Registration No.
2-24883.
4-B-5 Supplemental Indenture of Met-Ed, dated March 22, 1968
Incorporated by reference to Exhibit 4-C-5, Registration No.
2-29644.
4-B-6 Supplemental Indenture of Met-Ed, dated September 1, 1968
Incorporated by reference to Exhibit 2-E(6), Registration No.
2-59678.
4-B-7 Supplemental Indenture of Met-Ed, dated August 1, 1969
Incorporated by reference to Exhibit 2-E(7), Registration No.
2-59678.
4-B-8 Supplemental Indenture of Met-Ed, dated November 1, 1971
Incorporated by reference to Exhibit 2-E(8), Registration No.
2-59678.
4-B-9 Supplemental Indenture of Met-Ed, dated May 1, 1972
Incorporated by reference to Exhibit 2-E(9), Registration No.
2-59678.
4-B-10 Supplemental Indenture of Met-Ed, dated December 1, 1973
Incorporated by reference to Exhibit 2-E(10), Registration No.
2-59678.
4-B-11 Supplemental Indenture of Met-Ed, dated October 30, 1974
Incorporated by reference to Exhibit 2-E(11), Registration No.
2-59678.
4-B-12 Supplemental Indenture of Met-Ed, dated October 31, 1974
Incorporated by reference to Exhibit 2-E(12), Registration No.
2-59678.
4-B-13 Supplemental Indenture of Met-Ed, dated March 20, 1975
Incorporated by reference to Exhibit 2-E(13), Registration No.
2-59678.
4-B-14 Supplemental Indenture of Met-Ed, dated September 25, 1975 -
Incorporated by reference to Exhibit 2-E(15), Registration No.
2-59678.
4-B-15 Supplemental Indenture of Met-Ed, dated January 12, 1976
Incorporated by reference to Exhibit 2-E(16), Registration No.
2-59678.
67
<PAGE>
4-B-16 Supplemental Indenture of Met-Ed, dated March 1, 1976
Incorporated by reference to Exhibit 2-E(17), Registration No.
2-59678.
4-B-17 Supplemental Indenture of Met-Ed, dated September 28, 1977 -
Incorporated by reference to Exhibit 2-E(18), Registration No.
2-62212.
4-B-18 Supplemental Indenture of Met-Ed, dated January 1, 1978
Incorporated by reference to Exhibit 2-E(19), Registration No.
2-62212.
4-B-19 Supplemental Indenture of Met-Ed, dated September 1, 1978
Incorporated by reference to Exhibit 4-A(19), Registration No.
33-48937.
4-B-20 Supplemental Indenture of Met-Ed, dated June 1, 1979
Incorporated by reference to Exhibit 4-A(20), Registration No.
33-48937.
4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980
Incorporated by reference to Exhibit 4-A(21), Registration No.
33-48937.
4-B-22 Supplemental Indenture of Met-Ed, dated September 1, 1981
Incorporated by reference to Exhibit 4-A(22), Registration No.
33-48937.
4-B-23 Supplemental Indenture of Met-Ed, dated September 10, 1981 -
Incorporated by reference to Exhibit 4-A(23), Registration No.
33-48937.
4-B-24 Supplemental Indenture of Met-Ed, dated December 1, 1982
Incorporated by reference to Exhibit 4-A(24), Registration No.
33-48937.
4-B-25 Supplemental Indenture of Met-Ed, dated September 1, 1983
Incorporated by reference to Exhibit 4-A(25), Registration No.
33-48937.
4-B-26 Supplemental Indenture of Met-Ed, dated September 1, 1984
Incorporated by reference to Exhibit 4-A(26), Registration No.
33-48937.
4-B-27 Supplemental Indenture of Met-Ed, dated March 1, 1985
Incorporated by reference to Exhibit 4-A(27), Registration No.
33-48937.
4-B-28 Supplemental Indenture of Met-Ed, dated September 1, 1985
Incorporated by reference to Exhibit 4-A(28), Registration No.
33-48937.
4-B-29 Supplemental Indenture of Met-Ed, dated June 1, 1988
Incorporated by reference to Exhibit 4-A(29), Registration No.
33-48937.
4-B-30 Supplemental Indenture of Met-Ed, dated April 1, 1990
Incorporated by reference to Exhibit 4-A(30), Registration No.
33-48937.
68
<PAGE>
4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture of
Met-Ed, dated April 1, 1990 - Incorporated by reference to
Exhibit 4-A(31), Registration No. 33-48937.
4-B-32 Supplemental Indenture of Met-Ed, dated September 1, 1992 -
Incorporated by reference to Exhibit 4-A(32)(a),
Registration No. 33-48937.
4-B-33 Supplemental Indenture of Met-Ed, dated December 1, 1993
Incorporated by reference to Exhibit C-58, 1993 Annual Report
of GPU on Form U5S, SEC File No. 30-126.
4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995
Incorporated by reference to Exhibit 4-B-35, 1995 Annual
Report on Form 10-K, SEC File No. 1-446.
4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996
Incorporated by reference to Exhibit 4-B-35, 1996 Annual
Report on Form 10-K, SEC File No. 1-446.
4-B-36 Supplemental Indenture of Met-Ed dated May 1, 1997
Incorporated by reference to Exhibit 4-B-36, 1997 Annual
Report on Form 10-K, SEC File No. 1-446.
4-C Mortgage and Deed of Trust of Penelec dated January 1, 1942
between Penelec and United States Trust Company of New
York, Successor Trustee, and indentures supplemental
thereto dated March 7, 1942 through May 1, 1960 -
Incorporated by reference to Penelec's Instruments of
Indebtedness Nos. 1-20, inclusive, filed as a part of
Amendment No. 1 to 1959 Annual Report of GPU on Form U5S,
SEC File Nos. 30-126 and 1-3292.
4-C-1 Supplemental Indentures to Mortgage and Deed of Trust of
Penelec dated May 1, 1961 through December 1, 1977
Incorporated by reference to Exhibit 2-D(1) to 2-D(19),
Registration No. 2-61502.
4-C-2 Supplemental Indenture of Penelec dated June 1, 1978
Incorporated by reference to Exhibit 4-A(2), Registration No.
33-49669.
4-C-3 Supplemental Indenture of Penelec dated June 1, 1979
Incorporated by reference to Exhibit 4-A(3), Registration No.
33-49669.
4-C-4 Supplemental Indenture of Penelec dated September 1, 1984
Incorporated by reference to Exhibit 4-A(4), Registration No.
33-49669.
4-C-5 Supplemental Indenture of Penelec dated December 1, 1985
Incorporated by reference to Exhibit 4-A(5), Registration No.
33-49669.
4-C-6 Supplemental Indenture of Penelec dated December 1, 1986
Incorporated by reference to Exhibit 4-A(6), Registration No.
33-49669.
69
<PAGE>
4-C-7 Supplemental Indenture of Penelec dated May 1, 1989
Incorporated by reference to Exhibit 4-A(7), Registration No.
33-49669.
4-C-8 Supplemental Indenture of Penelec dated December 1,
1990-Incorporated by reference to Exhibit 4-A(8), Registration
No. 33-45312.
4-C-9 Supplemental Indenture of Penelec dated March 1, 1992
Incorporated by reference to Exhibit 4-A(9), Registration No.
33-45312.
4-C-10 Supplemental Indenture of Penelec, dated June 1, 1993
Incorporated by reference to Exhibit C-73, 1993 Annual Report
of GPU on Form U5S, SEC File No. 30-126.
4-C-11 Supplemental Indenture of Penelec dated November 1, 1995
Incorporated by reference to Exhibit 4-C-11, 1995 Annual
Report on Form 10-K, SEC File No. 1-3522.
4-C-12 Supplemental Indenture of Penelec dated August 15, 1996
Incorporated by reference to Exhibit 4-C-12, 1996 Annual
Report on Form 10-K, SEC File No. 1-3522.
4-D Subordinated Debenture Indenture of JCP&L dated May 1, 1995 -
Incorporated by reference to Exhibit A-8(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8495.
4-E Subordinated Debenture Indenture of Met-Ed dated August 1,
1994 - Incorporated by reference to Exhibit A-8(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8401.
4-F Subordinated Debenture Indenture of Penelec dated July 1, 1994
- Incorporated by reference to Exhibit A-8(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8403.
4-G Amended and Restated Limited Partnership Agreement of JCP&L
Capital, L.P., dated May 11, 1995 - Incorporated by reference
to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File
No. 70-8495.
4-H Action Creating Series A Preferred Securities of JCP&L
Capital, L.P., dated May 11, 1995 - Incorporated by reference
to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File
No. 70-8495.
4-I Payment and Guarantee Agreement of JCP&L, dated May 18, 1995 -
Incorporated by reference to Exhibit B-1(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8495.
4-J Amended and Restated Limited Partnership Agreement of Met-Ed
Capital, L.P., dated August 16, 1994 - Incorporated by
reference to Exhibit A-5(a), Certificate Pursuant to Rule 24,
SEC File No. 70-8401.
4-K Action Creating Series A Preferred Securities of Met-Ed
Capital, L.P., dated August 16, 1994 - Incorporated by
reference to Exhibit A-6(a), Certificate Pursuant to Rule 24,
SEC File No. 70-8401.
70
<PAGE>
4-L Payment and Guarantee Agreement of Met-Ed, dated August 23,
1994 - Incorporated by reference to Exhibit B-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8401.
4-M Amended and Restated Limited Partnership Agreement of Penelec
Capital, L.P., dated June 27, 1994 - Incorporated by reference
to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File
No. 70-8403.
4-N Action Creating Series A Preferred Securities of Penelec
Capital, L.P., dated June 27, 1994 - Incorporated by reference
to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File
No. 70-8403.
4-O Payment and Guarantee Agreement of Penelec, dated July 5, 1994
- Incorporated by reference to Exhibit B-1(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8403.
4-P Form of Rights Agreement between GPU, Inc. and ChaseMellon
Shareholder Services, L.L.C. - Incorporated by reference to
Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC
File No. 1-6047.
10-A GPU System Companies Deferred Compensation Plan dated June 5,
1997 - Incorporated by reference to Exhibit 10-A, 1997 Annual
Report on Form 10-K, SEC File No. 1-6047, 1-3141, 1-446 and
1-3522.
10-B GPU System Companies Master Directors' Benefits Protection
Trust dated February 6, 1997 - Incorporated by reference to
Exhibit 10-B, 1997 Annual Report on Form 10-K, SEC File No.
1-6047 and 1-3141.
10-C GPU System Companies Master Executives' Benefits Protection
Trust dated February 6, 1997 - Incorporated by reference to
Exhibit 10-C, 1997 Annual Report on Form 10-K, SEC File No.
1-6047, 1-3141, 1-446 and 1-3522.
10-D Employee Incentive Compensation Plan of JCP&L dated April 1,
1995 - Incorporated by reference to Exhibit 10-D, 1995 Annual
Report on Form 10-K, SEC File No. 1-3141.
10-E Employee Incentive Compensation Plan of Met-Ed dated April 1,
1995 - Incorporated by reference to Exhibit 10-E, 1995 Annual
Report on Form 10-K, SEC File No. 1-446.
10-F Employee Incentive Compensation Plan of Penelec dated April 1,
1995 - Incorporated by reference to Exhibit 10-F, 1995 Annual
Report on Form 10-K, SEC File No. 1-3522.
10-G Incentive Compensation Plan for Elected Officers of JCP&L
dated February 6, 1997 - Incorporated by reference to Exhibit
10-G, 1997 Annual Report on Form 10-K, SEC File No.
1-3141.
10-H Incentive Compensation Plan for Elected Officers of Met-Ed
dated February 6, 1997 - Incorporated by reference to Exhibit
10-H, 1997 Annual Report on Form 10-K, SEC File No.
1-446.
71
<PAGE>
10-I Incentive Compensation Plan for Elected Officers of Penelec
dated February 6, 1997 - Incorporated by reference to Exhibit
10-I, 1997 Annual Report on Form 10-K, SEC File No.
1-3522.
10-J Deferred Remuneration Plan for Outside Directors of JCP&L
dated June 5, 1997 - Incorporated by reference to Exhibit
10-J, 1997 Annual Report on Form 10-K, SEC File No. 1-3141.
10-K JCP&L Supplemental and Excess Benefits Plan dated June 5, 1997
- Incorporated by reference to Exhibit 10-K, 1997 Annual
Report on Form 10-K, SEC File No. 1-3141.
10-L Met-Ed Supplemental and Excess Benefits Plan dated June 5,
1997 - Incorporated by reference to Exhibit 10-L, 1997 Annual
Report on Form 10-K, SEC File No. 1-446.
10-M Penelec Supplemental and Excess Benefits Plan dated June 5,
1997 - Incorporated by reference to Exhibit 10-M, 1997 Annual
Report on Form 10-K, SEC File No. 1-3522.
10-N Letter agreement dated August 7, 1997 relating to terms of
employment and pension benefits for I.H. Jolles Incorporated
by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K,
SEC File No. 1-6047.
10-O GPU, Inc. Restricted Stock Plan for Outside Directors dated
June 4, 1998.
10-P Retirement Plan for Outside Directors of GPU, Inc. dated June
5, 1997 - Incorporated by reference to Exhibit 10-R, 1997
Annual Report on Form 10-K, SEC File No. 1-6047.
10-Q Deferred Remuneration Plan for Outside Directors of GPU, Inc.
dated October 8, 1997 - Incorporated by reference to Exhibit
10-R, 1997 Annual Report on Form 10-S, SEC File No.
1-6047.
10-R Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998, between Oyster
Creek Fuel Corp. and JCP&L.
10-S Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998, between TMI-1 Fuel
Corp. and JCP&L.
10-T Letter Agreement, dated as of November 5, 1998, from JCP&L
relating to Oyster Creek Nuclear Material Lease Agreement.
10-U Letter Agreement, dated as of November 5, 1998, from JCP&L
relating to JCP&L TMI-1 Nuclear Material Lease Agreement.
72
<PAGE>
10-V Second Amended and Restated Trust Agreement, dated as of
November 5, 1998, between United States Trust Company of New
York, as Owner Trustee, Lord Fuel Corp., as Trustor and
Beneficiary, and JCP&L, Met-Ed and Penelec.
10-W Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998, between TMI-1 Fuel
Corp. and Met-Ed.
10-X Letter Agreement, dated as of November 5, 1998, from Met-Ed
relating to Met-Ed TMI-1 Nuclear Material Lease Agreement.
10-Y Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998, between TMI-1 Fuel
Corp. and Penelec.
10-Z Letter Agreement, dated as of November 5, 1998, from Penelec
relating to Penelec TMI-1 Nuclear Material Lease
Agreement.
10-AA GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries as amended and restated to reflect amendments
through March 5, 1998.
10-BB Form of 1998 Stock Option Agreement under the 1990 Stock Plan
for Employees of GPU, Inc. and Subsidiaries.
10-CC Form of 1998 Performance Units Agreement under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries.
10-DD Severance Protection Agreement for Dennis P. Baldassari, dated
June 5, 1997 - Incorporated by reference to Exhibit 10, June
30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047.
10-EE Severance Protection Agreement for Thomas G. Broughton, dated
June 5, 1997 - Incorporated by reference to Exhibit 4, June
30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047.
10-FF Severance Protection Agreement for Fred D. Hafer, dated June
5, 1997 - Incorporated by reference to Exhibit 4, June 30,
1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047.
10-GG Severance Protection Agreement for Ira H. Jolles, dated June
5, 1997 - Incorporated by reference to Exhibit 4, June 30,
1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047.
10-HH Severance Protection Agreement for Bruce L. Levy, dated June
5, 1997 - Incorporated by reference to Exhibit 4, June 30,
1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047.
10-II Severance Protection Agreement for Robert L. Wise, dated June
5, 1997 - Incorporated by reference to Exhibit 4, June 30,
1998 Quarterly Report on Form 10-Q, SEC File No.
1-6047.
73
<PAGE>
10-JJ Purchase and Sale Agreement by and between Penelec and FE
Acquisition Corp., dated as of October 30, 1998 Incorporated
by reference to Exhibit B-1, Amendment No. 1 to Declaration on
Form U-1, SEC File 70-9457.
10-KK Homer City Electric Generating Station Asset Purchase
Agreement by and among Penelec, NGE Generation, Inc., and New
York State Electric & Gas Corporation, as sellers, and Mission
Energy Westside, Inc., as buyer, dated as of August 1, 1998.
10-LL Purchase and Sale Agreement by and between JCP&L, as seller,
and Sithe Energies, Inc., as buyer, dated as of October 29,
1998.
10-MM Purchase and Sale Agreement by and among JCP&L, Met-Ed as
sellers, GPU, Inc, and Sithe Energies, Inc., as buyer, dated
as of October 29, 1998.
10-NN Purchase and Sale Agreement by and between Met-Ed, as seller,
and Sithe Energies, Inc., as buyer, dated as of October 29,
1998.
10-OO Purchase and Sale Agreement by and between Penelec, as seller,
and Sithe Energies, Inc., as buyer, dated as of October 29,
1998.
10-PP Voluntary Enhanced Retirement Program Agreement for
Nonbargaining Employees - Robert L. Wise, dated as of
September 17, 1998.
10-QQ TMI Unit 1 Nuclear Generating Facility Asset Purchase
Agreement by and among GPUN, JCP&L, Met-Ed, and Penelec as
sellers, and AmerGen Energy Conpany, LLC, as buyer, dated as
of October 15, 1998.
12 Statements Showing Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
21 Subsidiaries of the Registrants
A - JCP&L
B - Met-Ed
C - Penelec
23 Consent of Independent Accountants
A - GPU, Inc. B - JCP&L C - Met-Ed D - Penelec
74
<PAGE>
27 Financial Data Schedules
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
99 Generation Divestiture-1998 Pro-Forma Financial Statements.
(b) Reports on Form 8-K:
GPU, Inc.:
Dated November 12, 1998, under Item 5 (Other Events).
Dated December 7, 1998, under Item 5 (Other Events).
Dated December 10, 1998, under Item 5 (Other Events).
Dated January 4, 1999, under Item 5 (Other Events).
Jersey Central Power & Light Company:
Dated November 12, 1998, under Item 5 (Other Events).
Metropolitan Edison Company:
Dated November 12, 1998, under Item 5 (Other Events).
Pennsylvania Electric Company:
Dated November 12, 1998, under Item 5 (Other Events).
75
<PAGE>
GPU, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GPU, INC.
Dated: March 30, 1999 BY: /s/ F. D. Hafer
------------------------
F. D. Hafer, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 30, 1999
- ----------------------------------------------
F. D. Hafer, Chairman (Chief Executive
Officer) and President
/s/ B. L. Levy March 30, 1999
- ----------------------------------------------
B. L. Levy, Senior Vice President
(Chief Financial Officer)
/s/ P. E. Maricondo March 30, 1999
- ----------------------------------------------
P. E. Maricondo, Vice President and
Comptroller (Chief Accounting Officer)
/s/ T. H. Black March 30, 1999
- ----------------------------------------------
T. H. Black, Director
/s/ T. B. Hagen March 30, 1999
- ----------------------------------------------
T. B. Hagen, Director
/s/ H. F. Henderson, Jr. March 30, 1999
- ----------------------------------------------
H. F. Henderson, Jr., Director
/s/ J. M. Pietruski March 30, 1999
- ----------------------------------------------
J. M. Pietruski, Director
/s/ C. A. Rein March 30, 1999
- ----------------------------------------------
C. A. Rein, Director
/s/ P. R. Roedel March 30, 1999
- ----------------------------------------------
P. R. Roedel, Director
/s/ B. S. Townsend March 30, 1999
- ----------------------------------------------
B. S. Townsend, Director
/s/ C. A. H. Trost March 30, 1999
- ----------------------------------------------
C. A. H. Trost, Director
/s/ P. K. Woolf March 30, 1999
- ----------------------------------------------
P. K. Woolf, Director
76
<PAGE>
JERSEY CENTRAL POWER & LIGHT COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
JERSEY CENTRAL POWER & LIGHT COMPANY
Dated: March 30, 1999 BY: /s/ D. Baldassari
--------------------------------
D. Baldassari, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 30, 1999
- ----------------------------------------------
F. D. Hafer, Chairman
(Principal Executive Officer) and Director
/s/ D. Baldassari March 30, 1999
- ----------------------------------------------
D. Baldassari, President
(Principal Operating Officer) and Director
/s/ B. L. Levy March 30, 1999
- ----------------------------------------------
B. L. Levy, Vice President
(Principal Financial Officer)
/s/ D. W. Myers March 30, 1999
- ----------------------------------------------
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ C. B. Snyder March 30, 1999
- ----------------------------------------------
C. B. Snyder, Director
/s/ G. E. Persson March 30, 1999
- ----------------------------------------------
G. E. Persson, Director
/s/ S. C. Van Ness March 30, 1999
S. C. Van Ness, Director
/s/ S. B. Wiley March 30, 1999
- ----------------------------------------------
S. B. Wiley, Director
77
<PAGE>
METROPOLITAN EDISON COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
METROPOLITAN EDISON COMPANY
Dated: March 30, 1999 BY: /s/ D. Baldassari
-----------------------------
D. Baldassari, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 30, 1999
- ----------------------------------------------
F. D. Hafer, Chairman (Principal Executive
Officer) and Director
/s/ D. Baldassari March 30, 1999
- ----------------------------------------------
D. Baldassari, President (Principal
Operating Officer) and Director
/s/ B. L. Levy March 30, 1999
- ----------------------------------------------
B. L. Levy, Vice President
(Principal Financial Officer)
/s/ D. W. Myers March 30, 1999
- ----------------------------------------------
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ C. B. Snyder March 30, 1999
- ----------------------------------------------
C. B. Snyder, Director
78
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
PENNSYLVANIA ELECTRIC COMPANY
Dated: March 30, 1999 BY: /s/ D. Baldassari
-----------------------------
D. Baldassari, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 30, 1999
- ----------------------------------------------
F. D. Hafer, Chairman (Principal Executive
Officer) and Director
/s/ D. Baldassari March 30, 1999
- ----------------------------------------------
D. Baldassari, President (Principal
Operating Officer) and Director
/s/ B. L. Levy March 30, 1999
- ----------------------------------------------
B. L. Levy, Vice President
(Principal Financial Officer)
/s/ D. W. Myers March 30, 1999
- ----------------------------------------------
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ C. B. Snyder March 30, 1999
- ----------------------------------------------
C. B. Snyder, Director
79
<PAGE>
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
GPU, INC. Page
Supplementary Data
GPU Energy Companies' Statistics F-3
Selected Financial Data F-4
Quarterly Financial Data F-6
Combined Management's Discussion and Analysis of
Financial Condition and Results of Operations F-7
Financial Statements
Report of Independent Accountants F-44
Consolidated Balance Sheets as of December 31, 1998 and
1997 F-45
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-47
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996 F-48
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1998, 1997 and 1996 F-48
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 F-49
Combined Notes to Consolidated Financial Statements F-50
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1996-1998 F-119
JERSEY CENTRAL POWER & LIGHT COMPANY
Supplementary Data
Company Statistics F-120
Selected Financial Data F-121
Quarterly Financial Data F-122
Financial Statements
Report of Independent Accountants F-123
Consolidated Balance Sheets as of December 31, 1998 and
1997 F-124
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-126
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996 F-127
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1998, 1997 and 1996 F-127
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 F-128
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1996-1998 F-129
F-1
<PAGE>
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
METROPOLITAN EDISON COMPANY
Supplementary Data
Company Statistics F-130
Selected Financial Data F-131
Quarterly Financial Data F-132
Financial Statements
Report of Independent Accountants F-133
Consolidated Balance Sheets as of December 31, 1998 and
1997 F-134
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-136
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996 F-137
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1998, 1997 and 1996 F-137
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 F-138
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1996-1998 F-139
PENNSYLVANIA ELECTRIC COMPANY
Supplementary Data
Company Statistics F-140
Selected Financial Data F-141
Quarterly Financial Data F-142
Financial Statements
Report of Independent Accountants F-143
Consolidated Balance Sheets as of December 31, 1998 and
1997 F-144
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-146
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996 F-147
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1998, 1997 and 1996 F-147
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 F-148
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1996-1998 F-149
Schedules other than those listed above have been omitted since they are not
required, are inapplicable or the required information is presented in the
Financial Statements or Notes thereto.
F-2
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
GPU ENERGY COMPANIES' STATISTICS
For The Years Ended December 31, 1998 1997 1996 1995 1994 1993
- -------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Capacity at System Peak (in MW):
Company owned 6,751 6,740 6,680 6,637 6,655 6,735
Contracted 4,275 3,930 3,536 3,604 3,416 3,236
----- ----- ----- ----- ----- -----
Total capacity (a) 11,026 10,670 10,216 10,241 10,071 9,971
====== ====== ====== ====== ====== =====
Hourly Peak Load (in MW):
Summer peak 9,412 9,555 8,497 9,101 8,521 8,533
Winter peak 7,579 7,736 7,756 7,861 7,683 7,167
Reserve at system peak (%) 17.0 11.7 20.2 12.5 18.2 16.9
Load factor (%) (b) 59.4 57.6 64.2 57.5 61.7 60.9
Sources of Energy (in thousands of MWH):
Coal 19,675 19,390 18,133 17,500 16,548 16,969
Nuclear 11,358 10,992 11,439 11,582 10,216 10,614
Gas, hydro & oil 888 800 812 1,019 1,071 575
--- --- --- ----- ----- ---
Net generation 31,921 31,182 30,384 30,101 27,835 28,158
Utility purchases and interchange 8,782 9,004 8,795 10,297 10,326 11,984
Nonutility purchases 10,952 11,119 11,046 10,712 8,810 8,383
------ ------ ------ ------ ----- -----
Total sources of energy 51,655 51,305 50,225 51,110 46,971 48,525
Company use, line loss, etc (4,300) (5,437) (5,777) (5,357) (4,313) (5,166)
Total electric energy sales 47,355 45,868 44,448 45,753 42,658 43,359
====== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $ 263 $ 268 $ 263 $ 251 $ 260 $ 266
Nuclear 67 63 70 74 65 66
Gas & oil 32 40 38 38 39 32
-- -- -- -- -- --
Total $ 362 $ 371 $ 371 $ 363 $ 364 $ 364
======== ======== ======== ======== ======== ========
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $ 311 $ 294 $ 267 $ 351 $ 367 $ 406
Nonutility purchases 788 734 730 671 528 491
Deferred nonutility costs (Pa.) (17) -- -- -- -- --
Amortization of nonutility buyout costs 30 19 9 -- -- --
-- -- -
Total $ 1,112 $ 1,047 $ 1,006 $ 1,022 $ 895 $ 897
======== ======== ======== ======== ======== ========
Electric Energy Sales (in thousands of MWH):
Residential 15,347 15,091 15,298 14,802 14,788 14,498
Commercial 14,778 14,281 14,017 13,544 13,301 12,919
Industrial 12,644 12,469 12,093 11,982 11,983 11,699
Other 996 1,110 1,105 1,143 1,245 1,221
Sales to customers 43,765 42,951 42,513 41,471 41,317 40,337
Sales to other utilities 3,590 2,917 1,935 4,282 1,341 3,022
----- ----- ----- ----- ----- -----
Total 47,355 45,868 44,448 45,753 42,658 43,359
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 1,579 $ 1,617 $ 1,599 $ 1,542$ 1,503 $ 1,465
Commercial 1,350 1,372 1,324 1,258 1,215 1,169
Industrial 795 833 803 780 774 755
Other 4 75 71 73 78 89
Sales to customers 3,728 3,897 3,797 3,653 3,570 3,478
Sales to other utilities 132 77 57 101 24 67
Total electric energy sales 3,860 3,974 3,854 3,754 3,594 3,545
Other revenues 93 70 64 51 56 51
-- -- -- -- -- --
Total $ 3,953 $ 4,044 $ 3,918 $ 3,805 $ 3,650 $ 3,596
======= ======= ======= ======= ======= =======
Price per KWH (in cents):
Residential 10.29 10.64 10.51 10.35 10.18 10.07
Commercial 9.14 9.54 9.47 9.25 9.12 9.04
Industrial 6.29 6.61 6.65 6.51 6.46 6.47
Total sales to customers 8.67 9.00 8.96 8.77 8.64 8.61
Total electric energy sales 8.29 8.60 8.70 8.17 8.43 8.17
Customers at Year-End (in thousands) 2,041 2,021 1,997 1,976 1,949 1,925
<FN>
(a) Summer ratings at December 31, 1998 of owned and contracted capacity
were 6,751 MW and 4,325 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
SELECTED FINANCIAL DATA
For The Years Ended December 31, 1998(1) 1997(2) 1996(3) 1995(4) 1994(5) 1993
- -------------------------------- ------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Common Stock Data
Earnings per common share
before extraordinary item:
Basic $ 3.03 $ 2.78 $ 2.48 $ 3.79 $1.42 $ 2.65
Diluted $ 3.03 $ 2.77 $ 2.47 $ 3.79 $1.42 $ 2.65
Earnings per common share:
Basic $ 2.83 $ 2.78 $ 2.48 $ 3.79 $1.42 $ 2.65
Diluted $ 2.83 $ 2.77 $ 2.47 $ 3.79 $1.42 $ 2.65
Cash dividends
paid per share $ 2.045 $ 1.985 $ 1.925 $ 1.86 $1.775 $ 1.65
Book value per share $ 27.01 $ 25.59 $ 25.21 $ 24.66 $22.31 $ 22.69
Closing market price
per share $44 3/16 $ 42 1/8 $ 33 5/8 $ 34 $ 26 1/4 $ 30 7/8
Common shares outstanding
(In Thousands):
Basic average 127,093 120,722 120,513 116,063 115,077 111,732
Diluted average 127,312 121,002 120,751 116,179 115,110 111,749
At year-end 127,996 121,081 120,870 120,619 115,315 115,041
Market price to book value
at year-end 164% 165% 133% 138% 118% 136%
Price/earnings ratio 15.6 15.2 13.6 9.0 18.5 11.7
Return on average
common equity 10.7% 10.7% 9.8% 16.0% 6.3% 11.9%
Financial Data (In Millions)
Operating revenues $4,248.8 $4,143.4 $3,970.7 $3,822.5 $3,654.2 $3,599.4
Other operation and
maintenance expense 1,106.9 993.7 1,114.9 965.1 1,085.5 914.1
Income before
extraordinary item 385.9 335.1 298.4 440.1 163.7 295.7
Net income 360.1 335.1 298.4 440.1 163.7 295.7
Net utility plant
in service 6,565.1 7,100.5 5,942.4 5,862.4 5,731.0 5,512.1
Total assets 16,288.1 12,822.9 10,851.4 9,751.5 9,087.6 8,692.1
Long-term debt 3,825.6 4,326.0 3,177.0 2,567.9 2,345.4 2,320.4
Long-term obligations under
capital leases 2.6 3.3 6.6 11.7 17.0 23.3
Subsidiary-obligated mandatorily
redeemable preferred
securities 330.0 330.0 330.0 330.0 205.0 -
Cumulative preferred stock with
mandatory redemption 86.5 91.5 114.0 134.0 150.0 150.0
Capital expenditures and
investments 468.2 2,268.6 977.5 626.7 659.8 511.9
Employees (actual) 8,957 9,346 9,345 10,286 10,555 11,963
</TABLE>
F-4
<PAGE>
GPU, Inc. and Subsidiary Companies
(1) Results for 1998 include an extraordinary charge of $25.8 million
(after-tax), or $0.20 per share, as a result of the PaPUC's Restructuring
Orders on Met-Ed and Penelec's restructuring plans. Also in 1998, as a
result of the PaPUC Orders, GPU recorded a non-recurring charge of $40
million (after-tax), or $0.32 per share, related to the obligation to
refund 1998 revenues; and for the establishment of a sustainable energy
fund.
(2) Results for 1997 reflect a non-recurring charge of $109.3 million, or
$0.90 per share, for a windfall profits tax imposed on privatized
utilities, including Midlands Electricity plc, by the Government of the
United Kingdom.
(3) Results for 1996 reflect a non-recurring charge of $74.5 million (
after-tax), or $0.62 per share, for costs related to voluntary enhanced
retirement programs.
(4) Results for 1995 reflect the reversal of $104.9 million (after-tax), or
$0.91 per share, of certain future TMI-2 retirement costs written off in
1994. The reversal of this write-off resulted from a 1995 Pennsylvania
Supreme Court decision that overturned a 1994 lower court order, and
restored a 1993 PaPUC order allowing for the recovery of such costs.
Partially offsetting this increase was a non-recurring charge to income of
$8.4 million (after-tax), or $0.07 per share, of TMI-2 monitored storage
costs deemed not probable of recovery through ratemaking.
(5) Results for 1994 reflect a net non-recurring charge to earnings of $164.7
million (after-tax), or $1.43 per share, due to the write-off of certain
future TMI-2 retirement costs ($104.9 million, or $0.91 per share); a
charge for costs related to early retirement programs ($76.1 million, or
$0.66 per share); a write-off of Penelec's postretirement benefit costs
believed not probable of recovery in rates ($10.6 million, or $0.09 per
share); and net interest income from refunds of previously paid federal
income taxes related to the tax retirement of TMI-2 ($26.9 million, or
$0.23 per share).
F-5
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------- --------------
In Thousands, Except
Per Share Data 1998 1997 1998* 1997
- -------------- ---- ---- ----- ----
<S> <C> <C> <C> <C>
Operating revenues $1,043,109 $1,051,012 $1,015,087 $942,783
Operating income 193,341 196,258 165,306 132,809
Income before extraordinary item 133,780 155,038 79,937 70,249
Net income/(loss) 133,780 155,038 (195,173) 70,249
Basic earnings per share
before extraordinary item 1.07 1.29 0.62 0.58
Diluted earnings per share
before extraordinary item 1.07 1.28 0.62 0.58
Basic earnings/(loss) per share 1.07 1.29 (1.54) 0.58
Diluted earnings/(loss) per share 1.07 1.28 (1.54) 0.58
Third Quarter Fourth Quarter
------------- --------------
In Thousands, Except
Per Share Data 1998** 1997*** 1998 1997
- -------------- ------ ------- ---- ----
Operating revenues $1,168,779 $1,117,140 $1,021,817 $1,032,444
Operating income 177,630 177,286 121,561 140,765
Income before extraordinary 88,691 16,904 83,473 92,910
item
Net income 338,046 16,904 83,473 92,910
Basic earnings per share
before extraordinary item 0.69 0.14 0.65 0.77
Diluted earnings per share
before extraordinary item 0.69 0.14 0.65 0.77
Basic earnings per share 2.65 0.14 0.65 0.77
Diluted earnings per share 2.65 0.14 0.65 0.77
<FN>
* Results for the second quarter of 1998 were affected by an extraordinary
charge of $275.1 million after-tax, or $2.16 per share, as a result of
the Pennsylvania Public Utility Commission's (PaPUC) June 30, 1998
Restructuring Orders on Met-Ed and Penelec's restructuring plans.
** In the third quarter of 1998, as a result of amended PaPUC Restructuring
Orders, GPU reversed $266.3 million after-tax, or $2.09 per share, of the
extraordinary charge taken in the second quarter, primarily related to
above-market nonutility generation costs; and recorded an additional
extraordinary charge of $17 million after-tax, or $0.13 per share,
primarily related to the write-off of FERC assets. Also, in the third
quarter of 1998, as a result of the amended PaPUC Orders, GPU recorded a
non-recurring charge of $40 million after-tax, or $0.32 per share,
related to the obligation to refund 1998 revenues; and for the
establishment of a sustainable energy fund.
*** Results for the third quarter of 1997 reflect a non-recurring charge of
$109.3 million, or $0.90 per share, for a windfall profits tax imposed on
privatized utilities, including Midlands Electricity plc, by the
Government of the United Kingdom.
</FN>
</TABLE>
F-6
<PAGE>
GPU, Inc. and Subsidiary Companies
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. owns all the outstanding common stock of three domestic
electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service, transmission and distribution operations of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
generation operations of the GPU Energy companies are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). The "GPUI Group," as
referred to in this report, develops, owns, operates and funds the acquisition
of generation, transmission and distribution facilities worldwide through GPU
International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc.,
a subsidiary of GPU Capital, Inc. (Effective January 1, 1999, GPU International,
Inc. and GPU Power, Inc., will develop, own, operate and fund the acquisition of
generation facilities worldwide and will be referred to as the "GPUI Group." GPU
Capital, Inc. and GPU Electric, Inc., will develop, own, operate and fund the
acquisition of transmission and distribution systems outside the United States
and will be referred to as "GPU Electric.") Other subsidiaries of GPU, Inc.
include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail
energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
GPU RESULTS OF OPERATIONS
GPU's 1998 earnings were $360.1 million, compared with 1997 earnings of
$335.1 million. The earnings per share on a diluted basis for 1998 was $2.83,
compared with earnings per share of $2.77 in 1997. GPU's return on average
common equity was 10.7% in 1998, compared to 10.7% in 1997. Both periods reflect
non-recurring items.
In 1998, a non-recurring charge of $65.8 million after-tax, or $0.52
per share, was taken as a result of the Pennsylvania Public Utility Commission's
(PaPUC) restructuring rate orders (Restructuring Orders) received by Met-Ed and
Penelec. In 1997, a non-recurring charge of $109.3 million, or $0.90 per share,
was taken for a windfall profits tax assessed on privatized utilities by the
Government of the United Kingdom.
Excluding the impact of the non-recurring items, GPU's earnings for
1998 would have been $425.9 million, compared to $444.4 million in 1997, and
earnings per share on a diluted basis for 1998 would have been $3.35, compared
to $3.67 in 1997. Return on average common equity for 1998 and 1997 on this
basis would have been 12.4% and 14%, respectively. The 1998 earnings per share
decrease on this basis was due to lower income from GPU's domestic utility
operations, and increased shares outstanding due to the sale of GPU, Inc. common
stock in February 1998. The GPU Energy companies' earnings reduction for the
period was due to increased operation and maintenance expenses primarily related
to the implementation of a new company-wide computer software system and
restructuring costs related to staff reductions, partially offset by higher
electric sales. After adjusting for the related impacts of
F-7
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
the windfall profits tax, the GPUI Group's income contribution increased for the
year and partially offset the GPU Energy companies' decrease.
GPU, Inc. has reported to the financial community that in its view,
GPU's 1998 earnings, on a "normalized" basis, were $3.66 per share (as compared
to "normalized" earnings of $3.27 per share in 1997). This level of earnings for
1998 reflects adjustments to the reported $2.83 earnings per share as follows:
the exclusion of the $0.52 per share charge related to the PaPUC's Restructuring
Orders, the negative weather-effect on electric sales of $0.22 per share, $0.08
per share for a charge for the NUG portion of unbilled revenue, a $0.10 per
share charge for costs related to staff reductions, and a $0.06 per share charge
to terminate a power supply contract with Middletown, PA; offset by the
exclusion of $0.15 per share of additional income for a gain on the sale of GPUI
Group's investment in Solaris Power.
GPU's 1997 earnings were $335.1 million, compared to 1996 earnings of
$298.4 million. Earnings per share on a diluted basis were $2.77 in 1997,
compared to $2.47 per share in 1996. If non-recurring items are excluded,
earnings for 1997 would have been $444.4 million, or $3.67 per share, compared
to $372.9 million, or $3.09 per share in 1996. The 1997 earnings increase on
this basis was mainly due to increased earnings from the GPUI Group (including
the result of GPU's policy of accruing U.S. income tax on its worldwide
operations, which reduced GPU's federal income tax liability); reduced operation
and maintenance expenses; increased kilowatt-hour (KWH) sales to domestic
utility customers; and a step increase in unbilled revenue recorded by Met-Ed
and Penelec as a result of including their energy cost rates (ECRs) in base
rates and the cessation of deferred energy accounting, both effective January 1,
1997. These increases were partially offset by higher depreciation and financing
expenses, increased amortizations due to a rate cap on JCP&L's earnings and the
absence in 1997 of gains associated with the 1996 reacquisition of preferred
stock.
OPERATING REVENUES:
Operating revenues increased 2.5% to $4.2 billion in 1998, after
increasing 4.3% to $4.1 billion in 1997. The components of these changes were as
follows:
(in millions)
1998 1997
---- ----
GPU Energy companies:
KWH revenues $ 30.9 $ 94.6
Energy-related revenues 49.8 23.3
Obligation to refund 1998 revenues
to customers per PaPUC Order (56.4) -
GPU Telcom revenues 16.1 -
Other revenues (130.9) 7.8
------ -----
Total GPU Energy companies (90.5) 125.7
GPUI Group 186.3 45.7
GPU AR 9.6 1.3
----- ------
Total increase in revenues $105.4 $172.7
===== =====
F-8
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
GPU Energy Companies
Kilowatt-hour revenues
1998
The increase in KWH revenues was primarily due to an increase in
residential and commercial customer usage, partially offset by lower
weather-related sales to residential and commercial customers, and the absence
in 1998 of the step increase in unbilled revenue recorded by Met-Ed and Penelec
as a result of including their ECRs in base rates in 1997.
1998 KWH Customer Sales by Service Class
Residential 35%
Commercial 34%
Industrial/Other 31%
1997
The increase in KWH revenues was due primarily to the step increase in
unbilled revenue recorded by Met-Ed and Penelec from inclusion of their ECRs in
base rates; higher usage by industrial customers; and an increase in the number
of commercial and residential customers. These increases were partially offset
by lower weather-related sales to residential customers. KWH revenues include
Met-Ed and Penelec's energy and tax revenues, consistent with the inclusion of
their ECRs and State Tax Adjustment Surcharges (STAS) in base rates, effective
January 1, 1997.
Energy-related revenues (JCP&L only)
1998 and 1997
Generally, changes in energy-related revenues do not affect earnings as
they reflect corresponding changes in JCP&L's levelized energy adjustment clause
(LEAC) billed to customers and expensed. The 1998 increase was due primarily to
increased sales to other utilities and higher residential and commercial
customer sales. The 1997 increase was due primarily to higher energy cost rates
and increased industrial and commercial customer sales.
Obligation to refund 1998 revenues to customers per PaPUC Order
1998
The decrease in revenues reflects transmission and distribution (T&D)
rate reductions resulting from the PaPUC's Restructuring Orders for Met-Ed and
Penelec. These rate reductions reflect Met-Ed and Penelec's obligation to make
refunds to customers from 1998 revenues (2.5% for Met-Ed customers and 3% for
Penelec customers).
GPU Telcom revenues
1998
GPU Telcom, a subsidiary formed in 1997, derived its 1998 revenues from
contracts for the leasing and construction of telecommunication infrastructure.
F-9
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
Other revenues
1998 and 1997
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense. The 1998 decrease is primarily due
to a decrease in revenue taxes as a result of New Jersey tax legislation that
eliminated the gross receipts and franchise tax on utility bills and replaced it
with a sales tax, a corporate business tax and a transitional energy facilities
assessment, effective January 1, 1998. (See COMPETITIVE ENVIRONMENT AND RATE
MATTERS.)
GPUI Group
1998
The increase in revenues was due mainly to including the full year effect
of GPUI Group's investments in GPU PowerNet Pty. Ltd. (PowerNet) and Lake Cogen,
Ltd. (Lake), and the effect of including Onondaga Cogen, L.P. (OCLP) beginning
in August 1998.
1997
The increase in revenues was due mainly to the inclusion of revenues from
PowerNet, which GPU Electric acquired in November 1997, and the effect of
including GPUI Group's investment in Lake, beginning in June 1997.
GPU Advanced Resources
1998 and 1997
GPU AR, which was formed in the second quarter of 1997, derived its
revenues from energy sales to customers who chose it as their energy supplier as
part of the retail access pilot program in Pennsylvania. Some of GPU AR's
customers are located in the GPU Energy companies' service territories.
OPERATING EXPENSES:
Power purchased and interchanged (PP&I)
1998 and 1997
Changes in the energy component of PP&I expense do not significantly
affect JCP&L's earnings since these cost variances are passed through the LEAC.
However, beginning on January 1, 1997, such cost variances for Met-Ed and
Penelec are not subject to deferred accounting and have a current impact on
earnings. In October 1998, the PaPUC approved the use of deferred accounting for
above-market nonutility generation (NUG) costs as part of the Restructuring
Orders for Met-Ed and Penelec. The 1998 increase in PP&I includes a charge by
Met-Ed and Penelec for the NUG portion of unbilled revenue. Also affecting 1998
earnings were increased power purchases by Penelec and GPU AR. Lower reserve
capacity expense contributed to earnings for 1997.
Fuel and Deferral of energy and capacity costs, net
1998 and 1997
For JCP&L, changes in fuel and deferral of energy and capacity costs, net,
do not affect earnings as they are offset by corresponding changes in energy
revenues. Effective January 1, 1997, Met-Ed and Penelec ceased deferred
F-10
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
energy accounting as their ECRs were combined with base rates; therefore, cost
variances have a current impact on earnings. For Met-Ed, increases in fuel
expense had a slight impact on 1998 earnings. Also contributing to the 1998
increase in expense was the effect of including GPUI Group's investments in Lake
and OCLP.
Other operation and maintenance (O&M)
1998
The increase in other O&M expenses was due primarily to the implementation
by the GPU Energy companies of a new company-wide computer software system,
costs related to staff reductions and the full year inclusion of O&M expenses
for GPU Telcom. Also contributing to the increase was GPUI Group O&M expenses
resulting from the full year effect of including PowerNet and Lake, as well as
the effect of including OCLP beginning in August 1998.
1997
The decrease in other O&M expenses was due primarily to the absence of a
$122.7 million pre-tax charge incurred in 1996, related to voluntary enhanced
retirement programs. Also contributing to the decrease were lower production
expenses due to the 1996 retirement of JCP&L's Werner and Gilbert generating
stations, decreased emergency and storm-related activity, and reductions from
work process improvements and a decrease in the workforce. Partially offsetting
these were increased expenses related to the upgrade and modification of
computer systems.
Depreciation and amortization
1998
The increase in depreciation and amortization expense was due mainly to
the full year inclusion of PowerNet and additions to plant in service. The
increase also includes additional amortization expense related to JCP&L's Final
Settlement representing the portion of JCP&L's return on equity which exceeds
the maximum amount allowed and must be applied against JCP&L's stranded cost
pool.
1997
The increase in depreciation and amortization expense was due primarily to
additions to plant in service and higher depreciation rates.
Taxes, other than income taxes
1998 and 1997
For JCP&L, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues. The 1998
decrease in taxes other than income taxes was due to New Jersey tax legislation
that eliminated the gross receipts and franchise tax on utility bills and
replaced it with a sales tax, a corporate business tax and a transitional energy
facilities assessment, effective January 1, 1998. Effective January 1, 1997,
Met-Ed and Penelec's STAS were combined with base rates and are no longer
subject to annual adjustment. For 1998 and 1997, Met-Ed and Penelec's STAS did
not have a significant impact on GPU's earnings.
F-11
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
OTHER INCOME AND DEDUCTIONS:
Equity in undistributed earnings/(losses) of affiliates (GPUI Group only)
1998
The increase in equity in undistributed earnings of affiliates, net was
primarily due to the absence in 1998 of a $109.3 million charge taken in 1997
for a windfall profits tax imposed on Midlands Electricity plc (Midlands) by the
Government of the United Kingdom.
1997
The decrease in equity in undistributed earnings/(losses) of affiliates
was due to the windfall profits tax charge of $109.3 million imposed on
privatized utilities, including Midlands. Partially offsetting this was the
inclusion of a full year of Midlands' 1997 income, in which a 50% interest was
acquired in May 1996.
Other income, net
1998
The increase in other income, net was due primarily to gains realized by
the GPUI Group from the sale of its interest in Solaris, the sale of Allgas
Energy stock and the sale of half its interest in the Mid-Georgia cogeneration
plant. This increase was partially offset by a charge for start-up payments for
the establishment of a sustainable energy fund by Met-Ed and Penelec per the
Restructuring Orders; and a charge by Met-Ed for the Middletown settlement.
Income taxes
1998
The increase in income taxes (on other income and deductions) was
primarily related to taxes on increased GPUI Group income.
1997
The decrease in income taxes (on other income and deductions) was
primarily related to the GPUI Group. GPU's federal income tax liability was
reduced as a result of its policy of accruing U.S. income tax on its worldwide
operations.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt
1998 and 1997
The 1998 increase in interest on long-term debt was due primarily to debt
associated with the PowerNet acquisition in November 1997. The 1997 increase was
due primarily to debt associated with the PowerNet acquisition and the May 1996
Midlands acquisition.
Preferred stock dividends of subsidiaries, net of gain on 1996 reacquisition
1998
In 1998, JCP&L redeemed $15 million stated value of cumulative preferred
stock.
F-12
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
1997
The 1997 increase was due to the absence of the 1996 gain on reacquisition
of cumulative preferred stock. In 1996, Met-Ed and Penelec reacquired $11.4
million stated value and $20 million stated value, respectively, of their
cumulative preferred stock, through cash tender offers, resulting in an
aggregate gain of $9.3 million. Also in 1997, JCP&L redeemed $20 million stated
value of cumulative preferred stock.
EXTRAORDINARY ITEM:
Extraordinary item, net of income taxes
1998
The extraordinary loss was due to the impact of the PaPUC Restructuring
Orders received by Met-Ed and Penelec. Accordingly, in 1998 Met-Ed and Penelec
discontinued the application of Statement of Financial Accounting Standards No.
71 (FAS 71) and adopted the provisions of FAS 101 with respect to their electric
generation operations. For additional information, see Note 5, Accounting for
Extraordinary and Non-recurring Items.
JCP&L RESULTS OF OPERATIONS
JCP&L's 1998 earnings were $212.4 million, compared to 1997 earnings of
$200.6 million. Contributing to this earnings increase were increased
residential and commercial customer sales, partially offset by increased
operation and maintenance expenses. JCP&L's return on average common equity was
13.5% in 1998, compared to 13.1% in 1997.
Earnings in 1997 were $200.6 million, compared to 1996 earnings of $143.2
million. Contributing to this earnings increase were higher weather-related
sales, higher new customer sales and lower operation and maintenance expenses
due in part to a $39.4 million after-tax charge in 1996 for voluntary enhanced
retirement programs.
OPERATING REVENUES:
Total revenues decreased 1.2% to $2.07 billion in 1998, after increasing
1.8% to $2.09 billion in 1997. The components of these changes are as follows:
(in millions)
1998 1997
---- ----
KWH revenues $ 64.0 $ 13.0
Energy-related revenues 48.2 22.1
Other revenues (136.5) 1.0
----- -----
Increase/(decrease)in revenues $(24.3) $ 36.1
===== =====
Kilowatt-hour revenues
1998
The increase in KWH revenues was due to higher residential and commercial
customer usage and an increase in new residential and commercial customer sales
partially offset by lower weather-related sales.
F-13
<PAGE>
GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS (continued)
1998 KWH Customer Sales by Service Class
Residential 41%
Commercial 40%
Industrial/Other 19%
1997
The increase in KWH revenues was due to higher weather-related sales, an
increase in new residential and commercial customer sales, partially offset by
decreased usage.
Energy-related revenues
1998 and 1997
Changes in energy-related revenues do not affect earnings as they reflect
corresponding changes in the LEAC billed to customers and expensed. The 1998
increase was primarily due to increased sales to other utilities and higher
residential and commercial customer sales. The 1997 increase was due primarily
to higher energy cost rates and increased commercial and industrial customer
sales.
Other revenues
1998 and 1997
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense. The 1998 decrease is primarily due
to a decrease in revenue taxes as a result of New Jersey tax legislation that
eliminated the gross receipts and franchise tax on utility bills and replaced it
with a sales tax, a corporate business tax and a transitional energy facilities
assessment, effective January 1, 1998.
OPERATING EXPENSES:
Power purchased and interchanged
1998 and 1997
Changes in the energy component of PP&I expense do not significantly
affect earnings since these cost variances are passed through the LEAC. However,
lower reserve capacity expense resulting primarily from reduced purchases from
Pennsylvania Power & Light Company contributed to the 1997 earnings.
Fuel and Deferral of energy and capacity costs, net
1998 and 1997
Changes in fuel and deferral of energy and capacity costs, net do not
affect earnings as they are offset by corresponding changes in energy revenues.
Other operation and maintenance
1998
The increase in other O&M expenses was due primarily to increased costs
from the implementation of a new computer software system and for costs related
to staff reductions.
F-14
<PAGE>
GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS (continued)
1997
The decrease in other O&M expenses was due in part to the absence of a
$62.9 million pre-tax charge incurred in 1996, related to voluntary enhanced
retirement programs. Also contributing to the decrease were lower production
expenses due to the 1996 retirement of the Werner and Gilbert generating
stations, a decrease in transmission charges from associated companies and a
decrease in storm damage and emergency repairs.
Depreciation and amortization
1998
The increase in depreciation and amortization expense was due primarily to
additions to plant in service and additional amortization expense related to
JCP&L's Final Settlement representing the portion of JCP&L's return on equity
which exceeds the maximum amount allowed and must be applied against JCP&L's
stranded cost pool.
1997
The increase in depreciation and amortization expense was due primarily to
additions to plant in service, higher depreciation rates and higher regulatory
asset amortizations.
Taxes, other than income taxes
1998 and 1997
Changes in taxes other than income taxes do not significantly affect
earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income, net
1998 and 1997
The 1998 increase in other income, net was due primarily to the absence of
the charges incurred in 1997 for the termination of a NUG contract and for a
loss on the sale of fuel oil from the Gilbert generating station.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Other interest
1998
The decrease in other interest expense was due to lower short-term debt
levels.
1997
The increase in other interest expense was due to higher short-term debt
levels.
Preferred stock dividends
1998 and 1997
In 1998 and 1997, JCP&L redeemed $15 million stated value and $20 million
stated value, respectively, of cumulative preferred stock.
F-15
<PAGE>
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS
Met-Ed's 1998 earnings were $50.4 million, compared to 1997 earnings of
$93 million. Met-Ed's return on average common equity was 7.5% in 1998 compared
to 12.9% in 1997. In 1998, a non-recurring charge of $26 million after-tax was
taken as a result of the PaPUC's Restructuring Order for Met-Ed. Also
contributing to the earnings decrease was increased operation and maintenance
expenses primarily related to the implementation of a new computer software
system and restructuring costs related to staff reductions.
Earnings in 1997 were $93 million, compared to 1996 earnings of $71.8
million. This increase in earnings was primarily due to a step increase in
unbilled revenue recorded by Met-Ed as a result of including its ECR in base
rates and the cessation of deferred energy accounting, both effective January 1,
1997. Also contributing to the increase were increased customer usage, higher
new customer sales and lower other operation and maintenance expenses due to a
$15.4 million after-tax charge in 1996 for voluntary enhanced retirement
programs.
OPERATING REVENUES:
Total revenues decreased 2.5% to $919.6 million in 1998, after increasing
3.6% to $943.1 million in 1997. The components of these changes are as follows:
(in millions)
1998 1997
---- ----
KWH revenues $ (4.5) $ 28.6
Obligation to refund 1998 revenues
to customers per PaPUC Order (27.2) -
Other revenues 8.2 4.1
----- -----
Increase/(decrease)in revenues $(23.5) $ 32.7
===== =====
Kilowatt-hour revenues
1998
The decrease in KWH revenues was due to the absence in 1998 of the step
increase in unbilled revenue as a result of Met-Ed including its ECR in base
rates, amounting to $13 million, and lower weather-related sales. Partially
offsetting these decreases were increased sales to other utilities, an increase
in new commercial and residential customer sales and increased customer usage.
1998 KWH Customer Sales by Service Class
Residential 35%
Commercial 28%
Industrial/Other 37%
1997
The increase in KWH revenues was due to increased customer usage and an
increase in new commercial and residential customer sales, partially offset by
lower weather-related sales. Also contributing to the increase was the step
increase in unbilled revenue described above. KWH revenues include energy and
tax revenues, consistent with the inclusion of the ECR and STAS in base rates,
effective January 1, 1997.
F-16
<PAGE>
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS (continued)
Obligation to refund 1998 revenues to customers per PaPUC Order
1998
The decrease in revenues reflects a T&D rate reduction of 2.5% resulting
from the PaPUC's Restructuring Order for Met-Ed. The T&D rate reduction reflects
Met-Ed's obligation to make refunds to customers from 1998 revenues.
Other revenues
1998 and 1997
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense.
OPERATING EXPENSES:
Fuel and Power purchased and interchanged
1998 and 1997
Effective January 1, 1997, Met-Ed ceased deferred energy accounting as
its ECR was combined with base rates. Thus, energy cost variances now have a
current impact on earnings. In 1998, the PaPUC approved the use of deferred
accounting for above-market NUG costs as part of the Restructuring Order for
Met-Ed. Increases in fuel expense had a slight impact on Met-Ed's 1998 earnings.
Also, PP&I includes a charge by Met-Ed for the NUG portion of unbilled revenue.
Changes in fuel and power purchased and interchanged did not have a significant
impact on earnings for 1997.
Other operation and maintenance
1998
The increase in other O&M expenses was due primarily to increased costs
from the implementation of a new computer software system and increased costs
related to staff reductions.
1997
The decrease in other O&M expenses was due to the absence of a $26.2
million pre-tax charge incurred in 1996 related to the voluntary enhanced
retirement programs.
Depreciation and amortization
1998 and 1997
The increase in depreciation and amortization was due to additions to
plant in service and higher depreciation rates.
Taxes, other than income taxes
1998 and 1997
Effective January 1, 1997, Met-Ed's STAS was combined with base rates and
is no longer subject to annual adjustment. This did not have a significant
impact on 1998 or 1997 earnings.
F-17
<PAGE>
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS (continued)
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
1998
The decrease in other income/(expense) net, was due primarily to a charge
for start-up payments for the establishment of a sustainable energy fund per the
PaPUC's Restructuring Order for Met-Ed and a charge for the Middletown
settlement.
1997
The increase in other income/(expense), net was due to an increase in
interest income.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Other interest
1998 and 1997
The increase in other interest expense was due to higher short-term debt
levels.
Preferred stock dividends and Gain on preferred stock reacquisition
1997
In 1996, Met-Ed reacquired $11.4 million stated value of its cumulative
preferred stock through cash tender offers, resulting in an aggregate gain of
$3.7 million.
EXTRAORDINARY ITEM:
Extraordinary item, net of income taxes
1998
The extraordinary loss was due to the impact of the PaPUC Restructuring
Order received by Met-Ed. Accordingly, in 1998 Met-Ed discontinued the
application of FAS 71 and adopted the provisions of FAS 101 with respect to
their electric generation operations. For additional information, see Note 5,
Accounting for Extraordinary and Non-recurring Items.
PENELEC RESULTS OF OPERATIONS
Penelec's 1998 earnings were $38.9 million, compared to 1997 earnings of
$94.4 million. Penelec's return on average common equity was 5% in 1998 compared
to 12.1% in 1997. In 1998, a non-recurring charge of $39.8 million after-tax was
taken as a result of the PaPUC's Restructuring Order for Penelec. Also
contributing to the earnings decrease was increased operation and maintenance
expenses primarily related to the implementation of a new computer software
system and restructuring costs related to staff reductions.
Earnings in 1997 were $94.4 million, compared to 1996 earnings of $73.9
million. This increase in earnings was primarily due to a step increase in
F-18
<PAGE>
GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
unbilled revenue recorded by Penelec as a result of including its ECR in base
rates and the cessation of deferred energy accounting, both effective January 1,
1997. Also contributing to the increase was increased customer usage and lower
other operation and maintenance expenses due primarily to a $19.7 million
after-tax charge in 1996 for voluntary enhanced retirement programs.
OPERATING REVENUES:
Total revenues decreased 2.0% to $1.0 billion in 1998, after increasing
3.3% to $1.1 billion in 1997. The components of these changes are as follows:
(in millions)
1998 1997
---- ----
KWH revenues $ 13.9 $ 40.0
Obligation to refund 1998 revenues
to customers per PaPUC Order (29.2) -
Other revenues (5.4) (6.7)
----- -----
Increase/(decrease)in revenues $(20.7) $ 33.3
===== =====
Kilowatt-hour revenues
1998
The increase in KWH revenues was primarily due to increased sales to other
utilities and increased industrial customer usage offset by lower
weather-related sales. The revenue comparison was also affected by the absence
in 1998 of the step increase in unbilled revenue as a result of Penelec
including its ECR in base rates, amounting to $15 million.
1998 KWH Customer Sales by Service Class
Residential 27%
Commercial 31%
Industrial/Other 42%
1997
The increase in KWH revenues was due to increased industrial and
commercial customer usage offset by lower weather-related sales. Also
contributing to the increase was the step increase in unbilled revenue described
above. KWH revenues include energy and tax revenues, consistent with the
inclusion of the ECR and STAS in base rates, effective January 1, 1997.
Other revenues
1998 and 1997
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense.
F-19
<PAGE>
GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES:
Fuel and Power purchased and interchanged
1998 and 1997
Effective January 1, 1997, Penelec ceased deferred energy accounting as
its ECR was combined with base rates. Thus, energy cost variances now have a
current impact on earnings. In 1998, the PaPUC approved the use of deferred
accounting for above-market NUG costs as part of the Restructuring Order for
Penelec. The 1998 increase in PP&I includes a charge for the NUG portion of
unbilled revenue. Changes in fuel and power purchased and interchanged did not
have a significant impact on earnings for 1997.
Other operation and maintenance
1998
The increase in other O&M expenses was due primarily to increased costs
from the implementation of a new computer software system and increased costs
related to staff reductions.
1997
The decrease in other O&M expenses was due primarily to the absence of a
$33.6 million pre-tax charge incurred in 1996, related to the voluntary enhanced
retirement programs.
Depreciation and amortization
1998 and 1997
The increases in depreciation and amortization expense were due to
additions to plant in service and higher depreciation rates.
Taxes, other than income taxes
1998 and 1997
Effective January 1, 1997, Penelec's STAS was combined with base rates and
is no longer subject to annual adjustment. This did not have a significant
impact on 1998 or 1997 earnings.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
1998
The decrease in other income/(expense) net, was due primarily to a charge
for start-up payments for the establishment of a sustainable energy fund per the
Restructuring Order for Penelec.
1997
The increase in other income/(expense), net was due primarily to an
increase in interest income.
F-20
<PAGE>
GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Preferred stock dividends and Gain on preferred stock reacquisition
1997
In 1996, Penelec reacquired $20 million stated value of its cumulative
preferred stock through cash tender offers, resulting in an aggregate gain of
$5.6 million.
EXTRAORDINARY ITEM:
Extraordinary item, net of income taxes
1998
The extraordinary loss was due to the impact of the PaPUC Restructuring
Order received by Penelec.
Accordingly, in 1998 Penelec discontinued the application of FAS 71 and adopted
the provisions of FAS 101 with
respect to their electric generation operations. For additional information, see
Note 5, Accounting for Extraordinary and Non-recurring Items.
- ----------------------
The following sections of Management's Discussion and Analysis of
Financial Condition and Results of Operations contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Statements made that are not historical facts are forward-looking and,
accordingly, involve risks and uncertainties that could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. Although such forward-looking statements have been based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. Some of the factors that could cause actual results to differ
materially include, but are not limited to: the effects of regulatory decisions;
changes in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry restructuring;
expected outcomes of legal proceedings; the completion of generation asset
divestiture; generating plant performance; fuel prices and availability; the
effects of the Year 2000 issue (see LIQUIDITY AND CAPITAL RESOURCES section in
Management's Discussion and Analysis); and uncertainties involved with foreign
operations including political risks and foreign currency fluctuations.
GPUI GROUP
The GPUI Group owns, operates, develops and invests in electric power
generation, transmission and distribution facilities throughout the world. It
has also made investments in certain advanced technologies related to the
electric power industry. The GPUI Group has ownership interests in transmission
and distribution businesses in England and Australia. It also has ownership
interests in nine operating cogeneration plants in the U.S. totaling 1,147
megawatts (MW) (of which the GPUI Group's equity interest represents 498 MW) of
capacity, and ten operating generating facilities located in foreign countries
totaling 3,879 MW (of which the GPUI Group's equity interest represents 730 MW)
of capacity. It also has investments in four generating facilities under
construction totaling 1,698 MW (of which the GPUI Group's equity interest
represents 301 MW) of capacity. When
F-21
<PAGE>
GPU, Inc. and Subsidiary Companies
appropriate, the GPUI Group also engages in the purchase or sale of interests in
particular businesses.
At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group
was $590 million; GPU, Inc. has also guaranteed up to an additional $761 million
of GPUI Group obligations. GPU, Inc. has Securities and Exchange Commission
(SEC) authorization to finance investments in foreign utility companies (FUCOs)
and exempt wholesale generators (EWGs) up to an aggregate amount equal to 100%
of GPU's average consolidated retained earnings, or approximately $2.2 billion
as of December 31, 1998. At December 31, 1998, GPU, Inc. has remaining
authorization to finance approximately $979 million of additional investments in
FUCOs and EWGs.
In 1997, GPU Electric acquired PowerNet from the Australian State of
Victoria, for A$2.6 billion (approximately U.S. $1.9 billion). PowerNet owns and
maintains the high-voltage electricity transmission system in Victoria, covering
an area of approximately 87,900 square miles and a population of approximately
4.5 million. For additional information, see Note 6 of the Notes to Consolidated
Financial Statements.
In January 1998, as a result of cross-ownership restrictions in the
Australian State of Victoria, GPU Electric sold its 50% share in Solaris Power
(Solaris) to The Australian Gas Light Company for A$208 million (approximately
U.S. $135.2 million) and 10.36% of the outstanding common stock of Allgas Energy
Limited (Allgas), the natural gas distributor in Queensland, Australia. The
Allgas shares had a market value of A$14.6 million (approximately U.S. $9.5
million) at the date of sale. As a result of the Solaris sale, GPU recorded an
after-tax gain of $18.3 million. In July 1998, GPU Electric sold its Allgas
shares for A$25.8 million (approximately U.S. $16 million).
In February 1998, GPU International sold a one-half interest in the
Mid-Georgia cogeneration project (Mid-Georgia, a 300 MW facility located in
Kathleen, Georgia) to Sonat Energy Services Company. As a result, GPU recorded
an after-tax gain on the sale of $5.8 million in the first quarter of 1998. In
June 1998, Mid-Georgia began commercial operation under a 30-year power purchase
agreement to sell capacity and energy on a dispatchable basis to Georgia Power.
In November 1998, Midlands announced the sale of its electric supply
business to National Power plc. GPU and Cinergy jointly acquired Midlands in
1996. National Power will acquire all the assets of Midlands' supply business
and assume its liabilities, including obligations under all Midlands' power
purchase agreements, for $300 million ($150 million for GPU's share) plus an
adjustment for working capital at financial closing, which is expected in the
second quarter of 1999. Midlands will continue to own its distribution business,
as well as interests in various generation stations.
In December 1998, GPU Electric agreed to acquire Emdersa, an Argentine
holding company that owns three electric distribution companies, for $435
million. The three companies serve approximately 335,000 customers throughout a
service territory of approximately 124,300 square miles in northwest Argentina.
GPU expects to complete the purchase of Emdersa in the first quarter of 1999.
Management expects that the GPUI Group will provide a substantial portion
of GPU's future earnings growth and intends to make additional investments in
F-22
<PAGE>
GPU, Inc. and Subsidiary Companies
its business activities. The timing and amount of these investments, however,
will depend upon the availability of appropriate opportunities and financing
capabilities.
Market Risk Sensitive Instruments
The GPUI Group uses interest rate swaps to manage the risk of increases in
variable interest rates. All of the agreements effectively convert variable rate
debt, including commercial paper, to fixed rate debt. None of these swap
agreements are held for trading purposes. During 1998, PowerNet replaced
interest rate swap agreements with swaps having more favorable economic terms.
As a result, PowerNet recognized A$7.2 million (approximately U.S. $4.4 million)
of swap breakage costs. The following summarizes the principal characteristics
of swap agreements entered into as of December 31, 1998:
<TABLE>
(in thousands)
<CAPTION>
Fixed Variable
Notional Fair Termination Pay/Receive Interest Interest Rate
Amount Value(a) Date Characteristic Rate at 12/31/98
------ -------- ---- -------------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
PowerNet A$ 14,000 A$ 14 10/1/99 fixed/variable 4.66% 4.87%
A$ 14,000 A$ 2 10/1/99 fixed/variable 4.69% 4.87%
A$ 14,000 A$ 10 10/1/99 fixed/variable 4.70% 4.89%
A$ 22,750 A$ (2) 10/1/99 fixed/variable 4.71% 4.85%
A$ 39,250 A$ 68 10/1/00 fixed/variable 4.75% 4.84%
A$ 26,000 A$ 28 10/1/00 fixed/variable 4.79% 4.85%
A$ 42,250 A$ 28 10/1/00 fixed/variable 4.81% 4.85%
A$ 26,000 A$ 81 10/3/00 fixed/variable 4.77% 4.87%
A$ 26,000 A$ 68 10/3/00 fixed/variable 4.80% 4.89%
A$ 212,000 A$ (5,164) 11/6/00 fixed/variable 6.14% 4.89-4.93%
A$ 481,250 A$ (24,691) 11/6/02 fixed/variable 6.56% 4.89-4.93%
A$ 385,000 A$ (29,558) 11/8/04 fixed/variable 6.82% 4.82-4.93%
A$ 288,750 A$ (34,330) 11/6/07 fixed/variable 7.14% 4.82-4.93%
A$ 288,750 A$ (34,523) 11/6/07 fixed/variable 7.15% 4.82-4.93%
--------- ---------
A$1,880,000 A$ (127,969)
<FN>
(a) Represents the amount the GPUI Group would (pay)/receive to terminate the
swap agreements prior to their scheduled termination dates.
</FN>
</TABLE>
The amount of debt obligations covered by swap agreements and the expected
variable interest rates on such debt, for each of the next five years, are as
follows:
(in thousands)
PowerNet
--------
Expected
Average Variable
Debt Interest
Covered Rate
------- ----
1999 A$1,880,000 4.7-4.9%
2000 A$1,759,688 4.9-5.0%
2001 A$1,158,125 5.1-5.2%
2002 A$1,037,813 5.2-5.3%
2003 A$ 436,250 5.3-5.4%
F-23
<PAGE>
GPU, Inc. and Subsidiary Companies
The expected variable interest rates included above, for the years 1999
through 2003, were provided by the financial institutions with whom the swap
agreements were executed, and were derived from their proprietary models based
upon recognized financial principles.
The swap agreements resulted in actual interest expense for covered debt
of $83.7 million in 1998, as compared to $65.4 million in interest expense, had
the GPUI Group not entered into the agreements. It is management's intent to
refinance A$721.9 million (approximately U.S. $442 million) of debt, which is
scheduled to mature in November 2002, on a long-term basis.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures and Investments
GPU Energy Companies
The GPU Energy companies' capital spending was $328 million (JCP&L $155
million; Met-Ed $75 million; Penelec $89 million; Other $9 million) in 1998, and
was used primarily for new customer connections and to expand and improve
existing T&D facilities. In 1999, capital expenditures for the GPU Energy
companies are estimated to be $397 million (JCP&L $183 million; Met-Ed $97
million; Penelec $98 million; Other $19 million), primarily for ongoing T&D
system development and to implement an integrated information system. In 1998,
expenditures for maturing obligations were $43 million (JCP&L $13 million;
Penelec $30 million). Expenditures for maturing obligations are expected to
total $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in
1999, and $131 million (JCP&L $51 million; Met-Ed $50 million; Penelec $30
million) in 2000. Management estimates that a substantial portion of the GPU
Energy companies' 1999 capital outlays will be satisfied through internally
generated funds.
GPU's capital leases are primarily for nuclear fuel held by the GPU Energy
companies. Nuclear fuel capital leases at December 31, 1998 totaled $126 million
(JCP&L $85 million; Met-Ed $27 million; Penelec $14 million). When consumed,
portions of the presently leased material will be replaced by additional leased
material at an annual rate of approximately $36 million (JCP&L $9 million;
Met-Ed $18 million; Penelec $9 million). In the event the needed nuclear fuel
cannot be leased, the associated capital requirements would have to be met by
other means. Upon closing of the sale of Three Mile Island Unit 1 (TMI-1) to
AmerGen Energy Company, LLC (AmerGen), the GPU Energy companies will terminate
the related fuel lease and pay all outstanding amounts due under the related
credit facility (see Managing the Transition section of COMPETITIVE ENVIRONMENT
AND RATE MATTERS).
GPUI Group
The GPUI Group's capital spending was $140 million in 1998, which was
used primarily to improve PowerNet's facilities and to make additional
investments in EWGs and FUCOs. For 1999, capital expenditures are forecasted to
be $39 million, primarily for ongoing development of PowerNet's transmission
system and to make additional investments in EWGs and FUCOs. In 1998,
expenditures for maturing obligations were $538 million, and are expected to
total $481 million in 1999, and $534 million in 2000. Management estimates that
the GPUI Group's 1999 capital outlays will be satisfied through both internally
generated funds and external financings.
F-24
<PAGE>
GPU, Inc. and Subsidiary Companies
Capital Expenditures and Investments*
(in millions)
-------------
1994 1995 1996 1997 1998 1999**
---- ---- ---- ---- ---- ----
GPU Energy companies $586 $462 $404 $356 $328 $397
GPUI Group $ 74 $165 $574 $1,912 $140 $ 39
* Includes consolidated operations only
** Estimate
Financing
GPU, Inc.
GPU, Inc. has received SEC approval to issue and sell up to $300 million
of unsecured debentures through 2001. In February 1998, GPU, Inc. sold seven
million shares of common stock. The net proceeds of $269 million were used
primarily to reduce indebtedness associated with the PowerNet and Midlands
acquisitions, and the balance was used for other corporate purposes. Further
significant investments by the GPUI Group, or otherwise, may require GPU, Inc.
to issue additional debt and/or common stock (see GPUI GROUP for a discussion of
GPU, Inc.'s remaining investment authorization).
GPU, Inc. has requested SEC authorization to issue and sell up to $100
million of commercial paper through December 2003. GPU, Inc. expects that the
proceeds from the issuance of the commercial paper will be used for general
corporate purposes and to make additional investments in EWGs and FUCOs.
In January 1999, the GPU, Inc. Board of Directors authorized the
repurchase of up to $350 million of GPU, Inc. common stock. The repurchases will
initially be funded with borrowings.
GPU Energy Companies
Under existing authorizations, JCP&L and Penelec may issue first mortgage
bonds (FMBs), including secured medium-term notes, and preferred stock through
June 1999. Met-Ed has similar authority through December 1999. Aggregate amounts
available for issuance under the JCP&L, Met-Ed and Penelec programs are $145
million, $190 million and $70 million, respectively, of which $100 million for
JCP&L and Met-Ed and $70 million for Penelec may consist of preferred stock. The
GPU Energy companies do not, however, expect to issue additional senior
securities under these existing authorizations.
Instead, Met-Ed and Penelec have obtained regulatory approval through
December 31, 2000 to issue senior notes and preferred securities in aggregate
amounts of $250 million and $725 million, respectively, of which up to $125
million for each company may consist of preferred securities. JCP&L is seeking
similar regulatory approval through December 31, 2000 to issue senior notes and
preferred securities in the aggregate amount of $300 million, of which up to
$200 million may consist of preferred securities.
Current plans call for the GPU Energy companies to issue secured senior
notes and preferred securities during the next three years to fund the
redemption of maturing senior securities, refinance outstanding senior
securities and finance construction activities. The secured senior notes would
become unsecured when 80% or more of the FMBs issued are collateral for senior
notes. All senior notes issued thereafter would be unsecured.
F-25
<PAGE>
GPU, Inc. and Subsidiary Companies
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock and
short-term debt the companies may issue. The GPU Energy companies' interest and
preferred dividend coverage ratios are currently in excess of indenture and
charter restrictions. The amount of FMBs that the GPU Energy companies could
issue based on the bondable value of property additions is in excess of amounts
currently authorized. The GPU Energy companies have regulatory authority to
incur short-term debt, a portion of which may be through the issuance of
commercial paper.
In 1998, Penelec redeemed $30 million principal amount of FMBs and JCP&L
redeemed $15 million stated value of cumulative preferred stock pursuant to
mandatory and optional sinking fund provisions. In 1999, Penelec expects,
subject to market conditions, to redeem approximately $600 million of its FMBs
out of the proceeds from the sale of the generating assets.
In January 1999, Met-Ed and Penelec announced the redemption of all their
outstanding shares of cumulative preferred stock. The shares will be redeemed on
February 19, 1999 at a price of $12.6 million and $17.6 million for Met-Ed and
Penelec, respectively.
The GPU Energy companies' cost of capital and ability to obtain external
financing are affected by their security ratings, which are periodically
reviewed by the credit rating agencies. The GPU Energy companies' FMBs are
currently rated at an equivalent of "BBB+" or higher by the major credit rating
agencies, while the preferred stock and mandatorily redeemable preferred
securities have been assigned an equivalent of "BBB" or higher. In addition, the
GPU Energy companies' commercial paper is rated as having good credit quality.
GPUI Group
In 1998, GPU Capital entered into a commercial paper credit facility to
finance up to $1 billion of investments in FUCOs and EWGs. GPU expects that the
proceeds from the sale of commercial paper (guaranteed by GPU, Inc.) will be
used to repay a portion of the outstanding foreign acquisition debt and to
finance future investments in FUCOs and EWGs. In January 1999, GPU Capital
issued $375 million of commercial paper which was used primarily to reduce the
Midlands acquisition debt. Also in 1998, Austran Holdings, Inc. (Austran), a
wholly owned subsidiary of GPU Electric, entered into a A$500 million
(approximately U.S. $306 million) commercial paper program. PowerNet has
guaranteed Austran's obligations under this program. As of December 31, 1998,
Austran had outstanding approximately A$458 million (approximately U.S. $280
million) under the commercial paper program to refinance the maturing portion of
the senior debt credit facility used to finance the PowerNet acquisition. The
Austran borrowings are classified as noncurrent on the Consolidated Balance
Sheet since it is management's intent to reissue the commercial paper on a
long-term basis.
In 1998, GPU Electric sold its 50% stake in Solaris, the net sales
proceeds of which were used to reduce by $112 million the Solaris and PowerNet
acquisition debt. The balance of the proceeds was applied for other corporate
purposes.
In 1998, PowerNet and Midlands acquisition debt was reduced by an
additional $40 million and $189 million, respectively, from proceeds provided by
the sale of GPU, Inc. common stock. GPU may further reduce Midlands and PowerNet
acquisition debt with a portion of the proceeds from the sale of the
F-26
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU Energy companies' fossil-fueled and hydroelectric generating facilities,
which is expected to be completed in mid-1999 (see Managing the Transition
section of COMPETITIVE ENVIRONMENT AND RATE MATTERS).
Capitalization
Each of the GPU companies' target capitalization ratios are designed to
provide credit quality ratings that permit capital market access at reasonable
costs. The target capitalization ratios vary by subsidiary depending upon their
business and financial risk. GPU's actual capitalization ratios at December 31
for the years indicated, were as follows:
GPU, Inc. and Subsidiary Companies 1998 1997 1996
- ---------------------------------- ---- ---- ----
Common equity 40% 35% 43%
Preferred equity 6 6 7
Notes payable and long-term debt 54 59 50
--- --- ---
100% 100% 100%
=== === ===
JCP&L 1998 1997 1996
- ----- ---- ---- ----
Common equity 50% 50% 48%
Preferred equity 8 9 9
Notes payable and long-term debt 42 41 43
--- --- ---
100% 100% 100%
=== === ===
Met-Ed 1998 1997 1996
- ------ ---- ---- ----
Common equity 47% 49% 48%
Preferred equity 8 7 8
Notes payable and long-term debt 45 44 44
--- --- ---
100% 100% 100%
=== === ===
Penelec 1998 1997 1996
- ------- ---- ---- ----
Common equity 47% 47% 45%
Preferred equity 7 7 7
Notes payable and long-term debt 46 46 48
--- --- ---
100% 100% 100%
=== === ===
In 1998, the quarterly dividend on GPU, Inc.'s common stock was increased
by 3.0% to an annualized rate of $2.06 per share. GPU, Inc.'s payout rate in
1998 was 61% of earnings (excluding the non-recurring items). Management will
continue to review GPU, Inc.'s dividend policy to determine how to best serve
the long-term interests of shareholders.
Year 2000 Issue
GPU is addressing the Year 2000 issue by undertaking a comprehensive
review of its computers, software and equipment with embedded systems such as
microcontrollers (together, "Year 2000 Components"), and of its business
relationships with third parties, including key customers, lenders, trading
partners, vendors, suppliers and service providers. Remediation plans and
corrective actions are in progress. The remediation plans include, among other
things, the modification or replacement of Year 2000 Components which are not
ready for use beyond 1999. In addition, GPU has begun to develop contingency
plans for mission-critical systems. GPU's Year 2000 project is not expected to
cause any material delay in the completion of other planned projects by
information technology services.
F-27
<PAGE>
GPU, Inc. and Subsidiary Companies
In January 1999, an independent consultant retained by GPU to review the
adequacy of GPU's Year 2000 plans favorably rated the GPU Energy companies in
their progress toward achieving Year 2000 readiness as measured against the
consultant's "best practices" model. The consultant also identified certain
weaknesses that GPU is currently addressing.
The PaPUC has entered an Order mandating that Pennsylvania jurisdictional
utilities have their mission-critical systems Year 2000 compliant by March 31,
1999. In November 1998, an Administrative Law Judge (ALJ) assigned to the
proceeding conducted hearings to support recommendations demanding that the
PaPUC relax its March 31, 1999 mandate in certain cases. Met-Ed and Penelec have
jointly submitted testimony to the proceeding and participated in the hearings.
While there can be no assurance as to the outcome of this matter, including if
the PaPUC will modify its March 31, 1999 compliance date, GPU believes that its
current Year 2000 plans are adequate relative to its mission-critical systems.
In addition to the PaPUC mandate, inquiries concerning GPU's Year 2000 readiness
have been made by the New Jersey Board of Public Utilities (NJBPU), the U.S.
Nuclear Regulatory Commission (NRC), the U.S. Department of Energy, and by
numerous third parties with which GPU has business relationships.
Costs
The GPU Energy companies currently estimate that they will spend
approximately $43.3 million (JCP&L $18.6 million; Met-Ed $12 million; Penelec
$12.7 million) on the Year 2000 issue, which includes $8.1 million (JCP&L $2.7
million; Met-Ed $2.7 million; Penelec $2.7 million) that is being spent as a
part of the purchase and implementation of a new integrated information system
(Project Enterprise), as described below. The $43.3 million also includes $7.4
million(JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1 million) that
would have been spent in any event for maintenance and cyclical replacement
plans. Approximately 55% of the expected costs involve the modification or
replacement of Year 2000 Components; and 45% are for labor (including contract
labor) and other project expenses. These costs are being funded by the GPU
Energy companies from their operations.
Through December 31, 1998, the GPU Energy companies have spent a total of
approximately $20.6 million (JCP&L $8.6 million; Met-Ed $6 million; Penelec $6
million) (of the $43.3 million) in connection with the Year 2000 issue, of which
$15.9 million (JCP&L $6.5 million; Met-Ed $4.7 million; Penelec $4.7 million)
was spent in 1998.
The GPUI Group currently expects to spend approximately $9 million to
address the Year 2000 issue, primarily to replace or modify equipment at
Midlands. Through December 31, 1998, a total of approximately $2.5 million has
been spent, substantially all of which was spent in 1998.
The Project Enterprise system, referenced above, is designed to help the
GPU Energy companies manage business growth and meet the mandates of electric
utility deregulation. The system is scheduled to be substantially operational
for the GPU Energy companies and GPUS by March 1999 and fully operational for
all companies by June 1999. GPUN and Genco are not installing Project Enterprise
before the year 2000, but rather are making modifications to their systems to
achieve Year 2000 readiness. For critical systems, these modifications are
expected to be completed by March 31, 1999, and for remaining systems by July
31, 1999.
F-28
<PAGE>
GPU, Inc. and Subsidiary Companies
Milestones
GPU has established Inventory, Assessment, Remediation, Testing and
Monitoring as the primary phases for its Year 2000 program. The Inventory phase
of the program has been completed. The milestones for Assessment, Remediation,
Testing and Monitoring are as follows:
Assessment Remediation Testing Monitoring
---------- ----------- ------- ----------
GPU Energy
and GPUS 02/28/1999 03/31/1999 03/31/1999 03/31/2000
Genco 02/28/1999 11/15/1999 11/15/1999 05/31/2000
GPUN 03/31/1999 10/31/1999 10/31/1999 03/31/2000
GPUI Group 02/28/1999 09/30/1999 09/30/1999 03/31/2000
Genco expects to complete modifications and testing of Year 2000
Components involved in 90% of its generation capacity by May 31, 1999.
Modifications and testing of the remaining components, primarily for two
generating units, will be completed during maintenance outages scheduled in the
Fall of 1999. GPUN expects to complete modifications and testing for most of its
systems and components by July 1, 1999. Modifications and testing of the
remaining components at TMI-1, which is scheduled for a refueling outage in
September 1999, are not expected to be completed until late October 1999.
Third Party Qualification
Due to the interdependence of computer systems and the reliance on other
organizations for supplies, materials or services, GPU is addressing the Year
2000 issue as it relates to the readiness of third parties. As part of its Year
2000 strategy, GPU is contacting key customers, lenders, trading partners,
vendors, suppliers and service providers to assess whether they are adequately
addressing the Year 2000 issue.
With respect to computer software and equipment with embedded systems,
GPU has analyzed where it is dependent upon third party data and has identified
several critical areas: (1) the Pennsylvania-New Jersey-Maryland (PJM)
Interconnection; (2) electric generation suppliers, such as cogeneration
operators and nonutility generators (NUGs); (3) Electronic Data Interchange
(EDI) with trading partners; (4) Electronic Funds Transfer (EFT) with financial
institutions; (5) vendors; and (6) customers.
The following summarizes the actions that have taken place with critical
third parties:
- - PJM - Data link testing has been completed. Major testing of system
upgrades is scheduled for completion during the first quarter of 1999.
- - Electric generation suppliers - GPU has contacted all critical electric
generation suppliers and information concerning their readiness has been
received from approximately 81%. Those that have responded have readiness
dates that extend into September 1999.
- - EDI/EFT - GPU has sent readiness questionnaires to all critical
organizations with which it exchanges data electronically and conducts
electronic funds transfers. GPU has received responses from
approximately 23% of those contacted. Testing with critical trading
partners is scheduled for completion during the first quarter of 1999.
F-29
<PAGE>
GPU, Inc. and Subsidiary Companies
- - Vendors - GPU has contacted all critical vendors and approximately 61%
have responded as to their readiness.
- - Customers - A customer readiness assessment was initiated during the
fourth quarter of 1998 and approximately 64% of critical customers have
been contacted. GPU has received responses from 20% of those contacted.
Scenarios and Contingencies
If GPU, or critical third parties upon whom GPU relies, are unable to
successfully address their Year 2000 issues on a timely basis, certain
computers, equipment, systems and applications may not function properly, which
could have a material adverse effect on GPU's operations and financial
condition. While GPU cannot predict what effect, if any, the Year 2000 issue
will have on its operations, one possible scenario could include, among other
things, interruptions in delivering electric service, and a temporary inability
to process transactions, provide bills or operate electric generating stations.
GPU currently has no loss estimates related to Year 2000 risks that could
potentially result from any such scenario.
While there can be no assurance as to the outcome of this matter, GPU
believes that its Year 2000 preparations will be successful relative to its
mission-critical Year 2000 Components. In addition, GPU is developing
contingency plans in accordance with the contingency planning schedule proposed
by the North American Electric Reliability Council. These plans, which are
currently expected to be finalized in mid- to late-1999, will include
supplementing present general emergency procedures with specific measures for
Year 2000 problems and the placing of troubleshooting teams at sites where
critical components are located.
COMPETITIVE ENVIRONMENT AND RATE MATTERS
Managing the Transition
Currently, and increasingly in the future, GPU will serve customers in
markets where there will essentially be capped rates. Since GPU has, to a large
extent, exited the merchant generation business, it will need to supply energy
largely from contracted purchases and purchases in the open market. Management
is in the process of identifying and addressing these market risks, however,
there can be no assurance that GPU will be able to supply electricity to
customers that it has obtained at reasonable cost.
GPU expects to be in a regulated business (the transmission and
distribution of electricity) that will be lower risk than that of a company
engaged in merchant generation, but also expects that the rate of return on
equity investment will be somewhat lower as well. In addition, inflation may
have a varying effect on GPU since it will be a factor in revenue calculations
in some jurisdictions, but may cause increased operating costs with GPU having a
limited ability to pass these costs to its customers because of capped rates in
other areas.
GPU has been active both on the federal and state levels in helping to
shape electric industry restructuring while seeking to protect the interests of
its shareholders and customers, and is attempting to assess the impact that
these competitive pressures and other changes will have on its financial
condition and results of operations.
F-30
<PAGE>
GPU, Inc. and Subsidiary Companies
In October 1997, GPU announced its intention to begin a process to sell,
through a competitive bid process, up to all of the fossil-fuel and
hydroelectric generating facilities owned by the GPU Energy companies. These
facilities, comprised of 26 operating stations, support organizations and
development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW; Penelec 2,100 MW)of capacity and have a net book value of approximately $1.1
billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at
December 31, 1998.
In August 1998, Penelec and New York State Electric & Gas Corporation
(NYSEG) entered into definitive agreements with Edison Mission Energy to sell
the Homer City Station for a total purchase price of approximately $1.8 billion.
Penelec and NYSEG each own a 50% interest in the station, and will share equally
in the net sale proceeds. The sale, which is subject to various federal and
state regulatory approvals, is expected to be completed in the first quarter of
1999.
In November 1998, the GPU Energy companies entered into definitive
agreements with Sithe Energies and FirstEnergy Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a
total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed
$677 million; Penelec $604 million). Penelec's 20% undivided ownership interest
in the Seneca Pumped Storage Facility is being sold to FirstEnergy for $43
million, which is included in the above amount. The sales are expected to be
completed by mid-1999, subject to the timely receipt of the necessary regulatory
and other approvals. Sithe has agreed to assume the collective bargaining
agreements covering union employees and to fill bargaining positions on the
basis of seniority. Sithe has also agreed to use reasonable efforts to offer
positions to Genco non-bargaining employees. The GPU Energy companies have
agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec
$4 million)of employee severance costs for employees not hired by Sithe.
In October 1998, the GPU Energy companies entered into definitive
agreements to sell TMI-1 to AmerGen, which is a joint venture between PECO
Energy and British Energy. Terms of the purchase agreements are summarized as
follows:
- - The total cash purchase price is approximately $100 million, which
represents $23 million to be paid at closing, and $77 million for the
nuclear fuel in the reactor to be paid in five equal annual installments
beginning one year after the closing. The purchase price and closing
payment are subject to certain adjustments for capital expenditures and
other items.
- - AmerGen will make contingent payments of up to $80 million for the period
January 1, 2002 through December 31, 2010 depending on the actual energy
market clearing prices through 2010.
- - GPU will purchase the energy and capacity from TMI-1 from the closing
through December 31, 2001, at predetermined rates.
- - At closing, GPU will make additional deposits into the TMI-1
decommissioning trusts to bring the trust totals up to $320 million and
AmerGen will then assume all liability and obligation for decommissioning
TMI-1.
F-31
<PAGE>
GPU, Inc. and Subsidiary Companies
- - GPU will continue to own and hold the license for Three Mile Island Unit
2 (TMI-2). No liability for TMI-2 or its decommissioning will be assumed
by AmerGen. AmerGen will, however, maintain TMI-2 under contract with
GPU.
- - AmerGen will employ all employees located at TMI-1 at closing, and will
also have the opportunity to offer positions to GPUN's headquarters
staff. GPU will be responsible for all severance payments associated with
these employees for a one-year period following closing. AmerGen will
assume the current collective bargaining agreement covering TMI-1 union
employees.
The sale is subject to various conditions, including the receipt of
satisfactory federal and state regulatory approvals. NRC approval of the TMI-1
license transfer to AmerGen, as well as certain rulings from the Internal
Revenue Service, will be necessary with respect to the maintenance or transfer
of the decommissioning trusts. There can be no assurance as to the outcome of
these matters.
The net proceeds from the sales described above will be used to reduce
the capitalization of the respective GPU Energy companies, repurchase GPU, Inc.
common stock, fund previously incurred liabilities in accordance with the
Pennsylvania settlement, and may also be applied to reduce short-term debt,
finance further acquisitions, and to reduce acquisition debt of the GPUI Group.
In addition to the continued operation of the Oyster Creek Nuclear
Generating Station (Oyster Creek), JCP&L has been exploring the sale or early
retirement of the plant to mitigate costs associated with its continued
operation. GPU does not anticipate making a final decision on the plant before
the NJBPU rules on JCP&L's restructuring filing.
As part of its strategy of achieving earnings growth, GPU is continuing to
investigate investment opportunities in various domestic and foreign power
projects and foreign utility systems, and intends to make additional investments
and/or acquisitions which would be financed with new debt or new equity.
GPU has identified the following strategic objectives to guide it over the
next several years: (1) reposition GPU based on changing industry risks; (2)
build upon GPU's core competency in regulated infrastructure (mainly the
transmission and distribution of electricity); (3) divest the commodity/merchant
generation business; (4) seek growth through the acquisition of domestic and
international regulated infrastructure assets (i.e. electric, natural gas,
water, telecommunications); (5) continue to develop the contract generation
business (generation for which contracts to sell power to third parties have
been executed) through the GPUI Group; and (6) continue to participate in the
retail energy and supply business to determine if a viable economic opportunity
exists through GPU AR.
GPU's strategies may include business combinations with other companies,
internal restructurings involving the complete or partial separation of its
wholesale and retail businesses and acquisitions of other businesses. No
assurances can be given as to whether any potential transactions of the type
described above may actually occur, or as to the ultimate effect thereof on the
financial condition or competitive position of GPU.
F-32
<PAGE>
GPU, Inc. and Subsidiary Companies
Recent Regulatory Actions
Pennsylvania
In 1996, Pennsylvania adopted comprehensive legislation which provides for
the restructuring of the electric utility industry. The legislation, among other
things, permits Pennsylvania retail consumers to choose their electric supplier
and requires the unbundling of rates for transmission, distribution and
generation services. Utilities have the opportunity to recover their prudently
incurred stranded costs that result from customers choosing another supplier
through a PaPUC approved competitive transition charge, subject to certain
conditions, including that they attempt to mitigate these costs. For a
discussion of stranded costs, see the Competition and the Changing Regulatory
Environment section of Note 13 of the Notes to Consolidated Financial
Statements.
In June 1997, Met-Ed and Penelec filed with the PaPUC their restructuring
plans to implement competition and customer choice in Pennsylvania. In October
1998, the PaPUC adopted Restructuring Orders approving Settlement Agreements
entered into by Met-Ed, Penelec, the PaPUC and all but two of the intervenors in
the restructuring proceeding who have appealed the Restructuring Orders. One of
these appeals remains pending and is scheduled to be heard in April 1999. For
additional information, see Note 5, Accounting for Extraordinary and
Non-recurring Items. The major elements of the Restructuring Orders are as
follows:
- - A transmission and distribution tariff rate which provides adequate
funding for maintaining the reliability of Met-Ed and Penelec's electric
distribution systems;
- - A rate reduction from January 1, 1999 through December 31, 1999, for all
customers, whether they choose an alternate supplier or not, reflecting
Met-Ed and Penelec's obligation to make refunds to customers from 1998
revenues (2.5% for Met-Ed customers and 3% for Penelec customers from
December 1996 levels);
- - The ability of all customers to participate in electric choice on
January 1, 1999 - two years sooner than called for in Pennsylvania's
Customer Choice Act;
- - Customers will receive a "shopping credit" that will result in savings if
they buy electricity from an alternate supplier that charges less than
the shopping credit. The average shopping credit in 1999 will be 4.350
cents per KWH for Met-Ed and 4.404 cents per KWH for Penelec. Actual
prices will vary by customer rate class;
- - Assurance of full recovery of the above-market costs of
government-mandated contracts to buy electricity from NUGs (Beginning in
2005, the amount collected will be adjusted every five years over the
life of each contract);
- - A rate cap for the cost of delivering electricity (transmission and
distribution) until 2004;
- - A rate cap for electricity purchased from Met-Ed and Penelec, as
providers of last resort, until 2010;
F-33
<PAGE>
GPU, Inc. and Subsidiary Companies
- - PaPUC approval for Met-Ed and Penelec to sell all of their generating
stations, including TMI-1;
- - Recovery of $658 million in stranded costs for Met-Ed over 12 years and
$332 million for Penelec over 11 years. Future NUG operating costs for
which rate recovery has been assured may be adjusted every five years
over the life of each NUG contract. (These amounts reflect the effects of
using the estimated net proceeds from selling Met-Ed and Penelec's
generating plants to reduce stranded costs and will be adjusted based on
actual net sale proceeds);
- - $2.7 million and $3.4 million for assistance in 1999 to low-income
customers of Met-Ed and Penelec, respectively; increasing to $6.4
million and $6.9 million, respectively, in 2002;
- - A sustainable energy fund to promote the development and use of
renewable energy and clean energy technologies with one-time payments in
1998 of $5.7 million from Met-Ed and of $6.4 million from Penelec;
- - The ability of some customers to choose another licensed supplier to
provide metering services beginning January 1, 1999, and billing
services beginning January 1, 2000;
- - A phase-in of competitive bidding beginning no later than June 1, 2000,
for other suppliers to be the "provider of last resort" for customers who
do not shop; and
- - The dismissal of all pending litigation in accordance with the Settlement
Agreements.
New Jersey
In April 1997, the NJBPU issued final Findings and Recommendations for
Restructuring the Electric Power Industry in New Jersey. The NJBPU recommended,
among other things, that certain electric retail customers be permitted to
choose their supplier beginning October 1998, expanding to include all retail
customers by July 1, 2000. The NJBPU also recommended a near-term electric rate
reduction of 5-10% with the phase-in of retail competition, as well as
additional rate reductions accomplished as a result of new energy tax
legislation, as discussed below.
The NJBPU has proposed that utilities have an opportunity to recover
their stranded costs associated with generating capacity commitments provided
that they attempt to mitigate these costs. Also, NUG contracts which cannot be
mitigated would be eligible for stranded cost recovery. The determination of
stranded cost recovery by the NJBPU would be undertaken on a case-by-case basis,
with no guaranty for full recovery of these costs. A separate market transition
charge (MTC) would be established for each utility to allow utilities to recover
stranded costs over 4 to 8 years. The MTC would be capped to ensure that
customers experience the NJBPU's recommended overall rate reduction of 5-10%.
In addition, the NJBPU is proposing that utilities unbundle their rates
and allow customers to choose their electric generation supplier. Transmission
and distribution of electricity would continue as a regulated monopoly and
utilities would be responsible for connecting customers to the system and for
providing distribution service. Transmission service would be
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GPU, Inc. and Subsidiary Companies
provided by an independent system operator (ISO), which would be responsible for
maintaining the reliability of the regional power grid and would be regulated by
the Federal Energy Regulatory Commission (FERC).
In July 1997, New Jersey enacted energy tax legislation which eliminated
the 13% gross receipts and franchise tax on utility bills effective January 1,
1998. As a result, utilities are now collecting from customers a 6% sales tax
and paying a corporate business tax which amounts to 1-2% of revenues. Utilities
are also paying a transitional energy facilities assessment which will phase out
over five years and result in a 5-6% rate reduction to customers.
In July 1997, JCP&L filed with the NJBPU its proposed restructuring plan.
Included in the plan were stranded cost, unbundled rate and restructuring
filings. Highlights of the plan include:
- - Some electric retail customers would be able to choose their supplier
beginning on October 1, 1998, as initially recommended by the NJBPU,
expanding to include all retail customers by July 1, 2000.
- - JCP&L would unbundle its rates and these rates would apply to all
distribution customers, with the exception of a Production Charge, which
would be charged only to customers who do not choose an alternative
energy supplier. The proposed unbundled rate structure would include:
-- A flat monthly Customer Charge for the costs associated with
metering, billing and customer account administration.
-- A Delivery Charge consisting of capital and O&M costs
associated with the transmission and distribution system; the
recovery of regulatory assets, including those associated with
generation; the cost of social programs; and certain costs
related to the proposed ratemaking treatment of Oyster Creek.
-- A Market Energy and Capacity (MEC) Charge would be established
on a monthly basis for a six-month period for electricity
provided to customers for whom JCP&L continues to act as their
electric generation supplier. JCP&L would be the supplier of
last resort for customers who cannot or do not wish to
purchase energy from an alternative supplier. The MEC would be
based upon competitively "bidding out" the discrepancy between
projected needs and projected resources. JCP&L would true-up
the MEC charges for sales differences against its actual cost
to provide that power, plus interest. The true-up would be
recovered from, or credited to, the customers who were
customers during that period, based upon their usage during
such period.
The MEC would be established every six months.
-- A Societal Benefits Charge to recover demand-side management
costs, manufactured gas plant remediation costs, and nuclear
decommissioning costs.
-- A MTC to recover non-NUG stranded generation costs (other than
Oyster Creek). This charge would include both owned generation
and utility purchase power commitments. It is expected that
the MTC would be in effect for less than a three-year period.
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GPU, Inc. and Subsidiary Companies
-- A NUG Transition Charge (NTC) to recover ongoing above-market
NUG costs over the life of the contracts and provide a
mechanism to flow through to customers the benefits of future
NUG mitigation efforts. The NTC would be subject to an annual
true-up for actual cost escalations or reductions, changes in
availability or dispatch levels and other cost variations over
the life of each NUG project. The NTC would also be subject to
adjustment in the future to reflect additional NUG buyout or
restructuring costs and any related savings.
- - The unbundling plan calls for an estimated 10% rate reduction, which
would include a 2.1% reduction effective as part of JCP&L's Stipulation
of Final Settlement (Final Settlement) approved by the NJBPU in 1997.
The remaining reductions would be phased in over a two-year period
beginning after the commencement of retail choice, and would be
achieved through, among other things, the proposed early retirement of
Oyster Creek for ratemaking purposes in September 2000 and the
securitization of certain above-market costs. In addition to this rate
reduction, JCP&L customers would receive an additional rate reduction
of approximately 6% to be phased in over the next five years as a
result of energy tax legislation signed into law in July 1997.
- - In addition to the continued operation of the Oyster Creek facility,
JCP&L is exploring the early retirement of the plant to mitigate costs
associated with its continued operation. A final decision on the
plant's future will not be made until the NJBPU rules on JCP&L's
restructuring filing. Nevertheless, JCP&L has proposed that the NJBPU
approve an early retirement of Oyster Creek in September 2000, for
ratemaking purposes, with the following ratemaking treatment:
-- The market value of Oyster Creek's generation output would be
recovered in the Production Charge.
-- The above-market operating costs would be recovered as a
component of the Delivery Charge through September 2000. If
the plant is operated beyond that date, these costs would not
be included in customer rates.
-- Existing Oyster Creek regulatory assets would, like other
regulatory assets, be recovered as part of the Delivery
Charge.
-- Oyster Creek decommissioning costs would, like TMI-1
decommissioning costs, be recovered as a component of the
Societal Benefits Charge.
-- JCP&L's net investment in Oyster Creek would be recovered
through the Delivery Charge as a levelized annuity, effective
with the commencement of retail choice through its original
expected operating life, 2009.
- - Stranded costs at the time originally proposed by the NJBPU for initial
customer choice, on a present value basis, are estimated at $1.6 billion,
of which $1.5 billion is for above-market NUG contracts. The $1.6 billion
excludes above-market generation costs related to Oyster Creek.
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GPU, Inc. and Subsidiary Companies
Numerous parties have intervened in this proceeding and have contested
various aspects of JCP&L's filings, including, among other things, recovery by
JCP&L of plant capital additions since its last base rate case in 1992,
projections of future electricity prices on which stranded cost recovery
calculations are based, the appropriate level of return and the appropriateness
of earning a return on stranded investment.
Consultants retained by the NJBPU Staff, the Division of Ratepayer
Advocate and other parties have proposed that JCP&L's stranded cost recoveries
should be substantially lower than the levels JCP&L is seeking.
In a February 1998 order, the NJBPU substantially affirmed an ALJ ruling
which required that rates be unbundled based on the 1992 cost of service levels
which were the basis for JCP&L's last base rate case, but clarified that (1)
JCP&L could update its 1992 cost of service study to reflect adjustments
consistent with the 1997 NJBPU approved Final Settlement which, among other
things, recognized certain increased expense levels and reductions to base rates
and (2) all of the other updated post-1992 cost information that JCP&L had
submitted in the proceeding should remain in the record, which the NJBPU will
utilize after issuance of the ALJ's initial decision to establish a reasonable
level of rates going forward.
Furthermore, the NJBPU emphasized in its order that the final unbundled
rates established as a result of this proceeding will be lower than the current
bundled rates. This directive has been recognized in JCP&L's July 1997
restructuring plan which proposed annual revenue reductions totaling
approximately $185 million. The NJBPU will render final and comprehensive
decisions on the precise level of aggregate rate reductions required in order to
accomplish its primary goals of introducing retail competition and lowering
electricity costs for consumers.
If the NJBPU were to accept the positions of various parties or their
consultants, or were ultimately to deny JCP&L's request to recover post-1992
capital additions and increased expenses, it would have a material adverse
impact on JCP&L's stranded cost recovery, restructuring proceeding and future
earnings.
Hearings with respect to the stranded cost and unbundled rate filings
have been completed. In September 1998, the ALJ issued a recommended decision
containing the following major elements:
- - The ALJ did not consider current cost levels as the basis for unbundling
rates, but instead used 1992 costs. With the exception of JCP&L's
investment in a new combustion turbine plant, the ALJ denied recovery of
post-1992 rate case capital additions but recommended that the NJBPU
reconsider these matters.
- - The ALJ recommended that the Oyster Creek investment be recovered over a
period of between four and eleven years, but once the plant is retired
for ratemaking purposes, no return should be provided on the unamortized
investment.
- - The ALJ recommended that the 2.1% rate reduction implemented in April
1997 as part of JCP&L's Final Settlement should not be part of the 5-10%
rate reduction mandated by the NJBPU's Final Report.
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GPU, Inc. and Subsidiary Companies
- - The ALJ endorsed a market line higher than that proposed by JCP&L.
- - The ALJ approved recovery of actual NUG costs through a NUG Transition
Charge, over the lives of the contracts.
- - The ALJ accepted JCP&L's proposal for recovery of nuclear decommissioning
costs through a Societal Benefits Charge, but disallowed the inclusion of
fossil decommissioning costs in the calculation of stranded costs.
- - The ALJ accepted JCP&L's generation asset divestiture plan and the
position that the net proceeds be applied to reduce other stranded costs.
Evidentiary hearings before the NJBPU with respect to the separate
restructuring filing were held jointly with the other New Jersey utilities, and
briefs have been filed.
In 1999, legislation to deregulate New Jersey's electricity market was
enacted which generally provides for, among other things, the following:
- - Customer choice of electric generation supplier for all consumers
beginning no later than August 1, 1999;
- - A 5% rate reduction for all customers beginning August 1, 1999, with
another 5% rate reduction to be phased in over the next three years. The
rate reduction must be maintained for one year after the end of the three
year phase-in;
- - The aggregation of electric generation service by a government or private
aggregator;
- - The unbundling of customer bills;
- - The ability to recover stranded costs; and
- - The ability to securitize stranded costs.
The NJBPU is expected to issue final decisions on JCP&L's stranded cost,
unbundled rate and restructuring filings in the second quarter of 1999. There
can be no assurance as to the outcome of these matters.
Federal Regulation
In November 1997, the FERC issued an order to the PJM Power Pool which,
among other things, directed the GPU Energy companies to implement a
single-system transmission rate, effective April 1, 1998. The implementation of
a single-system rate is not expected to affect total transmission revenues. It
would, however, increase the pricing for transmission service in Met-Ed and
Penelec's service territories and reduce the pricing for transmission service in
JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling
requiring a single-system transmission rate. The Restructuring Orders for Met-Ed
and Penelec provide for a transmission and distribution rate cap exception to
recover the increase in the transmission rate from Met-Ed and Penelec's retail
customers in the event the FERC denies the request for
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GPU, Inc. and Subsidiary Companies
reconsideration of the single-system transmission rate. The FERC's ruling may
also have an effect on JCP&L's distribution rates. There can be no assurance as
to the outcome of this matter.
Several bills have been introduced in Congress providing for a
comprehensive restructuring of the electric utility industry. These bills
proposed, among other things, retail choice for all utility customers, the
opportunity for utilities to recover their prudently incurred stranded costs in
varying degrees, and repeal of both the Public Utility Regulatory Policies Act
(PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA).
The Clinton administration has announced a Comprehensive Electricity
Competition Plan which proposes, among other things, customer choice by January
1, 2003, stranded cost recovery, reliability standards, environmental
provisions, and the repeal of both PURPA and PUHCA. The plan does, however,
allow states to opt out of the mandate if they believe consumers would be better
served by an alternative policy. The administration's plan was submitted to
Congress in June 1998 but was not acted on.
Nonutility Generation Agreements
Pursuant to the mandates of PURPA and state regulatory directives, the GPU
Energy companies have been required to enter into power purchase agreements with
NUGs for the purchase of energy and capacity for remaining periods of up to 22
years. Although a few of these facilities are dispatchable, most are must-run
and generally obligate the GPU Energy companies to purchase, at the contract
price, the output up to the contract limits. As of December 31, 1998, facilities
covered by these agreements having 1,687 MW (JCP&L 918 MW; Met-Ed 364 MW;
Penelec 405 MW)of capacity were in service.
In 1998, Met-Ed and Penelec paid developers a total of $25 million and
$6.1 million, respectively, to buyout amended power purchase agreements. These
buyout payments were approved for recovery as part of the PaPUC's Restructuring
Orders.
The 1998 PaPUC Restructuring Orders and the legislation in New Jersey
provide for full recovery of the above-market costs of NUG agreements. The GPU
Energy companies will continue efforts to reduce the above-market costs of these
agreements and will, where beneficial, attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable agreements. There can be no assurance as to the extent to which
these efforts will be successful. (See the Competition and the Changing
Regulatory Environment section of Note 13 of the Notes to Consolidated Financial
Statements.)
The GPU Energy companies intend to avoid, to the maximum extent
practicable, entering into any new NUG agreements that are not needed or not
consistent with current market pricing and continue to support legislative
efforts to repeal PURPA.
THE GPU ENERGY COMPANIES' SUPPLY PLAN
Under traditional retail regulation, supply planning in the electric
utility industry is directly related to projected sales growth in a utility's
franchise service territory. In light of retail access legislation enacted in
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GPU, Inc. and Subsidiary Companies
Pennsylvania and New Jersey, the extent to which competition will affect the GPU
Energy companies' supply plan remains uncertain (see COMPETITIVE ENVIRONMENT AND
RATE MATTERS). As the GPU Energy companies prepare to operate in a competitive
environment, their supply planning strategy will focus on providing for the
needs of existing retail customers who do not choose a competitive supplier and
continue to receive energy supplied by the GPU Energy companies and whom the GPU
Energy companies continue to have an obligation to serve.
The GPU Energy companies' capacity (in megawatts) and sources of energy
(in gigawatt-hours) for 1998 are as follows:
Capacity Sources of Energy
MW % GWH %
-- - --- -
Coal 3,024 27 19,675 38
Nuclear 1,405 13 11,358 22
Gas, hydro & oil 2,322 21 888 2
Nonutility generation 1,687 15 10,952 21
Utility contracts 2,638 24 5,177 10
Spot market & interchange purchases - - 3,605 7
------ --- ------ ---
Total 11,076 100 51,655 100
====== === ====== ===
After the sale of the GPU Energy companies' generation facilities has been
completed, GPU will have 819 MW of capacity and related energy from Oyster Creek
and Yards Creek remaining to meet customer needs. The GPU Energy companies also
have contracts with NUG facilities totaling 1,687 MW (JCP&L 918 MW; Met-Ed 364
MW; Penelec 405 MW)and JCP&L has agreements with other utilities to provide for
up to 629 MW of capacity and related energy (see Note 13, COMMITMENTS AND
CONTINGENCIES). The GPU Energy companies have agreed to purchase all of the
capacity and energy from TMI-1 through December 31, 2001. In addition, the GPU
Energy companies have the right to call the capacity of the Homer City station
(942 MW) for two years and the capacity of the generating stations purchased by
Sithe (4,117 MW) for three years, from the dates of sale. The GPU Energy
companies' remaining capacity and energy needs will focus on short- to
intermediate-term commitments (one month to three years) during periods of
expected high energy price volatility and reliance on spot market purchases
during other periods. Management is in the process of identifying and addressing
the GPU Energy companies' future capacity and energy needs, and the impact of
customer shopping and changes in demand (see the Managing the Transition section
of COMPETITIVE ENVIRONMENT AND RATE MATTERS).
Provider of Last Resort
Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers may
shop for their generation supplier beginning January 1, 1999. A PaPUC approved
competitive bid process will assign provider of last resort (PLR) service for
20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1,
2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed generation
suppliers referred to as Competitive Default Service (CDS). If no qualified bids
for CDS are received at or below their generation rate caps, Met-Ed and Penelec
will continue to provide PLR service at the rate cap levels until 2010 unless
modified by the PaPUC. Any retail customers assigned to CDS may return to Met-Ed
and Penelec as the default PLR at no additional charge. Met-Ed and Penelec may
meet any remaining PLR obligation at rates not less than the lowest rate charged
by the winning CDS provider, but no higher than
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GPU, Inc. and Subsidiary Companies
Met-Ed and Penelec's rate cap. The restructuring legislation enacted in New
Jersey requires that JCP&L be the PLR for at least three years starting with the
implementation of customer choice on August 1, 1999. JCP&L is entitled to
recover reasonable and prudently incurred costs for PLR services. Within the
three-year period, the NJBPU is to determine whether to make PLR services
available on a competitive basis.
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but not
limited to acid rain, water quality, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
GPU records environmental liabilities (on an undiscounted basis) where it
is probable that a loss has been incurred and the amount of the loss can be
reasonably estimated, and adjusts these liabilities as required to reflect
changes in circumstances. At December 31, 1998, the GPU Energy companies have
liabilities recorded on their balance sheets for environmental remediation
totaling $90 million (JCP&L $58 million; Met-Ed $5 million; Penelec $27
million).
In 1998, the GPU Energy companies made capital expenditures of
approximately $10 million (JCP&L $1 million; Met-Ed $5 million; Penelec $4
million)related to environmental compliance and have budgeted approximately $3
million (Met-Ed $2 million; Penelec $1 million)for this purpose in 1999. The
incremental annual operating and maintenance costs for equipment related to
environmental compliance is not expected to be material. Moreover, following the
completion of the sale of their generating facilities, the GPU Energy companies
will no longer be subject to environmental requirements for the ownership,
operation or maintenance of these facilities.
For more information, see the Environmental Matters section of Note 13 of
the Notes to Consolidated Financial Statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
In 1996, a U.S. District Court granted a motion for summary judgment,
filed by GPU, Inc. and the GPU Energy companies, dismissing all of the 2,100
pending claims for alleged personal injury and punitive damages filed as a
result of the TMI-2 accident in March 1979. The Court ruled that there was no
evidence which created a genuine issue of material fact warranting submission of
plaintiffs' claims to a jury. The plaintiffs have appealed the District Court's
ruling to the Third Circuit, before which the matter is pending. There can be no
assurance as to the outcome of this litigation. For more information, see the
Nuclear Facilities section of Note 13 of the Notes to Consolidated Financial
Statements.
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GPU, Inc. and Subsidiary Companies
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation," applies to regulated utilities
that have the ability to recover their costs through rates established by
regulators and charged to customers. In response to the continuing deregulation
of the electric utility industry, the SEC has questioned the continued
applicability of FAS 71 by investor-owned utilities with respect to their
electric generation operations. In response to these concerns, the Financial
Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF Issue 97-4)
concluded in June 1997 that utilities are no longer subject to FAS 71, for the
relevant portion of their business, when they know details of their individual
transition plans to a competitive electric generation marketplace. The EITF also
concluded that utilities can continue to carry previously recorded regulated
assets, as well as any newly established regulated assets (including those
related to generation), on their balance sheets if regulators have guaranteed a
regulated cash flow stream to recover the cost of these assets.
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which,
among other things, essentially remove from regulation the costs associated with
providing electric generation service to Pennsylvania consumers, effective
January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the
application of FAS 71 and adopted the provisions of Statement of Financial
Accounting Standards No. 101 (FAS 101), "Regulated Enterprises Accounting for
the Discontinuation of Application of FASB Statement No. 71" and EITF Issue 97-4
with respect to their electric generation operations. The transmission and
distribution portion of Met-Ed and Penelec's operations will continue to be
subject to the provisions of FAS 71. JCP&L expects to discontinue the
application of FAS 71 and adopt FAS 101 and EITF Issue 97-4 for its electric
generation operations no later than its receipt of NJBPU approval of its
restructuring plans, which is expected in the second quarter of 1999.
In accordance with Statement of Financial Accounting Standards No. 121
(FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," impairment tests performed by the GPU
Energy companies on the December 31, 1998 net book value of their generation
facilities determined that the net investment in TMI-1 was impaired, resulting
in a write-down of $518 million (pre-tax) (JCP&L $134 million; Met-Ed $257
million; Penelec $127 million)to reflect TMI-1's fair market value. Of the
amount written down for TMI-1, $508 million (JCP&L $134 million; Met-Ed $255
million; Penelec $119 million)was re-established as a regulatory asset since
management believes it is probable of recovery in the restructuring process and
$10 million (Met-Ed $2 million; Penelec $8 million) (the FERC jurisdictional
portion) was charged to expense as an extraordinary item.
In 1998, Statement of Financial Accounting Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was issued. FAS
133 requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value. To
comply with this statement, GPU will be required to include its derivative
transactions on its balance sheet at fair value, and recognize the subsequent
changes in fair value as either gains or losses in earnings or report them as a
component of other comprehensive income, depending upon the intended use and
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GPU, Inc. and Subsidiary Companies
designation of the derivative as a hedge. FAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. GPU expects to adopt FAS
133 in the first quarter of 2000 and is in the process of evaluating the impact
of this statement.
In 1998, the FASB's EITF issued guidance on accounting for energy
contracts in EITF Issue 98-10, "Accounting for Energy Trading and Risk
Management Activities," which is effective for fiscal years beginning after
December 15, 1998. EITF Issue 98-10 addresses whether certain types of contracts
for the sale and purchase of energy commodities should be marked to market or
accounted for under accrual accounting. The adoption of EITF Issue 98-10 in the
first quarter of 1999 is not expected to have a material impact on GPU's
financial position or results of operations.
In 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1), which is effective
for fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 in
the first quarter of 1999 is not expected to have a material impact on GPU's
financial position or results of operations.
Also, in 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5), which is effective for financial
statements for fiscal years beginning after December 15, 1998. SOP 98-5 requires
the expensing of the costs of start-up activities as incurred. Additionally,
previously capitalized start-up costs must be written off as a cumulative effect
of a change in accounting principle. The adoption of SOP 98-5 in the first
quarter of 1999 is not expected to have a material impact on GPU's financial
position or results of operations.
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GPU, Inc. and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of GPU, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of GPU,
Inc. and Subsidiary Companies at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule listed
in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statement. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 3, 1999
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<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
ASSETS
Utility Plant:
Transmission, distribution and general plant $ 7,579,455 $7,248,612
Generation plant 3,445,984 3,902,065
--------- ---------
Utility plant in service 11,025,439 11,150,677
Accumulated depreciation (4,460,341) (4,050,165)
---------- ----------
Net utility plant in service 6,565,098 7,100,512
Construction work in progress 94,005 250,050
Other, net 145,792 159,009
------- -------
Net utility plant 6,804,895 7,509,571
--------- ---------
Other Property and Investments:
GPUI Group equity investments (Note 14) 682,125 596,679
Goodwill, net (Note 6) 545,262 581,364
Nuclear decommissioning trusts, at market (Note 13) 716,274 579,673
Nuclear fuel disposal trust, at market 116,871 108,652
Other, net 239,411 252,335
------- -------
Total other property and investments 2,299,943 2,118,703
--------- ---------
Current Assets:
Cash and temporary cash investments 72,755 85,099
Special deposits 62,673 27,093
Accounts receivable:
Customers, net 286,278 290,247
Other 126,088 104,441
Unbilled revenues 144,076 147,162
Materials and supplies, at average cost or less:
Construction and maintenance 155,827 187,799
Fuel 42,697 40,424
Investments held for sale 48,473 106,317
Deferred income taxes (Note 8) 47,521 83,962
Prepayments 76,021 55,613
Other - 1,023
-----
Total current assets 1,062,409 1,129,180
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net: (Notes 5 & 13)
Competitive transition charge 1,023,815 -
Other regulatory assets, net 2,882,413 1,547,478
Deferred income taxes (Note 8) 2,004,278 383,169
Other 210,356 134,833
------- -------
Total deferred debits and other assets 6,120,862 2,065,480
--------- ---------
Total Assets $16,288,109 $12,822,934
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 331,958 $314,458
Capital surplus 1,011,310 755,040
Retained earnings 2,230,425 2,140,712
Accumulated other comprehensive income/(loss) (31,304) (29,296)
------- -------
Total 3,542,389 3,180,914
Reacquired common stock, at cost (77,741) (80,984)
------- -------
Total common stockholders' equity (Note 4) 3,464,648 3,099,930
Cumulative preferred stock: (Note 4)
With mandatory redemption 86,500 91,500
Without mandatory redemption 66,478 66,478
Subsidiary-obligated mandatorily redeemable
preferred securities (Note 4) 330,000 330,000
Long-term debt (Note 3) 3,825,584 4,325,972
- --------- ---------
Total capitalization 7,773,210 7,913,880
--------- ---------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 563,683 631,934
Notes payable (Note 2) 368,607 353,214
Obligations under capital leases (Note 12) 126,480 138,919
Accounts payable 394,815 413,791
Taxes accrued 92,339 48,304
Interest accrued 81,931 83,947
Deferred energy credits 2,411 25,645
Other 377,594 325,681
------- -------
Total current liabilities 2,007,860 2,021,435
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 3,044,947 1,566,131
Unamortized investment tax credits 114,308 123,162
Three Mile Island Unit 2 future costs 483,515 448,808
Nonutility generation contract loss liability 1,803,820 -
Other 1,060,449 749,518
--------- -------
Total deferred credits and other liabilities 6,507,039 2,887,619
--------- ---------
<FN>
Commitments and Contingencies (Note 13)
</FN>
Total Liabilities and Capitalization $16,288,109 $12,822,934
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-46
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating Revenues $4,248,792 $4,143,379 $3,970,711
---------- ---------- ----------
Operating Expenses:
Fuel 407,105 400,329 389,569
Power purchased and interchanged 1,122,841 1,046,906 1,005,630
Deferral of energy and capacity costs, net (25,542) 6,043 19,788
Other operation and maintenance 1,106,913 993,739 1,114,854
Depreciation and amortization 522,094 467,714 407,672
Taxes, other than income taxes 219,302 357,913 355,283
------- ------- -------
Total operating expenses 3,352,713 3,272,644 3,292,796
--------- --------- ---------
Operating Income Before Income Taxes 896,079 870,735 677,915
Income taxes (Note 8) 238,241 223,617 159,649
Operating Income 657,838 647,118 518,266
Other Income and Deductions:
Allowance for other funds used during construction 916 75 2,249
Equity in undistributed earnings/(losses)
of affiliates (Note 6) 72,012 (27,100) 33,981
Other income, net 48,366 5,585 23,490
Income taxes (Note 8) (1,848) 30,081 (7,070)
------ ------ ------
Total other income and deductions 119,446 8,641 52,650
------- ----- ------
Income Before Interest Charges and
Preferred Dividends 777,284 655,759 570,916
------- ------- -------
Interest Charges and Preferred Dividends:
Long-term debt 318,396 246,935 213,544
Subsidiary-obligated mandatorily
redeemable preferred securities 28,888 28,888 28,888
Other interest 35,053 36,482 29,623
Allowance for borrowed funds used
during construction (4,348) (5,508) (8,423)
Preferred stock dividends of subsidiaries, net of
gain on reacquisition of $9,288 in 1996 11,243 12,524 6,231
------ ---- ------ ------ -----
Total interest charges and preferred dividends 389,232 319,321 269,863
------- ------- -------
Minority interest net income 2,171 1,337 2,701
----- ----- -----
Income Before Extraordinary Item 385,881 335,101 298,352
Extraordinary item (net of income tax
benefit of $16,300) (Note 5) (25,755) - -
------- -------- -------
Net Income $ 360,126 $ 335,101 $ 298,352
========== ========== ==========
Basic- Earnings Per Average Common Share
Before Extraordinary Item $ 3.03 $ 2.78 $ 2.48
Extraordinary Item (0.20) - -
----- ------- -------
Earnings Per Average Common Share $ 2.83 $ 2.78 $ 2.48
========== ========== ==========
Average Common Shares Outstanding (In Thousands) 127,093 120,722 120,513
------- ------- -------
Diluted-Earnings Per Average Common Share
Before Extraordinary Item $ 3.03 $ 2.77 $ 2.47
Extraordinary Item (0.20) - -
----- ------ -------
Earnings Per Average Common Share $ 2.83 $ 2.77 $ 2.47
========== ========== ==========
Average Common Shares Outstanding (In Thousands) 127,312 121,002 120,751
======= ======= =======
Cash Dividends Paid Per Share $ 2.045 $ 1.985 $ 1.925
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-47
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net income $360,126 $335,101 $298,352
-------- -------- --------
Other comprehensive income/(loss), net of tax: (Note 4)
Net unrealized gain on investments 8,987 6,374 704
Foreign currency translation (9,461) (48,929) 3,054
Minimum pension liability (1,534) (1,495) (2,175)
------ ------ ------
Total other comprehensive income/(loss) (2,008) (44,050) 1,583
------ ------- -----
Comprehensive income $358,118 $291,051 $299,935
======== ======== ========
</TABLE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $2,140,712 $2,054,222 $1,991,599
Net income 360,126 335,101 298,352
Cash dividends declared on common stock (263,561) (241,517) (235,731)
Other adjustments, net (6,852) (7,094) 2
------ ------ -
Balance at end of year $2,230,425 $2,140,712 $2,054,222
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-48
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $ 360,126 $ 335,101 $ 298,352
Extraordinary item (net of income tax
benefit of $16,300) 25,755 - -
------ ----- ------
Income before extraordinary item 385,881 335,101 298,352
Adjustments to reconcile income to cash provided:
Depreciation and amortization 552,795 487,962 422,506
Amortization of property under capital leases 49,913 50,108 55,642
PaPUC restructuring rate orders 68,500 - -
Gain on sale of investments (43,548) - -
Equity in undistributed (earnings)/losses
of affiliates, net of distributions received (44,621) 69,862 (23,994)
Voluntary enhanced retirement programs - - 122,739
Nuclear outage maintenance costs, net 3,105 2,374 (6,078)
Deferred income taxes and investment tax
credits, net (165,860) (29,248) 57,144
Deferred energy and capacity costs, net (24,482) 8,193 19,719
Allowance for other funds used during
construction (916) (75) (2,249)
Changes in working capital:
Receivables 91,285 (76,178) 2,893
Materials and supplies 704 4,803 6,604
Special deposits and prepayments (18,514) 28,371 (36,294)
Payables and accrued liabilities (18,645) 49,025 (103,221)
Nonutility generation contract buyout costs (54,018) (56,550) (120,018)
Other, net 15,597 (29,485) (41,089)
------ ------- -------
Net cash provided by operating activities 797,176 844,263 652,656
------- ------- -------
Investing Activities:
Capital expenditures and investments:
GPU Energy companies (328,452) (356,416) (403,880)
GPUI Group (139,771) (1,912,221) (573,587)
Proceeds from sale of investments 160,244 - -
Contributions to decommissioning trusts (51,039) (40,283) (40,324)
Other, net (37,876) 34,500 (26,238)
------- ------ -------
Net cash used for investing activities (396,894) (2,274,420) (1,044,029)
-------- ---------- ----------
Financing Activities:
Issuance of long-term debt 749,724 1,893,219 743,596
Increase/(Decrease) in notes payable, net (62,292) 87,667 141,657
Retirement of long-term debt (1,036,110) (184,015) (150,763)
Capital lease principal payments (50,663) (49,560) (56,217)
Termination of interest rate swap agreements (4,310) - -
Issuance of common stock 269,448 - -
Redemption of preferred stock of subsidiaries (15,000) (20,000) (42,347)
Dividends paid on common stock (258,058) (239,597) (231,956)
-------- -------- --------
Net cash provided/(required)
by financing activities (407,261) 1,487,714 403,970
-------- --------- -------
Effect of exchange rate changes on cash (5,365) (4,062) 585
------ ------ ---
Net increase/(decrease) in cash and temporary cash
investments from above activities (12,344) 53,495 13,182
Cash and temporary cash investments, beginning of year 85,099 31,604 18,422
------ ------ ------
Cash and temporary cash investments, end of year $ 72,755 $ 85,099 $ 31,604
========== ========== ==========
Supplemental Disclosure:
Interest and preferred dividends paid $ 370,303 $ 307,064 $ 281,057
========== ========== ==========
Income taxes paid $ 333,994 $ 229,373 $ 153,599
========== ========== ==========
New capital lease obligations incurred $ 37,793 $ 41,898 $ 34,826
========== ========== ==========
Common stock dividends declared but not paid $ 65,917 $ 60,414 $ 58,493
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statement
</TABLE>
F-49
<PAGE>
GPU, Inc. and Subsidiary Companies
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935. GPU, Inc. does not
directly operate any utility properties, but owns all the outstanding common
stock of three domestic electric utilities serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service, transmission and distribution operations of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
generation operations of the GPU Energy companies are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). The "GPUI Group," as
referred to in this report, develops, owns, operates and funds the acquisition
of generation, transmission and distribution facilities worldwide through GPU
International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc.,
a subsidiary of GPU Capital, Inc. (Effective January 1, 1999, GPU International,
Inc. and GPU Power, Inc., will develop, own, operate and fund the acquisition of
generation facilities worldwide and will be referred to as the "GPUI Group." GPU
Capital, Inc. and GPU Electric, Inc., will develop, own, operate and fund the
acquisition of transmission and distribution systems outside the United States
and will be referred to as "GPU Electric".) Other subsidiaries of GPU, Inc.
include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail
energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
SYSTEM OF ACCOUNTS
Certain reclassifications of prior years' data have been made to conform
with the current presentation. The GPU Energy companies' accounting records are
maintained in accordance with the Uniform System of Accounts prescribed by the
Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania
Public Utility Commission (PaPUC) and the New Jersey Board of Public Utilities
(NJBPU). GPU's accounting records also comply with the Securities and Exchange
Commission's (SEC) rules and regulations.
F-50
<PAGE>
GPU, Inc. and Subsidiary Companies
CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions and accounts are
eliminated in consolidation. GPU consolidates the accounts of its wholly-owned
subsidiaries and any affiliates in which it has a controlling financial interest
(generally evidenced by a greater than 50% ownership interest). GPU also uses
the equity method of accounting for investments in affiliates in which it has
the ability to exercise significant influence. (For further information, see
Note 14, GPUI Group Equity Investments.)
REGULATORY ACCOUNTING
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation," applies to regulated utilities
that have the ability to recover their costs through rates established by
regulators and charged to customers. The GPU Energy companies currently account
for Met-Ed and Penelec's transmission and distribution operations as well as all
of JCP&L's operations in accordance with FAS 71. In accordance with the
provisions of FAS 71, the GPU Energy companies have deferred certain costs
pursuant to actions of the NJBPU and PaPUC, and are recovering or expect to
recover such costs in regulated rates charged to customers. Regulatory assets
and liabilities are reflected net in the Deferred Debits and Other Assets
section of the Consolidated Balance Sheets. (For further information about
regulatory assets and liabilities, see Note 13, Commitments and Contingencies.)
With the receipt of PaPUC Restructuring Orders in 1998, GPU determined
that Met-Ed and Penelec's electric generation operations no longer met the
criteria for the continued application of FAS 71, and therefore adopted the
provisions of Statement of Financial Accounting Standards No. 101 (FAS 101),
"Regulated Enterprises Accounting for the Discontinuation of Application of FASB
Statement No. 71" and Emerging Issues Task Force (EITF) Issue 97-4, Deregulation
of the Pricing of Electricity - Issues Related to the Application of FASB
Statement No. 71 "Accounting for the Effects of Certain Types of Regulation" and
No. 101 "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71," for that portion of its business. JCP&L's
generation operations will continue to be accounted for under the provisions of
FAS 71 until no later than its receipt of NJBPU approval of its restructuring
plans.
CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52 (FAS
52), "Foreign Currency Translation," balance sheet accounts of foreign
operations are translated from foreign currencies into U.S. dollars at year-end
rates, while income statement accounts are translated at the average month-end
exchange rates for the relevant period. The resulting translation adjustments
are included in Accumulated other comprehensive income/(loss), net of deferred
taxes, on the Consolidated Balance Sheets. Gains and losses resulting from
foreign currency transactions are included in Net Income.
F-51
<PAGE>
GPU, Inc. and Subsidiary Companies
REVENUES
GPU recognizes electric operating revenues for services rendered to the
end of the relevant accounting period. The GPU Energy companies' electric
operating revenues also include an estimate for unbilled revenues.
DEFERRED ENERGY COSTS
JCP&L recovers its energy-related costs through a Levelized Energy
Adjustment Clause (LEAC), and defers any differences between actual energy costs
and amounts recovered from customers through rates. Similarly, through December
31, 1996, Met-Ed and Penelec recovered their energy costs through an Energy Cost
Rate (ECR), and deferred any differences between actual energy costs and amounts
recovered through rates. As a result of legislative and regulatory actions,
effective January 1, 1997, Met-Ed and Penelec ceased deferred energy accounting,
except for incremental nonutility generation (NUG) costs which are included in
Competitive Transition Charge and Other regulatory assets, net on the
Consolidated Balance Sheets. For further information, see Competitive
Environment and Rate Matters section, Management's Discussion and Analysis.
UTILITY PLANT
At December 31, 1998, Met-Ed and Penelec's generation plant is valued at
the lower of cost or market. During 1998, the GPU Energy companies' investment
in Three Mile Island Unit 1 (TMI-1) was written down to its market value. All
other utility plant and additions are valued at original cost.
DEPRECIATION
GPU provides for depreciation at annual rates determined and revised
periodically, on the basis of studies, to be sufficient to depreciate the
original cost of depreciable property over estimated remaining service lives,
which are generally longer than those employed for tax purposes. These rates, on
an aggregate composite basis, were as follows:
GPU JCP&L Met-Ed Penelec
--- ----- ------ -------
1998 3.43% 3.65% 3.53% 3.25%
1997 3.34% 3.60% 3.39% 3.08%
1996 3.31% 3.58% 3.27% 2.82%
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The FERC Uniform System of Accounts defines AFUDC as "the net cost for the
period of construction of borrowed funds used for construction purposes and a
reasonable rate on other funds when so used." The GPU Energy companies record
AFUDC as a charge to their regulated construction work in progress, and the
equivalent credits to interest charges for the pre-tax cost of borrowed funds
and to other income for the allowance for other funds. While AFUDC results in an
increase in utility plant and represents current earnings, it is realized in
cash through depreciation or amortization allowances only when the related plant
is recognized in rates. On an aggregate composite basis, the annual rates
utilized by the GPU Energy companies were as follows:
F-52
<PAGE>
GPU, Inc. and Subsidiary Companies
GPU JCP&L Met-Ed Penelec
--- ----- ------ -------
1998 6.74% 7.50% 6.49% 6.08%
1997 6.38% 6.48% 6.12% 6.41%
1996 6.79% 6.88% 8.11% 6.15%
In 1998, Met-Ed and Penelec ceased accruing AFUDC for their electric generation
construction work in progress, and adopted Statement of Financial Accounting
Standards No. 34 (FAS 34), "Capitalizing Interest Costs."
AMORTIZATION POLICIES
Accounting for TMI-2 and Forked River Investments:
At December 31, 1998, $66 million is included in Other regulatory assets,
net on the Consolidated Balance Sheets for JCP&L's investment in Three Mile
Island Unit 2 (TMI-2). JCP&L is collecting annual revenues for the amortization
of TMI-2 of $9.6 million. This level of revenue will be sufficient to recover
the remaining investment by 2008. Met-Ed and Penelec have collected all of their
TMI-2 investment attributable to retail customers. At December 31, 1998, $62
million is included in Other regulatory assets, net on the Consolidated Balance
Sheets for JCP&L's Forked River project. JCP&L is collecting annual revenues for
the amortization of this project of $11.2 million, which will be sufficient to
recover its remaining investment by the year 2006. Because JCP&L has not been
provided revenues for a return on the unamortized balances of the damaged TMI-2
facility and the cancelled Forked River project, these investments are being
carried at their discounted present values.
Nuclear Fuel:
The GPU Energy companies amortize nuclear fuel on a unit-of-production
basis. Rates are determined and periodically revised to amortize the cost of the
fuel over its useful life.
At December 31, 1998 and 1997, the liability of the GPU Energy companies
for future contributions to the Federal Decontamination and Decommissioning Fund
for the cleanup of uranium enrichment plants operated by the Federal Government
amounted to $28 million (JCP&L $18 million; Met-Ed $7 million; Penelec $3
million) and $31 million (JCP&L $20 million; Met-Ed $7 million; Penelec $4
million), respectively, and was primarily reflected in Deferred Credits and
Other Liabilities-Other. Annual contributions, which began in 1993, are being
made over a 15-year period and are being recovered from customers. At December
31, 1998 and 1997, $29 million (JCP&L $18 million; Met-Ed $7 million; Penelec $4
million) and $33 million (JCP&L $21 million; Met-Ed $8 million; Penelec $4
million), respectively, was recorded on the Consolidated Balance Sheets in Other
regulatory assets, net.
Intangibles:
The GPUI Group records goodwill for any amount paid over the fair value of
net tangible assets it acquires, and other intangible assets for the right to
perform management services. As of December 31, 1998 and 1997, the GPUI Group
had goodwill and other intangibles, net of accumulated amortization, of
approximately $545 million and $581 million, respectively. Goodwill and other
F-53
<PAGE>
GPU, Inc. and Subsidiary Companies
intangibles are amortized on a straight-line basis over periods not exceeding 40
years. Amortization expense, in the aggregate, amounted to $14 million and $2.8
million for the years ended December 31, 1998 and 1997, respectively. The GPUI
Group periodically reviews undiscounted projections of future cash flows from
operations to assess any potential intangible impairment. An impairment would be
recorded based upon discounted projected cash flows.
A discussion of the goodwill related to the purchase of PowerNet Victoria
(PowerNet), and other acquisitions is included in Note 6, Acquisitions and Note
14, GPUI Group Equity Investments.
NUCLEAR OUTAGE MAINTENANCE COSTS
The GPU Energy companies accrue incremental nuclear outage maintenance
costs anticipated to be incurred during scheduled nuclear plant refueling
outages to provide a proper matching of revenues to expenses.
NUCLEAR FUEL DISPOSAL FEE
The GPU Energy companies are providing for estimated future disposal costs
for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear
Waste Policy Act of 1982. The GPU Energy companies entered into contracts in
1983 with the U.S. Department of Energy (DOE) for the disposal of spent nuclear
fuel. The total liability under these contracts, including interest, at December
31, 1998, all of which relates to spent nuclear fuel from nuclear generation
through April 1983, amounted to $189 million (JCP&L $141 million; Met-Ed $32
million; Penelec $16 million), and is reflected in Deferred Credits and Other
Liabilities - Other. As the actual liability is substantially in excess of the
amount recovered to date from ratepayers, JCP&L has reflected such excess of $21
million at December 31, 1998 in Regulatory assets, net. The rates presently
charged to customers provide for the collection of these costs, plus interest,
over remaining periods of eight years for JCP&L and Met-Ed.
The GPU Energy companies are collecting one mill per kilowatt-hour from
their customers for spent nuclear fuel disposal costs resulting from nuclear
generation subsequent to April 1983. These amounts are remitted quarterly to the
DOE. (See Note 13, Commitments and Contingencies, for a discussion of the DOE's
current inability to begin acceptance of spent nuclear fuel from the GPU Energy
companies and other standard contract holders.)
INCOME TAXES
GPU files a consolidated federal income tax return. All participants are
jointly and severally liable for the full amount of any tax, including penalties
and interest, which may be assessed against the group.
Deferred income taxes, which result primarily from liberalized
depreciation methods, deferred energy costs, decommissioning funds and
discounted Forked River and TMI-2 investments, reflect the impact of temporary
differences between the amounts of assets and liabilities recognized for
financial reporting purposes and the amounts recognized for tax purposes.
Investment tax credits (ITC) are amortized over the estimated service lives of
the related facilities.
F-54
<PAGE>
GPU, Inc. and Subsidiary Companies
CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS
The carrying amounts of Temporary cash investments, Special deposits,
Securities due within one year and Notes payable on the Consolidated Balance
Sheets approximate fair value due to the short period to maturity. The carrying
amounts of the Nuclear decommissioning trusts and Nuclear fuel disposal trust,
whose assets are invested in cash equivalents and debt and equity securities,
also approximate fair value.
ENVIRONMENTAL LIABILITIES
GPU may be subject to loss contingencies resulting from environmental laws
and regulations, which include obligations to mitigate the effects on the
environment of the disposal or release of certain hazardous wastes and
substances at various sites. GPU records liabilities (on an undiscounted basis)
for hazardous waste sites where it is probable that a loss has been incurred and
the amount of the loss can be reasonably estimated and adjusts these liabilities
as required to reflect changes in circumstances.
STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash flows, temporary
investments include all unrestricted liquid assets, such as cash deposits and
debt securities, with maturities generally of three months or less. Cash flows
are reported using the U.S. dollar equivalent of the functional currencies in
effect at the time of the cash transaction. The effect of exchange rate changes
on cash balances held in foreign currencies are reported as a separate line item
on the Consolidated Statements of Cash Flows.
F-55
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
2. SHORT-TERM BORROWING ARRANGEMENTS
At December 31, 1998 and 1997, GPU had short-term notes outstanding as
follows:
1998 1997
---- ----
Balance Weighted Balance Weighted
Company Facility Outstanding Avg. Rate Outstanding Avg. Rate
- ------- -------- ----------- --------- ----------- ---------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C>
GPU, Inc. Bank Lines of Credit $ 69 7.0% $ 92 6.6%
JCP&L Bank Lines of Credit 53 6.3 96 6.5
Commercial Paper 69 6.2 19 6.5
Met-Ed Bank Lines of Credit 17 6.1 49 6.7
Commercial Paper 63 6.4 18 6.9
Penelec Bank Lines of Credit 32 5.9 61 6.7
Commercial Paper 54 6.1 17 6.9
GPUI Bank Lines of Credit 12 6.2 1 6.2
--- --- --- ---
Total $369 6.4% $353 6.6%
=== === === ===
</TABLE>
GPU has $1.8 billion of committed credit facilities, which include various
committed lines of credit totaling $207 million, an unsecured $250 million
Revolving Credit Agreement, and three other Credit Agreements, discussed below,
which are guaranteed by GPU, Inc.
GPU Capital has entered into a $1 billion 364-day senior revolving credit
facility to support the issuance of commercial paper. GPU Capital is the largest
of three issuers ($1 billion) in a $1.45 billion commercial paper program. The
other issuers are GPU Australia Holdings, Inc. ($350 million) and GPU, Inc.
which has requested SEC authorization to issue and sell up to $100 million under
this program. GPU Capital, along with GPU Australia Holdings, will use the
proceeds from the sale of commercial paper to finance up to $1.35 billion of
investments in foreign utility companies (FUCOs) and exempt wholesale generating
companies (EWGs). The facility fee of .15 of 1% on the GPU Capital credit
facility is based on GPU's current senior debt ratings and is payable annually.
A separate $360 million credit facility serves as the backstop for the GPU
Australia Holdings commercial paper program. The associated annual fee is .15 of
1%.
GPU International has a separate Credit Agreement providing for borrowings
through December 1999 of up to $30 million outstanding at any time. Up to $15
million may be utilized to provide letters of credit. An annual facility fee
ranging from .085% to .4% on the total amount of the Credit Agreement and a
letter of credit fee ranging from .265% to 1.6% on the outstanding letters of
credit are payable by GPU International.
The Revolving Credit Agreement between GPU, Inc., the GPU Energy companies
and a consortium of banks is subject to various covenants. The agreement expires
May 6, 2001. A facility fee of .125 of 1% is payable annually. Borrowing rates
and the facility fee are based on the long-term debt ratings of GPU, Inc. and
the GPU Energy companies.
F-56
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
3. LONG-TERM DEBT
At December 31, 1998 and 1997, long-term debt outstanding was as follows:
(in thousands)
GPU, Inc. and Subsidiary Companies
1998 1997
---- ----
<S> <C> <C>
First Mortgage Bonds (GPU Energy companies)(a) $2,417,810 $2,447,810
Amounts due within one year (80,000) (30,000)
Unamortized net discount (3,039) (3,284)
--------- ---------
Total 2,334,771 2,414,526
Other long-term debt:
GPUI Group (excludes amounts due within one year
of $481,135 for 1998 and $589,390 for 1997) 1,456,713 1,877,300
Other (excludes amounts due within one year
of $48 for 1998 and $44 for 1997) 34,100 34,146
--------- ---------
Total long-term debt $3,825,584 $4,325,972
========= =========
</TABLE>
<TABLE>
(in thousands)
JCP&L
<CAPTION>
First Mortgage Bonds - Series as noted (a):
1998 1997
---- ----
<S> <C> <C>
6.04% due 2000 $ 40,000 $ 40,000
6.45% due 2001 40,000 40,000
9% due 2002 50,000 50,000
6 3/8% due 2003 150,000 150,000
7 1/8% due 2004 160,000 160,000
6.78% due 2005 50,000 50,000
8 1/4% due 2006 50,000 50,000
6.85% due 2006 40,000 40,000
7.90% due 2007 40,000 40,000
7 1/8% due 2009 6,300 6,300
7.10% due 2015 12,200 12,200
9.20% due 2021 50,000 50,000
8.55% due 2022 30,000 30,000
8.82% due 2022 12,000 12,000
8.85% due 2022 38,000 38,000
8.32% due 2022 40,000 40,000
7.98% due 2023 40,000 40,000
7 1/2% due 2023 125,000 125,000
8.45% due 2025 50,000 50,000
6 3/4% due 2025 150,000 150,000
--------- ---------
Subtotal 1,173,500 1,173,500
Amounts due within one year - -
Unamortized net discount (2,992) (3,233)
--------- ---------
Total 1,170,508 1,170,267
Other long-term debt
(excludes amounts due within one year
of $12 for 1998 and $11 for 1997) 3,024 3,037
--------- ---------
Total long-term debt $1,173,532 $1,173,304
========= =========
</TABLE>
F-57
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
(in thousands)
Met-Ed
<CAPTION>
First Mortgage Bonds - Series as noted (a):
1998 1997
---- ----
<S> <C> <C>
7.05% due 1999 $ 30,000 $ 30,000
6.2% due 2000 30,000 30,000
9.48% due 2000 20,000 20,000
8.05% due 2002 30,000 30,000
6.6% due 2003 20,000 20,000
7.22% due 2003 40,000 40,000
9.1% due 2003 30,000 30,000
6.34% due 2004 40,000 40,000
6.77% due 2005 30,000 30,000
7.35% due 2005 20,000 20,000
6.36% due 2006 17,000 17,000
6.40% due 2006 33,000 33,000
6.00% due 2008 8,700 8,700
6.1% due 2021 28,500 28,500
8.6% due 2022 30,000 30,000
8.8% due 2022 30,000 30,000
6.97% due 2023 30,000 30,000
7.65% due 2023 30,000 30,000
8.15% due 2023 60,000 60,000
5.95% due 2027 13,690 13,690
------- --------
Subtotal 570,890 570,890
Amounts due within one year (30,000) -
Unamortized net discount (35) (39)
------- -------
Total 540,855 570,851
Other long-term debt
(excludes amounts due within one year
of $24 for 1998 and $22 for 1997) 6,049 6,073
------- -------
Total long-term debt $ 546,904 $ 576,924
======= =======
</TABLE>
F-58
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
(in thousands)
Penelec
<CAPTION>
First Mortgage Bonds - Series as noted (a):
1998 1997
---- ----
<S> <C> <C>
7 7/8% due 1998 $ - $ 30,000
5.99% due 1999 50,000 50,000
6.15% due 2000 30,000 30,000
6.8% due 2001 20,000 20,000
8.70% due 2001 30,000 30,000
7.40% due 2002 10,000 10,000
7.43% due 2002 30,000 30,000
7.92% due 2002 10,000 10,000
7.40% due 2003 10,000 10,000
6.60% due 2003 30,000 30,000
7.02% due 2003 20,000 20,000
7.48% due 2004 40,000 40,000
6.10% due 2004 30,000 30,000
6.7% due 2005 30,000 30,000
6.35% due 2006 40,000 40,000
8.05% due 2006 10,000 10,000
6 1/8% due 2007 4,110 4,110
6.55% due 2009 50,000 50,000
5.35% due 2010 12,310 12,310
5.35% due 2010 12,000 12,000
5.80% due 2020 20,000 20,000
8.33% due 2022 20,000 20,000
7.49% due 2023 30,000 30,000
8.38% due 2024 40,000 40,000
8.61% due 2025 30,000 30,000
7.53% due 2025 40,000 40,000
6.05% due 2025 25,000 25,000
------- -------
Subtotal 673,420 703,420
Amounts due within one year (50,000) (30,000)
Unamortized net discount (11) (12)
------- -------
Total 623,409 673,408
Other long-term debt
(excludes amounts due within one year
of $12 for 1998 and $11 for 1997) 3,025 3,036
------- -------
Total long-term debt $ 626,434 $ 676,444
======= =======
<FN>
(a) Substantially all of the utility plant owned by the GPU Energy companies
is subject to the lien of their respective mortgages.
</FN>
</TABLE>
F-59
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
For the years 1999, 2000, 2001, 2002 and 2003 GPU has long-term debt
maturities for first mortgage bonds and other long-term debt as follows:
(in millions)
Company 1999 2000 2001 2002 2003
- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
JCP&L $ - $ 40 $ 40 $ 50 $150
Met-Ed 30 50 0 30 90
Penelec 50 30 50 50 60
GPUI Group 481 535 93 535 2
GPUS - - 22 - -
--- --- --- --- ---
Total $561 $655 $205 $665 $302
=== --- === === ===
The estimated fair value of GPU's long-term debt, including amounts due
within one year, as of December 31, 1998 and 1997 was as follows:
</TABLE>
<TABLE>
(in thousands)
--------------
<CAPTION>
1998 1997
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
JCP&L $1,173,544 $1,245,141 $1,173,315 $1,231,766
Met-Ed 576,928 613,573 576,946 607,336
Penelec 676,447 718,405 706,455 736,031
GPUI Group 1,937,847 1,855,836 2,466,690 2,467,286
GPUS 22,000 22,000 22,000 22,000
--------- --------- --------- ---------
Total $4,386,766 $4,454,955 $4,945,406 $5,064,419
========= ========= ========= =========
</TABLE>
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to GPU for
debt of the same remaining maturities and credit qualities. At December 31,
1998, the GPUI Group had long-term debt outstanding of $1.9 billion, of which
approximately $723 million was guaranteed by GPU, Inc. The guaranteed amount
consisted of the following: $350 million under a five-year U.S. bank credit
agreement used to partially fund GPU Electric's acquisition of PowerNet (see
Note 6); and 225 million British pounds (approximately U.S. $373 million at
December 31, 1998) under a bank term loan facility used to fund GPU Electric's
investment in Midlands.
F-60
<PAGE>
GPU, Inc. and Subsidiary Companies
4. STOCKHOLDERS' EQUITY
COMMON EQUITY
Common Stock:
GPU, Inc.
The following table presents information relating to the common stock
($2.50 par value) of GPU, Inc.:
1998 1997 1996
---- ---- ----
Authorized shares 350,000,000 350,000,000 350,000,000
Issued shares 132,783,338 125,783,338 125,783,338
Reacquired shares 4,787,657 4,950,727 5,172,201
Outstanding shares 127,995,681 120,832,611 120,611,137
Outstanding restricted units 307,773 248,883 258,705
In 1998, GPU, Inc. sold seven million shares of common stock. The net
proceeds of $269 million were used primarily to reduce indebtedness associated
with the PowerNet and Midlands acquisitions, and the balance was used for other
corporate purposes. In 1998, 1997 and 1996, capital surplus was credited $4.3
million, $3 million and $3 million, respectively, for shares issued pursuant to
GPU, Inc.'s Dividend Reinvestment Plan. Also in 1998, capital surplus was
credited $252 million, net related to the issuance of common stock.
In 1997, GPU adopted Statement of Financial Accounting Standards No. 128
(FAS 128), "Earnings Per Share," which requires a dual presentation of earnings
per share for companies that have common stock equivalents. GPU's basic and
diluted earnings per share are not materially different.
Pursuant to the 1990 Stock Plan, awards may be granted in the form of
incentive stock options, nonqualified stock options, restricted shares of common
stock and restricted units. In 1998, 1997 and 1996, GPU, Inc. issued restricted
units to officers representing rights to receive shares of common stock, on a
one-for-one basis, at the end of the restriction period. The number of shares
eventually issued will depend upon the degree that GPU's performance goals have
been met for the restriction period and could range from 0% to 200% of the
originally awarded units. In 1998, GPU, Inc. granted stock options to its
officers to purchase 305,950 and 30,000 shares at $36.625 per share and $44.25
per share, respectively. All options have an exercise price equal to the fair
market value of GPU, Inc. common stock on the grant date. Options are
exercisable in accordance with the terms set forth in the 1990 Stock Plan. In
1998, no options were exercised. In 1998 and 1997, pursuant to the Deferred
Stock Unit Plan for Outside Directors, restricted units were issued to outside
directors representing rights to receive shares of GPU, Inc. common stock, on a
one-for-one basis. All restricted units are considered common stock equivalents
and, accordingly, are reflected in the computation of diluted earnings per share
shown on the Consolidated Income Statements. The restricted units accrue
dividend equivalents on a quarterly basis, which are reinvested in additional
equivalent units. In 1998, 1997 and 1996, outside directors were awarded 53,260,
64,941 and 63,206 restricted units, respectively. In 1998, 1997 and 1996, GPU,
Inc. issued a total of 20,611, 54,491 and 37,253 shares of common stock,
respectively, from previously reacquired shares.
F-61
<PAGE>
GPU, Inc. and Subsidiary Companies
In 1996, GPU adopted Statement of Financial Accounting Standards No. 123
(FAS 123), "Accounting for Stock-Based Compensation," which establishes a fair
value-based method of accounting for employee stock-based compensation. Under
this method, compensation cost is measured at the grant date, based on the
market price of the stock at that date, and is recognized as expense over the
restricted period. FAS 123 permits companies to continue to follow the
accounting prescribed by Accounting Principles Board Opinion No. 25 (APB No.
25), provided that pro forma disclosures of net income are made as if the fair
value-based method of accounting had been applied. GPU has elected to continue
accounting for stock-based compensation in accordance with APB No. 25, which
contains provisions for subsequent adjustments to compensation cost based on
market price fluctuations of the stock after the grant date. The pro forma
effects on net income resulting from the application of the fair value-based
method of accounting defined in FAS 123 are immaterial.
At December 31, 1998 and 1997, the following issues of common stock
were outstanding:
(in thousands)
GPU, Inc. 1998 1997
- --------- ---- ----
Common stock, par value $2.50 per share $331,958 $314,458
======= =======
JCP&L
Common stock, par value $10 per share,
16,000,000 shares authorized, 15,371,270
shares issued and outstanding $153,713 $153,713
======= =======
Met-Ed
Common stock, no par value, 900,000 shares
authorized, 859,500 shares issued
and outstanding 66,273 $ 66,273
====== ======
Penelec
Common stock, par value $20 per share,
5,400,000 shares authorized, 5,290,596
shares issued and outstanding $105,812 $105,812
======= =======
Accumulated Other Comprehensive Income/(Loss)
In 1997, GPU adopted Statement of Financial Accounting Standards No. 130
(FAS 130), "Reporting Comprehensive Income." At December 31, 1998 and 1997, GPU
had on the Consolidated Balance Sheets the following amounts in Accumulated
other comprehensive income/(loss):
GPU, Inc. and Subsidiary Companies (in thousands)
1998 1997
---- ----
Net unrealized gain on investments $ 28,345 $ 19,358
Foreign currency translation (54,377) (44,916)
Minimum pension liability (5,272) (3,738)
------ ------
Accumulated other comprehensive income/(loss) $(31,304) $(29,296)
====== ======
F-62
<PAGE>
GPU, Inc. and Subsidiary Companies
JCP&L 1998 1997
----- ---- ----
Net unrealized gain on investments $ - $ -
Minimum pension liability (425) -
------ -------
Accumulated other comprehensive income/(loss) $ (425) $ -
====== =======
Met-Ed
Net unrealized gain on investments $ 17,054 $ 12,906
Minimum pension liability (534) (419)
------ ------
Accumulated other comprehensive income $ 16,520 $ 12,487
====== ======
Penelec
Net unrealized gain on investments $ 8,518 $ 6,454
Minimum pension liability (165) (122)
------ ------
Accumulated other comprehensive income $ 8,353 $ 6,332
====== ======
The components of other comprehensive income/(loss), and the related tax
effects, for the years 1998, 1997 and 1996 are as follows:
(in thousands)
GPU, Inc. and Subsidiary Companies Amount Income Tax Amount
Before (Expense) Net of
1998 Taxes Benefit Taxes
- ---- ------ ------- -------
Net unrealized gain on investments $ 13,235 $(4,248) $ 8,987
Foreign currency translation:
Foreign currency translation during year (23,295) 8,233 (15,062)
Realized loss in net income 8,737 (3,136) 5,601
------ ------ ------
Foreign currency translation, net (14,558) 5,097 (9,461)
Minimum pension liability (2,605) 1,071 (1,534)
------ ------ ------
Total other comprehensive income/(loss) $ (3,928) $ 1,920 $ (2,008)
===== ====== =====
1997
Net unrealized gain on investments 10,895 (4,521) 6,374
Foreign currency translation, net (73,115) 24,186 (48,929)
Minimum pension liability (2,541) 1,046 (1,495)
------ ------ ------
Total other comprehensive income/(loss) $(64,761) $ 20,711 $(44,050)
====== ====== =======
1996
Unrealized gain on investments:
Gain on investments during the year $ 10,797 $(3,922) 6,875
Realized gain in net income (9,494) 3,323 (6,171)
------ ----- -----
Net unrealized gain on investments 1,303 (599) 704
Foreign currency translation, net 3,054 - 3,054
Minimum pension liability (3,706) 1,531 (2,175)
------ ----- -----
Total other comprehensive income $ 651 $ 932 $ 1,583
====== ===== =====
F-63
<PAGE>
GPU, Inc. and Subsidiary Companies
(in thousands)
JCP&L Amount Income Tax Amount
Before (Expense) Net of
1998 Taxes Benefit Taxes
- ---- ------ ------- -----
Net unrealized gain on investments $ - $ - $ -
Minimum pension liability (718) 293 (425)
------ ----- -----
Total other comprehensive income/(loss) $ (718) $ 293 $ (425)
===== ===== =====
Met-Ed
1998
Net unrealized gain on investments $ 6,990 $(2,842) $ 4,148
Minimum pension liability (196) 81 (115)
----- ----- -----
Total other comprehensive income/(loss) $ 6,794 $(2,761) $ 4,033
===== ===== =====
1997
Net unrealized gain on investments $ 7,263 $(3,014) $ 4,249
Minimum pension liability (267) 110 (157)
------ ----- -----
Total other comprehensive income/(loss) $ 6,996 $(2,904) $ 4,092
====== ===== =====
1996
Net unrealized gain on investments $ 6,883 $(2,856) $ 4,027
Minimum pension liability (448) 186 (262)
----- ----- -----
Total other comprehensive income/(loss) $ 6,435 $(2,670) $ 3,765
===== ===== =====
Penelec
1998
Net unrealized gain on investments $ 3,470 $(1,406) $ 2,064
Minimum pension liability (73) 30 (43)
------ ----- -----
Total other comprehensive income/(loss) $ 3,397 $(1,376) $ 2,021
===== ===== =====
1997
Net unrealized gain on investments $ 3,632 $(1,507) $ 2,125
Minimum pension liability (209) 87 (122)
----- ----- -----
Total other comprehensive income/(loss) $ 3,423 $(1,420) $ 2,003
===== ===== =====
1996
Net unrealized gain on investments 3,442 $(1,428) $ 2,014
Minimum pension liability - - -
----- ----- ------
Total other comprehensive income/(loss) 3,442 $(1,428) $ 2,014
===== ===== =====
F-64
<PAGE>
GPU, Inc. and Subsidiary Companies
PREFERRED EQUITY
Cumulative Preferred Stock:
At December 31, 1998 and 1997, the following issues of cumulative preferred
stock were outstanding:
GPU, Inc. and Subsidiary Companies
(in thousands)
1998 1997
---- ----
Cumulative preferred stock (a):
With mandatory redemption (d) $ 89,000 $ 104,000
Amounts due within one year (e) (2,500) (12,500)
------- -------
Total cumulative preferred stock
with mandatory redemption $ 86,500 $ 91,500
======= =======
Cumulative preferred stock (a):
Without mandatory redemption (b), (f) $ 65,996 $ 65,996
Premium on cumulative preferred stock 482 482
------- -------
Total cumulative preferred stock
without mandatory redemption $ 66,478 $ 66,478
======= =======
JCP&L
Cumulative preferred stock, without par value, 15,600,000 shares authorized,
1,315,000 and 1,415,000 shares issued and outstanding in 1998 and 1997,
respectively (a):
(in thousands)
1998 1997
---- ----
Cumulative preferred stock -
without mandatory redemption (b):
4% Series, 125,000 shares,
callable at $106.50 a share $12,500 $ 12,500
7.88% Series E, 250,000 shares,
callable at $103.65 a share 25,000 25,000
------ ------
Subtotal 37,500 37,500
Premium on cumulative preferred stock 241 241
------ ------
Total cumulative preferred stock -
without mandatory redemption $ 37,741 $ 37,741
====== ======
Cumulative preferred stock -
with mandatory redemption (c), (d), (e):
8.48% Series I ,100,000 shares
in 1997 $ - $ 10,000
8.65% Series J, 500,000 shares 50,000 50,000
7.52% Series K, 440,000 shares 39,000 44,000
------- -------
Subtotal 89,000 104,000
Amounts due within one year (e) (2,500) (12,500)
------- -------
Total cumulative preferred stock -
with mandatory redemption $ 86,500 $ 91,500
======= =======
F-65
<PAGE>
GPU, Inc. and Subsidiary Companies
Met-Ed
Cumulative preferred stock, without par value, 10,000,000 shares authorized,
119,475 shares issued and outstanding in 1998 and 1997, without mandatory
redemption (a), (b), (f):
(in thousands)
1998 1997
---- ----
3.90% Series, 64,384 shares,
callable at $105.625 a share $ 6,438 $ 6,438
4.35% Series, 22,517 shares,
callable at $104.25 a share 2,252 2,252
3.85% Series, 9,252 shares,
callable at $104.00 a share 925 925
3.80% Series, 7,982 shares
callable at $104.70 a share 798 798
4.45% Series, 15,340 shares,
callable at $104.25 a share 1,534 1,534
------ ------
Subtotal 11,947 11,947
Premium on cumulative preferred stock 109 109
------ ------
Total cumulative preferred stock $ 12,056 $ 12,056
====== ======
Penelec
Cumulative preferred stock, without par value, 11,435,000 shares authorized,
165,485 shares issued and outstanding in 1998 and 1997, without mandatory
redemption (a), (b), (f):
(in thousands)
1998 1997
---- ----
4.40% Series B, 29,678 shares,
callable at $108.25 per share $ 2,968 $ 2,968
3.70% Series C, 49,568 shares,
callable at $105.00 per share 4,957 4,957
4.05% Series D, 28,219 shares,
callable at $104.53 per share 2,822 2,822
4.70% Series E, 14,103 shares,
callable at $105.25 per share 1,410 1,410
4.50% Series F, 17,081 shares,
callable at $104.27 per share 1,708 1,708
4.60% Series G, 26,836 shares,
callable at $104.25 per share 2,684 2,684
------ ------
Subtotal 16,549 16,549
Premium on cumulative preferred stock 132 132
------ ------
Total cumulative preferred stock $ 16,681 $ 16,681
====== ======
(a) At December 31, 1998 and 1997, the GPU Energy companies were authorized
to issue 37,035,000 shares of cumulative preferred stock. If dividends on
any of the preferred stock are in arrears for four quarters, the holders
of preferred stock, voting as a class, are entitled to elect a majority
of the board of directors of that company until all dividends in arrears
have been paid. A GPU Energy company may not redeem preferred stock
unless dividends on all of its preferred stock for all past quarterly
dividend periods have been paid or declared and set aside for payment.
F-66
<PAGE>
GPU, Inc. and Subsidiary Companies
(b) The outstanding shares of preferred stock without mandatory redemption
are callable at various prices above their stated values. At December 31,
1998, the aggregate amount at which these shares could be called by the
GPU Energy companies was $69 million (JCP&L $39 million; Met-Ed $13
million; Penelec $17 million).
(c) The 7.52% and 8.65% Series are callable at various prices above their
stated values beginning in 2002 and 2000, respectively. The 7.52% Series
is to be redeemed ratably over twenty years which began in 1998. The
8.65% Series is to be redeemed ratably over six years beginning in 2000.
(d) During 1998, JCP&L redeemed $5 million stated value of 7.52% cumulative
preferred stock and $10 million stated value of 8.48% cumulative preferred
stock pursuant to mandatory and optional sinking fund provisions. During
1997, JCP&L redeemed $20 million stated value of 8.48% cumulative
preferred stock pursuant to mandatory and optional sinking fund
provisions. JCP&L's total redemption cost for 1998 and 1997 was $15
million and $20 million, respectively.
(e) The outstanding shares with mandatory redemption have the following
redemption requirements over the next five years: $2.5 million in 1999
and $10.8 million in 2000, 2001, 2002 and 2003. The fair value of the
preferred stock with mandatory redemption, including amounts due within
one year, based on market price quotations at December 31, 1998 and 1997,
was $94.7 million and $109.9 million, respectively.
(f) During 1996, Met-Ed and Penelec reacquired, pursuant to cash tender
offers, cumulative preferred stock for a total cost of $7.7 million and
$14.4 million, respectively. A reacquisition gain of $3.7 million and
$5.6 million was recorded for Met-Ed and Penelec, respectively, which
resulted in an increase in GPU, Inc.'s 1996 diluted earnings per share of
$0.08.
(g) In January 1999, Met-Ed and Penelec announced the redemption of all
outstanding shares of cumulative preferred stock. The shares will be
redeemed on February 19, 1999 at a price of $12.6 million and $17.6
million for Met-Ed and Penelec, respectively.
Subsidiary-Obligated Mandatorily Redeemable Preferred Securities:
JCP&L Capital, L.P., Met-Ed Capital, L.P. and Penelec Capital, L.P., are
special-purpose partnerships in which a subsidiary of JCP&L, Met-Ed and Penelec,
respectively, is the sole general partner. In 1995, JCP&L Capital, L.P. issued
$125 million of mandatorily redeemable preferred securities (Preferred
Securities) and in 1994, Met-Ed Capital, L.P. and Penelec Capital, L.P. issued
$100 million and $105 million, respectively, of Preferred Securities. The
proceeds were lent to JCP&L, Met-Ed and Penelec, respectively, which, in turn,
issued their deferrable interest subordinated debentures to the partnerships.
The following issues of Preferred Securities were outstanding at December 31,
1998 and 1997:
F-67
<PAGE>
GPU, Inc. and Subsidiary Companies
Issue Securities Total
Company Series Price Outstanding in thousands)
- ------- ------ ----- ----------- -------------
JCP&L Capital, L.P. 8.56% $25 5,000,000 $125,000
Met-Ed Capital, L.P. 9.00% $25 4,000,000 100,000
Penelec Capital, L.P. 8.75% $25 4,200,000 105,000
-------
Total $330,000
The fair value of the Preferred Securities based on market price quotations at
December 31, 1998 and 1997 was $336 million (JCP&L $128 million, Met-Ed $102
million, Penelec $106 million) and $341 million (JCP&L $128 million, Met-Ed $104
million, Penelec $109 million), respectively.
The Preferred Securities of JCP&L Capital, L.P. mature in 2044, while
those of Met-Ed Capital, L.P. and Penelec Capital, L.P. mature in 2043. Their
respective Preferred Securities are redeemable at the option of JCP&L beginning
in 2000, and at the option of Met-Ed and Penelec beginning in 1999, at 100% of
their principal amount, or earlier under certain limited circumstances,
including the loss of the federal tax deduction for interest paid on the
subordinated debentures. JCP&L, Met-Ed and Penelec have fully and
unconditionally guaranteed payment of distributions, to the extent there is
sufficient cash on hand to permit such payments and legally available funds, and
payments on liquidation or redemption of their respective Preferred Securities.
Distributions on the Preferred Securities (and interest on the subordinated
debentures) may be deferred for up to 60 months, but JCP&L, Met-Ed and Penelec
may not pay dividends on, or redeem or acquire, any of their preferred or common
stock until deferred payments on their respective subordinated debentures are
paid in full.
5. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS
Pennsylvania Restructuring Write-offs
Historically, the rates an electric utility charges its customers have
been based on the utility's costs of operation. As a result, the GPU Energy
companies were required to account for the economic effects of cost-based
ratemaking regulation under the provisions of FAS 71. FAS 71 requires regulated
entities, in certain circumstances, to defer, as regulatory assets, the impact
on operations of costs expected to be recovered in future rates.
In response to the continuing deregulation of the electric utility
industry, the SEC has questioned the continued applicability of FAS 71 by
investor-owned utilities with respect to their electric generation operations.
In response to these concerns, the Financial Accounting Standards Board's (FASB)
EITF concluded in June 1997 that utilities are no longer subject to FAS 71, for
the relevant portion of their business, when they know details of their
individual transition plans to a competitive electric generation marketplace.
The EITF also concluded that utilities can continue to carry previously recorded
regulated assets, as well as any newly established regulated assets (including
those related to generation), on their balance sheets if regulators have
guaranteed a regulated cash flow stream to recover the cost of these assets.
F-68
<PAGE>
GPU, Inc. and Subsidiary Companies
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders
(Restructuring Orders) which, among other things, essentially remove from
regulation the costs associated with providing electric generation service to
Pennsylvania consumers, effective January 1, 1999. Accordingly, in 1998 Met-Ed
and Penelec discontinued the application of FAS 71 and adopted the provisions of
FAS 101 and EITF Issue 97-4 with respect to their electric generation
operations. The transmission and distribution portion of Met-Ed and Penelec's
operations continue to be subject to the provisions of FAS 71. JCP&L expects to
discontinue the application of FAS 71 and adopt FAS 101 and EITF Issue 97-4 for
its electric generation operations no later than its receipt of NJBPU approval
of its restructuring plans, which is expected in the second quarter of 1999.
Also, as a result of the Restructuring Orders, Met-Ed and Penelec recorded
non-recurring charges for customer refunds of 1998 revenues, and for the
establishment of a sustainable energy fund.
<TABLE>
For the year ended December 31, 1998, the net effect on earnings of the
PaPUC's Restructuring Orders was as follows:
<CAPTION>
(in millions, except per share data)
Met-Ed Penelec Total
<S> <C> <C> <C>
------ ------- -----
Write-off of existing Pennsylvania
generation regulatory assets $ 8.0 $ 2.8 $ 10.8
Write-off of existing FERC
generation regulatory assets 1.5 17.6 19.1
Write-off of FERC portion of TMI-1
impairment and TMI-1 decommissioning 2.0 10.2 12.2
------- ------- -------
Extraordinary loss (pre-tax)
due to FAS 101 write-off 11.5 30.6 42.1
Obligation to refund 1998 revenues 27.2 29.2 56.4
Establishment of sustainable energy fund 5.7 6.4 12.1
------- ------- -------
Total pre-tax write-off 44.4 66.2 110.6
Income tax benefit (18.4) (26.4) (44.8)
------- ------- -------
Total after-tax write-off $ 26.0 $ 39.8 $ 65.8
======= ======= =======
GPU loss per average common share
due to Pennsylvania restructuring $ 0.21 $ 0.31 $ 0.52
======= ======= =======
</TABLE>
FAS 121 Impairment Tests on Generation Facilities
In accordance with Statement of Financial Accounting Standards No. 121
(FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", impairment tests performed by the GPU
Energy companies on the December 31, 1998 net book value of their generation
facilities determined that the net investment in TMI-1 was impaired, resulting
in a write-down of $518 million (pre-tax) to reflect TMI-1's fair market value.
Of the amount written down for TMI-1, $508 million was established as a
regulatory asset because management believes it is probable of recovery in
F-69
<PAGE>
GPU, Inc. and Subsidiary Companies
the restructuring process and $10 million (the FERC jurisdictional portion) was
charged to expense as an extraordinary item.
6. ACQUISITIONS
POWERNET
In 1997, GPU Electric acquired the business of PowerNet from the State of
Victoria, Australia for A$2.6 billion (approximately U.S. $1.9 billion). The
fair value of the assets acquired totaled approximately U.S. $2 billion and the
amount of liabilities assumed totaled approximately U.S. $142.9 million.
PowerNet owns and operates the high-voltage electricity transmission system in
the State of Victoria serving an area of approximately 87,900 square miles and a
population of approximately 4.5 million.
The PowerNet acquisition was financed through: (1) a senior debt credit
facility of A$1.9 billion (approximately U.S. $1.4 billion), which is
non-recourse to GPU, Inc.; (2) a five-year U.S. $450 million bank credit
agreement which is guaranteed by GPU, Inc.; and (3) an equity contribution from
GPU, Inc. of U.S. $50 million.
As part of the PowerNet acquisition, the GPUI Group entered into various
interest rate swap agreements to mitigate the risk of increases in variable
interest rates on the senior debt credit facility. These swaps became effective
in November 1997, and expire on various dates through November 2007. The GPUI
Group expects to record amounts paid and received under the agreements as
adjustments to the interest expense of the underlying debt.
The acquisition of PowerNet was accounted for under the purchase method of
accounting. The total acquisition costs exceeded the estimated value of net
assets by A$877 million (approximately U.S. $537 million). This excess amount is
considered goodwill and is being amortized to expense on a straight-line basis
over 40 years.
PowerNet has been included in GPU's consolidated financial statements
since its purchase on November 6, 1997. The following unaudited pro forma
consolidated results of operations for the years 1997 and 1996 have been
prepared in accordance with Accounting Principles Board Opinion No. 16, assuming
the acquisition date was effective January 1, 1996 with debt financing. The pro
forma results are not necessarily indicative of the actual results that would
have been realized had the acquisition occurred on the assumed date of January
1, 1996, nor are they necessarily indicative of future results. The pro forma
consolidated operating results are for information purposes only and are as
follows:
<TABLE>
(Unaudited)
1997 1996
---- ----
<CAPTION>
(in thousands except As As
per share data) Reported Pro Forma Reported Pro Forma
- --------------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Operating revenues $4,143,379 $4,316,452 $3,970,711 $4,184,661
Net income $ 335,101 $ 326,742 $ 298,352 $ 282,494
Basic earnings per share $ 2.78 $ 2.71 $ 2.48 $ 2.34
Diluted earnings per share $ 2.77 $ 2.70 $ 2.47 $ 2.34
</TABLE>
F-70
<PAGE>
GPU, Inc. and Subsidiary Companies
MIDLANDS ELECTRICITY PLC
In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners
Holdings (Holdings), a 50/50 joint venture, to acquire Midlands Electricity plc
(Midlands), an English regional electric company. A wholly-owned subsidiary of
Holdings, Avon, purchased the outstanding shares of Midlands through a cash
tender offer of 1.7 billion British pounds (approximately U.S. $2.6 billion).
GPU's 50% interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a
wholly-owned subsidiary of GPU Electric.
Midlands distributes electricity to 2.3 million customers in England in an
area with a population of five million. In November 1998, Midlands announced the
sale of its electric supply business to National Power plc. The sale is subject
to approval by Great Britain's Department of Trade and Industry and the Office
of Electricity Regulation, and is expected to be completed in the second quarter
of 1999.
EI UK borrowed approximately 342 million British pounds (approximately
U.S. $586 million) through a GPU, Inc. guaranteed five-year bank term loan
facility to fund its investment in Holdings. Holdings borrowed approximately 1.1
billion British pounds (approximately U.S. $1.8 billion) through a term loan and
revolving credit facility to provide for the balance of the acquisition price.
EI UK accounts for its 50% investment in Holdings using the equity method
of accounting (see Note 14, GPUI Group Equity Investments). Accordingly, EI UK's
investment is reported on the Consolidated Balance Sheets in GPUI Group equity
investments, and its proportionate share of earnings from Holdings is reflected
in Equity in undistributed earnings/(losses) of affiliates in the Consolidated
Statements of Income.
The acquisition of Midlands by Avon was accounted for under the purchase
method of accounting. The total acquisition cost exceeded the estimated value of
net assets by 1.4 billion British pounds (approximately U.S. $2.1 billion). This
excess amount is considered goodwill and is being amortized to expense on a
straight-line basis over 40 years.
F-71
<PAGE>
GPU, Inc. and Subsidiary Companies
7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS
GPU's use of derivative financial and commodity instruments is principally
limited to the GPUI Group. GPU has not held or issued derivative financial or
commodity instruments for trading purposes.
Interest Rate Swap Agreements:
The GPUI Group uses interest rate swap agreements to manage the risk of
increases in variable interest rates. At December 31, 1998, these agreements
covered approximately $1.2 billion of debt, including commercial paper, and are
scheduled to expire on various dates through November 2007. The GPUI Group
records amounts paid and received under the agreements as adjustments to the
interest expense of the underlying debt since the swaps are related to specific
assets, liabilities or anticipated transactions of the GPUI Group. For the year
ended December 31, 1998, fixed rate interest expense exceeded variable rate
interest by approximately $18.3 million. (For additional information, see GPUI
Group section, Management's Discussion and Analysis.)
Indexed Swap Agreement:
In 1998, GPU International entered into a 10-year indexed swap agreement
with Niagara Mohawk Power Corporation (NIMO) which, among other things, provides
GPU International a fixed revenue stream (over the life of the swap agreement)
on its investment in the Onondaga Cogeneration project. At December 31, 1998,
the indexed swap agreement is valued at $62.4 million and is included in Other -
Deferred Debits and Other Assets on the Consolidated Balance Sheets. This
valuation was derived using the discounted estimated cash flows of the payments
expected to be received by GPU International from NIMO over the life of the swap
agreement.
8. INCOME TAXES
As of December 31, 1998 and 1997, Regulatory assets, net on the
Consolidated Balance Sheets reflected $450 million and $511 million,
respectively, of Income taxes recoverable through future rates (primarily
related to liberalized depreciation), and Income taxes refundable through future
rates of $53 million and $89 million, respectively (related to unamortized ITC),
substantially due to the recognition of amounts not previously recorded with the
adoption of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," in 1993, as follows:
(in millions)
1998 1997
---- ----
Income Taxes Recoverable Through Future Rates:
JCP&L $173 $128
Met-Ed 134 179
Penelec 143 204
--- ---
Total $450 $511
=== ===
Income Taxes Refundable Through Future Rates:
JCP&L $ 36 $ 37
Met-Ed 11 22
Penelec 6 30
--- ---
Total $ 53 $ 89
=== ===
F-72
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
Summaries of the components of deferred taxes as of December 31, 1998 and
1997 are as follows:
<CAPTION>
GPU, Inc. and Subsidiary Companies:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current: Current:
Unbilled revenue $ 31 $ 31 Revenue taxes $ 8 $ 10
Deferred energy - 7 Deferred energy 4 -
----- -----
Other 16 46 Total $ 12 $ 10
----- --- ===== =====
Total $ 47 $ 84
===== ===
Noncurrent: Noncurrent:
Unamortized ITC $ 70 $ 89 Liberalized
Decommissioning 151 74 depreciation:
Contributions in aid Previously flowed
of construction 26 24 through $ 202 $ 263
Cumulative translation Future revenue
adjustment 29 - requirements 155 193
----- -----
Above-market NUGs 748 -
Customer transition Subtotal 357 456
charge 534 - Liberalized
Revenue subject depreciation 719 860
to refund 23 - Customer transition
Generation revenue charge 1,684 -
requirements 44 -
Other 379 196 Other 285 250
----- --- ----- -----
Total $2,004 $383 Total $3,045 $1,566
===== === ===== =====
JCP&L:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 21 $ 21 Revenue taxes $ 12 $ 10
=== ===
Deferred energy - 7
--- ---
Total $ 21 $ 28
=== ===
Noncurrent: Noncurrent:
Unamortized ITC $ 36 $ 38 Liberalized
Decommissioning 46 33 depreciation:
Contributions in aid Previously flowed
of construction 20 19 through $ 46 $ 52
DOE SNF interest 25 23 Future revenue
Other 52 42 requirements 49 36
--- --- --- ---
Total $179 $155
=== ===
Subtotal 95 88
Liberalized
depreciation 375 411
Forked River 5 7
TMI-1 investment/loss 60 -
Other 136 138
--- ---
Total $671 $644
=== ===
</TABLE>
F-73
<PAGE>
<TABLE>
GPU, Inc. and Subsidiary Companies
<CAPTION>
Met-Ed:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Noncurrent:
Current: Liberalized
Unbilled revenue $ 3 $ 3 depreciation:
===== ===
Previously flowed
through $ 57 $ 97
Future revenue
Noncurrent: requirements 50 72
----- ---
Unamortized ITC $ 16 $ 22
Decommissioning 65 27 Subtotal 107 169
Contributions in aid Liberalized
of construction 3 2 depreciation 127 191
Customer transition Customer transition
charge 160 - charge 737 -
Above-market NUGs 327 - Other 40 53
------ ---
Revenue subject Total $1,011 $413
===== ===
to refund 11 -
Generation revenue
requirements 23 -
Other 109 36
----- ---
Total $ 714 $ 87
===== ===
Penelec:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
Noncurrent:
Current: Liberalized
Unbilled revenue $ 8 $ 8 depreciation:
=== ===
Previously flowed
Noncurrent: through $ 96 $114
Unamortized ITC $ 19 $ 30 Future revenue
Decommissioning 41 14 requirements 55 85
----- ---
Contributions in aid
of construction 3 3 Subtotal 151 199
Customer transition Liberalized
charge 373 - depreciation 212 245
Above-market NUGs 421 - Customer transition
Revenue subject charge 948 -
to refund 12 - Other 27 34
----- ---
Generation revenue Total $1,338 $478
===== ===
requirements 21 -
Other 61 9
--- ---
Total $951 $ 56
=== ===
F-74
</TABLE>
<PAGE>
GPU, Inc. and Subsidiary Companies
The reconciliations from net income to book income subject to tax and from
the federal statutory rate to combined federal and state effective tax rates are
as follows:
GPU, Inc. and Subsidiary Companies:
(in millions)
1998 1997 1996
---- ---- ----
Net income $360 $335 $298
Preferred stock dividends 11 13 16
Gain on preferred stock reacquisition - - (9)
Income tax expense 250 234 184
--- --- ---
Book income subject to tax $621* $582* $489*
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 5 4 3
Other - 1 -
--- --- ---
Effective income tax rate 40% 40% 38%
=== === ===
* Includes pre-tax foreign operations income of $238 million, $34 million and
$58 million, of which $88 million, $20 million and $54 million, respectively
for 1998, 1997 and 1996, are included in Equity in undistributed
earnings/(losses) of affiliates in the Consolidated Statements of Income.
JCP&L:
(in millions)
1998 1997 1996
---- ---- ----
Net income $222 $212 $156
Income tax expense 145 112 74
--- --- ----
Book income subject to tax $367 $324 $230
=== === ====
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 5 - -
Other (1) - (3)
--- --- ---
Effective income tax rate 39% 35% 32%
=== === ===
Met-Ed:
(in millions)
1998 1997 1996
---- ---- ----
Net income $ 51 $ 93 $ 69
Income tax expense 33 66 50
--- --- ---
Book income subject to tax $ 84 $159 $119
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 6 6 5
Amortization of ITC (2) - (2)
Other - - 4
--- --- ---
Effective income tax rate 39% 41% 42%
=== === ===
F-75
<PAGE>
GPU, Inc. and Subsidiary Companies
Penelec:
(in millions)
1998 1997 1996
---- ---- ----
Net income $ 40 $ 95 $ 70
Income tax expense 31 71 45
--- --- ---
Book income subject to tax $ 71 $166 $115
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 8 6 6
Other 1 2 (2)
--- --- ---
Effective income tax rate 44% 43% 39%
=== === ===
Federal and state income tax expense is comprised of the following:
GPU, Inc. and Subsidiary Companies:
(in millions)
1998 1997 1996
---- ---- ----
Provisions for taxes currently payable:
Domestic $290 $206 $108
Foreign 22 40 11
--- --- ----
Total provision for taxes $312 $246 $119
Deferred income taxes:
Liberalized depreciation $ (4) $ 9 $ 27
Deferral of energy costs 10 (3) (8)
Accretion income 4 4 5
Decommissioning (19) (5) (9)
PA Restructuring (FAS 71) (15) - -
Pension expense/Voluntary Enhanced
Retirement Programs (8) (10) 15
Nonutility generation contract buyout costs (11) 5 41
Provision for rate refunds (10) - -
Other - (2) 6
--- --- ---
Deferred income taxes, net (53) (2) 77
--- --- ---
Amortization of ITC, net (9) (10) (12)
--- --- ---
Income tax expense $250 $234 $184
=== === ===
The foreign taxes in the above table for 1998, 1997 and 1996 include $27
million ($10 million Current; $17 million Deferred), $41 million ($37 million
Current; $4 million Deferred) and $17 million ($10 million Current; $7 million
Deferred) in foreign tax expense which is netted in Equity in undistributed
earnings/(losses) of affiliates in the Consolidated Statements of Income.
F-76
<PAGE>
GPU, Inc. and Subsidiary Companies
JCP&L:
(in millions)
1998 1997 1996
---- ---- ----
Provisions for taxes currently payable $187 $139 $ 70
-
Deferred income taxes:
Liberalized depreciation $(11) $ (3) $ 1
Gain/Loss on reacquired debt 3 (1) -
New Jersey revenue tax (2) (3) (3)
Deferral of energy costs 10 (2) (8)
Abandonment loss - Forked River (4) (5) (4)
Nuclear outage maintenance costs 3 (4) 5
Accretion income 4 4 5
Unbilled revenue - (3) (5)
Decommissioning (12) (3) (2)
Pension expense/VERP (2) (5) 4
Nonutility generation contract buyout costs - 6 22
Demand-side management - (3) (4)
Other postemployment benefits (5) 2 -
Global settlement (8) - -
Gas site & investigation MGP
insurance recovery (8) - -
Other (6) (2) -
--- --- ---
Deferred income taxes, net (38) (22) 11
--- --- ----
Amortization of ITC, net (4) ( 5) (7)
--- --- ---
Income tax expense $145 $112 $ 74
=== === ====
Met-Ed:
(in millions)
1998 1997 1996
---- ---- ----
Provisions for taxes currently payable $ 56 $ 63 $ 25
Deferred income taxes:
Liberalized depreciation $ 5 $ 6 $ 10
Deferral of energy costs - - 5
Unbilled revenue - 3 -
Decommissioning (5) (2) (3)
PA Restructuring (FAS 71) 15 - -
Pension expense/VERP (3) (3) 5
Nonutility generation contract buyout costs (9) (6) 14
Nuclear outage maintenance costs (3) 3 (3)
Nonutility generation contract
over collections 8 4 -
Other postemployment benefits (5) (1) 2
Provision for rate refund (11) - -
CTC NUG deferrals (5) - -
Sustainable energy fund (2) - -
Other (6) 1 (3)
--- --- ---
Deferred income taxes, net (21) 5 27
--- --- ---
Amortization of ITC, net (2) (2) (2)
--- --- ---
Income tax expense $ 33 $ 66 $ 50
=== === ===
F-77
<PAGE>
GPU, Inc. and Subsidiary Companies
Penelec:
(in millions)
1998 1997 1996
---- ---- ----
Provisions for taxes currently payable $ 47 $ 61 $ 26
Deferred income taxes:
Liberalized depreciation $ 2 $ 6 $ 8
Deferral of energy costs - (1) -
Unbilled revenue - (7) 5
Decommissioning (2) - (1)
PA Restructuring (FAS 71) (11) - -
Pension expense/VERP (2) (2) 7
Nonutility generation contract buyout costs (1) 5 5
Nuclear outage maintenance costs (1) 1 (1)
Nonutility generation contract
over collections 6 6 -
Other postemployment benefits (2) 3 (1)
Other (3) 2 -
--- --- ---
Deferred income taxes, net (14) 13 22
--- --- ---
Amortization of ITC, net (2) (3) (3)
--- --- ---
Income tax expense $ 31 $ 71 $ 45
=== === ===
The Internal Revenue Service (IRS) has completed its examinations of GPU's
federal income tax returns through 1992. The years 1993 through 1995 are
currently being audited.
9. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses consisted
of the following:
(in millions)
1998 1997 1996
---- ---- ----
Maintenance:
JCP&L $ 91 $102 $120
Met-Ed 49 46 50
Penelec 62 68 65
--- --- ---
Total Maintenance $202 $216 $235
=== === ===
Other Taxes:
New Jersey Transitional Energy
Facility Assessment $ 67 $ - $ -
New Jersey Unit Tax (JCP&L) - 211 208
--- --- ---
Total $ 67 $211 $208
=== === ===
Pennsylvania State Gross Receipts:
Met-Ed $ 39 $ 39 $ 38
Penelec 40 42 40
--- --- ---
Total $ 79 $ 81 $ 78
=== === ===
F-78
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
1998 1997 1996
---- ---- ----
Real Estate and Personal Property:
JCP&L $ 9 $ 9 $ 8
Met-Ed 6 8 8
Penelec 8 10 9
--- --- ---
Total $ 23 $ 27 $ 25
--- --- ---
Other:
JCP&L $ 19 $ 12 $ 13
Met-Ed 13 12 15
Penelec 16 15 16
Other 2 - -
--- --- ----
Total $ 50 $ 39 $ 44
--- --- ---
Total Other Taxes $219 $358 $355
=== === ===
The cost of services rendered to the GPU Energy companies by their
affiliates is as follows:
(in millions)
1998 1997 1996
---- ---- ----
JCP&L:
Cost of services rendered by GPUN $182 $156 $221
Cost of services rendered by GPUS 26 31 44
Cost of services rendered by Genco 51 52 85
--- --- ---
Total $259 $239 $350
=== === ===
Amount Charged to Income $239 $228 $293
=== === ===
Met-Ed:
Cost of services rendered by GPUN $ 59 $ 78 $ 67
Cost of services rendered by GPUS 40 31 29
Cost of services rendered by Genco 108 91 85
--- --- ---
Total $207 $200 $181
=== === ===
Amount Charged to Income $180 $179 $153
=== === ===
Penelec:
Cost of services rendered by GPUN $ 30 $ 40 $ 34
Cost of services rendered by GPUS 17 19 31
Cost of services rendered by Genco 163 162 159
--- --- ---
Total $210 $221 $224
=== === ===
Amount Charged to Income $170 $195 $181
=== === ===
For the years 1998, 1997 and 1996, JCP&L purchased $26 million, $24 million
and $21 million, respectively, of energy from a cogeneration project in which an
affiliate has a 50% partnership interest.
F-79
<PAGE>
GPU, Inc. and Subsidiary Companies
10. EMPLOYEE BENEFITS
In 1998, GPU adopted Statement of Financial Accounting Standards No. 132
(FAS 132), "Employer's Disclosures about Pensions and Other Postretirement
Benefits." FAS 132 revises the disclosure requirements for pension and other
postretirement benefit plans but does not change the measurement or recognition
of these plans.
Pension Plans and Other Postretirement Benefits:
GPU maintains defined benefit pension plans covering substantially all
employees. GPU also provides certain retiree health care and life insurance
benefits for substantially all employees who reach retirement age while working
for GPU. The following tables provide a reconciliation of the changes in the
plans' benefit obligation and fair value of assets for the years ended December
31, 1998 and 1997, a statement of the funded status of the plans, the amounts
recognized in the Consolidated Balance Sheets as of December 31, 1998 and 1997
and the assumptions used in the measurement of the benefit obligation.
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation
at January 1: $ 1,791.7 $ 1,691.4 $ 798.0 $ 706.0
Service cost 36.1 31.1 16.4 10.7
Interest cost 121.6 122.2 54.4 51.7
Plan amendments 9.6 13.3 (6.0) (8.9)
Actuarial (gain)/loss 26.2 69.3 (55.7) 65.3
Benefits paid (123.9) (135.6) (30.2) (26.8)
Curtailments 6.8 - 12.5 -
Termination benefits 28.9 - 1.1 -
-------- -------- ------- -------
Benefit obligation
at December 31: $ 1,897.0 $ 1,791.7 $ 790.5 $ 798.0
======== ======== ======= ======
Change in plan assets:
Fair value of plan assets
at January 1: $ 2,033.3 $ 1,801.8 $ 403.0 $ 303.6
Actual return on plan assets 342.9 341.4 78.9 66.9
Employer contributions 6.5 25.7 55.4 59.3
Benefits paid (123.9) (135.6) (30.2) (26.8)
-------- -------- ------- ------
Fair value of plan assets
at December 31: $ 2,258.8 $ 2,033.3 $ 507.1 $ 403.0
======== ======== ======= ======
Funded Status:
Funded status at December 31: $ 361.8 $ 241.6 $ (283.4) $(395.0)
Unrecognized net actuarial
(gain)/loss (439.5) (282.8) (37.8) 73.3
Unrecognized prior service cost 27.6 19.2 4.3 6.6
Unrecognized net transition
(asset)/obligation (1.9) (2.5) 210.7 238.0
-------- -------- ------- ------
Net amount recognized $ (52.0) $ (24.5) $ (106.2) $ (77.1)
======== ======== ======= ======
F-80
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
---- ---- ---- ----
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Prepaid benefit cost $ 42.0 $ 26.1 $ 43.8 $ 29.5
Accrued benefit liability (103.0) (57.0) (150.0) (106.6)
Accumulated other comprehensive
income 5.3 3.8 - -
Deferred income taxes 3.7 2.6 - -
-------- -------- ------- ------
Net amount recognized $ (52.0) $ (24.5) $ (106.2) $ (77.1)
======== ======== ======= ======
JCP&L
Change in benefit obligation:
Benefit obligation
at January 1: $ 496.6 $ 473.5 $ 203.8 $ 179.9
Service cost 7.2 6.1 2.9 1.5
Interest cost 33.7 34.2 13.9 13.2
Plan amendments - 6.6 - 5.3
Actuarial (gain)/loss 3.9 17.7 (16.6) 8.9
Benefits paid (34.8) (41.5) (7.3) (5.0)
Curtailments 0.6 - 1.2 -
Termination benefits 2.5 - 0.3 -
-------- -------- ------- -------
Benefit obligation
at December 31: $ 509.7 $ 496.6 $ 198.2 $ 203.8
======== ======== ======= ======
Change in plan assets:
Fair value of plan assets
at January 1: $ 577.1 $ 514.5 $ 99.0 $ 70.7
Actual return on plan assets 97.1 97.8 20.0 17.4
Employer contributions - 3.8 25.8 13.5
Benefits paid (34.8) (41.5) (7.3) 5.0
Change in allocations 0.5 2.5 (0.5) (7.6)
-------- -------- ------- ------
Fair value of plan assets
at December 31: $ 639.9 $ 577.1 $ 137.0 $ 99.0
======== ======== ======= ======
Funded Status:
Funded status at December 31: $ 130.2 $ 80.5 $ (61.2) $(104.8)
Unrecognized net actuarial
(gain)/loss (139.3) (87.7) (16.1) 15.7
Unrecognized prior service cost 8.3 9.3 0.5 0.6
Unrecognized net transition
(asset)/obligation (1.0) (1.2) 61.0 66.9
-------- -------- ------- ------
Net amount recognized $ (1.8) $ 0.9 $ (15.8) $ (21.6)
======== ======== ======= ======
F-81
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
---- ---- ---- ----
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Prepaid benefit cost $ 18.8 $ 2.6 $ 27.2 $ 11.8
Accrued benefit liability (21.3) (1.7) (43.0) (33.4)
Accumulated other comprehensive
income 0.4 - - -
Deferred income taxes 0.3 - - -
-------- -------- ------- ------
Net amount recognized $ (1.8) $ 0.9 $ (15.8) $ (21.6)
======== ======== ======= ======
Met-Ed
Change in benefit obligation:
Benefit obligation
at January 1: $ 345.9 $ 302.5 $ 152.5 $ 124.2
Service cost 6.3 4.3 2.9 1.5
Interest cost 23.4 21.8 11.2 10.0
Plan amendments 3.1 1.8 (2.2) (0.8)
Actuarial (gain)/loss 14.3 42.7 (0.1) 22.4
Benefits paid (22.8) (27.2) (5.2) (4.8)
Curtailments 0.5 - 3.4 -
Termination benefits 7.2 - 0.5 -
-------- -------- ------- -------
Benefit obligation
at December 31: $ 377.9 $ 345.9 $ 163.0 $ 152.5
======== ======== ======= ======
Change in plan assets:
Fair value of plan assets
at January 1: $ 373.2 $ 309.9 $ 49.5 $ 34.7
Actual return on plan assets 65.0 63.1 9.9 8.6
Employer contributions - 5.5 5.3 9.3
Benefits paid (22.8) (27.2) (5.2) 4.8
Change in allocations 12.9 21.9 2.9 (7.9)
-------- -------- ------- ------
Fair value of plan assets
at December 31: $ 428.3 $ 373.2 $ 62.4 $ 49.5
======== ======== ======= ======
Funded Status:
Funded status at December 31: $ 50.4 $ 27.3 $ (100.6) $(103.0)
Unrecognized net actuarial
(gain)/loss (65.2) (32.8) 20.5 34.1
Unrecognized prior service cost 7.6 5.0 0.9 1.2
Unrecognized net transition
(asset)/obligation (0.6) (0.8) 39.7 42.1
-------- -------- ------- ------
Net amount recognized $ (7.8) $ (1.3) $ (39.5) $ (25.6)
======== ======== ======= ======
F-82
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
---- ---- ---- ----
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Prepaid benefit cost $ - $ 0.5 $ - $ -
Accrued benefit liability (8.7) (2.5) (39.5) (25.6)
Accumulated other comprehensive
income 0.5 0.4 - -
Deferred income taxes 0.4 0.3 - -
-------- -------- ------- ------
Net amount recognized $ (7.8) $ (1.3) $ (39.5) $ (25.6)
======== ======== ======= ======
Penelec
Change in benefit obligation:
Benefit obligation
at January 1: $ 404.4 $ 367.0 $ 236.1 $ 204.0
Service cost 4.1 3.3 2.1 1.5
Interest cost 27.2 26.2 15.1 13.7
Plan amendments 4.3 2.7 (3.5) (2.2)
Actuarial (gain)/loss 8.9 40.9 (35.4) 26.8
Benefits paid (37.6) (35.7) (6.9) (7.7)
Curtailments 0.7 - 4.5 -
Termination benefits 7.7 - - -
-------- -------- ------- ------
Benefit obligation
at December 31: $ 419.7 $ 404.4 $ 212.0 $ 236.1
======== ======== ======= ======
Change in plan assets:
Fair value of plan assets
at January 1: $ 486.8 $ 411.8 $ 130.4 $ 95.6
Actual return on plan assets 81.9 81.1 22.9 21.5
Employer contributions 0.1 6.6 10.0 18.8
Benefits paid (37.6) (35.7) (6.9) (7.7)
Change in allocations 4.0 23.0 (12.6) 2.2
-------- -------- ------- ------
Fair value of plan assets
at December 31: $ 535.2 $ 486.8 $ 143.8 $ 130.4
======== ======== ======= ======
Funded Status:
Funded status at December 31: $ 115.5 $ 82.4 $ (68.2) $(105.7)
Unrecognized net actuarial
(gain)/loss (105.9) (69.8) (4.4) 21.0
Unrecognized prior service cost 10.3 7.5 0.3 1.8
Unrecognized net transition
obligation 1.4 1.5 60.0 77.0
-------- -------- ------- ------
Net amount recognized $ 21.3 $ 21.6 $ (12.3) $ (5.9)
======== ======== ======= ======
F-83
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
---- ---- ---- ----
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Prepaid benefit cost $ 22.5 $ 22.9 $ 16.5 $ 14.1
Accrued benefit liability (1.5) (1.5) (28.8) (20.0)
Accumulated other comprehensive
income 0.2 0.1 - -
Deferred income taxes 0.1 0.1 - -
-------- --------- ------- ------
Net amount recognized $ 21.3 $ 21.6 $ (12.3) $ (5.9)
======== ======== ======= =======
Weighted average assumptions as of December 31:
Discount rate 6.75% 7.0% 6.75% 7.0%
Expected return on plan assets 8.5% 8.5% 8.5% 8.5%
Rate of compensation increase 4.5% 5.0%
The following tables provide the components of net periodic pension and other
postretirement benefit costs:
(in millions)
Pension Plans:
GPU, Inc. and Subsidiary Companies 1998 1997 1996
- ---------------------------------- ---- ---- ----
Service cost $ 36.1 $ 31.1 $ 36.1
Interest cost 121.6 122.2 112.1
Expected return on plan assets (140.1) (131.5) (123.2)
Amortization of transition asset (0.5) (0.5) (0.7)
Other amortization 1.1 0.2 (0.4)
------ ----- -----
Net periodic pension cost $ 18.2 $ 21.5 $ 23.9
====== ===== =====
JCP&L
Service cost $ 7.2 $ 6.1 $ 8.0
Interest cost 33.7 34.2 32.1
Expected return on plan assets (39.6) (37.5) (36.3)
Amortization of transition asset (0.3) (0.3) (0.3)
Other amortization 0.6 0.1 -
------ ----- ------
Net periodic pension cost $ 1.6 $ 2.6 $ 3.5
====== ===== =====
Met-Ed
Service cost $ 6.3 $ 4.3 $ 4.5
Interest cost 23.4 21.8 19.6
Expected return on plan assets (25.4) (22.3) (21.3)
Amortization of transition asset (0.1) (0.1) (0.2)
Other amortization 0.4 0.6 0.2
------ ----- -----
Net periodic pension cost $ 4.6 $ 4.3 $ 2.8
====== ===== =====
F-84
<PAGE>
GPU, Inc. and Subsidiary Companies
Penelec 1998 1997 1996
- ------- ---- ---- ----
Service cost $ 4.1 $ 3.3 $ 6.0
Interest cost 27.2 26.2 29.3
Expected return on plan assets (33.1) (29.7) (32.3)
Amortization of transition obligation 0.3 0.3 0.4
Other amortization 0.4 0.2 (0.1)
------ ----- -----
Net periodic pension cost $ (1.1) $ 0.3 $ 3.3
====== ===== =====
In 1998, the effect of decreasing the discount rate assumption from 7% to
6.75% was partially offset by the effect of decreasing the salary scale
assumption from 5% to 4.5% and resulted in a $35 million (JCP&L $7 million;
Met-Ed $7 million; Penelec $8 million; Other $13 million)increase in the benefit
obligation as of December 31, 1998. In 1997, the effect of decreasing the
discount rate assumption from 7.5% to 7% was partially offset by the effect of
decreasing the salary scale assumption from 5.5% to 5% and resulted in a $63
million (JCP&L $16 million; Met-Ed $10 million; Penelec $12 million; Other $25
million)increase in the benefit obligation as of December 31, 1997.
The above net periodic pension cost amount for 1998 excludes pre-tax charges
of $30 million (JCP&L $8 million; Met-Ed $11 million; Penelec $9 million; Other
$2 million), of which $22 million (JCP&L $6 million; Met-Ed $9 million; Penelec
$7 million) was deferred pending future rate recovery, resulting from early
retirement programs in 1998. The above net periodic pension cost amount for 1996
excludes pre-tax charges of $71 million (JCP&L $37 million; Met-Ed $17 million;
Penelec $17 million) resulting from early retirement programs in that year.
(in millions)
Other Postretirement Benefits:
GPU, Inc. and Subsidiary Companies 1998 1997 1996
- ---------------------------------- ---- ---- ----
Service cost $ 16.4 $ 10.7 $ 14.3
Interest cost 54.4 51.7 45.7
Expected return on plan assets (29.5) (23.7) (13.8)
Amortization of transition obligation 15.8 16.8 17.4
Other amortization 5.0 2.3 2.9
----- ----- -----
Net periodic postretirement benefit cost 62.1 57.8 66.5
Deferred for future recovery - (13.0) (18.2)
----- ----- -----
Postretirement benefit cost,
net of deferrals $ 62.1 $ 44.8 $ 48.3
===== ===== =====
JCP&L
Service cost $ 2.9 $ 1.5 $ 2.8
Interest cost 13.9 13.2 11.4
Expected return on plan assets (7.3) (5.7) (2.8)
Amortization of transition obligation 4.4 4.7 4.8
Other amortization 0.7 0.6 0.7
----- ----- -----
Net periodic postretirement benefit cost 14.6 14.3 16.9
Deferred for future recovery - (0.8) (4.4)
----- ----- -----
Postretirement benefit cost,
net of deferrals $ 14.6 $ 13.5 $ 12.5
===== ===== =====
F-85
<PAGE>
GPU, Inc. and Subsidiary Companies
Met-Ed 1998 1997 1996
- ------ ---- ---- ----
Service cost $ 2.9 $ 1.5 $ 1.9
Interest cost 11.2 10.0 8.6
Expected return on plan assets (3.9) (3.1) (1.6)
Amortization of transition obligation 3.1 3.2 3.2
Other amortization 1.7 0.8 0.7
----- ----- -----
Net periodic postretirement benefit cost 15.0 12.4 12.8
Deferred for future recovery - (5.1) (4.1)
----- ----- -----
Postretirement benefit cost,
net of deferrals $ 15.0 $ 7.3 $ 8.7
===== ===== =====
Penelec
Service cost $ 2.0 $ 1.5 $ 2.7
Interest cost 15.1 13.7 14.1
Expected return on plan assets (8.9) (6.6) (4.6)
Amortization of transition obligation 4.8 4.8 5.4
Other amortization 1.4 0.6 0.9
----- ----- -----
Net periodic postretirement benefit cost 14.4 14.0 18.5
Deferred for future recovery - - -
----- ----- ------
Postretirement benefit cost,
net of deferrals $ 14.4 $ 14.0 $ 18.5
===== ===== =====
In 1998, the effect of decreasing the assumption relating to the long-term
medical cost of managed care plans was partially offset by the effect of
decreasing the discount rate assumption from 7% to 6.75% and resulted in a $40
million (JCP&L $12 million; Met-Ed $7 million; Penelec $5 million; Other $16
million) decrease in the benefit obligation as of December 31, 1998. In 1997,
the effect of decreasing the discount rate assumption from 7.5% to 7% was
partially offset by the effect of decreasing the ultimate long-term health care
trend rate assumption from 6% to 5.5% and resulted in a $22 million (JCP&L $5
million; Met-Ed $6 million; Penelec $6 million; Other $5 million) increase in
the benefit obligation as of December 31, 1997. The benefit obligation was
determined by application of the terms of the medical and life insurance plans,
including the effects of established maximums on covered costs, together with
relevant actuarial assumptions and health-care cost trend rates of 8% for those
not eligible for Medicare and 6% for those eligible for Medicare, then
decreasing gradually to 5.5% in 2004 and thereafter. These costs also reflect
the implementation of an annual cost-cap of 6% for individuals who retire after
December 31, 1995 and reach age 65. The effect of a 1% change in these assumed
cost trend rates would increase or decrease the benefit obligation by $54.1
million (JCP&L $13.9 million; Met-Ed $11.4 million; Penelec $14.2 million; Other
$14.6 million) or $72.6 million (JCP&L $17.8 million; Met-Ed $15.1 million;
Penelec $18.6 million; Other $21.1 million), respectively. In addition, such a
1% change would increase or decrease the aggregate service and interest cost
components of net periodic postretirement health-care cost by $4.8 million
(JCP&L $1.2 million; Met-Ed $1 million; Penelec $1.2 million; Other $1.4
million) or $7.6 million (JCP&L $1.9
F-86
<PAGE>
GPU, Inc. and Subsidiary Companies
million; Met-Ed $1.6 million; Penelec $1.8 million; Other $2.3 million),
respectively.
The above net periodic postretirement benefit cost amount for 1998 excludes
pre-tax charges of $20 million (JCP&L $6 million; Met-Ed $6 million; Penelec $7
million; Other $1 million), of which $12 million (JCP&L $3 million; Met-Ed $5
million; Penelec $4 million; Other $1 million) was deferred pending future rate
recovery, resulting from early retirement programs in 1998. The above net
periodic postretirement benefit cost amount for 1996 excludes pre-tax charges to
earnings of $52 million (JCP&L $26 million; Met-Ed $13 million; Penelec $13
million)resulting from early retirement programs in that year.
In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect $3
million annually for incremental postretirement benefit costs, charged to
expense, and recognized as a result of FAS 106. Based on the final order, and in
accordance with EITF Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated
Enterprises," JCP&L has deferred the amounts above that level. A 1997
Stipulation of Final Settlement (Final Settlement) allows JCP&L to recover and
amortize the deferred balance at December 31, 1997 over a fifteen-year period.
In addition, the Final Settlement allows JCP&L to recover current amounts
accrued pursuant to FAS 106, including amortization of the transition
obligation. Met-Ed has deferred the incremental postretirement benefit costs
associated with the adoption of FAS 106 and in accordance with EITF Issue 92-12,
as authorized by the PaPUC in its 1993 base rate order. In accordance with EITF
Issue 92-12, effective January 1998, Met-Ed has ceased deferring these costs.
The approximately one-third generation-related portion of the deferred balance
at December 31, 1997 is to be recovered in rates over a twelve-year period
pursuant to the PaPUC's Restructuring Orders. The remaining two-thirds for the
transmission and distribution-related portion is to be amortized over a
fourteen-year period beginning January 1999, pursuant to the Restructuring
Orders. In 1994, Penelec determined that its FAS 106 costs, including costs
deferred since January 1993, were not probable of recovery and charged those
deferred costs to expense.
Savings Plans:
GPU also maintains savings plans for substantially all employees. These
plans provide for employee contributions up to specified limits and for various
levels of employer matching contributions. The matching contributions for GPU
were as follows:
(in millions)
Company 1998 1997 1996
- ------- ---- ---- ----
JCP&L $ 2.8 $ 2.4 $ 2.8
Met-Ed 3.4 3.1 3.2
Penelec 1.6 1.3 1.4
Other 5.8 5.8 6.7
----- ----- -----
Total $ 13.6 $ 12.6 $ 14.1
===== ===== =====
F-87
<PAGE>
GPU, Inc. and Subsidiary Companies
11. JOINTLY OWNED STATIONS
Each participant in a jointly owned station finances its portion of the
investment and charges its share of operating expenses to the appropriate
expense accounts. The GPU Energy companies participated with nonaffiliated
utilities in the following jointly owned stations at December 31, 1998:
Balance (in millions)
---------------------
% Accumulated
Station Owner Ownership Investment Depreciation
- ------- ----- --------- ---------- ------------
Homer City Penelec 50 $453.1 $180.1
Conemaugh Met-Ed 16.45 143.0 52.5
Keystone JCP&L 16.67 91.0 25.4
Yards Creek JCP&L 50 28.5 6.0
Seneca Penelec 20 16.3 5.4
In 1998, Penelec and New York State Electric & Gas Corporation (NYSEG)
entered into definitive agreements with Edison Mission Energy to sell the Homer
City Station. Also in 1998, the GPU Energy companies entered into definitive
agreements with Sithe Energies and FirstEnergy Corporation to sell substantially
all their remaining fossil-fuel and hydroelectric generating facilities. For
further details, see Note 13, Commitments and Contingencies.
12. LEASES
The GPU Energy companies' capital leases consist primarily of leases for
nuclear fuel. Nuclear fuel capital leases at December 31, 1998 totaled $126
million (JCP&L $85 million; Met-Ed $27 million; Penelec $14 million), net of
amortization of $298 million (JCP&L $177 million; Met-Ed $81 million; Penelec
$40 million). Nuclear fuel capital leases at December 31, 1997 totaled $136
million (JCP&L $79 million; Met-Ed $38 million; Penelec $19 million), net of
amortization of $251 million (JCP&L $151 million; Met-Ed $67 million; Penelec
$33 million).
The GPU Energy companies have nuclear fuel lease agreements with
nonaffiliated fuel trusts. In 1998, the GPU Energy companies refinanced the
Oyster Creek and TMI-1 nuclear fuel leases to provide for aggregate borrowings
of up to $190 million ($90 million for Oyster Creek and $100 million for TMI-1)
outstanding at any one time. Reductions in nuclear fuel financing costs are
expected through the new credit facilities. It is contemplated that when
consumed, portions of the presently leased material will be replaced by
additional leased material. The GPU Energy companies are responsible for the
disposal costs of nuclear fuel leased under these agreements. These nuclear fuel
leases have initial terms of 364 days, and are renewable annually thereafter at
the lender's option. Subject to certain conditions of termination, the GPU
Energy companies are required to purchase all nuclear fuel then under lease at a
price that will allow the lessor to recover its net investment. Lease expense
consists of an amount designed to amortize the cost of the nuclear fuel as
consumed plus interest costs. For the years ended December 31, 1998, 1997 and
1996, these amounts were as follows:
F-88
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Company 1998 1997 1996
- ------- ---- ---- ----
JCP&L $ 35 $ 31 $ 32
Met-Ed 14 12 16
Penelec 6 6 8
----- ----- -----
Total $ 55 $ 49 $ 56
===== ===== =====
Upon the closing of the sale of TMI-1 to AmerGen Energy Company, LLC (AmerGen),
the GPU Energy companies will terminate the related fuel lease and pay all
outstanding amounts due under the related credit facility.
JCP&L and Met-Ed have sold and leased back substantially all of their
respective ownership interests in the Merrill Creek Reservoir project. The
minimum lease payments under these operating leases, which have remaining terms
of 35 years, average approximately $3 million annually for each company. JCP&L
and Met-Ed have agreed to sublease a portion of the Merrill Creek project to
Sithe Energies and are currently investigating the extent to which they may be
able to sublet additional interests in Merrill Creek. Management believes JCP&L
and Met-Ed's remaining liability is a recoverable stranded cost. There can be no
assurance as to the outcome of this matter.
A subsidiary of GPU International has sold and leased back an electric
cogeneration facility for an initial term of eleven years. For the years 1998,
1997 and 1996, the annual lease payments under this operating lease were
approximately $11.5 million, $10 million and $10 million, respectively. The
lease payments escalate annually, increasing to $16 million in year eleven.
13. COMMITMENTS AND CONTINGENCIES
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
---------------------------------------------------
The Emerging Competitive Market and Stranded Costs:
- ---------------------------------------------------
The current market price of electricity being below the cost of some
utility-owned generation and power purchase commitments, combined with the
ability of some customers to choose their energy suppliers, has created stranded
costs in the electric utility industry. These stranded costs, while generally
recoverable in a regulated environment, are at risk in a deregulated and
competitive environment. The PaPUC's Restructuring Orders issued in 1998 granted
Met-Ed and Penelec recovery of a substantial portion of their stranded costs.
New Jersey legislation enacted in 1999, among other things, also provides for
the recovery of stranded costs. See Competitive Environment and Rate Matters
section of Management's Discussion and Analysis.
In 1997, Met-Ed and Penelec filed with the PaPUC their proposed
restructuring plans to implement competition and customer choice in
Pennsylvania. In June 1998, the PaPUC entered restructuring rate orders on the
restructuring plans. As a result of the orders, Met-Ed and Penelec wrote-off in
the second quarter of 1998, $320 million and $150 million pre-tax, respectively.
Following appeals and extended negotiations, in October 1998, the PaPUC adopted
Restructuring Orders, approving the Settlement Agreements
F-89
<PAGE>
GPU, Inc. and Subsidiary Companies
entered into by Met-Ed, Penelec, the PaPUC and all but two of the intervenors in
the restructuring proceedings who have appealed the Restructuring Orders. One of
these appeals remains pending and is scheduled to be heard in April 1999. There
can be no assurance as to the outcome of these appeals. In the third quarter, as
a result of the Restructuring Orders, Met-Ed and Penelec reversed $313 million
and $142 million pre-tax, respectively, of the write-offs recorded in the second
quarter and recorded additional non-recurring charges of $38 million and $58
million pre-tax, for Met-Ed and Penelec, respectively. For additional
information, see Note 5, Accounting for Extraordinary and Non-recurring Items.
In 1997, the NJBPU released Phase II of the Energy Master Plan (NJEMP),
which proposes that New Jersey electric utilities should have an opportunity to
recover their stranded costs associated with generating capacity commitments and
caused by electric retail competition, provided that they attempt to mitigate
these costs.
In 1997, JCP&L filed with the NJBPU its proposed restructuring plan for a
competitive electric marketplace in New Jersey as required by the NJEMP. In this
plan, JCP&L estimated that its total above-market costs related to power
purchase commitments and company-owned generation, on a present value basis, was
$1.6 billion excluding above-market generation costs related to Oyster Creek.
These estimates are subject to significant uncertainties including the future
market price of both electricity and other competitive energy sources, as well
as the timing of when these above-market costs become stranded due to customers
choosing another supplier. JCP&L proposed recovery of its remaining Oyster Creek
plant investment as a regulatory asset, through a nonbypassable charge to
customers. At December 31, 1998, JCP&L's net investment in Oyster Creek was $682
million. Highlights of this plan are presented in the Competitive Environment
and Rate Matters section of Management's Discussion and Analysis.
In 1998, hearings on JCP&L's stranded cost and unbundled rate filings were
completed before an Administrative Law Judge (ALJ) and a recommended decision
was issued. See Competitive Environment and Rate Matters section of Management's
Discussion and Analysis for highlights of the ALJ recommended decision. In 1999,
legislation to deregulate New Jersey's electricity market was enacted which
generally provides for, among other things, customer choice of electric
generation supplier for all consumers beginning no later than August 1, 1999; a
5% rate reduction for all customers beginning August 1, 1999 with another 5%
rate reduction to be phased in over the next three years (which must be
maintained for one year after the end of the three year phase-in); the
aggregation of electric generation service by a government or private
aggregator; the unbundling of customer bills; the ability to recover stranded
costs and the ability to securitize stranded costs. The NJBPU is expected to
issue final decisions on JCP&L's stranded cost, unbundled rate and restructuring
filings in the second quarter of 1999.
The inability of JCP&L to recover its stranded costs in whole or in part
could result in the recording of liabilities for above-market NUG costs,
decommissioning costs, and write-downs of uneconomic generation plant and
regulatory assets recorded in accordance with FAS 71 and EITF Issue 97-4. The
inability to recover these stranded costs could have a material adverse effect
on GPU's results of operations.
F-90
<PAGE>
GPU, Inc. and Subsidiary Companies
In October 1997, GPU announced its intention to begin a process to sell,
through a competitive bid process, up to all of the fossil-fuel and
hydroelectric generating facilities owned by the GPU Energy companies. These
facilities, comprised of 26 operating stations, support organizations and
development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW; Penelec 2,100 MW) of capacity and have a net book value of approximately
$1.1 billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at
December 31, 1998. The net proceeds from the sale will be used to reduce the
capitalization of the respective GPU Energy companies, repurchase GPU, Inc.
common stock, fund previously incurred liabilities in accordance with the
Pennsylvania settlement, and may also be applied to reduce short-term debt,
finance further acquisitions, and to reduce acquisition debt of the GPUI Group.
In August 1998, Penelec and New York State Electric & Gas Corporation
(NYSEG) entered into definitive agreements with Edison Mission Energy to sell
the Homer City Station for a total purchase price of approximately $1.8 billion.
Penelec and NYSEG each own a 50% interest in the station, and will share equally
in the net sale proceeds. The sale, which is subject to various federal and
state regulatory approvals, is expected to be completed in the first quarter of
1999.
In November 1998, the GPU Energy companies entered into definitive
agreements with Sithe Energies and FirstEnergy Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a
total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed
$677 million; Penelec $604 million). The sales are expected to be completed in
mid-1999, subject to the timely receipt of the necessary regulatory and other
approvals.
JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50%
undivided ownership interest in Yards Creek. In December 1998, JCP&L filed a
petition with the NJBPU seeking a declaratory order that, among other things,
PSE&G's right of first refusal to purchase JCP&L's ownership interest at its
current book value under a 1964 agreement between the companies was void and
unenforceable. PSE&G subsequently commenced a lawsuit in New Jersey Superior
Court requesting, among other things, that JCP&L be directed to sell its
ownership interest to PSE&G in accordance with the 1964 agreement as well as
injunctive relief and damages. In January 1999, the Court granted motions filed
by JCP&L and the NJBPU and dismissed PSE&G's complaint on the grounds that the
NJBPU had primary jurisdiction in the matter. Management believes that the fair
market value of JCP&L's ownership interest in Yards Creek is substantially in
excess of its December 31, 1998 book value of $22 million. There can be no
assurance of the outcome of this matter.
Nonutility Generation Agreements:
Pursuant to the mandates of the federal Public Utility Regulatory Policies
Act and state regulatory directives, the GPU Energy companies have been required
to enter into power purchase agreements with NUGs for the purchase of energy and
capacity for remaining periods of up to 22 years. The following table shows
actual payments from 1996 through 1998, and estimated payments from 1999 through
2003.
F-91
<PAGE>
GPU, Inc. and Subsidiary Companies
Payments Under NUG Agreements
-----------------------------
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
* 1996 $730 $370 $168 $192
* 1997 759 384 172 203
* 1998 788 403 174 211
1999 798 399 170 229
2000 816 404 169 243
2001 805 413 166 226
2002 819 425 169 225
2003 827 422 173 232
* Actual.
As of December 31, 1998, NUG facilities covered by agreements having 1,687
MW (JCP&L 918 MW; Met-Ed 364 MW; Penelec 405 MW) of capacity were in service.
While a few of these NUG facilities are dispatchable, most are must-run and
generally obligate the GPU Energy companies to purchase, at the contract price,
the output up to the contract limits.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs, which has
caused the GPU Energy companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The GPU Energy companies'
future supply plan will likely focus on short- to intermediate-term commitments
(one month to three years) during periods of expected high energy price
volatility and reliance on spot market purchases during other periods. The
projected cost of energy from new generation supply sources has also decreased
due to improvements in power plant technologies and lower forecasted fuel
prices. As a result of these developments, the rates under virtually all of the
GPU Energy companies' NUG agreements for facilities currently in operation are
substantially in excess of current and projected prices from alternative
sources.
The 1998 PaPUC Restructuring Orders and the legislation in New Jersey
provide for full recovery of the above-market costs of NUG agreements. The GPU
Energy companies will continue efforts to reduce the above-market costs of these
agreements and will, where beneficial, attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable agreements. There can be no assurance as to the extent to which
these efforts will be successful.
In 1997, the NJBPU approved a Final Settlement which, among other things,
provides for the recovery of costs associated with the buyout of the Freehold
Cogeneration project. The Final Settlement provides for recovery through the
LEAC of buyout costs up to $130 million, and 50% of any costs from $130 million
to $140 million, over a seven-year period for the termination of the Freehold
power purchase agreement. The NJBPU approved the cost recovery on an interim
basis subject to refund, pending further review by the NJBPU. There can be no
assurance as to the outcome of this matter.
F-92
<PAGE>
GPU, Inc. and Subsidiary Companies
In 1998, Met-Ed and Penelec entered into definitive buyout agreements with
two NUG project developers. These agreements are contingent upon Met-Ed and
Penelec obtaining a final and non-appealable PaPUC order allowing for the full
recovery of the buyout payments through retail rates. The Restructuring Orders
established terms and conditions that would enable the buyout agreements to
proceed; however, until appeals to the Restructuring Orders are resolved, there
can be no assurance as to the outcome of these matters.
JCP&L has contracts through 2002 to purchase between 5,250 GWH and 5,450
GWH of electric generation per year at an average annual cost of $410 million.
The prices during this period are estimated to escalate approximately 0.9%
annually on a unit cost (cents/KWH) basis. From 2003 through 2008, JCP&L has
contracts to purchase between 5,000 GWH and 5,300 GWH of electric generation per
year at an average annual cost of $429 million. The prices during this period
are estimated to escalate approximately 1.9% annually. After 2008, when major
contracts begin to expire, purchases steadily decline to approximately 1,180 GWH
in 2014. The contract unit cost is estimated to escalate approximately 2.6%
annually from 2009 through 2014, with a total average annual cost of $229
million during this period. All of JCP&L's contracts will have expired by the
end of 2020.
Met-Ed has contracts through 2008 to purchase between 2,200 GWH and 2,400
GWH of electric generation per year at an average annual cost of $173 million.
The prices during this period are estimated to escalate approximately 2.0%
annually on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to
purchase between 1,800 GWH and 2,200 GWH of electric generation per year at an
average annual cost of $173 million. During this period, the prices are
estimated to decrease approximately 0.7% annually on a unit cost basis. After
2012, Met-Ed's remaining contracts expire rapidly through 2016; thereafter, they
remain constant until the expiration of the last contract in 2020.
Penelec has contracts through 2010 to purchase between 3,250 GWH and 3,500
GWH of electric generation per year at an average annual cost of $237 million.
The prices during this period are estimated to escalate approximately 1.2%
annually on a unit cost basis. From 2011 through 2018, purchases decline from
approximately 2,600 GWH to approximately 1,350 GWH in 2018. The contract unit
cost is estimated to decrease approximately 0.1% annually from 2011 through
2018, with a total average annual cost of $154 million during this period. After
2018, Penelec's remaining contracts expire rapidly through 2020.
The GPU Energy companies are recovering certain of their NUG costs
(including certain buyout costs) from customers. The Restructuring Orders
provide assurance of full recovery of these costs for Met-Ed and Penelec. Met-Ed
and Penelec recorded a liability of $1.8 billion (Met-Ed $0.8 million; Penelec
$1.0 million) for their above-market NUG costs, which is fully offset by
Regulatory assets, net on the Consolidated Balance Sheets. The restructuring
legislation in New Jersey includes provisions for the recovery of costs under
NUG agreements and NUG buyout costs. (See Competitive Environment and Rate
Matters section, Management's Discussion and Analysis for additional
discussion.)
F-93
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GPU, Inc. and Subsidiary Companies
Regulatory assets, net:
- -----------------------
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which,
among other things, essentially remove from regulation the costs associated with
providing electric generation service to Pennsylvania consumers, effective
January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the
application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4
with respect to their electric generation operations. The transmission and
distribution portion of Met-Ed and Penelec's operations will continue to be
subject to the provisions of FAS 71. See Note 5, Accounting for Extraordinary
and Non-recurring Items.
JCP&L expects to discontinue the application of FAS 71 and adopt FAS 101
and EITF Issue 97-4 for its electric generation operations no later than its
receipt of NJBPU approval of its restructuring plans, which is expected in the
second quarter of 1999.
Regulatory assets, net as reflected in the December 31, 1998 and 1997
Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF
Issue 97-4 were as follows:
GPU, Inc. and Subsidiaries (in thousands)
- -------------------------- --------------
1998 1997
---- ----
Competitive transition charge per PaPUC Order $1,023,815 $ -
========= =========
Other regulatory assets, net:
Reserve for generation divestiture (JCP&L) $ 136,804 $ -
Phase II reserve for
generation divestiture (Met-Ed and Penelec) 1,356,580 -
Income taxes recoverable through future rates 449,638 510,680
Income taxes refundable through future rates (52,701) (89,247)
Net investment in TMI-2 65,787 83,951
TMI-2 decommissioning costs 119,571 257,180
Nonutility generation contract buyout costs 123,208 245,568
Unamortized property losses 80,287 99,532
Other postretirement benefits 73,770 89,569
Environmental remediation 50,214 90,308
N.J. unit tax 33,244 39,797
Unamortized loss on reacquired debt 32,247 40,489
Load and demand-side management programs 12,568 23,164
DOE enrichment facility decommissioning 28,956 33,472
Nuclear fuel disposal fee 21,092 21,512
Storm damage 30,166 31,097
Deferred nonutility generation costs
not in current rates (16,067) 24,857
Future nonutility generation costs not in CTC 369,290 -
Public utility realty taxes (PURTA) 8,060 -
Other regulatory liabilities (50,319) (13,959)
Other regulatory assets 10,018 59,508
--------- ---------
Total other regulatory assets, net $2,882,413 $1,547,478
========= =========
F-94
<PAGE>
GPU, Inc. and Subsidiary Companies
JCP&L
- -----
(in thousands)
--------------
1998 1997
---- ----
Other regulatory assets, net:
Reserve for generation divestiture $ 136,804 $ -
Income taxes recoverable through future rates 172,752 128,111
Income taxes refundable through future rates (35,535) (37,759)
Net investment in TMI-2 65,787 75,541
TMI-2 decommissioning costs 19,192 30,024
Nonutility generation contract buyout costs 120,708 140,500
Unamortized property losses 80,287 94,726
Other postretirement benefits 46,486 49,807
Environmental remediation 50,214 61,324
N.J. unit tax 33,244 39,797
Unamortized loss on reacquired debt 25,981 28,729
Load and demand-side management programs 12,568 23,164
DOE enrichment facility decommissioning 18,049 21,223
Nuclear fuel disposal fee 21,092 23,781
Storm damage 30,166 31,097
Other regulatory liabilities (49,840) (11,467)
Other regulatory assets 5,930 37,878
--------- ---------
Total other regulatory assets, net $ 753,885 $ 736,476
========= =========
Met-Ed
- ------
Competitive transition charge per PaPUC Order $ 680,213 $ -
========= =========
Other regulatory assets, net:
Phase II reserve for
generation divestiture $ 421,807 $ -
Income taxes recoverable through future rates 133,585 178,927
Income taxes refundable through future rates (10,804) (21,749)
Net investment in TMI-2 - 1,187
TMI-2 decommissioning costs 68,091 145,103
Nonutility generation contract buyout costs 2,500 76,368
Unamortized property losses - 2,650
Other postretirement benefits 27,284 39,762
Environmental remediation - 4,121
Unamortized loss on reacquired debt 3,023 5,329
DOE enrichment facility decommissioning 7,409 8,166
Nuclear fuel disposal fee - (1,511)
Deferred nonutility generation costs
not in current rates (7,746) 10,265
Future nonutility generation costs not in CTC 271,270 -
Public utility realty taxes (PURTA) 3,699 -
Other regulatory liabilities (83) (2,446)
Other regulatory assets 1,899 4,515
--------- ---------
Total other regulatory assets, net $ 921,934 $ 450,687
========= =========
F-95
<PAGE>
GPU, Inc. and Subsidiary Companies
Penelec (in thousands)
- ------- --------------
1998 1997
---- ----
Competitive transition charge per PaPUC Order $ 343,602 $ -
========= =========
Other regulatory assets, net:
Phase II reserve for
generation divestiture 934,773 -
Income taxes recoverable through future rates 143,301 203,642
Income taxes refundable through future rates (6,362) (29,739)
Net investment in TMI-2 - 7,223
TMI-2 decommissioning costs 32,288 82,053
Nonutility generation contract buyout costs - 28,700
Unamortized property losses - 2,156
Environmental remediation - 24,863
Unamortized loss on reacquired debt 3,243 6,431
DOE enrichment facility decommissioning 3,498 4,083
Nuclear fuel disposal fee - (758)
Deferred nonutility generation costs
not in current rates (8,321) 14,592
Future nonutility generation costs not in CTC 98,020 -
Public utility realty taxes (PURTA) 4,361 -
Other regulatory liabilities (396) (46)
Other regulatory assets 2,189 17,115
--------- ---------
Total other regulatory assets, net $1,206,594 $ 360,315
========= =========
Competitive transition charge: Represents the stranded cost recovery amounts
allowed by the PaPUC, which are to be collected from customers of Met-Ed and
Penelec, beginning January 1, 1999, over 12-year and 11-year transition periods,
respectively, except for above-market NUG costs which will be recovered over the
lives of the related power purchase contracts. The CTC amounts will be adjusted
in a Phase II rate restructuring order, after divestiture of the generation
assets is complete. Stranded costs, as defined by the Pennsylvania Customer
Choice Act, include an electric utility's known and measurable
generation-related costs, which would have been recoverable in the former
regulated market, but are not recoverable in a competitive electric generation
market.
Reserve for generation divestiture (JCP&L): Represents generation divestiture
shortfall which is probable of recovery in future rates, inclusive of
divestiture transaction costs.
Phase II reserve for generation divestiture (Met-Ed and Penelec): Represents
generation divestiture CTC shortfall to be addressed in a Phase II rate
restructuring order, inclusive of future closure costs of various ash disposal
sites; amounts related to the remediation of Penelec's Seward station property;
costs for a voluntary enhanced retirement program offered to all or certain
Genco employees; certain income tax-related items; and divestiture transaction
costs.
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in
1993.
F-96
<PAGE>
GPU, Inc. and Subsidiary Companies
Net investment in TMI-2: Represents costs that are recoverable through rates for
the GPU Energy companies' remaining investment in the plant and fuel core.
TMI-2 decommissioning costs: Represents costs that are recoverable through rates
for the GPU Energy companies' radiological decommissioning and the cost of
removal of nonradiological structures and materials in accordance with the 1995
site-specific study (in 1998 dollars). For additional information, see Nuclear
Plant Retirement Costs.
Nonutility generation contract buyout costs: Represents amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has been
granted or is probable.
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River project, which are included in rates.
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which are deferred in accordance with EITF Issue 92-12, "Accounting
for OPEB Costs by Rate-Regulated Enterprises."
Environmental remediation: Consists of amounts related to the investigation and
remediation of several manufactured gas plant sites formerly owned by JCP&L, as
well as several other JCP&L sites; Penelec's Seward station property; and future
closure costs of various ash disposal sites for the GPU Energy companies. For
additional information, see Environmental Matters.
N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L
received NJBPU approval in 1993 to recover over a ten-year period.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC regulations,
reacquired debt costs are amortized over the remaining original life of the
retired debt.
Load and demand-side management (DSM) programs: Consists of load management
costs and other DSM program expenditures that are currently being recovered,
with interest, through JCP&L's retail base rates and demand-side factor. Also
includes provisions for lost revenues between base rate cases and performance
incentives.
Department of Energy (DOE) enrichment facility decommissioning: Represents
payments to the DOE over a 15-year period which began in 1994.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1
in accordance with the Nuclear Waste Policy Act of 1982 (NWPA).
Storm damage: Relates to incremental noncapital costs associated with various
storms in the JCP&L service territory that are not recoverable through
insurance. These amounts were deferred based upon past rate recovery precedent.
An annual amortization amount is included in JCP&L's retail base rates and is
charged to expense.
F-97
<PAGE>
GPU, Inc. and Subsidiary Companies
Deferred nonutility generation costs not in current rates: Represents NUG
operating costs which are not reflected in Met-Ed and Penelec's current rates,
for which rate recovery has been assured (see Management's Discussion and
Analysis - Competitive Environment and Rate Matters).
Future nonutility generation costs not in CTC: Represents future NUG operating
costs which are not presently included in Met-Ed and Penelec's CTC, for which
recovery has been assured. The amounts collected will be adjusted every five
years over the life of each NUG contract.
Public utility realty taxes (PURTA): Represents additional assessments under the
public utility realty tax, which are recoverable through Met-Ed and Penelec's
state tax adjustment surcharges.
ACCOUNTING MATTERS
------------------
In 1998, Statement of Financial Accounting Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was issued. FAS
133 requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value. To
comply with this statement, GPU will be required to include its derivative
transactions on its balance sheet at fair value, and recognize the subsequent
changes in fair value as either gains or losses in earnings or report them as a
component of other comprehensive income, depending upon the intended use and
designation of the derivative as a hedge. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. GPU expects to
adopt this statement in the first quarter of 2000. GPU is in the process of
evaluating the impact of FAS 133.
In 1998, the FASB's EITF issued guidance on accounting for energy
contracts with EITF Issue 98-10, "Accounting for Energy Trading and Risk
Management Activities," which is effective for fiscal years beginning after
December 15, 1998. EITF Issue 98-10 addresses whether certain types of contracts
for the sale and purchase of energy commodities should be marked to market or
accounted for under accrual accounting. GPU will adopt EITF Issue 98-10 in the
first quarter of 1999. The adoption of EITF Issue 98-10 is not expected to have
a material impact on GPU's financial position or results of operations.
FAS 121 requires that regulatory assets meet the recovery criteria of FAS
71 on an ongoing basis in order to avoid a write-down. In addition, FAS 121
requires that long-lived assets, identifiable intangibles, capital leases and
goodwill be reviewed for impairment whenever events occur or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. FAS 121 also requires the recognition of impairment losses when the
carrying amounts of those assets are greater than the estimated cash flows
expected to be generated from the use and eventual disposition of the assets.
The restructuring proceeding in New Jersey could result in substantial
disallowance of certain capital additions; the disallowance of certain stranded
costs; reduction in cost of capital allowances on certain elements of plant and
cost deferrals; and tariff rate unbundling reflecting an allocation of costs to
the transmission and distribution activities lower than that
F-98
<PAGE>
GPU, Inc. and Subsidiary Companies
proposed by JCP&L. Management believes that the outcome of that proceeding could
have a material adverse effect on GPU's future earnings.
NUCLEAR FACILITIES
------------------
The GPU Energy companies have made investments in three major nuclear
projects -- TMI-1 and Oyster Creek, both of which are operating generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2
are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50%
and 25%, respectively. Oyster Creek is owned by JCP&L. At December 31, 1998 and
1997, the GPU Energy companies' net investment in TMI-1 and Oyster Creek,
including nuclear fuel, was as follows:
Net Investment (in millions)
----------------------------
TMI-1 Oyster Creek
----- ------------
1998
----
JCP&L $ 18 $682
Met-Ed 36 -
Penelec 17 -
--- ---
Total $ 71 $682
=== ===
1997
----
JCP&L $155 $701
Met-Ed 300 -
Penelec 147 -
--- ---
Total $602 $701
=== ===
The GPU Energy companies' net investment in TMI-2 at December 31, 1998 was
$66 million for JCP&L and $84 million, (JCP&L $76 million, Met-Ed $1 million;
Penelec $7 million) at December 31, 1997. JCP&L is collecting revenues for TMI-2
on a basis which provides for the recovery of its remaining investment in the
plant by 2008. In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders,
discontinued the application of FAS 71 and adopted the provisions of FAS 101 and
EITF Issue 97-4 with respect to their electric generation operations.
Accordingly, Met-Ed and Penelec wrote-off their remaining investment in TMI-2 of
$1 million and $7 million, respectively.
Costs associated with the operation, maintenance and retirement of nuclear
plants have continued to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. The GPU Energy companies may also incur costs and experience
reduced output at their nuclear plants because of the prevailing design criteria
at the time of construction and the age of the plants' systems and equipment. In
addition, for economic or other reasons, operation of these plants for the full
term of their operating licenses cannot be assured. Also, not all risks
associated with the ownership or operation of
F-99
<PAGE>
GPU, Inc. and Subsidiary Companies
nuclear facilities may be adequately insured or insurable. Consequently, the
recovery of costs associated with nuclear projects, including replacement power,
any unamortized investment at the end of each plant's useful life (whether
scheduled or premature), the carrying costs of that investment and retirement
costs, is not assured. (See Competition and the Changing Regulatory
Environment.)
In addition to the continued operation of the Oyster Creek facility, JCP&L
has been exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. GPU does not anticipate making a final
decision on the plant before the NJBPU rules on JCP&L's restructuring filing. If
a decision is made to retire the plant early, retirement would likely occur in
2000. Although management believes that the current rate structure would allow
for the recovery of and return on its net investment in the plant and provide
for decommissioning costs, there can be no assurance that such costs will be
fully recoverable. (See Management's Discussion and Analysis - Competitive
Environment and Rate Matters.)
In October 1998, GPU entered into definitive agreements to sell TMI-1 to
AmerGen, a joint venture between PECO Energy and British Energy. Highlights of
the agreements are presented in the Competitive Environment and Rate Matters
section of Management's Discussion and Analysis.
TMI-2:
- ------
As a result of the 1979 TMI-2 accident, individual claims for alleged
personal injury (including claims for punitive damages), which are material in
amount, were asserted against GPU, Inc. and the GPU Energy companies.
Approximately 2,100 of such claims were filed in the United States District
Court for the Middle District of Pennsylvania. Some of the claims also seek
recovery for injuries from alleged emissions of radioactivity before and after
the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies had (a) primary financial protection in the form
of insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating plan
providing for up to an aggregate of $335 million in premium charges under such
plan, and (c) an indemnity agreement with the Nuclear Regulatory Commission
(NRC) for up to $85 million, bringing their total financial protection up to an
aggregate of $560 million. Under the secondary level, the GPU Energy companies
are subject to a retrospective premium charge of up to $5 million per reactor,
or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5
million).
In 1995, the U.S. Court of Appeals for the Third Circuit ruled that the
Price-Anderson Act provides coverage under its primary and secondary levels for
punitive as well as compensatory damages, but that punitive damages could not be
recovered against the Federal Government under the third level of financial
protection. In so doing, the Court of Appeals referred to the "finite fund" (the
$560 million of financial protection under the Price-Anderson Act) to which
plaintiffs must resort to get compensatory as well as punitive damages.
F-100
<PAGE>
GPU, Inc. and Subsidiary Companies
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
In 1996, the District Court granted a motion for summary judgment filed by
GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100 pending
claims. The Court ruled that there was no evidence which created a genuine issue
of material fact warranting submission of plaintiffs' claims to a jury. The
plaintiffs have appealed the District Court's ruling to the Court of Appeals for
the Third Circuit, before which the matter is pending. There can be no assurance
as to the outcome of this litigation.
Based on the above, GPU, Inc. and the GPU Energy companies believe that any
liability to which they might be subject by reason of the TMI-2 accident will
not exceed their financial protection under the Price-Anderson Act.
NUCLEAR PLANT RETIREMENT COSTS
------------------------------
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the DOE.
In 1990, the GPU Energy companies submitted a report, in compliance with
NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this plan,
the GPU Energy companies intend to complete the funding for Oyster Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The
TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in
long-term storage and being decommissioned at the same time as TMI-1. Based on
NRC studies, a comparable funding target was developed for TMI-2 which took the
accident into account. Under the NRC regulations, the funding targets (in 1998
dollars) for TMI-1, TMI-2, and Oyster Creek are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
JCP&L $ 67 $106 $328
Met-Ed 134 214 -
Penelec 67 106 -
--- --- ---
Total $268 $426 $328
=== === ===
The funding targets, while not considered cost estimates, are reference levels
designed to assure that licensees demonstrate adequate financial responsibility
for decommissioning. While the NRC regulations address
F-101
<PAGE>
GPU, Inc. and Subsidiary Companies
activities related to the removal of the radiological portions of the plants,
they do not address costs related to the removal of nonradiological structures
and materials.
A consultant to GPUN performed site-specific studies of TMI-1 (1995), TMI-2
(1995) and Oyster Creek (1995 and 1998), that considered various decommissioning
methods and estimated the cost of decommissioning the radiological portions and
the cost of removal of the nonradiological portions of each plant, using the
prompt removal/dismantlement method. GPUN management has reviewed the
methodology and assumptions used in these studies, is in agreement with them,
and believes the results are reasonable. The NRC may require an acceleration of
the decommissioning funding for Oyster Creek if the plant is retired early. The
retirement cost estimates under the site-specific studies, assuming
decommissioning at the end of the plants' license terms, are as follows (in 1998
dollars):
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
Radiological decommissioning $346 $421 $572
Nonradiological cost of removal 85 34 * 31
--- --- ---
Total $431 $455 $603
=== === ===
* Net of $12.3 million spent as of December 31, 1998.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage.
The 1995 Oyster Creek site-specific study was updated in response to the
previously announced potential early closure of the plant in the year 2000. An
early shutdown would increase the retirement costs shown above to $611 million
($580 million for radiological decommissioning and $31 million for
nonradiological cost of removal). Both estimates include substantial spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982 (see Other Commitments and Contingencies).
In October 1998, GPU entered into definitive agreements to sell TMI-1 to
AmerGen. The agreements provide, among other things, that upon closing, the GPU
Energy companies will fund the TMI-1 decommissioning trusts up to $320 million
and AmerGen will assume all TMI-1 decommissioning liabilities. If all the
necessary regulatory approvals, as well as certain Internal Revenue Service
rulings, are obtained, the transfer of all the TMI-1 decommissioning liabilities
and expenses to AmerGen will take place at the financial closing.
The ultimate cost of retiring the GPU Energy companies' nuclear facilities
may be different from the cost estimates contained in these site-specific
studies. Such costs are subject to (a) the escalation of various cost elements
(for reasons including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability of
nuclear waste disposal facilities.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Customer
F-102
<PAGE>
GPU, Inc. and Subsidiary Companies
collections are contributed to external trust funds. These deposits, including
the related earnings, are classified as Nuclear decommissioning trusts, at
market on the Consolidated Balance Sheets.
TMI-1 and Oyster Creek:
The Final Settlement approved by the NJBPU in 1997 has granted JCP&L annual
revenues for TMI-1 and Oyster Creek retirement costs of $5.2 million and $22.5
million, respectively. These annual revenues are based on the 1995 site-specific
study estimates.
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of
$8.5 million based on both the NRC funding target for radiological
decommissioning costs and the 1988 site-specific study for nonradiological costs
of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for
its share of TMI-1 retirement costs, on a basis consistent with that granted
Met-Ed. In the Restructuring Orders, the PaPUC granted recovery of an interim
level of TMI-1 decommissioning costs as part of the CTC. This amount will be
adjusted in Phase II of Met-Ed and Penelec's restructuring proceedings, once the
net proceeds from the generation asset divestiture are determined.
The amounts charged to depreciation expense in 1998 and the provisions for
the future expenditure of these funds, which have been made in accumulated
depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
----- -----
Amount expensed in 1998:
JCP&L $ 5 $ 22
Met-Ed 9 -
Penelec 4 -
--- ---
Total $ 18 $ 22
=== ===
Accumulated depreciation
provision at December 31, 1998:
JCP&L $ 49 $273
Met-Ed 74 -
Penelec 35 -
--- ---
Total $158 $273
=== ===
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable from customers.
TMI-2:
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, 1998 and 1997 are as follows:
F-103
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
1998 $484 $121 $242 $121
1997 $449 $112 $225 $112
These amounts are based upon the 1995 site-specific study estimates (in 1998 and
1997 dollars, respectively) discussed above and an estimate for remaining
incremental monitored storage costs of $29 million (JCP&L $7 million; Met-Ed $15
million; Penelec $7 million ) for 1998 and $16 million (JCP&L $4 million; Met-Ed
$8 million; Penelec $4 million) for 1997, as a result of TMI-2's entering
long-term monitored storage in 1993. The GPU Energy companies are incurring
annual incremental monitored storage costs of approximately $1.8 million (JCP&L
$450 thousand; Met-Ed $900 thousand ; Penelec $450 thousand).
Offsetting the $484 million liability at December 31, 1998 is $252 million
(JCP&L $23 million; Met-Ed $147 million; Penelec $82 million) which management
believes is probable of recovery from customers and included in Regulatory
assets, net on the Consolidated Balance Sheets, and $266 million (JCP&L $103
million; Met-Ed $120 million; Penelec $43 million) in trust funds for TMI-2 and
included in Nuclear decommissioning trusts, at market on the Consolidated
Balance Sheets. Earnings on trust fund deposits are included in amounts shown on
the Consolidated Balance Sheets under Regulatory assets, net. TMI-2
decommissioning costs charged to depreciation expense in 1998 amounted to $13
million (JCP&L $2 million; Met-Ed $10 million; Penelec $1 million).
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific estimates. In addition, JCP&L is recovering its share of
TMI-2's incremental monitored storage costs. The PaPUC Restructuring Orders
granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of
the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset
those amounts that are above the level provided for in the CTC.
At December 31, 1998, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $75 million (JCP&L $19 million; Met-Ed
$37 million; Penelec $19 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1998 dollars). In connection
with rate case resolutions at the time, JCP&L, Met-Ed and Penelec have made
contributions to irrevocable external trusts relating to their shares of the
accident-related portions of the decommissioning liability in the amounts of $15
million, $40 million and $20 million, respectively. These contributions were not
recoverable from customers and have been expensed. The GPU Energy companies will
not pursue recovery from customers for any amounts contributed in excess of the
$75 million accident-related portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs,
and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
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INSURANCE
---------
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages, some of which will change as certain
generating assets are sold. Losses or liabilities that are not completely
insured, unless allowed to be recovered through ratemaking, could have a
material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations, these insurance policies
generally require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination and debris removal expenses. Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $9.8 billion. Coverage for
the first $200 million of such liability is provided by private insurance. The
remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could result
in assessments of up to $88 million per incident for each of the GPU Energy
companies' two operating reactors, subject to an annual maximum payment of $10
million per incident per reactor. In addition to the retrospective premiums
payable under the Price-Anderson Act, the GPU Energy companies are also subject
to retrospective premium assessments of up to $26.8 million (JCP&L $16.9
million; Met-Ed $6.6 million; Penelec $3.3 million) in any one year under
insurance policies applicable to nuclear operations and facilities.
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after a 17-week waiting period at $3.5
million per week, and after 23 weeks of an outage, continues for three years
beginning at $1.8 million and $2.6 million per week for the first year for
Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for
years two and three.
ENVIRONMENTAL MATTERS
---------------------
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but not
limited to acid rain, water quality, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
F-105
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used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
To comply with Titles I and IV of the federal Clean Air Act Amendments of
1990 (Clean Air Act), the GPU Energy companies have spent $242 million (JCP&L
$44 million; Met-Ed $95 million; Penelec $103 million) to date. Effective
November 1997, the Pennsylvania Environmental Quality Board adopted regulations
implementing the NOx reductions proposed by the Ozone Transport Commission
(OTC), and in December 1997, the New Jersey Department of Environmental
Protection developed a proposal with the electric utility industry on a plan to
implement the OTC's proposed NOx reductions. The GPU Energy companies expect
that the U.S. Environmental Protection Agency (EPA) will approve these state
implementation plans, and that as a result, they would expect to spend an
estimated $0.6 million (JCP&L $30 thousand; Met-Ed $340 thousand; Penelec $200
thousand) in 1999 to meet the seasonal reductions agreed upon by the OTC. In
July 1997 and October 1998 the EPA adopted new, more stringent rules on ozone
and particulate matter. Several groups have filed suit in the U.S. Court of
Appeals to overturn these new air quality standards on the grounds that, among
other things, they are based on inadequate scientific evidence. The GPU Energy
companies are unable to determine what additional costs, if any, will be
incurred if the EPA rules are upheld. Moreover, the timing and amounts of
expenditures under the Clean Air Act will be dependent upon the timing of the
sales of the related generating facilities.
GPU has been formally notified by the EPA and state environmental
authorities that it is among the potentially responsible parties (PRPs) who may
be jointly and severally liable to pay for the costs associated with the
investigation and remediation at hazardous and/or toxic waste sites (in some
cases, more than one company is named for a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
----- ------ ------- ---- --------- -----
8 4 2 1 1 13
In addition, certain of the GPU companies have been requested to participate in
the remediation or supply information to the EPA and state environmental
authorities on several other sites for which they have not been formally named
as PRPs, although the EPA and state authorities may nevertheless consider them
as PRPs. Certain of the GPU companies have also been named in lawsuits
requesting damages (which are material in amount) for hazardous and/or toxic
substances allegedly released into the environment. The ultimate cost of
remediation will depend upon changing circumstances as site investigations
continue, including (a) the existing technology required for site cleanup, (b)
the remedial action plan chosen and (c) the extent of site contamination and the
portion attributed to the GPU companies involved.
In 1997, the EPA filed a complaint against GPU, Inc. in the United States
District Court for the District of Delaware for enforcement of its unilateral
order issued against GPU, Inc. to clean up the former Dover Gas Light Company
(Dover) manufactured gas production site in Dover, Delaware. Dover was part of
the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc. emerged
from the AGECO/AGECORP reorganization proceedings. All of the common stock of
Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated
entity, and was subsequently acquired by Chesapeake Utilities Corporation
(Chesapeake). According to the complaint, the EPA is seeking up
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GPU, Inc. and Subsidiary Companies
to $0.5 million in past costs, $4.2 million for work in connection with the
cleanup of the Dover site and approximately $19 million in penalties. GPU, Inc.
has responded to the EPA complaint stating that such claims should be dismissed
because, among other things, they are barred by the operation of the Final
Decree entered by the United States District Court for the Southern District of
New York at the conclusion of the 1946 reorganization proceedings of
AGECO/AGECORP. Chesapeake has also sued GPU, Inc. for a contribution to the
cleanup of the Dover site. In December 1997, the Court refused to dismiss the
complaint; GPU, Inc. has requested that the Court reconsider its decision. The
parties continue to engage in settlement discussions. There can be no assurance
as to the outcome of these proceedings.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP) that
contaminants from coal mine refuse piles were identified in storm water run-off
at Penelec's Seward station property. Penelec signed a modified Consent Order,
which became effective December 1996, that establishes a schedule for submitting
a plan for long-term remediation, based on future operating scenarios. Penelec
currently estimates that the remediation of the Seward station property will
range from $12 million to $20 million and has a recorded liability of $12
million at December 31, 1998. These cost estimates are subject to uncertainties
based on continuing discussions with the PaDEP as to the method of remediation,
the extent of remediation required and available cleanup technologies. Penelec
expects recovery of these remediation costs in Phase II of its restructuring
proceeding and has recorded a corresponding regulatory asset of approximately
$12 million at December 31, 1998.
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven operating ash disposal sites, including projected site
closure procedures and related cost estimates. The cost estimates for the
closure of these sites range from approximately $17 million to $22 million, and
a liability of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12
million) is reflected on the Consolidated Balance Sheets at December 31, 1998.
JCP&L has requested recovery of its share of closure costs in its restructuring
plan filed with the NJBPU in July 1997. Met-Ed and Penelec expect recovery of
these costs in Phase II of their restructuring proceedings. As a result, a
regulatory asset of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec
$12 million) is reflected on the Consolidated Balance Sheets at December 31,
1998.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly
owned MGP sites. JCP&L has also entered into various cost-sharing agreements
with other utilities for most of the sites. As of December 31, 1998, JCP&L has
spent approximately $32 million in connection with the cleanup of these sites.
In addition, JCP&L has recorded an estimated environmental liability of $52
million relating to expected future costs of these sites (as well as two other
properties). This estimated liability is based upon ongoing site investigations
and remediation efforts, which generally involve capping the sites and pumping
and treatment of ground water. Moreover, the cost to clean up these sites could
be materially in excess of $52 million due to significant uncertainties,
including changes in acceptable remediation methods and technologies.
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GPU, Inc. and Subsidiary Companies
In 1997, JCP&L's request to establish a Remediation Adjustment Clause for
the recovery of MGP remediation costs was approved by the NJBPU as part of the
Final Settlement. At December 31, 1998, JCP&L had recorded on its Consolidated
Balance Sheet a regulatory asset of $44 million. JCP&L is continuing to pursue
reimbursement from its insurance carriers for remediation costs already spent
and for future estimated costs. In 1994, JCP&L filed a complaint with the
Superior Court of New Jersey against several of its insurance carriers, relative
to these MGP sites. Pretrial discovery is continuing.
OTHER COMMITMENTS AND CONTINGENCIES
-----------------------------------
GPUI Group:
- -----------
At December 31, 1998, the GPUI Group had investments totaling approximately
$1.2 billion in businesses and facilities located in foreign countries. Although
management attempts to mitigate the risk of investing in certain foreign
countries by securing political risk insurance, the GPUI Group faces additional
risks inherent to operating in such locations, including foreign currency
fluctuations (see Management's Discussion and Analysis - GPUI Group).
At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was
$590 million; GPU, Inc. has also guaranteed up to an additional $761 million of
GPUI Group obligations. Of this amount, $735 million is included in Long-term
debt and Securities due within one year on GPU's Consolidated Balance Sheet at
December 31, 1998, and $26 million relates to various other obligations of the
GPUI Group.
Midlands has invested in a power project in Pakistan (Uch Power Project)
which was originally scheduled to begin commercial operation in late 1998. The
Uch Power Project is a 586 MW facility of which Midlands is a 40% owner.
Construction of the Uch Power Project is complete, but commercial operation has
been delayed pending resolution of a dispute with the Pakistani government. In
July 1998, the Pakistani government-owned utility issued a notice of intent to
terminate certain key project agreements. The notice asserted that various forms
of corruption were involved in the original granting of the agreements to the
Uch investors by the predecessor Pakistani government. The Uch investors,
including Midlands, strongly deny the allegations and are continuing to explore
remedies to the situation. GPU Electric believes that similar notices were
received by a number of other independent power projects in Pakistan. In
December 1998, the Pakistani government offered to withdraw these notices.
Through its 50% ownership in Midlands, GPU Electric's current investment in
the Uch Power Project is approximately $32 million, and project lenders could
require GPU Electric to make additional capital contributions to the project of
approximately $12 million under certain conditions. There can be no assurance as
to the outcome of this matter.
Lake Cogen, Ltd. (Lake), an independent power project owned by GPU
International, is pursuing legal proceedings against Florida Power Corporation
(FPC) to resolve an ongoing disagreement involving the pricing under the power
purchase agreement between Lake and FPC. GPU International's total investment
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GPU, Inc. and Subsidiary Companies
in Lake, including guaranteed lease payments, is approximately $21 million. A
court decision is expected in February 1999. There can be no assurance as to the
outcome of this proceeding.
Other:
- ------
GPU's capital programs, for which substantial commitments have been incurred
and which extend over several years, contemplate expenditures of $436 million
(JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $58 million)
during 1999.
The GPU Energy companies have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain generating
stations in which they have ownership interests. The contracts, which expire at
various dates between 1999 and 2007, require the purchase of either fixed or
minimum amounts of the stations' coal requirements. The price of the coal under
the contracts is based on adjustments of indexed cost components. The GPU Energy
companies' share of the cost of coal purchased under these agreements is
expected to aggregate $212 million (JCP&L $27 million; Met-Ed $57 million;
Penelec $128 million) for 1999. These contracts will be assumed by Sithe
Energies, upon the closing of its purchase of the GPU Energy companies' fossil
generation facilities.
JCP&L has entered into agreements with other utilities to purchase capacity
and energy for various periods through 2004. These agreements provide for up to
629 MW in 1999, declining to 445 MW in 2000 through 2003 and 345 MW in 2004 when
the final agreement expires. Payments pursuant to these agreements are estimated
to be $114 million in 1999, $91 million in 2000, $99 million in 2001, $109
million in 2002, $113 million in 2003 and $48 million in 2004.
In accordance with the NWPA, the GPU Energy companies have entered into
contracts with, and have been paying fees to, the DOE for the future disposal of
spent nuclear fuel in a repository or interim storage facility. Following its
purchase of TMI-1, AmerGen will assume liabilities for disposal costs related to
spent fuel generated after the sale. In 1996, the DOE notified the GPU Energy
companies and other standard contract holders that it will be unable to begin
acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA.
The DOE requested recommendations from contract holders for handling the delay.
In January 1997, the GPU Energy companies, along with other electric utilities
and state agencies, petitioned the U.S. Court of Appeals to, among other things,
permit utilities to cease payments into the Federal Nuclear Waste Fund until the
DOE complies with the NWPA. In November 1997, the Court denied this request. The
DOE's inability to accept spent nuclear fuel could have a material impact on
GPU's results of operations, as additional costs may be incurred to build and
maintain interim on-site storage at Oyster Creek. TMI-1 has sufficient on-site
storage capacity to accommodate spent nuclear fuel through the end of its
licensed life. In June 1997, a consortium of electric utilities, including GPUN,
filed a license application with the NRC seeking permission to build an interim
above-ground disposal facility for spent nuclear fuel in northwestern Utah.
There can be no assurance as to the outcome of these matters.
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GPU, Inc. and Subsidiary Companies
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
was expected to commence operation by the end of 2003. GPUN's total share of the
cost for developing, constructing and site licensing the facility was estimated
to be $58 million. Through December 31, 1998, GPUN has made payments of $6
million. JCP&L is recovering the costs to construct this facility from
customers, and $27 million has been collected to date. In February 1998, the New
Jersey Low-Level Radwaste Facility Siting Board (Siting Board) voted to suspend
the siting process in New Jersey. The Siting Board is in the process of
determining what activities are required by law to be continued, and the level
of funding required to support these activities. The Siting Board intended to
return the unused funds to the generators, but the Governor has overruled this
decision. Legislation is pending in New Jersey, however, that would mandate
returning the unused funds to the generators, of which GPUN's share is
approximately $2.6 million. GPUN cannot determine at this time what effect, if
any, this matter will have on its operations.
Pennsylvania, Delaware, Maryland and West Virginia have established the
Appalachian Compact to construct a facility for the disposal of low-level
radwaste in those states, including low-level radwaste from TMI-1. To date,
pre-construction costs of $33 million, out of an estimated $88 million, have
been paid. Eleven nuclear plants have so far shared equally in the
pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1.
Pennsylvania has suspended the search for a low-level radwaste disposal site in
the state. GPUN cannot determine at this time what effect, if any, this may have
on its operations.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40% capacity
factor would be approximately $11 million before tax. While a capacity factor
below 40% would generate no specific monetary charge, it would require the issue
to be brought before the NJBPU for review. The annual measurement period, which
begins in March of each year, coincides with that used for the LEAC.
At December 31, 1998, GPU, Inc. and consolidated affiliates had 8,957
employees worldwide (JCP&L 2,258; Met-Ed 2,654; Penelec 1,780; GPUI Group 454;
all other companies 1,811), of which 8,611 employees were located in the U.S.
The majority of the U.S. workforce is employed by the GPU Energy companies, of
which approximately 4,650 are represented by unions for collective bargaining
purposes. JCP&L, Met-Ed and Penelec's collective bargaining agreements with the
International Brotherhood of Electrical Workers expire in 1999, 2000 and 2002,
respectively. Penelec's collective bargaining agreement with the Utility Workers
Union of America expires in 2001.
During the normal course of the operation of its businesses, in addition to
the matters described above, GPU is from time to time involved in disputes,
claims and, in some cases, as a defendant in litigation in which compensatory
and punitive damages are sought by the public, customers, contractors, vendors
and other suppliers of equipment and services and by employees alleging unlawful
employment practices. While management does not expect that the outcome of these
matters will have a material effect on GPU's financial
F-110
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GPU, Inc. and Subsidiary Companies
position or results of operations, there can be no assurance that this will
continue to be the case.
14. GPUI GROUP EQUITY INVESTMENTS
The GPUI Group uses the equity method of accounting for investments in
which it has the ability to exercise significant influence over the operating
and financial policies of the investee (generally evidenced by a 20% to 50%
ownership interest). Investments accounted for under the equity method at
December 31, 1998 follow:
Ownership
Investment Location of Operations Percentage
- ---------- ---------------------- ----------
Midlands Electricity plc United Kingdom 50%
Mid-Georgia Cogen, L.P. United States 50%
Prime Energy, L.P. United States 50%
Pasco Cogen, Ltd. United States 50%
GPU Solar, Inc. United States 50%
Termobarranquilla S.A. Colombia 29%
Selkirk Cogeneration Partners, L.P. United States 19%
EnviroTech Investment Fund United States 10%
Project Orange Associates, L.P. United States 4%
OLS Power, L.P. United States 1%
Summarized financial information for the GPUI Group's equity method
investments (which are not consolidated in the financial statements), including
both the GPUI Group's ownership interests and the non-ownership interests, is as
follows:
Balance Sheet Data (in thousands)
- ---------------------------------
1998 1997
----------- ------------
Current Assets $ 657,396 $ 675,051
Noncurrent Assets 6,113,529 6,534,586
Current Liabilities (1,750,590) (1,570,071)
Noncurrent Liabilities (3,427,785) (4,288,418)
---------- ----------
Net Assets $ 1,592,550 $ 1,351,148
========== ==========
GPU International Group's
Equity in Net Assets $ 708,808 $ 641,173
========== ==========
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GPU, Inc. and Subsidiary Companies
Earnings Data (in thousands)
1998 1997 1996
---------------------------------
Revenues $ 2,803,702 $2,931,065 $1,869,038
Operating Income $ 443,742 $ 410,217 $ 266,337
Net Income/(Loss) $ 170,568 $ (28,480)$ 70,346
Cash Distributions Received $ 27,391 $ 42,762 $ 9,987
GPU International Group's Equity in
Net Income/(Loss) $ 72,012 $ (27,100)$ 33,981
As of December 31, 1998 and 1997, GPUI Group equity investments on the
Consolidated Balance Sheets included goodwill (net of accumulated amortization)
of approximately $18.5 million and $66 million, respectively, which is amortized
to expense over periods not exceeding 40 years. Amortization expense for the
years ended December 31, 1998, 1997 and 1996 amounted to $1.6 million, $3.6
million and $1.6 million, respectively. In January 1998, GPU Electric sold its
50% stake in Solaris Power. As a result of the sale, the GPUI Group recorded a
decrease in goodwill of $41.2 million and an after-tax gain on the sale of $18.3
million. Also in 1998, $4.7 million of goodwill related to the Lake Cogeneration
project was transferred to retained earnings since the investment in this
project is no longer accounted for under the equity method of accounting.
15. SEGMENT INFORMATION
In 1997, GPU adopted Statement of Financial Accounting Standards No. 131
(FAS 131), "Disclosures about Segments of an Enterprise and Related
Information," which requires the reporting of certain financial information by
business segment and geographic area. For the purpose of providing segment
information, the GPU Energy companies consist of the three domestic electric
utility companies serving customers in Pennsylvania and New Jersey, as well as
Genco, GPUN, GPU Telcom and GPUS. The GPUI Group develops, owns, operates, and
funds the acquisition of generation, transmission and distribution facilities
worldwide. For information related to the GPUI Group's acquisitions, see Note 6,
Acquisitions. GPU AR is involved in retail energy sales. Corporate represents
the activities of GPU, Inc., a registered holding company. GPU's reportable
segments are strategic business units that are managed separately due to their
different operating and regulatory environments. GPU's segment information is as
follows:
F-112
<PAGE>
GPU, Inc. and Subsidiary Companies
Earnings Segment Data (in thousands)
Depreciation
Operating and Operating
1998 Revenues Amortization Income
- ---- --------- ------------ ---------
Domestic:
GPU Energy companies $3,953,254 $ 469,623 $ 549,579
GPUI Group* 178,459 13,175 27,887
Less: The effect of consolidating the
GPUI Group's equity investments
included above (108,998) (8,615) (27,961)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement - - -
GPU AR 10,938 - (2,285)
Corporate - - (4,713)
--------- --------- ---------
Subtotal 4,033,653 474,183 542,507
-------- --------- ---------
Foreign: (GPUI Group only)
Australia 181,059 40,841 106,112
United Kingdom* 1,202,653 58,352 143,977
Other* 66,473 14,732 15,221
Less: The effect of consolidating the
GPUI Group's equity investments
included above (1,235,046) (66,014) (149,979)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement - - -
--------- --------- ---------
Subtotal 215,139 47,911 115,331
--------- --------- ---------
Consolidated Total $4,248,792 $ 522,094 $ 657,838
======== ========= =========
Other Interest and
Income and Preferred
1998 Deductions Dividends Net Income
- ---- ---------- --------- ----------
Domestic:
GPU Energy companies $ 21,982 $ 241,886 $ 303,920
GPUI Group* 2,659 18,924 11,622
Less: The effect of consolidating the
GPUI Group's equity investments
included above 1,706 (18,732) (7,523)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement 7,523 - 7,523
GPU AR 54 - (2,231)
Corporate (672) 6,433 (11,818)
--------------------- ---------
Subtotal 33,252 248,511 301,493
---------- --------- ---------
Foreign: (GPUI Group only)
Australia 21,000 108,227 18,885
United Kingdom* 9,529 116,257 37,249
Other* 2,646 13,197 2,499
Less: The effect of consolidating the
GPUI Group's equity investments
included above (11,470) (96,960) (64,489)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement 64,489 - 64,489
--------- --------- ---------
Subtotal 86,194 140,721 58,633
--------- --------- ---------
Consolidated Total $ 119,446 $ 389,232 $ 360,126
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in GPU's audited financial statements.
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GPU, Inc. and Subsidiary Companies
Earnings Segment Data (in thousands)(continued)
Depreciation
Operating and Operating
1997 Revenues Amortization Income
- ---- --------- ------------ ---------
Domestic:
GPU Energy companies $4,043,800 $ 451,009 $ 632,951
GPUI Group* 154,135 9,782 21,764
Less: The effect of consolidating the
GPUI Group's equity investments
included above (115,408) (9,004) (23,918)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement - - -
GPU AR 1,339 - (4,785)
Corporate - - (8,493)
--------- --------- ---------
Subtotal 4,083,866 451,787 617,519
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* 175,888 18,571 58,486
United Kingdom* 1,105,502 28,286 137,805
Other* 55,801 12,905 12,021
Less: The effect of consolidating the
GPUI Group's equity investments
included above (1,277,678) (43,835) (178,713)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement - - -
--------- --------- ---------
Subtotal 59,513 15,927 29,599
--------- --------- ---------
Consolidated Total $4,143,379 $ 467,714 $ 647,118
========= ========= =========
Other Interest and
Income and Preferred
1997 Deductions Dividends Net Income
- ---- ---------- --------- ----------
Domestic:
GPU Energy companies $ 4,094 $ 249,015 $ 388,030
GPUI Group* (12,733) 22,393 (13,362)
Less: The effect of consolidating the
GPUI Group's equity investments
included above 7,930 (21,792) 5,804
Add: Equity in undistributed earnings
of affiliates, net on the income
statement (5,804) - (5,804)
GPU AR 3 - (4,782)
Corporate (136) 5,649 (14,278)
--------- --------- ---------
Subtotal (6,646) 255,265 355,608
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* 541 46,396 12,631
United Kingdom* (51,018) 117,624 (30,837)
Other* 4,792 17,777 (2,301)
Less: The effect of consolidating the
GPUI Group's equity investments
included above 82,268 (117,741) 21,296
Add: Equity in undistributed earnings
of affiliates, net on the income
statement (21,296) - (21,296)
--------- --------- ---------
Subtotal 15,287 64,056 (20,507)
--------- --------- ---------
Consolidated Total $ 8,641 $ 319,321 $ 335,101
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in GPU's audited financial statements.
F-114
<PAGE>
GPU, Inc. and Subsidiary Companies
Earnings Segment Data (in thousands)(continued)
Depreciation
Operating and Operating
1996 Revenues Amortization Income
- ----- --------- ------------ ----------
Domestic:
GPU Energy companies $3,918,089 $ 400,253 $ 517,915
GPUI Group* 121,721 9,229 23,652
Less: The effect of consolidating the
GPUI Group's equity investments
included above (104,890) (8,327) (21,605)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement - - -
GPU AR - - -
Corporate - - (9,636)
--------- --------- ---------
Subtotal 3,934,920 401,155 510,326
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* 150,044 9,048 25,639
United Kingdom* 570,042 15,628 58,474
Other* 52,572 9,156 10,233
Less: The effect of consolidating the
GPUI Group's equity investments
included above (736,867) (27,315) (86,406)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement - - -
--------- --------- ---------
Subtotal 35,791 6,517 7,940
--------- --------- ---------
Consolidated Total $3,970,711 $ 407,672 $ 518,266
========= ========= =========
Other Interest and
Income and Preferred
1996 Deductions Dividends Net Income
- ---- ---------- --------- ----------
Domestic:
GPU Energy companies $ 6,099 $ 235,066 $ 288,948
GPUI Group* 2,560 18,415 7,797
Less: The effect of consolidating the
GPUI Group's equity investments
included above 4,614 (17,601) 610
Add: Equity in undistributed earnings
of affiliates, net on the income
statement (1,993) - (1,993)
GPU AR - - -
Corporate 413 5,114 (14,337)
--------- --------- ---------
Subtotal 11,693 240,994 281,025
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* (930) 25,311 (602)
United Kingdom* 10,166 59,862 8,778
Other* 4,398 5,881 6,049
Less: The effect of consolidating the
GPUI Group's equity investments
included above (8,651) (62,185) (32,872)
Add: Equity in undistributed earnings
of affiliates, net on the income
statement 35,974 - 35,974
--------- --------- ---------
Subtotal 40,957 28,869 17,327
--------- --------- ---------
Consolidated Total $ 52,650 $ 269,863 $ 298,352
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in GPU's audited financial statements.
F-115
<PAGE>
GPU, Inc. and Subsidiary
Balance Sheet Segment Data (in thousands)
Current Noncurrent Current
1998 Assets Assets Liabilities
- ---- -------- ---------- -----------
Domestic:
GPU Energy companies $ 807,973 $12,475,608 $1,205,733
GPUI Group* 126,321 412,953 58,343
Less: The effect of consolidating the
GPUI Group's equity investments
included above (51,046) (202,985) (17,271)
Add: GPUI Group equity investments
included on the balance sheet - 80,614 -
GPU AR 2,358 115 2,222
Corporate 5,001 6,672 140,132
--------- ---------- ----------
Subtotal 890,607 12,772,977 1,389,159
--------- ---------- ---------
Foreign: (GPUI Group only)
Australia 91,112 1,690,018 561,562
United Kingdom* 142,854 2,213,350 836,431
Other* 136,822 385,836 54,366
Less: The effect of consolidating the
GPUI Group's equity investments
included above (198,986) (2,437,992) (833,658)
Add: GPUI Group equity investments
included on the balance sheet - 601,511 -
--------- ---------- ---------
Subtotal 171,802 2,452,723 618,701
--------- ---------- ---------
Consolidated Total $1,062,409 $15,225,700 $2,007,860
========= ========== ========
Other Cash
Long-Term Noncurrent Capital
1998 Debt Liabilities Expenditures
- ---- ---- ------------------------
Domestic:
GPU Energy companies $2,368,870 $6,211,677 $ 328,418
GPUI Group* 188,774 218,998 31,574
Less: The effect of consolidating the
GPUI Group's equity investments
included above (188,774) (19,968) (10,199)
Add: GPUI Group equity investments
included on the balance sheet - - -
GPU AR - 158 34
Corporate - 1,360 -
--------- --------- ---------
Subtotal 2,368,870 6,412,225 349,827
--------- -------- ---------
Foreign: (GPUI Group only)
Australia 1,060,877 46,397 58,549
United Kingdom* 1,116,144 204,680 50,092
Other* 188,928 57,032 60,096
Less: The effect of consolidating the
GPUI Group's equity investments
included above (909,235) (213,295) (50,341)
Add: GPUI Group equity investments
included on the balance sheet - - -
--------- --------- ---------
Subtotal 1,456,714 94,814 118,396
--------- --------- ---------
Consolidated Total $3,825,584 $6,507,039 $ 468,223
======== ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in GPU's audited financial statements.
F-116
<PAGE>
GPU, Inc. Subsidiary Companies
Balance Sheet Segment Data (in thousands) (continued)
Current Noncurrent Current
1997 Assets Assets Liabilities
- ---- -------- ---------- -----------
Domestic:
GPU Energy companies $ 831,269 $ 9,015,913 $1,140,492
GPUI Group* 81,027 352,139 90,097
Less: The effect of consolidating the
GPUI Group's equity investments
included above (43,777) (182,384) (21,360)
Add: GPUI Group equity investments
included on the balance sheet - 79,458 -
GPU AR 4,961 161 3,301
Corporate 165 6,313 155,977
--------- ---------- ---------
Subtotal 873,645 9,271,600 1,368,507
--------- ---------- ---------
Foreign: (GPUI Group only)
Australia* 86,226 2,091,619 558,496
United Kingdom* 188,462 2,152,977 785,152
Other* 114,786 396,078 43,419
Less: The effect of consolidating the
GPUI Group's equity investments
included above (240,256) (2,735,741) (734,139)
Add: GPUI Group equity investments
included on the balance sheet 106,317 517,221 -
--------- ---------- ---------
Subtotal 255,535 2,422,154 652,928
--------- ---------- ---------
Consolidated Total $1,129,180 $11,693,754 $2,021,435
========= ========== =========
Other Cash
Long-Term Noncurrent Capital
1997 Debt Liabilities Expenditures
- ---- ---- ----------- ------------
Domestic:
GPU Energy companies $2,448,672 $2,721,527 $ 356,416
GPUI Group* 263,378 46,880 111,125
Less: The effect of consolidating the
GPUI Group's equity investments
included above (171,665) (12,321) (120)
Add: GPUI Group equity investments
included on the balance sheet - - -
GPU AR - - -
Corporate - 1,418 -
--------- --------- ---------
Subtotal 2,540,385 2,757,504 467,421
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* 1,485,639 115,390 1,811,921
United Kingdom* 1,367,471 245,105 77,706
Other* 258,794 64,803 1,213
Less: The effect of consolidating the
GPUI Group's equity investments
included above (1,326,317) (295,183) (89,624)
Add: GPUI Group equity investments
included on the balance sheet - - -
--------- --------- ---------
Subtotal 1,785,587 130,115 1,801,216
--------- --------- ---------
Consolidated Total $4,325,972 $2,887,619 $2,268,637
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in GPU's audited financial statements.
F-117
<PAGE>
GPU, Inc. Subsidiary Companies
Balance Sheet Segment Data (in thousands) (continued)
Current Noncurrent Current
1996 Assets Assets Liabilities
- ---- -------- ---------- -----------
Domestic:
GPU Energy companies $ 807,551 $ 8,955,961 $1,174,250
GPUI Group* 97,494 274,648 41,982
Less: The effect of consolidating the
GPUI Group's equity investments
included above (48,970) (195,453) (32,910)
Add: GPUI Group equity investments
included on the balance sheet - 68,779 -
GPU AR - - -
Corporate 7,535 5,792 138,381
--------- ---------- ---------
Subtotal 863,610 9,109,727 1,321,703
--------- ---------- ---------
Foreign: (GPUI Group only)
Australia* 38,822 385,997 33,527
United Kingdom* 356,646 1,935,287 507,879
Other* 47,062 291,297 21,727
Less: The effect of consolidating the
GPUI Group's equity investments
included above (408,966) (2,493,887) (548,230)
Add: GPUI Group equity investments
included on the balance sheet - 725,809 -
--------- ---------- ---------
Subtotal 33,564 844,503 14,903
--------- ---------- ---------
Consolidated Total $ 897,174 $ 9,954,230 $1,336,606
========= ========= =========
Other Cash
Long-Term Noncurrent Capital
1996 Debt Liabilities Expenditures
- ---- ---- ----------- ------------
Domestic:
GPU Energy companies $2,427,802 $2,709,406 $ 403,880
GPUI Group* 242,038 32,494 56,180
Less: The effect of consolidating the
GPUI Group's equity investments
included above (179,738) (15,836) (301)
Add: GPUI Group equity investments
included on the balance sheet - - -
GPU AR - - -
Corporate - 1,412 -
--------- --------- ---------
Subtotal 2,490,102 2,727,476 459,759
--------- --------- ---------
Foreign: (GPUI Group only)
Australia* 336,957 4,490 9,952
United Kingdom* 1,538,342 238,207 567,407
Other* 176,475 80,849 51,714
Less: The effect of consolidating the
GPUI Group's equity investments
included above (1,364,860) (271,305) (111,365)
Add: GPUI Group equity investments
included on the balance sheet - - -
--------- --------- ---------
Subtotal 686,914 52,241 517,708
--------- --------- ---------
Consolidated Total $3,177,016 $2,779,717 $ 977,467
========= ========= =========
* Includes the effect of consolidating the GPUI Group's ownership interest in
investments accounted for under the equity method (pro-rata consolidation),
which are not consolidated in GPU's audited financial statements.
F-118
<PAGE>
<TABLE>
GPU, Inc. Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(In Thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful
accounts $8,087 $16,169 $5,564(a) $21,486(b) $8,334
Allowance for inventory
obsolescence 1,484 - (13)(f) 1,311(c) 160
Year ended December 31, 1997
Allowance for doubtful
accounts $8,660 $17,984 $6,069(a) $24,626(b) $8,087
Allowance for inventory
obsolescence 2,256 - 8(e) 780(c) 1,484
Year ended December 31, 1996
Allowance for doubtful
accounts $8,182 $17,501 $5,304(a) $22,327(b) $8,660
Allowance for inventory
obsolescence 3,373 650 2,207(d) 3,974(c) 2,256
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Sale of inventory previously written off by Met-Ed ($4) and JCP&L ($4) and
reestablishment of zero value inventory by JCP&L ($2,199).
(e) Sale of inventory previously written off by Met-Ed ($7) and JCP&L ($1).
(f) Sale of inventory previously written off by Met-Ed ($13).
</FN>
</TABLE>
F-119
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
COMPANY STATISTICS
For The Years Ended December 31, 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capacity at System Peak (in MW):
Company owned 2,729 2,718 2,850 2,749 2,765 2,839
Contracted 2,933 2,794 2,497 2,462 2,403 2,033
------ ------ ------ ------ ------ ------
Total capacity (a) 5,662 5,512 5,347 5,211 5,168 4,872
====== ====== ====== ====== ====== ======
Hourly Peak Load (in MW):
Summer peak 4,817 4,817 4,130 4,554 4,292 4,564
Winter peak 3,175 3,168 3,173 3,260 3,242 3,129
Reserve at company peak (%) 17.3 14.4 29.5 14.4 20.4 6.7
Load factor (%) (b) 47.7 46.5 53.9 47.1 50.8 49.1
Sources of Energy (in thousands of MWH):
Coal 2,224 2,215 2,105 1,929 1,738 1,983
Nuclear 6,064 6,553 6,114 6,791 5,275 6,151
Gas, hydro & oil 487 548 535 861 757 460
------ ------ ------ ------ ------ ------
Net generation 8,775 9,316 8,754 9,581 7,770 8,594
Utility purchases and interchange 7,567 6,044 6,608 6,304 6,966 7,253
Nonutility purchases 5,271 5,342 5,439 5,850 4,920 4,820
------ ------ ------ ------ ------ ------
Total sources of energy 21,613 20,702 20,801 21,735 19,656 20,667
Company use, line loss, etc. (1,558) (1,794) (2,127) (1,749) (1,405) (2,026)
------ ------ ------ ------ ------ ------
Total electric energy sales 20,055 18,908 18,674 19,986 18,251 18,641
====== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $27 $ 28 $ 30 $ 26 $26 $28
Nuclear 37 39 40 44 35 42
Gas & oil 22 34 31 31 34 29
-- --- --- --- --- --
Total $86 $101 $101 $101 $95 $99
== === === === == ==
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $293 $234 $246 $279 $295 $310
Nonutility purchases 403 384 370 382 304 292
Amortization of nonutility buyout costs 20 9 - - - -
--- --- --- --- --- ---
Total $716 $627 $616 $661 $599 $602
=== === === === === ===
Electric Energy Sales (in thousands of MWH):
Residential 7,551 7,256 7,266 7,112 7,094 6,983
Commercial 7,259 6,974 6,829 6,611 6,586 6,474
Industrial 3,474 3,536 3,497 3,562 3,673 3,689
Other 81 79 78 77 76 369
------ ------ ------ ------ ------ ------
Sales to customers 18,365 17,845 17,670 17,362 17,429 17,515
Sales to other utilities 1,690 1,063 1,004 2,624 822 1,126
------ ------ ------ ------ ------ ------
Total 20,055 18,908 18,674 19,986 18,251 18,641
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 891 $ 907 $ 895 $ 881 $ 855 $ 835
Commercial 779 797 775 742 721 699
Industrial 288 313 311 315 322 321
Other 15 21 21 21 21 40
----- ----- ----- ----- ----- -----
Sales to customers 1,973 2,038 2,002 1,959 1,919 1,895
Sales to other utilities 75 36 35 62 19 31
----- ----- ----- ----- ----- -----
Total electric energy sales 2,048 2,074 2,037 2,021 1,938 1,926
Other revenues 22 20 21 15 15 10
----- ----- ----- ----- ----- -----
Total $2,070 $2,094 $2,058 $2,036 $1,953 $1,936
===== ===== ===== ===== ====== =====
Price per KWH (in cents):
Residential 11.82 12.47 12.40 12.31 12.06 11.90
Commercial 10.74 11.42 11.38 11.20 10.92 10.78
Industrial 8.30 8.85 8.92 8.45 8.78 8.70
Total sales to customers 10.79 11.41 11.38 11.24 11.00 10.80
Total electric energy sales 10.25 10.96 10.96 10.08 10.61 10.31
Customers at Year-End (in thousands) 982 969 954 940 924 911
<FN>
(a)Summer ratings at December 31, 1998 of owned and contracted capacity were
2,729 MW and 2,577 MW, respectively.
(b)The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
</TABLE>
F-120
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31, 1998 1997 1996(1) 1995 1994(2) 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $2,069.6 $2,094.0 $2,057.9 $2,035.9 $1,952.4 $1,935.9
Other operation and
maintenance expense 485.0 455.0 556.1 475.4 526.6 460.1
Net income 222.4 212.0 156.3 199.1 162.8 158.3
Earnings available for
common stock 212.4 200.6 143.2 184.6 148.0 141.5
Net utility plant
in service 2,538.2 2,664.1 2,717.1 2,641.6 2,620.2 2,558.2
Total assets 4,582.1 4,641.6 4,676.7 4,418.8 4,294.9 4,202.7
Long-term debt 1,173.5 1,173.3 1,173.1 1,192.9 1,168.4 1,215.7
Long-term obligations
under capital leases - - 0.1 2.4 4.4 7.0
Company-obligated
mandatorily redeemable
preferred securities 125.0 125.0 125.0 125.0 - -
Cumulative preferred stock
with mandatory redemption 86.5 91.5 114.0 134.0 150.0 150.0
Capital expenditures and
investments 154.9 172.2 199.8 217.8 243.9 197.1
Return on average
common equity 13.5% 13.1% 9.5% 13.1% 11.2% 11.1%
Employees (actual) 2,258 2,509 2,538 3,111 3,077 3,447
<FN>
(1) Results for 1996 reflect a non-recurring charge of $39.4 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(2) Results for 1994 reflect a net non-recurring charge to earnings of $23.0
million (after-tax) due to a charge for costs related to early retirement
programs ($30.4 million); and net interest income from refunds of
previously paid federal income taxes related to the tax retirement of TMI-2
($7.4 million).
</FN>
</TABLE>
F-121
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------- --------------
In Thousands 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $472,334 $510,443 $478,894 $478,226
Operating income 77,842 82,472 65,875 70,651
Net income 52,816 58,320 40,285 35,241
Earnings available for common stock 50,078 55,158 37,720 32,362
<CAPTION>
Third Quarter Fourth Quarter
------------- --------------
In Thousands 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $647,625 $602,900 $470,795 $502,403
Operating income 117,333 102,527 36,564 69,200
Net income 91,607 77,306 37,734 41,147
Earnings available for common stock 89,277 74,709 35,302 38,409
</TABLE>
F-122
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Jersey Central Power & Light Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Jersey Central Power & Light Company and Subsidiary Company at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 3, 1999
F-123
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution, and general plant $3,108,697 $2,914,225
Generation plant 1,646,576 1,757,343
--------- ---------
Utility plant in service 4,755,273 4,671,568
Accumulated depreciation (2,217,108) (2,007,427)
--------- ---------
Net utility plant in service 2,538,165 2,664,141
Construction work in progress 48,126 124,887
Other, net 98,491 92,654
--------- ---------
Net utility plant 2,684,782 2,881,682
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 13) 422,277 343,434
Nuclear fuel disposal trust, at market 116,871 108,652
Other, net 9,596 8,951
--------- ---------
Total other property and investments 548,744 461,037
--------- ---------
Current Assets:
Cash and temporary cash investments 1,850 2,994
Special deposits 6,047 6,778
Accounts receivable:
Customers, net 152,120 153,753
Other 32,562 18,225
Unbilled revenues 56,391 59,687
Materials and supplies, at average cost or less:
Construction and maintenance 79,863 90,037
Fuel 13,144 14,260
Deferred income taxes (Note 8) 20,812 27,536
Prepayments 27,648 14,468
--------- ---------
Total current assets 390,437 387,738
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net: (Notes 5 & 13)
Other regulatory assets, net 753,885 736,476
Deferred income taxes (Note 8) 179,237 154,708
Other 25,037 19,909
--------- ---------
Total deferred debits and other assets 958,159 911,093
--------- ---------
Total Assets $4,582,122 $4,641,550
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-124
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 153,713 $153,713
Capital surplus 510,769 510,769
Retained earnings 893,016 875,639
Accumulated other comprehensive income/(loss) (425) -
--------- ---------
Total common stockholder's equity (Note 4) 1,557,073 1,540,121
Cumulative preferred stock: (Note 4)
With mandatory redemption 86,500 91,500
Without mandatory redemption 37,741 37,741
Company-obligated mandatorily redeemable
preferred securities (Note 4) 125,000 125,000
Long-term debt (Note 3) 1,173,532 1,173,304
--------- ---------
Total capitalization 2,979,846 2,967,666
--------- ---------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 2,512 12,511
Notes payable (Note 2) 122,344 115,254
Obligations under capital leases (Note 12) 85,366 79,419
Accounts payable:
Affiliates 40,861 27,167
Other 80,233 113,822
Taxes accrued 5,559 3,966
Interest accrued 26,678 26,021
Deferred energy credits 2,411 25,645
Other 104,408 76,529
------- ------
Total current liabilities 470,372 480,334
------- -------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 670,961 644,562
Unamortized investment tax credits 50,225 54,675
Nuclear fuel disposal fee 141,270 134,326
Three Mile Island Unit 2 future costs 120,904 112,227
Other 148,544 247,760
------- -------
Total deferred credits and other liabilities 1,131,904 1,193,550
--------- ---------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $4,582,122 $4,641,550
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-125
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Operating Revenues $2,069,648 $2,093,972 $2,057,918
Operating Expenses:
Fuel 86,431 101,030 101,357
Power purchased and interchanged:
Affiliates 57,643 15,979 27,058
Others 658,742 610,792 589,396
Deferral of energy and capacity
costs, net (25,542) 6,043 19,441
Other operation and maintenance 485,054 454,991 556,086
Depreciation and amortization 250,675 237,461 207,309
Taxes, other than income taxes 94,586 232,086 228,885
Total operating expenses 1,607,589 1,658,382 1,729,532
Operating Income Before Income Taxes 462,059 435,590 328,836
Income taxes (Note 8) 164,445 110,740 71,080
--------- --------- ---------
Operating Income 297,614 324,850 257,306
Other Income and Deductions:
Allowance for other funds used during
construction 786 - 1,536
Other income, net 13,227 1,919 7,202
Income taxes (Note 8) 19,367 (1,376) (3,357)
--------- --------- ---------
Total other income and deductions 33,380 543 5,381
Income Before Interest Charges 330,994 325,393 262,687
Interest Charges:
Long-term debt 87,261 89,869 89,648
Company-obligated mandatorily
redeemable preferred securities 10,700 10,700 10,700
Other interest 12,229 15,129 11,147
Allowance for borrowed funds used
during construction (1,638) (2,319) (5,111)
Total interest charges 108,552 113,379 106,384
Net Income 222,442 212,014 156,303
Preferred stock dividends 10,065 11,376 13,072
--------- --------- ----------
Earnings Available for Common Stock $ 212,377 $ 200,638 $ 143,231
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-126
<PAGE>
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Net income $222,442 $212,014 $156,303
------- ------- -------
Other comprehensive income/(loss),
net of tax: (Note 4)
Minimum pension liability (425) - -
------- ------- -------
Total other comprehensive income/(loss) (425) - -
------- ------- -------
Comprehensive income $222,017 $212,014 $156,303
======= ======= =======
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
Balance at beginning of year $ 875,639 $ 825,001 $ 816,770
Net income 222,442 212,014 156,303
------- ------- -------
Total 1,098,081 1,037,015 973,073
--------- --------- -------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
4% Series ($4.00 a share) (500) (500) (500)
7.88% Series E ($7.88 a share) (1,970) (1,970) (1,970)
8.48% Series I ($8.48 a share) (212) (1,272) (2,968)
8.65% Series J ($8.65 a share) (4,325) (4,325) (4,325)
7.52% Series K ($7.52 a share) (3,058) (3,309) (3,309)
Common stock (not declared on a
per share basis) (195,000) (150,000) (135,000)
-------- -------- --------
Total (205,065) (161,376) (148,072)
-------- -------- --------
Balance at end of year $ 893,016 $ 875,639 $ 825,001
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-127
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary Company
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 222,442 $212,014 $ 156,303
Adjustments to reconcile income to cash provided:
Depreciation and amortization 277,950 253,278 217,225
Amortization of property under capital leases 26,739 28,703 28,339
Voluntary enhanced retirement programs - - 62,909
Nuclear outage maintenance costs, net (6,640) 11,615 (15,392)
Deferred income taxes and investment tax
credits, net (41,865) (27,449) 4,056
Deferred energy and capacity costs, net (24,482) 8,193 19,436
Allowance for other funds used during
construction (786) - (1,536)
Changes in working capital:
Receivables (9,407) (6,261) 12,897
Materials and supplies 3,863 7,721 2,624
Special deposits and prepayments (12,450) 6,844 138
Payables and accrued liabilities 1,418 (31,854) (62,157)
Nonutility generation contract buyout costs (15,000) (30,500) (65,000)
Other, net 13,091 (4,479) (17,944)
-------- -------- --------
Net cash provided by operating activities 434,873 427,825 341,898
-------- -------- --------
Investing Activities:
Capital expenditures and investments (154,918) (172,243) (199,823)
Contributions to decommissioning trusts (28,003) (18,003) (18,004)
Other, net (10,720) (10,989) (10,253)
-------- -------- --------
Net cash used for investing activities (193,641) (201,235) (228,080)
-------- -------- --------
Financing Activities:
Issuance of long-term debt - - 79,550
Increase in notes payable, net 7,090 83,454 31,000
Retirement of long-term debt (11) (100,075) (25,710)
Capital lease principal payments (29,084) (26,496) (29,763)
Redemption of preferred stock (15,000) (20,000) (20,000)
Dividends paid on preferred stock (10,371) (11,800) (13,496)
Dividends paid on common stock (195,000) (150,000) (135,000)
-------- -------- --------
Net cash required by financing activities (242,376) (224,917) (113,419)
-------- -------- --------
Net increase/(decrease) in cash and temporary cash
investments from above activities (1,144) 1,673 399
Cash and temporary cash investments, beginning of year 2,994 1,321 922
-------- -------- --------
Cash and temporary cash investments, end of year $ 1,850 $ 2,994 $ 1,321
======== ======== ========
Supplemental Disclosure:
Interest and preferred dividends paid $ 116,942 $ 126,223 $ 119,760
======== ======== ========
Income taxes paid $ 192,335 $ 133,689 $ 90,960
======== ======== ========
New capital lease obligations incurred $ 32,680 $ 11,048 $ 32,694
======== ======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
F-128
<PAGE>
<TABLE>
Jersey Central Power & Light Company Subsidiary Company
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------- -------- --------------------- ---------- ---------
Additions
---------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- --------------------------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful
accounts $1,414 $4,670 $1,729(a) $6,049(b) $1,764
Allowance for inventory
obsolescence (16) - - 16(c) -
Year ended December 31, 1997
Allowance for doubtful
accounts $1,670 $4,976 $1,939 $7,171(b) $1,414
Allowance for inventory
obsolescence 206 - 1(e) 223(c) (16)
Year ended December 31, 1996
Allowance for doubtful
accounts $1,958 $5,080 $1,680(a) $7,048(b) $1,670
Allowance for inventory
obsolescence 197 - 4(e) 2,194(c) 206
2,199(d)
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Reestablishment of zero value inventory.
(e) Sale of inventory previously written off.
</FN>
</TABLE>
F-129
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
COMPANY STATISTICS
For The Years Ended December 31, 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capacity at System Peak (in MW):
Company owned 1,738 1,738 1,705 1,604 1,602 1,602
Contracted 568 507 853 492 499 676
----- ------ ------ ------ ------ ------
Total capacity (a) 2,306 2,245 2,558 2,096 2,101 2,278
===== ====== ====== ====== ====== ======
Hourly Peak Load (in MW):
Summer peak 2,176 2,224 2,017 2,186 2,000 1,944
Winter peak 2,082 2,054 2,114 2,012 1,954 1,940
Reserve at company peak (%) 6.0 .9 21.0 (4.1) 5.1 17.2
Load factor (%) (b) 66.1 63.5 66.3 61.4 66.6 67.2
Sources of Energy (in thousands
of MWH):
Coal 5,363 5,203 4,760 4,334 4,547 4,283
Nuclear 3,529 2,959 3,550 3,194 3,294 2,975
Gas, hydro & oil 329 204 182 253 194 42
----- ------ ------ ------ ------ ------
Net generation 9,221 8,366 8,492 7,781 8,035 7,300
Utility purchases and interchange 1,671 2,424 2,021 3,087 2,295 3,398
Nonutility purchases 2,389 2,481 2,406 2,066 1,654 1,623
----- ------ ------ ------ ------ ------
Total sources of energy 3,281 13,271 12,919 12,934 11,984 12,321
Company use, line loss, etc. (387) (790) (718) (856) (660) (884)
----- ------ ------ ------ ------ ------
Total electric energy sales 2,894 12,481 12,201 12,078 11,324 11,437
===== ====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $71 $72 $69 $61 $71 $64
Nuclear 20 16 20 20 20 16
Gas & oil 8 4 5 6 3 2
-- -- -- -- -- --
Total $99 $92 $94 $87 $94 $82
== == == == == ==
Power Purchased and Interchanged
(in millions):
Utility and interchange purchases $ 58 $ 70 $ 54 $ 84 $ 80 $108
Nonutility purchases 174 162 168 131 101 95
Deferred nonutility costs (4) - - - - -
Amortization of nonutility buyout
costs 10 10 9 - - -
--- --- --- --- --- ---
Total $238 $242 $231 $215 $181 $203
=== === === === === ===
Electric Energy Sales (in thousands
of MWH):
Residential 4,040 4,034 4,135 3,925 3,921 3,800
Commercial 3,321 3,209 3,144 3,011 2,921 2,794
Industrial 4,174 4,098 4,033 3,957 3,861 3,664
Other 202 210 213 209 211 284
----- ------ ------ ------ ------ ------
Sales to customers 1,737 11,551 11,525 11,102 10,914 10,542
Sales to other utilities 1,157 930 676 976 410 895
----- ------ ------ ------ ------ ------
Total 2,894 12,481 12,201 12,078 11,324 11,437
===== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $361 $368 $365 $339 $327 $322
Commercial 260 259 247 229 215 209
Industrial 244 253 243 228 215 207
Other (13) 14 14 13 12 18
--- --- --- --- --- ---
Sales to customers 852 894 869 809 769 756
Sales to other utilities 34 24 20 26 12 27
--- --- --- --- --- ---
Total electric energy sales 886 918 889 835 781 783
Other revenues 33 25 21 20 20 18
--- --- --- --- --- ---
Total $919 $943 $910 $855 $801 $801
=== === === === === ===
Price per KWH (in cents):
Residential 8.88 9.04 8.90 8.54 8.39 8.42
Commercial 7.82 7.93 7.88 7.54 7.38 7.46
Industrial 5.84 6.07 6.04 5.74 5.55 5.68
Total sales to customers 7.46 7.63 7.58 7.23 7.07 7.16
Total electric energy sales 7.05 7.25 7.33 6.86 6.92 6.83
Customers at Year-End (in thousands) 482 477 470 465 458 451
<FN>
(a)Summer ratings at December 31, 1998 of owned and contracted capacity were
1,738 MW and 954 MW, respectively.
(b)The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
</TABLE>
F-130
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31, 1998(1) 1997 1996(2) 1995(3) 1994(4 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 919.6 $ 943.1 $ 910.4 $ 854.7 $ 801.3 $ 801.5
Other operation
and maintenance expense 247.2 228.3 250.0 229.6 258.7 210.8
Income before
extraordinary item 57.7 93.5 69.1 148.5 1.0 77.9
Net income 50.9 93.5 69.1 148.5 1.0 77.9
Earnings/(loss) available for
common stock 50.4 93.0 71.8 147.6 (2.2) 70.9
Net utility plant
in service 1,239.2 1,492.0 1,455.7 1,477.0 1,437.3 1,361.4
Total assets 4,065.0 2,509.8 2,447.0 2,410.7 2,198.7 2,141.7
Long-term debt 546.9 576.9 563.3 603.3 529.8 546.3
Long-term obligations
under capital leases - - 0.4 1.0 2.2 3.6
Company-obligated
mandatorily redeemable
preferred securities 100.0 100.0 100.0 100.0 100.0 -
Capital expenditures and
investments 75.1 87.6 76.7 112.6 159.7 142.4
Return on average
common equity 7.5% 12.9% 10.3% 23.5% (0.4%) 12.2%
Employees (actual) 2,654 2,498 2,093 2,166 2,000 2,322
<FN>
(1) Results for 1998 include an extraordinary charge of $6.8 million
(after-tax) as a result of the PaPUC's Restructuring Order. Also in 1998,
as a result of the PaPUC Order, Met-Ed recorded a non-recurring charge of
$19 million (after-tax) related to the obligation to refund 1998 revenues;
and for the establishment of a sustainable energy fund.
(2) Results for 1996 reflect a non-recurring charge of $15.4 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(3) Results for 1995 reflect the reversal of $72.8 million (after-tax) of
certain future TMI-2 retirement costs written off in 1994. The reversal of
this write-off resulted from a 1995 Pennsylvania Supreme Court decision
that overturned a 1994 lower court order, and restored a 1993 PaPUC order
allowing for the recovery of such costs. Partially offsetting this increase
was a non-recurring charge to income of $5.7 million (after-tax) of TMI-2
monitored storage costs deemed not probable of recovery through ratemaking.
(4) Results for 1994 reflect a net non-recurring charge to earnings of $79.9
million (after-tax) due to the write-off of certain future TMI-2 retirement
costs ($72.8 million); a charge for costs related to early retirement
programs ($20.1 million); and net interest income from refunds of
previously paid federal income taxes related to the tax retirement of TMI-2
($13.0 million).
</FN>
</TABLE>
F-131
<PAGE>
<TABLE>
Metropolitan Edison Company and Subsidiary Companies
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------- --------------
In Thousands 1998 1997 1998* 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $234,748 $255,260 $226,030 $208,554
Operating income 40,312 54,113 38,360 28,303
Income before extraordinary item 24,730 39,685 18,548 14,203
Net income/(loss) 24,730 39,685 (168,732) 14,203
Earnings/(loss) available for common stock 24,609 39,564 (168,853) 14,082
<CAPTION>
Third Quarter Fourth Quarter
------------- --------------
In Thousands 1998** 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $229,051 $248,161 $229,765 $231,134
Operating income 14,395 41,714 31,380 26,021
Income before extraordinary item (3,544) 27,225 17,986 12,404
Net income 176,931 27,225 17,986 12,404
Earnings available for common stock 176,811 27,105 17,865 12,283
<FN>
* Results for the second quarter of 1998 were affected by an extraordinary
charge of $187.3 million after-tax as a result of the Pennsylvania Public
Utility Commission's (PaPUC) June 30, 1998 Restructuring Order on Met-Ed's
restructuring plans.
** In the third quarter of 1998, as a result of the amended PaPUC Restructuring
Order, Met-Ed reversed $183.2 million after-tax of the extraordinary charge
taken in the second quarter, primarily related to above-market nonutility
generation costs; and recorded an additional extraordinary charge of $3
million after-tax primarily related to the write-off of FERC assets. Also,
in the third quarter of 1998, as a result of the amended PaPUC Order,
Met-ed recorded a non-recurring charge of $19 million after-tax related to
the obligation to refund 1998 revenues; and for the establishment of a
sustainable energy fund.
</FN>
</TABLE>
F-132
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Metropolitan Edison Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Metropolitan Edison Company and Subsidiary Companies at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 3, 1999
F-133
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution and general plant $1,481,958 $1,413,849
Generation plant 765,669 997,961
--------- ---------
Utility plant in service 2,247,627 2,411,810
Accumulated depreciation (1,008,438) (919,771)
---------- ---------
Net utility plant in service 1,239,189 1,492,039
Construction work in progress 19,380 45,435
Other, net 27,819 39,056
--------- ---------
Net utility plant 1,286,388 1,576,530
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 13) 211,194 168,110
Other, net 11,742 11,958
-------- --------
Total other property and investments 222,936 180,068
-------- --------
Current Assets:
Cash and temporary cash investments 442 6,116
Special deposits 1,062 1,055
Accounts receivable:
Customers, net 60,012 65,156
Other 41,895 29,399
Unbilled revenues 43,687 39,747
Materials and supplies, at average cost or less:
Construction and maintenance 24,727 38,597
Fuel 12,218 11,323
Deferred income taxes (Note 8) 2,945 2,945
Prepayments 20,616 6,762
------- -------
Total current assets 207,604 201,100
------- -------
Deferred Debits and Other Assets:
Regulatory assets, net: (Notes 5 & 13)
Competitive transition charge 680,213 -
Other regulatory assets, net 921,934 450,687
Deferred income taxes (Note 8) 714,202 87,332
Other 31,692 14,069
--------- -------
Total deferred debits and other assets 2,348,041 552,088
--------- -------
Total Assets 4,064,969 $2,509,786
========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-134
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 66,273 $ 66,273
Capital surplus 370,200 370,200
Retained earnings 234,066 268,634
Accumulated other comprehensive income 16,520 12,487
------ ------
Total common stockholder's equity (Note 4) 687,059 717,594
Cumulative preferred stock (Note 4) 12,056 12,056
Company-obligated mandatorily redeemable
preferred securities (Note 4) 100,000 100,000
Long-term debt (Note 3) 546,904 576,924
- ------- -------
Total capitalization 1,346,019 1,406,574
--------- ---------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 30,024 22
Notes payable (Note 2) 79,540 67,279
Obligations under capital leases (Note 12) 27,135 38,372
Accounts payable:
Affiliates 75,933 62,873
Other 102,390 95,589
Taxes accrued 19,463 21,455
Interest accrued 16,747 15,903
Other 42,598 33,351
---------- -------
Total current liabilities 393,830 334,844
---------- -------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 1,010,982 412,692
Unamortized investment tax credits 27,157 29,134
Three Mile Island Unit 2 future costs 241,707 224,354
Nuclear fuel disposal fee 31,912 30,343
Nonutility generation contract loss liability 787,440 -
Other 225,922 71,845
---------- -------
Total deferred credits and other liabilities 2,325,120 768,368
---------- -------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $4,064,969 $2,509,786
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-135
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Operating Revenues $919,594 $943,109 $910,408
------- ------- -------
Operating Expenses:
Fuel 99,511 92,726 93,881
Power purchased and interchanged:
Affiliates 17,766 17,936 20,724
Others 220,095 223,948 209,831
Deferral of energy costs, net - - (448)
Other operation and maintenance 247,189 228,258 249,993
Depreciation and amortization 109,148 106,437 98,364
Taxes, other than income taxes 58,459 59,339 61,319
------- ------- -------
Total operating expenses 752,168 728,644 733,664
------- ------- -------
Operating Income Before Income Taxes 167,426 214,465 176,744
Income taxes (Note 8) 42,979 64,314 49,844
------- ------- -------
Operating Income 124,447 150,151 126,900
------- ------- -------
Other Income and Deductions:
Allowance for other funds used during
construction 130 75 540
Other income/(expense), net (13,539) 3,371 1,220
Income taxes (Note 8) 5,556 (1,455) (489)
------- ------- -------
Total other income and deductions (7,853) 1,991 1,271
------- ------- ------
Income Before Interest Charges 116,594 152,142 128,171
------- ------- -------
Interest Charges:
Long-term debt 42,493 43,885 45,373
Company-obligated mandatorily
redeemable preferred securities 9,000 9,000 9,000
Other interest 8,194 6,765 5,436
Allowance for borrowed funds used during
construction (813) (1,025) (705)
------- ------- -------
Total interest charges 58,874 58,625 59,104
------- ------- -------
Income Before Extraordinary Item 57,720 93,517 69,067
Extraordinary item (net of income taxes
of $4,708) (Note 5) (6,805) - -
------- ------- --------
Net Income 50,915 93,517 69,067
Preferred stock dividends 483 483 944
Gain on preferred stock reacquisition - - 3,722
------- ------- -------
Earnings Available for Common Stock $ 50,432 $ 93,034 $ 71,845
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-136
<PAGE>
Metropolitan Edison Company & Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Net income $ 50,915 $ 93,517 $ 69,067
------- ------- --------
Other comprehensive income/(loss), net
of tax: (Note 4)
Net unrealized gain on investments 4,148 4,249 4,027
Minimum pension liability (115) (157) (262)
------- ------- ---------
Total other comprehensive income 4,033 4,092 3,765
------- ------- ---------
Comprehensive income $ 54,948 $ 97,609 $ 72,832
======= ======= =========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Balance at beginning of year $268,634 $255,649 $243,804
Net income 50,915 93,517 69,067
------- ------- -------
Total 319,549 349,166 312,871
------- ------- -------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
3.90% Series ($3.90 a share) (251) (251) (459)
4.35% Series ($4.35 a share) (98) (98) (145)
3.85% Series ($3.85 a share) (36) (36) (112)
3.80% Series ($3.80 a share) (30) (30) (69)
4.45% Series ($4.45 a share) (68) (68) (159)
Common stock (not declared on a
per share basis) (85,000) (80,000) (60,000)
------- ------- -------
Total (85,483) (80,483) (60,944)
------- ------- -------
Gain on preferred stock reacquisition - - 3,722
Other adjustments, net - (49) -
------- ------- -------
Balance at end of year $234,066 $268,634 $255,649
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-137
<PAGE>
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------
Operating Activities:
Net income $ 50,915 $93,517 $ 69,067
Extraordinary item (net of
income tax benefit of $4,708) 6,805 - -
------- ------- --------
Income before extraordinary item 57,720 93,517 69,067
Adjustments to reconcile income to
cash provided:
Depreciation and amortization 114,961 113,662 104,820
Amortization of property under
capital leases 14,666 11,637 15,704
PaPUC restructuring rate orders 32,900 - -
Voluntary enhanced retirement
programs - - 26,204
Nuclear outage maintenance
costs, net 6,494 (6,169) 6,215
Deferred income taxes and
investment tax credits, net (23,152) 3,137 25,168
Deferred energy costs, net - - (448)
Allowance for other funds
used during construction (130) (75) (540)
Changes in working capital:
Receivables (11,292) (28,393) 8,490
Materials and supplies (1,911) 845 (1,611)
Special deposits and
prepayments (13,861) 10,489 (10,501)
Payables and accrued liabilities 23,504 47,819 (17,714)
Nonutility generation contract
buyout costs (32,917) (16,050) (43,318)
Other, net 6,566 (17,942) (15,964)
---------- -------- ---------
Net cash provided by operating
activities 173,548 212,477 165,572
---------- -------- ---------
Investing Activities:
Capital expenditures and investments (75,068) (87,613) (76,660)
Contributions to decommissioning
trusts (17,766) (16,992) (17,057)
Other, net 465 (363) (1,087)
Net cash used for investing ---------- -------- ---------
activities (92,369) (104,968) (94,804)
---------- -------- ---------
Financing Activities:
Issuance of long-term debt - 13,577 -
Increase in notes payable, net 12,261 16,612 28,277
Retirement of long-term debt (22) (40,020) (15,019)
Capital lease principal payments (13,609) (12,744) (15,171)
Redemption of preferred stock - - (7,820)
Dividends paid on preferred stock (483) (719) (944)
Dividends paid on common stock (85,000) (80,000) (60,000)
Net cash required by financing ---------- -------- ---------
activities (86,853) (103,294) (70,677)
---------- -------- ---------
Net increase/(decrease) in cash and
temporary cash investments from
above activities (5,674) 4,215 91
Cash and temporary cash investments,
beginning of year 6,116 1,901 1,810
---------- -------- ---------
Cash and temporary cash investments,
end of year $ 442 $ 6,116 $ 1,901
========== ========= =========
Supplemental Disclosure:
Interest and preferred
dividends paid $ 57,891 $ 60,538 $ 60,641
========== ========= ==========
Income taxes paid $ 77,296 $ 55,375 $ 39,278
========== ========= ==========
New capital lease obligations
incurred $ 3,399 $ 19,695 $ 1,417
========== ========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-138
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(In Thousands)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-------- -------- -------------------------- -------- --------
Additions
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------- --------- ---------- -------- ---------- ---------
Year ended December 31, 1998
Allowance for doubtful
<S> <C> <C> <C> <C> <C>
accounts $3,147 $5,673 $1,712(a) $7,197(b) $3,335
Allowance for inventory
obsolescence 1,433 - (13)(c) 1,260(d) 160
Year ended December 31, 1997
Allowance for doubtful
accounts $3,172 $6,644 $1,944(a) $8,613(b) $3,147
Allowance for inventory
obsolescence 1,864 - 7(c) 438(d) 1,433
Year ended December 31, 1996
Allowance for doubtful
accounts $3,072 $6,460 $1,651(a) $8,011(b) $3,172
Allowance for inventory
obsolescence 3,176 - 4(c) 1,316(d) 1,864
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Sale of inventory previously written off.
(d) Inventory written off.
</FN>
</TABLE>
F-139
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiary Companies
COMPANY STATISTICS
For The Years Ended December 31, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------
Capacity at System Peak (in MW):
<S> <C> <C> <C> <C> <C> <C>
Company owned 2,284 2,365 2,365 2,365 2,369 2,369
Contracted 717 867 782 868 778 636
------ ----- ------ ------ ------ -----
Total capacity (a) 3,001 3,232 3,147 3,233 3,147 3,005
====== ====== ====== ====== ==== ======
Hourly Peak Load (in MW):
Summer peak 2,560 2,535 2,410 2,495 2,309 2,208
Winter peak 2,515 2,652 2,574 2,589 2,514 2,342
Reserve at company peak (%) 17.2 21.9 22.3 24.9 25.2 28.3
Load factor (%) (b) 72.5 69.7 71.1 67.6 69.4 70.5
Sources of Energy (in thousands of MWH):
Coal 12,088 11,972 11,268 11,237 10,263 10,703
Nuclear 1,765 1,480 1,775 1,597 1,647 1,488
Gas, hydro & oil 72 48 95 (95) 120 73
------ ----- ------ ------ ------ -----
Net generation 13,925 13,500 13,138 12,739 12,030 12,264
Utility purchases and interchange 2,439 2,297 2,268 3,071 2,468 2,219
Nonutility purchases 3,292 3,296 3,201 2,796 2,236 1,940
------ ----- ------ ------ ------ -----
Total sources of energy 19,656 19,093 18,607 18,606 16,734 16,423
Company use, line loss, etc. (2,355) (2,853) (2,932) (2,751) (2,248) (2,256)
------ ----- ------ ------ ------ -----
Total electric energy sales 17,301 16,240 15,675 15,855 14,486 14,167
====== ====== ====== ====== ======= ======
Fuel Expense (in millions):
Coal $165 $168 $164 $164 $163 $174
Nuclear 10 8 10 10 10 8
Gas & oil 2 2 2 1 2 1
------ ----- ------ ------ ------ -----
Total $177 $178 $176 $175 $175 $183
====== ===== ====== ====== ====== =====
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $ 38 $ 27 $ 18 $ 43 $ 35 $ 31
Nonutility purchases 211 188 192 158 123 104
Deferred nonutility costs (13) - - - - -
------ ----- ------ ------ ------ -----
Total $236 $215 $210 $201 $158 $135
====== ===== ====== ====== ====== =====
Electric Energy Sales (in thousands of MWH):
Residential 3,756 3,801 3,897 3,765 3,773 3,715
Commercial 4,198 4,098 4,044 3,922 3,794 3,651
Industrial 4,996 4,835 4,563 4,463 4,449 4,346
Other 713 821 814 857 958 568
------ ----- ------ ------ ------ -----
Sales to customers 13,663 13,555 13,318 13,007 12,974 12,280
Sales to other utilities 3,638 2,685 2,357 2,848 1,512 1,887
------ ----- ------ ------ ------ -----
Total 17,301 16,240 15,675 15,855 14,486 14,167
====== ====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 327 $ 342 $ 339 $322 $321 $308
Commercial 311 316 302 287 279 261
Industrial 263 267 249 237 237 227
Other 2 40 36 39 45 31
------ ----- ------ ------ ------ -----
Sales to customers 903 965 926 885 882 827
Sales to other utilities 101 54 53 68 36 52
------ ----- ------ ------ ------ -----
Total electric energy sales 1,004 1,019 979 953 918 879
Other revenues 28 34 41 28 27 29
------ ----- ------ ------ ------ -----
Total $1,032 $1,053 $1,020 $981 $945 $908
====== ====== ====== ====== ====== ======
Price per KWH (in cents):
Residential 8.74 8.84 8.70 8.52 8.51 8.30
Commercial 7.42 7.58 7.48 7.29 7.34 7.17
Industrial 5.28 5.42 5.44 5.33 5.32 5.24
Total sales to customers 6.85 7.00 6.95 6.79 6.80 6.74
Total electric energy sales 5.99 6.18 6.24 6.00 6.34 6.21
Customers at Year-End (in thousands) 577 575 573 571 567 563
<FN>
(a) Summer ratings at December 31, 1998 of owned and contracted capacity were
2,284 MW and 794 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
F-140
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31, 1998(1) 1997 1996(2) 1995(3) 1994(4) 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $1,032.2 $1,052.9 $1,019.6 $ 981.3 $ 944.7 $ 908.3
Other operation and
maintenance expense 275.1 258.4 293.9 266.3 294.3 241.3
Income before
extraordinary item 58.6 95.0 69.8 111.0 31.8 95.7
Net income 39.6 95.0 69.8 111.0 31.8 95.7
Earnings available
for common stock 38.9 94.4 73.9 109.5 28.9 90.7
Net utility plant
in service 1,626.5 1,720.8 1,715.7 1,692.9 1,621.8 1,542.3
Total assets 4,524.8 2,563.0 2,503.4 2,439.6 2,338.2 2,261.5
Long-term debt 626.4 676.4 656.5 642.5 616.5 524.5
Long-term obligations
under capital leases 2.6 3.3 4.1 5.3 6.7 7.7
Company-obligated
mandatorily redeemable
preferred securities 105.0 105.0 105.0 105.0 105.0 -
Capital expenditures and
investments 89.6 99.1 114.7 130.5 174.5 150.3
Return on average
common equity 5.0% 12.1% 10.0% 15.8% 4.2% 13.5%
Employees (actual) 1,780 1,539 2,071 2,665 3,031 3,539
<FN>
(1) Results for 1998 include an extraordinary charge of $19 million (after-tax)
as a result of the PaPUC's Restructuring Order. Also in 1998, as a result
of the PaPUC Order, Penelec recorded a non-recurring charge of $21 million
(after-tax) related to the obligation to refund 1998 revenues; and for the
establishment of a sustainable energy fund.
(2) Results for 1996 reflect a non-recurring charge of $19.7 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(3) Results for 1995 reflect the reversal of $32.1 million (after-tax) of
certain future TMI-2 retirement costs written off in 1994. The
reversal of this write-off resulted from a 1995 Pennsylvania
Supreme Court decision that overturned a 1994 lower court order,
and restored a 1993 PaPUC order allowing for the recovery of such
costs. Partially offsetting this increase was a non-recurring
charge to income of $2.7 million (after-tax) of TMI-2 monitored
storage costs deemed not probable of recovery through ratemaking.
(4) Results for 1994 reflect a net non-recurring charge to earnings of $61.8
million (after-tax) due to the write-off of certain future TMI-2 retirement
costs ($32.1 million); a charge for costs related to early retirement
programs ($25.6 million); a write-off of postretirement benefit costs
believed not probable of recovery in rates ($10.6 million); and net
interest income from refunds of previously paid federal income taxes
related to the tax retirement of TMI-2 ($6.5 million).
</FN>
F-141
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
In Thousands 1998 1997 1998* 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $263,655 $289,753 $250,355 $247,862
Operating income 42,820 58,856 34,586 34,255
Income before extraordinary item 26,645 42,894 19,751 18,841
Net income/(loss) 26,645 42,894 (68,079) 18,841
Earnings/(loss) available for common stock 26,529 42,750 (68,310) 18,667
<CAPTION>
Third Quarter Fourth Quarter
In Thousands 1998** 1997 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $259,354 $257,569 $258,862 $257,752
Operating income 18,772 35,444 29,445 29,395
Income/(loss) before extraordinary item (5,860) 19,369 18,054 13,919
Net income 63,020 19,369 18,054 13,919
Earnings available for common stock 62,846 19,196 17,880 13,745
<FN>
* Results for the second quarter of 1998 were affected by an extraordinary
charge of $87.8 million after-tax as a result of the Pennsylvania Public
Utility Commission's (PaPUC) June 30, 1998 Restructuring Order on Penelec's
restructuring plans.
** In the third quarter of 1998, as a result of the amended PaPUC
Restructuring Order, Penelec reversed $83.1 million after-tax of the
extraordinary charge taken in the second quarter, primarily related to
above-market nonutility generation costs; and recorded an additional
extraordinary charge of $14 million after-tax primarily related to the
write-off of FERC assets. Also, in the third quarter of 1998, as a
result of the amended PaPUC Order, Penelec recorded a non-recurring
charge of $21 million after-tax related to the obligation to refund 1998
revenues; and for the establishment of a sustainable energy fund.
</FN>
F-142
</TABLE>
<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Pennsylvania Electric Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Pennsylvania Electric Company and Subsidiary Companies at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 3, 1999
F-143
<PAGE>
Pennslvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
ASSETS
Utility Plant:
Transmission, distribution and general
plant $1,768,621 $1,665,958
Generation plant 1,033,739 1,146,762
---------- --------
Utility plant in service 2,802,360 2,812,720
Accumulated depreciation (1,175,842) (1,091,965)
---------- --------
Net utility plant in service 1,626,518 1,720,755
Construction work in progress 18,862 69,089
Other, net 19,482 26,110
---------- --------
Net utility plant 1,664,862 1,815,954
---------- --------
Other Property and Investments:
Nuclear decommissioning trusts, at
market (Note 13) 82,803 68,129
Other, net 7,705 7,071
---------- --------
Total other property and investments 90,508 75,200
---------- --------
Current Assets:
Cash and temporary cash investments 2,750 -
Special deposits 2,632 2,449
Accounts receivable:
Customers, net 69,887 71,338
Other 28,893 21,051
Unbilled revenues 43,998 47,728
Materials and supplies, at average
cost or less:
Construction and maintenance 39,452 47,853
Fuel 17,107 14,841
Deferred income taxes (Note 8) 7,589 7,589
Prepayments 31,551 29,856
---------- --------
Total current assets 243,859 242,705
---------- --------
Deferred Debits and Other Assets:
Regulatory assets, net: (Notes 5 & 13)
Competitive transition charge 343,602 -
Other regulatory assets, net 1,206,594 360,315
Deferred income taxes (Note 8) 951,471 55,698
Other 23,911 13,118
Total deferred debits and other ---------- --------
assets 2,525,578 429,131
---------- --------
Total Assets $4,524,807 $2,562,990
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-144
<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1998 1997
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 367,653 393,708
Accumulated other comprehensive income 8,353 6,332
---------- ---------
Total common stockholder's equity (Note 4) 767,304 791,338
Cumulative preferred stock (Note 4) 16,681 16,681
Company-obligated mandatorily redeemable
preferred securities (Note 4) 105,000 105,000
Long-term debt (Note 3) 626,434 676,444
---------- ---------
Total capitalization 1,515,419 1,589,463
---------- ---------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 50,012 30,011
Notes payable (Note 2) 86,023 77,581
Obligations under capital leases (Note 12) 13,979 19,939
Accounts payable:
Affiliates 47,164 24,811
Other 47,795 62,483
Taxes accrued 32,755 15,966
Interest accrued 19,700 20,902
Other 37,272 19,654
---------- ---------
Total current liabilities 334,700 271,347
---------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 1,338,235 478,182
Unamortized investment tax credits 36,926 39,353
Three Mile Island Unit 2 future costs 120,904 12,227
Nuclear fuel disposal fee 15,956 15,172
Nonutility generation contract loss liability 1,016,380 -
Other 146,287 57,246
Total deferred credits and other ---------- ---------
liabilities 2,674,688 702,180
---------- ---------
Commitments and Contingencies (Note 13)
Total Liabilities and Capitalization $4,524,807 $2,562,990
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-145
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues $1,032,226 $1,052,936 $1,019,645
--------- ---------- ----------
Operating Expenses:
Fuel 176,548 177,256 176,158
Power purchased and interchanged:
Affiliates 2,729 3,252 3,529
Others 233,395 212,166 206,403
Deferral of energy costs, net - - 795
Other operation and maintenance 275,107 258,416 293,868
Depreciation and amortization 109,800 107,111 94,580
Taxes, other than income taxes 63,874 66,395 64,955
--------- ---------- ----------
Total operating expenses 861,453 824,596 840,288
--------- ---------- ----------
Operating Income Before Income Taxes 170,773 228,340 179,357
Income taxes (Note 8) 45,150 70,390 45,648
--------- ---------- ----------
Operating Income 125,623 157,950 133,709
--------- ---------- ----------
Other Income and Deductions:
Allowance for other funds used during construction - - 173
Other income/(expense), net (6,429) 2,469 (825)
Income taxes (Note 8) 2,613 (909) 99
--------- ---------- ----------
Total other income and deductions (3,816) 1,560 (553)
--------- ---------- ----------
Income Before Interest Charges 121,807 159,510 133,156
--------- ---------- ----------
Interest Charges:
Long-term debt 47,729 49,125 49,654
Company-obligated mandatorily
redeemable preferred securities 9,188 9,188 9,188
Other interest 8,197 8,338 7,112
Allowance for borrowed funds used during
construction (1,897) (2,164) (2,607)
--------- ---------- ----------
Total interest charges 63,217 64,487 63,347
--------- ---------- ----------
Income Before Extraordinary Item 58,590 95,023 69,809
Extraordinary item (net of income taxes of
$11,592) (Note 5) (18,950) - -
--------- ---------- ----------
Net Income 39,640 95,023 69,809
Preferred stock dividends 695 665 1,503
Gain on preferred stock reacquisition - - 5,566
--------- ---------- ----------
Earnings Available for Common Stock $ 38,945 $ 94,358 $ 73,872
========= ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
F-146
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 39,640 $ 95,023 $ 69,809
--------- ---------- ----------
Other comprehensive income/(loss), net of tax:
(Note 4)
Net unrealized gain on investments 2,064 2,125 2,014
Minimum pension liability (42) (122) -
--------- ---------- ----------
Total other comprehensive income 2,022 2,003 2,014
--------- ---------- ----------
Comprehensive income $ 41,662 $ 97,026 $ 71,823
========= ========== ==========
<CAPTION>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $393,708 $359,373 $325,499
Net income 39,640 95,023 69,809
--------- ---------- ----------
Total 433,348 454,396 395,308
--------- ---------- ----------
<CAPTION>
Cash dividends on capital stock:
Cumulative preferred stock (at the annual rates indicated below):
<S> <C> <C> <C> <C> <C>
4.40% Series B ($4.40 a share) (131) (125) (244)
3.70% Series C ($3.70 a share) (183) (174) (351)
4.05% Series D ($4.05 a share) (114) (109) (251)
4.70% Series E ($4.70 a share) (66) (64) (132)
4.50% Series F ($4.50 a share) (77) (74) (188)
4.60% Series G ($4.60 a share) (124) (119) (337)
Common stock (not declared on a
<S> <C> <C> <C>
per share basis) (65,000) (60,000) (40,000)
--------- ---------- ----------
Total (65,695) (60,665) (41,503)
--------- ---------- ----------
Gain on preferred stock reacquisition - - 5,566
Other adjustments, net - (23) 2
--------- ---------- ----------
Balance at end of year $367,653 $393,708 $359,373
========= ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
F-147
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net income $ 39,640 $ 95,023 $ 69,809
Extraordinary item (net of income tax
benefit of $11,592) 18,950 - -
--------- ---------- ----------
Income before extraordinary item 58,590 95,023 69,809
Adjustments to reconcile income to cash provided:
Depreciation and amortization 107,239 99,688 89,021
Amortization of property under capital leases 7,319 7,954 8,733
PaPUC restructuring rate orders 35,600 - -
Voluntary enhanced retirement programs - - 33,626
Nuclear outage maintenance costs, net 3,251 (3,072) 3,099
Deferred income taxes and investment tax
credits, net (15,496) 10,193 19,208
Deferred energy costs, net - - 731
Allowance for other funds used during
construction - - (173)
Changes in working capital:
Receivables (2,661) (20,426) 7,648
Materials and supplies (1,310) (3,763) 5,591
Special deposits and prepayments (1,878) 6,973 (26,232)
Payables and accrued liabilities 39,061 19,736 (52,958)
Nonutility generation contract buyout costs (6,101) (10,000) (11,700)
Other, net (31,479) (22,963) (7,746)
--------- ---------- ----------
Net cash provided by operating activities 192,135 179,343 138,657
--------- ---------- ----------
Investing Activities:
Capital expenditures and investments (89,550) (99,074) (114,672)
Contributions to decommissioning trusts (5,270) (5,288) (5,263)
Other, net (520) 454 (684)
-------- ---------- ----------
Net cash used for investing activities (95,340) (103,908) (120,619)
-------- ---------- ----------
Financing Activities:
Issuance of long-term debt - 49,875 39,513
Increase/(Decrease) in notes payable, net 8,442 (30,099) 80,580
Retirement of long-term debt (30,011) (26,010) (75,009)
Capital lease principal payments (6,781) (8,506) (8,418)
Redemption of preferred stock - - (14,527)
Dividends paid on preferred stock (695) (695) (1,544)
Dividends paid on common stock (65,000) (60,000) (40,000)
-------- ---------- ----------
Net cash required by financing activities (94,045) (75,435) (19,405)
-------- ---------- ----------
Net increase/(decrease) in cash and temporary cash
investments from above activities 2,750 - (1,367)
Cash and temporary cash investments,
beginning of year - - 1,367
--------- ---------- ----------
Cash and temporary cash investments, end of year $ 2,750 $ - $ -
========= ======== ==========
Supplemental Disclosure:
Interest and preferred dividends paid $ 64,057 $ 62,514 $ 64,706
========= ========== ==========
Income taxes paid $ 46,732 $ 48,348 $ 43,098
========= ========== ==========
New capital lease obligations incurred $ 1,714 $ 11,155 $ 715
======== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
F-148
</TABLE>
<PAGE>
<TABLE>
Pennsylvania Electric Company and Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(In Thousands)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
--------------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
--------------------------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful
accounts $3,526 $5,826 $2,123(a) $8,240(b) $3,235
Allowance for inventory
obsolescence 67 - - 67(c) -
Year ended December 31, 1997
Allowance for doubtful
accounts $3,818 $6,364 $2,186(a) $8,842(b) $3,526
Allowance for inventory
obsolescence 186 - - 119(c) 67
Year ended December 31, 1996
Allowance for doubtful
accounts $3,152 $5,961 $1,973(a) $7,268(b) $3,818
Allowance for inventory
obsolescence - 650 - 464(c) 186
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
</FN>
F-149
</TABLE>
Exhibits to be filed with 1998 10-K
10-O GPU, Inc. Restricted Stock Plan for Outside Directors dated June 4, 1998.
10-R Second Amended and Restated Nuclear Material Lease Agreement, dated as of
November 5, 1998, between Oyster Creek Fuel Corp. and JCP&L.
10-S Second Amended and Restated Nuclear Material Lease Agreement, dated as
of November 5, 1998, between TMI-1 Fuel Corp. and JCP&L.
10-T Letter Agreement, dated as of November 5, 1998, from JCP&L relating to
Oyster Creek Nuclear Material Lease Agreement.
10-U Letter Agreement, dated as of November 5, 1998, from JCP&L relating to
JCP&L TMI-1 Nuclear Material Lease Agreement.
10-V Second Amended and Restated Trust Agreement, dated as of November 5, 1998,
between United States Trust Company of New York, as Owner Trustee, Lord
Fuel Corp., as Trustor and Beneficiary, and JCP&L, Met-Ed and Penelec.
10-W Second Amended and Restated Nuclear Material Lease Agreement, dated as
of November 5, 1998, between TMI-1 Fuel Corp. and Met-Ed.
10-X Letter Agreement, dated as of November 5, 1998, from Met-Ed relating to
Met-Ed TMI-1 Nuclear Material Lease Agreement.
10-Y Second Amended and Restated Nuclear Material Lease Agreement, dated as
of November 5, 1998, between TMI-1 Fuel Corp. and Penelec.
10-Z Letter Agreement, dated as of November 5, 1998, from Penelec relating to
Penelec TMI-1 Nuclear Material Lease Agreement.
10-AA GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as
amended and restated to reflect amendments through March 5, 1998.
10-BB Form of 1998 Stock Option Agreement under the 1990 Stock Plan for
Employees of GPU, Inc. and Subsidiaries.
10-CC Form of 1998 Performance Units Agreement under the 1990 Stock Plan for
Employees of GPU, Inc. and Subsidiaries.
10-KK Homer City Electric Generating Station Asset Purchase Agreement by and
among Penelec, NGE Generation, Inc., and New York State Electric & Gas
Corporation, as sellers, and Mission Energy Westside, Inc., as buyer,
dated as of August 1, 1998.
10-LL Purchase and Sale Agreement by and between JCP&L, as seller, and Sithe
Energies, Inc., as buyer, dated as of October 29, 1998.
10-MM Purchase and Sale Agreement by and among JCP&L, Met-Ed as sellers, GPU,
Inc, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998.
10-NN Purchase and Sale Agreement by and between Met-Ed, as seller, and Sithe
Energies, Inc., as buyer, dated as of October 29, 1998.
10-OO Purchase and Sale Agreement by and between Penelec, as seller, and Sithe
Energies, Inc., as buyer, dated as of October 29, 1998.
10-PP Voluntary Enhanced Retirement Program Agreement for Nonbargaining
Employees - Robert L. Wise, dated as of September 17, 1998.
12 Statements Showing Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
21 Subsidiaries of the Registrant
A - JCP&L
B - Met-Ed
C - Penelec
23 Consent of Independent Accountants
A - GPU
B - JCP&L
C - Met-Ed
D - Penelec
27 Financial Data Schedule
A - GPU
B - JCP&L
C - Met-Ed
D - Penelec
EXHIBIT 10-O
GPU, INC.
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
AS AMENDED AND RESTATED AS OF JUNE 4, 1998
<PAGE>
GPU, INC.
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
1. Purpose. The purpose of this restricted Stock Plan for Outside Directors (the
"Plan") is to enable GPU, Inc. ("GPU") to attract and retain persons of
outstanding competence to serve on its Board of Directors by paying such persons
a portion of their compensation in GPU Common Stock ("Common Stock") pursuant to
the terms hereof.
2. Definitions.
(a) The term "Board of Directors" shall mean the board of directors of
GPU.
(b) The term "Change in Control" shall mean the occurrence during the
term of the Plan of:
(1) An acquisition (other than directly from GPU) of any
Common Stock or other voting securities of GPU entitled to vote generally for
the election of directors (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the then outstanding
shares of Common Stock or the combined voting power of GPU's then outstanding
Voting Securities; provided, however, in determining whether a Change in Control
has occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (A) an employee benefit plan (or a trust forming a part thereof)
maintained by (i) GPU or (ii) any corporation or other Person of which a
majority of its voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by GPU (for purposes of this definition, a
"Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with
a "Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of
the Board of Directors (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the Board of
Directors; provided, however, that if the election, or nomination for election
by GPU's shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Plan, be considered as a member of the Incumbent Board;
2
<PAGE>
provided further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board of
Directors (a "Proxy Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or
into GPU or in which securities of GPU are
issued, unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization with or into GPU or in which securities of GPU are issued where:
(i) the shareholders of GPU, immediately
before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of
the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least
seventy percent (70%) of the members of the board of directors of the Surviving
Corporation, or a corporation, directly or indirectly, beneficially owning a
majority of the Voting Securities of the Surviving Corporation, and
(iii) no Person other than (w) GPU, (x) any
Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof)
that, immediately prior to such merger, consolidation or reorganization, was
maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to
such merger, consolidation or reorganization had Beneficial Ownership of twenty
percent (20%) or more of the then outstanding Voting Securities or Common Stock,
has Beneficial Ownership of twenty percent (20%) or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities or its
common stock;
3
<PAGE>
(B) A complete liquidation or dissolution of GPU; or
(C) The sale or other disposition of all or
substantially all of the assets of GPU to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding Common Stock or Voting
Securities as a result of the acquisition of Common Stock or Voting Securities
by GPU which, by reducing the number of shares of Common Stock or Voting
Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of shares of Common Stock or Voting Securities by GPU, and after
such share acquisition by GPU, the Subject Person becomes the Beneficial Owner
of any additional shares of Common Stock or Voting Securities which increases
the percentage of the then outstanding shares of Common Stock or Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control
shall occur.
(c) The term "Outside Director" or "Participant" means a member of the
Board of Directors who is not an employee (within the meaning of the Employee
Retirement Income Security Act of 1974) of GPU or any of its Subsidiaries. A
director of GPU who is also an employee of GPU or any of its Subsidiaries shall
become eligible to participate in this Plan and shall be entitled to receive an
award of restricted stock upon the termination of such employment.
(d) The term "Subsidiary" means, for purposes other than Section 2(b),
any corporation 50% or more of the outstanding Common Stock of which is owned,
directly or indirectly, by GPU.
(e) The term "Service" shall mean service as an Outside Director.
3. Eligibility. All Outside Directors of GPU shall receive stock awards
hereunder.
4
<PAGE>
4. Stock Awards.
(a) A total of 33,000(1) shares of GPU Common Stock shall be available
for awards under the Plan. Such shares shall be either previously unissued
shares or reacquired shares. Any restricted shares awarded under this Plan with
respect to which the restrictions do not lapse and which are forfeited as
provided herein shall again be available for other awards under the plan.
(b) Each Outside Director shall receive an annual award of 300 shares
of GPU Common Stock with respect to each calendar year or portion thereof,
during which he or she serves as an Outside Director, beginning with the
calendar year 1993. Awards shall be made in January of each year. However, for
the calendar year in which an Outside Director commences Service, the award of
shares to such Outside Director for such year shall be made in the month in
which his or her Service commences, if his or her Service commences after
January 31 of such year. All awards of shares made hereunder shall be subject to
the restrictions set forth in Section 5.
(c) Subject to the provisions of Section 5, certificates representing
shares of GPU Common Stock awarded hereunder shall be issued in the name of the
respective Participants. During the period of time such shares are subject to
the restrictions set forth in Section 5, such certificates shall be endorsed
with a legend to that effect, and shall be held by GPU or an agent therefor. The
Participant shall, nevertheless, have all the other rights of a shareholder,
indddddcluding the right to vote and the right to receive all cash dividends
paid with respect to such shares.
Subject to the requirements of applicable law, certificates representing such
shares shall be delivered to the Participant within 30 days after the lapse of
the restrictions to which they are subject.
- ----------
(1) Initially, 20,000 shares were authorized to be issued under the Plan.
On May 29, 1991, GPU effected a two-for-one stock split by way of a
stock dividend, leaving 33,000 shares available for issuance under the
Plan on and after July 1, 1991 after giving effect to shares previously
awarded.
5
<PAGE>
(d) If as a result of a stock dividend, stock split, recapitalization
(or other adjustment in the stated capital of GPU), or as the result of a
merger, consolidation, or other reorganization, the common shares of GPU are
increased, reduced, or otherwise changed, the number of shares available and to
be awarded hereunder shall be appropriately adjusted, and if by virtue thereof a
Participant shall be entitled to new or additional or different shares, such
shares to which the Participant shall be entitled shall be subject to the terms,
conditions, and restrictions herein contained relating to the original shares.
In the event that warrants or rights are awarded with respect to shares awarded
hereunder, and the recipient exercises such rights or warrants, the shares or
securities issuable upon such exercise shall be likewise subject to the terms,
conditions, and restrictions herein contained relating to the original shares.
5. Restrictions.
a) Shares are awarded to a Participant on the condition that he
or she serves or has served as an Outside Director until:
(i) the Participant's death or disability, or
(ii) the Participant's retirement not earlier than the first
day of the month following the attainment of the Participant's 72nd birthday ;
or
(iii) the Participant's resignation or retirement prior to the
first day of the month following the attainment of the Participant's 72nd
birthday with the consent of the Board, i.e., approval thereof by a least 80% of
the directors voting thereon, with the affected director abstaining; or
(iv) the Participant's failure to be re-elected after
being duly nominated. Termination of Service of a Participant for any other
reason, including, without limitation, any involuntary termination effected by
Board action, shall result in forfeiture of all shares awarded. Notwithstanding
the foregoing, upon the occurrence of a Change in Control, the restrictions set
forth in Section 5(b) hereof to which any shares awarded to a Participant are
then still subject shall lapse, and the termination of the Participant's Service
for any reason at any time after the occurrence of such Change in Control shall
not result in the forfeiture of any such shares.
6
<PAGE>
(b) Shares awarded hereunder may not be sold, exchanged, transferred,
pledged, hypothecated, or otherwise disposed of other than to GPU pursuant to
Section 5(a) during the period commencing on the date of the award of such
shares and ending on the date of termination of the Outside Director's Service
(c) Each Participant shall represent and warrant to and agree with GPU
that he or she (i) takes any shares awarded under the Plan for investment only
and not for purposes of sale or other disposition and will also take for
investment only and not for purposes of sale or other disposition any rights,
warrants, shares, or securities which may be issued on account of ownership of
such shares, and (ii) will not sell or transfer any shares awarded or any shares
received upon exercise of any such rights or warrants except in accordance with
(A) an opinion of counsel for GPU (or other counsel acceptable to GPU) that such
shares, rights, warrants, or other securities may be disposed of without
registration under the Securities Act of 1933, or (B) an applicable "no action"
letter issued by the Staff of the Commission.
6. Administrative Committee. An Administrative Committee (the "Committee") shall
have full power and authority to construe and administer the Plan. Any action
taken under the provisions of the Plan by the Committee arising out of or in
connection with the administration, construction, or effect of the Plan or any
rules adopted thereunder shall, in each case, lie within the discretion of the
Committee and shall be conclusive and binding under GPU and upon all
Participants, and all persons claiming under or through any of them.
Notwithstanding the foregoing, any determination made by the Committee after the
occurrence of a Change in Control that denies in whole or in part any claim made
by any individual for benefits under the Plan shall be subject to judicial
review, under a "de novo," rather than a deferential, standard. The Committee
shall have as members the Chief Executive Officer of GPU and two officers of GPU
or its Subsidiaries designated by the Chief Executive Officer; in the absence of
such designation, the other members of the Committee shall be the Chief
Financial Officer and the Secretary of GPU.
7. Approval: Effective Date. The Plan is subject to the approval of a majority
of the holders of GPU's Common Stock present and entitled to vote at a meeting
of shareholders, and of the Securities and Exchange Commission under the Public
Utility Holding Company Act of 1935. The Plan shall be effective January 1,
1989.
7
<PAGE>
8. Termination and Amendment. The Board of Directors of GPU may suspend,
terminate, modify or amend the Plan, provided that no amendment or modification
to Section 2(b), to the penultimate sentence of Section 6, to the last sentence
of Section 5(a), or to this Section 8, nor any suspension or termination of the
Plan, effectuated (I) at the request of a third party who has indicated an
intention or taken steps to effect a Change in Control and who effectuates a
Change in Control, (ii) within six (6) months prior to, or otherwise in
connection with, or in anticipation of, a Change in Control which has been
threatened or proposed and which actually occurs, or (iii) following a Change in
Control, shall be effective if the amendment, modification, suspension or
termination adversely affects the rights of any Participant under the Plan. If
the Plan is terminated, the terms of the Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. In
addition, no amendment, modification, suspension or termination of the Plan
shall adversely affect the rights of any Participant with respect to any award
(including without limitation any right with respect to the timing and method of
payment of any award) granted to the Participant prior to the date of the
adoption of such amendment, modification, suspension or termination without such
Participant's written consent.
8
EXHIBIT 10-R
COUNTERPART NO.
SECOND AMENDED AND RESTATED
NUCLEAR MATERIAL LEASE AGREEMENT
Dated as of November 5, 1998
between
OYSTER CREEK FUEL CORP.,
as Lessor
and
JERSEY CENTRAL POWER & LIGHT COMPANY
as Lessee
AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR
UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS
GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS
SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS
AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING,
WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR
MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT.
THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN
EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY
INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE
LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE
AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<PAGE>
TABLE OF CONTENTS
1 Definitions 2
2 Notices 2
3 Title to Remain in the Lessor; Quiet
Enjoyment; Fuel Management; Location 3
4 Agreement for Lease of Nuclear Material 3
5 Orders for Nuclear Material and Services;
Assigned Agreements 4
6 Leasing Records; Payment of Costs of Lessor 5
7 No Warranties or Representation by Lessor 7
8 Lease Term; Early Termination; Termination
Of Leasing Record 8
9 Payment of Rent; Payments with Respect to the
Lessor's Financing Costs 11
10 Compliance with Laws; Restricted Use of Nuclear
Material; Assignments; Permitted Liens; Spent Fuel 11
11 Permitted Contests 15
12 Insurance; Compliance with Insurance Requirements 16
13 Indemnity 18
14 Casualty and Other Events 21
15 Nuclear Material to Remain Personal Property 22
16 Events of Default 22
17 Rights of the Lessor Upon Default of the Lessee 24
18 Termination After Certain Events 26
19 Investment Tax Credit 28
20 Certificates; Information; Financial Statements 29
21 Obligation of the Lessee to Pay Rent 31
22 Miscellaneous 31
<PAGE>
SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT
SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease
Agreement") dated as of the 5th day of November, 1998, by and between OYSTER
CREEK FUEL CORP., a Delaware corporation (herein called the "Lessor"), and
JERSEY CENTRAL POWER & LIGHT COMPANY, a Pennsylvania corporation (herein called
the "Lessee").
RECITALS
A. The Lessor and Lessee entered into a Nuclear Material Lease
Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease
of Nuclear Material to the Lessee;
B. The Original Lease provided for the Lessor to enter into
certain loan agreements and ancillary documents with The Prudential Insurance
Company of America and certain affiliates thereof ("Prudential") to provide
financing from Prudential for the acquisition of Nuclear Material under the
Original Lease;
C. Such loan arrangements with Prudential were terminated and
Lessor entered into a new credit agreement and related instruments pursuant to
which a bank syndicate for which Union Bank of Switzerland, New York Branch
("UBS") acted as agent to provide financing for the acquisition of Nuclear
Material being leased hereunder;
D. Lessor and Lessee entered into an Amended and Restated
Nuclear Material Lease Agreement, dated as of November 17, 1995 ("Amended and
Restated Lease") to reflect the necessary modifications consistent with the
establishment of the credit facility with UBS;
E. Concurrent with the execution and delivery hereof, such
credit agreements with UBS are being terminated and Lessor is entering into a
new credit agreement and related instruments to which a bank syndicate for which
The First National Bank of Chicago and PNC Bank, National Association, will act
as agents to provide financing for the acquisition of the Nuclear Material being
leased hereunder;
F. Accordingly, the Lessor and the Lessee desire to enter into
this Second Amended and Restated Lease Agreement in order to reflect necessary
modifications consistent with establishment of such new credit facility and
other modifications thereof in certain other respects, which agreement shall
supercede the Original Lease and the Amended and Restated Lease;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and intending to be legally bound hereby, the parties covenant
and agree as follows:
1. Definitions. Except as otherwise provided herein,
capitalized terms used in this Lease Agreement (including the Exhibits) shall
have the respective meanings set forth in Appendix A.
2. Notices. Any notice, demand or other communication which by
any provision of this Lease Agreement is required or permitted to be given shall
be deemed to have been delivered if in writing and actually delivered by mail,
courier, telex or facsimile to the following addresses:
(i) If to the Lessor, Oyster Creek Fuel Corp., c/o
United States Trust Company of New York, 114 West 47th Street, New
York, New York 10036, Attention: Corporate Trust and Agency Division,
telecopy number 212-852-1626, or at such other address as the Lessor
may have furnished to the Lessee and the Secured Parties in writing; or
(ii) If to the Lessee, Jersey Central Power & Light
Company c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New
Jersey 07962-1957, Attention: Vice President and Treasurer, telecopy
number 973-644-4224, or at such other address as the Lessee may have
furnished the Lessor and the Secured Parties in writing; or
(iii) except as provided in the following sentence or
as otherwise requested in writing by any Secured Party, any notice,
demand or communication which by any provision of this Lease Agreement
is required or permitted to be given to the Secured Parties shall be
deemed to have been delivered to all the Secured Parties if a single
copy thereof is delivered to The First National Bank of Chicago, One
First National Plaza, Mail Suite 0363, Chicago, Illinois 60670,
Attention: Kenneth J. Bauer, facsimile number (312) 732-3055; or at
such other address as either may have furnished the Lessor and the
Lessee in writing. Any Leasing Record or invoice of a Manufacturer or
other Person performing services covering the Nuclear Material which
is required to be delivered to the Secured Parties pursuant to Section
6(c)(ii) of this Lease Agreement and any Rent Due and SCV Confirmation
Schedule which is required to be delivered to the Secured Parties
pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be
deemed to have been delivered to all the Secured Parties if a single
copy thereof is delivered to Kenneth J. Bauer at the address indicated
in this Section 2(iii).
2
<PAGE>
3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel
Management; Location.
(a) The Lessor and the Lessee hereby acknowledge that
this Lease Agreement is a lease and is intended to provide for the obligations
of the Lessee to pay installments of Rent as the same become due; that, subject
to the provisions of Section 10(h), the Lessor has title to and is the owner of
the Nuclear Material; and that the relationship between the Lessor and the
Lessee shall always be only that of lessor and lessee.
(b) The Lessor (including its successors and assigns)
agrees and covenants that, so long as the Lessee makes timely payments of Rent
and fully performs all other obligations to be performed by the Lessee under
this Lease Agreement, the Lessor (including its successors and assigns) shall
not hinder or interfere with the Lessee's peaceable and quiet enjoyment of the
possession and use of the Nuclear Material, for the term or terms herein
provided, subject, however, to the terms of this Lease Agreement.
(c) So long as no Lease Event of Default shall have
occurred and be continuing and the Lessor shall not have elected to exercise any
of its remedies under Section 17 hereof, the Lessee shall have the right to
engage in Fuel Management. The Lessee is hereby designated the agent of the
Lessor in all dealings with Manufacturers and any regulatory agency having
jurisdiction over the ownership or possession of the Nuclear Material for so
long as the Lessee shall have the right to engage in Fuel Management. As such
agent of the Lessor, the Lessee agrees to make, or cause to be made, all filings
and to obtain all consents and permits required as a result of the Lessor's
ownership and leasing of the Nuclear Material.
(d) The Lessee covenants to the Lessor that the
location of Nuclear Material will be limited to: (w) any Manufacturer's
facility, (x) transit between one Manufacturer's facility and another
Manufacturer's facility or the site of the Generating Facility, (y) the site of
the Generating Facility and (z) the Generating Facility. Each assembly of the
Nuclear Material will be located during its Heat Production and "cooling-off"
stage at the Generating Facility or the site of the Generating Facility.
4. Agreement for Lease of Nuclear Material. From and after the
Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from
the Lessor such Nuclear Material as may be from time to time mutually agreed
upon, provided that the total Stipulated Casualty Value of all Nuclear Material
leased under this Lease Agreement shall not exceed at any one time $25,000,000
3
<PAGE>
in the aggregate or such other amount as the Lessor and the Lessee may agree to
in writing (the "Maximum Stipulated Casualty Value"). The Lessor and the Lessee
shall evidence their agreement to lease particular Nuclear Material in
accordance with the terms and provisions of this Lease Agreement by signing and
delivering to each other, from time to time, Leasing Records, substantially in
the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee,
covering such Nuclear Material. Nothing contained herein shall be deemed to
prohibit the Lessee from leasing from other lessors or otherwise obtaining other
nuclear material for use in the Generating Facility, subject to the provisions
with respect to intermingling of fuel assemblies or sub-assemblies with other
fuel assemblies or sub-assemblies contained in Section 6 hereof.
5. Orders for Nuclear Material and Services; Assigned Agreements.
a) The Nuclear Material Contracts listed in Exhibit C hereto,
relating, among other things, to the purchase of, and services to be performed
with respect to, Nuclear Material were entered into by the Lessee prior to the
date of this Lease Agreement, and, except as otherwise indicated on Exhibit C,
the interests of the Lessee under such Nuclear Material Contracts have been
assigned to the Lessor under an Assignment Agreement substantially in the form
of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems
necessary or desirable may be negotiated by the Lessee and executed by the
Lessee in its own name or, where authorized by the Lessor, as agent for the
Lessor.
(b) So long as no Lease Event of Default shall have occurred and be
continuing, and subject to the approval of the Lessor and to the limitation on
the Maximum Stipulated Casualty Value of the Nuclear Material set forth in
Section 4, the interests of the Lessee under any further Nuclear Material
Contracts (whether executed and delivered before or after the date of this Lease
Agreement) pursuant to which the Lessee desires the Lessor to purchase Nuclear
Material or have services performed on any Nuclear Material on behalf of the
Lessee may be assigned to the Lessor under an Assignment Agreement substantially
in the form of Exhibit D, with such changes to Exhibit 2 to Exhibit D as the
Secured Parties may consent to in writing, which consent shall not be
unreasonably withheld. The Lessee shall use its best efforts to cause the other
parties to such agreements to consent to each such assignment. Upon each such
assignment and the obtaining of such consents with respect to any Nuclear
Material Contract, the Lessor, subject to the limitation on the Maximum
Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall
make all payments which are required under such Assigned Agreements for the
4
<PAGE>
purchase of Nuclear Material or for services to be performed on the Nuclear
Material in accordance with the procedures set forth in Section 6.
(c) So long as no Lease Event of Default shall
have occurred and be continuing, the Lessor hereby authorizes the Lessee, at the
Lessee's own cost and expense, to assert all rights and claims and to bring
suits, actions and proceedings, in its own name or in the name of the Lessor, in
respect of any Manufacturer's warranties or undertakings, express or implied,
relating to any portion of the Nuclear Material and to retain the proceeds of
any such suits, actions and proceedings.
6. Leasing Records; Payment of Costs of Lessor.
(a) Interim Leasing Records. An Interim Leasing
Record shall be prepared by the Lessee, shall be dated the date that the Lessor
first makes any payment with respect to the Acquisition Cost of any Nuclear
Material and shall set forth a full description of such Nuclear Material, the
Acquisition Cost and location thereof, and such other details with respect to
such Nuclear Material upon which the parties may agree. During the period of
preparation and processing or reprocessing of Nuclear Material subject to an
Interim Leasing Record, if the Lessor shall make any further payment or payments
or if the Lessor shall receive any payment or payments representing a credit
against the Acquisition Cost previously paid with respect to such Nuclear
Material, a supplemental Interim Leasing Record dated the date that the Lessor
makes each such further payment or the date of receipt of any such credit shall
be signed by the Lessor and the Lessee to record the revised Acquisition Cost,
after giving effect to any such payments or credits with respect to such Nuclear
Material, any change in location and such additional details upon which the
parties may agree.
(b) Final Leasing Records. For Nuclear Material
previously covered by an Interim Leasing Record, the Final Leasing Record shall
be prepared by the Lessee, shall be dated the first day of the month following
the date of installation of such Nuclear Material in the Generating Facility,
unless such date is the first day of a month, in which case the Final Leasing
Record shall be dated such date. For Nuclear Material not previously covered by
an Interim Leasing Record, the Final Leasing Record shall be dated the date that
the Lessor first makes any payment with respect to the Acquisition Cost of such
Nuclear Material. A Final Leasing Record shall set forth a full description of
such Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the
location, and such other details with respect to such Nuclear Material upon
which the parties may agree.
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<PAGE>
(c) Payment of Nuclear Material Costs.
(i) On the Closing, the Lessor shall pay UBS pursuant
to Section 5.02 of the UBS Credit Agreement the principal amount of all
loans outstanding thereunder together with accrued interest thereon to
the extent not paid previously, and related costs and expenses in
connection therewith.
(ii) From time to time after the Closing, invoices of
Manufacturers, or of other Persons performing services, covering
Nuclear Material shall be forwarded to the Lessor in care of the Lessee
at the Lessee's address. Upon receipt by the Lessee of an invoice
covering Nuclear Material, the Lessee shall review such invoice and,
upon the Lessee's approval thereof, the Lessee shall forward such
invoice endorsed with the Lessee's approval to the Lessor, together
with a Leasing Record completed and signed by a Lessee Representative
covering such Nuclear Material. The Lessee's invoice for any cost
incurred by it and includable in the Acquisition Cost of any Nuclear
Material shall be forwarded to the Lessor and to the Secured Parties,
together with a Leasing Record completed and signed by a Lessee
Representative covering such costs. After receipt of such invoice and
Leasing Record, in form and substance satisfactory to the Lessor, the
Lessor, subject to the limitation on Maximum Stipulated Casualty Value
of the Nuclear Material set forth in Section 4, shall pay such invoice
as provided therein or in the related purchase agreement and shall
execute the Leasing Record and return a copy of such Leasing Record to
the Lessee and the Secured Parties. The Leasing Record shall be dated
as provided for in this Lease Agreement. In the event that the
Acquisition Cost of the Nuclear Material covered by any Leasing Record
has been paid or incurred by the Lessee, the Lessor, subject to the
limitation on Maximum Stipulated Casualty Value of the Nuclear Material
set forth in Section 4 shall promptly reimburse the Lessee for the
amount of the Acquisition Cost paid or incurred by the Lessee.
(iii) The Lessee shall: (A) pay all costs and expenses
of freight, packing, insurance, handling, storage, shipment and
delivery of the Nuclear Material to the extent that the same have not
been included in the Acquisition Cost, and (B) at its own cost and
expense, furnish such labor, equipment and other facilities and
supplies, if any, as may be required to install and erect the Nuclear
Material to the extent that the cost and expense thereof have not been
included in the Acquisition Cost. Such installation and erection shall
be in accordance with the specifications and
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requirements of each Manufacturer. The Lessor shall not be liable to
the Lessee for any failure or delay in obtaining Nuclear Material or
making delivery thereof.
(d) Intermingling of Fuel Assemblies. Subject to the
provisions of Section 10(h) hereof, the Nuclear Material shall be owned
exclusively by the Lessor and leased to the Lessee under this Lease Agreement.
Prior to the fabrication of Nuclear Material into a completed fuel assembly or
sub-assembly or while such Nuclear Material is being reprocessed, the Lessee
will cause or permit such Nuclear Material to be fabricated or assembled only
into fuel assemblies or sub-assemblies owned by the Lessor and leased under this
Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor
and leased to the Lessee hereunder may be intermingled in the Generating
Facility with fuel assemblies or sub-assemblies not owned by the Lessor and
leased to the Lessee under this Lease Agreement, provided that such assemblies
or sub-assemblies owned by the Lessor shall be readily identifiable by serial
number or other distinguishing marks.
7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL IS
LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF
ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF
OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS,
INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES
AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY
AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY
OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR
PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME
FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR
WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING
ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES
THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING,
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM NOR ANY OTHER PERSON
ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL
POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION
THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO
THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF
THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION,
ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE
OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT
NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING,
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CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON
BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER
REPRESENTATION, EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE
LEASED UNDER THIS LEASE AGREEMENT (a) WILL NOT RESULT IN INJURY OR DAMAGE TO
PERSONS OR PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE
RESULTS WHICH THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY
MANNER OR RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE
LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND
EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER
COMMON CONTROL WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A
MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT
NONE OF THE FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION,
WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY,
SUITABILITY OR CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY
RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY
OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR
IMPLIED.
8. Lease Term; Early Termination; Termination of Leasing Record.
(a) The Lessor hereby leases to the Lessee, and the
Lessee hereby leases from the Lessor, the Nuclear Material for the term provided
in this Lease Agreement and subject to the terms and provisions hereof.
(b) This Lease Agreement shall become effective at
12:01 A.M., Eastern time, on the Closing, and, unless earlier terminated as
provided in Sections 8(c), 17 or 18, the term of this Lease Agreement shall end
at the close of business on the later of (i) the date on which there is no
outstanding principal of, or interest or premium, if any, on any of the
Outstandings or (ii) the Termination Date but in each case in no event later
than November 17, 2015.
(c) In the event that during the term of this Lease
Agreement, the then effective Termination Date is not extended pursuant to
Section 4.01 of the Credit Agreement, the Lessee shall have the option,
exercisable at any time beginning 180 days before such Termination Date upon
written notice to the Lessor and the Secured Parties prior to such Termination
Date to purchase all (but not less than all) of the Nuclear Material and any
spent fuel related thereto for which title has not been transferred to the
Lessee for a purchase price equal to the Stipulated Casualty Value of such
Nuclear Material at the time of such purchase plus
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the Termination Rent. If the Lessee exercises such purchase option, the purchase
of the Nuclear Material shall occur on such date, on or prior to such
Termination Date, as may be agreed upon by the Lessor and the Lessee and of
which the Lessee has given the Secured Parties prior written notice. Upon
receipt of payment of the purchase price, the Lessor shall deliver to the Lessee
a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring
all right, title, interest and claim of the Lessor to the Nuclear Material and
any spent fuel related thereto for which title has not already been transferred
to the Lessee, to the Lessee or the Lessee's designee, free and clear of all
Liens created by the Collateral Agreements, together with such documents, if
any, as may be required to evidence the release of such Liens. The later of (i)
the date on which there is no outstanding principal of, or interest or premium,
if any, on any of the Outstandings or (ii) the date of any sale by the Lessor of
all of the Nuclear Material as provided in this Section 8(c) shall constitute
the Termination Settlement Date, and this Lease Agreement shall terminate as of
such date.
(c) In the event that during the term of this Lease
Agreement the then effective Termination Date is not extended pursuant to
Section 4.01 of the Credit Agreement and the Lessee shall not have exercised its
option to purchase pursuant to Section 8(c), the Lessee shall attempt to sell,
or if no sale is possible, to otherwise convey, on behalf of the Lessor,
ownership of the Nuclear Material to a third party not disqualified by any
applicable statute, law, regulation or agreement from acquiring such Nuclear
Material, and, upon prior written notice to the Lessor and the Secured Parties
of the terms and date of such sale, the Lessor shall furnish title papers as may
be necessary to effect such sale or conveyance on an as-is, where-is,
non-installment, cash sale basis, without recourse to or warranty or agreement
of any kind by the Lessor. The proceeds of such sale or conveyance shall be paid
to the Lessor, and any amount so paid shall constitute a credit against the
amount of the Stipulated Casualty Value payable by the Lessee under Section
8(e); provided, however, that any proceeds of such sale or conveyance in excess
of the amount payable by the Lessee under Section 8(e) shall be retained by the
Lessee.
(d) On the Termination Date unless the Lessee shall
have exercised its purchase option set forth in Section 8(c) and paid the Lessor
the purchase price of the Nuclear Material as provided therein, the Lessee shall
pay to the Lessor an amount equal to the sum of (i) the Stipulated Casualty
Value of all
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Nuclear Material leased under this Lease Agreement as of such Termination Date
and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less any
credit provided in Section 8(d)), and (ii) the Termination Rent as of such
Termination Date. Upon receipt of such payment, the Lessor shall deliver to the
Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in
the form of Exhibit E, transferring all right, title, interest and claim of the
Lessor to the Nuclear Material and any spent fuel relating thereto for which
title has not been transferred to the Lessee to the Lessee or the Lessee's
designee, free and clear of all Liens created by the Collateral Agreements,
together with such documents, if any, as may be required to evidence the release
of such Liens.
(e) In the event that during the term of this Lease
Agreement, the then effective
Termination Date is not extended pursuant to Section 4.01 of the Credit
Agreement, all obligations of the Lessor and Lessee under this Lease Agreement
with respect to the Nuclear Material, including the obligation of the Lessee to
pay Basic Rent and the obligation of the Lessor to acquire and pay for the
Nuclear Material and to lease the same to the Lessee shall terminate on the date
on which the Lessor receives the payment specified in Section 8(c) or Section
8(e).
(f) The Lessee shall deliver to the Lessor and to the
Secured Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit
F within thirty (30) days following the date on which any Nuclear Material or
spent fuel resulting from the Nuclear Material is removed from the reactor of
the Generating Facility for purposes of "cooling-off" preliminary to
reprocessing or permanent on-site safe storage and/or off-site disposal. If the
Lessee elects within thirty (30) days following the receipt by the Lessor of
such Rent Due and SCV Confirmation Schedule to extend the lease term for the
purposes of reprocessing any such Nuclear Material, then the Lessor and the
Lessee shall enter into an Interim Leasing Record with respect to such Nuclear
Material in its then condition. In all other cases, the Final Leasing Record
with respect to any such Nuclear Material or spent fuel resulting from such
Nuclear Material shall be terminated and the Lessee shall immediately pay to the
Lessor all amounts, including the Stipulated Casualty Value, if any, with
respect to such Nuclear Material or spent fuel resulting from such Nuclear
Material, and, upon receipt thereof, the Lessor shall deliver to the Lessee or
to any designee of the Lessee a Lessor's Bill of Sale, substantially in the form
of Exhibit E, transferring all right, title, interest and claim of the
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Lessor to such Nuclear Material or spent fuel resulting from such Nuclear
Material for which title has not already been transferred to the Lessee or the
Lessee's designee, free and clear of all Liens created by the Collateral
Agreements, together with such documents, if any, as may be required to evidence
the release of such Liens.
9. Payment of Rent; Payments with Respect to the Lessor's
Financing.
(a) Basic Rent. The Lessee shall pay Basic Rent
monthly in arrears on the first day of the next succeeding month. If such first
day of the month is not a Business Day, then payment shall be made on the next
succeeding Business Day.
(b) Additional Rent. In addition to the Basic Rent,
the Lessee will also pay from time to time as provided in this Lease Agreement
or on demand of the Lessor, all Additional Rent on the due date thereof. In the
event of any failure by the Lessee to pay any Additional Rent, the Lessor shall
have all the rights, powers and remedies as in the case of failure to pay Basic
Rent.
(c) Prepayments of Basic Rent. The Lessee may prepay
Basic Rent at any time. Such payment shall be credited against subsequent
amounts owed by the Lessee on account of Basic Rent.
(d) Wire Payment Procedure for Paying Basic Rent.
All payments of Rent and other payments to be made by the Lessee to the Lessor
pursuant to this Lease Agreement shall be paid to the Lessor (or, at the
Lessor's request, to the Secured Parties) in lawful money of the United States
in Collected Funds by wire transfer pursuant to Section 3.03 of the Credit
Agreement. The Lessee shall furnish to the Lessor and the Secured Parties each
month during the term of the Lease Agreement a summary of the rental
calculations for such month covering all outstanding Leasing Records. On each
Basic Rent Payment Date, the Lessee shall deliver to the Lessor and the Secured
Parties a signed and completed Rent Due and SCV Confirmation Schedule. The
Lessee shall be responsible for the accuracy of the matters contained in all
such schedules delivered by the Lessee pursuant to the provisions of this Lease
Agreement.
10. Compliance with Laws; Restricted Use of Nuclear Material;
Assignments; Permitted Liens; Spent Fuel.
(a) Compliance with Legal Requirements. Subject to the provisions of Section 11
hereof, the Lessee agrees to comply with all Legal Requirements.
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(b) Recording of Title. The Lessee shall promptly
and duly execute, deliver, file and record all such further counterparts of this
Lease Agreement or such certificates, Bills of Sale, financing and continuation
statements and other instruments as may be reasonably requested by the Lessor
and take such further actions as the Lessor shall from time to time reasonably
request, in order to establish, perfect and maintain the rights and remedies
created or intended to be created in favor of the Lessor and the Secured Parties
under this Lease Agreement and the Lessor's title to and interest in the Nuclear
Material as against the Lessee or any third party in any applicable
jurisdiction.
(c) Exclusive Use of Nuclear Material. So long as no
Lease Event Default shall have occurred and be continuing, the Lessee may use
the Nuclear Material in the regular course of its business or in the business of
any subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon
thirty (30) days' prior notice in writing to the Lessor and the Secured Parties,
or upon such shorter prior notice in writing promptly given upon the Lessee's
receipt of notice from any Manufacturer that the Nuclear Material is to be
moved, and at the Lessee's sole expense (without limiting the Lessee's rights to
request payment by the Lessor of such expense as provided in Section 6 hereof)
move such Nuclear Material to any jurisdiction approved in writing by the Lessor
in the contiguous forty-eight (48) states of the United States of America and
the District of Columbia for the purpose of having services performed on such
Nuclear Material in connection with any stage of the Nuclear Material Cycle
other than Heat Production and the "cooling off" stage, provided that (i) no
such movement of the Nuclear Material shall materially reduce the then fair
market value of such Nuclear Material, (ii) such Nuclear Material shall be and
remain the property of the Lessor, subject to this Lease Agreement, and (iii)
all Legal Requirements (including, without limitation, all necessary government
consents, permits and approvals) shall have been met or obtained by the Lessee,
on its own behalf and on behalf of the Lessor, and all necessary recordings,
filings and registrations or recordings, filings and registrations which the
Lessor shall reasonably consider advisable shall have been duly made in order to
protect the validity and effectiveness of this Lease Agreement and the security
interest created in the Security Agreement. At least once each year, or more
frequently if the Lessor reasonably so requests, the Lessee shall advise the
Lessor and the Secured Parties in writing where all Nuclear Material as of such
date is located. The Lessee shall maintain and make available to the Lessor for
examination upon reasonable notice complete and adequate records pertaining to
receipt, possession, use, location, movement, physical inventories and any other
information reasonably requested by the Lessor with respect to the Nuclear
Material.
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(d) Additional Lessee Covenants. The Lessee agrees
to use every reasonable precaution to prevent loss or damage to the Nuclear
Material. All individuals handling or operating Nuclear Material in the
possession of the Lessee shall be conclusively presumed not to be agents of the
Lessor. The Lessee shall cooperate fully with the Lessor and all insurance
companies and governmental agencies providing insurance under Section 12 hereof
in the investigation and defense of any claims or suits arising from the
licensing, acquisition, storage, containerization, transportation, blending,
transfer, consumption, leasing, insuring, operating, disposing, fabricating and
reprocessing of the Nuclear Material. To the extent required by any applicable
law or regulation, the Lessee shall attach to the Nuclear Material the form of
required notice to protect or disclose the ownership of the Lessor or that the
Nuclear Material is leased. So long as no Lease Event of Default shall have
occurred and be continuing, the Lessor will assign or otherwise make available
to the Lessee all of its rights under any Manufacturer's warranty on Nuclear
Material. The Lessee shall pay all costs, expenses, fees and charges, except
Acquisition Costs, incurred by the Lessee in connection with the use and
operation of the Nuclear Material during the term of the lease of such Nuclear
Material. The Lessee hereby assumes all risks of loss or damage of Nuclear
Material however caused and shall, at its own expense, keep the Nuclear Material
in good operating condition and repair, reasonable wear and tear, obsolescence
and exhaustion excepted.
(e) Assignment by Lessor. Except as otherwise herein
provided, the Lessor may not, without the prior written consent of the Lessee,
sell, assign, transfer or convey the Nuclear Material or any interest therein or
in the Lease Agreement, or grant to any party a security interest in, or create
a lien or encumbrance upon, all or any part of its right, title and interest in
this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of
written notice from the Lessor of any assignment by the Lessor of Rents or other
sums payable by the Lessee under this Lease Agreement, the Lessee shall make
such payments as directed in such notice of assignment, and such payments shall
discharge the obligations of the Lessee hereunder to the extent of such
payments. The Lessee hereby consents to the security interest and other rights
and interests granted to the Secured Parties under the Security Agreement, dated
as of the date first above written.
(f) Liens; Permitted Liens. The Lessee will not
directly or indirectly create or permit to be created or to remain and will
discharge any Lien with respect to the Nuclear Material or any portion thereof,
or upon the Lessee's leasehold interest therein, or upon the Basic Rent,
Additional Rent, or any other sum payable under this Lease Agreement, other than
Permitted Liens.
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(g) Assignment by Lessee. Notwithstanding any
provision of this Lease Agreement to the contrary, subject to applicable laws
and regulations and so long as no Lease Event of Default shall have occurred and
be continuing, the Lessee may sublease the Nuclear Material provided that (i)
the Lessee has given prior written notice of such sublease to the Lessor, (ii)
such sublease is not inconsistent with, and is expressly subject to, this Lease
Agreement and (iii) such sublease does not in any way limit or affect the
Lessee's duties and obligations under this Lease Agreement.
(h) Transfer of Title to Manufacturers. The parties
recognize that, during the processing and reprocessing of Nuclear Material
before and after its utilization in the Generating Facility for the production
of power, the Manufacturer performing services on the Nuclear Material may
require that title thereto be transferred to such Manufacturer and/or that the
Nuclear Material be commingled with other nuclear material, with an obligation
for the Manufacturer, upon completion of the services, to reconvey a specified
amount of nuclear material. The standard enrichment contracts of the Department
of Energy contain such provisions. Therefore, the parties agree that (i) Nuclear
Material may become subject to such a contract provision and that the action
contemplated by such a provision may be taken, notwithstanding any provision of
this Lease Agreement to the contrary, (ii) as between the Lessor and the Lessee,
such Nuclear Material shall be deemed to remain leased under this Lease
Agreement while title thereto is in the Manufacturer, and (iii) the nuclear
material exchanged by the Manufacturer upon completion of its services shall be
automatically leased under this Lease Agreement in substitution for the Nuclear
Material originally delivered to the Manufacturer.
(i) Substitution of Nuclear Material. The Lessee
shall be permitted to exchange Nuclear Material for other Nuclear Material of
equal or greater fair market value provided that the Lessor receives title to
such substituted Nuclear Material free and clear of any Lien other than such
Liens as may be created by the Security Agreement or permitted under Section
10(h). Any additional costs incurred in order to effect such an exchange shall
be paid by the Lessor in accordance with the procedures set forth in Section
6(c) and shall be added to the Acquisition Cost of the Nuclear Material. A
supplemental Leasing Record dated the date that the Lessor makes such further
payment shall be signed by the Lessor and the Lessee to record the revised
Acquisition Cost and shall include a full description of the substituted Nuclear
Material, notice of any change in location and such additional details upon
which the parties may agree.
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(j) Spent Fuel. Without the consent of the Lessor,
the Lessee shall not permit any Nuclear Material, which shall have been removed
from a Generating Facility for the purpose of "cooling-off," storage, repair or
reprocessing to be removed from the site of the Generating Facility unless (i)
the new site of such Nuclear Material is a facility maintaining liability
insurance and indemnification fully insuring and indemnifying the Lessor, the
Lessee and the Secured Parties under the Atomic Energy Act and any other
applicable law, rule or regulation, and (ii) except if the lease term is
extended pursuant to the second sentence of Section 8(g), the lease of such
Nuclear Material shall, concurrently with its removal from the Generating
Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or
18 hereof, as applicable, with the Lessee acquiring the ownership thereof
pursuant to Section 8(e), 8(g) or Section 18(c), as applicable.
11. Permitted Contests. The Lessee at its expense may, in its
own name or, if necessary and permitted, in the name of the Lessor (and, if
necessary but not so permitted, the Lessee may require the Lessor to) contest
after prior notice to the Lessor, by appropriate legal or administrative
proceedings conducted in good faith and with due diligence, the amount, validity
or application, in whole or in part, of any Imposition or Lien therefor, or any
Legal Requirements or Insurance Requirements, or any matter underlying Lessee's
indemnity obligations under Section 13 hereof, or any other Lien or contract or
agreement referred to in Section 10(f) hereof; provided that (i) in the case of
an unpaid Imposition or Lien therefor, such proceedings shall suspend the
collection of such Imposition or the enforcement of such Lien against the
Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion
thereof nor the taking of any step necessary or proper with respect to such
Nuclear Material in any stage of the Nuclear Material Cycle nor the performance
of any other act required to be performed by the Lessee under this Lease
Agreement would be enjoined, prevented or otherwise interfered with, (iii) the
Lessor would not be subject to any additional civil liability (other than
interest which the Lessee agrees to pay) or any criminal liability for failure
to pay any such Imposition or to comply with any such Legal Requirements or
Insurance Requirements or any such other Lien, contract or agreement, and (iv)
the Lessee shall have set aside on its books adequate reserves (in accordance
with generally accepted accounting principles) and shall have furnished such
security, if any, as may be required in the proceedings or reasonably requested
by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S.
Trust and the Secured Parties harmless against, all losses, judgments, decrees
and costs, including attorneys' fees and expenses, in connection with any such
contest and will, promptly after the determination of such contest, pay and
discharge the amounts which shall be levied, assessed or
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imposed or determined to be payable, together with all penalties, fines,
interest, costs and expenses incurred in connection with such contest. All
rights and indemnification obligations under this Section 11 and each other
indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust
and the Secured Parties under this Lease Agreement shall survive any termination
of this Lease Agreement or of the lease of any Nuclear Material hereunder.
12. Insurance; Compliance with Insurance Requirements. The
Lessee shall comply with all Insurance Requirements and with all Legal
Requirements pertaining to insurance. Without limiting the foregoing:
(a) Liability and Casualty Insurance. The Lessee shall, at its own cost and
expense, procure and maintain, or cause to be procured and maintained, liability
insurance and indemnification with respect to the Nuclear Material insuring and
indemnifying the Lessor, the Owner Trustee, U.S. Trust, the Lessee, and the
Secured Parties to the full extent required or available, whichever may be
greater, under the Atomic Energy Act or under any other applicable law, rule or
regulation. In the event the provisions of the Atomic Energy Act with respect to
liability insurance and the indemnification of owners, licensees and operators
of Nuclear Material or any other provisions of the Atomic Energy Act which
benefit the Lessor, the Owner Trustee, U.S. Trust or the Secured Parties shall
change, then the Lessee shall use its best efforts to obtain equivalent
insurance and indemnification agreements from the Nuclear Regulatory Commission
or from such other public and/or private sources from which such coverage is
available. The Lessee shall also, at its own cost and expense, procure and
maintain, or cause to be procured and maintained, physical damage insurance with
respect to the Nuclear Material insuring the Lessor, the Owner Trustee, U.S.
Trust and the Secured Parties against loss or damage to the Nuclear Material in
a manner which is consistent at all times with current prudent utility industry
practice in the United States; provided, however, that the Lessee shall in any
event maintain physical damage insurance coverage for its Oyster Creek nuclear
generating station site, including the Nuclear Material, in an amount not less
than $1.11 billion. Such liability and physical damage insurance and
indemnification agreements may be subject to deductible amounts which do not
exceed in the aggregate $5,000,000, and the Lessee may self-insure with respect
to such liability and physical damage insurance and indemnification agreements
to the extent of $5,000,000, provided that such deductible amounts and such
self-insurance are permitted under all applicable law, rules and regulations.
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(b) Third Parties; Insurance Requirements. The Lessee
shall use its best efforts to provide that the Nuclear Material, while in the
possession of third parties, is covered for liability insurance and
indemnification to the maximum extent available, and for physical damage
insurance in an amount not less than the Stipulated Casualty Value of such
Nuclear Material. To the extent that any such third party is maintaining such
insurance coverage for the Nuclear Material, the Lessee shall have no obligation
to do so under this Lease Agreement.
(c) Named Insureds; Loss Payees. The Lessee shall
provide for the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent
to be named additional insureds where possible, and, with respect to physical
damage coverage, named loss payees to the full extent of their interests in all
insurance policies and indemnification agreements relating to the Nuclear
Material required under this Section. All such policies and, where possible,
indemnification agreements, shall provide for at least ten (10) days' prior
written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral
Agent of any cancellation or material alteration of such policies.
(d) Insurance Certificates. The Lessee shall, upon
request of the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent,
provide the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as
the case may be, with copies of the policies or insurance certificates in
respect of the insurance procured pursuant to the provisions of this Section and
shall advise the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent
of all expirations and renewals of policies and all notices issued by the
insurers with respect to such policies. Within a six-month period from the
execution of this Lease Agreement and at yearly intervals thereafter, the Lessee
shall furnish to the Lessor, the Owner Trustee, U.S. Trust and the Collateral
Agent a certificate as to the insurance coverage provided pursuant to this
Section and shall further give notice as to any material change in the nature or
availability of such coverage, including any material change whatsoever in the
provisions of the Atomic Energy Act or any other applicable law, rule or
regulation with respect to liability insurance and indemnification, or,
immediately after the Lessee becomes aware, or should reasonably be expected to
become aware, of any material change in the application, interpretation or
enforcement thereof. The Lessor, the Owner Trustee, U.S. Trust or the Collateral
Agent shall be under no duty to examine such insurance policies or
indemnification agreements or to advise the Lessee in case the Lessee is not in
compliance with any Insurance Requirements.
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13. Indemnity. Without limitation of any other provision of
this Lease Agreement, including Section 11, the Lessee agrees to indemnify and
hold harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured
Parties and all companies, persons or firms controlling, controlled by, or under
common control with any of them and the respective shareholders, directors,
officers and employees of the foregoing against any and all claims, demands and
liabilities of whatever nature and all costs, losses, damages, obligations,
penalties, causes of action, judgments and expenses (including attorneys' fees
and expenses) directly or indirectly relating to or in any way arising out of:
(a) defects in title to Nuclear Material upon
acquisition by the Lessor or in ownership of and interest in the Nuclear
Material (the term "Nuclear Material" when used in this Section 13 shall
include, in addition to all other Nuclear Material, nuclear material the lease
of which has been terminated and which is in storage, or is being transported to
storage, and which has not been sold or disposed of by the Lessor to the Lessee
or to a third party);
(b) the ownership, licensing, ordering, rejection,
use, nonuse, misuse, possession, control, installation, acquisition, storage,
containerization, transportation, blending, transfer, consumption, leasing,
insuring, operating, disposing, fabricating, channelling, refining, milling,
enriching, conversion, cooling, processing, condition, operation, inspection,
repair and reprocessing of the Nuclear Material, or resulting from the condition
of the environment including the adjoining and/or underlying land, water,
buildings, streets or ways, except to the extent that such costs are included in
the Acquisition Cost of such Nuclear Material within the limits specified in
Section 4 (or within any change of such limits agreed to in writing by the
Lessor and the Lessee) and except for any general administrative expenses of the
Secured Parties and of their representatives;
(c) the assertion of any claim or demand based upon
any infringement or alleged infringement of any patent or other right, by or in
respect of any Nuclear Material; provided, however, that the Lessor shall have
made available to the Lessee all of the Lessor's rights under any similar
indemnification from the Manufacturer of such Nuclear Material under any Nuclear
Material Contract;
(b) all federal, state, county, municipal, foreign
or other fees and taxes of whatever nature including, but not limited to,
license, qualification, franchise, sales, use, business, gross receipts, ad
valorem, property, excise, and occupation fees and taxes and penalties and
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interest thereon, whether assessed, levied against or payable by the Lessor or
any Secured Party or to which the Lessor or any Secured Party is subject with
respect to the Nuclear Material or the Lessor's or any Secured Party's ownership
thereof or interest therein or the licensing, ordering, ownership, use,
possession, control, acquisition, storage, containerization, transportation,
blending, milling, enriching, transfer, consumption, leasing, insuring,
operating, disposing, fabricating, channelling, refining, conversion, cooling
and reprocessing of Nuclear Material or measured in any way by the value thereof
or by the business of investment in, financing of or ownership by the Lessor or
any Secured Party with respect thereto; provided, however, that the Lessee shall
not be obligated to indemnify any Secured Party for any taxes, whether federal,
state or local, based on or measured by net income of any Secured Party where
taxable income is computed in substantially the same manner as taxable income is
computed under the Code;
(e) any injury to or disease, sickness or death of
persons or loss of or damage to property occurring through or resulting from any
Nuclear Incident involving or connected in any way with the Nuclear Material or
any portion thereof;
(f) any violation, or alleged violation, of this
Lease Agreement by the Lessee or of any contracts or agreements to which the
Lessee is a party or by which it is bound or any laws, rules, regulations,
orders, writs, injunctions, decrees, consents, approvals, exemptions,
authorizations, licenses and withholdings of objection, of any governmental or
public body or authority and all other requirements having the force of law
applicable at any time to the Nuclear Material or any action or transaction by
the Lessee with respect thereto or pursuant to this Lease Agreement;
(g) performance of any labor or service or the
furnishing of any materials in respect of the Nuclear Material or any portion
thereof, except to the extent that such costs are included in the Acquisition
Cost of such Nuclear Material within the limits specified in Section 4 (or
within any change of such limits agreed to in writing by the Lessor and the
Lessee); or
(h) liabilities based upon a theory of strict
liability in tort, negligence or willful acts to the extent that such
liabilities relate to the Nuclear Material or any action or transaction with
respect thereto or pursuant to this Lease Agreement.
The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S.
Trust, the Secured Parties or other indemnified parties, as the case may be, for
any sum or sums expended with
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respect to any of the foregoing or advance such amount, upon request by the
Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party
for payment thereof. With respect solely to the Lessor, the amount of any
payment obligation of the Lessee under this Section 13 shall be determined on a
net, after-tax basis, taking into account any tax benefit to the Lessor.
Notwithstanding the foregoing, the Lessee shall not indemnify or hold harmless
the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other
indemnified parties for (i) any claims, demands, liabilities, costs or expenses
which arise, result from or relate to obligations of such party as an insurer
under contracts or agreements of insurance or reinsurance or (ii) any liability
arising from the willful misconduct or gross negligence of the Lessor, the Owner
Trustee, U.S. Trust, the Secured Parties or other indemnified parties; provided,
however, that the Lessee shall in any event indemnify and hold harmless the
Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and other indemnified
parties for that part of any such liability to which the Lessee has contributed.
Without limiting any of the foregoing provisions of this Section 13, to the
extent that the Lessee in fact indemnifies the Lessor, the Owner Trustee, U.S.
Trust, the Secured Parties or such other party under this indemnity provision,
the Lessee shall be subrogated to the rights of the Lessor, the Owner Trustee,
U.S. Trust, the Secured Parties and such other party in the affected transaction
and shall have a right to determine the settlement of claims with respect to
such transaction, provided that any such rights to which the Lessee shall be
subrogated shall be subordinate and subject in right of payment to the prior
payment in full of all liabilities to the Lessor, the Owner Trustee, U.S. Trust,
the Secured Parties or other indemnified parties of the person or entity in
respect of which such rights exist. The Lessor shall claim, on a timely basis,
any refund to which it may be entitled with respect to any fees or taxes for
which the Lessor has sought indemnification from the Lessee under Section 13(d),
shall take all steps necessary to prosecute diligently such claim and shall pay
over to the Lessee any refund (together with any interest received thereon)
recovered by the Lessor with respect to such fees or taxes as soon as
practicable following receipt thereof, provided that the Lessee shall have
previously indemnified the Lessor with respect to such fees or taxes. The Owner
Trustee, U.S. Trust and the Secured Parties, at the expense of the Lessee, (i)
shall cooperate with the Lessee in such manner as the Lessee shall reasonably
request in order to claim, on a timely basis, any refund to which the Owner
Trustee, U.S. Trust or the Secured Parties may be entitled with respect to any
fees or taxes for which the Lessee has indemnified the Owner Trustee, U.S. Trust
or any Secured Party or for which the Lessee has an obligation to indemnify the
Owner Trustee, U.S. Trust or the Secured Parties under Section 13(d) (provided
that the Lessee is not in default of such obligation) if such cooperation is
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necessary in order to claim such refund, (ii) shall take all steps which the
Lessee shall reasonably request which are necessary to prosecute such claim, and
(iii) shall pay over to the Lessee any refund (together with any interest
received thereon) recovered by the Owner Trustee, U.S. Trust or any Secured
Party with respect to such fees or taxes as soon as practicable following
receipt thereof, provided that the Lessee shall have previously indemnified the
Owner Trustee, U.S. Trust or such Secured Party with respect to such fees or
taxes. All rights and indemnification obligations under this Section 13, and
each other indemnification obligation in favor of the Lessor, the Owner Trustee,
U.S. Trust and the Secured Parties under this Agreement, shall survive any
termination of this Lease Agreement or of the lease of any Nuclear Material
hereunder.
14. Casualty and Other Events. Upon the occurrence of any one
-------------------------
or more of the following events:
(a) the loss, destruction or damage beyond
repair of any Nuclear Material, or
(b) the commandeering, condemnation, attachment
or loss of use to the Lessee of any Nuclear Material by reason of the act of any
third party or governmental instrumentality or the deprivation or loss of use to
the Lessee of any Nuclear Material for any other reason, other than by reason of
a Lease Event of Default, for a period exceeding ninety (90) days; or
(c) a determination by the Lessee in its sole
discretion that any Nuclear Material is no longer useful to the Lessee,
provided, however, that (i) no Lease Event of Default has occurred and is
continuing, and (ii) no such determination may be made by the Lessee with
respect to any Nuclear Material prior to November 5, 1999;
Then, in any such case, the Lessee promptly shall give written
notice to the Lessor and the Secured Parties of any such event, and upon the
earlier of (i) ten (10) days following receipt of any insurance or other
proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120)
days after the occurrence of any such event, the Lessee shall pay to the Lessor
an amount equal to the then Stipulated Casualty Value of such Nuclear Material,
together with any Basic Rent and Additional Rent then due with respect to such
Nuclear Material. The lease of such Nuclear Material hereunder and the
obligation of the Lessee to pay Basic Rent and Additional Rent with respect to
such Nuclear Material shall continue until the day on which the Lessor receives
payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon
the giving of written notice of the occurrence of such an event, the Lessee
shall promptly use its best efforts to sell, or,
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if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership
of such Nuclear Material to a third party not disqualified by any applicable
statute, law, regulation or agreement from acquiring such Nuclear Material, and
the Lessor shall furnish title papers as may be necessary to effect such sale or
conveyance on an as-is, where-is, non-installment, cash sale basis without
recourse to or warranty or agreement of any kind by the Lessor. Any such sale or
conveyance shall be effected on or before the date one hundred and twenty (120)
days after the date of the occurrence of such event. The proceeds of such sale
or conveyance shall be paid to the Lessor, and any amount so paid shall
constitute a credit against the amount of the Stipulated Casualty Value payable
by the Lessee under this Section 14.
15. Nuclear Material to Remain Personal Property. It is
expressly understood and agreed that the Nuclear Material shall be and remain
personal property notwithstanding the manner in which it may be attached or
affixed to realty and notwithstanding any law or custom or the provisions of any
lease, mortgage or other instrument applicable to any such realty. The Lessee
agrees to indemnify the Lessor and the Secured Parties against, and to hold the
Lessor and the Secured Parties harmless from, all losses, costs and expenses
(including reasonable attorneys' fees and expenses) resulting from any of the
Nuclear Material becoming part of any realty. Upon termination of the lease of
any Nuclear Material, any costs of removal, transportation, storage and delivery
of such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured
Parties shall not be liable for any physical damage caused to any realty or any
building by reason of the removal of the Nuclear Material therefrom.
16. Events of Default. Each of the following events of default
by the Lessee shall constitute a "Lease Event of Default" and give rise to the
rights on the part of the Lessor described in Section 17 hereof:
(i) Default in the payment of Basic Rent
or Additional Rent, if any, on the date on which such payment is due
and the continuance of such default for five (5) days;
(ii) Default in the payment of Termination
Rent;
(iii) The Lessee shall fail to maintain
liability and casualty insurance pursuant to its obligations under
Section 12(a) of this Lease Agreement;
(iv) The Lessee shall fail to perform its
obligations to purchase Nuclear Material pursuant to Section 8(e) of
this Lease Agreement;
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(v) Any representation or warranty or
statement made by the Lessee (or any of its officers) herein or in
connection with this Lease Agreement shall prove to be incorrect or
misleading in any material respect when made;
(vi) Default in the payment or performance
of any other material liability or obligation or covenant of the
Lessee to the Lessor, and the continuance of such default for thirty
(30) days after written notice to the Lessee sent by registered or
certified mail;
(vii) The Lessee suspends or discontinues
its business operations or becomes insolvent (however such insolvency
may be evidenced) or admits insolvency or bankruptcy or its inability
to pay its debts as they mature, makes an assignment for the benefit
of creditors or applies for or consents to the appointment of a
trustee or receiver for the Lessee or for the major part of its
property;
(viii) The institution of bankruptcy,
reorganization, liquidation or receivership proceedings for relief
under any bankruptcy law or similar law for the relief of debtors by
or against the Lessee and, if instituted against the Lessee, its
consent thereto or the pendency of such proceedings for sixty (60)
days;
(ix) An event of default (the effect of
which is to permit the holder or holders of any instrument, or the
trustee or agent on behalf of such holder or holders, to cause the
indebtedness evidenced by such instrument to become due prior to its
stated maturity) shall occur under the provisions of any instrument
evidencing indebtedness for borrowed money of the Lessee in a
principal amount equal to at least $20,000,000 or if any obligation of
the Lessee for the payment of such indebtedness shall become or be
declared to be due and payable prior to its stated maturity, or shall
not be paid when due and is not paid within the applicable cure
period, if any, provided for the payment of such indebtedness under
such instrument;
(x) An event of default shall occur under
the provisions of any Basic Document and such default shall have
continued beyond any applicable cure period.
(xi) A final judgment in an amount in
excess of $20,000,000 is rendered against the Lessee, and within
thirty (30) days after the entry thereof, such judgment is not
discharged or execution thereof stayed pending appeal, or within
thirty (30) days after the expiration of any such stay, such judgment
is not discharged; or
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(xii) Other than pursuant to a condemnation
proceeding, any court, governmental officer or agency shall, under
color of legal authority, take and hold possession of any substantial
part of the property or assets of the Lessee.
17. Rights of the Lessor Upon Default of the Lessee. Upon the
occurrence of any Lease Event of Default, the Lessor may, in its discretion, and
shall, at the direction of the Secured Parties, do one or more of the following:
(a) Terminate the lease term of any or all
Nuclear Material upon five (5) days written notice to the Lessee sent by
registered or certified mail;
(b) Whether or not any lease of any Nuclear
Material is terminated, and, subject to any applicable law or regulation, take
immediate possession of any or all Nuclear Material or cause such Nuclear
Material to be taken from the possession of the Lessee, and/or take immediate
possession of and remove other property of the Lessor in the possession of the
Lessee, wherever situated and for such purpose enter upon any premises without
liability for so doing or require the Lessee, at the Lessee's expense, to
deliver the Nuclear Material, properly containerized and insulated for shipping
to the Lessor or to such other person as the Lessor may designate, in which case
the risk of loss shall be upon the Lessee until such delivery is made;
(c) Whether or not any action has been taken
under (a) or (b) above, and subject to any applicable law or regulation, sell
any Nuclear Material (with or without the concurrence and whether or not at the
request of the Lessee) at public or private sale, and the Lessee shall be liable
for and shall promptly pay to the Lessor all unpaid Rent to the date of receipt
by the Lessor of the proceeds of such sale plus any deficiency between the net
proceeds of such sale and the Stipulated Casualty Value of such Nuclear Material
at the time of such payment by the Lessee; provided, however, that any proceeds
of such sale in excess of the sum of such unpaid Rent, the Stipulated Casualty
Value of such Nuclear Material and all other amounts payable by the Lessee under
this Section 17 shall be received for the benefit of, and shall be paid over to
the Lessee, as soon as practicable after receipt thereof;
(d) Subject to any applicable law or regulation,
sell in a commercially reasonable manner, dispose of, hold, use, operate,
remove, lease or keep idle any Nuclear Material as the Lessor in its sole
discretion may determine, without any obligation to account to the Lessee with
respect to such action or inaction or
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for any proceeds thereof, except that the net proceeds of any such selling,
disposing of, holding, using, operating or leasing shall be credited by the
Lessor against any Rent accruing after the Lessor shall have declared this Lease
Agreement as to any or all of the Nuclear Material to be in default pursuant to
this Section; provided, however, that any net proceeds of any such selling,
disposing of, holding, using, operating or leasing in excess of the sum of any
such accrued Rent and all other amounts payable by the Lessee under this Section
17 shall be received for the benefit of, and shall be paid over to the Lessee,
as soon as practicable after receipt thereof;
(e) Terminate this Lease Agreement as to any or all of
the Nuclear Material or exercise any other right or remedy which may be
available under applicable law or proceed by appropriate court action to enforce
the terms hereof or to recover damages for the breach hereof. If the Lessee
fails to deliver, promptly after written request, the Nuclear Material pursuant
to (b), above, subject to reasonable wear and tear, obsolescence and exhaustion,
in good operating condition and repair, or converts or destroys any Nuclear
Material, the Lessee shall be liable to the Lessor for all Rent then due and
payable on the Nuclear Material, all other amounts then due and payable under
this Lease Agreement, the then Stipulated Casualty Value of such Nuclear
Material, plus any loss, damage and expense (including without limitation
reasonable attorneys' fees and expenses) sustained by the Lessor by reason of
such Lease Event of Default and the exercise of the Lessor's remedies with
respect thereto, including any costs incurred under the Credit Agreement and the
Security Agreement, and any other amounts owed to the Secured Parties with
respect to the Notes. If, upon the occurrence of a Lease Event of Default, the
Lessee delivers Nuclear Material to the Lessor or to such other person as the
Lessor may designate, or if the Lessor repossesses or causes Nuclear Material to
be repossessed on its behalf, the Lessee shall be liable for and the Lessor may
recover from the Lessee all Rent on the Nuclear Material due and payable to the
date of such delivery or repossession, all other amounts due and payable under
this Lease Agreement, plus any loss, damage and expense (including without
limitation reasonable attorneys' fees and expenses) sustained by the Lessor by
reason of such Lease Event of Default and the exercise of the Lessor's remedies
with respect thereto. No remedy referred to in this Section 17 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to the Lessor at law or in equity and
the exercise in whole or in part by the Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by the Lessor of
any or all such other remedies. No waiver by the Lessor of any Lease Event of
Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Lease Event of Default.
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18. Termination After Certain Events.
(a) This Lease Agreement may terminate as
provided in Section 18(b) below prior to the expiration of its term in
connection with any of the following "Terminating Events":
(i) The Lessor shall have given notice
that the Lessor is not satisfied with any change in the insurers,
coverage, amount or terms of any insurance policy or indemnity
agreement required to be obtained and maintained by the Lessee
pursuant to Section 12;
(ii) There shall occur the revocation or
material adverse modification of any authorization, consent, exemption
or approval theretofore obtained from any regulatory body or
governmental authority necessary for the carrying out of the intent
and purposes of this Lease Agreement or the actions or transactions
contemplated hereby, and the effectiveness of any such revocation or
material adverse modification shall not be stayed pending any appeal
thereof;
(iii) A Nuclear Incident involving or
connected in any way with the Nuclear Material shall have occurred,
and the Lessor shall have given notice to the Lessee that the Lessor
believes such Nuclear Incident may give rise to an aggregate
liability, or to damage, destruction or personal injury in excess of
$20,000,000;
(iv) There shall have occurred a Deemed Loss
Event;
(v) Any change in, or new interpretation
by a governmental authority having jurisdiction relating to, the
Price-Anderson Act, as amended, or the Atomic Energy Act, or the
regulations of the Nuclear Regulatory Commission thereunder, in each
case as in effect on the date of this Lease Agreement, shall have been
adopted, and the Lessor shall have given notice to the Lessee that, in
the opinion of independent counsel selected by the Lessor and
reasonably satisfactory to the Lessee and the Secured Parties as a
result of such change or new interpretation the Lessor is prohibited
from asserting any material right, protection or defense available
under applicable law as of the date of this Lease Agreement with
respect to civil or criminal actions brought in connection with a
Nuclear Incident;
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(vi) Any law or regulation or interpretation
(judicial, regulatory or otherwise) of any law or regulation shall be
adopted or enforced by any Court or governmental authority, and as a
result of such adoption or enforcement, approval of the transactions
contemplated by this Lease Agreement shall be required and shall not
have been obtained within any applicable grace period after such
adoption or enforcement or as a result of which adoption or
enforcement this Lease Agreement or any transaction contemplated
hereby, including any payments to be made by the Lessee or the
ownership of the Nuclear Material by the Lessor, shall be or become
unlawful, or the performance of this Lease Agreement shall be rendered
impracticable in any material way; or
(vii) Any governmental licenses, approvals
or consents with respect to the Generating Facility, without which the
Generating Facility cannot continue to operate, shall have been
revoked and the Lessee shall not have, in good faith, within one
hundred and eighty (180) days of such revocation, represented in
writing to the Lessor that the Lessee has made a good faith
determination that such Generating Facility will return to operation
within twenty-four (24) months of such revocation, or for any other
reason the Generating Facility shall cease to be operated for a period
of twenty-four (24) consecutive months.
(b) Upon the happening of any of the Terminating
Events listed in Section 18(a), Lessor and/or the Secured Parties may, at their
option, terminate this Lease Agreement, such termination to be effective upon
delivery of the Notice contemplated by paragraph (d)(ii) below, except with
respect to obligations and liabilities of the Lessee, actual or contingent,
which arose under the Lease Agreement on or prior to the date of termination and
except for the Lessee's obligations set forth in Sections 10, 12 and 13, and in
this Section 18, all of which obligations will continue until the delivery of
documentation by the Lessor and the payment by the Lessee provided for below,
and except that after such delivery and payment, the Lessee's obligations under
Section 13 shall continue as therein set forth as shall all of Lessee's
indemnification obligations set forth in other sections of this Lease Agreement.
(c) Upon any such termination, the entire
interest of the Lessor in the Nuclear Material and any spent fuel relating
thereto for which title has not been transferred to the Lessee shall
automatically transfer to and be vested in the Lessee, without the necessity of
any action by either the Lessor or the Lessee, provided, however, that if the
Lessor shall have theretofore approved in writing such Person and the terms of
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such transfer, the entire interest of the Lessor in such Nuclear Material and
any spent fuel relating thereto for which title has not been transferred to the
Lessee shall, upon such termination, automatically transfer to and be vested in
any Person designated by the Lessee.
(d) (i) Promptly after either party shall
learn of the happening of any Terminating Event, such party shall give notice of
the same to the other party and to the Secured Parties.
(ii) If the Lessor and/or Secured Parties
elect to terminate the Lease Agreement, they shall give notice to the Lessee and
the Secured Parties or the Lessor, as the case may be, which notice shall (x)
acknowledge that the Lease Agreement has terminated, subject to the continuing
obligations of the Lessee mentioned above, and that title to and ownership of
such Nuclear Material and any spent fuel relating thereto for which title has
not been transferred to the Lessee has transferred to and vested in the Lessee
or such other Person, and (y) specify a Termination Settlement Date occurring
one hundred and fifty (150) days after the giving of such notice. After such
termination of this Lease Agreement and until such Termination Settlement Date,
the Lessee shall continue to pay Basic Rent and Additional Rent. On such
Termination Settlement Date, the Lessee shall be obligated to pay to the Lessor
as the purchase price for the Nuclear Material an amount equal to the sum of (x)
Stipulated Casualty Value of the Nuclear Material as of the Termination
Settlement Date and (y) the Termination Rent on the Termination Settlement Date.
The Lessor shall be obligated to deliver to the Lessee a Lessor's Bill of Sale,
substantially in the form of Exhibit E, on an as-is, where-is, non-installment,
cash sale basis, without recourse to or warranty or agreement of any kind by the
Lessor acknowledging the transfer and vesting of title and ownership of the
Nuclear Material and any spent fuel relating thereto for which title has not
been transferred to the Lessee, in accordance with paragraph (c) above and
confirming that upon payment by the Lessee of the amounts set forth in the
immediately preceding sentence, the Nuclear Material is free and clear of the
Liens created by the Collateral Agreements, together with such documents, if
any, as may be required to evidence the release of such Liens.
19. Investment Tax Credit. To the extent that the Lessee
determines the Nuclear Material is or becomes eligible for any investment or
similar credit under the Code as now or hereafter in effect, the Lessee shall
request in writing that the Lessor elect to treat the Lessee as having acquired
such Nuclear Material, and, if permitted to do so under the Code and under any
other applicable law, rule or regulation, the Lessor, pursuant to such
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request of the Lessee, shall provide the Lessee with an appropriate investment
credit election and the Lessee shall consent to such election. A condition to
the Lessor's making such election will be the provision by the Lessee of a
report or statement with respect to all Nuclear Material as to which the
investment credit election is applicable. Such report or statement shall contain
such information and be in such form as may be required for Internal Revenue
Service reporting purposes. The Lessee shall indemnify and hold harmless the
Lessor and any affiliates with respect to any adverse tax consequence, other
than the loss of the credit, which may result from such election including, but
not limited to, any increase in the Lessor's income taxes due to any required
reduction of the Lessor's tax basis below the Lessor's cost of the Nuclear
Material, and the Lessee agrees to pay to or on behalf of the Lessor, or
otherwise make available to the Lessor, funds sufficient to put the Lessor in
the same after-tax position (other than by reason of the loss of the investment
credit) the Lessor would have been in if such election had not been made.
20. Certificates; Information; Financial Statements.
(a) The Lessee will from time to time
deliver to the Lessor and the Secured Parties, promptly upon reasonable
request (i) a statement executed by any Vice President, Treasurer or
Assistant Treasurer or any other assistant officer of the Lessee,
certifying the dates to which the sums payable hereunder have been paid,
that this Lease Agreement is unmodified and in full effect (or, if there
have been modifications, that this Lease Agreement is in full effect as
modified, and identifying such modifications) and that no Lease Event of
Default or Terminating Event has occurred and is continuing (or specifying
the nature and period of existence of any thereof and what action the
Lessee is taking or proposes to take with respect thereto), (ii) such
information with respect to the Nuclear Material as the Lessor or the
Secured Parties may reasonably request, and (iii) such information with
respect to the Lessee's operations, business, property, assets, financial
condition or litigation as the Lessor or any assignee of the Lessor or the
Secured Parties may reasonably request.
(b) The Lessee will deliver to the Lessor and the
Secured Parties:
(i) Quarterly Financial Statements. As
soon as practicable and in any event within ninety (90) days after the
end of each fiscal quarter (other than the last fiscal quarter in each
fiscal year), three (3) copies of a balance sheet of the Lessee
(consolidated and consolidating if the Lessee has any subsidiaries) as
of the end of such quarter and of statements of income and cash
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flows of the Lessee (consolidated and consolidating if the Lessee has
any subsidiaries) for such quarter, setting forth in each case
corresponding figures in comparative form for the corresponding period
of the preceding fiscal year, each certified as true and correct by
the chief accounting officer thereof; provided, however, that delivery
pursuant to clause (iii) below of copies of the Lessee's Quarterly
Report on Form 10-Q for such quarter containing such financial
statements filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (i);
(ii) Annual Financial Statements. As soon
as practicable and in any event within one hundred and twenty (120)
days after the end of each fiscal year, three (3) copies of an annual
report of the Lessee consisting of its financial statements, including
a balance sheet as of the end of such fiscal year (consolidated and
consolidating if the Lessee has any subsidiaries) and statements of
income and cash flows for the year then ended (consolidated and
consolidating if the Lessee has any subsidiaries), setting forth
corresponding figures in comparative form for the preceding fiscal
year, with all notes thereto, all in reasonable detail and certified
by independent public accountants of recognized standing selected by
the Lessee (only with respect to the consolidated financial
statements, if applicable); provided, however, that delivery pursuant
to clause (iii) below of copies of the Lessee's Annual Report on Form
10-K for such fiscal year containing such financial statements filed
with the Securities and Exchange Commission shall be deemed to satisfy
the requirements of this clause (ii); and
(iii) SEC Reports, etc. With reasonable
promptness, copies of all notices, reports or materials filed by the
Lessee with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission) under the Securities Act of 1933,
as amended, other than Registration Statements on Form S-8 or any
amendments thereto, or the Securities Exchange Act of 1934, as
amended, other than Annual Reports on Form 10-K, and including without
limitation, all Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.
Together with each delivery of financial statements required by clause (b)(i)
above, the Lessee will deliver to the Lessor and the Secured Parties an
Officer's Certificate stating that the Lessee is in compliance with the terms of
this Lease Agreement and stating that there exists no Lease Event of Default, or
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Terminating Event or, if any Lease Event of Default, or Terminating Event
exists, specifying the nature and period of existence thereof and what action
the Lessee proposes to take with respect thereto. The Lessee also covenants that
promptly upon the obtaining of knowledge of a Lease Event of Default by the
chief executive officer, principal financial officer or principal accounting
officer of the Lessee, it will deliver to the Lessor and the Secured Parties an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Lessee proposes to take with respect thereto.
21. Obligation of the Lessee to Pay Rent. The Lessee's
obligation to pay, as the same becomes due, Basic Rent, Additional Rent,
Termination Rent, and all other amounts payable hereunder shall, subject to the
covenant of the Lessor contained in Section 3 hereof, be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any setoff, counterclaim, recoupment, defense or other right
which the Lessee may have against the Lessor or anyone else for any reason
whatsoever, (ii) any defect in the title, compliance with specifications,
condition, design, operation or fitness for use of, or any damage to or loss or
destruction of, any Nuclear Material, or (iii) any interruption or cessation in
the use or possession of any Nuclear Material by the Lessee for any reason
whatsoever. The Lessee hereby waives, to the extent permitted by applicable law,
any and all rights which it may now have or which at any time hereafter may be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender this Lease Agreement except in accordance with its express terms. Each
payment of Rent and each other payment made by the Lessee shall be final, and
the Lessee will not seek to recover all or any part of such payment from the
Lessor for any reason whatsoever.
22. Miscellaneous.
(a) Successors and Assigns. This Lease Agreement
shall be binding upon the Lessee and the Lessor and their respective successors
and assigns and shall inure to the benefit of the Lessee and the Lessor and
their respective successors and assigns; provided that, without the prior
written consent of all the Secured Parties, the Lessee shall not be entitled to
assign its rights or obligations hereunder.
(b) Waiver. Neither party shall by act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder unless such waiver is given in writing. A waiver on one occasion shall
not be construed as a waiver on any other occasion.
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(c) Entire Agreement. This Lease Agreement,
together with the written instruments provided for or contemplated hereby, the
other Basic Documents and other written agreements between the parties dated as
of the date hereof, constitute the entire agreement between the parties with
respect to the leasing of Nuclear Material, and no representations, warranties,
promises, guaranties or agreements, oral or written, express or implied, have
been made by either party or by any one else with respect to this Lease
Agreement or the Nuclear Material, except as may be expressly provided for
herein or therein. Any change or modification of this Lease Agreement must be in
writing and duly executed by the parties.
(d) Descriptive Headings. The captions in this
Lease Agreement are for convenience of reference only and shall not be deemed to
affect the meaning or construction of any of the provisions.
(e) Severability. Any provision of this Lease
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
(f) Governing Law. This Lease Agreement and the
rights and obligations of the parties hereunder shall be construed in accordance
with and be governed by the law of the State of New Jersey.
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IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease Agreement to be executed and delivered by their duly authorized officers
as of the day and year first above written.
OYSTER CREEK FUEL CORP.
Lessor
ATTEST
_________________________ By: _____________________________
(Assistant) Secretary Name:____________________________
Title:___________________________
JERSEY CENTRAL POWER & LIGHT COMPANY
Lessee
ATTEST
_________________________ By:______________________________
(Assistant) Secretary Name:____________________________
Title:___________________________
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STATE OF )
-----------------------------------
COUNTY OF ) SS:
--------------------------
On this ___ day of __________, 1998, before me personally
appeared , to me personally known, who, being by me duly sworn, says that he is
of Oyster Creek Fuel Corp. and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors, and he acknowledged that the
execution of the foregoing instrument was the free act and deed of said
corporation.
________________________
Notary Public
My commission Expires:
STATE OF )
-----------------------------------
COUNTY OF ) SS:
--------------------------
On this ___ day of ___________, 1998, before me personally
appeared __________________, to me personally known, who, being by me duly
sworn, says that he is a _______________ of Jersey Central Power & Light Company
and that said instrument was signed on behalf of said corporation by authority
of its Board of Directors, and he acknowledged that the execution of the
foregoing instrument was the free act and deed of said corporation.
________________________
Notary Public
My commission Expires:
34
<PAGE>
ATTACHMENTS
Appendix A -- Definitions
Exhibit A -- Form of Interim Leasing Record
Exhibit B -- Form of Final Leasing Record
Exhibit C -- Nuclear Material Contracts
Exhibit D -- Form of Assignment Agreement and Consent
Exhibit E -- Form of Lessor's Bill of Sale
Exhibit F -- Form of Rent Due and SCV Confirmation Schedule
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APPENDIX A
DEFINITIONS
As used in the Basic Documents (as defined below), the
following terms shall have the following meanings (such definitions to be
applicable to both singular and plural forms of the terms defined), except as
otherwise specifically defined therein:
"Acquisition Cost" means the purchase price of any Nuclear
Material, any progress payments made thereon, costs of milling, conversion,
enrichment, fabrication, installation, delivery, redelivery, containerization,
storage, reprocessing, any other costs incurred by the Company in acquiring the
Nuclear Material (less any discounts or credits actually utilized by the
Company), plus in any case (i) any allowance for funds used during construction
(including any income tax component associated with such allowance) with respect
to Nuclear Material purchased by the Company, (ii) at the option of the Lessee,
any Rent relating to costs incurred in the ordinary course of operations but
excluding Rent relating to extraordinary costs, including without limitation,
indemnification payments, payable by the lessee to the Company with respect to
any Nuclear Material prior to the installation of such Nuclear Material for
operation in the Generating Facility, (iii) any sales, excise or other taxes or
charges payable by the Company with respect to any such payment for such Nuclear
Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable
by the Lessee to the Company with respect to Nuclear Material during any period
in which such Nuclear Material is subject to an Interim Leasing Record, but
excluding any interest charges or penalties for late payment by the Company of
the purchase price or any portion thereof, if such late payment results from the
negligence of the Company, (v) such other costs with respect to any Nuclear
Material as may be agreed by the Company and the Lessee and approved by the
Administrative Agent, in each case in writing, and, in the case of any Nuclear
Material removed from the Generating Facility for the purpose of "cooling off'
and repair or reprocessing, shall include the Stipulated Casualty Value thereof
at the time of such removal, if any, and (vi) at the option of the Lessee, any
Financing Costs. Any amount realized by the Company from the disposition of the
by-products (including, but not limited to, plutonium) of Nuclear Material
specified in a Leasing Record during the repair or reprocessing of such Nuclear
Material while leased hereunder shall be credited against the Acquisition Cost
of such Nuclear Material.
"Additional Rent" shall mean all legal, accounting,
administrative and other operating expenses and taxes incurred by the Company to
the extent not paid as part of Basic Rent (including, without limitation, any
Cancellation Fees and all other liabilities incurred or owed by the Company
pursuant to the Basic Documents) and all amounts (other than Basic Rent) that
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the Lessee agrees to pay under the Lease Agreement (including, without
limitation, indemnification payable under the Lease Agreement, general and
administrative expenses of the Company, and, to the extent not included in
Acquisition Cost, Financing Costs) and interest at the rate incurred by the
Company or any Secured Party as a result of any delay in payment by the Lessee
to meet obligations that would have been satisfied out of prompt payment by the
Lessee, and the amount of any and all other costs, losses, damages, interest,
taxes, deficiencies, liabilities, obligations, actions, judgments, suits,
claims, fees (including, without limitation, attorneys' fees and disbursements)
and expenses, of every kind, nature, character and description, direct or
indirect, that may be imposed on or incurred by the Company as a result of,
arising from or relating to, in any manner whatsoever, one or more Basic
Documents, or any other document referred to therein, or the transactions
contemplated thereby or the enforcement thereof. For purposes of calculating the
interest incurred by the Company or any Secured Party as a result of any such
delay, it shall be assumed that the Company or any Secured Party, as applicable,
incurred interest at the Credit Agreement Default Rate.
"Administrative Agent" shall have the meaning specified
therefor in the first paragraph of the Credit Agreement.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, the term "control," as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Monthly Rent Component" shall mean the sum of the
Monthly Rent Components for all items of Nuclear Material which are installed in
the Generating Facility during the relevant period.
"Assigned Agreement" means a Nuclear Material Contract which
has been assigned to the Company in the manner specified in Section 5 of the
Lease Agreement pursuant to a duly executed and delivered Assignment Agreement.
The term Assigned Agreement shall include a Partially Assigned Agreement.
"Assignment Agreement" means an assignment agreement
substantially in the form of Exhibit D to the Lease Agreement.
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"Atomic Energy Act" means the Atomic Energy Act of 1954, as
from time to time amended.
"Bank" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Basic Documents" means the Lease Agreement, the Credit
Agreement, the Security Agreement, the Commercial Paper, the Notes, the Letter
Agreement, the Dealer Agreements, the Assigned Agreements, the Assignment
Agreements, the Trust Agreement, the Depositary Agreement, each Bill of Sale,
each Leasing Record, each SCV Confirmation Schedule, and other agreements
related or incidental thereto which are identified in writing by the Company,
the Lessee and the Secured Parties as one of the "Basic Documents," in each
case, as such documents may be amended from time to time.
"Basic Rent" means, for any Basic Rent Period, the sum of (a)
that portion of the Monthly Financing Charge not allocated to Acquisition Cost
pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as
shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period.
"Basic Rent Payment Date" means, for any Basic Rent Period,
the first Business Day of the next succeeding calendar month following such
Basic Rent Period.
"Basic Rent Period" means each calendar month or portion
thereof commencing on, in the case of the first such period, the effective date
of the Lease Agreement, and in the case of each succeeding period, the first day
following the immediately preceding Basic Rent Period, and ending on the
earliest of (i) the last day of any calendar month or (ii) the Termination
Settlement Date.
"BTU Charge" means the dollar amount set forth in the BTU
Charge Agreement which is used to calculate the Monthly Rent Component. The BTU
Charge initially set forth for any Nuclear Material in any Final Leasing Record
shall be the amount agreed upon by the Lessor and the Lessee as set forth in
Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably
anticipated operating life, BTU output, and utilization of such Nuclear
Material.
"BTU Charge Agreement" shall mean an agreement in the form of
Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear
Material executed by the Lessor and the Lessee on or prior to the date of the
Final Leasing Record covering such Nuclear Material.
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"Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in New York City are
authorized by law to close.
"Capitalized Lease" means any and all lease obligations which
are or should be capitalized on the balance sheet of the Person in question in
accordance with generally accepted accounting principles and Statement No. 13 of
the Financial Accounting Standards Board or any successor to such pronouncement
regarding lease accounting, without regard for the accounting treatment
permitted or required under any applicable state or federal public utility
regulatory accounting system, unless such treatment controls the determination
of the generally accepted accounting principles applicable to such Person.
"Cash Collateral" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Closing," means November 5, 1998.
"Code" means the Internal Revenue Code of 1986, as from time
to time amended.
"Collateral" has the meaning set forth in the granting clauses
of the Security Agreement and includes all property of the Company described in
the Security Agreement as comprising part of the Collateral.
"Collateral Agent" shall have the meaning specified therefor
in Section 1.02 of the Credit Agreement.
"Collateral Agreements" means, collectively, the Security
Agreement, all Assignment Agreements, and any other assignment, security
agreement or instrument executed and delivered to the Secured Parties hereafter
relating to property of the Company which is security for the Notes.
"Collected Funds" means funds which are immediately available
to the Secured Parties, as the Lessor's assignees, for its use in New York, New
York.
"Commercial Paper" shall have the meaning specified therefor
in Section 1.02 of the Credit Agreement.
"Commercial Paper Discount" shall mean, at any time, amounts
payable by the Company in respect of the Face Amount of Commercial Paper
outstanding in excess of the Acquisition Cost together with any Cash Collateral
reduced by the aggregate total amount, if any, of (i) the Monthly Rent
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Components paid by the Lessee to the Lessor with respect to the Nuclear Material
financed thereby and (ii) any Monthly Financing Charge payable by the Lessee to
the Company with respect to Nuclear Material during any period in which such
Nuclear Material is subject to an Interim Leasing Record ("Excess Face Amount");
provided, however, that any such Excess Face Amount shall not exceed the
additional Face Amount of Commercial Paper necessary to be issued by the Company
at a discount to face value to purchasers thereof in the commercial paper market
in order to obtain proceeds in an amount equal to the Acquisition Cost reduced
by the aggregate total amount, if any, of (a) the Monthly Rent Components paid
by the Lessee to the Lessor with respect to the Nuclear Material financed
thereby and (b) any Monthly Financing Charge payable by the Lessee to the
Company with respect to Nuclear Material during any period in which such Nuclear
Material is subject to an Interim Lease Record, together with any Cash
Collateral. Amounts payable in respect of Commercial Paper Discount during any
calendar month or portion thereof shall be paid on the first Business Day of the
next succeeding month in which such amounts are incurred.
"Company" means the Oyster Creek Fuel Corp., a Delaware
corporation.
"Consents and Agreements" means the agreements, each
substantially in the form attached as Exhibit 2 to Exhibit D to the Lease
Agreement, between the Lessee and the various contractors under the Nuclear
Material Contracts, with such changes to Exhibit 2 to Exhibit D as the Secured
Parties may consent to in writing, which consent shall not be unreasonably
withheld.
"Controlled Group" means a controlled group of corporations of
which the Company is a member within the meaning of Section 414(b) of the Code,
any group of corporations or entities under common control with the Company
within the meaning of Section 414(c) of the Code or any affiliated service group
of which the Company is a member within the meaning of Section 414(m) of the
Code.
"Credit Agreement" means the Credit Agreement dated as of
November 5, 1998 among Oyster Creek Fuel Corp. The First National Bank of
Chicago, as Administrative Agent, PNC Bank, National Association, as Syndication
Agent, the Banks parties thereto, and First Chicago Capital Markets, Inc. and
PNC Capital Markets, Inc., as Arrangers.
"Credit Agreement Default" means an event which would, with
the lapse of time or the giving of notice or both, constitute a Credit Agreement
Event of Default.
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"Credit Agreement Event of Default" means any one or more of
the events specified in Section 10.01 of the Credit Agreement.
"Dealer Agreements" mean any agreement pursuant to which any
-----------------
Person is at any time acting as a Dealer.
"Deemed Loss Event" means the following event: if at any time
during the term of the Lease Agreement, (A) the Company, by reason solely of the
ownership of the Nuclear Material or any part thereof or the lease of the
Nuclear Material to the Lessee under the Lease Agreement, or the Company or any
Secured Party, by reason solely of any other transaction contemplated by the
Lease Agreement or any of the other Basic Documents, shall be deemed, by any
governmental authority having jurisdiction, to be, or to be subject to
regulation as an "electric utility" or a "public utility" or a "public utility
holding company" or similar type of entity, under any applicable law or deemed a
"public utility company" or a "subsidiary company" or a "holding company" within
the meaning of the Public Utility Holding Company Act, (B) the Public Utility
Holding Company Act shall be amended, applied, or interpreted in a manner, or
any rules or regulations shall be adopted under the Public Utility Holding
Company Act of 1935, which adversely affect the legality, validity and
enforceability of the lease obligations of the Company and the Lessee under the
Lease Agreement, or (C) either the Company or any of the Secured Parties, by
reason solely of being a party to the Basic Documents, shall be required to
obtain any consent, order or approval of, or to make any filing or registration
with, or to give any notice to, any governmental authority, or be subject to any
liabilities, duties or obligations under the Public Utility Holding Company Act,
other than the filing by the Company of a certificate on Form U-7D with the SEC
pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17
C.F.R. Section 250.7(d)), except in any case if the same shall be solely the
result of Nonburdensome Regulation; provided, however, that if in compliance
with applicable laws, the Lessee, with the cooperation of the Company, shall
have acted diligently and in good faith to contest, or obtain an exemption from
the application of the laws, rules or regulations described in clauses (A), (B)
or (C) to the Company, the Secured Parties or the Lessee, as the case may be,
the application of which would otherwise constitute a Deemed Loss Event, such
Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee
shall have furnished to the Company and the Secured Parties an opinion of
counsel reasonably satisfactory to the Company and the Secured Parties to the
effect that there exists a reasonable basis for such contest or exemption and
that the application of such laws, rules or regulations to the Company, the
Secured Parties or the Lessee, as the case may be,
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shall be effectively stayed during the application for exemption or contest and
such laws, rules or regulations shall not be applied retroactively at the
conclusion of such contest, (II) the Company or the Secured Parties shall have
determined in their sole discretion that such contest or exemption shall not
adversely affect their business or involve any danger of the sale, foreclosure
or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee
shall have agreed to indemnify the Company or such Secured Parties, as the case
may be, for expenses incurred in connection with such contest or exemption; and
further provided, that following notice from the Lessee to the Company or the
Secured Parties, as the case may be, that the Lessee shall be unable to furnish
the opinion described in clause (I) of the next preceding proviso or that any
such contest shall not be successful or such exemption shall not be available, a
Deemed Loss Event shall be deemed not to have occurred for such period, not to
exceed 270 days, as may be approved by any governmental authority having
jurisdiction during which application of such law, rule or regulation to the
Company, the Secured Parties or the Lessee, as the case may be, shall be
suspended to enable the Company to assign or transfer its interest in the
Collateral so long as during such period the Company shall use reasonable
efforts to assign or transfer its interest in the Collateral upon commercially
reasonable terms and conditions, provided that the Company shall not be required
to assign or transfer the Nuclear Material for a price which, after deduction of
sales tax and expenses of such sale incurred by the Company, shall be less than
the sum of (A) Stipulated Casualty Value determined as of the date of such
proposed sale, and (B) the Termination Rent determined in accordance with
Section 18 of the Lease Agreement.
"Depositary Agreement" means the Depositary Agreement, dated
as of November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary
and The First National Bank of Chicago, as Administrative Agent.
"ERISA" means the Employee Retirement Income Security Act of
1974, as from time to time amended.
"Excepted Payments" means any indemnity, expense, or other
payment which by the terms of any of the Basic Documents shall be payable to the
Company in order for the Company to satisfy its obligations pursuant to Section
7.8 of the Trust Agreement.
"Face Amount" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
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"Federal Energy Regulatory Commission" means the independent
regulatory commission of the Department of Energy of the United States
Government existing under the authority of the Department of Energy Organization
Act, as amended, or any successor organization or organizations performing any
identical or substantially identical licensing and related regulatory functions.
"Federal Power Act" means the Federal Power Act, as amended.
"Final Leasing Record" means a Leasing Record which records
the leasing of Nuclear Material during any period while such Nuclear Material is
installed for operation in the Generating Facility. A Final Leasing Record shall
be in the form of Exhibit B to the Lease Agreement.
"Financing Costs" means (a) fees and other amounts owing to
any Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal
fees and disbursements and other amounts referred to in Section 10(b) of the
Security Agreement, (c) legal, accounting, and other fees and expenses incurred
by the Lessee and/or the Company in connection with the preparation, execution
and delivery of Basic Documents or the issuance of the Commercial Paper and/or
the Notes, and (d) such other reasonable fees and expenses of the Owner Trustee
and the Company as they may be entitled to under the Basic Documents.
"Fuel Management" means the design of, contracting for, fixing
the price and terms of acquisition of, management, movement, removal,
disengagement, storage and other activities in connection with the acquisition,
utilization, storage and disposal of the Nuclear Material.
"Generating Facility" means the nuclear reactor located at the
Oyster Creek Nuclear Generating Station, located in Lacey Township, New Jersey.
"Heat Production" means the stage of the Nuclear Material
Cycle commencing with the commercial operation of a Generating Facility, during
which the Nuclear Material in question is producing thermal energy which results
in the production of net positive electrical energy transmitted within the
distribution network of any utility and during which the Nuclear Material in
question is engaged in the reactor core of such Generating Facility.
"Hereof," "herein," "hereunder" and words of similar import
when used in a Basic Document refer to such Basic Document as a whole and not to
any particular section or provision thereof.
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"Imposition" means any payment required by a public or
governmental authority in respect of any property subject to the Lease Agreement
or any transaction pursuant to the Lease Agreement or any right or interest held
by virtue of the Lease Agreement; provided, however, that Imposition shall not
include any taxes, whether federal, state or local, payable by any Secured Party
based on or measured by net income of any Secured Party where taxable income is
computed in substantially the same manner as taxable income is computed under
the Code.
"Insurance Requirements" means all terms of any insurance
policy or indemnification agreement covering or applicable to (i) any Nuclear
Material or (ii) the Generating Facility or the Lessee in its capacity as
licensee of the Generating Facility, in each case insofar as any insurance
policy or indemnification agreement directly or indirectly relates to the
Nuclear Material or the performance by the Lessee of its obligations under the
Basic Documents, and all requirements of the issuer of any such policy or
agreement necessary to keep such insurance or agreements in force.
"Interim Leasing Record" means a Leasing Record which records
the leasing of Nuclear Material (i) prior to installation for operation in the
Generating Facility, (ii) after removal from the Generating Facility during the
"cooling off" and storage period, and (iii) while being reprocessed. An Interim
Leasing Record shall be in the form of Exhibit A to the Lease Agreement.
"Investment Company Act" means the Investment Company Act of
1940, as from time to time amended.
"Lease Agreement" means the Second Amended and Restated
Nuclear Material Lease Agreement, dated as of November 5, 1998 between Oyster
Creek Fuel Corp., as the Lessor, and Jersey Central Power & Light Company, as
the Lessee, as the same may be modified, supplemented or amended from time to
time.
"Lease Event of Default" has the meaning specified in Section
16 of the Lease Agreement.
"Leasing Record" is a form signed by the Lessor and the Lessee
to record the leasing under the Lease Agreement of the Nuclear Material
specified in such Leasing Record. A Leasing Record shall be either an Interim
Leasing Record or a Final Leasing Record.
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"Legal Requirements" means all applicable provisions of the
Atomic Energy Act, all applicable orders, rules, regulations and other
requirements of the Nuclear Regulatory Commission and the Federal Energy
Regulatory Commission, and all other laws, rules, regulations and orders of any
other jurisdiction or regulatory authority relating to (i) the licensing,
acquisition, storage, containerization, transportation, blending, transfer,
consumption, leasing, insuring, using, operating, disposing, fabricating,
channelling and reprocessing of the Nuclear Material, (ii) the Generating
Facility or the Lessee in its capacity as licensee of the Generating Facility,
in each case insofar as such provisions, orders, rules, regulations, laws and
other requirements directly or indirectly relate to the Nuclear Material or the
performance by the Lessee of its obligations under the Basic Documents or (iii)
the Basic Documents, insofar as any of the foregoing directly or indirectly
apply to the Lessee.
"Lessee" has the meaning specified in the introduction to the
Lease Agreement.
"Lessee Representative" means a person at the time designated
to act on behalf of the Lessee by a written instrument furnished to the Company
and the Secured Parties containing the specimen signature of such person and
signed on behalf of the Lessee by any of its officers. The certificate may
designate an alternate or alternates. A Lessee Representative may be an employee
of the Lessee or of the Owner Trustee.
"Lessor" has the meaning specified in the introduction to the
Lease Agreement, and its successors and assigns.
"Lessor's Bill of Sale" means an instrument substantially in
the form of Exhibit E to the Lease Agreement, pursuant to which title to all or
any portion of the Nuclear Material is transferred to the Lessee or any designee
of the Lessee.
"Letter Agreement" means the Lessee's Letter Agreement
Regarding Oyster Creek Fuel Corp., dated as of November 5, 1998, between the
Lessee, the Company, and the Administrative Agent, as it may be amended from
time to time.
"Lien" means any mortgage, pledge, lien, security interest,
title retention, charge or other encumbrance of any nature whatsoever (including
any conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to execute and deliver any financing
statement under the Uniform Commercial Code of any jurisdiction).
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"Loans" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Majority Secured Parties" means at any time the Secured
Parties holding at such time more than 66% of the outstanding principal amount
of all Secured Obligations.
"Manufacturer" means any supplier of Nuclear Material or of
any service (including without limitation, enrichment, fabrication,
transportation, storage and processing) in connection therewith, or any agent or
licensee of any such supplier.
"Manufacturer's Consent" means any consent which may be given
by a Manufacturer under a Nuclear Material Contract to the assignment by the
Lessee to the Company of all or a portion of the Lessee's rights under such
Nuclear Material Contract or of all or a portion of any such rights previously
assigned by the Lessee to the Secured Parties.
"Monthly Debt Service" for any calendar month means the sum of
the Monthly Financing Charge for such calendar month.
"Monthly Financing Charge" means, for any calendar month or
portion thereof, the sum of:
(a) all Commercial Paper Discount payable by the Company with
respect to Commercial Paper outstanding during such month and/or all
interest payable by the Company during such month with respect to all
outstanding Notes and in each case, not included in Acquisition Cost;
and
(b) the amounts paid or due and payable by the Company with
respect to the transactions contemplated by the Basic Documents during
such calendar month for the following other fees, costs, charges and
expenses incurred or owed by the Company under or in connection with
the Lease Agreement or the other Basic Documents: (i) legal, printing,
reproduction and closing fees and expenses, (ii) auditors',
accountants' and attorneys' fees and expenses, (iii) franchise taxes
and income taxes, and (iv) any other fees and expenses incurred by the
Company under or in respect of the Basic Documents.
Any figure used in the computation of any component of the Monthly Financing
Charge shall be stated to five decimal places.
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"Monthly Rent Component" for any Nuclear Material covered by a
Final Leasing Record for each calendar month during the lease of such Nuclear
Material shall be as follows:
(i) for the first partial calendar month the Monthly
Rent Component shall be zero;
(ii) for the first full calendar month the Monthly Rent
Component shall be zero;
(iii) for the second full calendar month the Monthly Rent
Component shall be zero;
(iv) for the third full calendar month the Monthly Rent
Component shall be an amount determined by multiplying (x) the amount
of thermal energy in millions of British Thermal Units of heat produced
by such Nuclear Material during the first calendar month while covered
by the Final Leasing Record and also during the first partial calendar
month, if any, such Nuclear Material was covered by an Interim or Final
Leasing Record and was engaged in Heat Production by (y) the BTU Charge
set forth in the Final Leasing Record covering such Nuclear Material;
and
(v) for each full calendar month after the third full
calendar month, the Monthly Rent Component shall be an amount
determined by multiplying (x) the amount of thermal energy in millions
of British Thermal Units of heat produced by such Nuclear Material
during the second preceding month by (y) the BTU Charge set forth in
the Final Leasing Record covering such Nuclear Material.
The BTU Charge for any Nuclear Material may be revised by the Lessee at any time
during the lease thereof to reflect any reasonably anticipated change in its
operating life, BTU output, or utilization. Such revision shall be effected by
the Lessee's executing and forwarding to the Lessor a revised Final Leasing
Record dated the first day of the following month and setting forth such revised
BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall
execute and return a copy thereof to the Lessee. Such revised BTU Charge shall
be applicable to such Nuclear Material for each month thereafter beginning on
the date of the revised Final Leasing Record.
"NJBPU" means the New Jersey Board of Public Utilities or any
successor agency thereto.
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"Nonburdensome Regulation" means (i) ministerial regulatory
requirements that do not impose limitations or regulatory requirements on the
business or activities of, or adversely affect, the Company or any Secured Party
and that are deemed, in the reasonable discretion of the Company or any Secured
Party, not to be burdensome, or (ii) assuming redelivery of the Nuclear Material
in accordance with the Lease Agreement, regulation resulting from any possession
of the Nuclear Material (or right thereto) on or after the termination of the
Lease Agreement.
"Notes" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Nuclear Incident" shall have the meaning specified in the
Atomic Energy Act, 42 U.S.C. ss.2014(q), as such definition may be amended from
time to time.
"Nuclear Material" means those items which have been purchased
by or on behalf of the Company for which a duly executed Leasing Record has been
delivered to the Company and which continue to be subject to the Lease Agreement
consisting of (i) the items described in such Leasing Record and each of the
components thereof in the respective forms in which such items exist during each
stage of the Nuclear Material Cycle, being substances and equipment which, when
fabricated and assembled and loaded into a nuclear reactor, are intended to
produce heat, together with all attachments, accessories, parts and additions
and all improvements and repairs thereto, and all replacements thereof and
substitutions therefor and (ii) the substances and materials underlying the
right, title and interest of the Lessee under any Nuclear Material Contract
assigned to the Company pursuant to the Lease Agreement; provided, however, that
the term Nuclear Material shall not include spent fuel.
"Nuclear Material Contract" means any contract, as from time
to time amended, modified or supplemented, entered into by the Lessee, either in
its own name or as agent for the Lessor, with one or more Manufacturers relating
to the acquisition of Nuclear Material or any service in connection with the
Nuclear Material.
"Nuclear Material Cycle" means the various stages in the
process, whether physical or chemical, by which the component parts of the
Nuclear Material are designed, mined, milled, processed, converted, enriched,
fabricated into assemblies utilizable for Heat Production, loaded or installed
into a reactor core, utilized, disengaged from a reactor core or stored,
together with all incidental processes with respect to the Nuclear Material at
any such stage.
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"Nuclear Regulatory Commission" means the independent
regulatory commission of the United States Government existing under the
authority of the Energy Reorganization Act of 1974, as amended, or any successor
organization or organizations performing any identical or substantially
identical licensing and related regulatory functions.
"Obligations" means (i) all items (including, without
limitation, Capitalized Leases but excluding shareholders' equity and minority
interests) which in accordance with generally accepted accounting principles
should be reflected on the liability side of a balance sheet as at the date as
of which such obligations are to be determined; (ii) all obligations and
liabilities (whether or not reflected upon such balance sheet) secured by any
Lien existing on the Property held subject to such Lien, whether or not the
obligation or liability secured thereby shall have been assumed; and (iii) all
guarantees, endorsements (other than for collection in the ordinary course of
business) and contingent obligations in respect of any liabilities of the type
described in clauses (i) and (ii) of this definition (whether or not reflected
on such balance sheet); provided, however, that the term 'Obligations' shall not
include deferred taxes.
"Obligations for Borrowed Money or Deferred Purchase Price"
means all Obligations in respect of borrowed money or the deferred purchase
price of property or services.
"Officer's Certificate" means, with respect to any
corporation, a certificate signed by the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Comptroller, or any Assistant
Comptroller of such corporation, and with respect to any other entity, a
certificate signed by an individual generally authorized to execute and deliver
contracts on behalf of such entity.
"Outstandings" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Owner Trust Estate" means all estate, right, title and
interest of the Owner Trustee in and to the outstanding stock of the Company and
in and to all monies, securities, investments, instruments, documents, rights,
claims, contracts, and other property held by the Owner Trustee under the Trust
Agreement; provided, however, that there shall be excluded from the Owner Trust
Estate all Excepted Payments.
"Owner Trustee" means United States Trust Company of New York,
not in its individual capacity but solely as trustee under and pursuant to the
Trust Agreement, and its permitted successors.
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"Partially Assigned Agreement" means a Nuclear Material
Contract which has been assigned, in part but not in full, to the Company in the
manner specified in Section 5 of the Lease Agreement pursuant to a duly executed
and delivered Assignment Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation, created
by Section 4002(a) of ERISA and any successor thereto.
"Permitted Liens" means (i) any assignment of the Lease
Agreement permitted thereby, and by the Credit Agreement, (ii) liens for
Impositions not yet payable, or payable without the addition of any fine,
penalty, interest or cost for nonpayment, or being contested by the Lessee as
permitted by Section 11 of the Lease Agreement, (iii) liens and security
interests created by the Security Agreement, (iv) the title transfer and
commingling of the Nuclear Material contemplated by paragraph (h) of Section 10
of the Lease Agreement, and (v) liens of mechanics, laborers, materialmen,
suppliers or vendors, or rights thereto, incurred in the ordinary course of
business for sums of money which under the terms of the related contracts are
not more than 30 days past due or are being contested in good faith by the
Lessee as permitted by Section 11 of the Lease Agreement; provided, however,
that, in each case, such reserve or other appropriate provision, if any, as
shall be required by generally accepted accounting principles shall have been
made in respect thereto.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other business entity or any
government or any political subdivision or agency thereof.
"Plan" means, with respect to any Person, any plan of a type
described in Section 4021(a) of ERISA in respect of which such Person is an
"employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a)
(2) of ERISA, respectively.
"Proceeds" shall have the meaning assigned to it under the
Uniform Commercial Code, as amended, and, in any event, shall include, but not
be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Company from time to time with respect to the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), and (iii) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
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"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Public Utility Holding Company Act" means the Public Utility
Holding Company Act of 1935, as from time to time amended.
"Qualified Institution" means a commercial bank organized
under the laws of, and doing business in, the United States of America or in any
State thereof, which has combined capital, surplus and undivided profits of at
least $150,000,000 having trust power.
"Related Person" means, with respect to any Person, any trade
or business, (whether or not incorporated) which, together with such Person, is
under common control as described in Section 414(c) of the Code.
"Rent" means Basic Rent, Additional Rent and Termination Rent.
"Rent Due and SCV Confirmation Schedule" means an instrument,
substantially in the form of Exhibit G to the Lease Agreement, which is to be
used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and
Other Rent and (ii) to calculate and acknowledge the SCV at the end of each
Basic Rent Period.
"Reportable Event" means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder.
"Responsible Officer" means a duly elected or appointed,
authorized, and acting officer, agent or representative of the Person acting.
"Secured Obligations" means each and every debt, liability and
obligation of every type and description which the Company may now or at any
time hereafter owe to any Secured Party under, pursuant to or in connection with
the Credit Agreement, any Note, the Letter of Credit or any other Basic
Document, whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, including, without
limitation, the Face Amount of any Commercial Paper, the principal of, interest
on and any premium due with respect to any Loan and all indemnifications, costs,
expenses, fees and other compensation of the Secured Parties provided for, and
all other amounts owed to the Secured Parties, under the Security Agreement,
Credit Agreement and the other Basic Documents.
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"Secured Parties" means the Banks, any other holder from time
to time of any Note and any holder from time to time of any Commercial Paper.
"Securities Act" means the Securities Act of 1933, as from
time to time amended.
"Security Agreement" means the Security Agreement and
Assignment of Contracts, dated as of November 5, 1998, by and among the Company
and The First National Bank of Chicago, as Collateral Agent in favor of the
Secured Parties.
"Single Employer Plan" means any Plan which is not a multi-
employer plan as defined in Section 4001(a) (3) of ERISA
"Stipulated Casualty Value" or "SCV" for any Nuclear Material
covered by any Leasing Record means an amount equal to the Acquisition Cost for
such Nuclear Material reduced by the aggregate total amount, if any, of the
Monthly Rent Components paid by the Lessee to the Lessor with respect to such
Nuclear Material together with Commercial Paper Discount.
"Syndication Agent" shall have the meaning specified therefor
in the first paragraph of the Credit Agreement.
"Termination Date" shall have the meaning specified therefor
in Section 1.02 of the Credit Agreement.
"Termination Rent" means an amount which, when added to the
Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any,
will be sufficient to enable the Company to retire, at their respective
maturities, all outstanding Notes and to pay all charges, premiums and fees owed
to the holders of Notes and Commercial Paper under the Credit Agreement and to
pay all other obligations of the Company incurred in connection with the
implementation of the transactions contemplated by the Basic Documents.
"Termination Settlement Date" has the meaning specified in
Section 8(c), or Section 18(c) of the Lease Agreement.
"Terminating Event" has the meaning specified in Section 18 of
the Lease Agreement.
"Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp.
Trust, a trust formed pursuant
to the Trust Agreement.
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"Trust Agreement" means the Second Amended and Restated Trust
Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the
Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central
Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric
Company, each as lessee under certain lease agreements, as the same may be
amended, modified or supplemented from time to time.
"Trustor" means the institution designated as such in the
Trust Agreement and its permitted successors.
"UBS Credit Agreement" means the Credit Agreement dated as of
November 17, 1995 among Oyster Creek Fuel Corp., Union Bank of Switzerland, New
York Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as
Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York
Bank, as Administrative Agent.
"UCC" means the Uniform Commercial Code as adopted and in
effect in the State of New York.
"U.S. Trust" means United States Trust Company of New York.
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EXHIBIT A
INTERIM LEASING RECORD
Record No. _____
Name of Lessee: Jersey Central Power & Light Company
Date of Record: __________________
Date and No. of prior Interim or Final
Leasing Record (if any):
Description and location of Nuclear Material
covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $___________
Acquisition Cost added by this Record: $___________
Total: $___________
Credits to Acquisition Cost: $___________
Total Acquisition Cost under this Record $___________
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
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The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants,
terms and conditions are incorporated herein by reference.
OYSTER CREEK FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT
COMPANY, Lessee
By____________________________ By____________________________
Authorized Signature Authorized Signature
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EXHIBIT B
FINAL LEASING RECORD
Record No. _____
Name of Lessee: Jersey Central Power & Light Company
Date of Record: __________________
Date and No. of prior Interim or Final
Leasing Record:
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $___________
Acquisition Cost added by this Record: $___________
Total: $___________
Credits (if any) to Acquisition Cost: $___________
Total Acquisition Cost under this Record $___________
BTU Charge: $__________
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
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The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998, which covenants,
terms and conditions are incorporated herein by reference.
OYSTER CREEK FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT
COMPANY, Lessee
By___________________________ By ____________________________
Authorized Signature Authorized Signature
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Attachment 1 to Exhibit B
BRITISH THERMAL UNIT CHARGE AGREEMENT
Dated:__________________
The undersigned Lessor and Lessee agree that the initial
British Thermal Unit Charge to be used to calculate the Monthly Rent Component
for the Nuclear Material pursuant to the Second Amended and Restated Nuclear
Material Lease Agreement, dated as of _________ __, 1998, between the
undersigned Lessor and Lessee shall be as follows:
Description of Nuclear Material British Thermal Unit
Charge
OYSTER CREEK FUEL CORP. JERSEY CENTRAL POWER & LIGHT
COMPANY
By: ________________________ By:__________________________
Its:________________________ Its:_________________________
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EXHIBIT C
NUCLEAR MATERIAL CONTRACTS
The Agreements (each as amended and restated) referred to in
Section 5 of the Second Amended and Restated Nuclear Material Lease Agreement,
dated as of November 5, 1998, between OYSTER CREEK FUEL CORP.
("Lessor") and JERSEY CENTRAL POWER & LIGHT COMPANY ("Lessee") are:
(1) Agreement, dated January 30, 1975, between Sequoyah Fuels
Corporation and GPUN, as agent for the Lessee, Met-Ed and Penelec.
(2) Agreement, dated February 12, 1996, between United States
Enrichment Corporation and Lessee, Met-Ed and Penelec.
(3) Agreement, dated as of November 12, 1980 between General
Electric Company and the Lessee.
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EXHIBIT D
ASSIGNMENT AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
Jersey Central Power & Light Company (the "Assignor"), in
consideration of one dollar and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, does hereby sell, grant,
bargain, convey and assign to Oyster Creek Fuel Corp. ("Assignee"), all right,
title and interest of the Assignor in, to and under the Nuclear Material
Contract (the "Nuclear Material Contract") described in Exhibit 1 attached
hereto insofar as such Nuclear Material Contract relates to the Nuclear Material
described in Exhibit 1 (all of such property, including the items described on
Exhibit 1 attached hereto as included with the Property, being herein
collectively called the "Property"). Terms not defined herein shall have the
meanings given in Exhibit 1 attached hereto.
TO HAVE AND TO HOLD the Property unto the Assignee, its
successors and assigns, to its and their own use forever.
1. The interest of the Assignor in the Property, and the
interest transferred by this Assignment Agreement, is that of absolute
ownership.
2. The Assignor hereby warrants that it is the lawful owner of
the rights and interests conveyed by this Assignment Agreement and that its
title to such rights and interests is hereby conveyed to the Assignee free and
clear of all liens, charges, claims and encumbrances of every kind whatsoever,
other than (i) the amounts, if any, owing under the Nuclear Material Contract,
(ii) other claims, if any, of the Assignor and the Contractor which may exist as
between themselves and (iii) Permitted Liens (as defined in the Lease Agreement
referred to below); and that the Assignor will warrant and defend such title
forever against all claims and demands whatsoever.
3. The Assignor hereby releases and transfers to the Assignee
any right, title or interest in the Nuclear Material which may have been
acquired by the Assignor under the Nuclear Material Contract prior to the date
hereof.
4. This Assignment Agreement is made in accordance with the
Second Amended and Restated Nuclear Material Lease Agreement dated as of
November 5, 1998, between the Assignor and the Assignee (said Nuclear Material
Lease Agreement, as the same may be from time to time amended, modified or
supplemented, being herein called the "Lease Agreement"). Pursuant to a Security
Agreement and Assignment of Contracts made by Oyster Creek Fuel Corp. dated as
of November 5, 1998 (said Security Agreement and Assignment of Contracts,
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as the same may from time to time be amended, modified or supplemented, being
herein called the "Security Agreement") made by Assignee in favor of the Secured
Parties, as defined therein, the Assignee is assigning and granting a security
interest in the Property and this Assignment Agreement to the Secured Parties,
as collateral security for all obligations and liabilities of the Assignee to
the Secured Parties, as such obligations are described in the Security
Agreement.
5. It is expressly agreed that, anything contained herein to
the contrary notwithstanding, (a) the Assignor shall at all times remain liable
to the Contractor to observe and perform all of its duties and obligations under
the Nuclear Material Contract to the same extent as if this Assignment Agreement
and the Security Agreement had not been executed, (b) the exercise by the
Assignee or the Secured Parties of any of the rights assigned hereunder or under
the Security Agreement, as the case may be, shall not release the Assignor from
any of its duties or obligations to the Contractor under the Nuclear Material
Contract, and (c) neither the Assignee nor any of the Secured Parties shall have
any obligation or liability under the Nuclear Material Contract by reason of or
arising out of this Assignment Agreement, the Lease Agreement or the Security
Agreement, or be obligated to perform or fulfill any of the duties or
obligations of the Assignor under the Nuclear Material Contract, or to make any
payment thereunder, or to make any inquiry as to the nature or sufficiency of
any Property received by it thereunder, or to present or file any claim, or to
take any action to collect or enforce the payment of any amounts or the delivery
of any Property which may have been assigned to it or to which it may be
entitled at any time or times; provided, however, the Assignee agrees, solely
for the benefit of the Assignor, and subject to the terms and conditions of the
Lease Agreement, (i) to purchase the Nuclear Material from the Contractor
pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or
to the Assignor or their order the respective amounts specified in the Lease
Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear
Material to the Assignor in accordance with and subject to the terms and
conditions of the Lease Agreement. The provisions of the Nuclear Material
Contract limiting the liability of the Contractor and its suppliers and
subcontractors' under that Contract shall remain effective against the Assignee
and Secured Parties to the same extent that such provisions are effective
against the Assignor.
6. Notwithstanding anything contained herein to the contrary,
subject to the terms and conditions of the Lease Agreement, the Assignor may
continue to engage in Fuel Management (as such term is defined in the Lease
Agreement) with respect to the Property, including, without limitation, all
dealings with the Contractor and, subject to such terms and conditions and
effective until the occurrence of a Lease Event of Default (as defined in the
Lease Agreement), (i) the Assignee reassigns to the Assignor the
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Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of
Exhibit 1 to this Assignment Agreement (provided, however, that insurance
proceeds are reassigned to the Assignor pursuant hereto only to the extent that
such proceeds are needed and used to reimburse the Assignor for the cost of
repairing damage or destruction to Nuclear Material or are used to purchase
Nuclear Material from the Assignee in accordance with the Lease Agreement, and
provided further, however, that the Assignee's rights under clause (vi) are
reassigned to the Assignor subject in all respects to the limitations set forth
in paragraph 8. below), and (ii) the Assignee agrees that the Assignor may, to
the extent set forth in clause (i) above, to the exclusion of the Assignee,
exercise and enforce such rights.
7. The Assignor shall promptly and duly execute, deliver, file
and record all such further counterparts of this Assignment Agreement or such
certificates, financing and continuation statements and other instruments as may
be reasonably requested by the Assignee, and take such further actions as the
Assignee shall from time to time reasonably request, in order to establish,
perfect and maintain the rights and remedies created or intended to be created
in favor of the Assignee and the Secured Parties hereunder and the Assignee's
title to and interest in the Property as against the Assignor or any third party
in any applicable jurisdiction.
8. The Assignor hereby agrees that it will not enter into or
consent to or permit any cancellation, termination, amendment, supplement or
modification of or waiver with respect to the Nuclear Material Contract insofar
as it relates to the Nuclear Material except for cancellations, terminations,
amendments, supplements, modifications or waivers which do not materially
adversely affect the Assignee or the Secured Parties or their respective
interests in the Property, nor will the Assignor sell, assign, grant any
security interest in or otherwise transfer its rights or other interests in the
Property or any part thereof, except as permitted by the Lease Agreement.
9. The Assignor hereby represents and warrants that the
Nuclear Material Contract is in full force and effect and represents that it is
the only agreement between the Assignor and the Contractor with respect to the
Nuclear Material.
10. This Assignment Agreement shall become effective only upon
receipt of the written consent of the Contractor to the assignment of the rights
and interests conveyed hereunder, if such consent is required under the Nuclear
Material Contract. The Assignor hereby agrees to send the Contractor a copy of
this Assignment Agreement.
11. This Assignment Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, the Assignor has caused this Assignment
Agreement to be duly executed and delivered as of the ____ day of _________,
19__.
JERSEY CENTRAL POWER & LIGHT
COMPANY
By:____________________________
Title:_________________________
The foregoing Assignment Agreement is hereby accepted:
OYSTER CREEK FUEL CORP.
By:____________________________
Title:_________________________
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EXHIBIT 1
to Assignment Agreement
(a) The _____________ (as the same may from time to time be
amended, modified or supplemented, being herein called the "Nuclear Material
Contract"), dated as of _____________, between Jersey Central Power & Light
Company and ______________ (the "Contractor), insofar as, and only to the extent
that, the Contract relates to _________________ (the "Nuclear Material"); but
not insofar as the Contract provides for the provision of other nuclear
materials and services to the Assignor; and
(b) The Property shall include, without limitation, (i) any
and all amendments and supplements to the Nuclear Material Contract from time to
time executed and delivered to the extent that any such amendment or supplement
relates to the Nuclear Material, (ii) the Nuclear Material, including the right
to receive title thereto, (iii) all rights, claims and proceeds, now or
hereafter existing, under any insurance, indemnities, warranties and guaranties
provided for in or arising out of the Nuclear Material Contract, to the extent
that such rights or claims relate to the Nuclear Material, (iv) any claim for
damages arising out of or for breach or default by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material, (v) any other amount, whether resulting from refunds or
otherwise, from time to time paid or payable by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear
Material Contract or to perform or to exercise or enforce thereunder, insofar as
it or they relate to the Nuclear Material.
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EXHIBIT 2
to Assignment Agreement
CONSENT AND AGREEMENT
The undersigned, _________________ (the "Contractor"), has
entered into a _______________ (as the same may from tune to time be amended,
modified or supplemented, being herein called the "Nuclear Material Contract"),
dated as of ____________________ with Jersey Central Power & Light Company (the
"Assignor").
The Contractor hereby acknowledges notice that (i) in
accordance with the terms of the Second Amended and Restated Nuclear Material
Lease Agreement dated as of _________ __, 1998, between the Assignor and Oyster
Creek Fuel Corp. (the "Assignee"), the Assignor has assigned to the Assignee a
part of the Assignor's rights under the Nuclear Material Contract pursuant to an
Assignment Agreement, in the form of Annex A hereto (such Assignment Agreement,
as the same may from time to time be amended, modified or supplemented, being
herein collectively called the "Assignment"), and (ii) pursuant to a Security
Agreement and Assignment of Contracts made by Oyster Creek Fuel Corp. dated as
of ___________, 1998 (said Security Agreement and Assignment Contracts, as the
same may from time to time be amended, modified or supplemented, being herein
called the "Security Agreement") made by the Assignee in favor of the Secured
Parties as defined therein (the "Secured Parties"), the Assignee has assigned
and granted a security interest in all rights under the Nuclear Material
Contract from time to time assigned to it by Assignor, as collateral security
for all obligations and liabilities of the Assignee to the Secured Parties.
The Contractor hereby consents to (i) the assignment by the
Assignor to the Assignee of part of the Assignor's right, title and interest in,
to and under the Nuclear Material Contract and the other Property described in
the Assignment pursuant to the Assignment and (ii) the assignment and security
interest in favor of the Secured Parties as described above. The Contractor
further consents to all of the terms and provisions of the Security Agreement.
The Contractor agrees that, if requested by either the
Assignor or the Assignee, it will acknowledge in writing the Assignment
delivered by the Assignor to the Assignee; provided, that neither the lack of
notice to nor acknowledgment by the Contractor of the Assignment shall limit or
otherwise affect the validity or effectiveness of this consent to such
Assignment.
The Contractor hereby confirms to the Assignee and the Secured
Parties that:
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(a) all representations, warranties and agreements of the
Contractor under the Nuclear Material Contract which relate to the Nuclear
Material described in the Assignment shall inure to the benefit of, and shall be
enforceable by, the Assignee or any Secured. Party to the same extent as if
originally named in the Contract as the purchaser of such Nuclear Material,
(b) the Contractor understands that, pursuant to the Lease
Agreement, the Assignee has agreed to lease the Nuclear Material described in
the Assignment to the Assignor, and consents to the assignment to the Assignor,
for so long as the Lease Agreement shall be in effect or until otherwise
notified by the Assignee, of the Assignee's rights under clauses (iii), (iv),
(v) and (vi) of subparagraph (b) of Exhibit 1 to the Assignment to the extent
that such rights are reassigned to the Assignor pursuant to the Assignment,
(c) The Contractor is in the business of selling nuclear fuel
and related services of the kind described in the Assignment, and the proposed
sale of such nuclear fuel under the Nuclear Material Contract will be in the
ordinary course of business of the Contractor, and
(d) Notwithstanding any provision to the contrary contained in
the Nuclear Material Contract, the Contractor agrees that title to any Nuclear
Material covered by the Assignment shall pass directly to the Assignee under the
Contract and shall not pass to the Assignor; provided that the foregoing shall
not apply to any Nuclear Material for which title has already passed from the
Contractor prior to the execution and delivery of the Assignment.
It is understood that neither the Assignment, the Security
Agreement nor this Consent and Agreement shall in any way add to the obligations
of the Contractor or the Assignor under the Nuclear Material Contract.
This Consent and. Agreement shall be governed by and construed
in accordance with the laws of the State of ____________.
IN WITNESS WHEREOF, the undersigned has caused this Consent
and Agreement to be duly executed and delivered by its duly authorized officer
as of the ____ day of ________, 19__.
By:____________________________
Title:_________________________
66
<PAGE>
EXHIBIT E
BILL OF SALE
TO
JERSEY CENTRAL POWER & LIGHT COMPANY
------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Oyster
Creek Fuel Corp., a Delaware corporation (the "Seller"), whose post office
address is c/o United States Trust Company of New York, 114 West 47th Street,
New York, New York 10036, Attention: Corporate Trust and Agency Division, for
and in consideration paid to the Seller upon or before the execution and
delivery of this Bill of Sale to Jersey Central Power & Light Company (the
"Purchaser"), a New Jersey corporation, whose address is 2800 Pottsville Pike,
Reading, Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers,
sells and sets over unto the Purchaser all of its right, title and interest in
all of the personal property consisting of the assemblies of nuclear fuel or
components thereof or other nuclear material described in Annex I hereto (the
"Assets"), and by this Bill of Sale does hereby grant, bargain, sell, convey,
transfer and deliver the Assets unto the Purchaser, to have and to hold such
undivided interest in the Assets unto the Purchaser, for itself, its successors
and assigns, forever.
The Assets are transferred and conveyed by the Seller AS-IS,
WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND
WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the
Seller represents and warrants that it has not by voluntary act or omission
created or granted any lien on the Assets, other than Permitted Liens, as
defined in that certain Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998 between the Seller and the Purchaser.
The Purchaser acknowledges and agrees that neither the Seller, its directors,
officers or employees, any company, person or firm controlling, controlled by,
or under common control with any of them nor any other person acting on behalf
of the Seller is a manufacturer of, or is engaged in the sale or distribution
of, nuclear material, has had at any time physical possession of any portion of
the Assets sold hereunder, or has made any inspection thereof. The Purchaser
further acknowledges and agrees that the Assets sold hereunder have been at all
times in the possession of the Purchaser and that the Purchaser has made such
inspections thereof as it deems necessary and that the Purchaser has been solely
responsible for all decisions made with respect to the choice of the suppliers
of such Assets and the enrichment, fabrication, transportation, storage and
processing of the same.
67
<PAGE>
IN WITNESS WHEREOF, the Seller has caused these presents to be
executed by one of its Vice Presidents, this ____ day of ________, 19__.
OYSTER CREEK FUEL CORP., Seller
By:____________________________
Vice President
Acknowledgment and Acceptance
The foregoing Bill of Sale is hereby acknowledged and accepted
by the undersigned as of the date last above written.
JERSEY CENTRAL POWER & LIGHT
COMPANY,
Purchaser
By:______________________________
Its: ____________________________
68
<PAGE>
EXHIBIT F
RENT DUE
AND SCV CONFIRMATION SCHEDULE
-----------------------------
For the Basic Rent Period Ended _______
In accordance with the Second Amended and Restated Lease
Agreement dated as of ___________, 1998, between Oyster Creek Fuel Corp., as
Lessor, and Jersey Central Power & Light Company, as Lessee, the Lessee
certifies that all amounts set forth below are true and correct in all respects,
and both Lessor and Lessee certify that this Schedule has been prepared in
accordance with the provisions of the Lease Agreement.
I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT
A. Basic Rent Owed
1. Calculation of Portion of Monthly Financing
Charge Not Allocated to Acquisition Cost
a. Interest Payable with Respect to All
Outstanding Notes (See attached
summary calculation $_____________
b. Other Amounts Included in Monthly
Financing Charge $_____________
c. Total Monthly Financing Charge Not
Allocated to Acquisition Cost
(Total of I(a) and I(b) $_____________
2. Aggregate Monthly Rent Component
(See attached summary calculation) $_____________
3. BASIC RENT (total of 1(c) and 2) $
=============
B. Additional Rent Owed (see attached
summary calculation) $_____________
C. Termination Rent Owed (see attached
summary calculation $_____________
TOTAL RENT DUE (total of A, B and C) $
=============
69
<PAGE>
<TABLE>
II. Calculation of Stipulated Casualty Value
<CAPTION>
Nuclear Material
---------------------------------------------------
Installed for Not Installed for
Operation in the Operation in the
Generating Facility Generating Facility Total
------------------- ------------------- --------
Total
<S> <C> <C> <C> <C>
A. Stipulated Casualty Value as of ______ $_________________ $________________ $________
B. Add: Acquisition Cost Incurred in
Rent Period Covered by This Schedule
(exclusive of Monthly Finance Charges) $_________________ $________________ $________
C. Add: Monthly Financing Charge
Allocated to Acquisition Cost
Incurred in Rent Period Covered
by this Schedule $_________________ $________________ $________
D. Less: SVC of Nuclear Material
Transferred to the Lessee Pursuant
to Section 8(c), 8(g) or 14 of
the Lease Agreement during the Basic
Rent Period Covered by this
Schedule $_________________ $________________ $________
STIPULATED CASUALTY VALUE AS OF _________ $ $ $
================= ================ =========
Add: Commercial Paper Discount $________
STIPULATED CASUALTY VALUE AS OF _________ $
========
</TABLE>
70
EXHIBIT 10-S
COUNTERPART NO.
SECOND AMENDED AND RESTATED
NUCLEAR MATERIAL LEASE AGREEMENT
Dated as of November 5, 1998
between
TMI-1 FUEL CORP.,
as Lessor
and
JERSEY CENTRAL POWER & LIGHT COMPANY
as Lessee
AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR
UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS
GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS
SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS
AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING,
WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR
MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT.
THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN
EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY
INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE
LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE
AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<PAGE>
TABLE OF CONTENTS
1 Definitions 2
2 Notices 2
3 Title to Remain in the Lessor; Quiet
Enjoyment; Fuel Management; Location 3
4 Agreement for Lease of Nuclear Material 3
5 Orders for Nuclear Material and Services;
Assigned Agreements 4
6 Leasing Records; Payment of Costs of Lessor 5
7 No Warranties or Representation by Lessor 7
8 Lease Term; Early Termination; Termination
Of Leasing Record 8
9 Payment of Rent; Payments with Respect to the
Lessor's Financing Costs 10
10 Compliance with Laws; Restricted Use of Nuclear
Material; Assignments; Permitted Liens; Spent Fuel 11
11 Permitted Contests 15
12 Insurance; Compliance with Insurance Requirements 15
13 Indemnity 17
14 Casualty and Other Events 20
15 Nuclear Material to Remain Personal Property 21
16 Events of Default 22
17 Rights of the Lessor Upon Default of the Lessee 23
18 Termination After Certain Events 25
19 Investment Tax Credit 28
20 Certificates; Information; Financial Statements 28
21 Obligation of the Lessee to Pay Rent 30
22 Miscellaneous 30
<PAGE>
SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT
SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement")
dated as of the 5th day of November, 1998, by and between TMI-1 FUEL CORP., a
Delaware corporation (herein called the "Lessor"), and JERSEY CENTRAL POWER &
LIGHT COMPANY, a New Jersey corporation (herein called the "Lessee").
RECITALS
A. The Lessor and Lessee entered into a Nuclear Material Lease
Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease
of Nuclear Material to the Lessee;
B. The Original Lease provided for the Lessor to enter into certain
loan agreements and ancillary documents with The Prudential Insurance Company of
America and certain affiliates thereof ("Prudential") to provide financing from
Prudential for the acquisition of Nuclear Material under the Original Lease;
C. Such loan arrangements with Prudential were terminated and Lessor
entered into a new credit agreement and related instruments pursuant to which a
bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS")
acted as agent to provide financing for the acquisition of Nuclear Material
being leased hereunder;
D. Lessor and Lessee entered into an Amended and Restated Nuclear
Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated
Lease") to reflect the necessary modifications consistent with the establishment
of the credit facility with UBS;
E. Concurrent with the execution and delivery hereof, such credit
agreements with UBS are being terminated and Lessor is entering into a new
credit agreement and related instruments to which a bank syndicate for which The
First National Bank of Chicago and PNC Bank, National Association, will act as
agents to provide financing for the acquisition of the Nuclear Material being
leased hereunder;
F. Accordingly, the Lessor and the Lessee desire to enter into this
Second Amended and Restated Lease Agreement in order to reflect necessary
modifications consistent with establishment of such new credit facility and
other modifications thereof in certain other respects, which agreement shall
supercede the Original Lease and the Amended and Restated Lease;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties covenant and agree
as follows:
1. Definitions. Except as otherwise provided herein, capitalized
terms used in this Lease Agreement (including the Exhibits) shall have the
respective meanings set forth in Appendix A.
2. Notices. Any notice, demand or other communication which by any
provision of this Lease Agreement is required or permitted to be given shall be
deemed to have been delivered if in writing and actually delivered by mail,
courier, telex or facsimile to the following addresses:
(i) If to the Lessor, TMI-1 Fuel Corp., c/o United States
Trust Company of New York, 114 West 47th Street, New York, New York 10036,
Attention: Corporate Trust and Agency Division, telecopy number 212-852-1626, or
at such other address as the Lessor may have furnished to the Lessee and the
Secured Parties in writing; or
(ii) If to the Lessee, Jersey Central Power & Light Company
c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957,
Attention: Vice President and Treasurer, telecopy number 973-644-4224, or at
such other address as the Lessee may have furnished the Lessor and the Secured
Parties in writing; or
(iii) except as provided in the following sentence or as
otherwise requested in writing by any Secured Party, any notice, demand or
communication which by any provision of this Lease Agreement is required or
permitted to be given to the Secured Parties shall be deemed to have been
delivered to all the Secured Parties if a single copy thereof is delivered to
The First National Bank of Chicago, One First National Plaza, Mail Suite 0363,
Chicago, Illinois 60670, Attention: Kenneth J. Bauer, facsimile number (312)
732-3055; or at such other address as either may have furnished the Lessor and
the Lessee in writing. Any Leasing Record or invoice of a Manufacturer or other
Person performing services covering the Nuclear Material which is required to be
delivered to the Secured Parties pursuant to Section 6(c)(ii) of this Lease
Agreement and any Rent Due and SCV Confirmation Schedule which is required to be
delivered to the Secured Parties pursuant to Sections 8(g) or 9(d) of this Lease
Agreement shall be deemed to have been delivered to all the Secured Parties if a
single copy thereof is delivered to Kenneth J. Bauer at the address indicated in
this Section 2(iii).
2
<PAGE>
3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management;
Location.
(a) The Lessor and the Lessee hereby acknowledge that this
Lease Agreement is a lease and is intended to provide for the obligations of the
Lessee to pay installments of Rent as the same become due; that, subject to the
provisions of Section 10(h), the Lessor has title to and is the owner of the
Nuclear Material; and that the relationship between the Lessor and the Lessee
shall always be only that of lessor and lessee.
(b) The Lessor (including its successors and assigns) agrees
and covenants that, so long as the Lessee makes timely payments of Rent and
fully performs all other obligations to be performed by the Lessee under this
Lease Agreement, the Lessor (including its successors and assigns) shall not
hinder or interfere with the Lessee's peaceable and quiet enjoyment of the
possession and use of the Nuclear Material, for the term or terms herein
provided, subject, however, to the terms of this Lease Agreement.
(c) So long as no Lease Event of Default shall have occurred
and be continuing and the Lessor shall not have elected to exercise any of its
remedies under Section 17 hereof, the Lessee shall have the right to engage in
Fuel Management. The Lessee is hereby designated the agent of the Lessor in all
dealings with Manufacturers and any regulatory agency having jurisdiction over
the ownership or possession of the Nuclear Material for so long as the Lessee
shall have the right to engage in Fuel Management. As such agent of the Lessor,
the Lessee agrees to make, or cause to be made, all filings and to obtain all
consents and permits required as a result of the Lessor's ownership and leasing
of the Nuclear Material.
(d) The Lessee covenants to the Lessor that the location of
Nuclear Material will be limited to: (w) any Manufacturer's facility, (x)
transit between one Manufacturer's facility and another Manufacturer's facility
or the site of the Generating Facility, (y) the site of the Generating Facility
and (z) the Generating Facility. Each assembly of the Nuclear Material will be
located during its Heat Production and "cooling-off" stage at the Generating
Facility or the site of the Generating Facility.
4. Agreement for Lease of Nuclear Material. From and after the
Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from
the Lessor such Nuclear Material as may be from time to time mutually agreed
upon, provided that the total Stipulated Casualty Value of all Nuclear Material
leased under this Lease
3
<PAGE>
agree to in writing (the "Maximum Stipulated Casualty Value"). The Lessor and
the Lessee shall evidence their agreement to lease particular Nuclear Material
in accordance with the terms and provisions of this Lease Agreement by signing
and delivering to each other, from time to time, Leasing Records, substantially
in the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee,
covering such Nuclear Material. Nothing contained herein shall be deemed to
prohibit the Lessee from leasing from other lessors or otherwise obtaining other
nuclear material for use in the Generating Facility, subject to the provisions
with respect to intermingling of fuel assemblies or sub-assemblies with other
fuel assemblies or sub-assemblies contained in Section 6 hereof.
5. Orders for Nuclear Material and Services; Assigned Agreements.
(a) The Nuclear Material Contracts listed in Exhibit C hereto,
relating, among other things, to the purchase of, and services to be performed
with respect to, Nuclear Material were entered into by the Lessee prior to the
date of this Lease Agreement, and, except as otherwise indicated on Exhibit C,
the interests of the Lessee under such Nuclear Material Contracts have been
assigned to the Lessor under an Assignment Agreement substantially in the form
of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems
necessary or desirable may be negotiated by the Lessee and executed by the
Lessee in its own name or, where authorized by the Lessor, as agent for the
Lessor.
(b) So long as no Lease Event of Default shall have occurred
and be continuing, and subject to the approval of the Lessor and to the
limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set
forth in Section 4, the interests of the Lessee under any further Nuclear
Material Contracts (whether executed and delivered before or after the date of
this Lease Agreement) pursuant to which the Lessee desires the Lessor to
purchase Nuclear Material or have services performed on any Nuclear Material on
behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement
substantially in the form of Exhibit D, with such changes to Exhibit 2 to
Exhibit D as the Secured Parties may consent to in writing, which consent shall
not be unreasonably withheld. The Lessee shall use its best efforts to cause the
other parties to such agreements to consent to each such assignment. Upon each
such assignment and the obtaining of such consents with respect to any Nuclear
Material Contract, the Lessor, subject to the limitation on the Maximum
Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall
make all payments which are required under such Assigned Agreements for the
purchase of Nuclear Material or for services to be performed on the Nuclear
Material in accordance with the procedures set forth in Section 6.
4
<PAGE>
(c) So long as no Lease Event of Default shall have occurred
and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own
cost and expense, to assert all rights and claims and to bring suits, actions
and proceedings, in its own name or in the name of the Lessor, in respect of any
Manufacturer's warranties or undertakings, express or implied, relating to any
portion of the Nuclear Material and to retain the proceeds of any such suits,
actions and proceedings.
6. Leasing Records; Payment of Costs of Lessor.
(a) Interim Leasing Records. An Interim Leasing Record shall
be prepared by the Lessee, shall be dated the date that the Lessor first makes
any payment with respect to the Acquisition Cost of any Nuclear Material and
shall set forth a full description of such Nuclear Material, the Acquisition
Cost and location thereof, and such other details with respect to such Nuclear
Material upon which the parties may agree. During the period of preparation and
processing or reprocessing of Nuclear Material subject to an Interim Leasing
Record, if the Lessor shall make any further payment or payments or if the
Lessor shall receive any payment or payments representing a credit against the
Acquisition Cost previously paid with respect to such Nuclear Material, a
supplemental Interim Leasing Record dated the date that the Lessor makes each
such further payment or the date of receipt of any such credit shall be signed
by the Lessor and the Lessee to record the revised Acquisition Cost, after
giving effect to any such payments or credits with respect to such Nuclear
Material, any change in location and such additional details upon which the
parties may agree.
(b) Final Leasing Records. For Nuclear Material previously
covered by an Interim Leasing Record, the Final Leasing Record shall be prepared
by the Lessee, shall be dated the first day of the month following the date of
installation of such Nuclear Material in the Generating Facility, unless such
date is the first day of a month, in which case the Final Leasing Record shall
be dated such date. For Nuclear Material not previously covered by an Interim
Leasing Record, the Final Leasing Record shall be dated the date that the Lessor
first makes any payment with respect to the Acquisition Cost of such Nuclear
Material. A Final Leasing Record shall set forth a full description of such
Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the location,
and such other details with respect to such Nuclear Material upon which the
parties may agree.
(c) Payment of Nuclear Material Costs.
5
<PAGE>
(i) On the Closing, the Lessor shall pay UBS pursuant to
Section 5.02 of the UBS Credit Agreement the principal amount of all loans
outstanding thereunder together with accrued interest thereon to the
extent not paid previously, and related costs and expenses in connection
therewith.
(ii) From time to time after the Closing, invoices of
Manufacturers, or of other Persons performing services, covering Nuclear
Material shall be forwarded to the Lessor in care of the Lessee at the
Lessee's address. Upon receipt by the Lessee of an invoice covering
Nuclear Material, the Lessee shall review such invoice and, upon the
Lessee's approval thereof, the Lessee shall forward such invoice endorsed
with the Lessee's approval to the Lessor, together with a Leasing Record
completed and signed by a Lessee Representative covering such Nuclear
Material. The Lessee's invoice for any cost incurred by it and includable
in the Acquisition Cost of any Nuclear Material shall be forwarded to the
Lessor and to the Secured Parties, together with a Leasing Record
completed and signed by a Lessee Representative covering such costs. After
receipt of such invoice and Leasing Record, in form and substance
satisfactory to the Lessor, the Lessor, subject to the limitation on
Maximum Stipulated Casualty Value of the Nuclear Material set forth in
Section 4, shall pay such invoice as provided therein or in the related
purchase agreement and shall execute the Leasing Record and return a copy
of such Leasing Record to the Lessee and the Secured Parties. The Leasing
Record shall be dated as provided for in this Lease Agreement. In the
event that the Acquisition Cost of the Nuclear Material covered by any
Leasing Record has been paid or incurred by the Lessee, the Lessor,
subject to the limitation on Maximum Stipulated Casualty Value of the
Nuclear Material set forth in Section 4 shall promptly reimburse the
Lessee for the amount of the Acquisition Cost paid or incurred by the
Lessee.
(iii) The Lessee shall: (A) pay all costs and expenses of
freight, packing, insurance, handling, storage, shipment and delivery of
the Nuclear Material to the extent that the same have not been included in
the Acquisition Cost, and (B) at its own cost and expense, furnish such
labor, equipment and other facilities and supplies, if any, as may be
required to install and erect the Nuclear Material to the extent that the
cost and expense thereof have not been included in the Acquisition Cost.
Such installation and erection shall be in accordance with the
specifications and requirements of each Manufacturer. The Lessor shall not
be liable to the Lessee for any failure or delay in obtaining Nuclear
Material or making delivery thereof.
6
<PAGE>
(d) Intermingling of Fuel Assemblies. Subject to the
provisions of Section 10(h) hereof, the Nuclear Material shall be owned
exclusively by the Lessor and leased to the Lessee under this Lease Agreement.
Prior to the fabrication of Nuclear Material into a completed fuel assembly or
sub-assembly or while such Nuclear Material is being reprocessed, the Lessee
will cause or permit such Nuclear Material to be fabricated or assembled only
into fuel assemblies or sub-assemblies owned by the Lessor and leased under this
Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor
and leased to the Lessee hereunder may be intermingled in the Generating
Facility with fuel assemblies or sub-assemblies not owned by the Lessor and
leased to the Lessee under this Lease Agreement, provided that such assemblies
or sub-assemblies owned by the Lessor shall be readily identifiable by serial
number or other distinguishing marks.
7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL
IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF
ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF
OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS,
INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES
AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY
AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY
OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR
PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME
FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR
WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING
ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES
THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING,
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM NOR ANY OTHER PERSON
ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL
POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION
THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO
THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF
THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION,
ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE
OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT
NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED
BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON BEHALF OF THE
LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER REPRESENTATION,
EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE LEASED UNDER THIS
LEASE AGREEMENT
7
<PAGE>
(a) WILL NOT RESULT IN INJURY OR DAMAGE TO PERSONS OR
PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE RESULTS WHICH
THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY MANNER OR
RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY
SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR
ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL
WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A MANUFACTURER
OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT NONE OF THE
FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, WARRANTY OR
COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY, SUITABILITY OR
CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY RESPECT OR IN
CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY OTHER
REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR
IMPLIED.
8. Lease Term; Early Termination; Termination of Leasing Record.
(a) The Lessor hereby leases to the Lessee, and the Lessee
hereby leases from the Lessor, the Nuclear Material for the term provided in
this Lease Agreement and subject to the terms and provisions hereof.
(b) This Lease Agreement shall become effective at 12:01 A.M.,
Eastern time, on the Closing, and, unless earlier terminated as provided in
Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close
of business on the later of (i) the date on which there is no outstanding
principal of, or interest or premium, if any, on any of the Outstandings or (ii)
the Termination Date but in each case in no event later than November 17, 2015.
(C) In the event that during the term of this Lease Agreement,
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement, the Lessee shall have the option, exercisable at any time
beginning 180 days before such Termination Date upon written notice to the
Lessor and the Secured Parties prior to such Termination Date to purchase
(d) All (but not less than all) of the Nuclear Material and
any spent fuel related thereto for which title has not been transferred to the
Lessee for a purchase price equal to the Stipulated Casualty Value of such
Nuclear Material at the time of such purchase plus the Termination Rent. If the
Lessee exercises such purchase option, the purchase of the Nuclear Material
shall occur on such date, on or prior to such Termination Date, as may be
8
(e) agreed upon by the Lessor and the Lessee and of which the
Lessee has given the Secured Parties prior written notice. Upon receipt of
payment of the purchase price, the Lessor shall deliver to the Lessee a Lessor's
Bill of Sale, substantially in the form of Exhibit E, transferring all right,
title, interest and claim of the Lessor to the Nuclear Material and any spent
fuel related thereto for which title has not already been transferred to the
Lessee, to the Lessee or the Lessee's designee, free and clear of all Liens
created by the Collateral Agreements, together with such documents, if any, as
may be required to evidence the release of such Liens. The later of (i) the date
on which there is no outstanding principal of, or interest or premium, if any,
on any of the Outstandings or (ii) the date of any sale by the Lessor of all of
the Nuclear Material as provided in this Section 8(c) shall constitute the
Termination Settlement Date, and this Lease Agreement shall terminate as of such
date.
(f) In the event that during the term of this Lease Agreement
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement and the Lessee shall not have exercised its option to
purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no
sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the
Nuclear Material to a third party not disqualified by any applicable statute,
law, regulation or agreement from acquiring such Nuclear Material, and, upon
prior written notice to the Lessor and the Secured Parties of the terms and date
of such sale, the Lessor shall furnish title papers as may be necessary to
effect such sale or conveyance on an as-is, where-is, non-installment, cash sale
basis, without recourse to or warranty or agreement of any kind by the Lessor.
The proceeds of such sale or conveyance shall be paid to the Lessor, and any
amount so paid shall constitute a credit against the amount of the Stipulated
Casualty Value payable by the Lessee under Section 8(e); provided, however, that
any proceeds of such sale or conveyance in excess of the amount payable by the
Lessee under Section 8(e) shall be retained by the Lessee.
(g) On the Termination Date unless the Lessee shall have
exercised its purchase option set forth in Section 8(c) and paid the Lessor the
purchase price of the Nuclear Material as provided therein, the Lessee shall pay
to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of
all Nuclear Material leased under this Lease Agreement as of such Termination
Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less
any credit provided in Section 8(d)), and (ii) the Termination Rent as of such
Termination Date. Upon receipt of such payment, the Lessor shall deliver to the
Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in
the form of Exhibit E, transferring all right, title, interest and claim of the
Lessor to the Nuclear Material and any spent fuel relating thereto for which
title has not been
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transferred to the Lessee to the Lessee or the Lessee's designee, free and clear
of all Liens created by the Collateral Agreements, together with such documents,
if any, as may be required to evidence the release of such Liens.
(h) In the event that during the term of this Lease Agreement,
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement, all obligations of the Lessor and Lessee under this Lease
Agreement with respect to the Nuclear Material, including the obligation of the
Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for
the Nuclear Material and to lease the same to the Lessee shall terminate on the
date on which the Lessor receives the payment specified in Section 8(c) or
Section 8(e).
(i) The Lessee shall deliver to the Lessor and to the Secured
Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within
thirty (30) days following the date on which any Nuclear Material or spent fuel
resulting from the Nuclear Material is removed from the reactor of the
Generating Facility for purposes of "cooling-off" preliminary to reprocessing or
permanent on-site safe storage and/or off-site disposal. If the Lessee elects
within thirty (30) days following the receipt by the Lessor of such Rent Due and
SCV Confirmation Schedule to extend the lease term for the purposes of
reprocessing any such Nuclear Material, then the Lessor and the Lessee shall
enter into an Interim Leasing Record with respect to such Nuclear Material in
its then condition. In all other cases, the Final Leasing Record with respect to
any such Nuclear Material or spent fuel resulting from such Nuclear Material
shall be terminated and the Lessee shall immediately pay to the Lessor all
amounts, including the Stipulated Casualty Value, if any, with respect to such
Nuclear Material or spent fuel resulting from such Nuclear Material, and, upon
receipt thereof, the Lessor shall deliver to the Lessee or to any designee of
the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E,
transferring all right, title, interest and claim of the Lessor to such Nuclear
Material or spent fuel resulting from such Nuclear Material for which title has
not already been transferred to the Lessee or the Lessee's designee, free and
clear of all Liens created by the Collateral Agreements, together with such
documents, if any, as may be required to evidence the release of such Liens.
9. Payment of Rent; Payments with Respect to the Lessor's Financing
Costs.
(a) Basic Rent. The Lessee shall pay Basic Rent monthly in
arrears on the first day of the next succeeding month. If such first day of the
month is not a Business Day, then payment shall be made on the next succeeding
Business Day.
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(b) Additional Rent. In addition to the Basic Rent, the Lessee
will also pay from time to time as provided in this Lease Agreement or on demand
of the Lessor, all Additional Rent on the due date thereof. In the event of any
failure by the Lessee to pay any Additional Rent, the Lessor shall have all the
rights, powers and remedies as in the case of failure to pay Basic Rent.
(c) Prepayments of Basic Rent. The Lessee may prepay Basic
Rent at any time. Such payment shall be credited against subsequent amounts owed
by the Lessee on account of Basic Rent.
(d) Wire Payment Procedure for Paying Basic Rent. All payments
of Rent and other payments to be made by the Lessee to the Lessor pursuant to
this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request,
to the Secured Parties) in lawful money of the United States in Collected Funds
by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee
shall furnish to the Lessor and the Secured Parties each month during the term
of the Lease Agreement a summary of the rental calculations for such month
covering all outstanding Leasing Records. On each Basic Rent Payment Date, the
Lessee shall deliver to the Lessor and the Secured Parties a signed and
completed Rent Due and SCV Confirmation Schedule. The Lessee shall be
responsible for the accuracy of the matters contained in all such schedules
delivered by the Lessee pursuant to the provisions of this Lease Agreement.
10. Compliance with Laws; Restricted Use of Nuclear Material;
Assignments; Permitted Liens; Spent Fuel.
(a) Compliance with Legal Requirements. Subject to the
provisions of Section 11 hereof, the Lessee agrees to comply with all Legal
Requirements.
(b) Recording of Title. The Lessee shall promptly and duly
execute, deliver, file and record all such further counterparts of this Lease
Agreement or such certificates, Bills of Sale, financing and continuation
statements and other instruments as may be reasonably requested by the Lessor
and take such further actions as the Lessor shall from time to time reasonably
request, in order to establish, perfect and maintain the rights and remedies
created or intended to be created in favor of the Lessor and the Secured Parties
under this Lease Agreement and the Lessor's title to and interest in the Nuclear
Material as against the Lessee or any third party in any applicable
jurisdiction.
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(c) Exclusive Use of Nuclear Material. So long as no Lease
Event Default shall have occurred and be continuing, the Lessee may use the
Nuclear Material in the regular course of its business or in the business of any
subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon
thirty (30) days' prior notice in writing to the Lessor and the Secured Parties,
or upon such shorter prior notice in writing promptly given upon the Lessee's
receipt of notice from any Manufacturer that the Nuclear Material is to be
moved, and at the Lessee's sole expense (without limiting the Lessee's rights to
request payment by the Lessor of such expense as provided in Section 6 hereof)
move such Nuclear Material to any jurisdiction approved in writing by the Lessor
in the contiguous forty-eight (48) states of the United States of America and
the District of Columbia for the purpose of having services performed on such
Nuclear Material in connection with any stage of the Nuclear Material Cycle
other than Heat Production and the "cooling off" stage, provided that (i) no
such movement of the Nuclear Material shall materially reduce the then fair
market value of such Nuclear Material, (ii) such Nuclear Material shall be and
remain the property of the Lessor, subject to this Lease Agreement, and (iii)
all Legal Requirements (including, without limitation, all necessary government
consents, permits and approvals) shall have been met or obtained by the Lessee,
on its own behalf and on behalf of the Lessor, and all necessary recordings,
filings and registrations or recordings, filings and registrations which the
Lessor shall reasonably consider advisable shall have been duly made in order to
protect the validity and effectiveness of this Lease Agreement and the security
interest created in the Security Agreement. At least once each year, or more
frequently if the Lessor reasonably so requests, the Lessee shall advise the
Lessor and the Secured Parties in writing where all Nuclear Material as of such
date is located. The Lessee shall maintain and make available to the Lessor for
examination upon reasonable notice complete and adequate records pertaining to
receipt, possession, use, location, movement, physical inventories and any other
information reasonably requested by the Lessor with respect to the Nuclear
Material.
(d) Additional Lessee Covenants. The Lessee agrees to use
every reasonable precaution to prevent loss or damage to the Nuclear Material.
All individuals handling or operating Nuclear Material in the possession of the
Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee
shall cooperate fully with the Lessor and all insurance companies and
governmental agencies providing insurance under Section 12 hereof in the
investigation and defense of any claims or suits arising from the licensing,
acquisition, storage, containerization, transportation, blending, transfer,
consumption, leasing, insuring, operating, disposing, fabricating and
reprocessing of the Nuclear Material. To the extent required by any applicable
law or regulation, the Lessee shall attach to the Nuclear Material the
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form of required notice to protect or disclose the ownership of the Lessor or
that the Nuclear Material is leased. So long as no Lease Event of Default shall
have occurred and be continuing, the Lessor will assign or otherwise make
available to the Lessee all of its rights under any Manufacturer's warranty on
Nuclear Material. The Lessee shall pay all costs, expenses, fees and charges,
except Acquisition Costs, incurred by the Lessee in connection with the use and
operation of the Nuclear Material during the term of the lease of such Nuclear
Material. The Lessee hereby assumes all risks of loss or damage of Nuclear
Material however caused and shall, at its own expense, keep the Nuclear Material
in good operating condition and repair, reasonable wear and tear, obsolescence
and exhaustion excepted.
(e) Assignment by Lessor. Except as otherwise herein provided,
the Lessor may not, without the prior written consent of the Lessee, sell,
assign, transfer or convey the Nuclear Material or any interest therein or in
the Lease Agreement, or grant to any party a security interest in, or create a
lien or encumbrance upon, all or any part of its right, title and interest in
this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of
written notice from the Lessor of any assignment by the Lessor of Rents or other
sums payable by the Lessee under this Lease Agreement, the Lessee shall make
such payments as directed in such notice of assignment, and such payments shall
discharge the obligations of the Lessee hereunder to the extent of such
payments. The Lessee hereby consents to the security interest and other rights
and interests granted to the Secured Parties under the Security Agreement, dated
as of the date first above written.
(f) Liens; Permitted Liens. The Lessee will not directly or
indirectly create or permit to be created or to remain and will discharge any
Lien with respect to the Nuclear Material or any portion thereof, or upon the
Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or
any other sum payable under this Lease Agreement, other than Permitted Liens.
(g) Assignment by Lessee. Notwithstanding any provision of
this Lease Agreement to the contrary, subject to applicable laws and regulations
and so long as no Lease Event of Default shall have occurred and be continuing,
the Lessee may sublease the Nuclear Material provided that (i) the Lessee has
given prior written notice of such sublease to the Lessor, (ii) such sublease is
not inconsistent with, and is expressly subject to, this Lease Agreement and
(iii) such sublease does not in any way limit or affect the Lessee's duties and
obligations under this Lease Agreement.
(h) Transfer of Title to Manufacturers. The parties recognize
that, during the processing and reprocessing of Nuclear Material before and
after its utilization in the Generating Facility for the production of power,
the Manufacturer performing
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services on the Nuclear Material may require that title thereto be transferred
to such Manufacturer and/or that the Nuclear Material be commingled with other
nuclear material, with an obligation for the Manufacturer, upon completion of
the services, to reconvey a specified amount of nuclear material. The standard
enrichment contracts of the Department of Energy contain such provisions.
Therefore, the parties agree that (i) Nuclear Material may become subject to
such a contract provision and that the action contemplated by such a provision
may be taken, notwithstanding any provision of this Lease Agreement to the
contrary, (ii) as between the Lessor and the Lessee, such Nuclear Material shall
be deemed to remain leased under this Lease Agreement while title thereto is in
the Manufacturer, and (iii) the nuclear material exchanged by the Manufacturer
upon completion of its services shall be automatically leased under this Lease
Agreement in substitution for the Nuclear Material originally delivered to the
Manufacturer.
(i) Substitution of Nuclear Material. The Lessee shall be
permitted to exchange Nuclear Material for other Nuclear Material of equal or
greater fair market value provided that the Lessor receives title to such
substituted Nuclear Material free and clear of any Lien other than such Liens as
may be created by the Security Agreement or permitted under Section 10(h). Any
additional costs incurred in order to effect such an exchange shall be paid by
the Lessor in accordance with the procedures set forth in Section 6(c) and shall
be added to the Acquisition Cost of the Nuclear Material. A supplemental Leasing
Record dated the date that the Lessor makes such further payment shall be signed
by the Lessor and the Lessee to record the revised Acquisition Cost and shall
include a full description of the substituted Nuclear Material, notice of any
change in location and such additional details upon which the parties may agree.
(j) Spent Fuel. Without the consent of the Lessor, the Lessee
shall not permit any Nuclear Material, which shall have been removed from a
Generating Facility for the purpose of "cooling-off," storage, repair or
reprocessing to be removed from the site of the Generating Facility unless (i)
the new site of such Nuclear Material is a facility maintaining liability
insurance and indemnification fully insuring and indemnifying the Lessor, the
Lessee and the Secured Parties under the Atomic Energy Act and any other
applicable law, rule or regulation, and (ii) except if the lease term is
extended pursuant to the second sentence of Section 8(g), the lease of such
Nuclear Material shall, concurrently with its removal from the Generating
Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or
18 hereof, as applicable, with the Lessee acquiring the ownership thereof
pursuant to Section 8(e), 8(g) or Section 18(c), as applicable.
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11. Permitted Contests. The Lessee at its expense may, in its own
name or, if necessary and permitted, in the name of the Lessor (and, if
necessary but not so permitted, the Lessee may require the Lessor to) contest
after prior notice to the Lessor, by appropriate legal or administrative
proceedings conducted in good faith and with due diligence, the amount, validity
or application, in whole or in part, of any Imposition or Lien therefor, or any
Legal Requirements or Insurance Requirements, or any matter underlying Lessee's
indemnity obligations under Section 13 hereof, or any other Lien or contract or
agreement referred to in Section 10(f) hereof; provided that (i) in the case of
an unpaid Imposition or Lien therefor, such proceedings shall suspend the
collection of such Imposition or the enforcement of such Lien against the
Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion
thereof nor the taking of any step necessary or proper with respect to such
Nuclear Material in any stage of the Nuclear Material Cycle nor the performance
of any other act required to be performed by the Lessee under this Lease
Agreement would be enjoined, prevented or otherwise interfered with, (iii) the
Lessor would not be subject to any additional civil liability (other than
interest which the Lessee agrees to pay) or any criminal liability for failure
to pay any such Imposition or to comply with any such Legal Requirements or
Insurance Requirements or any such other Lien, contract or agreement, and (iv)
the Lessee shall have set aside on its books adequate reserves (in accordance
with generally accepted accounting principles) and shall have furnished such
security, if any, as may be required in the proceedings or reasonably requested
by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S.
Trust and the Secured Parties harmless against, all losses, judgments, decrees
and costs, including attorneys' fees and expenses, in connection with any such
contest and will, promptly after the determination of such contest, pay and
discharge the amounts which shall be levied, assessed or imposed or determined
to be payable, together with all penalties, fines, interest, costs and expenses
incurred in connection with such contest. All rights and indemnification
obligations under this Section 11 and each other indemnification obligation in
favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under
this Lease Agreement shall survive any termination of this Lease Agreement or of
the lease of any Nuclear Material hereunder.
12. Insurance; Compliance with Insurance Requirements. The Lessee
shall comply with all Insurance Requirements and with all Legal Requirements
pertaining to insurance. Without limiting the foregoing:
(a) Liability and Casualty Insurance. The Lessee shall,
at its own cost and expense, procure and maintain, or cause to be procured
and maintained, liability insurance and
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indemnification with respect to the Nuclear Material insuring and indemnifying
the Lessor, the Owner Trustee, U.S. Trust, the Lessee, and the Secured Parties
to the full extent required or available, whichever may be greater, under the
Atomic Energy Act or under any other applicable law, rule or regulation. In the
event the provisions of the Atomic Energy Act with respect to liability
insurance and the indemnification of owners, licensees and operators of Nuclear
Material or any other provisions of the Atomic Energy Act which benefit the
Lessor, the Owner Trustee, U.S. Trust or the Secured Parties shall change, then
the Lessee shall use its best efforts to obtain equivalent insurance and
indemnification agreements from the Nuclear Regulatory Commission or from such
other public and/or private sources from which such coverage is available. The
Lessee shall also, at its own cost and expense, procure and maintain, or cause
to be procured and maintained, physical damage insurance with respect to the
Nuclear Material insuring the Lessor, the Owner Trustee, U.S. Trust and the
Secured Parties against loss or damage to the Nuclear Material in a manner which
is consistent at all times with current prudent utility industry practice in the
United States; provided, however, that the Lessee shall in any event maintain
physical damage insurance coverage for its Three Mile Island Unit 1 nuclear
generating station site, including the Nuclear Material, in an amount not less
than $1.11 billion. Such liability and physical damage insurance and
indemnification agreements may be subject to deductible amounts which do not
exceed in the aggregate $5,000,000, and the Lessee may self-insure with respect
to such liability and physical damage insurance and indemnification agreements
to the extent of $5,000,000, provided that such deductible amounts and such
self-insurance are permitted under all applicable law, rules and regulations.
(b) Third Parties; Insurance Requirements. The Lessee shall
use its best efforts to provide that the Nuclear Material, while in the
possession of third parties, is covered for liability insurance and
indemnification to the maximum extent available, and for physical damage
insurance in an amount not less than the Stipulated Casualty Value of such
Nuclear Material. To the extent that any such third party is maintaining such
insurance coverage for the Nuclear Material, the Lessee shall have no obligation
to do so under this Lease Agreement.
(c) Named Insureds; Loss Payees. The Lessee shall provide for
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named
additional insureds where possible, and, with respect to physical damage
coverage, named loss payees to the full extent of their interests in all
insurance policies and
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indemnification agreements relating to the Nuclear Material required under this
Section. All such policies and, where possible, indemnification agreements,
shall provide for at least ten (10) days' prior written notice to the Lessor,
the Owner Trustee, U.S. Trust and the Collateral Agent of any cancellation or
material alteration of such policies.
(d) Insurance Certificates. The Lessee shall, upon request of
the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the
Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may
be, with copies of the policies or insurance certificates in respect of the
insurance procured pursuant to the provisions of this Section and shall advise
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all
expirations and renewals of policies and all notices issued by the insurers with
respect to such policies. Within a six-month period from the execution of this
Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate
as to the insurance coverage provided pursuant to this Section and shall further
give notice as to any material change in the nature or availability of such
coverage, including any material change whatsoever in the provisions of the
Atomic Energy Act or any other applicable law, rule or regulation with respect
to liability insurance and indemnification, or, immediately after the Lessee
becomes aware, or should reasonably be expected to become aware, of any material
change in the application, interpretation or enforcement thereof. The Lessor,
the Owner Trustee, U.S. Trust or the Collateral Agent shall be under no duty to
examine such insurance policies or indemnification agreements or to advise the
Lessee in case the Lessee is not in compliance with any Insurance Requirements.
13. Indemnity. Without limitation of any other provision of this
Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold
harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured
Parties and all companies, persons or firms controlling, controlled by, or under
common control with any of them and the respective shareholders, directors,
officers and employees of the foregoing against any and all claims, demands and
liabilities of whatever nature and all costs, losses, damages, obligations,
penalties, causes of action, judgments and expenses (including attorneys' fees
and expenses) directly or indirectly relating to or in any way arising out of:
(a) defects in title to Nuclear Material upon acquisition by
the Lessor or in ownership of and interest in the Nuclear Material (the term
"Nuclear Material" when used in this Section 13 shall include, in addition to
all other Nuclear Material, nuclear material the lease of which has been
terminated and which is in storage, or is being transported to storage, and
which has not been sold or disposed of by the Lessor to the Lessee or to a third
party);
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(b) the ownership, licensing, ordering, rejection, use,
nonuse, misuse, possession, control, installation, acquisition, storage,
containerization, transportation, blending, transfer, consumption, leasing,
insuring, operating, disposing, fabricating, channelling, refining, milling,
enriching, conversion, cooling, processing, condition, operation, inspection,
repair and reprocessing of the Nuclear Material, or resulting from the condition
of the environment including the adjoining and/or underlying land, water,
buildings, streets or ways, except to the extent that such costs are included in
the Acquisition Cost of such Nuclear Material within the limits specified in
Section 4 (or within any change of such limits agreed to in writing by the
Lessor and the Lessee) and except for any general administrative expenses of the
Secured Parties and of their representatives;
(c) the assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of any Nuclear Material; provided, however, that the Lessor shall have
made available to the Lessee all of the Lessor's rights under any similar
indemnification from the Manufacturer of such Nuclear Material under any Nuclear
Material Contract;
(d) all federal, state, county, municipal, foreign or other
fees and taxes of whatever nature including, but not limited to, license,
qualification, franchise, sales, use, business, gross receipts, ad valorem,
property, excise, and occupation fees and taxes and penalties and interest
thereon, whether assessed, levied against or payable by the Lessor or any
Secured Party or to which the Lessor or any Secured Party is subject with
respect to the Nuclear Material or the Lessor's or any Secured Party's ownership
thereof or interest therein or the licensing, ordering, ownership, use,
possession, control, acquisition, storage, containerization, transportation,
blending, milling, enriching, transfer, consumption, leasing, insuring,
operating, disposing, fabricating, channelling, refining, conversion, cooling
and reprocessing of Nuclear Material or measured in any way by the value thereof
or by the business of investment in, financing of or ownership by the Lessor or
any Secured Party with respect thereto; provided, however, that the Lessee shall
not be obligated to indemnify any Secured Party for any taxes, whether federal,
state or local, based on or measured by net income of any Secured Party where
taxable income is computed in substantially the same manner as taxable income is
computed under the Code;
(e) any injury to or disease, sickness or death of persons or
loss of or damage to property occurring through or resulting from any Nuclear
Incident involving or connected in any way with the Nuclear Material or any
portion thereof;
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(f) any violation, or alleged violation, of this Lease
Agreement by the Lessee or of any contracts or agreements to which the Lessee is
a party or by which it is bound or any laws, rules, regulations, orders, writs,
injunctions, decrees, consents, approvals, exemptions, authorizations, licenses
and withholdings of objection, of any governmental or public body or authority
and all other requirements having the force of law applicable at any time to the
Nuclear Material or any action or transaction by the Lessee with respect thereto
or pursuant to this Lease Agreement;
(g) performance of any labor or service or the furnishing of
any materials in respect of the Nuclear Material or any portion thereof, except
to the extent that such costs are included in the Acquisition Cost of such
Nuclear Material within the limits specified in Section 4 (or within any change
of such limits agreed to in writing by the Lessor and the Lessee); or
(h) liabilities based upon a theory of strict liability in
tort, negligence or willful acts to the extent that such liabilities relate to
the Nuclear Material or any action or transaction with respect thereto or
pursuant to this Lease Agreement.
The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S.
Trust, the Secured Parties or other indemnified parties, as the case may be, for
any sum or sums expended with respect to any of the foregoing or advance such
amount, upon request by the Lessor, the Owner Trustee, U.S. Trust, the Secured
Parties or such other party for payment thereof. With respect solely to the
Lessor, the amount of any payment obligation of the Lessee under this Section 13
shall be determined on a net, after-tax basis, taking into account any tax
benefit to the Lessor. Notwithstanding the foregoing, the Lessee shall not
indemnify or hold harmless the Lessor, the Owner Trustee, U.S. Trust, the
Secured Parties or other indemnified parties for (i) any claims, demands,
liabilities, costs or expenses which arise, result from or relate to obligations
of such party as an insurer under contracts or agreements of insurance or
reinsurance or (ii) any liability arising from the willful misconduct or gross
negligence of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or
other indemnified parties; provided, however, that the Lessee shall in any event
indemnify and hold harmless the Lessor, the Owner Trustee, U.S. Trust, the
Secured Parties and other indemnified parties for that part of any such
liability to which the Lessee has contributed. Without limiting any of the
foregoing provisions of this Section 13, to the extent that the Lessee in fact
indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or
such other party under this indemnity provision, the Lessee shall be subrogated
to the rights of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties
and such other party in the affected transaction and shall have a right to
determine the settlement of
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claims with respect to such transaction, provided that any such rights to which
the Lessee shall be subrogated shall be subordinate and subject in right of
payment to the prior payment in full of all liabilities to the Lessor, the Owner
Trustee, U.S. Trust, the Secured Parties or other indemnified parties of the
person or entity in respect of which such rights exist. The Lessor shall claim,
on a timely basis, any refund to which it may be entitled with respect to any
fees or taxes for which the Lessor has sought indemnification from the Lessee
under Section 13(d), shall take all steps necessary to prosecute diligently such
claim and shall pay over to the Lessee any refund (together with any interest
received thereon) recovered by the Lessor with respect to such fees or taxes as
soon as practicable following receipt thereof, provided that the Lessee shall
have previously indemnified the Lessor with respect to such fees or taxes. The
Owner Trustee, U.S. Trust and the Secured Parties, at the expense of the Lessee,
(i) shall cooperate with the Lessee in such manner as the Lessee shall
reasonably request in order to claim, on a timely basis, any refund to which the
Owner Trustee, U.S. Trust or the Secured Parties may be entitled with respect to
any fees or taxes for which the Lessee has indemnified the Owner Trustee, U.S.
Trust or any Secured Party or for which the Lessee has an obligation to
indemnify the Owner Trustee, U.S. Trust or the Secured Parties under Section
13(d) (provided that the Lessee is not in default of such obligation) if such
cooperation is necessary in order to claim such refund, (ii) shall take all
steps which the Lessee shall reasonably request which are necessary to prosecute
such claim, and (iii) shall pay over to the Lessee any refund (together with any
interest received thereon) recovered by the Owner Trustee, U.S. Trust or any
Secured Party with respect to such fees or taxes as soon as practicable
following receipt thereof, provided that the Lessee shall have previously
indemnified the Owner Trustee, U.S. Trust or such Secured Party with respect to
such fees or taxes. All rights and indemnification obligations under this
Section 13, and each other indemnification obligation in favor of the Lessor,
the Owner Trustee, U.S. Trust and the Secured Parties under this Agreement,
shall survive any termination of this Lease Agreement or of the lease of any
Nuclear Material hereunder.
14. Casualty and Other Events. Upon the occurrence of any one or
more of the following events:
(a) the loss, destruction or damage beyond repair of any
Nuclear Material, or
(b) the commandeering, condemnation, attachment or loss of use
to the Lessee of any Nuclear Material by reason of the act of any third party or
governmental instrumentality or the deprivation or loss of use to the Lessee of
any Nuclear Material for any other reason, other than by reason of a Lease Event
of Default, for a period exceeding ninety (90) days; or
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<PAGE>
(c) a determination by the Lessee in its sole discretion that
any Nuclear Material is no longer useful to the Lessee, provided, however, that
(i) no Lease Event of Default has occurred and is continuing, and (ii) no such
determination may be made by the Lessee with respect to any Nuclear Material
prior to November 5, 1999;
Then, in any such case, the Lessee promptly shall give written
notice to the Lessor and the Secured Parties of any such event, and upon the
earlier of (i) ten (10) days following receipt of any insurance or other
proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120)
days after the occurrence of any such event, the Lessee shall pay to the Lessor
an amount equal to the then Stipulated Casualty Value of such Nuclear Material,
together with any Basic Rent and Additional Rent then due with respect to such
Nuclear Material. The lease of such Nuclear Material hereunder and the
obligation of the Lessee to pay Basic Rent and Additional Rent with respect to
such Nuclear Material shall continue until the day on which the Lessor receives
payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon
the giving of written notice of the occurrence of such an event, the Lessee
shall promptly use its best efforts to sell, or, if no sale is possible, to
otherwise convey, on behalf of the Lessor, ownership of such Nuclear Material to
a third party not disqualified by any applicable statute, law, regulation or
agreement from acquiring such Nuclear Material, and the Lessor shall furnish
title papers as may be necessary to effect such sale or conveyance on an as-is,
where-is, non-installment, cash sale basis without recourse to or warranty or
agreement of any kind by the Lessor. Any such sale or conveyance shall be
effected on or before the date one hundred and twenty (120) days after the date
of the occurrence of such event. The proceeds of such sale or conveyance shall
be paid to the Lessor, and any amount so paid shall constitute a credit against
the amount of the Stipulated Casualty Value payable by the Lessee under this
Section 14.
15. Nuclear Material to Remain Personal Property. It is expressly
understood and agreed that the Nuclear Material shall be and remain personal
property notwithstanding the manner in which it may be attached or affixed to
realty and notwithstanding any law or custom or the provisions of any lease,
mortgage or other instrument applicable to any such realty. The Lessee agrees to
indemnify the Lessor and the Secured Parties against, and to hold the Lessor and
the Secured Parties harmless from, all losses, costs and expenses (including
reasonable attorneys' fees and expenses) resulting from any of the Nuclear
Material becoming part of any realty. Upon termination of the lease of any
Nuclear Material, any costs of removal, transportation, storage and delivery of
such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured
Parties shall not be liable for any physical damage caused to any realty or any
building by reason of the removal of the Nuclear Material therefrom.
21
16. Events of Default. Each of the following events of default by
the Lessee shall constitute a "Lease Event of Default" and give rise to the
rights on the part of the Lessor described in Section 17 hereof:
(i) Default in the payment of Basic Rent or Additional Rent,
if any, on the date on which such payment is due and the continuance of
such default for five (5) days;
(ii) Default in the payment of Termination Rent;
(iii) The Lessee shall fail to maintain liability and casualty
insurance pursuant to its obligations under Section 12(a) of this Lease
Agreement;
(iv) The Lessee shall fail to perform its obligations to
purchase Nuclear Material pursuant to Section 8(e) of this Lease
Agreement;
(v) Any representation or warranty or statement made by the
Lessee (or any of its officers) herein or in connection with this Lease
Agreement shall prove to be incorrect or misleading in any material
respect when made;
(vi) Default in the payment or performance of any other
material liability or obligation or covenant of the Lessee to the Lessor,
and the continuance of such default for thirty (30) days after written
notice to the Lessee sent by registered or certified mail;
(vii) The Lessee suspends or discontinues its business
operations or becomes insolvent (however such insolvency may be evidenced)
or admits insolvency or bankruptcy or its inability to pay its debts as
they mature, makes an assignment for the benefit of creditors or applies
for or consents to the appointment of a trustee or receiver for the Lessee
or for the major part of its property;
(viii) The institution of bankruptcy, reorganization,
liquidation or receivership proceedings for relief under any bankruptcy
law or similar law for the relief of debtors by or against the Lessee and,
if instituted against the Lessee, its consent thereto or the pendency of
such proceedings for sixty (60) days;
(ix) An event of default (the effect of which is to permit the
holder or holders of any instrument, or the trustee or agent on behalf of
such holder or holders, to cause the indebtedness evidenced by such
instrument to become due prior to its stated maturity) shall occur under
the provisions of any instrument evidencing indebtedness for borrowed
money
22
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of the Lessee in a principal amount equal to at least $20,000,000 or if
any obligation of the Lessee for the payment of such indebtedness shall
become or be declared to be due and payable prior to its stated maturity,
or shall not be paid when due and is not paid within the applicable cure
period, if any, provided for the payment of such indebtedness under such
instrument;
(x) An event of default shall occur under the provisions of
any Basic Document and such default shall have continued beyond any
applicable cure period.
(xi) A final judgment in an amount in excess of $20,000,000 is
rendered against the Lessee, and within thirty (30) days after the entry
thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within thirty (30) days after the expiration of any
such stay, such judgment is not discharged; or
(xii) Other than pursuant to a condemnation proceeding, any
court, governmental officer or agency shall, under color of legal
authority, take and hold possession of any substantial part of the
property or assets of the Lessee.
17. Rights of the Lessor Upon Default of the Lessee. Upon the
occurrence of any Lease Event of Default, the Lessor may, in its discretion, and
shall, at the direction of the Secured Parties, do one or more of the following:
(a) Terminate the lease term of any or all Nuclear Material
upon five (5) days written notice to the Lessee sent by registered or certified
mail;
(b) Whether or not any lease of any Nuclear Material is
terminated, and, subject to any applicable law or regulation, take immediate
possession of any or all Nuclear Material or cause such Nuclear Material to be
taken from the possession of the Lessee, and/or take immediate possession of and
remove other property of the Lessor in the possession of the Lessee, wherever
situated and for such purpose enter upon any premises without liability for so
doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear
Material, properly containerized and insulated for shipping to the Lessor or to
such other person as the Lessor may designate, in which case the risk of loss
shall be upon the Lessee until such delivery is made;
(c) Whether or not any action has been taken under (a) or (b)
above, and subject to any applicable law or regulation, sell any Nuclear
Material (with or without the concurrence and whether or not at the request of
the Lessee) at public or private sale, and the Lessee shall be liable for and
shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the
Lessor of
23
<PAGE>
the proceeds of such sale plus any deficiency between the net proceeds of such
sale and the Stipulated Casualty Value of such Nuclear Material at the time of
such payment by the Lessee; provided, however, that any proceeds of such sale in
excess of the sum of such unpaid Rent, the Stipulated Casualty Value of such
Nuclear Material and all other amounts payable by the Lessee under this Section
17 shall be received for the benefit of, and shall be paid over to the Lessee,
as soon as practicable after receipt thereof;
(d) Subject to any applicable law or regulation, sell in a
commercially reasonable manner, dispose of, hold, use, operate, remove, lease or
keep idle any Nuclear Material as the Lessor in its sole discretion may
determine, without any obligation to account to the Lessee with respect to such
action or inaction or for any proceeds thereof, except that the net proceeds of
any such selling, disposing of, holding, using, operating or leasing shall be
credited by the Lessor against any Rent accruing after the Lessor shall have
declared this Lease Agreement as to any or all of the Nuclear Material to be in
default pursuant to this Section; provided, however, that any net proceeds of
any such selling, disposing of, holding, using, operating or leasing in excess
of the sum of any such accrued Rent and all other amounts payable by the Lessee
under this Section 17 shall be received for the benefit of, and shall be paid
over to the Lessee, as soon as practicable after receipt thereof;
(e) Terminate this Lease Agreement as to any or all of the
Nuclear Material or exercise any other right or remedy which may be available
under applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof. If the Lessee fails to
deliver, promptly after written request, the Nuclear Material pursuant to (b),
above, subject to reasonable wear and tear, obsolescence and exhaustion, in good
operating condition and repair, or converts or destroys any Nuclear Material,
the Lessee shall be liable to the Lessor for all Rent then due and payable on
the Nuclear Material, all other amounts then due and payable under this Lease
Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any
loss, damage and expense (including without limitation reasonable attorneys'
fees and expenses) sustained by the Lessor by reason of such Lease Event of
Default and the exercise of the Lessor's remedies with respect thereto,
including any costs incurred under the Credit Agreement and the Security
Agreement, and any other amounts owed to the Secured Parties with respect to the
Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers
Nuclear Material to the Lessor or to such other person as the Lessor may
designate, or if the Lessor repossesses or causes Nuclear Material to be
repossessed on its behalf, the Lessee shall be liable for and the Lessor may
recover from the Lessee all Rent on the Nuclear Material due and payable to the
date of such delivery or repossession, all other amounts due and payable under
24
<PAGE>
this Lease Agreement, plus any loss, damage and expense (including without
limitation reasonable attorneys' fees and expenses) sustained by the Lessor by
reason of such Lease Event of Default and the exercise of the Lessor's remedies
with respect thereto. No remedy referred to in this Section 17 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to the Lessor at law or in equity and
the exercise in whole or in part by the Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by the Lessor of
any or all such other remedies. No waiver by the Lessor of any Lease Event of
Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Lease Event of Default.
18. Termination After Certain Events.
(a) This Lease Agreement may terminate as provided in Section
18(b) below prior to the expiration of its term in connection with any of the
following "Terminating Events":
(i) The Lessor shall have given notice that the Lessor
is not satisfied with any change in the insurers, coverage, amount or
terms of any insurance policy or indemnity agreement required to be
obtained and maintained by the Lessee pursuant to Section 12;
(ii) There shall occur the revocation or material
adverse modification of any authorization, consent, exemption or approval
theretofore obtained from any regulatory body or governmental authority
necessary for the carrying out of the intent and purposes of this Lease
Agreement or the actions or transactions contemplated hereby, and the
effectiveness of any such revocation or material adverse modification
shall not be stayed pending any appeal thereof;
(iii) A Nuclear Incident involving or connected in any
way with the Nuclear Material shall have occurred, and the Lessor shall
have given notice to the Lessee that the Lessor believes such Nuclear
Incident may give rise to an aggregate liability, or to damage,
destruction or personal injury in excess of $20,000,000;
(iv) There shall have occurred a Deemed Loss Event;
(v) Any change in, or new interpretation by a
governmental authority having jurisdiction relating to, the Price-Anderson
Act, as amended, or the Atomic Energy Act, or the regulations of the
Nuclear Regulatory Commission thereunder, in each case as in effect on the
date of this Lease Agreement, shall have been adopted, and the Lessor
shall
25
<PAGE>
have given notice to the Lessee that, in the opinion of independent
counsel selected by the Lessor and reasonably satisfactory to the Lessee
and the Secured Parties as a result of such change or new interpretation
the Lessor is prohibited from asserting any material right, protection or
defense available under applicable law as of the date of this Lease
Agreement with respect to civil or criminal actions brought in connection
with a Nuclear Incident;
(vi) Any law or regulation or interpretation (judicial,
regulatory or otherwise) of any law or regulation shall be adopted or
enforced by any Court or governmental authority, and as a result of such
adoption or enforcement, approval of the transactions contemplated by this
Lease Agreement shall be required and shall not have been obtained within
any applicable grace period after such adoption or enforcement or as a
result of which adoption or enforcement this Lease Agreement or any
transaction contemplated hereby, including any payments to be made by the
Lessee or the ownership of the Nuclear Material by the Lessor, shall be or
become unlawful, or the performance of this Lease Agreement shall be
rendered impracticable in any material way; or
(vii) Any governmental licenses, approvals or consents
with respect to the Generating Facility, without which the Generating
Facility cannot continue to operate, shall have been revoked and the
Lessee shall not have, in good faith, within one hundred and eighty (180)
days of such revocation, represented in writing to the Lessor that the
Lessee has made a good faith determination that such Generating Facility
will return to operation within twenty-four (24) months of such
revocation, or for any other reason the Generating Facility shall cease to
be operated for a period of twenty-four (24) consecutive months.
(b) Upon the happening of any of the Terminating Events listed
in Section 18(a), Lessor and/or the Secured Parties may, at their option,
terminate this Lease Agreement, such termination to be effective upon delivery
of the Notice contemplated by paragraph (d)(ii) below, except with respect to
obligations and liabilities of the Lessee, actual or contingent, which arose
under the Lease Agreement on or prior to the date of termination and except for
the Lessee's obligations set forth in Sections 10, 12 and 13, and in this
Section 18, all of which obligations will continue until the delivery of
documentation by the Lessor and the payment by the Lessee provided for below,
and except that after such delivery and payment, the Lessee's obligations under
Section 13 shall continue as therein set forth as shall all of Lessee's
indemnification obligations set forth in other sections of this Lease Agreement.
26
<PAGE>
(c) Upon any such termination, the entire interest of the
Lessor in the Nuclear Material and any spent fuel relating thereto for which
title has not been transferred to the Lessee shall automatically transfer to and
be vested in the Lessee, without the necessity of any action by either the
Lessor or the Lessee, provided, however, that if the Lessor shall have
theretofore approved in writing such Person and the terms of such transfer, the
entire interest of the Lessor in such Nuclear Material and any spent fuel
relating thereto for which title has not been transferred to the Lessee shall,
upon such termination, automatically transfer to and be vested in any Person
designated by the Lessee.
(d) (i) Promptly after either party shall learn of the
happening of any Terminating Event, such party shall give notice of the same to
the other party and to the Secured Parties.
(ii)If the Lessor and/or Secured Parties elect to terminate the Lease Agreement,
they shall give notice to the Lessee and the Secured Parties or the Lessor, as
the case may be, which notice shall (x) acknowledge that the Lease Agreement has
terminated, subject to the continuing obligations of the Lessee mentioned above,
and that title to and ownership of such Nuclear Material and any spent fuel
relating thereto for which title has not been transferred to the Lessee has
transferred to and vested in the Lessee or such other Person, and (y) specify a
Termination Settlement Date occurring one hundred and fifty (150) days after the
giving of such notice. After such termination of this Lease Agreement and until
such Termination Settlement Date, the Lessee shall continue to pay Basic Rent
and Additional Rent. On such Termination Settlement Date, the Lessee shall be
obligated to pay to the Lessor as the purchase price for the Nuclear Material an
amount equal to the sum of (x) Stipulated Casualty Value of the Nuclear Material
as of the Termination Settlement Date and (y) the Termination Rent on the
Termination Settlement Date. The Lessor shall be obligated to deliver to the
Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, on an
as-is, where-is, non-installment, cash sale basis, without recourse to or
warranty or agreement of any kind by the Lessor acknowledging the transfer and
vesting of title and ownership of the Nuclear Material and any spent fuel
relating thereto for which title has not been transferred to the Lessee, in
accordance with paragraph (c) above and confirming that upon payment by the
Lessee of the amounts set forth in the immediately preceding sentence, the
Nuclear Material is free and clear of the Liens created by the Collateral
Agreements, together with such documents, if any, as may be required to evidence
the release of such Liens.
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19. Investment Tax Credit. To the extent that the Lessee determines
the Nuclear Material is or becomes eligible for any investment or similar credit
under the Code as now or hereafter in effect, the Lessee shall request in
writing that the Lessor elect to treat the Lessee as having acquired such
Nuclear Material, and, if permitted to do so under the Code and under any other
applicable law, rule or regulation, the Lessor, pursuant to such request of the
Lessee, shall provide the Lessee with an appropriate investment credit election
and the Lessee shall consent to such election. A condition to the Lessor's
making such election will be the provision by the Lessee of a report or
statement with respect to all Nuclear Material as to which the investment credit
election is applicable. Such report or statement shall contain such information
and be in such form as may be required for Internal Revenue Service reporting
purposes. The Lessee shall indemnify and hold harmless the Lessor and any
affiliates with respect to any adverse tax consequence, other than the loss of
the credit, which may result from such election including, but not limited to,
any increase in the Lessor's income taxes due to any required reduction of the
Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the
Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available
to the Lessor, funds sufficient to put the Lessor in the same after-tax position
(other than by reason of the loss of the investment credit) the Lessor would
have been in if such election had not been made.
20. Certificates; Information; Financial Statements.
(a) The Lessee will from time to time deliver to the Lessor
and the Secured Parties, promptly upon reasonable request (i) a statement
executed by any Vice President, Treasurer or Assistant Treasurer or any other
assistant officer of the Lessee, certifying the dates to which the sums payable
hereunder have been paid, that this Lease Agreement is unmodified and in full
effect (or, if there have been modifications, that this Lease Agreement is in
full effect as modified, and identifying such modifications) and that no Lease
Event of Default or Terminating Event has occurred and is continuing (or
specifying the nature and period of existence of any thereof and what action the
Lessee is taking or proposes to take with respect thereto), (ii) such
information with respect to the Nuclear Material as the Lessor or the Secured
Parties may reasonably request, and (iii) such information with respect to the
Lessee's operations, business, property, assets, financial condition or
litigation as the Lessor or any assignee of the Lessor or the Secured Parties
may reasonably request.
(b) The Lessee will deliver to the Lessor and the Secured
Parties:
28
(i) Quarterly Financial Statements. As soon as
practicable and in any event within ninety (90) days after the end of each
fiscal quarter (other than the last fiscal quarter in each fiscal year), three
(3) copies of a balance sheet of the Lessee (consolidated and consolidating if
the Lessee has any subsidiaries) as of the end of such quarter and of statements
of income and cash flows of the Lessee (consolidated and consolidating if the
Lessee has any subsidiaries) for such quarter, setting forth in each case
corresponding figures in comparative form for the corresponding period of the
preceding fiscal year, each certified as true and correct by the chief
accounting officer thereof; provided, however, that delivery pursuant to clause
(iii) below of copies of the Lessee's Quarterly Report on Form 10-Q for such
quarter containing such financial statements filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this clause
(i);
(ii) Annual Financial Statements. As soon as
practicable and in any event within one hundred and twenty (120) days after the
end of each fiscal year, three (3) copies of an annual report of the Lessee
consisting of its financial statements, including a balance sheet as of the end
of such fiscal year (consolidated and consolidating if the Lessee has any
subsidiaries) and statements of income and cash flows for the year then ended
(consolidated and consolidating if the Lessee has any subsidiaries), setting
forth corresponding figures in comparative form for the preceding fiscal year,
with all notes thereto, all in reasonable detail and certified by independent
public accountants of recognized standing selected by the Lessee (only with
respect to the consolidated financial statements, if applicable); provided,
however, that delivery pursuant to clause (iii) below of copies of the Lessee's
Annual Report on Form 10-K for such fiscal year containing such financial
statements filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this clause (ii); and
(iii) SEC Reports, etc. With reasonable promptness,
copies of all notices, reports or materials filed by the Lessee with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission) under the
Securities Act of 1933, as amended, other than Registration Statements on Form
S-8 or any amendments thereto, or the Securities Exchange Act of 1934, as
amended, other than Annual Reports on Form 10-K, and including without
limitation, all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K.
29
<PAGE>
Together with each delivery of financial statements required by clause (b)(i)
above, the Lessee will deliver to the Lessor and the Secured Parties an
Officer's Certificate stating that the Lessee is in compliance with the terms of
this Lease Agreement and stating that there exists no Lease Event of Default, or
Terminating Event or, if any Lease Event of Default, or Terminating Event
exists, specifying the nature and period of existence thereof and what action
the Lessee proposes to take with respect thereto. The Lessee also covenants that
promptly upon the obtaining of knowledge of a Lease Event of Default by the
chief executive officer, principal financial officer or principal accounting
officer of the Lessee, it will deliver to the Lessor and the Secured Parties an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Lessee proposes to take with respect thereto.
21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to
pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and
all other amounts payable hereunder shall, subject to the covenant of the Lessor
contained in Section 3 hereof, be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which the Lessee may have
against the Lessor or anyone else for any reason whatsoever, (ii) any defect in
the title, compliance with specifications, condition, design, operation or
fitness for use of, or any damage to or loss or destruction of, any Nuclear
Material, or (iii) any interruption or cessation in the use or possession of any
Nuclear Material by the Lessee for any reason whatsoever. The Lessee hereby
waives, to the extent permitted by applicable law, any and all rights which it
may now have or which at any time hereafter may be conferred upon it, by statute
or otherwise, to terminate, cancel, quit or surrender this Lease Agreement
except in accordance with its express terms. Each payment of Rent and each other
payment made by the Lessee shall be final, and the Lessee will not seek to
recover all or any part of such payment from the Lessor for any reason
whatsoever.
22. Miscellaneous.
(a) Successors and Assigns. This Lease Agreement shall be
binding upon the Lessee and the Lessor and their respective successors and
assigns and shall inure to the benefit of the Lessee and the Lessor and their
respective successors and assigns; provided that without the prior written
consent of all the Secured Parties, the Lessee shall not be entitled to assign
its rights or obligations hereunder.
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<PAGE>
(b) Waiver. Neither party shall by act, delay, omission or
otherwise be deemed to have waived any of its rights or remedies hereunder
unless such waiver is given in writing. A waiver on one occasion shall not be
construed as a waiver on any other occasion.
(c) Entire Agreement. This Lease Agreement, together with the
written instruments provided for or contemplated hereby, the other Basic
Documents and other written agreements between the parties dated as of the date
hereof, constitute the entire agreement between the parties with respect to the
leasing of Nuclear Material, and no representations, warranties, promises,
guaranties or agreements, oral or written, express or implied, have been made by
either party or by any one else with respect to this Lease Agreement or the
Nuclear Material, except as may be expressly provided for herein or therein. Any
change or modification of this Lease Agreement must be in writing and duly
executed by the parties.
(d) Descriptive Headings. The captions in this Lease Agreement
are for convenience of reference only and shall not be deemed to affect the
meaning or construction of any of the provisions.
(e) Severability. Any provision of this Lease Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
(f) Governing Law. This Lease Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the law of the Commonwealth of Pennsylvania.
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<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Agreement to be executed and delivered by their duly authorized officers as of
the day and year first above written.
TMI-1 FUEL CORP.
Lessor
ATTEST
By:
(Assistant) Secretary Name:
Title:
JERSEY CENTRAL POWER & LIGHT
COMPANY
Lessee
ATTEST
By:
(Assistant) Secretary Name:
Title:
32
<PAGE>
STATE OF )
---------------------
COUNTY OF ) SS:
--------------
On this ___ day of __________, 1998, before me personally appeared ,
to me personally known, who, being by me duly sworn, says that he is of TMI-1
Fuel Corp. and that said instrument was signed on behalf of said corporation by
authority of its Board of Directors, and he acknowledged that the execution of
the foregoing instrument was the free act and deed of said corporation.
Notary Public
My commission Expires:
STATE OF )
---------------------
COUNTY OF ) SS:
--------------
On this ___ day of ___________, 1998, before me personally appeared
_____________, to me personally known, who, being by me duly sworn, says that he
is _______________________ of Jersey Central Power & Light Company and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and he acknowledged that the execution of the foregoing instrument
was the free act and deed of said corporation.
Notary Public
My commission Expires:
33
<PAGE>
ATTACHMENTS
Appendix A -- Definitions
Exhibit A -- Form of Interim Leasing Record
Exhibit B -- Form of Final Leasing Record
Exhibit C -- Nuclear Material Contracts
Exhibit D -- Form of Assignment Agreement and Consent
Exhibit E -- Form of Lessor's Bill of Sale
Exhibit F -- Form of Rent Due and SCV Confirmation Schedule
34
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APPENDIX A
DEFINITIONS
As used in the Basic Documents (as defined below), the following
terms shall have the following meanings (such definitions to be applicable to
both singular and plural forms of the terms defined), except as otherwise
specifically defined therein:
"Acquisition Cost" means the purchase price of any Nuclear Material,
any progress payments made thereon, costs of milling, conversion, enrichment,
fabrication, installation, delivery, redelivery, containerization, storage,
reprocessing, any other costs incurred by the Company in acquiring the Nuclear
Material (less any discounts or credits actually utilized by the Company), plus
in any case (i) any allowance for funds used during construction (including any
income tax component associated with such allowance) with respect to Nuclear
Material purchased by the Company, (ii) at the option of the Lessee, any Rent
relating to costs incurred in the ordinary course of operations but excluding
Rent relating to extraordinary costs, including without limitation,
indemnification payments, payable by the lessee to the Company with respect to
any Nuclear Material prior to the installation of such Nuclear Material for
operation in the Generating Facility, (iii) any sales, excise or other taxes or
charges payable by the Company with respect to any such payment for such Nuclear
Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable
by the Lessee to the Company with respect to Nuclear Material during any period
in which such Nuclear Material is subject to an Interim Leasing Record, but
excluding any interest charges or penalties for late payment by the Company of
the purchase price or any portion thereof, if such late payment results from the
negligence of the Company, (v) such other costs with respect to any Nuclear
Material as may be agreed by the Company and the Lessee and approved by the
Administrative Agent, in each case in writing, and, in the case of any Nuclear
Material removed from the Generating Facility for the purpose of "cooling off'
and repair or reprocessing, shall include the Stipulated Casualty Value thereof
at the time of such removal, if any, and (vi) at the option of the Lessee, any
Financing Costs. Any amount realized by the Company from the disposition of the
by-products (including, but not limited to, plutonium) of Nuclear Material
specified in a Leasing Record during the repair or reprocessing of such Nuclear
Material while leased hereunder shall be credited against the Acquisition Cost
of such Nuclear Material.
"Additional Rent" shall mean all legal, accounting, administrative
and other operating expenses and taxes incurred by the Company to the extent not
paid as part of Basic Rent (including, without limitation, any Cancellation Fees
and all other
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liabilities incurred or owed by the Company pursuant to the Basic Documents) and
all amounts (other than Basic Rent) that the Lessee agrees to pay under the
Lease Agreement (including, without limitation, indemnification payable under
the Lease Agreement, general and administrative expenses of the Company, and, to
the extent not included in Acquisition Cost, Financing Costs) and interest at
the rate incurred by the Company or any Secured Party as a result of any delay
in payment by the Lessee to meet obligations that would have been satisfied out
of prompt payment by the Lessee, and the amount of any and all other costs,
losses, damages, interest, taxes, deficiencies, liabilities, obligations,
actions, judgments, suits, claims, fees (including, without limitation,
attorneys' fees and disbursements) and expenses, of every kind, nature,
character and description, direct or indirect, that may be imposed on or
incurred by the Company as a result of, arising from or relating to, in any
manner whatsoever, one or more Basic Documents, or any other document referred
to therein, or the transactions contemplated thereby or the enforcement thereof.
For purposes of calculating the interest incurred by the Company or any Secured
Party as a result of any such delay, it shall be assumed that the Company or any
Secured Party, as applicable, incurred interest at the Credit Agreement Default
Rate.
"Administrative Agent" shall have the meaning specified therefor in
the first paragraph of the Credit Agreement.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, the term "control," as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Monthly Rent Component" shall mean the sum of the Monthly
Rent Components for all items of Nuclear Material which are installed in the
Generating Facility during the relevant period.
"Assigned Agreement" means a Nuclear Material Contract which has
been assigned to the Company in the manner specified in Section 5 of the Lease
Agreement pursuant to a duly executed and delivered Assignment Agreement. The
term Assigned Agreement shall include a Partially Assigned Agreement.
"Assignment Agreement" means an assignment agreement substantially
in the form of Exhibit D to the Lease Agreement.
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"Atomic Energy Act" means the Atomic Energy Act of 1954, as from
time to time amended.
"Banks" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Basic Documents" means the Lease Agreement, the Credit Agreement,
the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement,
the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the
Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing
Record, each SCV Confirmation Schedule, and other agreements related or
incidental thereto which are identified in writing by the Company, the Lessee
and the Secured Parties as one of the "Basic Documents," in each case, as such
documents may be amended from time to time.
"Basic Rent" means, for any Basic Rent Period, the sum of (a) that
portion of the Monthly Financing Charge not allocated to Acquisition Cost
pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as
shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period.
"Basic Rent Payment Date" means, for any Basic Rent Period, the
first Business Day of the next succeeding calendar month following such Basic
Rent Period.
"Basic Rent Period" means each calendar month or portion thereof
commencing on, in the case of the first such period, the effective date of the
Lease Agreement, and in the case of each succeeding period, the first day
following the immediately preceding Basic Rent Period, and ending on the
earliest of (i) the last day of any calendar month or (ii) the Termination
Settlement Date.
"BTU Charge" means the dollar amount set forth in the BTU Charge
Agreement which is used to calculate the Monthly Rent Component. The BTU Charge
initially set forth for any Nuclear Material in any Final Leasing Record shall
be the amount agreed upon by the Lessor and the Lessee as set forth in
Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably
anticipated operating life, BTU output, and utilization of such Nuclear
Material.
"BTU Charge Agreement" shall mean an agreement in the form of
Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear
Material executed by the Lessor and the Lessee on or prior to the date of the
Final Leasing Record covering such Nuclear Material.
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"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which banking institutions in New York City are authorized by law
to close.
"Capitalized Lease" means any and all lease obligations which are or
should be capitalized on the balance sheet of the Person in question in
accordance with generally accepted accounting principles and Statement No. 13 of
the Financial Accounting Standards Board or any successor to such pronouncement
regarding lease accounting, without regard for the accounting treatment
permitted or required under any applicable state or federal public utility
regulatory accounting system, unless such treatment controls the determination
of the generally accepted accounting principles applicable to such Person.
"Cash Collateral" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Closing," means November 5, 1998.
"Code" means the Internal Revenue Code of 1986, as from time to time
amended.
"Collateral" has the meaning set forth in the granting clauses of
the Security Agreement and includes all property of the Company described in the
Security Agreement as comprising part of the Collateral.
"Collateral Agent" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Collateral Agreements" means, collectively, the Security Agreement,
all Assignment Agreements, and any other assignment, security agreement or
instrument executed and delivered to the Secured Parties hereafter relating to
property of the Company which is security for the Notes.
"Collected Funds" means funds which are immediately available to the
Secured Parties, as the Lessor's assignees, for its use in New York, New York.
"Commercial Paper" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Commercial Paper Discount" shall mean, at any time, amounts payable
by the Company in respect of the Face Amount of Commercial Paper outstanding in
excess of the Acquisition Cost together with any Cash Collateral reduced by the
aggregate total amount, if any, of (i) the Monthly Rent Components paid by the
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Lessee to the Lessor with respect to the Nuclear Material financed thereby and
(ii) any Monthly Financing Charge payable by the Lessee to the Company with
respect to Nuclear Material during any period in which such Nuclear Material is
subject to an Interim Leasing Record ("Excess Face Amount"); provided, however,
that any such Excess Face Amount shall not exceed the additional Face Amount of
Commercial Paper necessary to be issued by the Company at a discount to face
value to purchasers thereof in the commercial paper market in order to obtain
proceeds in an amount equal to the Acquisition Cost reduced by the aggregate
total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to
the Lessor with respect to the Nuclear Material financed thereby and (b) any
Monthly Financing Charge payable by the Lessee to the Company with respect to
Nuclear Material during any period in which such Nuclear Material is subject to
an Interim Lease Record, together with any Cash Collateral. Amounts payable in
respect of Commercial Paper Discount during any calendar month or portion
thereof shall be paid on the first Business Day of the next succeeding month in
which such amounts are incurred.
"Company" means the TMI-1 Fuel Corp., a Delaware corporation.
"Consents and Agreements" means the agreements, each substantially
in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between
the Lessee and the various contractors under the Nuclear Material Contracts,
with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent
to in writing, which consent shall not be unreasonably withheld.
"Controlled Group" means a controlled group of corporations of which
the Company is a member within the meaning of Section 414(b) of the Code, any
group of corporations or entities under common control with the Company within
the meaning of Section 414(c) of the Code or any affiliated service group of
which the Company is a member within the meaning of Section 414(m) of the Code.
"Credit Agreement" means the Credit Agreement dated as of November
5, 1998 among TMI-1 Fuel Corp. The First National Bank of Chicago, as
Administrative Agent, PNC Bank, National Association, as Syndication Agent, the
Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital
Markets, Inc., as Arrangers.
"Credit Agreement Default" means an event which would, with the
lapse of time or the giving of notice or both, constitute a Credit Agreement
Event of Default.
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"Credit Agreement Event of Default" means any one or more of the
events specified in Section 10.01 of the Credit Agreement.
"Dealer Agreements" means any agreement pursuant to which any Person
is at any time acting as a Dealer.
"Deemed Loss Event" means the following event: if at any time during
the term of the Lease Agreement, (A) the Company, by reason solely of the
ownership of the Nuclear Material or any part thereof or the lease of the
Nuclear Material to the Lessee under the Lease Agreement, or the Company or any
Secured Party, by reason solely of any other transaction contemplated by the
Lease Agreement or any of the other Basic Documents, shall be deemed, by any
governmental authority having jurisdiction, to be, or to be subject to
regulation as an "electric utility" or a "public utility" or a "public utility
holding company" or similar type of entity, under any applicable law or deemed a
"public utility company" or a "subsidiary company" or a "holding company" within
the meaning of the Public Utility Holding Company Act, (B) the Public Utility
Holding Company Act shall be amended, applied, or interpreted in a manner, or
any rules or regulations shall be adopted under the Public Utility Holding
Company Act of 1935, which adversely affect the legality, validity and
enforceability of the lease obligations of the Company and the Lessee under the
Lease Agreement, or (C) either the Company or any of the Secured Parties, by
reason solely of being a party to the Basic Documents, shall be required to
obtain any consent, order or approval of, or to make any filing or registration
with, or to give any notice to, any governmental authority, or be subject to any
liabilities, duties or obligations under the Public Utility Holding Company Act,
other than the filing by the Company of a certificate on Form U-7D with the SEC
pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17
C.F.R. Section 250.7(d)), except in any case if the same shall be solely the
result of Nonburdensome Regulation; provided, however, that if in compliance
with applicable laws, the Lessee, with the cooperation of the Company, shall
have acted diligently and in good faith to contest, or obtain an exemption from
the application of the laws, rules or regulations described in clauses (A), (B)
or (C) to the Company, the Secured Parties or the Lessee, as the case may be,
the application of which would otherwise constitute a Deemed Loss Event, such
Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee
shall have furnished to the Company and the Secured Parties an opinion of
counsel reasonably satisfactory to the Company and the Secured Parties to the
effect that there exists a reasonable basis for such contest or exemption and
that the application of such laws, rules or regulations to the Company, the
Secured Parties or the Lessee, as the case may be,
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shall be effectively stayed during the application for exemption or contest and
such laws, rules or regulations shall not be applied retroactively at the
conclusion of such contest, (II) the Company or the Secured Parties shall have
determined in their sole discretion that such contest or exemption shall not
adversely affect their business or involve any danger of the sale, foreclosure
or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee
shall have agreed to indemnify the Company or such Secured Parties, as the case
may be, for expenses incurred in connection with such contest or exemption; and
further provided, that following notice from the Lessee to the Company or the
Secured Parties, as the case may be, that the Lessee shall be unable to furnish
the opinion described in clause (I) of the next preceding proviso or that any
such contest shall not be successful or such exemption shall not be available, a
Deemed Loss Event shall be deemed not to have occurred for such period, not to
exceed 270 days, as may be approved by any governmental authority having
jurisdiction during which application of such law, rule or regulation to the
Company, the Secured Parties or the Lessee, as the case may be, shall be
suspended to enable the Company to assign or transfer its interest in the
Collateral so long as during such period the Company shall use reasonable
efforts to assign or transfer its interest in the Collateral upon commercially
reasonable terms and conditions, provided that the Company shall not be required
to assign or transfer the Nuclear Material for a price which, after deduction of
sales tax and expenses of such sale incurred by the Company, shall be less than
the sum of (A) Stipulated Casualty Value determined as of the date of such
proposed sale, and (B) the Termination Rent determined in accordance with
Section 18 of the Lease Agreement.
"Depositary Agreement" means the Depositary Agreement, dated as of
November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The
First National Bank of Chicago, as Administrative Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as from time to time amended.
"Excepted Payments" means any indemnity, expense, or other payment
which by the terms of any of the Basic Documents shall be payable to the Company
in order for the Company to satisfy its obligations pursuant to Section 7.8 of
the Trust Agreement.
"Face Amount" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
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"Federal Energy Regulatory Commission" means the independent
regulatory commission of the Department of Energy of the United States
Government existing under the authority of the Department of Energy Organization
Act, as amended, or any successor organization or organizations performing any
identical or substantially identical licensing and related regulatory functions.
"Federal Power Act" means the Federal Power Act, as amended.
"Final Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material during any period while such Nuclear Material is
installed for operation in the Generating Facility. A Final Leasing Record shall
be in the form of Exhibit B to the Lease Agreement.
"Financing Costs" means (a) fees and other amounts owing to any
Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees
and disbursements and other amounts referred to in Section 10(b) of the Security
Agreement, (c) legal, accounting, and other fees and expenses incurred by the
Lessee and/or the Company in connection with the preparation, execution and
delivery of Basic Documents or the issuance of the Commercial Paper and/or the
Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and
the Company as they may be entitled to under the Basic Documents.
"Fuel Management" means the design of, contracting for, fixing the
price and terms of acquisition of, management, movement, removal, disengagement,
storage and other activities in connection with the acquisition, utilization,
storage and disposal of the Nuclear Material.
"Generating Facility" means the nuclear reactor located at the Three
Mile Island Unit 1 Nuclear Generating Station, located in Londonderry Township,
Pennsylvania.
"Heat Production" means the stage of the Nuclear Material Cycle
commencing with the commercial operation of a Generating Facility, during which
the Nuclear Material in question is producing thermal energy which results in
the production of net positive electrical energy transmitted within the
distribution network of any utility and during which the Nuclear Material in
question is engaged in the reactor core of such Generating Facility.
"Hereof," "herein," "hereunder" and words of similar import when
used in a Basic Document refer to such Basic Document as a whole and not to any
particular section or provision thereof.
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"Imposition" means any payment required by a public or governmental
authority in respect of any property subject to the Lease Agreement or any
transaction pursuant to the Lease Agreement or any right or interest held by
virtue of the Lease Agreement; provided, however, that Imposition shall not
include any taxes, whether federal, state or local, payable by any Secured Party
based on or measured by net income of any Secured Party where taxable income is
computed in substantially the same manner as taxable income is computed under
the Code.
"Insurance Requirements" means all terms of any insurance policy or
indemnification agreement covering or applicable to (i) any Nuclear Material or
(ii) the Generating Facility or the Lessee in its capacity as licensee of the
Generating Facility, in each case insofar as any insurance policy or
indemnification agreement directly or indirectly relates to the Nuclear Material
or the performance by the Lessee of its obligations under the Basic Documents,
and all requirements of the issuer of any such policy or agreement necessary to
keep such insurance or agreements in force.
"Interim Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material (i) prior to installation for operation in the
Generating Facility, (ii) after removal from the Generating Facility during the
"cooling off" and storage period, and (iii) while being reprocessed. An Interim
Leasing Record shall be in the form of Exhibit A to the Lease Agreement.
"Investment Company Act" means the Investment Company Act of 1940,
as from time to time amended.
"Lease Agreement" means the Second Amended and Restated Nuclear
Material Lease Agreement, dated as of November 5, 1998 between TMI-1 Fuel Corp.,
as the Lessor, and Jersey Central Power & Light Company, as the Lessee, as the
same may be modified, supplemented or amended from time to time.
"Lease Event of Default" has the meaning specified in Section 16
of the Lease Agreement.
"Leasing Record" is a form signed by the Lessor and the Lessee to
record the leasing under the Lease Agreement of the Nuclear Material specified
in such Leasing Record. A Leasing Record shall be either an Interim Leasing
Record or a Final Leasing Record.
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"Legal Requirements" means all applicable provisions of the Atomic
Energy Act, all applicable orders, rules, regulations and other requirements of
the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission,
and all other laws, rules, regulations and orders of any other jurisdiction or
regulatory authority relating to (i) the licensing, acquisition, storage,
containerization, transportation, blending, transfer, consumption, leasing,
insuring, using, operating, disposing, fabricating, channelling and reprocessing
of the Nuclear Material, (ii) the Generating Facility or the Lessee in its
capacity as licensee of the Generating Facility, in each case insofar as such
provisions, orders, rules, regulations, laws and other requirements directly or
indirectly relate to the Nuclear Material or the performance by the Lessee of
its obligations under the Basic Documents or (iii) the Basic Documents, insofar
as any of the foregoing directly or indirectly apply to the Lessee.
"Lessee" has the meaning specified in the introduction to the
Lease Agreement.
"Lessee Representative" means a person at the time designated to act
on behalf of the Lessee by a written instrument furnished to the Company and the
Secured Parties containing the specimen signature of such person and signed on
behalf of the Lessee by any of its officers. The certificate may designate an
alternate or alternates. A Lessee Representative may be an employee of the
Lessee or of the Owner Trustee.
"Lessor" has the meaning specified in the introduction to the
Lease Agreement, and its successors and assigns.
"Lessor's Bill of Sale" means an instrument substantially in the
form of Exhibit E to the Lease Agreement, pursuant to which title to all or any
portion of the Nuclear Material is transferred to the Lessee or any designee of
the Lessee.
"Letter Agreement" means the Lessee's Letter Agreement Regarding
TMI-1 Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company,
and the Administrative Agent, as it may be amended from time to time.
"Lien" means any mortgage, pledge, lien, security interest, title
retention, charge or other encumbrance of any nature whatsoever (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to execute and deliver any financing
statement under the Uniform Commercial Code of any jurisdiction).
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"Loans" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Majority Secured Parties" means at any time the Secured Parties
holding at such time more than 66% of the outstanding principal amount of all
Secured Obligations.
"Manufacturer" means any supplier of Nuclear Material or of any
service (including without limitation, enrichment, fabrication, transportation,
storage and processing) in connection therewith, or any agent or licensee of any
such supplier.
"Manufacturer's Consent" means any consent which may be given by a
Manufacturer under a Nuclear Material Contract to the assignment by the Lessee
to the Company of all or a portion of the Lessee's rights under such Nuclear
Material Contract or of all or a portion of any such rights previously assigned
by the Lessee to the Secured Parties.
"Monthly Debt Service" for any calendar month means the sum of the
Monthly Financing Charge for such calendar month.
"Monthly Financing Charge" means, for any calendar month or
portion thereof, the sum of:
(a) all Commercial Paper Discount payable by the Company with
respect to Commercial Paper outstanding during such month and/or all
interest payable by the Company during such month with respect to all
outstanding Notes and in each case, not included in Acquisition Cost; and
(b) the amounts paid or due and payable by the Company with respect
to the transactions contemplated by the Basic Documents during such
calendar month for the following other fees, costs, charges and expenses
incurred or owed by the Company under or in connection with the Lease
Agreement or the other Basic Documents: (i) legal, printing, reproduction
and closing fees and expenses, (ii) auditors', accountants' and attorneys'
fees and expenses, (iii) franchise taxes and income taxes, and (iv) any
other fees and expenses incurred by the Company under or in respect of the
Basic Documents.
Any figure used in the computation of any component of the Monthly Financing
Charge shall be stated to five decimal places.
"Monthly Rent Component" for any Nuclear Material covered by a Final
Leasing Record for each calendar month during the lease of such Nuclear Material
shall be as follows:
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(i) for the first partial calendar month the Monthly Rent
Component shall be zero;
(ii) for the first full calendar month the Monthly Rent
Component shall be zero;
(iii) for the second full calendar month the Monthly Rent
Component shall be zero;
(iv) for the third full calendar month the Monthly Rent
Component shall be an amount determined by multiplying (x) the amount of
thermal energy in millions of British Thermal Units of heat produced by
such Nuclear Material during the first calendar month while covered by the
Final Leasing Record and also during the first partial calendar month, if
any, such Nuclear Material was covered by an Interim or Final Leasing
Record and was engaged in Heat Production by (y) the BTU Charge set forth
in the Final Leasing Record covering such Nuclear Material; and
(v) for each full calendar month after the third full calendar
month, the Monthly Rent Component shall be an amount determined by
multiplying (x) the amount of thermal energy in millions of British
Thermal Units of heat produced by such Nuclear Material during the second
preceding month by (y) the BTU Charge set forth in the Final Leasing
Record covering such Nuclear Material.
The BTU Charge for any Nuclear Material may be revised by the Lessee at any time
during the lease thereof to reflect any reasonably anticipated change in its
operating life, BTU output, or utilization. Such revision shall be effected by
the Lessee's executing and forwarding to the Lessor a revised Final Leasing
Record dated the first day of the following month and setting forth such revised
BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall
execute and return a copy thereof to the Lessee. Such revised BTU Charge shall
be applicable to such Nuclear Material for each month thereafter beginning on
the date of the revised Final Leasing Record.
"NJBPU" means the New Jersey Board of Public Utilities or any
successor agency thereto.
"Nonburdensome Regulation" means (i) ministerial regulatory
requirements that do not impose limitations or regulatory requirements on the
business or activities of, or adversely affect, the Company or any Secured Party
and that are deemed, in the reasonable discretion of the Company or any Secured
Party, not to be burdensome, or (ii) assuming redelivery of the
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Nuclear Material in accordance with the Lease Agreement, regulation resulting
from any possession of the Nuclear Material (or right thereto) on or after the
termination of the Lease Agreement.
"Notes" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Nuclear Incident" shall have the meaning specified in the Atomic
Energy Act, 42 U.S.C. ss.2014(q), as such definition may be amended from time
to time.
"Nuclear Material" means those items which have been purchased by or
on behalf of the Company for which a duly executed Leasing Record has been
delivered to the Company and which continue to be subject to the Lease Agreement
consisting of (i) the items described in such Leasing Record and each of the
components thereof in the respective forms in which such items exist during each
stage of the Nuclear Material Cycle, being substances and equipment which, when
fabricated and assembled and loaded into a nuclear reactor, are intended to
produce heat, together with all attachments, accessories, parts and additions
and all improvements and repairs thereto, and all replacements thereof and
substitutions therefor and (ii) the substances and materials underlying the
right, title and interest of the Lessee under any Nuclear Material Contract
assigned to the Company pursuant to the Lease Agreement; provided, however, that
the term Nuclear Material shall not include spent fuel.
"Nuclear Material Contract" means any contract, as from time to time
amended, modified or supplemented, entered into by the Lessee, either in its own
name or as agent for the Lessor, with one or more Manufacturers relating to the
acquisition of Nuclear Material or any service in connection with the Nuclear
Material.
"Nuclear Material Cycle" means the various stages in the process,
whether physical or chemical, by which the component parts of the Nuclear
Material are designed, mined, milled, processed, converted, enriched, fabricated
into assemblies utilizable for Heat Production, loaded or installed into a
reactor core, utilized, disengaged from a reactor core or stored, together with
all incidental processes with respect to the Nuclear Material at any such stage.
"Nuclear Regulatory Commission" means the independent regulatory
commission of the United States Government existing under the authority of the
Energy Reorganization Act of 1974, as amended, or any successor organization or
organizations performing any identical or substantially identical licensing and
related regulatory functions.
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"Obligations" means (i) all items (including, without limitation,
Capitalized Leases but excluding shareholders' equity and minority interests)
which in accordance with generally accepted accounting principles should be
reflected on the liability side of a balance sheet as at the date as of which
such obligations are to be determined; (ii) all obligations and liabilities
(whether or not reflected upon such balance sheet) secured by any Lien existing
on the Property held subject to such Lien, whether or not the obligation or
liability secured thereby shall have been assumed; and (iii) all guarantees,
endorsements (other than for collection in the ordinary course of business) and
contingent obligations in respect of any liabilities of the type described in
clauses (i) and (ii) of this definition (whether or not reflected on such
balance sheet); provided, however, that the term 'Obligations' shall not include
deferred taxes.
"Obligations for Borrowed Money or Deferred Purchase Price" means
all Obligations in respect of borrowed money or the deferred purchase price of
property or services.
"Officer's Certificate" means, with respect to any corporation, a
certificate signed by the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such
corporation, and with respect to any other entity, a certificate signed by an
individual generally authorized to execute and deliver contracts on behalf of
such entity.
"Outstandings" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Owner Trust Estate" means all estate, right, title and interest of
the Owner Trustee in and to the outstanding stock of the Company and in and to
all monies, securities, investments, instruments, documents, rights, claims,
contracts, and other property held by the Owner Trustee under the Trust
Agreement; provided, however, that there shall be excluded from the Owner Trust
Estate all Excepted Payments.
"Owner Trustee" means United States Trust Company of New York, not
in its individual capacity but solely as trustee under and pursuant to the Trust
Agreement, and its permitted successors.
"Partially Assigned Agreement" means a Nuclear Material Contract
which has been assigned, in part but not in full, to the Company in the manner
specified in Section 5 of the Lease Agreement pursuant to a duly executed and
delivered Assignment Agreement.
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"PBGC" means the Pension Benefit Guaranty Corporation, created by
Section 4002(a) of ERISA and any successor thereto.
"Permitted Liens" means (i) any assignment of the Lease Agreement
permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not
yet payable, or payable without the addition of any fine, penalty, interest or
cost for nonpayment, or being contested by the Lessee as permitted by Section 11
of the Lease Agreement, (iii) liens and security interests created by the
Security Agreement, (iv) the title transfer and commingling of the Nuclear
Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and
(v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights
thereto, incurred in the ordinary course of business for sums of money which
under the terms of the related contracts are not more than 30 days past due or
are being contested in good faith by the Lessee as permitted by Section 11 of
the Lease Agreement; provided, however, that, in each case, such reserve or
other appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made in respect thereto.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other business entity or any
government or any political subdivision or agency thereof.
"Plan" means, with respect to any Person, any plan of a type
described in Section 4021(a) of ERISA in respect of which such Person is an
"employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a)
(2) of ERISA, respectively.
"Proceeds" shall have the meaning assigned to it under the Uniform
Commercial Code, as amended, and, in any event, shall include, but not be
limited to, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Company from time to time with respect to the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), and (iii) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
49
<PAGE>
"Public Utility Holding Company Act" means the Public Utility
Holding Company Act of 1935, as from time to time amended.
"Qualified Institution" means a commercial bank organized under the
laws of, and doing business in, the United States of America or in any State
thereof, which has combined capital, surplus and undivided profits of at least
$150,000,000 having trust power.
"Related Person" means, with respect to any Person, any trade or
business, (whether or not incorporated) which, together with such Person, is
under common control as described in Section 414(c) of the Code.
"Rent" means Basic Rent, Additional Rent and Termination Rent.
"Rent Due and SCV Confirmation Schedule" means an instrument,
substantially in the form of Exhibit G to the Lease Agreement, which is to be
used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and
Other Rent and (ii) to calculate and acknowledge the SCV at the end of each
Basic Rent Period.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Responsible Officer" means a duly elected or appointed, authorized,
and acting officer, agent or representative of the Person acting.
"Secured Obligations" means each and every debt, liability and
obligation of every type and description which the Company may now or at any
time hereafter owe to any Secured Party under, pursuant to or in connection with
the Credit Agreement, any Note, the Letter of Credit or any other Basic
Document, whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, including, without
limitation, the Face Amount of any Commercial Paper, the principal of, interest
on and any premium due with respect to any Loan and all indemnifications, costs,
expenses, fees and other compensation of the Secured Parties provided for, and
all other amounts owed to the Secured Parties, under the Security Agreement,
Credit Agreement and the other Basic Documents.
50
<PAGE>
"Secured Parties" means the Banks, any other holder from time to
time of any Note and any holder from time to time of any Commercial Paper.
"Securities Act" means the Securities Act of 1933, as from time to
time amended.
"Security Agreement" means the Security Agreement and Assignment of
Contracts, dated as of November 5, 1998, by and among the Company and The First
National Bank of Chicago, as Collateral Agent in favor of the Secured Parties.
"Single Employer Plan" means any Plan which is not a
multi-employer plan as defined in Section 4001(a) (3) of ERISA
"Stipulated Casualty Value" or "SCV" for any Nuclear Material
covered by any Leasing Record means an amount equal to the Acquisition Cost for
such Nuclear Material reduced by the aggregate total amount, if any, of the
Monthly Rent Components paid by the Lessee to the Lessor with respect to such
Nuclear Material together with Commercial Paper Discount.
"Syndication Agent" shall have the meaning specified therefor in the
first paragraph of the Credit Agreement.
"Termination Date" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Termination Rent" means an amount which, when added to the
Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any,
will be sufficient to enable the Company to retire, at their respective
maturities, all outstanding Notes and Commercial Paper and to pay all charges,
premiums and fees owed to the holders of Notes under the Credit Agreement and to
pay all other obligations of the Company incurred in connection with the
implementation of the transactions contemplated by the Basic Documents.
"Termination Settlement Date" has the meaning specified in Section
8(c), or Section 18(c) of the Lease Agreement.
"Terminating Event" has the meaning specified in Section 18 of
the Lease Agreement.
"Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp.
Trust, a trust formed pursuant to the Trust Agreement.
51
<PAGE>
"Trust Agreement" means the Second Amended and Restated Trust
Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the
Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central
Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric
Company, each as lessee under certain lease agreements, as the same may be
amended, modified or supplemented from time to time.
"Trustor" means the institution designated as such in the Trust
Agreement and its permitted successors.
"UBS Credit Agreement" means the Credit Agreement dated as of
November 17, 1995 among TMI-1 Fuel Corp., Union Bank of Switzerland, New York
Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as
Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York
Bank, as Administrative Agent.
"UCC" means the Uniform Commercial Code as adopted and in effect in
the State of New York.
"U.S. Trust" means United States Trust Company of New York.
52
<PAGE>
EXHIBIT A
INTERIM LEASING RECORD
Record No. _____
Name of Lessee: Jersey Central Power & Light Company
Date of Record: __________________
Date and No. of prior Interim or Final
Leasing Record (if any):
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $___________
Acquisition Cost added by this Record: $___________
Total: $___________
Credits to Acquisition Cost: $___________
Total Acquisition Cost under this Record $___________
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
53
<PAGE>
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants,
terms and conditions are incorporated herein by reference.
TMI-1 FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT
COMPANY, Lessee
By By
Authorized Signature Authorized Signature
54
<PAGE>
EXHIBIT B
FINAL LEASING RECORD
Record No. _____
Name of Lessee: Jersey Central Power & Light Company
Date of Record: __________________
Date and No. of prior Interim or Final
Leasing Record:
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $___________
Acquisition Cost added by this Record: $___________
Total: $___________
Credits (if any) to Acquisition Cost: $___________
Total Acquisition Cost under this Record $___________
BTU Charge: $__________
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
55
<PAGE>
The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of __________ __, 1998, which covenants,
terms and conditions are incorporated herein by reference.
TMI-1 FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT
COMPANY, Lessee
By By
Authorized Signature Authorized Signature
The undersigned Lessor and Lessee agree that the initial British
Thermal Unit Charge to be used to calculate the Monthly Rent Component for the
Nuclear Material pursuant to the Second Amended and Restated Nuclear Material
Lease Agreement, dated as of _________ __, 1998, between the undersigned Lessor
and Lessee shall be as follows:
Description of Nuclear Material British Thermal Unit Charge
TMI-1 FUEL CORP. JERSEY CENTRAL POWER & LIGHT
COMPANY
By: By:
Its: Its:
56
<PAGE>
EXHIBIT C
NUCLEAR MATERIAL CONTRACTS
The Agreements (each as amended and restated) referred to in Section
5 of the Second Amended and Restated Nuclear Material Lease Agreement, dated as
of November 5, 1998, between TMI-1 FUEL CORP. ("Lessor") and JERSEY CENTRAL
POWER & LIGHT COMPANY ("Lessee") are:
(1) Agreement, dated January 30, 1975, between Sequoyah Fuels
Corporation and GPUN, as agent for the Lessee, Met-Ed and Penelec.
(2) Agreement, dated February 12, 1996, between United States
Enrichment Corporation and GPUN, as agent for the Lessee, Met-Ed and Penelec.
(3) Agreement, dated as of June 14, 1995 between Framatome Cogema
Fuels and GPUN, as agent for the Lessee, Met-Ed and Penelec.
57
<PAGE>
EXHIBIT D
ASSIGNMENT AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
Jersey Central Power & Light Company (the "Assignor"), in
consideration of one dollar and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, does hereby sell, grant,
bargain, convey and assign to TMI-1 Fuel Corp. ("Assignee"), all right, title
and interest of the Assignor in, to and under the Nuclear Material Contract (the
"Nuclear Material Contract") described in Exhibit 1 attached hereto insofar as
such Nuclear Material Contract relates to the Nuclear Material described in
Exhibit 1 (all of such property, including the items described on Exhibit 1
attached hereto as included with the Property, being herein collectively called
the "Property"). Terms not defined herein shall have the meanings given in
Exhibit 1 attached hereto.
TO HAVE AND TO HOLD the Property unto the Assignee, its successors
and assigns, to its and their own use forever.
1. The interest of the Assignor in the Property, and the interest
transferred by this Assignment Agreement, is that of absolute ownership.
2. The Assignor hereby warrants that it is the lawful owner of the
rights and interests conveyed by this Assignment Agreement and that its title to
such rights and interests is hereby conveyed to the Assignee free and clear of
all liens, charges, claims and encumbrances of every kind whatsoever, other than
(i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other
claims, if any, of the Assignor and the Contractor which may exist as between
themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred
to below); and that the Assignor will warrant and defend such title forever
against all claims and demands whatsoever.
3. The Assignor hereby releases and transfers to the Assignee any
right, title or interest in the Nuclear Material which may have been acquired by
the Assignor under the Nuclear Material Contract prior to the date hereof.
4. This Assignment Agreement is made in accordance with the Second Amended and
Restated Nuclear Material Lease Agreement dated as of November 5, 1998, between
the Assignor and the Assignee (said Nuclear Material Lease Agreement, as the
same may be from time to time amended, modified or supplemented, being
58
<PAGE>
herein called the "Lease Agreement"). Pursuant to a Security Agreement and
Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998
(said Security Agreement and Assignment of Contracts, as the same may from time
to time be amended, modified or supplemented, being herein called the "Security
Agreement") made by Assignee in favor of the Secured Parties, as defined
therein, the Assignee is assigning and granting a security interest in the
Property and this Assignment Agreement to the Secured Parties, as collateral
security for all obligations and liabilities of the Assignee to the Secured
Parties, as such obligations are described in the Security Agreement.
5. It is expressly agreed that, anything contained herein to the contrary
notwithstanding, (a) the Assignor shall at all times remain liable to the
Contractor to observe and perform all of its duties and obligations under the
Nuclear Material Contract to the same extent as if this Assignment Agreement and
the Security Agreement had not been executed, (b) the exercise by the Assignee
or the Secured Parties of any of the rights assigned hereunder or under the
Security Agreement, as the case may be, shall not release the Assignor from any
of its duties or obligations to the Contractor under the Nuclear Material
Contract, and (c) neither the Assignee nor any of the Secured Parties shall have
any obligation or liability under the Nuclear Material Contract by reason of or
arising out of this Assignment Agreement, the Lease Agreement or the Security
Agreement, or be obligated to perform or fulfill any of the duties or
obligations of the Assignor under the Nuclear Material Contract, or to make any
payment thereunder, or to make any inquiry as to the nature or sufficiency of
any Property received by it thereunder, or to present or file any claim, or to
take any action to collect or enforce the payment of any amounts or the delivery
of any Property which may have been assigned to it or to which it may be
entitled at any time or times; provided, however, the Assignee agrees, solely
for the benefit of the Assignor, and subject to the terms and conditions of the
Lease Agreement, (i) to purchase the Nuclear Material from the Contractor
pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or
to the Assignor or their order the respective amounts specified in the Lease
Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear
Material to the Assignor in accordance with and subject to the terms and
conditions of the Lease Agreement. The provisions of the Nuclear Material
Contract limiting the liability of the Contractor and its suppliers and
subcontractors' under that Contract shall remain effective against the Assignee
and Secured Parties to the same extent that such provisions are effective
against the Assignor.
59
<PAGE>
6. Notwithstanding anything contained herein to the contrary,
subject to the terms and conditions of the Lease Agreement, the Assignor may
continue to engage in Fuel Management (as such term is defined in the Lease
Agreement) with respect to the Property, including, without limitation, all
dealings with the Contractor and, subject to such terms and conditions and
effective until the occurrence of a Lease Event of Default (as defined in the
Lease Agreement), (i) the Assignee reassigns to the Assignor the Assignee's
rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1
to this Assignment Agreement (provided, however, that insurance proceeds are
reassigned to the Assignor pursuant hereto only to the extent that such proceeds
are needed and used to reimburse the Assignor for the cost of repairing damage
or destruction to Nuclear Material or are used to purchase Nuclear Material from
the Assignee in accordance with the Lease Agreement, and provided further,
however, that the Assignee's rights under clause (vi) are reassigned to the
Assignor subject in all respects to the limitations set forth in paragraph 8.
below), and (ii) the Assignee agrees that the Assignor may, to the extent set
forth in clause (i) above, to the exclusion of the Assignee, exercise and
enforce such rights.
7. The Assignor shall promptly and duly execute, deliver, file and
record all such further counterparts of this Assignment Agreement or such
certificates, financing and continuation statements and other instruments as may
be reasonably requested by the Assignee, and take such further actions as the
Assignee shall from time to time reasonably request, in order to establish,
perfect and maintain the rights and remedies created or intended to be created
in favor of the Assignee and the Secured Parties hereunder and the Assignee's
title to and interest in the Property as against the Assignor or any third party
in any applicable jurisdiction.
8. The Assignor hereby agrees that it will not enter into or consent
to or permit any cancellation, termination, amendment, supplement or
modification of or waiver with respect to the Nuclear Material Contract insofar
as it relates to the Nuclear Material except for cancellations, terminations,
amendments, supplements, modifications or waivers which do not materially
adversely affect the Assignee or the Secured Parties or their respective
interests in the Property, nor will the Assignor sell, assign, grant any
security interest in or otherwise transfer its rights or other interests in the
Property or any part thereof, except as permitted by the Lease Agreement.
9. The Assignor hereby represents and warrants that the Nuclear Material
Contract is in full force and effect and represents that it is the only
agreement between the Assignor and the Contractor with respect to the Nuclear
Material.
60
<PAGE>
10. This Assignment Agreement shall become effective only upon
receipt of the written consent of the Contractor to the assignment of the rights
and interests conveyed hereunder, if such consent is required under the Nuclear
Material Contract. The Assignor hereby agrees to send the Contractor a copy of
this Assignment Agreement.
11. This Assignment Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Assignor has caused this Assignment
Agreement to be duly executed and delivered as of the ____ day of ____________,
19__.
JERSEY CENTRAL POWER & LIGHT
COMPANY
By:
Title:
The foregoing Assignment Agreement is hereby accepted:
TMI-1 FUEL CORP.
By:
Title:
61
<PAGE>
EXHIBIT 1
to Assignment Agreement
(a) The _____________ (as the same may from time to time be amended,
modified or supplemented, being herein called the "Nuclear Material Contract"),
dated as of _____________, between Jersey Central Power & Light Company and
______________ (the "Contractor), insofar as, and only to the extent that, the
Contract relates to _________________ (the "Nuclear Material"); but not insofar
as the Contract provides for the provision of other nuclear materials and
services to the Assignor; and
(b) The Property shall include, without limitation, (i) any and all
amendments and supplements to the Nuclear Material Contract from time to time
executed and delivered to the extent that any such amendment or supplement
relates to the Nuclear Material, (ii) the Nuclear Material, including the right
to receive title thereto, (iii) all rights, claims and proceeds, now or
hereafter existing, under any insurance, indemnities, warranties and guaranties
provided for in or arising out of the Nuclear Material Contract, to the extent
that such rights or claims relate to the Nuclear Material, (iv) any claim for
damages arising out of or for breach or default by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material, (v) any other amount, whether resulting from refunds or
otherwise, from time to time paid or payable by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear
Material Contract or to perform or to exercise or enforce thereunder, insofar as
it or they relate to the Nuclear Material.
62
<PAGE>
EXHIBIT 2
to Assignment Agreement
CONSENT AND AGREEMENT
The undersigned, _________________ (the "Contractor"), has entered
into a _______________ (as the same may from tune to time be amended, modified
or supplemented, being herein called the "Nuclear Material Contract"), dated as
of ____________________ with Jersey Central Power & Light Company (the
"Assignor").
The Contractor hereby acknowledges notice that (i) in accordance
with the terms of the Second Amended and Restated Nuclear Material Lease
Agreement dated as of _________ __, 1998, between the Assignor and TMI-1 Fuel
Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the
Assignor's rights under the Nuclear Material Contract pursuant to an Assignment
Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same
may from time to time be amended, modified or supplemented, being herein
collectively called the "Assignment"), and (ii) pursuant to a Security Agreement
and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of _________ __,
1998 (said Security Agreement and Assignment Contracts, as the same may from
time to time be amended, modified or supplemented, being herein called the
"Security Agreement") made by the Assignee in favor of the Secured Parties as
defined therein (the "Secured Parties"), the Assignee has assigned and granted a
security interest in all rights under the Nuclear Material Contract from time to
time assigned to it by Assignor, as collateral security for all obligations and
liabilities of the Assignee to the Secured Parties.
The Contractor hereby consents to (i) the assignment by the Assignor
to the Assignee of part of the Assignor's right, title and interest in, to and
under the Nuclear Material Contract and the other Property described in the
Assignment pursuant to the Assignment and (ii) the assignment and security
interest in favor of the Secured Parties as described above. The Contractor
further consents to all of the terms and provisions of the Security Agreement.
The Contractor agrees that, if requested by either the Assignor or
the Assignee, it will acknowledge in writing the Assignment delivered by the
Assignor to the Assignee; provided, that neither the lack of notice to nor
acknowledgment by the Contractor of the Assignment shall limit or otherwise
affect the validity or effectiveness of this consent to such Assignment.
63
<PAGE>
The Contractor hereby confirms to the Assignee and the Secured
Parties that:
(a) all representations, warranties and agreements of the
Contractor under the Nuclear Material Contract which relate to
the Nuclear Material described in the Assignment shall inure
to the benefit of, and shall be enforceable by, the Assignee
or any Secured. Party to the same extent as if originally
named in the Contract as the purchaser of such Nuclear
Material,
(b) the Contractor understands that, pursuant to the Lease
Agreement, the Assignee has agreed to lease the Nuclear
Material described in the Assignment to the Assignor, and
consents to the assignment to the Assignor, for so long as
the Lease Agreement shall be in effect or until otherwise
notified by the Assignee, of the Assignee's rights under
clauses (iii), (iv), (v) and (vi) of subparagraph (b) of
Exhibit 1 to the Assignment to the extent that such rights
are reassigned to the Assignor pursuant to the Assignment,
(c) The Contractor is in the business of selling nuclear fuel and
related services of the kind described in the Assignment, and
the proposed sale of such nuclear fuel under the Nuclear
Material Contract will be in the ordinary course of business
of the Contractor, and
(d) Notwithstanding any provision to the contrary contained in
the Nuclear Material Contract, the Contractor agrees that
title to any Nuclear Material covered by the Assignment
shall pass directly to the Assignee under the Contract and
shall not pass to the Assignor; provided that the foregoing
shall not apply to any Nuclear Material for which title has
already passed from the Contractor prior to the execution
and delivery of the Assignment.
It is understood that neither the Assignment, the Security Agreement
nor this Consent and Agreement shall in any way add to the obligations of the
Contractor or the Assignor under the Nuclear Material Contract.
This Consent and. Agreement shall be governed by and construed in
accordance with the laws of the State of ____________.
64
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Consent and
Agreement to be duly executed and delivered by its duly authorized officer as of
the _____ day of __________, 19__.
By:
Title:
65
<PAGE>
EXHIBIT E
BILL OF SALE
TO
JERSEY CENTRAL POWER & LIGHT COMPANY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TMI-1 Fuel
Corp., a Delaware corporation (the "Seller"), whose post office address is c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, Attention: Corporate Trust and Agency Division, for and in
consideration paid to the Seller upon or before the execution and delivery of
this Bill of Sale to Jersey Central Power & Light Company (the "Purchaser"), a
New Jersey corporation, whose address is 2800 Pottsville Pike, Reading,
Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and
sets over unto the Purchaser all of its right, title and interest in all of the
personal property consisting of the assemblies of nuclear fuel or components
thereof or other nuclear material described in Annex I hereto (the "Assets"),
and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and
deliver the Assets unto the Purchaser, to have and to hold such undivided
interest in the Assets unto the Purchaser, for itself, its successors and
assigns, forever.
The Assets are transferred and conveyed by the Seller AS-IS,
WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND
WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the
Seller represents and warrants that it has not by voluntary act or omission
created or granted any lien on the Assets, other than Permitted Liens, as
defined in that certain Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998 between the Seller and the Purchaser.
The Purchaser acknowledges and agrees that neither the Seller, its directors,
officers or employees, any company, person or firm controlling, controlled by,
or under common control with any of them nor any other person acting on behalf
of the Seller is a manufacturer of, or is engaged in the sale or distribution
of, nuclear material, has had at any time physical possession of any portion of
the Assets sold hereunder, or has made any inspection thereof. The Purchaser
further acknowledges and agrees that the Assets sold hereunder have been at all
times in the possession of the Purchaser and that the Purchaser has made such
inspections thereof as it deems necessary and that the Purchaser has been solely
responsible for all decisions made with respect to the choice of the suppliers
of such Assets and the enrichment, fabrication, transportation, storage and
processing of the same.
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IN WITNESS WHEREOF, the Seller has caused these presents to be
executed by one of its Vice Presidents, this _____ day of ____________, 19__.
TMI-1 FUEL CORP., Seller
By:
Vice President
Acknowledgment and Acceptance
The foregoing Bill of Sale is hereby acknowledged and accepted by
the undersigned as of the date last above written.
JERSEY CENTRAL POWER & LIGHT
COMPANY,
Purchaser
By:
Its:
67
<PAGE>
EXHIBIT F
RENT DUE
AND SCV CONFIRMATION SCHEDULE
For the Basic Rent Period Ended _______
In accordance with the Second Amended and Restated Lease Agreement
dated as of _________ __, 1998, between TMI-1 Fuel Corp., as Lessor, and Jersey
Central Power & Light Company, as Lessee, the Lessee certifies that all amounts
set forth below are true and correct in all respects, and both Lessor and Lessee
certify that this Schedule has been prepared in accordance with the provisions
of the Lease Agreement.
I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT
A. Basic Rent Owed
1. Calculation of Portion of Monthly Financing
Charge Not Allocated to Acquisition Cost
a. Interest Payable with Respect to All
Outstanding Notes (See attached
summary calculation $
b. Other Amounts Included in Monthly
Financing Charge $
c. Total Monthly Financing Charge Not
Allocated to Acquisition Cost
(Total of I(a) and I(b) $
2. Aggregate Monthly Rent Component
(See attached summary calculation) $
3. BASIC RENT (total of 1(c) and 2) $
=========
B. Additional Rent Owed (see attached
summary calculation) $
C. Termination Rent Owed (see attached
summary calculation $
TOTAL RENT DUE (total of A, B and C) $
=========
68
<PAGE>
<TABLE>
<CAPTION>
II. Calculation of Stipulated Casualty Value
Nuclear Material
----------------------------------------------------------
Installed for Not Installed for
Operation in the Operation in the
Generating Facility Generating Facility Total
<S> <C> <C> <C>
A. Stipulated Casualty Value as of ______ $--------------- $-------------- $----------
B. Add: Acquisition Cost Incurred in
Rent Period Covered by This Schedule
(exclusive of Monthly Finance Charges) $--------------- $-------------- $----------
C. Add: Monthly Financing Charge
Allocated to Acquisition Cost
Incurred in Rent Period Covered
by this Schedule $--------------- $-------------- $----------
D. Less: SVC of Nuclear Material
Transferred to the Lessee Pursuant
to Section 8(c), 8(g) or 14 of the
Lease Agreement during the Basic
Rent Period Covered by this
Schedule $-------------- $-------------- $----------
STIPULATED CASUALTY VALUE AS OF ------- $ $ $
================ =============== ===========
Add: Commercial Paper Discount $----------
STIPULATED CASUALTY VALUE AS OF --------- $
==========
69
</TABLE>
EXHIBIT 10-T
JERSEY CENTRAL POWER & LIGHT COMPANY
----------------------------------
LESSEE'S LETTER AGREEMENT
Regarding
OYSTER CREEK FUEL CORP.
----------------------------------
Dated as of November 5, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Performance of Fuel Lease and Liens 1
3. Security Interest of Collateral 2
4. Sale of Nuclear Material and Assignment
of Rights under Nuclear Material Contracts 2
5. Collateral Equivalence Test; No Additional
Collateral or Covenants; Condemnation Statements;
Exercise of Rights of Secured Parties 3
6. Fuel Management; Quiet Enjoyment 5
7. Insurance 5
8. Representations and Warranties 6
9. General Covenants of the Lessee 11
10. GPU Events 18
11. Credit Agreements and Notes 18
12. Consent to Assignment; Direct Payment of
Payments Under the Fuel Lease 18
13. Severability 19
14. Indemnification 19
15. No Waiver; Amendments 21
16. Successors and Assigns 22
17. Notices 22
18. Set-off 23
19. Waiver of Jury Trail 23
20. Governing Law 23
<PAGE>
THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of
November 5, 1998, by and between Jersey Central Power & Light Company, a New
Jersey corporation (the "Lessee"), Oyster Creek Fuel Corp, a Delaware
corporation (the "Company"), and The First National Bank of Chicago, as
Administrative Agent (the "Administrative Agent"), for the Banks party to the
Credit Agreement referred to below (the "Banks").
WHEREAS, the Lessee has entered into the Second Amended and Restated
Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"),
with the Company in order to enable the Company to obtain financing for the
acquisition, processing and use of Nuclear Material in the Generating Facility;
and
WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make
payments due to Manufacturers and/or to reimburse the Lessee for payments
previously made to Manufacturers with respect to Nuclear Material; and
WHEREAS, in order to finance the cost of such Nuclear Material, the
Company proposes to (i) sell its Commercial Paper, and (ii) obtain the
Commitment of each Bank to make Loans from time to time as hereinafter provided;
and
WHEREAS, the Lessee has agreed to make payments under the Fuel Lease
sufficient to enable the Company to meet its obligations under the Company's
financing arrangements, including the Company's obligations under the Credit
Agreement, dated as of November 5, 1998, among the Company, the Banks and the
Administrative Agent (the "Credit Agreement");
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and other good and valuable consideration, so long as any of
the Loans or the Commercial Paper shall remain outstanding, or the Commitments
shall be continuing, notwithstanding any provision of the Fuel Lease or any
other agreement of the Lessee to the contrary, the Lessee, the Company, the
Administrative Agent and the Banks agree that:
1. Definitions. Unless the context otherwise specifies or requires, each
term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall,
when used in this Letter Agreement, have the meaning indicated in the Credit
Agreement or Appendix / or set forth in the paragraph indicated therein.
2. Performance of Fuel Lease and Liens. The Lessee will perform and comply
with all the terms of the Fuel Lease to be performed or complied with by it and
will not omit to take an action the omission of which would cause a Lease Event
of
<PAGE>
2
Default. The Lessee acknowledges that, except as otherwise provided in the Fuel
Lease, its obligations as set forth under the Fuel Lease are absolute and
unconditional. The Lessee will not directly or indirectly create or permit to be
created or remain, and will promptly take such action as may be necessary to
discharge, any Lien on any Collateral except Permitted Liens.
3. Security Interest of Collateral. The Lessee represents that no
effective financing statement (other than those naming the Secured Parties as a
secured party) covering all or any part of the Collateral (as defined in the
Security Agreement relating to the Lessee) is on file in any public office. The
Lessee shall make, or shall cause to be made, all filings and recordings, and
shall take, or cause to be taken, such other actions, including filing all
continuation statements, necessary to establish, preserve and perfect the
Secured Parties' lien on and security interest in, the Collateral as a legal,
valid and enforceable first priority lien and security interest, or purchase
money security interest, as the case may be, therein, subject only to the
existence or priority of any Permitted Lien, and the Lessee represents that all
such filings, recordings and other actions have been duly made. The Lessee shall
deliver to the Administrative Agent evidence of the due filings of any
continuation statements to be delivered to the Administrative Agent within the
time period specified in Section 7.05 of the Credit Agreement. In no event will
the Lessee permit the Nuclear Material to enter any jurisdiction in which all
necessary action has not been taken to establish, maintain and protect the
Secured Parties' first priority perfected lien and security interest in the
Nuclear Material under the Security Agreement, subject only to Permitted Liens.
4. Sale of Nuclear Material and Assignment of Rights under Nuclear
Material Contracts.
(a) In the event that the Lessee desires the Company, on behalf of
the Lessee, to purchase Nuclear Material or to have services performed on such
Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall
provide the Company with an Assignment Agreement and a Manufacturer's Consent,
both substantially in the form of Exhibit D to the Fuel Lease, with such changes
to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable
discretion may consent to in writing, which consent shall not be unreasonably
withheld, with respect to such Nuclear Material Contract not later than sixty
days following the date on which the Company is to purchase such Nuclear
Material or to have such services performed pursuant
<PAGE>
3
thereto. Notwithstanding the foregoing, the Lessee shall not be required to have
obtained a Manufacturer's Consent in any instance where the Manufacturer's
obligations under the applicable Nuclear Material Contract have been fully
discharged and performed, and the Manufacturer's warranties with respect to such
Nuclear Material Contract have expired, and the Lessee has delivered to the
Company and the Collateral Agent a certificate to such effect.
(b) The Lessee at its expense will perform and comply with all the
terms and provisions of each Assigned Agreement to be performed or complied with
by it, will maintain each Assigned Agreement in full force and effect, will
enforce each of the Assigned Agreements in accordance with their respective
terms, and will take all such action to that end as from time to time may
reasonably be requested by the Majority Banks.
(c) The Lessee shall not enter into or consent to or permit any
cancellation, termination, amendment, supplement or modification of or waiver
with respect to any Assigned Agreement without the prior written consent of the
Majority Banks, unless such cancellation, termination, amendment, supplement or
modification could not reasonably be expected to have a Material Adverse Effect
on the Company or the Company has through one or more other Assigned Agreements
or otherwise arranged for the provision of comparable goods and services on
terms not materially more burdensome to the Company.
(d) The Lessee will from time to time, upon request of the
Administrative Agent, furnish to the Administrative Agent such information
concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks
may reasonably request.
(e) The Lessee will not change its principal place of business or
chief executive offices from the location specified in paragraph 8(a) hereof or
remove therefrom its records concerning the Assigned Agreements unless it gives
the Administrative Agent at least 30 days' prior written notice thereof.
5. Collateral Equivalence Test; No Additional Collateral or Covenants;
Condemnation Statements; Exercise of Rights of Secured Parties.
<PAGE>
4
(a) The Lessee shall not permit the sum of aggregate Stipulated
Casualty Value of the Nuclear Material leased under the Fuel Lease and Cash
Collateral to be less than Outstandings.
(b) The Lessee shall not provide to any Person (other than the
Banks), in order to induce such Person to extend credit to the Company, any
collateral or any guarantee or other assurance against loss or non-payment, nor
shall the Lessee consent to the provision thereof by the Company.
(c) The Lessee shall not agree to any affirmative or negative
covenant with respect to the condition, financial or otherwise, of the Lessee
with any Person in order to induce such Person to extend credit to the Company.
(d) The Lessee shall not sell, assign, convey, pledge or otherwise
dispose of or encumber in any manner any interest it may have in the Trust or
any rights it may have under the Trust Agreement. The Lessee shall not direct
the Owner Trustee to liquidate, dissolve, merge or consolidate the Company
except if such transaction is consented to in writing by the Banks. The Lessee
shall not direct the Owner Trustee to take any action under the Trust Agreement
which is inconsistent with the duties imposed upon the Company by the Basic
Documents and any other agreements, documents, instruments and articles executed
and delivered, and to be executed and delivered, by the Owner Trustee in
connection therewith.
(e) The Nuclear Material leased under the Fuel Lease shall
constitute the Lessee's entire ownership interest in the items used or to be
used by it as nuclear fuel in the Generating Facility. The Lessee agrees that
100% of the Lessor's ownership interest in any Nuclear Material which is subject
to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to
take any action under the terms of the Fuel Lease, including, but not limited
to, the delivery of any Leasing Record, which would result in 100% of the
Lessor's ownership interest in any such Nuclear Material not being so leased.
(f) As provided in the Security Agreement, (i) the Collateral Agent
on behalf of the Secured Parties may, on and after the occurrence of a Credit
Agreement Default or Credit Agreement Event of Default, pursuant to Section 10
of the Security Agreement, exercise any and all of the Company's rights under
the Fuel Lease, the Assigned Agreements and each other Basic Document to which
the Lessee is a party, and (ii) if a Lease Event of Default occurs and is
continuing, the Collateral
<PAGE>
5
Agent on behalf of the Secured Parties may, pursuant to Section 10 of the
Security Agreement, enforce and exercise any and all of the Company's rights
under the Fuel Lease, the Assigned Agreements and each other Basic Document to
which the Lessee is a party, or the rights and remedies granted to the Secured
Parties under the Security Agreement at its election and in its sole discretion,
and, in the event that the Collateral Agent is permitted to exercise such rights
pursuant to Section 10 of the Security Agreement, the Lessee agrees that the
Collateral Agent may do so either in concert with or in place of the Company,
and the Lessee shall assist in, comply with and perform in accordance with all
rights or remedies so enforced or exercised by the Collateral Agent for the
ratable benefit of the Secured Parties.
6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement
Default, a Credit Agreement Event of Default, Lease Event of Default or an event
or condition which would, with the lapse of time or the giving of notice or
both, become a Lease Event of Default, shall not affect the Lessee's sole
obligation to engage in Fuel Management; provided that, upon the occurrence of a
Credit Agreement Event of Default or Lease Event of Default, the Collateral
Agent may, if so directed by the Majority Secured Parties, by written notice to
the Lessee, elect to revoke such power and authority, in which case the Person
from time to time designated by the Majority Secured Parties may (but shall not
be obligated to), to the extent that the Majority Secured Parties desire and to
the extent permitted by law, engage in Fuel Management and/or remove all or any
part of the responsibility for Fuel Management from the Lessee; provided,
however, that, subject to the right of the Collateral Agent and the Majority
Secured Parties to exercise any or all rights granted to the Secured Parties
under the Security Agreement, the rights granted to the Collateral Agent and the
Majority Secured Parties under this Section 6 shall not be construed to include
the right to direct, whether directly or indirectly, the operation of the
Generating Facility. In the event the Majority Secured Parties, in accordance
with the preceding sentence, shall revoke the Lessee's power and authority to
engage in Fuel Management, all rights conferred by the Company to the Lessee
pursuant to Section 3 of the Fuel Lease shall be deemed to be automatically
reassigned to the Company and the Lessee shall execute such documents and
instruments as the Collateral Agent shall request to further confirm such
assignment.
7. Insurance. Each year, the Lessee will furnish the Administrative
Agent and each Bank a detailed statement certified by an officer of Lessee
setting forth (i) the location of all
<PAGE>
6
Nuclear Material and (ii) the insurance policies and indemnification agreements
provided pursuant to Sections 14 and 17 of the Fuel Lease and certifying that
such insurance policies and indemnification agreements comply with the
requirements of the Fuel Lease. In addition, the Lessee shall promptly furnish
at any time to the Administrative Agent and any Bank such information as any
such Bank shall reasonably request concerning location of Nuclear Material,
insurance policies and indemnification agreements and Manufacturers or other
third parties with whom arrangements exist with respect to transportation,
storage or processing of Nuclear Material.
8. Representations and Warranties. The Lessee hereby represents and
warrants to the Company, the Administrative Agent and the Banks that as of the
date hereof:
(a) Organization and Standing. The Lessee is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New Jersey, and is qualified to do business in each state or other
jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on its ability to perform its obligations under this Letter
Agreement or each other Basic Document to which the Lessee is a party. The
Lessee's chief executive office is located at 2800 Pottsville Pike, Reading,
Pennsylvania 19605.
(b) Corporate Authority. The Lessee has the corporate power and
authority to execute and perform this Letter Agreement and the Fuel Lease and to
lease the Nuclear Material thereunder. The execution and delivery of this Letter
Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder
will not have a material adverse effect on the financial condition, results of
operations, business, properties or operations of the Lessee.
(c) Compliance with Other Instruments, etc. The execution, delivery
and performance by the Lessee of this Letter Agreement and each Basic Document
to which the Lessee is a party, and other related instruments, documents and
agreements, and the compliance by the Lessee with the terms hereof and thereof,
(i) have been duly and legally authorized by appropriate corporate action taken
by the Lessee, (ii) are not in contravention of, and will not result in a
violation or breach of, any of the terms of the Lessee's articles of
incorporation, its by-laws or of any provisions relating to shares of the
<PAGE>
7
capital stock of the Lessee and (iii) will not violate or constitute a breach of
any provision of (x) any applicable law, order, rule or regulation, rule or
regulation of any governmental authority (except in those cases where
non-compliance with any such law, order, rule or regulation could not reasonably
be expected to have a material adverse effect on the financial condition,
results of operations, business, properties or operations of the Lessee or its
ability to perform its obligations hereunder or under each Basic Document) or
(y) any indenture, agreement or other instrument to which the Lessee is party,
or by or under which the Lessee or any of the Lessee s property is bound, or be
in conflict with, result in breach of, or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement or instrument, or
result in the creation or imposition of any Lien upon any of the Lessee's
property or assets or any Nuclear Material.
(d) Legal Obligations. This Letter Agreement and the Fuel Lease have
been executed by a duly authorized officer of the Lessee, and this Letter
Agreement and the Fuel Lease constitute, and each Leasing Record, when executed
by a duly authorized officer of the Lessee and delivered to the Company, will
constitute, the legal, valid and binding obligations of the Lessee, enforceable
against the Lessee in accordance with their respective terms, except as the
enforceability thereof may be limited by the Atomic Energy Act and the rules,
regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general,
and except as the availability of the remedy of specific performance is subject
to general principles of equity (regardless of whether such remedy is sought in
a proceeding in equity or at law).
(e) Governmental Consents. Neither the execution and delivery of
this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor
the performance by the Lessee of all of its obligations hereunder or thereunder,
requires the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, any Federal, state, local or foreign government or governmental
authority or agency or any other person except for the order of the Securities
and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the
supplemental order of the SEC dated November 3, 1998, the filing of a notice
with the New Jersey Board of Public Utilities which notice was filed September
4, 1998, and the filing of any statement or other instrument pursuant to Section
10(b) of the Fuel Lease, and
<PAGE>
8
except for the filing of certificates by the Lessee with the SEC pursuant to SEC
Rule 24 under the Public Utility Holding Company Act to report on the
transactions authorized by such SEC order, the filing of which is not necessary
to the execution or delivery of this Letter Agreement, the Fuel Lease or any
Leasing Record by the Lessee or for the performance by the Lessee of any of its
obligations hereunder or thereunder, and the failure to file any of which will
not affect the validity or enforceability of any of this Letter Agreement, the
Fuel Lease or any Leasing Record.
(f) Consents and Permits. The Lessee possesses all material
licenses, permits, franchises and certificates which are necessary or
appropriate to own or operate its material properties and assets and to conduct
its business as now conducted.
(g) Litigation. There is no litigation or other proceeding now
pending or, to the best of the Lessee's knowledge, threatened, against or
affecting the Lessee, before any court, arbitrator or administrative or
governmental agency (i) which would adversely affect or impair the title of the
Company to the Nuclear Material, (ii) which questions the validity or
enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements
or any other Basic Document to which the Lessee is a party or any action taken
or to be taken by the Lessee pursuant to or in connection with this Letter
Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form
10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, copies of which have previously been delivered
to the Administrative Agent and the Banks, which, if decided adversely to the
Lessee, would materially adversely affect the condition, financial or otherwise,
of the Lessee.
(h) Taxes. The Lessee has filed or caused to be filed all tax
returns which are required to be filed, and has paid or caused to be paid all
taxes as shown on said returns and all assessments received by it to the extent
that such taxes and assessments have become due, except for taxes and
assessments which are being contested in good faith and by appropriate
proceedings and as to which it has provided reserves which are adequate in
connection with generally accepted accounting principles.
(i) Reaffirmation and Restatement of Representations and Warranties.
The Lessee repeats and reaffirms as of the date hereof for the benefit of the
Administrative Agent and each Bank
<PAGE>
9
the representations and warranties made by the Lessee in the Fuel Lease as
though set forth in full herein with the same effect as though such
representations and warranties had been made on and as of the date hereof. In
addition, the Lessee represents and warrants that as of the date hereof (i) the
Lessee is in compliance with all the terms and provisions set forth in the Fuel
Lease on its part to be observed or performed, (ii) no Terminating Event has
occurred and no event has occurred which, with the lapse of time or the giving
of notice, or both, would constitute such a Terminating Event, and (iii) no
Lease Event of Default has occurred and is continuing and no event has occurred
and is continuing on such date which, with the lapse of time or the giving of
notice, or both, would constitute a Lease Event of Default.
(j) First Perfected Security Interest. Except for Permitted Liens,
upon the execution and delivery of this Letter Agreement and the Security
Agreement and the due filing of the Uniform Commercial Code financing statements
required to be executed and filed from time to time, the Secured Parties will
have a legal, valid and enforceable first priority security interest (i) in the
rights, titles and interests of the Company in and to the Fuel Lease and (ii) in
and to the other Collateral. Such security interest will constitute a perfected
security interest in the Collateral consisting of Nuclear Material Contracts and
the Collateral consisting of Nuclear Material located in the States of Illinois,
Kentucky, Ohio, New Jersey and North Carolina, except for any such Collateral
which consists of cash, instruments (as defined in the New York Uniform
Commercial Code) and other items in which a security interest may only be
perfected by possession, enforceable against all third parties as security for
the Secured Obligations.
(k) No Material Adverse Change. Since June 30, 1998, there has been
no material adverse change in the financial condition, results of operations,
business, properties or operations of the Lessee or in its ability to perform
its obligations under the Basic Documents.
(l) No Defaults. The Lessee is not in default under any bond,
debenture, note or any other evidence of Obligations for Borrowed Money or
Deferred Purchase Price or any mortgage, deed of trust, indenture, loan
agreement or other agreement relating thereto, where the amount thereof is in
excess of $20,000,000.
<PAGE>
10
(m) Pension Plans. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any plan (other than a multiemployer plan). No liability to the
Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to
be, incurred with respect to any plan (other than a multiemployer plan) by the
Lessee which is or would be materially adverse to the Lessee. The Lessee has not
incurred and presently does not expect to incur any withdrawal liability under
Title IV of ERISA with respect to any multiemployer plan which is or would be
materially adverse to the Lessee. Neither the execution and delivery by the
Company of the Credit Agreement and the other Basic Documents, and the issuance
of the Commercial Paper, nor the execution and delivery by the Lessee of this
Letter Agreement, the Trust Agreement and each other Basic Document to which the
Lessee is a party, will involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an
"employee pension benefit plan" (as defined in Section 3 of ERISA) which is and
has been established or maintained, or to which contributions are or have been
made, by the Lessee or by any trade or business, whether or not incorporated,
which, together with the Lessee is under common control as described in Section
414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan
which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3)
of ERISA).
(n) Financial Statements. The audited balance sheet of the Lessee as
of December 31, 1997, and the related statements of income and cash flows
(including the notes thereto) of the Lessee for the year then ended, copies of
which have been delivered to the Company, the Administrative Agent and the
Banks, and all other annual or quarterly financial statements including, without
limitation, the quarterly statement dated as of June 30, 1998 so delivered
fairly present the financial condition of the Lessee on the dates for which, and
the results of its operations for the periods for which, the same have been
furnished and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(o) Nuclear Material. The Nuclear Material is free and clear of any
Lien in favor of any Person claiming by, through or under the Lessee or any
Affiliate thereof, other than Permitted Liens. No default or event which with
the giving of notice or lapse of time would constitute a default has occurred
and is continuing under any Nuclear Material Contract.
<PAGE>
11
(p) Disclosure. Neither the representations in this Letter
Agreement, or in any other document, certificate or statement furnished in
writing to the Administrative Agent or any Bank by or on behalf of the Lessee in
connection with the transactions contemplated hereby, nor the information
disclosed in the Lessee's Annual Report on Form 10-K for the year ended December
31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
contained as of its date, any untrue statement of a material fact or omitted to
state a material fact necessary in order to make such representations or
information not misleading in light of the circumstances under which they were
made.
(q) Collateral Equivalence Test Met. The sum of the aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Cash Collateral equals or exceeds the Outstandings.
(r) Year 2000. The Lessee has made a full and complete assessment of
its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based
on such assessment and on its Year 2000 Program, the Lessee does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
9. General Covenants of the Lessee.
(a) Information. The Lessee will furnish to the Company and the
Administrative Agent in sufficient copies for each Bank:
(i) Quarterly Statements. As soon as practicable after the end of
each of the first three quarterly fiscal periods in each fiscal year of
the Lessee, and in any event within 60 days thereafter, copies of:
(A) a balance sheet of the Lessee as at the end of such quarter, and
(B) statements of income and cash flows of the Lessee for such
quarter and for the twelve-month period ending as of the end of such
quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with the end of such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail and certified as complete and correct, subject to changes
resulting from year-end
<PAGE>
12
adjustments, by a principal financial officer of the Lessee;
provided that it is understood that the delivery of the Lessee's
Quarterly Report on Form 10-Q shall be deemed to satisfy the
requirements with respect to such financial statements;
(ii) Annual Statements. As soon as practicable after the end of each
fiscal year of the Lessee, and in an event within 120 days thereafter,
copies of:
(A) a balance sheet of the Lessee at the end of such fiscal year,
and (B) statements of income and cash flows of the Lessee for such
year, setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and accompanied
by an opinion thereon of independent certified public accountants of
recognized national standing selected by the Lessee, which opinion
shall state that such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in which
such accountants concur) and that the examination of such
accountants in connection with such financial statements has been
made in accordance with generally accepted auditing standards;
provided that it is understood that the delivery of the Lessee's
Annual Report on Form 10-K shall be deemed to satisfy the
requirement with respect to such financial statements;
(iii) Officer's Compliance Certificate. Simultaneously with the
financial statements referred to in Sections 9(a)(i) and (ii), a
certificate of an authorized officer of the Lessee stating that such
officer has reviewed the relevant terms and conditions of the Fuel Lease
and other Basic Documents to which the Lessee is a party, and has made, or
caused to be made, under such officer's supervision, a review of the
transactions and financial condition of the Lessee from the beginning of
the accounting period covered by the income statements being delivered
therewith to the date of the certificate, and that the Lessee has observed
or performed all of its covenants and other agreements, and satisfied
every condition, contained in this Letter Agreement, the Fuel Lease and
any other Basic Document to which the Lessee is a party, and no
Terminating Event, Lease Event of Default or default or event of default
under any such Basic Document has occurred and is continuing
<PAGE>
13
and no event has occurred and is continuing which, with the lapse of time
or the giving of notice, or both, would constitute a Terminating Event,
Lease Event of Default or a default or event of default under any such
Basic Document or, if such condition or event has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto;
(iv) Auditor's Compliance Certificate. Simultaneously with the
financial statements referred to in Section 9(a)(ii), a certificate of the
independent public accountants who audited such statements stating that
such accountants have reviewed the relevant terms and conditions of the
Fuel Lease and other Basic Agreements to which the Lessee is a party, and
that, in making the examination necessary for the audit of such
statements, they have obtained no knowledge of any condition or event
which constitutes or which with notice or lapse of time or both would
constitute a Terminating Event, Lease Event of Default or default or event
of default under any such Basic Document, or if such accountants shall
have obtained knowledge of any such condition or event, specifying in such
certificate each such condition or event of which they have knowledge and
the nature and status thereof;
(v) Notices Required under the Basic Documents. Immediately upon
delivery to the Lessee or the Company, all notices, consents, documents,
certificates or instruments of any kind relating to the Lessee required
pursuant to the Fuel Lease;
(vi) Defaults. (A) Promptly upon becoming aware of the occurrence
thereof, notice of any Terminating Event, Lease Event of Default or any
event which, with the lapse of time or the giving of notice, or both,
would constitute a Terminating Event or a Lease Event of Default, or of
any other development, financial or otherwise (including, without
limitation, developments with respect to Year 2000 Issues), which could
reasonably be expected to have a Material Adverse Effect, and (B) within
10 days of becoming aware of the occurrence thereof, notice of any other
material event affecting the Lessee's obligations under any Basic Document
or any Nuclear Material Contract (except to the extent such event has
previously been disclosed in the Lessee's SEC reports delivered pursuant
to clause (viii) below);
<PAGE>
14
(vii) Notice of Claimed Default. Immediately upon becoming aware
that the holder or holders of any evidence of Obligations for Borrowed
Money or Deferred Purchase Price or other security of the Lessee or any
subsidiary exceeding $20,000,000 in the aggregate have given notice (or
taken any other action) with respect to a claimed default, breach or event
of default, a notice describing the notice given (or action taken) and the
nature of the claimed default, breach, or event of default;
(viii) SEC and Other Reports. Promptly after filing thereof, copies
of all regular and periodic reports and registration statements which the
Lessee may file with the SEC or any governmental agency substituted
therefor and, promptly upon written request therefor, copies of the
financial statements which the Lessee may file annually with any state
regulatory agency or agencies; and
(ix) Requested Information. With reasonable promptness, such other
data and information with respect to the Lessee, including, without
limitation, information regarding Nuclear Material or any Nuclear Material
Contract or the Lessee's Year 2000 Program, as from time to time may be
reasonably requested by the Administrative Agent or any Bank.
(b) Notice of Litigation. Immediately upon the Lessee becoming aware
thereof, written notice of (i) any litigation or proceedings which would be
required to be disclosed as an exception to the representations and warranties
contained herein or in the Fuel Lease in order that such representations and
warranties would be true and correct on a continuing basis; and (ii) any dispute
between the Lessee and any governmental authority or other party relating to any
part of the transactions contemplated by this Letter Agreement or any of the
other Basic Documents to which the Lessee is a party which would have a material
adverse effect on the ability of the Lessee to carry out its obligations
hereunder or under any other Basic Document to which the Lessee is a party;
provided, however, that the notice requirement in this Section 9(b) shall be
satisfied if the Lessee furnishes the Company and the Administrative Agent in
sufficient copies for each Bank a Current Report on Form 8-K regarding the event
requiring notice by the time that the Current Report is required to be filed
with the Securities and Exchange Commission.
(c) General Obligations. Subject to the last sentence of this
Section 9(c), the Lessee will:
<PAGE>
15
(i) duly comply with all laws, rules, orders, regulations or
other valid requirements (including, without limitation,
any of the foregoing which are applicable to Nuclear
Material or the operation of the Generating Facility) of
any governmental authority necessary to the conduct of its
business or to its properties or assets, noncompliance with
which could reasonably be expected to have a material
adverse effect upon the transactions contemplated by this
Letter Agreement or any other Basic Document, or upon the
financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of
the Lessee to carry out its obligations under any Basic
Document or this Letter Agreement);
(ii) continue to engage principally in the electric utility
business;
(iii) obtain, maintain and keep in full force and effect all
consents, permits, licenses and approvals, the absence of
which would have a material adverse effect upon the
transactions contemplated by this Letter Agreement or any
other Basic Document to which the Lessee is a party, or upon
the financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of the
Lessee to carry out its obligations under this Letter
Agreement or any other Basic Document to which the Lessee is a
party;
(iv) maintain its material operating properties used or useful
in its business in good repair, working order and condition
consistent with prudent utility practice; provided,
however, that the Lessee shall not be prevented from
discontinuing the operation and maintenance of any of its
properties if it shall determine that the continued
operation and maintenance of such properties is no longer
necessary, desirable or permissible;
(v) pay when due all fees, taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
profits or upon any property
<PAGE>
16
belonging to it, and maintain appropriate reserves for the
accrual of the same in accordance with generally accepted
accounting principles;
(vi) except as permitted by clause (vii) below, at all times
maintain its corporate existence, privileges, franchises and
rights to carry on business, and duly procure all renewals and
extensions thereof, if and when any shall be necessary;
(vii) not consolidate or merge with, or sell or otherwise dispose of
all or substantially all of its properties and assets to any
Person unless (i) the surviving or resulting entity is the
Lessee hereunder, (ii) immediately after giving effect thereto
no Credit Agreement Event of Default, Credit Agreement
Default, Lease Event of Default or event which with the giving
of notice or passage of time would constitute a Lease Event of
Default shall have occurred and be continuing, and (iii) the
senior unsecured debt of the surviving or resulting Lessee
shall be rated at least investment grade by Standard & Poor's
Ratings Group ("S&P") or Moody's Investor Service, Inc.
("Moody's");
(viii) perform and comply with each of the material provisions of
each material indenture, credit agreement, contract or other
agreement by which the Lessee is bound, non-performance or
non-compliance with which would have a material adverse effect
upon its business or credit or in any way affect its ability
to perform its obligations hereunder except material contracts
or other agreements being contested in good faith;
(ix) preserve and maintain its corporate existence in the
jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each
jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the
ownership of its properties, except where the failure to be
so qualified would not materially adversely affect its
financial condition, operations, properties or
<PAGE>
17
business, and preserve its material rights, franchises and
privileges to conduct its business substantially as
conducted on the date hereof;
(x) maintain insurance in effect at all times in such amounts
as are available to the Lessee and covering such risks as
is usually carried by companies of a similar size, engaged
in similar businesses and owning similar properties
(including, without limitation, the operation and ownership
of nuclear generating facilities) in the same general
geographical area in which the Lessee operates, either with
responsible and reputable insurance companies or
associations, or, in whole or in part, by establishing
reserves of one or more insurance funds, either alone or
with other corporations or associations;
(xi) at any reasonable time and from time to time, permit the
Administrative Agent or any Bank or any agents or
representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and visit
the properties of, the Lessee and discuss the affairs,
finances and accounts of the Lessee with any of its officers
or directors;
(xii) not sell, transfer, lease, assign or otherwise convey or
dispose of more than 25% of its assets (whether now owned or
hereafter acquired), in any single or series of transactions,
whether or not related, except for dispositions of its fossil
and hydroelectric generating stations and associated
facilities and dispositions of its current assets in the
ordinary course of business as presently conducted, if
immediately prior to such sale, transfer, lease, assignment,
conveyance or disposition or as a result of such sale,
transfer, lease, assignment, conveyance or disposition, the
senior unsecured debt of the Lessee shall not be rated at
least investment grade by S&P or Moody's.
(xiii) comply with this Letter Agreement and such other Basic
Documents to which the Lessee is a party in accordance with
the respective terms and conditions set forth herein and
therein; and
<PAGE>
18
(xiv) except for Permitted Liens, permit the creation of any Liens
on the Collateral.
Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may
contest by appropriate proceedings conducted in good faith and due diligence,
the amount, validity or application, in whole or in part of any fee, tax,
assessment or government charge or levy, or any legal requirement, provided that
the Lessee shall have set aside on its books adequate reserves, if required in
accordance with generally accepted accounting principles with respect thereto
and shall furnish such security, if any, as may be required in the proceeding.
10. GPU Events. It shall be a default hereunder if GPU, Inc. fails to
maintain at all times beneficial ownership of at least 75% of all outstanding
shares of common stock of each of the Lessee, Met-Ed and PE; or pledges, grants
options on, creates any charge on or security interest in, or otherwise subjects
to any charge or encumbrance, any of the common stock of the Lessee, Met-Ed or
PE unless the obligations hereunder are secured ratably and with equal priority,
in form and substance reasonably satisfactory to the Majority Banks.
11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of
executed counterparts of the Credit Agreement and photostatic copies of the
Notes evidencing the Loans, and consents to all of the terms and provisions of
the Credit Agreement and the Notes.
12. Consent to Assignment; Direct Payment of Payments Under the Fuel
Lease.
(a) Consent to Assignment. The Lessee hereby acknowledges notice of
and consents to all the terms and provisions of the Security Agreement and
hereby confirms to and agrees with the Secured Parties that all representations,
warranties, indemnities and agreements of the Lessee contained in this Letter
Agreement and each other Basic Document to which the Lessee is a party shall
inure to the benefit of, and shall be enforceable by, the Secured Parties to the
same extent as if such Secured Parties were originally parties to or named in
such documents and agreements. The Lessee further acknowledges and consents to
the assignment and transfer, and any future assignments and transfers, to the
Secured Parties by the Company of the Company's right to exercise any and all of
its rights, remedies, powers and privileges (but none of its obligations, duties
or liabilities) under the Fuel Lease, the Assigned
<PAGE>
19
Agreements and each other Basic Document to which the Lessee is a party. The
Lessee hereby agrees with the Secured Parties to comply with any exercise by the
Secured Parties, either directly or through the Company, of any rights,
remedies, powers or privileges pursuant to the Security Agreement. The Secured
Parties acknowledge that neither the Security Agreement nor this Section 2 shall
in any way add to the obligations of the Lessee (except those obligations of the
Lessee to any Person, which, if not previously so, hereby become enforceable
directly by the Secured Parties) under the Fuel Lease, the Assigned Agreements
and each other Basic Document to which the Lessee is a party. Notwithstanding
the foregoing, so long as no Lease Event of Default shall have occurred and be
continuing, the Lessee shall have exclusive right to possession and use of the
Nuclear Material in accordance with the Fuel Lease and may use such Nuclear
Material for any lawful purpose consistent with the Fuel Lease.
(b) Direct Payment of Payments Under the Fuel Lease. The Lessee
acknowledges that it has been directed by the Company to, and agrees that it
will, make all payments of monies due and to become due to the Company under the
Fuel Lease, the Assigned Agreements and each other Basic Document to which the
Lessee is a party, directly to the Collateral Agent, including, without
limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material
pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments
pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to
the accounts of the Secured Parties as specified in Section 3.03 of the Credit
Agreement.
13. Severability. Any provision of this Letter Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the Lessee hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
14. Indemnification. The Lessee shall pay and indemnify and hold harmless
the Administrative Agent and each Bank, and their respective officers,
directors, incorporators, shareholders, partners, employees, agents and servants
from and against any and all liabilities (other than liabilities arising
<PAGE>
20
out of the gross negligence or willful misconduct of such Person), taxes,
(excluding, however, taxes measured solely by the net income of any Person
indemnified or intended to be indemnified pursuant to this Section 14, except as
otherwise provided in Section 14 hereof), losses, obligations, claims, damages,
penalties, causes of action, suits, costs and expenses (including, without
limitation, reasonable attorneys' and accountants' fees and expenses) and
judgments of any nature arising from or in any way relating to any and all of
the following during the term of the Fuel Lease and thereafter: (a) any injury
to or disease, sickness or death of Persons, or loss of or damage to property,
occurring through or resulting from any nuclear incident (as that term is
defined in the Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or
connected in any way with the Nuclear Material or any portion thereof, (b) the
acquisition, ownership (including strict liability of an owner or liability
without fault), possession, disposition, sale, use, nonuse, misuse, leasing,
fabrication, design, cycling, recycling, transportation, containerization,
cooling, processing, reprocessing, storing, condition, management, operation,
construction, maintenance, repair or rebuilding of the Nuclear Material or any
portion thereof or resulting from the condition of adjoining and underlying
land, buildings, streets or ways, (c) any use, nonuse or condition of, or any
other matter of circumstance relating to, the Generating Facility, any other
property associated therewith or any adjoining and underlying land, buildings,
streets and ways, (d) any violation or default, or alleged violation or default,
of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any
contracts or agreements to which the Lessee is a party or by which it is bound,
or any Legal Requirements, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Nuclear Material
or any portion thereof, (f) any infringement or alleged infringement of any
patent, copyright, trade secret or other similar right relating to the Nuclear
Material or any portion thereof, (g) Lessee's agreements or obligations
contained in the Fuel Lease or this Letter Agreement, (h) any claim arising out
of loss of damage to the environment, (i) any claim arising out of strict or
absolute liability in tort, or (j) the offering and sale of Commercial Paper.
The Lessee also indemnifies each indemnitee, as aforesaid, from and against all
other liabilities, taxes, losses, obligations, claims, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) and judgments of any
nature which may be imposed on, incurred by, or asserted at any time against any
indemnitee in any way relating to or arising out of
<PAGE>
21
the performance of this Letter Agreement, the Fuel Lease or any other Basic
Document to which Lessee is a party, provided, except for claims of a nature
contemplated by (i) above, that the Lessee shall not be required to indemnify
any indemnitee with respect to any liability relating to or arising out of
indemnitee's gross negligence or willful misconduct and provided, further, that
the foregoing immunity shall not limit the terms of any indemnity that the
Lessee may grant separately to any indemnitee pursuant to any separate
agreement. In the event that any action, suit or proceeding is brought against
the Company or any other Person indemnified or intended to be indemnified
pursuant to this Section 14 by reason of any such occurrence, the Lessee shall,
at the Lessee's expense, resist and defend such action, suit or proceeding or
cause the same to be resisted and defended by counsel designated by the Lessee
and reasonably acceptable to the Person or Persons indemnified or intended to be
indemnified under this Section 14 provided there is no conflict of interest with
the Person or Persons indemnified or intended to be indemnified under this
Section 14. In the event a conflict of interest contemplated by the proviso of
the immediately preceding sentence shall exist, then the Person or Persons as to
which such conflict exists may be defended by counsel of its or their choice at
Lessee's expense, provided Lessee's obligation for such expense shall be limited
to one firm for all such Persons as to which such a conflict exists. The
obligations of the Lessee under this Section 14 shall survive any termination of
this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security
Agreement, in whole or in part.
15. No Waiver; Amendments. Neither the Administrative Agent, the
Collateral Agent, the Banks, the Company nor the Lessee shall, by any act,
delay, omission or otherwise, be deemed to have waived any of its rights and
remedies hereunder, and no waiver shall be valid unless in writing signed by the
party or parties sought to be bound thereby. A waiver by the Administrative
Agent, the Collateral Agent, the Banks, the Company or the Lessee of any of
their respective rights or remedies hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Administrative Agent, the
Banks, the Company or the Lessee, as applicable, would otherwise have had on any
future occasion. No failure to exercise nor any delay in exercise of any such
right or remedy hereunder shall preclude any other or future exercise or partial
exercise of any other right or remedy. The rights and remedies hereunder
provided are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies
<PAGE>
22
provided by law. None of the terms or provisions of this Letter Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly
executed by the party or parties sought to be bound thereby.
16. Successors and Assigns. This Letter Agreement shall bind the
successors and assigns of the Lessee and the Company and shall inure to the
benefit of permitted successors and assigns of either. The Letter Agreement
shall not be assignable by the Lessee or the Company, either voluntarily or by
operation of law, unless consented to by the Administrative Agent and the
Majority Banks. No permitted assignment by the Lessee or the Company shall
release the Lessee or the Company from any of its obligations hereunder. This
Letter Agreement shall inure to and shall be binding upon the successors and
assigns of the Administrative Agent and the Banks.
17. Notices. Any notice, demand or other communication which by any
provision of this Letter Agreement is required or provided to be given shall be
deemed to have been delivered if in writing addressed as provided below and
actually delivered by mail, courier or facsimile to the following addresses:
(a) except as otherwise requested in writing by the Administrative
Agent or any Bank, any notice, demand or communication which by
any provision of this Letter Agreement is required or provided to
be given to the Administrative Agent or any Bank shall be deemed
to have been delivered to the Administrative Agent or any Bank if
a single copy thereof is delivered to the Administrative Agent at
its address set forth in Section 11.01 of the Credit Agreement or
at such other address as either may have furnished the Company
and the Lessee in writing;
(b) if to the Company (with copies to the Lessee at the address listed
below), Oyster Creek Fuel Corp c/o United States Trust Company of
New York, 114 West 47th Street, New York, New York 10036, marked for
the attention of the Corporate Trust and Agency Division, telecopy
number 212-852-1626, or at such other address as it may have
furnished in writing to the Administrative Agent and the Lessee; or
(c) if to the Lessee, to Jersey Central Power & Light Company, c/o GPU
Service Inc., 310 Madison Avenue, Morristown, New Jersey 07962,
marked for the attention
<PAGE>
23
of the Vice President and Treasurer, Telecopier: (973) 644-4224,
or at such other address or addresses as the Lessee may have
furnished to the Administrative Agent and the Company.
18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights
against it as provided for in Section 11.08 of the Credit Agreement.
(b) Lessee agrees that it shall have no right of set-off, deduction
or counterclaim in respect of its obligations hereunder, and that the
obligations of the Banks hereunder and under the Credit Agreement are several
and not joint. Nothing contained herein shall constitute a relinquishment or
waiver of the Lessee's rights to any independent claim that the Lessee may have
against the Administrative Agent or any Bank for the Administrative Agent's or
such Bank's, as the case may be, gross negligence or willful misconduct, but no
Bank shall be liable for the conduct of the Administrative Agent or any Bank,
and the Administrative Agent shall not be liable for the conduct of any Bank.
19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim arising out of or relating to
this Letter Agreement, the Credit Agreement, the other Basic Documents or any
instrument or document delivered hereunder or thereunder, except that the
foregoing shall not preclude any party hereto from submitting to a jury for
determination in any such action, proceeding or counterclaim any dispute
involving (a) the accuracy or completeness of any representation or warranty
made under the Basic Documents by Lessee, (b) the performance by Lessee of any
affirmative or negative covenant or agreement contained in the Basic Documents,
or (c) questions of materiality, or the reasonableness of, or good faith basis
for, any action taken, or determination made, by any other party hereto (other
than in respect of any calculation of principal, interest, fees, or increased
costs payable by the Lessee under the Basic Documents).
20. Governing Law. This Letter Agreement shall be governed by, and be
construed and interpreted in accordance with the laws of the State of New York.
<PAGE>
S-1
IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to
be executed as of the date first above written.
JERSEY CENTRAL POWER &
LIGHT COMPANY
By ___________________________________
Vice President
OYSTER CREEK FUEL CORP.
By ___________________________________
Title ________________________________
THE FIRST NATIONAL BANK OF
CHICAGO,
as Administrative Agent
By ___________________________________
Title ________________________________
By ___________________________________
Title ________________________________
SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT
EXHIBIT 10-U
JERSEY CENTRAL POWER & LIGHT COMPANY
----------------------------------
LESSEE'S LETTER AGREEMENT
Regarding
TMI-1 FUEL CORP.
----------------------------------
Dated as of November 5, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Performance of Fuel Lease and Liens 1
3. Security Interest of Collateral 2
4. Sale of Nuclear Material and Assignment of
Rights Under Nuclear Material Contracts 2
5. Collateral Equivalence Test; No Additional
Collateral or Covenants; Condemnation Statements;
Exercise of Rights of Secured Parties 3
6. Fuel Management; Quiet Enjoyment 5
7. Insurance 6
8. Representations and Warranties 6
9. General Covenants of the Lessee 11
10. GPU Events 18
11. Credit Agreements and Notes 18
12. Consent to Assignment; Direct Payment of
Payments Under the Fuel Lease 18
13. Severability 19
14. Indemnification 20
15. No Waiver; Amendments 21
16. Successors and Assigns 22
17. Notices 22
18. Set-off 23
19. Waiver of Jury Trial 23
20. Governing Law 23
<PAGE>
THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of
November 5, 1998, by and between Jersey Central Power & Light Company, a New
Jersey corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the
"Company"), and The First National Bank of Chicago, as Administrative Agent (the
"Administrative Agent"), for the Banks party to the Credit Agreement referred to
below (the "Banks").
WHEREAS, the Lessee has entered into the Second Amended and Restated
Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"),
with the Company in order to enable the Company to obtain financing for the
acquisition, processing and use of Nuclear Material in the Generating Facility;
and
WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make
payments due to Manufacturers and/or to reimburse the Lessee for payments
previously made to Manufacturers with respect to Nuclear Material; and
WHEREAS, in order to finance the cost of such Nuclear Material, the
Company proposes to (i) sell its Commercial Paper, and (ii) obtain the
Commitment of each Bank to make Loans from time to time as hereinafter provided;
and
WHEREAS, the Lessee has agreed to make payments under the Fuel Lease
sufficient to enable the Company to meet its obligations under the Company's
financing arrangements, including the Company's obligations under the Credit
Agreement, dated as of November 5, 1998, among the Company, the Banks and the
Administrative Agent (the "Credit Agreement");
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and other good and valuable consideration, so long as any of
the Loans or the Commercial Paper shall remain outstanding, or the Commitments
shall be continuing, notwithstanding any provision of the Fuel Lease or any
other agreement of the Lessee to the contrary, the Lessee, the Company, the
Administrative Agent and the Banks agree that:
1. Definitions. Unless the context otherwise specifies or requires, each
term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall,
when used in this Letter Agreement, have the meaning indicated in the Credit
Agreement or Appendix A or set forth in the paragraph indicated therein.
2. Performance of Fuel Lease and Liens. The Lessee will perform and comply
with all the terms of the Fuel Lease to be performed or complied with by it and
will not omit to take an action the omission of which would cause a Lease Event
of
<PAGE>
2
Default. The Lessee acknowledges that, except as otherwise provided in the Fuel
Lease, its obligations as set forth under the Fuel Lease are absolute and
unconditional. The Lessee will not directly or indirectly create or permit to be
created or remain, and will promptly take such action as may be necessary to
discharge, any Lien on any Collateral except Permitted Liens.
3. Security Interest of Collateral. The Lessee represents that no
effective financing statement (other than those naming the Secured Parties as a
secured party) covering all or any part of the Collateral (as defined in the
Security Agreement relating to the Lessee) is on file in any public office. The
Lessee shall make, or shall cause to be made, all filings and recordings, and
shall take, or cause to be taken, such other actions, including filing all
continuation statements, necessary to establish, preserve and perfect the
Secured Parties' lien on and security interest in, the Collateral as a legal,
valid and enforceable first priority lien and security interest, or purchase
money security interest, as the case may be, therein, subject only to the
existence or priority of any Permitted Lien, and the Lessee represents that all
such filings, recordings and other actions have been duly made. The Lessee shall
deliver to the Administrative Agent evidence of the due filings of any
continuation statements to be delivered to the Administrative Agent within the
time period specified in Section 7.05 of the Credit Agreement. In no event will
the Lessee permit the Nuclear Material to enter any jurisdiction in which all
necessary action has not been taken to establish, maintain and protect the
Secured Parties' first priority perfected lien and security interest in the
Nuclear Material under the Security Agreement, subject only to Permitted Liens.
4. Sale of Nuclear Material and Assignment of Rights under Nuclear
Material Contracts.
(a) In the event that the Lessee desires the Company, on behalf of
the Lessee, to purchase Nuclear Material or to have services performed on such
Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall
provide the Company with an Assignment Agreement and a Manufacturer's Consent,
both substantially in the form of Exhibit D to the Fuel Lease, with such changes
to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable
discretion may consent to in writing, which consent shall not be unreasonably
withheld, with respect to such Nuclear Material Contract not later than sixty
days following the date on which the Company is to purchase such
<PAGE>
3
Nuclear Material or to have such services performed pursuant thereto.
Notwithstanding the foregoing, the Lessee shall not be required to have obtained
a Manufacturer's Consent in any instance where the Manufacturer's obligations
under the applicable Nuclear Material Contract have been fully discharged and
performed, and the Manufacturer's warranties with respect to such Nuclear
Material Contract have expired, and the Lessee has delivered to the Company and
the Collateral Agent a certificate to such effect.
(b) The Lessee at its expense will perform and comply with all the
terms and provisions of each Assigned Agreement to be performed or complied with
by it, will maintain each Assigned Agreement in full force and effect, will
enforce each of the Assigned Agreements in accordance with their respective
terms, and will take all such action to that end as from time to time may
reasonably be requested by the Majority Banks.
(c) The Lessee shall not enter into or consent to or permit any
cancellation, termination, amendment, supplement or modification of or waiver
with respect to any Assigned Agreement without the prior written consent of the
Majority Banks, unless such cancellation, termination, amendment, supplement or
modification could not reasonably be expected to have a Material Adverse Effect
on the Company or the Company has through one or more other Assigned Agreements
or otherwise arranged for the provision of comparable goods and services on
terms not materially more burdensome to the Company.
(d) The Lessee will from time to time, upon request of the
Administrative Agent, furnish to the Administrative Agent such information
concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks
may reasonably request.
(e) The Lessee will not change its principal place of business or
chief executive offices from the location specified in paragraph 8(a) hereof or
remove therefrom its records concerning the Assigned Agreements unless it gives
the Administrative Agent at least 30 days' prior written notice thereof.
5. Collateral Equivalence Test; No Additional Collateral or Covenants;
Condemnation Statements; Exercise of Rights of Secured Parties.
<PAGE>
4
(a) The Lessee shall not permit the sum of aggregate Stipulated
Casualty Value of the Nuclear Material leased under the Fuel Lease and the
Lessee's Percentage of Cash Collateral to be less than the Lessee's Percentage
of Outstandings.
(b) The Lessee shall not provide to any Person (other than the
Banks), in order to induce such Person to extend credit to the Company, any
collateral or any guarantee or other assurance against loss or non-payment, nor
shall the Lessee consent to the provision thereof by the Company.
(c) The Lessee shall not agree to any affirmative or negative
covenant with respect to the condition, financial or otherwise, of the Lessee
with any Person in order to induce such Person to extend credit to the Company.
(d) The Lessee shall not sell, assign, convey, pledge or otherwise
dispose of or encumber in any manner any interest it may have in the Trust or
any rights it may have under the Trust Agreement. The Lessee shall not direct
the Owner Trustee to liquidate, dissolve, merge or consolidate the Company
except if such transaction is consented to in writing by the Banks. The Lessee
shall not direct the Owner Trustee to take any action under the Trust Agreement
which is inconsistent with the duties imposed upon the Company by the Basic
Documents and any other agreements, documents, instruments and articles executed
and delivered, and to be executed and delivered, by the Owner Trustee in
connection therewith.
(e) The Nuclear Material leased under the Fuel Lease shall
constitute the Lessee's entire ownership interest in the items used or to be
used by it as nuclear fuel in the Generating Facility. The Lessee agrees that
25% of the Lessor's ownership interest in any Nuclear Material which is subject
to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to
take any action under the terms of the Fuel Lease, including, but not limited
to, the delivery of any Leasing Record, which would result in less than 25% of
the Lessor's ownership interest in any such Nuclear Material being so leased.
(f) As provided in the Security Agreement, (i) the Collateral Agent
on behalf of the Secured Parties may, on and after the occurrence of a Credit
Agreement Default, Credit Agreement Event of Default, Lessee Default or Lessee
Event of Default, pursuant to Section 10 of the Security Agreement, exercise any
and all of the Company's rights under the Fuel Lease, the Assigned Agreements
and each other Basic Document to
<PAGE>
5
which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is
continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant
to Section 10 of the Security Agreement, enforce and exercise any and all of the
Company's rights under the Fuel Lease, the Assigned Agreements and each other
Basic Document to which the Lessee is a party, or the rights and remedies
granted to the Secured Parties under the Security Agreement at its election and
in its sole discretion, and, in the event that the Collateral Agent is permitted
to exercise such rights pursuant to Section 10 of the Security Agreement, the
Lessee agrees that the Collateral Agent may do so either in concert with or in
place of the Company, and the Lessee shall assist in, comply with and perform in
accordance with all rights or remedies so enforced or exercised by the
Collateral Agent for the ratable benefit of the Secured Parties.
6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement
Default, a Credit Agreement Event of Default, Lease Event of Default, Lessee
Default, Lessee Event of Default or an event or condition which would, with the
lapse of time or the giving of notice or both, become a Lease Event of Default,
shall not affect the Lessee's sole obligation to engage in Fuel Management;
provided that, upon the occurrence of a Credit Agreement Event of Default,
Lessee Event of Default or Lease Event of Default, the Collateral Agent may, if
so directed by the Majority Secured Parties, by written notice to the Lessee,
elect to revoke such power and authority, in which case the Person from time to
time designated by the Majority Secured Parties may (but shall not be obligated
to), to the extent that the Majority Secured Parties desire and to the extent
permitted by law, engage in Fuel Management and/or remove all or any part of the
responsibility for Fuel Management from the Lessee; provided, however, that,
subject to the right of the Collateral Agent and the Majority Secured Parties to
exercise any or all rights granted to the Secured Parties under the Security
Agreement, the rights granted to the Collateral Agent and the Majority Secured
Parties under this Section 6 shall not be construed to include the right to
direct, whether directly or indirectly, the operation of the Generating
Facility. In the event the Majority Secured Parties, in accordance with the
preceding sentence, shall revoke the Lessee's power and authority to engage in
Fuel Management, all rights conferred by the Company to the Lessee pursuant to
Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to
the Company and the Lessee shall execute such documents and instruments as the
Collateral Agent shall request to further confirm such assignment.
<PAGE>
6
7. Insurance. Each year, the Lessee will furnish the Administrative Agent
and each Bank a detailed statement certified by an officer of Lessee setting
forth (i) the location of all Nuclear Material and (ii) the insurance policies
and indemnification agreements provided pursuant to Sections 14 and 17 of the
Fuel Lease and certifying that such insurance policies and indemnification
agreements comply with the requirements of the Fuel Lease. In addition, the
Lessee shall promptly furnish at any time to the Administrative Agent and any
Bank such information as any such Bank shall reasonably request concerning
location of Nuclear Material, insurance policies and indemnification agreements
and Manufacturers or other third parties with whom arrangements exist with
respect to transportation, storage or processing of Nuclear Material.
8. Representations and Warranties. The Lessee hereby represents and
warrants to the Company, the Administrative Agent and the Banks that as of the
date hereof:
(a) Organization and Standing. The Lessee is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New Jersey, and is qualified to do business in each state or other
jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on its ability to perform its obligations under this Letter
Agreement or each other Basic Document to which the Lessee is a party. The
Lessee's chief executive office is located at 2800 Pottsville Pike, Reading,
Pennsylvania 19605.
(b) Corporate Authority. The Lessee has the corporate power and
authority to execute and perform this Letter Agreement and the Fuel Lease and to
lease the Nuclear Material thereunder. The execution and delivery of this Letter
Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder
will not have a material adverse effect on the financial condition, results of
operations, business, properties or operations of the Lessee.
(c) Compliance with Other Instruments, etc. The execution, delivery
and performance by the Lessee of this Letter Agreement and each Basic Document
to which the Lessee is a party, and other related instruments, documents and
agreements, and the compliance by the Lessee with the terms hereof and thereof,
(i) have been duly and legally authorized by appropriate
<PAGE>
7
corporate action taken by the Lessee, (ii) are not in contravention of, and will
not result in a violation or breach of, any of the terms of the Lessee's
articles of incorporation, its by-laws or of any provisions relating to shares
of the capital stock of the Lessee and (iii) will not violate or constitute a
breach of any provision of (x) any applicable law, order, rule or regulation,
rule or regulation of any governmental authority (except in those cases where
non-compliance with any such law, order, rule or regulation could not reasonably
be expected to have a material adverse effect on the financial condition,
results of operations, business, properties or operations of the Lessee or its
ability to perform its obligations hereunder or under each Basic Document) or
(y) any indenture, agreement or other instrument to which the Lessee is party,
or by or under which the Lessee or any of the Lessee's property is bound, or be
in conflict with, result in breach of, or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement or instrument, or
result in the creation or imposition of any Lien upon any of the Lessee's
property or assets or any Nuclear Material.
(d) Legal Obligations. This Letter Agreement and the Fuel Lease have
been executed by a duly authorized officer of the Lessee, and this Letter
Agreement and the Fuel Lease constitute, and each Leasing Record, when executed
by a duly authorized officer of the Lessee and delivered to the Company, will
constitute, the legal, valid and binding obligations of the Lessee, enforceable
against the Lessee in accordance with their respective terms, except as the
enforceability thereof may be limited by the Atomic Energy Act and the rules,
regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general,
and except as the availability of the remedy of specific performance is subject
to general principles of equity (regardless of whether such remedy is sought in
a proceeding in equity or at law).
(e) Governmental Consents. Neither the execution and delivery of
this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor
the performance by the Lessee of all of its obligations hereunder or thereunder,
requires the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, any Federal, state, local or foreign government or governmental
authority or agency or any other person except for the order of the Securities
and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the
supplemental order of
<PAGE>
8
the SEC dated November 3, 1998, the filing of a notice with the New Jersey Board
of Public Utilities which notice was filed September 4, 1998, and the filing of
any statement or other instrument pursuant to Section 10(b) of the Fuel Lease,
and except for the filing of certificates by the Lessee with the SEC pursuant to
SEC Rule 24 under the Public Utility Holding Company Act to report on the
transactions authorized by such SEC order, the filing of which is not necessary
to the execution or delivery of this Letter Agreement, the Fuel Lease or any
Leasing Record by the Lessee or for the performance by the Lessee of any of its
obligations hereunder or thereunder, and the failure to file any of which will
not affect the validity or enforceability of any of this Letter Agreement, the
Fuel Lease or any Leasing Record.
(f) Consents and Permits. The Lessee possesses all material
licenses, permits, franchises and certificates which are necessary or
appropriate to own or operate its material properties and assets and to conduct
its business as now conducted.
(g) Litigation. There is no litigation or other proceeding now
pending or, to the best of the Lessee's knowledge, threatened, against or
affecting the Lessee, before any court, arbitrator or administrative or
governmental agency (i) which would adversely affect or impair the title of the
Company to the Nuclear Material, (ii) which questions the validity or
enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements
or any other Basic Document to which the Lessee is a party or any action taken
or to be taken by the Lessee pursuant to or in connection with this Letter
Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form
10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, copies of which have previously been delivered
to the Administrative Agent and the Banks, which, if decided adversely to the
Lessee, would materially adversely affect the condition, financial or otherwise,
of the Lessee.
(h) Taxes. The Lessee has filed or caused to be filed all tax
returns which are required to be filed, and has paid or caused to be paid all
taxes as shown on said returns and all assessments received by it to the extent
that such taxes and assessments have become due, except for taxes and
assessments which are being contested in good faith and by appropriate
proceedings and as to which it has provided reserves which are adequate in
connection with generally accepted accounting principles.
<PAGE>
9
(i) Reaffirmation and Restatement of Representations and Warranties.
The Lessee repeats and reaffirms as of the date hereof for the benefit of the
Administrative Agent and each Bank the representations and warranties made by
the Lessee in the Fuel Lease as though set forth in full herein with the same
effect as though such representations and warranties had been made on and as of
the date hereof. In addition, the Lessee represents and warrants that as of the
date hereof (i) the Lessee is in compliance with all the terms and provisions
set forth in the Fuel Lease on its part to be observed or performed, (ii) no
Terminating Event has occurred and no event has occurred which, with the lapse
of time or the giving of notice, or both, would constitute such a Terminating
Event, and (iii) no Lease Event of Default has occurred and is continuing and no
event has occurred and is continuing on such date which, with the lapse of time
or the giving of notice, or both, would constitute a Lease Event of Default.
(j) First Perfected Security Interest. Except for Permitted Liens,
upon the execution and delivery of this Letter Agreement and the Security
Agreement and the due filing of the Uniform Commercial Code financing statements
required to be executed and filed from time to time, the Secured Parties will
have a legal, valid and enforceable first priority security interest (i) in the
rights, titles and interests of the Company in and to the Fuel Lease and (ii) in
and to the other Collateral. Such security interest will constitute a perfected
security interest in the Collateral consisting of Nuclear Material Contracts and
the Collateral consisting of Nuclear Material located in the States of Illinois,
Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which
consists of cash, instruments (as defined in the New York Uniform Commercial
Code) and other items in which a security interest may only be perfected by
possession, enforceable against all third parties as security for the Secured
Obligations.
(k) No Material Adverse Change. Since June 30, 1998, there has been
no material adverse change in the financial condition, results of operations,
business, properties or operations of the Lessee or in its ability to perform
its obligations under the Basic Documents.
(l) No Defaults. The Lessee is not in default under any bond,
debenture, note or any other evidence of Obligations for Borrowed Money or
Deferred Purchase Price or any mortgage, deed of trust, indenture, loan
agreement or other agreement relating thereto, where the amount thereof is in
excess of $20,000,000.
<PAGE>
10
(m) Pension Plans. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any plan (other than a multiemployer plan). No liability to the
Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to
be, incurred with respect to any plan (other than a multiemployer plan) by the
Lessee which is or would be materially adverse to the Lessee. The Lessee has not
incurred and presently does not expect to incur any withdrawal liability under
Title IV of ERISA with respect to any multiemployer plan which is or would be
materially adverse to the Lessee. Neither the execution and delivery by the
Company of the Credit Agreement and the other Basic Documents, and the issuance
of the Commercial Paper, nor the execution and delivery by the Lessee of this
Letter Agreement, the Trust Agreement and each other Basic Document to which the
Lessee is a party, will involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an
"employee pension benefit plan" (as defined in Section 3 of ERISA) which is and
has been established or maintained, or to which contributions are or have been
made, by the Lessee or by any trade or business, whether or not incorporated,
which, together with the Lessee is under common control as described in Section
414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan
which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3)
of ERISA).
(n) Financial Statements. The audited balance sheet of the Lessee as
of December 31, 1997, and the related statements of income and cash flows
(including the notes thereto) of the Lessee for the year then ended, copies of
which have been delivered to the Company, the Administrative Agent and the
Banks, and all other annual or quarterly financial statements including, without
limitation, the quarterly statement dated as of June 30, 1998 so delivered
fairly present the financial condition of the Lessee on the dates for which, and
the results of its operations for the periods for which, the same have been
furnished and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(o) Nuclear Material. The Nuclear Material is free and clear of any
Lien in favor of any Person claiming by, through or under the Lessee or any
Affiliate thereof, other than Permitted Liens. No default or event which with
the giving of notice or lapse of time would constitute a default has occurred
and is continuing under any Nuclear Material Contract.
<PAGE>
11
(p) Disclosure. Neither the representations in this Letter
Agreement, or in any other document, certificate or statement furnished in
writing to the Administrative Agent or any Bank by or on behalf of the Lessee in
connection with the transactions contemplated hereby, nor the information
disclosed in the Lessee's Annual Report on Form 10-K for the year ended December
31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
contained as of its date, any untrue statement of a material fact or omitted to
state a material fact necessary in order to make such representations or
information not misleading in light of the circumstances under which they were
made.
(q) Collateral Equivalence Test Met. The sum of the aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Lessee's Percentage of the Cash Collateral equals or exceeds the
Lessee's Percentage of the Outstandings.
(r) Year 2000. The Lessee has made a full and complete assessment of
its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based
on such assessment and on its Year 2000 Program, the Lessee does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
9. General Covenants of the Lessee.
(a) Information. The Lessee will furnish to the Company and the
Administrative Agent in sufficient copies for each Bank:
(i) Quarterly Statements. As soon as practicable after the end of
each of the first three quarterly fiscal periods in each fiscal year of
the Lessee, and in any event within 60 days thereafter, copies of:
(A) a balance sheet of the Lessee as at the end of such quarter, and
(B) statements of income and cash flows of the Lessee for such
quarter and for the twelve-month period ending as of the end of such
quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with the end of such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail and certified as complete and
<PAGE>
12
correct, subject to changes resulting from year-end adjustments, by
a principal financial officer of the Lessee; provided that it is
understood that the delivery of the Lessee's Quarterly Report on
Form 10-Q shall be deemed to satisfy the requirements with respect
to such financial statements;
(ii) Annual Statements. As soon as practicable after the end of each
fiscal year of the Lessee, and in any event within 120 days thereafter,
copies of:
(A) a balance sheet of the Lessee at the end of such fiscal year,
and (B) statements of income and cash flows of the Lessee for such
year, setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and accompanied
by an opinion thereon of independent certified public accountants of
recognized national standing selected by the Lessee, which opinion
shall state that such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in which
such accountants concur) and that the examination of such
accountants in connection with such financial statements has been
made in accordance with generally accepted auditing standards;
provided that it is understood that the delivery of the Lessee's
Annual Report on Form 10-K shall be deemed to satisfy the
requirement with respect to such financial statements;
(iii) Officer's Compliance Certificate. Simultaneously with the
financial statements referred to in Sections 9(a)(i) and (ii), a
certificate of an authorized officer of the Lessee stating that such
officer has reviewed the relevant terms and conditions of the Fuel Lease
and other Basic Documents to which the Lessee is a party, and has made, or
caused to be made, under such officer's supervision, a review of the
transactions and financial condition of the Lessee from the beginning of
the accounting period covered by the income statements being delivered
therewith to the date of the certificate, and that the Lessee has observed
or performed all of its covenants and other agreements, and satisfied
every condition, contained in this Letter Agreement, the Fuel Lease and
any other Basic Document to which the Lessee is a party, and no
Terminating Event, Lessee Default, Lessee Event of Default, Lease Event
<PAGE>
13
of Default or default or event of default under any such Basic Document
has occurred and is continuing and no event has occurred and is continuing
which, with the lapse of time or the giving of notice, or both, would
constitute a Terminating Event, Lessee Default, Lessee Event of Default,
Lease Event of Default or a default or event of default under any such
Basic Document or, if such condition or event has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto;
(iv) Auditor's Compliance Certificate. Simultaneously with the
financial statements referred to in Section 9(a)(ii), a certificate of the
independent public accountants who audited such statements stating that
such accountants have reviewed the relevant terms and conditions of the
Fuel Lease and other Basic Agreements to which the Lessee is a party, and
that, in making the examination necessary for the audit of such
statements, they have obtained no knowledge of any condition or event
which constitutes or which with notice or lapse of time or both would
constitute a Terminating Event, Lessee Default, Lessee Event of Default,
Lease Event of Default or default or event of default under any such Basic
Document, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or
event of which they have knowledge and the nature and status thereof;
(v) Notices Required under the Basic Documents. Immediately upon
delivery to the Lessee or the Company, all notices, consents, documents,
certificates or instruments of any kind relating to the Lessee required
pursuant to the Fuel Lease;
(vi) Defaults. (A) Promptly upon becoming aware of the occurrence
thereof, notice of any Terminating Event, Lessee Default, Lessee Event of
Default, Lease Event of Default or any event which, with the lapse of time
or the giving of notice, or both, would constitute a Terminating Event or
a Lease Event of Default, or of any other development, financial or
otherwise (including, without limitation, developments with respect to
Year 2000 Issues), which could reasonably be expected to have a Material
Adverse Effect, and (B) within 10 days of becoming aware of the occurrence
thereof, notice of any other material event affecting the Lessee's
obligations under any Basic Document or any Nuclear
<PAGE>
14
Material Contract (except to the extent such event has previously been
disclosed in the Lessee's SEC reports delivered pursuant to clause (viii)
below);
(vii) Notice of Claimed Default. Immediately upon becoming aware
that the holder or holders of any evidence of Obligations for Borrowed
Money or Deferred Purchase Price or other security of the Lessee or any
subsidiary exceeding $20,000,000 in the aggregate have given notice (or
taken any other action) with respect to a claimed default, breach or event
of default, a notice describing the notice given (or action taken) and the
nature of the claimed default, breach, or event of default;
(viii) SEC and Other Reports. Promptly after filing thereof, copies
of all regular and periodic reports and registration statements which the
Lessee may file with the SEC or any governmental agency substituted
therefor and, promptly upon written request therefor, copies of the
financial statements which the Lessee may file annually with any state
regulatory agency or agencies; and
(ix) Requested Information. With reasonable promptness, such other
data and information with respect to the Lessee, including, without
limitation, information regarding Nuclear Material or any Nuclear Material
Contract or the Lessee's Year 2000 Program, as from time to time may be
reasonably requested by the Administrative Agent or any Bank.
(b) Notice of Litigation. Immediately upon the Lessee becoming aware
thereof, written notice of (i) any litigation or proceedings which would be
required to be disclosed as an exception to the representations and warranties
contained herein or in the Fuel Lease in order that such representations and
warranties would be true and correct on a continuing basis; and (ii) any dispute
between the Lessee and any governmental authority or other party relating to any
part of the transactions contemplated by this Letter Agreement or any of the
other Basic Documents to which the Lessee is a party which would have a material
adverse effect on the ability of the Lessee to carry out its obligations
hereunder or under any other Basic Document to which the Lessee is a party;
provided, however, that the notice requirement in this Section 9(b) shall be
satisfied if the Lessee furnishes the Company and the Administrative Agent in
sufficient copies for each Bank a Current Report on Form 8-K regarding the
<PAGE>
15
event requiring notice by the time that the Current Report is required to be
filed with the Securities and Exchange Commission.
(c) General Obligations. Subject to the last sentence of this
Section 9(c), the Lessee will:
(i) duly comply with all laws, rules, orders, regulations or
other valid requirements (including, without limitation,
any of the foregoing which are applicable to Nuclear
Material or the operation of the Generating Facility) of
any governmental authority necessary to the conduct of its
business or to its properties or assets, noncompliance with
which could reasonably be expected to have a material
adverse effect upon the transactions contemplated by this
Letter Agreement or any other Basic Document, or upon the
financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of
the Lessee to carry out its obligations under any Basic
Document or this Letter Agreement);
(ii) continue to engage principally in the electric utility
business;
(iii) obtain, maintain and keep in full force and effect all
consents, permits, licenses and approvals, the absence of
which would have a material adverse effect upon the
transactions contemplated by this Letter Agreement or any
other Basic Document to which the Lessee is a party, or upon
the financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of the
Lessee to carry out its obligations under this Letter
Agreement or any other Basic Document to which the Lessee is a
party;
(iv) maintain its material operating properties used or useful
in its business in good repair, working order and condition
consistent with prudent utility practice; provided,
however, that the Lessee shall not be prevented from
discontinuing the operation and maintenance of any of its
properties if it shall determine that the continued
operation and maintenance of such properties is no longer
necessary, desirable or permissible;
<PAGE>
16
(v) pay when due all fees, taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
profits or upon any property belonging to it, and maintain
appropriate reserves for the accrual of the same in accordance
with generally accepted accounting principles;
(vi) except as permitted by clause (vii) below, at all times
maintain its corporate existence, privileges, franchises and
rights to carry on business, and duly procure all renewals and
extensions thereof, if and when any shall be necessary;
(vii) not consolidate or merge with, or sell or otherwise dispose of
all or substantially all of its properties and assets to any
Person unless (i) the surviving or resulting entity is the
Lessee hereunder, (ii) immediately after giving effect thereto
no Credit Agreement Event of Default, Credit Agreement
Default, Lease Event of Default, Lessee Default, Lessee Event
of Default or event which with the giving of notice or passage
of time would constitute a Lease Event of Default shall have
occurred and be continuing, and (iii) the senior unsecured
debt of the surviving or resulting Lessee shall be rated at
least investment grade by Standard & Poor's Ratings Group
("S&P") or Moody's Investor Service, Inc. ("Moody's");
(viii) perform and comply with each of the material provisions of
each material indenture, credit agreement, contract or other
agreement by which the Lessee is bound, non-performance or
non-compliance with which would have a material adverse effect
upon its business or credit or in any way affect its ability
to perform its obligations hereunder except material contracts
or other agreements being contested in good faith;
(ix) preserve and maintain its corporate existence in the
jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each
jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the
ownership of
<PAGE>
17
its properties, except where the failure to be so qualified
would not materially adversely affect its financial condition,
operations, properties or business, and preserve its material
rights, franchises and privileges to conduct its business
substantially as conducted on the date hereof;
(x) maintain insurance in effect at all times in such amounts
as are available to the Lessee and covering such risks as
is usually carried by companies of a similar size, engaged
in similar businesses and owning similar properties
(including, without limitation, the operation and ownership
of nuclear generating facilities) in the same general
geographical area in which the Lessee operates, either with
responsible and reputable insurance companies or
associations, or, in whole or in part, by establishing
reserves of one or more insurance funds, either alone or
with other corporations or associations;
(xi) at any reasonable time and from time to time, permit the
Administrative Agent or any Bank or any agents or
representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and visit
the properties of, the Lessee and discuss the affairs,
finances and accounts of the Lessee with any of its officers
or directors;
(xii) not sell, transfer, lease, assign or otherwise convey or
dispose of more than 25% of its assets (whether now owned or
hereafter acquired), in any single or series of transactions,
whether or not related, except for dispositions of its fossil
and hydroelectric generating stations and associated
facilities and dispositions of its current assets in the
ordinary course of business as presently conducted, if
immediately prior to such sale, transfer, lease, assignment,
conveyance or disposition or as a result of such sale,
transfer, lease, assignment, conveyance or disposition, the
senior unsecured debt of the Lessee shall not be rated at
least investment grade by S&P or Moody's.
<PAGE>
18
(xiii) comply with this Letter Agreement and such other Basic
Documents to which the Lessee is a party in accordance with
the respective terms and conditions set forth herein and
therein; and
(xiv) except for Permitted Liens, permit the creation of any Liens
on the Collateral.
Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may
contest by appropriate proceedings conducted in good faith and due diligence,
the amount, validity or application, in whole or in part of any fee, tax,
assessment or government charge or levy, or any legal requirement, provided that
the Lessee shall have set aside on its books adequate reserves, if required in
accordance with generally accepted accounting principles with respect thereto
and shall furnish such security, if any, as may be required in the proceeding.
10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails to
maintain at all times beneficial ownership of at least 75% of all outstanding
shares of common stock of each of the Lessee, Met-Ed and Penelec; or (b)
pledges, grants options on, creates any charge on or security interest in, or
otherwise subjects to any charge or encumbrance, any of the common stock of the
Lessee, Met-Ed or Penelec unless the obligations hereunder are secured ratably
and with equal priority, in form and substance reasonably satisfactory to the
Majority Banks.
11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of
executed counterparts of the Credit Agreement and photostatic copies of the
Notes evidencing the Loans, and consents to all of the terms and provisions of
the Credit Agreement and the Notes.
12. Consent to Assignment; Direct Payment of Payments Under the Fuel
Lease.
(a) Consent to Assignment. The Lessee hereby acknowledges notice of
and consents to all the terms and provisions of the Security Agreement and
hereby confirms to and agrees with the Secured Parties that all representations,
warranties, indemnities and agreements of the Lessee contained in this Letter
Agreement and each other Basic Document to which the Lessee is a party shall
inure to the benefit of, and shall be enforceable by, the Secured Parties to the
same extent as if such Secured Parties were originally parties to or named in
such documents and agreements. The Lessee further acknowledges and
<PAGE>
19
consents to the assignment and transfer, and any future assignments and
transfers, to the Secured Parties by the Company of the Company's right to
exercise any and all of its rights, remedies, powers and privileges (but none of
its obligations, duties or liabilities) under the Fuel Lease, the Assigned
Agreements and each other Basic Document to which the Lessee is a party. The
Lessee hereby agrees with the Secured Parties to comply with any exercise by the
Secured Parties, either directly or through the Company, of any rights,
remedies, powers or privileges pursuant to the Security Agreement. The Secured
Parties acknowledge that neither the Security Agreement nor this Section 12
shall in any way add to the obligations of the Lessee (except those obligations
of the Lessee to any Person, which, if not previously so, hereby become
enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned
Agreements and each other Basic Document to which the Lessee is a party.
Notwithstanding the foregoing, so long as no Lease Event of Default shall have
occurred and be continuing, the Lessee shall have exclusive right to possession
and use of the Nuclear Material in accordance with the Fuel Lease and may use
such Nuclear Material for any lawful purpose consistent with the Fuel Lease.
(b) Direct Payment of Payments Under the Fuel Lease. The Lessee
acknowledges that it has been directed by the Company to, and agrees that it
will, make all payments of monies due and to become due to the Company under the
Fuel Lease, the Assigned Agreements and each other Basic Document to which the
Lessee is a party, directly to the Collateral Agent, including, without
limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material
pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments
pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to
the accounts of the Secured Parties as specified in Section 3.03 of the Credit
Agreement.
13. Severability. Any provision of this Letter Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the Lessee hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
<PAGE>
20
14. Indemnification. The Lessee shall pay and indemnify and hold harmless
the Administrative Agent and each Bank, and their respective officers,
directors, incorporators, shareholders, partners, employees, agents and servants
from and against any and all liabilities (other than liabilities arising out of
the gross negligence or willful misconduct of such Person), taxes, (excluding,
however, taxes measured solely by the net income of any Person indemnified or
intended to be indemnified pursuant to this Section 14, except as otherwise
provided in Section 14 hereof), losses, obligations, claims, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) and judgments of any
nature arising from or in any way relating to any and all of the following
during the term of the Fuel Lease and thereafter: (a) any injury to or disease,
sickness or death of Persons, or loss of or damage to property, occurring
through or resulting from any nuclear incident (as that term is defined in the
Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any
way with the Nuclear Material or any portion thereof, (b) the acquisition,
ownership (including strict liability of an owner or liability without fault),
possession, disposition, sale, use, nonuse, misuse, leasing, fabrication,
design, cycling, recycling, transportation, containerization, cooling,
processing, reprocessing, storing, condition, management, operation,
construction, maintenance, repair or rebuilding of the Nuclear Material or any
portion thereof or resulting from the condition of adjoining and underlying
land, buildings, streets or ways, (c) any use, nonuse or condition of, or any
other matter of circumstance relating to, the Generating Facility, any other
property associated therewith or any adjoining and underlying land, buildings,
streets and ways, (d) any violation or default, or alleged violation or default,
of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any
contracts or agreements to which the Lessee is a party or by which it is bound,
or any Legal Requirements, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Nuclear Material
or any portion thereof, (f) any infringement or alleged infringement of any
patent, copyright, trade secret or other similar right relating to the Nuclear
Material or any portion thereof, (g) Lessee's agreements or obligations
contained in the Fuel Lease or this Letter Agreement, (h) any claim arising out
of loss of damage to the environment, (i) any claim arising out of strict or
absolute liability in tort, or (j) the offering and sale of Commercial Paper.
The Lessee also indemnifies each indemnitee, as aforesaid, from and against all
other liabilities, taxes, losses, obligations,
<PAGE>
21
claims, damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses) and judgments of any nature which may be imposed on, incurred by, or
asserted at any time against any indemnitee in any way relating to or arising
out of the performance of this Letter Agreement, the Fuel Lease or any other
Basic Document to which Lessee is a party, provided, except for claims of a
nature contemplated by (i) above, that the Lessee shall not be required to
indemnify any indemnitee with respect to any liability relating to or arising
out of indemnitee's gross negligence or willful misconduct and provided,
further, that the foregoing immunity shall not limit the terms of any indemnity
that the Lessee may grant separately to any indemnitee pursuant to any separate
agreement. In the event that any action, suit or proceeding is brought against
the Company or any other Person indemnified or intended to be indemnified
pursuant to this Section 14 by reason of any such occurrence, the Lessee shall,
at the Lessee's expense, resist and defend such action, suit or proceeding or
cause the same to be resisted and defended by counsel designated by the Lessee
and reasonably acceptable to the Person or Persons indemnified or intended to be
indemnified under this Section 14 provided there is no conflict of interest with
the Person or Persons indemnified or intended to be indemnified under this
Section 14. In the event a conflict of interest contemplated by the proviso of
the immediately preceding sentence shall exist, then the Person or Persons as to
which such conflict exists may be defended by counsel of its or their choice at
Lessee's expense, provided Lessee's obligation for such expense shall be limited
to one firm for all such Persons as to which such a conflict exists. The
obligations of the Lessee under this Section 14 shall survive any termination of
this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security
Agreement, in whole or in part.
15. No Waiver; Amendments. Neither the Administrative Agent, the
Collateral Agent, the Banks, the Company nor the Lessee shall, by any act,
delay, omission or otherwise, be deemed to have waived any of its rights and
remedies hereunder, and no waiver shall be valid unless in writing signed by the
party or parties sought to be bound thereby. A waiver by the Administrative
Agent, the Collateral Agent, the Banks, the Company or the Lessee of any of
their respective rights or remedies hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Administrative Agent, the
Banks, the Company or the Lessee, as applicable, would otherwise have had on any
future occasion. No failure to exercise nor any delay in exercise of any such
right or remedy hereunder shall
<PAGE>
22
preclude any other or future exercise or partial exercise of any other right or
remedy. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Letter
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the party or parties sought to be bound thereby.
16. Successors and Assigns. This Letter Agreement shall bind the
successors and assigns of the Lessee and the Company and shall inure to the
benefit of permitted successors and assigns of either. The Letter Agreement
shall not be assignable by the Lessee or the Company, either voluntarily or by
operation of law, unless consented to by the Administrative Agent and the
Majority Banks. No permitted assignment by the Lessee or the Company shall
release the Lessee or the Company from any of its obligations hereunder. This
Letter Agreement shall inure to and shall be binding upon the successors and
assigns of the Administrative Agent and the Banks.
17. Notices. Any notice, demand or other communication which by any
provision of this Letter Agreement is required or provided to be given shall be
deemed to have been delivered if in writing addressed as provided below and
actually delivered by mail, courier or facsimile to the following addresses:
(a) except as otherwise requested in writing by the Administrative
Agent or any Bank, any notice, demand or communication which by
any provision of this Letter Agreement is required or provided to
be given to the Administrative Agent or any Bank shall be deemed
to have been delivered to the Administrative Agent or any Bank if
a single copy thereof is delivered to the Administrative Agent at
its address set forth in Section 11.01 of the Credit Agreement or
at such other address as either may have furnished the Company
and the Lessee in writing;
(b) if to the Company (with copies to the Lessee at the address listed
below), TMI-1 Fuel Corp c/o United States Trust Company of New York,
114 West 47th Street, New York, New York 10036, marked for the
attention of the Corporate Trust and Agency Division, telecopy
number 212-852-1626, or at such other address as it may have
furnished in writing to the Administrative Agent and the Lessee; or
<PAGE>
23
(c) if to the Lessee, to Jersey Central Power & Light Company, c/o GPU
Service Inc., 310 Madison Avenue, Morristown, New Jersey 07962,
marked for the attention of the Vice President and Treasurer,
Telecopier: (973) 644-4224, or at such other address or addresses as
the Lessee may have furnished to the
Administrative Agent and the Company.
18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights
against it as provided for in Section 11.08 of the Credit Agreement.
(b) Lessee agrees that it shall have no right of set-off, deduction
or counterclaim in respect of its obligations hereunder, and that the
obligations of the Banks hereunder and under the Credit Agreement are several
and not joint. Nothing contained herein shall constitute a relinquishment or
waiver of the Lessee's rights to any independent claim that the Lessee may have
against the Administrative Agent or any Bank for the Administrative Agent's or
such Bank's, as the case may be, gross negligence or willful misconduct, but no
Bank shall be liable for the conduct of the Administrative Agent or any Bank,
and the Administrative Agent shall not be liable for the conduct of any Bank.
19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim arising out of or relating to
this Letter Agreement, the Credit Agreement, the other Basic Documents or any
instrument or document delivered hereunder or thereunder, except that the
foregoing shall not preclude any party hereto from submitting to a jury for
determination in any such action, proceeding or counterclaim any dispute
involving (a) the accuracy or completeness of any representation or warranty
made under the Basic Documents by Lessee, (b) the performance by Lessee of any
affirmative or negative covenant or agreement contained in the Basic Documents,
or (c) questions of materiality, or the reasonableness of, or good faith basis
for, any action taken, or determination made, by any other party hereto (other
than in respect of any calculation of principal, interest, fees, or increased
costs payable by the Lessee under the Basic Documents).
20. Governing Law. This Letter Agreement shall be governed by, and be
construed and interpreted in accordance with the laws of the State of New York.
<PAGE>
S-1
IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to
be executed as of the date first above written.
JERSEY CENTRAL POWER &
LIGHT COMPANY
By __________________________________
Vice President
TMI-1 FUEL CORP.
By __________________________________
Title _______________________________
THE FIRST NATIONAL BANK OF
CHICAGO,
as Administrative Agent
By __________________________________
Title _______________________________
By __________________________________
Title _______________________________
SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT
- 1 -
EXHIBIT 10-V
SECOND AMENDED AND RESTATED
TRUST AGREEMENT
Dated as of November 5, 1998
Among
LORD FUEL CORP., as Trustor
and
UNITED STATES TRUST COMPANY OF NEW YORK, as Owner Trustee
and
JERSEY CENTRAL POWER & LIGHT COMPANY,
METROPOLITAN EDISON COMPANY AND
PENNSYLVANIA ELECTRIC COMPANY,
each as Lessees under certain lease agreements
and
LORD FUEL CORP., as Trust Beneficiary
----------------
TMI-1 FUEL CORP. AND OYSTER CREEK FUEL CORP.
TRUST
---------------
<PAGE>
45909v4
TRUST AGREEMENT
TABLE OF CONTENTS
1 DEFINITION 2
2 AUTHORITY TO EXECUTE AND PERFORM DOCUMENTS;
DECLARATION OF TRUST 2
2.1 Execution of Documents and Performance of Duties 2
2.2 Declaration of Trust 3
2.3 Name of Trust 3
2.4 No Other Business or Obligation 3
2.5 No Disposition of Owner Trust Estate 3
3 TRUSTOR'S INTEREST 4
3.1 Investment by Trustor 4
3.2 Payment from Proceeds of Owner Trust Estate Only 4
3.3 Manner of Payment 4
4 ACQUISITION AND FINANCING OF NUCLEAR MATERIAL 4
4.1 Authorization of Transactions 4
4.2 Closing Procedures 7
4.3 Conditions to Effecting Transactions 8
5 RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME
FROM THE OWNER TRUST ESTATE 8
5.1 Application of Proceeds of Financings and
Specific Payments 8
5.2 Amounts Payable to the Banks 8
5.3 Other Amounts 8
5.4 Excepted Payments 8
6 DUTIES OF THE OWNER TRUSTEE 9
6.1 Documents 9
6.2 Notice of Default 9
6.3 Indemnification; Legal Action 9
6.4 No Implied Duties 10
6.5 No Unauthorized Transaction 10
7 THE OWNER TRUSTEE 11
7.1 Acceptance of Trust, Etc. 11
7.2 Limitation of Duties 12
7.3 Representations and Warranties of Owner Trustee 12
7.4 Deposit of Funds 13
7.5 Reliance on Documents; Agents; Right to
Consult with Counsel and Others; Etc. 13
7.6 Not Acting in Individual Capacity 14
7.7 Interpretation of Trust Agreement 14
7.8 Compensation 14
<PAGE>
7.9 Books, Records and Tax Returns 15
7.10 Effect of Sales by a Company 16
7.11 Exculpatory Provisions 16
8 INDEMNIFICATION OF THE OWNER TRUSTEE 17
9 CO-TRUSTEE, SEPARATE TRUSTEE 19
10 SUCCESSOR TRUSTEES 21
11 SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT
AND THE BASIC DOCUMENTS 23
11.1 Supplements Upon Request of the Lessee 23
11.2 Amendments and Supplements Affecting
Owner Trustee 24
12 TERMINATION OF TRUST, ETC. 24
13 MISCELLANEOUS 25
13.1 Legal Title to Owner Trust Estate 25
13.2 Validity of Sale of Owner Trustee 25
13.3 Trust Agreement for Benefit of Parties thereto 26
13.4 Notices 26
13.5 Severability 26
13.6 Waivers, Etc. 26
13.7 Counterparts 27
13.8 Successors and Assigns 27
13.9 Headings 27
13.10 Self-Dealing 27
13.11 Governing Law 27
13.12 No Unauthorized Transactions 28
13.13 Rights and Remedies 28
<PAGE>
SECOND AMENDED AND RESTATED TRUST AGREEMENT, dated as of November 5,
1998 (this "Trust Agreement"), among Lord Fuel Corp., a Delaware corporation, as
trustor (herein, together with its successors and assigns hereunder, called the
"Trustor"), United States Trust Company of New York, a New York corporation, as
trustee (herein, together with its successors and assigns hereunder, called the
"Owner Trustee"), and Jersey Central Power & Light Company, a New Jersey
corporation, Metropolitan Edison Company, a Pennsylvania corporation, and
Pennsylvania Electric Company, a Pennsylvania corporation, each as lessees under
the Lease Agreements as defined herein (each a "Lessee", together with their
successors and assigns hereunder, called the "Lessees") and Lord Fuel Corp., as
trust beneficiary (herein, together with its successors and assigns hereunder,
called the "Trust Beneficiary").
RECITALS
A. The Trustor, the Owner Trustee, the Lessees and the Trust
Beneficiary are parties to a certain Trust Agreement dated as of August 1, 1991
("Original Trust Agreement") under which a trust was created for the purpose of
enabling the Owner Trustee to acquire as part of the Trust Estate all of the
outstanding stock of each of TMI-1 Fuel Corp. and Oyster Creek Fuel Corp., each
Delaware corporations (each, a "Company"; together, the "Companies") and the
Owner Trustee caused the Companies to each acquire certain Nuclear Material.
<PAGE>
B. Under the Original Trust Agreement, the Lessees have provided for
the direction of the Owner Trustee with respect to actions to be taken by the
Companies pursuant to the Basic Documents, as defined in the Original Trust
Agreement, to provide for the lease of Nuclear Material thereunder and certain
transactions related thereto.
C. The Original Trust Agreement provided that the Companies enter
into certain loan agreements and ancillary documents with The Prudential
Insurance Company of America and affiliates thereof ("Prudential") to provide
financing from Prudential for the acquisition of Nuclear Material leased under
the Lease Agreements.
D. The Companies entered into credit agreements and related
instruments pursuant to which a bank syndicate, for which Union Bank of
Switzerland, New York Branch ("UBS") acted as agent, provided financing for the
acquisition of Nuclear Material being leased under the Lease Agreements.
<PAGE>
E. The parties to the Original Trust Agreement entered into an
Amended and Restated Trust Agreement to reflect necessary modifications
consistent with the establishment of the credit facility with UBS.
F. Concurrent with the execution and delivery hereof, The Companies
are entering into new credit agreement and related instruments pursuant to which
a bank syndicate, for which The First National Bank of Chicago and PNC Bank,
National Association, will act as agents, will provide financing for the
acquisition of the Nuclear Material being leased under the Lease Agreements.
G. The parties to the Amended and Restated Trust Agreement desire to
amend and restate such Agreement to reflect necessary modifications consistent
with the establishment of such new credit facility.
H. The Owner Trustee is willing to accept the duties and obligations
imposed hereby subject to the terms and conditions as provided herein.
NOW, THEREFORE, the parties thereby agree as follows:
1. DEFINITIONS.
For all purposes of this Trust Agreement, unless the context
requires otherwise, capitalized terms used herein which are defined in Exhibit A
hereto, which is hereby incorporated by reference for all purposes, shall have
the respective meanings assigned in said Exhibit A.
2. AUTHORITY TO EXECUTE AND PERFORM DOCUMENTS; DECLARATION OF TRUST.
2.1 Execution of Documents and Performance of Duties. The Trustor
hereby authorizes and directs the Owner Trustee (without any further action,
approval, authorization or consent by Trustor), and the Owner Trustee hereby
agrees (a) to maintain its ownership of all of the authorized capital stock of
each of the Companies, (b) to cause each of the Companies, on such date(s) as
the applicable Lessees shall specify to the Owner Trustee, to execute and
deliver, or accept, as the case may be, the Basic Documents or amendments
thereto to which each of the Companies shall be a party, in such respective
forms as the applicable Lessees shall approve and as are acceptable to the Owner
Trustee, and thereafter, but only upon written instruction of the applicable
Lessees or in accordance with Section 6 hereof, to cause
2
<PAGE>
each of the Companies to exercise rights, make payments and expenditures, and
perform their duties under such Basic Documents or amendments thereto, subject
to the terms of this Trust Agreement, and (c) upon written instruction of the
applicable Lessees to the Owner Trustee requesting action by the Owner Trustee,
and only upon such instructions, to do all such things, and to take all such
actions, as may be necessary, appropriate or convenient to consummate the
transactions contemplated hereby or to effect the Owner Trustee's performance of
its duties and obligations as the Owner Trustee as contemplated hereby; provided
that such actions are reasonably satisfactory to the Owner Trustee and its
counsel.
2.2 Declaration of Trust. The Owner Trustee hereby declares that it
will hold the Owner Trust Estate in trust upon the terms and conditions
hereinafter set forth for the use and benefit of the Trust Beneficiary.
2.3 Name of Trust. For convenience of reference, the trust created
hereby may be referred to as the TMI-1 Fuel Corp. and Oyster Creek Fuel Corp.
Fuel Trust. This Trust is also referred to as the Trust in the Basic Documents.
2.4 No Other Business or Obligation. The Trust shall not engage in
any business or enter in any Obligations other than the Basic Documents and the
transactions and Obligations contemplated by the Basic Documents.
2.5 No Disposition of Owner Trust Estate. Except to exercise and
carry out the rights, duties and obligations of the Owner Trustee under this
Trust Agreement, including its rights to obtain payment of compensation and
indemnification to which it may be entitled hereunder, the Owner Trustee shall
not sell, assign, transfer, convey, pledge, or otherwise dispose of or encumber
in any manner the Owner Trust Estate, including but not limited to the stock of
each of the Companies, or approve, vote for, consent to or otherwise agree to
the liquidation, dissolution, merger or consolidation of either of the Companies
except upon the written direction of the applicable Lessees or, if at such time
there are any Outstandings, any Commitments shall not have been terminated. The
Owner Trustee shall cause each of the Companies to engage solely in the business
of acquiring the Nuclear Material and consummating the transactions contemplated
by the Basic Documents. The Owner Trustee shall not accept from or permit either
of the Companies to pay or to distribute to it as dividends, or otherwise, any
funds or property of either of the Companies except as provided in Section 5.3
hereof.
3
<PAGE>
3. TRUSTOR'S INTEREST.
3.1 Investment by Trustor. Prior to the date of execution and
delivery hereof, the Trustor has made a cash conveyance to the Trust of $10.00.
3.2 Payment from Proceeds of Owner Trust Estate Only. Any and all
amounts payable by the Owner Trustee with respect to the Owner Trust Estate and
under this Trust Agreement shall be payable only from the Owner Trust Estate.
The Owner Trustee shall not be personally liable to any Person for any amounts
payable under this Trust Agreement or the Basic Documents or, except as
expressly provided in this Trust Agreement or the Basic Documents, for any
liability under this Trust Agreement and the Basic Documents.
3.3 Manner of Payment. Amounts payable to the Trust Beneficiary
pursuant to or under this Trust Agreement shall be paid by the Owner Trustee, in
funds of the type received by the Owner Trustee, in such manner and at such
place as the Trust Beneficiary shall from time to time request in writing,
subject in all events to the terms and conditions of this Trust Agreement and
the Basic Documents.
4. ACQUISITION AND FINANCING OF NUCLEAR MATERIAL.
4.1 Authorization of Transactions. Without limiting the generality
of the authorization and directions contained in Section 2.1 hereof, the Owner
Trustee is hereby authorized and directed to, and the Owner Trustee agrees that
it will, upon the written direction of the applicable Lessees or in accordance
with Section 6 hereof and subject to compliance with Section 4.3 hereof, cause
the Companies to:
(a) Accept, execute and deliver the Lease Agreements relating to
them and any modification thereof or supplement thereto and perform all of the
obligations and duties, and exercise all of the rights, of each of the Companies
thereunder (including the giving of notice of termination under Section 8(c)
thereof pursuant to written instructions of the Lessees);
(b) Accept, execute and deliver the Credit Agreements relating to
them and perform all of the obligations and duties, and exercise, pursuant to
written instructions of the Lessees, all of the rights, of each of the Companies
thereunder;
4
<PAGE>
(c) Accept, execute and deliver the Basic Documents relating to them
and perform all of the obligations and duties, and exercise, pursuant to written
instructions of the Lessees, all of the rights, of each of the Companies
thereunder;
(d) Accept, execute and deliver any agreements which are entered
into in accordance with the terms of the Basic Documents relating to them, and
perform all of the obligations and duties, and exercise, pursuant to written
instructions of the Lessees, all of the rights, of each of the Companies
thereunder;
(e) Issue, execute and deliver their Commercial Paper to the
Depositary and issue, execute and deliver their Notes to the Banks pursuant to
the Credit Agreements relating to them, and apply the proceeds thereof as
permitted by the Basic Documents to which they shall be a party;
(f) Apply the proceeds received from issuance of their Commercial
Paper and Notes as provided in the Basic Documents to which they shall be a
party;
(g) Acquire, pay for, and hold such title to and/or interest in the
Nuclear Material as shall be conveyed to them pursuant to the Basic Documents to
which they shall be a party;
(h) Lease the Nuclear Material relating to them to the Lessees
pursuant to the Lease Agreements to which they shall be a party;
(i) Grant to the Secured Parties the security interests provided for
in the Security Agreements;
(j) Execute and deliver to their Lessees such agreements, documents,
instruments, pledges, chattel mortgages, security agreements, financing
statements and certificates prepared and submitted to them by their Lessees and
perform all such other acts which (i) each of the Companies is obligated to
execute, deliver or perform, and record or file, under any of the provisions of
the Basic Documents relating to them, or (ii) are in accordance with written
instructions of the applicable Lessees are necessary or advisable in connection
with the transactions contemplated by the Basic Documents to which they shall be
a party, or are incidental to or necessary or appropriate to consummate any such
transactions;
5
<PAGE>
(k) Borrow such amounts, including, without limitation, amounts in
respect of the Credit Agreements to which they shall be a party, and upon such
terms and conditions, issue such drafts, bills of exchange, promissory notes,
obligations or evidences of indebtedness as may be necessary or desirable to
perform their obligations under the Lease Agreements to which they shall be a
party, all as provided under or permitted by the terms of the Basic Documents to
which they shall be a party, and perform all of the obligations and duties of
each of the Companies thereunder;
(l) Execute and deliver from time to time, such notes, drafts,
instruments, financing statements, continuation statements, endorsements and
certificates as may be required pursuant to the terms and conditions of the
Credit Agreements, or Collateral Agreements to which they shall be a party;
(m) Perform each of the Companies' duties and, pursuant to written
instructions of the Lessees, pay each of the Companies' obligations and exercise
each of their rights under each of the aforesaid agreements and documents,
including, without limitation, from time to time, to:
(i) acquire title and dispose of title to Nuclear Material
pursuant to the terms of the Lease Agreements relating to them and accept
invoices and Bills of Sale and assignments and partial assignments of
Nuclear Material Contracts and other contracts in respect thereof;
(ii) make payments for Nuclear Material pursuant to the terms
of the Lease Agreements; and
(iii) take such action as may be reasonably requested by any
Secured Party under the Collateral Agreements to perfect or maintain the
security interests thereby created or intended to so be created;
(n) Accept, execute and deliver all other instruments, documents and
agreements presented to each of the Companies by the applicable Lessees;
provided that such instruments, documents and agreements are reasonably
satisfactory to the Owner Trustee and its counsel, and, upon the written
instructions of the applicable Lessees and only upon such instructions, do all
such things and take all such action as may be necessary, appropriate or
convenient to consummate the transactions contemplated herein and to perform
their duties and obligations as contemplated by the documents referred to
herein, provided that such doing, taking and performing shall be reasonably
satisfactory to the Owner Trustee;
6
<PAGE>
(o) Execute and deliver such other agreements, accept the assignment
of such other agreements or rights, and acquire and dispose of such properties
and enter into such transactions, as the applicable Lessees may lawfully
request; provided that such agreements, assignments, acquisitions and
transactions are reasonably satisfactory to the Owner Trustee and to its
counsel; and perform all of the obligations and duties, and exercise all of the
rights, of the Companies under any such agreements, assignments, rights or
transactions;
(p) Deliver to their Lessees copies of any notices received by the
Companies under any Basic Documents or otherwise relating to the transactions
contemplated thereby; and
(q) Agree to execute and deliver amendments, modifications, and
changes in any Basic Documents when requested by the applicable Lessees or when
requested by the parties hereto other than the applicable Lessees with and only
with the written consent of the applicable Lessees.
The documents referred to in clauses (a) through (q) of this Section
4.1 shall be executed in substantially the forms delivered to the Owner Trustee
or the Companies by the applicable Lessees on or after the date hereof, with
such changes as shall be approved by the applicable Lessees.
4.2 Closing Procedures. The Owner Trustee understands and agrees
that at the direction of the applicable Lessees, it may be obligated to cause
either of the Companies from time to time to take certain action and execute the
documents and instruments to be executed by them (including Commercial Paper and
Notes) prior to the actual issuance of such Commercial Paper and Notes and
deliver such documents and instruments, some of which shall be undated, to a law
firm representing one of the Lessees or the Banks, to be held in escrow, which
law firm shall, at the time of closing of such transaction, date all undated
documents and instruments so held by it (including Commercial Paper and Notes)
and deliver them to the appropriate Persons, such delivery to constitute
delivery by the Companies or a Company, as the case may be, at such time. The
Owner Trustee also agrees that it will cause each of the Companies to take such
other action as may be reasonably requested by the applicable Lessees in order
to effect transactions contemplated by the Basic Documents.
7
<PAGE>
4.3 Conditions to Effecting Transactions. The authority and
obligation of the Owner Trustee to take the action required by Section 4.1
hereof shall be subject to the fulfillment to the satisfaction of the Owner
Trustee of each of the conditions precedent to the action specified in the
applicable Basic Documents.
5. RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE OWNER
TRUST ESTATE.
5.1 Application of Proceeds of Financings and Specific Payments. The
Owner Trustee shall cause each of the Companies to promptly pay all amounts
received by them from the issuance of Commercial Paper and Notes as provided in
the Basic Documents to which they shall be a party and to apply all payments
received by them for which provision as to the application thereof is made in
such Basic Documents forthwith to the purpose for which such payments were made
in accordance with the terms of such Basic Documents.
5.2 Amounts Payable to the Banks. Unless and until all Outstandings
have been paid in full, the Owner Trustee shall cause the Companies to pay over
upon receipt thereof all amounts received by them pursuant to the Basic
Documents to which they shall be a party (other than Excepted Payments and
amounts received and applied pursuant to Section 5.4) to the Banks.
5.3 Other Amounts. Except as otherwise provided in Section 5.4
hereof with respect to Excepted Payments, the Owner Trustee shall cause each of
the Companies to distribute or pay over all amounts received by them pursuant to
the Basic Documents to which they shall be a party that are not applied pursuant
to Section 5.1 hereof or that are not payable to the Banks pursuant to Section
5.2 hereof in the following order of priority:
First -- such amounts as may be due and owing to the Owner
Trustee hereunder to the Owner Trustee in reimbursement therefor; and
Second -- the remainder of such amounts shall be promptly
distributed and paid over to the Trust Beneficiary.
5.4 Excepted Payments. Notwithstanding anything to the contrary
contained in this Section 5, each Excepted Payment shall be promptly distributed
to the Person to whom such Excepted Payment is owed in accordance with the Basic
Documents.
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6. DUTIES OF THE OWNER TRUSTEE.
6.1 Documents. The Owner Trustee agrees, subject to the terms of
this Trust Agreement, to cause each of the Companies pursuant to Section 2.1 or
4.1 hereof to perform the duties imposed upon them by the Basic Documents to
which they shall be a party and the other agreements, documents, instruments and
certificates executed and delivered, and to be executed and delivered, by them.
6.2 Notice of Default. In the event the Owner Trustee shall have
knowledge of a default or an event of default, or any event ("potential default
event") which would, with the lapse of time or the giving of notice or both,
constitute an event of default under any Basic Document, the Owner Trustee shall
give prompt telex, telegraphic or telephonic notice thereof (followed by prompt
written notice in the manner provided in Section 13.4 hereof) to the Trustor,
the Lessees and the Secured Parties. Subject to Section 6.3, the Owner Trustee
shall cause each of the Companies to take such action, and only such action, not
inconsistent with the terms of the Basic Documents to which they shall be a
party, with respect to such default, event of default or potential default
event, as the Owner Trustee or the applicable Company shall be instructed in
writing pursuant to the Security Agreement to which it is a party. For all
purposes of this Trust Agreement, in the absence of actual knowledge of an
officer in the Corporate Trust Department of the Owner Trustee who is also an
officer or director of either of such Companies, the Owner Trustee shall not be
deemed to have knowledge of a default, event of default or potential default
event, unless and until notified thereof in writing by the Administrative Agent,
a Secured Party or the Lessee. The Owner Trustee shall have no duty to inquire
as to whether a default, event of default or potential default event has
occurred.
6.3 Indemnification; Legal Action. The Owner Trustee shall not be
required to take any action or refrain from taking any action under Section 6.2
hereof, or any action which in its opinion may involve expense or liability to
the Owner Trustee, unless it and each of the applicable Companies, if required,
and the directors, officers, employees and agents of the Owner Trustee and each
of the applicable Companies, if required, shall have been indemnified by the
Banks, in manner and form satisfactory to the Owner Trustee, against any
liability, cost or expense (including reasonable counsel fees) which may be
incurred in connection with such action or inaction. The Owner Trustee shall not
take any action under Section 6.2 hereof, nor shall any other provision of this
Trust Agreement be deemed to impose a duty on the Owner
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Trustee to take any action, if the Owner Trustee shall reasonably determine, or
shall have been advised by counsel, that such action is contrary to the
provisions of this Trust Agreement or any other Basic Document, or is contrary
to law.
6.4 No Implied Duties. The Owner Trustee shall not have any duty or
obligation to cause either of the Companies to manage, control, use, sell,
dispose of or otherwise deal with the Nuclear Material or any part thereof or
any other part of its property, or, either in its individual capacity or as
trustee, otherwise to cause either of the Companies to take or refrain from
taking any action under or in connection with this Trust Agreement or any other
Basic Document to which they shall be a party, except as expressly provided by
the provisions of this Trust Agreement or any other Basic Document to which they
shall be a party, or as expressly provided in written instructions pursuant to
this Section 6 or Section 7.7 hereof and reasonably satisfactory to the Owner
Trustee and its counsel, and shall not cause either of the Companies to take or
refrain from taking any such action unless expressly so provided or instructed;
and no implied duties or obligations which are additional to the obligations and
duties contained in such Basic Documents shall be read into this Trust Agreement
or the other Basic Documents against the Owner Trustee. The United States Trust
Company of New York, in its individual capacity, nevertheless agrees that it
will, at its own cost and expense, promptly take such action as may be necessary
duly to discharge any Liens other than Permitted Liens or any part of the
property of either Company or the Owner Trust Estate (a) resulting from any
claim against the Owner Trustee in its individual capacity arising out of events
or conditions not related to or connected with the ownership of the Owner Trust
Estate, the administration of the Owner Trust Estate or any other transaction
contemplated by any of the Basic Documents or (b) resulting from any voluntary
action of the Owner Trustee which (i) is taken other than pursuant to the
instructions of either of the Lessees or the Secured Parties and (ii) is not
taken as the result of any default by any of the Lessees under any Basic
Documents or in the performance of the obligations of either of the Companies
under any Basic Document to which either of the Companies shall be a party.
Nothing in this Section 6.4 shall be construed to affect the legality, validity
or enforceability of the obligations of either of the Companies under the Basic
Documents to which they shall be a party or to restrict the rights and remedies
available against either of the Companies under such Basic Documents.
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6.5 No Unauthorized Transactions. The Owner Trustee agrees that it
will not cause or permit either of the Companies to manage, control, use, sell,
dispose of or otherwise deal with any part of the Nuclear Material or any other
part of its property except (a) as expressly permitted or required by the terms
of any Basic Document to which they shall be a party, (b) in accordance with the
powers granted to or the authority conferred on the Owner Trustee pursuant to
this Trust Agreement or (c) in accordance with written instructions pursuant to
this Section 6 or Section 7.7 hereof.
7. THE OWNER TRUSTEE.
7.1 Acceptance of Trust, Etc.
(a) The Owner Trustee accepts the trusts hereby created and agrees
to perform the same upon the terms of this Trust Agreement, and agrees to
disburse any and all moneys and property received by it constituting part of the
Owner Trust Estate in accordance with the terms of this Trust Agreement.
(b) The Owner Trustee and any of its officers, employees, agents or
representatives serving as an officer or director of either of the Companies
shall not be answerable or accountable under any circumstances except for their
or such Person's own willful misconduct or gross negligence. The Owner Trustee
shall not be liable for any loss, damage, liability, claim, cost or expense
(including reasonable counsel fees and expenses) incurred by or asserted against
the Trustor, the Trust Beneficiary, any Lessee, or either of the Companies
(whether resulting from any diminution of the Owner Trust Estate by reason of a
claim against the Owner Trust Estate or otherwise) except for such losses,
damages, liability, claims, costs, or expenses caused by (i) the willful
misconduct or gross negligence of the Owner Trustee, (ii) the Owner Trustee's
failure to discharge Liens pursuant to the penultimate sentence of Section 6.4
hereof, (iii) the inaccuracy of any of the representations or warranties
contained in Section 7.3 of this Trust Agreement, (iv) taxes, fees or other
governmental charges imposed on the Owner Trustee, based on or measured by any
fees, commissions or compensation received by it for services rendered in
connection with any of the transactions contemplated by the Basic Documents and
(v) its failure to use the degree of care of a reasonable corporate trustee to
disburse moneys actually received by it in accordance with the terms hereof.
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(c) Whether or not expressly so provided, every provision of this
Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Owner Trustee shall be subject to the provisions of
Section 7.1(b) hereof.
7.2 Limitation of Duties.
The Owner Trustee shall have no duty itself and no duty to cause
either Company (i) to see to any recording or filing of this Trust Agreement or
of any Basic Document or of any other document referred to herein or therein or
with respect to any security interest or lien, or to see to the maintenance of
any such recording or filing, (ii) to see to any insurance on the Nuclear
Material or to effect or maintain any such insurance, whether or not the Lessee
shall be in default with respect thereto, other than to receive and forward to
the Collateral Agent any notices, policies, certificates or binders received by
the Owner Trustee or either of the Companies pursuant to the Lease Agreements,
(iii) except as provided in the penultimate sentence of Section 6.4 hereof, to
see to the payment or discharge of any tax, assessment or other governmental
charge or any Lien of any kind owing with respect to, assessed or levied against
any part of the Owner Trust Estate or property of either Company, or any fees or
charges in connection therewith, other than to forward notice of such tax,
assessment or other governmental charge or Lien received by the Owner Trustee to
the applicable Lessees, (iv) to monitor the receipt of or confirm or verify any
financial statements of a Lessee or (v) to inspect the Nuclear Material at any
time or ascertain or inquire as to the performance or observance of any of a
Lessee's covenants under the Lease Agreement or any other Basic Documents.
Notwithstanding the foregoing, the Owner Trustee will furnish to the applicable
Lessees, promptly upon receipt thereof, duplicates of all reports, notices,
requests, demands, certificates and other instruments furnished to the Owner
Trustee or either of the Companies under any of the Basic Documents to which
they shall be a party unless any such document or accompanying documentation
shall state that such document has previously been furnished directly to such
Lessees.
7.3 Representations and Warranties of Owner Trustee. THE OWNER
TRUSTEE MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
VALUE, CONDITION, DESIGN, OPERATION, QUALITY, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF ANY PART OF THE NUCLEAR MATERIAL, OR AS TO THE OWNER
TRUSTEE'S OR A COMPANY'S
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TITLE THERETO, OR LEASEHOLD INTEREST THEREIN, OR ANY OTHER REPRESENTATION OR
WARRANTY WITH RESPECT TO THE NUCLEAR MATERIAL WHATSOEVER, EXCEPT that the Owner
Trustee hereby represents, warrants and covenants to the applicable Lessees that
the Owner Trustee shall have caused each of the Companies to have accepted
whatever title to or leasehold interest in the Nuclear Material as was conveyed
to it.
7.4 Deposit of Funds. Moneys received by the Owner Trustee or a
Company may be deposited with the Owner Trustee under such general conditions as
may be prescribed by law in the general banking department of the Owner Trustee
and the Owner Trustee shall not be liable for any interest thereon except as may
be agreed to by it.
7.5 Reliance on Documents; Agents; Right to Consult with Counsel
and Others; Etc.
(a) The Owner Trustee shall not be liable to the Trustor, Lessees,
the Beneficiary or others who are or may be parties to agreements with the Owner
Trustee in acting upon any writing or oral notification; including but not
limited to, instructions from the Beneficiary, the applicable Lessee (pursuant
to the Lease Agreements), or such other parties and certificates of any officer
thereof, letters, facsimile transmissions, telexes, telegrams and cablegrams, in
assuming the truth and correctness of any statement, opinion or assertion of any
nature therein, provided, however, that any such writing or oral notification is
believed by the Owner Trustee to be genuine and to have been sent or
communicated by or on behalf of a party or parties to the Basic Documents.
(b) The Owner Trustee shall not incur any liability to anyone in
acting in reliance upon any signature, instrument, notice, resolution, request,
consent, telegram, order, certificate, report, opinion, bond or other document
or paper believed by it in good faith to be genuine and believed by it in good
faith to be signed by the proper party or parties. The Owner Trustee may accept
a copy of a resolution of the Board of Directors (or the Executive Committee
thereof) of any party, certified by the Secretary or an Assistant Secretary of
the same as duly adopted and in full force and effect as conclusive evidence
that such resolution has been duly adopted by said Board of Directors (or
Executive Committee thereof) and that such resolution is in full force and
effect. As to any fact or matter the manner of ascertainment of which is not
specifically prescribed herein, the
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Owner Trustee may for all purposes hereof rely as to such fact or matter on an
Officer's Certificate as to such fact or matter, and such an Officer's
Certificate shall constitute full protection to the Owner Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon. In the
administration of the trusts hereunder the Owner Trustee may execute any of the
trusts or powers hereof and perform its powers and duties hereunder directly or
through agents or attorneys and may, at the expense of the Owner Trust Estate
(unless such person is regularly in the Owner Trustee's employ), consult with
counsel, accountants and other skilled persons of generally accepted competence
to be selected and retained by it, and the Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
advice or opinion of any such counsel, accountants or other skilled persons
(unless such person is regularly in the Owner Trustee's employ), provided such
thing is not contrary to this Trust Agreement and such advice or opinion
interprets or applies to this Trust Agreement.
7.6 Not Acting in Individual Capacity. In accepting the trusts
hereby created, the Owner Trustee acts solely as trustee hereunder and not in
its individual capacity and all Persons, other than as provided in Section
7.1(b) herein, having any claim against the Owner Trustee by reason of the
transactions contemplated hereby shall look only to the Owner Trust Estate for
payment or satisfaction thereof.
7.7 Interpretation of Trust Agreement. In the event that the Owner
Trustee is uncertain as to the application of any provision of this Trust
Agreement, or such provision is ambiguous as to its application or is, or
appears to be, in conflict with any other applicable provision hereof, or in the
event that this Trust Agreement permits any determination by the Owner Trustee
or is silent or incomplete as to the course of action which the Owner Trustee is
required to take with respect to a particular set of facts, the Owner Trustee
may seek instructions from the applicable Lessees and shall not be liable to any
Person to the extent that its acts in good faith in accordance with the
instructions of such Lessees.
7.8 Compensation. The applicable Lessees shall pay to the Owner
Trustee, and the Owner Trustee shall be entitled to receive from the applicable
Lessees, reasonable compensation for its services, including without limitation,
services in causing each of the Companies to take actions hereunder, and
reimbursement for its expenses hereunder, which fees shall not be limited by any
provisions of law with respect to the trustee of an express trust. No separate
fee shall be chargeable to a Company except as provided in the Basic Documents
to which they shall be a party.
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7.9 Books, Records and Tax Returns.
(a) Except for financial statements and tax returns, the Owner
Trustee shall be responsible for the keeping of all books and records relating
to the receipt and disbursement of all moneys under this Trust Agreement. The
Owner Trustee agrees to prepare, sign and/or file and to cause each of the
Companies to prepare, sign and/or file all returns and reports with respect to
taxes (including but not limited to tax returns and any information, returns or
reports for each of the Companies and the Trust, if any) as the applicable
Lessees shall direct with respect to all transactions encompassed by the Basic
Documents as provided in this Section 7.9. The Owner Trustee shall keep copies
of all returns delivered to it or filed by it. The Owner Trustee shall not be
personally liable for any tax due and payable in connection with this Trust
Agreement or any other Basic Document except for any such tax arising from its
own willful misconduct or gross negligence and except for any tax based on or
measured by amounts paid to the Owner Trustee as fees or compensation in
connection with the transactions contemplated hereby pursuant to Section 7.8
hereof or otherwise.
(b) In addition, the Owner Trustee shall be responsible for certain
administrative activities to be performed on behalf of the Companies including
(i) receiving and causing the Company to countersign Leasing Records; (ii)
receiving invoices relating to Nuclear Material Contracts; (iii) receiving and
causing the Company to approve administrative invoices relating to the
Companies; (iv) receiving monthly rate notices from the Banks with respect to
the payment of Outstandings and causing the Company to forward copies to
Lessees; (v) receiving periodic reports from Lessee as described in Section 20
of the Lease Agreements; (vi) maintaining records of the Stipulated Casualty
Value of Nuclear Material under the Lease Agreements and the limitations on such
Stipulated Casualty Value as set forth in Section 4 of the Lease Agreements;
(vii) preparing and maintaining all books of account of the Companies; and
(viii) performing any other duties as may be agreed upon in writing with the
applicable Lessees.
(c) The Owner Trustee shall retain PricewaterhouseCoopers L.L.P. or
another firm of certified accountants of nationally recognized standing to
prepare financial statements for the Companies and to prepare and file with all
appropriate governmental authorities all returns and reports with respect to
taxes (including but not limited to tax returns and any
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information, returns or reports for each of the Companies and the Trust, if any)
as the applicable Lessees shall direct with respect to all transactions
encompassed by the Basic Documents on behalf of the Companies and the Trust. The
applicable Lessees shall be responsible for payment of such firm in connection
with the performance of such services.
7.10 Effect of Sales by a Company. Any sale of all or part of the
Nuclear Material or other property owned by either of the Companies which the
Owner Trustee causes such Company to make shall bind the Trust and the Trust
Beneficiary and shall be effective for the benefit of the purchasers thereof and
their respective successors and assigns to divest and transfer all right, title
and interest in the property so sold, and no such purchasers shall be required
to inquire as to compliance by the Owner Trustee with any of the terms of this
Trust Agreement or to see to the application of any consideration paid for such
property; provided, however, that, except in the case of the security interest
in the Nuclear Material granted by either of the Companies to the Secured
Parties, the Owner Trustee shall not cause or permit such Company to make any
sale or other transfer of title to or right to possession or use of any part of
the Nuclear Material (other than pursuant to the Lease Agreements to which it
shall be a party) unless and until the Owner Trustee shall have received from
the proposed transferee an opinion of counsel, satisfactory to the Owner
Trustee, that such transferee has obtained all permits, licenses, consents,
approvals and authorizations necessary for such sale or other transfer, and that
such sale or other transfer will not otherwise violate any applicable law or
regulations; provided, further, that notice of such sale and a copy of such
opinion of counsel shall be given to the Secured Parties; and provided, further,
that, except as expressly permitted by the Collateral Agreements to which they
shall be a party, the Owner Trustee shall have no right or power itself and
shall not cause or permit either Company to sell or otherwise transfer title to
or the right to possession or use of any part of the Nuclear Material other than
to their Lessees or the designees thereof pursuant to the Lease Agreements to
which they shall be a party.
7.11 Exculpatory Provisions. Except for those set forth in Section
7.3, the Owner Trustee shall not be responsible in any manner whatsoever for the
correctness of any recitals, statements, representations or warranties contained
herein or in the Basic Documents, all of which are made solely by each of the
Companies. The Owner Trustee makes no representations as to the value or
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condition of the Collateral or any part thereof, or as to the title of either
Company to the Collateral (other than as provided in Section 7.3) or as to the
security afforded by the Collateral Agreements, or as to the validity,
execution, enforceability, legality or sufficiency hereof or of the Collateral
Agreements, and the Owner Trustee shall incur no liability or responsibility in
respect of any such matters. The Trust Agreement and any other document executed
and delivered by the Owner Trustee in connection herewith is intended to be a
corporate obligation of the Owner Trustee only. Therefore, anything contained in
the Trust Agreement, the Lease Agreements, the Credit Agreements, the Security
Agreements and any other document to the contrary notwithstanding, no recourse
may be made by the Trust Beneficiary, the Lessees, any of the Secured Parties or
any other Person against any incorporator, shareholder (direct or indirect),
Affiliate, director, officer, employee or agent of the Owner Trustee with
respect to claims against the Owner Trustee arising under or relating to this
Trust Agreement; provided, however, that nothing in this Section 7.11 shall
relieve the Owner Trustee from its corporate obligations under this Trust
Agreement.
8. INDEMNIFICATION OF THE OWNER TRUSTEE, THE TRUSTOR AND THE TRUST
BENEFICIARY.
The Lessees agree (whether or not any of the transactions
contemplated hereby are consummated) to assume liability for, and do hereby
indemnify, protect, save and keep harmless the Owner Trustee, the Trustor and
the Trust Beneficiary and each of the successors, assigns, agents,
representatives and servants, in the case of the Owner Trustee including but not
limited to the employees, agents, representatives or designees acting as
officers or directors of either of the Companies, (the Owner Trustee, the
Trustor and the Trust Beneficiary and such others being collectively referred to
as the "Indemnified Persons") from and against, any and all liabilities,
obligations, losses, damages, taxes (except as set forth below), penalties,
claims, actions, suits, costs, expenses and disbursements (including reasonable
legal fees and disbursements) of any kind and nature whatsoever (for purposes of
this Section 8, collectively referred to as "Liabilities") which may be imposed
on, incurred by or asserted at any time against the Indemnified Persons (whether
or not also indemnified against by any other Person under any other document) in
any way relating to or arising out of the administration of the Owner Trust
Estate or the action or inaction of the Indemnified Persons in connection with
the provisions hereof or (a) the manufacture, design,
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acquisition, construction, installation, ownership, purchase, acceptance,
nonacceptance, possession, use, operation, condition, sale, lease, sublease or
other disposition of the Nuclear Material or Owner Trust Estate property or any
part thereof, including, without limitation, (i) latent and other defects,
whether or not discoverable, (ii) any claim, for patent, trademark or copyright
infringement, (iii) loss of or damage to any property or the environment, (iv)
death of or injury to any person and (v) tort claims of any kind; or (b) this
Trust Agreement or any of the Basic Documents or any other document referred to
herein or therein pertaining to the transactions contemplated hereby and
thereby, or the enforcement of any of the terms hereof or thereof; except only
that the Lessees shall not be required to indemnify the Indemnified Persons for:
(A) Liabilities resulting solely from willful misconduct or gross negligence on
the part of the Indemnified Persons; and (B) Liabilities resulting from matters
from which the Owner Trustee is not exculpated pursuant to the last sentence of
Section 7.1(b) hereof. Notwithstanding anything in this Trust Agreement to the
contrary, the Lessees shall have no obligation whatsoever to the Indemnified
Persons for any Liabilities with respect to, or resulting from, any taxes based
on or measured by amounts paid to the Owner Trustee as fees or compensation in
connection with the transactions contemplated hereby pursuant to Section 7.8
hereof or otherwise. With respect to any taxes for which the Lessees are liable
to the Indemnified Persons under this Section 8 (the "Indemnified Taxes"), the
Indemnified Persons shall be obligated to claim, on a timely basis, any refund
to which they may be entitled with respect to any Indemnified Taxes, to take all
steps necessary to diligently prosecute such claim, and to pay over to the
Lessees any refund (and any interest thereon) recovered by them as soon as
practicable after receipt thereof. The indemnities, rights and obligations
contained in this Section 8 shall survive the termination of this Trust
Agreement. The Owner Trustee shall be entitled to indemnification from the Owner
Trust Estate for any Liabilities indemnified against pursuant to this Section 8
to the extent not reimbursed by the applicable Lessees or any other Person; and
to secure the same the Owner Trustee shall have a lien on the Owner Trust Estate
prior to any interest therein of the Trust Beneficiary but subject and
subordinate to the lien of the Collateral Documents upon the Nuclear Material
and other property of the Companies.
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9. CO-TRUSTEES, SEPARATE TRUSTEES.
(a) At any time, for the purposes of conforming to the legal
requirements or restrictions of any jurisdiction in which any part of the Owner
Trust Estate (owned directly or indirectly) may at the time be located and
subject to the prior receipt of all necessary governmental approvals and
consents, the Owner Trustee shall have the power to appoint one or more Persons
approved by the Lessees either to act as a co-trustee or co-trustees, jointly
with the Owner Trustee, of all or any part of the Owner Trust Estate, or to act
as separate trustee or trustees of any property constituting part of the Owner
Trust Estate, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons, in the
capacity as aforesaid, any property, title, right or power deemed necessary or
desirable, subject to the remaining provisions of this Section 9.
(b) Every co-trustee or separate trustee shall, to the extent
permitted by law, be appointed subject to the following terms:
(i) All rights, powers, duties and obligations conferred upon
the Owner Trustee in respect of the receipt, custody and payment of
moneys shall be exercised solely by the Owner Trustee;
(ii) All other rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee hereby or by any Basic
Document to which the Owner Trustee shall be a party shall be
conferred or imposed upon and exercised or performed by the Owner
Trustee or by the Owner Trustee and such co-trustee or co-trustees
or separate trustee or separate trustees jointly, as shall be
provided in the instrument appointing such co-trustee or co-trustees
or separate trustee or separate trustees, except to the extent that,
under the law of any jurisdiction in which any particular act or
acts are to be performed, the Owner Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations shall be exercised and performed by
such co-trustee or co-trustees or separate trustee or separate
trustees;
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(iii) The Owner Trustee at any time, by an instrument in
writing executed by it, may accept the resignation of or remove any
co-trustee or separate trustee appointed under this Section 9, and a
successor to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section 9;
(iv) No trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder except, in the
case of the Owner Trustee, if a co-trustee or separate trustee is an
employee of the Owner Trustee;
(v) No power given hereby to any such co-trustee or separate
trustee shall be separately exercised hereunder by such co-trustee
or separate trustee except with the consent in writing of the Owner
Trustee, anything herein contained to the contrary notwithstanding.
The power to vote or appoint proxies to vote with respect to any
shares of the capital stock of the Company shall be exercised solely
by the Owner Trustee itself or its successor Owner Trustees
hereunder.
(c) Any notice, request or other writing delivered to the Owner
Trustee shall be deemed to have been delivered to all of the then co-trustees or
separate trustees as effectively as if delivered to each of them. Every
instrument appointing any trustee or trustees other than a successor to the
original Owner Trustee shall refer to this Section 9 and the conditions
expressed herein. Upon the acceptance in writing of such appointment by any such
co-trustee or separate trustee, he, she or it shall be vested with the estate or
property specified in the instrument of appointment jointly with the Owner
Trustee (except insofar as local law makes it necessary for any such co-trustee
or separate trustee to act alone) subject to all the provisions of this Trust
Agreement. Each such acceptance shall be filed with the Owner Trustee with
copies to the Trust Beneficiary, the Lessees and the Secured Parties. Any
co-trustee or separate trustee may, at any time by an instrument in writing,
constitute the Owner Trustee his or its agent and attorney-in-fact, with full
power and authority to do all acts and things and to exercise all discretion on
his or its behalf and in his or its name. In case any co-trustee or separate
trustee shall
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die or be dissolved, become incapable of acting, resign or be removed, all the
estates, properties, rights, powers, trusts, duties and obligations of said
co-trustee or separate trustee, as far as permitted by law, shall vest in and be
exercised by the Owner Trustee without the appointment of a new trustee as
successor to such co-trustee or separate trustee.
(d) Any and all exculpatory provisions, immunities and indemnities
in favor of the Owner Trustee under this Trust Agreement or under any other
agreement, document or instrument described or referred to which apply to the
Owner Trustee shall also apply to any co-trustees and separate trustees
appointed pursuant to this Section 9.
10. SUCCESSOR TRUSTEES.
(a) The Owner Trustee or any successor thereto may resign without
cause at any time by giving at least 90 days' prior written notice to the Trust
Beneficiary, the Lessees and the Secured Parties. Any such resignation shall
become effective upon acceptance of appointment by the successor Owner Trustee
under Section 10(c) hereof. In addition, the Lessees may at any time remove the
Owner Trustee with or without cause by an instrument in writing delivered to the
aforesaid Persons and to the Owner Trustee, such removal to be effective upon
the acceptance of appointment by the successor Owner Trustee under Section 10(c)
hereof; provided, however, that if an Event of Default under the Lease
Agreements has occurred and is continuing, such removal shall be effective only
with the consent of the Secured Parties. In the case of the resignation or
removal of the Owner Trustee, the Lessees may appoint, by an instrument in
writing, with copies to the Secured Parties, a successor Owner Trustee. If a
successor Owner Trustee shall not have been appointed and accepted its
appointment under Section 10(c) hereof within 60 days after such written notice
of such resignation or such delivery of the notice relating to such removal, the
Owner Trustee or the Lessees may apply to any court of competent jurisdiction to
appoint a successor Owner Trustee to act until such time, if any, as a successor
Owner Trustee shall have accepted its appointment as above provided. Any
successor Owner Trustee so appointed by such court shall immediately and without
further act be superseded by any successor Owner Trustee appointed by the
Lessees as above provided.
(b) Should the Person then serving as Owner Trustee hereunder (a)
cease its activities or cease doing business as a going concern (other than
pursuant to a transaction described in Section 10(e) hereof), or (b) become
incapable of acting as such,
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or (c) make an assignment for the benefit of creditors, or (d) admit in writing
his or its inability to pay its debts as they become due or (e) file a voluntary
petition in bankruptcy, or (f) be adjudicated a bankrupt or insolvent or have an
order for relief entered against it in any proceeding under the Bankruptcy
Reform Act of 1978, as amended, or any law with respect to bankruptcy,
insolvency or reorganization that is a successor thereto, or (g) file a petition
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law or regulation, or (h) file an answer admitting the material
allegations of such a petition filed against it in any such proceeding, or (i)
consent to or acquiesce in the appointment of a trustee, receiver or liquidator
of him or it or all or any substantial part of its assets or properties, or (j)
take any action looking to its dissolution or liquidation, or (k) be subject to
any proceeding against it seeking reorganization, arrangement, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, which proceeding is not dismissed within forty-five (45) days
after commencement thereof, or (1) be subject to the appointment, without its
consent or acquiescence, of any trustee, receiver or liquidator of it or all or
any substantial part of its assets or properties, which appointment is not
vacated within forty-five (45) days after the date thereof, then such Person
shall be deemed to have resigned as Owner Trustee hereunder effective
immediately prior to the occurrence of any matter specified in items (a) through
(j) above, or, in the event of the occurrence of any of the matters specified in
items (k) or (l) above, immediately prior to the expiration of the 45-day period
specified therein. Upon any resignation of the Owner Trustee, the Lessees shall
appoint a successor trustee hereunder.
(c) Any successor Owner Trustee, whether appointed by a court or by
the Lessees or otherwise, shall execute and deliver to the predecessor Owner
Trustee an instrument accepting such appointment, and thereupon such successor
Owner Trustee, without further act, shall become vested with all the estates,
properties, rights, powers, duties, obligations and trusts of the predecessor
Owner Trustee with like effect as if originally named as Owner Trustee herein;
but nevertheless, upon the written request of such successor Owner Trustee, such
predecessor Owner Trustee shall execute and deliver an instrument transferring
to such successor Owner Trustee, subject to its lien pursuant to Section 8 of
this Trust Agreement and payment of any amounts due the predecessor Owner
Trustee, upon the trusts herein expressed, all the estates,
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properties, rights, powers and trusts of such predecessor Owner Trustee
hereunder (including, without limitation, all such instruments, in proper form
for recording where appropriate as may be necessary or appropriate to transfer
the Owner Trust Estate to such successor Owner Trustee), and such predecessor
Owner Trustee shall duly assign, transfer, deliver and pay over to such
successor Owner Trustee certificates representing all of the issued and
outstanding capital stock of each of the Companies registered in the name of the
Owner Trustee and all moneys or other property then held by such predecessor
Owner Trustee upon the trusts herein expressed, and shall deliver to such
successor Owner Trustee any and all records or copies thereof, in respect of the
Trust or the Owner Trust Estate which it may have.
(d) Any successor Owner Trustee, however appointed, shall be a
Qualified Institution if there be such an institution willing, able and legally
qualified to perform the duties of the Owner Trustee hereunder upon reasonable
or customary terms; provided, however, that the appointment of such Qualified
Institution as successor Owner Trustee shall not violate any provision of any
law or regulation or create a relationship which would be in violation thereof,
and that all consents and approvals of, and filings and declarations with, any
governmental authority which are necessary in connection with such appointment
shall have been obtained or made and shall be in full force and effect.
(e) Any corporation into which the Owner Trustee in its individual
capacity may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Owner Trustee in its individual capacity shall be a party, or any corporation to
which all or substantially all the corporate trust business of the Owner Trustee
in its individual capacity may be transferred, shall, subject to the terms of
Section 10(d) hereof, be Owner Trustee under this Agreement without further act.
11. SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND THE BASIC
DOCUMENTS.
11.1 Supplements Upon Request of the Lessee. Subject to Section 11.2
hereof and any applicable provision of the Basic Documents (including but not
limited to the Credit Agreements), at any time and from time to time, upon the
written request of the Lessees, (a) the Owner Trustee together with the Lessees,
with the consent of the Trustor, shall execute an amendment or supplement
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hereto for the purpose of adding provisions to, or changing or eliminating
provisions of, this Trust Agreement as specified in such request and (b) the
Owner Trustee shall cause either of the Companies to enter into such written
amendment of or supplement to any of the Basic Documents to which they shall be
a party or other documents referred to in any thereof as the other party or
parties to any such instrument may agree to and as may be specified in such
request, or execute and delivery such written waiver or modification of the
terms of any such instrument as may be specified in such request; provided,
however, that no such amendment or supplement shall extend the maximum term of
this Trust beyond the term provided for by Section 12 hereof. It shall not be
necessary for any such written request to specify the particular form of the
proposed document to be executed, but it shall be sufficient if such request
shall indicate the substance thereof. Except as expressly provided herein, the
Owner Trustee and the Trustor need not consent to, approve, or join in any such
amendment or supplement for it to be valid and effective; provided, however,
that no such amendment or supplement may increase any duties or responsibilities
of the Owner Trustee or affect any immunity or indemnity in its favor under this
Trust Agreement or any of the Basic Documents or increase its duties or
obligations hereunder or thereunder without the Owner Trustee's written consent.
11.2 Amendments and Supplements Affecting Owner Trustee. If in the
opinion of the Owner Trustee any document required to be executed pursuant to
the terms of Section 11.1 hereof affects any immunity or indemnity in its favor
under this Trust Agreement or any of the Basic Documents or increases its duties
or obligations hereunder or thereunder, the Owner Trustee may in its discretion
decline to execute such document.
12.TERMINATION OF TRUST, ETC.
This Trust Agreement and the Trust created hereby shall terminate
and this Trust Agreement shall be of no further force and effect upon the
earlier of (i) the payment in full of all Outstandings under the Credit
Agreements and the expiration or termination of all Commitments, and the sale or
other final disposition by the Secured Parties and/or the Owner Trustee and each
of the Companies, as the case may be, of all property consisting of the Owner
Trust Estate and property of each of the Companies and the final distribution by
the Secured Parties and/or the Owner Trustee and each of the Companies, as the
case may be, of all moneys and other property or proceeds constituting a part of
the Owner Trust Estate and property of each of the
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Companies in accordance with the terms of this Trust Agreement and/or the
Collateral Agreements, as the case may be; provided that at such time the Lessee
shall have fully complied with all of the terms of the Basic Documents, or (ii)
twenty-one years less one day after the death of the life of the last survivor
of the members of the Board of Directors of GPU, Inc. now in office and their
children, living on the date hereof. Otherwise, this Trust Agreement and the
Trust created hereby shall continue in full force and effect in accordance with
the terms hereof. If the Trust shall terminate by operation of law prior to its
intended termination, the Owner Trustee and the Trustor agree to take all
reasonable actions to extend or reform the Trust. Upon termination of the Trust,
the funds held in the Owner Trust Estate shall be distributed as provided in
Section 5 of this Trust Agreement and all other property in the Owner Trust
Estate including but not limited to all of the stock of the Companies, shall be
assigned and distributed to the Trust Beneficiary, or as otherwise then directed
in writing by the Trust Beneficiary.
13. MISCELLANEOUS.
13.1 Legal Title to Owner Trust Estate. No Person other than the
Owner Trustee shall have legal title to any part of the Owner Trust Estate. No
transfer, by operation of law or otherwise, of any right, title or interest of
any Person in and to the Owner Trust Estate or hereunder shall operate to
terminate this Trust Agreement or the trusts hereunder to entitle any successor
or transferee of such Person to an accounting or to the transfer to it of legal
title to any part of the Owner Trust Estate.
13.2 Validity of Sale of Owner Trustee. Any sale or other conveyance
of the Nuclear Material or other property of either Company or Owner Trust
Estate property or any part thereof by such Company or the Owner Trustee made
pursuant to the terms of this Trust Agreement or the Lease Agreement or any
other Basic Documents to which such Company is a party shall bind each Person
having any right, title or interest in such Nuclear Material, other property, or
Owner Trust Estate, and shall be effective to transfer or convey all right,
title and interest of either Company, the Owner Trustee and such Persons in and
to the Nuclear Material or leasehold interest or any part thereof. No purchaser
or other grantee shall be required to inquire as to the authorization,
necessity, expediency or regularity of such sale or conveyance or as to the
application of any sale or other proceeds with respect thereto by either Company
or the Owner Trustee.
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13.3 Trust Agreement for Benefit of Parties thereto. Nothing in this
Trust Agreement, whether expressed or implied, shall be construed to give to any
Person, other than the Owner Trustee, the Trustor, the Lessees and the Trust
Beneficiary any legal or equitable right, remedy or claim under or in respect of
this Trust Agreement or the Owner Trust Estate, and this Trust Agreement shall
be for the sole and exclusive benefit of such Persons. Notwithstanding the
foregoing sentence, the Companies shall be third party beneficiaries of Section
7.1(b).
13.4 Notices. Unless otherwise expressly specified or permitted by
the terms hereof, all notices and other communications hereunder shall be in
writing, personally delivered or mailed by certified mail, postage prepaid or
telegraphed, telecopied or telexed and (a) if to the Trustor, addressed to it at
c/o Lord Securities Corporation, 2 Wall Street, 19th Floor, New York, New York
10005, Fax: (212) 316-9012, Attention: Vice President; (b) if to the Owner
Trustee, addressed to it at the principal office of the Owner Trustee at United
States Trust Company of New York, 114 West 47th Street, New York, New York
10036, Attention: Corporate Trust and Agency Division, Fax: (212) 852-1625; (c)
if to the Lessees, addressed to them at Jersey Central Power & Light Company,
Metropolitan Edison Company and Pennsylvania Electric Company, 2800 Pottsville
Pike, Reading, Pennsylvania 19640, Attention: Comptroller; with a copy to GPU
Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957, Attention:
Assistant Treasurer; (d) if to the Trust Beneficiary, addressed to it at the
same address as the Trustor; and (e) if to the Secured Parties, addressed to
them as described in the Security Agreements or (f) as to any such party, at
such other address as such party shall have furnished to the other party. Each
notice shall be deemed received when personally delivered, five days after sent
by certified mail or one day after sent by telecopy.
13.5 Severability. Any provision of this Trust Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to each jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.6 Waivers, Etc. No term or provision of this Trust Agreement may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and any waiver of the terms hereof shall be
effective only in the specific instance and for the specific purpose given.
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13.7 Counterparts. This Trust Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
13.8 Successors and Assigns. All covenants and agreements contained
herein shall be binding upon and shall inure to the benefit of the Owner Trustee
and its successors and the Trustor and its successors, and the Lessees and Trust
Beneficiary and its successors. The Trustor and the Trust Beneficiary shall not
transfer nor assign (otherwise than by merger or consolidation or transfer by
the Trust Beneficiary otherwise permitted by the Lease Agreement with respect to
the Trust Beneficiary's interest thereunder) any or all interests hereunder.
13.9 Headings. The headings of the various Sections herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
13.10 Self-Dealing. The Owner Trustee in its individual capacity or
any corporation in or with which the Owner Trustee in its individual capacity or
its shareholders may be interested or affiliated, including but not limited to
the Companies, or any officer or director of the Owner Trustee in its individual
capacity or of any other such corporation, or any agent appointed by the Owner
Trustee, may have commercial relations and otherwise deal with the Trustor, the
Trust Beneficiary, any Secured Party, the Companies, and the Lessees or with any
other corporation having relations with the Trustor, the Trust Beneficiary, the
Banks, the Companies, or the Lessees and with any other corporation or entity,
whether or not affiliated with the Owner Trustee.
13.11 Governing Law. THIS TRUST AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE
EXTENT THAT THE DELAWARE GENERAL CORPORATION LAW GOVERNS THE COMPANIES'
RELATIONSHIP WITH THE TRUST AS ITS SOLE STOCKHOLDER.
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13.12 No Unauthorized Transactions. The Trustor agrees that it will
not take or refrain from taking any action under this Trust Agreement or in
connection with the Owner Trust Estate except as expressly required by the terms
of this Trust Agreement.
13.13 Rights and Remedies.
(a) Pursuit of any remedy shall not be deemed a waiver of any
other remedy hereunder or at law or equity; and
(b) The rights, remedies, powers and privileges herein provided are
cumulative and not exhaustive of the rights, remedies, powers and privileges
permitted by law.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written in the
presence of the undersigned witnesses.
TRUSTOR AND TRUST BENEFICIARY
-----------------------------
Witnesses: LORD FUEL CORP., AS TRUSTOR AND TRUST
BENEFICIARY
- ----------------------
By:
--------------------------
- --------------------- Name:
-----------------------------
Title:
-----------------------------
OWNER TRUSTEE
-------------
Witnesses: UNITED STATES TRUST COMPANY OF NEW YORK,
as trustee
- ----------------------
By:
- ---------------------- --------------------------------
Name:
--------------------------------
Title:
--------------------------------
LESSEES
-------
Witnesses: JERSEY CENTRAL POWER & LIGHT COMPANY
- ----------------------
By:
- ---------------------- --------------------------------
Name:
--------------------------------
Title:
--------------------------------
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Witnesses: METROPOLITAN EDISON COMPANY
- ----------------------
______________________ By: ______________________________
Name: _____________________________
Title: _____________________________
Witnesses: PENNSYLVANIA ELECTRIC COMPANY
- ----------------------
By:
- ---------------------- --------------------------------
Name:
--------------------------------
Title:
--------------------------------
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<PAGE>
STATE OF ------------ )
: ss:
COUNTY OF ------------)
On this 5th day of November, 1998, before me personally appeared
- --------------------, to me personally known, who, being by me duly sworn, says
that he is a --------------------- of Lord Fuel Corp. and that said instrument
was signed on behalf of said corporation by authority of its Board of Directors,
and he acknowledged that the execution of the foregoing instrument was the free
act and deed of said corporation.
--------------------------------
Notary Public
My Commission Expires:
31
<PAGE>
STATE OF -------------)
: ss:
COUNTY OF ------------)
On this 5th day of November, 1998, before me personally appeared
- --------------------, to me personally known, who, being by me duly sworn, says
that he is a --------------------- of United States Trust Company of New York
and that said instrument was signed on behalf of said corporation by authority
of its Board of Directors, and he acknowledged that the execution of the
foregoing instrument was the free act and deed of said corporation.
--------------------------------
Notary Public
My Commission Expires:
32
<PAGE>
STATE OF NEW JERSEY)
: ss:
COUNTY OF MORRIS )
On this 5th day of November, 1998, before me personally appeared
- -----------------, to me personally known, who, being by me duly sworn, says
that he is a --------------- of Jersey Central Power & Light Company and that
said instrument was signed on behalf of said corporation by authority of its
Board of Directors, and he acknowledged that the execution of the foregoing
instrument was the free act and deed of said corporation.
--------------------------------
Notary Public
My Commission Expires:
33
<PAGE>
STATE OF NEW JERSEY)
: ss:
COUNTY OF MORRIS )
On this 5th day of November, 1998, before me personally appeared
- ------------------, to me personally known, who, being by me duly sworn, says
that he is a --------------- of Metropolitan Edison Company and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and he acknowledged that the execution of the foregoing instrument
was the free act and deed of said corporation.
--------------------------------
Notary Public
My Commission Expires:
34
<PAGE>
STATE OF NEW JERSEY)
: ss:
COUNTY OF MORRIS )
On this 5th day of November, 1998, before me personally appeared
- -----------------, to me personally known, who, being by me duly sworn, says
that he is a -------------- of Pennsylvania Electric Company and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and he acknowledged that the execution of the foregoing instrument
was the free act and deed of said corporation.
--------------------------------
Notary Public
My Commission Expires:
35
<PAGE>
EXHIBIT A
DEFINITIONS
As used in the Trust Agreement (as defined below) the following
terms shall have the following meanings (such definitions to be applicable to
both singular and plural forms of the terms defined), except as otherwise
specifically defined therein:
"Administrative Agent" shall have the meaning specified therefor in
the first paragraph of the Credit Agreements.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, the term "control" as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"Assigned Agreement" means a Nuclear Material Contract which has
been assigned to a Company in the manner specified in Section 5 of the Lease
Agreements pursuant to a duly executed and delivered Assignment Agreement. The
term Assigned Agreement shall include a Partially Assigned Agreement.
"Assignment Agreement" means an assignment agreement substantially
in the forms of Exhibit D to the Lease Agreements.
"Bank" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreements.
"Basic Documents" means the Lease Agreements, the Credit Agreements,
the Security Agreements, the Commercial Paper, the Notes, the Letter Agreements,
the Assigned Agreements, the Assignment Agreements, the Trust Agreement, the
Depositary Agreements, each Bill of Sale, each Leasing Record, each Rent Due and
SCV Confirmation Schedule, and other agreements related or incidental thereto
which are identified in writing by either Company, the Lessees and the Secured
Parties as one of the "Basic Documents", in each case, as such documents may be
amended from time to time.
"Basic Rent Period" means each calendar month or portion thereof
commencing on, in the case of the first such period, the effective date of the
Lease Agreements, and in case of each succeeding period, the first day following
the immediately preceding Basic Rent Period, and ending on the earliest of (i)
the last day of any calendar month or (ii) the Termination Settlement Date.
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"Bill of Sale" means a bill of sale substantially in the forms of
Exhibit E to the Lease Agreements, pursuant to which title to all or any portion
of the Nuclear Material is transferred to a Lessee or any designee of a Lessee.
"Capitalized Lease" means any and all lease obligations which are or
should be capitalized on the balance sheet of the Person in question in
accordance with generally accepted accounting principles and Statement No. 13 of
the Financial Accounting Standards Board or any successor to such pronouncement
regarding lease accounting, without regard for the accounting treatment
permitted or required under any applicable state or federal public utility
regulatory accounting system, unless such treatment controls the determination
of the generally accepted accounting principles applicable to such Person.
"Closing" means November 5, 1998.
"Collateral" has the meaning set forth in the granting clauses of a
Security Agreement and includes all property of a Company described in a
Security Agreement as comprising part of the Collateral.
"Collateral Agent" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreements.
"Collateral Agreements" means, collectively, the Security
Agreements, all Assignment Agreements, and any other assignment, security
agreement or instrument executed and delivered to the Secured Parties hereafter
relating to property of a Company which is security for the Notes.
"Commercial Paper" shall have the meaning set forth in Section 1.2
of the Credit Agreements.
"Commitment" means the commitment of the Banks to make Loans from
time to time under any Credit Agreement.
"Companies" means TMI-1 Fuel Corp. and Oyster Creek Fuel Corp.,
each Delaware corporations.
"Company" means TMI-1 Fuel Corp. or Oyster Creek Fuel Corp., each
Delaware corporations.
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"Credit Agreements" means (i) the Credit Agreement, dated as of
November 5, 1998, between TMI-1 Fuel Corp. (ii) the Credit Agreement, dated as
of November 5, 1998 between Oyster Creek Fuel Corp. and The First National Bank
of Chicago, as Administrative Agent, PNC Bank, National Association, as
Syndication Agent, the Banks parties thereto and First Chicago Capital Markets,
Inc. and PNC Capital Markets Inc., as Arrangers, and, as each may be amended
from time to time.
"Depositary Agreements" means (i) the Depositary Agreement, dated as
of November 5, 1998 among TMI-1 Fuel Corp., The Chase Manhattan Bank and The
First National Bank of Chicago.
"Excepted Payments" means (i) any indemnity, expense, or other
payment which by the terms of any of the Basic Documents shall be payable to a
Company in order for such Company to satisfy its obligations pursuant to Section
7.8 of the Trust Agreement, (ii) any payment by any Company pursuant to Section
7.8 of the Trust Agreement, or (iii) a payment by any Lessee pursuant to Section
8 of the Trust Agreement.
"Final Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material during any period when such Nuclear Material is
installed for operation in a Generating Facility. A Final Leasing Record shall
be in the forms of Exhibit B to the Lease Agreements.
"Generating Facility" means each of Unit No. 1 of Three Mile Island
Nuclear Generating Station, located in Londonderry Township, Pennsylvania and
Oyster Creek Nuclear Generating Station, located in Lacey Township, New Jersey.
"Hereof", "herein", "hereunder" and words of similar import when
used in a Basic Document refer to such Basic Document as a whole and not to any
particular section or provision thereof.
"Impositions" means all payments required by a public or
governmental authority in respect of any property subject to a Lease Agreement
or any transaction pursuant to a Lease Agreement or any right or interest held
by virtue of a Lease Agreement.
"Interim Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material (i) prior to installation for operation in a
Generating Facility, (ii) after removal from a Generating Facility during the
"cooling off" and storage period, and (iii) while being reprocessed. An Interim
Leasing Record shall be in the form of Exhibit A to the Lease Agreements.
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<PAGE>
"Lease Agreements" means (i) the Second Amended and Restated Nuclear
Material Lease Agreements each dated as of November 5, 1998 between TMI-1 Fuel
Corp., as Lessor, and Jersey Central Power & Light Company, Metropolitan Edison
Company and Pennsylvania Electric Company, respectively, as Lessees, in
connection with the Three Mile Island Unit 1 Nuclear Generating Facility, and
(ii) the Second Amended and Restated Nuclear Material Lease Agreement, dated as
of November 5, 1998 between Oyster Creek Fuel Corp. as Lessor and Jersey Central
Power & Light Company, as Lessee, in connection with the Oyster Creek Nuclear
Generating Facility, as each of the same may be modified, supplemented or
amended from time to time.
"Leasing Record" is a form signed by a Lessor and its Lessee to
record the leasing under a Lease Agreement of the Nuclear Material specified in
such Leasing Record. A Leasing Record shall be either an Interim Leasing Record
or a Final Leasing Record.
"Lessee" or "Lessees" shall have the meanings specified therefor in
the introduction to the Lease Agreements.
"Lessor" or "Lessors" shall have the meanings specified therefor in
the introduction to the Lease Agreements and its successors and assigns.
"Letter Agreements" means the Letter Agreements, each dated as of
November 5, 1998 between the Lessees, the Companies and The First National Bank
of Chicago, as Administrative Agent, as the same may be amended from time to
time.
"Lien" means any mortgage, pledge, lien, security interest, title
retention, charge or other encumbrance of any nature whatsoever (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to execute and deliver any financing
statement under the Uniform Commercial Code of any jurisdiction).
"Loans" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreements.
"Manufacturer" means any supplier of Nuclear Material or of any
service (including without limitation, enrichment, fabrication, transportation,
storage and processing) in connection therewith, or any agent or licensee of any
such supplier.
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<PAGE>
"Notes" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreements.
"Nuclear Material" means those items which have been purchased by or
on behalf of a Company for which a duly executed Leasing Record has been
delivered to a Company and which continue to be subject to a Lease Agreement
consisting of (i) the items described in such Leasing Record and each of the
components thereof in the respective forms in which such items exist during each
stage of the Nuclear Material Cycle, being substances and equipment which, when
fabricated and assembled and loaded into a nuclear reactor, are intended to
produce heat, together with all attachments, accessories, parts and additions
and all improvements and repairs thereto, and all replacements thereof and
substitutions therefor and (ii) the substances and materials underlying the
right, title and interest of a Lessee under any Nuclear Material Contract
assigned to a Company pursuant to a Lease Agreement; provided, however, that the
term Nuclear Material shall not include spent fuel.
"Nuclear Material Contract" means any contract, as from time to time
amended, modified or supplemented, entered into by a Lessee with one or more
Manufacturers relating to the acquisition of Nuclear Material or any service in
connection with the Nuclear Material.
"Nuclear Material Cycle" means the various stages in the process,
whether physical or chemical, by which the component parts of the Nuclear
Material are designed, mined, milled, processed, converted, enriched, fabricated
into assemblies utilizable for Heat Production, loaded or installed into a
reactor core, utilized, disengaged from a reactor core or stored, together with
all incidental processes with respect to the Nuclear Material at any such stage.
"Obligations" means (i) all items (including, without limitation,
Capitalized Leases but excluding shareholders' equity and minority interests)
which in accordance with generally accepted accounting principles should be
reflected on the liability side of a balance sheet as at the date as of which
such obligations are to be determined; (ii) all obligations and liabilities
(whether or not reflected upon such balance sheet) secured by any Lien existing
on the Property held subject to such Lien, whether or not the obligation or
liability secured thereby shall have been assumed;
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<PAGE>
and (iii) all guarantees, endorsements (other than for collection in the
ordinary course of business) and contingent obligations in respect of any
liabilities of the type described in clauses (i) and (ii) of this definition
(whether or not reflected on such balance sheet); provided, however, that the
term "Obligations" shall not include deferred taxes.
"Officer's Certificate" means, with respect to any corporation, a
certificate signed by the President, any Vice President, the Treasurer or any
Assistant Treasurer, the Comptroller or any Assistant Comptroller of such
corporation, and with respect to any other entity, a certificate signed by an
individual generally authorized to execute and deliver contracts on behalf of
such entity.
"Original Trust Agreement" means the Trust Agreement dated as of
August 1, 1991, among Lord Fuel Corp., as Trustor, United States Trust Company
of New York, as Owner Trustee, Jersey Central Power & Light Company,
Metropolitan Edison Company and Pennsylvania Electric Company, as Lessees, and
Lord Fuel Corp., as Trust Beneficiary, as the same may be amended, modified or
supplemented from time to time.
"Outstandings" shall have the meaning specified therefor in Section
1.02 of the Credit Agreements.
"Owner Trust Estate" means all estate, right, title and interest of
the Owner Trustee in and to the outstanding stock of the Companies and in and to
all monies, securities, investments, instruments, documents, rights, claims,
contracts, and other property held by the Owner Trustee under the Trust
Agreement; provided, however, that there shall be excluded from the Owner Trust
Estate all Excepted Payments.
"Owner Trustee" means the United States Trust Company of New York,
not in its individual capacity but solely acting as trustee under and pursuant
to the Trust Agreement, and its permitted successors.
"Partially Assigned Agreement" means a Nuclear Material Contract
which has been assigned, in part but not in full, to a Company in the manner
specified in Section 5 of each Lease Agreement pursuant to a duly executed and
delivered Assignment Agreement.
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"Permitted Liens" means (i) any assignment of a Lease Agreement
permitted thereby, by a Note Agreement and by a Credit Agreement, (ii) liens for
Impositions not yet payable, or payable without the addition of any fine,
penalty, interest or cost for nonpayment, or being contested by a Lessee as
permitted by Section 11 of the Lease Agreements, (iii) liens and security
interests created by a Security Agreement, (iv) the title transfer and
commingling of the Nuclear Material contemplated by paragraph (h) of Section 10
of the Lease Agreements and (v) liens of mechanics, laborers, materialmen,
suppliers or vendors, or rights thereto, incurred in the ordinary course of
business for sums of money which under the terms of the related contracts are
not more than 30 days past due or are being contested in good faith by a Lessee
as permitted by Section 11 of the Lease Agreements; provided, however, that, in
each case, such reserve or other appropriate provision, if any, as shall be
required by generally accepted accounting principles shall have been made in
respect thereto.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other business entity or any
government or any political subdivision or agency thereof.
"Proceeds" shall have the meaning assigned to it under the Uniform
Commercial Code, as amended, and, in any event, shall include, but not be
limited to, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to a Company from time to time with respect to the Collateral,
(ii) any and all payments (in any form whatsoever) made or due and payable to a
Company from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or part of any part of the Collateral
by any governmental body, authority, bureau or agency (or any person acting
under color of governmental authority), and (iii) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Qualified Institution" means a commercial bank organized under the
laws of, and doing business in, the United States of America or in any State
thereof, which has combined capital, surplus and undivided profits of at least
$150,000,000 having trust power.
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<PAGE>
"Rent Due and SCV Confirmation Schedule" means an instrument
substantially in the form of Exhibit F to the Lease Agreements which is to be
completed by a Lessee for the purpose of calculating and acknowledging the SCV
at the end of each Basic Rent Period.
"Secured Parties" means the Banks and any other holder from time to
time of any Note.
"Security Agreements" means the (i) Jersey Central Power & Light
Company Security Agreement and Assignment of Contracts dated as of November 5,
1998, (ii) Metropolitan Edison Company Security Agreement and Assignment of
Contracts dated as of ------------, 1998 and (iii) Pennsylvania Electric Company
Security Agreement and Assignment of Contract dated as of November 5, 1998
between TMI-1 Fuel Corp. and the Secured Parties and (iv) the Security Agreement
and Assignment of Contracts, dated as of November 5, 1998, between Oyster Creek
Fuel Corp. and the Secured Parties.
"Terminating Event" shall have the meaning set forth in Section 18
of the Lease Agreements.
"Termination Settlement Date" shall have the meaning specified
therefor in Section 8(c) or 18(c) of the Lease Agreements.
"Trust" means the TMI-1 Fuel Corp. and Oyster Creek Fuel Corp.
Trust, a trust formed pursuant to the Trust Agreement.
"Trust Agreement" means the Second Amended and Restated Trust
Agreement dated as of November 5, 1998, among Lord Fuel Corp., as Trustor,
United States Trust Company of New York, as Owner Trustee, Jersey Central Power
& Light Company, Metropolitan Edison Company and Pennsylvania Electric Company,
as Lessees, and Lord Fuel Corp., as Trust Beneficiary, as the same may be
amended, modified or supplemented from time to time.
"Trust Beneficiary" means Lord Fuel Corp., a Delaware corporation,
and its permitted successors.
"Trustor" means the institution designated as such in the Trust
Agreement and its permitted successors.
43
EXHIBIT 10-W
COUNTERPART NO.
SECOND AMENDED AND RESTATED
NUCLEAR MATERIAL LEASE AGREEMENT
Dated as of November 5, 1998
between
TMI-1 FUEL CORP.,
as Lessor
and
METROPOLITAN EDISON COMPANY
as Lessee
AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR
UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS
GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS
SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS
AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING,
WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR
MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT.
THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN
EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY
INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE
LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE
AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<PAGE>
- 3 -
TABLE OF CONTENTS
1 Definitions 2
2 Notices 2
3 Title to Remain in the Lessor; Quiet
Enjoyment; Fuel Management; Location 3
4 Agreement for Lease of Nuclear Material 3
5 Orders for Nuclear Material and Services;
Assigned Agreements 4
6 Leasing Records; Payment of Costs of Lessor 5
7 No Warranties or Representation by Lessor 7
8 Lease Term; Early Termination; Termination
Of Leasing Record 8
9 Payment of Rent; Payments with Respect to the
Lessor's Financing Costs 11
10 Compliance with Laws; Restricted Use of Nuclear
Material; Assignments; Permitted Liens; Spent Fuel 12
11 Permitted Contests 15
12 Insurance; Compliance with Insurance Requirements 16
13 Indemnity 18
14 Casualty and Other Events 21
15 Nuclear Material to Remain Personal Property 22
16 Events of Default 22
17 Rights of the Lessor Upon Default of the Lessee 24
18 Termination After Certain Events 26
19 Investment Tax Credit 28
20 Certificates; Information; Financial Statements 29
21 Obligation of the Lessee to Pay Rent 31
22 Miscellaneous 32
<PAGE>
SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT
SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement")
dated as of the 5th day of November, 1998, by and between TMI-1 FUEL CORP., a
Delaware corporation (herein called the "Lessor"), and METROPOLITAN EDISON
COMPANY, a Pennsylvania corporation (herein called the "Lessee").
RECITALS
A. The Lessor and Lessee entered into a Nuclear Material Lease
Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease
of Nuclear Material to the Lessee;
B. The Original Lease provided for the Lessor to enter into certain
loan agreements and ancillary documents with The Prudential Insurance Company of
America and certain affiliates thereof ("Prudential") to provide financing from
Prudential for the acquisition of Nuclear Material under the Original Lease;
C. Such loan arrangements with Prudential were terminated and Lessor
entered into a new credit agreement and related instruments pursuant to which a
bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS")
acted as agent to provide financing for the acquisition of Nuclear Material
being leased hereunder;
D. Lessor and Lessee entered into an Amended and Restated Nuclear
Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated
Lease") to reflect the necessary modifications consistent with the establishment
of the credit facility with UBS;
E. Concurrent with the execution and delivery hereof, such credit
agreements with UBS are being terminated and Lessor is entering into a new
credit agreement and related instruments to which a bank syndicate for which The
First National Bank of Chicago and PNC Bank, National Association, will act as
agents to provide financing for the acquisition of the Nuclear Material being
leased hereunder;
F. Accordingly, the Lessor and the Lessee desire to enter into this
Second Amended and Restated Lease Agreement in order to reflect necessary
modifications consistent with establishment of such new credit facility and
other modifications thereof in certain other respects, which agreement shall
supercede the Original Lease and the Amended and Restated Lease;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties covenant and agree
as follows:
1. Definitions. Except as otherwise provided herein, capitalized
terms used in this Lease Agreement (including the Exhibits) shall have the
respective meanings set forth in Appendix A.
2. Notices. Any notice, demand or other communication which by any
provision of this Lease Agreement is required or permitted to be given shall be
deemed to have been delivered if in writing and actually delivered by mail,
courier, telex or facsimile to the following addresses:
(i) If to the Lessor, TMI-1 Fuel Corp., c/o United States
Trust Company of New York, 114 West 47th Street, New York, New York 10036,
Attention: Corporate Trust and Agency Division, telecopy number
212-852-1626, or at such other address as the Lessor may have furnished to
the Lessee and the Secured Parties in writing; or
(ii) If to the Lessee, Metropolitan Edison Company c/o GPU
Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957,
Attention: Vice President and Treasurer, telecopy number 973-644-4224, or
at such other address as the Lessee may have furnished the Lessor and the
Secured Parties in writing; or
(iii) except as provided in the following sentence or as
otherwise requested in writing by any Secured Party, any notice, demand or
communication which by any provision of this Lease Agreement is required
or permitted to be given to the Secured Parties shall be deemed to have
been delivered to all the Secured Parties if a single copy thereof is
delivered to The First National Bank of Chicago, One First National Plaza,
Mail Suite 0363, Chicago, Illinois 60670, Attention: Kenneth J. Bauer,
facsimile number (312) 732-3055; or at such other address as either may
have furnished the Lessor and the Lessee in writing. Any Leasing Record or
invoice of a Manufacturer or other Person performing services covering the
Nuclear Material which is required to be delivered to the Secured Parties
pursuant to Section 6(c)(ii) of this Lease Agreement and any Rent Due and
SCV Confirmation Schedule which is required to be delivered to the Secured
Parties pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be
deemed to have been delivered to all the Secured Parties if a single copy
thereof is delivered to Kenneth J. Bauer at the address indicated in this
Section 2(iii).
2
<PAGE>
3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management;
Location.
(a) The Lessor and the Lessee hereby acknowledge that this
Lease Agreement is a lease and is intended to provide for the obligations of the
Lessee to pay installments of Rent as the same become due; that, subject to the
provisions of Section 10(h), the Lessor has title to and is the owner of the
Nuclear Material; and that the relationship between the Lessor and the Lessee
shall always be only that of lessor and lessee.
(b) The Lessor (including its successors and assigns) agrees
and covenants that, so long as the Lessee makes timely payments of Rent and
fully performs all other obligations to be performed by the Lessee under this
Lease Agreement, the Lessor (including its successors and assigns) shall not
hinder or interfere with the Lessee's peaceable and quiet enjoyment of the
possession and use of the Nuclear Material, for the term or terms herein
provided, subject, however, to the terms of this Lease Agreement.
(c) So long as no Lease Event of Default shall have occurred
and be continuing and the Lessor shall not have elected to exercise any of its
remedies under Section 17 hereof, the Lessee shall have the right to engage in
Fuel Management. The Lessee is hereby designated the agent of the Lessor in all
dealings with Manufacturers and any regulatory agency having jurisdiction over
the ownership or possession of the Nuclear Material for so long as the Lessee
shall have the right to engage in Fuel Management. As such agent of the Lessor,
the Lessee agrees to make, or cause to be made, all filings and to obtain all
consents and permits required as a result of the Lessor's ownership and leasing
of the Nuclear Material.
(d) The Lessee covenants to the Lessor that the location of
Nuclear Material will be limited to: (w) any Manufacturer's facility, (x)
transit between one Manufacturer's facility and another Manufacturer's facility
or the site of the Generating Facility, (y) the site of the Generating Facility
and (z) the Generating Facility. Each assembly of the Nuclear Material will be
located during its Heat Production and "cooling-off" stage at the Generating
Facility or the site of the Generating Facility.
4. Agreement for Lease of Nuclear Material. From and after the
Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from
the Lessor such Nuclear Material as may be from time to time mutually agreed
upon, provided that the total Stipulated Casualty Value of all Nuclear Material
leased under this Lease Agreement shall not exceed at any one time $50,000,000
in the aggregate or such other amount as the Lessor and the Lessee may
3
<PAGE>
agree to in writing (the "Maximum Stipulated Casualty Value"). The Lessor and
the Lessee shall evidence their agreement to lease particular Nuclear Material
in accordance with the terms and provisions of this Lease Agreement by signing
and delivering to each other, from time to time, Leasing Records, substantially
in the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee,
covering such Nuclear Material. Nothing contained herein shall be deemed to
prohibit the Lessee from leasing from other lessors or otherwise obtaining other
nuclear material for use in the Generating Facility, subject to the provisions
with respect to intermingling of fuel assemblies or sub-assemblies with other
fuel assemblies or sub-assemblies contained in Section 6 hereof.
5. Orders for Nuclear Material and Services; Assigned Agreements.
(a) The Nuclear Material Contracts listed in Exhibit C hereto,
relating, among other things, to the purchase of, and services to be performed
with respect to, Nuclear Material were entered into by the Lessee prior to the
date of this Lease Agreement, and, except as otherwise indicated on Exhibit C,
the interests of the Lessee under such Nuclear Material Contracts have been
assigned to the Lessor under an Assignment Agreement substantially in the form
of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems
necessary or desirable may be negotiated by the Lessee and executed by the
Lessee in its own name or, where authorized by the Lessor, as agent for the
Lessor.
(b) So long as no Lease Event of Default shall have occurred
and be continuing, and subject to the approval of the Lessor and to the
limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set
forth in Section 4, the interests of the Lessee under any further Nuclear
Material Contracts (whether executed and delivered before or after the date of
this Lease Agreement) pursuant to which the Lessee desires the Lessor to
purchase Nuclear Material or have services performed on any Nuclear Material on
behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement
substantially in the form of Exhibit D, with such changes to Exhibit 2 to
Exhibit D as the Secured Parties may consent to in writing, which consent shall
not be unreasonably withheld. The Lessee shall use its best efforts to cause the
other parties to such agreements to consent to each such assignment. Upon each
such assignment and the obtaining of such consents with respect to any Nuclear
Material Contract, the Lessor, subject to the limitation on the Maximum
Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall
make all payments which are required under such Assigned Agreements for the
4
<PAGE>
purchase of Nuclear Material or for services to be performed on the Nuclear
Material in accordance with the procedures set forth in Section 6.
(c) So long as no Lease Event of Default shall have occurred
and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own
cost and expense, to assert all rights and claims and to bring suits, actions
and proceedings, in its own name or in the name of the Lessor, in respect of any
Manufacturer's warranties or undertakings, express or implied, relating to any
portion of the Nuclear Material and to retain the proceeds of any such suits,
actions and proceedings.
6. Leasing Records; Payment of Costs of Lessor.
(a) Interim Leasing Records. An Interim Leasing Record shall
be prepared by the Lessee, shall be dated the date that the Lessor first makes
any payment with respect to the Acquisition Cost of any Nuclear Material and
shall set forth a full description of such Nuclear Material, the Acquisition
Cost and location thereof, and such other details with respect to such Nuclear
Material upon which the parties may agree. During the period of preparation and
processing or reprocessing of Nuclear Material subject to an Interim Leasing
Record, if the Lessor shall make any further payment or payments or if the
Lessor shall receive any payment or payments representing a credit against the
Acquisition Cost previously paid with respect to such Nuclear Material, a
supplemental Interim Leasing Record dated the date that the Lessor makes each
such further payment or the date of receipt of any such credit shall be signed
by the Lessor and the Lessee to record the revised Acquisition Cost, after
giving effect to any such payments or credits with respect to such Nuclear
Material, any change in location and such additional details upon which the
parties may agree.
(b) Final Leasing Records. For Nuclear Material previously
covered by an Interim Leasing Record, the Final Leasing Record shall be prepared
by the Lessee, shall be dated the first day of the month following the date of
installation of such Nuclear Material in the Generating Facility, unless such
date is the first day of a month, in which case the Final Leasing Record shall
be dated such date. For Nuclear Material not previously covered by an Interim
Leasing Record, the Final Leasing Record shall be dated the date that the Lessor
first makes any payment with respect to the Acquisition Cost of such Nuclear
Material. A Final Leasing Record shall set forth a full description of such
Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the location,
and such other details with respect to such Nuclear Material upon which the
parties may agree.
5
<PAGE>
(c) Payment of Nuclear Material Costs.
(i) On the Closing, the Lessor shall pay UBS pursuant to
Section 5.02 of the UBS Credit Agreement the principal amount of all loans
outstanding thereunder together with accrued interest thereon to the
extent not paid previously, and related costs and expenses in connection
therewith.
(ii) From time to time after the Closing, invoices of
Manufacturers, or of other Persons performing services, covering Nuclear
Material shall be forwarded to the Lessor in care of the Lessee at the
Lessee's address. Upon receipt by the Lessee of an invoice covering
Nuclear Material, the Lessee shall review such invoice and, upon the
Lessee's approval thereof, the Lessee shall forward such invoice endorsed
with the Lessee's approval to the Lessor, together with a Leasing Record
completed and signed by a Lessee Representative covering such Nuclear
Material. The Lessee's invoice for any cost incurred by it and includable
in the Acquisition Cost of any Nuclear Material shall be forwarded to the
Lessor and to the Secured Parties, together with a Leasing Record
completed and signed by a Lessee Representative covering such costs. After
receipt of such invoice and Leasing Record, in form and substance
satisfactory to the Lessor, the Lessor, subject to the limitation on
Maximum Stipulated Casualty Value of the Nuclear Material set forth in
Section 4, shall pay such invoice as provided therein or in the related
purchase agreement and shall execute the Leasing Record and return a copy
of such Leasing Record to the Lessee and the Secured Parties. The Leasing
Record shall be dated as provided for in this Lease Agreement. In the
event that the Acquisition Cost of the Nuclear Material covered by any
Leasing Record has been paid or incurred by the Lessee, the Lessor,
subject to the limitation on Maximum Stipulated Casualty Value of the
Nuclear Material set forth in Section 4 shall promptly reimburse the
Lessee for the amount of the Acquisition Cost paid or incurred by the
Lessee.
(iii) The Lessee shall: (A) pay all costs and expenses of
freight, packing, insurance, handling, storage, shipment and delivery of
the Nuclear Material to the extent that the same have not been included in
the Acquisition Cost, and (B) at its own cost and expense, furnish such
labor, equipment and other facilities and supplies, if any, as may be
required to install and erect the Nuclear Material to the extent that the
cost and expense thereof have not been included in the Acquisition Cost.
Such installation and
6
<PAGE>
erection shall be in accordance with the specifications and requirements
of each Manufacturer. The Lessor shall not be liable to the Lessee for any
failure or delay in obtaining Nuclear Material or making delivery thereof.
(d) Intermingling of Fuel Assemblies. Subject to the
provisions of Section 10(h) hereof, the Nuclear Material shall be owned
exclusively by the Lessor and leased to the Lessee under this Lease Agreement.
Prior to the fabrication of Nuclear Material into a completed fuel assembly or
sub-assembly or while such Nuclear Material is being reprocessed, the Lessee
will cause or permit such Nuclear Material to be fabricated or assembled only
into fuel assemblies or sub-assemblies owned by the Lessor and leased under this
Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor
and leased to the Lessee hereunder may be intermingled in the Generating
Facility with fuel assemblies or sub-assemblies not owned by the Lessor and
leased to the Lessee under this Lease Agreement, provided that such assemblies
or sub-assemblies owned by the Lessor shall be readily identifiable by serial
number or other distinguishing marks.
7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL
IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF
ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF
OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS,
INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES
AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY
AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY
OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR
PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME
FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR
WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING
ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES
THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING,
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM NOR ANY OTHER PERSON
ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL
POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION
THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO
THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF
THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION,
ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE
OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT
NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS
7
<PAGE>
AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR
UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON BEHALF OF THE LESSOR
OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER REPRESENTATION, EXPRESS OR
IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE LEASED UNDER THIS LEASE
AGREEMENT (a) WILL NOT RESULT IN INJURY OR DAMAGE TO PERSONS OR PROPERTY, (b)
WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE RESULTS WHICH THE LESSEE
INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY MANNER OR RESPECT. THE
LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED
PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY
COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH
ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A MANUFACTURER OR
ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT NONE OF THE
FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, WARRANTY OR
COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY, SUITABILITY OR
CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY RESPECT OR IN
CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY OTHER
REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR
IMPLIED.
8. Lease Term; Early Termination; Termination of Leasing Record.
(a) The Lessor hereby leases to the Lessee, and the Lessee
hereby leases from the Lessor, the Nuclear Material for the term provided in
this Lease Agreement and subject to the terms and provisions hereof.
(b) This Lease Agreement shall become effective at 12:01 A.M.,
Eastern time, on the Closing, and, unless earlier terminated as provided in
Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close
of business on the later of (i) the date on which there is no outstanding
principal of, or interest or premium, if any, on any of the Outstandings or (ii)
the Termination Date but in each case in no event later than November 17, 2015.
(c) In the event that during the term of this Lease Agreement,
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement, the Lessee shall have the option, exercisable at any time
beginning 180 days before such Termination Date upon written notice to the
Lessor and the Secured Parties prior to such Termination Date to purchase all
(but not less than all) of the Nuclear Material and any spent fuel related
thereto for which title has not been transferred to the Lessee for a purchase
price equal to the Stipulated Casualty
8
<PAGE>
Value of such Nuclear Material at the time of such purchase plus the Termination
Rent. If the Lessee exercises such purchase option, the purchase of the Nuclear
Material shall occur on such date, on or prior to such Termination Date, as may
be agreed upon by the Lessor and the Lessee and of which the Lessee has given
the Secured Parties prior written notice. Upon receipt of payment of the
purchase price, the Lessor shall deliver to the Lessee a Lessor's Bill of Sale,
substantially in the form of Exhibit E, transferring all right, title, interest
and claim of the Lessor to the Nuclear Material and any spent fuel related
thereto for which title has not already been transferred to the Lessee, to the
Lessee or the Lessee's designee, free and clear of all Liens created by the
Collateral Agreements, together with such documents, if any, as may be required
to evidence the release of such Liens. The later of (i) the date on which there
is no outstanding principal of, or interest or premium, if any, on any of the
Outstandings or (ii) the date of any sale by the Lessor of all of the Nuclear
Material as provided in this Section 8(c) shall constitute the Termination
Settlement Date, and this Lease Agreement shall terminate as of such date.
(d) In the event that during the term of this Lease Agreement
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement and the Lessee shall not have exercised its option to
purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no
sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the
Nuclear Material to a third party not disqualified by any applicable statute,
law, regulation or agreement from acquiring such Nuclear Material, and, upon
prior written notice to the Lessor and the Secured Parties of the terms and date
of such sale, the Lessor shall furnish title papers as may be necessary to
effect such sale or conveyance on an as-is, where-is, non-installment, cash sale
basis, without recourse to or warranty or agreement of any kind by the Lessor.
The proceeds of such sale or conveyance shall be paid to the Lessor, and any
amount so paid shall constitute a credit against the amount of the Stipulated
Casualty Value payable by the Lessee under Section 8(e); provided, however, that
any proceeds of such sale or conveyance in excess of the amount payable by the
Lessee under Section 8(e) shall be retained by the Lessee.
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(e) On the Termination Date unless the Lessee shall have
exercised its purchase option set forth in Section 8(c) and paid the Lessor the
purchase price of the Nuclear Material as provided therein, the Lessee shall pay
to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of
all Nuclear Material leased under this Lease Agreement as of such Termination
Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less
any credit provided in Section 8(d)), and (ii) the Termination Rent as of such
Termination Date. Upon receipt of such payment, the Lessor shall deliver to the
Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in
the form of Exhibit E, transferring all right, title, interest and claim of the
Lessor to the Nuclear Material and any spent fuel relating thereto for which
title has not been transferred to the Lessee to the Lessee or the Lessee's
designee, free and clear of all Liens created by the Collateral Agreements,
together with such documents, if any, as may be required to evidence the release
of such Liens.
(f) In the event that during the term of this Lease Agreement,
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement, all obligations of the Lessor and Lessee under this Lease
Agreement with respect to the Nuclear Material, including the obligation of the
Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for
the Nuclear Material and to lease the same to the Lessee shall terminate on the
date on which the Lessor receives the payment specified in Section 8(c) or
Section 8(e).
(g) The Lessee shall deliver to the Lessor and to the Secured
Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within
thirty (30) days following the date on which any Nuclear Material or spent fuel
resulting from the Nuclear Material is removed from the reactor of the
Generating Facility for purposes of "cooling-off" preliminary to reprocessing or
permanent on-site safe storage and/or off-site disposal. If the Lessee elects
within thirty (30) days following the receipt by the Lessor of such Rent Due and
SCV Confirmation Schedule to extend the lease term for the purposes of
reprocessing any such Nuclear Material, then the Lessor and the Lessee shall
enter into an Interim Leasing Record with respect to such Nuclear Material in
its then condition. In all other cases, the Final Leasing Record with respect to
any such Nuclear Material or spent fuel resulting from such Nuclear Material
shall be terminated and the Lessee shall immediately pay to the Lessor all
amounts, including the Stipulated Casualty Value, if any, with respect to such
Nuclear Material or spent fuel resulting from such Nuclear Material, and, upon
receipt thereof, the Lessor shall deliver to the Lessee or to any designee of
the
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Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E,
transferring all right, title, interest and claim of the Lessor to such Nuclear
Material or spent fuel resulting from such Nuclear Material for which title has
not already been transferred to the Lessee or the Lessee's designee, free and
clear of all Liens created by the Collateral Agreements, together with such
documents, if any, as may be required to evidence the release of such Liens.
9. Payment of Rent; Payments with Respect to the Lessor's Financing
Costs.
(a) Basic Rent. The Lessee shall pay Basic Rent monthly in
arrears on the first day of the next succeeding month. If such first day of the
month is not a Business Day, then payment shall be made on the next succeeding
Business Day.
(b) Additional Rent. In addition to the Basic Rent, the Lessee
will also pay from time to time as provided in this Lease Agreement or on demand
of the Lessor, all Additional Rent on the due date thereof. In the event of any
failure by the Lessee to pay any Additional Rent, the Lessor shall have all the
rights, powers and remedies as in the case of failure to pay Basic Rent.
(c) Prepayments of Basic Rent. The Lessee may prepay Basic
Rent at any time. Such payment shall be credited against subsequent amounts owed
by the Lessee on account of Basic Rent.
(d) Wire Payment Procedure for Paying Basic Rent. All payments
of Rent and other payments to be made by the Lessee to the Lessor pursuant to
this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request,
to the Secured Parties) in lawful money of the United States in Collected Funds
by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee
shall furnish to the Lessor and the Secured Parties each month during the term
of the Lease Agreement a summary of the rental calculations for such month
covering all outstanding Leasing Records. On each Basic Rent Payment Date, the
Lessee shall deliver to the Lessor and the Secured Parties a signed and
completed Rent Due and SCV Confirmation Schedule. The Lessee shall be
responsible for the accuracy of the matters contained in all such schedules
delivered by the Lessee pursuant to the provisions of this Lease Agreement.
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10. Compliance with Laws; Restricted Use of Nuclear Material;
Assignments; Permitted Liens; Spent Fuel.
(a) Compliance with Legal Requirements. Subject to the
provisions of Section 11 hereof, the Lessee agrees to comply with all Legal
Requirements.
(b) Recording of Title. The Lessee shall promptly and duly
execute, deliver, file and record all such further counterparts of this Lease
Agreement or such certificates, Bills of Sale, financing and continuation
statements and other instruments as may be reasonably requested by the Lessor
and take such further actions as the Lessor shall from time to time reasonably
request, in order to establish, perfect and maintain the rights and remedies
created or intended to be created in favor of the Lessor and the Secured Parties
under this Lease Agreement and the Lessor's title to and interest in the Nuclear
Material as against the Lessee or any third party in any applicable
jurisdiction.
(c) Exclusive Use of Nuclear Material. So long as no Lease
Event Default shall have occurred and be continuing, the Lessee may use the
Nuclear Material in the regular course of its business or in the business of any
subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon
thirty (30) days' prior notice in writing to the Lessor and the Secured Parties,
or upon such shorter prior notice in writing promptly given upon the Lessee's
receipt of notice from any Manufacturer that the Nuclear Material is to be
moved, and at the Lessee's sole expense (without limiting the Lessee's rights to
request payment by the Lessor of such expense as provided in Section 6 hereof)
move such Nuclear Material to any jurisdiction approved in writing by the Lessor
in the contiguous forty-eight (48) states of the United States of America and
the District of Columbia for the purpose of having services performed on such
Nuclear Material in connection with any stage of the Nuclear Material Cycle
other than Heat Production and the "cooling off" stage, provided that (i) no
such movement of the Nuclear Material shall materially reduce the then fair
market value of such Nuclear Material, (ii) such Nuclear Material shall be and
remain the property of the Lessor, subject to this Lease Agreement, and (iii)
all Legal Requirements (including, without limitation, all necessary government
consents, permits and approvals) shall have been met or obtained by the Lessee,
on its own behalf and on behalf of the Lessor, and all necessary recordings,
filings and registrations or recordings, filings and registrations which the
Lessor shall reasonably consider advisable shall have been duly made in order to
protect the validity and effectiveness of this Lease Agreement and the security
interest created in the Security Agreement. At least once each year, or more
frequently if the
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Lessor reasonably so requests, the Lessee shall advise the Lessor and the
Secured Parties in writing where all Nuclear Material as of such date is
located. The Lessee shall maintain and make available to the Lessor for
examination upon reasonable notice complete and adequate records pertaining to
receipt, possession, use, location, movement, physical inventories and any other
information reasonably requested by the Lessor with respect to the Nuclear
Material.
(d) Additional Lessee Covenants. The Lessee agrees to use
every reasonable precaution to prevent loss or damage to the Nuclear Material.
All individuals handling or operating Nuclear Material in the possession of the
Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee
shall cooperate fully with the Lessor and all insurance companies and
governmental agencies providing insurance under Section 12 hereof in the
investigation and defense of any claims or suits arising from the licensing,
acquisition, storage, containerization, transportation, blending, transfer,
consumption, leasing, insuring, operating, disposing, fabricating and
reprocessing of the Nuclear Material. To the extent required by any applicable
law or regulation, the Lessee shall attach to the Nuclear Material the form of
required notice to protect or disclose the ownership of the Lessor or that the
Nuclear Material is leased. So long as no Lease Event of Default shall have
occurred and be continuing, the Lessor will assign or otherwise make available
to the Lessee all of its rights under any Manufacturer's warranty on Nuclear
Material. The Lessee shall pay all costs, expenses, fees and charges, except
Acquisition Costs, incurred by the Lessee in connection with the use and
operation of the Nuclear Material during the term of the lease of such Nuclear
Material. The Lessee hereby assumes all risks of loss or damage of Nuclear
Material however caused and shall, at its own expense, keep the Nuclear Material
in good operating condition and repair, reasonable wear and tear, obsolescence
and exhaustion excepted.
(e) Assignment by Lessor. Except as otherwise herein provided,
the Lessor may not, without the prior written consent of the Lessee, sell,
assign, transfer or convey the Nuclear Material or any interest therein or in
the Lease Agreement, or grant to any party a security interest in, or create a
lien or encumbrance upon, all or any part of its right, title and interest in
this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of
written notice from the Lessor of any assignment by the Lessor of Rents or other
sums payable by the Lessee under this Lease Agreement, the Lessee shall make
such payments as directed in such notice of assignment, and such payments shall
discharge the obligations of the Lessee hereunder to the extent of such
payments. The Lessee hereby consents to the security interest and other rights
and interests granted to the Secured Parties under the Security Agreement, dated
as of the date first above written.
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(f) Liens; Permitted Liens. The Lessee will not directly or
indirectly create or permit to be created or to remain and will discharge any
Lien with respect to the Nuclear Material or any portion thereof, or upon the
Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or
any other sum payable under this Lease Agreement, other than Permitted Liens.
(g) Assignment by Lessee. Notwithstanding any provision of
this Lease Agreement to the contrary, subject to applicable laws and regulations
and so long as no Lease Event of Default shall have occurred and be continuing,
the Lessee may sublease the Nuclear Material provided that (i) the Lessee has
given prior written notice of such sublease to the Lessor, (ii) such sublease is
not inconsistent with, and is expressly subject to, this Lease Agreement and
(iii) such sublease does not in any way limit or affect the Lessee's duties and
obligations under this Lease Agreement.
(h) Transfer of Title to Manufacturers. The parties recognize
that, during the processing and reprocessing of Nuclear Material before and
after its utilization in the Generating Facility for the production of power,
the Manufacturer performing services on the Nuclear Material may require that
title thereto be transferred to such Manufacturer and/or that the Nuclear
Material be commingled with other nuclear material, with an obligation for the
Manufacturer, upon completion of the services, to reconvey a specified amount of
nuclear material. The standard enrichment contracts of the Department of Energy
contain such provisions. Therefore, the parties agree that (i) Nuclear Material
may become subject to such a contract provision and that the action contemplated
by such a provision may be taken, notwithstanding any provision of this Lease
Agreement to the contrary, (ii) as between the Lessor and the Lessee, such
Nuclear Material shall be deemed to remain leased under this Lease Agreement
while title thereto is in the Manufacturer, and (iii) the nuclear material
exchanged by the Manufacturer upon completion of its services shall be
automatically leased under this Lease Agreement in substitution for the Nuclear
Material originally delivered to the Manufacturer.
(i) Substitution of Nuclear Material. The Lessee shall be
permitted to exchange Nuclear Material for other Nuclear Material of equal or
greater fair market value provided that the Lessor receives title to such
substituted Nuclear Material free and clear of any Lien other than such Liens as
may be created by the Security Agreement or permitted under Section 10(h). Any
additional costs incurred in order to effect such an exchange shall be paid by
the Lessor in accordance with the procedures set forth in Section 6(c) and shall
be added to the Acquisition Cost of the
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Nuclear Material. A supplemental Leasing Record dated the date that the Lessor
makes such further payment shall be signed by the Lessor and the Lessee to
record the revised Acquisition Cost and shall include a full description of the
substituted Nuclear Material, notice of any change in location and such
additional details upon which the parties may agree.
(j) Spent Fuel. Without the consent of the Lessor, the Lessee
shall not permit any Nuclear Material, which shall have been removed from a
Generating Facility for the purpose of "cooling-off," storage, repair or
reprocessing to be removed from the site of the Generating Facility unless (i)
the new site of such Nuclear Material is a facility maintaining liability
insurance and indemnification fully insuring and indemnifying the Lessor, the
Lessee and the Secured Parties under the Atomic Energy Act and any other
applicable law, rule or regulation, and (ii) except if the lease term is
extended pursuant to the second sentence of Section 8(g), the lease of such
Nuclear Material shall, concurrently with its removal from the Generating
Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or
18 hereof, as applicable, with the Lessee acquiring the ownership thereof
pursuant to Section 8(e), 8(g) or Section 18(c), as applicable.
11. Permitted Contests. The Lessee at its expense may, in its own
name or, if necessary and permitted, in the name of the Lessor (and, if
necessary but not so permitted, the Lessee may require the Lessor to) contest
after prior notice to the Lessor, by appropriate legal or administrative
proceedings conducted in good faith and with due diligence, the amount, validity
or application, in whole or in part, of any Imposition or Lien therefor, or any
Legal Requirements or Insurance Requirements, or any matter underlying Lessee's
indemnity obligations under Section 13 hereof, or any other Lien or contract or
agreement referred to in Section 10(f) hereof; provided that (i) in the case of
an unpaid Imposition or Lien therefor, such proceedings shall suspend the
collection of such Imposition or the enforcement of such Lien against the
Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion
thereof nor the taking of any step necessary or proper with respect to such
Nuclear Material in any stage of the Nuclear Material Cycle nor the performance
of any other act required to be performed by the Lessee under this Lease
Agreement would be enjoined, prevented or otherwise interfered with, (iii) the
Lessor would not be subject to any additional civil liability (other than
interest which the Lessee agrees to pay) or any criminal liability for failure
to pay any such Imposition or to comply with any such Legal Requirements or
Insurance Requirements or any such other Lien, contract or agreement, and (iv)
the Lessee shall have set aside on its books adequate reserves (in accordance
with generally accepted accounting
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principles) and shall have furnished such security, if any, as may be required
in the proceedings or reasonably requested by the Lessor. The Lessee will pay,
and save the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties
harmless against, all losses, judgments, decrees and costs, including attorneys'
fees and expenses, in connection with any such contest and will, promptly after
the determination of such contest, pay and discharge the amounts which shall be
levied, assessed or imposed or determined to be payable, together with all
penalties, fines, interest, costs and expenses incurred in connection with such
contest. All rights and indemnification obligations under this Section 11 and
each other indemnification obligation in favor of the Lessor, the Owner Trustee,
U.S. Trust and the Secured Parties under this Lease Agreement shall survive any
termination of this Lease Agreement or of the lease of any Nuclear Material
hereunder.
12. Insurance; Compliance with Insurance Requirements. The Lessee
shall comply with all Insurance Requirements and with all Legal Requirements
pertaining to insurance. Without limiting the foregoing:
(a) Liability and Casualty Insurance. The Lessee shall, at its
own cost and expense, procure and maintain, or cause to be procured and
maintained, liability insurance and indemnification with respect to the Nuclear
Material insuring and indemnifying the Lessor, the Owner Trustee, U.S. Trust,
the Lessee, and the Secured Parties to the full extent required or available,
whichever may be greater, under the Atomic Energy Act or under any other
applicable law, rule or regulation. In the event the provisions of the Atomic
Energy Act with respect to liability insurance and the indemnification of
owners, licensees and operators of Nuclear Material or any other provisions of
the Atomic Energy Act which benefit the Lessor, the Owner Trustee, U.S. Trust or
the Secured Parties shall change, then the Lessee shall use its best efforts to
obtain equivalent insurance and indemnification agreements from the Nuclear
Regulatory Commission or from such other public and/or private sources from
which such coverage is available. The Lessee shall also, at its own cost and
expense, procure and maintain, or cause to be procured and maintained, physical
damage insurance with respect to the Nuclear Material insuring the Lessor, the
Owner Trustee, U.S. Trust and the Secured Parties against loss or damage to the
Nuclear Material in a manner which is consistent at all times with current
prudent utility industry practice in the United States; provided, however, that
the Lessee shall in any event maintain physical damage insurance coverage for
its Three Mile Island Unit 1 nuclear generating station site, including the
Nuclear Material, in an amount not less than $1.11 billion. Such liability and
physical damage insurance and indemnification agreements may be subject to
deductible amounts
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which do not exceed in the aggregate $5,000,000, and the Lessee may self-insure
with respect to such liability and physical damage insurance and indemnification
agreements to the extent of $5,000,000, provided that such deductible amounts
and such self-insurance are permitted under all applicable law, rules and
regulations.
(b) Third Parties; Insurance Requirements. The Lessee shall
use its best efforts to provide that the Nuclear Material, while in the
possession of third parties, is covered for liability insurance and
indemnification to the maximum extent available, and for physical damage
insurance in an amount not less than the Stipulated Casualty Value of such
Nuclear Material. To the extent that any such third party is maintaining such
insurance coverage for the Nuclear Material, the Lessee shall have no obligation
to do so under this Lease Agreement.
(c) Named Insureds; Loss Payees. The Lessee shall provide for
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named
additional insureds where possible, and, with respect to physical damage
coverage, named loss payees to the full extent of their interests in all
insurance policies and indemnification agreements relating to the Nuclear
Material required under this Section. All such policies and, where possible,
indemnification agreements, shall provide for at least ten (10) days' prior
written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral
Agent of any cancellation or material alteration of such policies.
(d) Insurance Certificates. The Lessee shall, upon request of
the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the
Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may
be, with copies of the policies or insurance certificates in respect of the
insurance procured pursuant to the provisions of this Section and shall advise
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all
expirations and renewals of policies and all notices issued by the insurers with
respect to such policies. Within a six-month period from the execution of this
Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate
as to the insurance coverage provided pursuant to this Section and shall further
give notice as to any material change in the nature or availability of such
coverage, including any material change whatsoever in the provisions of the
Atomic Energy Act or any other applicable law, rule or regulation with respect
to liability insurance and indemnification, or, immediately after the Lessee
becomes aware, or should reasonably be expected to become aware, of any material
change in the application, interpretation or
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enforcement thereof. The Lessor, the Owner Trustee, U.S. Trust or the Collateral
Agent shall be under no duty to examine such insurance policies or
indemnification agreements or to advise the Lessee in case the Lessee is not in
compliance with any Insurance Requirements.
13. Indemnity. Without limitation of any other provision of this
Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold
harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured
Parties and all companies, persons or firms controlling, controlled by, or under
common control with any of them and the respective shareholders, directors,
officers and employees of the foregoing against any and all claims, demands and
liabilities of whatever nature and all costs, losses, damages, obligations,
penalties, causes of action, judgments and expenses (including attorneys' fees
and expenses) directly or indirectly relating to or in any way arising out of:
(a) defects in title to Nuclear Material upon acquisition by
the Lessor or in ownership of and interest in the Nuclear Material (the term
"Nuclear Material" when used in this Section 13 shall include, in addition to
all other Nuclear Material, nuclear material the lease of which has been
terminated and which is in storage, or is being transported to storage, and
which has not been sold or disposed of by the Lessor to the Lessee or to a third
party);
(b) the ownership, licensing, ordering, rejection, use,
nonuse, misuse, possession, control, installation, acquisition, storage,
containerization, transportation, blending, transfer, consumption, leasing,
insuring, operating, disposing, fabricating, channelling, refining, milling,
enriching, conversion, cooling, processing, condition, operation, inspection,
repair and reprocessing of the Nuclear Material, or resulting from the condition
of the environment including the adjoining and/or underlying land, water,
buildings, streets or ways, except to the extent that such costs are included in
the Acquisition Cost of such Nuclear Material within the limits specified in
Section 4 (or within any change of such limits agreed to in writing by the
Lessor and the Lessee) and except for any general administrative expenses of the
Secured Parties and of their representatives;
(c) the assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of any Nuclear Material; provided, however, that the Lessor shall have
made available to the Lessee all of the Lessor's rights under any similar
indemnification from the Manufacturer of such Nuclear Material under any Nuclear
Material Contract;
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(d) all federal, state, county, municipal, foreign or other
fees and taxes of whatever nature including, but not limited to, license,
qualification, franchise, sales, use, business, gross receipts, ad valorem,
property, excise, and occupation fees and taxes and penalties and interest
thereon, whether assessed, levied against or payable by the Lessor or any
Secured Party or to which the Lessor or any Secured Party is subject with
respect to the Nuclear Material or the Lessor's or any Secured Party's ownership
thereof or interest therein or the licensing, ordering, ownership, use,
possession, control, acquisition, storage, containerization, transportation,
blending, milling, enriching, transfer, consumption, leasing, insuring,
operating, disposing, fabricating, channelling, refining, conversion, cooling
and reprocessing of Nuclear Material or measured in any way by the value thereof
or by the business of investment in, financing of or ownership by the Lessor or
any Secured Party with respect thereto; provided, however, that the Lessee shall
not be obligated to indemnify any Secured Party for any taxes, whether federal,
state or local, based on or measured by net income of any Secured Party where
taxable income is computed in substantially the same manner as taxable income is
computed under the Code;
(e) any injury to or disease, sickness or death of persons or
loss of or damage to property occurring through or resulting from any Nuclear
Incident involving or connected in any way with the Nuclear Material or any
portion thereof;
(f) any violation, or alleged violation, of this Lease
Agreement by the Lessee or of any contracts or agreements to which the Lessee is
a party or by which it is bound or any laws, rules, regulations, orders, writs,
injunctions, decrees, consents, approvals, exemptions, authorizations, licenses
and withholdings of objection, of any governmental or public body or authority
and all other requirements having the force of law applicable at any time to the
Nuclear Material or any action or transaction by the Lessee with respect thereto
or pursuant to this Lease Agreement;
(g) performance of any labor or service or the furnishing of
any materials in respect of the Nuclear Material or any portion thereof, except
to the extent that such costs are included in the Acquisition Cost of such
Nuclear Material within the limits specified in Section 4 (or within any change
of such limits agreed to in writing by the Lessor and the Lessee); or
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(h) liabilities based upon a theory of strict liability in
tort, negligence or willful acts to the extent that such liabilities relate to
the Nuclear Material or any action or transaction with respect thereto or
pursuant to this Lease Agreement.
The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S.
Trust, the Secured Parties or other indemnified parties, as the case may be, for
any sum or sums expended with respect to any of the foregoing or advance such
amount, upon request by the Lessor, the Owner Trustee, U.S. Trust, the Secured
Parties or such other party for payment thereof. With respect solely to the
Lessor, the amount of any payment obligation of the Lessee under this Section 13
shall be determined on a net, after-tax basis, taking into account any tax
benefit to the Lessor. Notwithstanding the foregoing, the Lessee shall not
indemnify or hold harmless the Lessor, the Owner Trustee, U.S. Trust, the
Secured Parties or other indemnified parties for (i) any claims, demands,
liabilities, costs or expenses which arise, result from or relate to obligations
of such party as an insurer under contracts or agreements of insurance or
reinsurance or (ii) any liability arising from the willful misconduct or gross
negligence of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or
other indemnified parties; provided, however, that the Lessee shall in any event
indemnify and hold harmless the Lessor, the Owner Trustee, U.S. Trust, the
Secured Parties and other indemnified parties for that part of any such
liability to which the Lessee has contributed. Without limiting any of the
foregoing provisions of this Section 13, to the extent that the Lessee in fact
indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or
such other party under this indemnity provision, the Lessee shall be subrogated
to the rights of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties
and such other party in the affected transaction and shall have a right to
determine the settlement of claims with respect to such transaction, provided
that any such rights to which the Lessee shall be subrogated shall be
subordinate and subject in right of payment to the prior payment in full of all
liabilities to the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or
other indemnified parties of the person or entity in respect of which such
rights exist. The Lessor shall claim, on a timely basis, any refund to which it
may be entitled with respect to any fees or taxes for which the Lessor has
sought indemnification from the Lessee under Section 13(d), shall take all steps
necessary to prosecute diligently such claim and shall pay over to the Lessee
any refund (together with any interest received thereon) recovered by the Lessor
with respect to such fees or taxes as soon as practicable following receipt
thereof, provided that the Lessee shall have previously indemnified the Lessor
with respect to
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such fees or taxes. The Owner Trustee, U.S. Trust and the Secured Parties, at
the expense of the Lessee, (i) shall cooperate with the Lessee in such manner as
the Lessee shall reasonably request in order to claim, on a timely basis, any
refund to which the Owner Trustee, U.S. Trust or the Secured Parties may be
entitled with respect to any fees or taxes for which the Lessee has indemnified
the Owner Trustee, U.S. Trust or any Secured Party or for which the Lessee has
an obligation to indemnify the Owner Trustee, U.S. Trust or the Secured Parties
under Section 13(d) (provided that the Lessee is not in default of such
obligation) if such cooperation is necessary in order to claim such refund, (ii)
shall take all steps which the Lessee shall reasonably request which are
necessary to prosecute such claim, and (iii) shall pay over to the Lessee any
refund (together with any interest received thereon) recovered by the Owner
Trustee, U.S. Trust or any Secured Party with respect to such fees or taxes as
soon as practicable following receipt thereof, provided that the Lessee shall
have previously indemnified the Owner Trustee, U.S. Trust or such Secured Party
with respect to such fees or taxes. All rights and indemnification obligations
under this Section 13, and each other indemnification obligation in favor of the
Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this
Agreement, shall survive any termination of this Lease Agreement or of the lease
of any Nuclear Material hereunder.
14. Casualty and Other Events. Upon the occurrence of any one or
more of the following events:
(a) the loss, destruction or damage beyond repair of any
Nuclear Material, or
(b) the commandeering, condemnation, attachment or loss of use
to the Lessee of any Nuclear Material by reason of the act of any third party or
governmental instrumentality or the deprivation or loss of use to the Lessee of
any Nuclear Material for any other reason, other than by reason of a Lease Event
of Default, for a period exceeding ninety (90) days; or
(c) a determination by the Lessee in its sole discretion that
any Nuclear Material is no longer useful to the Lessee, provided, however, that
(i) no Lease Event of Default has occurred and is continuing, and (ii) no such
determination may be made by the Lessee with respect to any Nuclear Material
prior to November 5, 1999;
Then, in any such case, the Lessee promptly shall give written
notice to the Lessor and the Secured Parties of any such event, and upon the
earlier of (i) ten (10) days following receipt of any insurance or other
proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120)
days after the
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occurrence of any such event, the Lessee shall pay to the Lessor an amount equal
to the then Stipulated Casualty Value of such Nuclear Material, together with
any Basic Rent and Additional Rent then due with respect to such Nuclear
Material. The lease of such Nuclear Material hereunder and the obligation of the
Lessee to pay Basic Rent and Additional Rent with respect to such Nuclear
Material shall continue until the day on which the Lessor receives payment of
such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon the giving
of written notice of the occurrence of such an event, the Lessee shall promptly
use its best efforts to sell, or, if no sale is possible, to otherwise convey,
on behalf of the Lessor, ownership of such Nuclear Material to a third party not
disqualified by any applicable statute, law, regulation or agreement from
acquiring such Nuclear Material, and the Lessor shall furnish title papers as
may be necessary to effect such sale or conveyance on an as-is, where-is,
non-installment, cash sale basis without recourse to or warranty or agreement of
any kind by the Lessor. Any such sale or conveyance shall be effected on or
before the date one hundred and twenty (120) days after the date of the
occurrence of such event. The proceeds of such sale or conveyance shall be paid
to the Lessor, and any amount so paid shall constitute a credit against the
amount of the Stipulated Casualty Value payable by the Lessee under this Section
14.
15. Nuclear Material to Remain Personal Property. It is expressly
understood and agreed that the Nuclear Material shall be and remain personal
property notwithstanding the manner in which it may be attached or affixed to
realty and notwithstanding any law or custom or the provisions of any lease,
mortgage or other instrument applicable to any such realty. The Lessee agrees to
indemnify the Lessor and the Secured Parties against, and to hold the Lessor and
the Secured Parties harmless from, all losses, costs and expenses (including
reasonable attorneys' fees and expenses) resulting from any of the Nuclear
Material becoming part of any realty. Upon termination of the lease of any
Nuclear Material, any costs of removal, transportation, storage and delivery of
such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured
Parties shall not be liable for any physical damage caused to any realty or any
building by reason of the removal of the Nuclear Material therefrom.
16. Events of Default. Each of the following events of default by
the Lessee shall constitute a "Lease Event of Default" and give rise to the
rights on the part of the Lessor described in Section 17 hereof:
(i) Default in the payment of Basic Rent or Additional
Rent, if any, on the date on which such payment is due and the continuance
of such default for five (5) days;
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(ii) Default in the payment of Termination Rent;
(iii) The Lessee shall fail to maintain liability and
casualty insurance pursuant to its obligations under Section 12(a) of this
Lease Agreement;
(iv) The Lessee shall fail to perform its obligations to
purchase Nuclear Material pursuant to Section 8(e) of this Lease
Agreement;
(v) Any representation or warranty or statement made by
the Lessee (or any of its officers) herein or in connection with this
Lease Agreement shall prove to be incorrect or misleading in any material
respect when made;
(vi) Default in the payment or performance of any other
material liability or obligation or covenant of the Lessee to the Lessor,
and the continuance of such default for thirty (30) days after written
notice to the Lessee sent by registered or certified mail;
(vii) The Lessee suspends or discontinues its business
operations or becomes insolvent (however such insolvency may be evidenced)
or admits insolvency or bankruptcy or its inability to pay its debts as
they mature, makes an assignment for the benefit of creditors or applies
for or consents to the appointment of a trustee or receiver for the Lessee
or for the major part of its property;
(viii) The institution of bankruptcy, reorganization,
liquidation or receivership proceedings for relief under any bankruptcy
law or similar law for the relief of debtors by or against the Lessee and,
if instituted against the Lessee, its consent thereto or the pendency of
such proceedings for sixty (60) days;
(ix) An event of default (the effect of which is to
permit the holder or holders of any instrument, or the trustee or agent on
behalf of such holder or holders, to cause the indebtedness evidenced by
such instrument to become due prior to its stated maturity) shall occur
under the provisions of any instrument evidencing indebtedness for
borrowed money of the Lessee in a principal amount equal to at least
$20,000,000 or if any obligation of the Lessee for the payment of such
indebtedness shall become or be declared to be due and payable prior to
its stated maturity, or shall not be paid
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when due and is not paid within the applicable cure period, if any,
provided for the payment of such indebtedness under such instrument;
(x) An event of default shall occur under the provisions
of any Basic Document and such default shall have continued beyond any
applicable cure period.
(xi) A final judgment in an amount in excess of
$20,000,000 is rendered against the Lessee, and within thirty (30) days
after the entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within thirty (30) days after the
expiration of any such stay, such judgment is not discharged; or
(xii) Other than pursuant to a condemnation proceeding,
any court, governmental officer or agency shall, under color of legal
authority, take and hold possession of any substantial part of the
property or assets of the Lessee.
17. Rights of the Lessor Upon Default of the Lessee. Upon the
occurrence of any Lease Event of Default, the Lessor may, in its discretion, and
shall, at the direction of the Secured Parties, do one or more of the following:
(a) Terminate the lease term of any or all Nuclear Material
upon five (5) days written notice to the Lessee sent by registered or certified
mail;
(b) Whether or not any lease of any Nuclear Material is
terminated, and, subject to any applicable law or regulation, take immediate
possession of any or all Nuclear Material or cause such Nuclear Material to be
taken from the possession of the Lessee, and/or take immediate possession of and
remove other property of the Lessor in the possession of the Lessee, wherever
situated and for such purpose enter upon any premises without liability for so
doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear
Material, properly containerized and insulated for shipping to the Lessor or to
such other person as the Lessor may designate, in which case the risk of loss
shall be upon the Lessee until such delivery is made;
(c) Whether or not any action has been taken under (a) or (b)
above, and subject to any applicable law or regulation, sell any Nuclear
Material (with or without the concurrence and whether or not at the request of
the Lessee) at public or private sale, and the Lessee shall be liable for and
shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the
Lessor of
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the proceeds of such sale plus any deficiency between the net proceeds of such
sale and the Stipulated Casualty Value of such Nuclear Material at the time of
such payment by the Lessee; provided, however, that any proceeds of such sale in
excess of the sum of such unpaid Rent, the Stipulated Casualty Value of such
Nuclear Material and all other amounts payable by the Lessee under this Section
17 shall be received for the benefit of, and shall be paid over to the Lessee,
as soon as practicable after receipt thereof;
(d) Subject to any applicable law or regulation, sell in a
commercially reasonable manner, dispose of, hold, use, operate, remove, lease or
keep idle any Nuclear Material as the Lessor in its sole discretion may
determine, without any obligation to account to the Lessee with respect to such
action or inaction or for any proceeds thereof, except that the net proceeds of
any such selling, disposing of, holding, using, operating or leasing shall be
credited by the Lessor against any Rent accruing after the Lessor shall have
declared this Lease Agreement as to any or all of the Nuclear Material to be in
default pursuant to this Section; provided, however, that any net proceeds of
any such selling, disposing of, holding, using, operating or leasing in excess
of the sum of any such accrued Rent and all other amounts payable by the Lessee
under this Section 17 shall be received for the benefit of, and shall be paid
over to the Lessee, as soon as practicable after receipt thereof;
(e) Terminate this Lease Agreement as to any or all of the
Nuclear Material or exercise any other right or remedy which may be available
under applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof. If the Lessee fails to
deliver, promptly after written request, the Nuclear Material pursuant to (b),
above, subject to reasonable wear and tear, obsolescence and exhaustion, in good
operating condition and repair, or converts or destroys any Nuclear Material,
the Lessee shall be liable to the Lessor for all Rent then due and payable on
the Nuclear Material, all other amounts then due and payable under this Lease
Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any
loss, damage and expense (including without limitation reasonable attorneys'
fees and expenses) sustained by the Lessor by reason of such Lease Event of
Default and the exercise of the Lessor's remedies with respect thereto,
including any costs incurred under the Credit Agreement and the Security
Agreement, and any other amounts owed to the Secured Parties with respect to the
Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers
Nuclear Material to the Lessor or to such other person as the Lessor may
designate, or if the Lessor repossesses or causes Nuclear Material to be
repossessed on its behalf, the Lessee
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shall be liable for and the Lessor may recover from the Lessee all Rent on the
Nuclear Material due and payable to the date of such delivery or repossession,
all other amounts due and payable under this Lease Agreement, plus any loss,
damage and expense (including without limitation reasonable attorneys' fees and
expenses) sustained by the Lessor by reason of such Lease Event of Default and
the exercise of the Lessor's remedies with respect thereto. No remedy referred
to in this Section 17 is intended to be exclusive, but each shall be cumulative
and in addition to any other remedy referred to above or otherwise available to
the Lessor at law or in equity and the exercise in whole or in part by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all such other remedies. No waiver by
the Lessor of any Lease Event of Default shall in any way be, or be construed to
be, a waiver of any future or subsequent Lease Event of Default.
18. Termination After Certain Events.
(a) This Lease Agreement may terminate as provided in Section
18(b) below prior to the expiration of its term in connection with any of the
following "Terminating Events":
(i) The Lessor shall have given notice that the Lessor
is not satisfied with any change in the insurers, coverage, amount or
terms of any insurance policy or indemnity agreement required to be
obtained and maintained by the Lessee pursuant to Section 12;
(ii) There shall occur the revocation or material
adverse modification of any authorization, consent, exemption or approval
theretofore obtained from any regulatory body or governmental authority
necessary for the carrying out of the intent and purposes of this Lease
Agreement or the actions or transactions contemplated hereby, and the
effectiveness of any such revocation or material adverse modification
shall not be stayed pending any appeal thereof;
(iii) A Nuclear Incident involving or connected in any
way with the Nuclear Material shall have occurred, and the Lessor shall
have given notice to the Lessee that the Lessor believes such Nuclear
Incident may give rise to an aggregate liability, or to damage,
destruction or personal injury in excess of $20,000,000;
(iv) There shall have occurred a Deemed Loss Event;
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(v) Any change in, or new interpretation by a
governmental authority having jurisdiction relating to, the Price-Anderson
Act, as amended, or the Atomic Energy Act, or the regulations of the
Nuclear Regulatory Commission thereunder, in each case as in effect on the
date of this Lease Agreement, shall have been adopted, and the Lessor
shall have given notice to the Lessee that, in the opinion of independent
counsel selected by the Lessor and reasonably satisfactory to the Lessee
and the Secured Parties as a result of such change or new interpretation
the Lessor is prohibited from asserting any material right, protection or
defense available under applicable law as of the date of this Lease
Agreement with respect to civil or criminal actions brought in connection
with a Nuclear Incident;
(vi) Any law or regulation or interpretation (judicial,
regulatory or otherwise) of any law or regulation shall be adopted or
enforced by any Court or governmental authority, and as a result of such
adoption or enforcement, approval of the transactions contemplated by this
Lease Agreement shall be required and shall not have been obtained within
any applicable grace period after such adoption or enforcement or as a
result of which adoption or enforcement this Lease Agreement or any
transaction contemplated hereby, including any payments to be made by the
Lessee or the ownership of the Nuclear Material by the Lessor, shall be or
become unlawful, or the performance of this Lease Agreement shall be
rendered impracticable in any material way; or
(vii) Any governmental licenses, approvals or consents
with respect to the Generating Facility, without which the Generating
Facility cannot continue to operate, shall have been revoked and the
Lessee shall not have, in good faith, within one hundred and eighty (180)
days of such revocation, represented in writing to the Lessor that the
Lessee has made a good faith determination that such Generating Facility
will return to operation within twenty-four (24) months of such
revocation, or for any other reason the Generating Facility shall cease to
be operated for a period of twenty-four (24) consecutive months.
(b) Upon the happening of any of the Terminating Events listed
in Section 18(a), Lessor and/or the Secured Parties may, at their option,
terminate this Lease Agreement, such termination to be effective upon delivery
of the Notice contemplated by paragraph (d)(ii) below, except with respect to
obligations and liabilities of the Lessee, actual or contingent, which arose
under the Lease Agreement on or prior to the date of
27
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termination and except for the Lessee's obligations set forth in Sections 10, 12
and 13, and in this Section 18, all of which obligations will continue until the
delivery of documentation by the Lessor and the payment by the Lessee provided
for below, and except that after such delivery and payment, the Lessee's
obligations under Section 13 shall continue as therein set forth as shall all of
Lessee's indemnification obligations set forth in other sections of this Lease
Agreement.
(c) Upon any such termination, the entire interest of the
Lessor in the Nuclear Material and any spent fuel relating thereto for which
title has not been transferred to the Lessee shall automatically transfer to and
be vested in the Lessee, without the necessity of any action by either the
Lessor or the Lessee, provided, however, that if the Lessor shall have
theretofore approved in writing such Person and the terms of such transfer, the
entire interest of the Lessor in such Nuclear Material and any spent fuel
relating thereto for which title has not been transferred to the Lessee shall,
upon such termination, automatically transfer to and be vested in any Person
designated by the Lessee.
(d) (i) Promptly after either party shall learn of the
happening of any Terminating Event, such party shall give notice of the same to
the other party and to the Secured Parties.
(ii) If the Lessor and/or Secured Parties elect to terminate the Lease
Agreement, they shall give notice to the Lessee and the Secured Parties or the
Lessor, as the case may be, which notice shall (x) acknowledge that the Lease
Agreement has terminated, subject to the continuing obligations of the Lessee
mentioned above, and that title to and ownership of such Nuclear Material and
any spent fuel relating thereto for which title has not been transferred to the
Lessee has transferred to and vested in the Lessee or such other Person, and (y)
specify a Termination Settlement Date occurring one hundred and fifty (150) days
after the giving of such notice. After such termination of this Lease Agreement
and until such Termination Settlement Date, the Lessee shall continue to pay
Basic Rent and Additional Rent. On such Termination Settlement Date, the Lessee
shall be obligated to pay to the Lessor as the purchase price for the Nuclear
Material an amount equal to the sum of (x) Stipulated Casualty Value of the
Nuclear Material as of the Termination Settlement Date and (y) the Termination
Rent on the Termination Settlement Date. The Lessor shall be obligated to
deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of
Exhibit E, on an as-is, where-is, non-installment, cash sale basis, without
recourse to or warranty or agreement of any kind
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<PAGE>
by the Lessor acknowledging the transfer and vesting of title and ownership of
the Nuclear Material and any spent fuel relating thereto for which title has not
been transferred to the Lessee, in accordance with paragraph (c) above and
confirming that upon payment by the Lessee of the amounts set forth in the
immediately preceding sentence, the Nuclear Material is free and clear of the
Liens created by the Collateral Agreements, together with such documents, if
any, as may be required to evidence the release of such Liens.
19. Investment Tax Credit. To the extent that the Lessee determines
the Nuclear Material is or becomes eligible for any investment or similar credit
under the Code as now or hereafter in effect, the Lessee shall request in
writing that the Lessor elect to treat the Lessee as having acquired such
Nuclear Material, and, if permitted to do so under the Code and under any other
applicable law, rule or regulation, the Lessor, pursuant to such request of the
Lessee, shall provide the Lessee with an appropriate investment credit election
and the Lessee shall consent to such election. A condition to the Lessor's
making such election will be the provision by the Lessee of a report or
statement with respect to all Nuclear Material as to which the investment credit
election is applicable. Such report or statement shall contain such information
and be in such form as may be required for Internal Revenue Service reporting
purposes. The Lessee shall indemnify and hold harmless the Lessor and any
affiliates with respect to any adverse tax consequence, other than the loss of
the credit, which may result from such election including, but not limited to,
any increase in the Lessor's income taxes due to any required reduction of the
Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the
Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available
to the Lessor, funds sufficient to put the Lessor in the same after-tax position
(other than by reason of the loss of the investment credit) the Lessor would
have been in if such election had not been made.
29
<PAGE>
20. Certificates; Information; Financial Statements.
(a) The Lessee will from time to time deliver to the Lessor
and the Secured Parties, promptly upon reasonable request (i) a statement
executed by any Vice President, Treasurer or Assistant Treasurer or any other
assistant officer of the Lessee, certifying the dates to which the sums payable
hereunder have been paid, that this Lease Agreement is unmodified and in full
effect (or, if there have been modifications, that this Lease Agreement is in
full effect as modified, and identifying such modifications) and that no Lease
Event of Default or Terminating Event has occurred and is continuing (or
specifying the nature and period of existence of any thereof and what action the
Lessee is taking or proposes to take with respect thereto), (ii) such
information with respect to the Nuclear Material as the Lessor or the Secured
Parties may reasonably request, and (iii) such information with respect to the
Lessee's operations, business, property, assets, financial condition or
litigation as the Lessor or any assignee of the Lessor or the Secured Parties
may reasonably request.
(b) The Lessee will deliver to the Lessor and the Secured
Parties:
(i) Quarterly Financial Statements. As soon as
practicable and in any event within ninety (90) days after the end of each
fiscal quarter (other than the last fiscal quarter in each fiscal year),
three (3) copies of a balance sheet of the Lessee (consolidated and
consolidating if the Lessee has any subsidiaries) as of the end of such
quarter and of statements of income and cash flows of the Lessee
(consolidated and consolidating if the Lessee has any subsidiaries) for
such quarter, setting forth in each case corresponding figures in
comparative form for the corresponding period of the preceding fiscal
year, each certified as true and correct by the chief accounting officer
thereof; provided, however, that delivery pursuant to clause (iii) below
of copies of the Lessee's Quarterly Report on Form 10-Q for such quarter
containing such financial statements filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
clause (i);
(ii) Annual Financial Statements. As soon as practicable
and in any event within one hundred and twenty (120) days after the end of
each fiscal year, three (3) copies of an annual report of the Lessee
consisting of its financial statements, including a balance sheet as of
the end of such fiscal year (consolidated and consolidating if the Lessee
has
30
<PAGE>
any subsidiaries) and statements of income and cash flows for the year
then ended (consolidated and consolidating if the Lessee has any
subsidiaries), setting forth corresponding figures in comparative form for
the preceding fiscal year, with all notes thereto, all in reasonable
detail and certified by independent public accountants of recognized
standing selected by the Lessee (only with respect to the consolidated
financial statements, if applicable); provided, however, that delivery
pursuant to clause (iii) below of copies of the Lessee's Annual Report on
Form 10-K for such fiscal year containing such financial statements filed
with the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (ii); and
(iii) SEC Reports, etc. With reasonable promptness,
copies of all notices, reports or materials filed by the Lessee with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission)
under the Securities Act of 1933, as amended, other than Registration
Statements on Form S-8 or any amendments thereto, or the Securities
Exchange Act of 1934, as amended, other than Annual Reports on Form 10-K,
and including without limitation, all Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Together with each delivery of financial statements required by clause (b)(i)
above, the Lessee will deliver to the Lessor and the Secured Parties an
Officer's Certificate stating that the Lessee is in compliance with the terms of
this Lease Agreement and stating that there exists no Lease Event of Default, or
Terminating Event or, if any Lease Event of Default, or Terminating Event
exists, specifying the nature and period of existence thereof and what action
the Lessee proposes to take with respect thereto. The Lessee also covenants that
promptly upon the obtaining of knowledge of a Lease Event of Default by the
chief executive officer, principal financial officer or principal accounting
officer of the Lessee, it will deliver to the Lessor and the Secured Parties an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Lessee proposes to take with respect thereto.
21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to
pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and
all other amounts payable hereunder shall, subject to the covenant of the Lessor
contained in Section 3 hereof, be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which the Lessee
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may have against the Lessor or anyone else for any reason whatsoever, (ii) any
defect in the title, compliance with specifications, condition, design,
operation or fitness for use of, or any damage to or loss or destruction of, any
Nuclear Material, or (iii) any interruption or cessation in the use or
possession of any Nuclear Material by the Lessee for any reason whatsoever. The
Lessee hereby waives, to the extent permitted by applicable law, any and all
rights which it may now have or which at any time hereafter may be conferred
upon it, by statute or otherwise, to terminate, cancel, quit or surrender this
Lease Agreement except in accordance with its express terms. Each payment of
Rent and each other payment made by the Lessee shall be final, and the Lessee
will not seek to recover all or any part of such payment from the Lessor for any
reason whatsoever.
22. Miscellaneous.
(a) Successors and Assigns. This Lease Agreement shall be
binding upon the Lessee and the Lessor and their respective successors and
assigns and shall inure to the benefit of the Lessee and the Lessor and their
respective successors and assigns.; provided that, without the prior written
consent of all the Secured Parties, the Lessee shall not be entitled to assign
its rights or obligations hereunder.
(b) Waiver. Neither party shall by act, delay, omission or
otherwise be deemed to have waived any of its rights or remedies hereunder
unless such waiver is given in writing. A waiver on one occasion shall not be
construed as a waiver on any other occasion.
(c) Entire Agreement. This Lease Agreement, together with the
written instruments provided for or contemplated hereby, the other Basic
Documents and other written agreements between the parties dated as of the date
hereof, constitute the entire agreement between the parties with respect to the
leasing of Nuclear Material, and no representations, warranties, promises,
guaranties or agreements, oral or written, express or implied, have been made by
either party or by any one else with respect to this Lease Agreement or the
Nuclear Material, except as may be expressly provided for herein or therein. Any
change or modification of this Lease Agreement must be in writing and duly
executed by the parties.
(d) Descriptive Headings. The captions in this Lease Agreement
are for convenience of reference only and shall not be deemed to affect the
meaning or construction of any of the provisions.
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(e) Severability. Any provision of this Lease Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
(f) Governing Law. This Lease Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the law of the Commonwealth of Pennsylvania.
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<PAGE>
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Agreement to be executed and delivered by their duly authorized officers as of
the day and year first above written.
TMI-1 FUEL CORP.
Lessor
ATTEST
By:
- ----------------------- --------------------------------
(Assistant) Secretary Name:
--------------------------------
Title:
--------------------------------
METROPOLITAN EDISON COMPANY
Lessee
ATTEST
By:
- ----------------------- --------------------------------
(Assistant) Secretary Name:
--------------------------------
Title:
--------------------------------
34
<PAGE>
STATE OF )
---------------------
COUNTY OF ) SS:
--------------
On this --- day of ----------, 1998, before me personally appeared ,
to me personally known, who, being by me duly sworn, says that he is of TMI-1
Fuel Corp. and that said instrument was signed on behalf of said corporation by
authority of its Board of Directors, and he acknowledged that the execution of
the foregoing instrument was the free act and deed of said corporation.
--------------------------------
Notary Public
My commission Expires:
STATE OF )
---------------------
COUNTY OF ) SS:
--------------
On this --- day of -----------, 1998, before me personally appeared
- --------------, to me personally known, who, being by me duly sworn, says that
he is a --------------- of Metropolitan Edison Company and that said instrument
was signed on behalf of said corporation by authority of its Board of Directors,
and he acknowledged that the execution of the foregoing instrument was the free
act and deed of said corporation.
---------------------------------
Notary Public
My commission Expires:
35
<PAGE>
ATTACHMENTS
Appendix A -- Definitions
Exhibit A -- Form of Interim Leasing Record
Exhibit B -- Form of Final Leasing Record
Exhibit C -- Nuclear Material Contracts
Exhibit D -- Form of Assignment Agreement and Consent
Exhibit E -- Form of Lessor's Bill of Sale
Exhibit F -- Form of Rent Due and SCV Confirmation Schedule
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APPENDIX A
DEFINITIONS
As used in the Basic Documents (as defined below), the following
terms shall have the following meanings (such definitions to be applicable to
both singular and plural forms of the terms defined), except as otherwise
specifically defined therein:
"Acquisition Cost" means the purchase price of any Nuclear Material,
any progress payments made thereon, costs of milling, conversion, enrichment,
fabrication, installation, delivery, redelivery, containerization, storage,
reprocessing, any other costs incurred by the Company in acquiring the Nuclear
Material (less any discounts or credits actually utilized by the Company), plus
in any case (i) any allowance for funds used during construction (including any
income tax component associated with such allowance) with respect to Nuclear
Material purchased by the Company, (ii) at the option of the Lessee, any Rent
relating to costs incurred in the ordinary course of operations but excluding
Rent relating to extraordinary costs, including without limitation,
indemnification payments, payable by the lessee to the Company with respect to
any Nuclear Material prior to the installation of such Nuclear Material for
operation in the Generating Facility, (iii) any sales, excise or other taxes or
charges payable by the Company with respect to any such payment for such Nuclear
Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable
by the Lessee to the Company with respect to Nuclear Material during any period
in which such Nuclear Material is subject to an Interim Leasing Record, but
excluding any interest charges or penalties for late payment by the Company of
the purchase price or any portion thereof, if such late payment results from the
negligence of the Company, (v) such other costs with respect to any Nuclear
Material as may be agreed by the Company and the Lessee and approved by the
Administrative Agent, in each case in writing, and, in the case of any Nuclear
Material removed from the Generating Facility for the purpose of "cooling off'
and repair or reprocessing, shall include the Stipulated Casualty Value thereof
at the time of such removal, if any, and (vi) at the option of the Lessee, any
Financing Costs. Any amount realized by the Company from the disposition of the
by-products (including, but not limited to, plutonium) of Nuclear Material
specified in a Leasing Record during the repair or reprocessing of such Nuclear
Material while leased hereunder shall be credited against the Acquisition Cost
of such Nuclear Material.
"Additional Rent" shall mean all legal, accounting, administrative
and other operating expenses and taxes incurred by the Company to the extent not
paid as part of Basic Rent (including, without limitation, any Cancellation Fees
and all other
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liabilities incurred or owed by the Company pursuant to the Basic Documents) and
all amounts (other than Basic Rent) that the Lessee agrees to pay under the
Lease Agreement (including, without limitation, indemnification payable under
the Lease Agreement, general and administrative expenses of the Company, and, to
the extent not included in Acquisition Cost, Financing Costs) and interest at
the rate incurred by the Company or any Secured Party as a result of any delay
in payment by the Lessee to meet obligations that would have been satisfied out
of prompt payment by the Lessee, and the amount of any and all other costs,
losses, damages, interest, taxes, deficiencies, liabilities, obligations,
actions, judgments, suits, claims, fees (including, without limitation,
attorneys' fees and disbursements) and expenses, of every kind, nature,
character and description, direct or indirect, that may be imposed on or
incurred by the Company as a result of, arising from or relating to, in any
manner whatsoever, one or more Basic Documents, or any other document referred
to therein, or the transactions contemplated thereby or the enforcement thereof.
For purposes of calculating the interest incurred by the Company or any Secured
Party as a result of any such delay, it shall be assumed that the Company or any
Secured Party, as applicable, incurred interest at the Credit Agreement Default
Rate.
"Administrative Agent" shall have the meaning specified therefor in
the first paragraph of the Credit Agreement.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, the term "control," as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Monthly Rent Component" shall mean the sum of the Monthly
Rent Components for all items of Nuclear Material which are installed in the
Generating Facility during the relevant period.
"Assigned Agreement" means a Nuclear Material Contract which has
been assigned to the Company in the manner specified in Section 5 of the Lease
Agreement pursuant to a duly executed and delivered Assignment Agreement. The
term Assigned Agreement shall include a Partially Assigned Agreement.
"Assignment Agreement" means an assignment agreement substantially
in the form of Exhibit D to the Lease Agreement.
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"Atomic Energy Act" means the Atomic Energy Act of 1954, as from
time to time amended.
"Banks" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Basic Documents" means the Lease Agreement, the Credit Agreement,
the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement,
the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the
Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing
Record, each SCV Confirmation Schedule, and other agreements related or
incidental thereto which are identified in writing by the Company, the Lessee
and the Secured Parties as one of the "Basic Documents," in each case, as such
documents may be amended from time to time.
"Basic Rent" means, for any Basic Rent Period, the sum of (a) that
portion of the Monthly Financing Charge not allocated to Acquisition Cost
pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as
shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period.
"Basic Rent Payment Date" means, for any Basic Rent Period, the
first Business Day of the next succeeding calendar month following such Basic
Rent Period.
"Basic Rent Period" means each calendar month or portion thereof
commencing on, in the case of the first such period, the effective date of the
Lease Agreement, and in the case of each succeeding period, the first day
following the immediately preceding Basic Rent Period, and ending on the
earliest of (i) the last day of any calendar month or (ii) the Termination
Settlement Date.
"BTU Charge" means the dollar amount set forth in the BTU Charge
Agreement which is used to calculate the Monthly Rent Component. The BTU Charge
initially set forth for any Nuclear Material in any Final Leasing Record shall
be the amount agreed upon by the Lessor and the Lessee as set forth in
Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably
anticipated operating life, BTU output, and utilization of such Nuclear
Material.
"BTU Charge Agreement" shall mean an agreement in the form of
Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear
Material executed by the Lessor and the Lessee on or prior to the date of the
Final Leasing Record covering such Nuclear Material.
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"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which banking institutions in New York City are authorized by law
to close.
"Capitalized Lease" means any and all lease obligations which are or
should be capitalized on the balance sheet of the Person in question in
accordance with generally accepted accounting principles and Statement No. 13 of
the Financial Accounting Standards Board or any successor to such pronouncement
regarding lease accounting, without regard for the accounting treatment
permitted or required under any applicable state or federal public utility
regulatory accounting system, unless such treatment controls the determination
of the generally accepted accounting principles applicable to such Person.
"Cash Collateral" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Closing," means November 5, 1998.
"Code" means the Internal Revenue Code of 1986, as from time to time
amended.
"Collateral" has the meaning set forth in the granting clauses of
the Security Agreement and includes all property of the Company described in the
Security Agreement as comprising part of the Collateral.
"Collateral Agent" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Collateral Agreements" means, collectively, the Security Agreement,
all Assignment Agreements, and any other assignment, security agreement or
instrument executed and delivered to the Secured Parties hereafter relating to
property of the Company which is security for the Notes.
"Collected Funds" means funds which are immediately available to the
Secured Parties, as the Lessor's assignees, for its use in New York, New York.
"Commercial Paper" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Commercial Paper Discount" shall mean, at any time, amounts payable
by the Company in respect of the Face Amount of Commercial Paper outstanding in
excess of the Acquisition Cost together with any Cash Collateral reduced by the
aggregate total
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amount, if any, of (i) the Monthly Rent Components paid by the Lessee to the
Lessor with respect to the Nuclear Material financed thereby and (ii) any
Monthly Financing Charge payable by the Lessee to the Company with respect to
Nuclear Material during any period in which such Nuclear Material is subject to
an Interim Leasing Record ("Excess Face Amount"); provided, however, that any
such Excess Face Amount shall not exceed the additional Face Amount of
Commercial Paper necessary to be issued by the Company at a discount to face
value to purchasers thereof in the commercial paper market in order to obtain
proceeds in an amount equal to the Acquisition Cost reduced by the aggregate
total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to
the Lessor with respect to the Nuclear Material financed thereby and (b) any
Monthly Financing Charge payable by the Lessee to the Company with respect to
Nuclear Material during any period in which such Nuclear Material is subject to
an Interim Lease Record, together with any Cash Collateral. Amounts payable in
respect of Commercial Paper Discount during any calendar month or portion
thereof shall be paid on the first Business Day of the next succeeding month in
which such amounts are incurred.
"Company" means the TMI-1 Fuel Corp., a Delaware corporation.
"Consents and Agreements" means the agreements, each substantially
in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between
the Lessee and the various contractors under the Nuclear Material Contracts,
with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent
to in writing, which consent shall not be unreasonably withheld.
"Controlled Group" means a controlled group of corporations of which
the Company is a member within the meaning of Section 414(b) of the Code, any
group of corporations or entities under common control with the Company within
the meaning of Section 414(c) of the Code or any affiliated service group of
which the Company is a member within the meaning of Section 414(m) of the Code.
"Credit Agreement" means the Credit Agreement dated as of November
5, 1998 among TMI-1 Fuel Corp. The First National Bank of Chicago, as
Administrative Agent, PNC Bank, National Association, as Syndication Agent, the
Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital
Markets, Inc., as Arrangers.
"Credit Agreement Default" means an event which would, with the
lapse of time or the giving of notice or both, constitute a Credit Agreement
Event of Default.
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"Credit Agreement Event of Default" means any one or more of the
events specified in Section 10.01 of the Credit Agreement.
"Dealer Agreements" means any agreement pursuant to which any Person
is at any time acting as a Dealer.
"Deemed Loss Event" means the following event: if at any time during
the term of the Lease Agreement, (A) the Company, by reason solely of the
ownership of the Nuclear Material or any part thereof or the lease of the
Nuclear Material to the Lessee under the Lease Agreement, or the Company or any
Secured Party, by reason solely of any other transaction contemplated by the
Lease Agreement or any of the other Basic Documents, shall be deemed, by any
governmental authority having jurisdiction, to be, or to be subject to
regulation as an "electric utility" or a "public utility" or a "public utility
holding company" or similar type of entity, under any applicable law or deemed a
"public utility company" or a "subsidiary company" or a "holding company" within
the meaning of the Public Utility Holding Company Act, (B) the Public Utility
Holding Company Act shall be amended, applied, or interpreted in a manner, or
any rules or regulations shall be adopted under the Public Utility Holding
Company Act of 1935, which adversely affect the legality, validity and
enforceability of the lease obligations of the Company and the Lessee under the
Lease Agreement, or (C) either the Company or any of the Secured Parties, by
reason solely of being a party to the Basic Documents, shall be required to
obtain any consent, order or approval of, or to make any filing or registration
with, or to give any notice to, any governmental authority, or be subject to any
liabilities, duties or obligations under the Public Utility Holding Company Act,
other than the filing by the Company of a certificate on Form U-7D with the SEC
pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17
C.F.R. Section 250.7(d)), except in any case if the same shall be solely the
result of Nonburdensome Regulation; provided, however, that if in compliance
with applicable laws, the Lessee, with the cooperation of the Company, shall
have acted diligently and in good faith to contest, or obtain an exemption from
the application of the laws, rules or regulations described in clauses (A), (B)
or (C) to the Company, the Secured Parties or the Lessee, as the case may be,
the application of which would otherwise constitute a Deemed Loss Event, such
Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee
shall have furnished to the Company and the Secured Parties an opinion of
counsel reasonably satisfactory to the Company and the Secured Parties to the
effect that there exists a reasonable basis for such contest or exemption and
that the application of such laws, rules or regulations to the
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Company, the Secured Parties or the Lessee, as the case may be, shall be
effectively stayed during the application for exemption or contest and such
laws, rules or regulations shall not be applied retroactively at the conclusion
of such contest, (II) the Company or the Secured Parties shall have determined
in their sole discretion that such contest or exemption shall not adversely
affect their business or involve any danger of the sale, foreclosure or loss of,
or creation of a Lien upon, the Collateral, and (III) the Lessee shall have
agreed to indemnify the Company or such Secured Parties, as the case may be, for
expenses incurred in connection with such contest or exemption; and further
provided, that following notice from the Lessee to the Company or the Secured
Parties, as the case may be, that the Lessee shall be unable to furnish the
opinion described in clause (I) of the next preceding proviso or that any such
contest shall not be successful or such exemption shall not be available, a
Deemed Loss Event shall be deemed not to have occurred for such period, not to
exceed 270 days, as may be approved by any governmental authority having
jurisdiction during which application of such law, rule or regulation to the
Company, the Secured Parties or the Lessee, as the case may be, shall be
suspended to enable the Company to assign or transfer its interest in the
Collateral so long as during such period the Company shall use reasonable
efforts to assign or transfer its interest in the Collateral upon commercially
reasonable terms and conditions, provided that the Company shall not be required
to assign or transfer the Nuclear Material for a price which, after deduction of
sales tax and expenses of such sale incurred by the Company, shall be less than
the sum of (A) Stipulated Casualty Value determined as of the date of such
proposed sale, and (B) the Termination Rent determined in accordance with
Section 18 of the Lease Agreement.
"Depositary Agreement" means the Depositary Agreement, dated as of
November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The
First National Bank of Chicago, as Administrative Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as from time to time amended.
"Excepted Payments" means any indemnity, expense, or other payment
which by the terms of any of the Basic Documents shall be payable to the Company
in order for the Company to satisfy its obligations pursuant to Section 7.8 of
the Trust Agreement.
"Face Amount" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
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"Federal Energy Regulatory Commission" means the independent
regulatory commission of the Department of Energy of the United States
Government existing under the authority of the Department of Energy Organization
Act, as amended, or any successor organization or organizations performing any
identical or substantially identical licensing and related regulatory functions.
"Federal Power Act" means the Federal Power Act, as amended.
"Final Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material during any period while such Nuclear Material is
installed for operation in the Generating Facility. A Final Leasing Record shall
be in the form of Exhibit B to the Lease Agreement.
"Financing Costs" means (a) fees and other amounts owing to any
Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees
and disbursements and other amounts referred to in Section 10(b) of the Security
Agreement, (c) legal, accounting, and other fees and expenses incurred by the
Lessee and/or the Company in connection with the preparation, execution and
delivery of Basic Documents or the issuance of the Commercial Paper and/or the
Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and
the Company as they may be entitled to under the Basic Documents.
"Fuel Management" means the design of, contracting for, fixing the
price and terms of acquisition of, management, movement, removal, disengagement,
storage and other activities in connection with the acquisition, utilization,
storage and disposal of the Nuclear Material.
"Generating Facility" means the nuclear reactor located at the Three
Mile Island Unit 1 Nuclear Generating Station, located in Londonderry Township,
Pennsylvania.
"Heat Production" means the stage of the Nuclear Material Cycle
commencing with the commercial operation of a Generating Facility, during which
the Nuclear Material in question is producing thermal energy which results in
the production of net positive electrical energy transmitted within the
distribution network of any utility and during which the Nuclear Material in
question is engaged in the reactor core of such Generating Facility.
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"Hereof," "herein," "hereunder" and words of similar import when
used in a Basic Document refer to such Basic Document as a whole and not to any
particular section or provision thereof.
"Imposition" means any payment required by a public or governmental
authority in respect of any property subject to the Lease Agreement or any
transaction pursuant to the Lease Agreement or any right or interest held by
virtue of the Lease Agreement; provided, however, that Imposition shall not
include any taxes, whether federal, state or local, payable by any Secured Party
based on or measured by net income of any Secured Party where taxable income is
computed in substantially the same manner as taxable income is computed under
the Code.
"Insurance Requirements" means all terms of any insurance policy or
indemnification agreement covering or applicable to (i) any Nuclear Material or
(ii) the Generating Facility or the Lessee in its capacity as licensee of the
Generating Facility, in each case insofar as any insurance policy or
indemnification agreement directly or indirectly relates to the Nuclear Material
or the performance by the Lessee of its obligations under the Basic Documents,
and all requirements of the issuer of any such policy or agreement necessary to
keep such insurance or agreements in force.
"Interim Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material (i) prior to installation for operation in the
Generating Facility, (ii) after removal from the Generating Facility during the
"cooling off" and storage period, and (iii) while being reprocessed. An Interim
Leasing Record shall be in the form of Exhibit A to the Lease Agreement.
"Investment Company Act" means the Investment Company Act of 1940,
as from time to time amended.
"Lease Agreement" means the Second Amended and Restated Nuclear
Material Lease Agreement, dated as of November 5, 1998 between TMI-1 Fuel Corp.,
as the Lessor, and Metropolitan Edison Company, as the Lessee, as the same may
be modified, supplemented or amended from time to time.
"Lease Event of Default" has the meaning specified in Section 16
of the Lease Agreement.
"Leasing Record" is a form signed by the Lessor and the Lessee to
record the leasing under the Lease Agreement of the Nuclear Material specified
in such Leasing Record. A Leasing Record shall be either an Interim Leasing
Record or a Final Leasing Record.
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"Legal Requirements" means all applicable provisions of the Atomic
Energy Act, all applicable orders, rules, regulations and other requirements of
the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission,
and all other laws, rules, regulations and orders of any other jurisdiction or
regulatory authority relating to (i) the licensing, acquisition, storage,
containerization, transportation, blending, transfer, consumption, leasing,
insuring, using, operating, disposing, fabricating, channelling and reprocessing
of the Nuclear Material, (ii) the Generating Facility or the Lessee in its
capacity as licensee of the Generating Facility, in each case insofar as such
provisions, orders, rules, regulations, laws and other requirements directly or
indirectly relate to the Nuclear Material or the performance by the Lessee of
its obligations under the Basic Documents or (iii) the Basic Documents, insofar
as any of the foregoing directly or indirectly apply to the Lessee.
"Lessee" has the meaning specified in the introduction to the
Lease Agreement.
"Lessee Representative" means a person at the time designated to act
on behalf of the Lessee by a written instrument furnished to the Company and the
Secured Parties containing the specimen signature of such person and signed on
behalf of the Lessee by any of its officers. The certificate may designate an
alternate or alternates. A Lessee Representative may be an employee of the
Lessee or of the Owner Trustee.
"Lessor" has the meaning specified in the introduction to the
Lease Agreement, and its successors and assigns.
"Lessor's Bill of Sale" means an instrument substantially in the
form of Exhibit E to the Lease Agreement, pursuant to which title to all or any
portion of the Nuclear Material is transferred to the Lessee or any designee of
the Lessee.
"Letter Agreement" means the Lessee's Letter Agreement Regarding
TMI-1 Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company,
and the Administrative Agent, as it may be amended from time to time.
"Lien" means any mortgage, pledge, lien, security interest, title
retention, charge or other encumbrance of any nature whatsoever (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to execute and deliver any financing
statement under the Uniform Commercial Code of any jurisdiction).
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"Loans" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Majority Secured Parties" means at any time the Secured Parties
holding at such time more than 66% of the outstanding principal amount of all
Secured Obligations.
"Manufacturer" means any supplier of Nuclear Material or of any
service (including without limitation, enrichment, fabrication, transportation,
storage and processing) in connection therewith, or any agent or licensee of any
such supplier.
"Manufacturer's Consent" means any consent which may be given by a
Manufacturer under a Nuclear Material Contract to the assignment by the Lessee
to the Company of all or a portion of the Lessee's rights under such Nuclear
Material Contract or of all or a portion of any such rights previously assigned
by the Lessee to the Secured Parties.
"Monthly Debt Service" for any calendar month means the sum of the
Monthly Financing Charge for such calendar month.
"Monthly Financing Charge" means, for any calendar month or
portion thereof, the sum of:
(a) all Commercial Paper Discount payable by the Company with
respect to Commercial Paper outstanding during such month and/or all
interest payable by the Company during such month with respect to all
outstanding Notes and in each case, not included in Acquisition Cost; and
(b) the amounts paid or due and payable by the Company with respect
to the transactions contemplated by the Basic Documents during such
calendar month for the following other fees, costs, charges and expenses
incurred or owed by the Company under or in connection with the Lease
Agreement or the other Basic Documents: (i) legal, printing, reproduction
and closing fees and expenses, (ii) auditors', accountants' and attorneys'
fees and expenses, (iii) franchise taxes and income taxes, and (iv) any
other fees and expenses incurred by the Company under or in respect of the
Basic Documents.
Any figure used in the computation of any component of the Monthly Financing
Charge shall be stated to five decimal places.
"Monthly Rent Component" for any Nuclear Material covered by a Final
Leasing Record for each calendar month during the lease of such Nuclear Material
shall be as follows:
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(i) for the first partial calendar month the Monthly Rent
Component shall be zero;
(ii) for the first full calendar month the Monthly Rent Component
shall be zero;
(iii) for the second full calendar month the Monthly Rent Component
shall be zero;
(iv) for the third full calendar month the Monthly Rent Component
shall be an amount determined by multiplying (x) the amount of thermal
energy in millions of British Thermal Units of heat produced by such
Nuclear Material during the first calendar month while covered by the
Final Leasing Record and also during the first partial calendar month, if
any, such Nuclear Material was covered by an Interim or Final Leasing
Record and was engaged in Heat Production by (y) the BTU Charge set forth
in the Final Leasing Record covering such Nuclear Material; and
(v) for each full calendar month after the third full calendar
month, the Monthly Rent Component shall be an amount determined by
multiplying (x) the amount of thermal energy in millions of British
Thermal Units of heat produced by such Nuclear Material during the second
preceding month by (y) the BTU Charge set forth in the Final Leasing
Record covering such Nuclear Material.
The BTU Charge for any Nuclear Material may be revised by the Lessee at any time
during the lease thereof to reflect any reasonably anticipated change in its
operating life, BTU output, or utilization. Such revision shall be effected by
the Lessee's executing and forwarding to the Lessor a revised Final Leasing
Record dated the first day of the following month and setting forth such revised
BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall
execute and return a copy thereof to the Lessee. Such revised BTU Charge shall
be applicable to such Nuclear Material for each month thereafter beginning on
the date of the revised Final Leasing Record.
"Nonburdensome Regulation" means (i) ministerial regulatory
requirements that do not impose limitations or regulatory requirements on the
business or activities of, or adversely affect, the Company or any Secured Party
and that are deemed, in the reasonable discretion of the Company or any Secured
Party, not to be burdensome, or (ii) assuming redelivery of the Nuclear Material
in accordance with the Lease Agreement, regulation resulting from any possession
of the Nuclear Material (or right thereto) on or after the termination of the
Lease Agreement.
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"Notes" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Nuclear Incident" shall have the meaning specified in the Atomic
Energy Act, 42 U.S.C. ss.2014(q), as such definition may be amended from time
to time.
"Nuclear Material" means those items which have been purchased by or
on behalf of the Company for which a duly executed Leasing Record has been
delivered to the Company and which continue to be subject to the Lease Agreement
consisting of (i) the items described in such Leasing Record and each of the
components thereof in the respective forms in which such items exist during each
stage of the Nuclear Material Cycle, being substances and equipment which, when
fabricated and assembled and loaded into a nuclear reactor, are intended to
produce heat, together with all attachments, accessories, parts and additions
and all improvements and repairs thereto, and all replacements thereof and
substitutions therefor and (ii) the substances and materials underlying the
right, title and interest of the Lessee under any Nuclear Material Contract
assigned to the Company pursuant to the Lease Agreement; provided, however, that
the term Nuclear Material shall not include spent fuel.
"Nuclear Material Contract" means any contract, as from time to time
amended, modified or supplemented, entered into by the Lessee, either in its own
name or as agent for the Lessor, with one or more Manufacturers relating to the
acquisition of Nuclear Material or any service in connection with the Nuclear
Material.
"Nuclear Material Cycle" means the various stages in the process,
whether physical or chemical, by which the component parts of the Nuclear
Material are designed, mined, milled, processed, converted, enriched, fabricated
into assemblies utilizable for Heat Production, loaded or installed into a
reactor core, utilized, disengaged from a reactor core or stored, together with
all incidental processes with respect to the Nuclear Material at any such stage.
"Nuclear Regulatory Commission" means the independent regulatory
commission of the United States Government existing under the authority of the
Energy Reorganization Act of 1974, as amended, or any successor organization or
organizations performing any identical or substantially identical licensing and
related regulatory functions.
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"Obligations" means (i) all items (including, without limitation,
Capitalized Leases but excluding shareholders' equity and minority interests)
which in accordance with generally accepted accounting principles should be
reflected on the liability side of a balance sheet as at the date as of which
such obligations are to be determined; (ii) all obligations and liabilities
(whether or not reflected upon such balance sheet) secured by any Lien existing
on the Property held subject to such Lien, whether or not the obligation or
liability secured thereby shall have been assumed; and (iii) all guarantees,
endorsements (other than for collection in the ordinary course of business) and
contingent obligations in respect of any liabilities of the type described in
clauses (i) and (ii) of this definition (whether or not reflected on such
balance sheet); provided, however, that the term 'Obligations' shall not include
deferred taxes.
"Obligations for Borrowed Money or Deferred Purchase Price" means
all Obligations in respect of borrowed money or the deferred purchase price of
property or services.
"Officer's Certificate" means, with respect to any corporation, a
certificate signed by the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such
corporation, and with respect to any other entity, a certificate signed by an
individual generally authorized to execute and deliver contracts on behalf of
such entity.
"Outstandings" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Owner Trust Estate" means all estate, right, title and interest of
the Owner Trustee in and to the outstanding stock of the Company and in and to
all monies, securities, investments, instruments, documents, rights, claims,
contracts, and other property held by the Owner Trustee under the Trust
Agreement; provided, however, that there shall be excluded from the Owner Trust
Estate all Excepted Payments.
"Owner Trustee" means United States Trust Company of New York, not
in its individual capacity but solely as trustee under and pursuant to the Trust
Agreement, and its permitted successors.
"PaPUC" means the Pennsylvania Public Utility Commission or any
successor agency thereto.
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"Partially Assigned Agreement" means a Nuclear Material Contract
which has been assigned, in part but not in full, to the Company in the manner
specified in Section 5 of the Lease Agreement pursuant to a duly executed and
delivered Assignment Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation, created by
Section 4002(a) of ERISA and any successor thereto.
"Permitted Liens" means (i) any assignment of the Lease Agreement
permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not
yet payable, or payable without the addition of any fine, penalty, interest or
cost for nonpayment, or being contested by the Lessee as permitted by Section 11
of the Lease Agreement, (iii) liens and security interests created by the
Security Agreement, (iv) the title transfer and commingling of the Nuclear
Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and
(v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights
thereto, incurred in the ordinary course of business for sums of money which
under the terms of the related contracts are not more than 30 days past due or
are being contested in good faith by the Lessee as permitted by Section 11 of
the Lease Agreement; provided, however, that, in each case, such reserve or
other appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made in respect thereto.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other business entity or any
government or any political subdivision or agency thereof.
"Plan" means, with respect to any Person, any plan of a type
described in Section 4021(a) of ERISA in respect of which such Person is an
"employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a)
(2) of ERISA, respectively.
"Proceeds" shall have the meaning assigned to it under the Uniform
Commercial Code, as amended, and, in any event, shall include, but not be
limited to, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Company from time to time with respect to the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), and (iii) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
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"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Public Utility Holding Company Act" means the Public Utility
Holding Company Act of 1935, as from time to time amended.
"Qualified Institution" means a commercial bank organized under the
laws of, and doing business in, the United States of America or in any State
thereof, which has combined capital, surplus and undivided profits of at least
$150,000,000 having trust power.
"Related Person" means, with respect to any Person, any trade or
business, (whether or not incorporated) which, together with such Person, is
under common control as described in Section 414(c) of the Code.
"Rent" means Basic Rent, Additional Rent and Termination Rent.
"Rent Due and SCV Confirmation Schedule" means an instrument,
substantially in the form of Exhibit G to the Lease Agreement, which is to be
used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and
Other Rent and (ii) to calculate and acknowledge the SCV at the end of each
Basic Rent Period.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Responsible Officer" means a duly elected or appointed, authorized,
and acting officer, agent or representative of the Person acting.
"Secured Obligations" means each and every debt, liability and
obligation of every type and description which the Company may now or at any
time hereafter owe to any Secured Party under, pursuant to or in connection with
the Credit Agreement, any Note, the Letter of Credit or any other Basic
Document, whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, including, without
limitation the Face Amount of any Commercial Paper, the principal of, interest
on and any premium due with respect to any Loan and all indemnifications, costs,
expenses, fees and other compensation of the Secured Parties provided for, and
all other amounts owed to the Secured Parties, under the Security Agreement,
Credit Agreement and the other Basic Documents.
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"Secured Parties" means the Banks, any other holder from time to
time of any Note and any holder from time to time of any Commercial Paper.
"Securities Act" means the Securities Act of 1933, as from time to
time amended.
"Security Agreement" means the Security Agreement and Assignment of
Contracts, dated as of November 5, 1998, by and among the Company and The First
National Bank of Chicago, as Collateral Agent in favor of the Secured Parties.
"Single Employer Plan" means any Plan which is not a
multi-employer plan as defined in Section 4001(a) (3) of ERISA
"Stipulated Casualty Value" or "SCV" for any Nuclear Material
covered by any Leasing Record means an amount equal to the Acquisition Cost for
such Nuclear Material reduced by the aggregate total amount, if any, of the
Monthly Rent Components paid by the Lessee to the Lessor with respect to such
Nuclear Material together with Commercial Paper Discount.
"Syndication Agent" shall have the meaning specified therefor in the
first paragraph of the Credit Agreement.
"Termination Date" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Termination Rent" means an amount which, when added to the
Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any,
will be sufficient to enable the Company to retire, at their respective
maturities, all outstanding Notes and Commercial Paper and to pay all charges,
premiums and fees owed to the holders of Notes under the Credit Agreement and to
pay all other obligations of the Company incurred in connection with the
implementation of the transactions contemplated by the Basic Documents.
"Termination Settlement Date" has the meaning specified in Section
8(c), or Section 18(c) of the Lease Agreement.
"Terminating Event" has the meaning specified in Section 18 of
the Lease Agreement.
"Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp.
Trust, a trust formed pursuant to the Trust Agreement.
53
<PAGE>
"Trust Agreement" means the Second Amended and Restated Trust
Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the
Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central
Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric
Company, each as lessee under certain lease agreements, as the same may be
amended, modified or supplemented from time to time.
"Trustor" means the institution designated as such in the Trust
Agreement and its permitted successors.
"UBS Credit Agreement" means the Credit Agreement dated as of
November 17, 1995 among TMI-1 Fuel Corp., Union Bank of Switzerland, New York
Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as
Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York
Bank, as Administrative Agent.
"UCC" means the Uniform Commercial Code as adopted and in effect in
the State of New York.
"U.S. Trust" means United States Trust Company of New York.
54
<PAGE>
EXHIBIT A
INTERIM LEASING RECORD
Record No. -----
Name of Lessee: Metropolitan Edison Company
Date of Record: ------------------
Date and No. of prior Interim or Final
Leasing Record (if any):
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $-----------
Acquisition Cost added by this Record: $-----------
Total: $-----------
Credits to Acquisition Cost: $-----------
Total Acquisition Cost under this Record $-----------
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
55
<PAGE>
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants,
terms and conditions are incorporated herein by reference.
TMI-1 FUEL CORP., Lessor METROPOLITAN EDISON
COMPANY, Lessee
By -------------------------- By -----------------------------
Authorized Signature Authorized Signature
56
<PAGE>
EXHIBIT B
FINAL LEASING RECORD
Record No. -----
Name of Lessee: Metropolitan Edison Company
Date of Record: ------------------
Date and No. of prior Interim or Final
Leasing Record:
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $-----------
Acquisition Cost added by this Record: $-----------
Total: $-----------
Credits (if any) to Acquisition Cost: $-----------
Total Acquisition Cost under this Record $-----------
BTU Charge: $----------
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
57
<PAGE>
The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998, which covenants,
terms and conditions are incorporated herein by reference.
TMI-1 FUEL CORP., Lessor METROPOLITAN EDISON
COMPANY, Lessee
By By
--------------------------------- ---------------------------------
Authorized Signature Authorized Signature
58
<PAGE>
Attachment 1 to Exhibit B
BRITISH THERMAL UNIT CHARGE AGREEMENT
Dated: November 5, 1998
The undersigned Lessor and Lessee agree that the initial British
Thermal Unit Charge to be used to calculate the Monthly Rent Component for the
Nuclear Material pursuant to the Second Amended and Restated Nuclear Material
Lease Agreement, dated as of November 5, 1998, between the undersigned Lessor
and Lessee shall be as follows:
Description of Nuclear Material British Thermal Unit Charge
TMI-1 FUEL CORP. METROPOLITAN EDISON COMPANY
By: By:
--------------------------------- ---------------------------------
Its: Its:
--------------------------------- ---------------------------------
59
<PAGE>
EXHIBIT C
NUCLEAR MATERIAL CONTRACTS
The Agreements (each as amended and restated) referred to in
Section 5 of the Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998, between TMI-1 FUEL CORP. ("Lessor")
and METROPOLITAN EDISON COMPANY ("Lessee") are:
(1) Agreement, dated January 30, 1975, between Sequoyah Fuels
Corporation and GPUN, as agent for the Lessee, JCP&L and Penelec.
(2) Agreement, dated February 12, 1996, between United States
Enrichment Corporation and GPUN, as agent for the Lessee, JCP&L and Penelec.
(3) Agreement, dated as of June 14, 1995 between Framatome Cogema
Fuels and GPUN, as agent for the Lessee, JCP&L and Penelec.
60
<PAGE>
EXHIBIT D
ASSIGNMENT AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
Metropolitan Edison Company (the "Assignor"), in consideration of
one dollar and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, does hereby sell, grant, bargain, convey and
assign to TMI-1 Fuel Corp. ("Assignee"), all right, title and interest of the
Assignor in, to and under the Nuclear Material Contract (the "Nuclear Material
Contract") described in Exhibit 1 attached hereto insofar as such Nuclear
Material Contract relates to the Nuclear Material described in Exhibit 1 (all of
such property, including the items described on Exhibit 1 attached hereto as
included with the Property, being herein collectively called the "Property").
Terms not defined herein shall have the meanings given in Exhibit 1 attached
hereto.
TO HAVE AND TO HOLD the Property unto the Assignee, its successors
and assigns, to its and their own use forever.
1. The interest of the Assignor in the Property, and the interest
transferred by this Assignment Agreement, is that of absolute ownership.
2. The Assignor hereby warrants that it is the lawful owner of the
rights and interests conveyed by this Assignment Agreement and that its title to
such rights and interests is hereby conveyed to the Assignee free and clear of
all liens, charges, claims and encumbrances of every kind whatsoever, other than
(i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other
claims, if any, of the Assignor and the Contractor which may exist as between
themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred
to below); and that the Assignor will warrant and defend such title forever
against all claims and demands whatsoever.
3. The Assignor hereby releases and transfers to the Assignee any
right, title or interest in the Nuclear Material which may have been acquired by
the Assignor under the Nuclear Material Contract prior to the date hereof.
4. This Assignment Agreement is made in accordance with the Second
Amended and Restated Nuclear Material Lease Agreement dated as of November 5,
1998, between the Assignor and the Assignee (said Nuclear Material Lease
Agreement, as the same
61
<PAGE>
may be from time to time amended, modified or supplemented, being herein called
the "Lease Agreement"). Pursuant to a Security Agreement and Assignment of
Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security
Agreement and Assignment of Contracts, as the same may from time to time be
amended, modified or supplemented, being herein called the "Security Agreement")
made by Assignee in favor of the Secured Parties, as defined therein, the
Assignee is assigning and granting a security interest in the Property and this
Assignment Agreement to the Secured Parties, as collateral security for all
obligations and liabilities of the Assignee to the Secured Parties, as such
obligations are described in the Security Agreement.
5. It is expressly agreed that, anything contained herein to the
contrary notwithstanding, (a) the Assignor shall at all times remain liable to
the Contractor to observe and perform all of its duties and obligations under
the Nuclear Material Contract to the same extent as if this Assignment Agreement
and the Security Agreement had not been executed, (b) the exercise by the
Assignee or the Secured Parties of any of the rights assigned hereunder or under
the Security Agreement, as the case may be, shall not release the Assignor from
any of its duties or obligations to the Contractor under the Nuclear Material
Contract, and (c) neither the Assignee nor any of the Secured Parties shall have
any obligation or liability under the Nuclear Material Contract by reason of or
arising out of this Assignment Agreement, the Lease Agreement or the Security
Agreement, or be obligated to perform or fulfill any of the duties or
obligations of the Assignor under the Nuclear Material Contract, or to make any
payment thereunder, or to make any inquiry as to the nature or sufficiency of
any Property received by it thereunder, or to present or file any claim, or to
take any action to collect or enforce the payment of any amounts or the delivery
of any Property which may have been assigned to it or to which it may be
entitled at any time or times; provided, however, the Assignee agrees, solely
for the benefit of the Assignor, and subject to the terms and conditions of the
Lease Agreement, (i) to purchase the Nuclear Material from the Contractor
pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or
to the Assignor or their order the respective amounts specified in the Lease
Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear
Material to the Assignor in accordance with and subject to the terms and
conditions of the Lease Agreement. The provisions of the Nuclear Material
Contract limiting the liability of the Contractor and its suppliers and
subcontractors' under that Contract shall remain effective against the Assignee
and Secured Parties to the same extent that such provisions are effective
against the Assignor.
62
<PAGE>
6. Notwithstanding anything contained herein to the contrary,
subject to the terms and conditions of the Lease Agreement, the Assignor may
continue to engage in Fuel Management (as such term is defined in the Lease
Agreement) with respect to the Property, including, without limitation, all
dealings with the Contractor and, subject to such terms and conditions and
effective until the occurrence of a Lease Event of Default (as defined in the
Lease Agreement), (i) the Assignee reassigns to the Assignor the Assignee's
rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1
to this Assignment Agreement (provided, however, that insurance proceeds are
reassigned to the Assignor pursuant hereto only to the extent that such proceeds
are needed and used to reimburse the Assignor for the cost of repairing damage
or destruction to Nuclear Material or are used to purchase Nuclear Material from
the Assignee in accordance with the Lease Agreement, and provided further,
however, that the Assignee's rights under clause (vi) are reassigned to the
Assignor subject in all respects to the limitations set forth in paragraph 8.
below), and (ii) the Assignee agrees that the Assignor may, to the extent set
forth in clause (i) above, to the exclusion of the Assignee, exercise and
enforce such rights.
7. The Assignor shall promptly and duly execute, deliver, file and
record all such further counterparts of this Assignment Agreement or such
certificates, financing and continuation statements and other instruments as may
be reasonably requested by the Assignee, and take such further actions as the
Assignee shall from time to time reasonably request, in order to establish,
perfect and maintain the rights and remedies created or intended to be created
in favor of the Assignee and the Secured Parties hereunder and the Assignee's
title to and interest in the Property as against the Assignor or any third party
in any applicable jurisdiction.
8. The Assignor hereby agrees that it will not enter into or consent
to or permit any cancellation, termination, amendment, supplement or
modification of or waiver with respect to the Nuclear Material Contract insofar
as it relates to the Nuclear Material except for cancellations, terminations,
amendments, supplements, modifications or waivers which do not materially
adversely affect the Assignee or the Secured Parties or their respective
interests in the Property, nor will the Assignor sell, assign, grant any
security interest in or otherwise transfer its rights or other interests in the
Property or any part thereof, except as permitted by the Lease Agreement.
63
<PAGE>
9. The Assignor hereby represents and warrants that the Nuclear
Material Contract is in full force and effect and represents that it is the only
agreement between the Assignor and the Contractor with respect to the Nuclear
Material.
10. This Assignment Agreement shall become effective only upon
receipt of the written consent of the Contractor to the assignment of the rights
and interests conveyed hereunder, if such consent is required under the Nuclear
Material Contract. The Assignor hereby agrees to send the Contractor a copy of
this Assignment Agreement.
11. This Assignment Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Assignor has caused this Assignment
Agreement to be duly executed and delivered as of the ----- day of -----------,
19_.
METROPOLITAN EDISON COMPANY
By:
---------------------------------
Title:
---------------------------------
The foregoing Assignment Agreement is hereby accepted:
TMI-1 FUEL CORP.
By:
---------------------------------
Title:
---------------------------------
64
<PAGE>
EXHIBIT 1
to Assignment Agreement
(a) The ------------- (as the same may from time to time be amended,
modified or supplemented, being herein called the "Nuclear Material Contract"),
dated as of -------------, between Metropolitan Edison Company and
- -------------- (the "Contractor), insofar as, and only to the extent that, the
Contract relates to ----------------- (the "Nuclear Material"); but not insofar
as the Contract provides for the provision of other nuclear materials and
services to the Assignor; and
(b) The Property shall include, without limitation, (i) any and all
amendments and supplements to the Nuclear Material Contract from time to time
executed and delivered to the extent that any such amendment or supplement
relates to the Nuclear Material, (ii) the Nuclear Material, including the right
to receive title thereto, (iii) all rights, claims and proceeds, now or
hereafter existing, under any insurance, indemnities, warranties and guaranties
provided for in or arising out of the Nuclear Material Contract, to the extent
that such rights or claims relate to the Nuclear Material, (iv) any claim for
damages arising out of or for breach or default by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material, (v) any other amount, whether resulting from refunds or
otherwise, from time to time paid or payable by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear
Material Contract or to perform or to exercise or enforce thereunder, insofar as
it or they relate to the Nuclear Material.
65
<PAGE>
EXHIBIT 2
to Assignment Agreement
CONSENT AND AGREEMENT
The undersigned, ------------------ (the "Contractor"), has entered
into a --------------- (as the same may from tune to time be amended, modified
or supplemented, being herein called the "Nuclear Material Contract"), dated as
of -------------------- with Metropolitan Edison Company (the "Assignor").
The Contractor hereby acknowledges notice that (i) in accordance
with the terms of the Second Amended and Restated Nuclear Material Lease
Agreement dated as of --------- ---, 1998, between the Assignor and TMI-1 Fuel
Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the
Assignor's rights under the Nuclear Material Contract pursuant to an Assignment
Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same
may from time to time be amended, modified or supplemented, being herein
collectively called the "Assignment"), and (ii) pursuant to a Security Agreement
and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5,
1998 (said Security Agreement and Assignment Contracts, as the same may from
time to time be amended, modified or supplemented, being herein called the
"Security Agreement") made by the Assignee in favor of the Secured Parties as
defined therein (the "Secured Parties"), the Assignee has assigned and granted a
security interest in all rights under the Nuclear Material Contract from time to
time assigned to it by Assignor, as collateral security for all obligations and
liabilities of the Assignee to the Secured Parties.
The Contractor hereby consents to (i) the assignment by the Assignor
to the Assignee of part of the Assignor's right, title and interest in, to and
under the Nuclear Material Contract and the other Property described in the
Assignment pursuant to the Assignment and (ii) the assignment and security
interest in favor of the Secured Parties as described above. The Contractor
further consents to all of the terms and provisions of the Security Agreement.
The Contractor agrees that, if requested by either the Assignor or
the Assignee, it will acknowledge in writing the Assignment delivered by the
Assignor to the Assignee; provided, that neither the lack of notice to nor
acknowledgment by the Contractor of the Assignment shall limit or otherwise
affect the validity or effectiveness of this consent to such Assignment.
66
<PAGE>
The Contractor hereby confirms to the Assignee and the Secured
Parties that:
(a) all representations, warranties and agreements of the
Contractor under the Nuclear Material Contract which relate to
the Nuclear Material described in the Assignment shall inure
to the benefit of, and shall be enforceable by, the Assignee
or any Secured. Party to the same extent as if originally
named in the Contract as the purchaser of such Nuclear
Material,
(b) the Contractor understands that, pursuant to the Lease
Agreement, the Assignee has agreed to lease the Nuclear
Material described in the Assignment to the Assignor, and
consents to the assignment to the Assignor, for so long as
the Lease Agreement shall be in effect or until otherwise
notified by the Assignee, of the Assignee's rights under
clauses (iii), (iv), (v) and (vi) of subparagraph (b) of
Exhibit 1 to the Assignment to the extent that such rights
are reassigned to the Assignor pursuant to the Assignment,
(c) The Contractor is in the business of selling nuclear fuel and
related services of the kind described in the Assignment, and
the proposed sale of such nuclear fuel under the Nuclear
Material Contract will be in the ordinary course of business
of the Contractor, and
(d) Notwithstanding any provision to the contrary contained in
the Nuclear Material Contract, the Contractor agrees that
title to any Nuclear Material covered by the Assignment
shall pass directly to the Assignee under the Contract and
shall not pass to the Assignor; provided that the foregoing
shall not apply to any Nuclear Material for which title has
already passed from the Contractor prior to the execution
and delivery of the Assignment.
It is understood that neither the Assignment, the Security Agreement
nor this Consent and Agreement shall in any way add to the obligations of the
Contractor or the Assignor under the Nuclear Material Contract.
This Consent and. Agreement shall be governed by and construed in
accordance with the laws of the State of ------------.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Consent and
Agreement to be duly executed and delivered by its duly authorized officer as of
the ---- day of --------, 19--
By:
---------------------------------
Title:
---------------------------------
68
<PAGE>
EXHIBIT E
BILL OF SALE
TO
METROPOLITAN EDISON COMPANY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TMI-1 Fuel
Corp., a Delaware corporation (the "Seller"), whose post office address is c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, Attention: Corporate Trust and Agency Division, for and in
consideration paid to the Seller upon or before the execution and delivery of
this Bill of Sale to Metropolitan Edison Company (the "Purchaser"), a
Pennsylvania corporation, whose address is 2800 Pottsville Pike, Reading,
Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and
sets over unto the Purchaser all of its right, title and interest in all of the
personal property consisting of the assemblies of nuclear fuel or components
thereof or other nuclear material described in Annex I hereto (the "Assets"),
and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and
deliver the Assets unto the Purchaser, to have and to hold such undivided
interest in the Assets unto the Purchaser, for itself, its successors and
assigns, forever.
The Assets are transferred and conveyed by the Seller AS-IS,
WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND
WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the
Seller represents and warrants that it has not by voluntary act or omission
created or granted any lien on the Assets, other than Permitted Liens, as
defined in that certain Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998 between the Seller and the Purchaser.
The Purchaser acknowledges and agrees that neither the Seller, its directors,
officers or employees, any company, person or firm controlling, controlled by,
or under common control with any of them nor any other person acting on behalf
of the Seller is a manufacturer of, or is engaged in the sale or distribution
of, nuclear material, has had at any time physical possession of any portion of
the Assets sold hereunder, or has made any inspection thereof. The Purchaser
further acknowledges and agrees that the Assets sold hereunder have been at all
times in the possession of the Purchaser and that the Purchaser has made such
inspections thereof as it deems necessary and that the Purchaser has been solely
responsible for all decisions made with respect to the choice of the suppliers
of such Assets and the enrichment, fabrication, transportation, storage and
processing of the same.
69
<PAGE>
IN WITNESS WHEREOF, the Seller has caused these presents to be
executed by one of its Vice Presidents, this ---- day of --------, 19---.
TMI-1 FUEL CORP., Seller
By:
---------------------------------
Vice President
Acknowledgment and Acceptance
The foregoing Bill of Sale is hereby acknowledged and accepted by
the undersigned as of the date last above written.
METROPOLITAN EDISON COMPANY,
Purchaser
By:
---------------------------------
Its:
---------------------------------
70
<PAGE>
EXHIBIT F
RENT DUE
AND SCV CONFIRMATION SCHEDULE
For the Basic Rent Period Ended -------
In accordance with the Second Amended and Restated Lease Agreement
dated as of ---------- --, 1998, between TMI-1 Fuel Corp., as Lessor, and
Metropolitan Edison Company, as Lessee, the Lessee certifies that all amounts
set forth below are true and correct in all respects, and both Lessor and Lessee
certify that this Schedule has been prepared in accordance with the provisions
of the Lease Agreement.
I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT
A. Basic Rent Owed
1. Calculation of Portion of Monthly Financing
Charge Not Allocated to Acquisition Cost
a. Interest Payable with Respect to All
Outstanding Notes (See attached
summary calculation $
---------
b. Other Amounts Included in Monthly
Financing Charge $
---------
c. Total Monthly Financing Charge Not
Allocated to Acquisition Cost
(Total of I(a) and I(b) $
---------
2. Aggregate Monthly Rent Component
(See attached summary calculation) $
---------
3. BASIC RENT (total of 1(c) and 2) $
=========
B. Additional Rent Owed (see attached
summary calculation) $
---------
C. Termination Rent Owed (see attached
summary calculation $
---------
TOTAL RENT DUE (total of A, B and C) $
=========
71
<PAGE>
<TABLE>
<CAPTION>
II. Calculation of Stipulated Casualty Value
Nuclear Material
-------------------------------------
Installed for Not Installed for
Operation in the Operation in the
Generating Facility Generating Facility Total
<S> <C> <C> <C>
A. Stipulated Casualty Value as of $------------ $---------- $--------
B. Add: Acquisition Cost Incurred in
Rent Period Covered by This Schedule
(exclusive of Monthly Finance Charges)
$------------ $---------- $--------
C. Add: Monthly Financing Charge
Allocated to Acquisition Cost
Incurred in Rent Period Covered
by this Schedule $------------ $---------- $--------
D. Less: SVC of Nuclear Material
Transferred to the Lessee
Pursuant to Section 8(c), 8(g)
or 14 of the Lease Agreement
during the Basic Rent Period
Covered by this Schedule $------------ $---------- $--------
</TABLE>
72
EXHIBIT 10-X
METROPOLITAN EDISON COMPANY
-------------------------------------
LESSEE'S LETTER AGREEMENT
Regarding
TMI-1 FUEL CORP.
-------------------------------------
Dated as of November 5, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Performance of Fuel Lease and Liens 1
3. Security Interest of Collateral 2
4. Sale of Nuclear Material and Assignment
of Rights under Nuclear Material Contracts 2
5. Collateral Equivalence Test; No Additional
Collateral or Covenants; Condemnation Statements;
Exercise of Rights of Secured Parties 3
6. Fuel Management; Quiet Enjoyment 5
7. Insurance 6
8. Representations and Warranties 6
9. General Covenants of the Lessee 11
10. GPU Events 18
11. Credit Agreements and Notes 18
12. Consent to Assignment; Direct Payment of
Payments Under the Fuel Lease 18
13. Severability 19
14. Indemnification 20
15. No Waiver; Amendments 21
16. Successors and Assigns 22
17. Notices 22
18. Set-off 23
19. Waiver of Jury Trial 23
20. Governing Law 24
<PAGE>
THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of
November 5, 1998, by and between Metropolitan Edison Company, a Pennsylvania
corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the
"Company"), and The First National Bank of Chicago, as Administrative Agent (the
"Administrative Agent"), for the Banks party to the Credit Agreement referred to
below (the "Banks").
WHEREAS, the Lessee has entered into the Second Amended and Restated
Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"),
with the Company in order to enable the Company to obtain financing for the
acquisition, processing and use of Nuclear Material in the Generating Facility;
and
WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make
payments due to Manufacturers and/or to reimburse the Lessee for payments
previously made to Manufacturers with respect to Nuclear Material; and
WHEREAS, in order to finance the cost of such Nuclear Material, the
Company proposes to (i) sell its Commercial Paper, and (ii) obtain the
Commitment of each Bank to make Loans from time to time as hereinafter provided;
and
WHEREAS, the Lessee has agreed to make payments under the Fuel Lease
sufficient to enable the Company to meet its obligations under the Company's
financing arrangements, including the Company's obligations under the Credit
Agreement, dated as of November 5, 1998, among the Company, the Banks and the
Administrative Agent (the "Credit Agreement");
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and other good and valuable consideration, so long as any of
the Loans or the Commercial Paper shall remain outstanding, or the Commitments
shall be continuing, notwithstanding any provision of the Fuel Lease or any
other agreement of the Lessee to the contrary, the Lessee, the Company, the
Administrative Agent and the Banks agree that:
1. Definitions. Unless the context otherwise specifies or requires, each
term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall,
when used in this Letter Agreement, have the meaning indicated in the Credit
Agreement or Appendix A or set forth in the paragraph indicated therein.
2. Performance of Fuel Lease and Liens. The Lessee will perform and
comply with all the terms of the Fuel Lease to be performed or complied with
by it and will not omit to take an action the omission of which would cause a
<PAGE>
2
Lease Event of Default. The Lessee acknowledges that, except as otherwise
provided in the Fuel Lease, its obligations as set forth under the Fuel Lease
are absolute and unconditional. The Lessee will not directly or indirectly
create or permit to be created or remain, and will promptly take such action as
may be necessary to discharge, any Lien on any Collateral except Permitted
Liens.
3. Security Interest of Collateral. The Lessee represents that no
effective financing statement (other than those naming the Secured Parties as a
secured party) covering all or any part of the Collateral (as defined in the
Security Agreement relating to the Lessee) is on file in any public office. The
Lessee shall make, or shall cause to be made, all filings and recordings, and
shall take, or cause to be taken, such other actions, including filing all
continuation statements, necessary to establish, preserve and perfect the
Secured Parties' lien on and security interest in, the Collateral as a legal,
valid and enforceable first priority lien and security interest, or purchase
money security interest, as the case may be, therein, subject only to the
existence or priority of any Permitted Lien, and the Lessee represents that all
such filings, recordings and other actions have been duly made. The Lessee shall
deliver to the Administrative Agent evidence of the due filings of any
continuation statements to be delivered to the Administrative Agent within the
time period specified in Section 7.05 of the Credit Agreement. In no event will
the Lessee permit the Nuclear Material to enter any jurisdiction in which all
necessary action has not been taken to establish, maintain and protect the
Secured Parties' first priority perfected lien and security interest in the
Nuclear Material under the Security Agreement, subject only to Permitted Liens.
4. Sale of Nuclear Material and Assignment of Rights under Nuclear
Material Contracts.
(a) In the event that the Lessee desires the Company, on behalf of
the Lessee, to purchase Nuclear Material or to have services performed on such
Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall
provide the Company with an Assignment Agreement and a Manufacturer's Consent,
both substantially in the form of Exhibit D to the Fuel Lease, with such changes
to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable
discretion may consent to in writing, which consent shall not be unreasonably
withheld, with respect to such Nuclear Material Contract not later than sixty
<PAGE>
3
days following the date on which the Company is to purchase such Nuclear
Material or to have such services performed pursuant thereto. Notwithstanding
the foregoing, the Lessee shall not be required to have obtained a
Manufacturer's Consent in any instance where the Manufacturer's obligations
under the applicable Nuclear Material Contract have been fully discharged and
performed, and the Manufacturer's warranties with respect to such Nuclear
Material Contract have expired, and the Lessee has delivered to the Company and
the Collateral Agent a certificate to such effect.
(b) The Lessee at its expense will perform and comply with all the
terms and provisions of each Assigned Agreement to be performed or complied with
by it, will maintain each Assigned Agreement in full force and effect, will
enforce each of the Assigned Agreements in accordance with their respective
terms, and will take all such action to that end as from time to time may
reasonably be requested by the Majority Banks.
(c) The Lessee shall not enter into or consent to or permit any
cancellation, termination, amendment, supplement or modification of or waiver
with respect to any Assigned Agreement without the prior written consent of the
Majority Banks, unless such cancellation, termination, amendment, supplement or
modification could not reasonably be expected to have a Material Adverse Effect
on the Company or the Company has through one or more other Assigned Agreements
or otherwise arranged for the provision of comparable goods and services on
terms not materially more burdensome to the Company.
(d) The Lessee will from time to time, upon request of the
Administrative Agent, furnish to the Administrative Agent such information
concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks
may reasonably request.
(e) The Lessee will not change its principal place of business or
chief executive offices from the location specified in paragraph 8(a) hereof or
remove therefrom its records concerning the Assigned Agreements unless it gives
the Administrative Agent at least 30 days' prior written notice thereof.
5. Collateral Equivalence Test; No Additional Collateral or Covenants;
Condemnation Statements; Exercise of Rights of Secured Parties.
<PAGE>
4
(a) The Lessee shall not permit the sum of aggregate Stipulated
Casualty Value of the Nuclear Material leased under the Fuel Lease and the
Lessee's Percentage of Cash Collateral to be less than the Lessee's Percentage
of Outstandings.
(b) The Lessee shall not provide to any Person (other than the
Banks), in order to induce such Person to extend credit to the Company, any
collateral or any guarantee or other assurance against loss or non-payment, nor
shall the Lessee consent to the provision thereof by the Company.
(c) The Lessee shall not agree to any affirmative or negative
covenant with respect to the condition, financial or otherwise, of the Lessee
with any Person in order to induce such Person to extend credit to the Company.
(d) The Lessee shall not sell, assign, convey, pledge or otherwise
dispose of or encumber in any manner any interest it may have in the Trust or
any rights it may have under the Trust Agreement. The Lessee shall not direct
the Owner Trustee to liquidate, dissolve, merge or consolidate the Company
except if such transaction is consented to in writing by the Banks. The Lessee
shall not direct the Owner Trustee to take any action under the Trust Agreement
which is inconsistent with the duties imposed upon the Company by the Basic
Documents and any other agreements, documents, instruments and articles executed
and delivered, and to be executed and delivered, by the Owner Trustee in
connection therewith.
(e) The Nuclear Material leased under the Fuel Lease shall
constitute the Lessee's entire ownership interest in the items used or to be
used by it as nuclear fuel in the Generating Facility. The Lessee agrees that
50% of the Lessor's ownership interest in any Nuclear Material which is subject
to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to
take any action under the terms of the Fuel Lease, including, but not limited
to, the delivery of any Leasing Record, which would result in less than 50% of
the Lessor's ownership interest in any such Nuclear Material being so leased.
(f) As provided in the Security Agreement, (i) the Collateral Agent
on behalf of the Secured Parties may, on and after the occurrence of a Credit
Agreement Default, Credit Agreement Event of Default, Lessee Default or Lessee
Event of Default, pursuant to Section 10 of the Security Agreement, exercise any
and all of the Company's rights under the Fuel Lease, the Assigned Agreements
and each other Basic Document to
<PAGE>
5
which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is
continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant
to Section 10 of the Security Agreement, enforce and exercise any and all of the
Company's rights under the Fuel Lease, the Assigned Agreements and each other
Basic Document to which the Lessee is a party, or the rights and remedies
granted to the Secured Parties under the Security Agreement at its election and
in its sole discretion, and, in the event that the Collateral Agent is permitted
to exercise such rights pursuant to Section 10 of the Security Agreement, the
Lessee agrees that the Collateral Agent may do so either in concert with or in
place of the Company, and the Lessee shall assist in, comply with and perform in
accordance with all rights or remedies so enforced or exercised by the
Collateral Agent for the ratable benefit of the Secured Parties.
6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement
Default, a Credit Agreement Event of Default, Lease Event of Default, Lessee
Default, Lessee Event of Default or an event or condition which would, with the
lapse of time or the giving of notice or both, become a Lease Event of Default,
shall not affect the Lessee's sole obligation to engage in Fuel Management;
provided that, upon the occurrence of a Credit Agreement Event of Default,
Lessee Event of Default or Lease Event of Default, the Collateral Agent may, if
so directed by the Majority Secured Parties, by written notice to the Lessee,
elect to revoke such power and authority, in which case the Person from time to
time designated by the Majority Secured Parties may (but shall not be obligated
to), to the extent that the Majority Secured Parties desire and to the extent
permitted by law, engage in Fuel Management and/or remove all or any part of the
responsibility for Fuel Management from the Lessee; provided, however, that,
subject to the right of the Collateral Agent and the Majority Secured Parties to
exercise any or all rights granted to the Secured Parties under the Security
Agreement, the rights granted to the Collateral Agent and the Majority Secured
Parties under this Section 6 shall not be construed to include the right to
direct, whether directly or indirectly, the operation of the Generating
Facility. In the event the Majority Secured Parties, in accordance with the
preceding sentence, shall revoke the Lessee's power and authority to engage in
Fuel Management, all rights conferred by the Company to the Lessee pursuant to
Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to
the Company and the Lessee shall execute such documents and instruments as the
Collateral Agent shall request to further confirm such assignment.
<PAGE>
6
7. Insurance. Each year, the Lessee will furnish the Administrative Agent
and each Bank a detailed statement certified by an officer of Lessee setting
forth (i) the location of all Nuclear Material and (ii) the insurance policies
and indemnification agreements provided pursuant to Sections 14 and 17 of the
Fuel Lease and certifying that such insurance policies and indemnification
agreements comply with the requirements of the Fuel Lease. In addition, the
Lessee shall promptly furnish at any time to the Administrative Agent and any
Bank such information as any such Bank shall reasonably request concerning
location of Nuclear Material, insurance policies and indemnification agreements
and Manufacturers or other third parties with whom arrangements exist with
respect to transportation, storage or processing of Nuclear Material.
8. Representations and Warranties. The Lessee hereby represents and
warrants to the Company, the Administrative Agent and the Banks that as of the
date hereof:
(a) Organization and Standing. The Lessee is a corporation duly
incorporated, validly existing and subsisting under the laws of the Commonwealth
of Pennsylvania, and is qualified to do business in each state or other
jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on its ability to perform its obligations under this Letter
Agreement or each other Basic Document to which the Lessee is a party. The
Lessee's chief executive office is located at 2800 Pottsville Pike, Reading,
Pennsylvania 19605.
(b) Corporate Authority. The Lessee has the corporate power and
authority to execute and perform this Letter Agreement and the Fuel Lease and to
lease the Nuclear Material thereunder. The execution and delivery of this Letter
Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder
will not have a material adverse effect on the financial condition, results of
operations, business, properties or operations of the Lessee.
(c) Compliance with Other Instruments, etc. The execution, delivery
and performance by the Lessee of this Letter Agreement and each Basic Document
to which the Lessee is a party, and other related instruments, documents and
agreements, and the compliance by the Lessee with the terms hereof and thereof,
(i) have been duly and legally authorized by appropriate corporate action taken
by the Lessee, (ii) are not in
<PAGE>
7
contravention of, and will not result in a violation or breach of, any of the
terms of the Lessee's articles of incorporation, its by-laws or of any
provisions relating to shares of the capital stock of the Lessee and (iii) will
not violate or constitute a breach of any provision of (x) any applicable law,
order, rule or regulation, rule or regulation of any governmental authority
(except in those cases where non-compliance with any such law, order, rule or
regulation could not reasonably be expected to have a material adverse effect on
the financial condition, results of operations, business, properties or
operations of the Lessee or its ability to perform its obligations hereunder or
under each Basic Document) or (y) any indenture, agreement or other instrument
to which the Lessee is party, or by or under which the Lessee or any of the
Lessee's property is bound, or be in conflict with, result in breach of, or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or instrument, or result in the creation or imposition of
any Lien upon any of the Lessee's property or assets or any Nuclear Material.
(d) Legal Obligations. This Letter Agreement and the Fuel Lease have
been executed by a duly authorized officer of the Lessee, and this Letter
Agreement and the Fuel Lease constitute, and each Leasing Record, when executed
by a duly authorized officer of the Lessee and delivered to the Company, will
constitute, the legal, valid and binding obligations of the Lessee, enforceable
against the Lessee in accordance with their respective terms, except as the
enforceability thereof may be limited by the Atomic Energy Act and the rules,
regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general,
and except as the availability of the remedy of specific performance is subject
to general principles of equity (regardless of whether such remedy is sought in
a proceeding in equity or at law).
(e) Governmental Consents. Neither the execution and delivery of
this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor
the performance by the Lessee of all of its obligations hereunder or thereunder,
requires the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, any Federal, state, local or foreign government or governmental
authority or agency or any other person except for the order of the Securities
and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the
supplemental order of the SEC dated November 3, 1998, the order of the PaPUC,
dated
<PAGE>
8
September 17, 1998, and the filing of any statement or other instrument pursuant
to Section 10(b) of the Fuel Lease, and except for the filing of certificates by
the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding
Company Act to report on the transactions authorized by such SEC order, the
filing of which is not necessary to the execution or delivery of this Letter
Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the
performance by the Lessee of any of its obligations hereunder or thereunder, and
the failure to file any of which will not affect the validity or enforceability
of any of this Letter Agreement, the Fuel Lease or any Leasing Record.
(f) Consents and Permits. The Lessee possesses all material
licenses, permits, franchises and certificates which are necessary or
appropriate to own or operate its material properties and assets and to conduct
its business as now conducted.
(g) Litigation. There is no litigation or other proceeding now
pending or, to the best of the Lessee's knowledge, threatened, against or
affecting the Lessee, before any court, arbitrator or administrative or
governmental agency (i) which would adversely affect or impair the title of the
Company to the Nuclear Material, (ii) which questions the validity or
enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements
or any other Basic Document to which the Lessee is a party or any action taken
or to be taken by the Lessee pursuant to or in connection with this Letter
Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form
10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, copies of which have previously been delivered
to the Administrative Agent and the Banks, which, if decided adversely to the
Lessee, would materially adversely affect the condition, financial or otherwise,
of the Lessee.
(h) Taxes. The Lessee has filed or caused to be filed all tax
returns which are required to be filed, and has paid or caused to be paid all
taxes as shown on said returns and all assessments received by it to the extent
that such taxes and assessments have become due, except for taxes and
assessments which are being contested in good faith and by appropriate
proceedings and as to which it has provided reserves which are adequate in
connection with generally accepted accounting principles.
<PAGE>
9
(i) Reaffirmation and Restatement of Representations and Warranties.
The Lessee repeats and reaffirms as of the date hereof for the benefit of the
Administrative Agent and each Bank the representations and warranties made by
the Lessee in the Fuel Lease as though set forth in full herein with the same
effect as though such representations and warranties had been made on and as of
the date hereof. In addition, the Lessee represents and warrants that as of the
date hereof (i) the Lessee is in compliance with all the terms and provisions
set forth in the Fuel Lease on its part to be observed or performed, (ii) no
Terminating Event has occurred and no event has occurred which, with the lapse
of time or the giving of notice, or both, would constitute such a Terminating
Event, and (iii) no Lease Event of Default has occurred and is continuing and no
event has occurred and is continuing on such date which, with the lapse of time
or the giving of notice, or both, would constitute a Lease Event of Default.
(j) First Perfected Security Interest. Except for Permitted Liens,
upon the execution and delivery of this Letter Agreement and the Security
Agreement and the due filing of the Uniform Commercial Code financing statements
required to be executed and filed from time to time, the Secured Parties will
have a legal, valid and enforceable first priority security interest (i) in the
rights, titles and interests of the Company in and to the Fuel Lease and (ii) in
and to the other Collateral. Such security interest will constitute a perfected
security interest in the Collateral consisting of Nuclear Material Contracts and
the Collateral consisting of Nuclear Material located in the States of Illinois,
Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which
consists of cash, instruments (as defined in the New York Uniform Commercial
Code) and other items in which a security interest may only be perfected by
possession, enforceable against all third parties as security for the Secured
Obligations.
(k) No Material Adverse Change. Since June 30, 1998, there has been
no material adverse change in the financial condition, results of operations,
business, properties or operations of the Lessee or in its ability to perform
its obligations under the Basic Documents.
(l) No Defaults. The Lessee is not in default under any bond,
debenture, note or any other evidence of Obligations for Borrowed Money or
Deferred Purchase Price or any mortgage, deed of trust, indenture, loan
agreement or other agreement relating thereto, where the amount thereof is in
excess of $20,000,000.
<PAGE>
10
(m) Pension Plans. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any plan (other than a multiemployer plan). No liability to the
Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to
be, incurred with respect to any plan (other than a multiemployer plan) by the
Lessee which is or would be materially adverse to the Lessee. The Lessee has not
incurred and presently does not expect to incur any withdrawal liability under
Title IV of ERISA with respect to any multiemployer plan which is or would be
materially adverse to the Lessee. Neither the execution and delivery by the
Company of the Credit Agreement and the other Basic Documents, and the issuance
of the Commercial Paper, nor the execution and delivery by the Lessee of this
Letter Agreement, the Trust Agreement and each other Basic Document to which the
Lessee is a party, will involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an
"employee pension benefit plan" (as defined in Section 3 of ERISA) which is and
has been established or maintained, or to which contributions are or have been
made, by the Lessee or by any trade or business, whether or not incorporated,
which, together with the Lessee is under common control as described in Section
414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan
which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3)
of ERISA).
(n) Financial Statements. The audited balance sheet of the Lessee as
of December 31, 1997, and the related statements of income and cash flows
(including the notes thereto) of the Lessee for the year then ended, copies of
which have been delivered to the Company, the Administrative Agent and the
Banks, and all other annual or quarterly financial statements including, without
limitation, the quarterly statement dated as of June 30, 1998 so delivered
fairly present the financial condition of the Lessee on the dates for which, and
the results of its operations for the periods for which, the same have been
furnished and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(o) Nuclear Material. The Nuclear Material is free and clear of any
Lien in favor of any Person claiming by, through or under the Lessee or any
Affiliate thereof, other than Permitted Liens. No default or event which with
the giving of notice or lapse of time would constitute a default has occurred
and is continuing under any Nuclear Material Contract.
<PAGE>
11
(p) Disclosure. Neither the representations in this Letter
Agreement, or in any other document, certificate or statement furnished in
writing to the Administrative Agent or any Bank by or on behalf of the Lessee in
connection with the transactions contemplated hereby, nor the information
disclosed in the Lessee's Annual Report on Form 10-K for the year ended December
31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
contained as of its date, any untrue statement of a material fact or omitted to
state a material fact necessary in order to make such representations or
information not misleading in light of the circumstances under which they were
made.
(q) Collateral Equivalence Test Met. The sum of the aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Lessee's Percentage of the Cash Collateral equals or exceeds the
Lessee's Percentage of the Outstandings.
(r) Year 2000. The Lessee has made a full and complete assessment of
its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based
on such assessment and on its Year 2000 Program, the Lessee does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
9. General Covenants of the Lessee.
(a) Information. The Lessee will furnish to the Company and the
Administrative Agent in sufficient copies for each Bank:
(i) Quarterly Statements. As soon as practicable after the end of
each of the first three quarterly fiscal periods in each fiscal year of
the Lessee, and in any event within 60 days thereafter, copies of:
(A) a balance sheet of the Lessee as at the end of such quarter, and
(B) statements of income and cash flows of the Lessee for such
quarter and for the twelve-month period ending as of the end of such
quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with the end of such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail and certified as complete and
<PAGE>
12
correct, subject to changes resulting from year-end adjustments, by
a principal financial officer of the Lessee; provided that it is
understood that the delivery of the Lessee's Quarterly Report on
Form 10-Q shall be deemed to satisfy the requirements with respect
to such financial statements;
(ii) Annual Statements. As soon as practicable after the end of each
fiscal year of the Lessee, and in any event within 120 days thereafter,
copies of:
(A) a balance sheet of the Lessee at the end of such fiscal year,
and (B) statements of income and cash flows of the Lessee for such
year, setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and accompanied
by an opinion thereon of independent certified public accountants of
recognized national standing selected by the Lessee, which opinion
shall state that such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in which
such accountants concur) and that the examination of such
accountants in connection with such financial statements has been
made in accordance with generally accepted auditing standards;
provided that it is understood that the delivery of the Lessee's
Annual Report on Form 10-K shall be deemed to satisfy the
requirement with respect to such financial statements;
(iii) Officer's Compliance Certificate. Simultaneously with the
financial statements referred to in Sections 9(a)(i) and (ii), a
certificate of an authorized officer of the Lessee stating that such
officer has reviewed the relevant terms and conditions of the Fuel Lease
and other Basic Documents to which the Lessee is a party, and has made, or
caused to be made, under such officer's supervision, a review of the
transactions and financial condition of the Lessee from the beginning of
the accounting period covered by the income statements being delivered
therewith to the date of the certificate, and that the Lessee has observed
or performed all of its covenants and other agreements, and satisfied
every condition, contained in this Letter Agreement, the Fuel Lease and
any other Basic Document to which the Lessee is a party, and no
Terminating Event, Lessee Default, Lessee Event of Default, Lease Event
<PAGE>
13
of Default or default or event of default under any such Basic Document
has occurred and is continuing and no event has occurred and is continuing
which, with the lapse of time or the giving of notice, or both, would
constitute a Terminating Event, Lessee Default, Lessee Event of Default,
Lease Event of Default or a default or event of default under any such
Basic Document or, if such condition or event has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto;
(iv) Auditor's Compliance Certificate. Simultaneously with the
financial statements referred to in Section 9(a)(ii), a certificate of the
independent public accountants who audited such statements stating that
such accountants have reviewed the relevant terms and conditions of the
Fuel Lease and other Basic Agreements to which the Lessee is a party, and
that, in making the examination necessary for the audit of such
statements, they have obtained no knowledge of any condition or event
which constitutes or which with notice or lapse of time or both would
constitute a Terminating Event, Lessee Default, Lessee Event of Default,
Lease Event of Default or default or event of default under any such Basic
Document, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or
event of which they have knowledge and the nature and status thereof;
(v) Notices Required under the Basic Documents. Immediately upon
delivery to the Lessee or the Company, all notices, consents, documents,
certificates or instruments of any kind relating to the Lessee required
pursuant to the Fuel Lease;
(vi) Defaults. (A) Promptly upon becoming aware of the occurrence
thereof, notice of any Terminating Event, Lessee Default, Lessee Event of
Default, Lease Event of Default or any event which, with the lapse of time
or the giving of notice, or both, would constitute a Terminating Event or
a Lease Event of Default, or of any other development, financial or
otherwise (including, without limitation, developments with respect to
Year 2000 Issues), which could reasonably be expected to have a Material
Adverse Effect, and (B) within 10 days of becoming aware of the occurrence
thereof, notice of any other material event affecting the Lessee's
obligations under any Basic Document or any Nuclear
<PAGE>
14
Material Contract (except to the extent such event has previously been
disclosed in the Lessee's SEC reports delivered pursuant to clause (viii)
below);
(vii) Notice of Claimed Default. Immediately upon becoming aware
that the holder or holders of any evidence of Obligations for Borrowed
Money or Deferred Purchase Price or other security of the Lessee or any
subsidiary exceeding $20,000,000 in the aggregate have given notice (or
taken any other action) with respect to a claimed default, breach or event
of default, a notice describing the notice given (or action taken) and the
nature of the claimed default, breach, or event of default;
(viii) SEC and Other Reports. Promptly after filing thereof, copies
of all regular and periodic reports and registration statements which the
Lessee may file with the SEC or any governmental agency substituted
therefor and, promptly upon written request therefor, copies of the
financial statements which the Lessee may file annually with any state
regulatory agency or agencies; and
(ix) Requested Information. With reasonable promptness, such other
data and information with respect to the Lessee, including, without
limitation, information regarding Nuclear Material or any Nuclear Material
Contract or the Lessee's Year 2000 Program, as from time to time may be
reasonably requested by the Administrative Agent or any Bank.
(b) Notice of Litigation. Immediately upon the Lessee becoming aware
thereof, written notice of (i) any litigation or proceedings which would be
required to be disclosed as an exception to the representations and warranties
contained herein or in the Fuel Lease in order that such representations and
warranties would be true and correct on a continuing basis; and (ii) any dispute
between the Lessee and any governmental authority or other party relating to any
part of the transactions contemplated by this Letter Agreement or any of the
other Basic Documents to which the Lessee is a party which would have a material
adverse effect on the ability of the Lessee to carry out its obligations
hereunder or under any other Basic Document to which the Lessee is a party;
provided, however, that the notice requirement in this Section 9(b) shall be
satisfied if the Lessee furnishes the Company and the Administrative Agent in
sufficient
<PAGE>
15
copies for each Bank a Current Report on Form 8-K regarding the event requiring
notice by the time that the Current Report is required to be filed with the
Securities and Exchange Commission.
(c) General Obligations. Subject to the last sentence of this
Section 9(c), the Lessee will:
(i) duly comply with all laws, rules, orders, regulations or
other valid requirements (including, without limitation,
any of the foregoing which are applicable to Nuclear
Material or the operation of the Generating Facility) of
any governmental authority necessary to the conduct of its
business or to its properties or assets, noncompliance with
which could reasonably be expected to have a material
adverse effect upon the transactions contemplated by this
Letter Agreement or any other Basic Document, or upon the
financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of
the Lessee to carry out its obligations under any Basic
Document or this Letter Agreement);
(ii) continue to engage principally in the electric utility
business;
(iii) obtain, maintain and keep in full force and effect all
consents, permits, licenses and approvals, the absence of
which would have a material adverse effect upon the
transactions contemplated by this Letter Agreement or any
other Basic Document to which the Lessee is a party, or upon
the financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of the
Lessee to carry out its obligations under this Letter
Agreement or any other Basic Document to which the Lessee is a
party;
(iv) maintain its material operating properties used or useful in
its business in good repair, working order and condition
consistent with prudent utility practice; provided, however,
that the Lessee shall not be prevented from discontinuing the
operation and maintenance of any of its properties if it shall
determine that the
<PAGE>
16
continued operation and maintenance of such properties is
no longer necessary, desirable or permissible;
(v) pay when due all fees, taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
profits or upon any property belonging to it, and maintain
appropriate reserves for the accrual of the same in accordance
with generally accepted accounting principles;
(vi) except as permitted by clause (vii) below, at all times
maintain its corporate existence, privileges, franchises and
rights to carry on business, and duly procure all renewals and
extensions thereof, if and when any shall be necessary;
(vii) not consolidate or merge with, or sell or otherwise dispose of
all or substantially all of its properties and assets to any
Person unless (i) the surviving or resulting entity is the
Lessee hereunder, (ii) immediately after giving effect thereto
no Credit Agreement Event of Default, Credit Agreement
Default, Lease Event of Default, Lessee Default, Lessee Event
of Default or event which with the giving of notice or passage
of time would constitute a Lease Event of Default shall have
occurred and be continuing, and (iii) the senior unsecured
debt of the surviving or resulting Lessee shall be rated at
least investment grade by Standard & Poor's Ratings Group
("S&P") or Moody's Investor Service, Inc. ("Moody's");
(viii) perform and comply with each of the material provisions of
each material indenture, credit agreement, contract or other
agreement by which the Lessee is bound, non-performance or
non-compliance with which would have a material adverse effect
upon its business or credit or in any way affect its ability
to perform its obligations hereunder except material contracts
or other agreements being contested in good faith;
(ix) preserve and maintain its corporate existence in the
jurisdiction of its incorporation, and qualify
<PAGE>
17
and remain qualified as a foreign corporation in good standing
in each jurisdiction in which such qualification is necessary
or desirable in view of its business and operations or the
ownership of its properties, except where the failure to be so
qualified would not materially adversely affect its financial
condition, operations, properties or business, and preserve
its material rights, franchises and privileges to conduct its
business substantially as conducted on the date hereof;
(x) maintain insurance in effect at all times in such amounts
as are available to the Lessee and covering such risks as
is usually carried by companies of a similar size, engaged
in similar businesses and owning similar properties
(including, without limitation, the operation and ownership
of nuclear generating facilities) in the same general
geographical area in which the Lessee operates, either with
responsible and reputable insurance companies or
associations, or, in whole or in part, by establishing
reserves of one or more insurance funds, either alone or
with other corporations or associations;
(xi) at any reasonable time and from time to time, permit the
Administrative Agent or any Bank or any agents or
representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and visit
the properties of, the Lessee and discuss the affairs,
finances and accounts of the Lessee with any of its officers
or directors;
(xii) not sell, transfer, lease, assign or otherwise convey or
dispose of more than 25% of its assets (whether now owned or
hereafter acquired), in any single or series of transactions,
whether or not related, except for dispositions of its fossil
and hydroelectric generating stations and associated
facilities and dispositions of its current assets in the
ordinary course of business as presently conducted, if
immediately prior to such sale, transfer, lease, assignment,
conveyance or disposition or as a result of such sale,
transfer, lease, assignment, conveyance or disposition, the
<PAGE>
18
senior unsecured debt of the Lessee shall not be rated at
least investment grade by S&P or Moody's.
(xiii) comply with this Letter Agreement and such other Basic
Documents to which the Lessee is a party in accordance with
the respective terms and conditions set forth herein and
therein; and
(xiv) except for Permitted Liens, permit the creation of any Liens
on the Collateral.
Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may
contest by appropriate proceedings conducted in good faith and due diligence,
the amount, validity or application, in whole or in part of any fee, tax,
assessment or government charge or levy, or any legal requirement, provided that
the Lessee shall have set aside on its books adequate reserves, if required in
accordance with generally accepted accounting principles with respect thereto
and shall furnish such security, if any, as may be required in the proceeding.
10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails to
maintain at all times beneficial ownership of at least 75% of all outstanding
shares of common stock of each of the Lessee, JCP&L and Penelec; or (b) pledges,
grants options on, creates any charge on or security interest in, or otherwise
subjects to any charge or encumbrance, any of the common stock of the Lessee,
JCP&L or Penelec unless the obligations hereunder are secured ratably and with
equal priority, in form and substance reasonably satisfactory to the Majority
Banks.
11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of
executed counterparts of the Credit Agreement and photostatic copies of the
Notes evidencing the Loans, and consents to all of the terms and provisions of
the Credit Agreement and the Notes.
12. Consent to Assignment; Direct Payment of Payments Under the Fuel
Lease.
(a) Consent to Assignment. The Lessee hereby acknowledges notice of
and consents to all the terms and provisions of the Security Agreement and
hereby confirms to and agrees with the Secured Parties that all representations,
warranties, indemnities and agreements of the Lessee contained in this Letter
Agreement and each other Basic Document to which the Lessee is a party shall
inure to the benefit of, and shall be
<PAGE>
19
enforceable by, the Secured Parties to the same extent as if such Secured
Parties were originally parties to or named in such documents and agreements.
The Lessee further acknowledges and consents to the assignment and transfer, and
any future assignments and transfers, to the Secured Parties by the Company of
the Company's right to exercise any and all of its rights, remedies, powers and
privileges (but none of its obligations, duties or liabilities) under the Fuel
Lease, the Assigned Agreements and each other Basic Document to which the Lessee
is a party. The Lessee hereby agrees with the Secured Parties to comply with any
exercise by the Secured Parties, either directly or through the Company, of any
rights, remedies, powers or privileges pursuant to the Security Agreement. The
Secured Parties acknowledge that neither the Security Agreement nor this Section
12 shall in any way add to the obligations of the Lessee (except those
obligations of the Lessee to any Person, which, if not previously so, hereby
become enforceable directly by the Secured Parties) under the Fuel Lease, the
Assigned Agreements and each other Basic Document to which the Lessee is a
party. Notwithstanding the foregoing, so long as no Lease Event of Default shall
have occurred and be continuing, the Lessee shall have exclusive right to
possession and use of the Nuclear Material in accordance with the Fuel Lease and
may use such Nuclear Material for any lawful purpose consistent with the Fuel
Lease.
(b) Direct Payment of Payments Under the Fuel Lease. The Lessee
acknowledges that it has been directed by the Company to, and agrees that it
will, make all payments of monies due and to become due to the Company under the
Fuel Lease, the Assigned Agreements and each other Basic Document to which the
Lessee is a party, directly to the Collateral Agent, including, without
limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material
pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments
pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to
the accounts of the Secured Parties as specified in Section 3.03 of the Credit
Agreement.
13. Severability. Any provision of this Letter Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
20
To the extent permitted by applicable law, the Lessee hereby waives any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect.
14. Indemnification. The Lessee shall pay and indemnify and hold harmless
the Administrative Agent and each Bank, and their respective officers,
directors, incorporators, shareholders, partners, employees, agents and servants
from and against any and all liabilities (other than liabilities arising out of
the gross negligence or willful misconduct of such Person), taxes, (excluding,
however, taxes measured solely by the net income of any Person indemnified or
intended to be indemnified pursuant to this Section 14, except as otherwise
provided in Section 14 hereof), losses, obligations, claims, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) and judgments of any
nature arising from or in any way relating to any and all of the following
during the term of the Fuel Lease and thereafter: (a) any injury to or disease,
sickness or death of Persons, or loss of or damage to property, occurring
through or resulting from any nuclear incident (as that term is defined in the
Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any
way with the Nuclear Material or any portion thereof, (b) the acquisition,
ownership (including strict liability of an owner or liability without fault),
possession, disposition, sale, use, nonuse, misuse, leasing, fabrication,
design, cycling, recycling, transportation, containerization, cooling,
processing, reprocessing, storing, condition, management, operation,
construction, maintenance, repair or rebuilding of the Nuclear Material or any
portion thereof or resulting from the condition of adjoining and underlying
land, buildings, streets or ways, (c) any use, nonuse or condition of, or any
other matter of circumstance relating to, the Generating Facility, any other
property associated therewith or any adjoining and underlying land, buildings,
streets and ways, (d) any violation or default, or alleged violation or default,
of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any
contracts or agreements to which the Lessee is a party or by which it is bound,
or any Legal Requirements, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Nuclear Material
or any portion thereof, (f) any infringement or alleged infringement of any
patent, copyright, trade secret or other similar right relating to the Nuclear
Material or any portion thereof, (g) Lessee's agreements or obligations
contained in the Fuel Lease or this Letter Agreement,
<PAGE>
21
(h) any claim arising out of loss of damage to the environment, (i) any claim
arising out of strict or absolute liability in tort, or (j) the offering and
sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as
aforesaid, from and against all other liabilities, taxes, losses, obligations,
claims, damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses) and judgments of any nature which may be imposed on, incurred by, or
asserted at any time against any indemnitee in any way relating to or arising
out of the performance of this Letter Agreement, the Fuel Lease or any other
Basic Document to which Lessee is a party, provided, except for claims of a
nature contemplated by (i) above, that the Lessee shall not be required to
indemnify any indemnitee with respect to any liability relating to or arising
out of indemnitee's gross negligence or willful misconduct and provided,
further, that the foregoing immunity shall not limit the terms of any indemnity
that the Lessee may grant separately to any indemnitee pursuant to any separate
agreement. In the event that any action, suit or proceeding is brought against
the Company or any other Person indemnified or intended to be indemnified
pursuant to this Section 14 by reason of any such occurrence, the Lessee shall,
at the Lessee's expense, resist and defend such action, suit or proceeding or
cause the same to be resisted and defended by counsel designated by the Lessee
and reasonably acceptable to the Person or Persons indemnified or intended to be
indemnified under this Section 14 provided there is no conflict of interest with
the Person or Persons indemnified or intended to be indemnified under this
Section 14. In the event a conflict of interest contemplated by the proviso of
the immediately preceding sentence shall exist, then the Person or Persons as to
which such conflict exists may be defended by counsel of its or their choice at
Lessee's expense, provided Lessee's obligation for such expense shall be limited
to one firm for all such Persons as to which such a conflict exists. The
obligations of the Lessee under this Section 14 shall survive any termination of
this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security
Agreement, in whole or in part.
15. No Waiver; Amendments. Neither the Administrative Agent, the
Collateral Agent, the Banks, the Company nor the Lessee shall, by any act,
delay, omission or otherwise, be deemed to have waived any of its rights and
remedies hereunder, and no waiver shall be valid unless in writing signed by the
party or parties sought to be bound thereby. A waiver by the Administrative
Agent, the Collateral Agent, the Banks, the Company or the Lessee of any of
their respective rights or
<PAGE>
22
remedies hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent, the Banks, the Company or the
Lessee, as applicable, would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercise of any such right or remedy
hereunder shall preclude any other or future exercise or partial exercise of any
other right or remedy. The rights and remedies hereunder provided are cumulative
and may be exercised singly or concurrently, and are not exclusive of any rights
and remedies provided by law. None of the terms or provisions of this Letter
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the party or parties sought to be bound thereby.
16. Successors and Assigns. This Letter Agreement shall bind the
successors and assigns of the Lessee and the Company and shall inure to the
benefit of permitted successors and assigns of either. The Letter Agreement
shall not be assignable by the Lessee or the Company, either voluntarily or by
operation of law, unless consented to by the Administrative Agent and the
Majority Banks. No permitted assignment by the Lessee or the Company shall
release the Lessee or the Company from any of its obligations hereunder. This
Letter Agreement shall inure to and shall be binding upon the successors and
assigns of the Administrative Agent and the Banks.
17. Notices. Any notice, demand or other communication which by any
provision of this Letter Agreement is required or provided to be given shall be
deemed to have been delivered if in writing addressed as provided below and
actually delivered by mail, courier or facsimile to the following addresses:
(a) except as otherwise requested in writing by the Administrative
Agent or any Bank, any notice, demand or communication which by
any provision of this Letter Agreement is required or provided to
be given to the Administrative Agent or any Bank shall be deemed
to have been delivered to the Administrative Agent or any Bank if
a single copy thereof is delivered to the Administrative Agent at
its address set forth in Section 11.01 of the Credit Agreement or
at such other address as either may have furnished the Company
and the Lessee in writing;
(b) if to the Company (with copies to the Lessee at the address listed
below), TMI-1 Fuel Corp c/o United States Trust Company of New York,
114 West 47th Street,
<PAGE>
23
New York, New York 10036, marked for the attention of the Corporate
Trust and Agency Division, telecopy number 212-852-1626, or at such
other address as it may have furnished in writing to the
Administrative Agent and the Lessee; or
(c) if to the Lessee, to Metropolitan Edison Company, c/o GPU Service
Inc., 310 Madison Avenue, Morristown, New Jersey 07962, marked for
the attention of the Vice President and Treasurer, Telecopier: (973)
644-4224, or at such other address or addresses as the Lessee may
have furnished to the Administrative Agent and
the Company.
18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights
against it as provided for in Section 11.08 of the Credit Agreement.
(b) Lessee agrees that it shall have no right of set-off, deduction
or counterclaim in respect of its obligations hereunder, and that the
obligations of the Banks hereunder and under the Credit Agreement are several
and not joint. Nothing contained herein shall constitute a relinquishment or
waiver of the Lessee's rights to any independent claim that the Lessee may have
against the Administrative Agent or any Bank for the Administrative Agent's or
such Bank's, as the case may be, gross negligence or willful misconduct, but no
Bank shall be liable for the conduct of the Administrative Agent or any Bank,
and the Administrative Agent shall not be liable for the conduct of any Bank.
19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim arising out of or relating to
this Letter Agreement, the Credit Agreement, the other Basic Documents or any
instrument or document delivered hereunder or thereunder, except that the
foregoing shall not preclude any party hereto from submitting to a jury for
determination in any such action, proceeding or counterclaim any dispute
involving (a) the accuracy or completeness of any representation or warranty
made under the Basic Documents by Lessee, (b) the performance by Lessee of any
affirmative or negative covenant or agreement contained in the Basic Documents,
or (c) questions of materiality, or the reasonableness of, or good faith basis
f
<PAGE>
24
or, any action taken, or determination made, by any other party hereto (other
than in respect of any calculation of principal, interest, fees, or increased
costs payable by the Lessee under the Basic Documents).
20. Governing Law. This Letter Agreement shall be governed by, and be
construed and interpreted in accordance with the laws of the State of New York.
<PAGE>
S-1
IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to
be executed as of the date first above written.
METROPOLITAN EDISON COMPANY
By ____________________________________
Vice President
TMI-1 FUEL CORP.
By ____________________________________
Title _________________________________
THE FIRST NATIONAL BANK OF
CHICAGO,
as Administrative Agent
By ____________________________________
Title _________________________________
By ____________________________________
Title _________________________________
SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT
EXHIBIT 10-Y
COUNTERPART NO.
SECOND AMENDED AND RESTATED
NUCLEAR MATERIAL LEASE AGREEMENT
Dated as of November 5, 1998
between
TMI-1 FUEL CORP.,
as Lessor
and
PENNSYLVANIA ELECTRIC COMPANY
as Lessee
AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR
UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS
GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS
SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS
AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING,
WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR
MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT.
THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN
EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY
INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE
LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE
AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN
COUNTERPART NO. 1.
<PAGE>
45908v6 - 4 -
TABLE OF CONTENTS
1 Definitions 2
2 Notices 2
3 Title to Remain in the Lessor; Quiet
Enjoyment; Fuel Management; Location 3
4 Agreement for Lease of Nuclear Material 3
5 Orders for Nuclear Material and Services;
Assigned Agreements 4
6 Leasing Records; Payment of Costs of Lessor 5
7 No Warranties or Representation by Lessor 7
8 Lease Term; Early Termination; Termination
Of Leasing Record 8
9 Payment of Rent; Payments with Respect to the
Lessor's Financing Costs 1
10 Compliance with Laws; Restricted Use of Nuclear
Material; Assignments; Permitted Liens; Spent Fuel 12
11 Permitted Contests 15
12 Insurance; Compliance with Insurance Requirements 16
13 Indemnity 18
14 Casualty and Other Events 21
15 Nuclear Material to Remain Personal Property 22
16 Events of Default 22
17 Rights of the Lessor Upon Default of the Lessee 24
18 Termination After Certain Events 26
19 Investment Tax Credit 29
20 Certificates; Information; Financial Statements 30
21 Obligation of the Lessee to Pay Rent 31
22 Miscellaneous 32
<PAGE>
45908v6
SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT
SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement")
dated as of the 5th day of November, 1998, by and between TMI-1 FUEL CORP., a
Delaware corporation (herein called the "Lessor"), and PENNSYLVANIA ELECTRIC
COMPANY, a Pennsylvania corporation (herein called the "Lessee").
RECITALS
A. The Lessor and Lessee entered into a Nuclear Material Lease
Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease
of Nuclear Material to the Lessee;
B. The Original Lease provided for the Lessor to enter into certain
loan agreements and ancillary documents with The Prudential Insurance Company of
America and certain affiliates thereof ("Prudential") to provide financing from
Prudential for the acquisition of Nuclear Material under the Original Lease;
C. Such loan arrangements with Prudential were terminated and Lessor
entered into a new credit agreement and related instruments pursuant to which a
bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS")
acted as agent to provide financing for the acquisition of Nuclear Material
being leased hereunder;
D. Lessor and Lessee entered into an Amended and Restated Nuclear
Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated
Lease") to reflect the necessary modifications consistent with the establishment
of the credit facility with UBS;
E. Concurrent with the execution and delivery hereof, such credit
agreements with UBS are being terminated and Lessor is entering into a new
credit agreement and related instruments to which a bank syndicate for which The
First National Bank of Chicago and PNC Bank, National Association, will act as
agents to provide financing for the acquisition of the Nuclear Material being
leased hereunder;
F. Accordingly, the Lessor and the Lessee desire to enter into this
Second Amended and Restated Lease Agreement in order to reflect necessary
modifications consistent with establishment of such new credit facility and
other modifications thereof in certain other respects, which agreement shall
supercede the Original Lease and the Amended and Restated Lease;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound hereby, the parties covenant and agree
as follows:
1. Definitions. Except as otherwise provided herein, capitalized
terms used in this Lease Agreement (including the Exhibits) shall have the
respective meanings set forth in Appendix A.
2. Notices. Any notice, demand or other communication which by any
provision of this Lease Agreement is required or permitted to be given shall be
deemed to have been delivered if in writing and actually delivered by mail,
courier, telex or facsimile to the following addresses:
(i) If to the Lessor, TMI-1 Fuel Corp., c/o United States
Trust Company of New York, 114 West 47th Street, New York, New York 10036,
Attention: Corporate Trust and Agency Division, telecopy number
212-852-1626, or at such other address as the Lessor may have furnished to
the Lessee and the Secured Parties in writing; or
(ii) If to the Lessee, Pennsylvania Electric Company c/o GPU
Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957,
Attention: Vice President and Treasurer, telecopy number 973-644-4224, or
at such other address as the Lessee may have furnished the Lessor and the
Secured Parties in writing; or
(iii) except as provided in the following sentence or as
otherwise requested in writing by any Secured Party, any notice, demand or
communication which by any provision of this Lease Agreement is required
or permitted to be given to the Secured Parties shall be deemed to have
been delivered to all the Secured Parties if a single copy thereof is
delivered to The First National Bank of Chicago, One First National Plaza,
Mail Suite 0363, Chicago, Illinois 60670, Attention: Kenneth J. Bauer,
facsimile number (312) 732-3055; or at such other address as either may
have furnished the Lessor and the Lessee in writing. Any Leasing Record or
invoice of a Manufacturer or other Person performing services covering the
Nuclear Material which is required to be delivered to the Secured Parties
pursuant to Section 6(c)(ii) of this Lease Agreement and any Rent Due and
SCV Confirmation Schedule which is required to be delivered to the Secured
Parties pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be
deemed to have been delivered to all the Secured Parties if a single copy
thereof is delivered to Kenneth J. Bauer at the address indicated in this
Section 2(iii).
2
<PAGE>
3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management;
Location.
(a) The Lessor and the Lessee hereby acknowledge that this
Lease Agreement is a lease and is intended to provide for the obligations of the
Lessee to pay installments of Rent as the same become due; that, subject to the
provisions of Section 10(h), the Lessor has title to and is the owner of the
Nuclear Material; and that the relationship between the Lessor and the Lessee
shall always be only that of lessor and lessee.
(b) The Lessor (including its successors and assigns) agrees
and covenants that, so long as the Lessee makes timely payments of Rent and
fully performs all other obligations to be performed by the Lessee under this
Lease Agreement, the Lessor (including its successors and assigns) shall not
hinder or interfere with the Lessee's peaceable and quiet enjoyment of the
possession and use of the Nuclear Material, for the term or terms herein
provided, subject, however, to the terms of this Lease Agreement.
(c) So long as no Lease Event of Default shall have occurred
and be continuing and the Lessor shall not have elected to exercise any of its
remedies under Section 17 hereof, the Lessee shall have the right to engage in
Fuel Management. The Lessee is hereby designated the agent of the Lessor in all
dealings with Manufacturers and any regulatory agency having jurisdiction over
the ownership or possession of the Nuclear Material for so long as the Lessee
shall have the right to engage in Fuel Management. As such agent of the Lessor,
the Lessee agrees to make, or cause to be made, all filings and to obtain all
consents and permits required as a result of the Lessor's ownership and leasing
of the Nuclear Material.
(d) The Lessee covenants to the Lessor that the location of
Nuclear Material will be limited to: (w) any Manufacturer's facility, (x)
transit between one Manufacturer's facility and another Manufacturer's facility
or the site of the Generating Facility, (y) the site of the Generating Facility
and (z) the Generating Facility. Each assembly of the Nuclear Material will be
located during its Heat Production and "cooling-off" stage at the Generating
Facility or the site of the Generating Facility.
4. Agreement for Lease of Nuclear Material. From and after the
Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from
the Lessor such Nuclear Material as may be from time to time mutually agreed
upon, provided that the
3
<PAGE>
total Stipulated Casualty Value of all Nuclear Material leased under this Lease
Agreement shall not exceed at any one time $25,000,000 in the aggregate or such
other amount as the Lessor and the Lessee may agree to in writing (the "Maximum
Stipulated Casualty Value"). The Lessor and the Lessee shall evidence their
agreement to lease particular Nuclear Material in accordance with the terms and
provisions of this Lease Agreement by signing and delivering to each other, from
time to time, Leasing Records, substantially in the forms of Exhibit A or
Exhibit B, as applicable, prepared by the Lessee, covering such Nuclear
Material. Nothing contained herein shall be deemed to prohibit the Lessee from
leasing from other lessors or otherwise obtaining other nuclear material for use
in the Generating Facility, subject to the provisions with respect to
intermingling of fuel assemblies or sub-assemblies with other fuel assemblies or
sub-assemblies contained in Section 6 hereof.
5. Orders for Nuclear Material and Services; Assigned Agreements.
(a) The Nuclear Material Contracts listed in Exhibit C hereto,
relating, among other things, to the purchase of, and services to be performed
with respect to, Nuclear Material were entered into by the Lessee prior to the
date of this Lease Agreement, and, except as otherwise indicated on Exhibit C,
the interests of the Lessee under such Nuclear Material Contracts have been
assigned to the Lessor under an Assignment Agreement substantially in the form
of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems
necessary or desirable may be negotiated by the Lessee and executed by the
Lessee in its own name or, where authorized by the Lessor, as agent for the
Lessor.
(b) So long as no Lease Event of Default shall have occurred
and be continuing, and subject to the approval of the Lessor and to the
limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set
forth in Section 4, the interests of the Lessee under any further Nuclear
Material Contracts (whether executed and delivered before or after the date of
this Lease Agreement) pursuant to which the Lessee desires the Lessor to
purchase Nuclear Material or have services performed on any Nuclear Material on
behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement
substantially in the form of Exhibit D, with such changes to Exhibit 2 to
Exhibit D as the Secured Parties may consent to in writing, which consent shall
not be unreasonably withheld. The Lessee shall use its best efforts to cause the
other parties to such agreements to consent to each such assignment. Upon each
such assignment and the obtaining of such
4
<PAGE>
consents with respect to any Nuclear Material Contract, the Lessor, subject to
the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material
set forth in Section 4, shall make all payments which are required under such
Assigned Agreements for the purchase of Nuclear Material or for services to be
performed on the Nuclear Material in accordance with the procedures set forth in
Section 6.
(c) So long as no Lease Event of Default shall have occurred
and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own
cost and expense, to assert all rights and claims and to bring suits, actions
and proceedings, in its own name or in the name of the Lessor, in respect of any
Manufacturer's warranties or undertakings, express or implied, relating to any
portion of the Nuclear Material and to retain the proceeds of any such suits,
actions and proceedings.
6. Leasing Records; Payment of Costs of Lessor.
(a) Interim Leasing Records. An Interim Leasing Record shall
be prepared by the Lessee, shall be dated the date that the Lessor first makes
any payment with respect to the Acquisition Cost of any Nuclear Material and
shall set forth a full description of such Nuclear Material, the Acquisition
Cost and location thereof, and such other details with respect to such Nuclear
Material upon which the parties may agree. During the period of preparation and
processing or reprocessing of Nuclear Material subject to an Interim Leasing
Record, if the Lessor shall make any further payment or payments or if the
Lessor shall receive any payment or payments representing a credit against the
Acquisition Cost previously paid with respect to such Nuclear Material, a
supplemental Interim Leasing Record dated the date that the Lessor makes each
such further payment or the date of receipt of any such credit shall be signed
by the Lessor and the Lessee to record the revised Acquisition Cost, after
giving effect to any such payments or credits with respect to such Nuclear
Material, any change in location and such additional details upon which the
parties may agree.
(b) Final Leasing Records. For Nuclear Material previously
covered by an Interim Leasing Record, the Final Leasing Record shall be prepared
by the Lessee, shall be dated the first day of the month following the date of
installation of such Nuclear Material in the Generating Facility, unless such
date is the first day of a month, in which case the Final Leasing Record shall
be dated such date. For Nuclear Material not previously covered by an Interim
Leasing Record, the Final Leasing Record shall be dated the
5
<PAGE>
date that the Lessor first makes any payment with respect to the Acquisition
Cost of such Nuclear Material. A Final Leasing Record shall set forth a full
description of such Nuclear Material, the Acquisition Cost thereof, the BTU
Charge, the location, and such other details with respect to such Nuclear
Material upon which the parties may agree.
(c) Payment of Nuclear Material Costs.
(i) On the Closing, the Lessor shall pay UBS pursuant to
Section 5.02 of the UBS Credit Agreement the principal amount of all loans
outstanding thereunder together with accrued interest thereon to the
extent not paid previously, and related costs and expenses in connection
therewith.
(ii) From time to time after the Closing, invoices of
Manufacturers, or of other Persons performing services, covering Nuclear
Material shall be forwarded to the Lessor in care of the Lessee at the
Lessee's address. Upon receipt by the Lessee of an invoice covering
Nuclear Material, the Lessee shall review such invoice and, upon the
Lessee's approval thereof, the Lessee shall forward such invoice endorsed
with the Lessee's approval to the Lessor, together with a Leasing Record
completed and signed by a Lessee Representative covering such Nuclear
Material. The Lessee's invoice for any cost incurred by it and includable
in the Acquisition Cost of any Nuclear Material shall be forwarded to the
Lessor and to the Secured Parties, together with a Leasing Record
completed and signed by a Lessee Representative covering such costs. After
receipt of such invoice and Leasing Record, in form and substance
satisfactory to the Lessor, the Lessor, subject to the limitation on
Maximum Stipulated Casualty Value of the Nuclear Material set forth in
Section 4, shall pay such invoice as provided therein or in the related
purchase agreement and shall execute the Leasing Record and return a copy
of such Leasing Record to the Lessee and the Secured Parties. The Leasing
Record shall be dated as provided for in this Lease Agreement. In the
event that the Acquisition Cost of the Nuclear Material covered by any
Leasing Record has been paid or incurred by the Lessee, the Lessor,
subject to the limitation on Maximum Stipulated Casualty Value of the
Nuclear Material set forth in Section 4 shall promptly reimburse the
Lessee for the amount of the Acquisition Cost paid or incurred by the
Lessee.
(iii) The Lessee shall: (A) pay all costs and expenses of
freight, packing, insurance, handling, storage, shipment and delivery of
the Nuclear Material to the extent
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that the same have not been included in the Acquisition Cost, and (B) at
its own cost and expense, furnish such labor, equipment and other
facilities and supplies, if any, as may be required to install and erect
the Nuclear Material to the extent that the cost and expense thereof have
not been included in the Acquisition Cost. Such installation and erection
shall be in accordance with the specifications and requirements of each
Manufacturer. The Lessor shall not be liable to the Lessee for any failure
or delay in obtaining Nuclear Material or making delivery thereof.
(d) Intermingling of Fuel Assemblies. Subject to the
provisions of Section 10(h) hereof, the Nuclear Material shall be owned
exclusively by the Lessor and leased to the Lessee under this Lease Agreement.
Prior to the fabrication of Nuclear Material into a completed fuel assembly or
sub-assembly or while such Nuclear Material is being reprocessed, the Lessee
will cause or permit such Nuclear Material to be fabricated or assembled only
into fuel assemblies or sub-assemblies owned by the Lessor and leased under this
Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor
and leased to the Lessee hereunder may be intermingled in the Generating
Facility with fuel assemblies or sub-assemblies not owned by the Lessor and
leased to the Lessee under this Lease Agreement, provided that such assemblies
or sub-assemblies owned by the Lessor shall be readily identifiable by serial
number or other distinguishing marks.
7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL
IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF
ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF
OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS,
INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES
AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY
AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY
OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR
PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME
FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR
WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING
ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES
THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING,
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM
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NOR ANY OTHER PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD
AT ANY TIME PHYSICAL POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE
ANY INSPECTION THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY
RECOMMENDATION TO THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR
OR PROCESSOR OF THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING,
CONVERSION, ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION,
UTILIZATION, STORAGE OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES
AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM
CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE
ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR
OTHER REPRESENTATION, EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO
BE LEASED UNDER THIS LEASE AGREEMENT (a) WILL NOT RESULT IN INJURY OR DAMAGE TO
PERSONS OR PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE
RESULTS WHICH THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY
MANNER OR RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE
LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND
EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER
COMMON CONTROL WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A
MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT
NONE OF THE FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION,
WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY,
SUITABILITY OR CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY
RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY
OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR
IMPLIED.
8. Lease Term; Early Termination; Termination of Leasing Record.
(a) The Lessor hereby leases to the Lessee, and the Lessee
hereby leases from the Lessor, the Nuclear Material for the term provided in
this Lease Agreement and subject to the terms and provisions hereof.
(b) This Lease Agreement shall become effective at 12:01 A.M.,
Eastern time, on the Closing, and, unless earlier terminated as provided in
Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close
of business on the later of (i) the date on which there is no outstanding
principal of, or interest or premium, if any, on any of the Outstandings or (ii)
the Termination Date but in each case in no event later than November 17, 2015.
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(c) In the event that during the term of this Lease Agreement,
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement, the Lessee shall have the option, exercisable at any time
beginning 180 days before such Termination Date upon written notice to the
Lessor and the Secured Parties prior to such Termination Date to purchase all
(but not less than all) of the Nuclear Material and any spent fuel related
thereto for which title has not been transferred to the Lessee for a purchase
price equal to the Stipulated Casualty Value of such Nuclear Material at the
time of such purchase plus the Termination Rent. If the Lessee exercises such
purchase option, the purchase of the Nuclear Material shall occur on such date,
on or prior to such Termination Date, as may be agreed upon by the Lessor and
the Lessee and of which the Lessee has given the Secured Parties prior written
notice. Upon receipt of payment of the purchase price, the Lessor shall deliver
to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E,
transferring all right, title, interest and claim of the Lessor to the Nuclear
Material and any spent fuel related thereto for which title has not already been
transferred to the Lessee, to the Lessee or the Lessee's designee, free and
clear of all Liens created by the Collateral Agreements, together with such
documents, if any, as may be required to evidence the release of such Liens. The
later of (i) the date on which there is no outstanding principal of, or interest
or premium, if any, on any of the Outstandings or (ii) the date of any sale by
the Lessor of all of the Nuclear Material as provided in this Section 8(c) shall
constitute the Termination Settlement Date, and this Lease Agreement shall
terminate as of such date.
(d) In the event that during the term of this Lease Agreement
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement and the Lessee shall not have exercised its option to
purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no
sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the
Nuclear Material to a third party not disqualified by any applicable statute,
law, regulation or agreement from acquiring such Nuclear Material, and, upon
prior written notice to the Lessor and the Secured Parties of the terms and date
of such sale, the Lessor shall furnish title papers as may be necessary to
effect such sale or conveyance on an as-is, where-is, non-installment, cash sale
basis, without recourse to or warranty or agreement of any kind by the Lessor.
The proceeds of such sale or conveyance shall be paid to the Lessor, and any
amount so paid shall constitute a credit against the amount of the Stipulated
Casualty Value payable by the Lessee under Section 8(e); provided, however, that
any proceeds of such sale or conveyance in excess of the amount payable by the
Lessee under Section 8(e) shall be retained by the Lessee.
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(e) On the Termination Date unless the Lessee shall have
exercised its purchase option set forth in Section 8(c) and paid the Lessor the
purchase price of the Nuclear Material as provided therein, the Lessee shall pay
to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of
all Nuclear Material leased under this Lease Agreement as of such Termination
Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less
any credit provided in Section 8(d)), and (ii) the Termination Rent as of such
Termination Date. Upon receipt of such payment, the Lessor shall deliver to the
Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in
the form of Exhibit E, transferring all right, title, interest and claim of the
Lessor to the Nuclear Material and any spent fuel relating thereto for which
title has not been transferred to the Lessee to the Lessee or the Lessee's
designee, free and clear of all Liens created by the Collateral Agreements,
together with such documents, if any, as may be required to evidence the release
of such Liens.
(f) In the event that during the term of this Lease Agreement,
the then effective Termination Date is not extended pursuant to Section 4.01 of
the Credit Agreement, all obligations of the Lessor and Lessee under this Lease
Agreement with respect to the Nuclear Material, including the obligation of the
Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for
the Nuclear Material and to lease the same to the Lessee shall terminate on the
date on which the Lessor receives the payment specified in Section 8(c) or
Section 8(e).
(g) The Lessee shall deliver to the Lessor and to the Secured
Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within
thirty (30) days following the date on which any Nuclear Material or spent fuel
resulting from the Nuclear Material is removed from the reactor of the
Generating Facility for purposes of "cooling-off" preliminary to reprocessing or
permanent on-site safe storage and/or off-site disposal. If the Lessee elects
within thirty (30) days following the receipt by the Lessor of such Rent Due and
SCV Confirmation Schedule to extend the lease term for the purposes of
reprocessing any such Nuclear Material, then the Lessor and the Lessee shall
enter into an Interim Leasing Record with respect to such Nuclear Material in
its then condition. In all other cases, the Final Leasing Record with respect to
any such Nuclear Material or spent fuel resulting from such Nuclear Material
shall be terminated and the Lessee shall immediately pay to the Lessor all
amounts, including the Stipulated Casualty Value, if any, with respect to such
Nuclear Material or spent fuel
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resulting from such Nuclear Material, and, upon receipt thereof, the Lessor
shall deliver to the Lessee or to any designee of the Lessee a Lessor's Bill of
Sale, substantially in the form of Exhibit E, transferring all right, title,
interest and claim of the Lessor to such Nuclear Material or spent fuel
resulting from such Nuclear Material for which title has not already been
transferred to the Lessee or the Lessee's designee, free and clear of all Liens
created by the Collateral Agreements, together with such documents, if any, as
may be required to evidence the release of such Liens.
9. Payment of Rent; Payments with Respect to the Lessor's Financing
Costs.
(a) Basic Rent. The Lessee shall pay Basic Rent monthly in
arrears on the first day of the next succeeding month. If such first day of the
month is not a Business Day, then payment shall be made on the next succeeding
Business Day.
(b) Additional Rent. In addition to the Basic Rent, the Lessee
will also pay from time to time as provided in this Lease Agreement or on demand
of the Lessor, all Additional Rent on the due date thereof. In the event of any
failure by the Lessee to pay any Additional Rent, the Lessor shall have all the
rights, powers and remedies as in the case of failure to pay Basic Rent.
(c) Prepayments of Basic Rent. The Lessee may prepay Basic
Rent at any time. Such payment shall be credited against subsequent amounts owed
by the Lessee on account of Basic Rent.
(d) Wire Payment Procedure for Paying Basic Rent. All payments
of Rent and other payments to be made by the Lessee to the Lessor pursuant to
this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request,
to the Secured Parties) in lawful money of the United States in Collected Funds
by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee
shall furnish to the Lessor and the Secured Parties each month during the term
of the Lease Agreement a summary of the rental calculations for such month
covering all outstanding Leasing Records. On each Basic Rent Payment Date, the
Lessee shall deliver to the Lessor and the Secured Parties a signed and
completed Rent Due and SCV Confirmation Schedule. The Lessee shall be
responsible for the accuracy of the matters contained in all such schedules
delivered by the Lessee pursuant to the provisions of this Lease agreement.
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10. Compliance with Laws; Restricted Use of Nuclear Material;
Assignments; Permitted Liens; Spent Fuel.
(a) Compliance with Legal Requirements. Subject to the
provisions of Section 11 hereof, the Lessee agrees to comply with all Legal
Requirements.
(b) Recording of Title. The Lessee shall promptly and duly
execute, deliver, file and record all such further counterparts of this Lease
Agreement or such certificates, Bills of Sale, financing and continuation
statements and other instruments as may be reasonably requested by the Lessor
and take such further actions as the Lessor shall from time to time reasonably
request, in order to establish, perfect and maintain the rights and remedies
created or intended to be created in favor of the Lessor and the Secured Parties
under this Lease Agreement and the Lessor's title to and interest in the Nuclear
Material as against the Lessee or any third party in any applicable
jurisdiction.
(c) Exclusive Use of Nuclear Material. So long as no Lease
Event Default shall have occurred and be continuing, the Lessee may use the
Nuclear Material in the regular course of its business or in the business of any
subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon
thirty (30) days' prior notice in writing to the Lessor and the Secured Parties,
or upon such shorter prior notice in writing promptly given upon the Lessee's
receipt of notice from any Manufacturer that the Nuclear Material is to be
moved, and at the Lessee's sole expense (without limiting the Lessee's rights to
request payment by the Lessor of such expense as provided in Section 6 hereof)
move such Nuclear Material to any jurisdiction approved in writing by the Lessor
in the contiguous forty-eight (48) states of the United States of America and
the District of Columbia for the purpose of having services performed on such
Nuclear Material in connection with any stage of the Nuclear Material Cycle
other than Heat Production and the "cooling off" stage, provided that (i) no
such movement of the Nuclear Material shall materially reduce the then fair
market value of such Nuclear Material, (ii) such Nuclear Material shall be and
remain the property of the Lessor, subject to this Lease Agreement, and (iii)
all Legal Requirements (including, without limitation, all necessary government
consents, permits and approvals) shall have been met or obtained by the Lessee,
on its own behalf and on behalf of the Lessor, and all necessary recordings,
filings and registrations or recordings, filings and registrations which the
Lessor shall reasonably consider advisable shall have been duly made in order to
protect the validity and effectiveness of this Lease Agreement and the security
interest created in the Security
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Agreement. At least once each year, or more frequently if the Lessor reasonably
so requests, the Lessee shall advise the Lessor and the Secured Parties in
writing where all Nuclear Material as of such date is located. The Lessee shall
maintain and make available to the Lessor for examination upon reasonable notice
complete and adequate records pertaining to receipt, possession, use, location,
movement, physical inventories and any other information reasonably requested by
the Lessor with respect to the Nuclear Material.
(d) Additional Lessee Covenants. The Lessee agrees to use
every reasonable precaution to prevent loss or damage to the Nuclear Material.
All individuals handling or operating Nuclear Material in the possession of the
Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee
shall cooperate fully with the Lessor and all insurance companies and
governmental agencies providing insurance under Section 12 hereof in the
investigation and defense of any claims or suits arising from the licensing,
acquisition, storage, containerization, transportation, blending, transfer,
consumption, leasing, insuring, operating, disposing, fabricating and
reprocessing of the Nuclear Material. To the extent required by any applicable
law or regulation, the Lessee shall attach to the Nuclear Material the form of
required notice to protect or disclose the ownership of the Lessor or that the
Nuclear Material is leased. So long as no Lease Event of Default shall have
occurred and be continuing, the Lessor will assign or otherwise make available
to the Lessee all of its rights under any Manufacturer's warranty on Nuclear
Material. The Lessee shall pay all costs, expenses, fees and charges, except
Acquisition Costs, incurred by the Lessee in connection with the use and
operation of the Nuclear Material during the term of the lease of such Nuclear
Material. The Lessee hereby assumes all risks of loss or damage of Nuclear
Material however caused and shall, at its own expense, keep the Nuclear Material
in good operating condition and repair, reasonable wear and tear, obsolescence
and exhaustion excepted.
(e) Assignment by Lessor. Except as otherwise herein provided,
the Lessor may not, without the prior written consent of the Lessee, sell,
assign, transfer or convey the Nuclear Material or any interest therein or in
the Lease Agreement, or grant to any party a security interest in, or create a
lien or encumbrance upon, all or any part of its right, title and interest in
this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of
written notice from the Lessor of any assignment by the Lessor of Rents or other
sums payable by the Lessee under this Lease Agreement, the Lessee shall make
such payments as directed in such notice of assignment, and such payments shall
discharge the obligations of the Lessee hereunder to the extent of such
payments. The Lessee hereby consents to the security interest and other rights
and interests granted to the Secured Parties under the Security Agreement, dated
as of the date first above written.
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(f) Liens; Permitted Liens. The Lessee will not directly or
indirectly create or permit to be created or to remain and will discharge any
Lien with respect to the Nuclear Material or any portion thereof, or upon the
Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or
any other sum payable under this Lease Agreement, other than Permitted Liens.
(g) Assignment by Lessee. Notwithstanding any provision of
this Lease Agreement to the contrary, subject to applicable laws and regulations
and so long as no Lease Event of Default shall have occurred and be continuing,
the Lessee may sublease the Nuclear Material provided that (i) the Lessee has
given prior written notice of such sublease to the Lessor, (ii) such sublease is
not inconsistent with, and is expressly subject to, this Lease Agreement and
(iii) such sublease does not in any way limit or affect the Lessee's duties and
obligations under this Lease Agreement.
(h) Transfer of Title to Manufacturers. The parties recognize
that, during the processing and reprocessing of Nuclear Material before and
after its utilization in the Generating Facility for the production of power,
the Manufacturer performing services on the Nuclear Material may require that
title thereto be transferred to such Manufacturer and/or that the Nuclear
Material be commingled with other nuclear material, with an obligation for the
Manufacturer, upon completion of the services, to reconvey a specified amount of
nuclear material. The standard enrichment contracts of the Department of Energy
contain such provisions. Therefore, the parties agree that (i) Nuclear Material
may become subject to such a contract provision and that the action contemplated
by such a provision may be taken, notwithstanding any provision of this Lease
Agreement to the contrary, (ii) as between the Lessor and the Lessee, such
Nuclear Material shall be deemed to remain leased under this Lease Agreement
while title thereto is in the Manufacturer, and (iii) the nuclear material
exchanged by the Manufacturer upon completion of its services shall be
automatically leased under this Lease Agreement in substitution for the Nuclear
Material originally delivered to the Manufacturer.
(i) Substitution of Nuclear Material. The Lessee shall be
permitted to exchange Nuclear Material for other Nuclear Material of equal or
greater fair market value provided that the Lessor receives title to such
substituted Nuclear Material free and clear of any Lien other than such Liens as
may be created by the Security Agreement or permitted under Section 10(h). Any
additional costs incurred in order to effect such an exchange shall be paid by
the Lessor in accordance with the procedures set forth in Section 6(c) and shall
be added to the Acquisition Cost of the Nuclear Material. A supplemental Leasing
Record dated the date that the Lessor makes such further payment shall be signed
by the
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Lessor and the Lessee to record the revised Acquisition Cost and shall include a
full description of the substituted Nuclear Material, notice of any change in
location and such additional details upon which the parties may agree.
(j) Spent Fuel. Without the consent of the Lessor, the Lessee
shall not permit any Nuclear Material, which shall have been removed from a
Generating Facility for the purpose of "cooling-off," storage, repair or
reprocessing to be removed from the site of the Generating Facility unless (i)
the new site of such Nuclear Material is a facility maintaining liability
insurance and indemnification fully insuring and indemnifying the Lessor, the
Lessee and the Secured Parties under the Atomic Energy Act and any other
applicable law, rule or regulation, and (ii) except if the lease term is
extended pursuant to the second sentence of Section 8(g), the lease of such
Nuclear Material shall, concurrently with its removal from the Generating
Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or
18 hereof, as applicable, with the Lessee acquiring the ownership thereof
pursuant to Section 8(e), 8(g) or Section 18(c), as applicable.
11. Permitted Contests. The Lessee at its expense may, in its own
name or, if necessary and permitted, in the name of the Lessor (and, if
necessary but not so permitted, the Lessee may require the Lessor to) contest
after prior notice to the Lessor, by appropriate legal or administrative
proceedings conducted in good faith and with due diligence, the amount, validity
or application, in whole or in part, of any Imposition or Lien therefor, or any
Legal Requirements or Insurance Requirements, or any matter underlying Lessee's
indemnity obligations under Section 13 hereof, or any other Lien or contract or
agreement referred to in Section 10(f) hereof; provided that (i) in the case of
an unpaid Imposition or Lien therefor, such proceedings shall suspend the
collection of such Imposition or the enforcement of such Lien against the
Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion
thereof nor the taking of any step necessary or proper with respect to such
Nuclear Material in any stage of the Nuclear Material Cycle nor the performance
of any other act required to be performed by the Lessee under this Lease
Agreement would be enjoined, prevented or otherwise interfered with, (iii) the
Lessor would not be subject to any additional civil liability (other than
interest which the Lessee agrees to pay) or any criminal liability for failure
to pay any such Imposition or to comply with any such Legal Requirements or
Insurance Requirements or any such other Lien, contract or agreement, and (iv)
the Lessee shall have set aside on its books adequate reserves (in accordance
with generally accepted accounting principles) and shall have furnished such
security, if any, as may be required in the proceedings or reasonably requested
by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S.
Trust and the Secured Parties harmless against, all losses, judgments, decrees
and costs,
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including attorneys' fees and expenses, in connection with any such contest and
will, promptly after the determination of such contest, pay and discharge the
amounts which shall be levied, assessed or imposed or determined to be payable,
together with all penalties, fines, interest, costs and expenses incurred in
connection with such contest. All rights and indemnification obligations under
this Section 11 and each other indemnification obligation in favor of the
Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Lease
Agreement shall survive any termination of this Lease Agreement or of the lease
of any Nuclear Material hereunder.
12. Insurance; Compliance with Insurance Requirements. The Lessee
shall comply with all Insurance Requirements and with all Legal Requirements
pertaining to insurance. Without limiting the foregoing:
(a) Liability and Casualty Insurance. The Lessee shall, at its
own cost and expense, procure and maintain, or cause to be procured and
maintained, liability insurance and indemnification with respect to the Nuclear
Material insuring and indemnifying the Lessor, the Owner Trustee, U.S. Trust,
the Lessee, and the Secured Parties to the full extent required or available,
whichever may be greater, under the Atomic Energy Act or under any other
applicable law, rule or regulation. In the event the provisions of the Atomic
Energy Act with respect to liability insurance and the indemnification of
owners, licensees and operators of Nuclear Material or any other provisions of
the Atomic Energy Act which benefit the Lessor, the Owner Trustee, U.S. Trust or
the Secured Parties shall change, then the Lessee shall use its best efforts to
obtain equivalent insurance and indemnification agreements from the Nuclear
Regulatory Commission or from such other public and/or private sources from
which such coverage is available. The Lessee shall also, at its own cost and
expense, procure and maintain, or cause to be procured and maintained, physical
damage insurance with respect to the Nuclear Material insuring the Lessor, the
Owner Trustee, U.S. Trust and the Secured Parties against loss or damage to the
Nuclear Material in a manner which is consistent at all times with current
prudent utility industry practice in the United States; provided, however, that
the Lessee shall in any event maintain physical damage insurance coverage for
its Three Mile Island Unit 1 nuclear generating station site, including the
Nuclear Material, in an amount not less than $1.11 billion. Such liability and
physical damage insurance and indemnification agreements may be subject to
deductible amounts which do not exceed in the aggregate $5,000,000, and the
Lessee may self-insure with respect to such liability and physical damage
insurance and indemnification agreements to the extent of $5,000,000, provided
that such deductible amounts and such self-insurance are permitted under all
applicable law, rules and regulations.
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(b) Third Parties; Insurance Requirements. The Lessee shall
use its best efforts to provide that the Nuclear Material, while in the
possession of third parties, is covered for liability insurance and
indemnification to the maximum extent available, and for physical damage
insurance in an amount not less than the Stipulated Casualty Value of such
Nuclear Material. To the extent that any such third party is maintaining such
insurance coverage for the Nuclear Material, the Lessee shall have no obligation
to do so under this Lease Agreement.
(c) Named Insureds; Loss Payees. The Lessee shall provide for
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named
additional insureds where possible, and, with respect to physical damage
coverage, named loss payees to the full extent of their interests in all
insurance policies and indemnification agreements relating to the Nuclear
Material required under this Section. All such policies and, where possible,
indemnification agreements, shall provide for at least ten (10) days' prior
written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral
Agent of any cancellation or material alteration of such policies.
(d) Insurance Certificates. The Lessee shall, upon request of
the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the
Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may
be, with copies of the policies or insurance certificates in respect of the
insurance procured pursuant to the provisions of this Section and shall advise
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all
expirations and renewals of policies and all notices issued by the insurers with
respect to such policies. Within a six-month period from the execution of this
Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to
the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate
as to the insurance coverage provided pursuant to this Section and shall further
give notice as to any material change in the nature or availability of such
coverage, including any material change whatsoever in the provisions of the
Atomic Energy Act or any other applicable law, rule or regulation with respect
to liability insurance and indemnification, or, immediately after the Lessee
becomes aware, or should reasonably be expected to become aware, of any material
change in the application, interpretation or enforcement thereof. The Lessor,
the Owner Trustee, U.S. Trust or the Collateral Agent shall be under no duty to
examine such insurance policies or indemnification agreements or to advise the
Lessee in case the Lessee is not in compliance with any Insurance Requirements.
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13. Indemnity. Without limitation of any other provision of this
Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold
harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured
Parties and all companies, persons or firms controlling, controlled by, or under
common control with any of them and the respective shareholders, directors,
officers and employees of the foregoing against any and all claims, demands and
liabilities of whatever nature and all costs, losses, damages, obligations,
penalties, causes of action, judgments and expenses (including attorneys' fees
and expenses) directly or indirectly relating to or in any way arising out of:
(a) defects in title to Nuclear Material upon acquisition by
the Lessor or in ownership of and interest in the Nuclear Material (the term
"Nuclear Material" when used in this Section 13 shall include, in addition to
all other Nuclear Material, nuclear material the lease of which has been
terminated and which is in storage, or is being transported to storage, and
which has not been sold or disposed of by the Lessor to the Lessee or to a third
party);
(b) the ownership, licensing, ordering, rejection, use,
nonuse, misuse, possession, control, installation, acquisition, storage,
containerization, transportation, blending, transfer, consumption, leasing,
insuring, operating, disposing, fabricating, channelling, refining, milling,
enriching, conversion, cooling, processing, condition, operation, inspection,
repair and reprocessing of the Nuclear Material, or resulting from the condition
of the environment including the adjoining and/or underlying land, water,
buildings, streets or ways, except to the extent that such costs are included in
the Acquisition Cost of such Nuclear Material within the limits specified in
Section 4 (or within any change of such limits agreed to in writing by the
Lessor and the Lessee) and except for any general administrative expenses of the
Secured Parties and of their representatives;
(c) the assertion of any claim or demand based upon any
infringement or alleged infringement of any patent or other right, by or in
respect of any Nuclear Material; provided, however, that the Lessor shall have
made available to the Lessee all of the Lessor's rights under any similar
indemnification from the Manufacturer of such Nuclear Material under any Nuclear
Material Contract;
(d) all federal, state, county, municipal, foreign or other
fees and taxes of whatever nature including, but not limited to, license,
qualification, franchise, sales, use, business, gross receipts, ad valorem,
property, excise, and occupation fees and taxes and penalties and interest
thereon,
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whether assessed, levied against or payable by the Lessor or any Secured Party
or to which the Lessor or any Secured Party is subject with respect to the
Nuclear Material or the Lessor's or any Secured Party's ownership thereof or
interest therein or the licensing, ordering, ownership, use, possession,
control, acquisition, storage, containerization, transportation, blending,
milling, enriching, transfer, consumption, leasing, insuring, operating,
disposing, fabricating, channelling, refining, conversion, cooling and
reprocessing of Nuclear Material or measured in any way by the value thereof or
by the business of investment in, financing of or ownership by the Lessor or any
Secured Party with respect thereto; provided, however, that the Lessee shall not
be obligated to indemnify any Secured Party for any taxes, whether federal,
state or local, based on or measured by net income of any Secured Party where
taxable income is computed in substantially the same manner as taxable income is
computed under the Code;
(e) any injury to or disease, sickness or death of persons or
loss of or damage to property occurring through or resulting from any Nuclear
Incident involving or connected in any way with the Nuclear Material or any
portion thereof;
(f) any violation, or alleged violation, of this Lease
Agreement by the Lessee or of any contracts or agreements to which the Lessee is
a party or by which it is bound or any laws, rules, regulations, orders, writs,
injunctions, decrees, consents, approvals, exemptions, authorizations, licenses
and withholdings of objection, of any governmental or public body or authority
and all other requirements having the force of law applicable at any time to the
Nuclear Material or any action or transaction by the Lessee with respect thereto
or pursuant to this Lease Agreement;
(g) performance of any labor or service or the furnishing of
any materials in respect of the Nuclear Material or any portion thereof, except
to the extent that such costs are included in the Acquisition Cost of such
Nuclear Material within the limits specified in Section 4 (or within any change
of such limits agreed to in writing by the Lessor and the Lessee); or
(h) liabilities based upon a theory of strict liability in
tort, negligence or willful acts to the extent that such liabilities relate to
the Nuclear Material or any action or transaction with respect thereto or
pursuant to this Lease Agreement.
The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S.
Trust, the Secured Parties or other indemnified
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parties, as the case may be, for any sum or sums expended with respect to any of
the foregoing or advance such amount, upon request by the Lessor, the Owner
Trustee, U.S. Trust, the Secured Parties or such other party for payment
thereof. With respect solely to the Lessor, the amount of any payment obligation
of the Lessee under this Section 13 shall be determined on a net, after-tax
basis, taking into account any tax benefit to the Lessor. Notwithstanding the
foregoing, the Lessee shall not indemnify or hold harmless the Lessor, the Owner
Trustee, U.S. Trust, the Secured Parties or other indemnified parties for (i)
any claims, demands, liabilities, costs or expenses which arise, result from or
relate to obligations of such party as an insurer under contracts or agreements
of insurance or reinsurance or (ii) any liability arising from the willful
misconduct or gross negligence of the Lessor, the Owner Trustee, U.S. Trust, the
Secured Parties or other indemnified parties; provided, however, that the Lessee
shall in any event indemnify and hold harmless the Lessor, the Owner Trustee,
U.S. Trust, the Secured Parties and other indemnified parties for that part of
any such liability to which the Lessee has contributed. Without limiting any of
the foregoing provisions of this Section 13, to the extent that the Lessee in
fact indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties
or such other party under this indemnity provision, the Lessee shall be
subrogated to the rights of the Lessor, the Owner Trustee, U.S. Trust, the
Secured Parties and such other party in the affected transaction and shall have
a right to determine the settlement of claims with respect to such transaction,
provided that any such rights to which the Lessee shall be subrogated shall be
subordinate and subject in right of payment to the prior payment in full of all
liabilities to the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or
other indemnified parties of the person or entity in respect of which such
rights exist. The Lessor shall claim, on a timely basis, any refund to which it
may be entitled with respect to any fees or taxes for which the Lessor has
sought indemnification from the Lessee under Section 13(d), shall take all steps
necessary to prosecute diligently such claim and shall pay over to the Lessee
any refund (together with any interest received thereon) recovered by the Lessor
with respect to such fees or taxes as soon as practicable following receipt
thereof, provided that the Lessee shall have previously indemnified the Lessor
with respect to such fees or taxes. The Owner Trustee, U.S. Trust and the
Secured Parties, at the expense of the Lessee, (i) shall cooperate with the
Lessee in such manner as the Lessee shall reasonably request in order to claim,
on a timely basis, any refund to which the Owner Trustee, U.S. Trust or the
Secured Parties may be entitled with respect to any fees or taxes for which the
Lessee has indemnified the Owner Trustee, U.S. Trust or any Secured Party or for
which the Lessee has an obligation to indemnify the Owner Trustee, U.S. Trust or
the Secured Parties under Section 13(d) (provided that the Lessee is not in
default of such obligation) if such cooperation is
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necessary in order to claim such refund, (ii) shall take all steps which the
Lessee shall reasonably request which are necessary to prosecute such claim, and
(iii) shall pay over to the Lessee any refund (together with any interest
received thereon) recovered by the Owner Trustee, U.S. Trust or any Secured
Party with respect to such fees or taxes as soon as practicable following
receipt thereof, provided that the Lessee shall have previously indemnified the
Owner Trustee, U.S. Trust or such Secured Party with respect to such fees or
taxes. All rights and indemnification obligations under this Section 13, and
each other indemnification obligation in favor of the Lessor, the Owner Trustee,
U.S. Trust and the Secured Parties under this Agreement, shall survive any
termination of this Lease Agreement or of the lease of any Nuclear Material
hereunder.
14. Casualty and Other Events. Upon the occurrence of any one or
more of the following events:
(a) the loss, destruction or damage beyond repair of any
Nuclear Material, or
(b) the commandeering, condemnation, attachment or loss of use
to the Lessee of any Nuclear Material by reason of the act of any third party or
governmental instrumentality or the deprivation or loss of use to the Lessee of
any Nuclear Material for any other reason, other than by reason of a Lease Event
of Default, for a period exceeding ninety (90) days; or
(c) a determination by the Lessee in its sole discretion that
any Nuclear Material is no longer useful to the Lessee, provided, however, that
(i) no Lease Event of Default has occurred and is continuing, and (ii) no such
determination may be made by the Lessee with respect to any Nuclear Material
prior to November 5, 1999;
Then, in any such case, the Lessee promptly shall give written
notice to the Lessor and the Secured Parties of any such event, and upon the
earlier of (i) ten (10) days following receipt of any insurance or other
proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120)
days after the occurrence of any such event, the Lessee shall pay to the Lessor
an amount equal to the then Stipulated Casualty Value of such Nuclear Material,
together with any Basic Rent and Additional Rent then due with respect to such
Nuclear Material. The lease of such Nuclear Material hereunder and the
obligation of the Lessee to pay Basic Rent and Additional Rent with respect to
such Nuclear Material shall continue until the day on which the Lessor receives
payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon
the giving of written notice of the occurrence of such an event, the Lessee
shall promptly use its best efforts to sell, or, if no sale is possible, to
otherwise convey, on behalf of the Lessor, ownership of such Nuclear Material to
a third party not
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disqualified by any applicable statute, law, regulation or agreement from
acquiring such Nuclear Material, and the Lessor shall furnish title papers as
may be necessary to effect such sale or conveyance on an as-is, where-is,
non-installment, cash sale basis without recourse to or warranty or agreement of
any kind by the Lessor. Any such sale or conveyance shall be effected on or
before the date one hundred and twenty (120) days after the date of the
occurrence of such event. The proceeds of such sale or conveyance shall be paid
to the Lessor, and any amount so paid shall constitute a credit against the
amount of the Stipulated Casualty Value payable by the Lessee under this Section
14.
15. Nuclear Material to Remain Personal Property. It is expressly
understood and agreed that the Nuclear Material shall be and remain personal
property notwithstanding the manner in which it may be attached or affixed to
realty and notwithstanding any law or custom or the provisions of any lease,
mortgage or other instrument applicable to any such realty. The Lessee agrees to
indemnify the Lessor and the Secured Parties against, and to hold the Lessor and
the Secured Parties harmless from, all losses, costs and expenses (including
reasonable attorneys' fees and expenses) resulting from any of the Nuclear
Material becoming part of any realty. Upon termination of the lease of any
Nuclear Material, any costs of removal, transportation, storage and delivery of
such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured
Parties shall not be liable for any physical damage caused to any realty or any
building by reason of the removal of the Nuclear Material therefrom.
16. Events of Default. Each of the following events of default by
the Lessee shall constitute a "Lease Event of Default" and give rise to the
rights on the part of the Lessor described in Section 17 hereof:
(i) Default in the payment of Basic Rent or Additional
Rent, if any, on the date on which such payment is due and the continuance
of such default for five (5) days;
(ii) Default in the payment of Termination Rent;
(iii) The Lessee shall fail to maintain liability and
casualty insurance pursuant to its obligations under Section 12(a) of this
Lease Agreement;
(iv) The Lessee shall fail to perform its obligations to
purchase Nuclear Material pursuant to Section 8(e) of this Lease
Agreement;
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(v) Any representation or warranty or statement made by
the Lessee (or any of its officers) herein or in connection with this
Lease Agreement shall prove to be incorrect or misleading in any material
respect when made;
(vi Default in the payment or performance of any other
material liability or obligation or covenant of the Lessee to the Lessor,
and the continuance of such default for thirty (30) days after written
notice to the Lessee sent by registered or certified mail;
(vii) The Lessee suspends or discontinues its business
operations or becomes insolvent (however such insolvency may be evidenced)
or admits insolvency or bankruptcy or its inability to pay its debts as
they mature, makes an assignment for the benefit of creditors or applies
for or consents to the appointment of a trustee or receiver for the Lessee
or for the major part of its property;
(viii) The institution of bankruptcy, reorganization,
liquidation or receivership proceedings for relief under any bankruptcy
law or similar law for the relief of debtors by or against the Lessee and,
if instituted against the Lessee, its consent thereto or the pendency of
such proceedings for sixty (60) days;
(ix) An event of default (the effect of which is to
permit the holder or holders of any instrument, or the trustee or agent on
behalf of such holder or holders, to cause the indebtedness evidenced by
such instrument to become due prior to its stated maturity) shall occur
under the provisions of any instrument evidencing indebtedness for
borrowed money of the Lessee in a principal amount equal to at least
$20,000,000 or if any obligation of the Lessee for the payment of such
indebtedness shall become or be declared to be due and payable prior to
its stated maturity, or shall not be paid when due and is not paid within
the applicable cure period, if any, provided for the payment of such
indebtedness under such instrument;
(x) An event of default shall occur under the provisions
of any Basic Document and such default shall have continued beyond any
applicable cure period.
(xi) A final judgment in an amount in excess of
$20,000,000 is rendered against the Lessee, and within thirty (30) days
after the entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within thirty (30) days after the
expiration of any such stay, such judgment is not discharged; or
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(xii) Other than pursuant to a condemnation proceeding,
any court, governmental officer or agency shall, under color of legal
authority, take and hold possession of any substantial part of the
property or assets of the Lessee.
17. Rights of the Lessor Upon Default of the Lessee. Upon the
occurrence of any Lease Event of Default, the Lessor may, in its discretion, and
shall, at the direction of the Secured Parties, do one or more of the following:
(a) Terminate the lease term of any or all Nuclear Material
upon five (5) days written notice to the Lessee sent by registered or certified
mail;
(b) Whether or not any lease of any Nuclear Material is
terminated, and, subject to any applicable law or regulation, take immediate
possession of any or all Nuclear Material or cause such Nuclear Material to be
taken from the possession of the Lessee, and/or take immediate possession of and
remove other property of the Lessor in the possession of the Lessee, wherever
situated and for such purpose enter upon any premises without liability for so
doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear
Material, properly containerized and insulated for shipping to the Lessor or to
such other person as the Lessor may designate, in which case the risk of loss
shall be upon the Lessee until such delivery is made;
(c) Whether or not any action has been taken under (a) or (b)
above, and subject to any applicable law or regulation, sell any Nuclear
Material (with or without the concurrence and whether or not at the request of
the Lessee) at public or private sale, and the Lessee shall be liable for and
shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the
Lessor of the proceeds of such sale plus any deficiency between the net proceeds
of such sale and the Stipulated Casualty Value of such Nuclear Material at the
time of such payment by the Lessee; provided, however, that any proceeds of such
sale in excess of the sum of such unpaid Rent, the Stipulated Casualty Value of
such Nuclear Material and all other amounts payable by the Lessee under this
Section 17 shall be received for the benefit of, and shall be paid over to the
Lessee, as soon as practicable after receipt thereof;
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(d) Subject to any applicable law or regulation, sell in a
commercially reasonable manner, dispose of, hold, use, operate, remove, lease or
keep idle any Nuclear Material as the Lessor in its sole discretion may
determine, without any obligation to account to the Lessee with respect to such
action or inaction or for any proceeds thereof, except that the net proceeds of
any such selling, disposing of, holding, using, operating or leasing shall be
credited by the Lessor against any Rent accruing after the Lessor shall have
declared this Lease Agreement as to any or all of the Nuclear Material to be in
default pursuant to this Section; provided, however, that any net proceeds of
any such selling, disposing of, holding, using, operating or leasing in excess
of the sum of any such accrued Rent and all other amounts payable by the Lessee
under this Section 17 shall be received for the benefit of, and shall be paid
over to the Lessee, as soon as practicable after receipt thereof;
(e) Terminate this Lease Agreement as to any or all of the
Nuclear Material or exercise any other right or remedy which may be available
under applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof. If the Lessee fails to
deliver, promptly after written request, the Nuclear Material pursuant to (b),
above, subject to reasonable wear and tear, obsolescence and exhaustion, in good
operating condition and repair, or converts or destroys any Nuclear Material,
the Lessee shall be liable to the Lessor for all Rent then due and payable on
the Nuclear Material, all other amounts then due and payable under this Lease
Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any
loss, damage and expense (including without limitation reasonable attorneys'
fees and expenses) sustained by the Lessor by reason of such Lease Event of
Default and the exercise of the Lessor's remedies with respect thereto,
including any costs incurred under the Credit Agreement and the Security
Agreement, and any other amounts owed to the Secured Parties with respect to the
Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers
Nuclear Material to the Lessor or to such other person as the Lessor may
designate, or if the Lessor repossesses or causes Nuclear Material to be
repossessed on its behalf, the Lessee
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shall be liable for and the Lessor may recover from the Lessee all Rent on the
Nuclear Material due and payable to the date of such delivery or repossession,
all other amounts due and payable under this Lease Agreement, plus any loss,
damage and expense (including without limitation reasonable attorneys' fees and
expenses) sustained by the Lessor by reason of such Lease Event of Default and
the exercise of the Lessor's remedies with respect thereto. No remedy referred
to in this Section 17 is intended to be exclusive, but each shall be cumulative
and in addition to any other remedy referred to above or otherwise available to
the Lessor at law or in equity and the exercise in whole or in part by the
Lessor of any one or more of such remedies shall not preclude the simultaneous
or later exercise by the Lessor of any or all such other remedies. No waiver by
the Lessor of any Lease Event of Default shall in any way be, or be construed to
be, a waiver of any future or subsequent Lease Event of Default.
18. Termination After Certain Events.
(a) This Lease Agreement may terminate as provided in Section
18(b) below prior to the expiration of its term in connection with any of the
following "Terminating Events":
(i) The Lessor shall have given notice that the Lessor
is not satisfied with any change in the insurers, coverage, amount or
terms of any insurance policy or indemnity agreement required to be
obtained and maintained by the Lessee pursuant to Section 12;
(ii) There shall occur the revocation or material
adverse modification of any authorization, consent, exemption or approval
theretofore obtained from any regulatory body or governmental authority
necessary for the carrying out of the intent and purposes of this Lease
Agreement or the actions or transactions contemplated hereby, and the
effectiveness of any such revocation or material adverse modification
shall not be stayed pending any appeal thereof;
(iii) A Nuclear Incident involving or connected in any
way with the Nuclear Material shall have occurred, and the Lessor shall
have given notice to the Lessee that the
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Lessor believes such Nuclear Incident may give rise to an aggregate
liability, or to damage, destruction or personal injury in excess of
$20,000,000;
(iv) There shall have occurred a Deemed Loss Event;
(v) Any change in, or new interpretation by a
governmental authority having jurisdiction relating to, the Price-Anderson
Act, as amended, or the Atomic Energy Act, or the regulations of the
Nuclear Regulatory Commission thereunder, in each case as in effect on the
date of this Lease Agreement, shall have been adopted, and the Lessor
shall have given notice to the Lessee that, in the opinion of independent
counsel selected by the Lessor and reasonably satisfactory to the Lessee
and the Secured Parties as a result of such change or new interpretation
the Lessor is prohibited from asserting any material right, protection or
defense available under applicable law as of the date of this Lease
Agreement with respect to civil or criminal actions brought in connection
with a Nuclear Incident;
(vi) Any law or regulation or interpretation (judicial,
regulatory or otherwise) of any law or regulation shall be adopted or
enforced by any Court or governmental authority, and as a result of such
adoption or enforcement, approval of the transactions contemplated by this
Lease Agreement shall be required and shall not have been obtained within
any applicable grace period after such adoption or enforcement or as a
result of which adoption or enforcement this Lease Agreement or any
transaction contemplated hereby, including any payments to be made by the
Lessee or the ownership of the Nuclear Material by the Lessor, shall be or
become unlawful, or the performance of this Lease Agreement shall be
rendered impracticable in any material way; or
(vii) Any governmental licenses, approvals or consents
with respect to the Generating Facility, without which the Generating
Facility cannot continue to operate, shall have been revoked and the
Lessee shall not have, in good faith, within one hundred and eighty (180)
days of such revocation, represented in writing to the Lessor that the
Lessee has made a good faith determination that such Generating Facility
will return to operation within twenty-four (24) months of such
revocation, or for any other reason the Generating Facility shall cease to
be operated for a period of twenty-four (24) consecutive months.
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(b) Upon the happening of any of the Terminating Events listed
in Section 18(a), Lessor and/or the Secured Parties may, at their option,
terminate this Lease Agreement, such termination to be effective upon delivery
of the Notice contemplated by paragraph (d)(ii) below, except with respect to
obligations and liabilities of the Lessee, actual or contingent, which arose
under the Lease Agreement on or prior to the date of termination and except for
the Lessee's obligations set forth in Sections 10, 12 and 13, and in this
Section 18, all of which obligations will continue until the delivery of
documentation by the Lessor and the payment by the Lessee provided for below,
and except that after such delivery and payment, the Lessee's obligations under
Section 13 shall continue as therein set forth as shall all of Lessee's
indemnification obligations set forth in other sections of this Lease Agreement.
(c) Upon any such termination, the entire interest of the
Lessor in the Nuclear Material and any spent fuel relating thereto for which
title has not been transferred to the Lessee shall automatically transfer to and
be vested in the Lessee, without the necessity of any action by either the
Lessor or the Lessee, provided, however, that if the Lessor shall have
theretofore approved in writing such Person and the terms of such transfer, the
entire interest of the Lessor in such Nuclear Material and any spent fuel
relating thereto for which title has not been transferred to the Lessee shall,
upon such termination, automatically transfer to and be vested in any Person
designated by the Lessee.
(d) Promptly after either party shall learn of the happening
of any Terminating Event, such party shall give notice of the same to the other
party and to the Secured Parties.
(ii) If the Lessor and/or Secured Parties elect to terminate the Lease
Agreement, they shall give notice to the Lessee and the Secured Parties or the
Lessor, as the case may be, which notice shall (x) acknowledge that the Lease
Agreement has terminated, subject to the continuing obligations of the Lessee
mentioned above, and that title to and ownership of such Nuclear Material and
any spent fuel relating thereto for which title has not been transferred to the
Lessee has transferred to and vested in the Lessee or such other Person, and (y)
specify a Termination Settlement Date occurring one hundred and fifty (150) days
after the giving of such notice. After such termination of this Lease Agreement
and until such Termination Settlement Date, the Lessee shall continue to pay
Basic Rent and Additional Rent. On such Termination Settlement Date, the Lessee
shall be
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obligated to pay to the Lessor as the purchase price for the Nuclear Material an
amount equal to the sum of (x) Stipulated Casualty Value of the Nuclear Material
as of the Termination Settlement Date and (y) the Termination Rent on the
Termination Settlement Date. The Lessor shall be obligated to deliver to the
Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, on an
as-is, where-is, non-installment, cash sale basis, without recourse to or
warranty or agreement of any kind by the Lessor acknowledging the transfer and
vesting of title and ownership of the Nuclear Material and any spent fuel
relating thereto for which title has not been transferred to the Lessee, in
accordance with paragraph (c) above and confirming that upon payment by the
Lessee of the amounts set forth in the immediately preceding sentence, the
Nuclear Material is free and clear of the Liens created by the Collateral
Agreements, together with such documents, if any, as may be required to evidence
the release of such Liens.
19. Investment Tax Credit. To the extent that the Lessee determines
the Nuclear Material is or becomes eligible for any investment or similar credit
under the Code as now or hereafter in effect, the Lessee shall request in
writing that the Lessor elect to treat the Lessee as having acquired such
Nuclear Material, and, if permitted to do so under the Code and under any other
applicable law, rule or regulation, the Lessor, pursuant to such request of the
Lessee, shall provide the Lessee with an appropriate investment credit election
and the Lessee shall consent to such election. A condition to the Lessor's
making such election will be the provision by the Lessee of a report or
statement with respect to all Nuclear Material as to which the investment credit
election is applicable. Such report or statement shall contain such information
and be in such form as may be required for Internal Revenue Service reporting
purposes. The Lessee shall indemnify and hold harmless the Lessor and any
affiliates with respect to any adverse tax consequence, other than the loss of
the credit, which may result from such election including, but not limited to,
any increase in the Lessor's income taxes due to any required reduction of the
Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the
Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available
to the Lessor, funds sufficient to put the Lessor in the same after-tax position
(other than by reason of the loss of the investment credit) the Lessor would
have been in if such election had not been made.
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20. Certificates; Information; Financial Statements.
(a) The Lessee will from time to time deliver to the Lessor
and the Secured Parties, promptly upon reasonable request (i) a statement
executed by any Vice President, Treasurer or Assistant Treasurer or any other
assistant officer of the Lessee, certifying the dates to which the sums payable
hereunder have been paid, that this Lease Agreement is unmodified and in full
effect (or, if there have been modifications, that this Lease Agreement is in
full effect as modified, and identifying such modifications) and that no Lease
Event of Default or Terminating Event has occurred and is continuing (or
specifying the nature and period of existence of any thereof and what action the
Lessee is taking or proposes to take with respect thereto), (ii) such
information with respect to the Nuclear Material as the Lessor or the Secured
Parties may reasonably request, and (iii) such information with respect to the
Lessee's operations, business, property, assets, financial condition or
litigation as the Lessor or any assignee of the Lessor or the Secured Parties
may reasonably request.
(b) The Lessee will deliver to the Lessor and the Secured
Parties:
(i) Quarterly Financial Statements. As soon as
practicable and in any event within ninety (90) days after the end of each
fiscal quarter (other than the last fiscal quarter in each fiscal year),
three (3) copies of a balance sheet of the Lessee (consolidated and
consolidating if the Lessee has any subsidiaries) as of the end of such
quarter and of statements of income and cash flows of the Lessee
(consolidated and consolidating if the Lessee has any subsidiaries) for
such quarter, setting forth in each case corresponding figures in
comparative form for the corresponding period of the preceding fiscal
year, each certified as true and correct by the chief accounting officer
thereof; provided, however, that delivery pursuant to clause (iii) below
of copies of the Lessee's Quarterly Report on Form 10-Q for such quarter
containing such financial statements filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
clause (i);
(ii) Annual Financial Statements. As soon as practicable
and in any event within one hundred and twenty (120) days after the end of
each fiscal year, three (3) copies of an annual report of the Lessee
consisting of its financial
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statements, including a balance sheet as of the end of such fiscal year
(consolidated and consolidating if the Lessee has any subsidiaries) and
statements of income and cash flows for the year then ended (consolidated
and consolidating if the Lessee has any subsidiaries), setting forth
corresponding figures in comparative form for the preceding fiscal year,
with all notes thereto, all in reasonable detail and certified by
independent public accountants of recognized standing selected by the
Lessee (only with respect to the consolidated financial statements, if
applicable); provided, however, that delivery pursuant to clause (iii)
below of copies of the Lessee's Annual Report on Form 10-K for such fiscal
year containing such financial statements filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
clause (ii); and
(iii) SEC Reports, etc. With reasonable promptness,
copies of all notices, reports or materials filed by the Lessee with the
Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission)
under the Securities Act of 1933, as amended, other than Registration
Statements on Form S-8 or any amendments thereto, or the Securities
Exchange Act of 1934, as amended, other than Annual Reports on Form 10-K,
and including without limitation, all Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Together with each delivery of financial statements required by clause (b)(i)
above, the Lessee will deliver to the Lessor and the Secured Parties an
Officer's Certificate stating that the Lessee is in compliance with the terms of
this Lease Agreement and stating that there exists no Lease Event of Default, or
Terminating Event or, if any Lease Event of Default, or Terminating Event
exists, specifying the nature and period of existence thereof and what action
the Lessee proposes to take with respect thereto. The Lessee also covenants that
promptly upon the obtaining of knowledge of a Lease Event of Default by the
chief executive officer, principal financial officer or principal accounting
officer of the Lessee, it will deliver to the Lessor and the Secured Parties an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Lessee proposes to take with respect thereto.
21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to
pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and
all other amounts payable hereunder shall, subject to the covenant of the Lessor
contained in Section 3
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hereof, be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right which the Lessee may have against the Lessor
or anyone else for any reason whatsoever, (ii) any defect in the title,
compliance with specifications, condition, design, operation or fitness for use
of, or any damage to or loss or destruction of, any Nuclear Material, or (iii)
any interruption or cessation in the use or possession of any Nuclear Material
by the Lessee for any reason whatsoever. The Lessee hereby waives, to the extent
permitted by applicable law, any and all rights which it may now have or which
at any time hereafter may be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender this Lease Agreement except in accordance
with its express terms. Each payment of Rent and each other payment made by the
Lessee shall be final, and the Lessee will not seek to recover all or any part
of such payment from the Lessor for any reason whatsoever.
22. Miscellaneous
(a) Successors and Assigns. This Lease Agreement shall be
binding upon the Lessee and the Lessor and their respective successors and
assigns and shall inure to the benefit of the Lessee and the Lessor and their
respective successors and assigns; provided that, without the prior written
consent of all the Secured Parties, the Lessee shall not be entitled to assign
its rights or obligations hereunder.
(b) Waiver. Neither party shall by act, delay, omission or
otherwise be deemed to have waived any of its rights or remedies hereunder
unless such waiver is given in writing. A waiver on one occasion shall not be
construed as a waiver on any other occasion.
(c) Entire Agreement. This Lease Agreement, together with the
written instruments provided for or contemplated hereby, the other Basic
Documents and other written agreements between the parties dated as of the date
hereof, constitute the entire agreement between the parties with respect to the
leasing of Nuclear Material, and no representations, warranties, promises,
guaranties or agreements, oral or written, express or implied, have been made by
either party or by any one else with respect to this Lease Agreement or the
Nuclear Material, except as may be expressly provided for herein or therein. Any
change or modification of this Lease Agreement must be in writing and duly
executed by the parties.
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(d) Descriptive Headings. The captions in this Lease Agreement
are for convenience of reference only and shall not be deemed to affect the
meaning or construction of any of the provisions.
(e) Severability. Any provision of this Lease Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
(f) Governing Law. This Lease Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the law of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease
Agreement to be executed and delivered by their duly authorized officers as of
the day and year first above written.
TMI-1 FUEL CORP.
Lessor
ATTEST
By:
(Assistant) Secretary Name:
Title:
PENNSYLVANIA ELECTRIC COMPANY
Lessee
ATTEST
By:
(Assistant) Secretary Name:
Title:
34
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STATE OF )
---------------------
COUNTY OF ) SS:
--------------
On this ___ day of ________, 1998, before me personally appeared ,
to me personally known, who, being by me duly sworn, says that he is
of TMI-1 Fuel Corp. and that said instrument was signed on behalf of said
corporation by authority of its Board of Directors, and he acknowledged that the
execution of the foregoing instrument was the free act and deed of said
corporation.
Notary Public
My commission Expires:
STATE OF )
---------------------
COUNTY OF ) SS:
--------------
On this ___ day of ___________, 1998, before me personally appeared
____________, to me personally known, who, being by me duly sworn, says that he
is _____________________ of Pennsylvania Electric Company and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and he acknowledged that the execution of the foregoing instrument
was the free act and deed of said corporation.
Notary Public
My commission Expires:
35
<PAGE>
ATTACHMENTS
Appendix A -- Definitions
Exhibit A -- Form of Interim Leasing Record
Exhibit B -- Form of Final Leasing Record
Exhibit C -- Nuclear Material Contracts
Exhibit D -- Form of Assignment Agreement and Consent
Exhibit E -- Form of Lessor's Bill of Sale
Exhibit F -- Form of Rent Due and SCV Confirmation Schedule
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APPENDIX A
DEFINITIONS
As used in the Basic Documents (as defined below), the following
terms shall have the following meanings (such definitions to be applicable to
both singular and plural forms of the terms defined), except as otherwise
specifically defined therein:
"Acquisition Cost" means the purchase price of any Nuclear Material,
any progress payments made thereon, costs of milling, conversion, enrichment,
fabrication, installation, delivery, redelivery, containerization, storage,
reprocessing, any other costs incurred by the Company in acquiring the Nuclear
Material (less any discounts or credits actually utilized by the Company), plus
in any case (i) any allowance for funds used during construction (including any
income tax component associated with such allowance) with respect to Nuclear
Material purchased by the Company, (ii) at the option of the Lessee, any Rent
relating to costs incurred in the ordinary course of operations but excluding
Rent relating to extraordinary costs, including without limitation,
indemnification payments, payable by the lessee to the Company with respect to
any Nuclear Material prior to the installation of such Nuclear Material for
operation in the Generating Facility, (iii) any sales, excise or other taxes or
charges payable by the Company with respect to any such payment for such Nuclear
Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable
by the Lessee to the Company with respect to Nuclear Material during any period
in which such Nuclear Material is subject to an Interim Leasing Record, but
excluding any interest charges or penalties for late payment by the Company of
the purchase price or any portion thereof, if such late payment results from the
negligence of the Company, (v) such other costs with respect to any Nuclear
Material as may be agreed by the Company and the Lessee and approved by the
Administrative Agent, in each case in writing, and, in the case of any Nuclear
Material removed from the Generating Facility for the purpose of "cooling off'
and repair or reprocessing, shall include the Stipulated Casualty Value thereof
at the time of such removal, if any, and (vi) at the option of the Lessee, any
Financing Costs. Any amount realized by the Company from the disposition of the
by-products (including, but not limited to, plutonium) of Nuclear Material
specified in a Leasing Record during the repair or reprocessing of such Nuclear
Material while leased hereunder shall be credited against the Acquisition Cost
of such Nuclear Material.
"Additional Rent" shall mean all legal, accounting, administrative
and other operating expenses and taxes incurred by the Company to the extent not
paid as part of Basic Rent (including, without limitation, any Cancellation Fees
and all other
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liabilities incurred or owed by the Company pursuant to the Basic Documents) and
all amounts (other than Basic Rent) that the Lessee agrees to pay under the
Lease Agreement (including, without limitation, indemnification payable under
the Lease Agreement, general and administrative expenses of the Company, and, to
the extent not included in Acquisition Cost, Financing Costs) and interest at
the rate incurred by the Company or any Secured Party as a result of any delay
in payment by the Lessee to meet obligations that would have been satisfied out
of prompt payment by the Lessee, and the amount of any and all other costs,
losses, damages, interest, taxes, deficiencies, liabilities, obligations,
actions, judgments, suits, claims, fees (including, without limitation,
attorneys' fees and disbursements) and expenses, of every kind, nature,
character and description, direct or indirect, that may be imposed on or
incurred by the Company as a result of, arising from or relating to, in any
manner whatsoever, one or more Basic Documents, or any other document referred
to therein, or the transactions contemplated thereby or the enforcement thereof.
For purposes of calculating the interest incurred by the Company or any Secured
Party as a result of any such delay, it shall be assumed that the Company or any
Secured Party, as applicable, incurred interest at the Credit Agreement Default
Rate.
"Administrative Agent" shall have the meaning specified therefor in
the first paragraph of the Credit Agreement.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, the term "control," as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Monthly Rent Component" shall mean the sum of the Monthly
Rent Components for all items of Nuclear Material which are installed in the
Generating Facility during the relevant period.
"Assigned Agreement" means a Nuclear Material Contract which has
been assigned to the Company in the manner specified in Section 5 of the Lease
Agreement pursuant to a duly executed and delivered Assignment Agreement. The
term Assigned Agreement shall include a Partially Assigned Agreement.
"Assignment Agreement" means an assignment agreement substantially
in the form of Exhibit D to the Lease Agreement.
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"Atomic Energy Act" means the Atomic Energy Act of 1954, as from
time to time amended.
"Banks" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Basic Documents" means the Lease Agreement, the Credit Agreement,
the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement,
the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the
Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing
Record, each SCV Confirmation Schedule, and other agreements related or
incidental thereto which are identified in writing by the Company, the Lessee
and the Secured Parties as one of the "Basic Documents," in each case, as such
documents may be amended from time to time.
"Basic Rent" means, for any Basic Rent Period, the sum of (a) that
portion of the Monthly Financing Charge not allocated to Acquisition Cost
pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as
shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period.
"Basic Rent Payment Date" means, for any Basic Rent Period, the
first Business Day of the next succeeding calendar month following such Basic
Rent Period.
"Basic Rent Period" means each calendar month or portion thereof
commencing on, in the case of the first such period, the effective date of the
Lease Agreement, and in the case of each succeeding period, the first day
following the immediately preceding Basic Rent Period, and ending on the
earliest of (i) the last day of any calendar month or (ii) the Termination
Settlement Date.
"BTU Charge" means the dollar amount set forth in the BTU Charge
Agreement which is used to calculate the Monthly Rent Component. The BTU Charge
initially set forth for any Nuclear Material in any Final Leasing Record shall
be the amount agreed upon by the Lessor and the Lessee as set forth in
Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably
anticipated operating life, BTU output, and utilization of such Nuclear
Material.
"BTU Charge Agreement" shall mean an agreement in the form of
Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear
Material executed by the Lessor and the Lessee on or prior to the date of the
Final Leasing Record covering such Nuclear Material.
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"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which banking institutions in New York City are authorized by law
to close.
"Capitalized Lease" means any and all lease obligations which are or
should be capitalized on the balance sheet of the Person in question in
accordance with generally accepted accounting principles and Statement No. 13 of
the Financial Accounting Standards Board or any successor to such pronouncement
regarding lease accounting, without regard for the accounting treatment
permitted or required under any applicable state or federal public utility
regulatory accounting system, unless such treatment controls the determination
of the generally accepted accounting principles applicable to such Person.
"Cash Collateral" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Closing," means November 5, 1998.
"Code" means the Internal Revenue Code of 1986, as from time to time
amended.
"Collateral" has the meaning set forth in the granting clauses of
the Security Agreement and includes all property of the Company described in the
Security Agreement as comprising part of the Collateral.
"Collateral Agent" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Collateral Agreements" means, collectively, the Security Agreement,
all Assignment Agreements, and any other assignment, security agreement or
instrument executed and delivered to the Secured Parties hereafter relating to
property of the Company which is security for the Notes.
"Collected Funds" means funds which are immediately available to the
Secured Parties, as the Lessor's assignees, for its use in New York, New York.
"Commercial Paper" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Commercial Paper Discount" shall mean, at any time, amounts payable
by the Company in respect of the Face Amount of Commercial Paper outstanding in
excess of the Acquisition Cost together with any Cash Collateral reduced by the
aggregate total
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amount, if any, of (i) the Monthly Rent Components paid by the Lessee to the
Lessor with respect to the Nuclear Material financed thereby and (ii) any
Monthly Financing Charge payable by the Lessee to the Company with respect to
Nuclear Material during any period in which such Nuclear Material is subject to
an Interim Leasing Record ("Excess Face Amount"); provided, however, that any
such Excess Face Amount shall not exceed the additional Face Amount of
Commercial Paper necessary to be issued by the Company at a discount to face
value to purchasers thereof in the commercial paper market in order to obtain
proceeds in an amount equal to the Acquisition Cost reduced by the aggregate
total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to
the Lessor with respect to the Nuclear Material financed thereby and (b) any
Monthly Financing Charge payable by the Lessee to the Company with respect to
Nuclear Material during any period in which such Nuclear Material is subject to
an Interim Lease Record, together with any Cash Collateral. Amounts payable in
respect of Commercial Paper Discount during any calendar month or portion
thereof shall be paid on the first Business Day of the next succeeding month in
which such amounts are incurred.
"Company" means the TMI-1 Fuel Corp., a Delaware corporation.
"Consents and Agreements" means the agreements, each substantially
in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between
the Lessee and the various contractors under the Nuclear Material Contracts,
with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent
to in writing, which consent shall not be unreasonably withheld.
"Controlled Group" means a controlled group of corporations of which
the Company is a member within the meaning of Section 414(b) of the Code, any
group of corporations or entities under common control with the Company within
the meaning of Section 414(c) of the Code or any affiliated service group of
which the Company is a member within the meaning of Section 414(m) of the Code.
"Credit Agreement" means the Credit Agreement dated as of November
5, 1998 among TMI-1 Fuel Corp. The First National Bank of Chicago, as
Administrative Agent, PNC Bank, National Association, as Syndication Agent, the
Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital
Markets, Inc., as Arrangers.
"Credit Agreement Default" means an event which would, with the
lapse of time or the giving of notice or both, constitute a Credit Agreement
Event of Default.
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"Credit Agreement Event of Default" means any one or more of the
events specified in Section 10.01 of the Credit Agreement.
"Dealer Agreements" means any agreement pursuant to which any Person
is at any time acting as a Dealer.
"Deemed Loss Event" means the following event: if at any time during
the term of the Lease Agreement, (A) the Company, by reason solely of the
ownership of the Nuclear Material or any part thereof or the lease of the
Nuclear Material to the Lessee under the Lease Agreement, or the Company or any
Secured Party, by reason solely of any other transaction contemplated by the
Lease Agreement or any of the other Basic Documents, shall be deemed, by any
governmental authority having jurisdiction, to be, or to be subject to
regulation as an "electric utility" or a "public utility" or a "public utility
holding company" or similar type of entity, under any applicable law or deemed a
"public utility company" or a "subsidiary company" or a "holding company" within
the meaning of the Public Utility Holding Company Act, (B) the Public Utility
Holding Company Act shall be amended, applied, or interpreted in a manner, or
any rules or regulations shall be adopted under the Public Utility Holding
Company Act of 1935, which adversely affect the legality, validity and
enforceability of the lease obligations of the Company and the Lessee under the
Lease Agreement, or (C) either the Company or any of the Secured Parties, by
reason solely of being a party to the Basic Documents, shall be required to
obtain any consent, order or approval of, or to make any filing or registration
with, or to give any notice to, any governmental authority, or be subject to any
liabilities, duties or obligations under the Public Utility Holding Company Act,
other than the filing by the Company of a certificate on Form U-7D with the SEC
pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17
C.F.R. Section 250.7(d)), except in any case if the same shall be solely the
result of Nonburdensome Regulation; provided, however, that if in compliance
with applicable laws, the Lessee, with the cooperation of the Company, shall
have acted diligently and in good faith to contest, or obtain an exemption from
the application of the laws, rules or regulations described in clauses (A), (B)
or (C) to the Company, the Secured Parties or the Lessee, as the case may be,
the application of which would otherwise constitute a Deemed Loss Event, such
Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee
shall have furnished to the Company and the Secured Parties an opinion of
counsel reasonably satisfactory to the Company and the Secured Parties to the
effect that there exists a reasonable basis for such contest or exemption and
that the application of such laws, rules or regulations to the Company, the
Secured Parties or the Lessee, as the case may be,
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shall be effectively stayed during the application for exemption or contest and
such laws, rules or regulations shall not be applied retroactively at the
conclusion of such contest, (II) the Company or the Secured Parties shall have
determined in their sole discretion that such contest or exemption shall not
adversely affect their business or involve any danger of the sale, foreclosure
or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee
shall have agreed to indemnify the Company or such Secured Parties, as the case
may be, for expenses incurred in connection with such contest or exemption; and
further provided, that following notice from the Lessee to the Company or the
Secured Parties, as the case may be, that the Lessee shall be unable to furnish
the opinion described in clause (I) of the next preceding proviso or that any
such contest shall not be successful or such exemption shall not be available, a
Deemed Loss Event shall be deemed not to have occurred for such period, not to
exceed 270 days, as may be approved by any governmental authority having
jurisdiction during which application of such law, rule or regulation to the
Company, the Secured Parties or the Lessee, as the case may be, shall be
suspended to enable the Company to assign or transfer its interest in the
Collateral so long as during such period the Company shall use reasonable
efforts to assign or transfer its interest in the Collateral upon commercially
reasonable terms and conditions, provided that the Company shall not be required
to assign or transfer the Nuclear Material for a price which, after deduction of
sales tax and expenses of such sale incurred by the Company, shall be less than
the sum of (A) Stipulated Casualty Value determined as of the date of such
proposed sale, and (B) the Termination Rent determined in accordance with
Section 18 of the Lease Agreement.
"Depositary Agreement" means the Depositary Agreement, dated as of
November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The
First National Bank of Chicago, as Administrative Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as from time to time amended.
"Excepted Payments" means any indemnity, expense, or other payment
which by the terms of any of the Basic Documents shall be payable to the Company
in order for the Company to satisfy its obligations pursuant to Section 7.8 of
the Trust Agreement.
"Face Amount" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Federal Energy Regulatory Commission" means the independent
regulatory commission of the Department of Energy of
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the United States Government existing under the authority of the Department of
Energy Organization Act, as amended, or any successor organization or
organizations performing any identical or substantially identical licensing and
related regulatory functions.
"Federal Power Act" means the Federal Power Act, as amended.
"Final Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material during any period while such Nuclear Material is
installed for operation in the Generating Facility. A Final Leasing Record shall
be in the form of Exhibit B to the Lease Agreement.
"Financing Costs" means (a) fees and other amounts owing to any
Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees
and disbursements and other amounts referred to in Section 10(b) of the Security
Agreement, (c) legal, accounting, and other fees and expenses incurred by the
Lessee and/or the Company in connection with the preparation, execution and
delivery of Basic Documents or the issuance of the Commercial Paper and/or the
Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and
the Company as they may be entitled to under the Basic Documents.
"Fuel Management" means the design of, contracting for, fixing the
price and terms of acquisition of, management, movement, removal, disengagement,
storage and other activities in connection with the acquisition, utilization,
storage and disposal of the Nuclear Material.
"Generating Facility" means the nuclear reactor located at the Three
Mile Island Unit 1 Nuclear Generating Station, located in Londonderry Township,
Pennsylvania.
"Heat Production" means the stage of the Nuclear Material Cycle
commencing with the commercial operation of a Generating Facility, during which
the Nuclear Material in question is producing thermal energy which results in
the production of net positive electrical energy transmitted within the
distribution network of any utility and during which the Nuclear Material in
question is engaged in the reactor core of such Generating Facility.
"Hereof," "herein," "hereunder" and words of similar import when
used in a Basic Document refer to such Basic Document as a whole and not to any
particular section or provision thereof.
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"Imposition" means any payment required by a public or governmental
authority in respect of any property subject to the Lease Agreement or any
transaction pursuant to the Lease Agreement or any right or interest held by
virtue of the Lease Agreement; provided, however, that Imposition shall not
include any taxes, whether federal, state or local, payable by any Secured Party
based on or measured by net income of any Secured Party where taxable income is
computed in substantially the same manner as taxable income is computed under
the Code.
"Insurance Requirements" means all terms of any insurance policy or
indemnification agreement covering or applicable to (i) any Nuclear Material or
(ii) the Generating Facility or the Lessee in its capacity as licensee of the
Generating Facility, in each case insofar as any insurance policy or
indemnification agreement directly or indirectly relates to the Nuclear Material
or the performance by the Lessee of its obligations under the Basic Documents,
and all requirements of the issuer of any such policy or agreement necessary to
keep such insurance or agreements in force.
"Interim Leasing Record" means a Leasing Record which records the
leasing of Nuclear Material (i) prior to installation for operation in the
Generating Facility, (ii) after removal from the Generating Facility during the
"cooling off" and storage period, and (iii) while being reprocessed. An Interim
Leasing Record shall be in the form of Exhibit A to the Lease Agreement.
"Investment Company Act" means the Investment Company Act of 1940,
as from time to time amended.
"Lease Agreement" means the Second Amended and Restated Nuclear
Material Lease Agreement, dated as of November 5, 1998 between TMI-1 Fuel Corp.,
as the Lessor, and Pennsylvania Electric Company, as the Lessee, as the same may
be modified, supplemented or amended from time to time.
"Lease Event of Default" has the meaning specified in Section 16
of the Lease Agreement.
"Leasing Record" is a form signed by the Lessor and the Lessee to
record the leasing under the Lease Agreement of the Nuclear Material specified
in such Leasing Record. A Leasing Record shall be either an Interim Leasing
Record or a Final Leasing Record.
"Legal Requirements" means all applicable provisions of the
Atomic Energy Act, all applicable orders, rules, regulations
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and other requirements of the Nuclear Regulatory Commission and the Federal
Energy Regulatory Commission, and all other laws, rules, regulations and orders
of any other jurisdiction or regulatory authority relating to (i) the licensing,
acquisition, storage, containerization, transportation, blending, transfer,
consumption, leasing, insuring, using, operating, disposing, fabricating,
channelling and reprocessing of the Nuclear Material, (ii) the Generating
Facility or the Lessee in its capacity as licensee of the Generating Facility,
in each case insofar as such provisions, orders, rules, regulations, laws and
other requirements directly or indirectly relate to the Nuclear Material or the
performance by the Lessee of its obligations under the Basic Documents or (iii)
the Basic Documents, insofar as any of the foregoing directly or indirectly
apply to the Lessee.
"Lessee" has the meaning specified in the introduction to the
Lease Agreement.
"Lessee Representative" means a person at the time designated to act
on behalf of the Lessee by a written instrument furnished to the Company and the
Secured Parties containing the specimen signature of such person and signed on
behalf of the Lessee by any of its officers. The certificate may designate an
alternate or alternates. A Lessee Representative may be an employee of the
Lessee or of the Owner Trustee.
"Lessor" has the meaning specified in the introduction to the
Lease Agreement, and its successors and assigns.
"Lessor's Bill of Sale" means an instrument substantially in the
form of Exhibit E to the Lease Agreement, pursuant to which title to all or any
portion of the Nuclear Material is transferred to the Lessee or any designee of
the Lessee.
"Letter Agreement" means the Lessee's Letter Agreement Regarding
TMI-1 Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company,
and the Administrative Agent, as it may be amended from time to time.
"Lien" means any mortgage, pledge, lien, security interest, title
retention, charge or other encumbrance of any nature whatsoever (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to execute and deliver any financing
statement under the Uniform Commercial Code of any jurisdiction).
"Loans" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
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"Majority Secured Parties" means at any time the Secured Parties
holding at such time more than 66% of the outstanding principal amount of all
Secured Obligations.
"Manufacturer" means any supplier of Nuclear Material or of any
service (including without limitation, enrichment, fabrication, transportation,
storage and processing) in connection therewith, or any agent or licensee of any
such supplier.
"Manufacturer's Consent" means any consent which may be given by a
Manufacturer under a Nuclear Material Contract to the assignment by the Lessee
to the Company of all or a portion of the Lessee's rights under such Nuclear
Material Contract or of all or a portion of any such rights previously assigned
by the Lessee to the Secured Parties.
"Monthly Debt Service" for any calendar month means the sum of the
Monthly Financing Charge for such calendar month.
"Monthly Financing Charge" means, for any calendar month or
portion thereof, the sum of:
(a) all Commercial Paper Discount payable by the Company with
respect to Commercial Paper outstanding during such month and/or all
interest payable by the Company during such month with respect to all
outstanding Notes and in each case, not included in Acquisition Cost; and
(b) the amounts paid or due and payable by the Company with respect
to the transactions contemplated by the Basic Documents during such
calendar month for the following other fees, costs, charges and expenses
incurred or owed by the Company under or in connection with the Lease
Agreement or the other Basic Documents: (i) legal, printing, reproduction
and closing fees and expenses, (ii) auditors', accountants' and attorneys'
fees and expenses, (iii) franchise taxes and income taxes, and (iv) any
other fees and expenses incurred by the Company under or in respect of the
Basic Documents.
Any figure used in the computation of any component of the Monthly Financing
Charge shall be stated to five decimal places.
"Monthly Rent Component" for any Nuclear Material covered by a Final
Leasing Record for each calendar month during the lease of such Nuclear Material
shall be as follows:
(i) for the first partial calendar month the Monthly Rent Component shall
be zero;
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(ii) for the first full calendar month the Monthly Rent
Component shall be zero;
(iii) for the second full calendar month the Monthly Rent
Component shall be zero;
(iv) for the third full calendar month the Monthly Rent
Component shall be an amount determined by multiplying (x) the amount of
thermal energy in millions of British Thermal Units of heat produced by
such Nuclear Material during the first calendar month while covered by the
Final Leasing Record and also during the first partial calendar month, if
any, such Nuclear Material was covered by an Interim or Final Leasing
Record and was engaged in Heat Production by (y) the BTU Charge set forth
in the Final Leasing Record covering such Nuclear Material; and
(v) for each full calendar month after the third full calendar
month, the Monthly Rent Component shall be an amount determined by
multiplying (x) the amount of thermal energy in millions of British
Thermal Units of heat produced by such Nuclear Material during the second
preceding month by (y) the BTU Charge set forth in the Final Leasing
Record covering such Nuclear Material.
The BTU Charge for any Nuclear Material may be revised by the Lessee at any time
during the lease thereof to reflect any reasonably anticipated change in its
operating life, BTU output, or utilization. Such revision shall be effected by
the Lessee's executing and forwarding to the Lessor a revised Final Leasing
Record dated the first day of the following month and setting forth such revised
BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall
execute and return a copy thereof to the Lessee. Such revised BTU Charge shall
be applicable to such Nuclear Material for each month thereafter beginning on
the date of the revised Final Leasing Record.
"Nonburdensome Regulation" means (i) ministerial regulatory
requirements that do not impose limitations or regulatory requirements on the
business or activities of, or adversely affect, the Company or any Secured Party
and that are deemed, in the reasonable discretion of the Company or any Secured
Party, not to be burdensome, or (ii) assuming redelivery of the Nuclear Material
in accordance with the Lease Agreement, regulation resulting from any possession
of the Nuclear Material (or right thereto) on or after the termination of the
Lease Agreement.
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"Notes" shall have the meaning specified therefor in Section 1.02 of
the Credit Agreement.
"Nuclear Incident" shall have the meaning specified in the Atomic
Energy Act, 42 U.S.C. Section 2014(q), as such definition may be amended from
time to time.
"Nuclear Material" means those items which have been purchased by or
on behalf of the Company for which a duly executed Leasing Record has been
delivered to the Company and which continue to be subject to the Lease Agreement
consisting of (i) the items described in such Leasing Record and each of the
components thereof in the respective forms in which such items exist during each
stage of the Nuclear Material Cycle, being substances and equipment which, when
fabricated and assembled and loaded into a nuclear reactor, are intended to
produce heat, together with all attachments, accessories, parts and additions
and all improvements and repairs thereto, and all replacements thereof and
substitutions therefor and (ii) the substances and materials underlying the
right, title and interest of the Lessee under any Nuclear Material Contract
assigned to the Company pursuant to the Lease Agreement; provided, however, that
the term Nuclear Material shall not include spent fuel.
"Nuclear Material Contract" means any contract, as from time to time
amended, modified or supplemented, entered into by the Lessee, either in its own
name or as agent for the Lessor, with one or more Manufacturers relating to the
acquisition of Nuclear Material or any service in connection with the Nuclear
Material.
"Nuclear Material Cycle" means the various stages in the process,
whether physical or chemical, by which the component parts of the Nuclear
Material are designed, mined, milled, processed, converted, enriched, fabricated
into assemblies utilizable for Heat Production, loaded or installed into a
reactor core, utilized, disengaged from a reactor core or stored, together with
all incidental processes with respect to the Nuclear Material at any such stage.
"Nuclear Regulatory Commission" means the independent regulatory
commission of the United States Government existing under the authority of the
Energy Reorganization Act of 1974, as amended, or any successor organization or
organizations performing any identical or substantially identical licensing and
related regulatory functions.
"Obligations" means (i) all items (including, without limitation,
Capitalized Leases but excluding shareholders' equity
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and minority interests) which in accordance with generally accepted accounting
principles should be reflected on the liability side of a balance sheet as at
the date as of which such obligations are to be determined; (ii) all obligations
and liabilities (whether or not reflected upon such balance sheet) secured by
any Lien existing on the Property held subject to such Lien, whether or not the
obligation or liability secured thereby shall have been assumed; and (iii) all
guarantees, endorsements (other than for collection in the ordinary course of
business) and contingent obligations in respect of any liabilities of the type
described in clauses (i) and (ii) of this definition (whether or not reflected
on such balance sheet); provided, however, that the term 'Obligations' shall not
include deferred taxes.
"Obligations for Borrowed Money or Deferred Purchase Price" means
all Obligations in respect of borrowed money or the deferred purchase price of
property or services.
"Officer's Certificate" means, with respect to any corporation, a
certificate signed by the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such
corporation, and with respect to any other entity, a certificate signed by an
individual generally authorized to execute and deliver contracts on behalf of
such entity.
"Outstandings" shall have the meaning specified therefor in Section
1.02 of the Credit Agreement.
"Owner Trust Estate" means all estate, right, title and interest of
the Owner Trustee in and to the outstanding stock of the Company and in and to
all monies, securities, investments, instruments, documents, rights, claims,
contracts, and other property held by the Owner Trustee under the Trust
Agreement; provided, however, that there shall be excluded from the Owner Trust
Estate all Excepted Payments.
"Owner Trustee" means United States Trust Company of New York, not
in its individual capacity but solely as trustee under and pursuant to the Trust
Agreement, and its permitted successors.
"PaPUC" means the Pennsylvania Public Utility Commission or any
successor agency thereto.
"Partially Assigned Agreement" means a Nuclear Material Contract
which has been assigned, in part but not in full, to the Company in the manner
specified in Section 5 of the Lease Agreement pursuant to a duly executed and
delivered Assignment Agreement.
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"PBGC" means the Pension Benefit Guaranty Corporation, created by
Section 4002(a) of ERISA and any successor thereto.
"Permitted Liens" means (i) any assignment of the Lease Agreement
permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not
yet payable, or payable without the addition of any fine, penalty, interest or
cost for nonpayment, or being contested by the Lessee as permitted by Section 11
of the Lease Agreement, (iii) liens and security interests created by the
Security Agreement, (iv) the title transfer and commingling of the Nuclear
Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and
(v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights
thereto, incurred in the ordinary course of business for sums of money which
under the terms of the related contracts are not more than 30 days past due or
are being contested in good faith by the Lessee as permitted by Section 11 of
the Lease Agreement; provided, however, that, in each case, such reserve or
other appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made in respect thereto.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other business entity or any
government or any political subdivision or agency thereof.
"Plan" means, with respect to any Person, any plan of a type
described in Section 4021(a) of ERISA in respect of which such Person is an
"employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a)
(2) of ERISA, respectively.
"Proceeds" shall have the meaning assigned to it under the Uniform
Commercial Code, as amended, and, in any event, shall include, but not be
limited to, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Company from time to time with respect to the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to the Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), and (iii) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Public Utility Holding Company Act" means the Public Utility
Holding Company Act of 1935, as from time to time amended.
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"Qualified Institution" means a commercial bank organized under the
laws of, and doing business in, the United States of America or in any State
thereof, which has combined capital, surplus and undivided profits of at least
$150,000,000 having trust power.
"Related Person" means, with respect to any Person, any trade or
business, (whether or not incorporated) which, together with such Person, is
under common control as described in Section 414(c) of the Code.
"Rent" means Basic Rent, Additional Rent and Termination Rent.
"Rent Due and SCV Confirmation Schedule" means an instrument,
substantially in the form of Exhibit G to the Lease Agreement, which is to be
used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and
Other Rent and (ii) to calculate and acknowledge the SCV at the end of each
Basic Rent Period.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Responsible Officer" means a duly elected or appointed, authorized,
and acting officer, agent or representative of the Person acting.
"Secured Obligations" means each and every debt, liability and
obligation of every type and description which the Company may now or at any
time hereafter owe to any Secured Party under, pursuant to or in connection with
the Credit Agreement, any Note, the Letter of Credit or any other Basic
Document, whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, including, without
limitation the Face Amount of any Commercial Paper, the principal of, interest
on and any premium due with respect to any Loan and all indemnifications, costs,
expenses, fees and other compensation of the Secured Parties provided for, and
all other amounts owed to the Secured Parties, under the Security Agreement,
Credit Agreement and the other Basic Documents.
"Secured Parties" means the Banks, any other holder from time to
time of any Note and any holder from time to time of any Commercial Paper.
"Securities Act" means the Securities Act of 1933, as from time to
time amended.
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"Security Agreement" means the Security Agreement and Assignment of
Contracts, dated as of November 5, 1998, by and among the Company and The First
National Bank of Chicago, as Collateral Agent in favor of the Secured Parties.
"Single Employer Plan" means any Plan which is not a
multi-employer plan as defined in Section 4001(a) (3) of ERISA
"Stipulated Casualty Value" or "SCV" for any Nuclear Material
covered by any Leasing Record means an amount equal to the Acquisition Cost for
such Nuclear Material reduced by the aggregate total amount, if any, of the
Monthly Rent Components paid by the Lessee to the Lessor with respect to such
Nuclear Material together with Commercial Paper Discount.
"Syndication Agent" shall have the meaning specified therefor in the
first paragraph of the Credit Agreement.
"Termination Date" shall have the meaning specified therefor in
Section 1.02 of the Credit Agreement.
"Termination Rent" means an amount which, when added to the
Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any,
will be sufficient to enable the Company to retire, at their respective
maturities, all outstanding Notes and Commercial Paper and to pay all charges,
premiums and fees owed to the holders of Notes under the Credit Agreement and to
pay all other obligations of the Company incurred in connection with the
implementation of the transactions contemplated by the Basic Documents.
"Termination Settlement Date" has the meaning specified in Section
8(c), or Section 18(c) of the Lease Agreement.
"Terminating Event" has the meaning specified in Section 18 of
the Lease Agreement.
"Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp.
Trust, a trust formed pursuant to the Trust Agreement.
"Trust Agreement" means the Second Amended and Restated Trust
Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the
Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central
Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric
Company, each as lessee under certain lease agreements, as the same may be
amended, modified or supplemented from time to time.
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"Trustor" means the institution designated as such in the Trust
Agreement and its permitted successors.
"UBS Credit Agreement" means the Credit Agreement dated as of
November 17, 1995 among TMI-1 Fuel Corp., Union Bank of Switzerland, New York
Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as
Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York
Bank, as Administrative Agent.
"UCC" means the Uniform Commercial Code as adopted and in effect in
the State of New York.
"U.S. Trust" means United States Trust Company of New York.
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EXHIBIT A
INTERIM LEASING RECORD
Record No. _____
Name of Lessee: Pennsylvania Electric Company
Date of Record: __________________
Date and No. of prior Interim or Final
Leasing Record (if any):
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $___________
Acquisition Cost added by this Record: $___________
Total: $___________
Credits to Acquisition Cost: $___________
Total Acquisition Cost under this Record $___________
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
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Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants,
terms and conditions are incorporated herein by reference.
TMI-1 FUEL CORP., Lessor PENNSYLVANIA ELECTRIC
COMPANY, Lessee
By By
Authorized Signature Authorized Signature
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EXHIBIT B
FINAL LEASING RECORD
Record No. _____
Name of Lessee: Pennsylvania Electric Company
Date of Record: __________________
Date and No. of prior Interim or Final
Leasing Record:
Description and location of Nuclear Material covered by this Record:
Assembly Serial Nos.:
Subassembly Serial Nos.:
Acquisition Cost of Nuclear Material
under prior Leasing Record (if any): $___________
Acquisition Cost added by this Record: $___________
Total: $___________
Credits (if any) to Acquisition Cost: $___________
Total Acquisition Cost under this Record $___________
BTU Charge: $__________
Specify nature of Acquisition Cost added by this Record and to whom paid:
Specify nature of any credits received by Lessor covered by this Record and from
whom received:
Basic Rent for the Nuclear Material covered by this Record shall be calculated
and paid as provided in Section 9 of the Second Amended and Restated Nuclear
Material Lease Agreement referred to below.
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The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear
Material described above in accordance with the covenants, terms and conditions
of the Second Amended and Restated Nuclear Material Lease Agreement between the
undersigned Lessor and Lessee, dated as of November 5, 1998, which covenants,
terms and conditions are incorporated herein by reference.
TMI-1 FUEL CORP., Lessor PENNSYLVANIA ELECTRIC
COMPANY, Lessee
By By
Authorized Signature Authorized Signature
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Attachment 1 to Exhibit B
BRITISH THERMAL UNIT CHARGE AGREEMENT
Dated: November 5, 1998
The undersigned Lessor and Lessee agree that the initial British
Thermal Unit Charge to be used to calculate the Monthly Rent Component for the
Nuclear Material pursuant to the Second Amended and Restated Nuclear Material
Lease Agreement, dated as of November 5, 1998, between the undersigned Lessor
and Lessee shall be as follows:
Description of Nuclear Material British Thermal Unit Charge
TMI-1 FUEL CORP. PENNSYLVANIA ELECTRIC COMPANY
By: By:
Its: Its:
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EXHIBIT C
NUCLEAR MATERIAL CONTRACTS
The Agreements (each as amended and restated) referred to in
Section 5 of the Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998, between TMI-1 FUEL CORP. ("Lessor")
and PENNSYLVANIA ELECTRIC COMPANY ("Lessee") are:
(1) Agreement, dated January 30, 1975, between Sequoyah Fuels
Corporation and GPUN, as agent for the Lessee, JCP&L and Met-Ed.
(2) Agreement, dated February 12, 1996, between United States
Enrichment Corporation and GPUN, as agent for the Lessee, JCP&L and Met-Ed.
(3) Agreement, dated as of June 14, 1995 between Framatome Cogema
Fuels and GPUN, as agent for the Lessee, JCP&L and Met-Ed.
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EXHIBIT D
ASSIGNMENT AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
Pennsylvania Electric Company (the "Assignor"), in consideration of
one dollar and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, does hereby sell, grant, bargain, convey and
assign to TMI-1 Fuel Corp. ("Assignee"), all right, title and interest of the
Assignor in, to and under the Nuclear Material Contract (the "Nuclear Material
Contract") described in Exhibit 1 attached hereto insofar as such Nuclear
Material Contract relates to the Nuclear Material described in Exhibit 1 (all of
such property, including the items described on Exhibit 1 attached hereto as
included with the Property, being herein collectively called the "Property").
Terms not defined herein shall have the meanings given in Exhibit 1 attached
hereto.
TO HAVE AND TO HOLD the Property unto the Assignee, its successors
and assigns, to its and their own use forever.
1. The interest of the Assignor in the Property, and the interest
transferred by this Assignment Agreement, is that of absolute ownership.
2. The Assignor hereby warrants that it is the lawful owner of the
rights and interests conveyed by this Assignment Agreement and that its title to
such rights and interests is hereby conveyed to the Assignee free and clear of
all liens, charges, claims and encumbrances of every kind whatsoever, other than
(i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other
claims, if any, of the Assignor and the Contractor which may exist as between
themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred
to below); and that the Assignor will warrant and defend such title forever
against all claims and demands whatsoever.
3. The Assignor hereby releases and transfers to the Assignee any
right, title or interest in the Nuclear Material which may have been acquired by
the Assignor under the Nuclear Material Contract prior to the date hereof.
4. This Assignment Agreement is made in accordance with the Second
Amended and Restated Nuclear Material Lease Agreement dated as of November 5,
1998, between the Assignor and the Assignee (said Nuclear Material Lease
Agreement, as the same
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may be from time to time amended, modified or supplemented, being herein called
the "Lease Agreement"). Pursuant to a Security Agreement and Assignment of
Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security
Agreement and Assignment of Contracts, as the same may from time to time be
amended, modified or supplemented, being herein called the "Security Agreement")
made by Assignee in favor of the Secured Parties, as defined therein, the
Assignee is assigning and granting a security interest in the Property and this
Assignment Agreement to the Secured Parties, as collateral security for all
obligations and liabilities of the Assignee to the Secured Parties, as such
obligations are described in the Security Agreement.
5. It is expressly agreed that, anything contained herein to the
contrary notwithstanding, (a) the Assignor shall at all times remain liable to
the Contractor to observe and perform all of its duties and obligations under
the Nuclear Material Contract to the same extent as if this Assignment Agreement
and the Security Agreement had not been executed, (b) the exercise by the
Assignee or the Secured Parties of any of the rights assigned hereunder or under
the Security Agreement, as the case may be, shall not release the Assignor from
any of its duties or obligations to the Contractor under the Nuclear Material
Contract, and (c) neither the Assignee nor any of the Secured Parties shall have
any obligation or liability under the Nuclear Material Contract by reason of or
arising out of this Assignment Agreement, the Lease Agreement or the Security
Agreement, or be obligated to perform or fulfill any of the duties or
obligations of the Assignor under the Nuclear Material Contract, or to make any
payment thereunder, or to make any inquiry as to the nature or sufficiency of
any Property received by it thereunder, or to present or file any claim, or to
take any action to collect or enforce the payment of any amounts or the delivery
of any Property which may have been assigned to it or to which it may be
entitled at any time or times; provided, however, the Assignee agrees, solely
for the benefit of the Assignor, and subject to the terms and conditions of the
Lease Agreement, (i) to purchase the Nuclear Material from the Contractor
pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or
to the Assignor or their order the respective amounts specified in the Lease
Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear
Material to the Assignor in accordance with and subject to the terms and
conditions of the Lease Agreement. The provisions of the Nuclear Material
Contract limiting the liability of the Contractor and its suppliers and
subcontractors' under that Contract shall remain effective against the Assignee
and Secured Parties to the same extent that such provisions are effective
against the Assignor.
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6. Notwithstanding anything contained herein to the contrary,
subject to the terms and conditions of the Lease Agreement, the Assignor may
continue to engage in Fuel Management (as such term is defined in the Lease
Agreement) with respect to the Property, including, without limitation, all
dealings with the Contractor and, subject to such terms and conditions and
effective until the occurrence of a Lease Event of Default (as defined in the
Lease Agreement), (i) the Assignee reassigns to the Assignor the Assignee's
rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1
to this Assignment Agreement (provided, however, that insurance proceeds are
reassigned to the Assignor pursuant hereto only to the extent that such proceeds
are needed and used to reimburse the Assignor for the cost of repairing damage
or destruction to Nuclear Material or are used to purchase Nuclear Material from
the Assignee in accordance with the Lease Agreement, and provided further,
however, that the Assignee's rights under clause (vi) are reassigned to the
Assignor subject in all respects to the limitations set forth in paragraph 8.
below), and (ii) the Assignee agrees that the Assignor may, to the extent set
forth in clause (i) above, to the exclusion of the Assignee, exercise and
enforce such rights.
7. The Assignor shall promptly and duly execute, deliver, file and
record all such further counterparts of this Assignment Agreement or such
certificates, financing and continuation statements and other instruments as may
be reasonably requested by the Assignee, and take such further actions as the
Assignee shall from time to time reasonably request, in order to establish,
perfect and maintain the rights and remedies created or intended to be created
in favor of the Assignee and the Secured Parties hereunder and the Assignee's
title to and interest in the Property as against the Assignor or any third party
in any applicable jurisdiction.
8. The Assignor hereby agrees that it will not enter into or consent
to or permit any cancellation, termination, amendment, supplement or
modification of or waiver with respect to the Nuclear Material Contract insofar
as it relates to the Nuclear Material except for cancellations, terminations,
amendments, supplements, modifications or waivers which do not materially
adversely affect the Assignee or the Secured Parties or their respective
interests in the Property, nor will the Assignor sell, assign, grant any
security interest in or otherwise transfer its rights or other interests in the
Property or any part thereof, except as permitted by the Lease Agreement.
9. The Assignor hereby represents and warrants that the Nuclear
Material Contract is in full force and effect and represents that it is the only
agreement between the Assignor and the Contractor with respect to the Nuclear
Material.
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10. This Assignment Agreement shall become effective only upon
receipt of the written consent of the Contractor to the assignment of the rights
and interests conveyed hereunder, if such consent is required under the Nuclear
Material Contract. The Assignor hereby agrees to send the Contractor a copy of
this Assignment Agreement.
11. This Assignment Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Assignor has caused this Assignment
Agreement to be duly executed and delivered as of the ____ day of __________,
1998.
PENNSYLVANIA ELECTRIC COMPANY
By:
Title:
The foregoing Assignment Agreement is hereby accepted:
TMI-1 FUEL CORP.
By:
Title:
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EXHIBIT 1
to Assignment Agreement
(a) The _____________ (as the same may from time to time be amended,
modified or supplemented, being herein called the "Nuclear Material Contract"),
dated as of _____________, between Pennsylvania Electric Company and
______________ (the "Contractor), insofar as, and only to the extent that, the
Contract relates to _________________ (the "Nuclear Material"); but not insofar
as the Contract provides for the provision of other nuclear materials and
services to the Assignor; and
(b) The Property shall include, without limitation, (i) any and all
amendments and supplements to the Nuclear Material Contract from time to time
executed and delivered to the extent that any such amendment or supplement
relates to the Nuclear Material, (ii) the Nuclear Material, including the right
to receive title thereto, (iii) all rights, claims and proceeds, now or
hereafter existing, under any insurance, indemnities, warranties and guaranties
provided for in or arising out of the Nuclear Material Contract, to the extent
that such rights or claims relate to the Nuclear Material, (iv) any claim for
damages arising out of or for breach or default by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material, (v) any other amount, whether resulting from refunds or
otherwise, from time to time paid or payable by the Contractor under or in
connection with the Nuclear Material Contract insofar as it relates to the
Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear
Material Contract or to perform or to exercise or enforce thereunder, insofar as
it or they relate to the Nuclear Material.
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EXHIBIT 2
to Assignment Agreement
CONSENT AND AGREEMENT
The undersigned, _________________ (the "Contractor"), has entered
into a _______________ (as the same may from tune to time be amended, modified
or supplemented, being herein called the "Nuclear Material Contract"), dated as
of ____________, 19__ with Pennsylvania Electric Company (the "Assignor").
The Contractor hereby acknowledges notice that (i) in accordance
with the terms of the Second Amended and Restated Nuclear Material Lease
Agreement dated as of November 5, 1998, between the Assignor and TMI-1 Fuel
Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the
Assignor's rights under the Nuclear Material Contract pursuant to an Assignment
Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same
may from time to time be amended, modified or supplemented, being herein
collectively called the "Assignment"), and (ii) pursuant to a Security Agreement
and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5,
1998 (said Security Agreement and Assignment Contracts, as the same may from
time to time be amended, modified or supplemented, being herein called the
"Security Agreement") made by the Assignee in favor of the Secured Parties as
defined therein (the "Secured Parties"), the Assignee has assigned and granted a
security interest in all rights under the Nuclear Material Contract from time to
time assigned to it by Assignor, as collateral security for all obligations and
liabilities of the Assignee to the Secured Parties.
The Contractor hereby consents to (i) the assignment by the Assignor
to the Assignee of part of the Assignor's right, title and interest in, to and
under the Nuclear Material Contract and the other Property described in the
Assignment pursuant to the Assignment and (ii) the assignment and security
interest in favor of the Secured Parties as described above. The Contractor
further consents to all of the terms and provisions of the Security Agreement.
The Contractor agrees that, if requested by either the Assignor or
the Assignee, it will acknowledge in writing the Assignment delivered by the
Assignor to the Assignee; provided, that neither the lack of notice to nor
acknowledgment by the Contractor of the Assignment shall limit or otherwise
affect the validity or effectiveness of this consent to such Assignment.
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The Contractor hereby confirms to the Assignee and the Secured
Parties that:
(a) all representations, warranties and agreements of the
Contractor under the Nuclear Material Contract which relate to
the Nuclear Material described in the Assignment shall inure
to the benefit of, and shall be enforceable by, the Assignee
or any Secured. Party to the same extent as if originally
named in the Contract as the purchaser of such Nuclear
Material,
(b) the Contractor understands that, pursuant to the Lease
Agreement, the Assignee has agreed to lease the Nuclear
Material described in the Assignment to the Assignor, and
consents to the assignment to the Assignor, for so long as
the Lease Agreement shall be in effect or until otherwise
notified by the Assignee, of the Assignee's rights under
clauses (iii), (iv), (v) and (vi) of subparagraph (b) of
Exhibit 1 to the Assignment to the extent that such rights
are reassigned to the Assignor pursuant to the Assignment,
(c) The Contractor is in the business of selling nuclear fuel and
related services of the kind described in the Assignment, and
the proposed sale of such nuclear fuel under the Nuclear
Material Contract will be in the ordinary course of business
of the Contractor, and
(d) Notwithstanding any provision to the contrary contained in
the Nuclear Material Contract, the Contractor agrees that
title to any Nuclear Material covered by the Assignment
shall pass directly to the Assignee under the Contract and
shall not pass to the Assignor; provided that the foregoing
shall not apply to any Nuclear Material for which title has
already passed from the Contractor prior to the execution
and delivery of the Assignment.
It is understood that neither the Assignment, the Security Agreement
nor this Consent and Agreement shall in any way add to the obligations of the
Contractor or the Assignor under the Nuclear Material Contract.
This Consent and. Agreement shall be governed by and construed in
accordance with the laws of the State of ____________.
67
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Consent and
Agreement to be duly executed and delivered by its duly authorized officer as of
the ____ day of ________, 19__.
By:
Title:
68
<PAGE>
EXHIBIT E
BILL OF SALE
TO
PENNSYLVANIA ELECTRIC COMPANY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TMI-1 Fuel
Corp., a Delaware corporation (the "Seller"), whose post office address is c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, Attention: Corporate Trust and Agency Division, for and in
consideration paid to the Seller upon or before the execution and delivery of
this Bill of Sale to Pennsylvania Electric Company (the "Purchaser"), a
Pennsylvania corporation, whose address is 2800 Pottsville Pike, Reading,
Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and
sets over unto the Purchaser all of its right, title and interest in all of the
personal property consisting of the assemblies of nuclear fuel or components
thereof or other nuclear material described in Annex I hereto (the "Assets"),
and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and
deliver the Assets unto the Purchaser, to have and to hold such undivided
interest in the Assets unto the Purchaser, for itself, its successors and
assigns, forever.
The Assets are transferred and conveyed by the Seller AS-IS,
WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND
WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the
Seller represents and warrants that it has not by voluntary act or omission
created or granted any lien on the Assets, other than Permitted Liens, as
defined in that certain Second Amended and Restated Nuclear Material Lease
Agreement, dated as of November 5, 1998 between the Seller and the Purchaser.
The Purchaser acknowledges and agrees that neither the Seller, its directors,
officers or employees, any company, person or firm controlling, controlled by,
or under common control with any of them nor any other person acting on behalf
of the Seller is a manufacturer of, or is engaged in the sale or distribution
of, nuclear material, has had at any time physical possession of any portion of
the Assets sold hereunder, or has made any inspection thereof. The Purchaser
further acknowledges and agrees that the Assets sold hereunder have been at all
times in the possession of the Purchaser and that the Purchaser has made such
inspections thereof as it deems necessary and that the Purchaser has been solely
responsible for all decisions made with respect to the choice of the suppliers
of such Assets and the enrichment, fabrication, transportation, storage and
processing of the same.
69
<PAGE>
IN WITNESS WHEREOF, the Seller has caused these presents to be
executed by one of its Vice Presidents, this ____ day of ________, 19__.
TMI-1 FUEL CORP., Seller
By:
Vice President
Acknowledgment and Acceptance
The foregoing Bill of Sale is hereby acknowledged and accepted by
the undersigned as of the date last above written.
PENNSYLVANIA ELECTRIC COMPANY,
Purchaser
By:
Its:
70
<PAGE>
EXHIBIT F
RENT DUE
AND SCV CONFIRMATION SCHEDULE
For the Basic Rent Period Ended _______
In accordance with the Second Amended and Restated Lease Agreement
dated as of _________ __, 1998, between TMI-1 Fuel Corp., as Lessor, and
Pennsylvania Electric Company, as Lessee, the Lessee certifies that all amounts
set forth below are true and correct in all respects, and both Lessor and Lessee
certify that this Schedule has been prepared in accordance with the provisions
of the Lease Agreement.
I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT
A. Basic Rent Owed
1. Calculation of Portion of Monthly Financing
Charge Not Allocated to Acquisition Cost
a. Interest Payable with Respect to All
Outstanding Notes (See attached
summary calculation $
b. Other Amounts Included in Monthly
Financing Charge $
c. Total Monthly Financing Charge Not
Allocated to Acquisition Cost
(Total of 1(a) and 1(b) $
2. Aggregate Monthly Rent Component
(See attached summary calculation) $
3. BASIC RENT (total of 1(c) and 2) $
=========
B. Additional Rent Owed (see attached
summary calculation) $
C. Termination Rent Owed (see attached
summary calculation $
TOTAL RENT DUE (total of A, B and C) $
=========
71
<PAGE>
<TABLE>
<CAPTION>
II. Calculation of Stipulated Casualty Value
Nuclear Material
--------------------------------------------------------------
Installed for Not Installed for
Operation in the Operation in the
Generating Facility Generating Facility Total
------------------- ------------------- -----------
<S> <C> <C> <C>
A. Stipulated Casualty Value as of ______ $---------------- $--------------- $-----------
B. Add: Acquisition Cost Incurred in
Rent Period Covered by This Schedule
(exclusive of Monthly Finance Charges) $---------------- $--------------- $-----------
C. Add: Monthly Financing Charge
Allocated to Acquisition Cost
Incurred in Rent Period Covered
by this Schedule $---------------- $--------------- $-----------
D. Less: SVC of Nuclear Material
Transferred to the Lessee Pursuant to
Section 8(c), 8(g) or 14 of the Lease
Agreement during the Basic Rent Period
Covered by this Schedule $---------------- $--------------- $-----------
STIPULATED CASUALTY VALUE AS OF _________ $ $ $
================= ================= ============
Add: Commercial Paper Discount $------------
STIPULATED CASUALTY VALUE AS OF ---------- $
============
</TABLE>
72
EXHIBIT 10-Z
PENNSYLVANIA ELECTRIC COMPANY
------------------------------------
LESSEE'S LETTER AGREEMENT
Regarding
TMI-1 FUEL CORP.
------------------------------------
Dated as of November 5, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Performance of Fuel Lease and Liens 1
3. Security Interest of Collateral 2
4. Sale of Nuclear Material and Assignment
of Rights under Nuclear Material Contracts 2
5. Collateral Equivalence Test; No Additional
Collateral or Covenants; Condemnation Statements;
Exercise of Rights of Secured Parties 3
6. Fuel Management; Quiet Enjoyment 5
7. Insurance 6
8. Representations and Warranties 6
9. General Covenants of the Lessee 11
10. GPU Events 18
11. Credit Agreements and Notes 18
12. Consent to Assignment; Direct Payment of
Payments Under the Fuel Lease 18
13. Severability 19
14. Indemnification 20
15. No Waiver; Amendments 21
16. Successors and Assigns 22
17. Notices 22
18. Set-off 23
19. Waiver of Jury Trial 23
20. Governing Law 24
<PAGE>
THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of
November 5, 1998, by and between Pennsylvania Electric Company, a Pennsylvania
corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the
"Company"), and The First National Bank of Chicago, as Administrative Agent (the
"Administrative Agent"), for the Banks party to the Credit Agreement referred to
below (the "Banks").
WHEREAS, the Lessee has entered into the Second Amended and Restated
Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"),
with the Company in order to enable the Company to obtain financing for the
acquisition, processing and use of Nuclear Material in the Generating Facility;
and
WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make
payments due to Manufacturers and/or to reimburse the Lessee for payments
previously made to Manufacturers with respect to Nuclear Material; and
WHEREAS, in order to finance the cost of such Nuclear Material, the
Company proposes to (i) sell its Commercial Paper, and (ii) obtain the
Commitment of each Bank to make Loans from time to time as hereinafter provided;
and
WHEREAS, the Lessee has agreed to make payments under the Fuel Lease
sufficient to enable the Company to meet its obligations under the Company's
financing arrangements, including the Company's obligations under the Credit
Agreement, dated as of November 5, 1998, among the Company, the Banks and the
Administrative Agent (the "Credit Agreement");
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and other good and valuable consideration, so long as any of
the Loans or the Commercial Paper shall remain outstanding, or the Commitments
shall be continuing, notwithstanding any provision of the Fuel Lease or any
other agreement of the Lessee to the contrary, the Lessee, the Company, the
Administrative Agent and the Banks agree that:
1. Definitions. Unless the context otherwise specifies or requires,
each term defined in the Credit Agreement or Appendix A to the Fuel Lease,
shall, when used in this Letter Agreement, have the meaning indicated in the
Credit Agreement or Appendix A or set forth in the paragraph indicated therein.
2. Performance of Fuel Lease and Liens. The Lessee will perform and
comply with all the terms of the Fuel Lease to be performed or complied with by
<PAGE>
2
it and will not omit to take an action the omission of which would cause a Lease
Event of Default. The Lessee acknowledges that, except as otherwise provided in
the Fuel Lease, its obligations as set forth under the Fuel Lease are absolute
and unconditional. The Lessee will not directly or indirectly create or permit
to be created or remain, and will promptly take such action as may be necessary
to discharge, any Lien on any Collateral except Permitted Liens.
3. Security Interest of Collateral. The Lessee represents that no
effective financing statement (other than those naming the Secured Parties as a
secured party) covering all or any part of the Collateral (as defined in the
Security Agreement relating to the Lessee) is on file in any public office. The
Lessee shall make, or shall cause to be made, all filings and recordings, and
shall take, or cause to be taken, such other actions, including filing all
continuation statements, necessary to establish, preserve and perfect the
Secured Parties' lien on and security interest in, the Collateral as a legal,
valid and enforceable first priority lien and security interest, or purchase
money security interest, as the case may be, therein, subject only to the
existence or priority of any Permitted Lien, and the Lessee represents that all
such filings, recordings and other actions have been duly made. The Lessee shall
deliver to the Administrative Agent evidence of the due filings of any
continuation statements to be delivered to the Administrative Agent within the
time period specified in Section 7.05 of the Credit Agreement. In no event will
the Lessee permit the Nuclear Material to enter any jurisdiction in which all
necessary action has not been taken to establish, maintain and protect the
Secured Parties' first priority perfected lien and security interest in the
Nuclear Material under the Security Agreement, subject only to Permitted Liens.
4. Sale of Nuclear Material and Assignment of Rights under Nuclear
Material Contracts.
(a) In the event that the Lessee desires the Company, on
behalf of the Lessee, to purchase Nuclear Material or to have services performed
on such Nuclear Material pursuant to any Nuclear Material Contract, the Lessee
shall provide the Company with an Assignment Agreement and a Manufacturer's
Consent, both substantially in the form of Exhibit D to the Fuel Lease, with
such changes to Exhibit 2 to Exhibit D as the Administrative Agent in its
reasonable discretion may consent to in writing,
<PAGE>
3
which consent shall not be unreasonably withheld, with respect to such Nuclear
Material Contract not later than sixty days following the date on which the
Company is to purchase such Nuclear Material or to have such services performed
pursuant thereto. Notwithstanding the foregoing, the Lessee shall not be
required to have obtained a Manufacturer's Consent in any instance where the
Manufacturer's obligations under the applicable Nuclear Material Contract have
been fully discharged and performed, and the Manufacturer's warranties with
respect to such Nuclear Material Contract have expired, and the Lessee has
delivered to the Company and the Collateral Agent a certificate to such effect.
(b) The Lessee at its expense will perform and comply with all
the terms and provisions of each Assigned Agreement to be performed or complied
with by it, will maintain each Assigned Agreement in full force and effect, will
enforce each of the Assigned Agreements in accordance with their respective
terms, and will take all such action to that end as from time to time may
reasonably be requested by the Majority Banks.
(c) The Lessee shall not enter into or consent to or permit
any cancellation, termination, amendment, supplement or modification of or
waiver with respect to any Assigned Agreement without the prior written consent
of the Majority Banks, unless such cancellation, termination, amendment,
supplement or modification could not reasonably be expected to have a Material
Adverse Effect on the Company or the Company has through one or more other
Assigned Agreements or otherwise arranged for the provision of comparable goods
and services on terms not materially more burdensome to the Company.
(d) The Lessee will from time to time, upon request of the
Administrative Agent, furnish to the Administrative Agent such information
concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks
may reasonably request.
(e) The Lessee will not change its principal place of business
or chief executive offices from the location specified in paragraph 8(a) hereof
or remove therefrom its records concerning the Assigned Agreements unless it
gives the Administrative Agent at least 30 days' prior written notice thereof.
5. Collateral Equivalence Test; No Additional Collateral or Covenants;
Condemnation Statements; Exercise of Rights of Secured Parties.
<PAGE>
4
(a) The Lessee shall not permit the sum of aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Lessee's Percentage of Cash Collateral to be less than the Lessee's
Percentage of Outstandings.
(b) The Lessee shall not provide to any Person (other than the
Banks), in order to induce such Person to extend credit to the Company, any
collateral or any guarantee or other assurance against loss or non-payment, nor
shall the Lessee consent to the provision thereof by the Company.
(c) The Lessee shall not agree to any affirmative or negative
covenant with respect to the condition, financial or otherwise, of the Lessee
with any Person in order to induce such Person to extend credit to the Company.
(d) The Lessee shall not sell, assign, convey, pledge or
otherwise dispose of or encumber in any manner any interest it may have in the
Trust or any rights it may have under the Trust Agreement. The Lessee shall not
direct the Owner Trustee to liquidate, dissolve, merge or consolidate the
Company except if such transaction is consented to in writing by the Banks. The
Lessee shall not direct the Owner Trustee to take any action under the Trust
Agreement which is inconsistent with the duties imposed upon the Company by the
Basic Documents and any other agreements, documents, instruments and articles
executed and delivered, and to be executed and delivered, by the Owner Trustee
in connection therewith.
(e) The Nuclear Material leased under the Fuel Lease shall
constitute the Lessee's entire ownership interest in the items used or to be
used by it as nuclear fuel in the Generating Facility. The Lessee agrees that
25% of the Lessor's ownership interest in any Nuclear Material which is subject
to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to
take any action under the terms of the Fuel Lease, including, but not limited
to, the delivery of any Leasing Record, which would result in less than 25% of
the Lessor's ownership interest in any such Nuclear Material being so leased.
(f) As provided in the Security Agreement, (i) the Collateral
Agent on behalf of the Secured Parties may, on and after the occurrence of a
Credit Agreement Default, Credit Agreement Event of Default, Lessee Default or
Lessee Event of Default, pursuant to Section 10 of the Security Agreement,
exercise any and all of the Company's rights under the Fuel Lease, the Assigned
Agreements and each other Basic Document to
<PAGE>
5
which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is
continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant
to Section 10 of the Security Agreement, enforce and exercise any and all of the
Company's rights under the Fuel Lease, the Assigned Agreements and each other
Basic Document to which the Lessee is a party, or the rights and remedies
granted to the Secured Parties under the Security Agreement at its election and
in its sole discretion, and, in the event that the Collateral Agent is permitted
to exercise such rights pursuant to Section 10 of the Security Agreement, the
Lessee agrees that the Collateral Agent may do so either in concert with or in
place of the Company, and the Lessee shall assist in, comply with and perform in
accordance with all rights or remedies so enforced or exercised by the
Collateral Agent for the ratable benefit of the Secured Parties.
6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit
Agreement Default, a Credit Agreement Event of Default, Lease Event of Default,
Lessee Default, Lessee Event of Default or an event or condition which would,
with the lapse of time or the giving of notice or both, become a Lease Event of
Default, shall not affect the Lessee's sole obligation to engage in Fuel
Management; provided that, upon the occurrence of a Credit Agreement Event of
Default, Lessee Event of Default or Lease Event of Default, the Collateral Agent
may, if so directed by the Majority Secured Parties, by written notice to the
Lessee, elect to revoke such power and authority, in which case the Person from
time to time designated by the Majority Secured Parties may (but shall not be
obligated to), to the extent that the Majority Secured Parties desire and to the
extent permitted by law, engage in Fuel Management and/or remove all or any part
of the responsibility for Fuel Management from the Lessee; provided, however,
that, subject to the right of the Collateral Agent and the Majority Secured
Parties to exercise any or all rights granted to the Secured Parties under the
Security Agreement, the rights granted to the Collateral Agent and the Majority
Secured Parties under this Section 6 shall not be construed to include the right
to direct, whether directly or indirectly, the operation of the Generating
Facility. In the event the Majority Secured Parties, in accordance with the
preceding sentence, shall revoke the Lessee's power and authority to engage in
Fuel Management, all rights conferred by the Company to the Lessee pursuant to
Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to
the Company and the Lessee shall execute such documents and instruments as the
Collateral Agent shall request to further confirm such assignment.
<PAGE>
6
7. Insurance. Each year, the Lessee will furnish the Administrative
Agent and each Bank a detailed statement certified by an officer of Lessee
setting forth (i) the location of all Nuclear Material and (ii) the insurance
policies and indemnification agreements provided pursuant to Sections 14 and 17
of the Fuel Lease and certifying that such insurance policies and
indemnification agreements comply with the requirements of the Fuel Lease. In
addition, the Lessee shall promptly furnish at any time to the Administrative
Agent and any Bank such information as any such Bank shall reasonably request
concerning location of Nuclear Material, insurance policies and indemnification
agreements and Manufacturers or other third parties with whom arrangements exist
with respect to transportation, storage or processing of Nuclear Material.
8. Representations and Warranties. The Lessee hereby represents and
warrants to the Company, the Administrative Agent and the Banks that as of the
date hereof:
(a) Organization and Standing. The Lessee is a corporation
duly incorporated, validly existing and subsisting under the laws of the
Commonwealth of Pennsylvania, and is qualified to do business in each state or
other jurisdiction in which the nature of its business makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on its ability to perform its obligations under this Letter
Agreement or each other Basic Document to which the Lessee is a party. The
Lessee's chief executive office is located at 2800 Pottsville Pike, Reading,
Pennsylvania 19605.
(b) Corporate Authority. The Lessee has the corporate power
and authority to execute and perform this Letter Agreement and the Fuel Lease
and to lease the Nuclear Material thereunder. The execution and delivery of this
Letter Agreement and the Fuel Lease and the lease of the Nuclear Material
thereunder will not have a material adverse effect on the financial condition,
results of operations, business, properties or operations of the Lessee.
(c) Compliance with Other Instruments, etc. The execution,
delivery and performance by the Lessee of this Letter Agreement and each Basic
Document to which the Lessee is a party, and other related instruments,
documents and agreements, and the compliance by the Lessee with the terms hereof
and thereof, (i) have been duly and legally authorized by appropriate corporate
action taken by the Lessee, (ii) are not in contravention of, and
<PAGE>
7
will not result in a violation or breach of, any of the terms of the Lessee's
articles of incorporation, its by-laws or of any provisions relating to shares
of the capital stock of the Lessee and (iii) will not violate or constitute a
breach of any provision of (x) any applicable law, order, rule or regulation,
rule or regulation of any governmental authority (except in those cases where
non-compliance with any such law, order, rule or regulation could not reasonably
be expected to have a material adverse effect on the financial condition,
results of operations, business, properties or operations of the Lessee or its
ability to perform its obligations hereunder or under each Basic Document) or
(y) any indenture, agreement or other instrument to which the Lessee is party,
or by or under which the Lessee or any of the Lessee's property is bound, or be
in conflict with, result in breach of, or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement or instrument, or
result in the creation or imposition of any Lien upon any of the Lessee's
property or assets or any Nuclear Material.
(d) Legal Obligations. This Letter Agreement and the Fuel
Lease have been executed by a duly authorized officer of the Lessee, and this
Letter Agreement and the Fuel Lease constitute, and each Leasing Record, when
executed by a duly authorized officer of the Lessee and delivered to the
Company, will constitute, the legal, valid and binding obligations of the
Lessee, enforceable against the Lessee in accordance with their respective
terms, except as the enforceability thereof may be limited by the Atomic Energy
Act and the rules, regulations or orders issued pursuant thereto, or by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general, and except as the availability of the remedy of
specific performance is subject to general principles of equity (regardless of
whether such remedy is sought in a proceeding in equity or at law).
(e) Governmental Consents. Neither the execution and delivery
of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee,
nor the performance by the Lessee of all of its obligations hereunder or
thereunder, requires the consent or approval of, the giving of notice to, or the
registration, filing or recording with, or the taking of any other action in
respect of, any Federal, state, local or foreign government or governmental
authority or agency or any other person except for the order of the Securities
and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the
supplemental order of the SEC dated November 3, 1998, the order of the PaPUC,
dated
<PAGE>
8
September 17, 1998, and the filing of any statement or other instrument pursuant
to Section 10(b) of the Fuel Lease, and except for the filing of certificates by
the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding
Company Act to report on the transactions authorized by such SEC order, the
filing of which is not necessary to the execution or delivery of this Letter
Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the
performance by the Lessee of any of its obligations hereunder or thereunder, and
the failure to file any of which will not affect the validity or enforceability
of any of this Letter Agreement, the Fuel Lease or any Leasing Record.
(f) Consents and Permits. The Lessee possesses all material
licenses, permits, franchises and certificates which are necessary or
appropriate to own or operate its material properties and assets and to conduct
its business as now conducted.
(g) Litigation. There is no litigation or other proceeding now
pending or, to the best of the Lessee's knowledge, threatened, against or
affecting the Lessee, before any court, arbitrator or administrative or
governmental agency (i) which would adversely affect or impair the title of the
Company to the Nuclear Material, (ii) which questions the validity or
enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements
or any other Basic Document to which the Lessee is a party or any action taken
or to be taken by the Lessee pursuant to or in connection with this Letter
Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form
10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, copies of which have previously been delivered
to the Administrative Agent and the Banks, which, if decided adversely to the
Lessee, would materially adversely affect the condition, financial or otherwise,
of the Lessee.
(h) Taxes. The Lessee has filed or caused to be filed all tax
returns which are required to be filed, and has paid or caused to be paid all
taxes as shown on said returns and all assessments received by it to the extent
that such taxes and assessments have become due, except for taxes and
assessments which are being contested in good faith and by appropriate
proceedings and as to which it has provided reserves which are adequate in
connection with generally accepted accounting principles.
<PAGE>
9
(i) Reaffirmation and Restatement of Representations and
Warranties. The Lessee repeats and reaffirms as of the date hereof for the
benefit of the Administrative Agent and each Bank the representations and
warranties made by the Lessee in the Fuel Lease as though set forth in full
herein with the same effect as though such representations and warranties had
been made on and as of the date hereof. In addition, the Lessee represents and
warrants that as of the date hereof (i) the Lessee is in compliance with all the
terms and provisions set forth in the Fuel Lease on its part to be observed or
performed, (ii) no Terminating Event has occurred and no event has occurred
which, with the lapse of time or the giving of notice, or both, would constitute
such a Terminating Event, and (iii) no Lease Event of Default has occurred and
is continuing and no event has occurred and is continuing on such date which,
with the lapse of time or the giving of notice, or both, would constitute a
Lease Event of Default.
(j) First Perfected Security Interest. Except for Permitted
Liens, upon the execution and delivery of this Letter Agreement and the Security
Agreement and the due filing of the Uniform Commercial Code financing statements
required to be executed and filed from time to time, the Secured Parties will
have a legal, valid and enforceable first priority security interest (i) in the
rights, titles and interests of the Company in and to the Fuel Lease and (ii) in
and to the other Collateral. Such security interest will constitute a perfected
security interest in the Collateral consisting of Nuclear Material Contracts and
the Collateral consisting of Nuclear Material located in the States of Illinois,
Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which
consists of cash, instruments (as defined in the New York Uniform Commercial
Code) and other items in which a security interest may only be perfected by
possession, enforceable against all third parties as security for the Secured
Obligations.
(k) No Material Adverse Change. Since June 30, 1998, there has
been no material adverse change in the financial condition, results of
operations, business, properties or operations of the Lessee or in its ability
to perform its obligations under the Basic Documents.
(l) No Defaults. The Lessee is not in default under any bond,
debenture, note or any other evidence of Obligations for Borrowed Money or
Deferred Purchase Price or any mortgage, deed of trust, indenture, loan
agreement or other agreement relating thereto, where the amount thereof is in
excess of $20,000,000.
<PAGE>
10
(m) Pension Plans. No accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any plan (other than a multiemployer plan). No
liability to the Pension Benefit Guaranty Corporation has been, or is expected
by the Lessee to be, incurred with respect to any plan (other than a
multiemployer plan) by the Lessee which is or would be materially adverse to the
Lessee. The Lessee has not incurred and presently does not expect to incur any
withdrawal liability under Title IV of ERISA with respect to any multiemployer
plan which is or would be materially adverse to the Lessee. Neither the
execution and delivery by the Company of the Credit Agreement and the other
Basic Documents, and the issuance of the Commercial Paper, nor the execution and
delivery by the Lessee of this Letter Agreement, the Trust Agreement and each
other Basic Document to which the Lessee is a party, will involve any
transaction which is subject to the prohibitions of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975. As used
herein, the term "plan" shall mean an "employee pension benefit plan" (as
defined in Section 3 of ERISA) which is and has been established or maintained,
or to which contributions are or have been made, by the Lessee or by any trade
or business, whether or not incorporated, which, together with the Lessee is
under common control as described in Section 414(b) or (c) of the Code, and the
term "multiemployer plan" shall mean any plan which is a "multiemployer plan"
(as such term is defined in Section 4001(a)(3) of ERISA).
(n) Financial Statements. The audited balance sheet of the
Lessee as of December 31, 1997, and the related statements of income and cash
flows (including the notes thereto) of the Lessee for the year then ended,
copies of which have been delivered to the Company, the Administrative Agent and
the Banks, and all other annual or quarterly financial statements including,
without limitation, the quarterly statement dated as of June 30, 1998 so
delivered fairly present the financial condition of the Lessee on the dates for
which, and the results of its operations for the periods for which, the same
have been furnished and have been prepared in accordance with generally accepted
accounting principles consistently applied.
(o) Nuclear Material. The Nuclear Material is free and clear
of any Lien in favor of any Person claiming by, through or under the Lessee or
any Affiliate thereof, other than Permitted Liens. No default or event which
with the giving of notice or lapse of time would constitute a default has
occurred and is continuing under any Nuclear Material Contract.
<PAGE>
11
(p) Disclosure. Neither the representations in this Letter
Agreement, or in any other document, certificate or statement furnished in
writing to the Administrative Agent or any Bank by or on behalf of the Lessee in
connection with the transactions contemplated hereby, nor the information
disclosed in the Lessee's Annual Report on Form 10-K for the year ended December
31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
contained as of its date, any untrue statement of a material fact or omitted to
state a material fact necessary in order to make such representations or
information not misleading in light of the circumstances under which they were
made.
(q) Collateral Equivalence Test Met. The sum of the aggregate
Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease
and the Lessee's Percentage of the Cash Collateral equals or exceeds the
Lessee's Percentage of the Outstandings.
(r) Year 2000. The Lessee has made a full and complete
assessment of its Year 2000 Issues and has a realistic and achievable Year 2000
Program. Based on such assessment and on its Year 2000 Program, the Lessee does
not reasonably anticipate that Year 2000 Issues will have a Material Adverse
Effect.
9. General Covenants of the Lessee.
(a) Information. The Lessee will furnish to the Company and
the Administrative Agent in sufficient copies for each Bank:
(i) Quarterly Statements. As soon as practicable after the end
of each of the first three quarterly fiscal periods in each fiscal year
of the Lessee, and in any event within 60 days thereafter, copies of:
(A) a balance sheet of the Lessee as at the end of such
quarter, and (B) statements of income and cash flows of the
Lessee for such quarter and for the twelve-month period ending
as of the end of such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending
with the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding periods in
the previous fiscal year, all
<PAGE>
12
in reasonable detail and certified as complete and correct,
subject to changes resulting from year-end adjustments, by a
principal financial officer of the Lessee; provided that it is
understood that the delivery of the Lessee's Quarterly Report
on Form 10-Q shall be deemed to satisfy the requirements with
respect to such financial statements;
(ii) Annual Statements. As soon as practicable after the end
of each fiscal year of the Lessee, and in any event within 120 days
thereafter, copies of:
(A) a balance sheet of the Lessee at the end of such fiscal
year, and (B) statements of income and cash flows of the
Lessee for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all
in reasonable detail and accompanied by an opinion thereon of
independent certified public accountants of recognized
national standing selected by the Lessee, which opinion shall
state that such financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied (except for changes in application in
which such accountants concur) and that the examination of
such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards; provided that it is understood that the delivery of
the Lessee's Annual Report on Form 10-K shall be deemed to
satisfy the requirement with respect to such financial
statements;
(iii) Officer's Compliance Certificate. Simultaneously with the
financial statements referred to in Sections 9(a)(i) and (ii), a
certificate of an authorized officer of the Lessee stating that such
officer has reviewed the relevant terms and conditions of the Fuel
Lease and other Basic Documents to which the Lessee is a party, and has
made, or caused to be made, under such officer's supervision, a review
of the transactions and financial condition of the Lessee from the
beginning of the accounting period covered by the income statements
being delivered therewith to the date of the certificate, and that the
Lessee has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Letter
Agreement, the Fuel Lease and any other Basic Document to which the
Lessee is a party, and no Terminating
<PAGE>
13
Event, Lessee Default, Lessee Event of Default, Lease Event of Default
or default or event of default under any such Basic Document has
occurred and is continuing and no event has occurred and is continuing
which, with the lapse of time or the giving of notice, or both, would
constitute a Terminating Event, Lessee Default, Lessee Event of
Default, Lease Event of Default or a default or event of default under
any such Basic Document or, if such condition or event has occurred and
is continuing, a statement as to the nature thereof and the action
which is proposed to be taken with respect thereto;
(iv) Auditor's Compliance Certificate. Simultaneously with the
financial statements referred to in Section 9(a)(ii), a certificate of
the independent public accountants who audited such statements stating
that such accountants have reviewed the relevant terms and conditions
of the Fuel Lease and other Basic Agreements to which the Lessee is a
party, and that, in making the examination necessary for the audit of
such statements, they have obtained no knowledge of any condition or
event which constitutes or which with notice or lapse of time or both
would constitute a Terminating Event, Lessee Default, Lessee Event of
Default, Lease Event of Default or default or event of default under
any such Basic Document, or if such accountants shall have obtained
knowledge of any such condition or event, specifying in such
certificate each such condition or event of which they have knowledge
and the nature and status thereof;
(v) Notices Required under the Basic Documents. Immediately
upon delivery to the Lessee or the Company, all notices, consents,
documents, certificates or instruments of any kind relating to the
Lessee required pursuant to the Fuel Lease;
(vi) Defaults. (A) Promptly upon becoming aware of the
occurrence thereof, notice of any Terminating Event, Lessee Default,
Lessee Event of Default, Lease Event of Default or any event which,
with the lapse of time or the giving of notice, or both, would
constitute a Terminating Event or a Lease Event of Default, or of any
other development, financial or otherwise (including, without
limitation, developments with respect to Year 2000 Issues), which could
reasonably be expected to have a Material Adverse Effect, and (B)
within 10 days of becoming aware of the occurrence thereof, notice of
any other material event affecting the
<PAGE>
14
Lessee's obligations under any Basic Document or any Nuclear Material
Contract (except to the extent such event has previously been disclosed
in the Lessee's SEC reports delivered pursuant to clause (viii) below);
(vii) Notice of Claimed Default. Immediately upon becoming
aware that the holder or holders of any evidence of Obligations for
Borrowed Money or Deferred Purchase Price or other security of the
Lessee or any subsidiary exceeding $20,000,000 in the aggregate have
given notice (or taken any other action) with respect to a claimed
default, breach or event of default, a notice describing the notice
given (or action taken) and the nature of the claimed default, breach,
or event of default;
(viii) SEC and Other Reports. Promptly after filing thereof,
copies of all regular and periodic reports and registration statements
which the Lessee may file with the SEC or any governmental agency
substituted therefor and, promptly upon written request therefor,
copies of the financial statements which the Lessee may file annually
with any state regulatory agency or agencies; and
(ix) Requested Information. With reasonable promptness, such
other data and information with respect to the Lessee, including,
without limitation, information regarding Nuclear Material or any
Nuclear Material Contract or the Lessee's Year 2000 Program, as from
time to time may be reasonably requested by the Administrative Agent or
any Bank.
(b) Notice of Litigation. Immediately upon the Lessee becoming
aware thereof, written notice of (i) any litigation or proceedings which would
be required to be disclosed as an exception to the representations and
warranties contained herein or in the Fuel Lease in order that such
representations and warranties would be true and correct on a continuing basis;
and (ii) any dispute between the Lessee and any governmental authority or other
party relating to any part of the transactions contemplated by this Letter
Agreement or any of the other Basic Documents to which the Lessee is a party
which would have a material adverse effect on the ability of the Lessee to carry
out its obligations hereunder or under any other Basic Document to which the
Lessee is a party; provided, however, that the notice requirement in this
Section 9(b) shall be satisfied if the Lessee furnishes the Company and the
Administrative Agent in sufficient
<PAGE>
15
copies for each Bank a Current Report on Form 8-K regarding the event requiring
notice by the time that the Current Report is required to be filed with the
Securities and Exchange Commission.
(c) General Obligations. Subject to the last sentence of
this Section 9(c), the Lessee will:
(i) duly comply with all laws, rules, orders, regulations
or other valid requirements (including, without limitation,
any of the foregoing which are applicable to Nuclear
Material or the operation of the Generating Facility) of any
governmental authority necessary to the conduct of its
business or to its properties or assets, noncompliance with
which could reasonably be expected to have a material
adverse effect upon the transactions contemplated by this
Letter Agreement or any other Basic Document, or upon the
financial condition, results of operations, business,
properties or operations of the Lessee, or the ability of
the Lessee to carry out its obligations under any Basic
Document or this Letter Agreement);
(ii) continue to engage principally in the electric utility
business;
(iii) obtain, maintain and keep in full force and effect
all consents, permits, licenses and approvals, the
absence of which would have a material adverse effect
upon the transactions contemplated by this Letter
Agreement or any other Basic Document to which the
Lessee is a party, or upon the financial condition,
results of operations, business, properties or
operations of the Lessee, or the ability of the
Lessee to carry out its obligations under this Letter
Agreement or any other Basic Document to which the
Lessee is a party;
(iv) maintain its material operating properties used or
useful in its business in good repair, working order
and condition consistent with prudent utility
practice; provided, however, that the Lessee shall
not be prevented from discontinuing the operation and
maintenance of any of its properties if it shall
determine that the
<PAGE>
16
continued operation and maintenance of such properties is no
longer necessary, desirable or permissible;
(v) pay when due all fees, taxes, assessments and governmental
charges or levies imposed upon it or upon its income or
profits or upon any property belonging to it, and maintain
appropriate reserves for the accrual of the same in
accordance with generally accepted accounting principles;
(vi) except as permitted by clause (vii) below, at all
times maintain its corporate existence, privileges,
franchises and rights to carry on business, and duly procure
all renewals and extensions thereof, if and when any shall
be necessary;
(vii) not consolidate or merge with, or sell or otherwise
dispose of all or substantially all of its properties and
assets to any Person unless (i) the surviving or resulting
entity is the Lessee hereunder, (ii) immediately after
giving effect thereto no Credit Agreement Event of Default,
Credit Agreement Default, Lease Event of Default, Lessee
Default, Lessee Event of Default or event which with the
giving of notice or passage of time would constitute a Lease
Event of Default shall have occurred and be continuing, and
(iii) the senior unsecured debt of the surviving or
resulting Lessee shall be rated at least investment grade by
Standard & Poor's Ratings Group ("S&P") or Moody's Investor
Service, Inc. ("Moody's");
(viii) perform and comply with each of the material
provisions of each material indenture, credit agreement,
contract or other agreement by which the Lessee is bound,
non-performance or non-compliance with which would have a
material adverse effect upon its business or credit or in
any way affect its ability to perform its obligations
hereunder except material contracts or other agreements
being contested in good faith;
<PAGE>
17
(ix) reserve and maintain its corporate existence in the
jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation in good standing in each
jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the
ownership of its properties, except where the failure to be
so qualified would not materially adversely affect its
financial condition, operations, properties or business, and
preserve its material rights, franchises and privileges to
conduct its business substantially as conducted on the date
hereof;
(x) maintain insurance in effect at all times in such amounts as
are available to the Lessee and covering such risks as is
usually carried by companies of a similar size, engaged in
similar businesses and owning similar properties (including,
without limitation, the operation and ownership of nuclear
generating facilities) in the same general geographical area
in which the Lessee operates, either with responsible and
reputable insurance companies or associations, or, in whole
or in part, by establishing reserves of one or more
insurance funds, either alone or with other corporations or
associations;
(xi) at any reasonable time and from time to time, permit
the Administrative Agent or any Bank or any agents or
representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and
visit the properties of, the Lessee and discuss the affairs,
finances and accounts of the Lessee with any of its officers
or directors;
(xii) not sell, transfer, lease, assign or otherwise convey
or dispose of more than 25% of its assets (whether now owned
or hereafter acquired), in any single or series of
transactions, whether or not related, except for
dispositions of its fossil and hydroelectric generating
stations and associated facilities and dispositions of its
current assets in the ordinary course of business as
presently conducted, if immediately prior to such sale,
transfer, lease, assignment, conveyance or
<PAGE>
18
disposition or as a result of such sale, transfer, lease,
assignment, conveyance or disposition, the senior unsecured
debt of the Lessee shall not be rated at least investment
grade by S&P or Moody's.
(xiii) comply with this Letter Agreement and such other
Basic Documents to which the Lessee is a party in accordance
with the respective terms and conditions set forth herein
and therein; and
(xiv) except for Permitted Liens, permit the creation of any
Liens on the Collateral.
Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may
contest by appropriate proceedings conducted in good faith and due diligence,
the amount, validity or application, in whole or in part of any fee, tax,
assessment or government charge or levy, or any legal requirement, provided that
the Lessee shall have set aside on its books adequate reserves, if required in
accordance with generally accepted accounting principles with respect thereto
and shall furnish such security, if any, as may be required in the proceeding.
10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails
to maintain at all times beneficial ownership of at least 75% of all outstanding
shares of common stock of each of the Lessee, Met-Ed and JCP&L; or (b) pledges,
grants options on, creates any charge on or security interest in, or otherwise
subjects to any charge or encumbrance, any of the common stock of the Lessee,
Met-Ed or JCP&L unless the obligations hereunder are secured ratably and with
equal priority, in form and substance reasonably satisfactory to the Majority
Banks.
11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt
of executed counterparts of the Credit Agreement and photostatic copies of the
Notes evidencing the Loans, and consents to all of the terms and provisions of
the Credit Agreement and the Notes.
12. Consent to Assignment; Direct Payment of Payments Under the Fuel
Lease.
(a) Consent to Assignment. The Lessee hereby acknowledges
notice of and consents to all the terms and provisions of the Security Agreement
and hereby confirms to and agrees with the Secured Parties that all
representations, warranties, indemnities and agreements of the Lessee contained
<PAGE>
19
in this Letter Agreement and each other Basic Document to which the Lessee is a
party shall inure to the benefit of, and shall be enforceable by, the Secured
Parties to the same extent as if such Secured Parties were originally parties to
or named in such documents and agreements. The Lessee further acknowledges and
consents to the assignment and transfer, and any future assignments and
transfers, to the Secured Parties by the Company of the Company's right to
exercise any and all of its rights, remedies, powers and privileges (but none of
its obligations, duties or liabilities) under the Fuel Lease, the Assigned
Agreements and each other Basic Document to which the Lessee is a party. The
Lessee hereby agrees with the Secured Parties to comply with any exercise by the
Secured Parties, either directly or through the Company, of any rights,
remedies, powers or privileges pursuant to the Security Agreement. The Secured
Parties acknowledge that neither the Security Agreement nor this Section 12
shall in any way add to the obligations of the Lessee (except those obligations
of the Lessee to any Person, which, if not previously so, hereby become
enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned
Agreements and each other Basic Document to which the Lessee is a party.
Notwithstanding the foregoing, so long as no Lease Event of Default shall have
occurred and be continuing, the Lessee shall have exclusive right to possession
and use of the Nuclear Material in accordance with the Fuel Lease and may use
such Nuclear Material for any lawful purpose consistent with the Fuel Lease.
(b) Direct Payment of Payments Under the Fuel Lease. The
Lessee acknowledges that it has been directed by the Company to, and agrees that
it will, make all payments of monies due and to become due to the Company under
the Fuel Lease, the Assigned Agreements and each other Basic Document to which
the Lessee is a party, directly to the Collateral Agent, including, without
limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material
pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments
pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to
the accounts of the Secured Parties as specified in Section 3.03 of the Credit
Agreement.
13. Severability. Any provision of this Letter Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
<PAGE>
20
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
14. Indemnification. The Lessee shall pay and indemnify and hold
harmless the Administrative Agent and each Bank, and their respective officers,
directors, incorporators, shareholders, partners, employees, agents and servants
from and against any and all liabilities (other than liabilities arising out of
the gross negligence or willful misconduct of such Person), taxes, (excluding,
however, taxes measured solely by the net income of any Person indemnified or
intended to be indemnified pursuant to this Section 14, except as otherwise
provided in Section 14 hereof), losses, obligations, claims, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) and judgments of any
nature arising from or in any way relating to any and all of the following
during the term of the Fuel Lease and thereafter: (a) any injury to or disease,
sickness or death of Persons, or loss of or damage to property, occurring
through or resulting from any nuclear incident (as that term is defined in the
Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any
way with the Nuclear Material or any portion thereof, (b) the acquisition,
ownership (including strict liability of an owner or liability without fault),
possession, disposition, sale, use, nonuse, misuse, leasing, fabrication,
design, cycling, recycling, transportation, containerization, cooling,
processing, reprocessing, storing, condition, management, operation,
construction, maintenance, repair or rebuilding of the Nuclear Material or any
portion thereof or resulting from the condition of adjoining and underlying
land, buildings, streets or ways, (c) any use, nonuse or condition of, or any
other matter of circumstance relating to, the Generating Facility, any other
property associated therewith or any adjoining and underlying land, buildings,
streets and ways, (d) any violation or default, or alleged violation or default,
of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any
contracts or agreements to which the Lessee is a party or by which it is bound,
or any Legal Requirements, (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Nuclear Material
or any portion thereof, (f) any infringement or alleged infringement of any
patent, copyright, trade secret or other similar right relating to the Nuclear
Material or any portion thereof, (g) Lessee's agreements or obligations
contained in the Fuel Lease or this Letter Agreement,
<PAGE>
21
(h) any claim arising out of loss of damage to the environment, (i) any claim
arising out of strict or absolute liability in tort, or (j) the offering and
sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as
aforesaid, from and against all other liabilities, taxes, losses, obligations,
claims, damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses) and judgments of any nature which may be imposed on, incurred by, or
asserted at any time against any indemnitee in any way relating to or arising
out of the performance of this Letter Agreement, the Fuel Lease or any other
Basic Document to which Lessee is a party, provided, except for claims of a
nature contemplated by (i) above, that the Lessee shall not be required to
indemnify any indemnitee with respect to any liability relating to or arising
out of indemnitee's gross negligence or willful misconduct and provided,
further, that the foregoing immunity shall not limit the terms of any indemnity
that the Lessee may grant separately to any indemnitee pursuant to any separate
agreement. In the event that any action, suit or proceeding is brought against
the Company or any other Person indemnified or intended to be indemnified
pursuant to this Section 14 by reason of any such occurrence, the Lessee shall,
at the Lessee's expense, resist and defend such action, suit or proceeding or
cause the same to be resisted and defended by counsel designated by the Lessee
and reasonably acceptable to the Person or Persons indemnified or intended to be
indemnified under this Section 14 provided there is no conflict of interest with
the Person or Persons indemnified or intended to be indemnified under this
Section 14. In the event a conflict of interest contemplated by the proviso of
the immediately preceding sentence shall exist, then the Person or Persons as to
which such conflict exists may be defended by counsel of its or their choice at
Lessee's expense, provided Lessee's obligation for such expense shall be limited
to one firm for all such Persons as to which such a conflict exists. The
obligations of the Lessee under this Section 14 shall survive any termination of
this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security
Agreement, in whole or in part.
15. No Waiver; Amendments. Neither the Administrative Agent, the
Collateral Agent, the Banks, the Company nor the Lessee shall, by any act,
delay, omission or otherwise, be deemed to have waived any of its rights and
remedies hereunder, and no waiver shall be valid unless in writing signed by the
party or parties sought to be bound thereby. A waiver by the Administrative
Agent, the Collateral Agent, the Banks, the
<PAGE>
22
Company or the Lessee of any of their respective rights or remedies hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
the Administrative Agent, the Banks, the Company or the Lessee, as applicable,
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercise of any such right or remedy hereunder shall preclude any other
or future exercise or partial exercise of any other right or remedy. The rights
and remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by law.
None of the terms or provisions of this Letter Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the
party or parties sought to be bound thereby.
16. Successors and Assigns. This Letter Agreement shall bind the
successors and assigns of the Lessee and the Company and shall inure to the
benefit of permitted successors and assigns of either. The Letter Agreement
shall not be assignable by the Lessee or the Company, either voluntarily or by
operation of law, unless consented to by the Administrative Agent and the
Majority Banks. No permitted assignment by the Lessee or the Company shall
release the Lessee or the Company from any of its obligations hereunder. This
Letter Agreement shall inure to and shall be binding upon the successors and
assigns of the Administrative Agent and the Banks.
17. Notices. Any notice, demand or other communication which by any
provision of this Letter Agreement is required or provided to be given shall be
deemed to have been delivered if in writing addressed as provided below and
actually delivered by mail, courier or facsimile to the following addresses:
(a) except as otherwise requested in writing by the Administrative
Agent or any Bank, any notice, demand or communication which
by any provision of this Letter Agreement is required or
provided to be given to the Administrative Agent or any Bank
shall be deemed to have been delivered to the Administrative
Agent or any Bank if a single copy thereof is delivered to the
Administrative Agent at its address set forth in Section 11.01
of the Credit Agreement or at such other address as either may
have furnished the Company and the Lessee in writing;
<PAGE>
23
(b) if to the Company (with copies to the Lessee at the address
listed below), TMI-1 Fuel Corp c/o United States Trust Company
of New York, 114 West 47th Street, New York, New York 10036,
marked for the attention of the Corporate Trust and Agency
Division, telecopy number 212-852-1626, or at such other
address as it may have furnished in writing to the
Administrative Agent and the Lessee; or
(c) if to the Lessee, to Pennsylvania Electric Company, c/o GPU
Service Inc., 310 Madison Avenue, Morristown, New Jersey
07962, marked for the attention of the Vice President and
Treasurer, Telecopier: (973) 644-4224, or at such other
address or addresses as the Lessee may have furnished to the
Administrative Agent and the Company.
18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off
rights against it as provided for in Section 11.08 of the Credit Agreement.
(b) Lessee agrees that it shall have no right of set-off,
deduction or counterclaim in respect of its obligations hereunder, and that the
obligations of the Banks hereunder and under the Credit Agreement are several
and not joint. Nothing contained herein shall constitute a relinquishment or
waiver of the Lessee's rights to any independent claim that the Lessee may have
against the Administrative Agent or any Bank for the Administrative Agent's or
such Bank's, as the case may be, gross negligence or willful misconduct, but no
Bank shall be liable for the conduct of the Administrative Agent or any Bank,
and the Administrative Agent shall not be liable for the conduct of any Bank.
19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial
by jury in any action, proceeding or counterclaim arising out of or relating to
this Letter Agreement, the Credit Agreement, the other Basic Documents or any
instrument or document delivered hereunder or thereunder, except that the
foregoing shall not preclude any party hereto from submitting to a jury for
determination in any such action, proceeding or counterclaim any dispute
involving (a) the accuracy or completeness of any representation or warranty
made under the Basic Documents by Lessee, (b) the performance by Lessee of any
affirmative or negative covenant or agreement contained in the Basic Documents,
or (c) questions of materiality, or the
<PAGE>
24
reasonableness of, or good faith basis for, any action taken, or determination
made, by any other party hereto (other than in respect of any calculation of
principal, interest, fees, or increased costs payable by the Lessee under the
Basic Documents).
20. Governing Law. This Letter Agreement shall be governed by, and be
construed and interpreted in accordance with the laws of the State of New York.
<PAGE>
S-1
IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement
to be executed as of the date first above written.
PENNSYLVANIA ELECTRIC COMPANY
By
Vice President
TMI-1 FUEL CORP.
By
Title
THE FIRST NATIONAL BANK OF
CHICAGO,
as Administrative Agent
By
Title
By
Title
SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT
EXHIBIT 10-AA
GPU, INC.
1990 STOCK PLAN FOR EMPLOYEES OF
GPU, INC. AND SUBSIDIARIES
AS AMENDED AND RESTATED
TO REFLECT AMENDMENTS
THROUGH MARCH 5, 1998
<PAGE>
1990 STOCK PLAN FOR EMPLOYEES OF
GPU, INC. AND SUBSIDIARIES
1. Purpose
GPU, Inc. (the "Corporation") desires to attract and retain employees
of outstanding talent. The 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries (the "Plan") affords eligible employees the opportunity to acquire
proprietary interests in the Corporation and thereby encourages their highest
levels of performance.
2. Scope and Duration
(a) Awards under the Plan may be granted in the following forms:
(i) incentive stock options ("incentive stock options") as
provided in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and non-qualified stock options ("non-qualified options") (the term
"options" includes incentive stock options and non-qualified options);
(ii) shares of Common Stock of the Corporation (the "Common
Stock") which are restricted as provided in Section 10 ("restricted shares"); or
(iii) rights to acquire shares of Common Stock which are
restricted as provided in Section 10 ("units" or "restricted units").
Options may be accompanied by stock appreciation rights ("rights").
(b) The maximum aggregate number of shares of Common Stock as to which
awards of options, restricted shares, units or rights may be made from time to
time under the Plan is 1,974,190 shares.(1) Shares issued pursuant to this Plan
may be in whole or in part, as the Board of Directors of the Corporation (the
"Board of Directors") shall from time to time determine, authorized but unissued
shares or issued shares reacquired by the
- ---------------------
(1) Initially, 1,000,000 shares were authorized to be issued under the Plan.
On May 29, 1991, the Corporation effected a two-for-one stock split by way
of a stock dividend, leaving 1,974,190 shares available for issuance under
the Plan on and after that date, after giving effect to shares previously
awarded.
<PAGE>
Corporation. If for any reason any shares as to which an option has
been granted cease to be subject to purchase thereunder or any
restricted shares or restricted units are forfeited to the
Corporation, or to the extent that any awards under the Plan
denominated in shares or units are paid or settled in cash or are
surrendered upon the exercise of an option, then (unless the Plan
shall have been terminated) such shares or units, and any shares
surrendered to the Corporation upon such exercise, shall become
available for subsequent awards under the Plan unless such shares or
units, if so made available for subsequent awards under the Plan,
would not be exempt from Section 16(b) of the Securities Exchange Act
of 1934 (the "Exchange Act") pursuant to Rule 16b-3, as amended,
thereunder; provided, however, that shares surrendered to the
Corporation upon the exercise of an incentive stock option and shares
subject to an incentive stock option surrendered upon the exercise of
a right shall not be available for subsequent award of additional
stock options under the Plan.
(c) No incentive stock option shall be granted hereunder after March 4,
2008.
(d) The total number of shares of Common Stock with respect to which
options may be granted under the Plan to any employee during any calendar year
shall not exceed [400,000] shares.
3. Administration
(a) The Plan shall be administered by those members of the Personnel,
Compensation and Nominating Committee, or any successor thereto, of the Board of
Directors who are "nonemployee directors" within the meaning of Rule 16b-3, as
amended, under Section 16(b) of the Exchange Act or by such other committee
consisting of not less than two persons each of whom shall qualify as
"non-employee directors," as may be determined by the Board of Directors ("the
Committee").
(b) The Committee shall have plenary authority in its sole discretion,
subject to and not inconsistent with the express provisions of this Plan: (i) to
grant options, to determine the purchase price of the Common Stock covered by
each option, the term of each option, the employees to whom, and the time or
times at which, options shall be granted and the number of shares to be covered
by each option; (ii) to designate options as incentive stock options or
non-qualified options and to determine which options shall be accompanied by
rights; (iii) to grant rights and to determine the purchase price of the Common
Stock covered by each right or related option, the term of each right or related
option, the employees to whom, and the time or times at which,
<PAGE>
rights or related options shall be granted and the number of shares to be
covered by each right or related option; (iv) to grant restricted shares and
restricted units and to determine the term of the Restricted Period (as defined
in Section 10) and other conditions applicable to such shares or units, the
employees to whom, and the time or times at which, restricted shares or
restricted units shall be granted and the number of shares or units to be
covered by each grant; (v) to interpret the Plan; (vi) to prescribe, amend and
rescind rules and regulations relating to the Plan; (vii) to determine the terms
and provisions of the option and rights agreements (which need not be identical)
and the restricted share and restricted unit agreements (which need not be
identical) entered into in connection with awards under the Plan, including any
provisions of such agreements that may permit a recipient of an award of
restricted units to elect, prior to the vesting of such units, to defer the
payment of cash and/or the delivery of shares of Common Stock otherwise to be
made upon the vesting of such restricted units, and/or to defer the payment of
any cash compensation awarded to the recipient with respect to such restricted
units, or with respect to any restricted stock awarded to the recipient, either
under this Plan or the GPU System Companies Deferred Compensation Plan (a
"Deferral"); and to make all other determinations deemed necessary or advisable
for the administration of the Plan. Without limiting the foregoing, the
Committee shall have plenary authority in its sole discretion, subject to and
not inconsistent with the express provisions of the Plan, (1) to select GPU
Officers (as defined below) for participation in the Plan, (2) to determine the
timing, price and amount of any grant or award under the Plan to any GPU
Officer, (3) either (A) to determine the form in which payment of any right
granted or awarded under the Plan will be made (i.e., cash, securities or any
combination thereof) or (B) to approve the election of the employee to receive
cash in whole or in part in settlement of any right granted or awarded under the
Plan. As used herein, the term "GPU Officer" shall mean an officer (other than
an assistant officer) of the Corporation and any person who may from time to
time be designated an executive officer of the Corporation by its Board of
Directors (the "Board"). The exercise by the Committee of the powers granted in
clauses (i), (ii), (iii), (iv), and (vii) hereof shall be subject to the
approval of the Board with respect to a recipient of an award hereunder who is
an officer (other than assistant officer) of the Corporation or the Chairman or
President of any subsidiary (as defined in Section 4(a) hereof) of the
Corporation. (The Committee and the Board are sometimes hereinafter referred to
as the "Grantors.")
(c) The Grantors may delegate to one or more of their members or to one
or more agents such administrative duties as they may deem advisable, and the
Grantors or any person to whom
<PAGE>
they have delegated duties as aforesaid may employ one or more persons to render
advice with respect to any responsibility the Grantors or such person may have
under the Plan; provided, that the Grantors may not delegate any duties to a
member of the Board of Directors who would not qualify as a "non-employee
director" to administer the Plan as contemplated by Rule 16b-3, as amended, or
other applicable rules under the Exchange Act. The Grantors may employ
attorneys, consultants, accountants or other persons and the Grantors, the
Corporation and its officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Grantors in good faith shall be
final and binding upon all employees who have received awards, the Corporation
and all other interested persons. Notwithstanding the foregoing, any action
taken or any interpretation or determination made by the Grantors after the
occurrence of a "Change in Control" (as defined in Section 7(c) hereof) which
adversely affects the rights of any employee with respect to any award made to
the employee hereunder shall be subject to judicial review under a "de novo"
rather than a deferential standard. No member or agent of the Grantors shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan or awards made thereunder, and all members and
agents of the Grantors shall be fully protected by the Corporation in respect of
any such action, determination or interpretation.
4. Eligibility; Factors to be Considered in Making Awards
(a) Only employees of the Corporation or its subsidiaries may receive
awards under the Plan. The term "subsidiary" means any corporation one hundred
(100%) percent of the common stock of which is owned, directly or indirectly, by
the Corporation. A director of the Corporation or of a subsidiary who is not
also an employee will not be eligible to receive an award.
(b) In determining the employees to whom awards shall be granted and
the number of shares or units to be covered by each award, the Committee shall
take into account the nature of the employee's duties, his or her present and
potential contributions to the success of the Corporation and such other factors
as it shall deem relevant in connection with accomplishing the purposes of the
Plan.
(c) Awards may be granted singly, in combination or in tandem and may
be made in combination or in tandem with or in replacement of, or as
alternatives to, awards or grants under any other employee plan maintained by
the Corporation or its subsidiaries. An award made in the form of an option, a
unit or a right may provide, in the discretion of the Committee, for
<PAGE>
(i) the crediting to the account of, or the current payment to, each employee
who has such an award of an amount equal to the cash dividends and stock
dividends paid by the Corporation upon one share of Common Stock for each
restricted unit, or share of Common Stock subject to an option or right,
included in such award, and for each restricted unit which is the subject of a
Deferral ("Dividend Equivalents"), or (ii) the deemed reinvestment of such
Dividend Equivalents and stock dividends in shares of Common Stock or the deemed
reinvestment of units in additional units, which deemed reinvestment in each
case shall be deemed to be made in accordance with the provisions of Section 10
and credited to the employee's account ("Additional Deemed Shares"). Such
Additional Deemed Shares shall be subject to the same restrictions (including
but not limited to provisions regarding forfeitures) applicable with respect to
the option, unit or right with respect to which such credit is made. Dividend
Equivalents not deemed reinvested as stock dividends shall not be subject to
forfeiture, and may bear amounts equivalent to interest or cash dividends as the
Committee may determine. An employee who has been granted incentive stock
options under the Plan may be granted an additional award or awards, subject to
such limitations as may be imposed by the Code with respect to incentive stock
options.
(d) The Committee, in its sole discretion, may grant to an employee who
has been granted an award under the Plan or any other employee plan maintained
by the Corporation, any of its subsidiaries, or any successor thereto, in
exchange for the surrender and cancellation of such award, a new award in the
same or a different form and containing such terms, including without limitation
a price which is different (either higher or lower) than any price provided in
the award so surrendered and cancelled, as the Committee may deem appropriate.
5. Option Price
(a) The purchase price of the Common Stock covered by each option shall
be determined by the Committee; provided, however, that the purchase price shall
not be less than 100% of the fair market value of the Common Stock on the date
the option is granted. Fair market value shall mean the closing price of the
Common Stock as reported on the New York Stock Exchange Composite Tape for the
date on which the option is granted, or if there are no sales on such date, on
the next preceding day on which there were sales. Such price shall be subject to
adjustment as provided in Section 13. The price so determined shall also be
applicable in connection with the exercise of any related right.
(b) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment may be made in cash,
which may be paid by check or other
<PAGE>
instrument acceptable to the Corporation, in shares of the Common Stock, valued
at the closing price of the Common Stock as reported on the New York Stock
Exchange Composite Tape for the date of exercise, or if there were no sales on
such date, on the next preceding day on which there were sales, or (if permitted
by the Committee and subject to such terms and conditions as it may determine)
by surrender of outstanding awards under the Plan. In addition, the purchase
price may be paid in whole or in part by delivering a properly executed exercise
notice in a form approved by the Committee together with irrevocable
instructions to a broker to promptly deliver to the Corporation the applicable
amount of the proceeds from the sale or loan securities. The purchase price may
also be paid in such other form or manner as the Committee may from time to time
approve.
(c) At the time of any exercise of an option granted to an employee
hereunder, the employee shall pay any amount determined by the Committee to be
necessary to satisfy all applicable federal, state or local tax requirements
relating to such exercise. The Committee may permit such amount to be paid in
other shares of Common Stock owned by the employee, or a portion of the shares
of Common Stock that otherwise would be issued to the employee upon such
exercise of the option, or a combination of cash and shares of such Common
Stock.
6. Term of Options
The term of each option granted under the Plan shall be such period of
time as the Committee shall determine, but not more than ten years from the date
of grant. Unless sooner forfeited pursuant to the terms of the applicable option
agreement or cancelled pursuant to Section 7(c) hereof, each option granted
under the Plan shall expire at the end of its term. Notwithstanding any other
provision in this Plan to the contrary, no option granted hereunder may be
exercised after the expiration of its term.
7. Exercise of Options
(a) Each option granted under the Plan shall become exercisable, in
whole or in part, at such time or times during its term as the agreement
evidencing the grant of such option shall specify; provided, however, that the
Committee may also, in its discretion, accelerate the exercisability of any
option in whole or in part at any time.
(b) Each option granted under the Plan that has become exercisable
pursuant to Section 7(a) hereof shall remain exercisable thereafter for such
period of time prior to the expiration of its term (including any period
subsequent to the
<PAGE>
employee's termination of employment with the Corporation and all of its
subsidiaries for any reason) as the option agreement evidencing the grant of
such option shall provide.
(c) Subject to subsection (e) below but notwithstanding any other
provision of the Plan, upon the occurrence of a Change in Control of the
Corporation (the date upon which such event occurs shall be referred to for
purposes of this Plan as an "Acceleration Date"), all options granted under the
Plan and still outstanding on the Acceleration Date shall be cancelled, and the
Corporation's obligation in respect of each option so cancelled shall be
discharged by payment to the holder of such option of a single cash lump sum, in
an amount determined under subsection (d) below. Such amount shall be payable as
soon as practicable after the Acceleration Date. For purposes of the Plan, a
"Change in Control" shall mean the occurrence during the term of the Plan of:
(1) An acquisition (other than directly from the Corporation)
of any Common Stock or other voting securities of the Corporation entitled to
vote generally for the election of directors (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent
(20%) or more of the then outstanding shares of Common Stock or the combined
voting power of the Corporation's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an
employee benefit plan (or a trust forming a part thereof) maintained by (i) the
Corporation or (ii) any corporation or other Person of which a majority of its
voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Corporation (for purposes of this definition, a
"Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined);
(2) The individuals who, as of August 1, 1996, are members of
the Board of Directors (the "Incumbent Board"), cease for any reason to
constitute at least seventy percent (70%) of the members of the Board of
Directors; provided, however, that if the election, or nomination for election
by the Corporation's shareholders, of any new director was approved by a vote of
at least two-thirds of the Incumbent Board, such new director shall,
<PAGE>
for purposes of this Plan, be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board of
Directors (a "Proxy Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(3) The consummation of:
(A) A merger, consolidation or reorganization with or
into the Corporation or in which securities of the Corporation are issued,
unless such merger, consolidation or reorganization is a "Non-Control
Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization with or into the Corporation or in which securities of the
Corporation are issued where:
(i) the shareholders of the Corporation, immediately
before such merger, consolidation or reorganization, own directly or indirectly
immediately following such merger, consolidation or reorganization, at least
sixty percent (60%) of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least seventy percent
(70%) of the members of the board of directors of the Surviving Corporation, or
a corporation, directly or indirectly, beneficially owning a majority of the
Voting Securities of the Surviving Corporation, and
(iii) no Person other than (w) the
Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such merger, consolidation or
reorganization, was maintained by the Corporation or any Subsidiary, or (z) any
Person who, immediately prior to such merger, consolidation or reorganization
had Beneficial Ownership of twenty percent (20%) or more of the then outstanding
Voting Securities or Common Stock, has Beneficial Ownership of twenty percent
(20%) or more of the
<PAGE>
combined voting power of the Surviving Corporation's then outstanding voting
securities or its common stock.
(B) A complete liquidation or dissolution of the
Corporation; or
(C) The sale or other disposition of all or
substantially all of the assets of the Corporation to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Common Stock
or Voting Securities as a result of the acquisition of Common Stock or Voting
Securities by the Corporation which, by reducing the number of shares of Common
Stock or Voting Securities then outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of this sentence) as a result of
the acquisition of shares of Common Stock or Voting Securities by the
Corporation, and after such share acquisition by the Corporation, the Subject
Person becomes the Beneficial Owner of any additional shares of Common Stock or
Voting Securities which increases the percentage of the then outstanding shares
of Common Stock or Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(d) The lump sum payment to be made in respect of any option pursuant
to subsection (c) above shall be an amount equal to (i) the excess, if any, of
the Determined Value of all shares that are still subject to the option as of
the Acceleration Date (including any shares as to which the option had not
otherwise become exercisable prior to such date) over the aggregate purchase
price of such shares, less (ii) the amount of all federal, state and local taxes
required by law to be withheld with respect to such payment. The "Determined
Value" of the shares still subject to an option as of the Acceleration Date
shall mean the amount determined by multiplying the number of such shares by the
"Multiplication Factor," as defined in Section 10(f)(i) hereof.
(e) Any incentive stock option granted under the Plan and still
outstanding immediately prior to the occurrence of a Change in Control shall,
upon the occurrence of the Change in Control, become immediately exercisable as
to all shares of Common Stock that are then still subject to the option. The
holder of any such incentive stock option shall be provided an opportunity to
exercise such option at such time prior to the time as of which the Change in
Control becomes effective, and in accordance with
<PAGE>
such procedures, as the Committee shall determine. To the extent an option is so
exercised, the option shall not be cancelled as provided in subsection (c)
above.
(f) An option may be exercised, at any time or from time to time during
its term (subject, in the case of an incentive stock option, to such
restrictions as may be imposed by the Code), as to any or all full shares as to
which the option has become and remains exercisable; provided, however, that an
option may not be exercised at any one time as to less than 100 shares (or less
than the number of shares as to which the option is then exercisable, if that
number is less than 100 shares).
(g) Upon the exercise of an option or portion thereof in accordance
with the Plan, the option agreement and such rules and regulations as may be
established by the Committee, the holder thereof shall have the rights of a
shareholder with respect to the shares issued as a result of such exercise.
8. Award and Exercise of Rights
(a) A right may be awarded by the Committee in connection with any
option granted under the Plan, either at the time the option is granted or
thereafter at any time prior to the exercise, termination or expiration of the
option ("tandem right"), or separately ("freestanding right"). Each tandem right
shall be subject to the same terms and conditions as the related option and
shall be exercisable only to the extent the option is exercisable. A right shall
be exercisable (as to a tandem right, only to the extent the related option is
exercisable) on or after an Acceleration Date.
(b) A right shall entitle the employee upon exercise in accordance with
its terms (subject, in the case of a tandem right, to the surrender unexercised
of the related option or any portion or portions thereof which the employee from
time to time determines to surrender for this purpose) to receive, subject to
the provisions of the Plan and such rules and regulations as from time to time
may be established by the Committee, a payment having an aggregate value equal
to the product of (A) the excess of (i) the fair market value on the exercise
date of one share of Common Stock over (ii) the exercise price per share, in the
case of a tandem right, or the price per share specified in the terms of the
right, in the case of a freestanding right, multiplied by (B) the number of
shares with respect to which the right shall have been exercised. The payment
may be made in the form of all cash, all shares of Common Stock, or a
combination thereof, as elected by the employee.
<PAGE>
(c) The exercise price per share specified in a right shall be as
determined by the Committee, provided that, in the case of a tandem right
accompanying an incentive stock option, the exercise price shall be not less
than fair market value of the Common Stock subject to such option on the date of
grant.
(d) If upon the exercise of a right the employee is to receive a
portion of the payment in shares of Common Stock, the number of shares shall be
determined by dividing such portion by the fair market value of a share on the
exercise date. The number of shares received may not exceed the number of shares
covered by any option or portion thereof surrendered. Cash will be paid in lieu
of any fractional share.
(e) No payment will be required from an employee upon exercise of a
right, except that any amount necessary to satisfy applicable federal, state or
local tax requirements shall be withheld or paid promptly by the employee upon
notification of the amount due and prior to or concurrently with delivery of
cash or a certificate representing shares. The Committee may permit such amount
to be paid in shares of Common Stock previously owned by the employee, or a
portion of the shares of Common Stock that otherwise would be distributed to
such employee upon exercise of the right, or a combination of cash and shares of
such Common Stock.
(f) The fair market value of a share shall mean the closing price of
the Common Stock as reported on the New York Stock Exchange Composite Tape for
the date of exercise, or if there are no sales on such date, on the next
preceding day on which there were sales; provided, however, that in the case of
rights that relate to an incentive stock option, the Committee may prescribe, by
rules of general application, such other measure of fair market value as the
Committee may in its discretion determine but not in excess of the maximum
amount that would be permissible under Section 422 of the Code without
disqualifying such option under Section 422.
(g) Upon exercise of a tandem fight, the number of shares subject to
exercise under the related option shall automatically be reduced by the number
of shares represented by the option or portion thereof surrendered.
<PAGE>
(h) A right related to an incentive stock option may only be exercised
if the fair market value of a share of Common Stock on the exercise date exceeds
the option price.
9. Non-Transferability of Options, Rights and Units;
Holding Periods for GPU Officers
Except as may otherwise be provided in the agreement evidencing the
grant of any option, right or unit hereunder, any option, right, or unit granted
under the Plan shall not be transferable by the grantee thereof otherwise than
by will or the laws of descent and distribution; provided, that the designation
of a beneficiary by an employee shall not constitute a transfer; and options and
rights may be exercised during the lifetime of the employee only by the employee
or, unless such exercise would disqualify an option as an incentive stock
option, by the employee's guardian or legal representative.
10. Award and Delivery of Restricted
Shares or Restricted Units
(a) At the time an award of restricted shares or restricted units is
made, the Committee shall establish a period of time (the "Restricted Period")
applicable to such award. Each award of restricted shares or restricted units
may have a different Restricted Period. The Committee may, in its sole
discretion, at the time an award is made, prescribe conditions for the
incremental lapse of restrictions during the Restricted Period and for the lapse
or termination of restrictions upon the satisfaction of other conditions in
addition to or other than the expiration of the Restricted Period with respect
to all or any portion of the restricted shares or restricted units. The
Committee may also, in its sole discretion, shorten or terminate the Restricted
Period, or waive any conditions for the lapse or termination of restrictions
with respect to all or any portion of the restricted shares or restricted units.
Notwithstanding the foregoing, all restrictions shall lapse, and the Restricted
Period shall terminate, with respect to all restricted shares or restricted
units upon the occurrence of an Acceleration Date or at such earlier time as
provided for in Section 11 or Section 12.
(b) (1) Unless such shares are issued as uncertificated shares pursuant
to paragraph (3) below, a stock certificate representing the number of
restricted shares granted to an employee shall be registered in the employee's
name but shall be held in custody by the Corporation or an agent therefor for
the employee's account. The employee shall generally have the rights and
privileges of a shareholder as to such restricted shares, including the right to
vote such restricted shares, except that, subject to the provisions of Section
11 and Section 12, the following restrictions shall apply: (i) the employee
shall not be entitled to delivery of the certificate until the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee; (ii) none of the restricted shares may
be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period and until the satisfaction of any other conditions
prescribed by the Committee at the time of award; and (iii) all of the
restricted shares shall be forfeited and all rights of the employee to such
restricted shares shall terminate without further obligation on the part of the
Corporation unless the employee has remained an employee of the Corporation or
any of its subsidiaries until the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee
at the time of award applicable to such restricted shares. At the discretion of
the Committee, (x) cash and stock dividends with respect to the restricted
shares may be either currently paid or withheld by the Corporation for the
employee's account, and interest may be paid on the amount of cash dividends
withheld at a rate and subject to such terms as determined by the Committee or
(y) the Committee may require that all cash dividends be applied to the purchase
of additional shares of Common Stock, and such purchased shares, together with
any stock dividends related to such restricted shares (such purchased shares and
stock dividends are hereafter referred to as "Additional Restricted Shares")
shall be treated as Additional Shares, subject to forfeiture on the same terms
and conditions as the original grant of the restricted shares to the employee.
(2) The purchase of any such Additional Restricted Shares
shall be made either (i) through the Corporation's Dividend Reinvestment and
Stock Purchase Plan, in which event the price of such shares so purchased
through the reinvestment of dividends shall be as determined in accordance with
the provisions of that plan and no stock certificate representing such
Additional Restricted Shares shall be registered in the employee's name or (ii)
in accordance with such alternative procedure as is determined by the Committee
in which event the price of such purchased shares shall be the closing price of
the Common Stock as reported on the New York Stock Exchange Composite Tape for
the date on which such purchase is made, or if there were no sales on such date,
the next preceding day on which there were sales. In the event that the
Committee shall not require reinvestment, cash or stock dividends so withheld by
the Committee shall not be subject to forfeiture. Upon the forfeiture of any
restricted shares (including any Additional Restricted Shares), such forfeited
shares shall be transferred to the Corporation without further action by the
employee. The employee shall have the same rights and privileges, and be
<PAGE>
subject to the same restrictions, with respect to any shares received pursuant
to Section 13.
(3) Notwithstanding anything herein to the contrary, shares
representing restricted shares or Additional Restricted Shares may be issued as
uncertificated shares.
(c) Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee at the time of
award, or at such earlier time as provided for in Section 11 or Section 12, the
restrictions applicable to the restricted shares (including Additional
Restricted Shares) shall lapse and a stock certificate for the number of
restricted shares (including any Additional Restricted Shares) with respect to
which the restrictions have lapsed shall be delivered, free of all such
restrictions, except any that may be imposed by law, to the employee or the
employee's beneficiary or estate, as the case may be. The Corporation shall not
be required to deliver any fractional share of Common Stock but will pay, in
lieu thereof, the fair market value (determined as of the date the restrictions
lapse) of such fractional share to the employee or the employee's beneficiary or
estate, as the case may be.
No payment will be required from the employee upon the issuance or
delivery of any restricted shares, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld or paid
promptly upon notification of the amount due and prior to or concurrently with
the issuance or delivery of a certificate representing such shares. The
Committee may permit such amount to be paid in shares of Common Stock previously
owned by the employee, or a portion of the shares of Common Stock that otherwise
would be distributed to such employee upon the lapse of the restrictions
applicable to the restricted shares, or a combination of cash and shares of such
Common Stock.
(d) In the case of an award of restricted units, no shares of Common
Stock shall be issued at the time the award is made, and the Corporation shall
not be required to set aside a fund for the payment of any such award.
(e) Subject to subsection (g) below:
(i) Upon the expiration or termination of the Restricted
Period or the occurrence of an Acceleration Date and the satisfaction of any
other conditions prescribed by the Committee or at such earlier time as provided
for in Section 11 or Section 12, the Corporation shall deliver to the employee
or the employee's beneficiary or estate, as the case may be, one
<PAGE>
share of Common Stock for each restricted unit with respect to which the
restrictions have lapsed ("vested unit").
(ii) In addition, if the Committee has not required the deemed
reinvestment of such Dividend Equivalents pursuant to Section 4, at such time
the Corporation shall deliver to the employee cash equal to any Dividend
Equivalents or stock dividends credited with respect to each such vested unit
and, to the extent determined by the Committee, the interest thereupon. However,
if the Committee has required such deemed reinvestment in connection with such
restricted unit, in addition to the stock represented by such vested unit, the
Corporation shall deliver the number of Additional Deemed Shares credited to the
employee with respect to such vested unit.
(iii) Notwithstanding the foregoing, the Committee may, in its
sole discretion, elect to pay cash or part cash and part Common Stock in lieu of
delivering only Common Stock for the vested units and related Additional Deemed
Shares. If a cash payment is made in lieu of delivering Common Stock, the amount
of such cash payment shall be equal to the closing price of the Common Stock as
reported on the New York Stock Exchange Composite Tape for the date on which the
Restricted Period lapsed with respect to such vested unit and related Additional
Deemed Shares, or if there are no sales on such date, on the next preceding day
on which there were sales.
(f) Upon the occurrence of an Acceleration Date, all outstanding vested
units (including restricted units whose restrictions have lapsed as a result of
the occurrence of such Acceleration Date) and credited Dividend Equivalents or
related Additional Deemed Shares shall be payable as soon as practicable after
such Acceleration Date in cash, in shares of Common Stock, or part in cash and
part in Common Stock, as the Committee, in its sole discretion, shall determine.
(i) Subject to subsection (g) below, to the extent that an
employee receives cash in payment for his or her vested units and Additional
Deemed Shares, such employees shall receive an amount equal to the product of
(x) the number of vested units and Additional Deemed Shares credited to such
employee's account for which such employee is receiving payment in cash
multiplied by (y) the highest closing price per share of Common Stock occurring
during the ninety (90) day period preceding and the ninety (90) day period
following the Acceleration Date (the "Multiplication Factor").
(ii) Subject to subsection (g) below, to the extent that an
employee receives Common Stock in payment for his or her vested units and
Additional Deemed Shares, such employee shall
<PAGE>
receive the number of shares of Common Stock determined by dividing (x) the
product of (I) the number of vested units and Additional Deemed Shares credited
to such employee's account for which such employee is receiving payment in
Common Stock multiplied by (II) the Multiplication Factor, by (y) the fair
market value per share of the Common Stock for the day preceding the payment
date, or if there are no sales on such date, on the next preceding day on which
there were sales.
(g) No payment will be required from the employee upon the award of any
restricted units, the crediting or payment of any Dividend Equivalents or
Additional Deemed Shares, or the delivery of Common Stock or the payment of cash
in respect of vested units, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld or paid
promptly upon notification of the amount due. The Committee may permit such
amount to be paid in shares of Common Stock previously owned by the employee, or
a portion of the shares of Common Stock that otherwise would be distributed to
such employee in respect of vested units and Additional Deemed Shares, or a
combination of cash and shares of such Common Stock.
(h) In addition, the Committee shall have the right, in its absolute
discretion, upon or prior to the vesting of any restricted shares (including
Additional Restricted Shares) and restricted units (including Additional Deemed
Shares) to award cash compensation to the employee for the purpose of aiding the
employee in the payment of any and all federal, state and local income taxes
payable as a result of such vesting, if the performance of the Corporation
during the Restricted Period meets such criteria as the Committee shall have
prescribed.
(i) Notwithstanding any other provision in this Section 10 to the
contrary, any payment of cash and/or delivery of any shares of Common Stock
otherwise required to be made hereunder on any date with respect to any
restricted units awarded to an employee, or with respect to any cash
compensation awarded to an employee pursuant to subsection (h) above, may be
deferred, at the employee's election, either under this Plan or under the GPU
Companies Deferred Compensation Plan, to the extent such deferral is permitted
under, and upon such terms and conditions as may be set forth in, the written
agreement between the employee and the Corporation (whether as initially entered
into, or as subsequently amended) evidencing the award of such units, or cash
compensation, to the employee.
11. Termination of Employment
Unless otherwise determined by the Committee, if an employee to whom
restricted shares or restricted units have been granted
<PAGE>
ceases to be an employee of the Corporation or of any of its subsidiaries prior
to the end of the Restricted Period applicable to the shares or units so granted
and prior to the satisfaction of any other conditions prescribed by the
Committee at the time of grant for any reason other than as set forth in Section
12, the employee shall immediately forfeit all restricted shares and restricted
units so granted, including all Additional Restricted Shares or Additional
Deemed Shares related thereto.
Any option, right, restricted share or restricted unit agreement, or
any rules and regulations relating to the Plan, may contain such provisions as
the Committee shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Any such rules and
regulations with reference to any option agreement shall be consistent with the
provisions of the Code and any applicable rules and regulations thereunder.
Nothing in the Plan or in any award granted pursuant to the Plan shall confer
upon any employee any right to continue in the employ of the Corporation or any
of its subsidiaries or interfere in any way with the right of the Corporation or
any such subsidiary to terminate such employment at any time.
12. Eligible Retirement, Death or Total Disability of Employee
(a) If the Committee so determines, the agreement evidencing the grant
of any restricted shares or restricted units to any employee may permit the
restricted shares or restricted units so granted, or any portion of such
restricted shares or restricted units, to become vested upon the employee's
death, Total Disability or Eligible Retirement.
(b) For purposes of this Plan, (i) "Total Disability" shall mean the
permanent inability of an employee, as a result of accident or sickness, to
perform any and every duty pertaining to such employee's occupation or
employment for which the employee is suited by reason of the employee's previous
training, education and experience, and (ii) "Eligible Retirement" shall mean
the date upon which an employee, having attained an age of not less than
fifty-five, terminates his or her employment with the Corporation and all of its
subsidiaries, provided that such employee is immediately eligible to receive a
pension (whether or not he or she otherwise elects to defer such receipt) under
Section 3.1 or 3.3 of the "Employee Pension Plan" maintained by any subsidiary
or subsidiaries of the Corporation for salaried employees, or any successor
thereto.
<PAGE>
13. Adjustments Upon Changes in Capitalization, etc.
Notwithstanding any other provision of the Plan, the Committee may at
any time make or provide for such adjustments to the Plan, to the number and
class of shares available thereunder or to any outstanding options, restricted
shares or restricted units as it shall deem appropriate to prevent dilution or
enlargement of rights, including adjustments in the event of distributions to
holders of Common Stock other than a normal cash dividend, changes in the
outstanding Common Stock by reason of stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, reorganizations, liquidations and the like. In the event of any
offer to holders of Common Stock generally relating to the acquisition of their
shares, the Committee may make such adjustment as it deems equitable in respect
of outstanding options, rights, and restricted units including in the
Committee's discretion revision of outstanding options, rights, and restricted
units so that they may be exercisable for or payable in the consideration
payable in the acquisition transaction. Any such determination by the Committee
shall be conclusive and binding on all parties. No adjustment shall be made in
the minimum number of shares with respect to which an option may be exercised at
any time. Any fractional shares resulting from such adjustments to options,
rights, limited rights, or restricted units shall be eliminated.
14. Effective Date
The Plan as initially adopted became effective as of June 1, 1990. The
Committee may, in its discretion, grant awards under the Plan, the grant,
exercise or payment of which shall be expressly subject to the conditions that
to the extent required at the time of grant, exercise or payment (i) the shares
of Common Stock covered by such awards shall be duly listed, upon official
notice of issuance, upon the New York Stock Exchange, and (ii) if the
Corporation deems it necessary or desirable a Registration Statement under the
Securities Act of 1933 with respect to such shares shall be effective.
15. Termination and Amendment
The Board of Directors of the Corporation may suspend, terminate,
modify or amend the Plan, provided that no amendment or modification to the
penultimate sentence of Section 3(c), to Section 7(c) or to this Section 15, nor
any suspension or termination of the Plan, effectuated (i) at the request of a
third party who has indicated an intention or taken steps to effect a Change in
Control and who effectuates a Change in Control, (ii) within six (6) months
prior to, or otherwise in
<PAGE>
connection with, or in anticipation of, a Change in Control which has been
threatened or proposed and which actually occurs, or (iii) following a Change in
Control, shall be effective if the amendment, modification, suspension or
termination adversely affects the rights of any employee under the Plan. If the
Plan is terminated, the terms of the Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. In
addition, no amendment, modification, suspension or termination of the Plan
shall adversely affect the rights of any employee with respect to any award
(including without limitation any right with respect to the timing and method of
payment of any award) granted to the employee prior to the date of the adoption
of such amendment, modification, suspension or termination without such
employee's written consent.
16. Written Agreements
Each award of options, rights, restricted shares or restricted units
shall be evidenced by a written agreement, executed by the employee and the
Corporation, which shall contain such restrictions, terms and conditions as the
Committee may require.
17. Effect on Other Stock Plans
The adoption of the Plan shall have no effect on awards made or to be
made pursuant to other stock plans covering employees of the Corporation, its
subsidiaries, or any successors thereto.
EXHIBIT 10-BB
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of this day of
, 1998, by and between GPU, Inc. (the "Corporation") and
(the "Recipient"):
WHEREAS, the Corporation maintains the 1990 Stock Plan for Employees of
GPU, Inc. and Subsidiaries (the "Plan") under which the Personnel, Compensation
and Nominating Committee of the Corporation's Board of Directors (the
"Committee") may, among other things, grant options to purchase shares of the
Corporation's common stock to such employees of the Corporation and its
Subsidiaries as the Committee may determine, subject to such terms, conditions
or restrictions as it may deem appropriate;
WHEREAS, pursuant to the Plan, the Committee has granted a stock option
to the Recipient subject to the terms and conditions set forth in this
Agreement; and
WHEREAS, the Plan requires that the grant of a stock option be
evidenced by a written agreement between the Corporation and the Recipient which
contains such restrictions, terms and conditions as the Committee may require;
NOW, THEREFORE, the parties hereto agree as follows:
1. Date of Grant. This Agreement evidences the grant by the Committee
to the Recipient, on , 1998 (the "Date of Grant") of an option (the "Option") to
purchase shares of common stock of the Corporation ("Shares").
2. Purchase Price. The price at which any Shares may be purchased
pursuant to any exercise of this Option shall be $__________ per Share.
3. Exercisability. This Option shall become exercisable in three equal
annual installments, beginning on the first anniversary of the Date of Grant and
continuing each year through the third anniversary of the Date of Grant. Each
annual installment shall include a number of Shares equal to 33-1/3% of
- -----------------
1) Insert amount equal to 100% of per share closing price of GPU shares on the
Date of Grant
<PAGE>
the total number of Shares specified in Section 1 above. As of any date, the
portion of this Option that is then exercisable, and the portion of this Option
that is not yet exercisable as of such date, are referred to herein,
respectively, as the "Exercisable Portion", and the "Non-Exercisable", of this
Option.
4. Option Term. The term of this Option ("Option Term") shall be the
period beginning on the Date of Grant and ending on the 10th anniversary
thereof. Subject to the provisions of Sections 5, 8 and 11 hereof and the
applicable provisions of the Plan, this Option may be exercised at any time
during the Option Term to purchase any part or all of the Shares included in the
Exercisable Portion of the Option at the time of exercise. Unless sooner
terminated, cancelled or forfeited pursuant to Section 5, 8 or 11 hereof and the
applicable provisions of the Plan, this Option shall expire at, and shall cease
to be exercisable after, the end of the Option Term.
5. Exercise in the Event of Termination of Employment. In the event the
Recipient's employment with the Corporation and its subsidiaries should
terminate, this Option may be exercised in accordance with the following
provisions:
(a) If the Recipient's employment terminates as a result of death, the
Non-Exercisable portion of this Option at the date of the Recipient's death
shall become immediately and fully exercisable, and this Option (including the
portion thereof that becomes exercisable upon the Recipient's death) may be
exercised by the Recipient's Beneficiary (as defined in Section 13 below) at any
time or from time to time during the Recipient's Post-Termination Exercise
Period (as defined in Section 5(f) below).
(b) If the Recipient's employment terminates as a result of Total
Disability (as defined in the Plan), the Non-Exercisable Portion of this Option
at the date of the Recipient's termination of employment shall become
immediately and fully exercisable, and this Option (including the portion
thereof that becomes exercisable upon such termination of the Recipient's
employment) may be exercised by the Recipient at any time and from time to time
during the Recipient's Post-Termination Exercise Period. If the Recipient's
employment has terminated as a result of Total Disability and the Recipient
should thereafter die before the end of the Recipient's Post-Termination
Exercise Period, the Exercisable Portion of this Option at the date of the
Recipient's death shall continue to be exercisable by the Recipient's
Beneficiary at any time or from time to time after the date of
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<PAGE>
the Recipient's death until the earlier of the second anniversary of such date
of death or the date on which the Option Term expires.
(c) If the Recipient's employment terminates as a result of Eligible
Retirement (as defined in the Plan), this Option may be exercised (i) with
respect to the Exercisable Portion of the Option, at any time or from time to
time during the Recipient's Post-Termination Exercise Period and (ii) with
respect to the Non-Exercisable Portion of the Option, at any time or from time
to time on or after the date or dates during the Recipient's Post-Termination
Exercise Period on which such portion of the Option becomes exercisable, but
only during such Period. If the Recipient should die prior to the end of the
Recipient's Post-Termination Exercise Period, the Non-Exercisable Portion, if
any, of this Option at the date of the Recipient's death shall become
immediately and fully exercisable, and this Option (including the portion
thereof that becomes exercisable upon the Recipient's death) may be exercised by
the Recipient's Beneficiary at any time or from time to time after the
Recipient's death until the earlier of the second anniversary of such date of
death or the date on which the Option Term expires.
(d) If the Recipient's employment terminates for any reason other than
death, Total Disability or Eligible Retirement, this Option (including the
Exercisable Portion of this Option, to the extent it has not been exercised
prior to the date of such termination of the Recipient's employment) shall be
forfeited and cancelled as of the date of the Recipient's termination of
employment.
(e) Notwithstanding the foregoing, the Committee may, in its sole
discretion, determine that any part or all of the Non-Exercisable Portion of
this Option at the date of the Recipient's termination of employment (and any
part or all of the Exercisable Portion at such date, if the Recipient's
employment terminates for any reason other than death, Total Disability or
Eligible Retirement) shall not be forfeited and cancelled, and may be exercised
by the Recipient (or in the event of the Recipient's death by the Recipient's
Beneficiary) for such period after such date of termination of employment and
prior to the expiration of the Option Term, as the Committee shall specify in
such determination.
(f) For purposes of the foregoing, the Recipient's "Post-Termination
Exercise Period" shall mean the period beginning on the date of the Recipient's
termination of employment and ending (i) on the second anniversary of such date,
if the Recipient's
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<PAGE>
employment has terminated as a result of the Recipient's death, or (ii) on the
first anniversary of such date, if the Recipient's employment has terminated as
a result of Total Disability, or (iii) on the fifth anniversary of such date, if
the Recipient's employment has terminated as a result of Eligible Retirement.
Notwithstanding the foregoing, the Recipient's Post-Termination Exercise Period
shall end no later than the date on which the Option Term expires.
(g) For purposes of this Agreement, the Recipient's employment shall
not be treated as having terminated unless the Recipient is no longer employed
with the Corporation or any "subsidiary" as defined in the Plan.
6. Manner of Exercise. This Option may be exercised by delivery to the
Corporation of a written notice specifying the number of Shares as to which the
Option is being exercised, accompanied by payment in full of the aggregate
purchase price for such Shares. The Option may be exercised only with respect to
a whole number of Shares, and may not be exercised, at any single time, as to
less than 100 Shares or, if less, the total number of Shares as to which the
Option is then exercisable. Any notice hereunder to the Corporation shall be
addressed to it at its office at 300 Madison Avenue, Morristown, New Jersey
07960, Attention: Senior Vice President - Corporate Affairs.
7. Manner of Payment. Payment of the purchase price for Shares
purchased pursuant to any exercise of this Option may be made (a) in cash, (b)
by delivery of certificates, duly endorsed or accompanied by appropriate stock
powers, representing Shares previously owned by the Recipient having an
aggregate fair market value equal to the purchase price, or (c) by a combination
of payment in cash and delivery of certificates for Shares, as provided in (a)
and (b) above, having a combined sum and value equal to the purchase price. For
purposes of the foregoing, the fair market value of any Shares included in the
payment of the purchase price shall be determined on the basis of the per share
closing price of the Corporation's common stock as reported on the New York
Stock Exchange Composite Tape for the date of exercise, or if there were no
sales on such date, for the next preceding day on which there were sales. In
addition, the purchase price may be paid in whole or in part by delivering a
properly executed exercise notice in a form approved by the Committee together
with irrevocable instructions to a broker to promptly deliver to the Corporation
the applicable amount of the proceeds from the sale or loan of securities. The
purchase price
-4-
<PAGE>
may also be paid in such other form or manner as the Committee may from time to
time approve.
8. Change in Control. Notwithstanding any other provision herein to the
contrary, if a Change in Control (as defined in the Plan) occurs at any time
during the Option Term, this Option shall be cancelled upon the occurrence of
the Change in Control. In the event of such cancellation, the Corporation's
obligation in respect of this Option shall be discharged by payment to the
Recipient of a single cash lump sum (reduced by any taxes withheld pursuant to
Section 12) in an amount equal to the excess, if any, of the Determined Value
(as defined in the Plan) of all Shares that are still subject to this Option
(including both the Exercisable Portion and the Non-Exercisable Portion thereof)
as of the date of the occurrence of the Change in Control, over the aggregate
purchase price of such shares. Such amount shall be payable as soon as
practicable following the Change in Control.
9. Tax Status of Option. This Option shall be treated as a
"non-qualified option", as defined in the Plan.
10. Nontransferability. This Option shall be nontransferable and may be
exercised during the Recipient's lifetime only by the Recipient. Notwithstanding
the foregoing, the Recipient may transfer this Option (or any portion thereof)
by gift to a "Permitted Transferee" as defined below, subject to the following:
(i) such transfer shall be permitted only if the Recipient
does not receive any consideration for the transfer;
(ii) such transfer shall not be effective unless and until
the Recipient has furnished the Committee with written notice of the
transfer and copies of all documents evidencing the transfer;
(iii) any portion of this Option that is transferred by the
Recipient to a Permitted Transferee may be exercised by the Permitted
Transferee to the same extent as the Recipient would have been entitled
to exercise it, and shall remain subject to all of the terms and
conditions that would have applied to this Option or portion thereof
under the provisions of this Agreement and the Plan if the Recipient
-5-
<PAGE>
had not transferred the Option or portion thereof to the Permitted
Transferee;
(iv) any portion of this Option that is transferred by the
Recipient to a Permitted Transferee may not be further transferred by
the Permitted Transferee other than by will or the laws of descent and
distribution.
For purposes of the foregoing, a Permitted Transferee shall mean (i) one or more
members of the Recipient's Immediate Family (as hereinafter defined), (ii) a
trust solely for the benefit of the Recipient and/or one or more members of his
[her] Immediate Family, or (iii) a partnership or limited liability company
whose only partners or members are the Recipient and/or one or more members of
his [her] Immediate Family. For this purpose, members of the Recipient's
"Immediate Family" shall include his [her] parents, spouse, children or
grandchildren (including adopted children and grandchildren and step-children
and step-grandchildren).
11. Other Terms and Conditions. This Option is subject to the following
additional terms and conditions:
(a) Notwithstanding any other provisions herein to the contrary, this
Option (including both the Exercisable Portion and the Non-Exercisable Portion
thereof) may be cancelled by the Committee at any time, and upon such
cancellation the Recipient shall cease to have any further right to exercise
this Option, if the Committee determines that the Recipient has been discharged
from employment with the Corporation or any of its subsidiaries for cause.
(b) The Recipient shall not have any rights as a shareholder with
respect to any Shares that are subject to this Option prior to the date as of
which such Shares are issued to the Recipient pursuant to his exercise of this
Option.
(c) The Recipient's rights under this Option shall be subject to all
applicable provisions of the Plan, as in effect from time to time at and after
the Date of Grant.
12. Taxes. The Corporation or any of its subsidiaries may make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state and local taxes required by law to be withheld
with respect to this Option and the exercise thereof including, but not limited
to,
-6-
<PAGE>
(a) deducting the amount so required to be withheld from any other amount then
or thereafter payable to the Recipient, and/or (b) requiring the Recipient or
the Recipient's Permitted Transferee or Beneficiary to pay to the Corporation or
any of its subsidiaries the amount so required to be withheld as a condition of
the issuance, delivery, distribution or release of any Shares. Such payment
shall be made in cash unless, and except to the extent that, the Corporation
permits such payment to be made in Shares.
13. Designation of Beneficiary. The Recipient shall file with the
Committee a written designation of one or more persons (the "Beneficiary") who
shall be entitled to exercise this Option after the Recipient's death, to the
extent such exercise is otherwise permitted hereunder. The Recipient may, from
time to time, revoke or change the Recipient's Beneficiary designation without
the consent of any previously designated Beneficiary by filing a new designation
with the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Recipient's death, and in no event shall it be effective as of a date prior to
such receipt. If at the date of the Recipient's death there is no designation of
a Beneficiary in effect for the Recipient pursuant to the provisions of this
Section 13, or if no Beneficiary designated by the Recipient in accordance with
the provisions hereof survives to exercise this Option, the Recipient's estate
shall be treated as the Recipient's Beneficiary for all purposes.
Notwithstanding any other provision herein to the contrary, if any portion of
this Option is transferred to a Permitted Transferee pursuant to Section 10, the
Permitted Transferee shall be treated, at all times after such transfer, as the
Recipient's Beneficiary with respect to the portion so transferred.
14. Governing Laws. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania applicable to contracts made, and to be enforced,
within the Commonwealth of Pennsylvania.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Corporation and its successors and assigns, and the
Recipient, the Recipient's Beneficiary and the Recipient's estate.
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<PAGE>
16. Entire Agreement. This Agreement contains the entire understanding
of the parties and shall not be modified or amended except in writing and duly
signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date set forth above.
GPU, INC.
By:
Fred D. Hafer
Chairman, President and
Chief Executive Officer
[Print Name of Recipient]
EXHIBIT 10-CC
Performance Units Agreement under
the 1990 Stock Plan for Employees of
GPU, Inc.
and Subsidiaries
1998 AGREEMENT
<PAGE>
AGREEMENT made as of _______________________________, by and between GPU, Inc.
(the "Corporation") and ______________________________ (the "Recipient"):
WHEREAS, the Corporation maintains the 1990 Stock Plan for Employees of GPU,
Inc. and Subsidiaries (the "Plan") under which the Personnel, Compensation and
Nominating Committee of the Corporation's Board of Directors (the "Committee")
may, among other things, award units ("Performance Units") representing rights
to acquire shares of the Corporation's Common Stock, $2.50 par value ("Common
Stock") to such employees of the Corporation and its subsidiaries as the
Committee may determine, subject to such terms, conditions or restrictions as it
may deem appropriate;
WHEREAS, pursuant to the Plan, the Committee has granted to the Recipient an
award of Performance Units subject to the terms and conditions set forth in this
Agreement; and
WHEREAS, the Plan requires that an award of Performance Units be evidenced by a
written agreement between the Corporation and the Recipient that contains such
restrictions, terms and conditions as the Committee may require;
NOW, THEREFORE, the parties hereto agree as follows:
1. AWARD OF PERFORMANCE UNITS; NATURE OF RIGHTS
(a) In accordance with the provisions of the Plan, the
Committee awarded to the Recipient on _________________ (the
"Award Date") __________ Performance Units. Each unit so
awarded, and each additional Performance Unit credited to the
Recipient pursuant to Section 2 (the Performance Units so
awarded and the additional Performance Units so credited are
hereinafter referred to collectively as the Recipient's
"Units"), shall entitle the Recipient, upon the vesting of
such units as provided in Section 3 hereof, to receive one
share of Common Stock, or a cash payment in lieu of such
share, subject to the terms, conditions, and restrictions set
forth herein.
(b) Prior to the issuance, as provided in Section 4 hereof, of
shares of Common Stock with respect to the Recipient's Units,
or with respect to the Recipient's "Deferred Vested Units" as
defined in Section 4(f)(ii) hereof, the Recipient shall not be
entitled to any of the rights of a stockholder of the
Corporation by reason of such Units or Deferred Vested Units.
<PAGE>
(c) Notwithstanding anything in this Agreement to the
contrary, the Recipient shall have the status of a mere
unsecured creditor of the Corporation with respect to his or
her right to receive any payment hereunder; and this Agreement
shall constitute a mere promise by the Corporation to make
payments in the future in accordance with the terms hereof. It
is the intention of the parties hereto that the arrangements
set forth in this Agreement be treated as unfunded for tax
purposes and, if it should be determined that Title I of ERISA
is applicable to such arrangements, for purposes of Title I of
ERISA.
2. ADDITIONAL PERFORMANCE UNITS
(a) As of each date prior to the Vesting Date (as defined in
Section 3(a) below) on which a dividend is paid on the Common
Stock ("Dividend Payment Date"), there shall be credited to
the Recipient hereunder a number of additional Performance
Units determined by multiplying (i) the aggregate number of
Units standing to the Recipient's credit immediately prior to
such Dividend Payment Date, by (ii) the quotient resulting
from dividing (A) the per share amount of the dividend so paid
by (B) the price per share used for the reinvestment of
dividends paid on such Dividend Payment Date under the
provisions of the Corporation's Dividend Reinvestment and
Stock Purchase Plan.
(b) Any additional Performance Units credited to the Recipient
pursuant to this Section 2 shall be subject to the same terms,
conditions and restrictions as are applicable with respect to
the Recipient's initially awarded Performance Units.
3. ADJUSTMENT AND VESTING OF UNITS
(a) For purposes of this Agreement, the Recipient's "Vesting
Date" shall mean the earliest to occur of the following dates:
(i) the fifth anniversary of the Award Date, if the
Recipient's employment with the Corporation or any
subsidiary has not terminated before such anniversary
for any reason other than as a result of the
Recipient's "Eligible Retirement" or "Total
Disability", as defined in the Plan;
2
<PAGE>
(ii) the date as of which the Recipient's employment
with the Corporation or any subsidiary terminates as
a result of the Recipient's death; or
(iii) an "Acceleration Date," as defined in the Plan.
(b) As of the Recipient's Vesting Date, the aggregate number
of Units then standing to the Recipient's credit shall be
adjusted in accordance with the following provisions:
(i) The aggregate number of the Recipient's
Units shall be adjusted by multiplying
such aggregate number by the Performance
Percentage determined pursuant to the
following table:
If the Corporation's TSR The Performance
Percentile Ranking is in the: Percentage shall be:
90th percentile - or above 200%
85th to 89th 175
80th to 84th 160
75th to 79th 145
70th to 74th 130
65th to 69th 120
60th to 64th 110
55th to 59th 100
50th to 54th 90
45th to 49th 75
40th to 44th 50
below 40th 0
For purposes of the foregoing, the Corporation's TSR
Percentile Ranking shall be determined by (A)
ascertaining, for each company (including the
Corporation) included in the Standard & Poor's
Electric Utility Companies Index (the "Index") on the
last day of the Performance Period (as defined
below), such company's average quarterly total
shareholder return ("TSR") for all calendar
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<PAGE>
quarters in the Performance Period, as reported in
the Index; (B) ascertaining the number of such
companies whose average quarterly TSR for the
Performance Period is lower than the Corporation's;
and (C) dividing such number by the total number of
companies included in the Index on such last day. The
"Performance Period" shall mean the period from
January 1, 1998 through December 31, 2002.
(ii) Notwithstanding the foregoing, (A) if the
Recipient's Vesting Date occurs by reason of the
Recipient's death prior to the first day of the
calendar year which includes the fifth anniversary of
the Award Date, the Recipient's Units shall not be
adjusted in the manner described in subparagraph (i)
above; and (B) if the Recipient's Vesting Date occurs
by reason of an Acceleration Date's occurring prior
to such first day, the adjustment with respect to the
Recipient's Units required under subparagraph (i)
above shall be made using 200% as the applicable
Performance Percentage.
(iii) If the Recipient's employment with the
Corporation or any subsidiary terminates prior to the
fifth anniversary of the Award Date as a result of
the Recipient's death, Eligible Retirement or Total
Disability, the number of Units standing to the
Recipient's credit as of the Recipient's Vesting Date
(after taking into account any adjustment required
under subparagraph (i) above) shall be adjusted (or
further adjusted) by multiplying such number of Units
by the Recipient's Service Percentage. The
Recipient's "Service Percentage" shall mean the
percentage determined by dividing by 60 the number of
months in the period beginning on the Award Date and
ending on the date of such termination of the
Recipient's employment; and for this purpose, any
fraction of a month included in such period shall be
treated as a full month. This subparagraph (iii)
shall not apply if the Recipient's Vesting Date
occurs by reason of the occurrence of an Acceleration
Date.
(c) As of the Recipient's Vesting Date, all Units then
standing to the Recipient's credit (after taking into
4
<PAGE>
account any adjustments required under subparagraphs (i), (ii)
and (iii) of paragraph (b) above) shall become vested. If the
number of Units standing to the Recipient's credit immediately
prior to any adjustments made pursuant to subparagraphs (i),
(ii) and (iii) of paragraph (b) above exceed the number of
Units standing to the Recipient's credit after giving effect
to such adjustments, all of the Recipient's rights with
respect to such excess number of Units shall be forfeited as
of the Vesting Date. If the Recipient's employment with the
Corporation or any subsidiary should terminate before the
Recipient's Vesting Date for any reason other than as a result
of the Recipient's Eligible Retirement or Total Disability,
all of the Recipient's rights with respect to any Units
credited to the Recipient hereunder shall be forfeited as of
the date of such termination.
(d) For purposes of this Agreement, (i) the term "subsidiary"
shall have the same meaning as in paragraph 4(a) of the Plan
and (ii) the transfer of a Recipient's employment from one
subsidiary to another shall not be treated as a termination of
the Recipient's employment.
4. PAYMENT FOR VESTED UNITS
(a) Upon the Vesting Date, the Recipient shall become entitled
to receive payment with respect to the Units which have become
vested on such date (such Units are hereafter referred to as
the Recipient's "Vested Units"). Payment shall be made as soon
as practicable after the Vesting Date, in the manner
hereinafter set forth in this Section 4.
(b) Except as otherwise provided in paragraph (c) below,
payment with respect to the Recipient's Vested Units shall be
made by the issuance to the Recipient of shares of Common
Stock. Except as otherwise provided in paragraph (d) (ii)
below, one share of Common Stock shall be issued for each of
the Recipient's Vested Units. The Recipient shall own any
shares of Common Stock so issued (or issued with respect to
the Recipient's Deferred Vested Units) free and clear of any
restrictions and shall be free to hold or dispose of such
shares at will, subject, however, to any restrictions that may
be imposed by law.
5
<PAGE>
(c) The Committee, in its sole discretion, may determine that
payment with respect to any or all of the Recipient's Vested
Units shall be made in cash instead of in shares of Common
Stock, and payment with respect to any fractional part of a
Vested Unit shall be made in cash. Except as otherwise
provided in paragraph (d) (i) below, the amount of the cash
payment to be made with respect to any Vested Unit shall be
equal to (and the amount of the cash payment to be made with
respect to any fractional part of a Vested Unit shall be based
upon) the per share closing price of one share of Common Stock
as reported on the New York Stock Exchange Composite Tape for
the Vesting Date, or if there are no sales of Common Stock on
such date, for the next preceding day on which there were
sales of Common Stock.
(d) Upon the occurrence of an Acceleration Date, the amount
payable with respect to the Recipient's Vested Units
(including any Units that became vested prior to such date but
for which payment hereunder has not been made as of such date,
but not including any Deferred Vested Units as defined in
Section 4(f)(ii) hereof standing to the Recipient's credit on
such date except as otherwise provided in Section 4(g)(iv)
hereof) shall be determined as follows:
(i) To the extent that the payment for any of the
Recipient's Vested Units is to be made in cash, the
amount of cash to be paid for such Vested Units shall
be equal to the product of (A) the number of such
Vested Units, multiplied by (B) the highest closing
price per share of the Common Stock, as reported on
the New York Stock Exchange Composite Tape, occurring
during the 90-day period preceding and the 90-day
period following the Acceleration Date (the
"Multiplication Factor").
(ii) To the extent that payment for any of the
Recipient's Vested Units is to be made in shares of
Common Stock, the number of shares of Common Stock to
be issued with respect to such Vested Units shall be
determined by dividing (A) the product of (y) the
number of such Vested Units multiplied by (z) the
Multiplication Factor, by (B) the per share closing
price of the Common Stock as reported on the New York
Stock Exchange
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<PAGE>
Composite Tape for the day preceding the payment
date, or if there are no sales of Common Stock on
such date, for the next preceding day on which there
were sales of Common Stock.
(e) If the Recipient has died prior to the date on which any
payment is to be made hereunder with respect to the
Recipient's Vested Units or Deferred Vested Units, the payment
otherwise required to be made to the Recipient shall be made
to the Recipient's beneficiary or estate, as the case may be.
(f) Subject to the provisions of paragraph (g) below but
notwithstanding any other provisions of this Section 4 to the
contrary, payment with respect to part or all of the
Recipient's Vested Units shall be deferred, and shall be made
at the time and in the manner hereinafter set forth, if the
Recipient so elects in accordance with the following
provisions:
(i) An election by the Recipient hereunder shall be
made in writing, on a form furnished to the Recipient
for such purpose by the Committee. The form shall be
filed with the Committee at least one year prior to
the Vesting Date.
(ii) In the Recipient's election form, the Recipient
shall specify the number of Vested Units payment with
respect to which the Recipient wishes to defer (the
number of Vested Units payment with respect to which
is deferred pursuant to the Recipient's election
hereunder, and the number of additional units
credited to the Recipient pursuant to subparagraph
(vi) below are hereinafter collectively referred to
as the Recipient's "Deferred Vested Units"); the date
on which payment with respect to the Recipient's
Deferred Vested Units shall be made or commence (the
"Payment Commencement Date") in accordance with
subparagraph (iii) below; and the method by which
payment with respect to the Recipient's Deferred
Vested Units shall be made (the "Payment Method") in
accordance with subparagraph (iv) below.
(iii) The Recipient may select, as the Payment
Commencement Date, the first business day of any of
the following: (A) the third calendar year
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<PAGE>
following the calendar year in which the Vesting Date
occurs, or any later calendar year; (B) the earlier
of (x) any calendar year which the Recipient is
permitted to select under clause (A), or (y) the
calendar year following the later of the Vesting Date
or the date of the termination of the Recipient's
employment with the Corporation or any subsidiary or
the Recipient's Total Disability; or (C) the calendar
year following the later of the Vesting Date or the
date of the termination of the Recipient's employment
with the Corporation or any subsidiary or the
Recipient's Total Disability, or any later calendar
year.
(iv) The Recipient may select, as the Payment Method,
either (A) a single lump sum payment, or (B) payment
in annual installments, over a period of at least
five years, or such greater number of years as the
Recipient specifies in the Recipient's election form.
With each such annual installment, payment shall be
made with respect to a number of the Recipient's
Deferred Vested Units equal to the quotient resulting
from dividing (C) the total number of Deferred Vested
Units standing to the Recipient's credit hereunder on
the applicable payment date, by (D) the number of
installment payments remaining to be made on such
date. Immediately after each annual installment
payment has been made, the number of Deferred Vested
Units standing to the Recipient's credit hereunder
shall be reduced by the number of Deferred Vested
Units with respect to which such payment was made.
(v) Any election made hereunder by the Recipient
shall be irrevocable.
(vi) Until payment has been made with respect to all
of the Recipient's Deferred Vested Units (including
those credited to the Recipient under this
subparagraph), there shall be credited to the
Recipient hereunder, as of each Dividend Payment
Date, a number of additional Deferred Vested Units
determined by multiplying (A) the number of Deferred
Vested Units (including any additional Deferred
Vested Units previously credited to the Recipient
under this subparagraph) standing to the
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<PAGE>
Recipient's credit hereunder on the day immediately
preceding such Dividend Payment Date, by (B) the
quotient referred to in Section 2(a)(ii) hereof.
(vii) Payment with respect to the Recipient's
Deferred Vested Units shall be made in cash, or in
shares of Common Stock, or in any combination of cash
or such shares, as the Committee shall determine in
its sole discretion. To the extent that payment with
respect to any of the Recipient's Deferred Vested
Units is to be made in shares of Common Stock, one
share of Common Stock shall be issued for each such
Deferred Vested Unit. The amount of the cash payment
to be made with respect to any Deferred Vested Units
shall be equal to (and with respect to any fractional
part of a Deferred Vested Unit, shall be based upon)
the per share closing price of one share of Common
Stock as reported on the New York Stock Exchange
Composite Tape for the last business day immediately
preceding the date on which such cash payment is to
be made.
(viii) A deferral election otherwise permitted to be
made hereunder shall be subject to the following
limitations:
(A) If the Recipient's Vesting Date should
occur within one year following the date on
which the Recipient's election form is filed
with the Committee, or if the Vesting Date
occurs more than one year from such date but
occurs as a result of the occurrence of an
Acceleration Date, the Recipient's deferral
election shall not be given effect, and
payment with respect to the Recipient's
Vested Units shall be made in accordance
with the other applicable provisions of this
Section 4.
(B) No deferral election shall be effective
hereunder if at any time during the 12-month
period ending on the Vesting Date, the
Recipient received a hardship withdrawal
under Section 7.2(e) of the GPU Companies
Employee Savings Plan for Nonbargaining
Employees.
9
<PAGE>
(C) No amount may be deferred with respect
to the Recipient's Vested Units pursuant to
the Recipient's deferral election hereunder
to the extent that any tax is required to be
withheld with respect to such amount
pursuant to applicable federal, state or
local law.
(ix) Notwithstanding any other provision in this
paragraph (f) to the contrary, to the extent the
Committee in its sole discretion so determines,
payment with respect to any part or all of the
Recipient's Deferred Vested Units may be made to the
Recipient or to the Recipient's beneficiary or
estate, on any date earlier than the date on which
such payment is to be made pursuant to the
Recipient's election hereunder, in the following
circumstances: (A) in the event of the Recipient's
death prior to the Payment Commencement Date
specified in the Recipient's election hereunder; (B)
in the event the Recipient becomes entitled to
receive payments under the Long-Term Disability Plan
or Employee Pension Plan of any GPU Company as a
result of incurring a Total Disability; and (C) in
the event the Recipient requests such early payment
and the Committee, in its sole discretion, determines
that such early payment is necessary to help the
Recipient meet some severe financial need arising
from circumstances which were beyond the Recipient's
control and which were not foreseen by the Recipient
at the time of the Recipient's election hereunder.
(g) Notwithstanding any provision in paragraph (f) above
to the contrary or any other election made by the
Recipient under paragraph (f), the Recipient may make
a special election under this paragraph (g) regarding
payment with respect to his or her Deferred Vested
Units in the event a "Change in Control", as defined
in the Plan, should occur.
(i) The Recipient may elect under this
subparagraph (i) to have payment with respect to all
of his or her Deferred Vested Units made in the
form of a single lump sum payment upon the occurrence
of a Change in Control prior to the Recipient's
termination of employment. Such
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<PAGE>
payment shall be made as soon as practicable after
the date on which such Change in Control occurs.
(ii) The Recipient may elect under this subparagraph
(ii) to have payment with respect to all of his or
her Deferred Vested Units made in the form of a
single lump sum payment in the event of the
Recipient's termination of employment for any reason
within the two-year period following a Change in
Control. Such payment shall be made by no later than
30 days after the date of the Participant's
termination of employment.
(iii) Under this subparagraph (iii) a Recipient may
elect, in the event a Change in Control occurs after
the Participant's termination of employment but
before all payments with respect to his or her
Deferred Vested Units have been made pursuant to the
Participant's election under Section 4(f), to have
payment with respect to all of the Deferred Vested
Units that are still standing to the Recipient's
credit hereunder at the time of such Change in
Control made in the form of a single lump sum
payment. Such payment shall be made as soon as
practicable after the date on which such Change of
Control occurs.
(iv) Payment with respect to the Recipient's Deferred
Vested Units pursuant to an election made by the
Recipient under subparagraph (i), (ii) or (iii) above
shall be made in the manner provided in Section
4(f)(vii); provided, however, that if payment is to
be made pursuant to the Recipient's election under
subparagraph (i) or (iii), the second and third
sentences of Section 4(f)(vii) shall not apply, and
the amount of cash payable and/or the number of
shares of Common Stock to be issued with respect to
the Recipient's Deferred Vested Units shall be
determined in accordance with the provisions of
Section 4(d)(i) and (ii).
(v) An election under subparagraph (i) shall be
effective only if it is made at least one year prior
to the Change in Control referred to in subparagraph
(i). An election under subparagraph (ii) shall be
effective only if it is made either (A) at least
twenty-four (24) months prior to the Recipient's
termination of employment, or (B) if
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<PAGE>
such termination of employment constitutes an
"Involuntary Termination", as defined in subparagraph
(vi) below, at least one year prior to the Change in
Control referred to in subparagraph (ii). An election
under subparagraph (iii) shall be effective only if
it is made prior to the Recipient's termination of
employment and at least one year prior to the
occurrence of the Change in Control referred to in
subparagraph (iii). Any special election made under
subparagraphs (i), (ii) or (iii) may be revoked, and
a new special election may be made thereunder, at any
time; provided, however, that any such revocation or
new election shall be effective only if it is made
within the applicable election period specified
herein. Any special election, or revocation of a
special election, that may be made under
subparagraphs (i), (ii) or (iii) shall be made in the
manner set forth in the first sentence of Section
4(f)(i). Any special election made by the Recipient
under subparagraph (i), (ii) or (iii) shall be
effective only if, at the date as of which payment is
to be made pursuant to such election, there is in
effect for the Recipient a special election under the
comparable provision of each other Performance Units
Agreement and Restricted Units Agreement between the
Recipient and GPU, Inc. in effect on such date.
(vi) For purposes of this paragraph (g), "Involuntary
Termination" shall mean the termination of
Recipient's employment (A) as a result of the
Recipient's death, (B) by the Corporation or any
subsidiary, for any reason, or (C) by the Recipient
for "Good Reason". For purposes of the foregoing,
"Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or
conditions:
(1) a change in the Recipient's status,
title, position or responsibilities
(including reporting responsibilities)
which, in the Recipient's reasonable
judgment, represents an adverse change from
his or her status, title, position or
responsibilities as in effect immediately
prior thereto; the assignment to the
Recipient of any duties or responsibilities
which, in the Recipient's
12
<PAGE>
reasonable judgment, are inconsistent with
his or her status, title, position or
responsibilities; or any removal of the
Recipient from or failure to reappoint or
reelect him or her to any of such offices or
positions, other than in connection with the
termination of his or her employment for
disability, for cause, or by the Recipient
other than for Good Reason;
(2) a reduction in the rate of the
Recipient's annual base salary;
(3) the relocation of the offices at which
the Recipient is principally employed to a
location more than twenty-five (25) miles
from the location of such offices
immediately prior to such relocation, or the
Recipient being required to be based
anywhere other than at such offices, except
to the extent the Recipient was not
previously assigned to a principal place of
duty and except for required travel on
business of the Corporation or any
subsidiary to an extent substantially
consistent with the Recipient's previous
business travel obligations;
(4) the failure by the Corporation or any
subsidiary to pay to the Recipient any
amount of the Recipient's current
compensation, or any amount payable under
this Agreement, within seven (7) days of the
date on which payment of such amount is due;
or
(5) the failure by the Corporation or any
subsidiary (x) to continue in effect
(without reduction in benefit level, and/or
reward opportunities) any material
compensation or employee benefit plan in
which the Recipient was participating
immediately prior to such failure by the
Corporation or any subsidiary unless a
substitute or replacement plan has been
implemented which provides substantially
identical compensation or benefits to the
Recipient or (y) to continue to provide the
Recipient with compensation and benefits, in
the aggregate, at least equal (in terms of
benefit levels and/or reward opportunities)
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<PAGE>
to those provided for under all other
compensation or employee benefit plans,
programs and practices in which the
Recipient was participating immediately
prior to such failure by the Corporation or
any subsidiary.
Any event or condition described in clauses (1) through (5)
above which occurs (A) within twelve (12) months prior to a
Change in Control or (B) prior to a Change in Control but
which you reasonably demonstrate (x) was at the request of a
third party who has indicted an intention or taken steps
reasonably calculated to effect a Change in Control and who
effectuates a Change in Control or (y) otherwise arose in
connection with, or in anticipation of a Change in Control
which has been threatened or proposed, shall constitute Good
Reason for purposes of this Agreement notwithstanding that it
occurred prior to a Change in Control.
5. WITHHOLDING TAXES
In connection with the issuance of any Common Stock or the
making of any cash payment in accordance with the provisions
of this Agreement, the Corporation shall withhold the taxes
then required by applicable federal, state and local law to be
so withheld. In lieu thereof, the Corporation may require the
Recipient (or, in the event of the Recipient's death, the
Recipient's beneficiary or estate) to pay to the Corporation
an amount equal to the amount of taxes so required to be
withheld. Such payment to the Corporation shall be made in
cash, in shares of Common Stock with a market value equal to
such withholding obligation, or in any combination thereof, as
determined by the Committee.
6. ADMINISTRATION
(a) The Committee shall have full authority and sole
discretion (subject only to the express provisions of the
Plan) to decide all matters relating to the administration and
interpretation of the Plan and this Agreement. All such
Committee determinations shall be final, conclusive, and
binding upon the Corporation, the Recipient, the Recipient's
estate and any and all other interested parties.
Notwithstanding the foregoing, any determination made by the
Committee after the occurrence of a "Change in Control" (as
defined in the Plan) shall be subject to judicial
14
<PAGE>
review under a "de novo" rather than a deferential standard.
The Recipient hereby acknowledges receipt of the Corporation's
Prospectus which includes the text of the Plan.
(b) This Agreement shall be subject to the terms of the Plan,
and in the case of any inconsistency between the Plan and this
Agreement, the provisions of the Plan shall govern.
7. NONASSIGNABILITY
The Recipient's rights to payments under this Agreement shall
not be subject in any manner to anticipation, alienation,
sale, transfer (other than transfer by will or by the laws of
descent and distribution), assignment, pledge, encumbrance,
attachment or garnishment by the Recipient's creditors or the
creditors of the Recipient's spouse or any other beneficiary.
8. RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan or this Agreement shall confer on the
Recipient any right to continue as an employee of the
Corporation or any subsidiary or in any way affect the
Corporation or any subsidiary's right to terminate the
Recipient's employment at any time.
9. FORCE AND EFFECT
The various provisions of this Agreement are severable in
their entirety. Any determination of invalidity or
unenforceability of any one provision shall have no effect on
the continuing force and effect of the remaining provisions.
10. PREVAILING LAWS
This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania applicable to contracts made, and
to be enforced, within the Commonwealth of Pennsylvania.
11. SUCCESSORS
This Agreement shall be binding upon and inure to the benefit
of the successors, assigns and heirs of the respective
parties.
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<PAGE>
12. NOTICE
Any notice to the Corporation hereunder shall be in writing
addressed to:
Senior Vice President - Corporate Affairs
GPU Service, Inc.
300 Madison Avenue
Morristown, NJ 07962
Any notice to the Recipient hereunder shall be in writing
addressed to:
-------------------------------------------------
-------------------------------------------------
or such other address as the Recipient shall specify to the
Corporation in writing.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the
parties and shall not be modified or amended except in writing
and duly signed by each of the parties hereto. No waiver by
either party of any default under this Agreement shall be
deemed a waiver of any later default set forth above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date set forth above.
GPU, INC.
By:________________________________
Fred D. Hafer
Chairman, President and Chief
Executive Officer
-----------------------------------
(Recipient)
EXHIBIT 10-KK
PRIVILEGED AND CONFIDENTIAL
EXECUTION COPY
HOMER CITY ELECTRIC GENERATING STATION
ASSET PURCHASE AGREEMENT
BY AND AMONG
Pennsylvania electric Company, NGE GENERATION, INC., and NEW YORK
STATE ELECTRIC & GAS CORPORATION as SELLERS,
MISSION ENERGY WESTSIDE, INC., as BUYER
Dated as of August 1, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Definitions 1
1.2 Certain Interpretive Matters 13
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets 13
2.2 Excluded Assets 15
2.3 Assumed Liabilities 16
2.4 Excluded Liabilities 18
2.5 Control of Litigation 20
ARTICLE III
THE CLOSING
3.1 Closing 20
3.2 Payment of Purchase Price 20
3.3 Adjustment to Purchase Price 21
3.4 Allocation of Purchase Price 22
3.5 Prorations 23
3.6 Deliveries by Sellers 24
3.7 Deliveries by Buyer 25
3.8 Ancillary Agreements 26
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
4.1 Incorporation; Qualification 26
4.2 Authority Relative to this Agreement 26
4.3 Consents and Approvals; No Violation 26
4.4 Insurance 27
4.5 Title and Related Matters 27
4.6 Real Property Leases 28
4.7 Environmental Matters 28
4.8 Labor Matters 29
4.9 Benefit Plans: ERISA 29
<PAGE>
4.10 Real Property 30
4.11 Condemnation 30
4.12 Contracts and Leases 30
4.13 Legal Proceedings, etc. 31
4.14 Permits 31
4.15 Taxes 31
4.16 Intellectual Property 32
4.17 Capital Expenditures 32
4.18 Compliance with Laws 32
4.19 Disclaimers Regarding Purchased Assets 32
4.20 Transmission 33
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization 34
5.2 Authority Relative to this Agreement 34
5.3 Consents and Approvals; No Violation 34
5.4 Availability of Funds 35
5.5 Financial Representations 35
5.6 Legal Proceedings 35
5.7 No Knowledge of Sellers' Breach 35
5.8 Qualified Buyer 36
5.9 Inspections 36
5.10 WARN Act 36
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased
Assets 36
6.2 Access to Information 38
6.3 Public Statements 41
6.4 Expenses 41
6.5 Further Assurances 41
6.6 Consents and Approvals 43
6.7 Fees and Commissions 45
6.8 Tax Matters 45
6.9 Advice of Changes 46
6.10 Employees 47
6.11 Risk of Loss 51
6.12 Additional Covenants of Buyer 51
<PAGE>
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer 52
7.2 Conditions to Obligations of Sellers 54
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification 56
8.2 Defense of Claims 59
ARTICLE IX
TERMINATION AND ABANDONMENT
9.1 Termination 62
9.2 Procedure and Effect of No-Default Termination 63
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Several Liability of Each Seller 62
10.2 Amendment and Modification 63
10.3 Waiver of Compliance; Consents 63
10.4 No Survival 63
10.5 Notices 64
10.6 Assignment 65
10.7 Governing Law 65
10.8 Counterparts 66
10.9 Interpretation 66
10.10 Schedules and Exhibits 66
10.11 Entire Agreement 66
10.12 Bulk Sales Laws 66
10.13 U.S. Dollars 66
10.14 Zoning Classification 67
10.15 Sewage Facilities 67
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of August 1, 1998, by and among
Pennsylvania Electric Company, a Pennsylvania corporation ("Penelec"), New York
State Electric & Gas Corporation, a New York corporation ("NYSEG"), NGE
Generation, Inc., a New York corporation ("NGE"), (Penelec, NGE and NYSEG,
collectively, "Sellers"), and Mission Energy Westside, Inc., a California
corporation ("Buyer"). Sellers and Buyer are referred to individually as a
"Party," and collectively as the "Parties."
W I T N E S S E T H
WHEREAS, each of Penelec and NGE owns as tenant-in-common a 50%
undivided interest in the Homer City Electric Generating Station (the
"Facility") located near Indiana, Pennsylvania, and certain facilities and other
assets associated therewith and ancillary thereto; and
WHEREAS, Penelec and NGE have heretofore agreed jointly to divest
themselves of the Facility;
WHEREAS, Buyer, a wholly owned subsidiary of Edison Mission Energy, a
California corporation ("Buyer Parent", and together with Buyer, "Buyer
Entities") desires to purchase and assume, and Penelec and NGE desire to sell
and assign, the Purchased Assets (as defined in Section 2.1 below) and certain
associated liabilities, upon the terms and conditions hereinafter set forth in
this Agreement;
WHEREAS, to induce Sellers to execute this Agreement, Buyer Parent is
executing and delivering a certain Guaranty dated the date hereof ("Guaranty")
in favor of Sellers.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the Parties agree as follows:
ARTICLE
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have
the meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
(2) "Agreement" means this Asset Purchase Agreement together with the
Schedules and Exhibits hereto, as the same may be from time to time amended.
(1)
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(3) "Ancillary Agreements" means the Interconnection Agreement, the
Easement and Attachment Agreement and the Transition Power Purchase Agreements,
as the same may be from time to time amended.
(4) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Sellers and Buyer substantially in the form of
Exhibit A hereto, by which Sellers shall subject to the terms and conditions
hereof, assign the Sellers' Agreements, the Real Property Leases, certain
intangible assets and other Purchased Assets to Buyer and whereby Buyer shall
assume the Assumed Liabilities.
(5) "Assumed Liabilities" has the meaning set forth in Section 2.3.
(6) "Benefit Plans" has the meaning set forth in Section 4.9.
(7) "Bill of Sale" means the Bill of Sale, substantially in the form of
Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible
Personal Property included in the Purchased Assets transferred to Buyer at the
Closing.
(8) "Buyer Material Adverse Effect" has the meaning set forth in
Section 5.3(a).
(9) "Business Day" shall mean any day other than Saturday, Sunday and
any day on which banking institutions in New York State or the Commonwealth of
Pennsylvania are authorized by law or other governmental action to close.
(10)"Buyer Benefit Plans" has the meaning set forth in Section
6.10(f).
(11)"Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
(12)"Buyer Required Regulatory Approvals" has the meaning set forth in
Section 5.3(b).
(13)"Capital Expenditures" has the meaning set forth in Section
3.3(a).
(14)"CERCLA" means the Federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
(15)"Closing" has the meaning set forth in Section 3.1.
(16)"Closing Adjustment" has the meaning set forth in Section 3.3(b).
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(17) "Closing Date" has the meaning set forth in Section 3.1.
(18) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
(19) "Code" means the Internal Revenue Code of 1986, as amended.
(20) "Commercially Reasonable Efforts" means efforts which are
reasonably within the contemplation of the Parties at the time of executing this
Agreement and which do not require the performing Party to expend any funds
other than expenditures which are customary and reasonable in transactions of
the kind and nature contemplated by this Agreement in order for the performing
Party to satisfy its obligations hereunder.
(21) "Confidentiality Agreement" means the Confidentiality Agreement,
dated April 1, 1998, by and among Sellers and Buyer Parent.
(22) "Direct Claim" has the meaning set forth in Section 8.2(c).
(23) "Easements" means, with respect to the Purchased Assets, the
easements and access rights to be granted by Buyer to Penelec and NYSEG pursuant
to the Easement and Attachment Agreement, including, without limitation,
easements authorizing access, use, maintenance, construction, repair,
replacement and other activities by Penelec and NYSEG, as further described in
the Easement and Attachment Agreement.
(24) "Easement and Attachment Agreement" means the Easement, License
and Attachment Agreement between Buyer, Penelec and NYSEG, in the form of
Exhibit C hereto, executed on the date hereof, whereby Buyer will provide
Penelec and NYSEG with Easements with respect to the Real Property transferred
to Buyer and whereby Penelec and NYSEG will provide Buyer with certain
attachment rights with respect to certain real property owned by Penelec and
NYSEG.
(25) "Emission Allowance" means all present and future authorizations
to emit specified units of pollutants or Hazardous Substances, which units are
established by the Governmental Authority with jurisdiction over the Plant under
(i) an air pollution control and emission reduction program designed to mitigate
global warming, interstate or intra-state transport of air pollutants; (ii) a
program designed to mitigate impairment of surface waters, watersheds, or
groundwater; or (iii) any pollution reduction program with a similar purpose.
Allowances include allowances, as described above, regardless as to whether the
Governmental Authority establishing such Allowances designates such allowances
by a name other than "allowances."
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(26) "Emission Reduction Credits" means credits, in units that are
established by the Governmental Authority with jurisdiction over the Plant that
has obtained the credits, resulting from reductions in the emissions of air
pollutants from an emitting source or facility (including, without limitation,
and to the extent allowable under applicable law, reductions from shut-downs or
control of emissions beyond that required by applicable law) that: (i) have been
identified by the PaDEP as complying with applicable Pennsylvania law governing
the establishment of such credits (including, without limitation, that such
emissions reductions are enforceable, permanent, quantifiable and surplus) and
listed in the Emissions Reduction Credit Registry maintained by the PaDEP or
with respect to which such identification and listing are pending; or (ii) have
been certified by any other applicable Governmental Authority as complying with
the law and regulations governing the establishment of such credits (including,
without limitation, certification that such emissions reductions are
enforceable, permanent, quantifiable and surplus). The term includes Emission
Reduction Credits that have been approved by the PaDEP and are awaiting USEPA
approval. The term also includes certified air emissions reductions, as
described above, regardless as to whether the Governmental Authority certifying
such reductions designates such certified air emissions reductions by a name
other than "emission reduction credits."
(27) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, conservation easements, deed restrictions, encumbrances and charges
of any kind.
(28) "Environmental Claim" means any and all pending and/or threatened
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violations, investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or civil, pursuant
to or relating to any applicable Environmental Law by any person (including, but
not limited to, any Governmental Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (a)
violation of, or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs, cleanup costs,
removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or threatened Release into
the environment of any Hazardous Substances at any location related to the
Purchased Assets, including, but not limited to, any off-Site location to which
Hazardous Substances, or materials containing Hazardous Substances, were sent
for handling, storage, treatment, or disposal.
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(29) "Environmental Condition" means the presence or Release to the
environment, whether at the Site or at an off-Site location, of Hazardous
Substances, including any migration of those Hazardous Substances through air,
soil or groundwater to or from the Site or any off-Site location regardless of
when such presence or Release occurred or is discovered.
(30) "Environmental Laws" means all Federal, state and local,
provincial and foreign, civil and criminal laws, regulations, rules, ordinances,
codes, decrees, judgments, directives, or judicial or administrative orders
relating to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section
2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S.
Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S.
Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section
691.1 et seq. ) and all other state laws analogous to any of the above.
(31) "Environmental Permits" has the meaning set forth in Section
4.7(a).
(32) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(33) "ERISA Affiliate" has the meaning set forth in Section 2.4(j).
(34) "ERISA Affiliate Plans" has the meaning set forth in Section
2.4(j).
(35) "Estimated Adjustment" has the meaning set forth in Section
3.3(b).
(36) "Estimated Closing Statement" has the meaning set forth in Section
3.3(b).
(37) "Excluded Assets" has the meaning set forth in Section 2.2.
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(38) "Excluded Liabilities" has the meaning set forth in Section 2.4.
(39) "Facilities Act" has the meaning set forth in Section 10.15.
(40)"FERC" means the Federal Energy Regulatory Commission or any
successor agency thereto.
(41) "FIRPTA Affidavit" means the Foreign Investment in Real Property
Tax Act Certification and Affidavit, substantially in the form of Exhibit D
hereto.
(42) "Genco" means GPU Generation, Inc., a Pennsylvania corporation and
wholly-owned subsidiary of GPU.
(43) "Good Utility Practices" mean any of the practices, methods and
acts engaged in or approved by a significant portion of the electric utility
industry during the relevant time period, or any of the practices, methods or
acts which, in the exercise of reasonable judgment in light of the facts known
at the time the decision was made, could have been expected to accomplish the
desired result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not intended to
be limited to the optimum practices, methods or acts to the exclusion of all
others, but rather to be acceptable practices, methods or acts generally
accepted in the industry.
(44) "Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating body or
other governmental authority.
(45) "GPU" means GPU, Inc., a Pennsylvania corporation and parent
company of Penelec.
(46) "Hazardous Substances" means (a) any petrochemical or petroleum
products, oil or coal ash, radioactive materials, radon gas, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may contain
levels of polychlorinated biphenyls; (b) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "hazardous constituents," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
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(47) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
(48) "IBEW" means Local 459 of the International Brotherhood of
Electrical Workers.
(49) "IBEW Collective Bargaining Agreement" has the meaning set forth
in Section 6.10(d).
(50) "Income Tax" means any federal, state, local or foreign Tax (a)
based upon, measured by or calculated with respect to net income, profits or
receipts (including, without limitation, capital gains Taxes and minimum Taxes)
or (b) based upon, measured by or calculated with respect to multiple bases
(including, without limitation, corporate franchise taxes) if one or more of the
bases on which such Tax may be based, measured by or calculated with respect to,
is described in clause (a), in each case together with any interest, penalties,
or additions to such Tax.
(51) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(52) "Indemnifying Party" has the meaning set forth in Section 8.1(e).
(53) "Indemnitee" has the meaning set forth in Section 8.1(d).
(54) "Independent Accounting Firm" means such independent accounting
firm of national reputation as is mutually appointed by Sellers and Buyer.
(55) "Inspection" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
(56) "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, inventions, copyrights and copyright rights
owned by the Sellers and necessary for the operation and maintenance of the
Purchased Assets, and all pending applications for registrations of patents,
trademarks, and copyrights, as set forth as part of Schedule 2.1(l)
(57) "Interconnection Agreement" means the Interconnection Agreement,
between Penelec, NYSEG and Buyer, in the form of Exhibit E hereto, executed on
the date hereof, under which Penelec and NYSEG will provide Buyer with
interconnection service to certain of their respective transmission facilities
and whereby Buyer will provide Penelec and NYSEG with continuing access to
certain of the Purchased Assets after the Closing Date.
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(58) "Inventories" means coal, fuel oil or alternative fuel
inventories, limestone, materials, spare parts, consumable supplies and chemical
and gas inventories relating to the operation of the Plant located at, or in
transit to, the Plant.
(59) "Knowledge" means the actual knowledge of the corporate officers
or managerial representatives of the specified Person charged with
responsibility for the particular function as of the date of the this Agreement,
or, with respect to any certificate delivered pursuant to this Agreement, the
date of delivery of the certificate.
(60) "Material Adverse Effect" means any change in, or effect on the
Purchased Assets that is materially adverse to the operations or condition
(financial or otherwise) of the Purchased Assets, taken as a whole, other than:
(a) any change affecting the international, national, regional or local electric
industry as a whole and not Sellers specifically and exclusively; (b) any change
or effect resulting from changes in the international, national, regional or
local wholesale or retail markets for electric power; (c) any change or effect
resulting from changes in the international, national, regional or local markets
for any fuel used in connection with the Purchased Assets; (d) any change or
effect resulting from, changes in the North American, national, regional or
local electric transmission systems or operations thereof; (e) any materially
adverse change in or effect on the Purchased Assets which is cured (including by
the payment of money) by the Sellers before the Termination Date; (f) any order
of any court or Governmental Authority or legislature applicable to providers of
generation, transmission or distribution of electricity generally that imposes
restrictions, regulations or other requirements thereon; and (g) any change or
effect resulting from action or inaction by a Governmental Authority with
respect to an independent system operator or retail access in Pennsylvania or
New York.
(61) "Mine Indemnities" means the indemnification agreements included
in (x) the Termination Agreement, dated as of February 11, 1993, among NYSEG,
Penelec, The Helen Mining Company, The Valley Camp Coal Company and Quaker State
Corporation and (y) Amendment No. 5 to the Coal Sales Agreement, dated November
22, 1994, among NYSEG, Penelec, Helvetia Coal Company and Rochester & Pittsburgh
Coal Company.
(62) "Mines" means the Helen and Helvetia coal mines and associated
facilities which are located on the Real Property.
(63) "Non-Union Employees" has the meaning as set forth in Section
6.10(b).
(64) "NYDEC" means the New York Department of Environmental
Conservation and any successor agency thereto.
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(65) "NYPSC" means the Public Service Commission of the State of
New York and any successor agency thereto.
(66) "PaPUC" means the Pennsylvania Public Utility Commission and any
successor agency thereto.
(67) "PaDEP" means the Pennsylvania Department of Environmental
Protection and any successor agency thereto.
(68) "Permits" has the meaning set forth in Section 4.14.
(69) "Permitted Encumbrances" means: (i) the Easements; (ii) those
exceptions to title to the Purchased Assets listed in Schedule 4.5 and those
Encumbrances set forth in Schedule 1.1(69); (iii) statutory liens for Taxes or
other governmental charges or assessments not yet due or delinquent or the
validity of which is being contested in good faith by appropriate proceedings
provided that the aggregate amount being so contested does not exceed $500,000;
(iv) mechanics', carriers', workers', repairers' and other similar liens arising
or incurred in the ordinary course of business relating to obligations as to
which there is no default on the part of the Sellers or the validity of which
are being contested in good faith, and which do not, individually or in the
aggregate, exceed $500,000; (v) zoning, entitlement, conservation restriction
and other land use and environmental regulations by Governmental Authorities;
and (vi) such other liens, imperfections in or failure of title, charges,
easements, restrictions and Encumbrances which do not materially, individually
or in the aggregate, detract from the value of the Purchased Assets as currently
used or materially interfere with the present use of the Purchased Assets and
neither secure indebtedness, nor individually or in the aggregate create a
Material Adverse Effect.
(70) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, or
governmental entity or any department or agency thereof.
(71) "Plant" means the three-unit coal-fired generating station and
related assets as more fully identified on Schedule
2.1 attached hereto.
(72) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).
(73) "Post-Closing Statement" has the meaning set forth in Section
3.3(c).
(74) "Proposed Post-Closing Adjustment" has the meaning set forth in
Section 3.3(c).
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(75) "Proprietary Information" of a Party means all information about
the Party or its Affiliates, including their respective properties or
operations, furnished to the other Party or its Representatives by the Party or
its Representatives, after the date hereof, regardless of the manner or medium
in which it is furnished. Proprietary Information does not include information
that: (a) is or becomes generally available to the public, other than as a
result of a disclosure by the other Party or its Representatives; (b) was
available to the other Party on a nonconfidential basis prior to its disclosure
by the Party or its Representatives; (c) becomes available to the other Party on
a nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality agreement with
the Party or its Representatives, or is not otherwise under any obligation to
the Party or any of its Representatives not to transmit the information to the
other Party or its Representatives; (d) is independently developed by the other
Party; or (e) was disclosed pursuant to the Confidentiality Agreement and
remains subject to the terms and conditions of the Confidentiality Agreement.
(76) "Purchased Assets" has the meaning set forth in Section 2.1.
(77) "Purchase Price" has the meaning set forth in Section 3.2.
(78) "Qualifying Offer" has the meaning set forth in Section 6.10(b).
(79) "Real Property" has the meaning set forth in Section 2.1(a).
(80) "Real Property Leases" has the meaning set forth in Section 4.6.
(81) "Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(82) "Remediation" means action of any kind to address a Release or the
presence of Hazardous Substances at the Site or an off-Site location including,
without limitation, any or all of the following activities to the extent they
relate to or arise from the presence of a Hazardous Substance at the Site or an
off-Site location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or restoration work; (b)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such activity; (c) preparing and implementing
any plans or studies for any such activity; (d) obtaining a written notice from
a Governmental Authority with jurisdiction over the Site or an off-Site location
under Environmental Laws that no material additional work is required by such
Governmental
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Authority; (e) the use, implementation, application, installation, operation or
maintenance of removal actions on the Site or an off-Site location, remedial
technologies applied to the surface or subsurface soils, excavation and off-Site
treatment or disposal of soils, systems for long term treatment of surface water
or ground water, engineering controls or institutional controls; and (f) any
other activities reasonably determined by a Party to be necessary or appropriate
or required under Environmental Laws to address the presence or Release of
Hazardous Substances at the Site or an off-Site location.
(83) "Replacement Welfare Plans" has the meaning set forth in Section
6.10(e)
(84) "Representatives" of a Party means the Party's Affiliates and
their directors, officers, employees, agents, partners, advisors (including,
without limitation, accountants, counsel, environmental consultants, financial
advisors and other authorized representatives) and parents and other controlling
persons.
(85) "SEC" means the Securities and Exchange Commission and any
successor agency thereto.
(86) "Sellers' Agreements" means those contracts, agreements, licenses
and leases relating to the ownership, operation and maintenance of the Plant and
being assigned to Buyer as part of the Purchased Assets, including without
limitation the IBEW Collective Bargaining Agreement.
(87) "Sellers' Indemnitee" has the meaning set forth in Section 8.1(a).
(88) "Sellers' Required Regulatory Approvals" has the meaning set forth
in Section 4.3(b).
(89) "Site" means the Real Property (including improvements) forming a
part of, or used or usable in connection with the operation of, the Plant,
including any disposal sites included in Real Property. Any reference to the
Site shall include, by definition, the surface and subsurface elements,
including the soils and groundwater present at the Site, and any reference to
items "at the Site" shall include all items "at, on, in, upon, over, across,
under and within" the Site.
(90) "Subsidiary" when used in reference to any Person means any entity
of which outstanding securities having ordinary voting power to elect a majority
of the Board of Directors or other Persons performing similar functions of such
entity are owned directly or indirectly by such Person.
(91) Reserved.
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(92) "Tangible Personal Property" has the meaning set forth in Section
2.1(c).
(93) "Taxes" means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, social security, gross receipts, license,
stamp, occupation, employment or other taxes, including any interest, penalties
or additions attributable thereto.
(94) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document (including any schedule or
related or supporting information) required to be supplied to any taxing
authority with respect to Taxes including amendments thereto.
(95) "Termination Date" has the meaning set forth in Section 9.1(b).
(96) "Third Party Claim" has the meaning set forth in Section 8.2(a).
(97) "Transferable Permits" means those Permits and Environmental
Permits which may be transferred to Buyer without a filing with, notice to,
consent or approval of any Governmental Authority, and are set forth in Schedule
1.1 (97).
(98) "Transferred Employees" means Transferred Non-Union Employees and
Transferred Union Employees.
(99) "Transferred Non-Union Employees" has the meaning set forth in
Section 6.10(b).
(100) "Transferred Union Employees" has the meaning set forth in
Section 6.10(b).
(101) "Transferring Employee Records" means records related to Sellers'
personnel who will become employees of Buyer only to the extent such files
pertain to: (i) skill and development training and biographies, (ii) seniority
histories, (iii) salary and benefit information, (iv) Occupational, Safety and
Health Administration reports, and (v) active medical restriction forms.
(102) "Transition Power Purchase Agreements" means the agreements
between Penelec and Buyer and NYSEG and Buyer, respectively, in the form of
Exhibit G hereto, executed on the date hereof, relating to the sale of installed
capacity to Penelec and NYSEG, respectively, for a specified period of time
following the Closing Date.
(103) "Transmission Assets" has the meaning set forth in Section
2.2(a).
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(104) "USEPA" means the United States Environmental Protection Agency
and any successor agency thereto.
(105)"Year 2000 Compliant" has the meaning set forth in Section 4.19.
"Year 2000 Compliance" has a meaning correlative to the foregoing.
(106) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise required, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date as of which such reference is made.
ARTICLE
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction
of the conditions contained in this Agreement, at the Closing each of Penelec
and NGE will sell, assign, convey, transfer and deliver to Buyer, and Buyer will
purchase, assume and acquire from each such Seller, free and clear of all
Encumbrances (except for Permitted Encumbrances), and subject to Section 2.2,
all of such Seller's right, title and interest in and to all of the assets
constituting, or used in and necessary for generation purposes to the operation
of, the Plant, including without limitation those assets identified in Schedule
2.1 and those assets described below (but excluding the Excluded Assets), each
as in existence on the Closing Date (collectively, "Purchased Assets"):
(a) Those certain parcels of real property (including all
buildings, facilities and other improvements thereon and all appurtenances
thereto) described in Schedule 4.10 (the "Real Property"), but subject to the
Permitted Encumbrances and those exceptions listed in Schedule 4.5 and except as
otherwise constituting part of the Excluded Assets;
(b) All Inventories and Emission Allowances;
(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property located on the Real
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Property on the Closing Date, including, without limitation, the items of
personal property included in Schedule 2.1(c), together with all the personal
property of Sellers used principally in the operation of the Plant and listed in
Schedule 2.1(c), other than property used or primarily usable as part of the
Transmission Assets or otherwise constituting part of the Excluded Assets
(collectively, "Tangible Personal Property");
(d) Subject to the provisions of Section 6.5(c), all Sellers'
Agreements;
(e) Subject to the provisions of Section 6.5(c), all Real
Property Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, documents, blueprints and as
built plans, specifications, procedures and similar items of Sellers relating
specifically to the aforementioned assets and necessary for the operation of the
Plant (subject to the right of Sellers to retain copies of same for their use)
other than such items which are proprietary to third parties and accounting
records;
(h) All Emission Reduction Credits associated with the Plant
and identified in Schedule 2.1(h) that have accrued prior to, or that accrue on
or after, the date of this Agreement but prior to the Closing Date;
(i) All unexpired, transferable warranties and guarantees from
third parties with respect to any item of Real Property or personal property
constituting part of the Purchased Assets, as of the Closing Date;
(j) The name of the Plant. It is expressly understood that
Sellers are not assigning or transferring to Buyer any right to use the name
"Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Genco", "New York State Electric & Gas Corporation", "NYSEG",
"NGE" or "NGE Generation" or any related or similar trade names, trademarks,
service marks, corporate names and logos or any part, derivative or combination
thereof;
(k) All drafts, memoranda, reports, information, technology,
and specifications relating to the Sellers' plans for Year 2000 Compliance;
(l) The Intellectual Property described on Schedule 2.1(l);
and
(m) The substation equipment set forth in Schedule A to the
Interconnection Agreement and designated therein as being transferred to Buyer.
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2.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest in
or to the following specific assets which are associated with the Purchased
Assets, but which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule 2.1(c), the
electrical transmission or distribution facilities (as opposed to generation
facilities) of Sellers or any of their Affiliates located at the Site or forming
part of the Plant (whether or not regarded as a "transmission" or "generation"
asset for regulatory or accounting purposes), including all switchyard
facilities, substation facilities and support equipment, as well as all permits,
contracts and warranties, to the extent they relate to such transmission and
distribution assets (collectively, the "Transmission Assets"), and those certain
assets, facilities and agreements all as identified on Schedule 2.2(a) attached
hereto;
(b) Certain switches and meters in the Plant, gas facilities,
revenue meters and remote testing units, drainage pipes and systems, as
identified in the Easement and Attachment Agreement;
(c) Certificates of deposit, shares of stock, securities,
bonds, debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;
(d) All cash, cash equivalents, bank deposits, accounts and
notes receivable (trade or otherwise), and any income, sales, payroll or other
tax receivables;
(e) The rights of Sellers and their Affiliates to the names
"Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Genco", "New York State Electric & Gas Corporation", "NYSEG",
"NGE" and "NGE Generation" or any related or similar trade names, trademarks,
service marks, corporate names or logos, or any part, derivative or combination
thereof;
(f) All tariffs, agreements and arrangements to which Sellers
are a party for the purchase or sale of electric capacity and/or energy or for
the purchase of transmission or ancillary services;
(g) The rights of Sellers in and to any causes of action
against third parties (including indemnification and contribution) relating to
any Real Property or personal property, Permits, Environmental Permits, Taxes,
Real Property Leases or Sellers' Agreements, if any, including any claims for
refunds,
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prepayments, offsets, recoupment, insurance proceeds, condemnation awards,
judgments and the like, whether received as payment or credit against future
liabilities, relating specifically to the Plant or the Site and relating to any
period prior to the Closing Date except that Buyer shall be deemed to be a third
party beneficiary of the Mine Indemnitees to the extent permitted by such
agreements;
(h) All personnel records of Sellers or their Affiliates
relating to the Transferred Employees other than Transferring Employee Records
or other records, the disclosure of which is required by law, or legal or
regulatory process or subpoena; and
(i) Any and all of Sellers' rights in any contract
representing an intercompany transaction between Sellers and an Affiliate of
Sellers, whether or not such transaction relates to the provision of goods and
services, payment arrangements, intercompany charges or balances, or the like.
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
Sellers the Assignment and Assumption Agreement pursuant to which Buyer shall
assume and agree to discharge when due, without recourse to Sellers, all of the
following liabilities and obligations of Sellers, direct or indirect, known or
unknown, absolute or contingent, which relate to the Purchased Assets, other
than Excluded Liabilities, in accordance with the respective terms and subject
to the respective conditions thereof (collectively, "Assumed Liabilities"):
(a) All liabilities and obligations of Sellers arising on or
after the Closing Date under the Sellers' Agreements, the Real Property Leases,
and the Transferable Permits in accordance with the terms thereof, including,
without limitation, (i) the contracts, licenses, agreements and personal
property leases entered into by Sellers with respect to the Purchased Assets,
whether or not disclosed on Schedule 4.12(a) and (ii) the contracts, licenses,
agreements and personal property leases entered into by Sellers with respect to
the Purchased Assets after the date hereof consistent with the terms of this
Agreement, except in each case to the extent such liabilities and obligations,
but for a breach or default by Sellers, would have been paid, performed or
otherwise discharged on or prior to the Closing Date or to the extent the same
arise out of any such breach or default or out of any event which after the
giving of notice would constitute a default by Sellers;
(b) All liabilities and obligations associated with the
Purchased Assets in respect of Taxes for which Buyer is liable pursuant to
Sections 3.5 or 6.8(a) hereof;
(c) All liabilities and obligations with respect to the
Transferred Employees on and after the Closing Date for which (i) Buyer is
responsible pursuant to Section 6.10 and (ii) the
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grievances and arbitration proceedings arising out of or under the Collective
Bargaining Agreement prior to (as set forth in Schedule 4.8), on or after the
Closing Date;
(d) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with (i) any violation or alleged violation of
Environmental Laws, whether prior to, on or after the Closing Date, with respect
to the ownership or operation of any of the Purchased Assets, including, but not
limited to, the Mines (except to the extent Sellers receive indemnity payments
under the Mine Indemnities); (ii) loss of life, injury to persons or property or
damage to natural resources (whether or not such loss, injury or damage arose or
was made manifest before the Closing Date or arises or becomes manifest on or
after the Closing Date) caused (or allegedly caused) by the presence or Release
of Hazardous Substances at, on, in, under, adjacent to or migrating from the
Purchased Assets prior to, on or after the Closing Date, including, but not
limited to, Hazardous Substances contained in building materials at or adjacent
to the Purchased Assets or in the soil, surface water, sediments, groundwater,
landfill cells, or in other environmental media at or near the Purchased Assets;
and (iii) the Remediation (whether or not such Remediation commenced before the
Closing Date or commences on or after the Closing Date) of Hazardous Substances
that are present or have been Released prior to, on or after the Closing Date
at, on, in, under, adjacent to or migrating from, the Purchased Assets or in the
soil, surface water, sediments, groundwater, landfill cells or in other
environmental media at or adjacent to the Purchased Assets; provided, that
nothing set forth in this subsection 2.3(d) shall require Buyer to assume any
liabilities or obligations that are expressly excluded in Section 2.4 including
without limitation liability for toxic torts as set forth in Section 2.4(i);
provided, further, however, that nothing set forth in this subsection 2.3(d) or
otherwise herein shall require Buyer to assume any obligation for payment of
fines, penalties or costs imposed by a Governmental Authority to the extent such
obligations arise out of or relate to acts or omissions of the Sellers prior to
the Closing that constitute violations of the New Source Performance Standards,
Prevention of Significant Deterioration or New Source Review regulations under
the Clean Air Act.
(e) All liabilities and obligations of Sellers with respect to
the Purchased Assets under the agreements or consent orders set forth on
Schedule 4.7 arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or
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after the Closing Date, except for any Income Taxes attributable to income
received by Sellers.
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to
pay, perform or otherwise discharge the following liabilities or obligations
(the "Excluded Liabilities"):
(a) Any liabilities or obligations of Sellers in respect of
any Excluded Assets or other assets of Sellers which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes
attributable to the ownership, operation or use of Purchased Assets for taxable
periods, or portions thereof, ending before the Closing Date, except for Taxes
for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof;
(c) Any liabilities or obligations of Sellers accruing under
any of the Sellers' Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or
obligations to third parties (including employees) for personal injury or tort,
or similar causes of action arising solely out of the ownership or operation of
the Purchased Assets prior to the Closing Date, other than any liabilities or
obligations which have been assumed by Buyer under Section 2.3(d);
(e) Any fines, penalties or costs imposed by a Governmental
Authority resulting from (i) an investigation, proceeding, request for
information or inspection before or by a Governmental Authority pending prior to
the Closing Date but only regarding acts which occurred prior to the Closing
Date, or (ii) illegal acts, willful misconduct or gross negligence of Sellers
prior to the Closing Date, other than, any such fines, penalties or costs which
have been assumed by Buyer under Section 2.3(d);
(f) Any payment obligations of Sellers for goods delivered or
services rendered prior to the Closing Date, including, but not limited to,
rental payments pursuant to the Real Property Leases and Personal Property
Leases;
(g) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with loss of life, injury to persons or property
or damage to natural resources (whether or not such loss, injury or damage arose
or was made manifest before the Closing Date or arises or becomes manifest on or
after the Closing Date) to the extent caused (or allegedly caused) by the
off-Site disposal, storage, transportation, discharge, Release, or recycling of
Hazardous Substances, or the arrangement for such activities, of Hazardous
Substances, prior to the Closing Date, in connection with the
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ownership or operation of the Purchased Assets, provided that for purposes of
this Section "off-Site" does not include any location to which Hazardous
Substances disposed of or Released at the Purchased Assets have migrated;
(h) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with the investigation and/or Remediation
(whether or not such investigation or Remediation commenced before the Closing
Date or commences on or after the Closing Date) of Hazardous Substances that are
disposed, stored, transported, discharged, Released, recycled, or the
arrangement of such activities, prior to the Closing Date, in connection with
the ownership or operation of the Purchased Assets, at any off-Site location,
provided that for purposes of this Section "off-Site" does not include any
location to which Hazardous Substances disposed of or Released at the Purchased
Assets have migrated;
(i) Third party liability for toxic torts arising as a result
of or in connection with loss of life or injury to persons (whether or not such
loss or injury arose or was made manifest on or after the Closing Date) caused
(or allegedly caused) by the presence or Release of Hazardous Substances at, on,
in, under, adjacent to or migrating from the Purchased Assets prior to the
Closing Date;
(j) Subject to Section 6.10, any liabilities or obligations
relating to any Benefit Plan maintained by the Sellers or any trade or business
(whether or not incorporated) which is or ever has been under common control, or
which is or ever has been treated as a single employer, with a Seller under
Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which a
Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate
Plans"), including any multi-employer plan, maintained by, contributed to, or
obligated to contribute to, at any time, by a Seller or any ERISA Affiliate,
including but not limited to any liability (i) relating to benefits payable
under any Benefit Plans (ii) relating to the Pension Benefit Guaranty
Corporation under Title IV of ERISA; (iii) relating to a multi-employer plan;
(iv) with respect to non-compliance with the notice and benefit continuation
requirements of COBRA; (v) with respect to any noncompliance with ERISA or any
other applicable laws; or (vi) with respect to any suit, proceeding or claim
which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, any
fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan;
(k) Subject to Section 6.10, any liabilities or obligations
relating to the employment or termination of employment, including
discrimination, wrongful discharge, unfair labor practices, or constructive
termination by a Seller of any individual, attributable to any actions or
inactions by the
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Sellers prior to the Closing Date other than such actions or inactions taken at
the written direction of Buyer;
(l) Subject to Section 6.10, any obligations for wages,
overtime, employment taxes, severance pay, transition payments in respect of
compensation or similar benefits accruing or arising prior to the Closing under
any term or provision of any contract, plan, instrument or agreement relating to
any of the Purchased Assets; and
(m) Any liability of a Seller arising out of a breach by a
Seller or any of its Affiliates of any of their respective obligations under
this Agreement or the Ancillary Agreements.
2.5 Control of Litigation. The Parties agree and acknowledge that
Sellers shall be entitled exclusively to control, defend and settle any
litigation, administrative or regulatory proceeding, and any investigation or
Remediation activities (including without limitation any environmental
mitigation or Remediation activities), arising out of or related to any Excluded
Liabilities, and Buyer agrees to cooperate fully in connection therewith.
ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions contained in Article VII of this Agreement, the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment
of the Purchase Price to Sellers, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be held at the offices of Berlack, Israels &
Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time,
or another mutually acceptable time and location, on the date that is fifteen
(15) Business Days following the date on which the last of the conditions
precedent to Closing set forth in Article VII of this Agreement have been either
satisfied or waived by the Party for whose benefit such conditions precedent
exist or such other date as the Parties may mutually agree. The date of Closing
is hereinafter called the "Closing Date." The Closing shall be effective for all
purposes as of 12:01 a.m. on the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing
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an aggregate amount of one billion, eight hundred and one million United States
Dollars(U.S. $1,801,000,000.00) (the "Purchase Price") plus or minus any
adjustments pursuant to the provisions of this Agreement, by wire transfer of
immediately available funds denominated in U.S. dollars or by such other means
as are agreed upon by Sellers and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b),
at the Closing, the Purchase Price shall be adjusted, without duplication, to
account for the items set forth in this Section 3.3(a):
(i) The Purchase Price shall be increased or
decreased, as applicable, to reflect the difference between the book
value of all Inventories as of the Closing Date and the value of all
Inventories as of December 31, 1997 reflected on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to account
for the items prorated as of the Closing Date pursuant to Section 3.5.
(iii) The Purchase Price shall be increased by the
amount expended, or for which liabilities are incurred, by Sellers
between the date hereof and the Closing Date for capital additions to
or replacements of property, plant and equipment included in the
Purchased Assets and other expenditures or repairs on property, plant
and equipment included in the Purchased Assets that would be
capitalized by Sellers in accordance with normal accounting policies of
Sellers and their Affiliates (together, "Capital Expenditures"), which
are not described on Schedule 6.1 and which either (A) are mandated
after the date of this Agreement by any Governmental Authority (subject
to Buyer's right to direct Sellers to contest such mandates by
appropriate proceedings at Buyer's expense and provided there is no
adverse impact on the Purchased Assets); or (B) do not fall within
category (A) above but do not exceed in the aggregate $500,000; or (C)
are approved in writing by Buyer.
(b) At least ten (10) Business Days prior to the Closing Date,
Sellers shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth Sellers' best estimate of
all estimated adjustments to the Purchase Price required by Section 3.3(a) (the
"Estimated Adjustment"). Within five (5) Business Days following the delivery of
the Estimated Closing Statement by Sellers to Buyer, Buyer may object in good
faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If the Parties are unable to do so within three (3) Business Days
prior to the Closing Date (or if Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be
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adjusted (the "Closing Adjustment") for the Closing by the amount of the
Estimated Adjustment not in dispute. The disputed portion shall be paid as a
Post-Closing Adjustment to the extent required by Section 3.3(c).
(c) Within sixty (60) days following the Closing Date, Sellers
shall prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all adjustments to the Purchase Price required
by Section 3.3(a) (the "Proposed Post-Closing Adjustment"). The Post-Closing
Statement shall be prepared using the same accounting principles, policies and
methods as Sellers have historically used in connection with the calculation of
the items reflected on such Post-Closing Statement. Within thirty (30) days
following the delivery of the Post-Closing Statement by Sellers to Buyer, Buyer
may object to the Proposed Post-Closing Adjustment in writing. Sellers agree to
cooperate with Buyer to provide Buyer and Buyer's Representatives information
used to prepare the Post-Closing Statement and information relating thereto. If
Buyer objects to the Proposed Post-Closing Adjustment, the Parties shall attempt
to resolve such dispute by negotiation. If the Parties are unable to resolve
such dispute within thirty (30) days of any objection by Buyer, the Parties
shall appoint the Independent Accounting Firm, which shall, at Sellers' and
Buyer's joint expense, review the Proposed Post-Closing Adjustment and determine
the appropriate adjustment to the Purchase Price, if any, within thirty (30)
days of such appointment. The Parties agree to cooperate with the Independent
Accounting Firm and provide it with such information as it reasonably requests
to enable it to make such determination. The finding of such Independent
Accounting Firm shall be binding on the Parties hereto. Upon determination of
the appropriate adjustment (the "Post-Closing Adjustment") by agreement of the
Parties or by binding determination of the Independent Accounting Firm, if the
Post-Closing Adjustment is more or less than the Closing Adjustment, the Party
owing the difference shall deliver such difference to the other Party no later
than two (2) Business Days after such determination, in immediately available
funds or in any other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Sellers shall endeavor to
agree upon an allocation among the Purchased Assets of the sum of the Purchase
Price and the Assumed Liabilities consistent with Section 1060 of the Code and
the Treasury Regulations thereunder within sixty (60) days of the date of this
Agreement. Each of Buyer and Sellers agree to file Internal Revenue Service Form
8594, and all federal, state, local and foreign Tax Returns, in accordance with
any such agreed to allocation. Each of Buyer and Sellers shall report the
transactions contemplated by this Agreement for federal Tax and all other Tax
purposes in a manner consistent with any such agreed to allocation determined
pursuant to this Section 3.4. Each of Buyer and Sellers agree to provide the
other promptly with any information required to complete Form 8594. Buyer and
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Sellers shall notify and provide the other with reasonable assistance in the
event of an examination, audit or other proceeding regarding any allocation of
the Purchase Price agreed to pursuant to this Section 3.4.
3.5 Prorations. (a) Buyer and Sellers agree that all of the items
normally prorated, including those listed below (but not including Income
Taxes), relating to the business and operation of the Purchased Assets shall be
prorated as of the Closing Date, with Sellers liable to the extent such items
relate to any time period prior to the Closing Date, and Buyer liable to the
extent such items relate to periods commencing with the Closing Date (measured
in the same units used to compute the item in question, otherwise measured by
calendar days):
(i) Personal property, real estate and occupancy
Taxes, assessments and other charges, if any, on or with respect to the
business and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including
prepaid services or goods not included in Inventory) payable by or to
Sellers under any of the Sellers' Agreements;
(iii) Any permit, license, registration, compliance
assurance fees or other fees with respect to any Transferable Permit;
(iv) Sewer rents and charges for water, telephone,
electricity and other utilities; and
(v) Rent and Taxes and other items payable by
Sellers under the Real Property Leases assigned to Buyer.
(b) In connection with the prorations referred to in (a)
above, in the event that actual figures are not available at the Closing Date,
the proration shall be based upon the actual Taxes or other amounts accrued
through the Closing Date or paid for the most recent year (or other appropriate
period) for which actual Taxes or other amounts paid are available. Such
prorated Taxes or other amounts shall be re-prorated and paid to the appropriate
Party within sixty (60) days of the date that the previously unavailable actual
figures become available. The prorations shall be based on the number of days in
a year or other appropriate period (i) before the Closing Date and (ii)
including and after the Closing Date. Sellers and Buyer agree to furnish each
other with such documents and other records as may be reasonably requested in
order to confirm all adjustment and proration calculations made pursuant to this
Section 3.5.
Notwithstanding anything to the contrary herein, no proration
shall be made under this Section 3.5 with respect to Taxes payable under the
Pennsylvania Public Utility Realty Tax Act ("PURTA"). Buyer shall be fully
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responsible for all Taxes payable under PURTA for the year in which the
Closing occurs.
3.6. Deliveries by Sellers. At the Closing, each of Sellers as to
itself will deliver, or cause to be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by Penelec and NGE;
(b) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Sellers with respect to the transfer
of the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement;
(c) The opinions of counsel and officer's certificates
contemplated by Section 7.1;
(d) One or more special warranty deeds conveying the Real
Property to Buyer, in substantially the form of Exhibit F hereto, duly executed
and acknowledged by Penelec and NGE and in recordable form;
(e) The Assignment and Assumption Agreement, duly executed by
Penelec and NGE;
(f) A FIRPTA Affidavit, duly executed by Sellers;
(g) Copies, certified by the Secretary or Assistant Secretary
of each Seller, of corporate resolutions authorizing the execution and delivery
of this Agreement and all of the agreements and instruments to be executed and
delivered by Sellers in connection herewith, and the consummation of the
transactions contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of
each Seller identifying the name and title and bearing the signatures of the
officers of such Seller authorized to execute and deliver this Agreement and the
other agreements and instruments contemplated hereby;
(i) Certificates of Good Standing with respect to the Sellers,
issued by the Secretary of the State of each Sellers' state of incorporation, as
applicable;
(j) To the extent available, originals of all Sellers'
Agreements, Real Property Leases and Transferable Permits and, if not available,
true and correct copies thereof;
(k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary or desirable to transfer to Buyer the
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Purchased Assets, in accordance with this Agreement and where necessary or
desirable in recordable form; and
(l) Such other agreements, documents, instruments and writings
as are required to be delivered by Sellers at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
3.7. Deliveries by Buyer. At the Closing, Buyer will deliver, or
cause to be delivered, the following to Sellers:
(a) The Purchase Price, as adjusted pursuant to Section 3.3,
by wire transfer of immediately available funds in accordance with Sellers'
instructions or by such other means as may be agreed to by Sellers and Buyer;
(b) The opinions of counsel and officer's certificates
contemplated by Section 7.2;
(c) The Assignment and Assumption Agreement, duly executed
by Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary
of Buyer and Buyer Parent, respectively, of resolutions authorizing the
execution and delivery of this Agreement, the Guaranty and all of the agreements
and instruments to be executed and delivered by Buyer in connection herewith,
and the consummation of the transactions contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary of
Buyer and Buyer Parent, respectively, identifying the name and title and bearing
the signatures of the officers of Buyer authorized to execute and deliver this
Agreement, the Guaranty and the other agreements contemplated hereby;
(f) All such other instruments of assumption as shall, in the
reasonable opinion of Sellers and their counsel, be necessary for Buyer to
assume the Assumed Liabilities in accordance with this Agreement;
(g) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the transfer of
the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement;
(h) Certificates of Insurance relating to the insurance
policies required pursuant to Article 10 of the Interconnection Agreement; and
(i) Such other agreements, documents, instruments and writings
as are required to be delivered by Buyer at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
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3.8 Ancillary Agreements. The Parties acknowledge that the
Ancillary Agreements have been executed on the date hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
Each of Sellers severally as to itself, in the case of Sections 4.1,
4.2, 4.3, 4.5 and 4.15, and, subject to Section 10.1, jointly and severally, as
to all other representations and warranties, represents and warrants to Buyer as
follows:
4.1 Incorporation; Qualification. Such Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation and has all requisite corporate power and authority to own,
lease, and operate its material properties and assets and to carry on its
business as is now being conducted. Such Seller is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction in which its business as now being conducted shall require it to be
so qualified, except where the failure to be so qualified would not have a
Material Adverse Effect. Such Seller has heretofore delivered to Buyer true,
complete and correct copies of its Certificate of Incorporation and Bylaws as
currently in effect.
4.2 Authority Relative to this Agreement. Such Seller has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by it hereby. The execution and
delivery of this Agreement by such Seller and the consummation of the
transactions contemplated by such Seller hereby have been duly and validly
authorized by all necessary corporate action required on the part of such Seller
and this Agreement has been duly and validly executed and delivered by such
Seller. Subject to the receipt of Sellers' Required Regulatory Approvals, this
Agreement constitutes the legal, valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
4.3 Consents and Approvals; No Violation. (a) Except as set forth in
Schedule 4.3(a), and subject to obtaining Sellers' Required Regulatory
Approvals, neither the execution and delivery of this Agreement by such Seller
nor the consummation by such Seller of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of such Seller, (ii) result in a default (or give rise
to any right of termination, cancellation
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or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, material agreement or other instrument or obligation
to which such Seller is a party or by which it, or any of the Purchased Assets
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained or
which, would not, individually or in the aggregate, create a Material Adverse
Effect; or (iii) constitute violations of any law, regulation, order, judgment
or decree applicable to such Seller, which violations, individually or in the
aggregate, would create a Material Adverse Effect.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Sellers' Required Regulatory Approvals"), no consent or approval of, filing
with, or notice to, any Governmental Authority is necessary for the execution
and delivery of this Agreement by such Seller, or the consummation by such
Seller of the transactions contemplated hereby, other than (i) such consents,
approvals, filings or notices which, if not obtained or made, will not prevent
such Seller from performing its material obligations hereunder and (ii) such
consents, approvals, filings or notices which become applicable to such Seller
or the Purchased Assets as a result of the specific regulatory status of Buyer
(or any of its Affiliates) or as a result of any other facts that specifically
relate to the business or activities in which Buyer (or any of its Affiliates)
is or proposes to be engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material
policies of fire, liability, workers' compensation and other forms of insurance
owned or held by, or on behalf of, Sellers with respect to the business,
operations or employees at the Plant or the Purchased Assets are in full force
and effect, all premiums with respect thereto covering all periods up to and
including the date hereof has been paid (other than retroactive premiums which
may be payable with respect to comprehensive general liability and workers'
compensation insurance policies), and no notice of cancellation or termination
has been received with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such cancellation. Except as
described in Schedule 4.4, within the 36 months preceding the date of this
Agreement, the Sellers have not been refused any insurance with respect to the
Purchased Assets nor has their coverage been limited by any insurance carrier to
which they have applied for any such insurance or with which they have carried
insurance during the last twelve (12) months.
4.5. Title and Related Matters. Except as set forth in Schedule 4.5 and
subject to Permitted Encumbrances, (i) each of Penelec and NGE is the owner of
record title to a 50% undivided interest in the Real Property and has good and
valid title to the other Purchased Assets which it purports to own, free and
clear of all Encumbrances and (ii) each such Seller shall convey to
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Buyer such title with respect to the Real Property as a reputable title company
doing business in the Commonwealth of Pennsylvania would insure.
4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this
Agreement, all real property leases under which each Seller is a lessee or
lessor and which relate to the Purchased Assets ("Real Property Leases"). Except
as set forth in Schedule 4.6, all such leases are valid, binding and enforceable
against Sellers in accordance with their terms; there are no existing material
defaults by Sellers or, to such Sellers' Knowledge, any other party thereunder;
and no event has occurred which (whether with or without notice, lapse of time
or both) would constitute a material default by Sellers or, to Sellers'
Knowledge, any other party thereunder. Sellers have delivered to Buyer true,
correct and complete copies of each of the Real Property Leases.
4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in
the "Phase I" and "Phase II" environmental site assessments prepared by Sellers'
outside environmental consultants ("Environmental Reports") and made available
for inspection by Buyer:
(a) The Sellers hold, and are in substantial compliance with,
all permits, certificates, certifications, licenses and governmental
authorizations under Environmental Laws ("Environmental Permits") that are
required for Sellers to conduct the business and operations of the Purchased
Assets, and Sellers are otherwise in compliance with applicable Environmental
Laws with respect to the business and operations of the Purchased Assets except
for such failures to hold or comply with required Environmental Permits, or such
failures to be in compliance with applicable Environmental Laws, as would not,
individually or in the aggregate, create a Material Adverse Effect;
(b) None of Sellers has received any written request for
information, or been notified that it is a potentially responsible party, under
CERCLA or any similar state law with respect to the Real Property;
(c) None of the Sellers has entered into or agreed to any
consent decree or order relating to the Purchased Assets, or is subject to any
outstanding judgment, decree, or judicial order relating to compliance with any
Environmental Law or to investigation or cleanup of Hazardous Substances under
any Environmental Law relating to the Purchased Assets.
(d) To Sellers' Knowledge, no Releases of Hazardous Substances
have occurred at, from, in, on, or under the Site, and no Hazardous Substances
are present in, on, about or migrating from the Site that could give rise to an
Environmental Claim related to the Purchased Assets for which Remediation
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reasonably such Releases would not, individually or in the aggregate, create a
Material Adverse Effect.
The representations and warranties made in this Section 4.7 are the
Sellers' exclusive representations and warranties relating to environmental
matters.
4.8 Labor Matters. Sellers have previously delivered to Buyer true and
correct copies of all collective bargaining agreements to which Sellers are a
party or are subject and which relate to the business and operations of the
Purchased Assets. With respect to the business or operations of the Purchased
Assets, except to the extent set forth in Schedule 4.8 and except for such
matters as will not, individually or in the aggregate, create a Material Adverse
Effect, (a) Sellers are in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours; (b) neither Seller has received written notice of any unfair
labor practice complaint against such Seller pending before the National Labor
Relations Board; (c) no arbitration proceeding arising out of or under any
collective bargaining agreements is pending against either Seller; and (d)
Sellers have not experienced any work stoppage within the three-year period
prior to the date hereof and to Sellers' Knowledge none is currently threatened.
4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred
compensation, profit-sharing, retirement and pension plans, including
multi-employer plans (of which none exist), and all material bonus, fringe
benefit and other employee benefit plans maintained or with respect to which
contributions are made by Penelec or Genco in respect of the current employees
of Penelec or Genco connected with the Purchased Assets ("Benefit Plans"). True
and complete copies of all such Benefit Plans have been made available to Buyer.
(b) Except as set forth in Schedule 4.9(b), Sellers and the ERISA
Affiliates have fulfilled their respective obligations under the minimum funding
requirements of Section 302 of ERISA, and Section 412 of the Code, with respect
to each Benefit Plan which is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code. Except
as set forth in Schedule 4.9(b), neither the Sellers nor any ERISA Affiliate has
incurred any liability under Section 4062(b) of ERISA to the Pension Benefit
Guaranty Corporation in connection with any Benefit Plan which is subject to
Title IV of ERISA or any withdrawal liability, nor is there any reportable event
(as defined in Section 4043 of ERISA), except as set forth in Schedule 4.9(b).
Except as set forth in Schedule 4.9(b), the Internal Revenue Service has issued
a letter for each Benefit Plan which is intended to be qualified under Section
401(a) of the Code, which letter determines that such plan is exempt from United
States Federal Income Tax under
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Section 401(a) and 501(a) of the Code, and there has been no occurrence since
the date of any such determination letter which has affected adversely such
qualification.
(c) Neither the Sellers nor any ERISA Affiliate has engaged in any
transaction within the meaning of Section 4069(b) or Section 4212(c) of ERISA.
No Benefit Plan is a multi-employer plan.
(d) To the extent the Sellers maintain a "group health plan" within the
meaning of Section 5000(b) (1) of the Code, Sellers have materially complied in
good faith with the notice and continuation requirements of Section 4980B of the
Code, COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations
thereunder.
4.10 Real Property. Schedule 4.10 contains a description of the Real
Property owned by Penelec and NGE and included in the Purchased Assets. True and
correct copies of any current surveys, abstracts or title opinions in Sellers'
possession and any policies of title insurance currently in force and in the
possession of Sellers with respect to the Real Property have heretofore been
made available to Buyer.
4.11 Condemnation. Except as set forth in Schedule 4.11, Sellers have
not received any written notices of and otherwise have no Knowledge of any
pending or threatened proceedings or governmental actions to condemn or take by
power of eminent domain all or any part of the Purchased Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written
contract, license, agreement, or personal property lease which is material to
the business or operations of the Purchased Assets, other than any contract,
license, agreement or personal property lease which is listed or described on
another Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by the Sellers after the
date hereof of less than $250,000 or payments by the Sellers after the date
hereof of less than $1,000,000 in the aggregate.
(b) Except as disclosed in Schedule 4.12(b), each Sellers'
Agreement (i) constitutes a legal, valid and binding obligation of the
applicable Seller and, to each Seller's Knowledge, constitutes a valid and
binding obligation of the other parties thereto, and (ii) may be transferred to
Buyer pursuant to this Agreement without the consent of the other parties
thereto and will continue in full force and effect thereafter, unless in any
such case the impact of such lack of legality, validity or binding nature, or
inability to transfer, would not, individually or in the aggregate, create a
Material Adverse Effect.
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(c) Except as set forth in Schedule 4.12(c), there is not,
under the Sellers' Agreements, any default or event which, with notice or lapse
of time or both, would constitute a default on the part of the Sellers or to
each Seller's Knowledge, any of the other parties thereto, except such events of
default and other events which would not, individually or in the aggregate,
create a Material Adverse Effect.
4.13 Legal Proceedings etc. Except as set forth in Schedule 4.13, there
are no actions or proceedings pending against Sellers before any court,
arbitrator or Governmental Authority, which could, individually or in the
aggregate, reasonably be expected to create a Material Adverse Effect. Except as
set forth in Schedule 4.13, neither Seller is subject to any outstanding
judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator
or Governmental Authority which would, individually or in the aggregate, create
a Material Adverse Effect.
4.14 Permits. (a) The Sellers have all permits, licenses, franchises
and other governmental authorizations, consents and approvals, (other than
Environmental Permits, which are addressed in Section 4.7 hereof) (collectively,
"Permits") necessary to own and operate the Purchased Assets except where the
failure to have such Permits would not, individually or in the aggregate, create
a Material Adverse Effect. Except as disclosed on Schedule 4.14(a), Sellers have
not received any notification that any Seller is in violation of any such
Permits, except notifications of violations which would not, individually or in
the aggregate, create a Material Adverse Effect. Sellers are in compliance with
all such Permits except where non-compliance would not, individually or in the
aggregate, create a Material Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits and
Environmental Permits, other than Transferable Permits (which are set forth on
Schedule 1.1(96)) related to the Purchased Assets.
4.15 Taxes. Penelec and NGE have filed all returns that are required to
be filed by it with respect to any Tax relating to the Purchased Assets, and
Penelec and NGE have each paid all Taxes that have become due as indicated
thereon, except where such Tax is being contested in good faith by appropriate
proceedings, or where the failure to so file or pay would not reasonably be
expected to create a Material Adverse Effect. Penelec and NGE have complied in
all material respects with all applicable laws, rules and regulations relating
to withholding Taxes relating to Transferred Employees. All Tax Returns relating
to the Purchased Assets are true, correct and complete in all material respects.
Except as set forth in Schedule 4.15, no notice of deficiency or assessment has
been received from any taxing authority with respect to liabilities for Taxes of
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such Sellers in respect of the Purchased Assets, which have not been fully paid
or finally settled, and any such deficiency shown in Schedule 4.15 is being
contested in good faith through appropriate proceedings. Except as set forth in
Schedule 4.15, there are no outstanding agreements or waivers extending the
applicable statutory periods of limitation for Taxes associated with the
Purchased Assets that will be binding upon Buyer after the Closing. None of the
Purchased Assets is property that is required to be treated as being owned by
any other person pursuant to the so-called safe harbor lease provisions of
former Section 168(f) of the Code, and none of the Purchased Assets is
"tax-exempt use" property within the meaning of Section 168(h) of the Code.
Schedule 4.15 sets forth the taxing jurisdictions in which either Penelec or NGE
own assets or conduct business that require a notification to a taxing authority
of the transactions contemplated by this Agreement, if the failure to make such
notification, or obtain Tax clearance certificates in connection therewith,
would either require Buyer to withhold any portion of the Purchase Price or
subject Buyer to any liability for any Taxes of Penelec or NGE.
4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual
Property used in and, individually or in the aggregate with other Intellectual
Property, is material to the operation or business of the Purchased Assets, each
of which a Seller or its Affiliates either has all right, title and interest in
or valid and binding rights under contract to use. Except as disclosed in
Schedule 4.16, (i) the Sellers are not, nor have they received any notice that
they are, in default (or with the giving of notice or lapse of time or both,
would be in default), under any contract to use such Intellectual Property, and
(ii), to Sellers' Knowledge, such Intellectual Property is not being infringed
by any other Person. Sellers have not received notice that they are infringing
any Intellectual Property of any other Person in connection with the operation
or business of the Purchased Assets, and Sellers, to their Knowledge, are not
infringing any Intellectual Property of any other Person the effect of which,
individually or in the aggregate, would have a Material Adverse Effect.
4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there
are no capital expenditures associated with the Purchased Assets that are
planned by Sellers through December 31, 1999.
4.18 Compliance With Laws. The Sellers are in compliance with all
applicable laws, rules and regulations with respect to the ownership or
operation of the Purchased Assets except where the failure to be in compliance
would not, individually or in the aggregate, create a Material Adverse Effect.
4.19 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
ASSETS ARE SOLD "AS IS, WHERE IS", AND EACH SELLER EXPRESSLY DISCLAIMS ANY
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REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PLANT, THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER
INCIDENTS OF THE PURCHASED ASSETS AND EACH SELLER SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER EACH SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER FURTHER SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS
SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS
WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER EXPRESSLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF
THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS
A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER
MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY EACH SELLER OR
THEIR REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR
CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR
QUALITY OF THE PURCHASED ASSETS.
The Sellers make no warranties and representations of any kind, whether
direct or implied, that any of the hardware, software, and firmware product
(including embedded microcontrollers in non-computer equipment) which may be
included in the Purchased Assets to be transferred under this Agreement (the
"Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000
Compliant" shall mean that the Computer Systems will correctly differentiate
between years, in different centuries, that end in the same two digits, and will
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, including leap year calculations.
4.20 Transmission. NYSEG represents and warrants that Buyer shall not
be obligated to pay a NYSEG transmission charge in connection with any NYPP
Economy Energy transaction as defined in the NYPP Agreement as effective and on
file with FERC without waiving NYSEG's right to NYPP Economy Energy Transaction
Transmission Fund payments.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 Organization. Buyer is a California corporation, duly organized,
validly existing and in good standing under the laws of the state of its
organization and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted. Buyer is, or by the Closing will be, qualified to do business in the
Commonwealth of Pennsylvania. Buyer has heretofore delivered to Sellers complete
and correct copies of its Certificate of Incorporation and Bylaws (or other
similar governing documents) as currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated by it hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Agreements by Buyer and the consummation of the transactions contemplated hereby
and thereby by Buyer have been duly and validly authorized by all necessary
corporate action required on the part of Buyer. This Agreement and the Ancillary
Agreements have been duly and validly executed and delivered by Buyer. Subject
to the receipt of Buyer Required Regulatory Approvals, this Agreement and the
Ancillary Agreements constitute legal, valid and binding agreements of Buyer,
enforceable against Buyer in accordance with their terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and subject to
obtaining Buyer Required Regulatory Approvals, neither the execution and
delivery of this Agreement and the Ancillary Agreements by Buyer nor the
consummation by Buyer of the transactions contemplated hereby and thereby will
(i) conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws (or other similar governing documents) of Buyer, or (ii)
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, material agreement or other instrument or obligation
to which Buyer or any of its Subsidiaries is a party or by which any of their
respective assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers
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or consents have been obtained or which would not, individually or in the
aggregate, have a material adverse effects on the business, assets, operations
or condition (financial or otherwise) of Buyer Entities ("Buyer Material Adverse
Effect") or (iii) violate any law, regulation, order, judgment or decree
applicable to Buyer, which violations, individually or in the aggregate, would
create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer Required Regulatory Approvals"), no consent or approval of, filing with,
or notice to, any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement and the Ancillary Agreements, or the consummation by
Buyer of the transactions contemplated hereby and thereby, other than such
consents, approvals, filings or notices, which, if not obtained or made, will
not prevent Buyer from performing its obligations under this Agreement and the
Ancillary Agreements.
5.4 Availability of Funds. Buyer has sufficient funds and lines of
credit available to it or has received binding written commitments from
creditworthy financial institutions, copies of which have been provided to
Sellers, to provide sufficient funds on the Closing Date to pay the Purchase
Price and to permit Buyer to timely perform all of its obligations under this
Agreement and the Ancillary Agreements.
5.5 Financial Representations. Buyer Parent has provided Sellers with
its balance sheet, income statement and statement of changes in cash flows for
each of the preceding three fiscal years and most recent interim period. Such
financial statements have been prepared in accordance with generally accepted
accounting principles and fairly reflect the financial posture and results of
operations of Buyer Parent as at and for the periods therein.
5.6 Legal Proceedings. There are no actions or proceedings pending
against Buyer Entities before any court or arbitrator or Governmental Authority,
which, individually or in the aggregate, could reasonably be expected to create
a Buyer Material Adverse Effect. Buyer Entities are not subject to any
outstanding judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or Governmental Authority which would, individually or in the
aggregate, create a Buyer Material Adverse Effect.
5.7 No Knowledge of Sellers' Breach. Buyer Entities have no
Knowledge of any breach by Sellers of any representation or warranty of Sellers,
or of any other condition or circumstance that would excuse Buyer from its
timely performance of its obligations hereunder. Buyer Entities shall notify
Sellers
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promptly if any such information comes to their attention prior to the Closing.
5.8 Qualified Buyer. Buyer is qualified to obtain any Permits and
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of
any reason or circumstance that would prevent Buyer from procuring Buyer
Required Regulatory Approvals associated with Exempt Wholesale Generator (as
defined in the Public Utility Holding Company Act of 1935) status and
market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b).
5.9 Inspections. Subject to the restrictions set forth in Section
6.2(a), Buyer acknowledges and agrees that it has, prior to its execution of
this Agreement, (i) reviewed the Environmental Reports, (ii) had full
opportunity to conduct to its satisfaction Inspections of the Purchased Assets,
including the Site, and (iii) fully completed and approved the results of all
Inspections of the Purchased Assets. Subject to the restrictions set forth in
Section 6.2(a), Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Site is
necessary for the purposes of acquiring the Purchased Assets for Buyer's
intended use. Buyer acknowledges and agrees that it hereby assumes the risk that
adverse past, present, and future physical characteristics and Environmental
Conditions may not have been revealed by its Inspections and the investigations
of the Purchased Assets contained in the Environmental Reports. In making its
decision to execute this Agreement, and to purchase the Purchased Assets, Buyer
has relied on and will rely upon, among other things, the results of its
Inspections and the Environmental Reports.
5.10 WARN Act. Buyer does not intend to engage in a Plant Closing or
Mass Layoff as such terms are defined in the WARN Act within sixty days of the
Closing Date.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as
described in Schedule 6.1 or as expressly contemplated by this Agreement or to
the extent Buyer otherwise consents in writing, during the period from the date
of this Agreement to the Closing Date, Sellers (i) will operate the Purchased
Assets in the ordinary course of business consistent with the past practices of
Sellers or their Affiliates or with Good Utility Practices, (ii) shall use all
Commercially Reasonable Efforts to preserve intact the Purchased Assets, and
endeavor to preserve the goodwill and relationships with customers, suppliers
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and others having business dealings with it, (iii) shall maintain the insurance
coverage described in Section 4.4, (iv) shall comply with all applicable laws
relating to the Purchased Assets, including without limitation, all
Environmental Laws, except where the failure to so comply would not result in a
Material Adverse Effect, and (v) shall continue with Sellers' program, or (at
Buyer's expense) as Buyer may direct, to install such equipment or software with
respect to Year 2000 Compliance in accordance with Sellers' plans referred to in
Section 2.1(k). Without limiting the generality of the foregoing, and, except as
contemplated in this Agreement or as described in Schedule 6.1, or as required
under applicable law or by any Governmental Authority, prior to the Closing
Date, without the prior written consent of Buyer, Sellers shall not with respect
to the Purchased Assets:
(i) Make any material change in the levels of
Inventories customarily maintained by Sellers or their Affiliates with
respect to the Purchased Assets, other than changes which are
consistent with Good Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge,
transfer or otherwise dispose of, any material Purchased Assets
individually or in the aggregate (except for Purchased Assets used,
consumed or replaced in the ordinary course of business consistent with
past practices of Sellers or their Affiliates or with Good Utility
Practices) other than to encumber Purchased Assets with Permitted
Encumbrances;
(iii) Modify, amend or voluntarily terminate prior to
the expiration date any of the Sellers' Agreements or Real Property
Leases or any of the Permits or Environmental Permits in any material
respect, other than (a) in the ordinary course of business, to the
extent consistent with the past practices of Sellers or their
Affiliates or with Good Utility Practices, (b) with cause, to the
extent consistent with past practices of Sellers or their Affiliates or
with Good Utility Practices, or (c) as may be required in connection
with transferring Sellers' rights or obligations thereunder to Buyer
pursuant to this Agreement;
(iv) Except as otherwise provided herein, enter into
any commitment for the purchase, sale, or transportation of fuel having
a term greater than six months and not terminable on or before the
Closing Date either (i) automatically, or (ii) by option of Sellers
(or, after the Closing, by Buyer) in its sole discretion, if the
aggregate payment under such commitment for fuel and all other
outstanding commitments for fuel not previously approved by Buyer would
exceed $1,000,000;
(v) Sell, lease or otherwise dispose of Emission
Allowances, or Emission Reduction Credits identified in
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Schedule 2.1(h), except to the extent necessary to operate the
Purchased Assets in accordance with this Section 6.1;
(vi) Except as otherwise provided herein, enter into
any contract, agreement, commitment or arrangement relating to the
Purchased Assets that individually exceeds $250,000 or in the aggregate
exceeds $1,000,000 unless it is terminable by Sellers (or, after the
Closing, by Buyer) without penalty or premium upon no more than sixty
(60) days notice;
(vii) Except as otherwise required by the terms of
the IBEW Collective Bargaining Agreement (as defined in Section
6.10(d)), (a) hire at, or transfer to the Purchased Assets, any new
employees prior to the Closing, other than to fill vacancies in
existing positions in the reasonable discretion of Sellers, (b)
materially increase salaries or wages of employees employed in
connection with the Purchased Assets prior to the Closing, (c) take any
action prior to the Closing to effect a material change in the
Collective Bargaining Agreement, or (d) take any action prior to the
Closing to materially increase the aggregate benefits payable to the
employees employed in connection with the Purchased Assets;
(viii) Make any Capital Expenditures except as
permitted by Section 3.3(a)(iii) or for Sellers' account; and
(ix) Except as otherwise provided herein, enter into
any written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in the
foregoing paragraphs (i) through (viii).
6.2. Access to Information.
(a) Between the date of this Agreement and the Closing Date,
Sellers will, at reasonable times and upon reasonable notice: (i) give Buyer and
its Representatives reasonable access to its managerial personnel and to all
books, records, plans, equipment, offices and other facilities and properties
constituting the Purchased Assets; (ii) furnish Buyer with such financial and
operating data and other information with respect to the Purchased Assets as
Buyer may from time to time reasonably request, and permit Buyer to make such
reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its
request a copy of each material report, schedule or other document filed by
Sellers or any of their Affiliates with respect to the Purchased Assets with the
SEC, FERC, NYPSC, NYDEC, PaPUC, PaDEP or any other Governmental Authority; and
(iv) furnish Buyer with all such other information as shall be reasonably
necessary to enable Buyer to verify the accuracy of the representations and
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warranties of Sellers contained in this Agreement; provided, however, that (A)
any such inspections and investigations shall be conducted in such a manner as
not to interfere unreasonably with the operation of the Purchased Assets, (B)
Sellers shall not be required to take any action which would constitute a waiver
of the attorney-client privilege, and (C) Sellers need not supply Buyer with any
information which Sellers are under a legal or contractual obligation not to
supply. Notwithstanding anything in this Section 6.2 to the contrary, Sellers
will only furnish or provide such access to Transferring Employee Records and
will not furnish or provide access to other employee personnel records or
medical information unless required by law or specifically authorized by the
affected employee and Buyer shall not have the right to perform or conduct any
environmental sampling or testing at, in, on, or underneath the Purchased
Assets.
(b) Each Party shall, and shall use its best efforts to cause
its Representatives to, (i) keep all Proprietary Information of the other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other than such Party's Representatives and (ii) not use such
Proprietary Information other than in connection with the consummation of the
transactions contemplated hereby. After the Closing Date, any Proprietary
Information to the extent related to the Purchased Assets shall no longer be
subject to the restrictions set forth herein. The obligations of the Parties
under this Section 6.2(b) shall be in full force and effect for three (3) years
from the date hereof and will survive the termination of this Agreement, the
discharge of all other obligations owed by the Parties to each other and the
closing of the transactions contemplated by this Agreement.
(c) For a period of seven (7) years after the Closing Date (or
such longer period as may be required by applicable law), each Party and its
Representatives shall have reasonable access to all of the books and records of
the Purchased Assets, including all Transferring Employee Records in the
possession of the other Party to the extent that such access may reasonably be
required by such Party in connection with the Assumed Liabilities or the
Excluded Liabilities, or other matters relating to or affected by the operation
of the Purchased Assets. Such access shall be afforded by the Party in
possession of any such books and records upon receipt of reasonable advance
written notice and during normal business hours. The Party exercising this right
of access shall be solely responsible for any costs or expenses incurred by it
or the other Party with respect to such access pursuant to this Section 6.2(c).
If the Party in possession of such books and records shall desire to dispose of
any books and records upon or prior to the expiration of such seven-year period
(or any such longer period), such Party shall, prior to such disposition, give
the other Party a reasonable opportunity at such other Party's reasonable
expense, to segregate and remove such books and records as such other Party may
select.
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(d) Notwithstanding the terms of Section 6.2(b) above, the
Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary
Information to any other Persons in connection with Buyer's financing of its
purchase of the Purchased Assets or any equity participation in Buyer's purchase
of the Purchased Assets (provided that such Persons agree in writing to maintain
the confidentiality of the Proprietary Information in accordance with this
Agreement).
(e) Upon the other Party's prior written approval (which will
not be unreasonably withheld), either Party may provide Proprietary Information
of the other Party to the NYPSC, the PaPUC, the SEC, the FERC or any other
Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to obtain Sellers' Required Regulatory Approvals, or Buyer Required
Regulatory Approvals, respectively, or to comply generally with any relevant law
or regulation. The disclosing Party will seek confidential treatment for the
Proprietary Information provided to any Governmental Authority and the
disclosing Party will notify the other Party as far in advance as is practicable
of its intention to release to any Governmental Authority any Proprietary
Information.
(f) Except as specifically provided herein or in the
Confidentiality Agreement, nothing in this Section shall impair or modify any of
the rights or obligations of Buyer or its Affiliates under the Confidentiality
Agreement, all of which remain in effect until termination of such agreement in
accordance with its terms.
(g) Except as may be permitted in the Confidentiality
Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any
vendors, suppliers, employees, or other contracting parties of Sellers or their
Affiliates with respect to any aspect of the Purchased Assets or the
transactions contemplated hereby, without the prior written consent of Sellers,
which consent shall not be unreasonably withheld.
(h) (i) Buyer shall be entitled to inspect, in accordance with
this Section 6.2(h), all of the Purchased Assets located adjacent to any Point
of Interconnection (as defined in the Interconnection Agreement), as shown in
Schedule A to the Interconnection Agreement, to verify and/or determine the
accuracy of the data, drawings, and records described in such Schedule. The
Parties shall cooperate to schedule Buyer's inspection at the Facility so that
any interference with the operation of the Facility is minimized, to the extent
reasonably feasible, and so that Buyer may complete its inspections of the
Facility within thirty (30) working days of commencement of inspections and
within two (2) months after the execution of this Agreement.
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(ii) Sellers shall provide, or shall cause to be
provided, to Buyer, access to the Facility at the times scheduled for the
inspections. Buyer shall provide qualified engineering, operations, and
maintenance personnel to escort Buyer's personnel and to assist Buyer's
personnel in conducting the inspections. Sellers and Buyer shall each bear their
own costs of participating in the inspections. At a mutually convenient time not
more than one (1) month after Buyer has completed its inspections, the Parties
shall meet to discuss whether, as a result of the inspections, it is appropriate
to modify Schedule A to the Interconnection Agreement to portray more accurately
the Points of Interconnection. Any modification to any portion of Schedule A of
the Interconnection Agreement to which the Parties agree shall thereafter be
deemed part of Schedule A of the Interconnection Agreement for all purposes
under the Interconnection Agreement.
6.3 Public Statements. Subject to the requirements imposed by any
applicable law or any Governmental Authority or stock exchange, prior to the
Closing Date, no press release or other public announcement or public statement
or comment in response to any inquiry relating to the transactions contemplated
by this Agreement shall be issued or made by any Party without the prior
approval of the other Parties (which approval shall not be unreasonably
withheld). The Parties agree to cooperate in preparing such announcements.
6.4 Expenses. Except to the extent specifically provided herein,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of any
title insurance policy and all endorsements thereto that Buyer elects to obtain
and (b) all filing fees under the HSR Act.
6.5 Further Assurances.
(a) Subject to the terms and conditions of this Agreement,
each of the Parties hereto shall use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the purchase and sale of the Purchased Assets pursuant to this
Agreement and the assumption of the Assumed Liabilities, including without
limitation using its best efforts to ensure satisfaction of the conditions
precedent to each Party's obligations hereunder, including obtaining all
necessary consents, approvals, and authorizations of third parties and
Governmental Authorities required to be obtained in order to consummate the
transactions hereunder, and to effectuate a transfer of the Transferable Permits
to Buyer. Buyer agrees to perform all conditions required of Buyer
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in connection with the Sellers' Required Regulatory Approvals, other than those
conditions which would create a Buyer Material Adverse Effect. Neither of the
Parties hereto shall, without prior written consent of the other Party, take or
fail to take any action, which might reasonably be expected to prevent or
materially impede, interfere with or delay the transactions contemplated by this
Agreement. Buyer further agrees that prior to the Closing Date, it will neither
enter into any other contract to acquire, nor acquire, electric generation
facilities or uncommitted generation capacity located in New York State if
Buyer's proposed acquisition of such additional electric generation facilities
or uncommitted generation capacity might reasonably be expected to prevent or
materially impede, interfere with or delay the transactions contemplated by this
Agreement. Buyer shall give Sellers reasonable advance notice (and in any event
not less than 10 days) before Buyer contracts to acquire or acquires any
electric generation facility or uncommitted generation capacity located in New
York.
(b) In the event that any Purchased Asset shall not have been
conveyed to Buyer at the Closing, each Seller shall, subject to Section 6.5(c)
and (d), use Commercially Reasonable Efforts to convey such asset to Buyer as
promptly as is practicable after the Closing. In the event that any Easement
shall not have been granted by Buyer to Penelec or NYSEG at the Closing, Buyer
shall use Commercially Reasonable Efforts to grant such Easement to Penelec or
NYSEG as promptly as is practicable after the Closing.
(c) To the extent that Sellers' rights under any Sellers'
Agreement or Real Property Lease may not be assigned without the consent of
another Person which consent has not been obtained by the Closing Date, this
Agreement shall not constitute an agreement to assign the same, if an attempted
assignment would constitute a breach thereof or be unlawful. Sellers and Buyer
agree that if any consent to an assignment of any material Sellers' Agreement or
Real Property Lease shall not be obtained or if any attempted assignment would
be ineffective or would impair Buyer's rights and obligations under the material
Sellers' Agreement or Real Property Lease in question, so that Buyer would not
in effect acquire the benefit of all such rights and obligations, Sellers, at
Buyer's option and to the maximum extent permitted by law and such material
Sellers' Agreement or Real Property Lease, shall, after the Closing Date,
appoint Buyer to be Sellers' agent with respect to such material Sellers'
Agreement or Real Property Lease, or, to the maximum extent permitted by law and
such material Sellers' Agreement or Real Property Lease, enter into such
reasonable arrangements with Buyer or take such other actions as are necessary
to provide Buyer with the same or substantially similar rights and obligations
of such material Sellers' Agreement or Real Property Lease as Buyer may
reasonably request. Sellers and Buyer shall cooperate and shall each use
Commercially Reasonable Efforts prior to and after the Closing Date to
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obtain an assignment of such material Sellers' Agreement or Real Property Lease
to Buyer. For purposes of this Section 6.5(c), all Sellers' Agreements listed on
Schedule 4.12(a) are deemed to be "material."
(d) To the extent that Sellers' rights under any warranty or
guaranty described in Section 2.1(i) may not be assigned without the consent of
another Person, which consent has not been obtained by the Closing Date, this
Agreement shall not constitute an agreement to assign same, if an attempted
assignment would constitute a breach thereof, or be unlawful. Sellers and Buyer
agree that if any consent to an assignment of any such warranty or guaranty
shall not be obtained, or if any attempted assignment would be ineffective or
would impair Buyer's rights and obligations under the warranty or guaranty in
question, so that Buyer would not in effect acquire the benefit of all such
rights and obligations, Sellers, at Buyer's expense, shall use Commercially
Reasonable Efforts, to the extent permitted by law and such warranty or
guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to
provide Buyer to the maximum extent possible with the benefits and obligations
of such warranty or guaranty.
6.6 Consents and Approvals.
(a) As promptly as possible after the date of this Agreement,
Sellers and Buyer, as applicable, shall each file or cause to be filed with the
Federal Trade Commission and the United States Department of Justice any
notifications required to be filed under the HSR Act and the rules and
regulations promulgated thereunder with respect to the transactions contemplated
hereby. The Parties shall use their respective best efforts to respond promptly
to any requests for additional information made by either of such agencies, and
to cause the waiting periods under the HSR Act to terminate or expire at the
earliest possible date after the date of filing. Buyer will pay all filing fees
under the HSR Act but each Party will bear its own costs of the preparation of
any filing.
(b) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting Exempt Wholesale
Generator status for Buyer, which filing may be made individually by Buyer or
jointly with the Sellers in conjunction with other filings to be made with the
FERC under this Agreement, as reasonably determined by the Parties. Prior to
Buyer's submission of that application with the FERC, Buyer shall submit such
application to the Sellers for review and comment and Buyer shall incorporate
into the application any revisions reasonably requested by Sellers. Buyer shall
be solely responsible for the cost of preparing and filing this application, any
petition(s) for rehearing, or any re-application. If Buyer's initial application
for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to
petition the FERC for rehearing and/or to re-submit an
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application with the FERC, as reasonably required by the Sellers, provided that
in either case the action directed by the Sellers does not create a Buyer
Material Adverse Effect.
(c) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting authorization under
Section 205 of the Federal Power Act to sell electric generating capacity and
energy, but not other services, including, without limitation, ancillary
services, at wholesale at market-based rates, which filing may be made
individually by Buyer or jointly with Sellers in conjunction with other filings
to be made with the FERC under this Agreement, as reasonably determined by the
Parties. Prior to the filing of that application with the FERC, Buyer shall
submit such application to the Sellers for review and comment and Buyer shall
incorporate into the application any revisions reasonably requested by the
Sellers. Buyer shall be solely responsible for the cost of preparing and filing
this application, any petition(s) for rehearing, or any reapplication. If
Buyer's initial application for market-based rate authorization results in a
FERC request for additional information or is rejected by the FERC, Buyer shall
provide that information promptly, to petition the FERC for rehearing and/or to
re-submit an application with the FERC, as reasonably required by the Sellers,
provided that the Sellers shall have a reasonable opportunity to make changes to
such a petition or re-submission application and, provided further, that the
action directed by the Seller does not create a Buyer Material Adverse Effect.
(d) As promptly as possible, and in any case within sixty (60)
days, after the date of this Agreement, Sellers and Buyer, as applicable, shall
file with the NYPSC, the PaPUC, the FERC and any other Governmental Authority,
and make any other filings required to be made with respect to the transactions
contemplated hereby. The Parties shall respond promptly to any requests for
additional information made by such agencies, and use their respective best
efforts to cause regulatory approval to be obtained at the earliest possible
date after the date of filing. Each Party will bear its own costs of the
preparation of any such filing.
(e) Sellers and Buyer shall cooperate with each other and
promptly prepare and file notifications with, and request Tax clearances from,
state and local taxing authorities in jurisdictions in which a portion of the
Purchase Price may be required to be withheld or in which Buyer would otherwise
be liable for any Tax liabilities of Sellers pursuant to such state and local
Tax law.
(f) Buyer shall have the primary responsibility for securing
the transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Closing Date. Sellers
shall cooperate with Buyer's efforts in this regard and assist in any transfer
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or reissuance of a Permit or Environmental Permit held by Sellers or the
procurement of any other Permit or Environmental Permit when so requested by
Buyer.
6.7 Fees and Commissions. Each Seller, on the one hand, and Buyer, on
the other hand, represent and warrant to the other that, except for Goldman,
Sachs & Co., which are acting for and at the expense of Sellers, and Lehman
Brothers Inc., which is acting for and at the expense of Buyer, no broker,
finder or other Person is entitled to any brokerage fees, commissions or
finder's fees in connection with the transaction contemplated hereby by reason
of any action taken by the Party making such representation. Each Seller, on the
one hand, and Buyer, on the other hand, will pay to the other or otherwise
discharge, and will indemnify and hold the other harmless from and against, any
and all claims or liabilities for all brokerage fees, commissions and finder's
fees (other than the fees, commissions and finder's fees payable to the parties
listed above) incurred by reason of any action taken by the indemnifying party.
6.8 Tax Matters.
(a) All transfer and sales taxes incurred in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, (a) Pennsylvania sales tax; (b) the Pennsylvania transfer tax on
conveyances of interests in real property; and (c) Pennsylvania sales tax and
transfer tax on deeds) shall be borne by Buyer. Sellers shall file, to the
extent required by, or permissible under, applicable law, all necessary Tax
Returns and other documentation with respect to all such transfer and sales
taxes, and, if required by applicable law, Buyer shall join in the execution of
any such Tax Returns and other documentation. Prior to the Closing Date, to the
extent applicable, Buyer shall provide to Sellers appropriate certificates of
Tax exemption from each applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with
Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing Date with respect to the
Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to
be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be
subject to Sellers' approval, which approval shall not be unreasonably withheld.
Buyer shall make such Tax Returns available for Sellers' review and approval no
later than fifteen (15) Business Days prior to the due date for filing each such
Tax Return.
(c) Buyer and Sellers shall provide the other with such
assistance as may reasonably be requested by the other Party in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
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for Taxes, and each shall retain and provide the requesting party with any
records or information which may be relevant to such return, audit, examination
or proceedings. Any information obtained pursuant to this Section 6.8(c) or
pursuant to any other Section hereof providing for the sharing of information or
review of any Tax Return or other instrument relating to Taxes shall be kept
confidential by the parties hereto.
(d) Disputes. In the event that a dispute arises between
Sellers and Buyer regarding Taxes, or any amount due under this Section 6.8, the
Parties shall attempt in good faith to resolve such dispute and any agreed upon
amount shall be paid to the appropriate Party. If such dispute is not resolved
within 30 days, the Parties shall submit the dispute to the Independent
Accounting Firm for resolution, which resolution shall be final, conclusive and
binding on the Parties. Notwithstanding anything in this Agreement to the
contrary, the fees and expenses of the Independent Accounting Firm in resolving
the dispute shall be borne 50% by Sellers and 50% by Buyer. Any payment required
to be made as a result of the resolution of the dispute by the Independent
Accounting Firm shall be made within ten days after such resolution, together
with any interest determined by the Independent Accounting Firm to be
appropriate.
6.9 Advice of Changes. Prior to the Closing, each Party will promptly
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules hereto. Sellers may at
any time notify Buyer of any development causing a breach of any of its
representations and warranties in Article IV. Unless Buyer has the right to
terminate this Agreement pursuant to Section 9.1(f) below by reason of the
developments and exercises that right within the period of fifteen (15) days
after such right accrues, the written notice pursuant to this Section 6.9 will
be deemed to have amended this Agreement, including the appropriate Schedule, to
have qualified the representations and warranties contained in Article IV above,
and to have cured any misrepresentation or breach of warranty that otherwise
might have existed hereunder by reason of the development.
6.10 Employees.
(a) At least 90 days prior to the Closing Date, Buyer is
required to offer employment, effective on the Closing Date, to those employees
of Penelec who are covered by the IBEW Collective Bargaining Agreement as
defined in Section 6.10(d) below, and who are employed in positions relating to
the Purchased Assets ("Union Employees"). At least 90 days prior to the Closing
Date, Buyer shall provide Sellers with notice of its staffing level
requirements, listed by classification and operation, and shall be required to
offer employment only to that number of Union Employees necessary to
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satisfy such staffing level requirements. In each classification, Union
Employees shall be so offered employment in order of their seniority.
(b) At least 90 days prior to the Closing Date, Buyer is also
required to make reasonable efforts to make a Qualifying Offer of employment,
effective on the Closing Date, to those salaried employees of Penelec or Genco
who are listed in, or are in a function or whose employment responsibilities are
listed in, Schedule 6.10(b) ("Non-Union Employees"). Each person who becomes
employed by Buyer pursuant to Section 6.10(a) or (b) (whether pursuant to a
Qualifying Offer or otherwise) shall be referred to herein as a "Transferred
Union Employee" or "Transferred Non-Union Employee", respectively. As used
herein, the term "Qualifying Offer" means an offer of at least 85% of an
employee's current total annual cash compensation at the time the offer was made
(consisting of base salary and target incentive bonus). Schedule 6.10(b) sets
forth, for each of the Non-Union Employees listed therein, their current base
salaries and target incentive bonuses.
(c) All offers of employment made pursuant to Sections 6.10(a)
or (b) shall be made (i) in accordance with seniority and all applicable laws
and regulations, and (ii) for Union Employees, in accordance with the IBEW
Collective Bargaining Agreement.
(d) Schedule 6.10(d) sets forth the collective bargaining
agreement, and amendments thereto, to which Penelec is a party with the IBEW in
connection with the Purchased Assets ("IBEW Collective Bargaining Agreement").
Transferred Union Employees shall retain their seniority and receive full credit
for service with Penelec in connection with entitlement to vacation and all
other benefits and rights under the IBEW Collective Bargaining Agreement and
under each compensation, retirement or other employee benefit plan or program
Buyer is required to maintain for Transferred Union Employees pursuant to the
IBEW Collective Bargaining Agreement. With respect to Transferred Union
Employees, on the Closing Date, Buyer shall assume the IBEW Collective
Bargaining Agreement for the duration of its term as it relates to Transferred
Union Employees to be employed at the Plant in positions covered by the IBEW
Collective Bargaining Agreement and shall comply with all applicable obligations
under the IBEW Collective Bargaining Agreement. Consistent with the obligations
under the IBEW Collective Bargaining Agreement and applicable laws, Buyer shall
be required to establish and maintain a pension plan and other employer benefit
programs for the Transferred Union Employees for the duration of the term of the
IBEW Collective Bargaining Agreement which are substantially equivalent to the
Penelec plans and programs in effect for the Transferred Union Employees
immediately prior to the Closing Date (the "Penelec Plans"), and which provide
at least the same level of benefits or coverage as do the Penelec Plans for the
duration of the IBEW Collective
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Bargaining Agreement. Buyer further agrees to recognize the IBEW as the
collective bargaining agent for the Transferred Union Employees.
(e) As of the Closing Date, all Transferred Non-Union
Employees shall commence participation in welfare benefit plans of Buyer or its
Affiliates (the "Replacement Welfare Plans"). Buyer shall (i) waive all
limitations as to pre-existing condition exclusions and waiting periods with
respect to the Transferred Non-Union Employees under the Replacement Welfare
Plans, other than, but only to the extent of, limitations or waiting periods
that were in effect with respect to such employees under the welfare plans
maintained by Genco, Penelec or their Affiliates and that have not been
satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union
Employee with credit for any copayments and deductibles paid prior to the
Closing Date in satisfying any deductible or out-of-pocket requirements under
the Replacement Welfare Plans (on a pro-rata basis in the event of a difference
in plan years).
(f) Transferred Non-Union Employees shall be given credit for
all service with Genco, Penelec and their Affiliates under all deferred
compensation, profit-sharing, 401(k), retirement and pension plans, incentive
compensation, bonus, fringe benefit and other employee benefit plans, programs
and arrangements of Buyer ("Buyer Benefit Plans") in which they may become
participants. The service credit so given shall be for purposes of eligibility
and vesting, but not for level of benefits and benefit accrual.
(g) To the extent allowable by law, Buyer shall take any and
all necessary action to cause the trustee of any defined contribution plan of
Buyer or its Affiliates in which any Transferred Employee becomes a participant
to accept a direct "rollover" of all or a portion of said employee's "eligible
rollover distribution" within the meaning of Section 402 of the Code from the
GPU Companies Employee Savings Plan for Non-Bargaining Employees or the Penelec
Employee Savings Plan for Bargaining Unit Employees (the "Sellers' Savings
Plans") if requested to do so by the Transferred Employee. Buyer agrees that the
property so rolled over and the assets so transferred may include promissory
notes evidencing loans from the Sellers' Savings Plans to Transferred Employees
that are outstanding as of the Closing Date. However, except as otherwise
provided in Section 6.10(d), any defined contribution plan of Buyer or its
Affiliates accepting such a rollover or transfer shall not be required to (x)
make any further loans to any Transferred Employee after the Closing Date or (y)
permit any additional investment to be made in GPU common stock on behalf of any
Transferred Employee after the Closing Date.
(h) Buyer shall pay or provide to Transferred Employees the
benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h),
and shall reimburse the Sellers for the benefits they will provide to Union
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Employees and Non-Union Employees in accordance with subparagraph (iv) of this
Section 6.10(h).
(i) Buyer shall make a transition incentive payment
in the amount of $2,500 to each Transferred Union Employee. Payment
shall be made as soon as practicable after, but in any event no later
than 60 days following, the Closing Date.
(ii) In the case of each Transferred Non-Union
Employee who is initially assigned by Buyer to a principal place of
work that is at least 50 miles farther from the employee's principal
residence than was his principal place of work immediately prior to the
Closing Date and who relocates his or her principal residence to the
vicinity of his or her new principal place of work within 12 months
following the Closing Date, Buyer shall reimburse the employee for all
"moving expenses" within the meaning of Section 217(b) of the Code
incurred by the employee and other members of his or her household in
connection with such relocation, up to a maximum aggregate amount of
$5,000. Claims for reimbursement for such expenses shall be filed in
accordance with such procedures, and shall be accompanied by such
substantiation of the expenses for which reimbursement is sought, as
Buyer may reasonably request. All claims for reimbursement shall be
processed, and qualifying expenses shall be reimbursed, as soon as
practicable after, but in any event no later than 60 days following,
the date on which the employee's claim for reimbursement is submitted
to Buyer.
(iii) Buyer shall provide the severance benefits
described in Section 1 of Schedule 6.10(h) to each Transferred Employee
who is "Involuntarily Terminated" (as defined below) (a) within 12
months after the Closing Date or (b), in the case of any Transferred
Non-Union Employee who had attained age 50 and had completed at least
10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h))
prior to the Closing Date, on or any time prior to June 30, 2004. For
purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred
Employee shall be treated as "Involuntarily Terminated" if his or her
employment with Buyer and all of its Affiliates is terminated by Buyer
or any of its Affiliates for any reason other than for cause,
disability or mandatory retirement. A Transferred Employee who
voluntarily leaves employment with Buyer and all of its Affiliates as a
result of a reduction of more than 15% in the rate of his or her total
annual cash compensation (including both base salary and target
incentive award) shall also be treated as having been Involuntarily
Terminated. Buyer shall require any Transferred Employee who is
Involuntarily Terminated, as a condition to receiving the severance
benefits described in Section 1(b), (c), (d), (e)
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and (g) of Schedule 6.10(h), to execute a release of claims against
Penelec or Genco, as applicable, and Buyer, in such form as Buyer and
Sellers shall agree upon.
(iv) At the Closing or as soon thereafter as
practicable, but in any event no later than 60 days following the
Closing Date, Buyer shall pay to Sellers, in addition to all other
amounts to be paid by Buyer to Sellers hereunder, an amount equal to
the aggregate estimated cost that the Sellers will or may incur in
providing the severance, pension, health care and group term life
insurance benefits described in Section 2 of Schedule 6.10(h) to the
Union Employees and Non-Union Employees therein described. The
estimated cost of such benefits shall be calculated by the actuarial
firm regularly engaged to provide actuarial services to the GPU
Companies with respect to their pension, health care and life insurance
plans, and shall be determined using the same assumptions as to
mortality, turnover, interest rate and other actuarial assumption as
used by such firm in determining the cost of benefits under the GPU
Companies' pension, health and group term life insurance plans for
purposes of their most recently issued financial statements prior to
the Closing Date.
(i) Sellers shall be responsible for any payments required
under their voluntary early retirement plans offered in connection with the
transfer of the Purchased Assets. Within thirty (30) days following the last day
that any Union Employee or Non-Union Employee may elect to participate in such
plans, Sellers shall provide Buyer with a list of all such employees who have so
elected.
(j) Sellers shall be responsible, with respect to the
Purchased Assets, for performing and discharging all requirements under the WARN
Act and under applicable state and local laws and regulations for the
notification of its employees of any "employment loss" within the meaning of the
WARN Act which occurs prior to the Closing Date.
(k) Sellers are responsible for extending and continuing to
extend COBRA continuation coverage to all employees and former employees, and
qualified beneficiaries of such employees and former employees, who become or
became entitled to such COBRA continuation coverage on or before the Closing
Date, including those for whom the Closing Date occurs during their COBRA
election period.
(l) Sellers shall pay to all Sellers' employees that Buyer
offers employment pursuant to Section 6.10 hereof, all compensation, bonus,
vacation and holiday compensation, workers' compensation or other employment
benefits that are payable in cash which have accrued to such employees through
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and including the Closing Date, at such times as provided under the terms of the
applicable compensation or benefit programs.
6.11. Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of
loss or damage to the property included in the Purchased Assets shall be borne
by Sellers, other than loss or damage caused by the acts or negligence of Buyer
or any Buyer Representative, which loss or damage shall be the responsibility of
Buyer.
(b) If, before the Closing Date, all or any portion of the
Purchased Assets is (i) taken by eminent domain or is the subject of a pending
or (to the Knowledge of Sellers) contemplated taking which has not been
consummated, or (ii) damaged or destroyed by fire or other casualty, Sellers
shall notify Buyer promptly in writing of such fact, and (x) in the case of a
condemnation, Sellers shall assign or pay, as the case may be, any proceeds
thereof to Buyer at the Closing and (y) in the case of a casualty, Sellers shall
either restore the damage or assign the insurance proceeds therefor (and pay the
amount of any deductible and/or self-insured amount in respect of such casualty)
to Buyer at the Closing. Notwithstanding the above, if such casualty or loss
results in a Material Adverse Effect, Buyer and Sellers shall negotiate to
settle the loss resulting from such taking (and such negotiation shall include,
without limitation, the negotiation of a fair and equitable adjustment to the
Purchase Price). If no such settlement is reached within sixty (60) days after
Sellers have notified Buyer of such casualty or loss, then Buyer or Sellers may
terminate this Agreement pursuant to Section 9.1(i). In the event of damage or
destruction which Sellers elect to restore, Sellers will have the right to
postpone the Closing for up to four (4) months. Buyer will have the right to
inspect and observe, or have its representatives inspect or observe, all repairs
necessitated by any such damage or destruction.
6.12 Additional Covenants of Buyer. Notwithstanding any other
provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer
will not make any modifications to the Purchased Assets or take any action which
would result in a loss of the exclusion of interest on the pollution control
bonds issued on behalf of Penelec or NYSEG in connection with the Purchased
Assets from gross income for federal income purposes under Section 103 of the
Code. Buyer further covenants and agrees that, in the event that Buyer transfers
any of the Purchased Assets, Buyer shall obtain from its transferee a covenant
and agreement that is analogous to Buyer's covenant and agreement pursuant to
the immediately preceding sentence, as well as a covenant and agreement that is
analogous to that of this sentence. This covenant shall survive Closing and
shall continue in effect so long as the pollution control bonds remain
outstanding.
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ARTICLE VII
CONDITIONS
7.1. Conditions to Obligations of Buyer. The obligation of Buyer to
effect the purchase of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated.
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court or Governmental Authority which prevents
the consummation of the sale of the Purchased Assets contemplated herein shall
have been issued and remain in effect (each Party agreeing to use its reasonable
best efforts to have any such injunction, order or decree lifted) and no
statute, rule or regulation shall have been enacted by any state or federal
government or Governmental Authority which prohibits the consummation of the
sale of the Purchased Assets;
(c) Buyer shall have received all of Buyer's Required
Regulatory Approvals, in form and substance reasonably satisfactory (including
no material adverse conditions) to it;
(d) Sellers shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Sellers on or prior to the Closing
Date;
(e) The representations and warranties of Sellers set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized
officer of each Seller, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have
been satisfied by such Seller;
(g) Buyer shall have received an opinion from each Seller's
counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably
satisfactory in form and substance to Buyer and its counsel, substantially to
the effect that:
(i) Such Seller is a corporation duly incorporated,
validly existing and in good standing under the laws its state of
incorporation and Seller has the corporate power and authority to own,
lease and operate its
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material assets and properties and to carry on its business as is now
conducted, and to execute and deliver the Agreement and each Ancillary
Agreement and to consummate the transactions contemplated by it
thereby; and the execution and delivery of the Agreement by such Seller
and the consummation of the sale of the Purchased Assets contemplated
thereby have been duly and validly authorized by all necessary
corporate action required on the part of such Seller;
(ii) The Agreement and each Ancillary Agreement has
been duly and validly executed and delivered by such Seller and
constitutes a legal, valid and binding agreement of such Seller,
enforceable in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the
Agreement and each Ancillary Agreement by such Seller does not (A)
conflict with the Certificate of Incorporation or Bylaws of such Seller
or (B) to the knowledge of such counsel, constitute a violation of or
default under those agreements or instruments set forth on a Schedule
attached to the opinion and which have been identified to such counsel
as all the agreements and instruments which are material to the
business or financial condition of such Seller;
(iv) The Bill of Sale, the deeds, the Assignment and
Assumption Agreement and other transfer instruments described in
Section 3.6 are in proper form to transfer to Buyer such title as was
held by such Seller to the Purchased Assets;
(v) No consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for the execution and
delivery of this Agreement by such Seller or the consummation by such
Seller of the transactions contemplated hereby, other than (i) such
consents, approvals, filings or notices set forth in Schedule 4.3(b) or
which, if not obtained or made, will not prevent such Seller from
performing its material obligations hereunder and (ii) such consents,
approvals, filings or notices which become applicable to Sellers or the
Purchased Assets as a result of the specific regulatory status of Buyer
(or any of its Affiliates) or as a result of any other facts that
specifically relate to the business or activities in which Buyer (or
any of its Affiliates) is or proposes to be engaged.
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In rendering the foregoing opinion, each Seller's counsel may rely on opinions
of local law reasonably acceptable to Buyer.
(h) Sellers shall have delivered, or caused to be delivered,
to Buyer at the Closing, Sellers' closing deliveries described in Section 3.6.
(i) Buyer shall have received from a title insurance company
ALTA title owner's insurance policies on the Real Property insuring title as
described in Section 4.5, subject only to Permitted Encumbrances reasonably
acceptable to Buyer and standard printed exceptions. A Permitted Encumbrance
which is not removed prior to Closing shall be deemed reasonably acceptable to
Buyer as aforesaid unless such Permitted Encumbrance would have a Material
Adverse Effect. Buyer shall provide Sellers with a copy of a preliminary title
report and survey for the Real Property as soon as it is available.
(j) Since the date of this Agreement, no Material Adverse
Effect shall have occurred and be continuing.
7.2 Conditions to Obligations of Sellers. The obligation of Sellers to
effect the sale of the Purchased Assets and the other transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Sellers) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the sale
of the Purchased Assets contemplated herein shall have been issued and remain in
effect (each Party agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or regulation shall
have been enacted by any state or federal government or Governmental Authority
in the United States which prohibits the consummation of the sale of the
Purchased Assets;
(c) NGE and NYSEG shall have received all of Sellers' Required
Regulatory Approvals applicable to NGE or NYSEG, in form and substance
reasonably satisfactory (including no material adverse conditions) to it;
(d) Penelec shall have received all of Sellers' Required
Regulatory Approvals applicable to Penelec, in form and substance reasonably
satisfactory (including no material adverse conditions) to it;
(e) All consents and approvals for the consummation of the
sale of the Purchased Assets contemplated hereby required under the terms of any
note, bond, mortgage, indenture, material agreement or other instrument or
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obligation to which any Seller is party or by which any Seller, or any of the
Purchased Assets, may be bound, shall have been obtained, other than those which
if not obtained, would not, individually and in the aggregate, create a Material
Adverse Effect;
(f) Buyer shall have performed and complied with in all
material respects the covenants and agreements contained in this Agreement which
are required to be performed and complied with by Buyer on or prior to the
Closing Date;
(g) The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(h) Sellers shall have received a certificate from an
authorized officer of Buyer, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Sections 7.2(f) and (g) have
been satisfied by Buyer;
(i) Effective upon Closing, Buyer shall have assumed, as set
forth in Section 6.10, all of the applicable obligations under the IBEW
Collective Bargaining Agreement as they relate to Transferred Union Employees;
(j) Sellers shall have received an opinion from Buyer's
counsel reasonably acceptable to Sellers, dated the Closing Date and
satisfactory in form and substance to Sellers and their counsel, substantially
to the effect that:
(i) Each Buyer Entity is a California corporation
duly organized, validly existing and in good standing under the laws of
the state of its organization and is qualified to do business in the
Commonwealth of Pennsylvania and has the full corporate power and
authority to own, lease and operate its material assets and properties
and to carry on its business as is now conducted, and to execute and
deliver the Agreement and the Ancillary Agreements by Buyer and the
Guaranty by Buyer Parent and to consummate the transactions
contemplated thereby; and the execution and delivery of the Agreement
and the Ancillary Agreements by Buyer and the Guaranty by Buyer Parent,
and the consummation of the transactions contemplated thereby have been
duly authorized by all necessary corporate action required on the part
of Buyer and Buyer Parent;
(ii) The Agreement, the Ancillary Agreements and the
Guaranty have been duly and validly executed and delivered by Buyer and
Buyer Parent, as applicable, and constitute legal, valid and binding
agreements of Buyer and Buyer Parent, as applicable, enforceable
against Buyer and Buyer Parent, as applicable, in accordance with their
terms, except that such enforceability may be limited by applicable
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bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting or relating to enforcement
of creditor's rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding at law
or in equity);
(iii) The execution, delivery and performance of the
Agreement and the Ancillary Agreements by Buyer and the Guaranty by
Buyer Parent does not (A) conflict with the Certificate of
Incorporation or Bylaws (or other organizational documents), as
currently in effect, of Buyer and Buyer Parent or (B) to the knowledge
of such counsel, constitute a violation of or default under those
agreements or instruments set forth on a Schedule attached to the
opinion and which have been identified to such counsel as all the
agreements and instruments which are material to the business or
financial condition of Buyer or Buyer Parent;
(iv) The Assignment and Assumption Agreement and
other transfer instruments described in Section 3.7 are in proper form
for Buyer to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for Buyer's execution and
delivery of the Agreement and the Ancillary Agreements, Buyer Parent's
execution and delivery of the Guaranty, or the consummation by Buyer
and Buyer Parent of the transactions contemplated hereby and thereby,
other than such consents, approvals, filings or notices, which, if not
obtained or made, will not prevent Buyer or Buyer Parent from
performing its respective obligations under the Agreement, the
Ancillary Agreements and Guaranty.
(k) Buyer shall have delivered, or caused to be delivered, to
Sellers at the Closing, Buyer's closing deliveries described in Section 3.7.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless Sellers,
their officers, directors, employees, shareholders, Affiliates and agents (each,
a "Sellers' Indemnitee") from and against any and all claims, demands, suits,
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an
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"Indemnifiable Loss"), asserted against or suffered by any Sellers' Indemnitee
relating to, resulting from or arising out of (i) any breach by Buyer of any
covenant or agreement of Buyer contained in this Agreement or the
representations and warranties contained in Sections 5.1, 5.2 and 5.3, (ii) the
Assumed Liabilities, (iii) any loss or damages resulting from or arising out of
any Inspection, or (iv) any Third Party Claims against a Sellers' Indemnitee
arising out of or in connection with Buyer's ownership or operation of the Plant
and other Purchased Assets on or after the Closing Date.
(b) Sellers shall jointly and severally, except as otherwise
specified in Section 10.1, defend and hold harmless Buyer, its officers,
directors, employees, shareholders, Affiliates and agents (each, a "Buyer
Indemnitee") from and against any and all Indemnifiable Losses asserted against
or suffered by any Buyer Indemnitee relating to, resulting from or arising out
of (i) any breach by Sellers of any covenant or agreement of Sellers contained
in this Agreement or the representations and warranties contained in Sections
4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii) noncompliance by Sellers
with any bulk sales or transfer laws as provided in Section 10.12, or (iv) any
Third Party Claims against a Buyer Indemnitee arising out of or in connection
with Sellers' ownership or operation of the Excluded Assets on or after the
Closing Date.
(c) Buyer, for itself and on behalf of its Representatives and
Affiliates, does hereby release, hold harmless and forever discharge Sellers,
their Representatives and Affiliates, from any and all Indemnifiable Losses of
any kind or character, whether known or unknown, hidden or concealed, resulting
from or arising out of any Environmental Condition or violation of Environmental
Law relating to the Purchased Assets other than any liabilities or obligations
described in Sections 2.4(g), (h) and (i). Buyer hereby waives any and all
rights and benefits with respect to such Indemnifiable Losses that it now has,
or in the future may have conferred upon it by virtue of any statute or common
law principle which provides that a general release does not extend to claims
which a party does not know or suspect to exist in its favor at the time of
executing the release, if knowledge of such claims would have materially
affected such party's settlement with the obligor. In this connection, Buyer
hereby acknowledges that it is aware that factual matters now unknown to it may
have given or may hereafter give rise to Indemnifiable Losses that are presently
unknown, unanticipated and unsuspected, and it further agrees that this release
has been negotiated and agreed upon in light of that awareness and they
nevertheless hereby intend to release Sellers and their Representatives and
Affiliates from the Indemnifiable Losses described in the first sentence of this
paragraph.
(d) Notwithstanding anything to the contrary contained herein:
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(i) Any Person entitled to receive indemnification
under this Agreement (an "Indemnitee") shall use Commercially
Reasonable Efforts to mitigate all losses, damages and the like
relating to a claim under these indemnification provisions, including
availing itself of any defenses, limitations, rights of contribution,
claims against third Persons and other rights at law or equity. The
Indemnitee's Commercially Reasonable Efforts shall include the
reasonable expenditure of money to mitigate or otherwise reduce or
eliminate any loss or expenses for which indemnification would
otherwise be due, and the Indemnitor shall reimburse the Indemnitee for
the Indemnitee's reasonable expenditures in undertaking the mitigation.
(ii) Any Indemnifiable Loss shall be net of (i) the
dollar amount of any insurance or other proceeds actually receivable by
the Indemnitee or any of its Affiliates with respect to the
Indemnifiable Loss, and (ii) income tax benefits to the Indemnitee, to
the extent realized by the Indemnitee. Any party seeking indemnity
hereunder shall use Commercially Reasonable Efforts to seek coverage
(including both costs of defense and indemnity) under applicable
insurance policies with respect to any such Indemnifiable Loss.
(e) The expiration or termination of any covenant or agreement
shall not affect the Parties' obligations under this Section 8.1 if the
Indemnitee provided the Person required to provide indemnification under this
Agreement (the "Indemnifying Party") with proper notice of the claim or event
for which indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in Article IX, the
rights and remedies of Sellers and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Sellers and Buyer may
have under this Agreement or otherwise for monetary relief, with respect to (i)
any breach of or failure to perform any covenant, agreement, or representation
or warranty set forth in this Agreement, after the occurrence of the Closing, or
(ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be.
The indemnification obligations of the Parties set forth in this Article VIII
apply only to matters arising out of this Agreement, excluding the Ancillary
Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary
Agreement shall be governed by the indemnification obligations, if any,
contained in the Ancillary Agreement under which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein, no party
(including an Indemnitee) shall be entitled to recover from any other party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments losses, costs, or expenses under this Agreement any amount in excess of
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the actual compensatory damages, court costs and reasonable attorney's and other
advisor fees suffered by such party. Buyer and Sellers waive any right to
recover punitive, incidental, special, exemplary and consequential damages
arising in connection with or with respect to this Agreement. The provisions of
this Section 8.1(g) shall not apply to indemnification for a Third Party Claim.
8.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any claim, action, or proceeding made or brought
by any Person who is not a party to this Agreement or any Affiliate of a Party
to this Agreement (a "Third Party Claim") with respect to which indemnification
is to be sought from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
such notice shall not be given later than ten (10) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and shall
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's expense and by such Indemnifying Party's own counsel, provided that the
counsel for the Indemnifying Party who shall conduct the defense of such Third
Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee
shall cooperate in good faith in such defense at such Indemnitee's own expense.
If an Indemnifying Party elects not to assume the defense of any Third Party
Claim, the Indemnitee may compromise or settle such Third Party Claim over the
objection of the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant to this
Agreement.
(b) (i) If, within ten (10) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense and the Indemnifying Party shall be
liable for all reasonable expenses thereof. (ii) Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter
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into any settlement of any Third Party Claim which would lead to liability or
create any financial or other obligation on the part of the Indemnitee for which
the Indemnitee is not entitled to indemnification hereunder. If a firm offer is
made to settle a Third Party Claim without leading to liability or the creation
of a financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party shall
give written notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnifying Party shall be relieved of its obligations to
defend such Third Party Claim and the Indemnitee may contest or defend such
Third Party Claim. In such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will be the amount of such settlement offer
plus reasonable costs and expenses paid or incurred by Indemnitee up to the date
of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable
Loss which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than ten (10) calendar days after the Indemnitee becomes aware of
such Direct Claim, and the Indemnifying Party shall have a period of thirty (30)
calendar days within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such thirty (30) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party rejects such claim, the Indemnitee will be free to seek
enforcement of its right to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment by, from or
against any other entity, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith (together with interest thereon
from the date of payment thereof at the publicly announced prime rate then in
effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(e) A failure to give timely notice as provided in this
Section 8.2 shall not affect the rights or obligations of any Party hereunder
except if, and only to the extent that, as a result of such failure, the Party
which was entitled to receive such notice was actually prejudiced as a result of
such failure.
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ARTICLE IX
TERMINATION
9.1 Termination. (a) This Agreement may be terminated at any time prior
to the Closing Date by mutual written consent of Sellers and Buyer.
(b) This Agreement may be terminated by Sellers or Buyer if
(i) any Federal or state court of competent jurisdiction shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Closing, and such order, judgment or decree shall have become
final and nonappeallable or (ii) any statute, rule, order or regulation shall
have been enacted or issued by any Governmental Authority which, directly or
indirectly, prohibits the consummation of the Closing; or (iii) the Closing
contemplated hereby shall have not occurred on or before the day which is 12
months from the date of this Agreement (the "Termination Date"); provided that
the right to terminate this Agreement under this Section 9.1(b) (iii) shall not
be available to any Party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date; and provided, further, that if on the day which is
12 months from the date of this Agreement the conditions to the Closing set
forth in Section 7.1(b) or 7.2(c) or (d) shall not have been fulfilled but all
other conditions to the Closing shall be fulfilled or shall be capable of being
fulfilled, then the Termination Date shall be the day which is 18 months from
the date of this Agreement.
(c) Except as otherwise provided in this Agreement, this
Agreement may be terminated by Buyer if any of Buyer Required Regulatory
Approvals, the receipt of which is a condition to the obligation of Buyer to
consummate the Closing as set forth in Section 7.1(b), shall have been denied
(and a petition for rehearing or refiling of an application initially denied
without prejudice shall also have been denied) or shall have been granted but
are not in form and substance reasonably satisfactory to Buyer.
(d) This Agreement may be terminated by Sellers, if any of the
Sellers' Required Regulatory Approvals applicable to Penelec, the receipt of
which is a condition to the obligation of Penelec to consummate the Closing as
set forth in Section 7.2(d), shall have been denied (and a petition for
rehearing or refiling of an application initially denied without prejudice shall
also have been denied) or shall have been granted but are not in form and
substance reasonably satisfactory to Penelec.
(e) This Agreement may be terminated by Sellers, if any of
Sellers' Required Regulatory Approvals applicable to NGE or NYSEG, the receipt
of which is a condition to the obligations of NGE or NYSEG to consummate
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the Closing as set forth in Section 7.2(c) have been denied (and a petition for
rehearing or refiling of an application initially denied without prejudice shall
also have been denied), or shall have been granted but are not in form and
substance reasonably satisfactory to NGE and NYSEG.
(f) This Agreement may be terminated by Buyer if there has
been a violation or breach by Sellers of any covenant, representation or
warranty contained in this Agreement which has resulted in a Material Adverse
Effect and such violation or breach is not cured by the earlier of the Closing
Date or the date thirty (30) days after receipt by Sellers of notice specifying
particularly such violation or breach, and such violation or breach has not been
waived by Buyer.
(g) This Agreement may be terminated by Sellers, if there has
been a material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Sellers.
(h) This Agreement may be terminated by Sellers if there shall
have occurred any change that is materially adverse to the business, operations
or conditions (financial or otherwise) of Buyer.
(i) This Agreement may be terminated by either of Sellers
of NGE or NYSEG to consummate or Buyer in accordance with the provisions of
Section 6.11(b).
9.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to
Section 9, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 9.1(a) through (e) and 9.1(h) and (i), the liabilities of the
Parties hereunder will terminate, except as otherwise expressly provided in this
Agreement, and thereafter neither Party shall have any recourse against the
other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Several Liability of each Seller. Notwithstanding anything to the
contrary contained herein, but subject to Section 10.4, it is expressly
understood and agreed that (i) the obligations and covenants of the Sellers in
Section 3.6 and the representations and warranties of Sellers in Sections 4.1,
4.2, 4.3, 4.5, 4.15 and 6.7 (and any indemnity under Article VIII
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relating thereto) are made severally as to itself in the case of Penelec, and
jointly and severally in the case of NYSEG and NGE as to themselves; and (ii)
all other obligations and covenants of the Sellers and all other representations
and warranties of the Sellers hereunder (except for Section 4.20 which is made
solely by NYSEG) are made severally by Penelec on the one hand, and jointly and
severally by NYSEG and NGE on the other, such that Penelec on the one hand, and
NYSEG and NGE on the other, shall in no event be liable to Buyer hereunder for
more than 50% of any Indemnifiable Loss incurred by Buyer under the indemnity
agreement in Article VIII or otherwise under this Agreement for a breach of such
representation, warranty, obligation or covenant.
10.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
Sellers and Buyer.
10.3 Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party entitled to
the benefits thereof only by a written instrument signed by the Party granting
such waiver, but such waiver of such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent failure to comply therewith
10.4 No Survival. Each and every representation, warranty and covenant
contained in this Agreement (other than the covenants contained in Sections
3.3(c), 3.4, 3.5(b), 6.2, 6.4, 6.5, 6.6(f), 6.7, 6.8, 6.10, 6.12, 9.4, and in
Articles VIII and X, which provisions shall survive the delivery of the deed(s)
and the Closing in accordance with their terms and the representations and
warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, and claims
arising under Sections 6.1 and 6.6(e), which representations and warranties and
such claims shall survive the Closing for eighteen (18) months from the Closing
Date) shall expire with, and be terminated and extinguished by the consummation
of the sale of the Purchased Assets and shall merge into the deed(s) pursuant
hereto and the transfer of the Assumed Liabilities pursuant to this Agreement
and such representations, warranties and covenants shall not survive the Closing
Date; and none of Sellers, Buyer or any officer, director, trustee or Affiliate
of any of them shall be under any liability whatsoever with respect to any such
representation, warranty or covenant.
10.5 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that
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notices of a change of address shall be effective only upon receipt thereof):
(a) If to Sellers, to:
(Penelec)
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: David Brauer
Vice President
(NGE or NYSEG)
4500 Vestal Parkway East
Binghamton, New York 13902
Attention: Daniel W. Farley
Vice President and Secretary
with a copy to:
(if to Penelec)
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Douglas E. Davidson, Esq.
(if to NGE or NYSEG)
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10169
Attention: Nicholas A. Giannasca, Esq.
Taras G. Borkowsky, Esq.
(b) if to Buyer, to:
Mission Energy Westside, Inc.
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
Attention: James V. Iaco
President
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Richard A. Shortz, Esq.
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10.6 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any Party
hereto, including by operation of law, without the prior written consent of each
other Party, nor is this Agreement intended to confer upon any other Person
except the Parties hereto any rights, interests, obligations or remedies
hereunder. No provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Sellers (including any
beneficiary or dependent thereof) in respect of continued employment or resumed
employment, and no provision of this Agreement shall create any rights in any
such Persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement except as expressly
provided for thereunder. Notwithstanding the foregoing, (i) Buyer may assign all
of its rights and obligations hereunder to any majority owned Subsidiary (direct
or indirect) and upon Sellers' receipt of notice from Buyer of any such
assignment, such assignee will be deemed to have assumed, ratified, agreed to be
bound by and perform all such obligations, and all references herein to "Buyer"
shall thereafter be deemed to be references to such assignee, in each case
without the necessity for further act or evidence by the Parties hereto or such
assignee, and (ii) Buyer or its permitted assignee may assign, transfer, pledge
or otherwise dispose of (absolutely or as security) its rights and interests
hereunder to a trustee, lending institutions or other party for the purposes of
leasing, financing or refinancing the Purchased Assets, including such an
assignment, transfer or other disposition upon or pursuant to the exercise of
remedies with respect to such leasing, financing or refinancing, or by way of
assignments, transfers, pledges, or other dispositions in lieu thereof;
provided, however, that no such assignment in clause (i) or (ii) shall relieve
or discharge Buyer from any of its obligations hereunder. The Sellers agree, at
Buyer's expense, to execute and deliver such documents as may be reasonably
necessary to accomplish any such assignment, transfer, pledge or other
disposition of rights and interests hereunder so long as the Sellers' rights
under this Agreement are not thereby altered, amended, diminished or otherwise
impaired.
10.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York (without giving effect to
conflict of law principles) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies. THE PARTIES
HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND
FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION
FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF
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AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING.
SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO
ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Interpretation. The articles, section and schedule headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
10.10 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
10.11 Entire Agreement. This Agreement, the Confidentiality Agreement,
and the Ancillary Agreements including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to Buyer pursuant to the terms of the Confidentiality Agreement
(including the Offering Memorandum dated April 1998, previously delivered to
Buyer by Sellers and Goldman, Sachs & Co.). This Agreement supersedes all prior
agreements and understandings between the Parties other than the Confidentiality
Agreement with respect to such transactions.
10.12 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything
in this Agreement to the contrary, Sellers will not comply with the provision of
the bulk sales laws of any jurisdiction in connection with the transactions
contemplated by this Agreement. Buyer hereby waives compliance by Sellers with
the provisions of the bulk sales laws of all applicable jurisdictions.
10.13 U.S. Dollars. Unless otherwise stated, all dollar amounts set
forth herein are United States (U.S.) dollars.
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10.14 Zoning Classification. Buyer acknowledges that the Real
Property is not zoned.
10.15 Sewage Facilities. Buyer acknowledges that there is no
community (municipal) sewage system available to serve the Real Property.
Accordingly, any additional sewage disposal planned by Buyer will require an
individual (on-site) sewage system and all necessary permits as required by the
Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer recognizes that
certain of the existing individual sewage systems on the Real Property may have
been installed pursuant to exemptions from the requirements of the Facilities
Act or prior to the enactment of the Facilities Act and that soils and site
testing may not have been performed in connection therewith. The owner of the
property or properties served by such a system, at the time of any malfunction,
may be held liable for any contamination, pollution, public health hazard or
nuisance which occurs as the result of such malfunction.
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IN WITNESS WHEREOF, Sellers and Buyer have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
PENNSYLVANIA ELECTRIC COMPANY NGE GENERATION, INC.
By: ___________________________ By: _____________________
Name: John G. Graham Name: Kenneth M. Jasinski
Title: Vice President and Title: Executive Vice President
Chief Financial Officer
MISSION ENERGY WESTSIDE, INC. NEW YORK STATE ELECTRIC &
GAS CORPORATION
By:_____________________________ By:______________________
Name: James V. Iaco Name: Kenneth M. Jasinski
Title: President Title: Executive Vice President
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LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Easement and Attachment Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Special Warranty Deed
Exhibit G Form of Transition Power Purchase Agreement
Exhibit H Guaranty
SCHEDULES
1.1(69) Permitted Encumbrances
1.1(97) Transferable Permits (both environmental and non-
environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed to
Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Description of Transmission and other Assets not included in
Conveyance
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Sellers' Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.l0 Description of Real Property
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.10(b) Schedule of Non-Union Employees
6.10(d) IBEW Collective Bargaining Agreement
6.10(h) Schedule of Severance Benefits
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Exhibit 10-LL
PRIVILEGED AND CONFIDENTIAL
[JCP&L P&S]
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
BY AND AMONG
JERSEY CENTRAL POWER & LIGHT COMPANY, as SELLER,
and SITHE ENERGIES, INC., as BUYER
Dated as of October 29, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I 2
1.1 Definitions 2
1.2 Certain Interpretive Matters 15
ARTICLE II 15
2.1 Transfer of Assets 15
2.2 Excluded Assets 17
2.3 Assumed Liabilities 18
2.4 Excluded Liabilities 20
2.5 Control of Litigation 22
ARTICLE III 23
3.1 Closing 23
3.2 Payment of Purchase Price 23
3.3 Adjustment to Purchase Price 23
3.4 Allocation of Purchase Price 25
3.5 Prorations 25
3.6 Deliveries by Seller 26
3.7 Deliveries by Buyer 28
3.8 Ancillary Agreements 29
3.9 Easement Agreements 29
ARTICLE IV 29
4.1 Incorporation; Qualification 29
4.2 Authority Relative to this Agreement 30
4.3 Consents and Approvals; No Violation 30
4.4 Insurance 31
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4.5 Title and Related Matters 31
4.6 Real Property Leases 31
4.7 Environmental Matters 32
4.8 Labor Matters 33
4.9 Benefit Plans: ERISA 33
4.10 Real Property 34
4.11 Condemnation 34
4.12 Contracts and Leases 34
4.13 Legal Proceedings, etc 35
4.14 Permits 35
4.15 Taxes 35
4.16 Intellectual Property 36
4.17 Capital Expenditures 36
4.18 Compliance With Laws 37
4.19 PUHCA 37
4.20 Disclaimers Regarding Purchased Assets 37
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 38
5.1 Organization 38
5.2 Authority Relative to this Agreement 38
5.3 Consents and Approvals; No Violation 38
5.4 Availability of Funds 39
5.5 Legal Proceedings 39
5.6 No Knowledge of Seller's Breach 39
5.7 Qualified Buyer 40
5.8 Inspections 40
5.9 WARN Act 40
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ARTICLE VI 40
6.1 Conduct of Business Relating to the Purchased Assets 40
6.2 Access to Information 43
6.3 Public Statements 46
6.4 Expenses 46
6.5 Further Assurances 46
6.6 Consents and Approvals 48
6.7 Fees and Commissions 50
6.8 Tax Matters 50
6.9 Advice of Changes 52
6.10 Employees 53
6.11 Risk of Loss 58
6.12 Additional Covenants of Buyer 58
6.13 Additional Forked River Covenants 59
ARTICLE VII 59
7.1 Conditions to Obligations of Buyer 59
7.2 Conditions to Obligations of Seller 63
7.3 Zoning Condition Adjustments 65
ARTICLE VIII 66
8.1 Indemnification 66
8.2 Defense of Claims 69
ARTICLE IX 71
9.1 Termination 71
9.2 Procedure and Effect of No-Default Terminations 72
ARTICLE X 72
10.1 Amendment and Modification 72
10.2 Waiver of Compliance; Consents 72
10.3 No Survival 73
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10.4 Notices 73
10.5 Assignment 74
10.6 Governing Law 75
10.7 Counterparts 75
10.8 Interpretation 75
10.9 Schedules and Exhibits 75
10.10 Entire Agreement 76
10.11 Bulk Sales Laws 76
10.12 U.S. Dollars 76
10.13 Zoning Classification 76
10.14 Sewage Facilities 76
<PAGE>
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and
between Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L"
or "Seller"), and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Seller
and Buyer are referred to individually as a "Party," and collectively as the
"Parties."
W I T N E S S E T H
WHEREAS, Buyer desires to purchase, and Seller desires to sell, its
interests in the Purchased Assets (as defined herein) upon the terms and
conditions hereinafter set forth in this Agreement; and
WHEREAS, simultaneous herewith Buyer is entering into substantially
similar Purchase and Sale Agreements with Seller's affiliates providing for
Buyer's purchase of the remainder of the Aggregate Purchased Assets (as
hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following
terms have the meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
(2) "Agreement" means this Purchase and Sale Agreement together with
the Schedules and Exhibits hereto, as the same may be from time to time amended.
(3) "Aggregate Purchased Assets" means, collectively, the
Purchased Assets (as defined herein) and the Purchased Assets (as defined in
each Related Purchase Agreement).
(4) "Ancillary Agreements" means the Interconnection Agreements, the
Easement Agreements, the Merrill Creek Sublease Agreement and the Transition
Power Purchase Agreement, as the same may be from time to time amended.
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(5) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Seller and Buyer substantially in the form of
Exhibit A hereto, by which Seller shall, subject to the terms and conditions
hereof, assign Seller's Agreements, the Real Property Leases, certain intangible
assets and other Purchased Assets to Buyer and whereby Buyer shall assume the
Assumed Liabilities.
(6) "Assumed Liabilities" has the meaning set forth in Section 2.3.
(7) "Benefit Plans" has the meaning set forth in Section 4.9.
(8) "Bill of Sale" means the Bill of Sale, substantially in the form
of Exhibit B hereto, to be delivered at the Closing, with respect to the
Tangible Personal Property included in the Purchased Assets transferred to Buyer
at the Closing.
(9) "Business Day" shall mean any day other than Saturday, Sunday and
any day on which banking institutions in the State of New Jersey or the
Commonwealth of Pennsylvania are authorized by law or other governmental action
to close.
(10) "Buyer Benefit Plans" has the meaning set forth in Section
6.10(f).
(11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
(12) "Buyer Material Adverse Effect" has the meaning set forth in
Section 5.3(a).
(13) "Buyer Required Regulatory Approvals" has the meaning set forth in
Section 5.3(b).
(14) "Capital Expenditures" has the meaning set forth in Section
3.3(a).
(15) "CERCLA" means the Federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
(16) "Closing" has the meaning set forth in Section 3.1.
(17) "Closing Adjustment" has the meaning set forth in Section 3.3(b).
(18) "Closing Date" has the meaning set forth in Section 3.1.
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(19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
(20) "Code" means the Internal Revenue Code of 1986, as amended.
(21) "Collective Bargaining Agreement" has the meaning set forth in
Section 6.10(d).
(22) "Commercially Reasonable Efforts" means efforts which are
reasonably within the contemplation of the Parties at the time of executing this
Agreement and which do not require the performing Party to expend any funds
other than expenditures which are customary and reasonable in transactions of
the kind and nature contemplated by this Agreement in order for the performing
Party to satisfy its obligations hereunder.
(23) "Computer Systems" has the meaning set forth in Section 4.20.
(24) "Confidentiality Agreement" means the Confidentiality Agreement,
dated March 2, 1998, by and between Seller and Buyer.
(25) "Direct Claim" has the meaning set forth in Section 8.2(c).
(26) "Easements" means, with respect to the Purchased Assets, the
easements and access rights to be granted pursuant to the Easement Agreements,
including, without limitation, easements authorizing access, use, maintenance,
construction, repair, replacement and other activities, as further described in
the Easement Agreements.
(27) "Easement Agreements" means the Easement and License Agreements
between Buyer and Seller, in the form of Exhibit C hereto, whereby Buyer will
provide Seller with certain Easements with respect to the Real Property
transferred to Buyer and whereby Seller will provide Buyer with certain
Easements with respect to certain property owned by Seller.
(28) "Emission Allowance" means all present and future authorizations
to emit specified units of pollutants or Hazardous Substances, which units are
established by the Governmental Authority with jurisdiction over the Plants
under (i) an air pollution control and emission reduction program designed to
mitigate global warming, interstate or intra-state transport of air pollutants;
(ii) a program designed to mitigate impairment of surface waters, watersheds, or
groundwater; or (iii) any pollution reduction program with a similar purpose.
Emission Allowances include allowances, as described above, regardless as
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to whether the Governmental Authority establishing such Emission Allowances
designates such allowances by a name other than "allowances."
(29) "Emission Reduction Credits" means credits, in units that are
established by the Governmental Authority with jurisdiction over the Plants that
have obtained the credits, resulting from reductions in the emissions of air
pollutants from an emitting source or facility (including, without limitation,
and to the extent allowable under applicable law, reductions from shut-downs or
control of emissions beyond that required by applicable law) that: (i) have been
identified by the NJDEP as complying with applicable New Jersey law governing
the establishment of such credits (including, without limitation, that such
emissions reductions are enforceable, permanent, quantifiable and surplus) and
listed in the Emissions Reduction Credit Registry maintained by the NJDEP or
with respect to which such identification and listing are pending; or (ii) have
been certified by any other applicable Governmental Authority as complying with
the law and regulations governing the establishment of such credits (including,
without limitation, certification that such emissions reductions are
enforceable, permanent, quantifiable and surplus). The term includes Emission
Reduction Credits that have been approved by the NJDEP and are awaiting USEPA
approval. The term also includes certified air emissions reductions, as
described above, regardless as to whether the Governmental Authority certifying
such reductions designates such certified air emissions reductions by a name
other than "emission reduction credits."
(30) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, conservation easements, deed restrictions, encumbrances and charges
of any kind.
(31) "Environmental Claim" means any and all pending and/or threatened
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violations, investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or civil, pursuant
to or relating to any applicable Environmental Law by any person (including, but
not limited to, any Governmental Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (a)
violation of, or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs, cleanup costs,
removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or
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threatened Release into the environment of any Hazardous Substances at any
location related to the Purchased Assets, including, but not limited to, any
off-Site location to which Hazardous Substances, or materials containing
Hazardous Substances, were sent for handling, storage, treatment, or disposal.
(32) "Environmental Condition" means the presence or Release to the
environment, whether at the Sites or at an off-Site location, of Hazardous
Substances, including any migration of those Hazardous Substances through air,
soil or groundwater to or from the Sites or any off-Site location regardless of
when such presence or Release occurred or is discovered.
(33) "Environmental Laws" means all applicable Federal, state and
local, provincial and foreign, civil and criminal laws, regulations, rules,
ordinances, codes, decrees, judgments, directives, or judicial or administrative
orders relating to pollution or protection of the environment, natural resources
or human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section
2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), New Jersey Water Pollution Control Act, (N.J.S.A.
58:10-23.11 et seq.), the Spill Compensation and Control Act (N.J.S.A. 13:1E-1
et seq.), the Solid Waste Management Act (N.J.S.A. 58:4A-4.1 et seq.), the
Subsurface and Percolating Waters Act (N.J.S.A. 13:1K-6 et seq.), the Industrial
Site Recovery Act (N.J.S.A. 13:1k-6 et seq.) and all applicable other state laws
analogous to any of the above.
(34) "Environmental Permits" has the meaning set forth in Section
4.7(a).
(35) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(36) "ERISA Affiliate" has the meaning set forth in Section 2.4(k).
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(37) "ERISA Affiliate Plans" has the meaning set forth in Section
2.4(k).
(38) "Estimated Adjustment" has the meaning set forth in Section
3.3(b).
(39) "Estimated Closing Statement" has the meaning set forth in Section
3.3(b).
(40) "Excluded Assets" has the meaning set forth in Section 2.2.
(41) "Excluded Liabilities" has the meaning set forth in Section 2.4.
(42) "Facilities Act" has the meaning set forth in Section 10.14.
(43) "FERC" means the Federal Energy Regulatory Commission or any
successor agency thereto.
(44) "FIRPTA Affidavit" means the Foreign Investment in Real Property
Tax Act Certification and Affidavit, substantially in the form of Exhibit D
hereto.
(45) "Good Utility Practices" mean any of the practices, methods and
acts engaged in or approved by a significant portion of the electric utility
industry during the relevant time period, or previously engaged in by Seller in
its operation of the Purchased Assets, or any of the practices, methods or acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not intended to
be limited to the optimum practices, methods or acts to the exclusion of all
others, but rather to be acceptable practices, methods or acts generally
accepted in the industry or previously engaged in by Seller in its operation of
the Purchased Assets.
(46) "Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating body or
other governmental authority.
(47) "GPU" means GPU, Inc., a Pennsylvania corporation and parent
company of Seller.
(48) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a
wholly-owned subsidiary of GPU.
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(49) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of GPU.
(50) "Hazardous Substances" means (a) any petrochemical or petroleum
products, coal ash, oil, radioactive materials, radon gas, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may contain
levels of polychlorinated biphenyls; (b) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "hazardous constituents," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
(51) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
(52) "Income Tax" means any federal, state, local or foreign Tax (a)
based upon, measured by or calculated with respect to net income, profits or
receipts (including, without limitation, capital gains Taxes and minimum Taxes)
or (b) based upon, measured by or calculated with respect to multiple bases
(including, without limitation, corporate franchise taxes) if one or more of the
bases on which such Tax may be based, measured by or calculated with respect to,
is described in clause (a), in each case together with any interest, penalties,
or additions to such Tax.
(53) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(54) "Indemnifying Party" has the meaning set forth in Section 8.1(e).
(55) "Indemnitee" has the meaning set forth in Section 8.1(d).
(56) "Independent Accounting Firm" means such independent accounting
firm of national reputation as is mutually appointed by Seller and Buyer.
(57) "Inspection" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
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(58) "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, copyrights and copyright rights owned by Seller
and necessary for the operation and maintenance of the Purchased Assets, and all
pending applications for registrations of patents, trademarks, and copyrights,
as set forth as part of Schedule 2.1(l).
(59) "Interconnection Agreements" means the Interconnection Agreements,
between Seller and Buyer, the form of which is attached as Exhibit E hereto,
under which Seller will provide Buyer with interconnection service to Seller's
transmission facilities and whereby Buyer will provide Seller with continuing
access to certain of the Purchased Assets after the Closing Date.
(60) "Inventories" means coal, fuel oil or alternative fuel
inventories, limestone, materials, spare parts, consumable supplies and chemical
and gas inventories relating to the operation of a Plant located at, or in
transit to, such Plant.
(61) "Knowledge" means the actual knowledge of the corporate officers
or managerial representatives of the specified Person charged with
responsibility for the particular function as of the date of the this Agreement,
or, with respect to any certificate delivered pursuant to this Agreement, the
date of delivery of the certificate.
(62) "Material Adverse Effect" means any change in, or effect on the
Purchased Assets that is materially adverse to the operations or condition
(financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a
whole, or (ii) a Specified Plant (as defined below) other than: (a) any change
affecting the international, national, regional or local electric industry as a
whole and not Seller specifically and exclusively; (b) any change or effect
resulting from changes in the international, national, regional or local
wholesale or retail markets for electric power; (c) any change or effect
resulting from changes in the international, national, regional or local markets
for any fuel used in connection with the Aggregate Purchased Assets including
such Specified Plant; (d) any change or effect resulting from, changes in the
North American, national, regional or local electric transmission systems or
operations thereof; (e) any materially adverse change in or effect on the
Aggregate Purchased Assets including such Specified Plant which is cured
(including by the payment of money) before the Termination Date; (f) any order
of any court or Governmental Authority or legislature applicable to providers of
generation, transmission or distribution of electricity generally that imposes
restrictions, regulations or other requirements thereon; and (g) any change or
effect resulting from action or inaction by a Governmental
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Authority with respect to an independent system operator or retail access in
Pennsylvania or New Jersey. As used herein, each of the following shall be a
"Specified Plant": (1) the Shawville Station and associated Purchased Assets to
be conveyed to Buyer pursuant to the Related Purchase Agreement with Penelec;
(2) the Portland Station and associated Purchased Assets to be conveyed to Buyer
pursuant to the Related Purchase Agreement with Met-Ed; and (3) collectively,
all Purchased Assets to be conveyed to Buyer under the Related Purchase
Agreement to which GPU, JCP&L and Met-Ed are parties.
(63) "Merrill Creek Sublease Agreement" means the sublease agreement,
substantially in the form of Exhibit H hereto, pursuant to which Seller will
sublease to Buyer certain entitlements from the Merrill Creek Reservoir Project,
as specified in Exhibit H.
(64) "Met-Ed" means Metropolitan Edison Company, a Pennsylvania
corporation.
(65) "NJBPU" means the New Jersey Board of Public Utilities and any
successor agency thereto.
(66) "NJDEP" means the New Jersey Department of Environmental
Protection and any successor agency thereto.
(67) "Non-Union Employees" has the meaning as set forth in Sections
6.10(b) and (m).
(68) "Penelec" means Pennsylvania Electric Company, a Pennsylvania
corporation.
(69) "Permits" has the meaning set forth in Section 4.14.
(70) "Permitted Encumbrances" means: (i) the Easements; (ii) those
Encumbrances set forth in Schedule 1.1(70); (iii) statutory liens for Taxes or
other governmental charges or assessments not yet due or delinquent or the
validity of which is being contested in good faith by appropriate proceedings
provided that the aggregate amount for all Aggregate Purchased Assets being so
contested does not exceed $500,000; (iv) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the ordinary course of
business relating to obligations as to which there is no default on the part of
Seller or the validity of which are being contested in good faith, and which do
not, individually or in the aggregate with respect to all Aggregate Purchased
Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and
other land use and environmental regulations by Governmental Authorities; and
(vi) such other liens, imperfections in or failure of title, charges,
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easements, restrictions and Encumbrances which do not materially, individually
or in the aggregate, detract from the value of the Aggregate Purchased Assets as
currently used or materially interfere with the present use of the Aggregate
Purchased Assets and neither secure indebtedness, nor individually or in the
aggregate have a value exceeding $30 million for all Aggregate Purchased Assets.
(71) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, or
governmental entity or any department or agency thereof.
(72) "Plants" means the generating stations and related assets as more
fully identified on Schedule 2.1 attached hereto.
(73) "Pollution Control Revenue Bonds" means the bonds listed on
Schedule 6.12.
(74) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).
(75) "Post-Closing Statement" has the meaning set forth in Section
3.3(c).
(76) "Proprietary Information" of a Party means all information about
the Party or its Affiliates, including their respective properties or
operations, furnished to the other Party or its Representatives by the Party or
its Representatives, after the date hereof, regardless of the manner or medium
in which it is furnished. Proprietary Information does not include information
that: (a) is or becomes generally available to the public, other than as a
result of a disclosure by the other Party or its Representatives; (b) was
available to the other Party on a nonconfidential basis prior to its disclosure
by the Party or its Representatives; (c) becomes available to the other Party on
a nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality agreement with
the Party or its Representatives, or is not otherwise under any obligation to
the Party or any of its Representatives not to transmit the information to the
other Party or its Representatives; (d) is independently developed by the other
Party; or (e) was disclosed pursuant to the Confidentiality Agreement and
remains subject to the terms and conditions of the Confidentiality Agreement.
(77) "Purchased Assets" has the meaning set forth in Section 2.1.
(78) "Purchase Price" has the meaning set forth in Section 3.2.
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(79) "Qualifying Offer" has the meaning set forth in Section 6.10(b).
(80) "Real Property" has the meaning set forth in Section 2.1(a).
(81) "Real Property Leases" has the meaning set forth in Section 4.6.
(82) "Related Purchase Agreements" has the meaning set forth in Section
7.1(l).
(83) "Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(84) "Remediation" means action of any kind to address a Release or the
presence of Hazardous Substances at a Site or an off-Site location including,
without limitation, any or all of the following activities to the extent they
relate to or arise from the presence of a Hazardous Substance at a Site or an
off-Site location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or restoration work; (b)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such activity; (c) preparing and implementing
any plans or studies for any such activity; (d) obtaining a written notice from
a Governmental Authority with jurisdiction over a Site or an off-Site location
under Environmental Laws that no material additional work is required by such
Governmental Authority; (e) the use, implementation, application, installation,
operation or maintenance of removal actions on a Site or an off-Site location,
remedial technologies applied to the surface or subsurface soils, excavation and
off-Site treatment or disposal of soils, systems for long term treatment of
surface water or ground water, engineering controls or institutional controls;
and (f) any other activities reasonably determined by a Party to be necessary or
appropriate or required under Environmental Laws to address the presence or
Release of Hazardous Substances at a Site or an off-Site location.
(85) "Replacement Welfare Plans" has the meaning set forth in Section
6.10(e)
(86) "Representatives" of a Party means the Party's Affiliates and
their directors, officers, employees, agents, partners, advisors (including,
without limitation, accountants, counsel, environmental consultants, financial
advisors and other authorized representatives) and parents and other controlling
persons.
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(87) "SEC" means the Securities and Exchange Commission and any
successor agency thereto.
(88) "Seller's Agreements" means those contracts, agreements, licenses
and leases relating to the ownership, operation and maintenance of the Plants
and being assigned to Buyer as part of the Purchased Assets, including without
limitation the Collective Bargaining Agreement and the agreements set forth in
Schedule 4.12(a).
(89) "Seller's Indemnitee" has the meaning set forth in Section 8.1(a).
(90) "Seller's Material Adverse Effect" has the meaning set forth in
Section 7.2(c).
(91) "Seller's Required Regulatory Approvals" has the meaning set forth
in Section 4.3(b).
(92) "Site" means, with respect to any Plant, the Real Property
(including improvements) forming a part of, or used or usable in connection with
the operation of, such Plant, including any disposal sites included in the Real
Property. Any reference to the Sites shall include, by definition, the surface
and subsurface elements, including the soils and groundwater present at the
Sites, and any reference to items "at the Sites" shall include all items "at,
on, in, upon, over, across, under and within" the Site.
(93) "Subsidiary" when used in reference to any Person means any entity
of which outstanding securities having ordinary voting power to elect a majority
of the Board of Directors or other Persons performing similar functions of such
entity are owned directly or indirectly by such Person.
(94) "System Council" means System Council U-3.
(95) "Tangible Personal Property" has the meaning set forth in Section
2.1(c).
(96) "Taxes" means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, social security, gross receipts, license,
stamp, occupation, employment or other taxes, including any interest, penalties
or additions attributable thereto.
(97) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document
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(including any schedule or related or supporting information) required to be
supplied to any taxing authority with respect to Taxes including amendments
thereto.
(98) "Termination Date" has the meaning set forth in Section 9.1(b).
(99) "Third Party Claim" has the meaning set forth in Section 8.2(a).
(100) "Transferable Permits" means those Permits and Environmental
Permits which may be lawfully transferred to or assumed by Buyer without a
filing with, notice to, consent or approval of any Governmental Authority, and
are set forth in Schedule 1.1 (100).
(101) "Transferred Employees" means Transferred Non-Union Employees and
Transferred Union Employees.
(102) "Transferred Non-Union Employees" has the meaning set forth in
Section 6.10(b).
(103) "Transferred Union Employees" has the meaning set forth in
Section 6.10(b).
(104) "Transferring Employee Records" means all records related to
personnel of Seller, Genco, GPUN or GPUS who will become employees of Buyer only
to the extent such records pertain to: (i) skill and development training and
biographies, (ii) seniority histories, (iii) salary and benefit information,
including benefit census and valuation data, (iv) Occupational, Safety and
Health Administration reports, and (v) active medical restriction forms.
(105) "Transition Power Purchase Agreement" means the agreement between
Seller and Buyer, a copy of which is attached as Exhibit G hereto, executed on
the date hereof, relating to the sale of installed capacity to Seller for a
specified period of time following the Closing Date.
(106) "Transmission Assets" has the meaning set forth in Section
2.2(a).
(107) "Union" means System Council.
(108) "Union Employees" has the meaning set forth in Sections 6.10(a)
and (m).
(109) "USEPA" means the United States Environmental Protection Agency
and any successor agency thereto.
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(110) "Year 2000 Compliant" has the meaning set forth in Section 4.20.
"Year 2000 Compliance" has a meaning correlative to the foregoing.
(111) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise requires, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date as of which such reference is made.
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction
of the conditions contained in this Agreement, at the Closing Seller will sell,
assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume
and acquire from Seller, free and clear of all Encumbrances (except for
Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms
and conditions of this Agreement, all of Seller's right, title and interest in
and to all assets constituting, or used in and necessary for generation purposes
to the operation of, the Plants identified in Schedule 2.1 including without
limitation those assets described below (but excluding the Excluded Assets),
each as in existence on the Closing Date (collectively, "Purchased Assets"):
(a) Those certain parcels of real property (including all
buildings, facilities and other improvements thereon and all appurtenances
thereto) described in Schedule 4.10 (the "Real Property"), except as otherwise
constituting part of the Excluded Assets;
(b) All Inventories;
(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property located on or used principally in connection with the Real
Property on the Closing
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Date, including, without limitation, the items of personal property included in
Schedule 2.1(c), together with all the personal property of Seller used
principally in the operation of the Plants and listed in Schedule 2.1(c), other
than property used or primarily usable as part of the Transmission Assets or
otherwise constituting part of the Excluded Assets (collectively, "Tangible
Personal Property");
(d) Subject to the provisions of Section 6.5(d), all Seller's
Agreements;
(e) Subject to the provisions of Section 6.5(d), all Real
Property Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, documents, blueprints and as
built plans, specifications, procedures and similar items of Seller relating
specifically to the aforementioned assets and necessary for the operation of the
Plants (subject to the right of Seller to retain copies of same for its use)
other than such items which are proprietary to third parties and accounting
records;
(h) Subject to Section 6.1, all Emission Reduction Credits
associated with the Plants and identified in Schedule 2.1(h), and all Emission
Allowances that have accrued prior to, or that accrue on or after, the date of
this Agreement but prior to the Closing Date;
(i) All unexpired, transferable warranties and guarantees from
third parties with respect to any item of Real Property or personal property
constituting part of the Purchased Assets, as of the Closing Date;
(j) The names of the Plants. It is expressly understood that
Seller is not assigning or transferring to Buyer any right to use the names
"Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or
similar trade names, trademarks, service marks, corporate names and logos or any
part, derivative or combination thereof;
(k) All drafts, memoranda, reports, information, technology,
and specifications relating to Seller's plans for Year 2000 Compliance with
respect to the Purchased Assets;
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(l) The Intellectual Property described on Schedule 2.1(l); and
(m) The substation equipment set forth in Schedule A to the
Interconnection Agreement and designated therein as being transferred to Buyer.
2.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest in
or to the following specific assets which are associated with the Purchased
Assets, but which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule 2.1(c), the
electrical transmission or distribution facilities (as opposed to generation
facilities) of Seller or any of its Affiliates located at the Sites or forming
part of the Plants (whether or not regarded as a "transmission" or "generation"
asset for regulatory or accounting purposes), including all switchyard
facilities, substation facilities and support equipment, as well as all permits,
contracts and warranties, to the extent they relate to such transmission and
distribution assets (collectively, the "Transmission Assets"), and those certain
assets, facilities and agreements all as identified on Schedule 2.2(a) attached
hereto;
(b) Certain revenue meters and remote testing units, drainage
pipes and systems, as identified in the Easement Agreement;
(c) Certificates of deposit, shares of stock, securities,
bonds, debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;
(d) All cash, cash equivalents, bank deposits, accounts and
notes receivable (trade or otherwise), and any income, sales, payroll or other
tax receivables;
(e) The rights of Seller and its Affiliates to the names
"Jersey "Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Nuclear", "GPU Service" and "GPU Genco" or any related or
similar trade names, trademarks, service marks, corporate names or logos, or any
part, derivative or combination thereof;
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(f) All tariffs, agreements and arrangements to which Seller
is a party for the purchase or sale of electric capacity and/or energy or for
the purchase of transmission or ancillary services;
(g) The rights of Seller in and to any causes of action
against third parties (including indemnification and contribution), other than
to the extent relating to any Assumed Liability, relating to any Real Property
or personal property, Permits, Environmental Permits, Taxes, Real Property
Leases or Seller's Agreements, if any, including any claims for refunds,
prepayments, offsets, recoupment, insurance proceeds, condemnation awards,
judgments and the like, whether received as payment or credit against future
liabilities, relating specifically to the Plants or the Sites and relating to
any period prior to the Closing Date;
(h) All personnel records of Seller or its Affiliates relating
to the Transferred Employees other than Transferring Employee Records or other
records, the disclosure of which is required by law, or legal or regulatory
process or subpoena; and
(i) Any and all of Seller's rights in any contract
representing an intercompany transaction between Seller and an Affiliate of
Seller, whether or not such transaction relates to the provision of goods and
services, payment arrangements, intercompany charges or balances, or the like,
except for any contracts listed on Schedule 4.12(a).
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
Seller the Assignment and Assumption Agreement pursuant to which Buyer shall
assume and agree to discharge when due, without recourse to Seller, all of the
following liabilities and obligations of Seller, direct or indirect, known or
unknown, absolute or contingent, which relate to the Purchased Assets, other
than Excluded Liabilities, in accordance with the respective terms and subject
to the respective conditions thereof (collectively, "Assumed Liabilities"):
(a) All liabilities and obligations of Seller arising on or
after the Closing Date under Seller's Agreements, the Real Property Leases, and
the Transferable Permits in accordance with the terms thereof, including,
without limitation, (i) the contracts, licenses, agreements and personal
property leases entered into by Seller with respect to the Purchased Assets,
which are disclosed on Schedule 4.12(a) or not required by Section 4.12(a) to be
so disclosed, and (ii) the contracts, licenses, agreements and personal property
leases entered into by Seller with respect to the Purchased Assets after the
date hereof consistent with the terms of this Agreement, except in each case
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to the extent such liabilities and obligations, but for a breach or default by
Seller, would have been paid, performed or otherwise discharged on or prior to
the Closing Date or to the extent the same arise out of any such breach or
default or out of any event which after the giving of notice would constitute a
default by Seller;
(b) All liabilities and obligations associated with the
Purchased Assets in respect of Taxes for which Buyer is liable pursuant to
Sections 3.5 or 6.8(a) hereof;
(c) All liabilities and obligations with respect to the
Transferred Employees arising on or after the Closing Date (i) for which Buyer
is responsible pursuant to Section 6.10 and (ii) relating to the grievances and
arbitration proceedings arising out of or under the Collective Bargaining
Agreement prior to, on or after the Closing Date;
(d) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with (i) any violation or alleged violation of
Environmental Laws, whether prior to, on or after the Closing Date, with respect
to the ownership or operation of any of the Purchased Assets; (ii) loss of life,
injury to persons or property or damage to natural resources (whether or not
such loss, injury or damage arose or was made manifest before the Closing Date
or arises or becomes manifest on or after the Closing Date) caused (or allegedly
caused) by the presence or Release of Hazardous Substances at, on, in, under,
adjacent to or migrating from the Purchased Assets prior to, on or after the
Closing Date, including, but not limited to, Hazardous Substances contained in
building materials at or adjacent to the Purchased Assets or in the soil,
surface water, sediments, groundwater, landfill cells, or in other environmental
media at or near the Purchased Assets; and (iii) the Remediation (whether or not
such Remediation commenced before the Closing Date or commences on or after the
Closing Date) of Hazardous Substances that are present or have been Released
prior to, on or after the Closing Date at, on, in, under, adjacent to or
migrating from, the Purchased Assets or in the soil, surface water, sediments,
groundwater, landfill cells or in other environmental media at or adjacent to
the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d)
shall require Buyer to assume any liabilities or obligations that are expressly
excluded in Section 2.4 including, without limitation, liability for toxic torts
as set forth in Section 2.4(i).
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(e) All liabilities and obligations of Seller with respect to
the Purchased Assets under the agreements or consent orders set forth on
Schedule 4.7 arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or after the Closing Date, except
for any Income Taxes attributable to income received by Seller.
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to
pay, perform or otherwise discharge the following liabilities or obligations
(the "Excluded Liabilities"):
(a) Any liabilities or obligations of Seller that are not
expressly set forth as liabilities or obligations being assumed by Buyer in
Section 2.3 and any liabilities or obligations in respect of any Excluded Assets
or other assets of Seller which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes
attributable to the ownership, operation or use of Purchased Assets for taxable
periods, or portions thereof, ending before the Closing Date, except for Taxes
for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof;
(c) Any liabilities or obligations of Seller accruing under any
of Seller's Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or
obligations to third parties (including employees) for personal injury or tort,
or similar causes of action arising solely out of the ownership or operation of
the Purchased Assets prior to the Closing Date, other than any liabilities or
obligations which have been assumed by Buyer in Section 2.3(d);
(e) Any fines, penalties or costs imposed by a Governmental
Authority resulting from (i) an investigation, proceeding, request for
information or inspection before or by a Governmental Authority pending prior to
the Closing Date but only regarding acts which occurred prior to the Closing
Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller
prior to the Closing Date, other than, any such fines, penalties or costs which
have been assumed by Buyer in Section 2.3(d);
(f) Any payment obligations of Seller for goods delivered or
services rendered prior to the Closing Date, including, but not limited to,
rental payments pursuant to the Real Property Leases;
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(g) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with loss of life, injury to persons or property
or damage to natural resources (whether or not such loss, injury or damage arose
or was made manifest before the Closing Date or arises or becomes manifest on or
after the Closing Date) to the extent caused (or allegedly caused) by the
off-Site disposal, storage, transportation, discharge, Release, or recycling of
Hazardous Substances, or the arrangement for such activities, of Hazardous
Substances, prior to the Closing Date, in connection with the ownership or
operation of the Purchased Assets, provided that for purposes of this Section
"off-Site" does not include any location to which Hazardous Substances disposed
of or Released at the Purchased Assets have migrated;
(h) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with the investigation and/or Remediation
(whether or not such investigation or Remediation commenced before the Closing
Date or commences on or after the Closing Date) of Hazardous Substances that are
disposed, stored, transported, discharged, Released, recycled, or the
arrangement of such activities, prior to the Closing Date, in connection with
the ownership or operation of the Purchased Assets, at any off-Site location,
provided that for purposes of this Section "off-Site" does not include any
location to which Hazardous Substances disposed of or Released at the Purchased
Assets have migrated;
(i) Third party liability for toxic torts arising as a result
of or in connection with loss of life or injury to persons (whether or not such
loss or injury arose or was made manifest on or after the Closing Date) caused
(or allegedly caused) by the presence or Release of Hazardous Substances at, on,
in, under, adjacent to or migrating from the Purchased Assets prior to the
Closing Date;
(j) Civil or criminal fines or penalties wherever assessed or
incurred for violations of Environmental Laws arising from the operation of the
Purchased Assets prior to the Closing Date;
(k) Subject to Section 6.10, any liabilities or obligations
relating to any Benefit Plan maintained by Seller or any trade or business
(whether or not incorporated) which is or ever has been under common control, or
which is or ever has been treated as a single employer, with Seller under
Section 414(b),
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(c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA
Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including but
not limited to any liability with respect to any such plan (i) for benefits
payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under
Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan
within the meaning of Section 3(37) of ERISA; (iv) for non-compliance with the
notice and benefit continuation requirements of COBRA; (v) for noncompliance
with ERISA or any other applicable laws; or (vi) arising out of or in connection
with any suit, proceeding or claim which is brought against Buyer, any Benefit
Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such
Benefit Plan or ERISA Affiliate Plan;
(l) Subject to Section 6.10, any liabilities or obligations
relating to the employment or termination of employment, by Seller, or any
Affiliate of Seller, of any individual, that is attributable to any actions or
inactions (including discrimination, wrongful discharge, unfair labor practices
or constructive termination) by Seller prior to the Closing Date other than such
actions or inactions taken at the written direction of Buyer;
(m) Subject to Section 6.10, any obligations for wages,
overtime, employment taxes, severance pay, transition payments in respect of
compensation or similar benefits accruing or arising prior to the Closing under
any term or provision of any contract, plan, instrument or agreement relating to
any of the Purchased Assets;
(n) Any liability of Seller arising out of a breach by Seller
or any of its Affiliates of any of their respective obligations under this
Agreement or the Ancillary Agreements; and
(o) Any liability relating to the Pollution Control Revenue
Bonds except as provided in Section 6.12.
2.5 Control of Litigation. The Parties agree and acknowledge that
Seller shall be entitled exclusively to control, defend and settle any
litigation, administrative or regulatory proceeding, and any investigation or
Remediation activities (including without limitation any environmental
mitigation or Remediation activities), arising out of or related to any Excluded
Liabilities, and Buyer agrees to cooperate fully in connection therewith;
provided, however, that without Buyer's written consent, which shall not be
unreasonably withheld or delayed, Seller shall not settle any such litigation,
administrative or regulatory proceeding which would result in a material adverse
effect on the related Purchased Assets.
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ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions contained in Article VII of this Agreement, the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment
of the Purchase Price to Seller, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be held at the offices of Berlack, Israels &
Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time,
or another mutually acceptable time and location, on the date that is fifteen
(15) Business Days following the date on which the last of the conditions
precedent to Closing set forth in Article VII of this Agreement have been either
satisfied or waived by the Party for whose benefit such conditions precedent
exist or such other date as the Parties may mutually agree. The date of Closing
is hereinafter called the "Closing Date." The Closing shall be effective for all
purposes as of 12:01 a.m. on the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Seller at the Closing an
aggregate amount of one hundred eighty-seven million one hundred seventy-one
thousand three hundred seventy United States Dollars (U.S. $187,171,370.00) (the
"Purchase Price") plus or minus any adjustments pursuant to the provisions of
this Agreement, by wire transfer of immediately available funds denominated in
U.S. dollars or by such other means as are agreed upon by Seller and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at
the Closing, the Purchase Price shall be adjusted, without duplication, to
account for the items set forth in this Section 3.3(a):
(i) The Purchase Price shall be increased or
decreased, as applicable, to reflect the difference between the book
value of all Inventories as of the Closing Date and the value of all
Inventories as of June 30, 1998 as reflected on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to
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account for the items prorated as of the Closing Date pursuant to
Section 3.5.
(iii) The Purchase Price shall be increased by the
amount expended, or for which liabilities are incurred, by Seller
between the date hereof and the Closing Date for capital additions to
or replacements of property, plant and equipment included in the
Purchased Assets and other expenditures or repairs on property, plant
and equipment included in the Purchased Assets that would be
capitalized by Seller in accordance with normal accounting policies of
Seller and its Affiliates (together, "Capital Expenditures"), which are
not described on Schedule 6.1 and which either (A) are mandated after
the date of this Agreement by any Governmental Authority (subject to
Buyer's right reasonably to direct Seller to contest such mandates by
appropriate proceedings at Buyer's expense and provided there is no
adverse impact on the Purchased Assets); or (B) do not fall within
category (A) above but do not exceed in the aggregate $2 million for
all Aggregate Purchased Assets; or (C) are approved in writing by
Buyer.
(b) At least ten (10) Business Days prior to the Closing Date,
Seller shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth Seller's best estimate of
the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated
Adjustment"). Within five (5) Business Days following the delivery of the
Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith
to the Estimated Adjustment in writing. If Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If the Parties are unable to do so within three (3) Business Days
prior to the Closing Date (or if Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for
the Closing by the amount of the Estimated Adjustment not in dispute. The
disputed portion shall be paid as a Post-Closing Adjustment to the extent
required by Section 3.3(c).
(c) Within sixty (60) days following the Closing Date, Seller
shall prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all adjustments to the Purchase Price required
by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement
shall be prepared using the same accounting principles, policies and methods as
Seller has historically used in connection with the calculation of the items
reflected on such Post-Closing Statement. Within thirty (30) days following the
delivery of the Post-Closing Statement by Seller to Buyer, Buyer may object to
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the Post-Closing Adjustment in writing. Seller agrees to cooperate with Buyer to
provide Buyer and Buyer's Representatives information used to prepare the
Post-Closing Statement and information relating thereto. If Buyer objects to the
Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by
negotiation. If the Parties are unable to resolve such dispute within thirty
(30) days of any objection by Buyer, the Parties shall appoint the Independent
Accounting Firm, which shall, at Seller's and Buyer's joint expense, review the
Post-Closing Adjustment and determine the appropriate adjustment to the Purchase
Price, if any, within thirty (30) days of such appointment. The Parties agree to
cooperate with the Independent Accounting Firm and provide it with such
information as it reasonably requests to enable it to make such determination.
The finding of such Independent Accounting Firm shall be binding on the Parties
hereto. Upon determination of the appropriate adjustment by agreement of the
Parties or by binding determination of the Independent Accounting Firm, if the
Post-Closing Adjustment is more or less than the Closing Adjustment, the Party
owing the difference shall deliver such difference to the other Party no later
than two (2) Business Days after such determination, in immediately available
funds or in any other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Seller shall endeavor to
agree upon an allocation among the Purchased Assets of the sum of the Purchase
Price and the Assumed Liabilities in a manner consistent with the provisions of
Section 1060 of the Code and the Treasury Regulations thereunder within sixty
(60) days of the date of this Agreement. Each of Buyer and Seller agrees to file
Internal Revenue Service Form 8594, and all federal, state, local and foreign
Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and
Seller shall report the transactions contemplated by this Agreement for federal
Tax and all other Tax purposes in a manner consistent with any such agreed to
allocation determined pursuant to this Section 3.4. Each of Buyer and Seller
agrees to provide the other promptly with any information required to complete
Form 8594. Buyer and Seller shall notify and provide the other with reasonable
assistance in the event of an examination, audit or other proceeding regarding
any allocation of the Purchase Price agreed to pursuant to this Section 3.4.
3.5 Prorations. (a) Buyer and Seller agree that all of the items
normally prorated, including those listed below (but not including Income
Taxes), relating to the business and operation of the Purchased Assets shall be
prorated as of the Closing Date, with Seller liable to the extent such items
relate to any time period prior to the Closing Date, and Buyer liable to the
extent such items relate to periods commencing with the Closing Date
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(measured in the same units used to compute the item in question, otherwise
measured by calendar days):
(i) Personal property, real estate and occupancy
Taxes, assessments and other charges, if any, on or with respect to the
business and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including
prepaid services or goods not included in Inventory) payable by or to
Seller under any of Seller's Agreements;
(iii) Any permit, license, registration, compliance
assurance fees or other fees with respect to any Transferable Permit;
(iv) Sewer rents and charges for water, telephone,
electricity and other utilities; and
(v) Rent and Taxes and other items payable by Seller
under the Real Property Leases assigned to Buyer.
(b) In connection with the prorations referred to in (a)
above, in the event that actual figures are not available at the Closing Date,
the proration shall be based upon the actual Taxes or other amounts accrued
through the Closing Date or paid for the most recent year (or other
appropriate period) for which actual Taxes or other amounts paid are
available. Such prorated Taxes or other amounts shall be re-prorated and paid
to the appropriate Party within sixty (60) days of the date that the
previously unavailable actual figures become available. The prorations shall
be based on the number of days in a year or other appropriate period (i)
before the Closing Date and (ii) including and after the Closing Date. Seller
and Buyer agree to furnish each other with such documents and other records as
may be reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 3.5.
3.6 Deliveries by Seller. At the Closing, Seller will deliver, or
cause to be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by Seller;
(b) Copies of any and all governmental and other third party
consents, waivers or approvals required with respect to the transfer of the
Purchased Assets, or the consummation of the transactions contemplated by this
Agreement;
(c) The opinions of counsel and officer's certificates
contemplated by Section 7.1;
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(d) One or more bargain and sale deeds with covenants against
grantors acts, conveying the Real Property to Buyer, in substantially the form
of Exhibit F hereto, duly executed and acknowledged by Seller and in recordable
form;
(e) The Assignment and Assumption Agreement and any Ancillary
Agreements which are not executed on the date hereof, duly executed by Seller;
(f) A FIRPTA Affidavit, duly executed by Seller;
(g) Copies, certified by the Secretary or Assistant Secretary
of Seller, of corporate resolutions authorizing the execution and delivery of
this Agreement and all of the agreements and instruments to be executed and
delivered by Seller in connection herewith, and the consummation of the
transactions contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of
Seller identifying the name and title and bearing the signatures of the officers
of Seller authorized to execute and deliver this Agreement and the other
agreements and instruments contemplated hereby;
(i) Certificates of Good Standing with respect to Seller,
issued by the Secretary of the State of Seller's state of incorporation;
(j) To the extent available, originals of all Seller's
Agreements, Real Property Leases, Permits, Environmental Permits, and
Transferable Permits and, if not available, true and correct copies thereof,
together with the items referred to in Section 2.1(g);
(k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary or desirable to transfer to Buyer the Purchased Assets, in accordance
with this Agreement and where necessary or desirable in recordable form;
(l) Notices, signed by Seller, to all other parties to the
material Seller's Agreements where notice to such parties is required under the
terms of such Seller's Agreements or pursuant to Section 6.5(d) hereof;
(m) Reliance letters from Woodward & Clyde with respect to the
Environmental Reports prepared by Woodward & Clyde concerning the Purchased
Assets and made available for review by Buyer; and
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(n) Such other agreements, documents, instruments and writings
as are required to be delivered by Seller at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or
cause to be delivered, the following to Seller:
(a) The Purchase Price, as adjusted pursuant to Section 3.3,
by wire transfer of immediately available funds in accordance with Seller's
instructions or by such other means as may be agreed to by Seller and Buyer;
(b) The opinions of counsel and officer's certificates
contemplated by Section 7.2;
(c) The Assignment and Assumption Agreement and any Ancillary
Agreements which are not executed on the date hereof, duly executed by Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary
of Buyer, of resolutions authorizing the execution and delivery of this
Agreement, the Guaranty and all of the agreements and instruments to be executed
and delivered by Buyer in connection herewith, and the consummation of the
transactions contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary of
Buyer, identifying the name and title and bearing the signatures of the officers
of Buyer authorized to execute and deliver this Agreement, the Guaranty and the
other agreements contemplated hereby;
(f) All such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Buyer to assume
the Assumed Liabilities in accordance with this Agreement;
(g) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the transfer of
the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement and where necessary or desirable in recordable forms;
(h) Certificates of Insurance relating to the insurance
policies required pursuant to Article 10 of the Interconnection Agreement; and
(i) Such other agreements, documents, instruments and writings
as are required to be delivered by Buyer at or prior to
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the Closing Date pursuant to this Agreement or otherwise reasonably required in
connection herewith.
3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary
Agreements, other than the Merrill Creek Sublease Agreement and Easement
Agreements have been executed on the date hereof.
3.9 Easement Agreements. At the Closing, Buyer and Seller shall execute
for each Site an Easement Agreement in the form attached hereto as Exhibit C,
completed as required to cause the entity owning such Site to grant such
Easements and licenses as are contemplated by such form of agreement and
Exhibits B (Distribution Facilities), Exhibits C (Transmission Facilities),
Exhibits F (Distribution Substation), and Exhibits G (Main Substation) thereto,
forms of which are attached thereto. Such forms of Exhibits B, C, F and G to the
agreements are subject to revision as the Parties may agree. The Parties shall
engage in reasonable and good faith negotiations regarding such revisions so as
to minimize the impact of the Seller's Easements, Easement areas and licenses on
the Sites and Buyer's use thereof, consistent with the enjoyment by Seller of
such Easements and license rights as Seller reasonably requires to continue its
use, operation and maintenance of the Excluded Assets in the places where they
are located on the Closing Date.
The Parties shall also engage in reasonable, good faith
negotiations to agree upon the (i) provisions of the Agreement relating to the
Site known as Forked River and (ii) rules and regulations under which Buyer will
grant to Seller access to the Sites, and under which Seller will grant to Buyer
access to Seller's Easements and Easement areas. Such rules and regulations
shall be memorialized as Exhibit J to each agreement.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Incorporation; Qualification. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation and has all requisite corporate power and authority to own,
lease, and operate its material properties and assets and to carry on its
business as is now being conducted. Seller is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which its business as now being conducted
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shall require it to be so qualified, except where the failure to be so qualified
would not have a Material Adverse Effect. Seller has heretofore delivered to
Buyer true, complete and correct copies of its Certificate of Incorporation and
Bylaws as currently in effect.
4.2 Authority Relative to this Agreement. Seller has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Seller and the consummation of the transactions contemplated by
Seller hereby have been duly and validly authorized by all necessary corporate
action required on the part of Seller and this Agreement has been duly and
validly executed and delivered by Seller. Subject to the receipt of Seller's
Required Regulatory Approvals, this Agreement constitutes the legal, valid and
binding agreement of Seller, enforceable against Seller in accordance with its
terms, except that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
4.3 Consents and Approvals; No Violation. (a) Except as set forth in
Schedule 4.3(a), and subject to obtaining Seller's Required Regulatory
Approvals, neither the execution and delivery of this Agreement by Seller nor
the consummation by Seller of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of Seller, (ii) result in a default (or give rise to any
right of termination, consent, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Seller is a party or by
which it, or any of the Purchased Assets may be bound, except for such defaults
(or rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained or which, would not, individually or in
the aggregate, create a Material Adverse Effect; or (iii) constitute violations
of any law, regulation, order, judgment or decree applicable to Seller, which
violations, individually or in the aggregate, would create a Material Adverse
Effect, or create any Encumbrance other than a Permitted Encumbrance.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Seller's Required Regulatory Approvals"), no consent or approval of, filing
with, or notice to, any Governmental Authority by or for Seller is necessary for
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the execution and delivery of this Agreement by Seller, or the consummation by
Seller of the transactions contemplated hereby, other than (i) such consents,
approvals, filings or notices which, if not obtained or made, will not prevent
Seller from performing its material obligations hereunder and (ii) such
consents, approvals, filings or notices which become applicable to Seller or the
Purchased Assets as a result of the specific regulatory status of Buyer (or any
of its Affiliates) or as a result of any other facts that specifically relate to
the business or activities in which Buyer (or any of its Affiliates) is or
proposes to be engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material
policies of fire, liability, workers' compensation and other forms of insurance
owned or held by, or on behalf of, Seller with respect to the business,
operations or employees at the Plants or the Purchased Assets are in full force
and effect, all premiums with respect thereto covering all periods up to and
including the date hereof have been paid (other than retroactive premiums which
may be payable with respect to comprehensive general liability and workers'
compensation insurance policies), and no notice of cancellation or termination
has been received with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such cancellation. Except as
described in Schedule 4.4, within the 36 months preceding the date of this
Agreement, Seller has not been refused any insurance with respect to the
Purchased Assets nor has coverage been limited by any insurance carrier to which
Seller has applied for any such insurance or with which Seller has carried
insurance during the last 12 months.
4.5 Title and Related Matters. Except as set forth in Schedule 4.5 and
subject to Permitted Encumbrances, (i) Seller is the owner of record title to
the Real Property (or the interest in the Real Property as set forth in Schedule
2.1) and has good and valid title to the other Purchased Assets which it
purports to own, free and clear of all material Encumbrances of which the Seller
has knowledge and (ii) Seller shall convey to Buyer such title with respect to
the Real Property or interest therein as a reputable title company doing
business in the Commonwealth of Pennsylvania would insure.
4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this
Agreement, all material real property leases under which Seller is a lessee or
lessor and which relate to the Purchased Assets ("Real Property Leases"). Except
as set forth in Schedule 4.6, all such leases are valid, binding and enforceable
against Seller in accordance with their terms; there are no existing material
defaults by Seller or, to Seller's Knowledge, any other party thereunder; and no
event has occurred
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which (whether with or without notice, lapse of time or both) would constitute a
material default by Seller or, to Seller's Knowledge, any other party
thereunder. Seller has delivered to Buyer true, correct and complete copies of
each of the material Real Property Leases.
4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in
the "Phase I" and "Phase II" environmental site assessments prepared by Seller's
outside environmental consultants ("Environmental Reports") and made available
for inspection by Buyer:
(a) Seller holds, and is in substantial compliance with, all
permits, certificates, certifications, licenses and governmental authorizations
under Environmental Laws ("Environmental Permits") that are required for Seller
to conduct the business and operations of the Purchased Assets, and each of
Seller is otherwise in compliance with applicable Environmental Laws with
respect to the business and operations of such Purchased Assets except for such
failures to hold or comply with required Environmental Permits, or such failures
to be in compliance with applicable Environmental Laws, as would not,
individually or in the aggregate, create a Material Adverse Effect;
(b) Seller has not received any written request for
information, or been notified that it is a potentially responsible party, under
CERCLA or any similar state law with respect to the Real Property or any other
Purchased Assets;
(c) Seller has not entered into or agreed to any consent
decree or order relating to the Purchased Assets, or is not subject to any
outstanding judgment, decree, or judicial order relating to compliance with any
Environmental Law or to investigation or cleanup of Hazardous Substances under
any Environmental Law relating to the Purchased Assets.
(d) To Seller's Knowledge, no Releases of Hazardous Substances
have occurred at, from, in, on, or under any Site, and no Hazardous Substances
are present in, on, about or migrating from any such Site that could give rise
to an Environmental Claim related to the Purchased Assets for which Remediation
reasonably could be required, except in any such case to the extent that any
such Releases would not, individually or in the aggregate, create a Material
Adverse Effect.
The representations and warranties made in this Section 4.7 are
Seller's exclusive representations and warranties relating to environmental
matters.
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4.8 Labor Matters. Seller has previously delivered to Buyer a true and
correct copy of the Collective Bargaining Agreement, which is the only
collective bargaining agreement to which it is a party or is subject and which
relates to the business and operations of the Purchased Assets. With respect to
the business or operations of such Purchased Assets, except to the extent set
forth in Schedule 4.8 and except for such matters as will not, individually or
in the aggregate, create a Material Adverse Effect, Seller (a) is in compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours; (b) has not received written
notice of any unfair labor practice complaint against it pending before the
National Labor Relations Board; (c) no arbitration proceeding arising out of or
under any collective bargaining agreement is pending against Seller; and (d)
Seller has not experienced any work stoppage within the three-year period prior
to the date hereof and to Seller's Knowledge none is currently threatened.
4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred
compensation, profit-sharing, retirement and pension plans, including
multiemployer plans, and all material bonus, fringe benefit and other employee
benefit plans maintained or with respect to which contributions are made by
Seller, Genco, GPUN or GPUS in respect of the current employees of Seller,
Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True
and complete copies of all Benefit Plans have been made available to Buyer.
(b) Except as set forth in Schedule 4.9(b), Seller and the ERISA
Affiliates have fulfilled their respective obligations under the minimum funding
requirements of Section 302 of ERISA, and Section 412 of the Code, with respect
to each Benefit Plan which is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code and has
been administered in all material respects in accordance with its terms as set
forth in the documents governing such Benefit Plan. Except as set forth in
Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any
liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty
Corporation in connection with any Benefit Plan which is subject to Title IV of
ERISA or any withdrawal liability with respect to any Benefit Plan, within the
meaning of Section 4021 of ERISA, nor is there any reportable event (as defined
in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth
in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each
Benefit Plan which is intended to be qualified under Section 401(a) of the Code,
which letter determines that such plan is qualified and exempt from United
States Federal Income
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Tax under Section 401(a) and 501(a) of the Code, and Seller is not aware of any
occurrence since the date of any such determination letter which would affect
adversely such qualification or tax exemption.
(c) Neither Seller nor any ERISA Affiliate has engaged in any
transaction described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit
Plan is a multiemployer plan.
(d) Seller and Sellers' Affiliates have materially complied in good
faith with the notice and continuation requirements of Section 4980B of the
Code, and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit
Plan. Seller and each ERISA Affiliate have complied in all material respects
with the requirements of Part 7 of Title I of ERISA.
4.10 Real Property. Schedule 4.10 contains a description of the Real
Property included in the Purchased Assets. Copies of any current surveys,
abstracts or title opinions in Seller's possession and any policies of title
insurance in force and in the possession of Seller with respect to the Real
Property have heretofore been made available to Buyer (without making any
representation or warranty as to the accuracy or completeness thereof). Except
as set forth in Schedule 4.10A, no real property other than the Real Property is
necessary for Buyer to own, maintain and operate the Purchased Assets as they
are currently used.
4.11 Condemnation. Except as set forth in Schedule 4.11, Seller has
not received any written notices of and otherwise has no Knowledge of any
pending or threatened proceedings or governmental actions to condemn or take by
power of eminent domain all or any part of the Purchased Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written
contract, license, agreement, or personal property lease which is material to
the business or operations of the Purchased Assets, other than any contract,
license, agreement or personal property lease which is listed or described on
another Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by Seller after the date
hereof of less than $250,000 or payments by Seller after the date hereof of less
than $1,000,000 in the aggregate.
(b) Except as disclosed in Schedule 4.12(b), each Seller's
Agreement (i) constitutes a legal, valid and binding obligation of Seller and,
to Seller's Knowledge, constitutes a valid and binding obligation of the other
parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement
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without the consent of the other parties thereto and will continue in full force
and effect thereafter, unless in any such case the impact of such lack of
legality, validity or binding nature, or inability to transfer, would not,
individually or in the aggregate, create a Material Adverse Effect.
(c) Except as set forth in Schedule 4.12(c), there is not,
under Seller's Agreements, any default or event which, with notice or lapse of
time or both, would constitute a default on the part of Seller or to Seller's
Knowledge, any of the other parties thereto, except such events of default and
other events which would not, individually or in the aggregate, create a
Material Adverse Effect.
4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13,
there are no actions or proceedings pending (or to Seller's knowledge overtly
threatened) against Seller before any court, arbitrator or Governmental
Authority, which could, individually or in the aggregate, reasonably be expected
to create a Material Adverse Effect. Except as set forth in Schedule 4.13,
Seller is not subject to any outstanding judgments, rules, orders, writs,
injunctions or decrees of any court, arbitrator or Governmental Authority which
would, individually or in the aggregate, create a Material Adverse Effect.
4.14 Permits. (a) Seller has all permits, licenses, franchises and
other governmental authorizations, consents and approvals, (other than
Environmental Permits, which are addressed in Section 4.7 hereof) (collectively,
"Permits") necessary to permit Seller to own and operate the Purchased Assets
except where the failure to have such Permits would not, individually or in the
aggregate, create a Material Adverse Effect. Except as disclosed on Schedule
4.14(a), Seller has not received any notification that it is in violation of any
such Permits, except notifications of violations which would not, individually
or in the aggregate, create a Material Adverse Effect. Seller is in compliance
with all such Permits except where non-compliance would not, individually or in
the aggregate, create a Material Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits and
Environmental Permits, other than Transferable Permits (which are set forth on
Schedule 1.1(100)) related to the Purchased Assets.
4.15 Taxes. Seller has filed all returns required to be filed by it
with respect to any Tax relating to the Purchased Assets, and Seller has paid
all Taxes that have become due as indicated thereon, except where such Tax is
being contested in
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good faith by appropriate proceedings, or where the failure to so file or pay
would not reasonably be expected to create a Material Adverse Effect. Seller has
complied in all material respects with all applicable laws, rules and
regulations relating to withholding Taxes relating to Transferred Employees. All
Tax Returns relating to the Purchased Assets are true, correct and complete in
all material respects. Except as set forth in Schedule 4.15, no notice of
deficiency or assessment has been received from any taxing authority with
respect to liabilities for Taxes of Seller in respect of the Purchased Assets,
which have not been fully paid or finally settled, and any such deficiency shown
in Schedule 4.15 is being contested in good faith through appropriate
proceedings. Except as set forth in Schedule 4.15, there are no outstanding
agreements or waivers extending the applicable statutory periods of limitation
for Taxes associated with the Purchased Assets that will be binding upon Buyer
after the Closing. None of the Purchased Assets is property that is required to
be treated as being owned by any other person pursuant to the so-called safe
harbor lease provisions of former Section 168(f) of the Code, and none of the
Purchased Assets is "tax-exempt use" property within the meaning of Section
168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in which
Seller owns assets or conducts business that require a notification to a taxing
authority of the transactions contemplated by this Agreement, if the failure to
make such notification, or obtain Tax clearance certificates in connection
therewith, would either require Buyer to withhold any portion of the Purchase
Price or subject Buyer to any liability for any Taxes of Seller.
4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual
Property used in and, individually or in the aggregate with other Intellectual
Property, material to the operation or business of the Purchased Assets, each of
which Seller or its Affiliates either has all right, title and interest in or
valid and binding rights under contract to use. Except as disclosed in Schedule
4.16, (i) Seller is not, nor has it received any notice that it is, in default
(or with the giving of notice or lapse of time or both, would be in default),
under any contract to use such Intellectual Property, and (ii) to Seller's
Knowledge, such Intellectual Property is not being infringed by any other
Person. Seller has not received notice that it is infringing any Intellectual
Property of any other Person in connection with the operation or business of the
Purchased Assets, and Seller to its Knowledge, is not infringing any
Intellectual Property of any other Person the effect of which, individually or
in the aggregate, would have a Material Adverse Effect.
4.17 Capital Expenditures. Except as set forth in Schedule
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6.1, there are no capital expenditures associated with the Purchased Assets that
are planned by Seller through December 31, 1999.
4.18 Compliance With Laws. Seller is in compliance with all applicable
laws, rules and regulations with respect to the ownership or operation of the
Purchased Assets except where the failure to be in compliance would not,
individually or in the aggregate, create a Material Adverse Effect.
4.19 PUHCA. Seller is a wholly owned subsidiary of GPU, Inc., which is
a holding company registered under the Public Utility Holding Company Act of
1935.
4.20 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER
INCIDENTS OF THE PURCHASED ASSETS AND SELLER SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS
SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS
WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF
THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS
A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER
MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY SELLER OR ITS
REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS.
Seller makes no warranties and representations of any kind, whether
direct or implied, that any of the hardware, software, and firmware products
(including embedded microcontrollers in non-computer equipment) which may be
included in the Purchased
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Assets to be transferred under this Agreement (the "Computer Systems") is Year
2000 Compliant. For purposes hereof, "Year 2000 Compliant" shall mean that the
Computer Systems will correctly differentiate between years, in different
centuries, that end in the same two digits, and will accurately process
date/time data (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
including leap year calculations.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization. Buyer is a Delaware corporation, duly organized,
validly existing and in good standing under the laws of the state of its
organization and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted. Buyer is, or by the Closing will be, qualified to do business in the
State of New Jersey. Buyer has heretofore delivered to Seller complete and
correct copies of its Certificate of Incorporation and Bylaws (or other similar
governing documents) as currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Buyer and the consummation of the transactions contemplated hereby
by Buyer has been duly and validly authorized by all necessary corporate action
required on the part of Buyer. This Agreement have been duly and validly
executed and delivered by Buyer. Subject to the receipt of Buyer Required
Regulatory Approvals, this Agreement constitutes a legal, valid and binding
agreement of Buyer, enforceable against Buyer in accordance with its terms,
except that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and subject to
obtaining Buyer Required Regulatory Approvals, neither the execution and
delivery of this Agreement by Buyer nor the consummation by Buyer of the
transactions contemplated hereby
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will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws (or other similar governing documents) of
Buyer, or (ii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, material agreement or other instrument
or obligation to which Buyer or any of its Subsidiaries is a party or by which
any of their respective assets may be bound, except for such defaults (or rights
of termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which would not, individually or in the
aggregate, have a material adverse effect on the business, assets, operations or
condition (financial or otherwise) of Buyer ("Buyer Material Adverse Effect") or
(iii) violate any law, regulation, order, judgment or decree applicable to
Buyer, which violations, individually or in the aggregate, would create a Buyer
Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer Required Regulatory Approvals"), no consent or approval of, filing with,
or notice to, any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement, or the consummation by Buyer of the transactions
contemplated hereby, other than such consents, approvals, filings or notices,
which, if not obtained or made, will not prevent Buyer from performing its
obligations under this Agreement.
5.4 Availability of Funds. Buyer has sufficient funds and lines of
credit available to it or has received binding written commitments from
creditworthy financial institutions, copies of which have been provided to
Seller, to provide sufficient funds on the Closing Date to pay the Purchase
Price and to permit Buyer to timely perform all of its obligations under this
Agreement.
5.5 Legal Proceedings. There are no actions or proceedings pending
against Buyer before any court or arbitrator or Governmental Authority, which,
individually or in the aggregate, could reasonably be expected to create a Buyer
Material Adverse Effect. Buyer is not subject to any outstanding judgments,
rules, orders, writs, injunctions or decrees of any court, arbitrator or
Governmental Authority which would, individually or in the aggregate, create a
Buyer Material Adverse Effect.
5.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any
breach by Seller of any representation or warranty of Seller, or of any other
condition or circumstance that would excuse Buyer from its timely performance of
its
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obligations hereunder. Buyer shall notify Seller promptly if any such
information comes to its attention prior to the Closing.
5.7 Qualified Buyer. Buyer is qualified to obtain any Permits and
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of
any reason or circumstance that would prevent Buyer from procuring Buyer
Required Regulatory Approvals associated with Exempt Wholesale Generator (as
defined in the Public Utility Holding Company Act of 1935) status and
market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b).
5.8 Inspections. Without limitation of Seller's representations,
warranties and covenants contained in this Agreement or the Ancillary
Agreements, Buyer acknowledges and agrees that it has, prior to its execution of
this Agreement, (i) reviewed the Environmental Reports, (ii) had full
opportunity to conduct to its satisfaction Inspections of the Purchased Assets,
including the Sites, and (iii) fully completed and approved the results of all
Inspections of the Purchased Assets. Subject to the restrictions set forth in
Section 6.2(a), Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Sites is
necessary for the purposes of acquiring the Purchased Assets for Buyer's
intended use. Buyer acknowledges and agrees that it hereby assumes the risk that
adverse past, present, and future physical characteristics and Environmental
Conditions may not have been revealed by its Inspections and the investigations
of the Purchased Assets contained in the Environmental Reports. In making its
decision to execute this Agreement, and to purchase the Purchased Assets, Buyer
has relied on and will rely upon, among other things, the results of its
Inspections and the Environmental Reports.
5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or
Mass Layoff as such terms are defined in the WARN Act within sixty days of the
Closing Date.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets.
(a) Except as described in Schedule 6.1 or as expressly
contemplated by this Agreement or to the extent Buyer otherwise consents in
writing, during the period from the date of this Agreement to the Closing Date,
Seller (i) will operate the
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Purchased Assets in the ordinary course of business consistent with the past
practices of Seller, or its Affiliates or with Good Utility Practices, (ii)
shall use all Commercially Reasonable Efforts to preserve intact such Purchased
Assets, and endeavor to preserve the goodwill and relationships with customers,
suppliers and others having business dealings with it, (iii) shall maintain the
insurance coverage described in Section 4.4, (iv) shall comply with all
applicable laws relating to the Purchased Assets, including without limitation,
all Environmental Laws, except where the failure to so comply would not result
in a Material Adverse Effect, and (v) shall continue with Seller's program, or
(at Buyer's expense) as Buyer may direct, to install such equipment or software
with respect to Year 2000 Compliance in accordance with Seller's plans referred
to in Section 2.1(k). Without limiting the generality of the foregoing, and,
except as (x) contemplated in this Agreement, (y) described in Schedule 6.1, or
(z) required under applicable law or by any Governmental Authority, prior to the
Closing Date, without the prior written consent of Buyer, Seller shall not with
respect to the Purchased Assets:
(i) Make any material change in the levels of
Inventories customarily maintained by Seller or its Affiliates with
respect to the Purchased Assets, other than changes which are
consistent with Good Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge,
transfer or otherwise dispose of, any material Purchased Assets
individually or in the aggregate (except for Purchased Assets used,
consumed or replaced in the ordinary course of business consistent with
past practices of Seller or its Affiliates or with Good Utility
Practices) other than to encumber Purchased Assets with Permitted
Encumbrances;
(iii) Modify, amend or voluntarily terminate prior to
the expiration date any of Seller's Agreements or Real Property Leases
or any of the Permits or Environmental Permits associated with such
Purchased Assets in any material respect, other than (a) in the
ordinary course of business, to the extent consistent with the past
practices of Seller or its Affiliates or with Good Utility Practices,
(b) with cause, to the extent consistent with past practices of Seller
or its Affiliates or with Good Utility Practices, or (c) as may be
required in connection with transferring Seller's rights or obligations
thereunder to Buyer pursuant to this Agreement;
(iv) Except as otherwise provided herein, enter into
any commitment for the purchase, sale, or transportation of fuel having
a term greater than six months
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and not terminable on or before the Closing Date either (i)
automatically, or (ii) by option of Seller (or, after the Closing, by
Buyer) in its sole discretion, if the aggregate payment under such
commitment for fuel and all other outstanding commitments for fuel not
previously approved by Buyer would exceed $1,000,000 for all Aggregate
Purchased Assets;
(v) Sell, lease or otherwise dispose of Emission
Allowances, or Emission Reduction Credits identified in Schedule
2.1(h), except to the extent necessary to operate the Purchased Assets
in accordance with this Section 6.1;
(vi) Except as otherwise provided herein, enter into
any contract, agreement, commitment or arrangement relating to the
Purchased Assets that individually exceeds $250,000 or in the aggregate
exceeds $1,000,000 unless it is terminable by Seller (or, after the
Closing, by Buyer) without penalty or premium upon no more than sixty
(60) days notice;
(vii) Except as otherwise required by the terms of
the Collective Bargaining Agreement, (a) hire at, or transfer to the
Purchased Assets, any new employees prior to the Closing, other than to
fill vacancies in existing positions in the reasonable discretion of
Seller, (b) increase salaries or wages of employees employed in
connection with the Purchased Assets prior to the Closing other than in
the ordinary course of business and in accordance with Seller's past
practices, (c) take any action prior to the Closing to effect a change
in a Collective Bargaining Agreement, or (d) take any action prior to
the Closing to increase the aggregate benefits payable to the employees
employed in connection with the Purchased Assets other than increases
for Non-Union Employees in the ordinary course of business and in
accordance with Seller's past practices or (e) enter into any
employment contracts with employees at the Purchased Assets or any
collective bargaining agreements with labor organizations representing
such employees;
(viii) Make any Capital Expenditures except as
permitted by Section 3.3(a)(iii) or for Seller's account; and
(ix) Except as otherwise provided herein, enter into
any written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed
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transactions set forth in the foregoing paragraphs (i) through (viii).
6.2 Access to Information.
(a) Between the date of this Agreement and the Closing Date,
Seller will, at reasonable times and upon reasonable notice: (i) give Buyer and
its Representatives reasonable access to its managerial personnel and to all
books, records, plans, equipment, offices and other facilities and properties
constituting the Purchased Assets; (ii) furnish Buyer with such financial and
operating data and other information with respect to the Purchased Assets as
Buyer may from time to time reasonably request, and permit Buyer to make such
reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its
request a copy of each material report, schedule or other document filed by
Seller or any of its Affiliates with respect to the Purchased Assets with the
SEC, FERC, NJDEP, NJBPU or any other Governmental Authority; and (iv) furnish
Buyer with all such other information as shall be reasonably necessary to enable
Buyer to verify the accuracy of the representations and warranties of Seller
contained in this Agreement; provided, however, that (A) any such inspections
and investigations shall be conducted in such a manner as not to interfere
unreasonably with the operation of the Purchased Assets, (B) Seller shall not be
required to take any action which would constitute a waiver of the
attorney-client privilege, and (C) Seller need not supply Buyer with any
information which Seller is under a legal or contractual obligation not to
supply. Notwithstanding anything in this Section 6.2 to the contrary, Seller
will only furnish or provide such access to Transferring Employee Records and
will not furnish or provide access to other employee personnel records or
medical information unless required by law or specifically authorized by the
affected employee, nor shall Buyer have the right to administer to any of
Seller's employees any skills, aptitudes, psychological profile, or other
employment related test. Buyer shall not have the right to perform or conduct
any environmental sampling or testing at, in, on, or underneath the Purchased
Assets.
(b) Each Party shall, and shall use its best efforts to cause
its Representatives to, (i) keep all Proprietary Information of the other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other than such Party's Representatives and (ii) not use such
Proprietary Information other than in connection with the consummation of the
transactions contemplated hereby. After the Closing Date, any Proprietary
Information to the extent related to the Purchased Assets shall no longer be
subject to the restrictions set forth herein. The obligations of the Parties
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under this Section 6.2(b) shall be in full force and effect for three (3) years
from the date hereof and will survive the termination of this Agreement, the
discharge of all other obligations owed by the Parties to each other and the
closing of the transactions contemplated by this Agreement.
(c) For a period of seven (7) years after the Closing Date (or
such longer period as may be required by applicable law or Section 6.8(f)), each
Party and its Representatives shall have reasonable access to all of the books
and records of the Purchased Assets, including all Transferring Employee Records
in the possession of the other Party to the extent that such access may
reasonably be required by such Party in connection with the Assumed Liabilities
or the Excluded Liabilities, or other matters relating to or affected by the
operation of the Purchased Assets. Such access shall be afforded by the Party in
possession of any such books and records upon receipt of reasonable advance
written notice and during normal business hours. The Party exercising this right
of access shall be solely responsible for any costs or expenses incurred by it
or the other Party with respect to such access pursuant to this Section 6.2(c).
If the Party in possession of such books and records shall desire to dispose of
any books and records upon or prior to the expiration of such seven-year period
(or any such longer period), such Party shall, prior to such disposition, give
the other Party a reasonable opportunity at such other Party's reasonable
expense, to segregate and remove such books and records as such other Party may
select.
(d) Notwithstanding the terms of Section 6.2(b) above, the
Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary
Information to any other Persons in connection with Buyer's financing of its
purchase of the Purchased Assets or any equity participation in Buyer's purchase
of the Purchased Assets (provided that such Persons agree in writing to maintain
the confidentiality of the Proprietary Information in accordance with this
Agreement).
(e) Upon the other Party's prior written approval (which will
not be unreasonably withheld or delayed), either Party may provide Proprietary
Information of the other Party to the NJBPU, the SEC, the FERC or any other
Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to obtain Seller's Required Regulatory Approvals, or Buyer Required
Regulatory Approvals, respectively, or to comply generally with any relevant law
or regulation. The disclosing Party will seek confidential treatment for the
Proprietary Information provided to any Governmental Authority and the
disclosing Party will
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notify the other Party as far in advance as is practicable of its intention to
release to any Governmental Authority any Proprietary Information.
(f) Except as specifically provided herein or in the
Confidentiality Agreement, nothing in this Section shall impair or modify any of
the rights or obligations of Buyer or its Affiliates under the Confidentiality
Agreement, all of which remain in effect until termination of such agreement in
accordance with its terms.
(g) Except as may be permitted in the Confidentiality
Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any
vendors, suppliers, employees, or other contracting parties of Seller or its
Affiliates with respect to any aspect of the Purchased Assets or the
transactions contemplated hereby, without the prior written consent of Seller,
which consent shall not be unreasonably withheld.
(h) (i) Buyer shall be entitled to inspect, in accordance with
this Section 6.2(h), all of the Purchased Assets located adjacent to any Point
of Interconnection (as defined in the Interconnection Agreement), as shown in
Schedule A to the Interconnection Agreement, to verify and/or determine the
accuracy of the data, drawings, and records described in such Schedule. The
Parties shall cooperate to schedule Buyer's inspection at the Plants so that any
interference with the operation of the Plants is minimized, to the extent
reasonably feasible, and so that Buyer may complete its inspections of the
Plants within thirty (30) working days of commencement of inspections and within
two (2) months after the execution of this Agreement.
(ii) Seller shall provide, or shall cause to be
provided, to Buyer, access to the Plants at the times scheduled for the
inspections referred to in clause (i) above. Seller shall provide qualified
engineering, operations, and maintenance personnel to escort Buyer's personnel
and to assist Buyer's personnel in conducting the inspections. Seller and Buyer
shall each bear their own costs of participating in the inspections. At a
mutually convenient time not more than one (1) month after Buyer has completed
its inspections, the Parties shall meet to discuss whether, as a result of the
inspections, it is appropriate to modify Schedule A to the Interconnection
Agreement to portray more accurately the Points of Interconnection. Any
modification to any portion of Schedule A of the Interconnection Agreement to
which the Parties agree shall thereafter be deemed part of Schedule A of the
Interconnection Agreement for all purposes under the Interconnection Agreement.
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6.3 Public Statements. Subject to the requirements imposed by any
applicable law or any Governmental Authority or stock exchange, prior to the
Closing Date, no press release or other public announcement or public statement
or comment in response to any inquiry relating to the transactions contemplated
by this Agreement shall be issued or made by any Party without the prior
approval of the other Parties (which approval shall not be unreasonably
withheld). The Parties agree to cooperate in preparing such announcements.
6.4 Expenses. Except to the extent specifically provided herein,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of any
title insurance policy and all endorsements thereto that Buyer elects to obtain
and (b) all filing fees under the HSR Act.
6.5 Further Assurances.
(a) Subject to the terms and conditions of this Agreement,
each of the Parties hereto shall use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the purchase and sale of the Purchased Assets pursuant to this
Agreement and the assumption of the Assumed Liabilities, including without
limitation using its best efforts to ensure satisfaction of the conditions
precedent to each Party's obligations hereunder, including obtaining all
necessary consents, approvals, and authorizations of third parties and
Governmental Authorities required to be obtained in order to consummate the
transactions hereunder, and to effectuate a transfer of the Transferable Permits
to Buyer. Buyer agrees to perform all conditions required of Buyer in connection
with Seller's Required Regulatory Approvals, other than those conditions which
would create a Buyer Material Adverse Effect. Neither of the Parties hereto
shall, without prior written consent of the other Party, take or fail to take
any action, which might reasonably be expected to prevent or materially impede,
interfere with or delay the transactions contemplated by this Agreement.
(b) Buyer agrees that prior to the Closing Date, neither Buyer
nor any of its Affiliates will enter into any other contract to acquire, nor
acquire, electric generation facilities located in the control area recognized
by the North American
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Reliability Council as the PJM Control Area if the proposed acquisition of such
additional electric generation facilities might reasonably be expected to
prevent or materially impede, interfere with or delay the transactions
contemplated by this Agreement. Buyer shall give Seller reasonable advance
notice (and in any event not less than 30 days) before Buyer enters into
contracts to acquire or acquires any electric generation facility located in
said PJM Control Area.
(c) In the event that any Purchased Asset shall not have been
conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(d) and
(e), use Commercially Reasonable Efforts to convey such asset to Buyer as
promptly as is practicable after the Closing. In the event that any Easement
shall not have been granted by Buyer to Seller at the Closing, Buyer shall use
Commercially Reasonable Efforts to grant such Easement to Seller as promptly as
is practicable after the Closing.
(d) To the extent that Seller's rights under any Seller's
Agreement or Real Property Lease may not be assigned without the consent of
another Person which consent has not been obtained by the Closing Date, this
Agreement shall not constitute an agreement to assign the same, if an attempted
assignment would constitute a breach thereof or be unlawful. Seller and Buyer
agree that if any consent to an assignment of any material Seller's Agreement or
Real Property Lease shall not be obtained or if any attempted assignment would
be ineffective or would impair Buyer's rights and obligations under the material
Seller's Agreement or Real Property Lease in question, so that Buyer would not
in effect acquire the benefit of all such rights and obligations, Seller, at
Buyer's option and to the maximum extent permitted by law and such material
Seller's Agreement or Real Property Lease, shall, after the Closing Date,
appoint Buyer to be Seller's agent with respect to such material Seller's
Agreement or Real Property Lease, or, to the maximum extent permitted by law and
such material Seller's Agreement or Real Property Lease, enter into such
reasonable arrangements with Buyer or take such other actions as are necessary
to provide Buyer with the same or substantially similar rights and obligations
of such material Seller's Agreement or Real Property Lease as Buyer may
reasonably request. Seller and Buyer shall cooperate and shall each use
Commercially Reasonable Efforts prior to and after the Closing Date to obtain an
assignment of such material Seller's Agreement or Real Property Lease to Buyer.
(e) To the extent that Seller's rights under any warranty or
guaranty described in Section 2.1(i) may not be assigned without the consent of
another Person, which consent has not been obtained by the Closing Date, this
Agreement shall not constitute an agreement to assign same, if an attempted
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assignment would constitute a breach thereof, or be unlawful. Seller and Buyer
agree that if any consent to an assignment of any such warranty or guaranty
shall not be obtained, or if any attempted assignment would be ineffective or
would impair Buyer's rights and obligations under the warranty or guaranty in
question, so that Buyer would not in effect acquire the benefit of all such
rights and obligations, Seller, at Buyer's expense, shall use Commercially
Reasonable Efforts, to the extent permitted by law and such warranty or
guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to
provide Buyer to the maximum extent possible with the benefits and obligations
of such warranty or guaranty.
(f) Between the date hereof and the Closing, Buyer shall have
the right to commence the regulatory approval processes associated with the
construction and operation of new, modified or repowered electric generating
units and associated equipment at the Real Property. Seller shall provide
reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining
all Permits required (i) to own and operate the Purchased Assets as contemplated
by the Agreement and the Ancillary Agreements and (ii) to construct and operate
such new or modified facilities, provided, however, that Buyer shall reimburse
Seller for all reasonable costs incurred by Seller in its assistance of Buyer
hereunder.
(g) Seller agrees to use Commercially Reasonable Efforts
(consistent with the PJM Regional Transmission Expansion Protocol) to assist
Buyer, at Buyer's sole expense, in Buyer's efforts to increase the generation
capacity at Forked River and to interconnect any such new Forked River capacity
with PJM as soon as practicable. To the extent that Seller plans to decommission
certain of Seller's generation capacity at Oyster Creek, Seller further agrees
to use Commercially Reasonable Efforts (consistent with the PJM Regional
Transmission Expansion Protocol) to allow such new Forked River capacity to
replace (by assignment or otherwise) the decommissioned Oyster Creek generation
capacity (for interconnection purposes with PJM) so as to minimize Buyer's
interconnection costs for any such new Forked River capacity.
6.6 Consents and Approvals.
(a) As promptly as possible after the date of this Agreement,
Seller and Buyer, as applicable, shall each file or cause to be filed with the
Federal Trade Commission and the United States Department of Justice any
notifications required to be filed under the HSR Act and the rules and
regulations promulgated thereunder with respect to the transactions contemplated
hereby. The Parties shall use their respective best
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efforts to respond promptly to any requests for additional information made by
either of such agencies, and to cause the waiting periods under the HSR Act to
terminate or expire at the earliest possible date after the date of filing.
Buyer will pay all filing fees under the HSR Act but each Party will bear its
own costs of the preparation of any filing.
(b) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting Exempt Wholesale
Generator status for Buyer, which filing may be made individually by Buyer or
jointly with Seller in conjunction with other filings to be made with the FERC
under this Agreement, as reasonably determined by the Parties. Prior to Buyer's
submission of that application with the FERC, Buyer shall submit such
application to Seller for review and comment and Buyer shall incorporate into
the application any revisions reasonably requested by Seller. Buyer shall be
solely responsible for the cost of preparing and filing this application, any
petition(s) for rehearing, or any re-application. If Buyer's initial application
for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to
petition the FERC for rehearing and/or to re-submit an application with the
FERC, as reasonably required by Seller, provided that in either case the action
directed by Seller does not create a Buyer Material Adverse Effect.
(c) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting authorization under
Section 205 of the Federal Power Act to sell electric generating capacity and
energy, but not other services, including, without limitation, ancillary
services, at wholesale at market-based rates, which filing may be made
individually by Buyer or jointly with Seller in conjunction with other filings
to be made with the FERC under this Agreement, as reasonably determined by the
Parties. Prior to the filing of that application with the FERC, Buyer shall
submit such application to Seller for review and comment and Buyer shall
incorporate into the application any revisions reasonably requested by Seller.
Buyer shall be solely responsible for the cost of preparing and filing this
application, any petition(s) for rehearing, or any reapplication. If Buyer's
initial application for market-based rate authorization results in a FERC
request for additional information or is rejected by the FERC, Buyer shall
provide that information promptly, to petition the FERC for rehearing and/or to
re-submit an application with the FERC, as reasonably required by Seller,
provided that Seller shall have a reasonable opportunity to make changes to such
a petition or re-submission application and, provided further, that the action
directed by Seller does not create a Buyer Material Adverse Effect.
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(d) As promptly as possible, and in any case within sixty (60)
days, after the date of this Agreement, Seller and Buyer, as applicable, shall
file with the NJBPU, the FERC and any other Governmental Authority, and make any
other filings required to be made with respect to the transactions contemplated
hereby. The Parties shall respond promptly to any requests for additional
information made by such agencies, and use their respective best efforts to
cause regulatory approval to be obtained at the earliest possible date after the
date of filing. Each Party will bear its own costs of the preparation of any
such filing.
(e) Without limitation of Section 10.11, Seller and Buyer
shall cooperate with each other and promptly prepare and file notifications
with, and request Tax clearances from, state and local taxing authorities in
jurisdictions in which a portion of the Purchase Price may be required to be
withheld or in which Buyer would otherwise be liable for any Tax liabilities of
Seller pursuant to such state and local Tax law.
(f) Buyer shall have the primary responsibility for securing
the transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Closing Date. Seller shall
cooperate with Buyer's efforts in this regard and assist in any transfer or
reissuance of a Permit or Environmental Permit held by Seller or the procurement
of any other Permit or Environmental Permit when so requested by Buyer.
6.7 Fees and Commissions. Seller, on the one hand, and Buyer, on the
other hand, represent and warrant to the other that, except for Goldman, Sachs &
Co., which are acting for and at the expense of Seller, no broker, finder or
other Person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transaction contemplated hereby by reason of any action
taken by the Party making such representation. Seller, on the one hand, and
Buyer, on the other hand, will pay to the other or otherwise discharge, and will
indemnify and hold the other harmless from and against, any and all claims or
liabilities for all brokerage fees, commissions and finder's fees (other than
the fees, commissions and finder's fees payable to the parties listed above)
incurred by reason of any action taken by the indemnifying party.
6.8 Tax Matters.
(a) All transfer and sales taxes incurred in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, (a) New Jersey sales tax; and (b) the New Jersey realty transfer
taxes on conveyances of interests in real property, shall be borne by Buyer.
Seller
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shall file, to the extent required by, or permissible under, applicable law, all
necessary Tax Returns and other documentation with respect to all such transfer
and sales taxes, and, if required by applicable law, Buyer shall join in the
execution of any such Tax Returns and other documentation. Prior to the Closing
Date, to the extent applicable, Buyer shall provide to Seller appropriate
certificates of Tax exemption from each applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with
Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing Date with respect to the
Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to
be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be
subject to Seller's approval, which approval shall not be unreasonably withheld.
Buyer shall make such Tax Returns available for Seller's review and approval no
later than fifteen (15) Business Days prior to the due date for filing each such
Tax Return.
(c) Within fifteen (15) Business Days after receipt of a Tax
Return referred to in Section 6.8(b), Seller shall pay to Buyer Seller's share
of the amount shown on such Tax Return, less payments on account of such Taxes
previously made by Seller. To the extent that Seller's previous payments exceed
Seller's share, the Buyer shall pay such excess to Seller. With respect to real
estate taxes, evidence of payment shall be delivered by Seller to Buyer at the
Closing.
(d) Buyer and Seller shall provide the other with such
assistance as may reasonably be requested by the other Party in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each shall retain and provide the requesting party with any
records or information which may be relevant to such return, audit, examination
or proceedings. Any information obtained pursuant to this Section 6.8(d) or
pursuant to any other Section hereof providing for the sharing of information or
review of any Tax Return or other instrument relating to Taxes shall be kept
confidential by the parties hereto. Schedule 6.8 sets forth procedures to be
followed with respect to the tax appeals and audits referred to therein.
(e) Disputes. In the event that a dispute arises between
Seller and Buyer as to the amount of Taxes, or indemnification, or the amount of
any allocation of Purchase Price under Section 3.4 hereof, the parties shall
attempt in good faith to resolve such dispute, and any agreed upon amount shall
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be paid to the appropriate party. If such dispute is not resolved 30 days
thereafter, the parties shall submit the dispute to the Independent Accounting
firm for resolution, which resolution shall be final, conclusive and binding on
the parties. Notwithstanding anything in this Agreement to the contrary, the
fees and expenses of the Independent Accounting Firm in resolving the dispute
shall be borne equally by Seller and Buyer. Any payment required to be made as a
result of the resolution of the dispute by the Independent Accounting firm shall
be made within ten days after such resolution, together with any interest
determined by the Independent Accounting Firm to be appropriate.
(f) Cooperation. Buyer and Seller shall cooperate fully, as
and to the extent reasonably requested by the other Party, in connection with
the filing of Tax Returns pursuant to this Agreement and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees (to the extent such employees were responsible
for the preparation, maintenance or interpretation of information and documents
relevant to Tax matters or to the extent required as witnesses in any Tax
proceedings), available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Parties
agree to give the other Party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other Party so
requests, Buyer or Seller, as the case may be, shall allow the other Party to
take possession of such books and records.
Buyer and Seller further agree, upon request, to use their best efforts
to obtain any certificate or other document from any governmental authority or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
6.9 Advice of Changes. Prior to the Closing, each Party will promptly
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules hereto. Seller may at
any time notify Buyer of any development causing a breach of any of its
representations and warranties in Article IV. Unless Buyer has the right to
terminate this Agreement pursuant to Section 9.1(f) below by reason of the
developments and exercises that right within the period of fifteen (15) days
after such right accrues, the written notice pursuant to this
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Section 6.9 will be deemed to have amended this Agreement, including the
appropriate Schedule, to have qualified the representations and warranties
contained in Article IV above, and to have cured any misrepresentation or breach
of warranty that otherwise might have existed hereunder by reason of the
development.
6.10 Employees.
(a) At least 90 days prior to the Closing Date (but in no case
sooner than ninety (90) days after the date hereof), Buyer shall provide Seller
with notice of its Union Employee staffing level requirements (which Buyer may
determine in its sole discretion), listed by classification and operation, and
shall be required to make reasonable efforts to offer employment to that number
of Union Employees necessary to satisfy such staffing level requirements. As
used herein, "Union Employees" means such employees of Seller who are covered by
a Collective Bargaining Agreement as defined in Section 6.10(d) below, and who
are listed in, or whose employment responsibilities are listed in, Schedule
6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with
the Plants purchased by Buyer. Any offers of employment shall be made at least
60 days prior to the Closing Date. In each classification, Union Employees shall
be so offered employment in order of their seniority.
(b) Buyer is also entitled to determine its Non-Union Employee
staffing level requirements in its sole discretion, and shall make reasonable
efforts to make offers of employment with Buyer or any of its Affiliates,
effective on the Closing Date, to Non-Union Employees consistent with such
staffing levels. As used herein, "Non-Union Employees" means such salaried
employees of Seller, Genco, GPUN or GPUS who are listed in, or whose employment
responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or
"Dedicated Support Staff". Any offers of employment shall be made at least sixty
(60) days prior to the Closing Date. Each person who becomes employed by Buyer
or any of its Affiliates pursuant to Section 6.10(a) or (b) (whether pursuant to
a Qualifying Offer or otherwise) shall be referred to herein as a "Transferred
Union Employee" or "Transferred Non-Union Employee", respectively. At least
forty-five (45) days prior to the Closing Date, Buyer shall provide Seller with
notice of those Non-Union Employees to whom it made a Qualifying Offer. As used
herein, the term "Qualifying Offer" means an offer of employment at an annual
level of compensation that is at least 85% of the employee's current total
annual cash compensation (consisting of base salary and target incentive bonus)
at the time the offer is made. Schedule 6.10(b) sets forth, for each of the
Non-Union Employees listed therein, his or her current base salaries and target
incentive bonuses.
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(c) All offers of employment made pursuant to Sections 6.10(a)
or (b) shall be made in accordance with all applicable laws and regulations, and
in addition, for Union Employees, in accordance with seniority and all other
applicable provisions of the Collective Bargaining Agreement.
(d) Schedule 6.10(d) sets forth the collective bargaining
agreement, and amendments thereto, to which Seller is a party with the Union in
connection with the Purchased Assets ("Collective Bargaining Agreement").
Transferred Union Employees shall retain their seniority and receive full credit
for service with Seller in connection with entitlement to vacation and all other
benefits and rights under the Collective Bargaining Agreement and under each
compensation, retirement or other employee benefit plan or program Buyer is
required to maintain for Transferred Union Employees pursuant to the Collective
Bargaining Agreement. With respect to Transferred Union Employees, effective as
of the Closing Date, Buyer shall assume the Collective Bargaining Agreement for
the duration of its term as it relates to Transferred Union Employees to be
employed at the Plants in positions covered by the Collective Bargaining
Agreement and shall thereafter comply with all applicable obligations under the
Collective Bargaining Agreement. Consistent with its obligations under the
Collective Bargaining Agreement and applicable laws, Buyer shall be required to
establish and maintain a pension plan and other employee benefit programs for
the Transferred Union Employees for the duration of the term of the Collective
Bargaining Agreement which are substantially equivalent to Seller's plans and
programs in effect for the Transferred Union Employees immediately prior to the
Closing Date (the "Seller's Plans"), and which provide at least the same level
of benefits or coverage as do Seller's Plans for the duration of the Collective
Bargaining Agreement. Buyer further agrees to recognize the Union as the
collective bargaining agent for the applicable Transferred Union Employees.
(e) Transferred Non-Union Employees shall be eligible to
commence participation in welfare benefit plans of Buyer or its Affiliates as
may be made available by Buyer (the "Replacement Welfare Plans"). Buyer shall
(i) waive all limitations as to pre-existing condition exclusions and waiting
periods with respect to the Transferred Non-Union Employees under the
Replacement Welfare Plans, other than, but only to the extent of, limitations or
waiting periods that were in effect with respect to such employees under the
welfare plans maintained by Seller, Genco, GPUN or GPUS or their Affiliates and
that have not been satisfied as of the Closing Date, and (ii) provide each
Transferred Non-Union Employee with credit for any co-payments and deductibles
paid prior to the Closing Date in satisfying any
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deductible or out-of-pocket requirements under the Replacement Welfare Plans (on
a pro-rata basis in the event of a difference in plan years).
(f) Transferred Non-Union Employees shall be given credit for
all service with Seller, Genco, GPUN, GPUS and their Affiliates under all
deferred compensation, profit-sharing, 401(k), retirement pension, incentive
compensation, bonus, fringe benefit and other employee benefit plans, programs
and arrangements of Buyer ("Buyer Benefit Plans") in which they may become
participants. The service credit so given shall be for purposes of eligibility
and vesting, but shall not be for purposes of level of benefits and benefit
accrual except to the extent that the Buyer Benefit Plans otherwise provide.
(g) To the extent allowable by law, Buyer shall take any and
all necessary action to cause the trustee of any defined contribution plan of
Buyer or its Affiliates in which any Transferred Employee becomes a participant
to accept a direct "rollover" of all or a portion of said employee's "eligible
rollover distribution" within the meaning of Section 402 of the Code from the
GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the
Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed
or Penelec (the "Seller's Savings Plans") if requested to do so by the
Transferred Employee. Buyer agrees that the property so rolled over and the
assets so transferred may include promissory notes evidencing loans from
Seller's Savings Plans to Transferred Employees that are outstanding as of the
Closing Date. However, except as otherwise provided in Section 6.10(d), any
defined contribution plan of Buyer or its Affiliates accepting such a rollover
or transfer shall not be required to make any further loans to any Transferred
Employee after the Closing Date.
(h) Buyer shall pay or provide to Transferred Employees the
benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h),
and shall reimburse Seller for the cost of the benefits Seller or Seller's
Affiliates will provide to Union Employees and Non-Union Employees in accordance
with subparagraph (iv) of this Section 6.10(h).
(i) Buyer shall make a transition incentive payment
in the amount of $2,500 to each Transferred Union Employee. Payment
shall be made as soon as practicable after, but in any event no later
than 60 days following, the Closing Date.
(ii) In the case of each Transferred Non-Union
Employee who is initially assigned by Buyer to a principal place of
work that is at least 50 miles farther from the
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employee's principal residence than was his principal place of work
immediately prior to the Closing Date and who relocates his or her
principal residence to the vicinity of his or her new principal place
of work within 12 months following the Closing Date, Buyer shall
reimburse the employee for all "moving expenses" within the meaning of
Section 217(b) of the Code incurred by the employee and other members
of his or her household in connection with such relocation, up to a
maximum aggregate amount of $5,000. Claims for reimbursement for such
expenses shall be filed in accordance with such procedures, and shall
be accompanied by such substantiation of the expenses for which
reimbursement is sought, as Buyer may reasonably request. All claims
for reimbursement shall be processed, and qualifying expenses shall be
reimbursed, as soon as practicable after, but in any event no later
than 60 days following, the date on which the employee's claim for
reimbursement is submitted to Buyer.
(iii) Buyer shall provide the severance benefits
described in Section 1 of Schedule 6.10(h) to each Transferred Employee
who is "Involuntarily Terminated" (as defined below) (a) within 12
months after the Closing Date or (b), in the case of any Transferred
Non-Union Employee who had attained age 50 and had completed at least
10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h))
prior to the Closing Date, on or any time prior to June 30, 2004. For
purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred
Employee shall be treated as "Involuntarily Terminated" if his or her
employment with Buyer and all of its Affiliates is terminated by Buyer
or any of its Affiliates for any reason other than for cause or
disability. Buyer shall require any Transferred Employee who is
Involuntarily Terminated, as a condition to receiving the severance
benefits described in Section 1(b), (c), (d), (e) and (f) of Schedule
6.10(h), to execute a release of claims against Seller, Genco, GPUN or
GPUS, as applicable, and all of their Affiliates, and Buyer, in such
form as Buyer and Seller shall agree upon.
(iv) At the Closing or as soon thereafter as
practicable, but in any event no later than 60 days following the
Closing Date, Buyer shall pay to Seller, in addition to all other
amounts to be paid by Buyer to Seller hereunder, an amount equal to
Buyer's Allocable Share (as defined below) of the aggregate estimated
cost that Seller or any of Seller's Affiliates will or may incur in
providing the severance, pension, health care and group term life
insurance benefits described in Section 2 of Schedule 6.10(h) to the
Union Employees and Non-Union Employees
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therein described (collectively the "Termination Benefits"). The
estimated cost of such benefits shall be calculated by the actuarial
firm regularly engaged to provide actuarial services to the GPU
Companies with respect to their pension, health care and life insurance
plans, and shall be determined using the same assumptions as to
mortality, turnover, interest rate and other actuarial assumption as
used by such firm in determining the cost of benefits under the GPU
Companies' pension, health and group term life insurance plans for
purposes of their most recently issued financial statements prior to
the Closing Date. For purposes of the foregoing, Buyer's "Allocable
Share" shall be calculated as set forth in Schedule 6.10(h)(iv).
(i) Buyer shall not be responsible for any payments required
under any voluntary early retirement plan, program or arrangement offered by
Seller, Genco, GPUN or GPUS in connection with the transfer of the Purchased
Assets. Within thirty (30) days following the last day that any Union Employee
or Non-Union Employee may elect to participate in any such plan offered by
Seller, Genco, GPUN or GPUS, Seller shall provide Buyer with a list of all such
employees who have so elected.
(j) Seller shall be responsible, with respect to the Purchased
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act which
occurs prior to the Closing Date.
(k) Buyer shall not be responsible for extending COBRA
continuation coverage to any employees and former employees of Seller, Genco,
GPUN or GPUS, or to any qualified beneficiaries of such employees and former
employees, who become or became entitled to COBRA continuation coverage before
the Closing, including those for whom the Closing occurs during their COBRA
election period.
(l) Seller or Seller's Affiliates shall pay to all Transferred
Employees all compensation, bonus, vacation and holiday compensation, pension,
profit sharing and other deferred compensation benefits, workers' compensation,
or other employment benefits to which they are entitled under the terms of the
applicable compensation or benefit programs at such times as are provided
therein.
(m) Individuals who are otherwise "Union Employees" as defined
in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but
who on any date are not actively at work due to a leave of absence covered by
the Family and Medical Leave Act
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("FMLA"), or due to any other authorized leave of absence, shall nevertheless be
treated as "Union Employees" or as "Non-Union Employees", as the case may be, on
such date if they are able (i) to return to work within the protected period
under the FMLA or such other leave (which in any event shall not extend more
than twelve (12) weeks after the Closing Date), whichever is applicable, and
(ii) to perform the essential functions of their jobs, with or without a
reasonable accommodation.
6.11 Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of
loss or damage to the property included in the Purchased Assets shall be borne
by Seller, other than loss or damage caused by the acts or negligence of Buyer
or any Buyer Representative, which loss or damage shall be the responsibility of
Buyer.
(b) If, before the Closing Date, all or any portion of the
Purchased Assets is (i) taken by eminent domain or is the subject of a pending
or (to the Knowledge of Seller) contemplated taking which has not been
consummated, or (ii) damaged or destroyed by fire or other casualty, Seller
shall notify Buyer promptly in writing of such fact, and (x) in the case of a
condemnation, Seller shall assign or pay, as the case may be, any proceeds
thereof to Buyer at the Closing and (y) in the case of a casualty, Seller shall
either restore the damage or assign the insurance proceeds therefor (and pay the
amount of any deductible and/or self-insured amount in respect of such casualty)
to Buyer at the Closing. Notwithstanding the above, if such casualty or loss
results in a Material Adverse Effect, Buyer and Seller shall negotiate to settle
the loss resulting from such taking (and such negotiation shall include, without
limitation, the negotiation of a fair and equitable adjustment to the Purchase
Price). If no such settlement is reached within sixty (60) days after Seller has
notified Buyer of such casualty or loss, then Buyer or Seller may terminate this
Agreement pursuant to Section 9.1(h). In the event of damage or destruction
which Seller elects to restore, Seller will have the right to postpone the
Closing for up to four (4) months. Buyer will have the right to inspect and
observe, or have its representatives inspect or observe, all repairs
necessitated by any such damage or destruction.
6.12 Additional Covenants of Buyer. Notwithstanding any other
provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer
will not make any modifications to the Purchased Assets or take any action
which, in and of itself, results in a loss of the exclusion of interest on the
Pollution Control Revenue Bonds issued on behalf of Seller in connection with
the Purchased Assets from gross income for federal income purposes under Section
103 of the Code. Actions with respect to
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the Purchased Assets shall not constitute a breach by the Buyer of this Section
6.12 in the following circumstances: (i) Buyer ceases to use or decommissions
any of the Purchased Assets or subsequently repowers such Purchased Assets that
are no longer used or decommissioned (but does not hold such Purchased Assets
for sale); (ii) Buyer acts with respect to the Purchased Assets in order to
comply with requirements under applicable federal, state or local environmental
or other laws or regulations; or (iii) Buyer acts in a manner the Seller (i.e. a
reasonable private provider of electricity of similar stature as Seller) would
have acted during the term of the Pollution Control Revenue Bonds (including,
but not limited to, applying new technology). In the event Buyer acts or
anticipates acting in a manner that will cause a loss of the exclusion of
interest on the Pollution Control Revenue Bonds from gross income for federal
income tax purposes, at the request of Buyer, Seller shall take any remedial
actions permitted under the federal income tax law that would prevent a loss of
such inclusion of interest from gross income on the Pollution Control Revenue
Bonds. Buyer further covenants and agrees that, in the event that Buyer
transfers any of the Purchased Assets, Buyer shall obtain from its transferee a
covenant and agreement that is analogous to Buyer's covenant and agreement
pursuant to the immediately preceding sentence, as well as a covenant and
agreement that is analogous to that of this sentence. In addition, Buyer shall
not, without 60 days advanced written notice to Seller (to the extent
practicable under the circumstances), take any action which would result in (x)
a change in the use of the assets financed with the Pollution Revenue Control
Bonds from the use in which such assets were originally intended, or (y) a sale
of such assets separate from the generating assets to which they relate provided
that no notice is required of the events set forth in clauses (i),(ii), or (iii)
above. This covenant shall survive Closing and shall continue in effect so long
as the pollution control bonds remain outstanding.
6.13 Additional Forked River Covenants. The covenants set forth in
Schedule 6.13 shall be applicable to Buyer to the same extent as if set forth
herein.
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer. The obligation of Buyer to
effect the purchase of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Buyer) of the following conditions:
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(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated.
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court or Governmental Authority which prevents
the consummation of the sale of the Purchased Assets contemplated herein shall
have been issued and remain in effect (each Party agreeing to use its reasonable
best efforts to have any such injunction, order or decree lifted) and no
statute, rule or regulation shall have been enacted by any state or federal
government or Governmental Authority which prohibits the consummation of the
sale of the Purchased Assets;
(c) Buyer shall have received all of Buyer's Required
Regulatory Approvals, and such approvals shall contain no conditions or terms
which would result in a Material Adverse Effect;
(d) Seller shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Seller on or prior to the Closing
Date;
(e) The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized
officer of Seller, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Section 7.1(d) and (e) have been
satisfied by Seller;
(g) Buyer shall have received an opinion from Seller's counsel
reasonably acceptable to Buyer, dated the Closing Date and reasonably
satisfactory in form and substance to Buyer and its counsel, substantially to
the effect that:
(i) Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of its state of
incorporation and has the corporate power and authority to own, lease
and operate its material assets and properties and to carry on its
business as is now conducted, and to execute and deliver the Agreement
and each Ancillary Agreement and to consummate the transactions
contemplated thereby; and the execution and delivery of the Agreement
by Seller and the consummation of the sale of the Purchased Assets and
the other transactions contemplated thereby have
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been duly and validly authorized by all necessary corporate action
required on the part of Seller;
(ii) The Agreement and each Ancillary Agreement have
been duly and validly executed and delivered by Seller and constitute
legal, valid and binding agreements of Seller enforceable in accordance
with their terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and general principles of
equity (regardless of whether enforcement is considered in a proceeding
at law or in equity);
(iii) The execution, delivery and performance of the
Agreement and each Ancillary Agreement by Seller do not (A) conflict
with the Certificate of Incorporation or Bylaws of Seller or (B) to the
knowledge of such counsel, constitute a violation of or default under
those agreements or instruments set forth on a Schedule attached to the
opinion and which have been identified to such counsel as all the
agreements and instruments which are material to the business or
financial condition of Seller;
(iv) The Bill of Sale, the deeds, the Assignment and
Assumption Agreement and other transfer instruments described in
Section 3.6 have been duly executed and delivered and are in proper
form to transfer to Buyer such title as was held by Seller to the
Purchased Assets; and
(v) No consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for the execution and
delivery of this Agreement by Seller, or the consummation by Seller of
the transactions contemplated hereby, other than (i) such consents,
approvals, filings or notices set forth in Schedule 4.3(b) or which, if
not obtained or made, will not prevent Seller from performing its
material obligations hereunder and (ii) such consents, approvals,
filings or notices which become applicable to Seller or the Purchased
Assets as a result of the specific regulatory status of Buyer (or any
of its Affiliates) or as a result of any other facts that specifically
relate to the business or activities in which Buyer (or any of its
Affiliates) is or proposes to be engaged; and
In rendering the foregoing opinion, Seller's counsel may rely on
opinions of counsel as to local laws reasonably acceptable to Buyer.
(h) Seller shall have delivered, or caused to be
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delivered, to Buyer at the Closing, Seller's closing deliveries described in
Section 3.6.
(i) Since the date of this Agreement, no Material Adverse
Effect shall have occurred and be continuing.
(j) Buyer shall have received (at Buyer's cost) from a title
insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's
title policy, and ALTA survey together with all endorsements reasonably
requested by Buyer as are available, insuring title to all of the Real Property
included in the Aggregate Purchased Assets, subject only to Permitted
Encumbrances. Seller shall provide Buyer with a copy of a preliminary title
report and survey for the Real Property as soon as available.
(k) The closings under the Purchase and Sale Agreements
between Met-Ed and Buyer, Penelec and Buyer, and JCP&L, Met-Ed and GPU and Buyer
(collectively, the "Related Purchase Agreements") shall have occurred or shall
occur concurrently with the Closing and all conditions to the obligations of
Buyer under the Related Purchase Agreements shall have been satisfied or waived
by Buyer.
(l) Buyer shall have received all Permits and Environmental
Permits, to the extent necessary, to own and operate the Plants in accordance
with past emissions and operating practices, except for those Permits and
Environmental Permits, the absence of which would not in the aggregate have a
Material Adverse Effect.
(m) Seller's Required Regulatory Approvals shall contain no
conditions or terms which would result in a Material Adverse Effect.
(n) Neither the Real Property nor any portion thereof shall be
part of a tax lot which includes any real property and/or buildings, facilities
or other improvements other than that which comprises the Real Property.
(o) No Site, or any portion thereof (other than the
Development Properties listed on Schedule 2.1), shall be subject to a zoning
classification or classifications, rule or regulation, or variance or special
exception which does not constitute a separate zoning lot or lots which,
individually or in the aggregate, does not permit such Site or any portion
thereof to be used as the same (i) is currently used for generation purposes or
(ii) was historically used for generation purposes while under Seller's current
ownership or the ownership of any Affiliate thereof, unless the failure of such
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Site or any portion thereof to be zoned to permit such use shall not result in a
Material Adverse Effect.
7.2 Conditions to Obligations of Seller. The obligation of Seller to
effect the sale of the Purchased Assets and the other transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Seller) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the sale
of the Purchased Assets contemplated herein shall have been issued and remain in
effect (each Party agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or regulation shall
have been enacted by any state or federal government or Governmental Authority
in the United States which prohibits the consummation of the sale of the
Purchased Assets;
(c) Seller shall have received all of Seller's Required
Regulatory Approvals applicable to them, containing no conditions or terms which
would materially diminish the benefit of this Agreement to Seller or result in a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Seller ("Seller Material Adverse Effect");
(d) All consents and approvals for the consummation of the
sale of the Purchased Assets contemplated hereby required under the terms of any
note, bond, mortgage, indenture, material agreement or other instrument or
obligation to which Seller is party or by which Seller, or any of the Purchased
Assets, may be bound, shall have been obtained, other than those which if not
obtained, would not, individually and in the aggregate, create a Material
Adverse Effect;
(e) Buyer shall have performed and complied with in all
material respects the covenants and agreements contained in this Agreement which
are required to be performed and complied with by Buyer on or prior to the
Closing Date;
(f) The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
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(g) Seller shall have received a certificate from an
authorized officer of Buyer, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have
been satisfied by Buyer;
(h) Effective upon Closing, Buyer shall have assumed, as set
forth in Section 6.10, all of the applicable obligations under the Collective
Bargaining Agreement as they relate to Transferred Union Employees;
(i) Seller shall have received an opinion from Buyer's counsel
reasonably acceptable to Seller, dated the Closing Date and satisfactory in form
and substance to Seller and its counsel, substantially to the effect that:
(i) Buyer is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the state of
its organization and is qualified to do business in the State of New
Jersey and has the full corporate power and authority to own, lease and
operate its material assets and properties and to carry on its business
as is now conducted, and to execute and deliver the Agreement and the
Ancillary Agreements by Buyer and to consummate the transactions
contemplated thereby; and the execution and delivery of the Agreement
and the Ancillary Agreements by Buyer and the consummation of the
transactions contemplated thereby have been duly authorized by all
necessary corporate action required on the part of Buyer;
(ii) The Agreement and the Ancillary Agreements have
been duly and validly executed and delivered by Buyer, and constitute
legal, valid and binding agreements of Buyer, enforceable against
Buyer, in accordance with their terms, except that such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting or
relating to enforcement of creditor's rights generally and general
principles of equity (regardless of whether enforcement is considered
in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the
Agreement and the Ancillary Agreements by Buyer do not (A) conflict
with the Certificate of Incorporation or Bylaws (or other
organizational documents), as currently in effect, of Buyer or (B) to
the knowledge of such counsel, constitute a violation of or default
under those agreements or instruments set forth on a Schedule attached
to the opinion and which have been identified to such counsel as all
the
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agreements and instruments which are material to the business or
financial condition of Buyer;
(iv) The Assignment and Assumption Agreement and
other transfer instruments described in Section 3.7 are in proper form
for Buyer to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for Buyer's execution and
delivery of the Agreement and the Ancillary Agreements, or the
consummation by Buyer of the transactions contemplated hereby and
thereby, other than such consents, approvals, filings or notices,
which, if not obtained or made, will not prevent Buyer from performing
its respective obligations under the Agreement, the Ancillary
Agreements and Guaranty.
(j) Buyer shall have delivered, or caused to be delivered, to
Seller at the Closing, Buyer's closing deliveries described in Section 3.7.
7.3 Zoning Condition Adjustments.
(a) In the event that any Site or any portion thereof, (other
than the Development Properties listed in Schedule 2.1) shall be subject to a
zoning classification or classifications, rule or regulation, or a variance or
special exception, which does not permit or otherwise restrict the Site or any
portion thereof, to be used as the same (i) is currently used for generation
purposes or (ii) was historically used for generation purposes while under
Seller's current ownership or the ownership of any Affiliate thereof for
generation purposes, and if such failure shall result in a material adverse
effect on the use of such Site for generating purposes as currently used (or as
so historically used), then, in such case, Buyer may prior to the Closing on
written notice to the Seller, exclude from the Purchased Assets such Site and
the Purchased Assets related to such Site. Buyer and Seller shall thereupon
negotiate a fair and equitable adjustment to the Purchase Price or, failing such
agreement within 30 days, the adjustment shall be determined by appraisal in
accordance with Section 7.3(b), the cost of which shall be shared equally be
Buyer and Seller.
(b) The Parties shall select an Appraiser (as defined below)
within 30 days of the expiration of the 30 day period referred to in Section
7.3(a). In the event the Parties cannot within such period agree on a single
Appraiser, the Parties shall each within 15 days select a separate Appraiser,
and such Appraisers shall within 15 days, later designate a third Appraiser to
act hereunder. The Appraiser shall be instructed to
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provide a written report of the appropriate reduction of the Purchase Price to
be allocated to the excluded Site (and associated Purchased Assets). Each of the
Parties may submit such materials and information to the Appraiser as it deems
appropriate and shall use its Commercially Reasonable Efforts to cause the
Appraiser to render its decision within 60 days after the matter has been
submitted to it. The determination of the Appraiser shall be final and binding
on the Parties. As used herein, "Appraiser" means an individual who has a
minimum of ten (10) years of relevant experience in valuing electric generation
facilities and has an MAI designation of the Appraisal Institute.
(c) Buyer agrees to use Commercially Reasonable Efforts at its
expense and in consultation with Seller to mitigate any adverse zoning
restrictions which could cause a failure of the Closing condition in Section
7.1(o), or require a Purchase Price adjustment under this Section 7.3, including
by seeking a re-zoning or zoning variance of the applicable Site.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless Seller,
its officers, directors, employees, shareholders, Affiliates and agents (each, a
"Seller's Indemnitee") from and against any and all claims, demands, suits,
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an "Indemnifiable Loss"), asserted against or
suffered by any Seller's Indemnitee relating to, resulting from or arising out
of (i) any breach by Buyer of any covenant or agreement of Buyer contained in
this Agreement or the representations and warranties contained in Sections 5.1,
5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting
from or arising out of any Inspection, or (iv) any Third Party Claims against
Seller's Indemnitee arising out of or in connection with Buyer's ownership or
operation of the Plants and other Purchased Assets on or after the Closing Date
(other than Third Party Claims which arise out of acts by Buyer permitted by
Section 6.12 hereof).
(b) Seller shall indemnify, defend and hold harmless Buyer,
its officers, directors, employees, shareholders, Affiliates and agents (each, a
"Buyer Indemnitee") from and
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against any and all Indemnifiable Losses asserted against or suffered by any
Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by
Seller of any covenant or agreement of Seller contained in this Agreement or the
representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the
Excluded Liabilities, (iii) noncompliance by Seller with any bulk sales or
transfer laws as provided in Section 10.11, or (iv) any Third Party Claims
against a Buyer Indemnitee arising out of or in connection with Seller's
ownership or operation of the Excluded Assets on or after the Closing Date.
(c) Each party, for itself and on behalf of its
Representatives and Affiliates, does hereby release, hold harmless and forever
discharge the other party, its Representatives and Affiliates, from any and all
Indemnifiable Losses of any kind or character, whether known or unknown, hidden
or concealed, resulting from or arising out of any Environmental Condition or
violation of Environmental Law relating to the Purchased Assets, provided that
Seller's release of Buyer shall not extend to any of Buyer's Assumed Liabilities
set forth in Section 2.3, and provided further that Buyer's release of Seller
shall not extend to any of Seller's Excluded Liabilities set forth in Section
2.4. Subject to the foregoing proviso, each party hereby waives any and all
rights and benefits with respect to such Indemnifiable Losses that it now has,
or in the future may have conferred upon it by virtue of any statute or common
law principle which provides that a general release does not extend to claims
which a party does not know or suspect to exist in its favor at the time of
executing the release, if knowledge of such claims would have materially
affected such party's settlement with the obligor. In this connection, each
party hereby acknowledges that it is aware that factual matters, now unknown to
it, may have given or may hereafter give rise to Indemnifiable Losses that are
presently unknown, unanticipated and unsuspected, and it further agrees that
this release has been negotiated and agreed upon in light of that awareness and
it nevertheless hereby intends to release the other party and its
Representatives and Affiliates from the Indemnifiable Losses described in the
first sentence of this paragraph.
(d) Notwithstanding anything to the contrary contained herein:
(i) Any Person entitled to receive indemnification
under this Agreement (an "Indemnitee") shall use Commercially
Reasonable Efforts to mitigate all losses, damages and the like
relating to a claim under these indemnification provisions, including
availing itself of any defenses, limitations, rights of contribution,
claims against third Persons and other rights at law or equity.
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The Indemnitee's Commercially Reasonable Efforts shall include the
reasonable expenditure of money to mitigate or otherwise reduce or
eliminate any loss or expenses for which indemnification would
otherwise be due, and the Indemnitor shall reimburse the Indemnitee for
the Indemnitee's reasonable expenditures in undertaking the mitigation.
(ii) Any Indemnifiable Loss shall be net of the
dollar amount of any insurance or other proceeds actually receivable by
the Indemnitee or any of its Affiliates with respect to the
Indemnifiable Loss, but shall not take into account any income tax
benefits to the Indemnitee or any Income Taxes attributable to the
receipt of any indemnification payments hereunder. Any party seeking
indemnity hereunder shall use Commercially Reasonable Efforts to seek
coverage (including both costs of defense and indemnity) under
applicable insurance policies with respect to any such Indemnifiable
Loss.
(e) The expiration or termination of any covenant or agreement
shall not affect the Parties' obligations under this Section 8.1 if the
Indemnitee provided the Person required to provide indemnification under this
Agreement (the "Indemnifying Party") with proper notice of the claim or event
for which indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in Article IX, the
rights and remedies of Seller and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Seller and Buyer may
have under this Agreement or otherwise for monetary relief, with respect to (i)
any breach of or failure to perform any covenant, agreement, or representation
or warranty set forth in this Agreement, after the occurrence of the Closing, or
(ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be.
The indemnification obligations of the Parties set forth in this Article VIII
apply only to matters arising out of this Agreement, excluding the Ancillary
Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary
Agreement shall be governed by the indemnification obligations, if any,
contained in the Ancillary Agreement under which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein, no party
(including an Indemnitee) shall be entitled to recover from any other party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments losses, costs, or expenses under this Agreement any amount in excess of
the actual compensatory damages, court costs and reasonable attorney's and other
advisor fees suffered by such party. Buyer and Seller
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waive any right to recover punitive, incidental, special, exemplary and
consequential damages arising in connection with or with respect to this
Agreement. The provisions of this Section 8.1(g) shall not apply to
indemnification for a Third Party Claim.
8.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any claim, action, or proceeding made or brought
by any Person who is not a party to this Agreement or any Affiliate of a Party
to this Agreement (a "Third Party Claim") with respect to which indemnification
is to be sought from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
such notice shall not be given later than ten (10) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and shall
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's expense and by such Indemnifying Party's own counsel, provided that the
counsel for the Indemnifying Party who shall conduct the defense of such Third
Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee
shall cooperate in good faith in such defense at such Indemnitee's own expense.
If an Indemnifying Party elects not to assume the defense of any Third Party
Claim, the Indemnitee may compromise or settle such Third Party Claim over the
objection of the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant to this
Agreement.
(b) (i) If, within ten (10) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense and the Indemnifying Party shall be
liable for all reasonable expenses thereof. (ii) Without the prior written
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consent of the Indemnitee, the Indemnifying Party shall not enter into any
settlement of any Third Party Claim which would lead to liability or create any
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder. If a firm offer is made
to settle a Third Party Claim without leading to liability or the creation of a
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party shall
give written notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnifying Party shall be relieved of its obligations to
defend such Third Party Claim and the Indemnitee may contest or defend such
Third Party Claim. In such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will be the amount of such settlement offer
plus reasonable costs and expenses paid or incurred by Indemnitee up to the date
of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable
Loss which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than ten (10) calendar days after the Indemnitee becomes aware of
such Direct Claim, and the Indemnifying Party shall have a period of thirty (30)
calendar days within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such thirty (30) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party rejects such claim, the Indemnitee will be free to seek
enforcement of its right to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment by, from or
against any other entity, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith (together with interest thereon
from the date of payment thereof at the publicly announced prime rate then in
effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(e) A failure to give timely notice as provided in this Section
8.2 shall not affect the rights or obligations of
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any Party hereunder except if, and only to the extent that, as a result of such
failure, the Party which was entitled to receive such notice was actually
prejudiced as a result of such failure.
ARTICLE IX
TERMINATION
9.1 Termination.(a) This Agreement may be terminated at any time prior
to the Closing Date by mutual written consent of Seller and Buyer.
(b) This Agreement may be terminated by Seller or Buyer if (i)
any Federal or state court of competent jurisdiction shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Closing, and such order, judgment or decree shall have become final and
nonappeallable or (ii) any statute, rule, order or regulation shall have been
enacted or issued by any Governmental Authority which, directly or indirectly,
prohibits the consummation of the Closing; or (iii) the Closing contemplated
hereby shall have not occurred on or before the day which is 12 months from the
date of this Agreement (the "Termination Date"); provided that the right to
terminate this Agreement under this Section 9.1(b) (iii) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date; and provided, further, that if on the day which is 12 months
from the date of this Agreement the conditions to the Closing set forth in
Section 7.1(b) or (c) or 7.2(b), (c) or (d) shall not have been fulfilled but
all other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Termination Date shall be the day which is 18 months
from the date of this Agreement.
(c) Except as otherwise provided in this Agreement, this
Agreement may be terminated by Buyer if any of Buyer Required Regulatory
Approvals, the receipt of which is a condition to the obligation of Buyer to
consummate the Closing as set forth in Section 7.1(c), shall have been denied
(and a petition for rehearing or refiling of an application initially denied
without prejudice shall also have been denied) or shall have been granted but
contains terms or conditions which do not satisfy the closing condition in
Section 7.1(c).
(d) This Agreement may be terminated by Seller, if any of
Seller's Required Regulatory Approvals, the receipt of which is a condition to
the obligation of Seller to consummate the Closing as set forth in Section
7.2(c), shall have been denied (and a petition for rehearing or refiling of an
application
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initially denied without prejudice shall also have been denied) or shall have
been granted but contains terms or conditions which do not satisfy the closing
condition in Section 7.2(c).
(e) This Agreement may be terminated by Buyer if there has
been a violation or breach by Seller of any covenant, representation or warranty
contained in this Agreement which has resulted in a Material Adverse Effect and
such violation or breach is not cured by the earlier of the Closing Date or the
date thirty (30) days after receipt by Seller of notice specifying particularly
such violation or breach, and such violation or breach has not been waived by
Buyer.
(f) This Agreement may be terminated by Seller, if there has
been a material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Seller.
(g) This Agreement may be terminated by Seller if there shall
have occurred any change that is materially adverse to the business, operations
or conditions (financial or otherwise) of Buyer.
(h) This Agreement may be terminated by either of Seller or
Buyer in accordance with the provisions of Section 6.11(b).
9.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to
Section 9, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the
Parties hereunder will terminate, except as otherwise expressly provided in this
Agreement, and thereafter neither Party shall have any recourse against the
other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
Seller and Buyer.
10.2 Waiver of Compliance; Consents. Except as otherwise
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provided in this Agreement, any failure of any of the Parties to comply with any
obligation, covenant, agreement or condition herein may be waived by the Party
entitled to the benefits thereof only by a written instrument signed by the
Party granting such waiver, but such waiver of such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent failure to comply therewith
10.3 No Survival. Each and every representation, warranty and covenant
contained in this Agreement (other than the covenants contained in Sections
3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13 and
in Articles VIII and X, which provisions shall survive the delivery of the
deed(s) and the Closing in accordance with their terms and the representations
and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, which
representations and warranties and any claims arising under Section 6.1 shall
survive the Closing for eighteen (18) months from the Closing Date) shall expire
with, and be terminated and extinguished by the consummation of the sale of the
Purchased Assets and shall merge into the deed(s) pursuant hereto and the
transfer of the Assumed Liabilities pursuant to this Agreement and such
representations, warranties and covenants shall not survive the Closing Date;
and none of Seller, Buyer or any officer, director, trustee or Affiliate of any
of them shall be under any liability whatsoever with respect to any such
representation, warranty or covenant.
10.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that notices of a change of address
shall be effective only upon receipt thereof):
(a) If to Seller, to:
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: Mr. David C. Brauer
Vice President
with a copy to:
Berlack, Israels & Liberman LLP
120 West 45th Street
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New York, New York 10036
Attention: Douglas E. Davidson, Esq.
(b) if to Buyer, to:
Sithe Energies, Inc.
450 Lexington Avenue
New York, New York 10017
Attention: Mr. David Tohir and Hyun Park, Esq.
with a copy to:
Latham & Watkins
Suite 1300
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: W. Harrison Wellford, Esq.
10.5 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any Party
hereto, including by operation of law, without the prior written consent of each
other Party, nor is this Agreement intended to confer upon any other Person
except the Parties hereto any rights, interests, obligations or remedies
hereunder. No provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Seller (including any
beneficiary or dependent thereof) in respect of continued employment or resumed
employment, and no provision of this Agreement shall create any rights in any
such Persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement except as expressly
provided for thereunder. Notwithstanding the foregoing, without the prior
written consent of Seller, (i) Buyer may assign all of its rights and
obligations hereunder to any majority owned Subsidiary (direct or indirect) and
upon Seller's receipt of notice from Buyer of any such assignment, such assignee
will be deemed to have assumed, ratified, agreed to be bound by and perform all
such obligations, and all references herein to "Buyer" shall thereafter be
deemed to be references to such assignee, in each case without the necessity for
further act or evidence by the Parties hereto or such assignee, and (ii) Buyer
or its permitted assignee may assign, transfer, pledge or otherwise dispose of
(absolutely or as security) its rights and interests hereunder to a trustee,
lending institutions or other party for the purposes of leasing, financing or
refinancing the
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Purchased Assets, including such an assignment, transfer or other disposition
upon or pursuant to the exercise of remedies with respect to such leasing,
financing or refinancing, or by way of assignments, transfers, pledges, or other
dispositions in lieu thereof (and any such assignee may fully exercise its
rights hereunder or under any other agreement and pursuant to such assignment
without any further prior consent of any party hereto); provided, however, that
no such assignment in clause (i) or (ii) shall relieve or discharge the assignor
from any of its obligations hereunder. Seller agrees, at Buyer's expense, to
execute and deliver such documents as may be reasonably necessary to accomplish
any such assignment, transfer, pledge or other disposition of rights and
interests hereunder so long as Seller's rights under this Agreement are not
thereby altered, amended, diminished or otherwise impaired.
10.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York (without giving effect to
conflict of law principles) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies. THE PARTIES
HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND
FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION
FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS
MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Interpretation. The articles, section and schedule headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
10.9 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
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10.10 Entire Agreement. This Agreement, the Confidentiality Agreement,
and the Ancillary Agreements including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to Buyer pursuant to the terms of the Confidentiality Agreement
(including the Offering Memorandum dated April 1998, previously delivered to
Buyer by Seller and Goldman, Sachs & Co.). This Agreement supersedes all prior
agreements and understandings between the Parties other than the Confidentiality
Agreement with respect to such transactions.
10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything
in this Agreement to the contrary, Seller may, in its sole discretion, not
comply with the provision of the bulk sales laws of any jurisdiction in
connection with the transactions contemplated by this Agreement. Buyer hereby
waives compliance by Seller with the provisions of the bulk sales laws of all
applicable jurisdictions.
10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set
forth herein are United States (U.S.) dollars.
10.13 Zoning Classification. Without limitation of Sections 7.1(o) and
7.3, Buyer acknowledges that the Real Properties are zoned as set forth in
Schedule 10.13.
10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer
acknowledges that there is no community (municipal) sewage system available to
serve the Real Property.
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IN WITNESS WHEREOF, Seller and Buyer have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
SITHE ENERGIES, INC. JERSEY CENTRAL POWER &
LIGHT COMPANY
By:_____________________________ By:______________________
Name: Name:
Title: Title:
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LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Easement and Attachment Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Deeds
Exhibit G Form of Transition Power Purchase Agreement
Exhibit H Form of Merrill Creek Sublease
SCHEDULES
1.1(70) Permitted Encumbrances
1.1(100) Transferable Permits (both environmental and non-
environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed
to Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Description of Transmission and other Assets not
included in Conveyance
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Seller's Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.l0 Description of Real Property
4.10A Real Property Matters
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable
Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.8 Tax Appeals
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6.10(a)(i) Plant and Support Staff (Union)
6.10(b) Schedule of Non-Union Employees
6.10(d) Collective Bargaining Agreements
6.10(h) Schedule of Severance Benefits
6.10(h)(iv) Allocable Share Percentages
6.12 Pollution Control Revenue Bonds
6.13 Additional Forked River Covenants
10.13 Zoning
10.14 Sewage Matters
Exhibit 10-MM
PRIVILEGED AND CONFIDENTIAL
[Keystone - Conemaugh]
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
BY AND AMONG
JERSEY CENTRAL POWER & LIGHT COMPANY and METROPOLITAN EDISON COMPANY as
SELLERS,
GPU, INC. and SITHE ENERGIES, INC., as BUYER
Dated as of October 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I 2
1.1 Definitions 2
1.2 Certain Interpretive Matters 16
ARTICLE II 16
2.1 Transfer of Assets 16
2.2 Excluded Assets 18
2.3 Assumed Liabilities 19
2.4 Excluded Liabilities 21
2.5 Control of Litigation 24
2.6 Genco's Assets and Liabilities 24
ARTICLE III 24
3.1 Closing 24
3.2 Payment of Purchase Price 25
3.3 Adjustment to Purchase Price 25
3.4 Allocation of Purchase Price 27
3.5 Prorations 27
3.6 Deliveries by Seller 28
3.7 Deliveries by Buyer 30
3.8 Ancillary Agreements 31
ARTICLE IV 31
4.1 Incorporation; Qualification 31
4.2 Authority Relative to this Agreement 31
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4.3 Consents and Approvals; No Violation 32
4.4 Insurance 32
4.5 Title and Related Matters 33
4.6 Real Property Leases 33
4.7 Environmental Matters 33
4.8 Labor Matters 34
4.9 Benefit Plans: ERISA 35
4.10 Real Property 36
4.11 Condemnation 36
4.12 Contracts and Leases 36
4.13 Legal Proceedings, etc 36
4.14 Permits 37
4.15 Taxes 37
4.16 Intellectual Property 38
4.17 Capital Expenditures 38
4.18 Compliance With Laws 38
4.19 PUHCA 38
4.20 Disclaimers Regarding Purchased Assets 38
ARTICLE IVA 40
4A.1. Incorporation; Qualification 40
4A.2. Authority Relative to this Agreement 40
4A.3. Consents and Approvals; No Violation 41
4A.4. Genco Tax Matters 41
4A.5 Subsidiaries 43
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4A.6. Capitalization 43
4A.7. Operating Agreements 44
4A.8. Financial Statements 44
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 44
5.1 Organization 44
5.2 Authority Relative to this Agreement 45
5.3 Consents and Approvals; No Violation 45
5.4 Availability of Funds 46
5.5 Legal Proceedings 46
5.6 No Knowledge of Sellers' Breach 46
5.7 Qualified Buyer 46
5.8 Inspections 46
5.9 WARN Act 47
5.10 Securities Laws 47
ARTICLE VI 47
6.1 Conduct of Business Relating to the Purchased Assets 47
6.2 Access to Information 49
6.3 Public Statements 52
6.4 Expenses 52
6.5 Further Assurances 52
6.6 Consents and Approvals 54
6.7 Fees and Commissions 56
6.8 Tax Matters 56
6.9 Advice of Changes 64
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6.10 Employees 65
6.11 Risk of Loss 70
6.12 Additional Covenants of Buyer 71
6.13 Name Change 72
ARTICLE VII 72
7.1 Conditions to Obligations of Buyer 72
7.2 Conditions to Obligations of Sellers 76
7.3 Zoning Condition Adjustments 78
ARTICLE VIII 79
8.1 Indemnification 79
8.2 Defense of Claims 82
ARTICLE IX 84
9.1 Termination 84
9.2 Procedure and Effect of No-Default Termination 86
ARTICLE X 86
10.1 Amendment and Modification 86
10.2 Waiver of Compliance; Consents 86
10.3 No Survival 86
10.4 Notices 87
10.5 Assignment 88
10.6 Governing Law 88
10.7 Counterparts 89
10.8 Interpretation 89
10.9 Schedules and Exhibits 89
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10.10 Entire Agreement 89
10.11 Bulk Sales Laws 90
10.12 U.S. Dollars 90
10.13 Zoning Classification 90
10.14 Sewage Facilities 90
10.15 GPU 90
<PAGE>
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and among
Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L"), and
Metropolitan Edison Company, a Pennsylvania corporation ("Met-Ed")(each a
"Seller" and collectively "Sellers"), GPU, Inc., a Pennsylvania corporation
("GPU"), and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Sellers,
GPU and Buyer are referred to individually as a "Party," and collectively as the
"Parties."
W I T N E S S E T H
WHEREAS, Buyer desires to purchase, and Sellers desire to sell, their
interests in the Purchased Assets (as defined herein) upon the terms and
conditions hereinafter set forth in this Agreement;
WHEREAS, simultaneous herewith Buyer is entering into substantially
similar Purchase and Sale Agreements with Sellers' affiliates providing for
Buyer's purchase of the remainder of the Aggregate Purchased Assets (as
hereinafter defined); and
WHEREAS, Buyer desires to purchase, and GPU desires to sell, the Genco
Stock (as defined herein) upon the terms and conditions hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements hereinafter set forth, and intending to be legally
bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have the
meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
(2) "Agreement" means this Purchase and Sale Agreement together with the
Schedules and Exhibits hereto, as the same may be from time to time amended.
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(3) "Aggregate Purchased Assets" means, collectively, the Purchased Assets
(as defined herein) and the Purchased Assets (as defined in each Related
Purchase Agreement).
(4) "Ancillary Agreements" means the Transition Power Purchase Agreements,
as the same may be from time to time amended.
(5) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Sellers and Buyer substantially in the form of
Exhibit A hereto, by which Sellers shall, subject to the terms and conditions
hereof, assign Sellers' Agreements, the Real Property Leases, certain intangible
assets and other Purchased Assets to Buyer and whereby Buyer shall assume the
Assumed Liabilities.
(6) "Assumed Liabilities" has the meaning set forth in Section 2.3.
(7) "Benefit Plans" has the meaning set forth in Section 4.9.
(8) "Bill of Sale" means the Bill of Sale, substantially in the form of
Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible
Personal Property included in the Purchased Assets transferred to Buyer at the
Closing.
(9) "Business Day" shall mean any day other than Saturday, Sunday and any
day on which banking institutions in the State of New Jersey or the Commonwealth
of Pennsylvania are authorized by law or other governmental action to close.
(10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f).
(11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
(12) "Buyer Material Adverse Effect" has the meaning set forth in Section
5.3(a).
(13) "Buyer Required Regulatory Approvals" has the meaning set forth in
Section 5.3(b).
(14) "Capital Expenditures" has the meaning set forth in Section 3.3(a).
(15) "CERCLA" means the Federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
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(16) "Closing" has the meaning set forth in Section 3.1.
(17) "Closing Adjustment" has the meaning set forth in Section 3.3(b).
(18) "Closing Date" has the meaning set forth in Section 3.1.
(19) "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
(20) "Code" means the Internal Revenue Code of 1986, as amended.
(21) "Collective Bargaining Agreement" has the meaning set forth in
Section 6.10(d).
(22) "Commercially Reasonable Efforts" means efforts which are reasonably
within the contemplation of the Parties at the time of executing this Agreement
and which do not require the performing Party to expend any funds other than
expenditures which are customary and reasonable in transactions of the kind and
nature contemplated by this Agreement in order for the performing Party to
satisfy its obligations hereunder.
(23) "Computer Systems" has the meaning set forth in Section 4.20.
(24) "Confidentiality Agreement" means the Confidentiality Agreement,
dated March 2, 1998, by and between each Seller and Buyer.
(25) "Direct Claim" has the meaning set forth in Section 8.2(c).
(26) "Emission Allowance" means all present and future authorizations to
emit specified units of pollutants or Hazardous Substances, which units are
established by the Governmental Authority with jurisdiction over the Plants
under (i) an air pollution control and emission reduction program designed to
mitigate global warming, interstate or intra-state transport of air pollutants;
(ii) a program designed to mitigate impairment of surface waters, watersheds, or
groundwater; or (iii) any pollution reduction program with a similar purpose.
Emission Allowances include allowances, as described above, regardless as to
whether the Governmental Authority establishing such Emission Allowances
designates such allowances by a name other than "allowances."
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(27) "Emission Reduction Credits" means credits, in units that are
established by the Governmental Authority with jurisdiction over the Plants that
have obtained the credits, resulting from reductions in the emissions of air
pollutants from an emitting source or facility (including, without limitation,
and to the extent allowable under applicable law, reductions from shut-downs or
control of emissions beyond that required by applicable law) that: (i) have been
identified by the PaDEP as complying with applicable Pennsylvania law governing
the establishment of such credits (including, without limitation, that such
emissions reductions are enforceable, permanent, quantifiable and surplus) and
listed in the Emissions Reduction Credit Registry maintained by the PaDEP or
with respect to which such identification and listing are pending; or (ii) have
been certified by any other applicable Governmental Authority as complying with
the law and regulations governing the establishment of such credits (including,
without limitation, certification that such emissions reductions are
enforceable, permanent, quantifiable and surplus). The term includes Emission
Reduction Credits that have been approved by the PaDEP and are awaiting USEPA
approval. The term also includes certified air emissions reductions, as
described above, regardless as to whether the Governmental Authority certifying
such reductions designates such certified air emissions reductions by a name
other than "emission reduction credits."
(28) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, conservation easements, deed restrictions, encumbrances and charges
of any kind.
(29) "Environmental Claim" means any and all pending and/or threatened
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violations, investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or civil, pursuant
to or relating to any applicable Environmental Law by any person (including, but
not limited to, any Governmental Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (a)
violation of, or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs, cleanup costs,
removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines, or penalties arising out of, based on,
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resulting from, or related to the presence, Release, or threatened Release into
the environment of any Hazardous Substances at any location related to the
Purchased Assets, including, but not limited to, any off-Site location to which
Hazardous Substances, or materials containing Hazardous Substances, were sent
for handling, storage, treatment, or disposal.
(30) "Environmental Condition" means the presence or Release to the
environment, whether at the Sites or at an off-Sites location, of Hazardous
Substances, including any migration of those Hazardous Substances through air,
soil or groundwater to or from the Sites or any off-Site location regardless of
when such presence or Release occurred or is discovered.
(31) "Environmental Laws" means all applicable Federal, state and local,
provincial and foreign, civil and criminal laws, regulations, rules, ordinances,
codes, decrees, judgments, directives, or judicial or administrative orders
relating to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section
2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S.
Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S.
Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section
691.1 et seq.), and all applicable other state laws analogous to any of the
above.
(32) "Environmental Permits" has the meaning set forth in Section 4.7(a).
(33) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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(34) "ERISA Affiliate" has the meaning set forth in Section 2.4(k).
(35) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k).
(36) "Estimated Adjustment" has the meaning set forth in Section 3.3(b).
(37) "Estimated Closing Statement" has the meaning set forth in Section
3.3(b).
(38) "Excluded Assets" has the meaning set forth in Section 2.2.
(39) "Excluded Liabilities" has the meaning set forth in Section 2.4.
(40) "Facilities Act" has the meaning set forth in Section 10.14.
(41) "FERC" means the Federal Energy Regulatory Commission or any
successor agency thereto.
(42) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax
Act Certification and Affidavit, substantially in the form of Exhibit C hereto.
(43) "Genco" means GPU Generation, Inc., a Pennsylvania corporation and
wholly-owned subsidiary of GPU.
(44) "Genco Stock" means all of the issued and outstanding shares of
common stock, par value $20 per share, of Genco owned beneficially and of record
by GPU and comprising the only authorized shares of stock of Genco at and as of
the Closing.
(45) "Good Utility Practices" mean any of the practices, methods and acts
engaged in or approved by a significant portion of the electric utility industry
during the relevant time period, or previously engaged in by Sellers (in its
operation of the Purchased Assets) or any of the practices, methods or acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not intended to
be limited to the optimum practices, methods or acts to the exclusion of all
others, but rather to be acceptable practices, methods or acts
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generally accepted in the industry or previously engaged in by Sellers (in its
operation of the Purchased Assets).
(46) "Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating body or
other governmental authority.
(47) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company
of Sellers and Genco.
(48) "GPU Intercompany Tax Allocation Agreement" has the meaning set forth
in Section 6.8(e)(2)(ii).
(49) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a
wholly-owned subsidiary of GPU.
(50) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of GPU.
(51) "Hazardous Substances" means (a) any petrochemical or petroleum
products, coal ash, oil, radioactive materials, radon gas, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may contain
levels of polychlorinated biphenyls; (b) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "hazardous constituents," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
(52) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
(53) "IBEW 459" means Local 459 of the International Brotherhood of
Electrical Workers.
(54) "Income Tax" means any federal, state, local or foreign Tax (a) based
upon, measured by or calculated with respect to net income, profits or receipts
(including, without limitation, capital gains Taxes and minimum Taxes) or (b)
based upon, measured by or calculated with respect to multiple bases (including,
without limitation, corporate franchise taxes) if one
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or more of the bases on which such Tax may be based, measured by or calculated
with respect to, is described in clause (a), in each case together with any
interest, penalties, or additions to such Tax.
(55) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(56) "Indemnifying Party" has the meaning set forth in Section 8.1(e).
(57) "Indemnitee" has the meaning set forth in Section 8.1(d).
(58) "Independent Accounting Firm" means such independent accounting firm
of national reputation as is mutually appointed by Sellers and Buyer.
(59) "Inspection" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
(60) "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, copyrights and copyright rights owned by
Sellers and necessary for the operation and maintenance of the Purchased Assets,
and all pending applications for registrations of patents, trademarks, and
copyrights, as set forth as part of Schedule 2.1(l).
(61) "Inventories" means coal, fuel oil or alternative fuel inventories,
limestone, materials, spare parts, consumable supplies and chemical and gas
inventories relating to the operation of a Plant located at, or in transit to,
such Plant.
(62) "Knowledge" means the actual knowledge of the corporate officers or
managerial representatives of the specified Person charged with responsibility
for the particular function as of the date of the this Agreement, or, with
respect to any certificate delivered pursuant to this Agreement, the date of
delivery of the certificate.
(63) "Material Adverse Effect" means any change in, or effect on the
Purchased Assets that is materially adverse to the operations or condition
(financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a
whole, or (ii) a Specified Plant (as defined below) other than: (a) any change
affecting the international, national, regional or local electric industry as a
whole and not Sellers specifically and exclusively; (b) any
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change or effect resulting from changes in the international, national, regional
or local wholesale or retail markets for electric power; (c) any change or
effect resulting from changes in the international, national, regional or local
markets for any fuel used in connection with the Aggregate Purchased Assets
including such Specified Plant; (d) any change or effect resulting from, changes
in the North American, national, regional or local electric transmission systems
or operations thereof; (e) any materially adverse change in or effect on the
Aggregate Purchased Assets including such Specified Plant which is cured
(including by the payment of money) before the Termination Date; (f) any order
of any court or Governmental Authority or legislature applicable to providers of
generation, transmission or distribution of electricity generally that imposes
restrictions, regulations or other requirements thereon; and (g) any change or
effect resulting from action or inaction by a Governmental Authority with
respect to an independent system operator or retail access in Pennsylvania or
New Jersey. As used herein, each of the following shall be a "Specified Plant":
(1) the Shawville Station and associated Purchased Assets to be conveyed to
Buyer pursuant to the Related Purchase Agreement with Penelec; (2) the Portland
Station and associated Purchased Assets to be conveyed to Buyer pursuant to the
Related Purchase Agreement to which Met-Ed is a party; and (3) collectively, all
Purchased Assets to be conveyed to Buyer under this Agreement.
(64) "NJBPU" means the New Jersey Board of Public Utilities and any
successor agency thereto.
(65) "Non-Union Employees" has the meaning as set forth in Sections
6.10(b) and (m).
(66) "Operating Agreements" has the meaning set forth in Section
4A.7
(67) "Owners Agreements" means the Memorandum of Owners Agreement for
Conemaugh Steam Electric Station by and among Atlantic City Electric Company,
Baltimore Gas and Electric Company, Delamarva Power and Light Company,
Metropolitan Edison Company, Pennsylvania Power and Light Company, Philadelphia
Electric Company, Potomac Electric Power Company, Public Service Electric and
Gas Company and United Gas Improvement Company, dated August 1, 1966 as amended
(the "Conemaugh Agreement"), that certain Memorandum of Owners Agreement re:
Keystone Electric Generation Station by and among Atlantic City Electric
Company, Baltimore Gas and Electric Company, Delaware Power and Light Company,
Jersey Central Power and Light Company, Pennsylvania Power and Light Company,
Philadelphia Electric Company and Public Service Electric and Gas Company
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dated December 7, 1964, as amended(the "Keystone Agreement"), being attached
hereto as Schedule 1.1(67).
(68) "PaDEP" means the Pennsylvania Department of Environmental Protection
and any successor agency thereto.
(69) "PaPUC" means the Pennsylvania Public Utility Commission and any
successor agency thereto.
(70) "Penelec" means Pennsylvania Electric Company, a Pennsylvania
corporation.
(71) "Permits" has the meaning set forth in Section 4.14.
(72) "Permitted Encumbrances" means: (i) the Easements; (ii) those
Encumbrances set forth in Schedule 1.1(72); (iii) statutory liens for Taxes or
other governmental charges or assessments not yet due or delinquent or the
validity of which is being contested in good faith by appropriate proceedings
provided that the aggregate amount for all Aggregate Purchased Assets being so
contested does not exceed $500,000; (iv) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the ordinary course of
business relating to obligations as to which there is no default on the part of
Sellers or the validity of which are being contested in good faith, and which do
not, individually or in the aggregate, with respect to all Aggregate Purchased
Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and
other land use and environmental regulations by Governmental Authorities; and
(vi) such other liens, imperfections in or failure of title, charges, easements,
restrictions and Encumbrances which do not materially, individually or in the
aggregate, detract from the value of the Aggregate Purchased Assets as currently
used or materially interfere with the present use of the Aggregate Purchased
Assets and neither secure indebtedness, nor individually or in the aggregate
have a value exceeding $30 million for all Aggregate Purchased Assets.
(73) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, or
governmental entity or any department or agency thereof.
(74) "Plants" means the generating stations and related assets as more
fully identified on Schedule 2.1 attached hereto.
(75) "Pollution Control Revenue Bonds" means the bonds listed on Schedule
6.12.
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(76) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).
(77) "Post-Closing Statement" has the meaning set forth in Section 3.3(c).
(78) "Proprietary Information" of a Party means all information about the
Party or its Affiliates, including their respective properties or operations,
furnished to the other Party or its Representatives by the Party or its
Representatives, after the date hereof, regardless of the manner or medium in
which it is furnished. Proprietary Information does not include information
that: (a) is or becomes generally available to the public, other than as a
result of a disclosure by the other Party or its Representatives; (b) was
available to the other Party on a nonconfidential basis prior to its disclosure
by the Party or its Representatives; (c) becomes available to the other Party on
a nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality agreement with
the Party or its Representatives, or is not otherwise under any obligation to
the Party or any of its Representatives not to transmit the information to the
other Party or its Representatives; (d) is independently developed by the other
Party; or (e) was disclosed pursuant to the Confidentiality Agreement and
remains subject to the terms and conditions of the Confidentiality Agreement.
(79) "Purchased Assets" has the meaning set forth in Section 2.1.
(80) "Purchase Price" has the meaning set forth in Section 3.2.
(81) "PURTA" has the meaning set forth in Section 3.5(c).
(82) "PURTA Surcharge" has the meaning set forth in Section 3.5(c).
(83) "Qualifying Offer" has the meaning set forth in Section 6.10(b).
(84) "Real Property" has the meaning set forth in Section 2.1(a).
(85) "Real Property Leases" has the meaning set forth in Section 4.6.
(86) "Related Purchase Agreements" has the meaning set forth in Section
7.1(l).
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(87) "Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(88) "Remediation" means action of any kind to address a Release or the
presence of Hazardous Substances at a Site or an off-Site location including,
without limitation, any or all of the following activities to the extent they
relate to or arise from the presence of a Hazardous Substance at a Site or an
off-Site location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or restoration work; (b)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such activity; (c) preparing and implementing
any plans or studies for any such activity; (d) obtaining a written notice from
a Governmental Authority with jurisdiction over a Site or an off-Site location
under Environmental Laws that no material additional work is required by such
Governmental Authority; (e) the use, implementation, application, installation,
operation or maintenance of removal actions on a Site or an off-Site location,
remedial technologies applied to the surface or subsurface soils, excavation and
off-Site treatment or disposal of soils, systems for long term treatment of
surface water or ground water, engineering controls or institutional controls;
and (f) any other activities reasonably determined by a Party to be necessary or
appropriate or required under Environmental Laws to address the presence or
Release of Hazardous Substances at a Site or an off-Site location.
(89) "Replacement Welfare Plans" has the meaning set forth in
Section 6.10(e)
(90) "Representatives" of a Party means the Party's Affiliates and their
directors, officers, employees, agents, partners, advisors (including, without
limitation, accountants, counsel, environmental consultants, financial advisors
and other authorized representatives) and parents and other controlling persons.
(91) "SEC" means the Securities and Exchange Commission and any successor
agency thereto.
(92) "Sellers' Agreements" means those contracts, agreements, licenses and
leases relating to the ownership, operation and maintenance of the Plants and
being assigned to Buyer as part of the Purchased Assets, including without
limitation the Collective Bargaining Agreement and the Owners Agreements and the
agreements identified on Schedule 4.12(a).
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(93) "Sellers' Indemnitee" has the meaning set forth in Section 8.1
-------------------
(a).
(94) "Sellers' Material Adverse Effect" has the meaning set forth in
Section 7.2(c).
(95) "Sellers' Required Regulatory Approvals" has the meaning set forth in
Section 4.3(b).
(96) "Site" means, with respect to any Plant, the Real Property (including
improvements) forming a part of, or used or usable in connection with the
operation of, such Plant, including any disposal sites included in the Real
Property. Any reference to the Sites shall include, by definition, the surface
and subsurface elements, including the soils and groundwater present at the
Sites, and any reference to items "at the Sites" shall include all items "at,
on, in, upon, over, across, under and within" the Site.
(97) "Subsidiary" when used in reference to any Person means any entity of
which outstanding securities having ordinary voting power to elect a majority of
the Board of Directors or other Persons performing similar functions of such
entity are owned directly or indirectly by such Person.
(98) "Tangible Personal Property" has the meaning set forth in Section
2.1(c).
(99) "Tax Affiliate" means any entity that is a member of an affiliated
group of corporations (within the meaning of Section 1504(a) of the Code) filing
a consolidated U.S. federal Income Tax Return, or a group of corporations filing
a consolidated or combined Tax Return for state, local or foreign purposes (each
a "Consolidated Group"), if Genco could be held liable for the Taxes of such
entity or Consolidated Group.
(100) "Tax Contest" has the meaning set forth in Section 6.8(e)(4)(i).
(101) "Taxes" means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, social security, gross receipts, license,
stamp, occupation, employment or other taxes, including any interest, penalties
or additions attributable thereto.
(102) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document (including any schedule or
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related or supporting information) required to be supplied to any taxing
authority with respect to Taxes including amendments thereto.
(103) "Termination Date" has the meaning set forth in Section 9.1(b).
(104) "Third Party Claim" has the meaning set forth in Section 8.2(a).
(105) "Transferable Permits" means those Permits and Environmental Permits
which may be lawfully transferred to or assumed by Buyer without a filing with,
notice to, consent or approval of any Governmental Authority, and are set forth
in Schedule 1.1 (105).
(106) "Transferred Employees" means Transferred Non-Union Employees and
Transferred Union Employees.
(107) "Transferred Non-Union Employees" has the meaning set forth in
Section 6.10(b).
(108) "Transferred Union Employees" has the meaning set forth in Section
6.10(b).
(109) "Transferring Employee Records" means all records related to
personnel of Sellers, Genco, GPUN or GPUS who will become employees of Buyer
only to the extent such records pertain to: (i) skill and development training
and biographies, (ii) seniority histories, (iii) salary and benefit information
including benefit census and valuation data, (iv) Occupational, Safety and
Health Administration reports, and (v) active medical restriction forms.
(110) "Transition Power Purchase Agreements" means the agreements between
Sellers and Buyer, copies of which are attached as Exhibit E hereto, executed on
the date hereof, relating to the sale of installed capacity to Sellers for a
specified period of time following the Closing Date.
(111) "Transmission Assets" has the meaning set forth in Section 2.2(a).
(112) "Union" means IBEW 459.
(113) "Union Employees" has the meaning set forth in Sections 6.10(a) and
(m).
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(114) "USEPA" means the United States Environmental Protection Agency and
any successor agency thereto.
(115) "Year 2000 Compliant" has the meaning set forth in Section 4.20.
"Year 2000 Compliance" has a meaning correlative to the foregoing.
(116) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise requires, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date as of which such reference is made.
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, at the Closing each Seller will
sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase,
assume and acquire from such Seller, free and clear of all Encumbrances (except
for Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other
terms and conditions of this Agreement, all of such Seller's right, title and
interest in and to all assets constituting, or used in and necessary for
generation purposes to the operation of, the Plants identified in Schedule 2.1
including without limitation those assets described below (but excluding the
Excluded Assets), each as in existence on the Closing Date (collectively,
"Purchased Assets"):
(a) Those certain parcels of real property (including all buildings,
facilities and other improvements thereon and all appurtenances thereto)
described in Schedule 4.10 (the "Real Property"), except as otherwise
constituting part of the Excluded Assets;
(b) All Inventories;
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(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property located on or used principally in connection with the Real
Property on the Closing Date, including, without limitation, the items of
personal property included in Schedule 2.1(c), together with all the personal
property of Sellers used principally in the operation of the Plants and listed
in Schedule 2.1(c), other than property used or primarily usable as part of the
Transmission Assets or otherwise constituting part of the Excluded Assets
(collectively, "Tangible Personal Property");
(d) Subject to the provisions of Section 6.5(d), all Sellers' Agreements;
(e) Subject to the provisions of Section 6.5(d), all Real Property Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and maintenance
manuals, engineering design plans, documents, blueprints and as built plans,
specifications, procedures and similar items of Sellers relating specifically to
the aforementioned assets and necessary for the operation of the Plants (subject
to the right of Sellers to retain copies of same for its use) other than such
items which are proprietary to third parties and accounting records;
(h) Subject to Section 6.1, all Emission Reduction Credits associated with
the Plants and identified in Schedule 2.1(h), and all Emission Allowances that
have accrued prior to, or that accrue on or after, the date of this Agreement
but prior to the Closing Date;
(i) All unexpired, transferable warranties and guarantees from third
parties with respect to any item of Real Property or personal property
constituting part of the Purchased Assets, as of the Closing Date;
(j) The names of the Plants. It is expressly understood that Sellers are
not assigning or transferring to Buyer any right to use the names "Jersey
Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or
similar trade names, trademarks, service marks, corporate names and logos or any
part, derivative or combination thereof;
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(k) All drafts, memoranda, reports, information, technology, and
specifications relating to Sellers' plans for Year 2000 Compliance with respect
to the Purchased Assets; and
(l) The Intellectual Property described on Schedule 2.1(l).
In addition, GPU will sell, assign, convey, transfer and deliver to Buyer,
and Buyer will purchase and acquire from GPU, free and clear of all
Encumbrances, all of GPU's right, title and interest in and to the Genco Stock
and all stock books, stock ledger, minute books, corporate seal, all corporate
records and all other books and records of the type described in Section 2.1
above and relating to Genco.
2.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest in
or to the following specific assets which are associated with the Purchased
Assets, but which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule 2.1(c), the electrical
transmission or distribution facilities (as opposed to generation facilities) of
Sellers or any of their Affiliates located at the Sites or forming part of the
Plants (whether or not regarded as a "transmission" or "generation" asset for
regulatory or accounting purposes), including all switchyard facilities,
substation facilities and support equipment, as well as all permits, contracts
and warranties, to the extent they relate to such transmission and distribution
assets (collectively, the "Transmission Assets"), and those certain assets,
facilities and agreements all as identified on Schedule 2.2(a) attached hereto;
(b) Certificates of deposit, shares of stock (except as provided in the
last paragraph of Section 2.1 with respect to the Genco Stock), securities,
bonds, debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;
(c) All cash, cash equivalents, bank deposits, accounts and notes
receivable (trade or otherwise), and any income, sales, payroll or other tax
receivables;
(d) The rights of Sellers and their Affiliates to the names "Jersey
"Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company",
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"Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service"
and "GPU Genco" or any related or similar trade names, trademarks, service
marks, corporate names or logos, or any part, derivative or combination thereof;
(e) All tariffs, agreements and arrangements to which Sellers are a party
for the purchase or sale of electric capacity and/or energy or for the purchase
of transmission or ancillary services;
(f) The rights of Sellers in and to any causes of action against third
parties (including indemnification and contribution), other than to the extent
relating to any Assumed Liability, relating to any Real Property or personal
property, Permits, Environmental Permits, Taxes, Real Property Leases or
Sellers' Agreements, if any, including any claims for refunds, prepayments,
offsets, recoupment, insurance proceeds, condemnation awards, judgments and the
like, whether received as payment or credit against future liabilities, relating
specifically to the Plants or the Sites and relating to any period prior to the
Closing Date;
(g) All personnel records of Sellers or their Affiliates relating to the
Transferred Employees other than Transferring Employee Records or other records,
the disclosure of which is required by law, or legal or regulatory process or
subpoena; and
(h) Any and all of Sellers' rights in any contract representing an
intercompany transaction between Sellers and an Affiliate of Sellers, whether or
not such transaction relates to the provision of goods and services, payment
arrangements, intercompany charges or balances, or the like, except for any
contracts listed on Schedule 4.12(a).
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
Sellers the Assignment and Assumption Agreement pursuant to which Buyer shall
assume and agree to discharge when due, without recourse to Sellers, all of the
following liabilities and obligations of Seller, direct or indirect, known or
unknown, absolute or contingent, which relate to the Purchased Assets, other
than Excluded Liabilities, in accordance with the respective terms and subject
to the respective conditions thereof (collectively, "Assumed Liabilities"):
(a) All liabilities and obligations of Sellers and GPU arising on or
after the Closing Date under Sellers' Agreements, the Operating Agreements, the
Real Property Leases, and the Transferable Permits in accordance with the terms
thereof, including, without limitation, (i) the contracts, licenses,
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agreements and personal property leases entered into by Sellers with respect to
the Purchased Assets, which are disclosed on Schedule 4.12(a) or not required by
Section 4.12(a) to be so disclosed, and (ii) the contracts, licenses, agreements
and personal property leases entered into by Sellers with respect to the
Purchased Assets after the date hereof consistent with the terms of this
Agreement, except in each case to the extent such liabilities and obligations,
but for a breach or default by Sellers, would have been paid, performed or
otherwise discharged on or prior to the Closing Date or to the extent the same
arise out of any such breach or default or out of any event which after the
giving of notice would constitute a default by Sellers;
(b) All liabilities and obligations associated with the Purchased
Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or
6.8(a) hereof;
(c) All liabilities and obligations with respect to the Transferred
Employees arising on or after the Closing Date (i) for which Buyer is
responsible pursuant to Section 6.10 or (ii) relating to the grievances and
arbitration proceedings arising out of or under the Collective Bargaining
Agreement prior to, on or after the Closing Date;
(d) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with (i) any violation or alleged violation of Environmental
Laws, whether prior to, on or after the Closing Date, with respect to the
ownership or operation of any of the Purchased Assets; (ii) loss of life, injury
to persons or property or damage to natural resources (whether or not such loss,
injury or damage arose or was made manifest before the Closing Date or arises or
becomes manifest on or after the Closing Date) caused (or allegedly caused) by
the presence or Release of Hazardous Substances at, on, in, under, adjacent to
or migrating from the Purchased Assets prior to, on or after the Closing Date,
including, but not limited to, Hazardous Substances contained in building
materials at or adjacent to the Purchased Assets or in the soil, surface water,
sediments, groundwater, landfill cells, or in other environmental media at or
near the Purchased Assets; and (iii) the Remediation (whether or not such
Remediation commenced before the Closing Date or commences on or after the
Closing Date) of Hazardous Substances that are present or have been Released
prior to, on or after the Closing Date at, on, in, under, adjacent to or
migrating from, the Purchased Assets or in the soil, surface water, sediments,
groundwater, landfill cells or in other environmental media at or adjacent to
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the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d)
shall require Buyer to assume any liabilities or obligations that are expressly
excluded in Section 2.4 including, without limitation, liability for toxic torts
as set forth in Section 2.4(i).
(e) All liabilities and obligations of Sellers with respect to the
Purchased Assets under the agreements or consent orders set forth on Schedule
4.7 arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or after the Closing Date, except
for any Income Taxes attributable to income received by Sellers.
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay,
perform or otherwise discharge the following liabilities or obligations (the
"Excluded Liabilities"):
(a) Any liabilities or obligations of Sellers that are not expressly set
forth as liabilities or obligations being assumed by Buyer in Section 2.3 and
any liabilities or obligations in respect of any Excluded Assets or other assets
of Sellers which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes attributable to the
ownership, operation or use of Purchased Assets for taxable periods, or portions
thereof, ending before the Closing Date, except for Taxes for which Buyer is
liable pursuant to Sections 3.5 or 6.8(a) hereof and any liability in respect of
PURTA not otherwise expressly assumed by Buyer under Section 3.5 hereof;
(c) Any liabilities or obligations of Sellers accruing under any of
Sellers' Agreements or the Operating Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or obligations to third
parties (including employees) for personal injury or tort, or similar causes of
action arising solely out of the ownership or operation of the Purchased Assets
prior to the Closing Date, other than any liabilities or obligations which have
been assumed by Buyer in Section 2.3(d);
(e) Any fines, penalties or costs imposed by a Governmental Authority
resulting from (i) an investigation, proceeding, request for information or
inspection before or by a Governmental
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Authority pending prior to the Closing Date but only regarding acts which
occurred prior to the Closing Date, or (ii) illegal acts, willful misconduct or
gross negligence of Sellers prior to the Closing Date, other than, any such
fines, penalties or costs which have been assumed by Buyer in Section 2.3(d);
(f) Any payment obligations of Sellers for goods delivered or services
rendered prior to the Closing Date, including, but not limited to, rental
payments pursuant to the Real Property Leases;
(g) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with loss of life, injury to persons or property or damage
to natural resources (whether or not such loss, injury or damage arose or was
made manifest before the Closing Date or arises or becomes manifest on or after
the Closing Date) to the extent caused (or allegedly caused) by the off-Site
disposal, storage, transportation, discharge, Release, or recycling of Hazardous
Substances, or the arrangement for such activities, of Hazardous Substances,
prior to the Closing Date, in connection with the ownership or operation of the
Purchased Assets, provided that for purposes of this Section "off-Site" does not
include any location to which Hazardous Substances disposed of or Released at
the Purchased Assets have migrated;
(h) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with the investigation and/or Remediation (whether or not
such investigation or Remediation commenced before the Closing Date or commences
on or after the Closing Date) of Hazardous Substances that are disposed, stored,
transported, discharged, Released, recycled, or the arrangement of such
activities, prior to the Closing Date, in connection with the ownership or
operation of the Purchased Assets, at any off-Site location, provided that for
purposes of this Section "off-Site" does not include any location to which
Hazardous Substances disposed of or Released at the Purchased Assets have
migrated;
(i) Third party liability for toxic torts arising as a result of or in
connection with loss of life or injury to persons (whether or not such loss or
injury arose or was made manifest on or after the Closing Date) caused (or
allegedly caused) by the presence or Release of Hazardous Substances at, on, in,
under, adjacent to or migrating from the Purchased Assets prior to the Closing
Date;
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(j) Civil or criminal fines or penalties wherever assessed or incurred for
violations of Environmental Laws arising from the operation of the Purchased
Assets prior to the Closing Date;
(k) Subject to Section 6.10, any liabilities or obligations relating to
any Benefit Plan maintained by Sellers or any trade or business (whether or not
incorporated) which is or ever has been under common control, or which is or
ever has been treated as a single employer, with a Seller under Section 414(b),
(c), (m) or (o) of the Code ("ERISA Affiliate") or to which a Seller and any
ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including
but not limited to any liability with respect to any such plan (i) for benefits
payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under
Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan
within the meaning of Section 3(37)A of ERISA; (iv) for non-compliance with the
notice and benefit continuation requirements of COBRA; (v) for noncompliance
with ERISA or any other applicable laws; or (vi) arising out of or in connection
with any suit, proceeding or claim which is brought against Buyer, any Benefit
Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such
Benefit Plan or ERISA Affiliate Plan;
(l) Subject to Section 6.10, any liabilities or obligations relating to
the employment or termination of employment, by a Seller, or any Affiliate of a
Seller, of any individual, that is attributable to any actions or inactions
(including discrimination, wrongful discharge, unfair labor practices or
constructive termination) by the Sellers prior to the Closing Date other than
such actions or inactions taken at the written direction of Buyer;
(m) Subject to Section 6.10, any obligations for wages, overtime,
employment taxes, severance pay, transition payments in respect of compensation
or similar benefits accruing or arising prior to the Closing under any term or
provision of any contract, plan, instrument or agreement relating to any of the
Purchased Assets;
(n) Any liability of a Seller arising out of a breach by Seller or any of
its Affiliates of any of their respective obligations under this Agreement or
the Ancillary Agreements; and
(o) Any liability or obligation of Genco relating to the period prior to
the Closing except for liabilities or obligations assumed by Buyer under Section
2.3;
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(p) Any liability relating to the Pollution Control Revenue Bonds except
as provided in Section 6.12.
2.5 Control of Litigation. The Parties agree and acknowledge that Sellers
shall be entitled exclusively to control, defend and settle any litigation,
administrative or regulatory proceeding, and any investigation or Remediation
activities (including without limitation any environmental mitigation or
Remediation activities), arising out of or related to any Excluded Liabilities,
and Buyer agrees to cooperate fully in connection therewith; provided however,
that without Buyer's written consent, which shall not be unreasonably withheld
or delayed, Sellers shall not settle any such litigation, administrative or
regulatory proceeding which would result in a material adverse effect on the
related Purchased Assets.
2.6 Genco's Assets and Liabilities. Effective immediately prior to the
Closing, GPU shall cause all assets of Genco other than the Operating Agreements
to be transferred by Genco to GPU or one or more of GPU's Affiliates, and to
cause all liabilities of Genco other than those relating to the Operating
Agreements to be assumed by GPU or one or more of GPU's Affiliates.
ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions contained in Article VII of this Agreement, the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment
of the Purchase Price to Sellers, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be held at the offices of Berlack, Israels &
Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time,
or another mutually acceptable time and location, on the date that is fifteen
(15) Business Days following the date on which the last of the conditions
precedent to Closing set forth in Article VII of this Agreement have been either
satisfied or waived by the Party for whose benefit such conditions precedent
exist or such other date as the Parties may mutually agree. The date of
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Closing is hereinafter called the "Closing Date." The Closing shall be effective
for all purposes as of 12:01 a.m. on the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing
an aggregate amount of five hundred forty six million seven hundred fifty
thousand seven hundred forty one United States Dollars (U.S. $546,750,741.00)
(the "Purchase Price") plus or minus any adjustments pursuant to the provisions
of this Agreement, by wire transfer of immediately available funds denominated
in U.S. dollars or by such other means as are agreed upon by Sellers and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the
Closing, the Purchase Price shall be adjusted, without duplication, to account
for the items set forth in this Section 3.3(a):
(i) The Purchase Price shall be increased or decreased, as
applicable, to reflect the difference between the book value of all
Inventories as of the Closing Date and the value of all Inventories as of
June 30, 1998 as reflected on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to account for the
items prorated as of the Closing Date pursuant to Section 3.5.
(iii) The Purchase Price shall be increased by the amount
expended, or for which liabilities are incurred, by Sellers between the
date hereof and the Closing Date for capital additions to or replacements
of property, plant and equipment included in the Purchased Assets and
other expenditures or repairs on property, plant and equipment included in
the Purchased Assets that would be capitalized by Sellers in accordance
with normal accounting policies of Sellers and its Affiliates (together,
"Capital Expenditures"), which are not described on Schedule 6.1 and which
either (A) are mandated after the date of this Agreement by any
Governmental Authority (subject to Buyer's right reasonably to direct
Sellers to contest such mandates by appropriate proceedings at Buyer's
expense and provided there is no adverse impact on the Purchased Assets);
or (B) do not fall within category (A) above but do not exceed in
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the aggregate $2 million for all Aggregate Purchased Assets; or (C) are
approved in writing by Buyer.
(b) At least ten (10) Business Days prior to the Closing Date, Sellers
shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth Sellers' best estimate of
the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated
Adjustment"). Within five (5) Business Days following the delivery of the
Estimated Closing Statement by Sellers to Buyer, Buyer may object in good faith
to the Estimated Adjustment in writing. If Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If the Parties are unable to do so within three (3) Business Days
prior to the Closing Date (or if Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for
the Closing by the amount of the Estimated Adjustment not in dispute. The
disputed portion shall be paid as a Post-Closing Adjustment to the extent
required by Section 3.3(c).
(c) Within sixty (60) days following the Closing Date, Sellers shall
prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all adjustments to the Purchase Price required
by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement
shall be prepared using the same accounting principles, policies and methods as
Sellers have historically used in connection with the calculation of the items
reflected on such Post-Closing Statement. Within thirty (30) days following the
delivery of the Post-Closing Statement by Sellers to Buyer, Buyer may object to
the Post-Closing Adjustment in writing. Sellers agree to cooperate with Buyer to
provide Buyer and Buyer's Representatives information used to prepare the
Post-Closing Statement and information relating thereto. If Buyer objects to the
Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by
negotiation. If the Parties are unable to resolve such dispute within thirty
(30) days of any objection by Buyer, the Parties shall appoint the Independent
Accounting Firm, which shall, at Sellers' and Buyer's joint expense, review the
Post-Closing Adjustment and determine the appropriate adjustment to the Purchase
Price, if any, within thirty (30) days of such appointment. The Parties agree to
cooperate with the Independent Accounting Firm and provide it with such
information as it reasonably requests to enable it to make such determination.
The finding of such Independent Accounting Firm shall be binding on the Parties
hereto. Upon determination of the appropriate adjustment by agreement of the
Parties or by binding determination of the Independent Accounting Firm, if the
Post-
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Closing Adjustment is more or less than the Closing Adjustment, the Party owing
the difference shall deliver such difference to the other Party no later than
two (2) Business Days after such determination, in immediately available funds
or in any other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Sellers shall endeavor to
agree upon an allocation among the Purchased Assets and the Genco Stock of the
sum of the Purchase Price and the Assumed Liabilities in a manner consistent
with the provisions of Section 1060 of the Code and the Treasury Regulations
thereunder within sixty (60) days of the date of this Agreement provided that
the portion of the Purchase Price allocated to the Genco Stock may not be less
than $50,000. Each of Buyer and Sellers agree to file Internal Revenue Service
Form 8594, and all federal, state, local and foreign Tax Returns, in accordance
with any such agreed to allocation. Each of Buyer and Sellers shall report the
transactions contemplated by this Agreement for federal Tax and all other Tax
purposes in a manner consistent with any such agreed to allocation determined
pursuant to this Section 3.4. Each of Buyer and Sellers agree to provide the
other promptly with any information required to complete Form 8594. Buyer and
Sellers shall notify and provide the other with reasonable assistance in the
event of an examination, audit or other proceeding regarding any allocation of
the Purchase Price agreed to pursuant to this Section 3.4.
3.5 Prorations. (a) Buyer and Sellers agree that all of the items normally
prorated, including those listed below (but not including Income Taxes),
relating to the business and operation of the Purchased Assets shall be prorated
as of the Closing Date, with Sellers liable to the extent such items relate to
any time period prior to the Closing Date, and Buyer liable to the extent such
items relate to periods commencing with the Closing Date (measured in the same
units used to compute the item in question, otherwise measured by calendar
days):
(i) Personal property, real estate and occupancy Taxes,
assessments and other charges, if any, on or with respect to the business
and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including prepaid
services or goods not included in Inventory) payable by or to Seller under
any of Sellers' Agreements;
(iii) Any permit, license, registration, compliance assurance
fees or other fees with respect to any Transferable Permit;
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(iv) Sewer rents and charges for water, telephone, electricity
and other utilities; and
(v) Rent and Taxes and other items payable by Sellers under
the Real Property Leases assigned to Buyer is a party.
(b) In connection with the prorations referred to in (a) above, in the
event that actual figures are not available at the Closing Date, the proration
shall be based upon the actual Taxes or other amounts accrued through the
Closing Date or paid for the most recent year (or other appropriate period) for
which actual Taxes or other amounts paid are available. Such prorated Taxes or
other amounts shall be re-prorated and paid to the appropriate Party within
sixty (60) days of the date that the previously unavailable actual figures
become available. The prorations shall be based on the number of days in a year
or other appropriate period (i) before the Closing Date and (ii) including and
after the Closing Date. Sellers and Buyer agree to furnish each other with such
documents and other records as may be reasonably requested in order to confirm
all adjustment and proration calculations made pursuant to this Section 3.5.
(c) Notwithstanding anything to the contrary herein, no proration shall be
made under this Section 3.5 with respect to Taxes payable under the Pennsylvania
Public Utility Realty Tax Act ("PURTA") that are attributable the year in which
the Closing occurs (the "Closing Year PURTA Tax"). Buyer shall be fully
responsible and indemnify Seller for, and shall be entitled to receive all
refunds relating to payments Buyer makes with respect to, the Closing Year PURTA
Tax; provided, however, that any additional tax that is imposed in the year in
which the Closing occurs pursuant to Section 1104-A(b) of PURTA or any successor
provision thereof (a "PURTA Surcharge") but which relates to the previous year
shall not be treated as the Closing Year PURTA Tax and Sellers shall be
responsible for such PURTA Surcharge.
3.6 Deliveries by Sellers. At the Closing, each of the Sellers will
deliver, or cause to be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by the Sellers;
(b) Copies of any and all governmental and other third party consents,
waivers or approvals required with respect to the transfer of the Purchased
Assets, or the consummation of the transactions contemplated by this Agreement;
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(c) The opinions of counsel and officer's certificates contemplated by
Section 7.1;
(d) One or more special warranty deeds conveying the Real Property to
Buyer, in substantially the form of Exhibit D hereto, duly executed and
acknowledged by Sellers and in recordable form;
(e) The Assignment and Assumption Agreement and any Ancillary Agreements
which are not executed on the date hereof, duly executed by Sellers;
(f) A FIRPTA Affidavit, duly executed by Sellers;
(g) Copies, certified by the Secretary or Assistant Secretary of each of
the Sellers, of corporate resolutions authorizing the execution and delivery of
this Agreement and all of the agreements and instruments to be executed and
delivered by each of the Sellers in connection herewith, and the consummation of
the transactions contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of each of the
Sellers identifying the name and title and bearing the signatures of the
officers of each of the Sellers authorized to execute and deliver this Agreement
and the other agreements and instruments contemplated hereby;
(i) Certificates of Good Standing or Subsistence, as applicable with
respect to the Sellers and Genco, issued by the Secretary of the State of
Sellers' and Genco's state of incorporation;
(j) To the extent available, originals of all Sellers' Agreements, Real
Property Leases, Permits, Environmental Permits, and Transferable Permits and,
if not available, true and correct copies thereof, together with
the items referred to in Section 2.1(g);
(k) All such other instruments of assignment, transfer or conveyance as
shall, in the reasonable opinion of Buyer and its counsel, be necessary or
desirable to transfer to Buyer the Purchased Assets, in accordance with this
Agreement and where necessary or desirable in recordable form;
(l) Notices, signed by Sellers, to all other parties to the material
Sellers' Agreements where notice to such parties is required under the terms of
such Sellers' Agreements or pursuant to Section 6.5(d) hereof;
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(m) Reliance letters from Woodward & Clyde with respect to the
Environmental Reports prepared by Woodward & Clyde concerning the Purchased
Assets and made available for review by Buyer.
(n) Such other agreements, documents, instruments and writings as are
required to be delivered by the Sellers at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith.
In addition, GPU will deliver, or cause to be delivered, to Buyer (i) a
stock certificate or certificates representing the Genco Stock accompanied by a
stock power duly endorsed to Buyer, (ii) certificates to the effect of Sections
3.6(g), (h) and (i) with respect to GPU and Genco; and (iii) resignations of all
directors and officers of Genco.
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to
be delivered, the following to Sellers:
(a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire
transfer of immediately available funds in accordance with Sellers' instructions
or by such other means as may be agreed to by Sellers and Buyer;
(b) The opinions of counsel and officer's certificates contemplated by
Section 7.2;
(c) The Assignment and Assumption Agreement and any Ancillary Agreements
which are not executed on the date hereof, duly executed by Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of
resolutions authorizing the execution and delivery of this Agreement, the
Guaranty and all of the agreements and instruments to be executed and delivered
by Buyer in connection herewith, and the consummation of the transactions
contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary of Buyer,
identifying the name and title and bearing the signatures of the officers of
Buyer authorized to execute and deliver this Agreement, the Guaranty and the
other agreements contemplated hereby;
(f) All such other instruments of assumption as shall, in the reasonable
opinion of Sellers and its counsel, be necessary for Buyer to assume the Assumed
Liabilities in accordance with this Agreement;
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(g) Copies of any and all governmental and other third party consents,
waivers or approvals obtained by Buyer with respect to the transfer of the
Purchased Assets, or the consummation of the transactions contemplated by this
Agreement and where necessary or desirable in recordable forms;
(h) Such other agreements, documents, instruments and writings as are
required to be delivered by Buyer at or prior to the Closing Date pursuant to
this Agreement or otherwise reasonably required in connection herewith.
3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary
Agreements have been executed on the date hereof.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS
Each Seller represents and warrants (as to itself and the Purchased Assets
owned by it) to Buyer as follows:
4.1 Incorporation; Qualification. Such Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation and has all requisite corporate power and authority to own,
lease, and operate its material properties and assets and to carry on its
business as is now being conducted. Such Seller is duly qualified to do business
as a foreign corporation and is in good standing under the laws of each
jurisdiction in which its business as now being conducted shall require it to be
so qualified, except where the failure to be so qualified would not have a
Material Adverse Effect. Such Seller has heretofore delivered to Buyer true,
complete and correct copies of its Certificate of Incorporation and Bylaws as
currently in effect.
4.2 Authority Relative to this Agreement. Such Seller has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by such Seller and the consummation of the transactions contemplated
by such Seller hereby have been duly and validly authorized by all necessary
corporate action required on the part of such Seller and this Agreement has been
duly and validly executed and delivered by such Seller. Subject to the receipt
of Sellers' Required Regulatory Approvals, this Agreement constitutes the legal,
valid and binding agreement of such Seller, enforceable against such Seller in
accordance with its terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
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moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).
4.3 Consents and Approvals; No Violation. (a) Except as set forth in
Schedule 4.3(a), and subject to obtaining Sellers' Required Regulatory
Approvals, neither the execution and delivery of this Agreement by Sellers nor
the consummation by Sellers of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of such Seller, (ii) result in a default (or give rise
to any right of termination, consent, cancellation or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
material agreement or other instrument or obligation to which such Seller is a
party or by which it, or any of the Purchased Assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, would not,
individually or in the aggregate, create a Material Adverse Effect; or (iii)
constitute violations of any law, regulation, order, judgment or decree
applicable to such Seller, which violations, individually or in the aggregate,
would create a Material Adverse Effect, or create any Encumbrance other than a
Permitted Encumbrance.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Sellers' Required Regulatory Approvals"), no consent or approval of, filing
with, or notice to, any Governmental Authority is necessary for the execution
and delivery of this Agreement by, or for Sellers or Genco, such Seller, or the
consummation by such Seller of the transactions contemplated hereby, other than
(i) such consents, approvals, filings or notices which, if not obtained or made,
will not prevent such Seller from performing its material obligations hereunder
and (ii) such consents, approvals, filings or notices which become applicable to
such Seller or the Purchased Assets as a result of the specific regulatory
status of Buyer (or any of its Affiliates) or as a result of any other facts
that specifically relate to the business or activities in which Buyer (or any of
its Affiliates) is or proposes to be engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material policies
of fire, liability, workers' compensation and other forms of insurance owned or
held by, or on behalf of, such Seller with respect to the business, operations
or employees at the Plants or the Purchased Assets are in full force and effect,
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all premiums with respect thereto covering all periods up to and including the
date hereof have been paid (other than retroactive premiums which may be payable
with respect to comprehensive general liability and workers' compensation
insurance policies), and no notice of cancellation or termination has been
received with respect to any such policy which was not replaced on substantially
similar terms prior to the date of such cancellation. Except as described in
Schedule 4.4, within the 36 months preceding the date of this Agreement, neither
Seller has been refused any insurance with respect to the Purchased Assets nor
has coverage been limited by any insurance carrier to which such Seller has
applied for any such insurance or with which such Seller has carried insurance
during the last 12 months.
4.5 Title and Related Matters. Except as set forth in Schedule 4.5 and
subject to Permitted Encumbrances, (i) such Seller is the owner of record title
to the Real Property (or the interest in the Real Property as set forth in
Schedule 2.1) and has good and valid title to the other Purchased Assets which
it purports to own, free and clear of all material Encumbrances of which the
Sellers have knowledge and (ii) such Seller shall convey to Buyer such title
with respect to the Real Property or interest therein as a reputable title
company doing business in the Commonwealth of Pennsylvania.
4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this
Agreement, all material real property leases under which such Seller is a lessee
or lessor and which relate to the Purchased Assets ("Real Property Leases").
Except as set forth in Schedule 4.6, all such leases are valid, binding and
enforceable against such Seller in accordance with their terms; there are no
existing material defaults by such Seller or, to Sellers' Knowledge, any other
party thereunder; and no event has occurred which (whether with or without
notice, lapse of time or both) would constitute a material default by such
Seller or, to Seller's Knowledge, any other party thereunder. Such Seller has
delivered to Buyer true, correct and complete copies of each of the material
Real Property Leases.
4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the
"Phase I" and "Phase II" environmental site assessments prepared by such
Seller's outside environmental consultants ("Environmental Reports") and made
available for inspection by Buyer:
(a) Such Seller holds, and is in substantial compliance with, all permits,
certificates, certifications, licenses and governmental authorizations under
Environmental Laws ("Environmental Permits") that are required for such Seller
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to conduct the business and operations of the Purchased Assets and such Seller
is otherwise in compliance with applicable Environmental Laws with respect to
the business and operations of such Purchased Assets except for such failures to
hold or comply with required Environmental Permits, or such failures to be in
compliance with applicable Environmental Laws, as would not, individually or in
the aggregate, create a Material Adverse Effect;
(b) Neither Seller has received any written request for information, or
been notified that it is a potentially responsible party, under CERCLA or any
similar state law with respect to the Real Property or any other Purchased
Assets;
(c) Neither Seller has entered into or agreed to any consent decree or
order relating to the Purchased Assets, or is subject to any outstanding
judgment, decree, or judicial order relating to compliance with any
Environmental Law or to investigation or cleanup of Hazardous Substances under
any Environmental Law relating to the Purchased.
(d) To such Seller's Knowledge, no Releases of Hazardous Substances have
occurred at, from, in, on, or under any Site, and no Hazardous Substances are
present in, on, about or migrating from any such Site that could give rise to an
Environmental Claim related to the Purchased Assets for which Remediation
reasonably could be required, except in any such case to the extent that any
such Releases would not, individually or in the aggregate, create a Material
Adverse Effect.
The representations and warranties made in this Section 4.7 are Sellers'
exclusive representations and warranties relating to environmental matters.
4.8 Labor Matters. Such Seller has previously delivered to Buyer a true
and correct copy of the Collective Bargaining Agreement, which is the only
collective bargaining agreement to which it is a party or is subject and which
relates to the business and operations of the Purchased Assets. With respect to
the business or operations of such Purchased Assets, except to the extent set
forth in Schedule 4.8 and except for such matters as will not, individually or
in the aggregate, create a Material Adverse Effect, such Seller (a) is in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours; (b) has not
received written notice of any unfair labor practice complaint against it
pending before the National Labor Relations Board; (c) no arbitration proceeding
arising out of or under any collective bargaining agreement is pending against
each Seller;
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and (d) neither Seller has experienced any work stoppage within the three-year
period prior to the date hereof and to Sellers' Knowledge none is currently
threatened.
4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred
compensation, profit-sharing, retirement and pension plans, including
multiemployer plans, and all material bonus, fringe benefit and other employee
benefit plans maintained or with respect to which contributions are made by such
Seller, Genco, GPUN or GPUS in respect of the current employees of Seller,
Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True
and complete copies of all such Benefit Plans have been made available to Buyer.
(b) Except as set forth in Schedule 4.9(b), such Seller and the ERISA
Affiliates have fulfilled their respective obligations under the minimum funding
requirements of Section 302 of ERISA, and Section 412 of the Code, with respect
to each Benefit Plan which is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code and has
been administered in all material respects in accordance with its terms as set
forth in the documents governing such Benefit Plan. Except as set forth in
Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any
liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty
Corporation in connection with any Benefit Plan which is subject to Title IV of
ERISA or any withdrawal liability with respect to any Benefit Plan, within the
meaning of Section 4021 of ERISA, nor is there any reportable event (as defined
in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth
in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each
Benefit Plan which is intended to be qualified under Section 401(a) of the Code,
which letter determines that such plan is qualified and exempt from United
States Federal Income Tax under Section 401(a) and 501(a) of the Code, and such
Seller is not aware of any occurrence since the date of any such determination
letter which would affect adversely such qualification or tax exemption.
(c) Neither such Seller nor any ERISA Affiliate has engaged in any
transaction described in Section 4069(a) or Section 4212(c) of ERISA. No
Benefit Plan is a multiemployer plan.
(d) Sellers and Sellers' Affiliates have materially complied in good faith
with the notice and continuation requirements of Section 4980B of the Code, and
Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan.
Sellers and each ERISA Affiliate have complied in all material respects with the
requirements of Part 7 of Title I of ERISA.
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4.10 Real Property. Schedule 4.10 contains a description of the Real
Property included in the Purchased Assets. Copies of any current surveys,
abstracts or title opinions in such Seller's possession and any policies of
title insurance in force and in the possession of such Seller with respect to
the Real Property Seller have heretofore been made available to Buyer (without
making any representation or warranty as to the accuracy or completeness
thereof). No real property other than the Real Property is necessary for Buyer
to own, maintain and operate the Purchased Assets as they are currently used.
4.11 Condemnation. Except as set forth in Schedule 4.11, Seller has not
received any written notices of and otherwise has no Knowledge of any pending or
threatened proceedings or governmental actions to condemn or take by power of
eminent domain all or any part of the Purchased Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written
contract, license, agreement, or personal property lease which is material to
the business or operations of the Purchased Assets, other than any contract,
license, agreement or personal property lease which is listed or described on
another Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by Seller after the date
hereof of less than $250,000 or payments by such Seller after the date hereof of
less than $1,000,000 in the aggregate.
(b) Except as disclosed in Schedule 4.12(b), each Sellers' Agreement
(i) constitutes a legal, valid and binding obligation of such Seller and, to
such Seller's Knowledge, constitutes a valid and binding obligation of the other
parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement
without the consent of the other parties thereto and will continue in full force
and effect thereafter, unless in any such case the impact of such lack of
legality, validity or binding nature, or inability to transfer, would not,
individually or in the aggregate, create a Material Adverse Effect.
(c) Except as set forth in Schedule 4.12(c), there is not, under
Sellers' Agreements, any default or event which, with notice or lapse of time or
both, would constitute a default on the part of such Seller or to such Seller's
Knowledge, any of the other parties thereto, except such events of default and
other events which would not, individually or in the aggregate, create a
Material Adverse Effect.
4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13, there
are no actions or proceedings pending (or to such Seller's Knowledge overtly
threatened) against such Seller
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before any court, arbitrator or Governmental Authority, which could,
individually or in the aggregate, reasonably be expected to create a Material
Adverse Effect. Except as set forth in Schedule 4.13, neither such Seller is
subject to any outstanding judgments, rules, orders, writs, injunctions or
decrees of any court, arbitrator or Governmental Authority which would,
individually or in the aggregate, create a Material Adverse Effect.
4.14 Permits. (a) Such Seller has all permits, licenses, franchises and
other governmental authorizations, consents and approvals, (other than
Environmental Permits, which are addressed in Section 4.7 hereof) (collectively,
"Permits") necessary to permit such Seller to own and operate the Purchased
Assets except where the failure to have such Permits would not, individually or
in the aggregate, create a Material Adverse Effect. Except as disclosed on
Schedule 4.14(a), neither Seller has received any notification that it is in
violation of any such Permits, except notifications of violations which would
not, individually or in the aggregate, create a Material Adverse Effect. Each
such Seller is in compliance with all such Permits except where non-compliance
would not, individually or in the aggregate, create a Material Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits and Environmental
Permits, other than Transferable Permits (which are set forth on Schedule
1.1(105)) related to the Purchased Assets.
4.15 Taxes. Such Seller has filed all returns required to be filed by it
with respect to any Tax relating to the Purchased Assets, and Seller has paid
all Taxes that have become due as indicated thereon, except where such Tax is
being contested in good faith by appropriate proceedings, or where the failure
to so file or pay would not reasonably be expected to create a Material Adverse
Effect. Such Seller has complied in all material respects with all applicable
laws, rules and regulations relating to withholding Taxes relating to
Transferred Employees. All Tax Returns relating to the Purchased Assets are
true, correct and complete in all material respects. Except as set forth in
Schedule 4.15, no notice of deficiency or assessment has been received from any
taxing authority with respect to liabilities for Taxes of such Seller in respect
of the Purchased Assets, which have not been fully paid or finally settled, and
any such deficiency shown in Schedule 4.15 is being contested in good faith
through appropriate proceedings. Except as set forth in Schedule 4.15, there are
no outstanding agreements or waivers extending the applicable statutory periods
of limitation for Taxes associated with the Purchased Assets that will be
binding upon Buyer after the Closing. None of the Purchased Assets is property
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that is required to be treated as being owned by any other person pursuant to
the so-called safe harbor lease provisions of former Section 168(f) of the Code,
and none of the Purchased Assets is "tax-exempt use" property within the meaning
of Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions
in which such Seller owns assets or conducts business that require a
notification to a taxing authority of the transactions contemplated by this
Agreement, if the failure to make such notification, or obtain Tax clearance
certificates in connection therewith, would either require Buyer to withhold any
portion of the Purchase Price or subject Buyer to any liability for any Taxes of
such Seller.
4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual
Property used in and, individually or in the aggregate with other Intellectual
Property, material to the operation or business of the Purchased Assets, each of
which such Seller or its Affiliates either has all right, title and interest in
or valid and binding rights under contract to use. Except as disclosed in
Schedule 4.16, (i) such Seller is not, nor has it received any notice that it
is, in default (or with the giving of notice or lapse of time or both, would be
in default), under any contract to use such Intellectual Property, and (ii) to
such Seller's Knowledge, such Intellectual Property is not being infringed by
any other Person. Neither Seller has received notice that it is infringing any
Intellectual Property of any other Person in connection with the operation or
business of the Purchased Assets, and such Seller, to its Knowledge, is not
infringing any Intellectual Property of any other Person the effect of which,
individually or in the aggregate, would have a Material Adverse Effect.
4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are
no capital expenditures associated with the Purchased Assets that are planned by
Sellers through December 31, 1999.
4.18 Compliance With Laws. Each Seller is in compliance with all
applicable laws, rules and regulations with respect to the ownership or
operation of the Purchased Assets except where the failure to be in compliance
would not, individually or in the aggregate, create a Material Adverse Effect.
4.19 PUHCA. Such Seller is a wholly owned subsidiary of GPU, Inc., which
is a holding company registered under the Public Utility Holding Company Act of
1935.
4.20 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
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ASSETS ARE SOLD "AS IS, WHERE IS", AND EACH SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER
INCIDENTS OF THE PURCHASED ASSETS AND EACH SELLER SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER EACH SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER FURTHER SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS
SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS
WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER EXPRESSLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF
THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS
A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER
MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY EACH SELLER OR
THEIR REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR
CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR
QUALITY OF THE PURCHASED ASSETS.
The Sellers make no warranties and representations of any kind, whether
direct or implied, that any of the hardware, software, and firmware products
(including embedded microcontrollers in non-computer equipment) which may be
included in the Purchased Assets to be transferred under this Agreement (the
"Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000
Compliant" shall mean that the Computer Systems will correctly differentiate
between years, in different centuries, that end in the same two digits, and will
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, including leap year calculations.
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ARTICLE IVA
REPRESENTATIONS AND WARRANTIES OF GPU
GPU represents and warrants to Buyer as follows:
4A.1. Incorporation; Qualification. (a) Each of GPU and Genco is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation and has all requisite corporate power and
authority to own, lease, and operate its material properties and assets and to
carry on its business as is now being conducted. Each of GPU and Genco is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction in which its business as now being conducted shall
require it to be so qualified, except where the failure to be so qualified would
not have a Material Adverse Effect. GPU has heretofore delivered to Buyer true,
complete and correct copies of its and Genco's Certificate of Incorporation and
Bylaws as currently in effect.
(b) The Genco Stock, which consists of 2500 shares of common stock,
$20 par value, constitutes all of the issued and outstanding shares of capital
stock of Genco and is owned beneficially and of record by GPU, free and clear of
all Encumbrances. The Genco Stock is issued and outstanding, has been duly
authorized and validly issued, and is fully paid and non-assessable. There are
no other authorized shares of capital stock of Genco other than the 2500 shares
of common stock comprising the Genco Stock. None of the shares comprising the
Genco Stock has been issued in violation of, or is subject to, any preemptive or
subscription rights, rights of first refusal or offer, options, put or call
rights, consent rights, restrictive covenants or agreement with any third party
other than Buyer ("Restrictive Third Party Rights"). There are no outstanding
securities convertible into or exchangeable for the capital stock of Genco.
Neither GPU nor Genco has any obligation, contingent or otherwise to issue,
sell, repurchase, redeem or otherwise acquire any of the Genco Stock or other
capital stock of Genco or any equity or debt securities of Genco.
4A.2. Authority Relative to this Agreement. GPU has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by GPU and the consummation of the transactions contemplated by GPU
hereby have been duly and validly authorized by all necessary corporate action
required on the part of GPU and this Agreement has been duly and validly
executed and delivered by GPU. Subject to the receipt of Sellers' Required
Regulatory Approvals, this Agreement constitutes the legal, valid and binding
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agreement of GPU, enforceable against GPU in accordance with its terms, except
that such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
4A.3. Consents and Approvals; No Violation. (a) Except as set forth in
Schedule 4A.3(a), and subject to obtaining Sellers' Required Regulatory
Approvals, neither the execution and delivery of this Agreement by GPU nor the
consummation by GPU of the transactions contemplated hereby (including, without
limitation, the transfer of Genco Stock to Buyer and any documents executed or
actions required to accomplish the purposes of Section 2.6 hereof) will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of GPU or Genco, (ii) result in a default (or give rise
to any right of termination, option, consent, first offer, first refusal,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, material agreement or other instrument
or obligation to which GPU is a party or by which it may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, would not,
individually or in the aggregate, create a Material Adverse Effect; or (iii)
constitute violations of any law, regulation, order, judgment or decree
applicable to GPU, which violations, individually or in the aggregate, would
create a Material Adverse Effect.
(b) Subject to the receipt of Sellers' Required Regulatory
Approvals, no consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by GPU, or the consummation by GPU of the transactions contemplated
hereby, other than (i) such consents, approvals, filings or notices which, if
not obtained or made, will not prevent GPU from performing its material
obligations hereunder and (ii) such consents, approvals, filings or notices
which become applicable to GPU as a result of the specific regulatory status of
Buyer (or any of its Affiliates) or as a result of any other facts that
specifically relate to the business or activities in which Buyer (or any of its
Affiliates) is or proposes to be engaged.
4A.4. Genco Tax Matters. With respect to the sale of the Genco Stock,
except as set forth on Schedule 4A.4:
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(i) Genco has (x) duly and timely filed (or there has been
filed on its behalf) with the appropriate taxing authorities all Tax
Returns required to be filed by it, and all such Tax Returns are
materially correct and (y) timely paid or there has been paid on its
behalf all Taxes due or claimed to be due from it by any taxing authority;
(ii) Genco has, within the time and manner prescribed by law,
withheld and paid over to the proper governmental authorities all amounts
required to be withheld and paid over under all applicable laws;
(iii) There are no Encumbrances for Taxes upon the assets or
properties of Genco, except for statutory encumbrances for current Taxes
not yet due;
(iv) Genco has not requested any extension of time within
which to file any Tax Return in respect of any taxable year which has not
since been filed and no outstanding waivers or comparable consents
regarding the application of the statue of limitations with respect to any
Taxes or Tax Returns has been given by or on behalf of Genco;
(v) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings ("Audits") exist or have
been initiated with regard to any Taxes or Tax Returns of Genco and Genco
has not received any written notice that such an audit is pending or
threatened with respect to any Taxes due from or with respect to Genco or
any Tax Return field by or with respect to Genco.
(vi) Genco has not requested or received a ruling from any
taxing authority or signed a closing or other agreement with any taxing
authority which could materially adversely affect Genco;
(vii) Except for the GPU Intercompany Tax Allocation
Agreement, Genco is not a party to, is not bound by, and has no obligation
under, any Tax sharing agreement, Tax indemnification agreement or similar
contract or arrangement;
(viii) No power of attorney has been granted with respect to
Genco as to any matter relating to Taxes;
(ix) Genco has not filed a consent pursuant to Section 341(f)
of the Code (or any predecessor provision) or agreed to have Section
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341(f)(2) of the Code apply to any disposition of a subsection (f) asset,
as such term is defined in Section 341(f)(4) of the Code, owned by Genco;
(x) No property owned by Genco (A) is property required to be
treated as being owned by another Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in
effect immediately prior to the enactment of the Tax Reform Act of 1986,
(B) constitutes "tax-exempt use property" within the meaning of Section
168(h)(1) of the Code or (C) is tax-exempt bond financed property within
the meaning of Section 168(g) of the Code;
(xi) Since December 31, 1996, Genco has not incurred any
liability for Taxes other than in the ordinary course of business;
(xii) Genco has no liability for Taxes of any person pursuant
to Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law) other than for the consolidated return group
of which GPU is the parent;
(xiii) Genco has not participated in, or cooperated with, an
international boycott within the meaning of Section 999 of the Code; and
(xiv) Genco is not a party to any contract, agreement or other
arrangement which could result in the payment by it of amounts that could
be nondeductible by reason of Section 280G or 162(m) of the Code.
4A.5. Subsidiaries. Genco does not own any subsidiaries nor any debt,
preferred, common or other equity securities of any kind nor any equity
interests in any other business, legal entity or arrangement.
4A.6. Capitalization. GPU has good and valid title to the Genco Stock,
free and clear of all Encumbrances and upon consummation of the transactions
contemplated hereby, Buyer will acquire good and valid title to the Genco Stock
free and clear of all Encumbrances and Restrictive Third Party Rights. The
authorized, issued and outstanding capital stock of Genco is set forth in
Schedule 4A.6. There are no options, warrants, rights or other agreements in
existence which entitle any Person to acquire any Genco capital stock or
respecting the voting of any Shares thereof.
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4A.7. Operating Agreements. Each Operating Agreement constitutes a legal,
valid and binding obligation of Genco and, to GPU's Knowledge, constitutes a
valid and binding obligation of the other parties thereto. Except as set forth
in Schedule 4A.7, there is not, under the Operating Agreement any default or
event which, with notice or lapse of time or both would constitute a default on
the part of Genco or to GPU's Knowledge, any of the other parties thereto,
except such events of default and other events which would not, individually or
in the aggregate, create a Material Adverse Effect. As used herein, "Operating
Agreements" means the Keystone Operating Agreement, dated as of December 1,
1965, and the Conemaugh Operating Agreement, dated as of December 1, 1967, each
as amended, among the respective owners of such Plants, copies of which have
been furnished to Buyer.
4A.8. Financial Statements. Attached hereto as Schedule 4A.8 are the
audited balance sheet and income statement of Genco as, at and for the year
ended December 31, 1997, and the unaudited balance sheet and income statement of
Genco as, at and for the period ended June 30, 1998 (the "Financial
Statements"). The Financial Statements (including the notes thereto) have been
prepared in accordance with generally accepted accounting principles ("GAAP")
and present fairly the financial condition of Genco as of the dates set forth
therein (subject in the case of the unaudited financial statements, to year end
audit adjustments). The books and records of Genco are complete in all material
respects and have been maintained in accordance with GAAP or other applicable
regulatory requirements. Genco has no material liability or asset which is not
disclosed in the Financial Statements and which is required to be disclosed in a
balance sheet prepared in accordance with GAAP.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers and GPU as follows:
5.1 Organization. Buyer is a Delaware corporation, duly organized, validly
existing and in good standing under the laws of the state of its organization
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as is now being conducted. Buyer is,
or by the Closing will be, qualified to do business in the Commonwealth of
Pennsylvania. Buyer has heretofore delivered to Sellers complete and correct
copies of its Certificate of Incorporation and Bylaws (or other similar
governing documents) as currently in effect.
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5.2 Authority Relative to this Agreement. Buyer has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Buyer and the consummation of the transactions contemplated hereby
by Buyer have been duly and validly authorized by all necessary corporate action
required on the part of Buyer. This Agreement has been duly and validly executed
and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory
Approvals, this Agreement constitutes a legal, valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and subject to obtaining
Buyer Required Regulatory Approvals, neither the execution and delivery of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or Bylaws (or other similar
governing documents) of Buyer, or (ii) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party or by which any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, have a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation,
order, judgment or decree applicable to Buyer, which violations, individually or
in the aggregate, would create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer Required Regulatory Approvals"), no consent or approval of, filing with,
or notice to, any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement, or the consummation by Buyer of the transactions
contemplated hereby, other than such consents, approvals, filings or notices,
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which, if not obtained or made, will not prevent Buyer from performing its
obligations under this Agreement.
5.4 Availability of Funds. Buyer has sufficient funds and lines of credit
available to it or has received binding written commitments from creditworthy
financial institutions, copies of which have been provided to Seller, to provide
sufficient funds on the Closing Date to pay the Purchase Price and to permit
Buyer to timely perform all of its obligations under this Agreement.
5.5 Legal Proceedings. There are no actions or proceedings pending against
Buyer before any court or arbitrator or Governmental Authority, which,
individually or in the aggregate, could reasonably be expected to create a Buyer
Material Adverse Effect. Buyer is not subject to any outstanding judgments,
rules, orders, writs, injunctions or decrees of any court, arbitrator or
Governmental Authority which would, individually or in the aggregate, create a
Buyer Material Adverse Effect.
5.6 No Knowledge of Sellers' Breach. Buyer has no Knowledge of any breach
by Sellers of any representation or warranty of Sellers, or of any other
condition or circumstance that would excuse Buyer from its timely performance of
its obligations hereunder. Buyer shall notify Sellers promptly if any such
information comes to its attention prior to the Closing.
5.7 Qualified Buyer. Buyer is qualified to obtain any Permits and
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of
any reason or circumstance that would prevent Buyer from procuring Buyer
Required Regulatory Approvals associated with Exempt Wholesale Generator (as
defined in the Public Utility Holding Company Act of 1935) status and
market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b).
5.8 Inspections. Without limitation of Sellers' representations,
warranties and covenants contained in this Agreement or the Ancillary
Agreements, Buyer acknowledges and agrees that it has, prior to its execution of
this Agreement, (i) reviewed the Environmental Reports, (ii) had full
opportunity to conduct to its satisfaction Inspections of the Purchased Assets,
including the Sites, and (iii) fully completed and approved the results of all
Inspections of the Purchased Assets. Subject to the restrictions set forth in
Section 6.2(a), Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Sites is
necessary for the purposes of acquiring the Purchased Assets for Buyer's
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intended use. Buyer acknowledges and agrees that it hereby assumes the risk that
adverse past, present, and future physical characteristics and Environmental
Conditions may not have been revealed by its Inspections and the investigations
of the Purchased Assets contained in the Environmental Reports. In making its
decision to execute this Agreement, and to purchase the Purchased Assets, Buyer
has relied on and will rely upon, among other things, the results of its
Inspections and the Environmental Reports.
5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass
Layoff as such terms are defined in the WARN Act within sixty days of the
Closing Date.
5.10 Securities Laws. Buyer acknowledges that the offer and sale of the
Genco Stock has not been registered under the Securities Act of 1933 or any
state securities laws, and affirms that it is not acquiring such shares with a
view toward distribution in violation of such act or any state securities laws.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as
described in Schedule 6.1 or as expressly contemplated by this Agreement or to
the extent Buyer otherwise consents in writing, during the period from the date
of this Agreement to the Closing Date, each Seller (i) will operate the
Purchased Assets in the ordinary course of business consistent with the past
practices of such Seller or its Affiliates or with Good Utility Practices, (ii)
shall use all Commercially Reasonable Efforts to preserve intact such Purchased
Assets, and endeavor to preserve the goodwill and relationships with customers,
suppliers and others having business dealings with it, (iii) shall maintain the
insurance coverage described in Section 4.4, (iv) shall comply with all
applicable laws relating to the Purchased Assets, including without limitation,
all Environmental Laws, except where the failure to so comply would not result
in a Material Adverse Effect, and (v) shall continue with such Seller's program,
or (at Buyer's expense) as Buyer may direct, to install such equipment or
software with respect to Year 2000 Compliance in accordance with such Seller's
plans referred to in Section 2.1(k). Without limiting the generality of the
foregoing, and, except as (x) contemplated in this Agreement, (y)
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described in Schedule 6.1, or (z) required under applicable law or by any
Governmental Authority, prior to the Closing Date, without the prior written
consent of Buyer, such Seller shall not with respect to the Purchased Assets:
(i) Make any material change in the levels of Inventories
customarily maintained by such Seller or its Affiliates with respect to
such Purchased Assets, other than changes which are consistent with Good
Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge, transfer or
otherwise dispose of, any material Purchased Assets individually or in the
aggregate (except for Purchased Assets used, consumed or replaced in the
ordinary course of business consistent with past practices of such Seller
or its Affiliates or with Good Utility Practices) other than to encumber
Purchased Assets with Permitted Encumbrances;
(iii) Modify, amend or voluntarily terminate prior to the
expiration date any of Sellers' Agreements or Real Property Leases or any
of the Permits or Environmental Permits associated with such Purchased
Assets in any material respect, other than (a) in the ordinary course of
business, to the extent consistent with the past practices of such Seller
or its Affiliates or with Good Utility Practices, (b) with cause, to the
extent consistent with past practices of such Seller or its Affiliates or
with Good Utility Practices, or (c) as may be required in connection with
transferring such Seller's rights or obligations thereunder to Buyer
pursuant to this Agreement;
(iv) Except as otherwise provided herein, enter into any
commitment for the purchase, sale, or transportation of fuel having a term
greater than six months and not terminable on or before the Closing Date
either (i) automatically, or (ii) by option of such Seller (or, after the
Closing, by Buyer) in its sole discretion, if the aggregate payment under
such commitment for fuel and all other outstanding commitments for fuel
not previously approved by Buyer would exceed $1,000,000 for all Aggregate
Purchased Assets;
(v) Sell, lease or otherwise dispose of Emission Allowances,
or Emission Reduction Credits identified in Schedule 2.1(h), except to the
extent necessary to operate such Purchased Assets
in accordance with this Section 6.1;
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(vi) Except as otherwise provided herein, enter into any
contract, agreement, commitment or arrangement relating to such Purchased
Assets that individually exceeds $250,000 or in the aggregate exceeds
$1,000,000 unless it is terminable by such Seller (or, after the Closing,
by Buyer) without penalty or premium upon no more than sixty (60) days
notice;
(vii) Except as otherwise required by the terms of the
Collective Bargaining Agreement, (a) hire at, or transfer to such
Purchased Assets, any new employees prior to the Closing, other than to
fill vacancies in existing positions in the reasonable discretion of such
Seller or Genco, (b) increase salaries or wages of employees employed in
connection with the Purchased Assets prior to the Closing other than in
the ordinary course of business and in accordance with Seller's past
practices, (c) take any action prior to the Closing to effect a change in
a Collective Bargaining Agreement, or (d) take any action prior to the
Closing to increase the aggregate benefits payable to the employees
employed in connection with the Purchased Assets other than increases for
Non-Union Employees in the ordinary course of business and in accordance
with Sellers' past practices or (e) enter into any employment contracts
with employees at the Purchased Assets or any collective bargaining
agreements with labor organizations representing such employees;
(viii) Make any Capital Expenditures except as permitted by
Section 3.3(a)(iii) or for such Seller's account; and
(ix) Except as otherwise provided herein, enter into any
written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in the foregoing
paragraphs (i) through (viii).
6.2 Access to Information.
(a) Between the date of this Agreement and the Closing Date, each of
Seller and Genco will, at reasonable times and upon reasonable notice: (i) give
Buyer and its Representatives reasonable access to its managerial personnel and
to all books, records, plans, equipment, offices and other facilities and
properties constituting the Purchased Assets; (ii) furnish Buyer with such
financial and operating data and other information with respect to such
Purchased Assets as Buyer may from time to time reasonably request, and permit
Buyer to make such reasonable
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Inspections thereof as Buyer may request; (iii) furnish Buyer at its request a
copy of each material report, schedule or other document filed by such Seller or
Genco or any of its Affiliates with respect to such Purchased Assets with the
SEC, FERC, NJBPU, PaPUC, PaDEP or any other Governmental Authority; and (iv)
furnish Buyer with all such other information as shall be reasonably necessary
to enable Buyer to verify the accuracy of the representations and warranties of
such Seller contained in this Agreement; provided, however, that (A) any such
inspections and investigations shall be conducted in such a manner as not to
interfere unreasonably with the operation of the Purchased Assets, (B) such
Seller or Genco shall not be required to take any action which would constitute
a waiver of the attorney-client privilege, and (C) such Seller or Genco need not
supply Buyer with any information which such Seller or Genco is under a legal or
contractual obligation not to supply. Notwithstanding anything in this Section
6.2 to the contrary, Sellers and Genco will only furnish or provide such access
to Transferring Employee Records and will not furnish or provide access to other
employee personnel records or medical information unless required by law or
specifically authorized by the affected employee, nor shall Buyer have the right
to administer to any of Sellers' or Genco's employees any skills, aptitudes,
psychological profile, or other employment related test. Buyer shall not have
the right to perform or conduct any environmental sampling or testing at, in,
on, or underneath the Purchased Assets.
(b) Each Party shall, and shall use its best efforts to cause its
Representatives to, (i) keep all Proprietary Information of the other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other than such Party's Representatives and (ii) not use such
Proprietary Information other than in connection with the consummation of the
transactions contemplated hereby. After the Closing Date, any Proprietary
Information to the extent related to the Purchased Assets shall no longer be
subject to the restrictions set forth herein. The obligations of the Parties
under this Section 6.2(b) shall be in full force and effect for three (3) years
from the date hereof and will survive the termination of this Agreement, the
discharge of all other obligations owed by the Parties to each other and the
closing of the transactions contemplated by this Agreement.
(c) For a period of seven (7) years after the Closing Date (or such longer
period as may be required by applicable law or Section 6.8(g)), each Party and
its Representatives shall have reasonable access to all of the books and records
of the Purchased Assets, including all Transferring Employee Records in the
possession of the other Party to the extent that such access
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may reasonably be required by such Party in connection with the Assumed
Liabilities or the Excluded Liabilities, or other matters relating to or
affected by the operation of the Purchased Assets. Such access shall be afforded
by the Party in possession of any such books and records upon receipt of
reasonable advance written notice and during normal business hours. The Party
exercising this right of access shall be solely responsible for any costs or
expenses incurred by it or the other Party with respect to such access pursuant
to this Section 6.2(c). If the Party in possession of such books and records
shall desire to dispose of any books and records upon or prior to the expiration
of such seven-year period (or any such longer period), such Party shall, prior
to such disposition, give the other Party a reasonable opportunity at such other
Party's reasonable expense, to segregate and remove such books and records as
such other Party may select.
(d) Notwithstanding the terms of Section 6.2(b) above, the Parties agree
that prior to the Closing Buyer may reveal or disclose Proprietary Information
to any other Persons in connection with Buyer's financing of its purchase of the
Purchased Assets or any equity participation in Buyer's purchase of the
Purchased Assets (provided that such Persons agree in writing to maintain the
confidentiality of the Proprietary Information in accordance with this
Agreement).
(e) Upon the other Party's prior written approval (which will not be
unreasonably withheld or delayed), either Party may provide Proprietary
Information of the other Party to the NJBPU, the PaPUC, the SEC, the FERC or any
other Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to obtain Sellers' Required Regulatory Approvals, or Buyer Required
Regulatory Approvals, respectively, or to comply generally with any relevant law
or regulation. The disclosing Party will seek confidential treatment for the
Proprietary Information provided to any Governmental Authority and the
disclosing Party will notify the other Party as far in advance as is practicable
of its intention to release to any Governmental Authority any Proprietary
Information.
(f) Except as specifically provided herein or in the Confidentiality
Agreement, nothing in this Section shall impair or modify any of the rights or
obligations of Buyer or its Affiliates under the Confidentiality Agreement, all
of which remain in effect until termination of such agreement in accordance with
its terms.
(g) Except as may be permitted in the Confidentiality Agreement, Buyer
agrees that, prior to the Closing Date, it will
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not contact any vendors, suppliers, employees, or other contracting parties of
Sellers, Genco or their Affiliates with respect to any aspect of the Purchased
Assets or the transactions contemplated hereby, without the prior written
consent of Sellers, which consent shall not be unreasonably withheld.
6.3 Public Statements. Subject to the requirements imposed by any
applicable law or any Governmental Authority or stock exchange, prior to the
Closing Date, no press release or other public announcement or public statement
or comment in response to any inquiry relating to the transactions contemplated
by this Agreement shall be issued or made by any Party without the prior
approval of the other Parties (which approval shall not be unreasonably
withheld). The Parties agree to cooperate in preparing such announcements.
6.4 Expenses. Except to the extent specifically provided herein, whether
or not the transactions contemplated hereby are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of any
title insurance policy and all endorsements thereto that Buyer elects to obtain
and (b) all filing fees under the HSR Act.
6.5 Further Assurances.
(a) Subject to the terms and conditions of this Agreement, each of the
Parties hereto shall use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the purchase and sale of the Purchased Assets pursuant to this Agreement and the
assumption of the Assumed Liabilities, including without limitation using its
best efforts to ensure satisfaction of the conditions precedent to each Party's
obligations hereunder, including obtaining all necessary consents, approvals,
and authorizations of third parties and Governmental Authorities required to be
obtained in order to consummate the transactions hereunder, and to effectuate a
transfer of the Transferable Permits to Buyer. Buyer agrees to perform all
conditions required of Buyer in connection with Sellers' Required Regulatory
Approvals, other than those conditions which would create a Buyer Material
Adverse Effect. Neither of the Parties hereto shall, without prior written
consent of the other Party, take or fail to take any action, which might
reasonably be expected to prevent or materially impede, interfere with or delay
the transactions contemplated by this Agreement.
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(b) Buyer agrees that prior to the Closing Date, neither Buyer nor any of
its Affiliates will enter into any other contract to acquire, nor acquire,
electric generation facilities located in the control area recognized by the
North American Reliability Council as the PJM Control Area if the proposed
acquisition of such additional electric generation facilities might reasonably
be expected to prevent or materially impede, interfere with or delay the
transactions contemplated by this Agreement. Buyer shall give Sellers reasonable
advance notice (and in any event not less than 30 days) before Buyer enters into
contracts to acquire or acquires any electric generation facility located in
said PJM Control Area.
(c) In the event that any Purchased Asset shall not have been conveyed to
Buyer at the Closing, each Seller shall, subject to Section 6.5(d) and (e), use
Commercially Reasonable Efforts to convey such asset to Buyer as promptly as is
practicable after the Closing.
(d) To the extent that Sellers' rights under any Sellers' Agreement or
Real Property Lease may not be assigned without the consent of another Person
which consent has not been obtained by the Closing Date, this Agreement shall
not constitute an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful. Sellers and Buyer agree that if any
consent to an assignment of any material Sellers' Agreement or Real Property
Lease shall not be obtained or if any attempted assignment would be ineffective
or would impair Buyer's rights and obligations under the material Sellers'
Agreement or Real Property Lease in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, the applicable Seller,
at Buyer's option and to the maximum extent permitted by law and such material
Sellers' Agreement or Real Property Lease, shall, after the Closing Date,
appoint Buyer to be such Seller's agent with respect to such material Seller's
Agreement or Real Property Lease, or, to the maximum extent permitted by law and
such material Sellers' Agreement or Real Property Lease, enter into such
reasonable arrangements with Buyer or take such other actions as are necessary
to provide Buyer with the same or substantially similar rights and obligations
of such material Sellers' Agreement or Real Property Lease as Buyer may
reasonably request. Sellers and Buyer shall cooperate and shall each use
Commercially Reasonable Efforts prior to and after the Closing Date to obtain an
assignment of such material Sellers' Agreement or Real Property Lease to Buyer.
(e) To the extent that Sellers' rights under any warranty or guaranty
described in Section 2.1(i) may not be assigned
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without the consent of another Person, which consent has not been obtained by
the Closing Date, this Agreement shall not constitute an agreement to assign
same, if an attempted assignment would constitute a breach thereof, or be
unlawful. Sellers and Buyer agree that if any consent to an assignment of any
such warranty or guaranty shall not be obtained, or if any attempted assignment
would be ineffective or would impair Buyer's rights and obligations under the
warranty or guaranty in question, so that Buyer would not in effect acquire the
benefit of all such rights and obligations, the applicable Seller, at Buyer's
expense, shall use Commercially Reasonable Efforts, to the extent permitted by
law and such warranty or guaranty, to enforce such warranty or guaranty for the
benefit of Buyer so as to provide Buyer to the maximum extent possible with the
benefits and obligations of such warranty or guaranty.
(f) Between the date hereof and the Closing, Buyer shall have the right to
commence the regulatory approval processes associated with the construction and
operation of new, modified or repowered electric generating units and associated
equipment at the Real Property. Sellers shall provide reasonable assistance to
Buyer, under Buyer's reasonable direction, in obtaining all Permits required (i)
to own and operate the Purchased Assets as contemplated by the Agreement and the
Ancillary Agreements and (ii) to construct and operate such new or modified
facilities, provided, however, that Buyer shall reimburse Sellers for all
reasonable costs incurred by Sellers in its assistance of Buyer hereunder.
(g) Sellers agree to use Commercial Reasonable Efforts to have the
co-owners of the Keystone and Conemaugh Stations enter into an interconnection
agreement with Seller (substantially in the form of the agreements being
executed by Buyer and JCP&L, Met-Ed and Penelec, respectively, relating to other
generating stations). Pending any such agreement, following the Closing, Sellers
agree to continue to provide interconnection service to each Station on the same
terms and conditions as they are currently so providing.
6.6 Consents and Approvals.
(a) As promptly as possible after the date of this Agreement, Sellers and
Buyer, as applicable, shall each file or cause to be filed with the Federal
Trade Commission and the United States Department of Justice any notifications
required to be filed under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. The Parties
shall use their respective best efforts to respond promptly to any requests for
additional
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information made by either of such agencies, and to cause the waiting periods
under the HSR Act to terminate or expire at the earliest possible date after the
date of filing. Buyer will pay all filing fees under the HSR Act but each Party
will bear its own costs of the preparation of any filing.
(b) As promptly as possible after the date of this Agreement, Buyer shall
file with the FERC an application requesting Exempt Wholesale Generator status
for Buyer, which filing may be made individually by Buyer or jointly with the
Sellers in conjunction with other filings to be made with the FERC under this
Agreement, as reasonably determined by the Parties. Prior to Buyer's submission
of that application with the FERC, Buyer shall submit such application to the
Sellers for review and comment and Buyer shall incorporate into the application
any revisions reasonably requested by Sellers. Buyer shall be solely responsible
for the cost of preparing and filing this application, any petition(s) for
rehearing, or any re-application. If Buyer's initial application for Exempt
Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the
FERC for rehearing and/or to re-submit an application with the FERC, as
reasonably required by the Sellers, provided that in either case the action
directed by the Sellers does not create a Buyer Material Adverse Effect.
(c) As promptly as possible after the date of this Agreement, Buyer shall
file with the FERC an application requesting authorization under Section 205 of
the Federal Power Act to sell electric generating capacity and energy, but not
other services, including, without limitation, ancillary services, at wholesale
at market-based rates, which filing may be made individually by Buyer or jointly
with Sellers in conjunction with other filings to be made with the FERC under
this Agreement, as reasonably determined by the Parties. Prior to the filing of
that application with the FERC, Buyer shall submit such application to the
Sellers for review and comment and Buyer shall incorporate into the application
any revisions reasonably requested by the Sellers. Buyer shall be solely
responsible for the cost of preparing and filing this application, any
petition(s) for rehearing, or any reapplication. If Buyer's initial application
for market-based rate authorization results in a FERC request for additional
information or is rejected by the FERC, Buyer shall provide that information
promptly, to petition the FERC for rehearing and/or to re-submit an application
with the FERC, as reasonably required by the Sellers, provided that the Sellers
shall have a reasonable opportunity to make changes to such a petition or
re-submission application and,
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provided further, that the action directed by Seller does not create a Buyer
Material Adverse Effect.
(d) As promptly as possible, and in any case within sixty (60) days, after
the date of this Agreement, Sellers and Buyer, as applicable, shall file with
the NJBPU, the PaPUC, the FERC and any other Governmental Authority, and make
any other filings required to be made with respect to the transactions
contemplated hereby. The Parties shall respond promptly to any requests for
additional information made by such agencies, and use their respective best
efforts to cause regulatory approval to be obtained at the earliest possible
date after the date of filing. Each Party will bear its own costs of the
preparation of any such filing.
(e) Without limitation of Section 10.11, Sellers and Buyer shall cooperate
with each other and promptly prepare and file notifications with, and request
Tax clearances from, state and local taxing authorities in jurisdictions in
which a portion of the Purchase Price may be required to be withheld or in which
Buyer would otherwise be liable for any Tax liabilities of Sellers pursuant to
such state and local Tax law.
(f) Buyer shall have the primary responsibility for securing the transfer,
reissuance or procurement of the Permits and Environmental Permits (other than
Transferable Permits) effective as of the Closing Date. Sellers shall cooperate
with Buyer's efforts in this regard and assist in any transfer or reissuance of
a Permit or Environmental Permit held by Sellers or the procurement of any other
Permit or Environmental Permit when so requested by Buyer.
6.7 Fees and Commissions. Each Seller, on the one hand, and Buyer, on the
other hand, represent and warrant to the other that, except for Goldman, Sachs &
Co., which are acting for and at the expense of such Seller, no broker, finder
or other Person is entitled to any brokerage fees, commissions or finder's fees
in connection with the transaction contemplated hereby by reason of any action
taken by the Party making such representation. Each Seller, on the one hand, and
Buyer, on the other hand, will pay to the other or otherwise discharge, and will
indemnify and hold the other harmless from and against, any and all claims or
liabilities for all brokerage fees, commissions and finder's fees (other than
the fees, commissions and finder's fees payable to the parties listed above)
incurred by reason of any action taken by the indemnifying party.
6.8 Tax Matters.
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(a) All transfer and sales taxes incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, (a) Pennsylvania and New Jersey sales tax; and (b) the Pennsylvania
and New Jersey realty transfer taxes on conveyances of interests in real
property (including such taxes assessed by Pennsylvania municipalities as well
as by the Commonwealth of Pennsylvania itself)) shall be borne by Buyer. Except
for the Pennsylvania Realty Transfer Tax Statement of Value, which shall be
filed by Buyer, Sellers shall file, to the extent required by, or permissible
under, applicable law, all necessary Tax Returns and other documentation with
respect to all such transfer and sales taxes, and, if required by applicable
law, Buyer shall join in the execution of any such Tax Returns and other
documentation. Prior to the Closing Date, to the extent applicable, Buyer shall
provide to Sellers appropriate certificates of Tax exemption from each
applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with Section 3.5 of
this Agreement, Buyer shall prepare and timely file all Tax Returns required to
be filed after the Closing Date with respect to the Purchased Assets, if any,
and shall duly and timely pay all such Taxes shown to be due on such Tax
Returns. Buyer's preparation of any such Tax Returns shall be subject to
Sellers' approval, which approval shall not be unreasonably withheld. Buyer
shall make such Tax Returns available for Sellers' review and approval no later
than fifteen (15) Business Days prior to the due date for filing each such Tax
Return.
(c) Within fifteen (15) Business Days after receipt of such Tax Return
referred to in Section 6.8(b), each Seller shall pay to Buyer such Sellers'
share of the amount shown on such Tax Return, less payments on account of such
Taxes previously made by each Seller. To the extent that such Sellers' previous
payments exceed such Sellers' share, the Buyer shall pay such excess to such
Seller. With respect to real estate taxes, evidence of payment shall be
delivered by each Seller to Buyer at the Closing. As soon as practicable after
the Closing, Sellers and Buyer shall cooperate in the filing of an amended
return and/or other documents in order to obtain the available refund with
respect to any Closing Year PURTA Tax. Buyer shall be entitled to such refund to
the extent, but only to the extent, that it does not exceed any payments made by
Buyer on account of such PURTA liability.
(d) Buyer and Sellers shall provide the other with such assistance as may
reasonably be requested by the other Party in connection with the preparation of
any Tax Return, any audit or other examination by any taxing authority, or any
judicial or administrative proceedings relating to liability for Taxes, and
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each shall retain and provide the requesting party with any records or
information which may be relevant to such return, audit, examination or
proceedings. Any information obtained pursuant to this Section 6.8(d) or
pursuant to any other Section hereof providing for the sharing of information or
review of any Tax Return or other instrument relating to Taxes shall be kept
confidential by the parties hereto. Schedule 6.8 sets forth procedures to be
followed with respect to the tax appeals and audits referred to therein.
(e) Genco Tax matters.
(1) Section 338(h)(10) Election. (i) With respect to the sale of the Genco
Stock, GPU and Buyer shall jointly make the election provided for by section
338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations
promulgated under the code and any comparable election under state or local tax
law (the "Election"). As soon as practicable after the Closing Date, with
respect to such Election, GPU and Buyer shall mutually prepare a Form 8023-A,
with all attachments, and GPU shall sign such Form 8023-A. Buyer and GPU shall
also cooperate with each other to take all actions necessary and appropriate
(including filing such additional forms, returns, elections, schedules and other
documents as may be required) to effect and preserve such Election in accordance
with the provisions of Section 1.338(h)(10)-1 of the Treasury Regulations (or
any comparable provisions of state and local tax law) or any successor
provisions.
(ii) With respect to the Election, the parties shall endeavor to agree
upon the amount of the Modified Aggregate Deemed Sales Price as defined in
Section 1.338(h)(10)-1 of the Treasury Regulations (the "Modified ADSP") and
upon an allocation of such Modified ADSP among the assets of Genco pursuant to
Treasury Regulation Section 1.338(h)(10)-1. Buyer and GPU shall use their good
faith Commercially Reasonable Efforts to agree upon such allocation within one
hundred twenty (120) days of the date of this Agreement. In the event that the
parties cannot agree on a mutually satisfactory allocation within said time
period, the Independent Accounting Firm shall, at GPU's and Buyer's joint
expense, determine the appropriate allocation. The finding of such Independent
Accounting Firm shall be binding on the parties. The parties shall take no
action inconsistent with, or fail to take any action necessary for the validity
of the Election, and shall adopt and utilize the asset values determined from
such reasonable allocation for the purpose of all Tax Returns filed by them, and
shall not voluntarily take any action inconsistent therewith upon examination of
any Tax Return, in any refund claim, in any litigation or otherwise with respect
to such
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Tax Returns. Buyer and GPU shall notify and provide the other with reasonable
assistance in the event of an examination, audit or other proceeding regarding
the agreed upon allocation of the Modified ADSP.
(2) Return Filing, Payments, Refunds and Credits. Notwithstanding anything
to the contrary in Section 3.5 of this Agreement,
(i) For purposes of this Agreement, the amount of Taxes of Genco
attributable to the pre-Closing portion of any taxable period beginning before
and ending after the Closing Date (the "Straddle Period") shall be allocated
between the pre-Closing and post-Closing portions based, in the case of real and
personal property taxes, on a per diem basis, and in the case of all other Taxes
(including, without limitation, Income Taxes), on the actual activities, income
or loss of Genco during such pre-Closing and post-Closing portions of the
Straddle Period assuming a hypothetical closing of the books as of the end of
the Closing Date; provided, further, that the taxes of Genco that are
attributable to the pre-Closing portion of any taxable period shall include any
Taxes resulting from the gain on any deemed sale of assets by Genco pursuant to
Section 338 of the Code or any comparable provision under the laws of any other
jurisdiction with respect to the transactions contemplated by this Agreement.
(ii) Buyer and GPU shall cause Genco to join, for all pre-Closing periods
and the Straddle Period for which Genco is required or eligible to do so, in all
consolidated, combined or unitary federal, state, or Local Income Tax or
franchise Tax Returns of GPU (or any Tax Affiliate for all pre-Closing periods
("GPU's Tax Returns") and shall, in each jurisdiction where this is required or
permissible under applicable law, cause the taxable year of Genco to terminate
as of the Closing Date. GPU shall cause to be prepared and timely filed all such
GPU's Tax Returns and shall pay or cause to be paid all Taxes shown to be due on
such GPU's Tax Returns; provided, however, that in the case of a GPU's Tax
Return for the Straddle Period, Buyer shall or shall cause Genco to pay to GPU
the portion of such Taxes shown to be due thereon attributable to Genco for the
post-Closing Date portion of the Straddle Period determined in accordance with
Section 6.8(e)(2)(i) and the GPU Intercompany Tax Allocation Agreement in effect
on the date of the signing of this Agreement (the "GPU Intercompany Tax
Allocation Agreement").
(iii) Buyer shall or shall cause Genco to prepare and timely file all
Income Tax Returns of Genco for all pre-Closing periods and the Straddle Period,
other than those referred to in Section 6.8(e)(2)(ii), which Income Tax Returns
have not been filed as of the Closing Date, and shall cause to be timely paid
all Taxes
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shown to be due on such Tax Returns. No later than ten days prior to the due
date for the filing of each Income Tax Return referred to in this section 6.8
(e)(2)(iii), GPU shall pay to Genco the amount of Taxes shown as due thereon
less any estimated Taxes paid by Genco during the pre-Closing period; provided,
however, that in the case of an Income Tax Return for a Straddle Period, GPU
shall only be required to pay Genco the portion of such Taxes that is
attributable to the pre-Closing Date portion of such Straddle Period, determined
in accordance with Section 6.8(e)(2)(i) and the GPU Intercompany Tax Allocation
Agreement less any estimated Taxes paid by Genco during the pre-Closing period.
GPU shall fully cooperate with Buyer and Genco in accordance with past practice
in the preparation of the Income Tax Return as referred to in this Section
6.8(e)(2)(iii).
(iv) Buyer shall or shall cause Genco to prepare and timely file all Tax
Returns for all pre-Closing periods and the Straddle Period, other than those
Tax Returns referred to in Section 6.8(e)(2)(ii) and (iii), which Tax Returns
have not been filed as of the Closing Date, and shall cause to be timely paid
all Taxes shown to be due thereon. No later than ten days prior to the due date
for the filing of each Tax Return referred to in this Section 6.8(e)(2)(iv), GPU
shall pay to Genco the amount shown as due thereon attributable to the
pre-Closing Date portion of the Straddle Period less any estimated Taxes paid by
Genco during the pre-Closing period.
(v) The Tax Returns referred to in Section 6.8(e)(2)(ii), (iii) and (iv)
shall be prepared in a manner consistent with past practice, unless a contrary
treatment is required by an intervening change in the applicable law. GPU shall
cause to be made available to Buyer a copy of any Tax Return that is required to
be filed by GPU or Genco under 6.8(e)(2)(ii) and Buyer shall cause to be made
available to Seller a copy of any Tax Return that is required to be filed by
Buyer or Genco under Section 6.8(e)(2)(iii) or (iv), in each case together with
all relevant work papers and other information. Each such Tax Return shall be
made available for review and approval no later than 20 Business Days prior to
the due date for the filing of such Tax Return (taking into account proper
extensions), such approval not be unreasonably withheld. An exact copy of any
such Tax Return filed by Buyer shall be provided to GPU and any such Tax Return
filed by GPU shall be provided to Buyer, in each case, no later than ten days
after such Tax Return is filed. To the extent that the Tax Returns that are the
subject of this clause (v) are combined or consolidated tax returns, each
reference to Tax Return shall be to a pro forma separate return of Genco.
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(vi) Any refunds or credits of the Taxes of Genco plus any interest
received with respect thereto from the applicable taxing authorities for any
pre-Closing period (including without limitation, refunds or credits arising
from amended returns filed after the Closing Date) shall be for the account of
GPU, except to the extent that such refunds or credits are attributable to the
mandatory carryback of any deductions or credits for any Tax Period ending after
a Closing Date and, if received by Buyer or Genco, shall be paid to GPU within
ten days after Buyer or Genco receives such refund or after the relevant Tax
Return is filed within which the credit is applied against Buyer's or Genco's
liability for Taxes for a period which begins after the Closing Date, net of any
Taxes Buyer or Genco is required to pay on account of receiving such refund or
credit (including a reasonable estimate of resulting future Tax costs.) GPU,
without the consent of Buyer, shall not apply for any refund that will create a
material adverse effect on any post-Closing period Tax Return and shall not
apply for any refund for any Straddle Period Tax Return or any Tax Return for
Genco that is not a consolidated, combined, or unitary Tax Return. Any refunds
or credits of Taxes of Genco for any Straddle Period shall be apportioned
between GPU and Buyer in the same manner as the liability for such Taxes is
apportioned pursuant to Section 6.8(e)(2)(i).
(3) Tax Indemnification. (i) Without duplication, GPU shall indemnify,
defend and hold Buyer and Genco harmless from and against any and all Taxes
(including interest and penalties) which may be suffered or incurred by Buyer or
Genco in respect of or relating to, directly or indirectly (x) Taxes of or
attributable to Genco for all pre-Closing periods, (y) Taxes of or attributable
to Genco with respect to the pre-Closing portion of the Straddle period, and (z)
Taxes payable by Genco with respect to any pre-Closing period or Straddle Period
by reason of Genco being severally liable for the Tax of any Tax Affiliate
pursuant to Treasury Regulation 1.1502-6 or any analogous state or local Tax
law.
(ii) Without duplication, Buyer shall indemnify, defend and hold GPU and
each of its Affiliates harmless from and against any and all Taxes (including
interest and penalties) which may be suffered or incurred by them in respect of
or relating to, directly or indirectly (x) Taxes of or attributable to Genco
with respect to all post-Closing periods, and (y) Taxes of or attributable to
Genco with respect to the post-Closing portion of any Straddle Period.
(iii) An indemnity payment due under this Section 6.8(e)(4) shall be made
within thirty (30) days after (i) the party in
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control of the issue under Section 6.8(e)(3) determines not to contest the
issue, the receipt of a formal notice or assessment from a taxing authority or
the occurrence of any other event giving rise to the payment subject to an
indemnity, or (ii) if the party in control of the issue under Section 6.8(e)(4)
determines to contest the issue, the earlier of the signing of a closing
agreement or settlement agreement or any other similar agreement with the
relevant tax authorities, the receipt of a deficiency notice with respect to
which the period for filing a petition with the relevant court has expired, or a
decision of any court of competent jurisdiction which is not subject to appeal
or as to which the time for appeal has expired.
(4) Tax Contest. (i) GPU and Buyer shall notify the other party in writing
within 30 days of receipt of written notice of any pending or threatened tax
examination, audit or other administrative or judicial proceeding (a "Tax
Contest") that could reasonably be expected to result in an indemnification
obligation under this Section 6.8(e) of such other party pursuant to this
Section 6.8(e). If the recipient of such notice of a Tax Contest fails to
provide such notice to the other party, it shall not be entitled to
indemnification for any Taxes arising in connection with such Tax Contest, but
only to the extent, if any, that such failure or delay shall have adversely
affected the indemnifying party's ability to defend against, settle, or satisfy
any action, suit or proceeding against it, or any damage, loss, claim, or demand
for which the indemnified party is entitled to indemnification hereunder.
(ii) If a Tax Contest relates to any period ending on or prior to the
Closing Date or to any Taxes for which GPU is liable in full hereunder, GPU
shall at its expense control the defense and settlement of such Tax Contest. If
such Tax contest relates to any period beginning after the Closing Date or to
any Taxes for which Buyer is liable in full hereunder, Buyer shall at its own
expense control the defense and settlement of such Tax Contest. The party not in
control of the defense shall have the right to observe the conduct of any Tax
Contest at its expense, including through its own counsel and other professional
experts. Buyer and GPU shall jointly represent Genco in any Tax Contest relating
to a Straddle Period, and fees and expenses related to such representation shall
be paid equally by Buyer and GPU.
(iii) Notwithstanding anything to the contrary in section 6.8(e)(4)(ii),
to the extent that an issue raised in any Tax Contest controlled by one party or
jointly controlled could materially affect the liability for Taxes of the other
party, the controlling party shall not, and neither party in the case of joint
control shall, enter into a final settlement without the
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consent of the other party, which consent shall not be reasonably withheld.
Where a party withholds its consent to any final settlement, that party may
continue or initiate further proceedings, at its own expense, and the liability
of the party that wished to settle (as between the consenting and the
non-consenting party) shall not exceed the liability that would have resulted
from the proposed final settlement including interest, additions to Tax, and
penalties that have accrued at that time), and the non-consenting party shall
indemnify the consenting party for such Taxes.
Notwithstanding any provision of this Agreement to the contrary,
this Section 6.8 shall survive for the duration of any applicable limitation
periods.
(5) Tax Sharing Agreements. Any Tax sharing agreement to which Genco is a
party shall be deemed terminated with respect to Genco on, and effective as of,
the Closing Date, and no Person shall have any rights or obligations under such
Tax sharing agreement with respect to Genco after such termination; provided,
however, that the GPU Intercompany Tax allocation Agreement shall remain in
effect with respect to Genco in order to determine the portion of GPU and
Sellers' Tax liabilities attributable to Genco, and to be paid to GPU under
Section 6.8(e)(2)(ii) for the post-Closing Date portion of the Straddle Period.
(f) Disputes. In the event that a dispute arises between Sellers or GPU
and Buyer as to the amount of Taxes, or indemnification, whether or not
attributable to Genco, or the amount of any allocation of Purchase Price under
Section 3.4 or 6.8(e)(1)(ii) hereof, the parties shall attempt in good faith to
resolve such dispute, and any agreed upon amount shall be paid to the
appropriate party. If such dispute is not resolved 30 days thereafter, the
parties shall submit the dispute to the Independent Accounting firm for
resolution, which resolution shall be final, conclusive and binding on the
parties. Notwithstanding anything in this Agreement to the contrary, the fees
and expenses of the Independent Accounting Firm in resolving the dispute shall
be borne equally by Seller or GPU, as applicable, and Buyer. Any payment
required to be made as a result of the resolution of the dispute by the
Independent Accounting firm shall be made within ten days after such resolution,
together with any interest determined by the Independent Accounting Firm to be
appropriate.
(g) Cooperation. Buyer and GPU shall (and Buyer and GPU shall cause Genco
to) cooperate fully, as and to the extent reasonably requested by the other
Party, in connection with the
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filing of Tax Returns pursuant to this Agreement and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees (to the extent such employees were responsible
for the preparation, maintenance or interpretation of information and documents
relevant to Tax matters or to the extent required as witnesses in any Tax
proceedings), available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Parties
agree (i) to retain, and (in the case of Buyer) to cause Genco to retain, all
books and records with respect to Tax matters pertinent to Genco relating to any
taxable period beginning before the Closing Date until six months after the
expiration of the statute of limitations (and, to the extent notified by Buyer
or Sellers, any extensions thereof) of the respective taxable periods, and to
abide by all record retention obligations imposed by law or pursuant to
agreements entered into with any taxing authority, and (ii) to give the other
Party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other Party so requests, Buyer or
Sellers, as the case may be, shall allow the other Party to take possession of
such books and records.
Buyer, Genco and GPU further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
At GPU's request, Buyer will cause Genco to make and/or join with GPU in
making after Closing any election of GPU's consolidated group for which each
member's consent is required, if the making of such election does not have a
material adverse impact on Buyer or Genco for any post-acquisition Tax period.
6.9 Advice of Changes. Prior to the Closing, each Party will promptly
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules hereto. Sellers may at
any time notify Buyer of any development causing a breach of any of its or GPU's
representations and warranties in Article IV or IVA. Unless Buyer has the right
to terminate this Agreement pursuant to Section 9.1(f) below by reason of the
developments and exercises that right within the period of
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fifteen (15) days after such right accrues, the written notice pursuant to this
Section 6.9 will be deemed to have amended this Agreement, including the
appropriate Schedule, to have qualified the representations and warranties
contained in Article IV or IVA above, and to have cured any misrepresentation or
breach of warranty that otherwise might have existed hereunder by reason of the
development.
6.10 Employees.
(a) At least 90 days prior to the Closing Date (but in no case sooner than
ninety (90) days after the date hereof), Buyer shall provide Sellers with notice
of its Union Employee staffing level requirements (which Buyer may determine in
its sole discretion), listed by classification and operation, and shall be
required to make reasonable efforts to offer employment to that number of Union
Employees necessary to satisfy such staffing level requirements. As used herein,
"Union Employees" means such employees of Sellers who are covered by the
Collective Bargaining Agreement as defined in Section 6.10(d) below, and who are
listed in, or whose employment responsibilities are listed in, Schedule
6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with
the Plants purchased by Buyer, and those Union Employees who are listed in, or
whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile
Maintenance" or "Corporate Support". Any offers of employment shall be made at
least 60 days prior to the Closing Date. In each classification, Union Employees
shall be so offered employment in order of their seniority.
(b) Buyer is also entitled to determine its Non-Union Employee staffing
level requirements in its sole discretion, and make reasonable efforts to make
offers of employment with Buyer or any of its Affiliates, effective on the
Closing Date, to Non-Union Employees consistent with such staffing levels. As
used herein, " Non-Union Employees" means such salaried employees of Sellers,
Genco, GPUN or GPUS who are listed in, or whose employment responsibilities are
listed in, Schedule 6.10(b) as "Plant Employees" or "Dedicated Support Staff",
and those Non-Union Employees listed in, or whose employment responsibilities
are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate
Support". Any offers of employment shall be made at least sixty (60) days prior
to the Closing Date. Each person who becomes employed by Buyer or any of its
Affiliates pursuant to Section 6.10(a) or (b) (whether pursuant to a Qualifying
Offer or otherwise) shall be referred to herein as a "Transferred Union
Employee" or "Transferred Non-Union Employee", respectively. At least forty-five
(45) days prior to the Closing Date, Buyer shall provide Seller with notice of
those Non-Union Employees to whom
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it made a Qualifying Offer. As used herein, the term "Qualifying Offer" means an
offer of employment at an annual level of compensation that is at least 85% of
the employee's current total annual cash compensation (consisting of base salary
and target incentive bonus) at the time the offer is made. Schedule 6.10(b) sets
forth, for each of the Non-Union Employees listed therein, his or her current
base salaries and target incentive bonuses.
(c) All offers of employment made pursuant to Sections 6.10(a) or (b)
shall be made in accordance with all applicable laws and regulations, and in
addition, for Union Employees, in accordance with seniority and all other
applicable provisions of the Collective Bargaining Agreement.
(d) Schedule 6.10(d) sets forth the collective bargaining agreement, and
amendments thereto, to which each Seller is a party with the Union in connection
with the Purchased Assets ("Collective Bargaining Agreement"). Transferred Union
Employees shall retain their seniority and receive full credit for service with
Sellers in connection with entitlement to vacation and all other benefits and
rights under the Collective Bargaining Agreement and under each compensation,
retirement or other employee benefit plan or program Buyer is required to
maintain for Transferred Union Employees pursuant to the Collective Bargaining
Agreement. With respect to Transferred Union Employees, effective as of the
Closing Date, Buyer shall assume the Collective Bargaining Agreement for the
duration of its term as it relates to Transferred Union Employees to be employed
at the Plants in positions covered by the Collective Bargaining Agreement and
shall thereafter comply with all applicable obligations under the Collective
Bargaining Agreement. Consistent with its obligations under the Collective
Bargaining Agreement and applicable laws, Buyer shall be required to establish
and maintain a pension plan and other employee benefit programs for the
Transferred Union Employees for the duration of the term of the Collective
Bargaining Agreement which are substantially equivalent to Seller's plans and
programs in effect for the Transferred Union Employees immediately prior to the
Closing Date (the "Sellers' Plans"), and which provide at least the same level
of benefits or coverage as do Sellers' Plans for the duration of the Collective
Bargaining Agreement. Buyer further agrees to recognize the Union as the
collective bargaining agent for the applicable Transferred Union Employees.
(e) Transferred Non-Union Employees shall be eligible to commence
participation in welfare benefit plans of Buyer or its Affiliates as may be made
available by Buyer (the "Replacement Welfare Plans"). Buyer shall (i) waive all
limitations as to pre-existing condition exclusions and waiting periods with
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respect to the Transferred Non-Union Employees under the Replacement Welfare
Plans, other than, but only to the extent of, limitations or waiting periods
that were in effect with respect to such employees under the welfare plans
maintained by Sellers, Genco, GPUN or GPUS or their Affiliates and that have not
been satisfied as of the Closing Date, and (ii) provide each Transferred
Non-Union Employee with credit for any copayments and deductibles paid prior to
the Closing Date in satisfying any deductible or out-of-pocket requirements
under the Replacement Welfare Plans (on a pro-rata basis in the event of a
difference in plan years).
(f) Transferred Non-Union Employees shall be given credit for all service
with Sellers, Genco, GPUN, GPUS and their Affiliates under all deferred
compensation, profit-sharing, 401(k), retirement pension, incentive
compensation, bonus, fringe benefit and other employee benefit plans, programs
and arrangements of Buyer ("Buyer Benefit Plans") in which they may become
participants. The service credit so given shall be for purposes of eligibility
and vesting, but shall not be for purposes of level of benefits and benefit
accrual except to the extent that the Buyer Benefit Plans otherwise provide.
(g) To the extent allowable by law, Buyer shall take any and all necessary
action to cause the trustee of any defined contribution plan of Buyer or its
Affiliates in which any Transferred Employee becomes a participant to accept a
direct "rollover" of all or a portion of said employee's "eligible rollover
distribution" within the meaning of Section 402 of the Code from the GPU
Companies Employee Savings Plan for Non-Bargaining Employees or from the
Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed
or Penelec (the "Sellers' Savings Plans") if requested to do so by the
Transferred Employee. Buyer agrees that the property so rolled over and the
assets so transferred may include promissory notes evidencing loans from
Sellers' Savings Plans to Transferred Employees that are outstanding as of the
Closing Date. However, except as otherwise provided in Section 6.10(d), any
defined contribution plan of Buyer or its Affiliates accepting such a rollover
or transfer shall not be required to make any further loans to any Transferred
Employee after the Closing Date.
(h) Buyer shall pay or provide to Transferred Employees the benefits
described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and
shall reimburse Sellers for the cost of the benefits that Sellers' or Sellers'
Affiliates will provide to Union Employees and Non-Union Employees in accordance
with subparagraph (iv) of this Section 6.10(h).
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(i) Buyer shall make a transition incentive payment in the
amount of $2,500 to each Transferred Union Employee. Payment shall be made
as soon as practicable after, but in any event no later than 60 days
following, the Closing Date.
(ii) In the case of each Transferred Non-Union Employee who is
initially assigned by Buyer to a principal place of work that is at least
50 miles farther from the employee's principal residence than was his
principal place of work immediately prior to the Closing Date and who
relocates his or her principal residence to the vicinity of his or her new
principal place of work within 12 months following the Closing Date, Buyer
shall reimburse the employee for all "moving expenses" within the meaning
of Section 217(b) of the Code incurred by the employee and other members
of his or her household in connection with such relocation, up to a
maximum aggregate amount of $5,000. Claims for reimbursement for such
expenses shall be filed in accordance with such procedures, and shall be
accompanied by such substantiation of the expenses for which reimbursement
is sought, as Buyer may reasonably request. All claims for reimbursement
shall be processed, and qualifying expenses shall be reimbursed, as soon
as practicable after, but in any event no later than 60 days following,
the date on which the employee's claim for reimbursement is submitted to
Buyer.
(iii) Buyer shall provide the severance benefits described in
Section 1 of Schedule 6.10(h) to each Transferred Employee who is
"Involuntarily Terminated" (as defined below) (a) within 12 months after
the Closing Date or (b), in the case of any Transferred Non-Union Employee
who had attained age 50 and had completed at least 10 Years of Service (as
defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on
or any time prior to June 30, 2004. For purposes of this Section 6.10(h)
and Schedule 6.10(h), a Transferred Employee shall be treated as
"Involuntarily Terminated" if his or her employment with Buyer and all of
its Affiliates is terminated by Buyer or any of its Affiliates for any
reason other than for cause or disability. Buyer shall require any
Transferred Employee who is Involuntarily Terminated, as a condition to
receiving the severance benefits described in Section 1(b), (c), (d), (e)
and (f) of Schedule 6.10(h), to execute a release of claims against
Sellers, Genco, GPUN or GPUS, as applicable, and all of their Affiliates,
and Buyer, in such form as Buyer and Sellers shall agree upon.
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(iv) At the Closing or as soon thereafter as practicable, but
in any event no later than 60 days following the Closing Date, Buyer shall
pay to Sellers, in addition to all other amounts to be paid by Buyer to
Sellers hereunder, an amount equal to Buyer's Allocable Share (as defined
below) of the aggregate estimated cost that the Sellers or any of Sellers'
Affiliates will or may incur in providing the severance, pension, health
care and group term life insurance benefits described in Section 2 of
Schedule 6.10(h) to the Union Employees and Non-Union Employees therein
described (collectively the "Termination Benefits"). The estimated cost of
such benefits shall be calculated by the actuarial firm regularly engaged
to provide actuarial services to the GPU Companies with respect to their
pension, health care and life insurance plans, and shall be determined
using the same assumptions as to mortality, turnover, interest rate and
other actuarial assumption as used by such firm in determining the cost of
benefits under the GPU Companies' pension, health and group term life
insurance plans for purposes of their most recently issued financial
statements prior to the Closing Date. For purposes of the foregoing,
Buyer's "Allocable Share" shall be calculated as set forth in Schedule
6.10(h)(iv).
(i) Buyer shall not be responsible for any payments required under any
voluntary early retirement plan, program or arrangement offered by Sellers,
Genco, GPUN or GPUS in connection with the transfer of the Purchased Assets.
Within thirty (30) days following the last day that any Union Employee or
Non-Union Employee may elect to participate in any such plan offered by Sellers,
Genco, GPUN or GPUS, Sellers shall provide Buyer with a list of all such
employees who have so elected.
(j) Sellers shall be responsible, with respect to the Purchased Assets,
for performing and discharging all requirements under the WARN Act and under
applicable state and local laws and regulations for the notification of its
employees of any "employment loss" within the meaning of the WARN Act which
occurs prior to the Closing Date.
(k) Buyer shall not be responsible for extending COBRA continuation
coverage to any employees and former employees of Sellers, Genco, GPUN or GPUS,
or to any qualified beneficiaries of such employees and former employees, who
become or became entitled to COBRA continuation coverage before the Closing,
including those for whom the Closing occurs during their COBRA election period.
(l) Sellers or Sellers' Affiliates shall pay to all
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Transferred Employees, all compensation, bonus, vacation and holiday
compensation, pension, profit sharing and other deferred compensation benefits,
workers' compensation, or other employment benefits to which they are entitled
under the terms of the applicable compensation or benefit programs at such times
as are provided therein.
(m) Individuals who are otherwise "Union Employees" as defined in Section
6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who on any
date are not actively at work due to a leave of absence covered by the Family
and Medical Leave Act ("FMLA"), or due to any other authorized leave of absence,
shall nevertheless be treated as "Union Employees" or as "Non-Union Employees",
as the case may be, on such date if they are able (i) to return to work within
the protected period under the FMLA or such other leave (which in any event
shall not extend more than twelve (12) weeks after the Closing Date), whichever
is applicable, and (ii) to perform the essential functions of their jobs, with
or without a reasonable accommodation.
(n) Effective as of the day immediately preceding the Closing Date, GPU
shall (i) cause Genco to terminate or to transfer to one or more Affiliates of
GPU, the employment of any individual in the employ of Genco on such preceding
day who will not be a Transferred Employee immediately following the Closing,
and (ii) cause all Benefit Plans maintained by Genco, and all liabilities and
obligations of Genco with respect to such plans, to be transferred to, and
assumed by, one or more Affiliates of GPU other than Genco.
6.11 Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of loss or
damage to the property included in the Purchased Assets shall be borne by
Sellers, other than loss or damage caused by the acts or negligence of Buyer or
any Buyer Representative, which loss or damage shall be the responsibility of
Buyer.
(b) If, before the Closing Date, all or any portion of the Purchased
Assets is (i) taken by eminent domain or is the subject of a pending or (to the
Knowledge of Sellers) contemplated taking which has not been consummated, or
(ii) damaged or destroyed by fire or other casualty, such Seller shall notify
Buyer promptly in writing of such fact, and (x) in the case of a condemnation,
such Seller shall assign or pay, as the case may be, any proceeds thereof to
Buyer at the Closing and (y) in the case of a casualty, such Seller shall either
restore the damage or assign the insurance proceeds therefor (and pay the amount
of any deductible and/or self-insured amount in respect of such
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casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty
or loss results in a Material Adverse Effect, Buyer and Sellers shall negotiate
to settle the loss resulting from such taking (and such negotiation shall
include, without limitation, the negotiation of a fair and equitable adjustment
to the Purchase Price). If no such settlement is reached within sixty (60) days
after Sellers have notified Buyer of such casualty or loss, then Buyer or
Sellers may terminate this Agreement pursuant to Section 9.1(h). In the event of
damage or destruction which Sellers elect to restore, Sellers will have the
right to postpone the Closing for up to four (4) months. Buyer will have the
right to inspect and observe, or have its representatives inspect or observe,
all repairs necessitated by any such damage or destruction.
6.12 Additional Covenants of Buyer. Notwithstanding any other provision
hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not
make any modifications to the Purchased Assets or take any action which in and
of itself, results in a loss of the exclusion of interest on the Pollution
Control Revenue Bonds issued on behalf of Sellers in connection with the
Purchased Assets from gross income for federal income purposes under Section 103
of the Code. Actions with respect to the Purchased Assets shall not constitute a
breach by the Buyer of this Section 6.12 in the following circumstances: (i)
Buyer ceases to use or decommissions any of the Purchased Assets or subsequently
repowers such Purchased Assets that are no longer used or decommissioned (but
does not hold such Purchased Assets for sale); (ii) Buyer acts with respect to
the Purchased Assets in order to comply with requirements under applicable
federal, state or local environmental or other laws or regulations; or (iii)
Buyer acts in a manner the Sellers (i.e. a reasonable private provider of
electricity of similar stature as Seller) would have acted during the term of
the Pollution Control Revenue Bonds (including, but not limited to, applying new
technology). In the event Buyer acts or anticipates acting in a manner that will
cause a loss of the exclusion of interest on the Pollution Control Revenue Bonds
from gross income for federal income tax purposes, at the request of Buyer,
Sellers shall take any remedial actions permitted under the federal income tax
law that would prevent a loss of such inclusion of interest from gross income on
the Pollution Control Revenue Bonds. Buyer further covenants and agrees that, in
the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain
from its transferee a covenant and agreement that is analogous to Buyer's
covenant and agreement pursuant to the immediately preceding sentence, as well
as a covenant and agreement that is analogous to that of this sentence. In
addition, Buyer shall not, without 60 days advanced written notice to Seller (to
the extent practicable under the
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circumstances), take any action which would result in (x) a change in the use of
the assets financed with the Pollution Revenue Control Bonds from the use in
which such assets were originally intended, or (y) a sale of such assets
separate from the generating assets to which they relate, provided that no
notice is required of the events set forth in clauses (i) (ii) or (iii) above.
This covenant shall survive Closing and shall continue in effect so long as the
pollution control bonds remain outstanding.
6.13 Name Change. At or prior to the Closing, GPU shall cause Genco
to amend its certificate of incorporation to change its corporate name to delete
"GPU" therefrom and to adopt such name as Buyer may advise GPU in writing.
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect
the purchase of the Purchased Assets and the other transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the consummation of
the sale of the Purchased Assets contemplated hereby shall have expired or been
terminated.
(b) No preliminary or permanent injunction or other order or decree by any
federal or state court or Governmental Authority which prevents the consummation
of the sale of the Purchased Assets contemplated herein shall have been issued
and remain in effect (each Party agreeing to use its reasonable best efforts to
have any such injunction, order or decree lifted) and no statute, rule or
regulation shall have been enacted by any state or federal government or
Governmental Authority which prohibits the consummation of the sale of the
Purchased Assets;
(c) Buyer shall have received all of Buyer's Required Regulatory
Approvals, and such approvals shall contain no conditions or terms which would
result in a Material Adverse Effect;
(d) Sellers and GPU shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied
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with by Sellers and GPU on or prior to the Closing Date;
(e) The representations and warranties of Sellers and GPU set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized officer of
Sellers and GPU, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Section 7.1(d) and (e) have been
satisfied by such Seller and GPU;
(g) Buyer shall have received an opinion from Sellers' and GPU's counsel
reasonably acceptable to Buyer, dated the Closing Date and reasonably
satisfactory in form and substance to Buyer and its counsel, substantially to
the effect that:
(i) Each of Sellers and GPU is a corporation duly
incorporated, validly existing and in good standing under the laws of its
state of incorporation and has the corporate power and authority to own,
lease and operate its material assets and properties and to carry on its
business as is now conducted, and to execute and deliver the Agreement and
each Ancillary Agreement and to consummate the transactions contemplated
by it thereby; and the execution and delivery of the Agreement by each
Seller and GPU and the consummation of the sale of the Purchased Assets
and the other transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action required on the part of such
Seller;
(ii) The Agreement and each Ancillary Agreement have been duly
and validly executed and delivered by each Seller and GPU, as applicable
and constitutes a legal, valid and binding agreement of each Seller and
GPU, as applicable, enforceable in accordance with its terms, except that
such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the Agreement
and each Ancillary Agreement by each Seller and GPU, as applicable does
not (A) conflict with the Certificate of Incorporation or Bylaws of such
Seller or GPU or (B) to the knowledge of such counsel, constitute a
violation of or default under those agreements or
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instruments set forth on a Schedule attached to the opinion and which have
been identified to such counsel as all the agreements and instruments
which are material to the business or financial condition of each Seller
and GPU;
(iv) The Bill of Sale, the deeds, the Assignment and
Assumption Agreement and other transfer instruments described in Section
3.6 have been duly executed and delivered and are in proper form to
transfer to Buyer such title as was held by such Seller and GPU, in the
case of the Genco Stock to the Purchased Assets;
(v) No consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by the Sellers and GPU, or the consummation by Sellers and GPU
of the transactions contemplated hereby, other than (i) such consents,
approvals, filings or notices set forth in Schedule 4.3(b) or which, if
not obtained or made, will not prevent the Sellers and GPU from performing
their material obligations hereunder and (ii) such consents, approvals,
filings or notices which become applicable to Sellers or GPU or the
Purchased Assets as a result of the specific regulatory status of Buyer
(or any of its Affiliates) or as a result of any other facts that
specifically relate to the business or activities in which Buyer (or any
of its Affiliates) is or proposes to be engaged.
(vi) The Genco Stock is owned of record by GPU, and to such
counsel's knowledge, beneficially by GPU free and clear of all
Encumbrances. The Genco Stock has been duly authorized and validly issued,
and is fully paid and non-assessable. There are no other authorized shares
of capital stock of Genco other than the 2500 shares of common stock
comprising the Genco Stock. None of the shares comprising the Genco Stock
has been issued in violation of, or is subject to, any statutory or, to
such counsel's knowledge, other Restrictive Third Party Rights. To such
counsel's knowledge, (i) there are no outstanding securities convertible
into or exchangeable for the capital stock of Genco or any restrictive
covenants applicable to the Genco Stock, and (ii) neither GPU nor Genco
has any obligation, contingent or otherwise, to issue, sell, repurchase,
redeem or otherwise acquire any of the Genco Stock or other capital stock
of Genco or any equity or debt securities of Genco. Upon the consummation
of the transactions contemplated in the Agreement, Buyer will have good
and valid title to the Genco Stock, to such counsel's knowledge, free and
clear of all Encumbrances and Restrictive Third Party Rights.
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In rendering the foregoing opinion, Sellers' and GPU's counsel may rely on
opinions of counsel as to local laws reasonably acceptable to Buyer.
(h) Sellers and GPU shall have delivered, or caused to be delivered, to
Buyer at the Closing, Sellers' and GPU's closing deliveries described in Section
3.6.
(i) Since the date of this Agreement, no Material Adverse Effect shall
have occurred and be continuing.
(j) Buyer shall have received (at Buyer's cost) from a title insurance
company and surveyor reasonably acceptable to Buyer an ALTA owner's title policy
and ALTA survey, together with all endorsements reasonably requested by Buyer as
are available, insuring title to all of the Real Property included in the
Aggregate Purchased Assets, subject only to Permitted Encumbrances. Sellers
shall provide Buyer with a copy of a preliminary title report and survey for the
Real Property as soon as available.
(k) The closings under the Purchase and Sale Agreements between JCP&L and
Buyer, Penelec and Buyer and Met-Ed and Buyer (collectively, the "Related
Purchase Agreements"), shall have occurred or shall occur concurrently with the
Closing and all conditions to the obligations of Buyer under the Related
Purchase Agreements shall have been satisfied or waived by Buyer.
(l) Buyer shall have received all Permits and Environmental Permits, to
the extent necessary, to own and operate the Plants in accordance with past
emissions and operating practices, except for those Permits and Environmental
Permits, the absence of which would not in the aggregate have a Material Adverse
Effect.
(m) Seller's Required Regulatory Approvals shall contain no conditions or
terms which would result in a Material Adverse Effect.
(n) Neither the Real Property nor any portion thereof shall be part of a
tax lot which includes any real property and/or buildings, facilities or other
improvements other than that which comprises the Real Property.
(o) No Site, or any portion thereof shall be subject to a zoning
classification or classifications, rule or regulation, or a variance or special
exception, which, individually or in the aggregate, does not permit such Site or
any portion thereof to be used as the same (i) is currently used for generation
purposes or (ii) was historically used for generation purposes while under
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Seller's current ownership or the ownership of any Affiliate thereof, unless the
failure of such Site of any portion thereof to be zoned to permit such use,
shall not result in a Material Adverse Effect.
7.2 Conditions to Obligations of Sellers. The obligation of Sellers and
GPU to effect the sale of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Sellers) of the following conditions:
(a) The waiting period under the HSR Act applicable to the consummation of
the sale of the Purchased Assets contemplated hereby shall have expired or been
terminated;
(b) No preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the sale of the
Purchased Assets contemplated herein shall have been issued and remain in effect
(each Party agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or regulation shall
have been enacted by any state or federal government or Governmental Authority
in the United States which prohibits the consummation of the sale of the
Purchased Assets;
(c) Sellers and GPU shall have received all of Sellers' Required
Regulatory Approvals applicable to them, containing no conditions or terms which
would materially diminish the benefit of this Agreement to Sellers or result in
a material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Sellers ("Sellers' Material Adverse Effect");
(d) All consents and approvals for the consummation of the sale of the
Purchased Assets contemplated hereby required under the terms of any note, bond,
mortgage, indenture, material agreement or other instrument or obligation to
which any Seller is party or by which any Seller, or any of the Purchased
Assets, may be bound, shall have been obtained, other than those which if not
obtained, would not, individually and in the aggregate, create a Material
Adverse Effect;
(e) Buyer shall have performed and complied with in all material respects
the covenants and agreements contained in this Agreement which are required to
be performed and complied with by Buyer on or prior to the Closing Date;
(f) The representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material
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respects as of the Closing Date as though made at and as of the Closing Date;
(g) Sellers shall have received a certificate from an authorized officer
of Buyer, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Sections 7.2(e) and (f) have been
satisfied by Buyer;
(h) Effective upon Closing, Buyer shall have assumed, as set forth in
Section 6.10, all of the applicable obligations under the Collective Bargaining
Agreement as they relate to Transferred Union Employees;
(i) Sellers and GPU shall have received an opinion from Buyer's counsel
reasonably acceptable to Sellers, dated the Closing Date and satisfactory in
form and substance to Sellers and its counsel, substantially to the effect that:
(i) Buyer is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the state of its
organization and is qualified to do business in the State of New Jersey
and Commonwealth of Pennsylvania and has the full corporate power and
authority to own, lease and operate its material assets and properties and
to carry on its business as is now conducted, and to execute and deliver
the Agreement and the Ancillary Agreements by Buyer and to consummate the
transactions contemplated thereby; and the execution and delivery of the
Agreement and the Ancillary Agreements by Buyer and the consummation of
the transactions contemplated thereby have been duly authorized by all
necessary corporate action required on the part of Buyer;
(ii) The Agreement and the Ancillary Agreements have been duly
and validly executed and delivered by Buyer, and constitute legal, valid
and binding agreements of Buyer, enforceable against Buyer, in accordance
with their terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting or relating to enforcement of
creditor's rights generally and general principles of equity (regardless
of whether enforcement is considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the Agreement
and the Ancillary Agreements by Buyer do not (A) conflict with the
Certificate of Incorporation or Bylaws (or other organizational
documents), as currently in effect, of Buyer or (B) to the knowledge of
such counsel, constitute
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a violation of or default under those agreements or instruments set forth
on a Schedule attached to the opinion and which have been identified to
such counsel as all the agreements and instruments which are material to
the business or financial condition of Buyer;
(iv) The Assignment and Assumption Agreement and other
transfer instruments described in Section 3.7 are in proper form for Buyer
to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for Buyer's execution and delivery of
the Agreement and the Ancillary Agreements, or the consummation by Buyer
of the transactions contemplated hereby and thereby, other than such
consents, approvals, filings or notices, which, if not obtained or made,
will not prevent Buyer from performing its respective obligations under
the Agreement, the Ancillary Agreements and Guaranty.
(j) Buyer shall have delivered, or caused to be delivered, to Sellers at the
Closing, Buyer's closing deliveries described in Section 3.7.
7.3 Zoning Condition Adjustments.
(a) In the event that any Site or any portion thereof, shall be
subject to a zoning classification or classifications, rule or regulation, or
variance or special exception, which does not permit or otherwise restrict the
Site or any portion thereof, to be used as the same (i) is currently used for
generation purposes or (ii) was historically used for generation purposes while
under Seller's current ownership or the ownership of any Affiliate thereof for
generation purposes, and if such failure shall result in a material adverse
effect on the use of such Site for generating purposes as currently used (or as
so historically used), then, in such event, Buyer may, prior to the Closing on
written notice to the Seller, exclude from the Purchased Assets such Site and
the Purchased Assets related to such Site. Buyer and Seller shall thereupon
negotiate a fair and equitable adjustment to the Purchase Price or, failing such
agreement within 30 days, the adjustment shall be determined by appraisal in
accordance with Section 7.3(b), the cost of which shall be shared equally be
Buyer and Seller.
(b) The Parties shall select an Appraiser (as defined below) within
30 days of the expiration of the 30 day period referred to in Section 7.3(a). In
the event the Parties cannot within such period agree on a single Appraiser, the
Parties shall each within 15 days select a separate Appraiser, and such
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Appraisers shall within 15 days, later designate a third Appraiser to act
hereunder. The Appraiser shall be instructed to provide a written report of the
appropriate reduction of the Purchase Price to be allocated to the excluded Site
(and associated Purchased Assets). Each of the Parties may submit such materials
and information to the Appraiser as it deems appropriate and shall use its
Commercially Reasonable Efforts to cause the Appraiser to render its decision
within 60 days after the matter has been submitted to it. The determination of
the Appraiser shall be final and binding on the Parties. As used herein,
"Appraiser" means an individual who has a minimum of ten (10) years of relevant
experience in valuing electric generation facilities and has an MAI designation
of the Appraisal Institute.
(c) Buyer agrees to use Commercially Reasonable Efforts at its
expense and in consultation with Seller to mitigate any adverse zoning
restrictions which could cause a failure of the Closing condition in Section
7.1(o), or require a Purchase Price adjustment under this Section 7.3, including
by seeking a re-zoning or zoning variance of the applicable Site.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless Sellers, their
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Sellers' Indemnitee") from and against any and all claims, demands, suits,
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an "Indemnifiable Loss"), asserted against or
suffered by any Sellers' Indemnitee relating to, resulting from or arising out
of (i) any breach by Buyer of any covenant or agreement of Buyer contained in
this Agreement or the representations and warranties contained in Sections 5.1,
5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting
from or arising out of any Inspection, or (iv) any Third Party Claims against
Sellers' Indemnitee arising out of or in connection with Buyer's ownership or
operation of the Plants and other Purchased Assets on or after the Closing Date
(other than Third Party Claims which arise out of acts by Buyer permitted by
Section 6.12 hereof).
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(b) Each Seller shall indemnify defend and hold harmless Buyer, its
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted
against or suffered by any Buyer Indemnitee relating to, resulting from or
arising out of (i) any breach by such Seller of any covenant or agreement of
such Seller contained in this Agreement or the representations and warranties
contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities other than
Section 2.4(o) or 2.4(c) (relating to the Operating Agreements), (iii)
noncompliance by Sellers with any bulk sales or transfer laws as provided in
Section 10.11, or (iv) any Third Party Claims against a Buyer Indemnitee arising
out of or in connection with Sellers' ownership or operation of the Excluded
Assets on or after the Closing Date. GPU shall indemnify, defend and hold
harmless each Buyer Indemnitee from and against any and all Indemnifiable
Losses, asserted against or suffered by any Buyer Indemnitee relating to,
resulting from or arising out of any breach by GPU of any covenant or agreement
of GPU contained in this Agreement, the Excluded Liabilities set forth in
Section 2.4(o) and 2.4(c) (relating to the Operating Agreements) or the
representations and warranties contained in Sections 4A.1, 4A.2 and 4A.3.
(c) Each Party, for itself and on behalf of its Representatives and
Affiliates, does hereby release, hold harmless and forever discharge the other
party, its Representatives and Affiliates, from any and all Indemnifiable Losses
of any kind or character, whether known or unknown, hidden or concealed,
resulting from or arising out of any Environmental Condition or violation of
Environmental Law relating to the Purchased Assets provided that Sellers'
release of Buyer shall not extend to any of Buyer's Assumed Liabilities set
forth in Section 2.3, and provided further that Buyer's release of Sellers shall
not extend to any of Sellers' Excluded Liabilities set forth in Section 2.4.
Subject to the foregoing proviso, each party hereby waives any and all rights
and benefits with respect to such Indemnifiable Losses that it now has, or in
the future may have conferred upon it by virtue of any statute or common law
principle which provides that a general release does not extend to claims which
a party does not know or suspect to exist in its favor at the time of executing
the release, if knowledge of such claims would have materially affected such
party's settlement with the obligor. In this connection, each party hereby
acknowledges that it is aware that factual matters, now unknown to it, may have
given or may hereafter give rise to Indemnifiable Losses that are presently
unknown, unanticipated and unsuspected, and it further agrees that this release
has been negotiated and agreed upon in light of that awareness and it
nevertheless hereby
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intends to release the other party and its Representatives and Affiliates from
the Indemnifiable Losses described in the first sentence of this paragraph.
(d) Notwithstanding anything to the contrary contained herein:
(i) Any Person entitled to receive indemnification under this
Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to
mitigate all losses, damages and the like relating to a claim under these
indemnification provisions, including availing itself of any defenses,
limitations, rights of contribution, claims against third Persons and
other rights at law or equity. The Indemnitee's Commercially Reasonable
Efforts shall include the reasonable expenditure of money to mitigate or
otherwise reduce or eliminate any loss or expenses for which
indemnification would otherwise be due, and the Indemnitor shall reimburse
the Indemnitee for the Indemnitee's reasonable expenditures in undertaking
the mitigation.
(ii) Any Indemnifiable Loss shall be net of (A) the dollar
amount of any insurance or other proceeds actually receivable by the
Indemnitee or any of its Affiliates with respect to the Indemnifiable
Loss, but shall not take into account any income tax benefits to the
Indemnitee or any Income Taxes attributable to the receipt of any
indemnification payments hereunder. Any party seeking indemnity hereunder
shall use Commercially Reasonable Efforts to seek coverage (including both
costs of defense and indemnity) under applicable insurance policies with
respect to any such Indemnifiable Loss.
(e) The expiration or termination of any covenant or agreement shall not
affect the Parties' obligations under this Section 8.1 if the Indemnitee
provided the Person required to provide indemnification under this Agreement
(the "Indemnifying Party") with proper notice of the claim or event for which
indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in Article IX, the rights and
remedies of Sellers, GPU and Buyer under this Article VIII are exclusive and in
lieu of any and all other rights and remedies which Sellers, GPU and Buyer may
have under this Agreement or otherwise for monetary relief, with respect to (i)
any breach of or failure to perform any covenant, agreement, or representation
or warranty set forth in this Agreement, after the occurrence of the Closing, or
(ii) the Assumed Liabilities or
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the Excluded Liabilities, as the case may be. The indemnification obligations of
the Parties set forth in this Article VIII apply only to matters arising out of
this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss
arising under or pursuant to an Ancillary Agreement shall be governed by the
indemnification obligations, if any, contained in the Ancillary Agreement under
which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein, no party (including
an Indemnitee) shall be entitled to recover from any other party (including an
Indemnifying Party) for any liabilities, damages, obligations, payments losses,
costs, or expenses under this Agreement any amount in excess of the actual
compensatory damages, court costs and reasonable attorney's and other advisor
fees suffered by such party. Buyer, Sellers and GPU waive any right to recover
punitive, incidental, special, exemplary and consequential damages arising in
connection with or with respect to this Agreement. The provisions of this
Section 8.1(g) shall not apply to indemnification for a Third Party Claim.
8.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any claim or of
the commencement of any claim, action, or proceeding made or brought by any
Person who is not a party to this Agreement or any Affiliate of a Party to this
Agreement (a "Third Party Claim") with respect to which indemnification is to be
sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying
Party reasonably prompt written notice thereof, but in any event such notice
shall not be given later than ten (10) calendar days after the Indemnitee's
receipt of notice of such Third Party Claim. Such notice shall describe the
nature of the Third Party Claim in reasonable detail and shall indicate the
estimated amount, if practicable, of the Indemnifiable Loss that has been or may
be sustained by the Indemnitee. The Indemnifying Party will have the right to
participate in or, by giving written notice to the Indemnitee, to elect to
assume the defense of any Third Party Claim at such Indemnifying Party's expense
and by such Indemnifying Party's own counsel, provided that the counsel for the
Indemnifying Party who shall conduct the defense of such Third Party Claim shall
be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in
good faith in such defense at such Indemnitee's own expense. If an Indemnifying
Party elects not to assume the defense of any Third Party Claim, the Indemnitee
may compromise or settle such Third Party Claim over the objection of the
Indemnifying Party, which settlement or compromise shall conclusively establish
the Indemnifying Party's liability pursuant to this Agreement.
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(b) (i) If, within ten (10) calendar days after an Indemnitee provides
written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense and the Indemnifying Party shall be
liable for all reasonable expenses thereof. (ii) Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter into any
settlement of any Third Party Claim which would lead to liability or create any
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder. If a firm offer is made
to settle a Third Party Claim without leading to liability or the creation of a
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party shall
give written notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnifying Party shall be relieved of its obligations to
defend such Third Party Claim and the Indemnitee may contest or defend such
Third Party Claim. In such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will be the amount of such settlement offer
plus reasonable costs and expenses paid or incurred by Indemnitee up to the date
of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss which
does not result from a Third Party Claim (a "Direct Claim") shall be asserted by
giving the Indemnifying Party reasonably prompt written notice thereof, stating
the nature of such claim in reasonable detail and indicating the estimated
amount, if practicable, but in any event such notice shall not be given later
than ten (10) calendar days after the Indemnitee becomes aware of such Direct
Claim, and the Indemnifying Party shall have a period of thirty (30) calendar
days within which to respond to such Direct Claim. If the Indemnifying Party
does not respond within such thirty (30) calendar day period, the Indemnifying
Party shall be deemed to have accepted such claim. If the Indemnifying Party
rejects such
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claim, the Indemnitee will be free to seek enforcement of its right to
indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time subsequent to the
making of an indemnity payment in respect thereof, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement or payment by, from or against any other
entity, the amount of such reduction, less any costs, expenses or premiums
incurred in connection therewith (together with interest thereon from the date
of payment thereof at the publicly announced prime rate then in effect of Chase
Manhattan Bank) shall promptly be repaid by the Indemnitee to the Indemnifying
Party.
(e) A failure to give timely notice as provided in this Section 8.2 shall
not affect the rights or obligations of any Party hereunder except if, and only
to the extent that, as a result of such failure, the Party which was entitled to
receive such notice was actually prejudiced as a result of such failure.
ARTICLE IX
TERMINATION
9.1 Termination. (a) This Agreement may be terminated at any time prior to
the Closing Date by mutual written consent of Sellers and Buyer.
(b) This Agreement may be terminated by Sellers or Buyer if (i) any
Federal or state court of competent jurisdiction shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Closing, and such order, judgment or decree shall have become final and
nonappeallable or (ii) any statute, rule, order or regulation shall have been
enacted or issued by any Governmental Authority which, directly or indirectly,
prohibits the consummation of the Closing; or (iii) the Closing contemplated
hereby shall have not occurred on or before the day which is 12 months from the
date of this Agreement (the "Termination Date"); provided that the right to
terminate this Agreement under this Section 9.1(b) (iii) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date; and provided, further, that if on the day which is 12 months
from the date of this Agreement the conditions to the Closing set forth in
Section 7.1(b) or (c) or 7.2(b), (c) or (d)
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shall not have been fulfilled but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then the Termination Date
shall be the day which is 18 months from the date of this Agreement.
(c) Except as otherwise provided in this Agreement, this Agreement
may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the
receipt of which is a condition to the obligation of Buyer to consummate the
Closing as set forth in Section 7.1(c), shall have been denied (and a petition
for rehearing or refiling of an application initially denied without prejudice
shall also have been denied) or shall have been granted but contains terms or
conditions which do not satisfy the closing condition in Section 7.1(c).
(d) This Agreement may be terminated by Sellers, if any of Sellers'
Required Regulatory Approvals, the receipt of which is a condition to the
obligation of Sellers or GPU to consummate the Closing as set forth in Section
7.2(c), shall have been denied (and a petition for rehearing or refiling of an
application initially denied without prejudice shall also have been denied) or
shall have been granted but contains terms or conditions which do not satisfy
the closing condition in Section 7.2(c).
(e) This Agreement may be terminated by Buyer if there has been a
violation or breach by Sellers or GPU of any covenant, representation or
warranty contained in this Agreement which has resulted in a Material Adverse
Effect and such violation or breach is not cured by the earlier of the Closing
Date or the date thirty (30) days after receipt by Sellers or GPU, as the case
may be, of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Buyer.
(f) This Agreement may be terminated by Sellers, if there has been a
material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Sellers.
(g) This Agreement may be terminated by Sellers if there shall have
occurred any change that is materially adverse to the business, operations or
conditions (financial or otherwise) of Buyer.
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(h) This Agreement may be terminated by either of Sellers or Buyer
in accordance with the provisions of Section 6.11(b).
9.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to
Section 9, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the
Parties hereunder will terminate, except as otherwise expressly provided in this
Agreement, and thereafter neither Party shall have any recourse against the
other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of Sellers,
Buyer and GPU.
10.2 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party entitled to
the benefits thereof only by a written instrument signed by the Party granting
such waiver, but such waiver of such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent failure to comply therewith.
10.3 No Survival. Each and every representation, warranty and covenant
contained in this Agreement (other than the covenants contained in Sections
3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13, and
in Articles VIII and X, which provisions shall survive the delivery of the
deed(s) and the Closing in accordance with their terms and the representations
and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, 4A.1,
4A.2, 4A.3, 4A.5, 4A.6 which representations and warranties and any claims
arising under Section 6.1 shall survive the Closing for eighteen (18) months
from the Closing Date) shall expire with, and be terminated and extinguished by
the consummation of the sale of the Purchased Assets and shall merge into the
deed(s) pursuant hereto and the transfer of the Assumed Liabilities pursuant to
this Agreement and such representations, warranties and covenants shall not
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survive the Closing Date; and none of Sellers, Buyer , GPU or any officer,
director, trustee or Affiliate of any of them shall be under any liability
whatsoever with respect to any such representation, warranty or covenant.
10.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that notices of a change of address
shall be effective only upon receipt thereof):
(a) If to Sellers or GPU, to:
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: Mr. David C. Brauer
Vice President
with a copy to:
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Douglas E. Davidson, Esq.
(b) if to Buyer, to:
Sithe Energies, Inc.
450 Lexington Avenue
New York, New York 10017
Attention: Mr. David Tohir
and Hyun Park, Esq.
with a copy to:
Latham & Watkins
Suite 1300
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: W. Harrison Wellford, Esq.
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10.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any Party
hereto, including by operation of law, without the prior written consent of each
other Party, nor is this Agreement intended to confer upon any other Person
except the Parties hereto any rights, interests, obligations or remedies
hereunder. No provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Sellers (including any
beneficiary or dependent thereof) in respect of continued employment or resumed
employment, and no provision of this Agreement shall create any rights in any
such Persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement except as expressly
provided for thereunder. Notwithstanding the foregoing, without the prior
written consent of Sellers, (i) Buyer may assign all of its rights and
obligations hereunder to any majority owned Subsidiary (direct or indirect) and
upon Sellers' receipt of notice from Buyer of any such assignment, such assignee
will be deemed to have assumed, ratified, agreed to be bound by and perform all
such obligations, and all references herein to "Buyer" shall thereafter be
deemed to be references to such assignee, in each case without the necessity for
further act or evidence by the Parties hereto or such assignee, and (ii) Buyer
or its permitted assignee may assign, transfer, pledge or otherwise dispose of
(absolutely or as security) its rights and interests hereunder to a trustee,
lending institutions or other party for the purposes of leasing, financing or
refinancing the Purchased Assets, including such an assignment, transfer or
other disposition upon or pursuant to the exercise of remedies with respect to
such leasing, financing or refinancing, or by way of assignments, transfers,
pledges, or other dispositions in lieu thereof (and any such assignee may fully
exercise its rights hereunder or under any other agreement and pursuant to such
assignment without any further prior consent of any party hereto); provided,
however, that no such assignment in clause (i) or (ii) shall relieve or
discharge the assignor from any of its obligations hereunder. The Sellers agree,
at Buyer's expense, to execute and deliver such documents as may be reasonably
necessary to accomplish any such assignment, transfer, pledge or other
disposition of rights and interests hereunder so long as Sellers' rights under
this Agreement are not thereby altered, amended, diminished or otherwise
impaired.
10.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York (without giving effect to
conflict of law principles) as to all
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matters, including but not limited to matters of validity, construction, effect,
performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL
ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE
IN THE STATE AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH
COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES
HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY
SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER
RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS
RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Interpretation. The articles, section and schedule headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.9 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, and
the Ancillary Agreements including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to Buyer pursuant to the terms of the Confidentiality Agreement
(including the Offering Memorandum dated April 1998, previously delivered to
Buyer by Sellers and Goldman, Sachs & Co.). This Agreement supersedes all prior
agreements and understandings between the Parties other than the Confidentiality
Agreement with respect to such transactions.
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10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything
in this Agreement to the contrary, Sellers may, in its sole discretion, not
comply with the provision of the bulk sales laws of any jurisdiction in
connection with the transactions contemplated by this Agreement. Buyer hereby
waives compliance by Sellers with the provisions of the bulk sales laws of all
applicable jurisdictions.
10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set
forth herein are United States (U.S.) dollars.
10.13 Zoning Classification. Without limitation of Sections 7.1(o) and 7.3
Buyer acknowledges that the Real Properties are zoned as set forth in Schedule
10.13.
10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer
acknowledges that there is no community (municipal) sewage system available to
serve the Real Property. Accordingly, any additional sewage disposal planned by
Buyer will require an individual (on-site) sewage system and all necessary
permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities
Act"). Buyer recognizes that certain of the existing individual sewage systems
on the Real Property may have been installed pursuant to exemptions from the
requirements of the Facilities Act or prior to the enactment of the Facilities
Act and that soils and site testing may not have been performed in connection
therewith. The owner of the property or properties served by such a system, at
the time of any malfunction, may be held liable for any contamination,
pollution, public health hazard or nuisance which occurs as the result of such
malfunction.
10.15 GPU. Buyer acknowledges and agrees that the liability of GPU and
each Seller hereunder is several as to each of their respective obligations and
not joint.
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IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
JERSEY CENTRAL POWER & LIGHT
COMPANY
By: _____________________
Name:
Title:
SITHE ENERGIES, INC. METROPOLITAN EDISON COMPANY
By:_____________________________ By:______________________
Name: Name:
Title: Title:
GPU, INC.
By:_______________________
Name:
Title:
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LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of FIRPTA Affidavit
Exhibit D Form of Deeds
Exhibit E Form of Transition Power Purchase Agreement
SCHEDULES
1.1(67) Owner's Agreements
1.1(72) Permitted Encumbrances
1.1(105) Transferable Permits (both environmental and non-
environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed
to Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Description of Transmission and other Assets not
included in Conveyance
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Sellers' Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.l0 Description of Real Property
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable
Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
4A.3(a) Genco Consents
4A.4 Genco Tax Matters
4A.6 Genco Capital Stock
4A.7 Operating Agreement Matters
4A.8 Genco Financial Statements
<PAGE>
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.8 Tax Appeals
6.10(a)(i) Plant and Support Staff (Union)
6.10(a)(ii) Mobile Maintenance/Corporate Support
6.10(b) Schedule of Non-Union Employees
6.10(d) Collective Bargaining Agreements
6.10(h) Schedule of Severance Benefits
6.10(h)(iv) Allocable Share Percentages
6.12 Pollution Control Revenue Bonds
10.13 Zoning
10.14 Sewage Matters
EXHIBIT 10-NN
PRIVILEGED AND CONFIDENTIAL
[Met-Ed P&S]
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
BY AND AMONG
METROPOLITAN EDISON COMPANY, as SELLER,
and SITHE ENERGIES, INC., as BUYER
Dated as of October 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
Article I 1
1.1 Definitions 1
1.2 Certain Interpretive Matters 14
Article II 14
2.1 Transfer 14
2.2 Excluded Assets 16
2.3 Assumed Liabilities 17
2.4 Excluded Liabilities 19
2.5 Control of Litigation 22
2.6 York Haven Assets and Liabilities 22
Article III 22
3.1 Closing 22
3.2 Payment of Purchasing Price 23
3.3 Adjustment to Purchase Price 23
3.4 Allocation of Purchase Price 25
3.5 Proprations 25
3.6 Deliveries by Seller 26
3.7 Deliveries by Buyer 28
3.8 Ancillary Agreements 29
3.9 Easement Agreements 29
Article IV 29
4.1 Incorporation: Qualification 29
4.2 Authority Relative to this Agreement 30
4.3 Consents and Approvals; No Violation 30
4.4 Insurance 31
4.5 Title and Related Matters 31
4.6 Real Property Leases 31
4.7 Environmental Matters 32
4.8 Labor Matters 32
4.9 Benefit Plans ERISA 33
4.10 Real Property 34
4.11 Condemnation 34
4.12 Contracts and Leases 34
4.13 Legal Proceedings, etc. 35
4.14 Permits 35
4.15 Taxes 35
4.16 Intellectual Property 36
4.17 Capital Expenditures 36
4.18 Compliance With Laws 36
4.19 PUHCA 37
4.19A Subsidiaries 37
4.19B Capitalization 37
4.19C York Haven Tax Matters 37
4.19D Financial Statements 39
4.20 Disclaimers Regarding Purchased Assets 39
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ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 40
5.1 Organization 40
5.2 Authority Relative to this Agreement 40
5.3 Consents and Approvals; No Violation 41
5.4 Availability of Funds 41
5.5 Legal Proceedings 41
5.6 No Knowledge of Seller's Breach 42
5.7 Qualified Buyer 42
5.8 Inspections 42
5.9 WARN Act 42
5.10 Securities Laws 42
ARTICLE VI 43
6.1 Conduct of Business Relating to the Purchased Assets 43
6.2 Access to Information 45
6.3 Public Statements 48
6.4 Expenses 48
6.5 Further Assurances 48
6.6 Consents and Approvals 50
6.7 Fees and Commissions 52
6.8 Tax Matters 52
6.9 Advice of Changes 60
6.10 Employees 60
6.11 Risk of Loss 65
6.12 Additional Covenants of Buyer 66
6.13 Additional York Haven Covenants 67
ARTICLE VII 67
7.1 Conditions to Obligations of Buyer 67
7.2 Conditions to Obligations of Seller 71
7.3 Zoning Condition Adjustments 73
ARTICLE VIII 74
8.1 Indemnification 74
8.2 Defense of Claims 77
ARTICLE IX 79
9.1 Termination 79
9.2 Procedure and Effect of No-Default Termination 80
ARTICLE X 80
10.1 Amendment and Modification 80
10.2 Waiver of Compliance; Consents 80
10.3 No Survival 81
10.4 Notices 81
10.5 Assignment 82
10.6 Governing Law 83
10.7 Counterparts 83
10.8 Interpretation 83
10.9 Schedules and Exhibits 83
10.10 Entire Agreement 83
10.11 Bulk Sales Laws 84
10.12 U.S. Dollars 84
10.13 Zoning Classification 84
10.14 Sewage Facilities 84
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PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and
between Metropolitan Edison Company, a Pennsylvania corporation ("Met-Ed" or
"Seller"), and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Seller
and Buyer are referred to individually as a "Party," and collectively as the
"Parties."
W I T N E S S E T H
WHEREAS, Buyer desires to purchase, and Seller desires to sell, its
interests in the Purchased Assets (as defined herein) upon the terms and
conditions hereinafter set forth in this Agreement; and
WHEREAS, simultaneous herewith Buyer is entering into substantially
similar Purchase and Sale Agreements with Seller's affiliates providing for
Buyer's purchase of the remainder of the Aggregate Purchased Assets (as
hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have
the meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
(2) "Agreement" means this Purchase and Sale Agreement together with
the Schedules and Exhibits hereto, as the same may be from time to time amended.
(3) "Aggregate Purchased Assets" means, collectively, the Purchased
Assets (as defined herein) and the Purchased Assets (as defined in each Related
Purchase Agreement).
(4) "Ancillary Agreements" means the Interconnection Agreements, the
Easement Agreements, the Merrill Creek Sublease and the Transition Power
Purchase Agreement, as the same may be from time to time amended.
(5) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Seller and Buyer substantially in the form of
Exhibit A hereto, by which Seller
<PAGE>
shall, subject to the terms and conditions hereof, assign Seller's Agreements,
the Real Property Leases, certain intangible assets and other Purchased Assets
to Buyer and whereby Buyer shall assume the Assumed Liabilities.
(6) "Assumed Liabilities" has the meaning set forth in Section 2.3.
(7) "Benefit Plans" has the meaning set forth in Section 4.9.
(8) "Bill of Sale" means the Bill of Sale, substantially in the form of
Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible
Personal Property included in the Purchased Assets transferred to Buyer at the
Closing.
(9) "Business Day" shall mean any day other than Saturday, Sunday and
any day on which banking institutions in the State of New Jersey or the
Commonwealth of Pennsylvania are authorized by law or other governmental action
to close.
(10) "Buyer Benefit Plans" has the meaning set forth in Section
6.10(f).
(11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
(12) "Buyer Material Adverse Effect" has the meaning set forth in
Section 5.3(a).
(13) "Buyer Required Regulatory Approvals" has the meaning set forth in
Section 5.3(b).
(14) "Capital Expenditures" has the meaning set forth in Section
3.3(a).
(15) "CERCLA" means the Federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
16) "Closing" has the meaning set forth in Section 3.1.
(17) "Closing Adjustment" has the meaning set forth in Section 3.3(b).
(18) "Closing Date" has the meaning set forth in Section 3.1.
(19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
(20) "Code" means the Internal Revenue Code of 1986, as amended.
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(21) "Collective Bargaining Agreement" has the meaning set forth in
Section 6.10(d).
(22) "Commercially Reasonable Efforts" means efforts which are
reasonably within the contemplation of the Parties at the time of executing this
Agreement and which do not require the performing Party to expend any funds
other than expenditures which are customary and reasonable in transactions of
the kind and nature contemplated by this Agreement in order for the performing
Party to satisfy its obligations hereunder.
(23) "Computer Systems" has the meaning set forth in Section 4.20.
(24) "Confidentiality Agreement" means the Confidentiality Agreement,
dated March 2, 1998, by and between Seller and Buyer.
(25) "Direct Claim" has the meaning set forth in Section 8.2(c).
(26) "Easements" means, with respect to the Purchased Assets, the
easements and access rights to be granted pursuant to the Easement Agreements,
including, without limitation, easements authorizing access, use, maintenance,
construction, repair, replacement and other activities, as further described in
the Easement Agreements.
(27) "Easement Agreements" means the Easement and License Agreements
between Buyer and Seller, in the form of Exhibit C hereto, whereby Buyer will
provide Seller with certain Easements with respect to the Real Property
transferred to Buyer and whereby Seller will provide Buyer with certain
Easements with respect to certain property owned by Seller.
(28) "Emission Allowance" means all present and future authorizations
to emit specified units of pollutants or Hazardous Substances, which units are
established by the Governmental Authority with jurisdiction over the Plants
under (i) an air pollution control and emission reduction program designed to
mitigate global warming, interstate or intra-state transport of air pollutants;
(ii) a program designed to mitigate impairment of surface waters, watersheds, or
groundwater; or (iii) any pollution reduction program with a similar purpose.
Emission Allowances include allowances, as described above, regardless as to
whether the Governmental Authority establishing such Emission Allowances
designates such allowances by a name other than "allowances."
(29) "Emission Reduction Credits" means credits, in units that are
established by the Governmental Authority with jurisdiction over the Plants that
have obtained the credits, resulting from reductions in the emissions of air
pollutants from
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an emitting source or facility (including, without limitation, and to the extent
allowable under applicable law, reductions from shut-downs or control of
emissions beyond that required by applicable law) that: (i) have been identified
by the PaDEP as complying with applicable Pennsylvania law governing the
establishment of such credits (including, without limitation, that such
emissions reductions are enforceable, permanent, quantifiable and surplus) and
listed in the Emissions Reduction Credit Registry maintained by the PaDEP or
with respect to which such identification and listing are pending; or (ii) have
been certified by any other applicable Governmental Authority as complying with
the law and regulations governing the establishment of such credits (including,
without limitation, certification that such emissions reductions are
enforceable, permanent, quantifiable and surplus). The term includes Emission
Reduction Credits that have been approved by the PaDEP and are awaiting USEPA
approval. The term also includes certified air emissions reductions, as
described above, regardless as to whether the Governmental Authority certifying
such reductions designates such certified air emissions reductions by a name
other than "emission reduction credits."
(30) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, conservation easements, deed restrictions, encumbrances and charges
of any kind.
(31) "Environmental Claim" means any and all pending and/or threatened
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violations, investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or civil, pursuant
to or relating to any applicable Environmental Law by any person (including, but
not limited to, any Governmental Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (a)
violation of, or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs, cleanup costs,
removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or threatened Release into
the environment of any Hazardous Substances at any location related to the
Purchased Assets, including, but not limited to, any off-Site location to which
Hazardous Substances, or materials containing Hazardous Substances, were sent
for handling, storage, treatment, or disposal.
(32) "Environmental Condition" means the presence or Release to the
environment, whether at the Sites or at an off-Site location, of Hazardous
Substances, including any migration
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of those Hazardous Substances through air, soil or groundwater to or from the
Sites or any off-Site location regardless of when such presence or Release
occurred or is discovered.
(33) "Environmental Laws" means all applicable Federal, state and
local, provincial and foreign, civil and criminal laws, regulations, rules,
ordinances, codes, decrees, judgments, directives, or judicial or administrative
orders relating to pollution or protection of the environment, natural resources
or human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 et
seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Sections 2601 et seq.), the Oil Pollution Act (33 U.S.C.
Sections 2701 et seq.), the Emergency Planning and Community Right-to-Know Act
(42 U.S.C. Sections 11001 et seq.), the Occupational Safety and Health Act (29
U.S.C. Sections 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35
P.S. Sections 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35
P.S. Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S.
Section 691.1 et seq.), and all applicable other state laws analogous to any of
the above.
(34) "Environmental Permits" has the meaning set forth in Section
4.7(a).
(35) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(36) "ERISA Affiliate" has the meaning set forth in Section 2.4(k).
(37) "ERISA Affiliate Plans" has the meaning set forth in Section
2.4(k).
(38) "Estimated Adjustment" has the meaning set forth in Section
3.3(b).
(39) "Estimated Closing Statement" has the meaning set forth in Section
3.3(b).
(40) "Excluded Assets" has the meaning set forth in Section 2.2.
(41) "Excluded Liabilities" has the meaning set forth in Section 2.4.
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(42) "Facilities Act" has the meaning set forth in Section 10.14.
(43) "FERC" means the Federal Energy Regulatory Commission or any
successor agency thereto.
(44) "FIRPTA Affidavit" means the Foreign Investment in Real Property
Tax Act Certification and Affidavit, substantially in the form of Exhibit D
hereto.
(45) "Fish Ladder Contract" means Contract No. 0718564, dated as of
June 4, 1998 between Genco (as agent on behalf of Met-Ed) and Kleinschmidt
Associates and Cianbro Corporation, acting as a joint venture.
(46) "Good Utility Practices" mean any of the practices, methods and
acts engaged in or approved by a significant portion of the electric utility
industry during the relevant time period, or previously engaged in by Seller in
its operation of the Purchased Assets, or any of the practices, methods or acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not intended to
be limited to the optimum practices, methods or acts to the exclusion of all
others, but rather to be acceptable practices, methods or acts generally
accepted in the industry or previously engaged in by Seller in its operation of
the Purchased Assets.
(47) "Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating body or
other governmental authority.
(48) "GPU" means GPU, Inc., a Pennsylvania corporation and parent
company of Seller.
(49) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a
wholly-owned subsidiary of GPU.
(50) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of GPU.
(51) "GPU Intercompany Tax Allocation Agreement" has the meaning set
forth in Section 6.8(e)(2)(ii).
(52) "Hazardous Substances" means (a) any petrochemical or petroleum
products, coal ash, oil, radioactive materials, radon gas, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may contain
levels of
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polychlorinated biphenyls; (b) any chemicals, materials or substances defined as
or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "hazardous constituents," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
(53) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
(54) "IBEW 777" means Local 777 of the International Brotherhood of
Electrical Workers.
(55) "Income Tax" means any federal, state, local or foreign Tax (a)
based upon, measured by or calculated with respect to net income, profits or
receipts (including, without limitation, capital gains Taxes and minimum Taxes)
or (b) based upon, measured by or calculated with respect to multiple bases
(including, without limitation, corporate franchise taxes) if one or more of the
bases on which such Tax may be based, measured by or calculated with respect to,
is described in clause (a), in each case together with any interest, penalties,
or additions to such Tax.
(56) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(57) "Indemnifying Party" has the meaning set forth in Section 8.1(e).
(58) "Indemnitee" has the meaning set forth in Section 8.1(d).
(59) "Independent Accounting Firm" means such independent accounting
firm of national reputation as is mutually appointed by Seller and Buyer.
(60) "Inspection" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
(61) "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, copyrights and copyright rights owned by Seller
and necessary for the operation and maintenance of the Purchased Assets, and all
pending applications for registrations of patents, trademarks, and copyrights,
as set forth as part of Schedule 2.1(l).
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(62) "Interconnection Agreements" means the Interconnection Agreements,
between Seller and Buyer, and Seller and York Haven, respectively, a form of
which is attached as Exhibit E hereto, under which Seller will provide Buyer and
York Haven with interconnection service to Seller's transmission facilities and
whereby Buyer and York Haven, respectively, will provide Seller with continuing
access to certain of the Purchased Assets after the Closing Date.
(63) "Inventories" means coal, fuel oil or alternative fuel
inventories, limestone, materials, spare parts, consumable supplies and chemical
and gas inventories relating to the operation of a Plant located at, or in
transit to, such Plant.
(64) "JCP&L" means Jersey Central Power & Light Company, a New Jersey
corporation.
(65) "Knowledge" means the actual knowledge of the corporate officers
or managerial representatives of the specified Person charged with
responsibility for the particular function as of the date of the this Agreement,
or, with respect to any certificate delivered pursuant to this Agreement, the
date of delivery of the certificate.
(66) "Material Adverse Effect" means any change in, or effect on the
Purchased Assets that is materially adverse to the operations or condition
(financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a
whole, or (ii) a Specified Plant (as defined below) other than: (a) any change
affecting the international, national, regional or local electric industry as a
whole and not Seller specifically and exclusively; (b) any change or effect
resulting from changes in the international, national, regional or local
wholesale or retail markets for electric power; (c) any change or effect
resulting from changes in the international, national, regional or local markets
for any fuel used in connection with the Aggregate Purchased Assets including
such Specified Plant; (d) any change or effect resulting from, changes in the
North American, national, regional or local electric transmission systems or
operations thereof; (e) any materially adverse change in or effect on the
Aggregate Purchased Assets including such Specified Plant which is cured
(including by the payment of money) before the Termination Date; (f) any order
of any court or Governmental Authority or legislature applicable to providers of
generation, transmission or distribution of electricity generally that imposes
restrictions, regulations or other requirements thereon; and (g) any change or
effect resulting from action or inaction by a Governmental Authority with
respect to an independent system operator or retail access in Pennsylvania or
New Jersey. As used herein, each of the following shall be a "Specified Plant":
(1) the Shawville Station and associated Purchased Assets to be conveyed to
Buyer pursuant to the Related Purchase Agreement with Penelec; (2) the Portland
Station and associated Purchased Assets to be
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conveyed to Buyer pursuant to this Agreement; and (3) collectively, all
Purchased Assets to be conveyed to Buyer under the Related Purchase Agreement to
which GPU, JCP&L and Met-Ed are parties.
(67) "Merrill Creek Sublease Agreement" means the sublease agreement,
substantially in the form of Exhibit H hereto, pursuant to which Seller will
sublease to Buyer certain entitlements from the Merrill Creek Reservoir Project,
as specified in Exhibit H.
(68) "Non-Union Employees" has the meaning as set forth in Sections
6.10(b) and (m).
(69) "PaPUC" means the Pennsylvania Public Utility Commission and any
successor agency thereto.
(70) "PaDEP" means the Pennsylvania Department of Environmental
Protection and any successor agency thereto.
(71) "Penelec" means Pennsylvania Electric Company, a Pennsylvania
corporation.
(72) "Permits" has the meaning set forth in Section 4.14.
(73) "Permitted Encumbrances" means: (i) the Easements; (ii) those
Encumbrances set forth in Schedule 1.1(73); (iii) statutory liens for Taxes or
other governmental charges or assessments not yet due or delinquent or the
validity of which is being contested in good faith by appropriate proceedings
provided that the aggregate amount for all Aggregate Purchased Assets being so
contested does not exceed $500,000; (iv) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the ordinary course of
business relating to obligations as to which there is no default on the part of
Seller or York Haven or the validity of which are being contested in good faith,
and which do not, individually or in the aggregate, with respect to all
Aggregate Purchased Assets exceed $500,000; (v) zoning, entitlement,
conservation restriction and other land use and environmental regulations by
Governmental Authorities; and (vi) such other liens, imperfections in or failure
of title, charges, easements, restrictions and Encumbrances which do not
materially, individually or in the aggregate, detract from the value of the
Aggregate Purchased Assets as currently used or materially interfere with the
present use of the Aggregate Purchased Assets and neither secure indebtedness,
nor individually or in the aggregate have a value exceeding $30 million for all
Aggregate Purchased Assets.
(74) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, or
governmental entity or any department or agency thereof.
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(75) "Plants" means the generating stations and related assets as more
fully identified on Schedule 2.1 attached hereto.
(76) "Pollution Control Revenue Bonds" means the bonds listed on
Schedule 6.12.
(77) "Portland Unit 5" means the Siemens V84.3 dual fuel combustion
turbine generator undergoing acceptance testing by Siemens Power Corporation,
and all associated or appurtenant fixtures and equipment located at the Portland
Site.
(78) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).
(79) "Post-Closing Statement" has the meaning set forth in Section
3.3(c).
(80) "Proprietary Information" of a Party means all information about
the Party or its Affiliates, including their respective properties or
operations, furnished to the other Party or its Representatives by the Party or
its Representatives, after the date hereof, regardless of the manner or medium
in which it is furnished. Proprietary Information does not include information
that: (a) is or becomes generally available to the public, other than as a
result of a disclosure by the other Party or its Representatives; (b) was
available to the other Party on a nonconfidential basis prior to its disclosure
by the Party or its Representatives; (c) becomes available to the other Party on
a nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality agreement with
the Party or its Representatives, or is not otherwise under any obligation to
the Party or any of its Representatives not to transmit the information to the
other Party or its Representatives; (d) is independently developed by the other
Party; or (e) was disclosed pursuant to the Confidentiality Agreement and
remains subject to the terms and conditions of the Confidentiality Agreement.
(81) "Purchased Assets" has the meaning set forth in Section 2.1.
(82) "Purchase Price" has the meaning set forth in Section 3.2.
(83) "PURTA" has the meaning set forth in Section 3.5(c).
(84) "PURTA Surcharge" has the meaning set forth in Section 3.5(c).
(85) "Qualifying Offer" has the meaning set forth in Section 6.10(b).
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(86) "Real Property" has the meaning set forth in Section 2.1(a).
(87) "Real Property Leases" has the meaning set forth in Section 4.6.
(88) "Related Purchase Agreements" has the meaning set forth in Section
7.1(l).
(89) "Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(90) "Remediation" means action of any kind to address a Release or the
presence of Hazardous Substances at a Site or an off-Site location including,
without limitation, any or all of the following activities to the extent they
relate to or arise from the presence of a Hazardous Substance at a Site or an
off-Site location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or restoration work; (b)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such activity; (c) preparing and implementing
any plans or studies for any such activity; (d) obtaining a written notice from
a Governmental Authority with jurisdiction over a Site or an off-Site location
under Environmental Laws that no material additional work is required by such
Governmental Authority; (e) the use, implementation, application, installation,
operation or maintenance of removal actions on a Site or an off-Site location,
remedial technologies applied to the surface or subsurface soils, excavation and
off-Site treatment or disposal of soils, systems for long term treatment of
surface water or ground water, engineering controls or institutional controls;
and (f) any other activities reasonably determined by a Party to be necessary or
appropriate or required under Environmental Laws to address the presence or
Release of Hazardous Substances at a Site or an off-Site location.
(91) "Replacement Welfare Plans" has the meaning set forth in Section
6.10(e)
(92) "Representatives" of a Party means the Party's Affiliates and
their directors, officers, employees, agents, partners, advisors (including,
without limitation, accountants, counsel, environmental consultants, financial
advisors and other authorized representatives) and parents and other controlling
persons.
(93) "SEC" means the Securities and Exchange Commission and any
successor agency thereto.
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(94) "Seller's Agreements" means those contracts, agreements, licenses
and leases relating to the ownership, operation and maintenance of the Plants
and being assigned to Buyer as part of the Purchased Assets or to which York
Haven is a party, including without limitation the Collective Bargaining
Agreement and the Agreements listed on Schedule 4.12(a).
(95) "Seller's Indemnitee" has the meaning set forth in Section 8.1 (a).
(96) "Seller's Material Adverse Effect" has the meaning set forth in
Section 7.2(c).
(97) "Seller's Required Regulatory Approvals" has the meaning set forth
in Section 4.3(b).
(98) "Siemens' Agreement" has the meaning set forth in Section 2.4(q).
(99) "Site" means, with respect to any Plant, the Real Property
(including improvements) forming a part of, or used or usable in connection with
the operation of, such Plant, including any disposal sites included in the Real
Property. Any reference to the Sites shall include, by definition, the surface
and subsurface elements, including the soils and groundwater present at the
Sites, and any reference to items "at the Sites" shall include all items "at,
on, in, upon, over, across, under and within" the Site.
(100) "Subsidiary" when used in reference to any Person means any
entity of which outstanding securities having ordinary voting power to elect a
majority of the Board of Directors or other Persons performing similar functions
of such entity are owned directly or indirectly by such Person.
(101) "Tangible Personal Property" has the meaning set forth in Section
2.1(c).
(102) "Tax Affiliate" means any entity that is a member of an
affiliated group of corporations (within the meaning of Section 1504(a) of the
Code) filing a consolidated U.S. federal Income Tax Return, or a group of
corporations filing a consolidated or combined Tax Return for state, local or
foreign purposes (each a "Consolidated Group"), if York Haven could be held
liable for the Taxes of such entity or Consolidated Group.
(103) "Tax Contest" has the meaning set forth in Section 6.8(e)(4)(i).
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(104) "Taxes" means all taxes, charges, fees, levies, penalties or
other assessments imposed by any federal, state or local or foreign taxing
authority, including, but not limited to, income, excise, property, sales,
transfer, franchise, payroll, withholding, social security, gross receipts,
license, stamp, occupation, employment or other taxes, including any interest,
penalties or additions attributable thereto.
(105) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document (including any schedule or
related or supporting information) required to be supplied to any taxing
authority with respect to Taxes including amendments thereto.
(106) "Termination Date" has the meaning set forth in Section 9.1(b).
(107) "Third Party Claim" has the meaning set forth in Section 8.2(a).
(108) "Transferable Permits" means those Permits and Environmental
Permits which may be lawfully transferred to or assumed by Buyer without a
filing with, notice to, consent or approval of any Governmental Authority, and
are set forth in Schedule 1.1 (108).
(109) "Transferred Employees" means Transferred Non-Union Employees
and Transferred Union Employees.
(110) "Transferred Non-Union Employees" has the meaning set forth in
Section 6.10(b).
(111) "Transferred Union Employees" has the meaning set forth in
Section 6.10(b).
(112) "Transferring Employee Records" means all records related to
personnel of Seller, York Haven, Genco, GPUN or GPUS who will become employees
of Buyer only to the extent such records pertain to: (i) skill and development
training and biographies, (ii) seniority histories, (iii) salary and benefit
information, including benefit census and valuation data, (iv) Occupational,
Safety and Health Administration reports, and (v) active medical restriction
forms.
(113) "Transition Power Purchase Agreement" means the agreement between
Seller and Buyer, a copy of which is attached as Exhibit G hereto, executed on
the date hereof, relating to the sale of installed capacity to Seller for a
specified period of time following the Closing Date.
(114) Transmission Assets" has the meaning set forth in Section 2.2(a).
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(115) "Union" means IBEW 777.
(116) "Union Employees" has the meaning set forth in Sections 6.10(a)
and (m).
(117) "USEPA" means the United States Environmental Protection Agency
and any successor agency thereto.
(118) "Year 2000 Compliant" has the meaning set forth in Section 4.20.
"Year 2000 Compliance" has a meaning correlative to the foregoing.
(119) "York Haven" means York Haven Power Company, a Pennsylvania
corporation and wholly-owned subsidiary of Met-Ed.
(120) "York Haven Plant" means the York Haven Hydroelectric Station
identified as such in Schedule
2.1.
(121) "York Haven Stock" means all of the issued and outstanding shares
of common stock, without value, of York Haven.
(122) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise requires, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date as of which such reference is made
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction
of the conditions contained in this Agreement, at the Closing Seller will sell,
assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume
and acquire from Seller, free and clear of all Encumbrances (except for
Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms
and conditions of this Agreement, all of Seller's right, title and interest in
and to all assets constituting, or used in and necessary for generation purposes
to the operation of, the Plants identified in Schedule 2.1 including without
limitation those assets described below (but excluding
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the Excluded Assets), each as in existence on the Closing Date (collectively,
"Purchased Assets"):
(a) Those certain parcels of real property (including all
buildings, facilities and other improvements thereon and all appurtenances
thereto) described in Schedule 4.10 (the "Real Property"), except as otherwise
constituting part of the Excluded Assets;
(b) All Inventories;
(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property located on or used principally in connection with the Real
Property on the Closing Date, including, without limitation, the items of
personal property included in Schedule 2.1(c), together with all the personal
property of Seller used principally in the operation of the Plants and listed in
Schedule 2.1(c), other than property used or primarily usable as part of the
Transmission Assets or otherwise constituting part of the Excluded Assets
(collectively, "Tangible Personal Property");
(d) Subject to the provisions of Section 6.5(d), all Seller's
Agreements;
(e) Subject to the provisions of Section 6.5(d), all
Real Property Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and
maintenance manuals, engineering design plans, documents, blueprints and as
built plans, specifications, procedures and similar items of Seller relating
specifically to the aforementioned assets and necessary for the operation of the
Plants (subject to the right of Seller to retain copies of same for its use)
other than such items which are proprietary to third parties and accounting
records;
(h) Subject to Section 6.1, all Emission Reduction Credits
associated with the Plants and identified in Schedule 2.1(h), and all Emission
Allowances that have accrued prior to, or that accrue on or after, the date of
this Agreement but prior to the Closing Date;
(i) All unexpired, transferable warranties and guarantees from
third parties with respect to any item of Real Property or personal property
constituting part of the Purchased Assets, as of the Closing Date, and an amount
equal to all liquidated damages paid to and retained by Seller in respect of
performance guarantees under the Siemens' Agreement;
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(j) The names of the Plants. It is expressly understood that
Seller is not assigning or transferring to Buyer any right to use the names
"Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or
similar trade names, trademarks, service marks, corporate names and logos or any
part, derivative or combination thereof;
(k) All drafts, memoranda, reports, information, technology,
and specifications relating to Seller's plans for Year 2000 Compliance with
respect to the Purchased Assets;
(l) The Intellectual Property described on Schedule 2.1(l);
(m) The substation equipment set forth in Schedule A to the
Interconnection Agreement and designated therein as being transferred to Buyer,
and
(n) The York Haven Stock and all stock books, stock ledgers,
minute books, corporate seal, all corporate records and other books and records
of the type described in Section 2.1. relating to York Haven.
2.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest in
or to the following specific assets which are associated with the Purchased
Assets, but which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule 2.1(c), the
electrical transmission or distribution facilities (as opposed to generation
facilities) of Seller or any of its Affiliates located at the Sites or forming
part of the Plants (whether or not regarded as a "transmission" or "generation"
asset for regulatory or accounting purposes), including all switchyard
facilities, substation facilities and support equipment, as well as all permits,
contracts and warranties, to the extent they relate to such transmission and
distribution assets (collectively, the "Transmission Assets"), and those certain
assets, facilities and agreements all as identified on Schedule 2.2(a) attached
hereto;
(b) Certain revenue meters and remote testing units, drainage
pipes and systems, as identified in the Easement Agreement;
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(c) Certificates of deposit, shares of stock (except as
provided in Section 2.1(n) with respect to the York Haven Stock), securities,
bonds, debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;
(d) All cash, cash equivalents, bank deposits, accounts and
notes receivable (trade or otherwise), and any income, sales, payroll or other
tax receivables;
(e) The rights of Seller and its Affiliates to the names
"Jersey "Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Nuclear", "GPU Service" and "GPU Genco" or any related or
similar trade names, trademarks, service marks, corporate names or logos, or any
part, derivative or combination thereof;
(f) All tariffs, agreements and arrangements to which Seller
is a party for the purchase or sale of electric capacity and/or energy or for
the purchase of transmission or ancillary services;
(g) The rights of Seller or York Haven in and to any causes of
action against third parties (including indemnification and contribution), other
than to the extent relating to any Assumed Liability, relating to any Real
Property or personal property, Permits, Environmental Permits, Taxes, Real
Property Leases or Seller's Agreements, if any, including any claims for
refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation
awards, judgments and the like, whether received as payment or credit against
future liabilities, relating specifically to the Plants or the Sites and
relating to any period prior to the Closing Date;
(h) All personnel records of Seller or York Haven or its
Affiliates relating to the Transferred Employees other than Transferring
Employee Records or other records, the disclosure of which is required by law,
or legal or regulatory process or subpoena; and
(i) Any and all of Seller's and York Haven's rights in any
contract representing an intercompany transaction between Seller or York Haven
and an Affiliate of Seller or York Haven, whether or not such transaction
relates to the provision of goods and services, payment arrangements,
intercompany charges or balances, or the like, except for any contracts listed
on Schedule 4.12(a).
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
Seller the Assignment and Assumption Agreement pursuant to which Buyer shall
assume and agree to discharge when due, without recourse to Seller, all of the
following liabilities
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and obligations of Seller, direct or indirect, known or unknown, absolute or
contingent, which relate to the Purchased Assets, other than Excluded
Liabilities, in accordance with the respective terms and subject to the
respective conditions thereof (collectively, "Assumed Liabilities"):
(a) All liabilities and obligations of Seller arising on or
after the Closing Date under Seller's Agreements, the Real Property Leases, and
the Transferable Permits in accordance with the terms thereof, including,
without limitation, (i) the contracts, licenses, agreements and personal
property leases entered into by Seller with respect to the Purchased Assets,
which are disclosed on Schedule 4.12(a) or not required by Section 4.12(a) to be
so disclosed, and (ii) the contracts, licenses, agreements and personal property
leases entered into by Seller with respect to the Purchased Assets after the
date hereof consistent with the terms of this Agreement, except in each case to
the extent such liabilities and obligations, but for a breach or default by
Seller, would have been paid, performed or otherwise discharged on or prior to
the Closing Date or to the extent the same arise out of any such breach or
default or out of any event which after the giving of notice would constitute a
default by Seller;
(b) All liabilities and obligations associated with the
Purchased Assets in respect of Taxes for which Buyer is liable pursuant to
Sections 3.5 or 6.8(a) hereof;
(c) All liabilities and obligations with respect to the
Transferred Employees arising on or after the Closing Date (i) for which Buyer
is responsible pursuant to Section 6.10 and (ii) relating to the grievances and
arbitration proceedings arising out of or under the Collective Bargaining
Agreement prior to, on or after the Closing Date;
(d) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with (i) any violation or alleged violation of
Environmental Laws, whether prior to, on or after the Closing Date, with respect
to the ownership or operation of any of the Purchased Assets; (ii) loss of life,
injury to persons or property or damage to natural resources (whether or not
such loss, injury or damage arose or was made manifest before the Closing Date
or arises or becomes manifest on or after the Closing Date) caused (or allegedly
caused) by the presence or Release of Hazardous Substances at, on, in, under,
adjacent to or migrating from the Purchased Assets prior to, on or after the
Closing Date, including, but not limited to, Hazardous Substances contained in
building materials at or adjacent to the Purchased Assets or in
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the soil, surface water, sediments, groundwater, landfill cells, or in other
environmental media at or near the Purchased Assets; and (iii) the Remediation
(whether or not such Remediation commenced before the Closing Date or commences
on or after the Closing Date) of Hazardous Substances that are present or have
been Released prior to, on or after the Closing Date at, on, in, under, adjacent
to or migrating from, the Purchased Assets or in the soil, surface water,
sediments, groundwater, landfill cells or in other environmental media at or
adjacent to the Purchased Assets; provided, that nothing set forth in this
subsection 2.3(d) shall require Buyer to assume any liabilities or obligations
that are expressly excluded in Section 2.4 including, without limitation,
liability for toxic torts as set forth in Section 2.4(i).
(e) All liabilities and obligations of Seller or York Haven
with respect to the Purchased Assets under the agreements or consent orders set
forth on Schedule 4.7 arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or after the Closing Date, except
for any Income Taxes attributable to income received by Seller.
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to
pay, perform or otherwise discharge the following liabilities or obligations
(the "Excluded Liabilities"):
(a) Any liabilities or obligations of Seller or York Haven
that are not expressly set forth as liabilities or obligations being assumed by
Buyer in Section 2.3 and any liabilities or obligations in respect of any
Excluded Assets or other assets of Seller which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes
attributable to the ownership, operation or use of Purchased Assets for taxable
periods, or portions thereof, ending before the Closing Date, except for Taxes
for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof and any
liability in respect of PURTA not otherwise expressly assumed by Buyer under
Section 3.5 hereof;
(c) Any liabilities or obligations of Seller or York Haven
accruing under any of Seller's Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or
obligations to third parties (including employees) for personal injury or tort,
or similar causes of action arising solely out of the ownership or operation of
the Purchased Assets prior to the Closing Date, other than any liabilities or
obligations which have been assumed by Buyer in Section 2.3(d);
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(e) Any fines, penalties or costs imposed by a Governmental
Authority resulting from (i) an investigation, proceeding, request for
information or inspection before or by a Governmental Authority pending prior to
the Closing Date but only regarding acts which occurred prior to the Closing
Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller or
York Haven prior to the Closing Date, other than, any such fines, penalties or
costs which have been assumed by Buyer in Section 2.3(d);
(f) Any payment obligations of Seller or York Haven for goods
delivered or services rendered prior to the Closing Date, including, but not
limited to, rental payments pursuant to the Real Property Leases;
(g) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with loss of life, injury to persons or property
or damage to natural resources (whether or not such loss, injury or damage arose
or was made manifest before the Closing Date or arises or becomes manifest on or
after the Closing Date) to the extent caused (or allegedly caused) by the
off-Site disposal, storage, transportation, discharge, Release, or recycling of
Hazardous Substances, or the arrangement for such activities, of Hazardous
Substances, prior to the Closing Date, in connection with the ownership or
operation of the Purchased Assets, provided that for purposes of this Section
"off-Site" does not include any location to which Hazardous Substances disposed
of or Released at the Purchased Assets have migrated;
(h) Any liability, obligation or responsibility under or
related to Environmental Laws or the common law, whether such liability or
obligation or responsibility is known or unknown, contingent or accrued, arising
as a result of or in connection with the investigation and/or Remediation
(whether or not such investigation or Remediation commenced before the Closing
Date or commences on or after the Closing Date) of Hazardous Substances that are
disposed, stored, transported, discharged, Released, recycled, or the
arrangement of such activities, prior to the Closing Date, in connection with
the ownership or operation of the Purchased Assets, at any off-Site location,
provided that for purposes of this Section "off-Site" does not include any
location to which Hazardous Substances disposed of or Released at the Purchased
Assets have migrated;
(i) Third party liability for toxic torts arising as a result
of or in connection with loss of life or injury to persons (whether or not such
loss or injury arose or was made manifest on or after the Closing Date) caused
(or allegedly caused) by the presence or Release of Hazardous Substances at, on,
in, under, adjacent to or migrating from the Purchased Assets prior to the
Closing Date;
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(j) Civil or criminal fines or penalties wherever assessed or
incurred for violations of Environmental Laws arising from the operation of the
Purchased Assets prior to the Closing Date;
(k) Subject to Section 6.10, any liabilities or obligations
relating to any Benefit Plan maintained by Seller or any trade or business
(whether or not incorporated) which is or ever has been under common control, or
which is or ever has been treated as a single employer, with Seller under
Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which
Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate
Plans"), including but not limited to any liability with respect to any such
plan (i) for benefits payable under such plan; (ii) to the Pension Benefit
Guaranty Corporation under Title IV of ERISA; (iii) relating to any such plan
that is a multi-employer plan within the meaning of Section 3(37) of ERISA; (iv)
for non-compliance with the notice and benefit continuation requirements of
COBRA; (v) for noncompliance with ERISA or any other applicable laws; or (vi)
arising out of or in connection with any suit, proceeding or claim which is
brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, or any fiduciary
or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan;
(l) Subject to Section 6.10, any liabilities or obligations
relating to the employment or termination of employment, by Seller, or any
Affiliate of Seller, of any individual, that is attributable to any actions or
inactions (including discrimination, wrongful discharge, unfair labor practices
or constructive termination) by Seller prior to the Closing Date other than such
actions or inactions taken at the written direction of Buyer;
(m) Subject to Section 6.10, any obligations for wages,
overtime, employment taxes, severance pay, transition payments in respect of
compensation or similar benefits accruing or arising prior to the Closing under
any term or provision of any contract, plan, instrument or agreement relating to
any of the Purchased Assets;
(n) Any liability of Seller arising out of a breach by Seller
or any of its Affiliates of any of their respective obligations under this
Agreement or the Ancillary Agreements; and
(o) Any liability or obligation of York Haven relating to the
period prior to the Closing except for liabilities or obligations assumed by
Buyer under Section 2.3;
(p) Any and all obligations under Article III of the Fish
Ladder Contract to pay for performance of the work set forth in Article I to
construct the Coffer dams, attraction flow weir and fish ladder facility, it
being understood that all other
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obligations under such contract following completion of construction are being
assumed by Buyer under Section 2.3(a); provided, however, that notwithstanding
anything herein to the contrary, Buyer shall bear no financial responsibility
for payment of cost overruns or any other costs incurred in connection with
performance under Article I of the Fish Ladder Contract (other than relating to
additional work, if any, which Buyer requests to be performed);
(q) All obligations, whether financial or otherwise, arising
under the Agreement, dated as of June 29, 1993, as amended, between Met-Ed and
Siemens Power Corporation ("Siemens' Agreement"), relating to the construction
and installation of Portland Unit No. 5 (other than relating to additional work,
if any, which Buyer requests to be performed); and
(r) Any liability relating to the Pollution Control Revenue
Bonds except as provided in Section 6.12.
2.5. Control of Litigation. The Parties agree and acknowledge that
Seller shall be entitled exclusively to control, defend and settle any
litigation, administrative or regulatory proceeding, and any investigation or
Remediation activities (including without limitation any environmental
mitigation or Remediation activities), arising out of or related to any Excluded
Liabilities, and Buyer agrees to cooperate fully in connection therewith;
provided, however, that without Buyer's written consent, which shall not be
unreasonably withheld or delayed, Seller shall not settle any such litigation,
administrative or regulatory proceeding which would result in a material adverse
effect on the related Purchased Assets.
2.6 York Haven Assets and Liabilities. Effective immediately prior to
the Closing, Met-Ed shall cause all Excluded Assets of York Haven to be
transferred by York Haven to Met-Ed or one or more of Met-Ed's Affiliates, and
to cause all liabilities of York Haven (other than Assumed Liabilities) to be
assumed by Met-Ed or one or more of Met-Ed's Affiliates.
ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions contained in Article VII of this Agreement, the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment
of the Purchase Price to Seller, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be
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held at the offices of Berlack, Israels & Liberman LLP, 120 West 45th Street,
New York, New York at 10:00 a.m. local time, or another mutually acceptable time
and location, on the date that is fifteen (15) Business Days following the date
on which the last of the conditions precedent to Closing set forth in Article
VII of this Agreement have been either satisfied or waived by the Party for
whose benefit such conditions precedent exist or such other date as the Parties
may mutually agree. The date of Closing is hereinafter called the "Closing
Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the
Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Seller at the Closing an
aggregate amount of three hundred eighty-five million seven hundred fifty-nine
thousand seven hundred and thirty-two United States Dollars (U.S.
$385,759,732.00) (the "Purchase Price") plus or minus any adjustments pursuant
to the provisions of this Agreement, by wire transfer of immediately available
funds denominated in U.S. dollars or by such other means as are agreed upon by
Seller and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at
the Closing, the Purchase Price shall be adjusted, without duplication, to
account for the items set forth in this Section 3.3(a):
(i) The Purchase Price shall be increased or
decreased, as applicable, to reflect the difference between the book
value of all Inventories as of the Closing Date and the value of all
Inventories as of June 30, 1998 as reflected on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to account
for the items prorated as of the Closing Date pursuant to Section 3.5.
(iii) The Purchase Price shall be increased by the
amount expended, or for which liabilities are incurred, by Seller
between the date hereof and the Closing Date for capital additions to
or replacements of property, plant and equipment included in the
Purchased Assets and other expenditures or repairs on property, plant
and equipment included in the Purchased Assets that would be
capitalized by Seller in accordance with normal accounting policies of
Seller and its Affiliates (together, "Capital Expenditures"), which are
not described on Schedule 6.1 and which either (A) are mandated after
the date of this Agreement by any Governmental Authority (subject
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to Buyer's right reasonably to direct Seller to contest such mandatesby
appropriate proceedings at Buyer's expense and provided there is no
adverse impact on the Purchased Assets); or (B) do not fall within
category (A) above but do not exceed in the aggregate $2 million for
all Aggregate Purchased Assets; or (C) are approved in writing by
Buyer.
(b) At least ten (10) Business Days prior to the Closing Date,
Seller shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth Seller's best estimate of
the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated
Adjustment"). Within five (5) Business Days following the delivery of the
Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith
to the Estimated Adjustment in writing. If Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If the Parties are unable to do so within three (3) Business Days
prior to the Closing Date (or if Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for
the Closing by the amount of the Estimated Adjustment not in dispute. The
disputed portion shall be paid as a "Post-Closing Adjustment" to the extent
required by Section 3.3(c).
(c) Within sixty (60) days following the Closing Date, Seller
shall prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all adjustments to the Purchase Price required
by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement
shall be prepared using the same accounting principles, policies and methods as
Seller has historically used in connection with the calculation of the items
reflected on such Post-Closing Statement. Within thirty (30) days following the
delivery of the Post-Closing Statement by Seller to Buyer, Buyer may object to
the Post-Closing Adjustment in writing. Seller agrees to cooperate with Buyer to
provide Buyer and Buyer's Representatives information used to prepare the
Post-Closing Statement and information relating thereto. If Buyer objects to the
Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by
negotiation. If the Parties are unable to resolve such dispute within thirty
(30) days of any objection by Buyer, the Parties shall appoint the Independent
Accounting Firm, which shall, at Seller's and Buyer's joint expense, review the
Post-Closing Adjustment and determine the appropriate adjustment to the Purchase
Price, if any, within thirty (30) days of such appointment. The Parties agree to
cooperate with the Independent Accounting Firm and provide it with such
information as it reasonably requests to enable it to make such determination.
The finding of such Independent Accounting Firm shall be binding on the Parties
hereto. Upon determination of the appropriate
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adjustment by agreement of the Parties or by binding determination of the
Independent Accounting Firm, if the Post-Closing Adjustment is more or less than
the Closing Adjustment, the Party owing the difference shall deliver such
difference to the other Party no later than two (2) Business Days after such
determination, in immediately available funds or in any other manner as
reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Seller shall endeavor to
agree upon an allocation among the Purchased Assets and the York Haven Stock of
the sum of the Purchase Price and the Assumed Liabilities in a manner consistent
with the provisions of Section 1060 of the Code and the Treasury Regulations
thereunder within sixty (60) days of the date of this Agreement. Each of Buyer
and Seller agrees to file Internal Revenue Service Form 8594, and all federal,
state, local and foreign Tax Returns, in accordance with any such agreed to
allocation. Each of Buyer and Seller shall report the transactions contemplated
by this Agreement for federal Tax and all other Tax purposes in a manner
consistent with any such agreed to allocation determined pursuant to this
Section 3.4. Each of Buyer and Seller agrees to provide the other promptly with
any information required to complete Form 8594. Buyer and Seller shall notify
and provide the other with reasonable assistance in the event of an examination,
audit or other proceeding regarding any allocation of the Purchase Price agreed
to pursuant to this Section 3.4.
3.5. Prorations. (a) Buyer and Seller agree that all of the items
normally prorated, including those listed below (but not including Income
Taxes), relating to the business and operation of the Purchased Assets shall be
prorated as of the Closing Date, with Seller liable to the extent such items
relate to any time period prior to the Closing Date, and Buyer liable to the
extent such items relate to periods commencing with the Closing Date (measured
in the same units used to compute the item in question, otherwise measured by
calendar days):
(i) Personal property, real estate and occupancy
Taxes, assessments and other charges, if any, on or with respect to the
business and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including
prepaid services or goods not included in Inventory) payable by or to
Seller or York Haven under any of Seller's Agreements;
(iii) Any permit, license, registration, compliance
assurance fees or other fees with respect to any Transferable Permit;
(iv) Sewer rents and charges for water, telephone,
electricity and other utilities; and
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(v) Rent and Taxes and other items payable by Seller
under the Real Property Leases assigned to Buyer or to which York Haven
is a party.
(b) In connection with the prorations referred to in (a)
above, in the event that actual figures are not available at the Closing Date,
the proration shall be based upon the actual Taxes or other amounts accrued
through the Closing Date or paid for the most recent year (or other appropriate
period) for which actual Taxes or other amounts paid are available. Such
prorated Taxes or other amounts shall be re-prorated and paid to the appropriate
Party within sixty (60) days of the date that the previously unavailable actual
figures become available. The prorations shall be based on the number of days in
a year or other appropriate period (i) before the Closing Date and (ii)
including and after the Closing Date. Seller and Buyer agree to furnish each
other with such documents and other records as may be reasonably requested in
order to confirm all adjustment and proration calculations made pursuant to this
Section 3.5.
Notwithstanding anything to the contrary herein, no proration
shall be made under this Section 3.5 with respect to Taxes payable under the
Pennsylvania Public Utility Realty Tax Act ("PURTA") that are attributable to
the year in which the Closing occurs (the "Closing Year PURTA Tax"). Buyer shall
be fully responsible and indemnify Seller for, and shall be entitled to receive
all refunds relating to payments Buyer makes with respect to, the Closing Year
PURTA Tax; provided, however, that any additional tax that is imposed in the
year in which the Closing occurs pursuant to Section 1104-A(b) of PURTA or any
successor provision thereof (a "PURTA Surcharge") but which relates to the
previous year shall not be treated as the Closing Year PURTA Tax and Seller
shall be responsible for such PURTA Surcharge.
3.6 Deliveries by Seller. At the Closing, Seller will deliver, or cause
to be delivered, the following to Buyer:
(a)The Bill of Sale, duly executed by Seller;
(b)Copies of any and all governmental and other third party
consents, waivers or approvals required with respect to the transfer of the
Purchased Assets, or the consummation of the transactions contemplated by this
Agreement;
(c)The opinions of counsel and officer's certificates
contemplated by Section 7.1;
(d)One or more special warranty deeds conveying the Real
Property to Buyer, in substantially the form of Exhibit F hereto, duly executed
and acknowledged by Seller and in recordable form;
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(e) The Assignment and Assumption Agreement and any Ancillary
Agreements which are not executed on the date hereof, duly executed by Seller;
(f) A FIRPTA Affidavit, duly executed by Seller;
(g) Copies, certified by the Secretary or Assistant Secretary
of Seller, of corporate resolutions authorizing the execution and delivery of
this Agreement and all of the agreements and instruments to be executed and
delivered by Seller in connection herewith, and the consummation of the
transactions contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of
Seller identifying the name and title and bearing the signatures of the officers
of Seller authorized to execute and deliver this Agreement and the other
agreements and instruments contemplated hereby;
(i) Certificates of Subsistence with respect to Seller and
York Haven, issued by the Secretary of the State of Seller's and York Haven's
state of incorporation;
(j) To the extent available, originals of all Seller's
Agreements, Real Property Leases, Permits, Environmental Permits, and
Transferable Permits and, if not available, true and correct copies thereof,
together with the items referred to in Section 2.1(g);
(k) All such other instruments of assignment, transfer or
conveyance as shall, in the reasonable opinion of Buyer and its counsel, be
necessary or desirable to transfer to Buyer the Purchased Assets, in accordance
with this Agreement and where necessary or desirable in recordable form;
(l) Notices, signed by Seller, to all other parties to the
material Seller's Agreements where notice to such parties is required under the
terms of such Seller's Agreements or pursuant to Section 6.5(d) hereof;
(m) Reliance letters from Woodward & Clyde with respect to the
Environmental Reports prepared by Woodward & Clyde concerning the Purchased
Assets and made available for review by Buyer.
(n) Such other agreements, documents, instruments and writings
as are required to be delivered by Seller at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
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In addition, Met-Ed will deliver, or cause to be delivered, to Buyer
(i) a stock certificate or certificates representing the York Haven Stock
accompanied by a stock power duly endorsed to Buyer and (ii) resignations of all
directors and officers of York Haven. The instruments of conveyance listed above
in Sections 3.6(a), (d), (e) and (k) will not include any assets owned by York
Haven (unless required to assure continuing valid title by York Haven).
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause
to be delivered, the following to Seller:
(a) The Purchase Price, as adjusted pursuant to Section 3.3,
by wire transfer of immediately available funds in accordance with Seller's
instructions or by such other means as may be agreed to by Seller and Buyer;
(b) The opinions of counsel and officer's certificates
contemplated by Section 7.2;
(c) The Assignment and Assumption Agreement and any Ancillary
Agreements which are not executed on the date hereof, duly executed by Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary
of Buyer, of resolutions authorizing the execution and delivery of this
Agreement, the Guaranty and all of the agreements and instruments to be executed
and delivered by Buyer in connection herewith, and the consummation of the
transactions contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary of
Buyer, identifying the name and title and bearing the signatures of the officers
of Buyer authorized to execute and deliver this Agreement, the Guaranty and the
other agreements contemplated hereby;
(f) All such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Buyer to assume
the Assumed Liabilities in accordance with this Agreement;
(g) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the transfer of
the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement and where necessary or desirable in recordable forms;
(h) Certificates of Insurance relating to the insurance
policies required pursuant to Article 10 of the Interconnection Agreement; and
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(i) Such other agreements, documents, instruments and writings
as are required to be delivered by Buyer at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary
Agreements, other than the Merrill Creek Sublease Agreement, the Easement
Agreements and the Interconnection Agreement between Seller and York Haven, have
been executed on the date hereof.
3.9 Easement Agreements. At the Closing, Buyer and Seller shall
execute for each Site an Easement Agreement in the form attached hereto as
Exhibit C, completed as required to cause the entity owning such Site to grant
such Easements and licenses as are contemplated by such form of agreement and
Exhibits B (Distribution Facilities), Exhibits C (Transmission Facilities),
Exhibits F (Distribution Substation), and Exhibits G (Main Substation) thereto,
forms of which are attached thereto. Such forms of Exhibits B, C, F and G to the
agreements are subject to revision as the Parties may agree. The Parties shall
engage in reasonable and good faith negotiations regarding such revisions so as
to minimize the impact of the Seller's Easements, Easement areas and licenses on
the Sites and Buyer's use thereof, consistent with the enjoyment by Seller of
such Easements and license rights as Seller reasonably requires to continue its
use, operation and maintenance of the Excluded Assets.
The Parties shall also engage in reasonable, good faith
negotiations to agree upon the rules and regulations under which Buyer will
grant to Seller access to the Sites, and under which Seller will grant to Buyer
access to Seller's Easements and Easement areas. Such rules and regulations
shall be memorialized as Exhibit J to each agreement.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Incorporation; Qualification. Each of Seller and York Haven is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation and has all requisite corporate power and
authority to own, lease, and operate its material properties and assets and to
carry on its business as is now being conducted. Each of Seller and York Haven
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which its business as now being
conducted shall require it to be so qualified, except where the failure to be so
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qualified would not have a Material Adverse Effect. Seller has heretofore
delivered to Buyer true, complete and correct copies of its and York Haven's
Certificate of Incorporation and Bylaws as currently in effect.
4.2 Authority Relative to this Agreement. Seller has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Seller and the consummation of the transactions contemplated by
Seller hereby have been duly and validly authorized by all necessary corporate
action required on the part of Seller and this Agreement has been duly and
validly executed and delivered by Seller. Subject to the receipt of Seller's
Required Regulatory Approvals, this Agreement constitutes the legal, valid and
binding agreement of Seller, enforceable against Seller in accordance with its
terms, except that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
4.3 Consents and Approvals; No Violation. (a) Except as set forth in
Schedule 4.3(a), and subject to obtaining Seller's Required Regulatory
Approvals, neither the execution and delivery of this Agreement by Seller nor
the consummation by Seller or York Haven of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of Seller or York Haven, (ii) result in a
default (or give rise to any right of termination, consent, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, material agreement or other instrument or obligation
to which Seller or York Haven is a party or by which it, or any of the Purchased
Assets may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained or which, would not, individually or in the aggregate, create a
Material Adverse Effect; or (iii) constitute violations of any law, regulation,
order, judgment or decree applicable to Seller or York Haven, which violations,
individually or in the aggregate, would create a Material Adverse Effect, or
create any Encumbrance other than a Permitted Encumbrance.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Seller's Required Regulatory Approvals"), no consent or approval of, filing
with, or notice to, any Governmental Authority, by or for Seller or York Haven,
is necessary for the execution and delivery of this Agreement by Seller, or the
consummation by Seller of the transactions contemplated hereby, other than (i)
such consents, approvals,
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filings or notices which, if not obtained or made, will not prevent Seller from
performing its material obligations hereunder and (ii) such consents, approvals,
filings or notices which become applicable to Seller or the Purchased Assets as
a result of the specific regulatory status of Buyer (or any of its Affiliates)
or as a result of any other facts that specifically relate to the business or
activities in which Buyer (or any of its Affiliates) is or proposes to be
engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material
policies of fire, liability, workers' compensation and other forms of insurance
owned or held by, or on behalf of, Seller and York Haven with respect to the
business, operations or employees at the Plants or the Purchased Assets are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the date hereof have been paid (other than retroactive premiums
which may be payable with respect to comprehensive general liability and
workers' compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy which was not
replaced on substantially similar terms prior to the date of such cancellation.
Except as described in Schedule 4.4, within the 36 months preceding the date of
this Agreement, neither Seller nor York Haven has been refused any insurance
with respect to the Purchased Assets nor has coverage been limited by any
insurance carrier to which Seller or York Haven has applied for any such
insurance or with which Seller or York Haven has carried insurance during the
last 12 months.
4.5. Title and Related Matters. Except as set forth in Schedule 4.5 and
subject to Permitted Encumbrances, (i) Seller is the owner of record title to
the Real Property (or the interest in the Real Property as set forth in Schedule
2.1) and has good and valid title to the other Purchased Assets which it
purports to own, free and clear of all material Encumbrances of which the Seller
has knowledge and (ii) Seller shall convey to Buyer such title with respect to
the Real Property or interest therein as a reputable title company doing
business in the Commonwealth of Pennsylvania would insure. Met-Ed has good and
valid title to the York Haven Stock, free and clear of all Encumbrances.
4.7 Real Property Leases. Schedule 4.6 lists, as of the date of this
Agreement, all material real property leases under which Seller or York Haven is
a lessee or lessor and which relate to the Purchased Assets ("Real Property
Leases"). Except as set forth in Schedule 4.6, all such leases are valid,
binding and enforceable against Seller or York Haven in accordance with their
terms; there are no existing material defaults by Seller or York Haven or, to
Seller's or York Haven's Knowledge, any other party thereunder; and no event has
occurred which (whether with or without notice, lapse of time or both) would
constitute a material default by Seller or York Haven or, to Seller's or York
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Haven's Knowledge, any other party thereunder. Seller has delivered to Buyer
true, correct and complete copies of each of the material Real Property Leases.
4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in
the "Phase I" and "Phase II" environmental site assessments prepared by Seller's
outside environmental consultants ("Environmental Reports") and made available
for inspection by Buyer:
(a) Each of Seller and York Haven holds, and is in substantial
compliance with, all permits, certificates, certifications, licenses and
governmental authorizations under Environmental Laws ("Environmental Permits")
that are required for Seller or York Haven to conduct the business and
operations of the Purchased Assets, and each of Seller and York Haven is
otherwise in compliance with applicable Environmental Laws with respect to the
business and operations of such Purchased Assets except for such failures to
hold or comply with required Environmental Permits, or such failures to be in
compliance with applicable Environmental Laws, as would not, individually or in
the aggregate, create a Material Adverse Effect;
(b) Neither Seller nor York Haven has received any written
request for information, or been notified that it is a potentially responsible
party, under CERCLA or any similar state law with respect to the Real Property
or any other Purchased Assets;
(c) Neither Seller nor York Haven has entered into or agreed
to any consent decree or order relating to the Purchased Assets, or is subject
to any outstanding judgment, decree, or judicial order relating to compliance
with any Environmental Law or to investigation or cleanup of Hazardous
Substances under any Environmental Law relating to the Purchased Assets.
(d) To Seller's and York Haven's Knowledge, no Releases of
Hazardous Substances have occurred at, from, in, on, or under any Site, and no
Hazardous Substances are present in, on, about or migrating from any such Site
that could give rise to an Environmental Claim related to the Purchased Assets
for which Remediation reasonably could be required, except in any such case to
the extent that any such Releases would not, individually or in the aggregate,
create a Material Adverse Effect.
The representations and warranties made in this Section 4.7 are
Seller's exclusive representations and warranties relating to environmental
matters.
4.8 Labor Matters. Seller has previously delivered to Buyer a true and
correct copy of the Collective Bargaining Agreement, which is the only
collective bargaining agreement to which it or York Haven is a party or is
subject and which relates
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to the business and operations of the Purchased Assets. With respect to the
business or operations of such Purchased Assets, except to the extent set forth
in Schedule 4.8 and except for such matters as will not, individually or in the
aggregate, create a Material Adverse Effect, each of Seller and York Haven (a)
is in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours; (b) has not
received written notice of any unfair labor practice complaint against it
pending before the National Labor Relations Board; (c) no arbitration proceeding
arising out of or under any collective bargaining agreement is pending against
Seller or York Haven; and (d) neither Seller nor York Haven has experienced any
work stoppage within the three-year period prior to the date hereof and to
Seller's and York Haven's Knowledge none is currently threatened.
4.9. Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred
compensation, profit-sharing, retirement and pension plans, including
multiemployer plans, and all material bonus, fringe benefit and other employee
benefit plans maintained or with respect to which contributions are made by
Seller, York Haven, Genco, GPUN or GPUS in respect of the current employees of
Seller, York Haven, Genco, GPUN or GPUS connected with the Purchased Assets
("Benefit Plans"). True and complete copies of all Benefit Plans have been made
available to Buyer.
(b) Except as set forth in Schedule 4.9(b), Seller and the
ERISA Affiliates have fulfilled their respective obligations under the minimum
funding requirements of Section 302 of ERISA, and Section 412 of the Code, with
respect to each Benefit Plan which is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA and each such plan is in compliance in all
material respects with the presently applicable provisions of ERISA and the Code
and has been administered in all material respects in accordance with its terms
as set forth in the documents governing such Benefit Plan. Except as set forth
in Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any
liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty
Corporation in connection with any Benefit Plan which is subject to Title IV of
ERISA or any withdrawal liability with respect to any Benefit Plan, within the
meaning of Section 4021 of ERISA, nor is there any reportable event (as defined
in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth
in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each
Benefit Plan which is intended to be qualified under Section 401(a) of the Code,
which letter determines that such plan is qualified and exempt from United
States Federal Income Tax under Section 401(a) and 501(a) of the Code, and
Seller is not aware of any occurrence since the date of any such determination
letter which would affect adversely such qualification or tax exemption.
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(c) Neither Seller nor any ERISA Affiliate has engaged in any
transaction described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit
Plan is a multiemployer plan.
(d) Seller and Sellers' Affiliates have materially complied in
good faith with the notice and continuation requirements of Section 4980B of the
Code, and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit
Plan. Seller and each ERISA Affiliate have complied in all material respects
with the requirements of Part 7 of Title I of ERISA.
4.10 Real Property. Schedule 4.10 contains a description of the Real
Property included in the Purchased Assets. Copies of any current surveys,
abstracts or title opinions in Seller's or York Haven's possession and any
policies of title insurance in force and in the possession of Seller or York
Haven with respect to the Real Property have heretofore been made available to
Buyer (without making any representation or warranty as to the accuracy or
completeness thereof). Except as set forth in Schedule 4.10A, no real property
other than the Real Property is necessary for Buyer to own, maintain and operate
the Purchased Assets as they are currently used.
4.11 Condemnation. Except as set forth in Schedule 4.11, neither Seller
nor York Haven has received any written notices of and otherwise has no
Knowledge of any pending or threatened proceedings or governmental actions to
condemn or take by power of eminent domain all or any part of the Purchased
Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written
contract, license, agreement, or personal property lease which is material to
the business or operations of the Purchased Assets, other than any contract,
license, agreement or personal property lease which is listed or described on
another Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by Seller or York Haven
after the date hereof of less than $250,000 or payments by Seller or York Haven
after the date hereof of less than $1,000,000 in the aggregate.
(b)Except as disclosed in Schedule 4.12(b), each Seller's
Agreement (i) constitutes a legal, valid and binding obligation of Seller or
York Haven and, to Seller's or York Haven's Knowledge, constitutes a valid and
binding obligation of the other parties thereto, and (ii) may be transferred to
Buyer pursuant to this Agreement without the consent of the other parties
thereto and will continue in full force and effect thereafter, unless in any
such case the impact of such lack of legality, validity or binding nature, or
inability to transfer, would not, individually or in the aggregate, create a
Material Adverse Effect.
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(c) Except as set forth in Schedule 4.12(c), there is not,
under Seller's Agreements, any default or event which, with notice or lapse of
time or both, would constitute a default on the part of Seller or York Haven or
to Seller's or York Haven's Knowledge, any of the other parties thereto, except
such events of default and other events which would not, individually or in the
aggregate, create a Material Adverse Effect.
4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13,
there are no actions or proceedings pending (or to Seller's knowledge overtly
threatened) against Seller or York Haven before any court, arbitrator or
Governmental Authority, which could, individually or in the aggregate,
reasonably be expected to create a Material Adverse Effect. Except as set forth
in Schedule 4.13, neither Seller nor York Haven is subject to any outstanding
judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator
or Governmental Authority which would, individually or in the aggregate, create
a Material Adverse Effect.
4.14 Permits. (a) Each of Seller and York Haven has all permits,
licenses, franchises and other governmental authorizations, consents and
approvals, (other than Environmental Permits, which are addressed in Section 4.7
hereof) (collectively, "Permits") necessary to permit Seller or York Haven to
own and operate the Purchased Assets except where the failure to have such
Permits would not, individually or in the aggregate, create a Material Adverse
Effect. Except as disclosed on Schedule 4.14(a), neither Seller nor York Haven
has received any notification that it is in violation of any such Permits,
except notifications of violations which would not, individually or in the
aggregate, create a Material Adverse Effect. Each of Seller and York Haven is in
compliance with all such Permits except where non-compliance would not,
individually or in the aggregate, create a Material Adverse Effect.
(b) Schedule 4.14(b) sets forth all material Permits and
Environmental Permits, other than Transferable Permits (which are set forth on
Schedule 1.1(108)) related to the Purchased Assets.
4.15 Taxes. Seller has filed all returns required to be filed by it
with respect to any Tax relating to the Purchased Assets, and Seller has paid
all Taxes that have become due as indicated thereon, except where such Tax is
being contested in good faith by appropriate proceedings, or where the failure
to so file or pay would not reasonably be expected to create a Material Adverse
Effect. Seller has complied in all material respects with all applicable laws,
rules and regulations relating to withholding Taxes relating to Transferred
Employees. All Tax Returns relating to the Purchased Assets are true, correct
and complete in all material respects. Except as set forth in Schedule 4.15, no
notice of deficiency or assessment has been
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received from any taxing authority with respect to liabilities for Taxes of
Seller in respect of the Purchased Assets, which have not been fully paid or
finally settled, and any such deficiency shown in Schedule 4.15 is being
contested in good faith through appropriate proceedings. Except as set forth in
Schedule 4.15, there are no outstanding agreements or waivers extending the
applicable statutory periods of limitation for Taxes associated with the
Purchased Assets that will be binding upon Buyer after the Closing. None of the
Purchased Assets is property that is required to be treated as being owned by
any other person pursuant to the so-called safe harbor lease provisions of
former Section 168(f) of the Code, and none of the Purchased Assets is
"tax-exempt use" property within the meaning of Section 168(h) of the Code.
Schedule 4.15 sets forth the taxing jurisdictions in which Seller owns assets or
conducts business that require a notification to a taxing authority of the
transactions contemplated by this Agreement, if the failure to make such
notification, or obtain Tax clearance certificates in connection therewith,
would either require Buyer to withhold any portion of the Purchase Price or
subject Buyer to any liability for any Taxes of Seller.
4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual
Property used in and, individually or in the aggregate with other Intellectual
Property, material to the operation or business of the Purchased Assets, each of
which Seller or its Affiliates either has all right, title and interest in or
valid and binding rights under contract to use. Except as disclosed in Schedule
4.16, (i) Seller is not, nor has it received any notice that it is, in default
(or with the giving of notice or lapse of time or both, would be in default),
under any contract to use such Intellectual Property, and (ii) to Seller's
Knowledge, such Intellectual Property is not being infringed by any other
Person. Neither Seller nor York Haven has received notice that it is infringing
any Intellectual Property of any other Person in connection with the operation
or business of the Purchased Assets, and Seller and York Haven, to its
Knowledge, is not infringing any Intellectual Property of any other Person the
effect of which, individually or in the aggregate, would have a Material Adverse
Effect.
4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there
are no capital expenditures associated with the Purchased Assets that are
planned by Seller through December 31, 1999.
4.18 Compliance With Laws. Each of Seller and York Haven is in
compliance with all applicable laws, rules and regulations with respect to the
ownership or operation of the Purchased Assets except where the failure to be in
compliance would not, individually or in the aggregate, create a Material
Adverse Effect.
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4.19 PUHCA. Seller is a wholly owned subsidiary of GPU, Inc., which is
a holding company registered under the Public Utility Holding Company Act of
1935.
4.19A Subsidiaries. York Haven does not own any subsidiaries nor any
debt, preferred, common or other equity securities of any kind nor any equity or
other interests in any other business, legal entity or arrangement.
4.19B Capitalization. The York Haven Stock, which consists of 500
shares of common stock, without par value, constitutes all of the issued and
outstanding shares of capital stock of York Haven and is owned beneficially and
of record by Seller, free and clear of all Encumbrances. The York Haven Stock
has been duly authorized and validly issued, and is fully paid and
non-assessable. There are no other authorized shares of capital stock of York
Haven other than the 500 shares of common stock comprising the York Haven Stock.
None of the shares comprising the York Haven Stock has been issued in violation
of, or is subject to, any preemptive or subscription rights, rights of first
refusal or offer, options, put or call rights, consent rights, restrictive
covenants or agreements with any third party other than Buyer ("Restrictive
Third Party Rights"). There are no outstanding securities convertible into or
exchangeable for the capital stock of York Haven. Neither Seller nor York Haven
has any obligation, contingent or otherwise, to issue, sell, repurchase, redeem
or otherwise acquire any of the York Haven Stock or other capital stock of York
Haven or any equity or debt securities of York Haven.
4.19C York Haven Tax Matters. With respect to the sale of the York
Haven Stock, except as set forth on Schedule 4.19C:
(i) York Haven has (x) duly and timely filed (or
there has been filed on its behalf) with the appropriate taxing
authorities all Tax Returns required to be filed by it, and all such
Tax Returns are materially correct and (y) timely paid or there has
been paid on its behalf all Taxes due or claimed to be due from it by
any taxing authority;
(ii) York Haven has, within the time and manner
prescribed by law, withheld and paid over to the proper governmental
authorities all amounts required to be withheld and paid over under all
applicable laws;
(iii) There are no Encumbrances for Taxes upon the
assets or properties of York Haven, except for statutory encumbrances
for current Taxes not yet due;
(iv) York Haven has not requested any extension of
time within which to file any Tax Return in respect of any taxable year
which has not since been filed and no
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outstanding waivers or comparable consents regarding the application of
the statue of limitations with respect to any Taxes or Tax Returns has
been given by or on behalf of York Haven;
(v) No federal, state, local or foreign audits or
other administrative proceedings or court proceedings ("Audits") exist
or have been initiated with regard to any Taxes or Tax Returns of York
Haven and York Haven has not received any written notice that such an
audit is pending or threatened with respect to any Taxes due from or
with respect to York Haven or any Tax Return field by or with respect
to York Haven;
(vi) York Haven has not requested or received a
ruling from any taxing authority or signed a closing or other agreement
with any taxing authority which could materially adversely affect York
Haven;
(vii) Except for the GPU Intercompany Tax Allocation
Agreement, York Haven is not a party to, is not bound by, and has no
obligation under, any Tax sharing agreement, Tax indemnification
agreement or similar contract or arrangement;
(viii) No power of attorney has been granted with
respect to York Haven as to any matter relating to Taxes;
(ix) York Haven has not filed a consent pursuant to
Section 341(f) of the Code (or any predecessor provision) or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset, as such term is defined in Section 341(f)(4) of
the Code, owned by York Haven;
(x) No property owned by York Haven (A) is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately prior to the enactment of the Tax
Reform Act of 1986, (B) constitutes "tax-exempt use property" within
the meaning of Section 168(h)(1) of the Code or (C) is tax-exempt bond
financed property within the meaning of Section 168(g) of the Code;
(xi) Since December 31, 1996, York Haven has not
incurred any liability for Taxes other than in the ordinary course of
business;
(xii) York Haven has no liability for Taxes of any
person pursuant to Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law) other than for the
consolidated return group of which GPU is the parent;
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(xiii) York Haven has not participated in, or
cooperated with, an international boycott within the meaning of Section
999 of the Code; and
(xiii) York Haven is not a party to any contract,
agreement or other arrangement which could result in the payment by it
of amounts that could be nondeductible by reason of Section 280G or
162(m) of the Code.
4.19D Financial Statements. Attached hereto as Schedule 4.19D are the
audited balance sheet, income statement and statement of cash flows of York
Haven as at and for the year ended December 31, 1997, and the unaudited balance
sheet, income statement and statement of cash flows of York Haven as at and for
the six months ended June 30, 1998 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") and present fairly the financial condition of York Haven as
of the dates set forth therein and results of operations for the periods set
forth therein (subject in the case of the unaudited financial statements, to
year end audit adjustments). The books and records of York Haven are complete in
all material respects and have been maintained in accordance with GAAP or other
applicable regulatory requirements. York Haven has no material liability or
asset which is not disclosed in the Financial Statements and which is required
to be disclosed in a balance sheet prepared in accordance with GAAP.
4.20 DISCLAIMERS REGARDING PURCHASED ASSETS EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER
INCIDENTS OF THE PURCHASED ASSETS AND SELLER SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS
SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS
WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF
THE PURCHASED ASSETS OR THE SUITABILITY OF THE
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PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO
THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR
COMMUNICATIONS MADE BY SELLER OR ITS REPRESENTATIVES, OR BY ANY BROKER OR
INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS.
Seller makes no warranties and representations of any kind, whether
direct or implied, that any of the hardware, software, and firmware products
(including embedded microcontrollers in non-computer equipment) which may be
included in the Purchased Assets to be transferred under this Agreement (the
"Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000
Compliant" shall mean that the Computer Systems will correctly differentiate
between years, in different centuries, that end in the same two digits, and will
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, including leap year calculations.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1. Organization. Buyer is a Delaware corporation, duly organized,
validly existing and in good standing under the laws of the state of its
organization and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as is now being
conducted. Buyer is, or by the Closing will be, qualified to do business in the
Commonwealth of Pennsylvania. Buyer has heretofore delivered to Seller complete
and correct copies of its Certificate of Incorporation and Bylaws (or other
similar governing documents) as currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Buyer and the consummation of the transactions contemplated hereby
by Buyer have been duly and validly authorized by all necessary corporate action
required on the part of Buyer. This Agreement has been duly and validly executed
and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory
Approvals, this Agreement constitutes a legal, valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to
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enforcement of creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
5.3. Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and subject to
obtaining Buyer Required Regulatory Approvals, neither the execution and
delivery of this Agreement by Buyer nor the consummation by Buyer of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or Bylaws (or other similar
governing documents) of Buyer, or (ii) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party or by which any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, have a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation,
order, judgment or decree applicable to Buyer, which violations, individually or
in the aggregate, would create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer Required Regulatory Approvals"), no consent or approval of, filing with,
or notice to, any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement, or the consummation by Buyer of the transactions
contemplated hereby, other than such consents, approvals, filings or notices,
which, if not obtained or made, will not prevent Buyer from performing its
obligations under this Agreement.
5.4 Availability of Funds. Buyer has sufficient funds and lines of
credit available to it or has received binding written commitments from
creditworthy financial institutions, copies of which have been provided to
Seller, to provide sufficient funds on the Closing Date to pay the Purchase
Price and to permit Buyer to timely perform all of its obligations under this
Agreement.
5.5 Legal Proceedings. There are no actions or proceedings pending
against Buyer before any court or arbitrator or Governmental Authority, which,
individually or in the aggregate, could reasonably be expected to create a Buyer
Material Adverse Effect. Buyer is not subject to any outstanding judgments,
rules, orders, writs, injunctions or decrees of any court,
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arbitrator or Governmental Authority which would, individually or in the
aggregate, create a Buyer Material Adverse Effect.
5.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any
breach by Seller of any representation or warranty of Seller, or of any other
condition or circumstance that would excuse Buyer from its timely performance of
its obligations hereunder. Buyer shall notify Seller promptly if any such
information comes to its attention prior to the Closing.
5.7. Qualified Buyer. Buyer is qualified to obtain any Permits and
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of
any reason or circumstance that would prevent Buyer from procuring Buyer
Required Regulatory Approvals associated with Exempt Wholesale Generator (as
defined in the Public Utility Holding Company Act of 1935) status and
market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b).
5.8 Inspections. Without limitation of Seller's representations,
warranties and covenants contained in this Agreement or the Ancillary
Agreements, Buyer acknowledges and agrees that it has, prior to its execution of
this Agreement, (i) reviewed the Environmental Reports, (ii) had full
opportunity to conduct to its satisfaction Inspections of the Purchased Assets,
including the Sites, and (iii) fully completed and approved the results of all
Inspections of the Purchased Assets. Subject to the restrictions set forth in
Section 6.2(a), Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Sites is
necessary for the purposes of acquiring the Purchased Assets for Buyer's
intended use. Buyer acknowledges and agrees that it hereby assumes the risk that
adverse past, present, and future physical characteristics and Environmental
Conditions may not have been revealed by its Inspections and the investigations
of the Purchased Assets contained in the Environmental Reports. In making its
decision to execute this Agreement, and to purchase the Purchased Assets, Buyer
has relied on and will rely upon, among other things, the results of its
Inspections and the Environmental Reports.
5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or
Mass Layoff as such terms are defined in the WARN Act within sixty days of the
Closing Date.
5.10 Securities Laws. Buyer acknowledges that the offer and sale of the
York Haven Stock have not been registered under the Securities Act of 1933 or
any state securities laws, and affirms that it is not acquiring such shares with
a view toward distribution in violation of such act or any state securities
laws.
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ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as
described in Schedule 6.1 or as expressly contemplated by this Agreement or to
the extent Buyer otherwise consents in writing, during the period from the date
of this Agreement to the Closing Date, Seller (i) will operate (or cause York
Haven to operate) the Purchased Assets in the ordinary course of business
consistent with the past practices of Seller, York Haven or its Affiliates or
with Good Utility Practices, (ii) shall use all Commercially Reasonable Efforts
to preserve intact such Purchased Assets, and endeavor to preserve the goodwill
and relationships with customers, suppliers and others having business dealings
with it, (iii) shall maintain the insurance coverage described in Section 4.4,
(iv) shall comply with all applicable laws relating to the Purchased Assets,
including without limitation, all Environmental Laws, except where the failure
to so comply would not result in a Material Adverse Effect, and (v) shall
continue with Seller's program, or (at Buyer's expense) as Buyer may direct, to
install such equipment or software with respect to Year 2000 Compliance in
accordance with Seller's plans referred to in Section 2.1(k). Without limiting
the generality of the foregoing, and, except as (x) contemplated in this
Agreement, (y) described in Schedule 6.1, or (z) required under applicable law
or by any Governmental Authority, prior to the Closing Date, without the prior
written consent of Buyer, Seller shall not with respect to the Purchased Assets:
(i) Make any material change in the levels of
Inventories customarily maintained by Seller or York Haven or its
Affiliates with respect to the Purchased Assets, other than changes
which are consistent with Good Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge,
transfer or otherwise dispose of, any material Purchased Assets
individually or in the aggregate (except for Purchased Assets used,
consumed or replaced in the ordinary course of business consistent with
past practices of Seller or York Haven or its Affiliates or with Good
Utility Practices) other than to encumber Purchased Assets with
Permitted Encumbrances;
(iii) Modify, amend or voluntarily terminate prior to
the expiration date any of Seller's Agreements or Real Property Leases
or any of the Permits or Environmental Permits associated with such
Purchased Assets in any material respect, other than (a) in the
ordinary course of business, to the extent consistent with the past
practices
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of Seller, York Haven or its Affiliates or with Good Utility Practices,
(b) with cause, to the extent consistent with past practices of Seller,
York Haven or its Affiliates or with Good Utility Practices, or (c) as
may be required in connection with transferring Seller's rights or
obligations thereunder to Buyer pursuant to this Agreement;
(iv) Except as otherwise provided herein, enter into
any commitment for the purchase, sale, or transportation of fuel having
a term greater than six months and not terminable on or before the
Closing Date either (i) automatically, or (ii) by option of Seller or
York Haven (or, after the Closing, by Buyer) in its sole discretion, if
the aggregate payment under such commitment for fuel and all other
outstanding commitments for fuel not previously approved by Buyer would
exceed $1,000,000 for all Aggregate Purchased Assets;
(v) Sell, lease or otherwise dispose of Emission
Allowances, or Emission Reduction Credits identified in Schedule
2.1(h), except to the extent necessary to operate the Purchased Assets
in accordance with this Section 6.1;
(vi) Except as otherwise provided herein, enter into
any contract, agreement, commitment or arrangement relating to the
Purchased Assets that individually exceeds $250,000 or in the aggregate
exceeds $1,000,000 unless it is terminable by Seller or York Haven (or,
after the Closing, by Buyer) without penalty or premium upon no more
than sixty (60) days notice;
(vii) Except as otherwise required by the terms of
the Collective Bargaining Agreement, (a) hire at, or transfer to the
Purchased Assets, any new employees prior to the Closing, other than to
fill vacancies in existing positions in the reasonable discretion of
Seller or York Haven, (b) increase salaries or wages of employees
employed in connection with the Purchased Assets prior to the Closing
other than in the ordinary course of business and in accordance with
Seller's past practices, (c) take any action prior to the Closing to
effect a change in a Collective Bargaining Agreement, or (d) take any
action prior to the Closing to increase the aggregate benefits payable
to the employees employed in connection with the Purchased Assets other
than increases for Non-Union Employees in the ordinary course of
business and in accordance with Seller's past practices or (e) enter
into any employment contracts with employees at the Purchased Assets or
any collective bargaining agreements with labor organizations
representing such employees;
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(viii) Make any Capital Expenditures except as
permitted by Section 3.3(a)(iii) or for Seller's account; and
(ix) Except as otherwise provided herein, enter into
any written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in the
foregoing paragraphs (i) through (viii).
6.2. Access to Information.
(a) Between the date of this Agreement and the Closing Date,
Seller will, at reasonable times and upon reasonable notice: (i) give Buyer and
its Representatives reasonable access to its and York Haven's managerial
personnel and to all books, records, plans, equipment, offices and other
facilities and properties constituting the Purchased Assets; (ii) furnish Buyer
with such financial and operating data and other information with respect to the
Purchased Assets as Buyer may from time to time reasonably request, and permit
Buyer to make such reasonable Inspections thereof as Buyer may request; (iii)
furnish Buyer at its request a copy of each material report, schedule or other
document filed by Seller, York Haven or any of its Affiliates with respect to
the Purchased Assets with the SEC, FERC, PaPUC, PaDEP, or any other Governmental
Authority; and (iv) furnish Buyer with all such other information as shall be
reasonably necessary to enable Buyer to verify the accuracy of the
representations and warranties of Seller contained in this Agreement; provided,
however, that (A) any such inspections and investigations shall be conducted in
such a manner as not to interfere unreasonably with the operation of the
Purchased Assets, (B) Seller shall not be required to take any action which
would constitute a waiver of the attorney-client privilege, and (C) Seller need
not supply Buyer with any information which Seller is under a legal or
contractual obligation not to supply. Notwithstanding anything in this Section
6.2 to the contrary, Seller will only furnish or provide such access to
Transferring Employee Records and will not furnish or provide access to other
employee personnel records or medical information unless required by law or
specifically authorized by the affected employee, nor shall Buyer have the right
to administer to any of Seller's employees any skills, aptitudes, psychological
profile, or other employment related test. Seller agrees to provide Buyer with
copies of all documents and reports, including without limitation testing
reports, provided to or received from Siemens Power Corporation under the
Siemens' Agreement with respect to the testing and commissioning of Portland
Unit 5. Buyer shall not have the right to perform or conduct any environmental
sampling or testing at, in, on, or underneath the Purchased Assets.
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(b) Each Party shall, and shall use its best efforts to cause
its Representatives to, (i) keep all Proprietary Information of the other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other than such Party's Representatives and (ii) not use such
Proprietary Information other than in connection with the consummation of the
transactions contemplated hereby. After the Closing Date, any Proprietary
Information to the extent related to the Purchased Assets shall no longer be
subject to the restrictions set forth herein. The obligations of the Parties
under this Section 6.2(b) shall be in full force and effect for three (3) years
from the date hereof and will survive the termination of this Agreement, the
discharge of all other obligations owed by the Parties to each other and the
closing of the transactions contemplated by this Agreement.
(c) For a period of seven (7) years after the Closing Date (or
such longer period as may be required by applicable law or Section 6.8(g)), each
Party and its Representatives shall have reasonable access to all of the books
and records of the Purchased Assets, including all Transferring Employee Records
in the possession of the other Party to the extent that such access may
reasonably be required by such Party in connection with the Assumed Liabilities
or the Excluded Liabilities, or other matters relating to or affected by the
operation of the Purchased Assets. Such access shall be afforded by the Party in
possession of any such books and records upon receipt of reasonable advance
written notice and during normal business hours. The Party exercising this right
of access shall be solely responsible for any costs or expenses incurred by it
or the other Party with respect to such access pursuant to this Section 6.2(c).
If the Party in possession of such books and records shall desire to dispose of
any books and records upon or prior to the expiration of such seven-year period
(or any such longer period), such Party shall, prior to such disposition, give
the other Party a reasonable opportunity at such other Party's reasonable
expense, to segregate and remove such books and records as such other Party may
select.
(d) Notwithstanding the terms of Section 6.2(b) above, the
Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary
Information to any other Persons in connection with Buyer's financing of its
purchase of the Purchased Assets or any equity participation in Buyer's purchase
of the Purchased Assets (provided that such Persons agree in writing to maintain
the confidentiality of the Proprietary Information in accordance with this
Agreement).
(e) Upon the other Party's prior written approval (which will
not be unreasonably withheld or delayed), either Party may provide Proprietary
Information of the other Party to the PaPUC, the SEC, the FERC or any other
Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to
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obtain Seller's Required Regulatory Approvals, or Buyer Required Regulatory
Approvals, respectively, or to comply generally with any relevant law or
regulation. The disclosing Party will seek confidential treatment for the
Proprietary Information provided to any Governmental Authority and the
disclosing Party will notify the other Party as far in advance as is practicable
of its intention to release to any Governmental Authority any Proprietary
Information.
(f) Except as specifically provided herein or in the
Confidentiality Agreement, nothing in this Section shall impair or modify any of
the rights or obligations of Buyer or its Affiliates under the Confidentiality
Agreement, all of which remain in effect until termination of such agreement in
accordance with its terms.
(g) Except as may be permitted in the Confidentiality
Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any
vendors, suppliers, employees, or other contracting parties of Seller, York
Haven or its Affiliates with respect to any aspect of the Purchased Assets or
the transactions contemplated hereby, without the prior written consent of
Seller, which consent shall not be unreasonably withheld.
(h) (i) Buyer shall be entitled to inspect, in accordance with
this Section 6.2(h), all of the Purchased Assets located adjacent to any Point
of Interconnection (as defined in the Interconnection Agreement), as shown in
Schedule A to the Interconnection Agreement, to verify and/or determine the
accuracy of the data, drawings, and records described in such Schedule. The
Parties shall cooperate to schedule Buyer's inspection at the Plants so that any
interference with the operation of the Plants is minimized, to the extent
reasonably feasible, and so that Buyer may complete its inspections of the
Plants within thirty (30) working days of commencement of inspections and within
two (2) months after the execution of this Agreement.
(ii) Seller shall provide, or shall cause to be
provided, to Buyer, access to the Plants at the times scheduled for the
inspections referred to in clause (i) above. Seller shall provide
qualified engineering, operations, and maintenance personnel to escort
Buyer's personnel and to assist Buyer's personnel in conducting the
inspections. Seller and Buyer shall each bear their own costs of
participating in the inspections. At a mutually convenient time not
more than one (1) month after Buyer has completed its inspections, the
Parties shall meet to discuss whether, as a result of the inspections,
it is appropriate to modify Schedule A to the Interconnection Agreement
to portray more accurately the Points of Interconnection. Any
modification to any portion of Schedule A of the Interconnection
Agreement to which the Parties agree shall
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thereafter be deemed part of Schedule A of the Interconnection
Agreement for all purposes under the Interconnection Agreement.
6.3 Public Statements. Subject to the requirements imposed by any
applicable law or any Governmental Authority or stock exchange, prior to the
Closing Date, no press release or other public announcement or public statement
or comment in response to any inquiry relating to the transactions contemplated
by this Agreement shall be issued or made by any Party without the prior
approval of the other Parties (which approval shall not be unreasonably
withheld). The Parties agree to cooperate in preparing such announcements.
6.4 Expenses. Except to the extent specifically provided herein,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of any
title insurance policy and all endorsements thereto that Buyer elects to obtain
and (b) all filing fees under the HSR Act.
6.5 Further Assurances.
(a) Subject to the terms and conditions of this Agreement,
each of the Parties hereto shall use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the purchase and sale of the Purchased Assets pursuant to this
Agreement and the assumption of the Assumed Liabilities, including without
limitation using its best efforts to ensure satisfaction of the conditions
precedent to each Party's obligations hereunder, including obtaining all
necessary consents, approvals, and authorizations of third parties and
Governmental Authorities required to be obtained in order to consummate the
transactions hereunder, and to effectuate a transfer of the Transferable Permits
to Buyer. Buyer agrees to perform all conditions required of Buyer in connection
with Seller's Required Regulatory Approvals, other than those conditions which
would create a Buyer Material Adverse Effect. Neither of the Parties hereto
shall, without prior written consent of the other Party, take or fail to take
any action, which might reasonably be expected to prevent or materially impede,
interfere with or delay the transactions contemplated by this Agreement.
(b) Buyer agrees that prior to the Closing Date, neither Buyer
nor any of its Affiliates will enter into any other contract to acquire, nor
acquire, electric generation facilities
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located in the control area recognized by the North American Reliability Council
as the PJM Control Area if the proposed acquisition of such additional electric
generation facilities might reasonably be expected to prevent or materially
impede, interfere with or delay the transactions contemplated by this Agreement.
Buyer shall give Seller reasonable advance notice (and in any event not less
than 30 days) before Buyer enters into contracts to acquire or acquires any
electric generation facility located in said PJM Control Area.
(c) In the event that any Purchased Asset shall not have been
conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(d) and
(e), use Commercially Reasonable Efforts to convey such asset to Buyer as
promptly as is practicable after the Closing. In the event that any Easement
shall not have been granted by Buyer to Seller at the Closing, Buyer shall use
Commercially Reasonable Efforts to grant such Easement to Seller as promptly as
is practicable after the Closing.
(d) To the extent that Seller's rights under any Seller's
Agreement or Real Property Lease may not be assigned without the consent of
another Person which consent has not been obtained by the Closing Date, this
Agreement shall not constitute an agreement to assign the same, if an attempted
assignment would constitute a breach thereof or be unlawful. Seller and Buyer
agree that if any consent to an assignment of any material Seller's Agreement or
Real Property Lease shall not be obtained or if any attempted assignment would
be ineffective or would impair Buyer's rights and obligations under the material
Seller's Agreement or Real Property Lease in question, so that Buyer would not
in effect acquire the benefit of all such rights and obligations, Seller, at
Buyer's option and to the maximum extent permitted by law and such material
Seller's Agreement or Real Property Lease, shall, after the Closing Date,
appoint Buyer to be Seller's agent with respect to such material Seller's
Agreement or Real Property Lease, or, to the maximum extent permitted by law and
such material Seller's Agreement or Real Property Lease, enter into such
reasonable arrangements with Buyer or take such other actions as are necessary
to provide Buyer with the same or substantially similar rights and obligations
of such material Seller's Agreement or Real Property Lease as Buyer may
reasonably request. Seller and Buyer shall cooperate and shall each use
Commercially Reasonable Efforts prior to and after the Closing Date to obtain an
assignment of such material Seller's Agreement or Real Property Lease to Buyer.
(e) To the extent that Seller's rights under any warranty or
guaranty described in Section 2.1(i) may not be assigned without the consent of
another Person, which consent has not been obtained by the Closing Date, this
Agreement shall not constitute an agreement to assign same, if an attempted
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assignment would constitute a breach thereof, or be unlawful. Seller and Buyer
agree that if any consent to an assignment of any such warranty or guaranty
shall not be obtained, or if any attempted assignment would be ineffective or
would impair Buyer's rights and obligations under the warranty or guaranty in
question, so that Buyer would not in effect acquire the benefit of all such
rights and obligations, Seller, at Buyer's expense, shall use Commercially
Reasonable Efforts, to the extent permitted by law and such warranty or
guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to
provide Buyer to the maximum extent possible with the benefits and obligations
of such warranty or guaranty.
(f) Between the date hereof and the Closing, Buyer shall have
the right to commence the regulatory approval processes associated with the
construction and operation of new, modified or repowered electric generating
units and associated equipment at the Real Property. Seller shall provide
reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining
all Permits required (i) to own and operate the Purchased Assets as contemplated
by the Agreement and the Ancillary Agreements and (ii) to construct and operate
such new or modified facilities, provided, however, that Buyer shall reimburse
Seller for all reasonable costs incurred by Seller in its assistance of Buyer
hereunder.
6.6 Consents and Approvals.
(a) As promptly as possible after the date of this Agreement,
Seller and Buyer, as applicable, shall each file or cause to be filed with the
Federal Trade Commission and the United States Department of Justice any
notifications required to be filed under the HSR Act and the rules and
regulations promulgated thereunder with respect to the transactions contemplated
hereby. The Parties shall use their respective best efforts to respond promptly
to any requests for additional information made by either of such agencies, and
to cause the waiting periods under the HSR Act to terminate or expire at the
earliest possible date after the date of filing. Buyer will pay all filing fees
under the HSR Act but each Party will bear its own costs of the preparation of
any filing.
(b) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting Exempt Wholesale
Generator status for Buyer, which filing may be made individually by Buyer or
jointly with Seller in conjunction with other filings to be made with the FERC
under this Agreement, as reasonably determined by the Parties. Prior to Buyer's
submission of that application with the FERC, Buyer shall submit such
application to Seller for review and comment and Buyer shall incorporate into
the application any revisions reasonably requested by Seller. Buyer shall be
solely responsible for the cost of preparing and filing this
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application, any petition(s) for rehearing, or any re-application. If Buyer's
initial application for Exempt Wholesale Generator status is rejected by the
FERC, Buyer agrees to petition the FERC for rehearing and/or to re-submit an
application with the FERC, as reasonably required by Seller, provided that in
either case the action directed by Seller does not create a Buyer Material
Adverse Effect.
(c) As promptly as possible after the date of this Agreement,
Buyer shall file with the FERC an application requesting authorization under
Section 205 of the Federal Power Act to sell electric generating capacity and
energy, but not other services, including, without limitation, ancillary
services, at wholesale at market-based rates, which filing may be made
individually by Buyer or jointly with Seller in conjunction with other filings
to be made with the FERC under this Agreement, as reasonably determined by the
Parties. Prior to the filing of that application with the FERC, Buyer shall
submit such application to Seller for review and comment and Buyer shall
incorporate into the application any revisions reasonably requested by Seller.
Buyer shall be solely responsible for the cost of preparing and filing this
application, any petition(s) for rehearing, or any reapplication. If Buyer's
initial application for market-based rate authorization results in a FERC
request for additional information or is rejected by the FERC, Buyer shall
provide that information promptly, to petition the FERC for rehearing and/or to
re-submit an application with the FERC, as reasonably required by Seller,
provided that Seller shall have a reasonable opportunity to make changes to such
a petition or re-submission application and, provided further, that the action
directed by Seller does not create a Buyer Material Adverse Effect.
(d) As promptly as possible, and in any case within sixty (60)
days, after the date of this Agreement, Seller and Buyer, as applicable, shall
file with the PaPUC, the FERC and any other Governmental Authority, and make any
other filings required to be made with respect to the transactions contemplated
hereby. The Parties shall respond promptly to any requests for additional
information made by such agencies, and use their respective best efforts to
cause regulatory approval to be obtained at the earliest possible date after the
date of filing. Each Party will bear its own costs of the preparation of any
such filing.
(e) Without limitation of Section 10.11, Seller and Buyer
shall cooperate with each other and promptly prepare and file notifications
with, and request Tax clearances from, state and local taxing authorities in
jurisdictions in which a portion of the Purchase Price may be required to be
withheld or in which Buyer would otherwise be liable for any Tax liabilities of
Seller pursuant to such state and local Tax law.
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(f) Buyer shall have the primary responsibility for securing
the transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Closing Date. Seller shall
cooperate with Buyer's efforts in this regard and assist in any transfer or
reissuance of a Permit or Environmental Permit held by Seller or the procurement
of any other Permit or Environmental Permit when so requested by Buyer.
6.7. Fees and Commissions. Seller, on the one hand, and Buyer, on the
other hand, represent and warrant to the other that, except for Goldman, Sachs &
Co., which are acting for and at the expense of Seller, no broker, finder or
other Person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transaction contemplated hereby by reason of any action
taken by the Party making such representation. Seller, on the one hand, and
Buyer, on the other hand, will pay to the other or otherwise discharge, and will
indemnify and hold the other harmless from and against, any and all claims or
liabilities for all brokerage fees, commissions and finder's fees (other than
the fees, commissions and finder's fees payable to the parties listed above)
incurred by reason of any action taken by the indemnifying party.
6.8. Tax Matters.
(a) All transfer and sales taxes incurred in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, (a) Pennsylvania sales tax; and (b) the Pennsylvania realty transfer
taxes on conveyances of interests in real property (including such taxes
assessed by Pennsylvania municipalities as well as by the Commonwealth of
Pennsylvania itself)) shall be borne by Buyer. Except for the Pennsylvania
Realty Transfer Tax Statement of Value, which shall be filed by Buyer, Seller
shall file, to the extent required by, or permissible under, applicable law, all
necessary Tax Returns and other documentation with respect to all such transfer
and sales taxes, and, if required by applicable law, Buyer shall join in the
execution of any such Tax Returns and other documentation. Prior to the Closing
Date, to the extent applicable, Buyer shall provide to Seller appropriate
certificates of Tax exemption from each applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with
Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing Date with respect to the
Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to
be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be
subject to Seller's approval, which approval shall not be unreasonably withheld.
Buyer shall make such Tax Returns
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available for Seller's review and approval no later than fifteen (15) Business
Days prior to the due date for filing each such Tax Return.
(c) Within fifteen (15) Business Days after receipt of a Tax
Return referred to in Section 6.8(b), Seller shall pay to Buyer Seller's share
of the amount shown on such Tax Return, less payments on account of such Taxes
previously made by Seller. To the extent that Seller's previous payments exceed
Seller's share, the Buyer shall pay such excess to Seller. With respect to real
estate taxes, evidence of payment shall be delivered by Seller to Buyer at the
Closing. As soon as practicable after the Closing, Seller and Buyer shall
cooperate in the filing of an amended return and/or other documents in order to
obtain the available refund with respect to any Closing Year PURTA Tax. Buyer
shall be entitled to such refund to the extent, but only to the extent, that it
does not exceed any payments made by Buyer on account of such PURTA liability.
(d) Buyer and Seller shall provide the other with such
assistance as may reasonably be requested by the other Party in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each shall retain and provide the requesting party with any
records or information which may be relevant to such return, audit, examination
or proceedings. Any information obtained pursuant to this Section 6.8(d) or
pursuant to any other Section hereof providing for the sharing of information or
review of any Tax Return or other instrument relating to Taxes shall be kept
confidential by the parties hereto. Schedule 6.8 sets forth procedures to be
followed with respect to the tax appeals and audits referred to therein.
(e) York Haven Tax matters.
(1) Section 338(h)(10) Election. (i) With respect to the sale of the
York Haven Stock, GPU (it being understood that Met-Ed shall cause GPU to comply
with its obligations in this Section 6.8(e)) and Buyer shall jointly make the
election provided for by section 338(h)(10) of the Code and Section
1.338(h)(10)-1 of the Treasury Regulations promulgated under the code and any
comparable election under state or local tax law (the "Election"). As soon as
practicable after the Closing Date, with respect to such Election, GPU and Buyer
shall mutually prepare a Form 8023-A, with all attachments, and GPU shall sign
such Form 8023-A. Buyer and GPU shall also cooperate with each other to take all
actions necessary and appropriate (including filing such additional forms,
returns, elections, schedules and other documents as may be required) to effect
and preserve such Election in accordance with the provisions of Section
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1.338(h)(10)-1 of the Treasury Regulations (or any comparable provisions of
state and local tax law) or any successor provisions.
(ii) With respect to the Election, the parties shall endeavor to agree
upon the amount of the Modified Aggregate Deemed Sales Price as defined in
Section 1.338(h)(10)-1 of the Treasury Regulations (the "Modified ADSP") and
upon an allocation of such Modified ADSP among the assets of York Haven pursuant
to Treasury Regulation Section 1.338(h)(10)-1. Buyer and Seller shall use their
good faith Commercially Reasonable Efforts to agree upon such allocation within
one hundred twenty (120) days of the date of this Agreement. In the event that
the parties cannot agree on a mutually satisfactory allocation within said time
period, the Independent Accounting Firm shall, at Seller's and Buyer's joint
expense, determine the appropriate allocation. The finding of such Independent
Accounting Firm shall be binding on the parties. The parties shall take no
action inconsistent with, or fail to take any action necessary for the validity
of the Election, and shall adopt and utilize the asset values determined from
such reasonable allocation for the purpose of all Tax Returns filed by them, and
shall not voluntarily take any action inconsistent therewith upon examination of
any Tax Return, in any refund claim, in any litigation or otherwise with respect
to such Tax Returns. Buyer and Seller shall notify and provide the other with
reasonable assistance in the event of an examination, audit or other proceeding
regarding the agreed upon allocation of the Modified ADSP.
(2) Return Filing, Payments, Refunds and Credits.
Notwithstanding anything to the contrary in Section 3.5 of this Agreement,
(i) For purposes of this Agreement, the amount of Taxes of York Haven
attributable to the pre-Closing portion of any taxable period beginning before
and ending after the Closing Date (the "Straddle Period") shall be allocated
between the pre-Closing and post-Closing portions based, in the case of real and
personal property taxes, on a per diem basis, and in the case of all other Taxes
(including, without limitation, Income Taxes), on the actual activities, income
or loss of York Haven during such pre-Closing and post-Closing portions of the
Straddle Period assuming a hypothetical closing of the books as of the end of
the Closing Date; provided, further, that the taxes of York Haven that are
attributable to the pre-Closing portion of any taxable period shall include any
Taxes resulting from the gain on any deemed sale of assets by York Haven
pursuant to Section 338 of the Code or any comparable provision under the laws
of any other jurisdiction with respect to the transactions contemplated by this
Agreement.
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(ii) Buyer and Seller shall cause York Haven to join, for all
pre-Closing periods and the Straddle Period for which York Haven is required or
eligible to do so, in all consolidated, combined or unitary federal, state, or
Local Income Tax or franchise Tax Returns of GPU (or any Tax Affiliate for all
pre-Closing periods ("GPU's Tax Returns") and shall, in each jurisdiction where
this is required or permissible under applicable law, cause the taxable year of
York Haven to terminate as of the Closing Date. Seller shall cause to be
prepared and timely filed all such GPU's Tax Returns and shall pay or cause to
be paid all Taxes shown to be due on such GPU's Tax Returns; provided, however,
that in the case of a GPU's Tax Return for the Straddle Period, Buyer shall or
shall cause York Haven to pay to Seller the portion of such Taxes shown to be
due thereon attributable to York Haven for the post-Closing Date portion of the
Straddle Period determined in accordance with Section 6.8(e)(2)(i) and the GPU
Intercompany Tax Allocation Agreement in effect on the date of the signing of
this Agreement (the "GPU Intercompany Tax Allocation Agreement").
(iii) Buyer shall or shall cause York Haven to prepare and timely file
all Income Tax Returns of York Haven for all pre-Closing periods and the
Straddle Period, other than those referred to in Section 6.8(e)(2)(ii), which
Income Tax Returns have not been filed as of the Closing Date, and shall cause
to be timely paid all Taxes shown to be due on such Tax Returns. No later than
ten days prior to the due date for the filing of each Income Tax Return referred
to in this Section 6.8 (e)(2)(iii), GPU shall pay to York Haven the amount of
Taxes shown as due thereon less any estimated Taxes paid by York Haven during
the pre-Closing period; provided, however, that in the case of an Income Tax
Return for a Straddle Period, Seller shall only be required to pay York Haven
the portion of such Taxes that is attributable to the pre-Closing Date portion
of such Straddle Period, determined in accordance with Section 6.8(e)(2)(i) and
the GPU Intercompany Tax Allocation Agreement less any estimated Taxes paid by
York Haven during the pre-Closing period. Seller shall fully cooperate with
Buyer and York Haven in accordance with past practice in the preparation of the
Income Tax Return as referred to in this Section 6.8(e)(2)(iii).
(iv) Buyer shall or shall cause York Haven to prepare and timely file
all Tax Returns for all pre-Closing periods and the Straddle Period, other than
those Tax Returns referred to in Section 6.8(e)(2)(ii) and (iii), which Tax
Returns have not been filed as of the Closing Date, and shall cause to be timely
paid all Taxes shown to be due thereon. No later than ten days prior to the due
date for the filing of each Tax Return referred to in this Section
6.8(e)(2)(iv), Seller shall pay to York Haven the amount shown as due thereon
attributable to the pre-Closing Date portion of the Straddle Period less any
estimated Taxes paid by York Haven during the pre-Closing period.
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(v) The Tax Returns referred to in Section 6.8(e)(2)(ii), (iii) and
(iv) shall be prepared in a manner consistent with past practice, unless a
contrary treatment is required by an intervening change in the applicable law.
Seller shall cause to be made available to Buyer a copy of any Tax Return that
is required to be filed by GPU or York Haven under 6.8(e)(2)(ii) and Buyer shall
cause to be made available to Seller a copy of any Tax Return that is required
to be filed by Buyer or York Haven under Section 6.8(e)(2)(iii) or (iv), in each
case together with all relevant work papers and other information. Each such Tax
Return shall be made available for review and approval no later than 20 Business
Days prior to the due date for the filing of such Tax Return (taking into
account proper extensions), such approval not be unreasonably withheld. An exact
copy of any such Tax Return filed by Buyer shall be provided to Seller and any
such Tax Return filed by GPU shall be provided to Buyer, in each case, no later
than ten days after such Tax Return is filed. To the extent that the Tax Returns
that are the subject of this clause (v) are combined or consolidated tax
returns, each reference to Tax Return shall be to a pro forma separate return of
York Haven.
(vi) Any refunds or credits of the Taxes of York Haven plus any
interest received with respect thereto from the applicable taxing authorities
for any pre-Closing period (including without limitation, refunds or credits
arising from amended returns filed after the Closing Date) shall be for the
account of Seller, except to the extent that such refunds or credits are
attributable to the mandatory carryback of any deductions or credits for any Tax
Period ending after a Closing Date and, if received by Buyer or York Haven,
shall be paid to Seller within ten days after Buyer or York Haven receives such
refund or after the relevant Tax Return is filed within which the credit is
applied against Buyer's or York Haven's liability for Taxes for a period which
begins after the Closing Date, net of any Taxes Buyer or York Haven is required
to pay on account of receiving such refund or credit (including a reasonable
estimate of resulting future Tax costs.) Seller, without the consent of Buyer,
shall not apply for any refund that will create a material adverse effect on any
post-Closing period Tax Return and shall not apply for any refund for any
Straddle Period Tax Return or any Tax Return for York Haven that is not a
consolidated, combined, or unitary Tax Return. Any refunds or credits of Taxes
of York Haven for any Straddle Period shall be apportioned between Seller and
Buyer in the same manner as the liability for such Taxes is apportioned pursuant
to Section 6.8(e)(2)(i).
(3) Tax Indemnification. (i) Without duplication, Seller shall
indemnify, defend and hold Buyer and York Haven harmless from and against any
and all Taxes (including interest and penalties) which may be suffered or
incurred by Buyer or York Haven in respect of or relating to, directly or
indirectly (x)
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Taxes of or attributable to York Haven for all pre-Closing periods, (y) Taxes of
or attributable to York Haven with respect to the pre-Closing portion of the
Straddle period, and (z) Taxes payable by York Haven with respect to any
pre-Closing period or Straddle Period by reason of York Haven being severally
liable for the Tax of any Tax Affiliate pursuant to Treasury Regulation 1.1502-6
or any analogous state or local Tax law.
(ii) Without duplication, Buyer shall indemnify, defend and hold Seller
and each of its Affiliates harmless from and against any and all Taxes
(including interest and penalties) which may be suffered or incurred by them in
respect of or relating to, directly or indirectly (x) Taxes of or attributable
to York Haven with respect to all post-Closing periods, and (y) Taxes of or
attributable to York Haven with respect to the post-Closing portion of any
Straddle Period.
(iii) An indemnity payment due under this Section 6.8(e)(3) shall be
made within thirty (30) days after (i) the party in control of the issue under
Section 6.8(e)(4) determines not to contest the issue, the receipt of a formal
notice or assessment from a taxing authority or the occurrence of any other
event giving rise to the payment subject to an indemnity, or (ii) if the Party
in control of the issue under Section 6.8(e)(4) determines to contest the issue,
the earlier of the signing of a closing agreement or settlement agreement or any
other similar agreement with the relevant tax authorities, the receipt of a
deficiency notice with respect to which the period for filing a petition with
the relevant court has expired, or a decision of any court of competent
jurisdiction which is not subject to appeal or as to which the time for appeal
has expired.
(4) Tax Contest. (i) Seller and Buyer shall notify the other party in
writing within 30 days of receipt of written notice of any pending or threatened
tax examination, audit or other administrative or judicial proceeding (a "Tax
Contest") that could reasonably be expected to result in an indemnification
obligation under this Section 6.8(e) of such other party pursuant to this
Section 6.8(e). If the recipient of such notice of a Tax Contest fails to
provide such notice to the other party, it shall not be entitled to
indemnification for any Taxes arising in connection with such Tax Contest, but
only to the extent, if any, that such failure or delay shall have adversely
affected the indemnifying party's ability to defend against, settle, or satisfy
any action, suit or proceeding against it, or any damage, loss, claim, or demand
for which the indemnified party is entitled to indemnification hereunder.
(ii) If a Tax Contest relates to any period ending on or prior to the
Closing Date or to any Taxes for which Seller is liable in full hereunder,
Seller shall at its expense control the defense and settlement of such Tax
Contest. If such Tax contest
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relates to any period beginning after the Closing Date or to any Taxes for which
Buyer is liable in full hereunder, Buyer shall at its own expense control the
defense and settlement of such Tax Contest. The party not in control of the
defense shall have the right to observe the conduct of any Tax Contest at its
expense, including through its own counsel and other professional experts. Buyer
and Seller shall jointly represent York Haven in any Tax Contest relating to a
Straddle Period, and fees and expenses related to such representation shall be
paid equally by Buyer and Seller.
(iii) Notwithstanding anything to the contrary in section
6.8(e)(4)(ii), to the extent that an issue raised in any Tax Contest controlled
by one party or jointly controlled could materially affect the liability for
Taxes of the other party, the controlling party shall not, and neither party in
the case of joint control shall, enter into a final settlement without the
consent of the other party, which consent shall not be reasonably withheld.
Where a party withholds its consent to any final settlement, that party may
continue or initiate further proceedings, at its own expense, and the liability
of the party that wished to settle (as between the consenting and the
non-consenting party) shall not exceed the liability that would have resulted
from the proposed final settlement including interest, additions to Tax, and
penalties that have accrued at that time), and the non-consenting party shall
indemnify the consenting party for such Taxes.
Notwithstanding any provision of this Agreement to the contrary, this
Section 6.8 shall survive for the duration of any applicable limitation periods.
(5) Tax Sharing Agreements. Any Tax sharing agreement to which York
Haven is a party shall be deemed terminated with respect to York Haven on, and
effective as of, the Closing Date, and no Person shall have any rights or
obligations under such Tax sharing agreement with respect to York Haven after
such termination; provided, however, that the GPU Intercompany Tax allocation
Agreement shall remain in effect with respect to York Haven in order to
determine the portion of Seller's Tax liabilities attributable to York Haven,
and to be paid to Seller under Section 6.8(e)(2)(ii) for the post-Closing Date
portion of the Straddle Period.
(f) Disputes. In the event that a dispute arises between Seller or GPU
and Buyer as to the amount of Taxes, or indemnification, whether or not
attributable to York Haven, or the amount of any allocation of Purchase Price
under Section 3.4 or 6.8(e)(1)(ii) hereof, the parties shall attempt in good
faith to resolve such dispute, and any agreed upon amount shall be paid to the
appropriate party. If such dispute is not resolved 30 days thereafter, the
parties shall submit the dispute to the
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Independent Accounting firm for resolution, which resolution shall be final,
conclusive and binding on the parties. Notwithstanding anything in this
Agreement to the contrary, the fees and expenses of the Independent Accounting
Firm in resolving the dispute shall be borne equally by Seller or GPU, as
applicable, and Buyer. Any payment required to be made as a result of the
resolution of the dispute by the Independent Accounting firm shall be made
within ten days after such resolution, together with any interest determined by
the Independent Accounting Firm to be appropriate.
(g) Cooperation. York Haven and Seller shall (and Buyer and Seller
shall cause York Haven to) cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax Returns
pursuant to this Agreement and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other Party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees (to the extent such employees were responsible for the preparation,
maintenance or interpretation of information and documents relevant to Tax
matters or to the extent required as witnesses in any Tax proceedings),
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Parties agree (i) to retain,
and (in the case of Buyer) to cause York Haven to retain, all books and records
with respect to Tax matters pertinent to York Haven relating to any taxable
period beginning before the Closing Date until six months after the expiration
of the statute of limitations (and, to the extent notified by Buyer or Seller,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention obligations imposed by law or pursuant to agreements entered
into with any taxing authority, and (ii) to give the other Party reasonable
written notice prior to transferring, destroying or discarding any such books
and records and, if the other Party so requests, Buyer or Seller, as the case
may be, shall allow the other Party to take possession of such books and
records.
Buyer, York Haven and Seller further agree, upon request, to use their
best efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
At Seller's request, Buyer will cause York Haven to make and/or join
with GPU in making after Closing any election of GPU's consolidated group for
which each member's consent is required, if the making of such election does not
have a material adverse impact on Buyer (or York Haven) for any post-acquisition
Tax period.
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6.9 Advice of Changes. Prior to the Closing, each Party will promptly
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules hereto. Seller may at
any time notify Buyer of any development causing a breach of any of its
representations and warranties in Article IV. Unless Buyer has the right to
terminate this Agreement pursuant to Section 9.1(f) below by reason of the
developments and exercises that right within the period of fifteen (15) days
after such right accrues, the written notice pursuant to this Section 6.9 will
be deemed to have amended this Agreement, including the appropriate Schedule, to
have qualified the representations and warranties contained in Article IV above,
and to have cured any misrepresentation or breach of warranty that otherwise
might have existed hereunder by reason of the development.
6.10 Employees.
(a) At least 90 days prior to the Closing Date (but in no case
sooner than ninety (90) days after the date hereof), Buyer shall provide Seller
with notice of its Union Employee staffing level requirements (which Buyer may
determine in its sole discretion), listed by classification and operation, and
shall be required to make reasonable efforts to offer employment to that number
of Union Employees necessary to satisfy such staffing level requirements. As
used herein, "Union Employees" means such employees of Seller who are covered by
the Collective Bargaining Agreement as defined in Section 6.10(d) below, and who
are listed in, or whose employment responsibilities are listed in, Schedule
6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with
the Plants purchased by Buyer, and those Union Employees who are listed in, or
whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile
Maintenance" or "Corporate Support". Any offers of employment shall be made at
least 60 days prior to the Closing Date. In each classification, Union Employees
shall be so offered employment in order of their seniority.
(b) Buyer is also entitled to determine its Non-Union Employee
staffing level requirements in its sole discretion, and shall make reasonable
efforts to make offers of employment with Buyer or any of its Affiliates,
effective on the Closing Date, to Non-Union Employees consistent with such
staffing levels. As used herein, "Non-Union Employees" means such salaried
employees of Seller, Genco, GPUN or GPUS who are listed in, or whose employment
responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or
"Dedicated Support Staff", and those Non-Union Employees listed in, or whose
employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile
Maintenance" or "Corporate Support". Any offers of employment shall be made at
least sixty (60) days prior to the Closing Date. Each person who becomes
employed by Buyer or any of its Affiliates pursuant to Section 6.10(a) or (b)
(whether pursuant to a Qualifying Offer or
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otherwise) shall be referred to herein as a "Transferred Union Employee" or
"Transferred Non-Union Employee", respectively. At least forty-five (45) days
prior to the Closing Date, Buyer shall provide Seller with notice of those
Non-Union Employees to whom it made a Qualifying Offer. As used herein, the term
"Qualifying Offer" means an offer of employment at an annual level of
compensation that is at least 85% of the employee's current total annual cash
compensation (consisting of base salary and target incentive bonus) at the time
the offer is made. Schedule 6.10(b) sets forth, for each of the Non-Union
Employees listed therein, his or her current base salaries and target incentive
bonuses.
(c) All offers of employment made pursuant to Sections 6.10(a)
or (b) shall be made in accordance with all applicable laws and regulations, and
in addition, for Union Employees, in accordance with seniority and all other
applicable provisions of the Collective Bargaining Agreement.
(d) Schedule 6.10(d) sets forth the collective bargaining
agreement, and amendments thereto, to which Seller is a party with the Union in
connection with the Purchased Assets ("Collective Bargaining Agreement").
Transferred Union Employees shall retain their seniority and receive full credit
for service with Seller in connection with entitlement to vacation and all other
benefits and rights under the Collective Bargaining Agreement and under each
compensation, retirement or other employee benefit plan or program Buyer is
required to maintain for Transferred Union Employees pursuant to the Collective
Bargaining Agreement. With respect to Transferred Union Employees, effective as
of the Closing Date, Buyer shall assume the Collective Bargaining Agreement for
the duration of its term as it relates to Transferred Union Employees to be
employed at the Plants in positions covered by the Collective Bargaining
Agreement and shall thereafter comply with all applicable obligations under the
Collective Bargaining Agreement. Consistent with its obligations under the
Collective Bargaining Agreement and applicable laws, Buyer shall be required to
establish and maintain a pension plan and other employee benefit programs for
the Transferred Union Employees for the duration of the term of the Collective
Bargaining Agreement which are substantially equivalent to Seller's plans and
programs in effect for the Transferred Union Employees immediately prior to the
Closing Date (the "Seller's Plans"), and which provide at least the same level
of benefits or coverage as do Seller's Plans for the duration of the Collective
Bargaining Agreement. Buyer further agrees to recognize the Union as the
collective bargaining agent for the applicable Transferred Union Employees.
(e) Transferred Non-Union Employees shall be eligible to
commence participation in welfare benefit plans of Buyer or its Affiliates as
may be made available by Buyer (the "Replacement Welfare Plans"). Buyer shall
(i) waive all limitations as to pre-existing condition exclusions and waiting
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periods with respect to the Transferred Non-Union Employees under the
Replacement Welfare Plans, other than, but only to the extent of, limitations or
waiting periods that were in effect with respect to such employees under the
welfare plans maintained by Seller, Genco, GPUN or GPUS or their Affiliates and
that have not been satisfied as of the Closing Date, and (ii) provide each
Transferred Non-Union Employee with credit for any co-payments and deductibles
paid prior to the Closing Date in satisfying any deductible or out-of-pocket
requirements under the Replacement Welfare Plans (on a pro-rata basis in the
event of a difference in plan years).
(f) Transferred Non-Union Employees shall be given credit for
all service with Seller, Genco, GPUN, GPUS and their Affiliates under all
deferred compensation, profit-sharing, 401(k), retirement pension, incentive
compensation, bonus, fringe benefit and other employee benefit plans, programs
and arrangements of Buyer ("Buyer Benefit Plans") in which they may become
participants. The service credit so given shall be for purposes of eligibility
and vesting, but shall not be for purposes of level of benefits and benefit
accrual except to the extent that the Buyer Benefit Plans otherwise provide.
(g) To the extent allowable by law, Buyer shall take any and
all necessary action to cause the trustee of any defined contribution plan of
Buyer or its Affiliates in which any Transferred Employee becomes a participant
to accept a direct "rollover" of all or a portion of said employee's "eligible
rollover distribution" within the meaning of Section 402 of the Code from the
GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the
Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed
or Penelec (the "Seller's Savings Plans") if requested to do so by the
Transferred Employee. Buyer agrees that the property so rolled over and the
assets so transferred may include promissory notes evidencing loans from
Seller's Savings Plans to Transferred Employees that are outstanding as of the
Closing Date. However, except as otherwise provided in Section 6.10(d), any
defined contribution plan of Buyer or its Affiliates accepting such a rollover
or transfer shall not be required to make any further loans to any Transferred
Employee after the Closing Date.
(h) Buyer shall pay or provide to Transferred Employees the
benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h),
and shall reimburse Seller for the cost of the benefits Seller or Seller's
Affiliates will provide to Union Employees and Non-Union Employees in accordance
with subparagraph (iv) of this Section 6.10(h).
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(i) Buyer shall make a transition incentive payment
in the amount of $2,500 to each Transferred Union Employee. Payment
shall be made as soon as practicable after, but in any event no later
than 60 days following, the Closing Date.
(ii) In the case of each Transferred Non-Union
Employee who is initially assigned by Buyer to a principal place of
work that is at least 50 miles farther from the employee's principal
residence than was his principal place of work immediately prior to the
Closing Date and who relocates his or her principal residence to the
vicinity of his or her new principal place of work within 12 months
following the Closing Date, Buyer shall reimburse the employee for all
"moving expenses" within the meaning of Section 217(b) of the Code
incurred by the employee and other members of his or her household in
connection with such relocation, up to a maximum aggregate amount of
$5,000. Claims for reimbursement for such expenses shall be filed in
accordance with such procedures, and shall be accompanied by such
substantiation of the expenses for which reimbursement is sought, as
Buyer may reasonably request. All claims for reimbursement shall be
processed, and qualifying expenses shall be reimbursed, as soon as
practicable after, but in any event no later than 60 days following,
the date on which the employee's claim for reimbursement is submitted
to Buyer.
(iii) Buyer shall provide the severance benefits
described in Section 1 of Schedule 6.10(h) to each Transferred Employee
who is "Involuntarily Terminated" (as defined below) (a) within 12
months after the Closing Date or (b), in the case of any Transferred
Non-Union Employee who had attained age 50 and had completed at least
10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h))
prior to the Closing Date, on or any time prior to June 30, 2004. For
purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred
Employee shall be treated as "Involuntarily Terminated" if his or her
employment with Buyer and all of its Affiliates is terminated by Buyer
or any of its Affiliates for any reason other than for cause or
disability. Buyer shall require any Transferred Employee who is
Involuntarily Terminated, as a condition to receiving the severance
benefits described in Section 1(b), (c), (d), (e) and (f) of Schedule
6.10(h), to execute a release of claims against Seller, Genco, GPUN or
GPUS, as applicable, and all of their Affiliates, and Buyer, in such
form as Buyer and Seller shall agree upon.
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(iv) At the Closing or as soon thereafter as practicable, but
in any event no later than 60 days following the Closing Date, Buyer shall pay
to Seller, in addition to all other amounts to be paid by Buyer to Seller
hereunder, an amount equal to Buyer's Allocable Share (as defined below) of the
aggregate estimated cost that Seller or any of Seller's Affiliates will or may
incur in providing the severance, pension, health care and group term life
insurance benefits described in Section 2 of Schedule 6.10(h) to the Union
Employees and Non-Union Employees therein described (collectively the
"Termination Benefits"). The estimated cost of such benefits shall be calculated
by the actuarial firm regularly engaged to provide actuarial services to the GPU
Companies with respect to their pension, health care and life insurance plans,
and shall be determined using the same assumptions as to mortality, turnover,
interest rate and other actuarial assumption as used by such firm in determining
the cost of benefits under the GPU Companies' pension, health and group term
life insurance plans for purposes of their most recently issued financial
statements prior to the Closing Date. For purposes of the foregoing, Buyer's
"Allocable Share" shall be calculated as set forth in Schedule 6.10(h)(iv).
(i) Buyer shall not be responsible for any payments required
under any voluntary early retirement plan, program or arrangement offered by
Seller, Genco, GPUN or GPUS in connection with the transfer of the Purchased
Assets. Within thirty (30) days following the last day that any Union Employee
or Non-Union Employee may elect to participate in any such plan offered by
Seller, Genco, GPUN or GPUS, Seller shall provide Buyer with a list of all such
employees who have so elected.
(j) Seller shall be responsible, with respect to the Purchased
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act which
occurs prior to the Closing Date.
(k) Buyer shall not be responsible for extending COBRA
continuation coverage to any employees and former employees of Seller, Genco,
GPUN or GPUS, or to any qualified beneficiaries of such employees and former
employees, who become or became entitled to COBRA continuation coverage before
the Closing, including those for whom the Closing occurs during their COBRA
election period.
(l) Seller or Seller's Affiliates shall pay to all Transferred
Employees all compensation, bonus, vacation and holiday compensation, pension,
profit sharing and other deferred compensation benefits, workers' compensation,
or other employment
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benefits to which they are entitled under the terms of the applicable
compensation or benefit programs at such times as are provided therein.
(m) Individuals who are otherwise "Union Employees" as defined
in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but
who on any date are not actively at work due to a leave of absence covered by
the Family and Medical Leave Act ("FMLA"), or due to any other authorized leave
of absence, shall nevertheless be treated as "Union Employees" or as "Non-Union
Employees", as the case may be, on such date if they are able (i) to return to
work within the protected period under the FMLA or such other leave (which in
any event shall not extend more than twelve (12) weeks after the Closing Date),
whichever is applicable, and (ii) to perform the essential functions of their
jobs, with or without a reasonable accommodation.
(n) Effective as of the day immediately preceding the Closing
Date, Seller shall (i) cause York Haven to terminate or to transfer to one or
more Affiliates of GPU, the employment of any individual in the employ of York
Haven on such preceding day who will not be a Transferred Employee immediately
following the Closing, and (ii) cause all Benefit Plans (if any) maintained by
York Haven, and all liabilities and obligations of York Haven with respect to
such plans, to be transferred to, and assumed by, one or more Affiliates of GPU
other than York Haven.
6.11. Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of
loss or damage to the property included in the Purchased Assets shall be borne
by Seller, other than loss or damage caused by the acts or negligence of Buyer
or any Buyer Representative, which loss or damage shall be the responsibility of
Buyer.
(b) If, before the Closing Date, all or any portion of the
Purchased Assets is (i) taken by eminent domain or is the subject of a pending
or (to the Knowledge of Seller) contemplated taking which has not been
consummated, or (ii) damaged or destroyed by fire or other casualty, Seller
shall notify Buyer promptly in writing of such fact, and (x) in the case of a
condemnation, Seller shall assign or pay, as the case may be, any proceeds
thereof to Buyer at the Closing and (y) in the case of a casualty, Seller shall
either restore the damage or assign the insurance proceeds therefor (and pay the
amount of any deductible and/or self-insured amount in respect of such casualty)
to Buyer at the Closing. Notwithstanding the above, if such casualty or loss
results in a Material Adverse Effect, Buyer and Seller shall negotiate to settle
the loss resulting from such taking (and such negotiation shall include, without
limitation, the negotiation of a fair and equitable adjustment to the Purchase
Price). If no such settlement is reached within sixty (60) days after Seller has
notified Buyer of such casualty or loss, then Buyer or Seller
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may terminate this Agreement pursuant to Section 9.1(h). In the event of damage
or destruction which Seller elects to restore, Seller will have the right to
postpone the Closing for up to four (4) months. Buyer will have the right to
inspect and observe, or have its representatives inspect or observe, all repairs
necessitated by any such damage or destruction.
6.12 Additional Covenants of Buyer. Notwithstanding any other provision
hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not
make any modifications to the Purchased Assets or take any action which, in and
of itself, results in a loss of the exclusion of interest on the Pollution
Control Revenue Bonds issued on behalf of Seller in connection with the
Purchased Assets from gross income for federal income purposes under Section 103
of the Code. Actions with respect to the Purchased Assets shall not constitute a
breach by the Buyer of this Section 6.12 in the following circumstances: (i)
Buyer ceases to use or decommissions any of the Purchased Assets or subsequently
repowers such Purchased Assets that are no longer used or decommissioned (but
does not hold such Purchased Assets for sale); (ii) Buyer acts with respect to
the Purchased Assets in order to comply with requirements under applicable
federal, state or local environmental or other laws or regulations; or (iii)
Buyer acts in a manner the Seller (i.e. a reasonable private provider of
electricity of similar stature as Seller) would have acted during the term of
the Pollution Control Revenue Bonds (including, but not limited to, applying new
technology). In the event Buyer acts or anticipates acting in a manner that will
cause a loss of the exclusion of interest on the Pollution Control Revenue Bonds
from gross income for federal income tax purposes, at the request of Buyer,
Seller shall take any remedial actions permitted under the federal income tax
law that would prevent a loss of such inclusion of interest from gross income on
the Pollution Control Revenue Bonds. Buyer further covenants and agrees that, in
the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain
from its transferee a covenant and agreement that is analogous to Buyer's
covenant and agreement pursuant to the immediately preceding sentence, as well
as a covenant and agreement that is analogous to that of this sentence. In
addition, Buyer shall not, without 60 days advanced written notice to Seller (to
the extent practicable under the circumstances), take any action which would
result in (x) a change in the use of the assets financed with the Pollution
Revenue Control Bonds from the use in which such assets were originally
intended, or (y) a sale of such assets separate from the generating assets to
which they relate, provided that no notice is required of the events set forth
in clauses (i), (ii), or (iii) above. This covenant shall survive Closing and
shall continue in effect so long as the pollution control bonds remain
outstanding.
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6.13. Additional York Haven Covenants. Buyer acknowledges and
agrees that the property described in Schedule 4.5 relating to the York Haven
Station is excluded from the Purchased Assets (the "Excluded York Haven
Property"). Prior to the Closing, Seller shall have the right in its sole
discretion to cause York Haven to transfer the Excluded York Haven Property to
Seller or the purchaser of the Three Mile Island Unit 1 nuclear generating
station, provided, however, that prior to the Closing, York Haven shall retain
or cause to be retained, granted or otherwise created for the benefit of York
Haven after the Closing all Easements or other rights required for Buyer to
exercise its rights to the Fish Ladder as described in Schedule 4.10A. If the
Excluded York Haven Property is not so transferred prior to the Closing, at any
time after the Closing Buyer shall, within twenty (20) Business Days of Seller's
written request, and subject to receipt of any required FERC approval, cause
York Haven to transfer the Excluded York Haven Property free and clear of all
Encumbrances other than those existing on the Excluded York Haven Property
immediately prior to the Closing, to Seller or such purchaser by execution of a
deed in substantially the form annexed to Schedule 4.5 and such other
instruments as Seller may reasonably require, provided, however, prior to such
transfer, York Haven shall retain or cause to be retained, granted or otherwise
created for the benefit of York Haven after such transfer all Easements or other
rights required for Buyer to exercise its rights to the Fish Ladder as described
in Schedule 4.10A.
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer. The obligation of Buyer to
effect the purchase of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated.
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court or Governmental Authority which prevents
the consummation of the sale of the Purchased Assets contemplated herein shall
have been issued and remain in effect (each Party agreeing to use its reasonable
best efforts to have any such injunction, order or decree lifted) and no
statute, rule or regulation shall have been enacted by any state or federal
government or Governmental Authority which prohibits the consummation of the
sale of the Purchased Assets;
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(c) Buyer shall have received all of Buyer's Required
Regulatory Approvals, and such approvals shall contain no conditions or terms
which would result in a Material Adverse Effect;
(d) Seller shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Seller on or prior to the Closing
Date;
(e) The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized
officer of Seller, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Section 7.1(d) and (e) have been
satisfied by Seller;
(g) Buyer shall have received an opinion from Seller's counsel
reasonably acceptable to Buyer, dated the Closing Date and reasonably
satisfactory in form and substance to Buyer and its counsel, substantially to
the effect that:
(i) Each of Seller and York Haven is a corporation
duly incorporated, validly existing and in good standing under the laws
of its state of incorporation and has the corporate power and authority
to own, lease and operate its material assets and properties and to
carry on its business as is now conducted, and to execute and deliver
the Agreement and each Ancillary Agreement and to consummate the
transactions contemplated thereby; and the execution and delivery of
the Agreement by Seller and the consummation of the sale of the
Purchased Assets and the other transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action
required on the part of Seller;
(ii) The Agreement and each Ancillary Agreement have
been duly and validly executed and delivered by Seller and constitute
legal, valid and binding agreements of Seller enforceable in accordance
with their terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and general principles of
equity (regardless of whether enforcement is considered in a proceeding
at law or in equity);
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(iii) The execution, delivery and performance of the
Agreement and each Ancillary Agreement by Seller do not (A) conflict
with the Certificate of Incorporation or Bylaws of Seller or (B) to the
knowledge of such counsel, constitute a violation of or default under
those agreements or instruments set forth on a Schedule attached to the
opinion and which have been identified to such counsel as all the
agreements and instruments which are material to the business or
financial condition of Seller;
(iv) The Bill of Sale, the deeds, the Assignment and
Assumption Agreement and other transfer instruments described in
Section 3.6 have been duly executed and delivered and are in proper
form to transfer to Buyer such title as was held by Seller to the
Purchased Assets;
(v) No consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for the execution and
delivery of this Agreement by Seller, or the consummation by Seller of
the transactions contemplated hereby, other than (i) such consents,
approvals, filings or notices set forth in Schedule 4.3(b) or which, if
not obtained or made, will not prevent Seller from performing its
material obligations hereunder and (ii) such consents, approvals,
filings or notices which become applicable to Seller or the Purchased
Assets as a result of the specific regulatory status of Buyer (or any
of its Affiliates) or as a result of any other facts that specifically
relate to the business or activities in which Buyer (or any of its
Affiliates) is or proposes to be engaged; and
(vi) The York Haven Stock is owned of record, and to
such counsel's knowledge, beneficially by Seller free and clear of all
Encumbrances. The York Haven Stock has been duly authorized and validly
issued, and is fully paid and non-assessable. There are no other
authorized shares of capital stock of York Haven other than the 500
shares of common stock comprising the York Haven Stock. None of the
shares comprising the York Haven Stock has been issued in violation of,
or is subject to, any statutory or, to such counsel's knowledge, other
Restrictive Third Party Rights. To such counsel's knowledge, (i) there
are no outstanding securities convertible into or exchangeable for the
capital stock of York Haven or any restrictive covenants applicable to
the York Haven Stock, and (ii) neither Seller nor York Haven has any
obligation, contingent or otherwise, to issue, sell, repurchase, redeem
or otherwise acquire any of the York Haven Stock or other capital stock
of York Haven or any equity or debt securities of York Haven. Upon the
consummation of the transactions contemplated in the Agreement, Buyer
will have good and valid title to the York Haven Stock, to such
counsel's knowledge, free and clear of all Encumbrances and Restrictive
Third Party Rights.
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In rendering the foregoing opinion, Seller's counsel may rely on
opinions of counsel as to local laws reasonably acceptable to Buyer.
(h) Seller shall have delivered, or caused to be delivered, to
Buyer at the Closing, Seller's closing deliveries described in Section 3.6.
(i) Since the date of this Agreement, no Material Adverse
Effect shall have occurred and be continuing.
(j) Buyer shall have received (at Buyer's cost) from a title
insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's
title policy and ALTA survey, together with all endorsements reasonably
requested by Buyer as are available, insuring title to all of the Real Property
included in the Aggregate Purchased Assets, subject only to Permitted
Encumbrances. Seller shall provide Buyer with a copy of a preliminary title
report and survey for the Real Property as soon as available.
(k) Final Equipment Turnover and Final Acceptance of Portland
Unit 5 shall have occurred under the Siemens' Agreement, each as defined in said
agreement. Buyer shall have received any and all rights under said agreement,
including all claims against Siemens and all liquidated damages (received prior
to or on the Closing and retained by Seller). Portland Unit 5 shall have been
commissioned and placed into commercial operation at no cost whatsoever to
Buyer.
(l) The closings under the Purchase and Sale Agreements
between JCP&L and Buyer, Penelec and Buyer, and JCP&L, Met-Ed, GPU and Buyer
(collectively, the "Related Purchase Agreements"), shall have occurred or shall
occur concurrently with the Closing and all conditions to the obligations of
Buyer under the Related Purchase Agreements shall have been satisfied or waived
by Buyer.
(m) Buyer shall have received all Permits and Environmental
Permits, to the extent necessary, to own and operate the Plants in accordance
with past emissions and operating practices, except for those Permits and
Environmental Permits, the absence of which would not in the aggregate have a
Material Adverse Effect.
(n) Seller's Required Regulatory Approvals shall contain no
conditions or terms which would result in a Material Adverse Effect.
(o) Neither the Real Property nor any portion thereof shall be
part of a tax lot which includes any real property and/or buildings, facilities
or other improvements other than that which comprises the Real Property.
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(p) No Site, or any portion thereof (other than the
Development Properties listed on Schedule 2.1), shall be subject to a zoning
classification or classifications, rule or regulation, or a variance or special
exception, which, individually or in the aggregate, does not permit such Site or
any portion thereof, to be used as the same (i) is currently used for generation
purposes or (ii) was historically used for generation purposes while under
Seller's current ownership or the ownership of any Affiliate thereof, unless the
failure of such Site or any portion thereof to be zoned to permit such use shall
not result in a Material Adverse Effect.
7.2. Conditions to Obligations of Seller. The obligation of Seller to
effect the sale of the Purchased Assets and the other transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Seller) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the sale
of the Purchased Assets contemplated herein shall have been issued and remain in
effect (each Party agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or regulation shall
have been enacted by any state or federal government or Governmental Authority
in the United States which prohibits the consummation of the sale of the
Purchased Assets;
(c) Seller shall have received all of Seller's Required
Regulatory Approvals applicable to them, containing no conditions or terms which
would materially diminish the benefit of this Agreement to Seller or result in a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Seller ("Seller Material Adverse Effect");
(d) All consents and approvals for the consummation of the
sale of the Purchased Assets contemplated hereby required under the terms of any
note, bond, mortgage, indenture, material agreement or other instrument or
obligation to which Seller is party or by which Seller, or any of the Purchased
Assets, may be bound, shall have been obtained, other than those which if not
obtained, would not, individually and in the aggregate, create a Material
Adverse Effect;
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(e) Buyer shall have performed and complied with in all
material respects the covenants and agreements contained in this Agreement which
are required to be performed and complied with by Buyer on or prior to the
Closing Date;
(f) The representations and warranties of Buyer set forth in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date;
(g) Seller shall have received a certificate from an
authorized officer of Buyer, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have
been satisfied by Buyer;
(h) Effective upon Closing, Buyer shall have assumed, as set
forth in Section 6.10, all of the applicable obligations under the Collective
Bargaining Agreement as they relate to Transferred Union Employees;
(i) Seller shall have received an opinion from Buyer's counsel
reasonably acceptable to Seller, dated the Closing Date and satisfactory in form
and substance to Seller and its counsel, substantially to the effect that:
(i) Buyer is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the state of
its organization and is qualified to do business in the Commonwealth of
Pennsylvania and has the full corporate power and authority to own,
lease and operate its material assets and properties and to carry on
its business as is now conducted, and to execute and deliver the
Agreement and the Ancillary Agreements by Buyer and to consummate the
transactions contemplated thereby; and the execution and delivery of
the Agreement and the Ancillary Agreements by Buyer and the
consummation of the transactions contemplated thereby have been duly
authorized by all necessary corporate action required on the part of
Buyer;
(ii) The Agreement and the Ancillary Agreements have
been duly and validly executed and delivered by Buyer, and constitute
legal, valid and binding agreements of Buyer, enforceable against
Buyer, in accordance with their terms, except that such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting or
relating to enforcement of creditor's rights generally and general
principles of equity (regardless of whether enforcement is considered
in a proceeding at law or in equity);
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(iii) The execution, delivery and performance of the
Agreement and the Ancillary Agreements by Buyer do not (A) conflict
with the Certificate of Incorporation or Bylaws (or other
organizational documents), as currently in effect, of Buyer or (B) to
the knowledge of such counsel, constitute a violation of or default
under those agreements or instruments set forth on a Schedule attached
to the opinion and which have been identified to such counsel as all
the agreements and instruments which are material to the business or
financial condition of Buyer;
(iv) The Assignment and Assumption Agreement and
other transfer instruments described in Section 3.7 are in proper form
for Buyer to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice
to, any Governmental Authority is necessary for Buyer's execution and
delivery of the Agreement and the Ancillary Agreements, or the
consummation by Buyer of the transactions contemplated hereby and
thereby, other than such consents, approvals, filings or notices,
which, if not obtained or made, will not prevent Buyer from performing
its respective obligations under the Agreement, the Ancillary
Agreements and Guaranty.
(j) Buyer shall have delivered, or caused to be delivered, to
Seller at the Closing, Buyer's closing deliveries described in Section 3.7.
7.3 Zoning Condition Adjustments.
(a) In the event that any Site or any portion thereof (other
than the Development Properties listed in Schedule 2.1) shall be subject to a
zoning classification or classifications, rule or regulation, or variance or
special exception, which does not permit or otherwise restrict the Site or any
portion thereof, to be used as the same (i) is currently used for generation
purposes or (ii) was historically used for generation purposes while under
Seller's current ownership or the ownership of any Affiliate thereof for
generation purposes, and if such failure shall result in a material adverse
effect on the use of such Site for generating purposes as currently used (or as
so historically used), then, in such case, Buyer may, prior to the Closing on
written notice to the Seller, exclude from the Purchased Assets such Site and
the Purchased Assets related to such Site. Buyer and Seller shall thereupon
negotiate a fair and equitable adjustment to the Purchase Price or, failing such
agreement within 30 days, the adjustment shall be determined by appraisal in
accordance with Section 7.3(b), the cost of which shall be shared equally be
Buyer and Seller.
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(b) The Parties shall select an Appraiser (as defined below) within 30
days of the expiration of the 30 day period referred to in Section 7.3(a). In
the event the Parties cannot within such period agree on a single Appraiser, the
Parties shall each within 15 days select a separate Appraiser, and such
Appraisers shall within 15 days, later designate a third Appraiser to act
hereunder. The Appraiser shall be instructed to provide a written report of the
appropriate reduction of the Purchase Price to be allocated to the excluded Site
(and associated Purchased Assets). Each of the Parties may submit such materials
and information to the Appraiser as it deems appropriate and shall use its
Commercially Reasonable Efforts to cause the Appraiser to render its decision
within 60 days after the matter has been submitted to it. The determination of
the Appraiser shall be final and binding on the Parties. As used herein,
"Appraiser" means an individual who has a minimum of ten (10) years of relevant
experience in valuing electric generation facilities and has an MAI designation
of the Appraisal Institute.
(c) Buyer agrees to use Commercially Reasonable Efforts at its expense
and in consultation with Seller to mitigate any adverse zoning restrictions
which could cause a failure of the Closing condition in Section 7.1(p), or
require a Purchase Price adjustment under this Section 7.3, including by seeking
a re-zoning or zoning variance of the applicable Site.
ARTICLE VIII
INDEMNIFICATION
8.1. Indemnification.
(a) Buyer shall indemnify, defend and hold harmless Seller,
its officers, directors, employees, shareholders, Affiliates and agents (each, a
"Seller's Indemnitee") from and against any and all claims, demands, suits,
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an "Indemnifiable Loss"), asserted against or
suffered by any Seller's Indemnitee relating to, resulting from or arising out
of (i) any breach by Buyer of any covenant or agreement of Buyer contained in
this Agreement or the representations and warranties contained in Sections 5.1,
5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting
from or arising out of any Inspection, or (iv) any Third Party Claims against
Seller's Indemnitee arising out of or in connection with Buyer's ownership or
operation of the Plants and other Purchased Assets on or after the Closing Date
(other than Third Party Claims which arise out of acts by Buyer permitted by
Section 6.12 hereof).
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(b) Seller shall indemnify, defend and hold harmless Buyer,
its officers, directors, employees, shareholders, Affiliates and agents (each, a
"Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted
against or suffered by any Buyer Indemnitee relating to, resulting from or
arising out of (i) any breach by Seller of any covenant or agreement of Seller
contained in this Agreement or the representations and warranties contained in
Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii) noncompliance by
Seller with any bulk sales or transfer laws as provided in Section 10.11, or
(iv) any Third Party Claims against a Buyer Indemnitee arising out of or in
connection with Seller's ownership or operation of the Excluded Assets on or
after the Closing Date.
(c) Each party, for itself and on behalf of its
Representatives and Affiliates, does hereby release, hold harmless and forever
discharge the other party, its Representatives and Affiliates, from any and all
Indemnifiable Losses of any kind or character, whether known or unknown, hidden
or concealed, resulting from or arising out of any Environmental Condition or
violation of Environmental Law relating to the Purchased Assets, provided that
Seller's release of Buyer shall not extend to any of Buyer's Assumed Liabilities
set forth in Section 2.3, and provided further that Buyer's release of Seller
shall not extend to any of Seller's Excluded Liabilities set forth in Section
2.4. Subject to the foregoing proviso, each party hereby waives any and all
rights and benefits with respect to such Indemnifiable Losses that it now has,
or in the future may have conferred upon it by virtue of any statute or common
law principle which provides that a general release does not extend to claims
which a party does not know or suspect to exist in its favor at the time of
executing the release, if knowledge of such claims would have materially
affected such party's settlement with the obligor. In this connection, each
party hereby acknowledges that it is aware that factual matters, now unknown to
it, may have given or may hereafter give rise to Indemnifiable Losses that are
presently unknown, unanticipated and unsuspected, and it further agrees that
this release has been negotiated and agreed upon in light of that awareness and
it nevertheless hereby intends to release the other party and its
Representatives and Affiliates from the Indemnifiable Losses described in the
first sentence of this paragraph.
(d) Notwithstanding anything to the contrary contained herein:
(i) Any Person entitled to receive indemnifica-tion
under this Agreement (an "Indemnitee") shall use Commercially
Reasonable Efforts to mitigate all losses, damages and the like
relating to a claim under these indemnification provisions, including
availing itself of any defenses, limitations, rights of contribution,
claims against third Persons and other rights at law or equity.
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The Indemnitee's Commercially Reasonable Efforts shall include the
reasonable expenditure of money to mitigate or otherwise reduce or
eliminate any loss or expenses for which indemnification would
otherwise be due, and the Indemnitor shall reimburse the Indemnitee for
the Indemnitee's reasonable expenditures in undertaking the mitigation.
(ii) Any Indemnifiable Loss shall be net of the
dollar amount of any insurance or other proceeds actually receivable by
the Indemnitee or any of its Affiliates with respect to the
Indemnifiable Loss, but shall not take into account any income tax
benefits to the Indemnitee or any Income Taxes attributable to the
receipt of any indemnification payments hereunder. Any party seeking
indemnity hereunder shall use Commercially Reasonable Efforts to seek
coverage (including both costs of defense and indemnity) under
applicable insurance policies with respect to any such Indemnifiable
Loss.
(e) The expiration or termination of any covenant or agreement
shall not affect the Parties' obligations under this Section 8.1 if the
Indemnitee provided the Person required to provide indemnification under this
Agreement (the "Indemnifying Party") with proper notice of the claim or event
for which indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in Article IX, the
rights and remedies of Seller and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Seller and Buyer may
have under this Agreement or otherwise for monetary relief, with respect to (i)
any breach of or failure to perform any covenant, agreement, or representation
or warranty set forth in this Agreement, after the occurrence of the Closing, or
(ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be.
The indemnification obligations of the Parties set forth in this Article VIII
apply only to matters arising out of this Agreement, excluding the Ancillary
Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary
Agreement shall be governed by the indemnification obligations, if any,
contained in the Ancillary Agreement under which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein, no party
(including an Indemnitee) shall be entitled to recover from any other party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments losses, costs, or expenses under this Agreement any amount in excess of
the actual compensatory damages, court costs and reasonable attorney's and other
advisor fees suffered by such party. Buyer and Seller waive any right to recover
punitive, incidental, special,
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exemplary and consequential damages arising in connection with or with respect
to this Agreement. The provisions of this Section 8.1(g) shall not apply to
indemnification for a Third Party Claim.
8.2. Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any claim, action, or proceeding made or brought
by any Person who is not a party to this Agreement or any Affiliate of a Party
to this Agreement (a "Third Party Claim") with respect to which indemnification
is to be sought from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
such notice shall not be given later than ten (10) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and shall
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's expense and by such Indemnifying Party's own counsel, provided that the
counsel for the Indemnifying Party who shall conduct the defense of such Third
Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee
shall cooperate in good faith in such defense at such Indemnitee's own expense.
If an Indemnifying Party elects not to assume the defense of any Third Party
Claim, the Indemnitee may compromise or settle such Third Party Claim over the
objection of the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant to this
Agreement.
(b) (i) If, within ten (10) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense and the Indemnifying Party shall be
liable for all reasonable expenses thereof. (ii) Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter into any
settlement of any Third Party Claim which would lead to liability or create any
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to
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indemnification hereunder. If a firm offer is made to settle a Third Party Claim
without leading to liability or the creation of a financial or other obligation
on the part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder and the Indemnifying Party desires to accept and agree
to such offer, the Indemnifying Party shall give written notice to the
Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer
within ten (10) calendar days after its receipt of such notice, the Indemnifying
Party shall be relieved of its obligations to defend such Third Party Claim and
the Indemnitee may contest or defend such Third Party Claim. In such event, the
maximum liability of the Indemnifying Party as to such Third Party Claim will be
the amount of such settlement offer plus reasonable costs and expenses paid or
incurred by Indemnitee up to the date of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable
Loss which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than ten (10) calendar days after the Indemnitee becomes aware of
such Direct Claim, and the Indemnifying Party shall have a period of thirty (30)
calendar days within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such thirty (30) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party rejects such claim, the Indemnitee will be free to seek
enforcement of its right to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment by, from or
against any other entity, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith (together with interest thereon
from the date of payment thereof at the publicly announced prime rate then in
effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
(e) A failure to give timely notice as provided in this
Section 8.2 shall not affect the rights or obligations of any Party hereunder
except if, and only to the extent that, as a result of such failure, the Party
which was entitled to receive such notice was actually prejudiced as a result of
such failure.
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ARTICLE IX
TERMINATION
9.1 Termination.(a) This Agreement may be terminated at any time prior
to the Closing Date by mutual written consent of Seller and Buyer.
(b) This Agreement may be terminated by Seller or Buyer if (i)
any Federal or state court of competent jurisdiction shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Closing, and such order, judgment or decree shall have become final and
nonappeallable or (ii) any statute, rule, order or regulation shall have been
enacted or issued by any Governmental Authority which, directly or indirectly,
prohibits the consummation of the Closing; or (iii) the Closing contemplated
hereby shall have not occurred on or before the day which is 12 months from the
date of this Agreement (the "Termination Date"); provided that the right to
terminate this Agreement under this Section 9.1(b) (iii) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date; and provided, further, that if on the day which is 12 months
from the date of this Agreement the conditions to the Closing set forth in
Section 7.1(b) or (c) or 7.2(b), (c) or (d) shall not have been fulfilled but
all other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Termination Date shall be the day which is 18 months
from the date of this Agreement.
(c) Except as otherwise provided in this Agreement, this
Agreement may be terminated by Buyer if any of Buyer Required Regulatory
Approvals, the receipt of which is a condition to the obligation of Buyer to
consummate the Closing as set forth in Section 7.1(c), shall have been denied
(and a petition for rehearing or refiling of an application initially denied
without prejudice shall also have been denied) or shall have been granted but
contains terms or conditions which do not satisfy the closing condition in
Section 7.1(c).
(d) This Agreement may be terminated by Seller, if any of
Seller's Required Regulatory Approvals, the receipt of which is a condition to
the obligation of Seller to consummate the Closing as set forth in Section
7.2(c), shall have been denied (and a petition for rehearing or refiling of an
application initially denied without prejudice shall also have been denied) or
shall have been granted but contains terms or conditions which do not satisfy
the closing condition in Section 7.2(c).
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(e) This Agreement may be terminated by Buyer if there has
been a violation or breach by Seller of any covenant, representation or warranty
contained in this Agreement which has resulted in a Material Adverse Effect and
such violation or breach is not cured by the earlier of the Closing Date or the
date thirty (30) days after receipt by Seller of notice specifying particularly
such violation or breach, and such violation or breach has not been waived by
Buyer.
(f) This Agreement may be terminated by Seller, if there has
been a material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Seller.
(g) This Agreement may be terminated by Seller if there shall
have occurred any change that is materially adverse to the business, operations
or conditions (financial or otherwise) of Buyer.
(h) This Agreement may be terminated by either of Seller or
Buyer in accordance with the provisions of Section 6.11(b).
9.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to
Section 9, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the
Parties hereunder will terminate, except as otherwise expressly provided in this
Agreement, and thereafter neither Party shall have any recourse against the
other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
Seller and Buyer.
10.2. Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party entitled to
the benefits thereof only by a written instrument signed by the Party granting
such waiver, but such waiver of such obligation, covenant,
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agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent failure to comply therewith.
10.3 No Survival. Each and every representation, warranty and covenant
contained in this Agreement (other than the covenants contained in Sections
3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13 and
in Articles VIII and X, which provisions shall survive the delivery of the
deed(s) and the Closing in accordance with their terms and the representations
and warranties set forth in Sections 4.1, 4.2, 4.3, 4.19A, 4.19B, 5.1, 5.2 and
5.3, which representations and warranties and any claims arising under Section
6.1 shall survive the Closing for eighteen (18) months from the Closing Date)
shall expire with, and be terminated and extinguished by the consummation of the
sale of the Purchased Assets and shall merge into the deed(s) pursuant hereto
and the transfer of the Assumed Liabilities pursuant to this Agreement and such
representations, warranties and covenants shall not survive the Closing Date;
and none of Seller, Buyer or any officer, director, trustee or Affiliate of any
of them shall be under any liability whatsoever with respect to any such
representation, warranty or covenant.
10.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that notices of a change of address
shall be effective only upon receipt thereof):
(a) If to Seller, to:
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: Mr. David C. Brauer
Vice President
with a copy to:
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Douglas E. Davidson, Esq.
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(b) if to Buyer, to:
Sithe Energies, Inc.
450 Lexington Avenue
New York, New York 10017
Attention: Mr. David Tohir
and Hyun Park, Esq.
with a copy to:
Latham & Watkins
Suite 1300
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: W. Harrison Wellford, Esq.
10.5 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any Party
hereto, including by operation of law, without the prior written consent of each
other Party, nor is this Agreement intended to confer upon any other Person
except the Parties hereto any rights, interests, obligations or remedies
hereunder. No provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Seller (including any
beneficiary or dependent thereof) in respect of continued employment or resumed
employment, and no provision of this Agreement shall create any rights in any
such Persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement except as expressly
provided for thereunder. Notwithstanding the foregoing, without the prior
written consent of Seller, (i) Buyer may assign all of its rights and
obligations hereunder to any majority owned Subsidiary (direct or indirect) and
upon Seller's receipt of notice from Buyer of any such assignment, such assignee
will be deemed to have assumed, ratified, agreed to be bound by and perform all
such obligations, and all references herein to "Buyer" shall thereafter be
deemed to be references to such assignee, in each case without the necessity for
further act or evidence by the Parties hereto or such assignee, and (ii) Buyer
or its permitted assignee may assign, transfer, pledge or otherwise dispose of
(absolutely or as security) its rights and interests hereunder to a trustee,
lending institutions or other party for the purposes of leasing, financing or
refinancing the Purchased Assets, including such an assignment, transfer or
other disposition upon or pursuant to the exercise of remedies with respect to
such leasing, financing or refinancing, or by way of assignments, transfers,
pledges, or other dispositions in lieu thereof (and any such assignee may fully
exercise its rights
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hereunder or under any other agreement and pursuant to such assignment without
any further prior consent of any party hereto); provided, however, that no such
assignment in clause (i) or (ii) shall relieve or discharge the assignor from
any of its obligations hereunder. Seller agrees, at Buyer's expense, to execute
and deliver such documents as may be reasonably necessary to accomplish any such
assignment, transfer, pledge or other disposition of rights and interests
hereunder so long as Seller's rights under this Agreement are not thereby
altered, amended, diminished or otherwise impaired.
10.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York (without giving effect to
conflict of law principles) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies. THE PARTIES
HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND
FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION
FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS
MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
10.7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Interpretation. The articles, section and schedule headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
10.9 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
10.10 Entire Agreement. This Agreement, the Confidentiality Agreement,
and the Ancillary Agreements including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other
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than those expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to Buyer pursuant to the terms of the Confidentiality Agreement
(including the Offering Memorandum dated April 1998, previously delivered to
Buyer by Seller and Goldman, Sachs & Co.). This Agreement supersedes all prior
agreements and understandings between the Parties other than the Confidentiality
Agreement with respect to such transactions.
10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding
anything in this Agreement to the contrary, Seller may, in its sole discretion,
not comply with the provision of the bulk sales laws of any jurisdiction in
connection with the transactions contemplated by this Agreement. Buyer hereby
waives compliance by Seller with the provisions of the bulk sales laws of all
applicable jurisdictions.
10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set
forth herein are United States (U.S.) dollars.
10.13 Zoning Classification. Without limitation of Sections 7.1(p) and
7.3, Buyer acknowledges that the Real Properties are zoned as set forth in
Schedule 10.13.
10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer
acknowledges that there is no community (municipal) sewage system available to
serve the Real Property. Accordingly, any additional sewage disposal planned by
Buyer will require an individual (on-site) sewage system and all necessary
permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities
Act"). Buyer recognizes that certain of the existing individual sewage systems
on the Real Property may have been installed pursuant to exemptions from the
requirements of the Facilities Act or prior to the enactment of the Facilities
Act and that soils and site testing may not have been performed in connection
therewith. The owner of the property or properties served by such a system, at
the time of any malfunction, may be held liable for any contamination,
pollution, public health hazard or nuisance which occurs as the result of such
malfunction.
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IN WITNESS WHEREOF, Seller and Buyer have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
SITHE ENERGIES, INC. METROPOLITAN EDISON COMPANY
By: By:
------------------------- --------------------------
Name: Name:
Title: Title:
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[Met-Ed]
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Easement Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Deeds
Exhibit G Form of Transition Power Purchase Agreement
Exhibit H Form of Merrill Creek Sublease
SCHEDULES
1.1(73) Permitted Encumbrances
1.1(108) Transferable Permits (both environmental and non-environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed to Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Description of Transmission and other Assets not included
in Conveyance
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Seller's Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.l0 Description of Real Property
4.10A Real Property Matters
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
4.19C York Haven Tax Matters
4.19D Financial Statements
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
6.8 Tax Appeals
6.10(a)(i) Plant and Support Staff (Union)
<PAGE>
6.10(a)(ii) Mobile Maintenance/Corporate Support
6.10(b) Schedule of Non-Union Employees
6.10(d) Collective Bargaining Agreement
6.10(h) Schedule of Severance Benefits
6.10(h)(iv) Allocable Share Percentages
6.12 Pollution Control Revenue Bonds
6.13 York Haven Covenants
10.13 Zoning
10.14 Sewage Matters
Exhibit 10-OO
PRIVILEGED AND CONFIDENTIAL
[Penelec P&S]
Execution Copy
PURCHASE AND SALE AGREEMENT
BY AND AMONG
PENNSYLVANIA ELECTRIC COMPANY, as SELLER,
and SITHE ENERGIES, INC., as BUYER
Dated as of October 29, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I 1
1.1 Definitions 1
1.2 Certain Interpretive Matters 14
ARTICLE II 14
2.1 Transfer of Assets 14
2.2 Excluded Assets 16
2.3 Assumed Liabilities 17
2.4 Excluded Liabilities 19
2.5 Control of Litigation 21
ARTICLE III 22
3.1 Closing 22
3.2 Payment of Purchase Price 22
3.3 Adjustment to Purchase Price 22
3.4 Allocation of Purchase Price 24
3.5 Prorations 25
3.6 Deliveries by Seller 26
3.7 Deliveries by Buyer 27
3.8 Ancillary Agreements 28
3.9 Easement Agreements 28
ARTICLE IV 29
4.1 Incorporation; Qualification 29
4.2 Authority Relative to this Agreement 29
4.3 Consents and Approvals; No Violation 29
4.4 Insurance 30
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4.5 Title and Related Matters 30
4.6 Real Property Leases 31
4.7 Environmental Matters 31
4.8 Labor Matters 32
4.9 Benefit Plans: ERISA 32
4.10 Real Property 33
4.11 Condemnation 33
4.12 Contracts and Leases 33
4.13 Legal Proceedings, etc. 34
4.14 Permits 34
4.15 Taxes 35
4.16 Intellectual Property 35
4.17 Capital Expenditures 36
4.18 Compliance With Laws 36
4.19 PUHCA 36
4.20 Disclaimers Regarding Purchased Assets 36
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 37
5.1 Organization 37
5.2 Authority Relative to this Agreement 37
5.3 Consents and Approvals; No Violation 38
5.4 Availability of Funds 38
5.5 Legal Proceedings 38
5.6 No Knowledge of Seller's Breach 39
5.7 Qualified Buyer 39
5.8 Inspections 39
5.9 WARN Act 39
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ARTICLE VI 40
6.1 Conduct of Business Relating to the Purchased Assets 40
6.2 Access to Information 42
6.3 Public Statements 45
6.4 Expenses 45
6.5 Further Assurances 45
6.6 Consents and Approvals 47
6.7 Fees and Commissions 49
6.8 Tax Matters 49
6.9 Advice of Changes 51
6.10 Employees 52
6.11 Risk of Loss 57
6.12 Additional Covenants of Buyer 58
ARTICLE VII 58
7.1 Conditions to Obligations of Buyer 59
7.2 Conditions to Obligations of Seller 62
7.3 Zoning Condition Adjustments 64
ARTICLE VIII 65
8.1 Indemnification 65
8.2 Defense of Claims 68
ARTICLE IX 70
9.1 Termination 70
9.2 Procedure and Effect of No-Default Termination 71
ARTICLE X 71
10.1 Amendment and Modification 71
10.2 Waiver of Compliance; Consents 72
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10.3 No Survival 72
10.4 Notices 72
10.5 Assignment 73
10.6 Governing Law 74
10.7 Counterparts 74
10.8 Interpretation 74
10.9 Schedules and Exhibits 74
10.10 Entire Agreement 75
10.11 Bulk Sales Laws 75
10.12 U.S. Dollars 75
10.13 Zoning Classification 75
10.14 Sewage Facilities 75
<PAGE>
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and between
Pennsylvania Electric Company, a Pennsylvania corporation ("Penelec" or
"Seller") and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Seller and
Buyer are referred to individually as a "Party," and collectively as the
"Parties."
W I T N E S S E T H
WHEREAS, Buyer desires to purchase, and Seller desires to sell, its
interests in the Purchased Assets (as defined herein) upon the terms and
conditions hereinafter set forth in this Agreement; and
WHEREAS, simultaneous herewith Buyer is entering into substantially
similar Purchase and Sale Agreements with Seller's affiliates providing for
Buyer's purchase of the remainder of the Aggregate Purchased Assets (as
hereinafter defined).
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements hereinafter set forth, and intending to be legally
bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have the
meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
(2) "Agreement" means this Purchase and Sale Agreement together with the
Schedules and Exhibits hereto, as the same may be from time to time amended.
(3) "Aggregate Purchased Assets" means, collectively, the Purchased Assets
(as defined herein) and the Purchased Assets (as defined in each Related
Purchase Agreement).
(4) "Ancillary Agreements" means the Interconnection Agreement, the
Easement Agreements and the Transition Power Purchase Agreement, as the same may
be from time to time amended.
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(5) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Seller and Buyer substantially in the form of
Exhibit A hereto, by which Seller shall, subject to the terms and conditions
hereof, assign Seller's Agreements, the Real Property Leases, certain intangible
assets and other Purchased Assets to Buyer and whereby Buyer shall assume the
Assumed Liabilities.
(6) "Assumed Liabilities" has the meaning set forth in Section 2.3.
(7) "Benefit Plans" has the meaning set forth in Section 4.9.
(8) "Bill of Sale" means the Bill of Sale, substantially in the form of
Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible
Personal Property included in the Purchased Assets transferred to Buyer at the
Closing.
(9) "Business Day" shall mean any day other than Saturday, Sunday and any
day on which banking institutions in the State of New Jersey or the Commonwealth
of Pennsylvania are authorized by law or other governmental action to close.
(10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f).
(11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
(12) "Buyer Material Adverse Effect" has the meaning set forth in Section
5.3(a).
(13) "Buyer Required Regulatory Approvals" has the meaning set forth in
Section 5.3(b).
(14) "Capital Expenditures" has the meaning set forth in Section 3.3(a).
(15) "CERCLA" means the Federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
(16) "Closing" has the meaning set forth in Section 3.1.
(17) "Closing Adjustment" has the meaning set forth in Section 3.3(b).
(18) "Closing Date" has the meaning set forth in Section 3.1.
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(19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
(20) "Code" means the Internal Revenue Code of 1986, as amended.
(21) "Collective Bargaining Agreement" has the meaning set forth in
Section 6.10(d).
(22) "Commercially Reasonable Efforts" means efforts which are reasonably
within the contemplation of the Parties at the time of executing this Agreement
and which do not require the performing Party to expend any funds other than
expenditures which are customary and reasonable in transactions of the kind and
nature contemplated by this Agreement in order for the performing Party to
satisfy its obligations hereunder.
(23) "Computer Systems" has the meaning set forth in Section 4.20.
(24) "Confidentiality Agreement" means the Confidentiality Agreement,
dated March 2, 1998, by and between Seller and Buyer.
(25) "Direct Claim" has the meaning set forth in Section 8.2(c).
(26) "Easements" means, with respect to the Purchased Assets, the
easements and access rights to be granted pursuant to the Easement Agreements,
including, without limitation, easements authorizing access, use, maintenance,
construction, repair, replacement and other activities, as further described in
the Easement Agreements.
(27) "Easement Agreements" means the Easement and License Agreements
between Buyer and Seller, in the form of Exhibit C hereto, whereby Buyer will
provide Seller with certain Easements with respect to the Real Property
transferred to Buyer and whereby Seller will provide Buyer with certain
Easements with respect to certain property owned by Seller.
(28) "Emission Allowance" means all present and future authorizations to
emit specified units of pollutants or Hazardous Substances, which units are
established by the Governmental Authority with jurisdiction over the Plants
under (i) an air pollution control and emission reduction program designed to
mitigate global warming, interstate or intra-state transport of air pollutants;
(ii) a program designed to mitigate impairment of surface waters, watersheds, or
groundwater; or (iii) any pollution reduction program with a similar purpose.
Emission Allowances include allowances, as described above, regardless as
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to whether the Governmental Authority establishing such Emission Allowances
designates such allowances by a name other than "allowances."
(29) "Emission Reduction Credits" means credits, in units that are
established by the Governmental Authority with jurisdiction over the Plants that
have obtained the credits, resulting from reductions in the emissions of air
pollutants from an emitting source or facility (including, without limitation,
and to the extent allowable under applicable law, reductions from shut-downs or
control of emissions beyond that required by applicable law) that: (i) have been
identified by the PaDEP as complying with applicable Pennsylvania law governing
the establishment of such credits (including, without limitation, that such
emissions reductions are enforceable, permanent, quantifiable and surplus) and
listed in the Emissions Reduction Credit Registry maintained by the PaDEP or
with respect to which such identification and listing are pending; or (ii) have
been certified by any other applicable Governmental Authority as complying with
the law and regulations governing the establishment of such credits (including,
without limitation, certification that such emissions reductions are
enforceable, permanent, quantifiable and surplus). The term includes Emission
Reduction Credits that have been approved by the PaDEP and are awaiting USEPA
approval. The term also includes certified air emissions reductions, as
described above, regardless as to whether the Governmental Authority certifying
such reductions designates such certified air emissions reductions by a name
other than "emission reduction credits."
(30) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements, activity and use
limitations, conservation easements, deed restrictions, encumbrances and charges
of any kind.
(31) "Environmental Claim" means any and all pending and/or threatened
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violations, investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or civil, pursuant
to or relating to any applicable Environmental Law by any person (including, but
not limited to, any Governmental Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (a)
violation of, or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs, cleanup costs,
removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or threatened Release into
the environment of any Hazardous
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Substances at any location related to the Purchased Assets, including, but not
limited to, any off-Site location to which Hazardous Substances, or materials
containing Hazardous Substances, were sent for handling, storage, treatment, or
disposal.
(32) "Environmental Condition" means the presence or Release to the
environment, whether at the Sites or at an off-Site location, of Hazardous
Substances, including any migration of those Hazardous Substances through air,
soil or groundwater to or from the Sites or any off-Site location regardless of
when such presence or Release occurred or is discovered.
(33) "Environmental Laws" means all applicable Federal, state and local,
provincial and foreign, civil and criminal laws, regulations, rules, ordinances,
codes, decrees, judgments, directives, or judicial or administrative orders
relating to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section
2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S.
Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S.
Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section
691.1 et seq.), and all applicable other state laws analogous to any of the
above.
(34) "Environmental Permits" has the meaning set forth in Section 4.7(a).
(35) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(36) "ERISA Affiliate" has the meaning set forth in Section 2.4(k).
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(37) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k).
(38) "Estimated Adjustment" has the meaning set forth in Section 3.3(b).
(39) "Estimated Closing Statement" has the meaning set forth in Section
3.3(b).
(40) "Excluded Assets" has the meaning set forth in Section 2.2.
(41) "Excluded Liabilities" has the meaning set forth in Section 2.4.
(42) "Facilities Act" has the meaning set forth in Section 10.14.
(43) "FERC" means the Federal Energy Regulatory Commission or any
successor agency thereto.
(44) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax
Act Certification and Affidavit, substantially in the form of Exhibit D hereto.
(45) "Good Utility Practices" mean any of the practices, methods and acts
engaged in or approved by a significant portion of the electric utility industry
during the relevant time period, or previously engaged in by Seller (in its
operation of the Purchased Assets), or any of the practices, methods or acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not intended to
be limited to the optimum practices, methods or acts to the exclusion of all
others, but rather to be acceptable practices, methods or acts generally
accepted in the industry or previously engaged in by Seller (in its operation of
the Purchased Assets).
(46) "Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating body or
other governmental authority.
(47) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company
of Seller.
(48) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a
wholly-owned subsidiary of GPU.
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(49) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of GPU.
(50) "Hazardous Substances" means (a) any petrochemical or petroleum
products, coal ash, oil, radioactive materials, radon gas, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may contain
levels of polychlorinated biphenyls; (b) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "hazardous constituents," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
(51) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
(52) "IBEW 459" means Local 459 of the International Brotherhood of
Electrical Workers.
(53) "Income Tax" means any federal, state, local or foreign Tax (a) based
upon, measured by or calculated with respect to net income, profits or receipts
(including, without limitation, capital gains Taxes and minimum Taxes) or (b)
based upon, measured by or calculated with respect to multiple bases (including,
without limitation, corporate franchise taxes) if one or more of the bases on
which such Tax may be based, measured by or calculated with respect to, is
described in clause (a), in each case together with any interest, penalties, or
additions to such Tax.
(54) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(55) "Indemnifying Party" has the meaning set forth in Section 8.1(e).
(56) "Indemnitee" has the meaning set forth in Section 8.1(d).
(57) "Independent Accounting Firm" means such independent accounting firm
of national reputation as is mutually appointed by Seller and Buyer.
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(58) "Inspection" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
(59) "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, copyrights and copyright rights owned by Seller
and necessary for the operation and maintenance of the Purchased Assets, and all
pending applications for registrations of patents, trademarks, and copyrights,
as set forth as part of Schedule 2.1(l).
(60) "Interconnection Agreements" means the Interconnection Agreements,
between Seller and Buyer, a form of which is attached as Exhibit E hereto, under
which Seller will provide Buyer with interconnection service to Seller's
transmission facilities and whereby Buyer will provide Seller with continuing
access to certain of the Purchased Assets after the Closing Date.
(61) "Inventories" means coal, fuel oil or alternative fuel inventories,
limestone, materials, spare parts, consumable supplies and chemical and gas
inventories relating to the operation of a Plant located at, or in transit to,
such Plant.
(62) "JCP&L" means Jersey Central Power & Light Company, a New Jersey
corporation.
(63) "Knowledge" means the actual knowledge of the corporate officers or
managerial representatives of the specified Person charged with responsibility
for the particular function as of the date of the this Agreement, or, with
respect to any certificate delivered pursuant to this Agreement, the date of
delivery of the certificate.
(64) "Material Adverse Effect" means any change in, or effect on the
Purchased Assets that is materially adverse to the operations or condition
(financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a
whole, or (ii) a Specified Plant (as defined below) other than: (a) any change
affecting the international, national, regional or local electric industry as a
whole and not Seller specifically and exclusively; (b) any change or effect
resulting from changes in the international, national, regional or local
wholesale or retail markets for electric power; (c) any change or effect
resulting from changes in the international, national, regional or local markets
for any fuel used in connection with the Aggregate Purchased Assets including
such Specified Plant; (d) any change or effect resulting from, changes in the
North American, national, regional or local electric transmission systems or
operations thereof; (e) any materially adverse change in or effect on the
Aggregate Purchased
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Assets including such Specified Plant which is cured (including by the payment
of money) before the Termination Date; (f) any order of any court or
Governmental Authority or legislature applicable to providers of generation,
transmission or distribution of electricity generally that imposes restrictions,
regulations or other requirements thereon; and (g) any change or effect
resulting from action or inaction by a Governmental Authority with respect to an
independent system operator or retail access in Pennsylvania or New Jersey. As
used herein, each of the following shall be a "Specified Plant": (1) the
Shawville Station and associated Purchased Assets to be conveyed to Buyer
pursuant to this Agreement; (2) the Portland Station and associated Purchased
Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement with
Met-Ed; and (3) collectively, all Purchased Assets to be conveyed to Buyer under
the Related Purchase Agreement to which GPU, JCP&L and Met-Ed are parties.
(65) [Reserved]
(66) "Met-Ed" means Metropolitan Edison Company, a Pennsylvania
corporation.
(67) "MPSC" means Maryland Public Service Commission.
(68) "Non-Union Employees" has the meaning as set forth in Sections
6.10(b) and
-------------------
(m).
(69) "PaPUC" means the Pennsylvania Public Utility Commission and any
successor agency thereto.
(70) "PaDEP" means the Pennsylvania Department of Environmental Protection
and any successor agency thereto.
(71) "Permits" has the meaning set forth in Section 4.14.
(72) "Permitted Encumbrances" means: (i) the Easements; (ii) those
Encumbrances set forth in Schedule 1.1(72); (iii) statutory liens for Taxes or
other governmental charges or assessments not yet due or delinquent or the
validity of which is being contested in good faith by appropriate proceedings
provided that the aggregate amount for all Aggregate Purchased Assets being so
contested does not exceed $500,000; (iv) mechanics', carriers', workers',
repairers' and other similar liens arising or incurred in the ordinary course of
business relating to obligations as to which there is no default on the part of
Seller or the validity of which are being contested in good faith, and which do
not, individually or in the aggregate, with respect to all Aggregate Purchased
Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and
other land use and environmental regulations by Governmental Authorities; and
(vi) such other liens, imperfections in or failure of title, charges,
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easements, restrictions and Encumbrances which do not materially, individually
or in the aggregate, detract from the value of the Aggregate Purchased Assets as
currently used or materially interfere with the present use of the Aggregate
Purchased Assets and neither secure indebtedness, nor individually or in the
aggregate have a value exceeding $30 million for all Aggregate Purchased Assets.
(73) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, or
governmental entity or any department or agency thereof.
(74) "Plants" means the generating stations and related assets as more
fully identified on Schedule 2.1 attached hereto.
(75) "Pollution Control Revenue Bonds" means the bonds listed on Schedule
6.12.
(76) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).
(77) "Post-Closing Statement" has the meaning set forth in Section 3.3(c).
(78) "Proprietary Information" of a Party means all information about the
Party or its Affiliates, including their respective properties or operations,
furnished to the other Party or its Representatives by the Party or its
Representatives, after the date hereof, regardless of the manner or medium in
which it is furnished. Proprietary Information does not include information
that: (a) is or becomes generally available to the public, other than as a
result of a disclosure by the other Party or its Representatives; (b) was
available to the other Party on a nonconfidential basis prior to its disclosure
by the Party or its Representatives; (c) becomes available to the other Party on
a nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality agreement with
the Party or its Representatives, or is not otherwise under any obligation to
the Party or any of its Representatives not to transmit the information to the
other Party or its Representatives; (d) is independently developed by the other
Party; or (e) was disclosed pursuant to the Confidentiality Agreement and
remains subject to the terms and conditions of the Confidentiality Agreement.
(79) "Purchased Assets" has the meaning set forth in Section 2.1.
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(80) "Purchase Price" has the meaning set forth in Section 3.2.
(81) "PURTA" has the meaning set forth in Section 3.5(c).
(82) "PURTA Surcharge" has the meaning set forth in Section 3.5(c).
(83) "Qualifying Offer" has the meaning set forth in Section 6.10(b).
(84) "Real Property" has the meaning set forth in Section 2.1(a).
(85) "Real Property Leases" has the meaning set forth in Section 4.6.
(86) "Related Purchase Agreements" has the meaning set forth in Section
7.1(k).
(87) "Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(88) "Remediation" means action of any kind to address a Release or the
presence of Hazardous Substances at a Site or an off-Site location including,
without limitation, any or all of the following activities to the extent they
relate to or arise from the presence of a Hazardous Substance at a Site or an
off-Site location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or restoration work; (b)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such activity; (c) preparing and implementing
any plans or studies for any such activity; (d) obtaining a written notice from
a Governmental Authority with jurisdiction over a Site or an off-Site location
under Environmental Laws that no material additional work is required by such
Governmental Authority; (e) the use, implementation, application, installation,
operation or maintenance of removal actions on a Site or an off-Site location,
remedial technologies applied to the surface or subsurface soils, excavation and
off-Site treatment or disposal of soils, systems for long term treatment of
surface water or ground water, engineering controls or institutional controls;
and (f) any other activities reasonably determined by a Party to be necessary or
appropriate or required under Environmental Laws to address the presence or
Release of Hazardous Substances at a Site or an off-Site location.
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(89) "Replacement Welfare Plans" has the meaning set forth in
Section 6.10(e)
-------------------------
(90) "Representatives" of a Party means the Party's Affiliates and their
directors, officers, employees, agents, partners, advisors (including, without
limitation, accountants, counsel, environmental consultants, financial advisors
and other authorized representatives) and parents and other controlling persons.
(91) "SEC" means the Securities and Exchange Commission and any successor
agency thereto.
(92) "Seller's Agreements" means those contracts, agreements, licenses and
leases relating to the ownership, operation and maintenance of the Plants and
being assigned to Buyer as part of the Purchased Assets, including without
limitation the Collective Bargaining Agreement.
(93) "Seller's Indemnitee" has the meaning set forth in Section 8.1 (a).
-------------------
(94) "Seller's Material Adverse Effect" has the meaning set forth in
Section 7.2(c).
(95) "Seller's Required Regulatory Approvals" has the meaning set forth in
Section 4.3(b).
(96) "Site" means, with respect to any Plant, the Real Property (including
improvements) forming a part of, or used or usable in connection with the
operation of, such Plant, including any disposal sites included in the Real
Property. Any reference to the Sites shall include, by definition, the surface
and subsurface elements, including the soils and groundwater present at the
Sites, and any reference to items "at the Sites" shall include all items "at,
on, in, upon, over, across, under and within" the Site and agreements set forth
in Schedule 4.1(a).
(97) "Subsidiary" when used in reference to any Person means any entity of
which outstanding securities having ordinary voting power to elect a majority of
the Board of Directors or other Persons performing similar functions of such
entity are owned directly or indirectly by such Person.
(98) "Tangible Personal Property" has the meaning set forth in Section
2.1(c).
(99) "Taxes" means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll,
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withholding, social security, gross receipts, license, stamp, occupation,
employment or other taxes, including any interest, penalties or additions
attributable thereto.
(100) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document (including any schedule or
related or supporting information) required to be supplied to any taxing
authority with respect to Taxes including amendments thereto.
(101) "Termination Date" has the meaning set forth in Section 9.1(b).
(102) "Third Party Claim" has the meaning set forth in Section 8.2(a).
(103) "Transferable Permits" means those Permits and Environmental Permits
which may be lawfully transferred to or assumed by Buyer without a filing with,
notice to, consent or approval of any Governmental Authority, and are set forth
in Schedule 1.1 (103).
(104) "Transferred Employees" means Transferred Non-Union Employees and
Transferred Union Employees.
(105) "Transferred Non-Union Employees" has the meaning set forth in
Section 6.10(b).
(106) "Transferred Union Employees" has the meaning set forth in Section
6.10(b).
(107) "Transferring Employee Records" means all records related to
personnel of Seller, Genco, GPUN or GPUS who will become employees of Buyer only
to the extent such records pertain to: (i) skill and development training and
biographies, (ii) seniority histories, (iii) salary and benefit information,
including benefit census and valuation data, (iv) Occupational, Safety and
Health Administration reports, and (v) active medical restriction forms.
(108) "Transition Power Purchase Agreement" means the agreement between
Seller and Buyer, a copy of which are attached as Exhibit G hereto, executed on
the date hereof, relating to the sale of installed capacity to Seller for a
specified period of time following the Closing Date.
(109) "Transmission Assets" has the meaning set forth in Section 2.2(a).
(110) "Union" means IBEW 459.
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(111) "Union Employees" has the meaning set forth in Sections 6.10(a)
and (m).
---------------
(112) "USEPA" means the United States Environmental Protection Agency and
any successor agency thereto.
(113) "Year 2000 Compliant" has the meaning set forth in Section 4.20.
"Year 2000 Compliance" has a meaning correlative to the foregoing.
(114) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise requires, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date as of which such reference is made.
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, at the Closing Seller will sell,
assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume
and acquire from Seller, free and clear of all Encumbrances (except for
Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms
and conditions of this Agreement, all of Seller's right, title and interest in
and to all assets constituting, or used in and necessary for generation purposes
to the operation of, the Plants identified in Schedule 2.1 including without
limitation those assets described below (but excluding the Excluded Assets),
each as in existence on the Closing Date (collectively, "Purchased Assets"):
(a) Those certain parcels of real property (including all buildings,
facilities and other improvements thereon and all appurtenances thereto)
described in Schedule 4.10 (the "Real Property"), except as otherwise
constituting part of the Excluded Assets;
(b) All Inventories;
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(c) All machinery, mobile or otherwise, equipment (including
communications equipment), vehicles, tools, furniture and furnishings and other
personal property located on or used principally in connection with the Real
Property on the Closing Date, including, without limitation, the items of
personal property included in Schedule 2.1(c), together with all the personal
property of Seller used principally in the operation of the Plants and listed in
Schedule 2.1(c), other than property used or primarily usable as part of the
Transmission Assets or otherwise constituting part of the Excluded Assets
(collectively, "Tangible Personal Property");
(d) Subject to the provisions of Section 6.5(d), all Seller's
Agreements;
(e) Subject to the provisions of Section 6.5(d), all Real Property
Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and maintenance
manuals, engineering design plans, documents, blueprints and as built plans,
specifications, procedures and similar items of Seller relating specifically to
the aforementioned assets and necessary for the operation of the Plants (subject
to the right of Seller to retain copies of same for its use) other than such
items which are proprietary to third parties and accounting records;
(h) Subject to Section 6.1, all Emission Reduction Credits
associated with the Plants and identified in Schedule 2.1(h), and all Emission
Allowances that have accrued prior to, or that accrue on or after, the date of
this Agreement but prior to the Closing Date;
(i) All unexpired, transferable warranties and guarantees from third
parties with respect to any item of Real Property or personal property
constituting part of the Purchased Assets, as of the Closing Date;
(j) The names of the Plants. It is expressly understood that Seller
is not assigning or transferring to Buyer any right to use the names "Jersey
Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or
similar trade names, trademarks, service marks, corporate names and logos or any
part, derivative or combination thereof;
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(k) All drafts, memoranda, reports, information, technology, and
specifications relating to Seller's plans for Year 2000 Compliance with respect
to the Purchased Assets;
(l) The Intellectual Property described on Schedule 2.1(l); and
(m) The substation equipment set forth in Schedule A to the
Interconnection Agreement and designated therein as being transferred to Buyer.
2.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest in
or to the following specific assets which are associated with the Purchased
Assets, but which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule 2.1(c), the
electrical transmission or distribution facilities (as opposed to generation
facilities) of Seller or any of its Affiliates located at the Sites or forming
part of the Plants (whether or not regarded as a "transmission" or "generation"
asset for regulatory or accounting purposes), including all switchyard
facilities, substation facilities and support equipment, as well as all permits,
contracts and warranties, to the extent they relate to such transmission and
distribution assets (collectively, the "Transmission Assets"), and those certain
assets, facilities and agreements all as identified on Schedule 2.2(a) attached
hereto;
(b) Certain revenue meters and remote testing units, drainage pipes
and systems, as identified in the Easement Agreement;
(c) Certificates of deposit, shares of stock, securities, bonds,
debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;
(d) All cash, cash equivalents, bank deposits, accounts and notes
receivable (trade or otherwise), and any income, sales, payroll or other tax
receivables;
(e) The rights of Seller and its Affiliates to the names "Jersey
"Central Power & Light Company", "JCP&L", "Metropolitan Edison Company",
"Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU
Generation", "GPU
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Nuclear", "GPU Service" and "GPU Genco" or any related or similar trade names,
trademarks, service marks, corporate names or logos, or any part, derivative or
combination thereof;
(f) All tariffs, agreements and arrangements to which Seller is a
party for the purchase or sale of electric capacity and/or energy or for the
purchase of transmission or ancillary services;
(g) The rights of Seller in and to any causes of action against
third parties (including indemnification and contribution), other than to the
extent relating to any Assumed Liability, relating to any Real Property or
personal property, Permits, Environmental Permits, Taxes, Real Property Leases
or Seller's Agreements, if any, including any claims for refunds, prepayments,
offsets, recoupment, insurance proceeds, condemnation awards, judgments and the
like, whether received as payment or credit against future liabilities, relating
specifically to the Plants or the Sites and relating to any period prior to the
Closing Date;
(h) All personnel records of Seller or its Affiliates relating to
the Transferred Employees other than Transferring Employee Records or other
records, the disclosure of which is required by law, or legal or regulatory
process or subpoena; and
(i) Any and all of Seller's rights in any contract representing an
intercompany transaction between Seller and an Affiliate of Seller, whether or
not such transaction relates to the provision of goods and services, payment
arrangements, intercompany charges or balances, or the like, except for any
contracts listed on Schedule 4.12(a).
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
Seller the Assignment and Assumption Agreement pursuant to which Buyer shall
assume and agree to discharge when due, without recourse to Seller, all of the
following liabilities and obligations of Seller, direct or indirect, known or
unknown, absolute or contingent, which relate to the Purchased Assets, other
than Excluded Liabilities, in accordance with the respective terms and subject
to the respective conditions thereof (collectively, "Assumed Liabilities"):
(a) All liabilities and obligations of Seller arising on or after
the Closing Date under Seller's Agreements, the Real Property Leases, and the
Transferable Permits in accordance with the terms thereof, including, without
limitation, (i) the contracts, licenses, agreements and personal property leases
entered into by Seller with respect to the Purchased Assets, which are disclosed
on Schedule 4.12(a) or not required by Section 4.12(a) to be so disclosed, and
(ii) the contracts,
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licenses, agreements and personal property leases entered into by Seller with
respect to the Purchased Assets after the date hereof consistent with the terms
of this Agreement, except in each case to the extent such liabilities and
obligations, but for a breach or default by Seller, would have been paid,
performed or otherwise discharged on or prior to the Closing Date or to the
extent the same arise out of any such breach or default or out of any event
which after the giving of notice would constitute a default by Seller;
(b) All liabilities and obligations associated with the Purchased
Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or
6.8(a) hereof;
(c) All liabilities and obligations with respect to the Transferred
Employees arising on or after the Closing Date (i) for which Buyer is
responsible pursuant to Section 6.10 and (ii) relating to the grievances and
arbitration proceedings arising out of or under the Collective Bargaining
Agreement prior to, on or after the Closing Date;
(d) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with (i) any violation or alleged violation of Environmental
Laws, whether prior to, on or after the Closing Date, with respect to the
ownership or operation of any of the Purchased Assets; (ii) loss of life, injury
to persons or property or damage to natural resources (whether or not such loss,
injury or damage arose or was made manifest before the Closing Date or arises or
becomes manifest on or after the Closing Date) caused (or allegedly caused) by
the presence or Release of Hazardous Substances at, on, in, under, adjacent to
or migrating from the Purchased Assets prior to, on or after the Closing Date,
including, but not limited to, Hazardous Substances contained in building
materials at or adjacent to the Purchased Assets or in the soil, surface water,
sediments, groundwater, landfill cells, or in other environmental media at or
near the Purchased Assets; and (iii) the Remediation (whether or not such
Remediation commenced before the Closing Date or commences on or after the
Closing Date) of Hazardous Substances that are present or have been Released
prior to, on or after the Closing Date at, on, in, under, adjacent to or
migrating from, the Purchased Assets or in the soil, surface water, sediments,
groundwater, landfill cells or in other environmental media at or adjacent to
the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d)
shall require Buyer to assume any liabilities or obligations that are expressly
excluded in Section 2.4 including, without limitation, liability for toxic torts
as set forth in Section 2.4(i).
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(e) All liabilities and obligations of Seller with respect to the
Purchased Assets under the agreements or consent orders set forth on Schedule
4.7 arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or after the Closing Date, except
for any Income Taxes attributable to income received by Seller.
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay,
perform or otherwise discharge the following liabilities or obligations (the
"Excluded Liabilities"):
(a) Any liabilities or obligations of Seller that are not expressly
set forth as liabilities or obligations being assumed by Buyer in Section 2.3
and any liabilities or obligations in respect of any Excluded Assets or other
assets of Seller which are not Purchased Assets;
(b) Any liabilities or obligations in respect of Taxes attributable
to the ownership, operation or use of Purchased Assets for taxable periods, or
portions thereof, ending before the Closing Date, except for Taxes for which
Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof and any liability in
respect of PURTA not otherwise expressly assumed by Buyer under Section 3.5
hereof;
(c) Any liabilities or obligations of Seller accruing under any of
Seller's Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or obligations to
third parties (including employees) for personal injury or tort, or similar
causes of action arising solely out of the ownership or operation of the
Purchased Assets prior to the Closing Date, other than any liabilities or
obligations which have been assumed by Buyer in Section 2.3(d);
(e) Any fines, penalties or costs imposed by a Governmental
Authority resulting from (i) an investigation, proceeding, request for
information or inspection before or by a Governmental Authority pending prior to
the Closing Date but only regarding acts which occurred prior to the Closing
Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller
prior to the Closing Date, other than, any such fines, penalties or costs which
have been assumed by Buyer in Section 2.3(d);
(f) Any payment obligations of Seller for goods delivered or
services rendered prior to the Closing Date,
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including, but not limited to, rental payments pursuant to the Real Property
Leases;
(g) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with loss of life, injury to persons or property or damage
to natural resources (whether or not such loss, injury or damage arose or was
made manifest before the Closing Date or arises or becomes manifest on or after
the Closing Date) to the extent caused (or allegedly caused) by the off-Site
disposal, storage, transportation, discharge, Release, or recycling of Hazardous
Substances, or the arrangement for such activities, of Hazardous Substances,
prior to the Closing Date, in connection with the ownership or operation of the
Purchased Assets, provided that for purposes of this Section "off-Site" does not
include any location to which Hazardous Substances disposed of or Released at
the Purchased Assets have migrated;
(h) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability or obligation or
responsibility is known or unknown, contingent or accrued, arising as a result
of or in connection with the investigation and/or Remediation (whether or not
such investigation or Remediation commenced before the Closing Date or commences
on or after the Closing Date) of Hazardous Substances that are disposed, stored,
transported, discharged, Released, recycled, or the arrangement of such
activities, prior to the Closing Date, (i) in connection with the ownership or
operation of the Purchased Assets, at any off-Site location, provided that for
purposes of this Section "off-Site" does not include any location to which
Hazardous Substances disposed of or Released at the Purchased Assets have
migrated, (ii) in connection with the coal refuse site at the Seward Plant more
particularly described in Schedule 2.4(h) but only up to a maximum amount of $6
million in the aggregate, and (iii) in connection with the remediation
associated with the leaking underground pipeline at the Broad Street office
facility more particularly described in Schedule 2.4(h).
(i) Third party liability for toxic torts arising as a result of or
in connection with loss of life or injury to persons (whether or not such loss
or injury arose or was made manifest on or after the Closing Date) caused (or
allegedly caused) by the presence or Release of Hazardous Substances at, on, in,
under, adjacent to or migrating from the Purchased Assets prior to the Closing
Date;
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(j) Civil or criminal fines or penalties wherever assessed or
incurred for violations of Environmental Laws arising from the operation of the
Purchased Assets prior to the Closing Date;
(k) Subject to Section 6.10, any liabilities or obligations relating
to any Benefit Plan maintained by Seller or any trade or business (whether or
not incorporated) which is or ever has been under common control, or which is or
ever has been treated as a single employer, with Seller under Section 414(b),
(c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA
Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including but
not limited to any liability with respect to any such plan (i) for benefits
payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under
Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan
within the meaning of Section 3(37) of ERISA; (iv) for non-compliance with the
notice and benefit continuation requirements of COBRA; (v) for noncompliance
with ERISA or any other applicable laws; or (vi) arising out of or in connection
with any suit, proceeding or claim which is brought against Buyer, any Benefit
Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such
Benefit Plan or ERISA Affiliate Plan;
(l) Subject to Section 6.10, any liabilities or obligations relating
to the employment or termination of employment, by Seller, or any Affiliate of
Seller, of any individual, that is attributable to any actions or inactions
(including discrimination, wrongful discharge, unfair labor practices or
constructive termination) by Seller prior to the Closing Date other than such
actions or inactions taken at the written direction of Buyer;
(m) Subject to Section 6.10, any obligations for wages, overtime,
employment taxes, severance pay, transition payments in respect of compensation
or similar benefits accruing or arising prior to the Closing under any term or
provision of any contract, plan, instrument or agreement relating to any of the
Purchased Assets;
(n) Any liability of Seller arising out of a breach by Seller or any
of its Affiliates of any of their respective obligations under this Agreement or
the Ancillary Agreements; and
(o) Any liability relating to the Pollution Control Revenue Bonds
except as provided in Section 6.12.
2.5 Control of Litigation. The Parties agree and acknowledge that Seller
shall be entitled exclusively to control, defend and settle any litigation,
administrative or regulatory
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proceeding, and any investigation or Remediation activities (including without
limitation any environmental mitigation or Remediation activities), arising out
of or related to any Excluded Liabilities, and Buyer agrees to cooperate fully
in connection therewith; provided, however, that without Buyer's written
consent, which shall not be unreasonably withheld or delayed, Seller shall not
settle any such litigation, administrative or regulatory proceeding which would
result in a material adverse effect on the related Purchased Assets.
ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions contained in Article VII of this Agreement, the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment
of the Purchase Price to Seller, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be held at the offices of Berlack, Israels &
Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time,
or another mutually acceptable time and location, on the date that is fifteen
(15) Business Days following the date on which the last of the conditions
precedent to Closing set forth in Article VII of this Agreement have been either
satisfied or waived by the Party for whose benefit such conditions precedent
exist or such other date as the Parties may mutually agree. The date of Closing
is hereinafter called the "Closing Date." The Closing shall be effective for all
purposes as of 12:01 a.m. on the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Seller at the Closing an
aggregate amount of five hundred sixty million six hundred forty one thousand
United States Dollars (U.S. $560,641,000.00) (the "Purchase Price") plus or
minus any adjustments pursuant to the provisions of this Agreement, by wire
transfer of immediately available funds denominated in U.S. dollars or by such
other means as are agreed upon by Seller and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the
Closing, the Purchase Price shall be adjusted, without duplication, to account
for the items set forth in this Section 3.3(a):
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(i) The Purchase Price shall be increased or decreased, as
applicable, to reflect the difference between the book value of all
Inventories as of the Closing Date and the value of all Inventories as of
June 30, 1998 as reflected on Schedule 3.3(a)(i).
(ii) The Purchase Price shall be adjusted to account for the
items prorated as of the Closing Date pursuant to Section 3.5.
(iii) The Purchase Price shall be increased by the amount
expended, or for which liabilities are incurred, by Seller between the
date hereof and the Closing Date for capital additions to or replacements
of property, plant and equipment included in the Purchased Assets and
other expenditures or repairs on property, plant and equipment included in
the Purchased Assets that would be capitalized by Seller in accordance
with normal accounting policies of Seller and its Affiliates (together,
"Capital Expenditures"), which are not described on Schedule 6.1 and which
either (A) are mandated after the date of this Agreement by any
Governmental Authority (subject to Buyer's right reasonably to direct
Seller to contest such mandates by appropriate proceedings at Buyer's
expense and provided there is no adverse impact on the Purchased Assets);
or (B) do not fall within category (A) above but do not exceed in the
aggregate $2 million for all Aggregate Purchased Assets; or (C) are
approved in writing by Buyer.
(b) At least ten (10) Business Days prior to the Closing Date,
Seller shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth Seller's best estimate of
the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated
Adjustment"). Within five (5) Business Days following the delivery of the
Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith
to the Estimated Adjustment in writing. If Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If the Parties are unable to do so within three (3) Business Days
prior to the Closing Date (or if Buyer does not object to the Estimated
Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for
the Closing by the amount of the Estimated Adjustment not in dispute. The
disputed portion shall be paid as a Post-Closing Adjustment to the extent
required by Section 3.3(c).
(c) Within sixty (60) days following the Closing Date, Seller shall
prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all
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adjustments to the Purchase Price required by Section 3.3(a) (the "Post-Closing
Adjustment"). The Post-Closing Statement shall be prepared using the same
accounting principles, policies and methods as Seller has historically used in
connection with the calculation of the items reflected on such Post-Closing
Statement. Within thirty (30) days following the delivery of the Post-Closing
Statement by Seller to Buyer, Buyer may object to the Post-Closing Adjustment in
writing. Seller agrees to cooperate with Buyer to provide Buyer and Buyer's
Representatives information used to prepare the Post-Closing Statement and
information relating thereto. If Buyer objects to the Post-Closing Adjustment,
the Parties shall attempt to resolve such dispute by negotiation. If the Parties
are unable to resolve such dispute within thirty (30) days of any objection by
Buyer, the Parties shall appoint the Independent Accounting Firm, which shall,
at Seller's and Buyer's joint expense, review the Post-Closing Adjustment and
determine the appropriate adjustment to the Purchase Price, if any, within
thirty (30) days of such appointment. The Parties agree to cooperate with the
Independent Accounting Firm and provide it with such information as it
reasonably requests to enable it to make such determination. The finding of such
Independent Accounting Firm shall be binding on the Parties hereto. Upon
determination of the appropriate adjustment by agreement of the Parties or by
binding determination of the Independent Accounting Firm, if the Post-Closing
Adjustment is more or less than the Closing Adjustment, the Party owing the
difference shall deliver such difference to the other Party no later than two
(2) Business Days after such determination, in immediately available funds or in
any other manner as reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Seller shall endeavor to agree
upon an allocation among the Purchased Assets of the sum of the Purchase Price
and the Assumed Liabilities in a manner consistent with the provisions of
Section 1060 of the Code and the Treasury Regulations thereunder within sixty
(60) days of the date of this Agreement. Each of Buyer and Seller agrees to file
Internal Revenue Service Form 8594, and all federal, state, local and foreign
Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and
Seller shall report the transactions contemplated by this Agreement for federal
Tax and all other Tax purposes in a manner consistent with any such agreed to
allocation determined pursuant to this Section 3.4. Each of Buyer and Seller
agrees to provide the other promptly with any information required to complete
Form 8594. Buyer and Seller shall notify and provide the other with reasonable
assistance in the event of an examination, audit or other proceeding regarding
any allocation of the Purchase Price agreed to pursuant to this Section 3.4.
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3.5 Prorations. (a) Buyer and Seller agree that all of the items normally
prorated, including those listed below (but not including Income Taxes),
relating to the business and operation of the Purchased Assets shall be prorated
as of the Closing Date, with Seller liable to the extent such items relate to
any time period prior to the Closing Date, and Buyer liable to the extent such
items relate to periods commencing with the Closing Date (measured in the same
units used to compute the item in question, otherwise measured by calendar
days):
(i) Personal property, real estate and occupancy Taxes,
assessments and other charges, if any, on or with respect to the business
and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including prepaid
services or goods not included in Inventory) payable by or to Seller under
any of Seller's Agreements;
(iii) Any permit, license, registration, compliance assurance
fees or other fees with respect to any Transferable Permit;
(iv) Sewer rents and charges for water, telephone, electricity
and other utilities; and
(v) Rent and Taxes and other items payable by Seller under the
Real Property Leases assigned to Buyer.
(b) In connection with the prorations referred to in (a) above, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual Taxes or other amounts accrued through
the Closing Date or paid for the most recent year (or other appropriate period)
for which actual Taxes or other amounts paid are available. Such prorated Taxes
or other amounts shall be re-prorated and paid to the appropriate Party within
sixty (60) days of the date that the previously unavailable actual figures
become available. The prorations shall be based on the number of days in a year
or other appropriate period (i) before the Closing Date and (ii) including and
after the Closing Date. Seller and Buyer agree to furnish each other with such
documents and other records as may be reasonably requested in order to confirm
all adjustment and proration calculations made pursuant to this Section 3.5.
Notwithstanding anything to the contrary herein, no proration shall
be made under this Section 3.5 with respect to Taxes payable under the
Pennsylvania Public Utility Realty Tax Act ("PURTA") that are attributable to
the year in which the Closing occurs (the "Closing Year PURTA Tax"). Buyer shall
be fully responsible and indemnify Seller for, and shall be entitled
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to receive all refunds relating to payments Buyer makes with respect to, the
Closing Year PURTA Tax; provided, however, that any additional tax that is
imposed in the year in which the Closing occurs pursuant to Section 1104-A(b) of
PURTA or any successor provision thereof (a "PURTA Surcharge") but which relates
to the previous year shall not be treated as the Closing Year PURTA Tax and
Seller shall be responsible for such PURTA Surcharge.
3.6 Deliveries by Seller. At the Closing, Seller will deliver, or cause to
be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by Seller;
(b) Copies of any and all governmental and other third party
consents, waivers or approvals required with respect to the transfer of the
Purchased Assets, or the consummation of the transactions contemplated by this
Agreement;
(c) The opinions of counsel and officer's certificates contemplated
by Section 7.1;
(d) One or more special warranty deeds conveying the Real Property
to Buyer, in substantially the form of Exhibit F hereto, duly executed and
acknowledged by Seller and in recordable form;
(e) The Assignment and Assumption Agreement and any Ancillary
Agreements which are not executed on the date hereof, duly executed by Seller;
(f) A FIRPTA Affidavit, duly executed by Seller;
(g) Copies, certified by the Secretary or Assistant Secretary of
Seller, of corporate resolutions authorizing the execution and delivery of this
Agreement and all of the agreements and instruments to be executed and delivered
by Seller in connection herewith, and the consummation of the transactions
contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of Seller
identifying the name and title and bearing the signatures of the officers of
Seller authorized to execute and deliver this Agreement and the other agreements
and instruments contemplated hereby;
(i) Certificates of Subsistence with respect to Seller, issued by
the Secretary of the State of Seller's state of incorporation;
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(j) To the extent available, originals of all Seller's Agreements,
Real Property Leases, Permits, Environmental Permits, and Transferable Permits
and, if not available, true and correct copies thereof, together with all the
items referred to in Section 2.1(g);
(k) All such other instruments of assignment, transfer or conveyance
as shall, in the reasonable opinion of Buyer and its counsel, be necessary or
desirable to transfer to Buyer the Purchased Assets, in accordance with this
Agreement and where necessary or desirable in recordable form;
(l) Notices, signed by Seller, to all other parties to the material
Seller's Agreements where notice to such parties is required under the terms of
such Seller's Agreements or pursuant to Section 6.5(d) hereof;
(m) Reliance letters from Woodward & Clyde with respect to the
Environmental Reports prepared by Woodward & Clyde concerning the Purchased
Assets and made available for review by Buyer.
(n) Such other agreements, documents, instruments and writings as
are required to be delivered by Seller at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith;
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to
be delivered, the following to Seller:
(a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire
transfer of immediately available funds in accordance with Seller's instructions
or by such other means as may be agreed to by Seller and Buyer;
(b) The opinions of counsel and officer's certificates contemplated
by Section 7.2;
(c) The Assignment and Assumption Agreement and any Ancillary
Agreements which are not executed on the date hereof, duly executed by Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary of
Buyer, of resolutions authorizing the execution and delivery of this Agreement,
the Guaranty and all of the agreements and instruments to be executed and
delivered by Buyer in connection herewith, and the consummation of the
transactions contemplated hereby;
(e) A certificate of the Secretary or Assistant Secretary of Buyer,
identifying the name and title and bearing
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the signatures of the officers of Buyer authorized to execute and deliver this
Agreement, the Guaranty and the other agreements contemplated hereby;
(f) All such other instruments of assumption as shall, in the
reasonable opinion of Seller and its counsel, be necessary for Buyer to assume
the Assumed Liabilities in accordance with this Agreement;
(g) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the transfer of
the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement and where necessary or desirable in recordable forms;
(h) Certificates of Insurance relating to the insurance policies
required pursuant to Article 10 of the Interconnection Agreement; and
(i) Such other agreements, documents, instruments and writings as
are required to be delivered by Buyer at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith.
3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary
Agreements other than the Easement Agreements have been executed on the date
hereof.
3.9 Easement Agreements. At the Closing, Buyer and Seller shall execute
for each Site an Easement Agreement in the form attached hereto as Exhibit C,
completed as required to cause the entity owning such Site to grant such
Easements and licenses as are contemplated by such form of agreement and
Exhibits B (Distribution Facilities), Exhibits C (Transmission Facilities),
Exhibits F (Distribution Substation), and Exhibits G (Main Substation) thereto,
forms of which are attached thereto. Such forms of Exhibits B, C, F and G to the
agreements are subject to revision as the Parties may agree. The Parties shall
engage in reasonable and good faith negotiations regarding such revisions so as
to minimize the impact of the Seller's Easements, Easement areas and licenses on
the Sites and Buyer's use thereof, consistent with the enjoyment by Seller of
such Easements and license rights as Seller reasonably requires to continue its
use, operation and maintenance of the Excluded Assets.
The Parties shall also engage in reasonable, good faith negotiations
to agree upon the rules and regulations under which Buyer will grant to Seller
access to the Sites, and under which Seller will grant to Buyer access to
Seller's Easements and Easement areas. Such rules and regulations shall be
memorialized as Exhibit J to each agreement.
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ARTICLE IV
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Incorporation; Qualification. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation and has all requisite corporate power and authority to own,
lease, and operate its material properties and assets and to carry on its
business as is now being conducted. Seller is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which its business as now being conducted shall require it to be so
qualified, except where the failure to be so qualified would not have a Material
Adverse Effect. Seller has heretofore delivered to Buyer true, complete and
correct copies of its Certificate of Incorporation and Bylaws as currently in
effect.
4.2 Authority Relative to this Agreement. Seller has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Seller and the consummation of the transactions contemplated by
Seller hereby have been duly and validly authorized by all necessary corporate
action required on the part of Seller and this Agreement has been duly and
validly executed and delivered by Seller. Subject to the receipt of Seller's
Required Regulatory Approvals, this Agreement constitutes the legal, valid and
binding agreement of Seller, enforceable against Seller in accordance with its
terms, except that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
4.3 Consents and Approvals; No Violation. (a) Except as set forth in
Schedule 4.3(a), and subject to obtaining Seller's Required Regulatory
Approvals, neither the execution and delivery of this Agreement by Seller nor
the consummation by Seller of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of Seller, (ii) result in a default (or give rise to any
right of termination, consent, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Seller is a party or by
which it, or any of the Purchased Assets may be bound, except for such defaults
(or rights of termination, cancellation or acceleration)
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as to which requisite waivers or consents have been obtained or which, would
not, individually or in the aggregate, create a Material Adverse Effect; or
(iii) constitute violations of any law, regulation, order, judgment or decree
applicable to Seller, which violations, individually or in the aggregate, would
create a Material Adverse Effect, or create any Encumbrance other than a
Permitted Encumbrance.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Seller's Required Regulatory Approvals"), no consent or approval of, filing
with, or notice to, any Governmental Authority is necessary for the execution
and delivery of this Agreement by Seller, or the consummation by Seller of the
transactions contemplated hereby, other than (i) such consents, approvals,
filings or notices which, if not obtained or made, will not prevent Seller from
performing its material obligations hereunder and (ii) such consents, approvals,
filings or notices which become applicable to Seller or the Purchased Assets as
a result of the specific regulatory status of Buyer (or any of its Affiliates)
or as a result of any other facts that specifically relate to the business or
activities in which Buyer (or any of its Affiliates) is or proposes to be
engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material policies
of fire, liability, workers' compensation and other forms of insurance owned or
held by, or on behalf of, Seller with respect to the business, operations or
employees at the Plants or the Purchased Assets are in full force and effect,
all premiums with respect thereto covering all periods up to and including the
date hereof have been paid (other than retroactive premiums which may be payable
with respect to comprehensive general liability and workers' compensation
insurance policies), and no notice of cancellation or termination has been
received with respect to any such policy which was not replaced on substantially
similar terms prior to the date of such cancellation. Except as described in
Schedule 4.4, within the 36 months preceding the date of this Agreement, Seller
has not been refused any insurance with respect to the Purchased Assets nor has
coverage been limited by any insurance carrier to which Seller has applied for
any such insurance or with which Seller has carried insurance during the last 12
months.
4.5 Title and Related Matters. Except as set forth in Schedule 4.5 and
subject to Permitted Encumbrances, (i) Seller is the owner of record title to
the Real Property (or the interest in the Real Property as set forth in Schedule
2.1) and has good and valid title to the other Purchased Assets which it
purports to own, free and clear of all material Encumbrances of which the Seller
has knowledge and (ii) Seller shall convey to Buyer such
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title with respect to the Real Property or interest therein as a reputable title
company doing business in the Commonwealth of Pennsylvania, as applicable, would
insure.
4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this
Agreement, all material real property leases under which Seller is a lessee or
lessor and which relate to the Purchased Assets ("Real Property Leases"). Except
as set forth in Schedule 4.6, all such leases are valid, binding and enforceable
against Seller in accordance with their terms; there are no existing material
defaults by Seller or, to Seller's Knowledge, any other party thereunder; and no
event has occurred which (whether with or without notice, lapse of time or both)
would constitute a material default by Seller or, to Seller's Knowledge, any
other party thereunder. Seller has delivered to Buyer true, correct and complete
copies of each of the material Real Property Leases.
4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the
"Phase I" and "Phase II" environmental site assessments prepared by Seller's
outside environmental consultants ("Environmental Reports") and made available
for inspection by Buyer:
(a) Seller holds, and is in substantial compliance with, all
permits, certificates, certifications, licenses and governmental authorizations
under Environmental Laws ("Environmental Permits") that are required for Seller
to conduct the business and operations of the Purchased Assets, and Seller is
otherwise in compliance with applicable Environmental Laws with respect to the
business and operations of such Purchased Assets except for such failures to
hold or comply with required Environmental Permits, or such failures to be in
compliance with applicable Environmental Laws, as would not, individually or in
the aggregate, create a Material Adverse Effect;
(b) Seller has not received any written request for information, or
been notified that it is a potentially responsible party, under CERCLA or any
similar state law with respect to the Real Property or any other Purchased
Assets;
(c) Seller has not entered into or agreed to any consent decree or
order relating to the Purchased Assets, or is not subject to any outstanding
judgment, decree, or judicial order relating to compliance with any
Environmental Law or to investigation or cleanup of Hazardous Substances under
any Environmental Law relating to the Purchased Assets.
(d) To Seller's Knowledge, no Releases of Hazardous Substances have
occurred at, from, in, on, or under any Site, and no Hazardous Substances are
present in, on, about or migrating
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from any such Site that could give rise to an Environmental Claim related to the
Purchased Assets for which Remediation reasonably could be required, except in
any such case to the extent that any such Releases would not, individually or in
the aggregate, create a Material Adverse Effect.
The representations and warranties made in this Section 4.7 are Seller's
exclusive representations and warranties relating to environmental matters.
4.8 Labor Matters. Seller has previously delivered to Buyer a true and
correct copy of the Collective Bargaining Agreement, which is the only
collective bargaining agreement to which it is a party or is subject and which
relates to the business and operations of the Purchased Assets. With respect to
the business or operations of such Purchased Assets, except to the extent set
forth in Schedule 4.8 and except for such matters as will not, individually or
in the aggregate, create a Material Adverse Effect, Seller (a) is in compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours; (b) has not received written
notice of any unfair labor practice complaint against it pending before the
National Labor Relations Board; (c) no arbitration proceeding arising out of or
under any collective bargaining agreement is pending against Seller; and (d)
Seller has not experienced any work stoppage within the three-year period prior
to the date hereof and to Seller's Knowledge none is currently threatened.
4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred
compensation, profit-sharing, retirement and pension plans, including
multiemployer plans, and all material bonus, fringe benefit and other employee
benefit plans maintained or with respect to which contributions are made by
Seller, Genco, GPUN or GPUS in respect of the current employees of Seller,
Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True
and complete copies of all Benefit Plans have been made available to Buyer.
(b) Except as set forth in Schedule 4.9(b), Seller and the ERISA
Affiliates have fulfilled their respective obligations under the minimum funding
requirements of Section 302 of ERISA, and Section 412 of the Code, with respect
to each Benefit Plan which is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code and has
been administered in all material respects in accordance with its terms as set
forth in the documents governing such Benefit Plan. Except as set forth in
Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any
liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty
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Corporation in connection with any Benefit Plan which is subject to Title IV of
ERISA or any withdrawal liability with respect to any Benefit Plan, within the
meaning of Section 4021 of ERISA, nor is there any reportable event (as defined
in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth
in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each
Benefit Plan which is intended to be qualified under Section 401(a) of the Code,
which letter determines that such plan is qualified and exempt from United
States Federal Income Tax under Section 401(a) and 501(a) of the Code, and
Seller is not aware of any occurrence since the date of any such determination
letter which would affect adversely such qualification or tax exemption.
(c) Neither Seller nor any ERISA Affiliate has engaged in any transaction
described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit Plan is a
multiemployer plan.
(d) Seller and Sellers' Affiliates have materially complied in good faith
with the notice and continuation requirements of Section 4980B of the Code, and
Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan.
Seller and each ERISA Affiliate have complied in all material respects with the
requirements of Part 7 of Title I of ERISA.
4.10 Real Property. Schedule 4.10 contains a description of the Real
Property included in the Purchased Assets. Copies of any current surveys,
abstracts or title opinions in Seller's possession and any policies of title
insurance in force and in the possession of Seller with respect to the Real
Property have heretofore been made available to Buyer (without making any
representation or warranty as to the accuracy or completeness thereof). Except
as set forth in Schedule 4.10A, no real property other than the Real Property is
necessary for Buyer to own, maintain and operate the Purchased Assets as they
are currently used.
4.11 Condemnation. Except as set forth in Schedule 4.11, Seller has not
received any written notices of and otherwise has no Knowledge of any pending or
threatened proceedings or governmental actions to condemn or take by power of
eminent domain all or any part of the Purchased Assets.
4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written
contract, license, agreement, or personal property lease which is material to
the business or operations of the Purchased Assets, other than any contract,
license, agreement or personal property lease which is listed or described on
another Schedule, or which is expected to expire or terminate prior to the
Closing Date, or which provides for annual payments by Seller after the
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date hereof of less than $250,000 or payments by Seller after the date hereof of
less than $1,000,000 in the aggregate.
(b) Except as disclosed in Schedule 4.12(b), each Seller's Agreement
(i) constitutes a legal, valid and binding obligation of Seller and, to Seller's
Knowledge, constitutes a valid and binding obligation of the other parties
thereto, and (ii) may be transferred to Buyer pursuant to this Agreement without
the consent of the other parties thereto and will continue in full force and
effect thereafter, unless in any such case the impact of such lack of legality,
validity or binding nature, or inability to transfer, would not, individually or
in the aggregate, create a Material Adverse Effect.
(c) Except as set forth in Schedule 4.12(c), there is not, under
Seller's Agreements, any default or event which, with notice or lapse of time or
both, would constitute a default on the part of Seller or to Seller's Knowledge,
any of the other parties thereto, except such events of default and other events
which would not, individually or in the aggregate, create a Material Adverse
Effect.
4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13, there
are no actions or proceedings pending (or to Seller's knowledge overtly
threatened) against Seller before any court, arbitrator or Governmental
Authority, which could, individually or in the aggregate, reasonably be expected
to create a Material Adverse Effect. Except as set forth in Schedule 4.13,
Seller is not subject to any outstanding judgments, rules, orders, writs,
injunctions or decrees of any court, arbitrator or Governmental Authority which
would, individually or in the aggregate, create a Material Adverse Effect.
4.14 Permits. (a) Seller has all permits, licenses, franchises and other
governmental authorizations, consents and approvals, (other than Environmental
Permits, which are addressed in Section 4.7 hereof) (collectively, "Permits")
necessary to permit Seller to own and operate the Purchased Assets except where
the failure to have such Permits would not, individually or in the aggregate,
create a Material Adverse Effect. Except as disclosed on Schedule 4.14(a),
Seller has not received any notification that it is in violation of any such
Permits, except notifications of violations which would not, individually or in
the aggregate, create a Material Adverse Effect. Seller is in compliance with
all such Permits except where non-compliance would not, individually or in the
aggregate, create a Material Adverse Effect.
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(b) Schedule 4.14(b) sets forth all material Permits and
Environmental Permits, other than Transferable Permits (which are set forth on
Schedule 1.1(103)) related to the Purchased Assets.
4.15 Taxes. Seller has filed all returns required to be filed by it with
respect to any Tax relating to the Purchased Assets, and Seller has paid all
Taxes that have become due as indicated thereon, except where such Tax is being
contested in good faith by appropriate proceedings, or where the failure to so
file or pay would not reasonably be expected to create a Material Adverse
Effect. Seller has complied in all material respects with all applicable laws,
rules and regulations relating to withholding Taxes relating to Transferred
Employees. All Tax Returns relating to the Purchased Assets are true, correct
and complete in all material respects. Except as set forth in Schedule 4.15, no
notice of deficiency or assessment has been received from any taxing authority
with respect to liabilities for Taxes of Seller in respect of the Purchased
Assets, which have not been fully paid or finally settled, and any such
deficiency shown in Schedule 4.15 is being contested in good faith through
appropriate proceedings. Except as set forth in Schedule 4.15, there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for Taxes associated with the Purchased Assets that will be binding
upon Buyer after the Closing. None of the Purchased Assets is property that is
required to be treated as being owned by any other person pursuant to the
so-called safe harbor lease provisions of former Section 168(f) of the Code, and
none of the Purchased Assets is "tax-exempt use" property within the meaning of
Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in
which Seller owns assets or conducts business that require a notification to a
taxing authority of the transactions contemplated by this Agreement, if the
failure to make such notification, or obtain Tax clearance certificates in
connection therewith, would either require Buyer to withhold any portion of the
Purchase Price or subject Buyer to any liability for any Taxes of Seller.
4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual
Property used in and, individually or in the aggregate with other Intellectual
Property, material to the operation or business of the Purchased Assets, each of
which Seller or its Affiliates either has all right, title and interest in or
valid and binding rights under contract to use. Except as disclosed in Schedule
4.16, (i) Seller is not, nor has it received any notice that it is, in default
(or with the giving of notice or lapse of time or both, would be in default),
under any contract to use such Intellectual Property, and (ii) to Seller's
Knowledge, such Intellectual Property is not being infringed by any other
Person. Seller has not received notice that it is
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infringing any Intellectual Property of any other Person in connection with the
operation or business of the Purchased Assets, and Seller, to its Knowledge, is
not infringing any Intellectual Property of any other Person the effect of
which, individually or in the aggregate, would have a Material Adverse Effect.
4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are
no capital expenditures associated with the Purchased Assets that are planned by
Seller through December 31, 1999.
4.18 Compliance With Laws. Seller is in compliance with all applicable
laws, rules and regulations with respect to the ownership or operation of the
Purchased Assets except where the failure to be in compliance would not,
individually or in the aggregate, create a Material Adverse Effect.
4.19 PUHCA. Seller is a wholly owned subsidiary of GPU, Inc., which is a
holding company registered under the Public Utility Holding Company Act of 1935.
4.20 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER
INCIDENTS OF THE PURCHASED ASSETS AND SELLER SPECIFICALLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART
THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS
THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES
SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER SPECIFICALLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS
SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS
WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF
THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS
A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER
MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY SELLER OR ITS
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REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF
THE PURCHASED ASSETS.
Seller makes no warranties and representations of any kind, whether direct
or implied, that any of the hardware, software, and firmware products (including
embedded microcontrollers in non-computer equipment) which may be included in
the Purchased Assets to be transferred under this Agreement (the "Computer
Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000 Compliant"
shall mean that the Computer Systems will correctly differentiate between years,
in different centuries, that end in the same two digits, and will accurately
process date/time data (including, but not limited to, calculating, comparing,
and sequencing) from, into, and between the twentieth and twenty-first
centuries, including leap year calculations.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization. Buyer is a Delaware corporation, duly organized, validly
existing and in good standing under the laws of the state of its organization
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as is now being conducted. Buyer is,
or by the Closing will be, qualified to do business in the Commonwealth of
Pennsylvania and the State of Maryland. Buyer has heretofore delivered to Seller
complete and correct copies of its Certificate of Incorporation and Bylaws (or
other similar governing documents) as currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by it hereby. The execution and delivery of this
Agreement by Buyer and the consummation of the transactions contemplated hereby
by Buyer have been duly and validly authorized by all necessary corporate action
required on the part of Buyer. This Agreement has been duly and validly executed
and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory
Approvals, this Agreement constitutes a legal, valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to
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enforcement of creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and subject to obtaining
Buyer Required Regulatory Approvals, neither the execution and delivery of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or Bylaws (or other similar
governing documents) of Buyer, or (ii) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, material
agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party or by which any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, have a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation,
order, judgment or decree applicable to Buyer, which violations, individually or
in the aggregate, would create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer Required Regulatory Approvals"), no consent or approval of, filing with,
or notice to, any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement, or the consummation by Buyer of the transactions
contemplated hereby, other than such consents, approvals, filings or notices,
which, if not obtained or made, will not prevent Buyer from performing its
obligations under this Agreement.
5.4 Availability of Funds. Buyer has sufficient funds and lines of credit
available to it or has received binding written commitments from creditworthy
financial institutions, copies of which have been provided to Seller, to provide
sufficient funds on the Closing Date to pay the Purchase Price and to permit
Buyer to timely perform all of its obligations under this Agreement.
5.5 Legal Proceedings. There are no actions or proceedings pending against
Buyer before any court or arbitrator or Governmental Authority, which,
individually or in the aggregate, could reasonably be expected to create a Buyer
Material Adverse Effect. Buyer is not subject to any outstanding judgments,
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rules, orders, writs, injunctions or decrees of any court, arbitrator or
Governmental Authority which would, individually or in the aggregate, create a
Buyer Material Adverse Effect.
5.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach
by Seller of any representation or warranty of Seller, or of any other condition
or circumstance that would excuse Buyer from its timely performance of its
obligations hereunder. Buyer shall notify Seller promptly if any such
information comes to its attention prior to the Closing.
5.7 Qualified Buyer. Buyer is qualified to obtain any Permits and
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of
any reason or circumstance that would prevent Buyer from procuring Buyer
Required Regulatory Approvals associated with Exempt Wholesale Generator (as
defined in the Public Utility Holding Company Act of 1935) status and
market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b).
5.8 Inspections. Without limitation of Seller's representations,
warranties and covenants contained in this Agreement or the Ancillary
Agreements, Buyer acknowledges and agrees that it has, prior to its execution of
this Agreement, (i) reviewed the Environmental Reports, (ii) had full
opportunity to conduct to its satisfaction Inspections of the Purchased Assets,
including the Sites, and (iii) fully completed and approved the results of all
Inspections of the Purchased Assets. Subject to the restrictions set forth in
Section 6.2(a), Buyer acknowledges that it is satisfied through such review and
Inspections that no further investigation and study on or of the Sites is
necessary for the purposes of acquiring the Purchased Assets for Buyer's
intended use. Buyer acknowledges and agrees that it hereby assumes the risk that
adverse past, present, and future physical characteristics and Environmental
Conditions may not have been revealed by its Inspections and the investigations
of the Purchased Assets contained in the Environmental Reports. In making its
decision to execute this Agreement, and to purchase the Purchased Assets, Buyer
has relied on and will rely upon, among other things, the results of its
Inspections and the Environmental Reports.
5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass
Layoff as such terms are defined in the WARN Act within sixty days of the
Closing Date.
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ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as
described in Schedule 6.1 or as expressly contemplated by this Agreement or to
the extent Buyer otherwise consents in writing, during the period from the date
of this Agreement to the Closing Date, Seller (i) will operate the Purchased
Assets in the ordinary course of business consistent with the past practices of
Seller or its Affiliates or with Good Utility Practices, (ii) shall use all
Commercially Reasonable Efforts to preserve intact such Purchased Assets, and
endeavor to preserve the goodwill and relationships with customers, suppliers
and others having business dealings with it, (iii) shall maintain the insurance
coverage described in Section 4.4, (iv) shall comply with all applicable laws
relating to the Purchased Assets, including without limitation, all
Environmental Laws, except where the failure to so comply would not result in a
Material Adverse Effect, and (v) shall continue with Seller's program, or (at
Buyer's expense) as Buyer may direct, to install such equipment or software with
respect to Year 2000 Compliance in accordance with Seller's plans referred to in
Section 2.1(k). Without limiting the generality of the foregoing, and, except as
(x) contemplated in this Agreement, (y) described in Schedule 6.1, or (z)
required under applicable law or by any Governmental Authority, prior to the
Closing Date, without the prior written consent of Buyer, Seller shall not with
respect to the Purchased Assets:
(i) Make any material change in the levels of Inventories
customarily maintained by Seller or its Affiliates with respect to the
Purchased Assets, other than changes which are consistent with Good
Utility Practices;
(ii) Sell, lease (as lessor), encumber, pledge, transfer or
otherwise dispose of, any material Purchased Assets individually or in the
aggregate (except for Purchased Assets used, consumed or replaced in the
ordinary course of business consistent with past practices of Seller or
its Affiliates or with Good Utility Practices) other than to encumber
Purchased Assets with Permitted Encumbrances;
(iii) Modify, amend or voluntarily terminate prior to the
expiration date any of Seller's Agreements or Real Property Leases or any
of the Permits or Environmental Permits associated with such Purchased
Assets in any material respect, other than (a) in the ordinary course of
business, to the extent consistent with the past practices of Seller or
its Affiliates or with Good Utility Practices, (b) with cause, to the
extent consistent with past practices
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of Seller or its Affiliates or with Good Utility Practices, or (c) as may
be required in connection with transferring Seller's rights or obligations
thereunder to Buyer pursuant to this Agreement;
(iv) Except as otherwise provided herein, enter into any
commitment for the purchase, sale, or transportation of fuel having a term
greater than six months and not terminable on or before the Closing Date
either (i) automatically, or (ii) by option of Seller (or, after the
Closing, by Buyer) in its sole discretion, if the aggregate payment under
such commitment for fuel and all other outstanding commitments for fuel
not previously approved by Buyer would exceed $1,000,000 for all Aggregate
Purchased Assets;
(v) Sell, lease or otherwise dispose of Emission Allowances,
or Emission Reduction Credits identified in Schedule 2.1(h), except to the
extent necessary to operate the Purchased Assets in accordance with this
Section 6.1;
(vi) Except as otherwise provided herein, enter into any
contract, agreement, commitment or arrangement relating to the Purchased
Assets that individually exceeds $250,000 or in the aggregate exceeds
$1,000,000 unless it is terminable by Seller (or, after the Closing, by
Buyer) without penalty or premium upon no more than sixty (60) days
notice;
(vii) Except as otherwise required by the terms of the
Collective Bargaining Agreement, (a) hire at, or transfer to the Purchased
Assets, any new employees prior to the Closing, other than to fill
vacancies in existing positions in the reasonable discretion of Seller,
(b) increase salaries or wages of employees employed in connection with
the Purchased Assets prior to the Closing other than in the ordinary
course of business and in accordance with Seller's past practices, (c)
take any action prior to the Closing to effect a change in a Collective
Bargaining Agreement, or (d) take any action prior to the Closing to
increase the aggregate benefits payable to the employees employed in
connection with the Purchased Assets other than increases for Non-Union
Employees in the ordinary course of business and in accordance with
Seller's past practices or (e) enter into any employment contracts with
employees at the Purchased Assets or any collective bargaining agreements
with labor organizations representing such employees;
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(viii) Make any Capital Expenditures except as permitted by
Section 3.3(a)(iii) or for Seller's account; and
(ix) Except as otherwise provided herein, enter into any
written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in the foregoing
paragraphs (i) through (viii).
6.2 Access to Information.
(a) Between the date of this Agreement and the Closing Date, Seller
will, at reasonable times and upon reasonable notice: (i) give Buyer and its
Representatives reasonable access to its managerial personnel and to all books,
records, plans, equipment, offices and other facilities and properties
constituting the Purchased Assets; (ii) furnish Buyer with such financial and
operating data and other information with respect to the Purchased Assets as
Buyer may from time to time reasonably request, and permit Buyer to make such
reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its
request a copy of each material report, schedule or other document filed by
Seller or any of its Affiliates with respect to the Purchased Assets with the
SEC, FERC, MPSC, PaPUC, PaDEP, or any other Governmental Authority; and (iv)
furnish Buyer with all such other information as shall be reasonably necessary
to enable Buyer to verify the accuracy of the representations and warranties of
Seller contained in this Agreement; provided, however, that (A) any such
inspections and investigations shall be conducted in such a manner as not to
interfere unreasonably with the operation of the Purchased Assets, (B) Seller
shall not be required to take any action which would constitute a waiver of the
attorney-client privilege, and (C) Seller need not supply Buyer with any
information which Seller is under a legal or contractual obligation not to
supply. Notwithstanding anything in this Section 6.2 to the contrary, Seller
will only furnish or provide such access to Transferring Employee Records and
will not furnish or provide access to other employee personnel records or
medical information unless required by law or specifically authorized by the
affected employee, nor shall Buyer have the right to administer to any of
Seller's employees any skills, aptitudes, psychological profile, or other
employment related test. Buyer shall not have the right to perform or conduct
any environmental sampling or testing at, in, on, or underneath the Purchased
Assets.
(b) Each Party shall, and shall use its best efforts to cause its
Representatives to, (i) keep all Proprietary Information of the other Party
confidential and not to disclose or reveal any such Proprietary Information to
any person other
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than such Party's Representatives and (ii) not use such Proprietary Information
other than in connection with the consummation of the transactions contemplated
hereby. After the Closing Date, any Proprietary Information to the extent
related to the Purchased Assets shall no longer be subject to the restrictions
set forth herein. The obligations of the Parties under this Section 6.2(b) shall
be in full force and effect for three (3) years from the date hereof and will
survive the termination of this Agreement, the discharge of all other
obligations owed by the Parties to each other and the closing of the
transactions contemplated by this Agreement.
(c) For a period of seven (7) years after the Closing Date (or such
longer period as may be required by applicable law or Section 6.8(g)), each
Party and its Representatives shall have reasonable access to all of the books
and records of the Purchased Assets, including all Transferring Employee Records
in the possession of the other Party to the extent that such access may
reasonably be required by such Party in connection with the Assumed Liabilities
or the Excluded Liabilities, or other matters relating to or affected by the
operation of the Purchased Assets. Such access shall be afforded by the Party in
possession of any such books and records upon receipt of reasonable advance
written notice and during normal business hours. The Party exercising this right
of access shall be solely responsible for any costs or expenses incurred by it
or the other Party with respect to such access pursuant to this Section 6.2(c).
If the Party in possession of such books and records shall desire to dispose of
any books and records upon or prior to the expiration of such seven-year period
(or any such longer period), such Party shall, prior to such disposition, give
the other Party a reasonable opportunity at such other Party's reasonable
expense, to segregate and remove such books and records as such other Party may
select.
(d) Notwithstanding the terms of Section 6.2(b) above, the Parties
agree that prior to the Closing Buyer may reveal or disclose Proprietary
Information to any other Persons in connection with Buyer's financing of its
purchase of the Purchased Assets or any equity participation in Buyer's purchase
of the Purchased Assets (provided that such Persons agree in writing to maintain
the confidentiality of the Proprietary Information in accordance with this
Agreement).
(e) Upon the other Party's prior written approval (which will not be
unreasonably withheld or delayed), either Party may provide Proprietary
Information of the other Party to the PaPUC, the MPSC, the SEC, the FERC or any
other Governmental Authority with jurisdiction or any stock exchange, as may be
necessary to obtain Seller's Required Regulatory Approvals, or Buyer Required
Regulatory Approvals, respectively, or to comply
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generally with any relevant law or regulation. The disclosing Party will seek
confidential treatment for the Proprietary Information provided to any
Governmental Authority and the disclosing Party will notify the other Party as
far in advance as is practicable of its intention to release to any Governmental
Authority any Proprietary Information.
(f) Except as specifically provided herein or in the Confidentiality
Agreement, nothing in this Section shall impair or modify any of the rights or
obligations of Buyer or its Affiliates under the Confidentiality Agreement, all
of which remain in effect until termination of such agreement in accordance with
its terms.
(g) Except as may be permitted in the Confidentiality Agreement,
Buyer agrees that, prior to the Closing Date, it will not contact any vendors,
suppliers, employees, or other contracting parties of Seller or its Affiliates
with respect to any aspect of the Purchased Assets or the transactions
contemplated hereby, without the prior written consent of Seller, which consent
shall not be unreasonably withheld.
(h) (i) Buyer shall be entitled to inspect, in accordance with this
Section 6.2(h), all of the Purchased Assets located adjacent to any Point of
Interconnection (as defined in the Interconnection Agreement), as shown in
Schedule A to the Interconnection Agreement, to verify and/or determine the
accuracy of the data, drawings, and records described in such Schedule. The
Parties shall cooperate to schedule Buyer's inspection at the Plants so that any
interference with the operation of the Plants is minimized, to the extent
reasonably feasible, and so that Buyer may complete its inspections of the
Plants within thirty (30) working days of commencement of inspections and within
two (2) months after the execution of this Agreement.
(ii) Seller shall provide, or shall cause to be provided, to
Buyer, access to the Plants at the times scheduled for the inspections referred
to in clause (i) above. Seller shall provide qualified engineering, operations,
and maintenance personnel to escort Buyer's personnel and to assist Buyer's
personnel in conducting the inspections. Seller and Buyer shall each bear their
own costs of participating in the inspections. At a mutually convenient time not
more than one (1) month after Buyer has completed its inspections, the Parties
shall meet to discuss whether, as a result of the inspections, it is appropriate
to modify Schedule A to the Interconnection Agreement to portray more accurately
the Points of Interconnection. Any modification to any portion of Schedule A of
the Interconnection Agreement to which the Parties agree shall thereafter be
deemed
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part of Schedule A of the Interconnection Agreement for all purposes under the
Interconnection Agreement.
6.3 Public Statements. Subject to the requirements imposed by any
applicable law or any Governmental Authority or stock exchange, prior to the
Closing Date, no press release or other public announcement or public statement
or comment in response to any inquiry relating to the transactions contemplated
by this Agreement shall be issued or made by any Party without the prior
approval of the other Parties (which approval shall not be unreasonably
withheld). The Parties agree to cooperate in preparing such announcements.
6.4 Expenses. Except to the extent specifically provided herein, whether
or not the transactions contemplated hereby are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the obtaining of any
title insurance policy and all endorsements thereto that Buyer elects to obtain
and (b) all filing fees under the HSR Act.
6.5 Further Assurances.
(a) Subject to the terms and conditions of this Agreement, each of
the Parties hereto shall use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the purchase and sale of the Purchased Assets pursuant to this Agreement and the
assumption of the Assumed Liabilities, including without limitation using its
best efforts to ensure satisfaction of the conditions precedent to each Party's
obligations hereunder, including obtaining all necessary consents, approvals,
and authorizations of third parties and Governmental Authorities required to be
obtained in order to consummate the transactions hereunder, and to effectuate a
transfer of the Transferable Permits to Buyer. Buyer agrees to perform all
conditions required of Buyer in connection with Seller's Required Regulatory
Approvals, other than those conditions which would create a Buyer Material
Adverse Effect. Neither of the Parties hereto shall, without prior written
consent of the other Party, take or fail to take any action, which might
reasonably be expected to prevent or materially impede, interfere with or delay
the transactions contemplated by this Agreement.
(b) Buyer agrees that prior to the Closing Date, neither Buyer nor
any of its Affiliates will enter into any other
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contract to acquire, nor acquire, electric generation facilities located in the
control area recognized by the North American Reliability Council as the PJM
Control Area if the proposed acquisition of such additional electric generation
facilities might reasonably be expected to prevent or materially impede,
interfere with or delay the transactions contemplated by this Agreement. Buyer
shall give Seller reasonable advance notice (and in any event not less than 30
days) before Buyer enters into contracts to acquire or acquires any electric
generation facility located in said PJM Control Area.
(c) In the event that any Purchased Asset shall not have been
conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(d) and
(e), use Commercially Reasonable Efforts to convey such asset to Buyer as
promptly as is practicable after the Closing. In the event that any Easement
shall not have been granted by Buyer to Seller at the Closing, Buyer shall use
Commercially Reasonable Efforts to grant such Easement to Seller as promptly as
is practicable after the Closing.
(d) To the extent that Seller's rights under any Seller's Agreement
or Real Property Lease may not be assigned without the consent of another Person
which consent has not been obtained by the Closing Date, this Agreement shall
not constitute an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful. Seller and Buyer agree that if any
consent to an assignment of any material Seller's Agreement or Real Property
Lease shall not be obtained or if any attempted assignment would be ineffective
or would impair Buyer's rights and obligations under the material Seller's
Agreement or Real Property Lease in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, Seller, at Buyer's
option and to the maximum extent permitted by law and such material Seller's
Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer
to be Seller's agent with respect to such material Seller's Agreement or Real
Property Lease, or, to the maximum extent permitted by law and such material
Seller's Agreement or Real Property Lease, enter into such reasonable
arrangements with Buyer or take such other actions as are necessary to provide
Buyer with the same or substantially similar rights and obligations of such
material Seller's Agreement or Real Property Lease as Buyer may reasonably
request. Seller and Buyer shall cooperate and shall each use Commercially
Reasonable Efforts prior to and after the Closing Date to obtain an assignment
of such material Seller's Agreement or Real Property Lease to Buyer.
(e) To the extent that Seller's rights under any warranty or
guaranty described in Section 2.1(i) may not be assigned without the consent of
another Person, which consent has
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not been obtained by the Closing Date, this Agreement shall not constitute an
agreement to assign same, if an attempted assignment would constitute a breach
thereof, or be unlawful. Seller and Buyer agree that if any consent to an
assignment of any such warranty or guaranty shall not be obtained, or if any
attempted assignment would be ineffective or would impair Buyer's rights and
obligations under the warranty or guaranty in question, so that Buyer would not
in effect acquire the benefit of all such rights and obligations, Seller, at
Buyer's expense, shall use Commercially Reasonable Efforts, to the extent
permitted by law and such warranty or guaranty, to enforce such warranty or
guaranty for the benefit of Buyer so as to provide Buyer to the maximum extent
possible with the benefits and obligations of such warranty or guaranty.
(f) Between the date hereof and the Closing, Buyer shall have the
right to commence the regulatory approval processes associated with the
construction and operation of new, modified or repowered electric generating
units and associated equipment at the Real Property. Seller shall provide
reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining
all Permits required (i) to own and operate the Purchased Assets as contemplated
by the Agreement and the Ancillary Agreements and (ii) to construct and operate
such new or modified facilities, provided, however, that Buyer shall reimburse
Seller for all reasonable costs incurred by Seller in its assistance of Buyer
hereunder.
(g) Buyer agrees that it will enter into a lease agreement with
Seller on or before the Closing Date, to be effective as of the Closing,
providing for the lease to Seller of approximately 57,679 square feet of general
office space and 54,510 square feet of various shops and labs, along with a
loading dock access space and approximately 135 parking spaces, at the Genco
Headquarters Building (1001 Broad Street, Johnstown, Pennsylvania), all as
generally described on Schedule 6.5(g) attached hereto, such lease shall be for
a term of three (3) to five (5) years (as designated by Seller), shall include a
market rate rental and other customary expense pass through, and contain other
customary terms and conditions.
6.6 Consents and Approvals.
(a) As promptly as possible after the date of this Agreement, Seller
and Buyer, as applicable, shall each file or cause to be filed with the Federal
Trade Commission and the United States Department of Justice any notifications
required to be filed under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. The Parties
shall use their respective best efforts to respond promptly to any requests for
additional
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information made by either of such agencies, and to cause the waiting periods
under the HSR Act to terminate or expire at the earliest possible date after the
date of filing. Buyer will pay all filing fees under the HSR Act but each Party
will bear its own costs of the preparation of any filing.
(b) As promptly as possible after the date of this Agreement, Buyer
shall file with the FERC an application requesting Exempt Wholesale Generator
status for Buyer, which filing may be made individually by Buyer or jointly with
Seller in conjunction with other filings to be made with the FERC under this
Agreement, as reasonably determined by the Parties. Prior to Buyer's submission
of that application with the FERC, Buyer shall submit such application to Seller
for review and comment and Buyer shall incorporate into the application any
revisions reasonably requested by Seller. Buyer shall be solely responsible for
the cost of preparing and filing this application, any petition(s) for
rehearing, or any re-application. If Buyer's initial application for Exempt
Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the
FERC for rehearing and/or to re-submit an application with the FERC, as
reasonably required by Seller, provided that in either case the action directed
by Seller does not create a Buyer Material Adverse Effect.
(c) As promptly as possible after the date of this Agreement, Buyer
shall file with the FERC an application requesting authorization under Section
205 of the Federal Power Act to sell electric generating capacity and energy,
but not other services, including, without limitation, ancillary services, at
wholesale at market-based rates, which filing may be made individually by Buyer
or jointly with Seller in conjunction with other filings to be made with the
FERC under this Agreement, as reasonably determined by the Parties. Prior to the
filing of that application with the FERC, Buyer shall submit such application to
Seller for review and comment and Buyer shall incorporate into the application
any revisions reasonably requested by Seller. Buyer shall be solely responsible
for the cost of preparing and filing this application, any petition(s) for
rehearing, or any reapplication. If Buyer's initial application for market-based
rate authorization results in a FERC request for additional information or is
rejected by the FERC, Buyer shall provide that information promptly, to petition
the FERC for rehearing and/or to re-submit an application with the FERC, as
reasonably required by Seller, provided that Seller shall have a reasonable
opportunity to make changes to such a petition or re-submission application and,
provided further, that the action directed by Seller does not create a Buyer
Material Adverse Effect.
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(d) As promptly as possible, and in any case within sixty (60) days,
after the date of this Agreement, Seller and Buyer, as applicable, shall file
with the PaPUC, the FERC and any other Governmental Authority, and make any
other filings required to be made with respect to the transactions contemplated
hereby. The Parties shall respond promptly to any requests for additional
information made by such agencies, and use their respective best efforts to
cause regulatory approval to be obtained at the earliest possible date after the
date of filing. Each Party will bear its own costs of the preparation of any
such filing.
(e) Without limitation of Section 10.11, Seller and Buyer shall
cooperate with each other and promptly prepare and file notifications with, and
request Tax clearances from, state and local taxing authorities in jurisdictions
in which a portion of the Purchase Price may be required to be withheld or in
which Buyer would otherwise be liable for any Tax liabilities of Seller pursuant
to such state and local Tax law.
(f) Buyer shall have the primary responsibility for securing the
transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Closing Date. Seller shall
cooperate with Buyer's efforts in this regard and assist in any transfer or
reissuance of a Permit or Environmental Permit held by Seller or the procurement
of any other Permit or Environmental Permit when so requested by Buyer.
6.7 Fees and Commissions. Seller, on the one hand, and Buyer, on the other
hand, represent and warrant to the other that, except for Goldman, Sachs & Co.,
which are acting for and at the expense of Seller, no broker, finder or other
Person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transaction contemplated hereby by reason of any action
taken by the Party making such representation. Seller, on the one hand, and
Buyer, on the other hand, will pay to the other or otherwise discharge, and will
indemnify and hold the other harmless from and against, any and all claims or
liabilities for all brokerage fees, commissions and finder's fees (other than
the fees, commissions and finder's fees payable to the parties listed above)
incurred by reason of any action taken by the indemnifying party.
6.8 Tax Matters.
(a) All transfer and sales taxes incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, (a) Pennsylvania sales tax; and (b) the Pennsylvania realty transfer
taxes on conveyances of interests in real property (including such taxes
assessed by Pennsylvania municipalities as well as by the
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Commonwealth of Pennsylvania itself)) shall be borne by Buyer. Except for the
Pennsylvania Realty Transfer Tax Statement of Value, which shall be filed by
Buyer, Seller shall file, to the extent required by, or permissible under,
applicable law, all necessary Tax Returns and other documentation with respect
to all such transfer and sales taxes, and, if required by applicable law, Buyer
shall join in the execution of any such Tax Returns and other documentation.
Prior to the Closing Date, to the extent applicable, Buyer shall provide to
Seller appropriate certificates of Tax exemption from each applicable taxing
authority.
(b) With respect to Taxes to be prorated in accordance with Section
3.5 of this Agreement, Buyer shall prepare and timely file all Tax Returns
required to be filed after the Closing Date with respect to the Purchased
Assets, if any, and shall duly and timely pay all such Taxes shown to be due on
such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject
to Seller's approval, which approval shall not be unreasonably withheld. Buyer
shall make such Tax Returns available for Seller's review and approval no later
than fifteen (15) Business Days prior to the due date for filing each such Tax
Return.
(c) Within fifteen (15) Business Days after receipt of a Tax Return
referred to in Section 6.8(b), Seller shall pay to Buyer Seller's share of the
amount shown on such Tax Return, less payments on account of such Taxes
previously made by Seller. To the extent that Seller's previous payments exceed
Seller's share, the Buyer shall pay such excess to Seller. With respect to real
estate taxes, evidence of payment shall be delivered by Seller to Buyer at the
Closing. As soon as practicable after the Closing, Seller and Buyer shall
cooperate in the filing of an amended return and/or other documents in order to
obtain the available refund with respect to any Closing Year PURTA Tax. Buyer
shall be entitled to such refund to the extent, but only to the extent, that it
does not exceed any payments made by Buyer on account of such PURTA liability.
(d) Buyer and Seller shall provide the other with such assistance as
may reasonably be requested by the other Party in connection with the
preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each shall retain and provide the requesting party with any
records or information which may be relevant to such return, audit, examination
or proceedings. Any information obtained pursuant to this Section 6.8(d) or
pursuant to any other Section hereof providing for the sharing of information or
review of any Tax Return or other instrument relating to Taxes shall be kept
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confidential by the parties hereto. Schedule 6.8 sets forth procedures to be
followed with respect to the tax appeals and audits referred to therein.
(e) Disputes. In the event that a dispute arises between Seller and
Buyer as to the amount of Taxes, or indemnification, or the amount of any
allocation of Purchase Price under Section 3.4 hereof, the parties shall attempt
in good faith to resolve such dispute, and any agreed upon amount shall be paid
to the appropriate party. If such dispute is not resolved 30 days thereafter,
the parties shall submit the dispute to the Independent Accounting firm for
resolution, which resolution shall be final, conclusive and binding on the
parties. Notwithstanding anything in this Agreement to the contrary, the fees
and expenses of the Independent Accounting Firm in resolving the dispute shall
be borne equally by Seller and Buyer. Any payment required to be made as a
result of the resolution of the dispute by the Independent Accounting firm shall
be made within ten days after such resolution, together with any interest
determined by the Independent Accounting Firm to be appropriate.
(f) Cooperation. Buyer and Seller shall cooperate fully, as and to
the extent reasonably requested by the other Party, in connection with the
filing of Tax Returns pursuant to this Agreement and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees (to the extent such employees were responsible
for the preparation, maintenance or interpretation of information and documents
relevant to Tax matters or to the extent required as witnesses in any Tax
proceedings), available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Parties
agree to give the other Party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other Party so
requests, Buyer or Seller, as the case may be, shall allow the other Party to
take possession of such books and records.
Buyer and Seller further agree, upon request, to use their best efforts to
obtain any certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
6.9 Advice of Changes. Prior to the Closing, each Party will promptly
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at
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the date of this Agreement, would have been required to be set forth in this
Agreement, including any of the Schedules hereto. Seller may at any time notify
Buyer of any development causing a breach of any of its representations and
warranties in Article IV. Unless Buyer has the right to terminate this Agreement
pursuant to Section 9.1(f) below by reason of the developments and exercises
that right within the period of fifteen (15) days after such right accrues, the
written notice pursuant to this Section 6.9 will be deemed to have amended this
Agreement, including the appropriate Schedule, to have qualified the
representations and warranties contained in Article IV above, and to have cured
any misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development.
6.10 Employees.
(a) At least 90 days prior to the Closing Date (but in no case
sooner than ninety (90) days after the date hereof), Buyer shall provide Seller
with notice of its Union Employee staffing level requirements (which Buyer may
determine in its sole discretion), listed by classification and operation, and
shall be required to make reasonable efforts to offer employment to that number
of Union Employees necessary to satisfy such staffing level requirements. As
used herein, "Union Employees" means such employees of Seller who are covered by
the Collective Bargaining Agreement as defined in Section 6.10(d) below, and who
are listed in, or whose employment responsibilities are listed in, Schedule
6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with
the Plants purchased by Buyer, and those Union Employees who are listed in, or
whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile
Maintenance" or "Corporate Support". Any offers of employment shall be made at
least 60 days prior to the Closing Date. In each classification, Union Employees
shall be so offered employment in order of their seniority.
(b) Buyer is also entitled to determine its Non-Union Employee
staffing level requirements in its sole discretion, and shall make reasonable
efforts to make offers of employment with Buyer or any of its Affiliates,
effective on the Closing Date, to Non-Union Employees consistent with such
staffing levels. As used herein, "Non-Union Employees" means such salaried
employees of Seller, Genco, GPUN or GPUS who are listed in, or whose employment
responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or
"Dedicated Support Staff", and those Non-Union Employees listed in, or whose
employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile
Maintenance" or "Corporate Support". Any offers of employment shall be made at
least sixty (60) days prior to the Closing Date. Each person who becomes
employed by Buyer or any of its Affiliates pursuant to
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Section 6.10(a) or (b) (whether pursuant to a Qualifying Offer or otherwise)
shall be referred to herein as a "Transferred Union Employee" or "Transferred
Non-Union Employee", respectively. At least forty-five(45) days prior to the
Closing Date, Buyer shall provide Seller with notice of those Non-Union
Employees to whom it made a Qualifying Offer. As used herein, the term
"Qualifying Offer" means an offer of employment at an annual level of
compensation that is at least 85% of the employee's current total annual cash
compensation (consisting of base salary and target incentive bonus) at the time
the offer is made. Schedule 6.10(b) sets forth, for each of the Non-Union
Employees listed therein, his or her current base salaries and target incentive
bonuses.
(c) All offers of employment made pursuant to Sections 6.10(a) or
(b) shall be made in accordance with all applicable laws and regulations, and in
addition, for Union Employees, in accordance with seniority and all other
applicable provisions of the Collective Bargaining Agreement.
(d) Schedule 6.10(d) sets forth the collective bargaining agreement,
and amendments thereto, to which Seller is a party with the Union in connection
with the Purchased Assets ("Collective Bargaining Agreement"). Transferred Union
Employees shall retain their seniority and receive full credit for service with
Seller in connection with entitlement to vacation and all other benefits and
rights under the Collective Bargaining Agreement and under each compensation,
retirement or other employee benefit plan or program Buyer is required to
maintain for Transferred Union Employees pursuant to the Collective Bargaining
Agreement. With respect to Transferred Union Employees, effective as of the
Closing Date, Buyer shall assume the Collective Bargaining Agreement for the
duration of its term as it relates to Transferred Union Employees to be employed
at the Plants in positions covered by the Collective Bargaining Agreement and
shall thereafter comply with all applicable obligations under the Collective
Bargaining Agreement. Consistent with its obligations under the Collective
Bargaining Agreement and applicable laws, Buyer shall be required to establish
and maintain a pension plan and other employee benefit programs for the
Transferred Union Employees for the duration of the term of the Collective
Bargaining Agreement which are substantially equivalent to Seller's plans and
programs in effect for the Transferred Union Employees immediately prior to the
Closing Date (the "Seller's Plans"), and which provide at least the same level
of benefits or coverage as do Seller's Plans for the duration of the Collective
Bargaining Agreement. Buyer further agrees to recognize the Union as the
collective bargaining agent for the applicable Transferred Union Employees.
(e) Transferred Non-Union Employees shall be eligible to commence
participation in welfare benefit plans of Buyer or
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its Affiliates as may be made available by Buyer (the "Replacement Welfare
Plans"). Buyer shall (i) waive all limitations as to pre-existing condition
exclusions and waiting periods with respect to the Transferred Non-Union
Employees under the Replacement Welfare Plans, other than, but only to the
extent of, limitations or waiting periods that were in effect with respect to
such employees under the welfare plans maintained by Seller, Genco, GPUN or GPUS
or their Affiliates and that have not been satisfied as of the Closing Date, and
(ii) provide each Transferred Non-Union Employee with credit for any co-payments
and deductibles paid prior to the Closing Date in satisfying any deductible or
out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata
basis in the event of a difference in plan years).
(f) Transferred Non-Union Employees shall be given credit for all
service with Seller, Genco, GPUN, GPUS and their Affiliates under all deferred
compensation, profit-sharing, 401(k), retirement pension, incentive
compensation, bonus, fringe benefit and other employee benefit plans, programs
and arrangements of Buyer ("Buyer Benefit Plans") in which they may become
participants. The service credit so given shall be for purposes of eligibility
and vesting, but shall not be for purposes of level of benefits and benefit
accrual except to the extent that the Buyer Benefit Plans otherwise provide.
(g) To the extent allowable by law, Buyer shall take any and all
necessary action to cause the trustee of any defined contribution plan of Buyer
or its Affiliates in which any Transferred Employee becomes a participant to
accept a direct "rollover" of all or a portion of said employee's "eligible
rollover distribution" within the meaning of Section 402 of the Code from the
GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the
Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed
or Penelec (the "Seller's Savings Plans") if requested to do so by the
Transferred Employee. Buyer agrees that the property so rolled over and the
assets so transferred may include promissory notes evidencing loans from
Seller's Savings Plans to Transferred Employees that are outstanding as of the
Closing Date. However, except as otherwise provided in Section 6.10(d), any
defined contribution plan of Buyer or its Affiliates accepting such a rollover
or transfer shall not be required to make any further loans to any Transferred
Employee after the Closing Date.
(h) Buyer shall pay or provide to Transferred Employees the benefits
described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and
shall reimburse Seller for the cost of the benefits Seller or Seller's
Affiliates will provide to Union Employees and Non-Union Employees in accordance
with subparagraph (iv) of this Section 6.10(h).
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(i) Buyer shall make a transition incentive payment in the
amount of $2,500 to each Transferred Union Employee. Payment shall be made
as soon as practicable after, but in any event no later than 60 days
following, the Closing Date.
(ii) In the case of each Transferred Non-Union Employee who is
initially assigned by Buyer to a principal place of work that is at least
50 miles farther from the employee's principal residence than was his
principal place of work immediately prior to the Closing Date and who
relocates his or her principal residence to the vicinity of his or her new
principal place of work within 12 months following the Closing Date, Buyer
shall reimburse the employee for all "moving expenses" within the meaning
of Section 217(b) of the Code incurred by the employee and other members
of his or her household in connection with such relocation, up to a
maximum aggregate amount of $5,000. Claims for reimbursement for such
expenses shall be filed in accordance with such procedures, and shall be
accompanied by such substantiation of the expenses for which reimbursement
is sought, as Buyer may reasonably request. All claims for reimbursement
shall be processed, and qualifying expenses shall be reimbursed, as soon
as practicable after, but in any event no later than 60 days following,
the date on which the employee's claim for reimbursement is submitted to
Buyer.
(iii) Buyer shall provide the severance benefits described in
Section 1 of Schedule 6.10(h) to each Transferred Employee who is
"Involuntarily Terminated" (as defined below) (a) within 12 months after
the Closing Date or (b), in the case of any Transferred Non-Union Employee
who had attained age 50 and had completed at least 10 Years of Service (as
defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on
or any time prior to June 30, 2004. For purposes of this Section 6.10(h)
and Schedule 6.10(h), a Transferred Employee shall be treated as
"Involuntarily Terminated" if his or her employment with Buyer and all of
its Affiliates is terminated by Buyer or any of its Affiliates for any
reason other than for cause or disability. Buyer shall require any
Transferred Employee who is Involuntarily Terminated, as a condition to
receiving the severance benefits described in Section 1(b), (c), (d), (e)
and (f) of Schedule 6.10(h), to execute a release of claims against
Seller, Genco, GPUN or GPUS, as applicable, and all of their Affiliates,
and Buyer, in such form as Buyer and Seller shall agree upon.
(iv) At the Closing or as soon thereafter as practicable, but
in any event no later than 60 days
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following the Closing Date, Buyer shall pay to Seller, in addition to all
other amounts to be paid by Buyer to Seller hereunder, an amount equal to
Buyer's Allocable Share (as defined below) of the aggregate estimated cost
that Seller or any of Seller's Affiliates will or may incur in providing
the severance, pension, health care and group term life insurance benefits
described in Section 2 of Schedule 6.10(h) to the Union Employees and
Non-Union Employees therein described (collectively the "Termination
Benefits"). The estimated cost of such benefits shall be calculated by the
actuarial firm regularly engaged to provide actuarial services to the GPU
Companies with respect to their pension, health care and life insurance
plans, and shall be determined using the same assumptions as to mortality,
turnover, interest rate and other actuarial assumption as used by such
firm in determining the cost of benefits under the GPU Companies' pension,
health and group term life insurance plans for purposes of their most
recently issued financial statements prior to the Closing Date. For
purposes of the foregoing, Buyer's "Allocable Share" shall be calculated
as set forth in Schedule 6.10(h)(iv).
(i) Buyer shall not be responsible for any payments required under
any voluntary early retirement plan, program or arrangement offered by Seller,
Genco, GPUN or GPUS in connection with the transfer of the Purchased Assets.
Within thirty (30) days following the last day that any Union Employee or
Non-Union Employee may elect to participate in any such plan offered by Seller,
Genco, GPUN or GPUS, Seller shall provide Buyer with a list of all such
employees who have so elected.
(j) Seller shall be responsible, with respect to the Purchased
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act which
occurs prior to the Closing Date.
(k) Buyer shall not be responsible for extending COBRA continuation
coverage to any employees and former employees of Seller, Genco, GPUN or GPUS,
or to any qualified beneficiaries of such employees and former employees, who
become or became entitled to COBRA continuation coverage before the Closing,
including those for whom the Closing occurs during their COBRA election period.
(l) Seller or Seller's Affiliates shall pay to all Transferred
Employees all compensation, bonus, vacation and holiday compensation, pension,
profit sharing and other deferred compensation benefits, workers' compensation
or other employment
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benefits to which they are entitled under the terms of the applicable
compensation or benefit programs at such times as are provided therein.
(m) Individuals who are otherwise "Union Employees" as defined in
Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who
on any date are not actively at work due to a leave of absence covered by the
Family and Medical Leave Act ("FMLA"), or due to any other authorized leave of
absence, shall nevertheless be treated as "Union Employees" or as "Non-Union
Employees", as the case may be, on such date if they are able (i) to return to
work within the protected period under the FMLA or such other leave (which in
any event shall not extend more than twelve (12) weeks after the Closing Date),
whichever is applicable, and (ii) to perform the essential functions of their
jobs, with or without a reasonable accommodation.
6.11 Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of loss
or damage to the property included in the Purchased Assets shall be borne by
Seller, other than loss or damage caused by the acts or negligence of Buyer or
any Buyer Representative, which loss or damage shall be the responsibility of
Buyer.
(b) If, before the Closing Date, all or any portion of the Purchased
Assets is (i) taken by eminent domain or is the subject of a pending or (to the
Knowledge of Seller) contemplated taking which has not been consummated, or (ii)
damaged or destroyed by fire or other casualty, Seller shall notify Buyer
promptly in writing of such fact, and (x) in the case of a condemnation, Seller
shall assign or pay, as the case may be, any proceeds thereof to Buyer at the
Closing and (y) in the case of a casualty, Seller shall either restore the
damage or assign the insurance proceeds therefor (and pay the amount of any
deductible and/or self-insured amount in respect of such casualty) to Buyer at
the Closing. Notwithstanding the above, if such casualty or loss results in a
Material Adverse Effect, Buyer and Seller shall negotiate to settle the loss
resulting from such taking (and such negotiation shall include, without
limitation, the negotiation of a fair and equitable adjustment to the Purchase
Price). If no such settlement is reached within sixty (60) days after Seller has
notified Buyer of such casualty or loss, then Buyer or Seller may terminate this
Agreement pursuant to Section 9.1(h). In the event of damage or destruction
which Seller elects to restore, Seller will have the right to postpone the
Closing for up to four (4) months. Buyer will have the right to inspect and
observe, or have its representatives inspect or observe, all repairs
necessitated by any such damage or destruction.
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6.12 Additional Covenants of Buyer. Notwithstanding any other
provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer
will not make any modifications to the Purchased Assets or take any action
which, in and of itself, results in a loss of the exclusion of interest on the
Pollution Control Revenue Bonds issued on behalf of Seller in connection with
the Purchased Assets from gross income for federal income purposes under Section
103 of the Code. Actions with respect to the Purchased Assets shall not
constitute a breach by the Buyer of this Section 6.12 in the following
circumstances: (i) Buyer ceases to use or decommissions any of the Purchased
Assets or subsequently repowers such Purchased Assets that are no longer used or
decommissioned (but does not hold such Purchased Assets for sale); (ii) Buyer
acts with respect to the Purchased Assets in order to comply with requirements
under applicable federal, state or local environmental or other laws or
regulations; or (iii) Buyer acts in a manner the Seller (i.e. a reasonable
private provider of electricity of similar stature as Seller) would have acted
during the term of the Pollution Control Revenue Bonds (including, but not
limited to, applying new technology). In the event Buyer acts or anticipates
acting in a manner that will cause a loss of the exclusion of interest on the
Pollution Control Revenue Bonds from gross income for federal income tax
purposes, at the request of Buyer, Seller shall take any remedial actions
permitted under the federal income tax law that would prevent a loss of such
inclusion of interest from gross income on the Pollution Control Revenue Bonds.
Buyer further covenants and agrees that, in the event that Buyer transfers any
of the Purchased Assets, Buyer shall obtain from its transferee a covenant and
agreement that is analogous to Buyer's covenant and agreement pursuant to the
immediately preceding sentence, as well as a covenant and agreement that is
analogous to that of this sentence. In addition, Buyer shall not, without 60
days advanced written notice to Seller (to the extent practicable under the
circumstances), take any action which would result in (x) a change in the use of
the assets financed with the Pollution Revenue Control Bonds from the use in
which such assets were originally intended, or (y) a sale of such assets
separate from the generating assets to which they relate, provided that no
notice is required of the events set forth in clauses (i), (ii), or (iii) above.
This covenant shall survive Closing and shall continue in effect so long as the
pollution control bonds remain outstanding.
ARTICLE VII
CONDITIONS
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7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect
the purchase of the Purchased Assets and the other transactions contemplated by
this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated.
(b) No preliminary or permanent injunction or other order or decree
by any federal or state court or Governmental Authority which prevents the
consummation of the sale of the Purchased Assets contemplated herein shall have
been issued and remain in effect (each Party agreeing to use its reasonable best
efforts to have any such injunction, order or decree lifted) and no statute,
rule or regulation shall have been enacted by any state or federal government or
Governmental Authority which prohibits the consummation of the sale of the
Purchased Assets;
(c) Buyer shall have received all of Buyer's Required Regulatory
Approvals and such approvals shall contain no conditions or terms which would
result in a Material Adverse Effect;
(d) Seller shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Seller on or prior to the Closing
Date;
(e) The representations and warranties of Seller set forth in this
Agreement shall be true and correct in all material respects as of the Closing
Date as though made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized
officer of Seller, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Section 7.1(d) and (e) have been
satisfied by Seller ;
(g) Buyer shall have received an opinion from Seller's counsel
reasonably acceptable to Buyer, dated the Closing Date and reasonably
satisfactory in form and substance to Buyer and its counsel, substantially to
the effect that:
(i) Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of its state of incorporation
and has the corporate power and authority to own, lease and operate its
material assets and properties and to carry on its business as is now
conducted, and to execute and deliver the Agreement and each Ancillary
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Agreement and to consummate the transactions contemplated thereby; and the
execution and delivery of the Agreement by Seller and the consummation of
the sale of the Purchased Assets and the other transactions contemplated
thereby have been duly and validly authorized by all necessary corporate
action required on the part of Seller;
(ii) The Agreement and each Ancillary Agreement have been duly
and validly executed and delivered by Seller and constitute legal, valid
and binding agreements of Seller enforceable in accordance with their
terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws affecting or relating to enforcement of creditors'
rights generally and general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the Agreement
and each Ancillary Agreement by Seller do not (A) conflict with the
Certificate of Incorporation or Bylaws of Seller or (B) to the knowledge
of such counsel, constitute a violation of or default under those
agreements or instruments set forth on a Schedule attached to the opinion
and which have been identified to such counsel as all the agreements and
instruments which are material to the business or financial condition of
Seller;
(iv) The Bill of Sale, the deeds, the Assignment and
Assumption Agreement and other transfer instruments described in Section
3.6 have been duly executed and delivered and are in proper form to
transfer to Buyer such title as was held by Seller to the Purchased
Assets;
(v) No consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by Seller, or the consummation by Seller of the transactions
contemplated hereby, other than (i) such consents, approvals, filings or
notices set forth in Schedule 4.3(b) or which, if not obtained or made,
will not prevent Seller from performing its material obligations hereunder
and (ii) such consents, approvals, filings or notices which become
applicable to Seller or the Purchased Assets as a result of the specific
regulatory status of Buyer (or any of its Affiliates) or as a result of
any other facts that specifically relate to the business or activities in
which Buyer (or any of its Affiliates) is or proposes to be engaged; and
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In rendering the foregoing opinion, Seller's counsel may rely on opinions
of counsel as to local laws reasonably acceptable to Buyer.
(h) Seller shall have delivered, or caused to be delivered, to Buyer
at the Closing, Seller's closing deliveries described in Section 3.6.
(i) Since the date of this Agreement, no Material Adverse Effect
shall have occurred and be continuing.
(j) Buyer shall have received (at Buyer's cost) from a title
insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's
title policy and ALTA survey, together with all endorsements reasonably
requested by Buyer as are available, insuring title to all of the Real Property
included in the Aggregate Purchased Assets, subject only to Permitted
Encumbrances. Seller shall provide Buyer with a copy of a preliminary title
report and survey for the Real Property as soon as available.
(k) The closings under the Purchase and Sale Agreements between
JCP&L and Buyer, Met-Ed and Buyer, and JCP&L, Met-Ed, GPU and Buyer
(collectively, the "Related Purchase Agreements"), shall have occurred or shall
occur concurrently with the Closing and all conditions to the obligations of
Buyer under the Related Purchase Agreements shall have been satisfied or waived
by Buyer.
(l) Buyer shall have received all Permits and Environmental Permits,
to the extent necessary, to own and operate the Plants in accordance with past
emissions and operating practices, except for those Permits and Environmental
Permits, the absence of which would not in the aggregate have a Material Adverse
Effect.
(m) Seller's Required Regulatory Approvals shall contain no
conditions or terms which would result in a Material Adverse Effect.
(n) Neither the Real Property nor any portion thereof shall be part
of a tax lot which includes any real property and/or buildings, facilities or
other improvements other than that which comprises the Real Property.
(o) No Site, or any portion thereof (other than the Development
Properties listed on Schedule 2.1), shall be subject to a zoning classification
or classifications, rule or regulation, or variance or special exception which
does not permit such Site or any portion thereof, to be used as the same (i) is
currently used for generation purposes or (ii) was
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historically used for generation purposes while under Seller's current ownership
or the ownership of any Affiliate thereof, unless the failure of such Site or
any portion thereof, or to be zoned to permit such use, shall not result in a
Material Adverse Effect.
7.2 Conditions to Obligations of Seller. The obligation of Seller to
effect the sale of the Purchased Assets and the other transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Seller) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the sale of the
Purchased Assets contemplated herein shall have been issued and remain in effect
(each Party agreeing to use its reasonable best efforts to have any such
injunction, order or decree lifted) and no statute, rule or regulation shall
have been enacted by any state or federal government or Governmental Authority
in the United States which prohibits the consummation of the sale of the
Purchased Assets;
(c) Seller shall have received all of Seller's Required Regulatory
Approvals applicable to them, containing no conditions or terms which would
materially diminish the benefit of this Agreement to Seller or result in a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Seller ("Seller Material Adverse Effect");
(d) All consents and approvals for the consummation of the sale of
the Purchased Assets contemplated hereby required under the terms of any note,
bond, mortgage, indenture, material agreement or other instrument or obligation
to which Seller is party or by which Seller, or any of the Purchased Assets, may
be bound, shall have been obtained, other than those which if not obtained,
would not, individually and in the aggregate, create a Material Adverse Effect;
(e) Buyer shall have performed and complied with in all material
respects the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Buyer on or prior to the Closing
Date;
(f) The representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material
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respects as of the Closing Date as though made at and as of the Closing Date;
(g) Seller shall have received a certificate from an authorized
officer of Buyer, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Sections 7.2(e) and (f) have been
satisfied by Buyer;
(h) Effective upon Closing, Buyer shall have assumed, as set forth
in Section 6.10, all of the applicable obligations under the Collective
Bargaining Agreement as they relate to Transferred Union Employees;
(i) Seller shall have received an opinion from Buyer's counsel
reasonably acceptable to Seller, dated the Closing Date and satisfactory in form
and substance to Seller and its counsel, substantially to the effect that:
(i) Buyer is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the state of its
organization and is qualified to do business in the State of Maryland and
Commonwealth of Pennsylvania and has the full corporate power and
authority to own, lease and operate its material assets and properties and
to carry on its business as is now conducted, and to execute and deliver
the Agreement and the Ancillary Agreements by Buyer and to consummate the
transactions contemplated thereby; and the execution and delivery of the
Agreement and the Ancillary Agreements by Buyer and the consummation of
the transactions contemplated thereby have been duly authorized by all
necessary corporate action required on the part of Buyer;
(ii) The Agreement and the Ancillary Agreements have been duly
and validly executed and delivered by Buyer, and constitute legal, valid
and binding agreements of Buyer, enforceable against Buyer, in accordance
with their terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting or relating to enforcement of
creditor's rights generally and general principles of equity (regardless
of whether enforcement is considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of the Agreement
and the Ancillary Agreements by Buyer do not (A) conflict with the
Certificate of Incorporation or Bylaws (or other organizational
documents), as currently in effect, of Buyer or (B) to the knowledge of
such counsel, constitute a violation of or default under those agreements
or
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instruments set forth on a Schedule attached to the opinion and which have
been identified to such counsel as all the agreements and instruments
which are material to the business or financial condition of Buyer;
(iv) The Assignment and Assumption Agreement and other
transfer instruments described in Section 3.7 are in proper form for Buyer
to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice to, any
Governmental Authority is necessary for Buyer's execution and delivery of
the Agreement and the Ancillary Agreements, or the consummation by Buyer
of the transactions contemplated hereby and thereby, other than such
consents, approvals, filings or notices, which, if not obtained or made,
will not prevent Buyer from performing its respective obligations under
the Agreement, the Ancillary Agreements and Guaranty.
(j) Buyer shall have delivered, or caused to be delivered, to Seller
at the Closing, Buyer's closing deliveries described in Section 3.7.
7.3 Zoning Condition Adjustments.
(a) In the event that any Site or any portion thereof (other than
the Development Properties listed in Schedule 2.1) shall be subject to a zoning
classification or classifications, rule or regulation, or a variance or special
exception, which does not permit or otherwise restrict the Site or any portion
thereof, to be used as the same (i) is currently used for generation purposes or
(ii) was historically used for generation purposes while under Seller's current
ownership or the ownership of any Affiliate thereof for generation purposes, and
if such failure shall result in a material adverse effect on the use of such
Site for generating purposes as currently used (or as so historically used),
then, in such case, Buyer may, prior to the Closing on written notice to the
Seller, exclude from the Purchased Assets such Site and the Purchased Assets
related to such Site. Buyer and Seller shall thereupon negotiate a fair and
equitable adjustment to the Purchase Price or, failing such agreement within 30
days, the adjustment shall be determined by appraisal in accordance with Section
7.3(b), the cost of which shall be shared equally be Buyer and Seller.
(b) The Parties shall select an Appraiser (as defined below) within
30 days of the expiration of the 30 day period referred to in Section 7.3(a). In
the event the Parties cannot within such period agree on a single Appraiser, the
Parties shall each within 15 days select a separate Appraiser, and such
Appraisers shall within 15 days, later designate a third
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Appraiser. The Appraiser shall be instructed to provide a written report of the
appropriate reduction of the Purchase Price to be allocated to the excluded Site
(and associated Purchased Assets). Each of the Parties may submit such materials
and information to the Appraiser as it deems appropriate and shall use its
Commercially Reasonable Efforts to cause the Appraiser to render its decision
within 60 days after the matter has been submitted to it. The determination of
the Appraiser shall be final and binding on the Parties thereto. As used herein,
"Appraiser" means an individual who has a minimum of ten (10) years of relevant
experience in valuing electric generation facilities and has an MAI designation
of the Appraisal Institute.
(c) Buyer agrees to use Commercially Reasonable Efforts at its
expense and in consultation with Seller to mitigate any adverse zoning
restrictions which could cause a failure of the Closing condition in Section
7.1(o), or require a Purchase Price adjustment under this Section 7.3, including
by seeking a re-zoning or zoning variance of the applicable Site.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless Seller, its
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Seller's Indemnitee") from and against any and all claims, demands, suits,
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an "Indemnifiable Loss"), asserted against or
suffered by any Seller's Indemnitee relating to, resulting from or arising out
of (i) any breach by Buyer of any covenant or agreement of Buyer contained in
this Agreement or the representations and warranties contained in Sections 5.1,
5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting
from or arising out of any Inspection, or (iv) any Third Party Claims against
Seller's Indemnitee arising out of or in connection with Buyer's ownership or
operation of the Plants and other Purchased Assets on or after the Closing Date
(other than Third Party Claims which arise out of acts by Buyer permitted by
Section 6.12 hereof).
(b) Seller shall indemnify, defend and hold harmless Buyer, its
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Buyer Indemnitee") from and
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against any and all Indemnifiable Losses asserted against or suffered by any
Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by
Seller of any covenant or agreement of Seller contained in this Agreement or the
representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the
Excluded Liabilities, (iii) noncompliance by Seller with any bulk sales or
transfer laws as provided in Section 10.11, or (iv) any Third Party Claims
against a Buyer Indemnitee arising out of or in connection with Seller's
ownership or operation of the Excluded Assets on or after the Closing Date.
(c) Each party, for itself and on behalf of its Representatives and
Affiliates, does hereby release, hold harmless and forever discharge the other
party, its Representatives and Affiliates, from any and all Indemnifiable Losses
of any kind or character, whether known or unknown, hidden or concealed,
resulting from or arising out of any Environmental Condition or violation of
Environmental Law relating to the Purchased Assets, provided that Seller's
release of Buyer shall not extend to any of Buyer's Assumed Liabilities set
forth in Section 2.3, and provided further that Buyer's release of Seller shall
not extend to any of Seller's Excluded Liabilities set forth in Section 2.4.
Subject to the foregoing proviso, each party hereby waives any and all rights
and benefits with respect to such Indemnifiable Losses that it now has, or in
the future may have conferred upon it by virtue of any statute or common law
principle which provides that a general release does not extend to claims which
a party does not know or suspect to exist in its favor at the time of executing
the release, if knowledge of such claims would have materially affected such
party's settlement with the obligor. In this connection, each party hereby
acknowledges that it is aware that factual matters, now unknown to it, may have
given or may hereafter give rise to Indemnifiable Losses that are presently
unknown, unanticipated and unsuspected, and it further agrees that this release
has been negotiated and agreed upon in light of that awareness and it
nevertheless hereby intends to release the other party and its Representatives
and Affiliates from the Indemnifiable Losses described in the first sentence of
this paragraph.
(d) Notwithstanding anything to the contrary contained herein:
(i) Any Person entitled to receive indemnification under this
Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to
mitigate all losses, damages and the like relating to a claim under these
indemnification provisions, including availing itself of any defenses,
limitations, rights of contribution, claims against third Persons and
other rights at law or equity.
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The Indemnitee's Commercially Reasonable Efforts shall include the
reasonable expenditure of money to mitigate or otherwise reduce or
eliminate any loss or expenses for which indemnification would otherwise
be due, and the Indemnitor shall reimburse the Indemnitee for the
Indemnitee's reasonable expenditures in undertaking the mitigation.
(ii) Any Indemnifiable Loss shall be net of the dollar amount
of any insurance or other proceeds actually receivable by the Indemnitee
or any of its Affiliates with respect to the Indemnifiable Loss, but shall
not take into account any income tax benefits to the Indemnitee, or any
Income Taxes attributable to the receipt of any indemnification payments
hereunder. Any party seeking indemnity hereunder shall use Commercially
Reasonable Efforts to seek coverage (including both costs of defense and
indemnity) under applicable insurance policies with respect to any such
Indemnifiable Loss.
(e) The expiration or termination of any covenant or agreement shall
not affect the Parties' obligations under this Section 8.1 if the Indemnitee
provided the Person required to provide indemnification under this Agreement
(the "Indemnifying Party") with proper notice of the claim or event for which
indemnification is sought prior to such expiration, termination or
extinguishment.
(f) Except to the extent otherwise provided in Article IX, the
rights and remedies of Seller and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Seller and Buyer may
have under this Agreement or otherwise for monetary relief, with respect to (i)
any breach of or failure to perform any covenant, agreement, or representation
or warranty set forth in this Agreement, after the occurrence of the Closing, or
(ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be.
The indemnification obligations of the Parties set forth in this Article VIII
apply only to matters arising out of this Agreement, excluding the Ancillary
Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary
Agreement shall be governed by the indemnification obligations, if any,
contained in the Ancillary Agreement under which the Indemnifiable Loss arises.
(g) Notwithstanding anything to the contrary herein, no party
(including an Indemnitee) shall be entitled to recover from any other party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments losses, costs, or expenses under this Agreement any amount in excess of
the actual compensatory damages, court costs and reasonable attorney's and other
advisor fees suffered by such party. Buyer and Seller waive any right to recover
punitive, incidental, special,
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exemplary and consequential damages arising in connection with or with respect
to this Agreement. The provisions of this Section 8.1(g) shall not apply to
indemnification for a Third Party Claim.
8.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any claim
or of the commencement of any claim, action, or proceeding made or brought by
any Person who is not a party to this Agreement or any Affiliate of a Party to
this Agreement (a "Third Party Claim") with respect to which indemnification is
to be sought from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
such notice shall not be given later than ten (10) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and shall
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's expense and by such Indemnifying Party's own counsel, provided that the
counsel for the Indemnifying Party who shall conduct the defense of such Third
Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee
shall cooperate in good faith in such defense at such Indemnitee's own expense.
If an Indemnifying Party elects not to assume the defense of any Third Party
Claim, the Indemnitee may compromise or settle such Third Party Claim over the
objection of the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant to this
Agreement.
(b) (i) If, within ten (10) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for any
legal expenses subsequently incurred by the Indemnitee in connection with the
defense thereof; provided, however, that if the Indemnifying Party shall fail to
take reasonable steps necessary to defend diligently such Third Party Claim
within twenty (20) calendar days after receiving notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense and the Indemnifying Party shall be
liable for all reasonable expenses thereof. (ii) Without the prior written
consent of the Indemnitee, the Indemnifying Party shall not enter into any
settlement of any Third Party Claim which would lead to
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liability or create any financial or other obligation on the part of the
Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder. If a firm offer is made to settle a Third Party Claim without leading
to liability or the creation of a financial or other obligation on the part of
the Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder and the Indemnifying Party desires to accept and agree to such offer,
the Indemnifying Party shall give written notice to the Indemnitee to that
effect. If the Indemnitee fails to consent to such firm offer within ten (10)
calendar days after its receipt of such notice, the Indemnifying Party shall be
relieved of its obligations to defend such Third Party Claim and the Indemnitee
may contest or defend such Third Party Claim. In such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will be the
amount of such settlement offer plus reasonable costs and expenses paid or
incurred by Indemnitee up to the date of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than ten (10) calendar days after the Indemnitee becomes aware of
such Direct Claim, and the Indemnifying Party shall have a period of thirty (30)
calendar days within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such thirty (30) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party rejects such claim, the Indemnitee will be free to seek
enforcement of its right to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an indemnity payment in respect thereof, is reduced by
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by, from or against
any other entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest thereon from
the date of payment thereof at the publicly announced prime rate then in effect
of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(e) A failure to give timely notice as provided in this Section 8.2
shall not affect the rights or obligations of any Party hereunder except if, and
only to the extent that, as a
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result of such failure, the Party which was entitled to receive such notice was
actually prejudiced as a result of such failure.
ARTICLE IX
TERMINATION
9.1 Termination. (a) This Agreement may be terminated at any time prior to
the Closing Date by mutual written consent of Seller and Buyer.
(b) This Agreement may be terminated by Seller or Buyer if (i) any
Federal or state court of competent jurisdiction shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Closing, and such order, judgment or decree shall have become final and
nonappeallable or (ii) any statute, rule, order or regulation shall have been
enacted or issued by any Governmental Authority which, directly or indirectly,
prohibits the consummation of the Closing; or (iii) the Closing contemplated
hereby shall have not occurred on or before the day which is 12 months from the
date of this Agreement (the "Termination Date"); provided that the right to
terminate this Agreement under this Section 9.1(b) (iii) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date; and provided, further, that if on the day which is 12 months
from the date of this Agreement the conditions to the Closing set forth in
Section 7.1(b) or (c) or 7.2(b), (c) or (d) shall not have been fulfilled but
all other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Termination Date shall be the day which is 18 months
from the date of this Agreement.
(c) Except as otherwise provided in this Agreement, this Agreement
may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the
receipt of which is a condition to the obligation of Buyer to consummate the
Closing as set forth in Section 7.1(c), shall have been denied (and a petition
for rehearing or refiling of an application initially denied without prejudice
shall also have been denied) or shall have been granted but contains terms or
conditions which do not satisfy the closing condition in Section 7.1(c).
(d) This Agreement may be terminated by Seller, if any of Seller's
Required Regulatory Approvals, the receipt of which is a condition to the
obligation of Seller to consummate the Closing as set forth in Section 7.2(c),
shall have been denied (and a petition for rehearing or refiling of an
application
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initially denied without prejudice shall also have been denied) or shall have
been granted but contains terms or conditions which do not satisfy the closing
condition in Section 7.2(c).
(e) This Agreement may be terminated by Buyer if there has been a
violation or breach by Seller of any covenant, representation or warranty
contained in this Agreement which has resulted in a Material Adverse Effect and
such violation or breach is not cured by the earlier of the Closing Date or the
date thirty (30) days after receipt by Seller of notice specifying particularly
such violation or breach, and such violation or breach has not been waived by
Buyer.
(f) This Agreement may be terminated by Seller, if there has been a
material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Seller.
(g) This Agreement may be terminated by Seller if there shall have
occurred any change that is materially adverse to the business, operations or
conditions (financial or otherwise) of Buyer.
(h) This Agreement may be terminated by either of Seller or Buyer in
accordance with the provisions of Section 6.11(b).
9.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to
Section 9, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the
Parties hereunder will terminate, except as otherwise expressly provided in this
Agreement, and thereafter neither Party shall have any recourse against the
other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of Seller and
Buyer.
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10.2 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party entitled to
the benefits thereof only by a written instrument signed by the Party granting
such waiver, but such waiver of such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent failure to comply therewith
10.3 No Survival. Each and every representation, warranty and covenant
contained in this Agreement (other than the covenants contained in Sections
3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13 and
in Articles VIII and X, which provisions shall survive the delivery of the
deed(s) and the Closing in accordance with their terms and the representations
and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, which
representations and warranties and any claims arising under Section 6.1 shall
survive the Closing for eighteen (18) months from the Closing Date) shall expire
with, and be terminated and extinguished by the consummation of the sale of the
Purchased Assets and shall merge into the deed(s) pursuant hereto and the
transfer of the Assumed Liabilities pursuant to this Agreement and such
representations, warranties and covenants shall not survive the Closing Date;
and none of Seller, Buyer or any officer, director, trustee or Affiliate of any
of them shall be under any liability whatsoever with respect to any such
representation, warranty or covenant.
10.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that notices of a change of address
shall be effective only upon receipt thereof):
(a) If to Seller, to:
c/o GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Attention: Mr. David C. Brauer
Vice President
with a copy to:
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Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Douglas E. Davidson, Esq.
(b) if to Buyer, to:
Sithe Energies, Inc.
450 Lexington Avenue
New York, New York 10017
Attention: Mr. David Tohir
and Hyun Park, Esq.
with a copy to:
Latham & Watkins
Suite 1300
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: W. Harrison Wellford, Esq.
10.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any Party
hereto, including by operation of law, without the prior written consent of each
other Party, nor is this Agreement intended to confer upon any other Person
except the Parties hereto any rights, interests, obligations or remedies
hereunder. No provision of this Agreement shall create any third party
beneficiary rights in any employee or former employee of Seller (including any
beneficiary or dependent thereof) in respect of continued employment or resumed
employment, and no provision of this Agreement shall create any rights in any
such Persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement except as expressly
provided for thereunder. Notwithstanding the foregoing, without the prior
written consent of Seller, (i) Buyer may assign all of its rights and
obligations hereunder to any majority owned Subsidiary (direct or indirect) and
upon Seller's receipt of notice from Buyer of any such assignment, such assignee
will be deemed to have assumed, ratified, agreed to be bound by and perform all
such obligations, and all references herein to "Buyer" shall thereafter be
deemed to be references to such assignee, in each case without the necessity for
further act or evidence by the Parties hereto or such assignee, and (ii) Buyer
or its permitted assignee may assign, transfer, pledge or
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otherwise dispose of (absolutely or as security) its rights and interests
hereunder to a trustee, lending institutions or other party for the purposes of
leasing, financing or refinancing the Purchased Assets, including such an
assignment, transfer or other disposition upon or pursuant to the exercise of
remedies with respect to such leasing, financing or refinancing, or by way of
assignments, transfers, pledges, or other dispositions in lieu thereof (and any
such assignee may fully exercise its rights hereunder or under any other
agreement and pursuant to such assignment without any further prior consent of
any party hereto); provided, however, that no such assignment in clause (i) or
(ii) shall relieve or discharge the assignor from any of its obligations
hereunder. Seller agrees, at Buyer's expense, to execute and deliver such
documents as may be reasonably necessary to accomplish any such assignment,
transfer, pledge or other disposition of rights and interests hereunder so long
as Seller's rights under this Agreement are not thereby altered, amended,
diminished or otherwise impaired.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York (without giving effect to
conflict of law principles) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies. THE PARTIES
HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND
FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION
FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS
MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Interpretation. The articles, section and schedule headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.9 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of
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this Agreement.
10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, and
the Ancillary Agreements including the Exhibits, Schedules, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to Buyer pursuant to the terms of the Confidentiality Agreement
(including the Offering Memorandum dated April 1998, previously delivered to
Buyer by Seller and Goldman, Sachs & Co.). This Agreement supersedes all prior
agreements and understandings between the Parties other than the Confidentiality
Agreement with respect to such transactions.
10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything
in this Agreement to the contrary, Seller may, in its sole discretion, not
comply with the provision of the bulk sales laws of any jurisdiction in
connection with the transactions contemplated by this Agreement. Buyer hereby
waives compliance by Seller with the provisions of the bulk sales laws of all
applicable jurisdictions.
10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth
herein are United States (U.S.) dollars.
10.13 Zoning Classification. Without limitation of Sections 7.1(o) and
7.3, Buyer acknowledges that the Real Properties are zoned as set forth in
Schedule 10.13.
10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer
acknowledges that there is no community (municipal) sewage system available to
serve the Real Property. Accordingly, any additional sewage disposal planned by
Buyer will require an individual (on-site) sewage system and all necessary
permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities
Act"). Buyer recognizes that certain of the existing individual sewage systems
on the Real Property may have been installed pursuant to exemptions from the
requirements of the Facilities Act or prior to the enactment of the Facilities
Act and that soils and site testing may not have been performed in connection
therewith. The owner of the property or properties served by such a system, at
the time of any malfunction, may be held liable for any contamination,
pollution, public health hazard or nuisance which occurs as the result of such
malfunction.
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IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
SITHE ENERGIES, INC. PENNSYLVANIA ELECTRIC COMPANY
By: By:
-------------------------- --------------------------
Name: Name:
Title: Title:
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<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C Form of Easement and Attachment Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Deeds
Exhibit G Form of Transition Power Purchase Agreement
SCHEDULES
1.1(72) Permitted Encumbrances
1.1(103) Transferable Permits (both environmental and non-
environmental)
2.1 Schedule of Purchased Assets
2.1(c) Schedule of Tangible Personal Property to be Conveyed
to Buyer
2.1(h) Schedule of Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Description of Transmission and other Assets not
included in Conveyance
2.4(h) Seward Coal Refuse Site
3.3(a)(i) Schedule of Inventory
4.3(a) Third Party Consents
4.3(b) Seller's Required Regulatory Approvals
4.4 Insurance Exceptions
4.5 Exceptions to Title
4.6 Real Property Leases
4.7 Schedule of Environmental Matters
4.8 Schedule of Noncompliance with Employment Laws
4.9(a) Schedule of Benefit Plans
4.9(b) Benefit Plan Exceptions
4.l0 Description of Real Property
4.10A Real Property Matters
4.11 Notices of Condemnation
4.12(a) List of Contracts
4.12(b) List of Non-assignable Contracts
4.12(c) List of Defaults under the Contracts
4.13 List of Litigation
4.14(a) List of Permit Violations
4.14(b) List of material Permits (other than Transferable
Permits)
4.15 Tax Matters
4.16 Intellectual Property Exceptions
5.3(a) Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
6.1 Schedule of Permitted Activities prior to Closing
<PAGE>
51301v9 -iv-
6.5(g) Description of Leased Space
6.8 Tax Appeals
6.10(a)(i) Plant and Support Staff (Union)
6.10(a)(ii) Mobile Maintenance/Corporate Support
6.10(b) Schedule of Non-Union Employees
6.10(d) Collective Bargaining Agreements
6.10(h) Schedule of Severance Benefits
6.10(h)(iv) Allocable Share Percentages
6.12 Pollution Control Revenue Bonds
10.13 Zoning
10.14 Sewage Matters
EXHIBIT 10-PP
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
THE AGREEMENT
For Nonbargaining Employees
<PAGE>
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
For Nonbargaining Employees
The Agreement
The Agreement
August 3, 1998
By accepting to participate in the Voluntary Enhanced Retirement Program being
offered by GPU Generation, Inc. and GPU Nuclear, Inc. (hereinafter referred to
as the "Company"), I fully understand that:
- - My employment with the Company will end with my retirement on the date
established by the Company but no later than September 30, 1999; and
- - In exchange for the benefits I will receive under the Voluntary Enhanced
Retirement Program, I am giving up forever any and all rights and claims I
have against the Company and others with respect to my employment up
through the date I execute this Agreement, except for the right to
retirement benefits, enforcement of the Voluntary Enhanced Retirement
Program, and Workers' Compensation claims.
- - If I am employed by the buyer of the GPU Generation assets, I will continue
to receive Voluntary Enhanced Retirement Program benefits, but will not be
entitled to transition benefits, whether pension related or otherwise,
provided to employees who transition directly from the Company to the
buyer.
Page 1
<PAGE>
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
For Nonbargaining Employees
The Agreement
PART I: ACCEPTANCE TO PARTICIPATE IN THE VOLUNTARY ENHANCED RETIREMENT PROGRAM
1. Conclusion of Employment: I, Robert L. Wise, hereby voluntarily elect
to participate in the Company's Voluntary Enhanced Retirement Program
(the "Program") and retire from the Company on the date established by
the Company but no later than September 30, 1999.
The Program is set forth in the Plan Description, a copy of which has
been provided to me and is incorporated herein by reference.
2. I UNDERSTAND AND AGREE THAT MY ELECTION TO RETIRE WILL BECOME
IRREVOCABLE AS OF THE CLOSE OF BUSINESS SEVEN (7) DAYS FOLLOWING THE
DATE I SIGN THIS AGREEMENT UNLESS I REVOKE MY ACCEPTANCE TO PARTICIPATE
IN THE PROGRAM BY MY DELIVERING IN HAND, WITHIN SUCH SEVEN (7) DAY
PERIOD, TO AN R&DP OR HUMAN RESOURCES REPRESENTATIVE AT MY WORK SITE
(OR DESIGNEE IF NO SUCH REPRESENTATIVE IS LOCATED THERE) A SIGNED AND
DATED "REVOCATION FORM", A COPY OF WHICH FORM HAS BEEN PROVIDED TO ME.
3. Separation Incentive: I understand that the Program provides the
following incentive to which I am otherwise not entitled under the
Company's Employee Pension Plan (hereinafter referred to and the
"pension plan") and Retiree Health Care Plan, and I accept this
incentive as the full, sufficient and complete consideration for my
agreement to retire on the agreed-upon date but no later than September
30, 1999 and for the Full and Final Waiver and Release which is a part
of this Agreement:
- The basic pension, as defined in the pension plan, will be
calculated by adding five (5) years to my age and five (5) years
to my years of Creditable Service. With respect to any Social
Security Equalization option benefit I may elect, my actual age
will be used for that part of the calculation and the 20% first
year increase will not be applied to that portion of the benefit.
- A Social Security Supplement will be payable in the amount of $500
monthly, commencing at retirement and continuing until my
attaining age 62. With respect to any Social Security Supplement
benefit, the 20% first year increase will not be applied to that
portion of the benefit.
- I shall be eligible for retiree health coverage regardless of my
length of service.
Page 2
<PAGE>
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
For Nonbargaining Employees
The Agreement
PART II: FULL AND FINAL WAIVER AND GENERAL RELEASE
In return for the benefits available to me under the Program, I hereby fully
release the Company from any and all claims and rights which I now have or may
have against it, including claims for attorney's fees through the date I sign
this Agreement. Such claims and rights include those of which I am aware and
those of which I may be presently unaware. They extend to those arising under
any contract and those involving any tort or personal injury I may have
suffered. Such claims and rights also include those which may arise under any
federal, state, or local statute or under common law, including those dealing
with employment discrimination, such as the Age Discrimination in Employment
Act, the Pennsylvania Human Relations Act, the New Jersey Law Against
Discrimination, or the New Jersey Conscientious Employee Protection Act, as
amended, and those which may arise under any other legal restriction on an
employer's rights with respect to its employees.
I also waive all rights I might have to share in any damages or other relief
awarded under any class action, EEOC charge, Pennsylvania Human Relations
Commission complaint, New Jersey Division on Civil Rights complaint, or as a
result of any federal, state, or local administrative agency action. I also
hereby fully release the Company's parent, affiliated and subsidiary companies
and the present and former directors, officers, employees and agents and their
successors in interest of the Company and its parent, affiliated and subsidiary
companies from any such claims or rights I might have.
The only exceptions to this Waiver and General Release of claims and rights are
with respect to my retirement benefits, enforcement of the Program, and claims
under applicable Workers' Compensation laws for occupational injuries or
illnesses. I understand and agree that after the Agreement becomes effective, I
cannot bring or participate as a party, or member of a class, in any lawsuit or
receive any portion of any recovery in a proceeding conducted or brought by the
EEOC or other administrative agency which is based on any claims or rights
covered by this Waiver and General Release.
Page 3
<PAGE>
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
For Nonbargaining Employees
The Agreement
PART III: EMPLOYEE CERTIFICATION
I certify to the Company the following:
1. I voluntarily elect to participate in the Program and execute this
Agreement;
2. The only consideration for executing this Agreement is the benefit to
be provided to me under the Program as set forth in Part I above and,
more fully, in the Plan Description;
3. No other promise, inducement, threat, agreement or understanding of any
kind or description whatsoever has been made with or to me by any
person or entity to cause me to execute this Agreement;
4. I have carefully read the Plan Description and this Agreement;
5. I have been given at least forty-five (45) days from the date on which
I received this Agreement within which to consider this Agreement. If I
have executed this Agreement before the end of the full forty-five (45)
days, I did so of my own free will;
6. I was advised by the Company to consult with my personal attorney prior
to executing this Agreement;
7. I fully understand that if I want to revoke this Agreement and my
election to participate in the Program, I must do so by delivering in
hand to a Human Resources representative at my work site (or its
designee if no Human Resources representative is located there) a fully
executed Revocation Form within seven (7) days from the date I executed
this Agreement; and
8. During the period between my execution of this Agreement and my
retirement date, I will promptly notify the Company, in writing, of
any change of circumstances that relates to the matters to which I
have certified in this Agreement or of any events that I believe may
give rise to a claim or cause of action by me against the Company or
any of its officers, directors, employees, and agents. If I have not
so notified the Company, it and the others I have released and waived
rights against in this Agreement can rely that no such change in
circumstances or events occurred during that period; and I will be
precluded from participating as a party, or as a member of a class, in
any lawsuit or receive any portion of any recovery in a proceeding
conducted or brought by the EEOC or other administrative agency which
is based on any such claim or cause of action.
Page 4
<PAGE>
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
For Nonbargaining Employees
The Agreement
PART IV: EFFECTIVE DATE AND EXECUTION
This Agreement will become effective and irrevocable on the eighth (8th) day
after the date I execute this Agreement unless I revoke my acceptance to
participate in the Program in the manner described above.
IN WITNESS WHEREOF, I, for myself and my heirs, administrators, executors,
representatives and assigns, intending to be legally bound by this Agreement,
have executed and sealed this Agreement this 17 day of September , 1998,
before a Notary Public.
Robert Wise
Employee Name (please print) Employee Signature
- --- --- --- - --- --- - --- --- --- ---
Social Security Number
Sworn to and subscribed before me this 17 day of September , 1998.
-------- -----------------
__________________________ My Commission expires: ___________________
Notary Public Signature
EMPLOYEE AND MANAGEMENT RETIREMENT DATE CONSULATION
The retirement date the Company has established for me. See attached for
qualifier.
Retirement Date: June 30, 1999
________________________________ Sept. 29, 1999
-----------------------------------
Employee Signature Date
Page 5
<PAGE>
VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP)
For Nonbargaining Employees
The Agreement
Fred D. Hafer
Manager Name (please print) Manager Signature
HUMAN RESOURCES USE ONLY
This Agreement has been received this 17 day of Sept. , 1998, by
me as a Human Resources representative or Human Resources designee of the
Company.
- --------------------------------- --------------------------------
Human Resources/Designee Name Human Resources/Designee Signature
(please print)
Page 6
EXHIBIT 10-QQ
THREE MILE ISLAND UNIT 1 NUCLEAR GENERATING FACILITY
ASSET PURCHASE AGREEMENT
BY AND AMONG
GPU NUCLEAR, INC., JERSEY CENTRAL POWER & LIGHT COMPANY,
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY, as SELLERS,
AND
AMERGEN ENERGY COMPANY, LLC, as BUYER
Dated as of October 15, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
1.1 Definitions 1
1.2 Certain Interpretive Matters 20
ARTICLE II PURCHASE AND SALE 20
2.1 Transfer of Assets 20
2.2 Excluded Assets 22
2.3 Assumed Liabilities and Obligations 23
2.4 Excluded Liabilities 24
2.5 Control of Litigation 28
ARTICLE III THE CLOSING 28
3.1 Closing 28
3.2 Payment of Purchase Price 28
3.3 Adjustment to Purchase Price 29
3.4 Allocation of Purchase Price 31
3.5 Prorations 32
3.6 Deliveries by Sellers 33
3.7 Deliveries by Buyer 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS 35
4.1 Organization; Qualification 36
4.2 Authority Relative to this Agreement 36
4.3 Consents and Approvals; No Violation 36
4.4 Reports 37
4.5 Undisclosed Liabilities 38
4.6 Absence of certain Changes or Events 38
4.7 Title and Related Matters 38
4.8 Leases 38
4.9 Insurance 39
4.10 Environmental Matters 39
4.11 Labor Matters 40
4.12 ERISA; Benefit Plans 40
4.13 Real Property; Plant and Equipment 41
4.14 Condemnation 42
4.15 Certain Contracts and Arrangements 42
4.16 Legal Proceedings, etc. 43
4.17 Permits 43
4.18 NRC Licenses 43
4.19 Regulation as a Utility 44
4.20 Taxes 44
4.21 Year 2000 Qualification 45
4.22 Qualified Decommissioning Funds 45
4.23 Nonqualified Decommissioning Funds 48
<PAGE>
Page
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 49
5.1 Organization 50
5.2 Authority Relative to this agreement 50
5.3 Consents and Approvals; No Violation 50
5.4 Regulation as a Utility 51
5.5 Availability of Funds 51
5.6 Legal Proceedings 51
5.7 WARN Act 51
ARTICLE VI COVENANTS OF THE PARTIES 52
6.1 Conduct of Business Relating to the
Purchased Assets 52
6.2 Access to Information 55
6.3 Expenses 58
6.4 Further Assurances; Cooperation 59
6.5 Public Statements 61
6.6 Consents and Approvals 61
6.7 Fees and Commissions 63
6.8 Tax Matters 64
6.9 Advice of Changes 65
6.10 Employees 65
6.11 Risk of Loss 70
6.12 Decommissioning Funds .71
6.13 Spent Fuel Fees 75
6.14 Department of Energy Decontamination
Decommissioning Fees 75
6.15 Cooperation Relating to Insurance and
Price-Anderson Act 75
6.16 Tax Clearance Certificates 75
6.17 TMI-2 Monitoring Agreement 75
6.18 TMI-2 Decommissioning 76
6.19 Spent Fuel Acceptance 76
6.20 Residual Waste Landfill 76
6.21 Easement, License and Attachment Agreement 76
ARTICLE VII CONDITIONS 77
7.1 Conditions to Obligations of Buyer 77
7.2 Conditions to Obligations of Sellers 80
ARTICLE VIII INDEMNIFICATION 82
8.1 Indemnification 82
8.2 Defense of Claims 85
ARTICLE IX TERMINATION 87
9.1 Termination 87
9.2 Procedure and Effect of No-Default
Termination 88
<PAGE>
Page
ARTICLE X MISCELLANEOUS PROVISIONS 89
10.1 Amendment and Modification 89
10.2 Waiver of Compliance; Consents 89
10.3 Survival of Representations, Warranties,
Covenants 89
10.4 Notices 90
10.5 Assignment 90
10.6 Governing Law 91
10.7 Counterparts 92
10.8 Interpretation 92
10.9 Schedules and Exhibits 92
10.10 Entire Agreement 92
10.11 Bulk Sales Laws 92
10.12 U.S. Dollars 92
10.13 Zoning Classification 93
10.14 Sewage Facilities 93
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form of Bill of Sale
Exhibit C List of Principal Terms for the Easement, License and
Attachment Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E Form of Interconnection Agreement
Exhibit F Form of Deal Strike Price Adjustment Agreement
Exhibit G Form of Special Warranty Deed
Exhibit H Form of TMI-2 Monitoring Agreement
Exhibit I Form of Power Purchase Agreement
Exhibit J Form of Decommissioning Trust Agreement
Exhibit K Form of Exclusion Area Agreement
Exhibit L Form of GPU Service Agreement
Exhibit M Form of Opinion from Each of Seller's Counsel
Exhibit N Form of Opinion from Each of Buyer's Counsel
Exhibit O Form of Investment Manager Agreement
SCHEDULES
1.1(151) Transferable Permits
2.1(h) Emission Reduction Credits
2.1(l) Intellectual Property
2.2(a) Excluded Transmission and other Assets
2.2(i) Excluded Real Property (TMI-2)
3.3(a)(ii) Closing Date Purchase Price Adjustment
4.3(a) Sellers' Third Party Consents
4.3(b) Sellers' Required Regulatory Approvals
4.5 Liabilities
4.6 Absence of Certain Changes or Events
4.7(a) Exceptions to Title to Real Property
4.7(b) Exceptions to Title to other Purchased Assets
4.7(c) Ownership Percentage
4.8 Real Property Leases
4.9 Insurance Exceptions
4.10 Environmental Matters
4.11 Noncompliance with Employment Laws
4.12(a) Benefit Plans
4.12(b) Benefit Plan Exceptions
4.13(a) Description of Real Property
4.13(b) Description of Major Equipment Components and
Personal Property
4.13(c) List of Defects of Purchased Assets
4.14 Notices of Condemnation
4.15(a) List of Sellers' Agreements
4.15(b) Agreement Exceptions
<PAGE>
4.15(c) Agreement Defaults
4.16 List of Litigation
4.17(a) List of Permit Violations
4.17(b) List of Material Permits (other than Transferable
Permits)
4.18(a) List of License Violations
4.18(b) List of Material NRC Licenses
4.19 Utility Matters regarding Sellers
4.20 Tax Matters
4.22 Tax and Financial Matters Relating to Qualified
Decommissioning Funds
4.23 Financial Matters Relating to Nonqualified
Decommissioning Funds
5.3(a) Buyer's Third Party Consents
5.3(b) Buyer's Required Regulatory Approvals
5.4 Utility Matters regarding Buyer
6.1 Permitted Activities Prior to Closing
6.10(d) IBEW Collective Bargaining Agreement
7.1(o) Required Work
7.1(s) Year 2000 Qualification Program
10.13 Zoning Classification
10.14 Sewage Facilities
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 15, 1998, by and among GPU
Nuclear, Inc., a New Jersey corporation ("GPU Nuclear"), Jersey Central Power &
Light Company, a New Jersey corporation ("JCP&L"), Metropolitan Edison Company,
a Pennsylvania corporation ("Met-Ed"), and Pennsylvania Electric Company, a
Pennsylvania corporation ("Penelec") (GPU Nuclear, JCP&L, Met-Ed and Penelec,
each a "Seller" and, collectively, "Sellers"), and AmerGen Energy Company, LLC,
a Delaware limited liability company ("Buyer"). Sellers and Buyer are referred
to individually as a "Party," and collectively as the "Parties."
W I T N E S S E T H
WHEREAS, each of JCP&L, Met-Ed and Penelec (collectively, the "Owners")
owns as tenant-in-common in percentages of 25%, 50% and 25%, respectively, an
undivided interest in the Three Mile Island Unit 1 Nuclear Generating Facility
("TMI-1"), NRC Operating License No. DPR-50, Docket No. 50-289, located near
Middletown, Pennsylvania, and certain facilities and other assets associated
therewith and ancillary thereto;
WHEREAS, GPU Nuclear is responsible for the daily operations of TMI-1
for the Owners;
WHEREAS, Sellers have heretofore agreed jointly to divest themselves of
TMI-1; and
WHEREAS, Buyer desires to purchase and assume, and Sellers desire to sell
and assign, the Purchased Assets (as defined in Section 2.1 below) and certain
associated liabilities, upon the terms and conditions hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements hereinafter set forth, and intending to be legally
bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have the
meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
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(2) "Agreement" means this Asset Purchase Agreement together with the
Schedules and Exhibits hereto, as the same may be from time to time amended.
(3) "Ancillary Agreements" means the Assignment and Assumption Agreement,
the Easement, License and Attachment Agreement, the Interconnection Agreement,
the Deal Strike Price Adjustment Agreement, the TMI-2 Monitoring Agreement, the
Power Purchase Agreement, the Decommissioning Trust Agreement, the GPU Service
Agreement, and the Exclusion Area Agreement, as the same may amended be from
time to time.
(4) "Assignment and Assumption Agreement" means the Assignment and
Assumption Agreement between Sellers and Buyer substantially in the form of
Exhibit A hereto, by which Sellers, subject to the terms and conditions hereof,
shall assign Sellers' Agreements, the Real Property Leases, the Transferable
Permits, certain intangible assets and other Purchased Assets to Buyer and
whereby Buyer shall assume the Assumed Liabilities and Obligations.
(5) "Assumed Liabilities and Obligations" has the meaning set forth in
Section 2.3.
(6) "Atomic Energy Act" means the Atomic Energy Act of 1954, as amended.
(7) "Benefit Plans" has the meaning set forth in Section 4.12(a).
(8) "Bill of Sale" means the Bill of Sale, substantially in the form of
Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible
Personal Property included in the Purchased Assets transferred to Buyer at the
Closing.
(9) "Business Day" shall mean any day other than Saturday, Sunday and any
day on which banking institutions in the Commonwealth of Pennsylvania are
authorized by law or other governmental action to close.
(10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f).
(11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b).
(12) "Buyer Material Adverse Effect" has the meaning set forth in Section
5.3(a).
(13) "Buyer's Required Regulatory Approvals" has the meaning set forth in
Section 5.3(b).
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(14) "Capital Expenditures" has the meaning set forth in Section
3.3(a)(iii).
(15) "CERCLA" means the Federal Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
(16) "Closing" has the meaning set forth in Section 3.1.
(17) "Closing Adjustment" has the meaning set forth in Section 3.3(b).
(18) "Closing Payment" has the meaning set forth in Section 3.2.
(19) "Closing Date" has the meaning set forth in Section 3.1.
(20) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
(21) "Code" means the Internal Revenue Code of 1986, as amended.
(22) "Commercially Reasonable Efforts" means efforts which are designed to
enable a Party, directly or indirectly, to satisfy a condition to, or otherwise
assist in the consummation of, the transactions contemplated by this Agreement
and which do not require the performing Party to expend any funds or assume
liabilities other than expenditures and liabilities which are reasonable in
nature and amount in the context of the transactions contemplated by this
Agreement.
(23) "Confidentiality Agreement" means the Non-Disclosure Agreement, dated
August 1997, by and among Sellers and the members of Buyer.
(24) "Cowanesque Reservoir Agreements" means all agreements between
Sellers and the SRBC relating to the consumptive use of Susquehanna River water
at the Site; such agreements are separately identified on Schedule 4.15(a)
hereto.
(25) "Deal Strike Price Adjustment" means the adjustment to the Purchase
Price calculated and paid in accordance with the Deal Strike Price Adjustment
Agreement.
(26) "Deal Strike Price Adjustment Agreement" means the agreement between
Sellers and Buyer substantially in the form of Exhibit F hereto.
(27) "Decommissioning" means the complete retirement and removal of the
Facilities from service and the restoration of the
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Site, as well as any planning and administrative activities incidental thereto,
including but not limited to (a) the dismantlement, decontamination, storage,
and/or entombment of the Facilities, in whole or in part, and any reduction or
removal, whether before or after termination of the NRC license for the
Facilities, of radioactivity at the Site, and (b) all activities necessary for
the retirement, dismantlement and decontamination of the Facilities to comply
with all applicable requirements of the Atomic Energy Act and the NRC's rules,
regulations, orders and pronouncements thereunder, the NRC Operating License for
the Facilities and any related decommissioning plan.
(28) "Decommissioning Funds" means the Qualified Decommissioning Funds and
the Nonqualified Decommissioning Funds, collectively.
(29) "Decommissioning Indenture" means the Indenture and Second Amendment
to Indenture dated October 25, 1990 regarding the Qualified Decommissioning
Funds and the Nonqualified Decommissioning Funds between Metropolitan Edison
Company, Pennsylvania Electric Company, Jersey Central Power & Light Company and
Bank of New York, as amended on March 12, 1994 and on December 1, 1996 and as
further amended from time to time thereafter.
(30) "Decommissioning Trust Agreement" means the Decommissioning Trust
Agreement, between any Seller and the Trustee under the Decommissioning Trust
Agreement, pursuant to which any assets of any of the Decommissioning Funds
retained by any Seller after Closing pursuant to Section 6.12(c) hereof will be
held in trust, which agreement shall be substantially in the form of Exhibit J
hereto except that (i) the provisions thereof shall be appropriately modified to
reflect the fact that the agreement provides for a continuation of the Qualified
Decommissioning Fund and/or the Nonqualified Decommissioning Fund maintained by
the Sellers pursuant to the Decommissioning Indenture, and to reflect the
provisions of Section 4.14 of the Decommissioning Indenture relating to the
appointment of a successor Trustee; (ii) the provisions thereof relating to
contributions made to the Decommissioning Fund by the Sellers shall be deleted
or appropriately modified to reflect the fact that no contributions will be made
by the Sellers under the agreement; (iii) the provisions thereof relating to the
"Qualified Fund" shall be deleted or appropriately modified if the assets of
just the Sellers' Nonqualified Decommissioning Fund are to be maintained
pursuant to such agreement; and (iv) the provisions thereof relating to the
"Nonqualified Fund" shall be deleted or appropriately modified if the assets of
just the Sellers' Qualified Decommissioning Fund are to be maintained pursuant
to such agreement.
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(31) "Department of Energy" means the United States Department of Energy
and any successor agency thereto.
(32) "Department of Energy Decommissioning and Decontamination Fees" means
all fees related to the Department of Energy's Special Assessment of utilities
for the Uranium Enrichment Decontamination and Decommissioning Fund pursuant to
Sections 1801, 1802 and 1803 of the Atomic Energy Act and the Department of
Energy's implementing regulations at 10 CFR Part 766, or any similar fees
assessed under amended or superseding statutes or regulations applicable to
separative work units purchased from the Department of Energy in order to
decontaminate and decommission the Department's gaseous diffusion enrichment
facilities.
(33) "Department of Justice" means the United States Department of Justice
and any successor agency thereto.
(34) "Diked Area" has the meaning set forth in Section 7.1(s).
(35) "Direct Claim" has the meaning set forth in Section 8.2(c).
(36) "Easements" means the easements, licenses and access rights to be
granted by Buyer, Sellers or York Haven, or reserved by Sellers, in connection
with the Interconnection Agreement , the TMI-2 Monitoring Agreement or the
Easement Agreements, including easements authorizing access, use, maintenance,
construction, repair, replacement and other activities by Sellers, York Haven or
Buyer, as the case may be, or otherwise necessary for Sellers, York Haven and
Buyer to operate their respective businesses and to fulfill all applicable legal
requirements (including FERC and other licensing requirements and requirements
imposed in connection with applications for new and subsequent licenses).
(37) "Easement, License and Attachment Agreement" means both (i) the
Easement, License and Attachment Agreement to be negotiated in good faith
between Sellers and Buyer, whereby Buyer and Sellers will provide each other
with Easements with respect to the Real Property transferred to Buyer or
retained by Sellers and whereby Sellers will provide Buyer with certain
attachment rights with respect to Real Property owned by Sellers, and (ii) the
York Haven Easement Agreement to be negotiated in good faith between York Haven
and Buyer, whereby Buyer and York Haven will provide each other with Easements
with respect to the Real Property transferred to Buyer or retained by York
Haven. In the event of any conflict between the Easement, License and Attachment
Agreement and the Exclusion Area Agreement, the terms
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of the Exclusion Area Agreement shall govern. The Easements to be provided in
the Easement, License and Attachment Agreement which are contemplated by the
Parties as of the date hereof are listed on Exhibit C hereto. However, such
listing shall not be binding on the Parties or York Haven, and the Parties may
eliminate from, or add to, the listing of easements on said Exhibit C in the
course of their negotiations.
(38) "Emission Allowance" means all present and future authorizations to
emit specified units of pollutants or Hazardous Substances from the Purchased
Assets, which units are established by the Governmental Authority with
jurisdiction over the Purchased Assets under (i) an air pollution control and
emission reduction program designed to mitigate global warming, interstate or
intrastate transport of air pollutants; (ii) a program designed to mitigate
impairment of surface waters, watersheds, or groundwater; or (iii) any pollution
reduction program with a similar purpose. Allowances include allowances, as
described above, regardless as to whether the Governmental Authority
establishing such allowances designates such allowances by a name other than
"allowances."
(39) "Emission Reduction Credits" means credits, in units that are
established by the Governmental Authority with jurisdiction over the Purchased
Assets that has obtained the credits, resulting from reductions in the emissions
of air pollutants from an emitting source or facility (including, without
limitation, and to the extent allowable under applicable law, reductions from
shutdowns or control of emissions beyond that required by applicable law) that:
(i) have been identified by the PaDEP as complying with applicable Pennsylvania
law governing the establishment of such credits (including, without limitation,
that such emissions reductions are enforceable, permanent, quantifiable and
surplus) and listed in the Emissions Reduction Credit Registry maintained by the
PaDEP or with respect to which such identification and listing are pending; or
(ii) have been certified by any other applicable Governmental Authority as
complying with the law and regulations governing the establishment of such
credits (including, without limitation, certification that such emissions
reductions are enforceable, permanent, quantifiable and surplus). The term
includes Emission Reduction Credits that have been approved by the PaDEP and are
awaiting USEPA approval. The term also includes certified air emissions
reductions, as described above, regardless as to whether the Governmental
Authority certifying such reductions designates such certified air emissions
reductions by a name other than "emission reduction credits."
(40) "Encumbrances" means any mortgages, pledges, liens, security
interests, conditional and installment sale agreements,
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activity and use limitations, conservation easements, deed restrictions,
easements, encumbrances and charges of any kind.
(41) "Energy Reorganization Act" means the Energy Reorganization Act of
1974, as amended.
(42) "Environmental Claim" means any and all pending and/or threatened
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violation, investigations, complaints, requests for information,
proceedings, or other written communication, whether criminal or civil, pursuant
to or relating to any applicable Environmental Law by any person (including, but
not limited to, any Governmental Authority, private person and citizens' group)
based upon, alleging, asserting, or claiming any actual or potential (a)
violation of, or liability under any Environmental Law, (b) violation of any
Environmental Permit, or (c) liability for investigatory costs, cleanup costs,
removal costs, remedial costs, response costs, natural resource damages,
property damage, personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or threatened Release into
the environment of any Hazardous Substances at any location related to the
Purchased Assets, including, but not limited to, any off-Site location to which
Hazardous Substances, or materials containing Hazardous Substances, were sent
for handling, storage, treatment, or disposal.
(43) "Environmental Condition" means the presence or Release to the
environment, whether at the Site or at an off-Site location, of Hazardous
Substances, including any migration of those Hazardous Substances through air,
soil or groundwater to or from the Site or any off-Site location regardless of
when such presence or Release occurred or is discovered.
(44) "Environmental Laws" means all federal, state and local, provincial
and foreign, civil and criminal laws, regulations, rules, ordinances, codes,
decrees, judgments, directives, or judicial or administrative orders relating to
pollution or protection of the environment, natural resources or human health
and safety, including, without limitation, laws relating to Releases or
threatened Releases of Hazardous Substances (including, without limitation,
Releases to ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport, disposal or handling
of Hazardous Substances. "Environmental Laws" include, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et
seq.) , the Resource Conservation and Recovery Act (42 U.S.C. Section
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6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251
et seq.), the Clean Air Act (42 U.S. C. Section 7401 et seq.) , the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act
(33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and
Health Act (29 U.S.C. Section 651 et seq.), the Pennsylvania Hazardous Sites
Cleanup Act (35 P.S. Section 6020.101 et seq.), the Pennsylvania Solid Waste
Management Act (35 P.S. 6018.101 et seq.), the Pennsylvania Clean Stream Law (35
P.S. 691.1 et seq. ), the Pennsylvania Radiation Act and all other state laws
analogous to any of the above. Notwithstanding the foregoing, Environmental Laws
do not include the Atomic Energy Act, NRC rules, regulations and orders
promulgated or issued thereunder, or the Energy Reorganization Act and
applicable regulations thereunder.
(45) "Environmental Permits" has the meaning set forth in Section 4.10(a).
(46) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(47) "ERISA Affiliate" has the meaning set forth in Section 2.4(l).
(48) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(l).
(49) "Estimated Adjustment" has the meaning set forth in Section 3.3(b).
(50) "Estimated Closing Statement" has the meaning set forth in Section
3.3(b).
(51) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(52) "Excluded Assets" has the meaning set forth in Section 2.2.
(53) "Excluded Liabilities" has the meaning set forth in Section 2.4.
(54) "Exclusion Area Agreement" means the Exclusion Area Agreement,
between Sellers and Buyer, in the form of Exhibit K hereto, under which Sellers
will provide Buyer with authority, within those parts of the Exclusion Area for
TMI-1 (as described on Schedule A to the Exclusion Area Agreement, the
"Exclusion Area") which are owned and controlled by Sellers, to determine
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and control all activities in the Exclusion Area, including exclusion of
personnel and property from the Exclusion Area, to the extent necessary to
comply with applicable NRC requirements.
(55) "Exempt Wholesale Generator" means an exempt wholesale generator as
defined in Section 32 of the Holding Company Act and the regulations issued
thereunder.
(56) "Facilities" means the plant, facilities, equipment, supplies and
improvements owned by Sellers and included in the Purchased Assets.
(57) "Facilities Act" has the meaning as set forth in Section 10.14.
(58) "Fair Market Value" means with respect to the assets of the
Decommissioning Funds, the value reflected in a statement prepared by the
Trustee under the Decommissioning Indenture listing the assets as of the close
of the Business Day before Closing, including purchase price and FMV of each
asset.
(59) "Federal Power Act" means the Federal Power Act, as amended.
(60) "Federal Trade Commission" means the United States Federal Trade
Commission or any successor agency thereto.
(61) "FERC" means the United States Federal Energy Regulatory Commission
or any successor agency thereto.
(62) "Final Safety Analysis Report" or ("FSAR") means the report, as
updated, that is required to be maintained for TMI-1 in accordance with the
requirements of 10 CFR Section 50.71(e).
(63) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax
Act Certification and Affidavit, substantially in the form of Exhibit D hereto.
(64) "Good Utility Practices" means any of the practices, methods and
activities approved by a significant portion of the electric utility industry as
good practices applicable to nuclear generating facilities of similar design,
size and capacity or any of the practices, methods or activities which, in the
exercise of reasonable judgment by a prudent nuclear operator in light of the
facts known at the time the decision was made, could have been expected to
accomplish the desired result at a reasonable cost consistent with good business
practices, reliability, safety, expedition and applicable law. Good Utility
Practices are not intended to be limited to the optimal practices, methods or
acts
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to the exclusion of all others, but rather to be practices, methods or acts
generally accepted in the electric utility industry.
(65) "Governmental Authority" means any federal, state, local or other
governmental, regulatory or administrative agency, commission, department,
board, or other governmental subdivision, court, tribunal, arbitrating body or
other governmental authority.
(66) "GPU" means GPU, Inc., a Pennsylvania corporation which is the parent
company of GPU Nuclear, JCP&L, Met-Ed and Penelec.
(67) "GPU Nuclear" means GPU Nuclear, Inc., a New Jersey corporation which
is a wholly owned subsidiary of GPU.
(68) "GPU Service Agreement" means the GPU Service Agreement, between the
Owners and Buyer, in the form of Exhibit L, under which the Owners will provide
certain administrative and other services to Buyer for a specified period after
the Closing Date.
(69) "Hazardous Substances" means (a) any petrochemical or petroleum
products, oil or coal ash, radioactive materials, radon gas, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which may contain
levels of polychlorinated biphenyls; (b) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "hazardous constituents," "restricted hazardous
materials," "extremely hazardous substances," "toxic substances,"
"contaminants," "pollutants," "toxic pollutants" or words of similar meaning and
regulatory effect under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law; excluding, however, any "source",
"special nuclear" and "byproduct" material, as such terms are defined in and to
the extent regulated under the Atomic Energy Act.
(70) "Holding Company Act" means the Public Utility Holding Company Act of
1935, as amended.
(71) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
(72) "IBEW" means Local 777 of the International Brotherhood of Electrical
Workers.
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(73) "IBEW Collective Bargaining Agreement" has the meaning set forth in
Section 6.10(d).
(74) "Income Tax" means any federal, state, local or foreign Tax (a) based
upon, measured by or calculated with respect to net income, profits or receipts
(including, without limitation, capital gains Taxes and minimum Taxes) or (b)
based upon, measured by or calculated with respect to multiple bases (including,
without limitation, corporate franchise taxes) if one or more of the bases on
which such Tax may be based, measured by or calculated with respect to, is
described in clause (a), in each case together with any interest, penalties, or
additions to such Tax.
(75) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(76) "Indemnifying Party" has the meaning set forth in Section 8.1(d) .
------------------
(77) "Indemnitee" has the meaning set forth in Section 8.1(c).
(78) "Independent Accounting Firm" means such independent accounting firm
of national reputation as is mutually appointed by Sellers and Buyer.
(79) "Inspection" means all tests, reviews, examinations, inspections,
investigations, verifications, samplings and similar activities conducted by
Buyer or its agents or Representatives with respect to the Purchased Assets
prior to the Closing.
(80) "Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, inventions, copyrights and copyright rights
owned by Sellers and necessary for the operation and maintenance of the
Purchased Assets, and all pending applications for registrations of patents,
trademarks, and copyrights, as set forth in Schedule 2.1(1)
(81) "Interconnection Agreement" means the Interconnection Agreement,
between Sellers and Buyer, in the form of Exhibit E hereto, under which Sellers
will provide Buyer after the Closing Date with interconnection services
consistent with NRC requirements relating to offsite power availability and grid
reliability and access to Sellers' transmission facilities for the transmission
of power from TMI-1.
(82) "Interconnection Facilities" has the meaning set forth in the
Interconnection Agreement.
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(83) "Inventories" means nuclear fuel or alternative fuel inventories,
materials, spare parts, consumable supplies and chemical and gas inventories
relating to the operation of the Facilities located at, or in transit to, the
Facilities.
(84) "Investment Manager Agreement" means one or more Investment Manager
Agreements, between any Seller and one or more professional investment managers
substantially in the form of Exhibit O hereto, pursuant to which any assets of
the Decommissioning Funds retained by Sellers after Closing pursuant to Section
6.12(c) hereof will be invested.
(85) "IRS" means the United States Internal Revenue Service or any
successor agency thereto.
(86) "JCP&L" means Jersey Central Power & Light Company, a New Jersey
corporation which is a wholly owned subsidiary of GPU.
(87) "Knowledge" means the actual knowledge of the corporate officers or
managerial representatives of the specified Person charged with responsibility
for the particular function, after reasonable inquiry by them of selected
employees of such Person whom they believe, in good faith, to be the persons
responsible for the subject matter of the inquiry.
(88) "Material Adverse Effect" means any change (or changes taken
together) in, or effect on, the Purchased Assets that is materially adverse to
the operations or condition (financial or otherwise) of the Purchased Assets,
taken as a whole, other than any change (or changes taken together) generally
affecting the international, national, regional or local electric industry as a
whole and not affecting the Purchased Assets or the Parties in any manner or
degree significantly different than the industry as a whole, including changes
in local wholesale or retail markets for electric power; national, regional or
local electric transmission systems or operations thereof, and any change or
effect resulting from action or inaction by a Governmental Authority with
respect to an independent system operator or retail access in Pennsylvania.
(89) "Member Letters" means letters from the members of Buyer, dated the
date hereof and addressed to Sellers, regarding the respective financial
responsibility of each such member for the financial obligations of Buyer under
this Agreement.
(90) "Met-Ed" means Metropolitan Edison Company, a Pennsylvania
corporation which is a wholly owned subsidiary of GPU.
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(91) "Mortgage Indenture" means collectively, the mortgage originally
granted to City Bank Farmer's Trust Company by Jersey Central Power & Light
Company, dated as of March 1, 1946, as amended and supplemented, the mortgage
originally granted to Guaranty Trust Company of New York by Metropolitan Edison
Company, dated as of November 1, 1944, as amended and supplemented, and the
mortgage originally granted to Bankers Trust Company by Pennsylvania Electric
Company, dated as of January 1, 1942, as amended and supplemented.
(92) "National Labor Relations Board" means the United States National
Labor Relations Board or any successor agency thereto.
(93) "Net Unrealized Gain" means the amount by which the Fair Market Value
as of the close of the Business Day before the Closing of any asset of the
Nonqualified Decommissioning Funds exceeds the Tax Basis of such asset.
(94) "NJBPU" means the New Jersey Board of Public Utilities and any
successor agency thereto.
(95) "Nonqualified Decommissioning Funds" means the external trust funds,
that do not meet the requirements of Code section 468A and Treasury Regulations
section 1.468A-5, maintained by Sellers with respect to the Facilities prior to
the Closing pursuant to the Decommissioning Indenture and maintained by Sellers
after the Closing pursuant to the Decommissioning Trust Agreement to the extent
assets of such Funds are retained by Sellers pursuant to Section 6.12(c).
(96) "Non-Union Employees" has the meaning as set forth in Sections 6.10(b)
and (n).
(97) "NRC" means the United States Nuclear Regulatory Commission and any
successor agency thereto.
(98) "Nuclear Waste Policy Act" means the Nuclear Waste Policy Act of
1982, as amended.
(99) "NYPSC" means the Public Service Commission of the State of New York
and any successor agency thereto.
(100) "Observers" has the meaning set forth in Section 6.1(c).
(101) "Owners" has the meaning set forth in the recitals.
(102) "Oyster Creek" means the Oyster Creek Nuclear Generating Station,
located in Lacey Township, New Jersey and
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identified in NRC Operating License No. DPR-16, Docket No. 50-219.
(103) "PaPUC" means the Pennsylvania Public Utility Commission and any
successor agency thereto.
(104) "PaDEP" means the Pennsylvania Department of Environmental
Protection and any successor agency thereto.
(105) "Party" (and the corresponding term "Parties") has the meaning set
forth in the preamble.
(106) "Penelec" means Pennsylvania Electric Company, a Pennsylvania
corporation and a wholly owned subsidiary of GPU.
(107) "PBGC" means the Pension Benefit Guaranty Corporation established by
ERISA.
(108) "Permits" has the meaning set forth in Section 4.17.
(109) "Permitted Encumbrances" means: (i) the Easements; (ii) those
exceptions to title to the Purchased Assets listed in Schedule 4.7(a) with
respect to Real Property and Schedule 4.7(b) with respect to Tangible Personal
Property; (iii) with respect to any date before the Closing Date, Encumbrances
created by the Mortgage Indenture and Easements by and among the Sellers; (iv)
statutory liens for Taxes or other governmental charges or assessments not yet
due or delinquent or the validity of which is being contested in good faith by
appropriate proceedings provided that the aggregate amount being so contested
does not exceed $100,000; (v) mechanics', carriers', workers', repairers' and
other similar liens arising or incurred in the ordinary course of business
relating to obligations as to which there is no default on the part of Sellers
or the validity of which are being contested in good faith, and which do not,
individually or in the aggregate, exceed $100,000; and (vi) zoning, entitlement,
conservation restriction and other land use and environmental regulations by
Governmental Authorities, which do not materially, individually or in the
aggregate, detract from the value of the Purchased Assets as currently used or
interfere with the present use of the Purchased Assets and neither secure
indebtedness, nor individually or in the aggregate create a Material Adverse
Effect.
(110) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, or
governmental entity or any department or agency thereof.
(111) "PJM" means the Pennsylvania-New Jersey-Maryland
Interconnection, LLC.
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(112) "Post-Closing Adjustment" has the meaning set forth in Section
3.3(c).
(113) "Post-Closing Statement" has the meaning set forth in Section
3.3(c).
(114) "PPA" means the Power Purchase Agreement between Sellers and Buyer,
in the form of Exhibit I hereto, under which Sellers will agree to purchase
capacity and energy from Buyer for a period after the Closing Date.
(115) "Price-Anderson Act" means Section 170 of the Atomic Energy Act of
1954, as amended.
(116) "Proposed Post-Closing Adjustment" has the meaning set forth in
Section 3.3(c).
(117) "Proprietary Information" of a Party means all information about the
Party or its Affiliates, including their respective properties or operations,
furnished to the other Party or its Representatives by the Party or its
Representatives, after the date hereof, regardless of the manner or medium in
which it is furnished, including information provided to a Party pursuant to the
Confidentiality Agreement. In addition, after the Closing Date, "Proprietary
Information" includes any non-public information regarding the Purchased Assets
or the transactions contemplated by this Agreement. Proprietary Information does
not include information that: (a) is or becomes generally available to the
public (other than as a result of a disclosure by the other Party or its
Representatives in violation of a confidentiality agreement); (b) was available
to the other Party on a nonconfidential basis prior to its disclosure by the
Party or its Representatives; (c) becomes available to the other Party on a
nonconfidential basis from a person, other than the Party or its
Representatives, who is not otherwise bound by a confidentiality agreement with
the Party or its Representatives, or is not otherwise under any obligation to
the Party or any of its Representatives not to transmit the information to the
other Party or its Representatives; or (d) is independently developed by the
other Party.
(118) "Purchased Assets" has the meaning set forth in Section 2.1.
(119) "Purchase Price" has the meaning set forth in Section 3.2.
(120) "Qualified Decommissioning Funds" means the three external trust
funds, that meet the requirements of Code section468A and Treasury Regulations
section 1.468A-5, maintained by Sellers with respect to the Facilities prior to
closing
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pursuant to the Decommissioning Indenture and maintained by Sellers after the
Closing pursuant to the Decommissioning Trust Agreement to the extent assets of
such funds are retained by Sellers pursuant to Section 6.12(c).
(121) "Real Property" has the meaning set forth in Section 4.13(a).
(122) "Real Property Leases" has the meaning set forth in Section 4.8.
(123) "Refueling Outage" means the refueling outage for TMI-1 referred to
by the Parties as "13R" and currently scheduled for September-October 1999,
including the refueling of TMI-1 and the performance of certain maintenance,
inspection and other work, all of which shall be completed in accordance with
Good Utility Practices and applicable NRC requirements.
(124) "Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, leach, dump or allow to escape into or through the
environment.
(125) "Remediation" means action of any kind to address a Release, the
threat of a Release or the presence of Hazardous Substances at the Site or an
off-Site location including, without limitation, any or all of the following
activities to the extent they relate to or arise from the presence of a
Hazardous Substance at the Site or an off-Site location: (a) monitoring,
investigation, assessment, treatment, cleanup, containment, removal, mitigation,
response or restoration work; (b) obtaining any permits, consents, approvals or
authorizations of any Governmental Authority necessary to conduct any such
activity; (c) preparing and implementing any plans or studies for any such
activity; (d) obtaining a written notice from a Governmental Authority with
jurisdiction over the Site or an off-Site location under Environmental Laws that
no material additional work is required by such Governmental Authority; (e) the
use, implementation, application, installation, operation or maintenance of
removal actions on the Site or an off-Site location, remedial technologies
applied to the surface or subsurface soils, excavation and off-Site treatment or
disposal of soils, systems for long term treatment of surface water or ground
water, engineering controls or institutional controls; and (f) any other
activities reasonably determined by a Party to be necessary or appropriate or
required under Environmental Laws to address the presence or Release of
Hazardous Substances at the Site or an off-Site location.
(126) "Replacement Welfare Plans" has the meaning set forth in Section
6.10(e).
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(127) "Representatives" of a Party means the Party and its Affiliates and
their directors, officers, employees, agents, partners, advisors (including,
without limitation, accountants, counsel, environmental consultants, financial
advisors and other authorized representatives) and parents and other controlling
persons.
(128) "Residual Waste Landfill" means the waste landfill on the Real
Property that is identified on Schedule 4.13(a) and is subject to an
Environmental Permit issued by PaDEP (Permit No. 301029).
(129) "SEC" means the United States Securities and Exchange Commission and
any successor agency thereto.
(130) "SRBC" means the Susquehanna River Basin Commission and any
successor agency thereto.
(131) "Securities Act" means the Securities Act of 1933, as amended.
(132) "Seller" (and the corresponding term "Sellers") has the meaning set
forth in the preamble.
(133) "Sellers' Agreements" means those contracts, agreements, licenses
and leases relating to the ownership, operation and maintenance of the Purchased
Assets that are being assigned to Buyer as part of the Purchased Assets, as more
particularly described on Schedule 4.15(a).
(134) "Sellers' Indemnitee" has the meaning set forth in Section 8.1(a).
(135) "Sellers' Required Regulatory Approvals" has the meaning set forth
in Section 4.3(b).
(136) "Sellers' Savings Plans" has the meaning set forth in Section
6.10(g).
(137) "Site" means the Real Property (described in Schedule 4.13(a))
forming a part of, or used or usable in connection with the operation of, the
Purchased Assets. The Site specifically excludes those parcels of real property
described on Schedule 2.2(i). Any reference to the Site shall include, by
definition, the surface and subsurface elements, including the soils and
groundwater present at the Site, and any reference to items "at the Site" shall
include all items "at, on, in, upon, over, across, under and within" the Site.
(138) "Spent Fuel Fees" means those fees assessed on electricity generated
at TMI-1 and sold pursuant to the Standard Contract for Disposal of Spent
Nuclear Fuel and/or High Level
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Waste, as provided in Section 302 of the Nuclear Waste Policy Act and 10 CFR
Part 961, as the same may be amended from time to time.
(139) "Subsidiary" when used in reference to any Person means any entity
of which outstanding securities having ordinary voting power to elect a majority
of the Board of Directors or other, Persons performing similar functions of such
entity, are owned directly or indirectly, by such Person.
(140) "Tangible Personal Property" has the meaning set forth in Section
2.1(c).
(141) "Tax Basis" means the adjusted tax basis determined for federal
income tax purposes under Code section 1011(a).
(142) "Taxes" means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local or foreign taxing authority,
including, but not limited to, income, excise, real or personal property, sales,
transfer, franchise, payroll, withholding, social security, gross receipts,
license, stamp, occupation, employment or other taxes, including any interest,
penalties or additions attributable thereto.
(143) "Tax Return" means any return, report, information return,
declaration, claim for refund or other document (including any schedule or
related or supporting information) required to be supplied to any taxing
authority with respect to Taxes including amendments thereto.
(144) "Technical Specifications"means the technical specifications
included in the NRC License for TMI-1 in accordance with the requirements of 10
CFR Section 50.36.
(145) "Termination Date" has the meaning set forth in Section 9.1(b).
(146) "Third Party Claim" has the meaning set forth in Section 8.2(a).
(147) "TMI-1" means the Three Mile Island Unit 1 Nuclear Generating
Facility, located near Middletown, Pennsylvania and identified in NRC Operating
License No. DPR-50, Docket No. 50-289.
(148) "TMI-2 Monitoring Agreement" means the agreement between Sellers and
Buyer, substantially in the form of Exhibit H hereto.
(149) "TMI-2" has the meaning set forth in Section 2.2(i).
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(150) "Total FMV" has the meaning set forth in Section 6.12(a).
(151) "Transferable Permits" means those Permits and Environmental Permits
identified in Schedule 1.1(151), which may be transferred to Buyer without a
filing with, notice to, consent or approval of any Governmental Authority.
(152) "Transferred Employee Records" means all records related to
Transferred Employees, including but not limited to the following information:
(i) skill and development training, (ii) biographies, (iii) seniority histories,
(iv) salary and benefit information, (v) Occupational, Safety and Health
Administration reports, (vi) active medical restriction forms, (vii) fitness for
duty, and (viii) disciplinary actions.
(153) "Transferred Employees" has the meaning set forth in Section
6.10(b).
(154) "Transferred Non-Union Employees" has the meaning set forth in
Section 6.10(b).
(155) "Transferred Union Employees" has the meaning set forth in Section
6.10(b).
(156) "Transition Committee" has the meaning set forth in Section 6.1(b).
(157) "Transmission Assets" has the meaning set forth in Section 2.2(a).
(158) "Trustee" means prior to the Closing the trustee of the
Decommissioning Funds appointed by Sellers pursuant to the Decommissioning
Indenture or after the Closing in the event any assets of the Decommissioning
Funds are retained by Sellers pursuant to Section 6.12(c) appointed pursuant to
the Decommissioning Trust Agreement.
(159) "Union Employees" has the meaning set forth in Sections 6.10(a) and
(n).
(160) "USEPA" means the United States Environmental Protection Agency and
any successor agency thereto.
(161) "WARN Act" means the Federal Worker Adjustment Retraining and
Notification Act of 1988, as amended.
(162) "Year 2000 Compliant," "Year 2000 Qualified" and "Year 2000 Ready"
have the meanings set forth in Section 4.21. "Year 2000 Qualification" has a
meaning correlative to Year 2000 Qualified.
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(163) "York Haven" means York Haven Power & Light Company, a Pennsylvania
corporation which is a wholly owned subsidiary of Met-Ed.
(164) "York Haven Dam Agreements" means the agreements between York Haven
and Sellers providing for the ownership, operation and maintenance of the York
Haven Hydroelectric Project (FERC Project No. 1888) on the Susquehanna River;
such agreements are separately identified on Schedule 4.15(a) hereto.
1.2 Certain Interpretive Matters. In this Agreement, unless the context
otherwise requires, the singular shall include the plural, the masculine shall
include the feminine and neuter, and vice versa. The term "includes" or
"including" shall mean "including without limitation." References to a Section,
Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule
of this Agreement, and reference to a given agreement or instrument shall be a
reference to that agreement or instrument as modified, amended, supplemented and
restated through the date as of which such reference is made.
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, at the Closing each of Sellers will
sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase,
assume and acquire from each such Seller, free and clear of all Encumbrances
(except for Permitted Encumbrances), and subject to Section 2.2, all of such
Seller's right, title and interest in and to all of the assets constituting, or
used in and necessary for the operation of, the Facilities, including without
limitation those assets identified in Schedules 2.1(h) and (l) and Schedule
4.13(b) and those assets described below (but excluding the Excluded Assets),
each as in existence on the Closing Date (collectively, "Purchased Assets"):
(a) The real property (including all buildings, facilities and other
improvements thereon, all appurtenances thereto and rights of ingress and
egress) described on Schedule 4.13(a) (including parcels owned by York Haven but
excluding those parcels identified in Section 2.2(i) below), but subject to the
Permitted Encumbrances and except as otherwise constituting part of the Excluded
Assets;
(b) All Inventories and Emission Allowances;
(c) All machinery, mobile or otherwise, equipment (including
computer hardware and software and communications
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equipment), vehicles, tools, spare parts, fixtures, furniture and furnishings
and other personal property relating to or used in the operation of the
Facilities, including, without limitation, the items of personal property
included in Schedule 4.13(b), together with all the personal property of Sellers
used principally in the operation of the Facilities, other than property used or
primarily usable as part of the Transmission Assets or otherwise constituting
part of the Excluded Assets (collectively, "Tangible Personal Property");
(d) Subject to the provisions of Section 6.4(b), all Sellers'
Agreements;
(e) Subject to the provisions of Section 6.4(b), all Real Property
Leases;
(f) All Transferable Permits;
(g) All books, operating records, operating, safety and maintenance
manuals, inspection reports, engineering design plans, documents, blueprints and
as built plans, specifications, procedures and similar items of Sellers,
wherever located, relating to the Facilities and the other Purchased Assets
(subject to the right of Sellers to retain copies of same for their use) other
than general ledger accounting records;
(h) All Emission Reduction Credits associated with the Facilities
and identified in Schedule 2.1(h) that have accrued prior to, or that accrue on
or after, the date of this Agreement;
(i) All unexpired, transferable warranties and guarantees from third
parties with respect to any item of Real Property or personal property
constituting part of the Purchased Assets;
(j) The name "Three Mile Island Unit 1". It is expressly understood
that Sellers are not assigning or transferring to Buyer any right to use the
name "GPU", "GPU Energy", "GPU Nuclear", "Jersey Central Power & Light Company",
"JCP&L", "Metropolitan Edison Company" or "Met-Ed", or "Pennsylvania Electric
Company" or "Penelec", or any related or similar trade names, trademarks,
service marks, corporate names and logos or any part, derivative or combination
thereof; provided, however, that Sellers will grant to Buyer a non-assignable
(except to Affiliates), royalty-free, non-exclusive license to use "GPU Nuclear"
and any related or similar trade names, trademarks, service marks, corporate
names and logos on signs and displays affixed to the Purchased Assets on the
Closing Date for a period of three months thereafter in order to allow Buyer
adequate time to change the signage to the name of Buyer.
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(k) All drafts, memoranda, reports, information, technology, and
specifications relating to Sellers' plans for Year 2000 Compliance with respect
to the Facilities;
(l) A non-assignable (except to Affiliates), royalty-free,
non-exclusive license to the Intellectual Property described on Schedule 2.1(l);
(m) The substation equipment set forth in Schedule A to the
Interconnection Agreement and designated therein as being transferred to Buyer;
and
(n) Whether transferred to Buyer pursuant to Section 6.12(b) or
retained by Sellers pursuant to Section 6.12(c), the assets comprising the
Decommissioning Funds together with all related accounting and other records
other than general ledger accounting records.
2.2 Excluded Assets. Notwithstanding anything to the contrary in this
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest in
or to the following specific assets which are associated with the Purchased
Assets, but which are hereby specifically excluded from the sale and the
definition of Purchased Assets herein (the "Excluded Assets"):
(a) Except as expressly identified in Schedule 4.13(b) or Schedule A
to the Interconnection Agreement, the electrical transmission or distribution
facilities (as opposed to generation facilities) of Sellers or any of their
Affiliates located at the Site or forming part of the Facilities (whether or not
regarded as a "transmission" or "generation" asset for regulatory or accounting
purposes), including all switchyard facilities, substation facilities and
support equipment, as well as all permits, contracts and warranties, to the
extent they relate to such transmission and distribution assets (collectively,
the "Transmission Assets"), and those certain assets, facilities and agreements
identified on Schedule 2.2(a);
(b) Certain switches and meters in the Facilities, gas facilities,
revenue meters and remote testing units, drainage pipes and systems, as
identified in the Easement, License and Attachment Agreement;
(c) Certificates of deposit, shares of stock, securities, bonds,
debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities (including, without
limitation, Sellers' account balances with Nuclear Electric Insurance Limited),
except the assets comprising the Decommissioning Funds;
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(d) All cash, cash equivalents, bank deposits, accounts and notes
receivable (trade or otherwise), and any income, sales, payroll or other tax
receivables (including, without limitation, Sellers' account balances with
Nuclear Electric Insurance Limited), except the assets comprising the
Decommissioning Funds;
(e) Subject to the license referred to in Section 2.1(j) hereof, the
rights of Sellers and their Affiliates to the names "GPU", "GPU Energy", "GPU
Nuclear", "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison
Company" or "Met-Ed", "Pennsylvania Electric Company" or "Penelec", or any
related or similar trade names, trademarks, service marks, corporate names or
logos, or any part, derivative or combination thereof;
(f) All tariffs, agreements and arrangements to which Sellers are a
party for the purchase or sale of electric capacity and/or energy or for the
purchase of transmission or ancillary services;
(g) The rights of Sellers in and to any causes of action against
third parties (including indemnification and contribution) relating to any Real
Property or personal property, Permits, Environmental Permits, Taxes, Real
Property Leases or Sellers' Agreements, if any, including any claims for
refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation
awards, judgments and the like, whether received as payment or credit against
future liabilities, relating specifically to the Facilities or the Site and
relating to any period prior to the Closing Date;
(h) Any and all of Sellers' rights in any contract representing an
intercompany transaction between Sellers and an Affiliate of Sellers, whether or
not such transaction relates to the provision of goods and services, payment
arrangements, intercompany charges or balances, or the like; and
(i) Any right, title and interest in (A) those certain parcels of
real property (including all buildings, facilities and other improvements
thereon and all appurtenances thereto) pertaining to Three Mile Island Unit 2
Nuclear Generating Facility, including those described in Schedule 2.2(i)
("TMI-2"), or (B) the structures and improvements comprising the dams referred
to in the York Haven Dam Agreements, except that this paragraph shall not be
construed to limit in any way the rights conveyed to Buyer in accordance with
the Exclusion Area Agreement between Buyer and Sellers.
2.3 Assumed Liabilities and Obligations. On the Closing Date, Buyer shall
deliver to Sellers the Assignment and Assumption Agreement pursuant to which
Buyer shall assume and 23
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agree to discharge when due, all of the following liabilities and obligations of
Sellers (collectively, "Assumed Liabilities and Obligations"):
(a) All liabilities and obligations of Sellers arising on or after
the Closing Date under Sellers' Agreements, the Real Property Leases, and the
Transferable Permits in accordance with the terms thereof, including, without
limitation, (i) the contracts, licenses, agreements and personal property leases
entered into by Sellers with respect to the Purchased Assets and disclosed on
the relevant schedule and (ii) the contracts, licenses, agreements and personal
property leases entered into by Sellers with respect to the Purchased Assets
after the date hereof consistent with the terms of this Agreement, except in
each case to the extent such liabilities and obligations, but for a breach or
default by Sellers, would have been paid, performed or otherwise discharged on
or prior to the Closing Date or to the extent the same arise out of any such
breach or default or out of any event which after the giving of notice would
constitute a default by Sellers;
(b) All liabilities and obligations associated with the Purchased
Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or
6.8(a) hereof;
(c) All liabilities and obligations with respect to the Transferred
Employees on and after the Closing Date for which Buyer is responsible pursuant
to Section 6.10;
(d) All liabilities and obligations of Sellers with respect to the
Purchased Assets under the agreements set forth on Schedule 4.15(a) arising
after the Closing;
(e) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or after the Closing Date, except
for any Income Taxes attributable to income received by Sellers;
(f) All liabilities and obligations of Sellers for Decommissioning
of the Facilities; and
(g) All liabilities and obligations of Sellers to SRBC or any third
party to pay the annual operation and maintenance expense provided for in the
Cowanesque Reservoir Agreements.
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay,
perform or otherwise discharge the following liabilities or obligations (the
"Excluded Liabilities"):
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(a) Any liabilities or obligations of Sellers in respect of any
Excluded Assets (including TMI-2) or other assets of Sellers which are not
Purchased Assets, including any liability or obligation for the Decommissioning
of TMI-2;
(b) Any liabilities or obligations in respect of Taxes attributable
to the ownership, operation or use of Purchased Assets for taxable periods, or
portions thereof, ending before the Closing Date, except for Taxes for which
Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof;
(c) Any liabilities or obligations of Sellers accruing under any of
Sellers' Agreements prior to the Closing Date;
(d) Any and all asserted or unasserted liabilities or obligations to
third parties (including employees) for personal injury or tort, or similar
causes of action arising out of the ownership or operation of the Purchased
Assets prior to the Closing Date, including liabilities or obligations arising
out of or resulting from a "nuclear incident" or "precautionary evacuation" (as
such terms are defined in the Atomic Energy Act) at the Site, or any other
licensed nuclear reactor site in the United States, or in the course of the
transportation of radioactive materials to or from the Site or any other site
prior to the Closing Date, including, without limitation, liability for any
deferred premiums assessed in connection with such a nuclear incident or
precautionary evacuation under any applicable NRC or industry retrospective
rating plan or insurance policy, including any mutual insurance pools
established in compliance with the requirements imposed under Section 170 of the
Atomic Energy Act and 10 C.F.R. Part 140, 10 C.F.R. Section 50.54(w), other than
any liabilities or obligations which have been expressly assumed by Buyer under
Section 2.3;
(e) Any fines, penalties or costs imposed by a Governmental
Authority with respect to the Purchased Assets resulting from (i) an
investigation, proceeding, request for information or inspection before or by a
Governmental Authority relating to actions or omissions prior to the Closing
Date, or (ii) illegal acts, willful misconduct or gross negligence of Sellers;
(f) Any payment obligations of Sellers for goods delivered or
services rendered prior to the Closing Date, including, but not limited to,
rental or lease payments pursuant to the Real Property Leases and any leases
relating to Tangible Personal Property;
(g) Any liability, obligation or responsibility under or related to
Environmental Laws or the common law, whether such liability, obligation or
responsibility is known or unknown,
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contingent or accrued (whether or not arising or made manifest before the
Closing Date or on or after the Closing Date), arising as a result of or in
connection with (i) the Residual Waste Landfill, (ii) the Real Property
pertaining to TMI-2, as described in Schedule 2.2(i), (iii) the Real Property
identified as the "Substation" on the map included in Schedule 4.13(a), (iv)
loss of life, injury to persons or property or damage to natural resources to
the extent caused (or allegedly caused) by the off-Site disposal, storage,
transportation, discharge, Release, or recycling of Hazardous Substances, or the
arrangement for such activities, of Hazardous Substances, prior to the Closing
Date, in connection with the ownership or operation of the Purchased Assets; (v)
any violation or alleged violation of Environmental Laws prior to the Closing
Date with respect to the ownership or operation of any of the other Purchased
Assets; (vi) loss of life, injury to persons or property or damage to natural
resources caused (or allegedly caused) by the presence or Release of, or the
Remediation (whether or not such Remediation commenced before the Closing Date
or commences on or after the Closing Date) of Hazardous Substances at, on, in,
under, adjacent to or migrating from the Purchased Assets prior to the Closing
Date, including, but not limited to, Hazardous Substances contained in building
materials at or adjacent to the Purchased Assets or in the soil, surface water,
sediments, groundwater, landfill cells, or in other environmental media at or
near the Purchased Assets;
(h) Third party liability for toxic torts arising as a result of or
in connection with loss of life or injury to persons (whether or not such loss
or injury arose or was made manifest on or after the Closing Date) caused (or
allegedly caused) by the presence or Release of Hazardous Substances at, on, in,
under, adjacent to or migrating from the Purchased Assets prior to the Closing
Date;
(i) Any liabilities, obligations or responsibilities relating to (a)
the property, equipment or machinery within the switchyards for which Sellers
will retain an Easement, (b) the disposal, discharge or Release of Hazardous
Substances, whether such liabilities, obligations or responsibilities arose from
the ownership or operation of said property, equipment or machinery prior to or
after the Closing Date unless caused by Buyer's operations or equipment, (c) the
transmission lines delineated in the Easements or (d) any Sellers' operations
on, or usage of, the Easements, including, without limitation, liabilities,
obligations or responsibilities arising as a result of or in connection with (1)
any violation or alleged violation of Environmental Law and (2) loss of life,
injury to persons or property or damage to natural resources, except to the
extent caused by Buyer;
(j) Any liabilities or obligations relating to personal injury,
discrimination, wrongful discharge, unfair labor
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practice or similar claim or cause of action filed with or pending before any
court or administrative agency on the Closing Date with respect to the Purchased
Assets or the Transferred Employees or where the material facts of such claim or
cause of action occurred prior to the Closing Date;
(k) Subject to Section 6.10, any liabilities or obligations relating
to any Benefit Plan maintained by Sellers or any trade or business (whether or
not incorporated) which is or ever has been under common control, or which is or
ever has been treated as a single employer, with a Seller under Section 414 (b)
, (c) , (m) or (o) of the Code ("ERISA Affiliate") or to which a Seller or any
ERISA Affiliate contributed (the "ERISA Affiliate Plans"), including any
multi-employer plan contributed to at any time by a Seller or any ERISA
Affiliate, or any multi-employer plan to which a Seller or ERISA Affiliate is or
was obligated at any time to contribute, including but not limited to any
liability (i) relating to benefits payable under any Benefit Plans; (ii)
relating to the PBGC under Title IV of ERISA; (iii) relating to a multi-employer
plan; (iv) with respect to non-compliance with the notice and benefit
continuation requirements of COBRA; (v) with respect to any noncompliance with
ERISA or any other applicable laws; or (vi) with respect to any suit, proceeding
or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan,
any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate
Plan;
(l) Subject to Section 6.10, any liabilities or obligations relating
to the employment or termination of employment, including discrimination,
wrongful discharge, unfair labor practices, or constructive termination by a
Seller of any individual, attributable to any actions or inactions by Sellers
prior to the Closing Date other than such actions or inactions taken at the
written direction of Buyer;
(m) Subject to Section 6.10, any obligations for wages, overtime,
employment taxes, severance pay, transition payments in respect of compensation
or similar benefits accruing or arising prior to the Closing under any term or
provision of any contract, plan, instrument or agreement relating to any of the
Purchased Assets;
(n) All liabilities and obligations of Sellers to SRBC or any third
party to pay the construction costs provided for in the Cowanesque Reservoir
Agreements;
(o) Any liability of a Seller arising out of a breach by a Seller or
any of its Affiliates of any of their respective obligations under this
Agreement or the Ancillary Agreements; and
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(p) Any other liability or obligation of a Seller not specifically
assumed hereunder.
2.5 Control of Litigation. The Parties agree and acknowledge that Sellers
shall be entitled exclusively to control, defend and settle any litigation,
administrative or regulatory proceeding, and any investigation or Remediation
activities (including without limitation any environmental mitigation or
Remediation activities), arising out of or related to any Excluded Liabilities,
so long as such defense, settlement or other activities do not unreasonably
interfere with Buyer's operation of the Facilities, and Buyer agrees to
cooperate with Sellers (at Sellers' expense) in connection therewith.
ARTICLE III
THE CLOSING
3.1 Closing. Upon the terms and subject to the satisfaction of the
conditions contained in Article VII of this Agreement, the sale, assignment,
conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment
of the Purchase Price to Sellers, and the consummation of the other respective
obligations of the Parties contemplated by this Agreement shall take place at a
closing (the "Closing"), to be held at the offices of Morgan Lewis & Bockius
LLP, 1701 Market Street, Philadelphia, Pennsylvania, at 10:00 a.m. local time,
or another mutually acceptable time and location, on the date that is fifteen
(15) Business Days following the date on which the last of the conditions
precedent to Closing set forth in Article VII of this Agreement have been either
satisfied or waived by the Party for whose benefit such conditions precedent
exist, but in any event not before the completion of the Refueling Outage
(unless the Parties otherwise agree pursuant to Section 6.1(e)), or such other
date as the Parties may mutually agree. The date of Closing is hereinafter
called the "Closing Date." The Closing shall be effective for all purposes as of
12:01 a.m. on the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing
in consideration of the Purchased Assets other than the nuclear fuel in the
TMI-1 reactor core on the Closing Date, an aggregate amount of Twenty-Three
Million Dollars ($23,000,000) (the "Closing Payment"), plus or minus any
adjustments pursuant to the provisions of this Agreement, by wire transfer of
immediately
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available funds denominated in U.S. dollars or by such other means as are agreed
upon by Sellers and Buyer. In addition, in consideration of the nuclear fuel in
the TMI-1 reactor core on the Closing Date, Buyer will pay or cause to be paid
to Seller annually in five equal installments (each a "Fuel Payment" and
together with the Closing Payment, the "Purchase Price"), commencing on the
first anniversary of the Closing Date and on each subsequent anniversary of the
Closing Date until the fifth Fuel Payment has been paid, the sum of Fifteen
Million Four Hundred Fifty-Three Thousand Four Hundred Dollars ($15,453,400)
(which amount shall be deemed to include interest from the Closing Date at the
lowest rate permitted by Treas. Reg. Section 1.483-3 to avoid the imputation of
interest thereon), by wire transfer of immediately available funds denominated
in U.S. dollars or by such other means as are agreed upon by Sellers and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the
Closing, the Purchase Price shall be adjusted, without duplication, to account
for the items set forth in this Section 3.3(a):
(i) The Purchase Price shall be adjusted to account for the items
prorated as of the Closing Date pursuant to Section 3.5.
(ii) The Purchase Price shall be adjusted if the Closing Date
occurs on a date other than December 31, 1999, as set forth on Schedule
3.3(a)(ii).
(iii) The Purchase Price shall be increased by the amount
expended by Sellers between the date hereof and the Closing Date for
capital additions to or replacements of property, plant and equipment
included in the Purchased Assets and other expenditures or repairs on
property, plant and equipment included in the Purchased Assets that are
capitalized by Sellers in accordance with their normal accounting
policies, provided, that such expenditures (A) are not described in the
capital budgets listed on Schedule 6.1, (B) are not required (1) for the
customary operation and maintenance of TMI-1, (2) to replace equipment
which has failed for any other reason, or (3) to comply with applicable
laws, rules and regulations and (C) Buyer has specifically requested or
approved such expenditures in writing ("Capital Expenditures"). Nothing in
this paragraph should be construed to limit Sellers' rights and
obligations to make all capital expenditures necessary to comply with NRC
licenses and other Permits.
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(iv) The Purchase Price shall be adjusted from time to time
following the Closing Date by the payment of an amount (the "Deal Strike
Price Adjustment") for the period of January 1, 2002 through December 31,
2010, under the Deal Strike Price Adjustment Agreement.
(v) In the event the assets of any of the Nonqualified
Decommissioning Funds are retained by Sellers after the Closing pursuant
to Section 6.12(c), the Purchase Price shall be adjusted downward by an
amount equal to the sum of (i) the net present value of the tax on the Net
Unrealized Gains of such retained assets at Closing using a discount rate
of 7%, an assumed tax rate of 41.49% and assuming that all Net Unrealized
Gains are realized in 2014, and (ii) the amount in clause (i) divided by
0.5851.
(vi) The Purchase Price shall be adjusted downward by Five
Million Dollars ($5,000,000) on the Closing Date to account for
anticipated repairs or replacement of the Facility's low pressure
turbines.
(b) At least thirty (30) calendar days prior to the Closing Date,
Sellers shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth Sellers' best estimate of
all estimated adjustments to the Purchase Price required by Section 3.3(a)
(other than with respect to subparagraph (a) (iv) thereof) (the "Estimated
Adjustment"). Within ten (10) calendar days following the delivery of the
Estimated Closing Statement by Sellers to Buyer, Buyer may object in good faith
to the Estimated Adjustment in writing. If Buyer objects to the Estimated
Adjustment, the Parties shall attempt to resolve their differences by
negotiation. If the Parties are unable to do so prior to the Closing Date (or if
Buyer does not object to the Estimated Adjustment), the Purchase Price shall be
adjusted (the "Closing Adjustment") for the Closing by the amount of the
Estimated Adjustment not in dispute. The disputed portion shall be resolved as
part of the Proposed Post-Closing Adjustment set forth in Section 3.3(c) and
paid as part of any Post-Closing Adjustment to the extent required by Section
3.3(c).
(c) Within sixty (60) days following the Closing Date, Sellers shall
prepare and deliver to Buyer a final closing statement (the "Post-Closing
Statement") that shall set forth all adjustments to the Purchase Price required
by Section 3.3(a) (other than with respect to subparagraph (a) (iv) thereof)
(the "Proposed Post-Closing Adjustment"). The Post-Closing Statement shall be
prepared using the same accounting principles, policies and methods as Sellers
have historically used in connection with the calculation of the items reflected
on such Post-Closing Statement. Within thirty (30) days following the
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delivery of the Post-Closing Statement by Sellers to Buyer, Buyer may object to
the Proposed Post-Closing Adjustment in writing. Sellers agree to cooperate with
Buyer to provide Buyer with the information used to prepare the Post-Closing
Statement and information relating thereto. If Buyer objects to the Proposed
Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by
negotiation. If the Parties are unable to resolve such dispute within thirty
(30) days of any objection by Buyer, the Parties shall appoint the Independent
Accounting Firm, which shall, at Sellers' and Buyer's joint expense, review the
Proposed Post-Closing Adjustment and determine the appropriate adjustment to the
Purchase Price, if any, within thirty (30) days of such appointment. The Parties
agree to cooperate with the Independent Accounting Firm and provide it with such
information as it reasonably requests to enable it to make such determination.
The finding of such Independent Accounting Firm shall be binding on the Parties
hereto. Upon determination of the appropriate adjustment (the "Post-Closing
Adjustment") by agreement of the Parties or by binding determination of the
Independent Accounting Firm, the Party owing the difference shall deliver such
amount to the other Party no later, than two (2) Business Days after such
determination, in immediately available funds or in any other manner as
reasonably requested by the payee.
3.4 Allocation of Purchase Price. Buyer and Sellers shall agree upon an
allocation among the Purchased Assets of the sum of the Purchase Price and the
Assumed Liabilities and Obligations consistent with Section 1060 of the Code and
the Treasury Regulations thereunder within sixty (60) days of the Closing Date.
In addition, prior to the Closing Date Buyer and Sellers shall allocate between
items which are "real estate" and items which are personal property or
"permanently attached machinery and equipment in an industrial plant", as those
terms are used in the Pennsylvania realty transfer tax statute, Act of July 2,
1996 P.L. 318, as amended, and the regulations promulgated pursuant thereto by
the Pennsylvania Department of Revenue at Chapter 91 of the Pennsylvania Code.
If Buyer and Sellers cannot agree on any such allocation, such dispute shall be
resolved in accordance with Section 6.8(d) of this Agreement. Each of Buyer and
Sellers agree to file Internal Revenue Service Form 8594, and all federal,
state, local and foreign Tax Returns, in accordance with any such agreed
allocation. Each of Buyer and Sellers shall report the transactions contemplated
by this Agreement for federal Tax and all other Tax purposes in a manner
consistent with any such agreed allocation determined pursuant to this Section
3.4. Each of Buyer and Sellers agree to provide the other promptly with any
information required to complete Form 8594. Buyer and Sellers shall notify and
provide the other with reasonable assistance in the event of an examination,
audit or
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other proceeding regarding any allocation of the Purchase Price agreed to
pursuant to this Section 3.4. Buyer and Sellers shall not take any position in
any tax return, tax proceeding or audit that is inconsistent with such
allocation.
3.5 Prorations. (a) Buyer and Sellers agree that all of the items normally
prorated, including those listed below (but not including Income Taxes),
relating to the business and operation of the Purchased Assets shall be prorated
as of the Closing Date, with Sellers liable to the extent such items relate to
any time period prior to the Closing Date, and Buyer liable to the extent such
items relate to periods commencing with the Closing Date (measured in the same
units used to compute the item in question, otherwise measured by calendar
days):
(i) Personal property, real estate and occupancy Taxes,
assessments and other charges, if any, on or with respect to the business
and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including prepaid services
or goods not included in Inventory) payable by or to Sellers under any of
Sellers' Agreements;
(iii) Any permit, license, registration, compliance assurance
fees or other fees with respect to any Transferable Permit;
(iv) Sewer rents and charges for water, telephone, electricity
and other utilities; and
(v) Rent and Taxes and other items payable by Sellers under the
Real Property Leases assigned to Buyer.
(b) In connection with the prorations referred to in (a) above, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual Taxes or other amounts accrued through
the Closing Date or paid for the most recent year (or other appropriate period)
for which actual Taxes or other amounts paid are available. Such prorated Taxes
or other amounts shall be re-prorated and paid to the appropriate Party within
sixty (60) days of the date that the previously unavailable actual figures
become available. The prorations shall be based on the number of days in a year
or other appropriate period (i) before the Closing Date and (ii) including and
after the Closing Date. Sellers and Buyer agree to furnish each other with such
documents and other records as may be reasonably requested in order to confirm
all adjustment and proration calculations made pursuant to this Section 3.5.
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(c)(i) Each of Sellers shall be responsible for any Pennsylvania
public utility realty tax pursuant to 72 P.S. Section 8102-A ("PURTA"),
additional PURTA assessments pursuant to 72 P.S. Section 8104-A, or any
successor tax or fee relating to calendar years ending prior to the Closing. In
addition, Sellers shall reimburse Buyer, in accordance with this Section 3.5(c),
for its proportionate share of PURTA, additional PURTA assessments or any
successor tax or fee levied or assessed, with respect to the Purchased Assets,
against Buyer for the calendar year in which the Closing occurs. The proration
shall be based upon the number of days within the Closing year that Sellers
owned the Purchased Assets. For example, if Closing occurs on December 1, 1999,
and Buyer incurs $1,000,000 in PURTA, additional PURTA assessments or any
successor tax or fee, then Sellers' proportionate share of such tax or fee shall
be calculated by multiplying $1,000,000 by a fraction, the numerator of which is
the amount of calendar days in 1999 which Seller owned the Purchased Assets
(335), and the denominator of which is the amount of days in 1999 (365).
Therefore, Sellers' proportionate share to be reimbursed to Buyer will be
$1,000,000 multiplied by 335/365, or $917,808.20. The reimbursement payable by
Sellers to Buyer hereunder shall be paid by Sellers within sixty (60) days after
Sellers' receipt from Buyer of documentation showing the imposition of PURTA,
additional PURTA assessment, or any successor tax or fee on the Purchased Assets
in the Closing year.
(ii) If Sellers are required to pay PURTA, additional PURTA or any
successor tax or fee relating to the Purchased Assets, in the year of sale,
Buyer shall reimburse Sellers, using the proration method described above, for
the portion of the amount so payable by Sellers that is attributable to the
number of days during such year that Buyer owned the Purchased Assets during
such year; provided, however, that the amount of the Buyer's required
reimbursement shall be reduced by the amount of any real estate, personal
property and ad valorem taxes on the Purchased Assets that the Buyer is required
to pay for the year of sale.
3.6 Deliveries by Sellers. At the Closing, each of Sellers will deliver,
or cause to be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by each of Sellers;
(b) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Sellers with respect to the transfer
of the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement;
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(c) The opinions of counsel and officer's certificates contemplated
by Section 7.1;
(d) One or more special warranty deeds conveying the Real Property
to Buyer, in substantially the form of Exhibit G hereto, duly executed and
acknowledged by the appropriate Sellers or York Haven in recordable form, and
any owner's affidavits or similar documents reasonably required by the title
company;
(e) All Ancillary Agreements, duly executed by each of Sellers;
(f) A FIRPTA Affidavit, duly executed by each of Sellers;
(g) Copies, certified by the Secretary or Assistant Secretary of
each Seller, of corporate resolutions authorizing the execution and delivery of
this Agreement and all of the agreements and instruments to be executed and
delivered by Sellers in connection herewith, and the consummation of the
transactions contemplated hereby;
(h) A certificate of the Secretary or Assistant Secretary of each
Seller identifying the name and title and bearing the signatures of the officers
of such Seller authorized to execute and deliver this Agreement and the other
agreements and instruments contemplated hereby;
(i) Certificates of good standing with respect to Sellers, issued by
the Secretary of the State of each Sellers' state of incorporation, as
applicable;
(j) Tax clearance certificates for each jurisdiction identified on
Schedule 4.20;
(k) To the extent available, originals of all Sellers' Agreements,
Real Property Leases and Transferable Permits and, if not available, true and
correct copies thereof;
(l) The assets of the Decommissioning Funds to be transferred
pursuant to Section 6.12(b), shall be delivered to Buyer (or to the trustee of
any trust specified by Buyer), and/or, the assets of the Decommissioning Funds
to be retained by Sellers pursuant to Section 6.12(c), shall be delivered to the
Trustee under the Decommissioning Trust Agreement;
(m) All such other instruments of assignment, transfer or conveyance
as shall, in the reasonable opinion of Buyer and its counsel, be necessary or
desirable to transfer to Buyer the Purchased Assets, in accordance with this
Agreement and where necessary or desirable in recordable form; and
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(n) Such other agreements, documents, instruments and writings as
are required to be delivered by Sellers at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith.
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to
be delivered, the following to Sellers:
(a) The Closing Payment, as adjusted pursuant to Section 3.3;
(b) The opinions of counsel and certificates contemplated by Section
7.2;
(c) All Ancillary Agreements, duly executed by Buyer;
(d) Copies, certified by the Secretary or Assistant Secretary of
Buyer, of resolutions authorizing the execution and delivery of this Agreement,
and all of the agreements and instruments to be executed and delivered by Buyer
in connection herewith, and the consummation of the transactions contemplated
hereby;
(e) A certificate of the Secretary or Assistant Secretary of Buyer
identifying the name and title and bearing the signatures of the officers of
Buyer authorized to execute and deliver this Agreement, and the other agreements
contemplated hereby;
(f) All such other instruments of assumption as shall, in the
reasonable opinion of Sellers and their counsel, be necessary for Buyer to
assume the Assumed Liabilities and Obligations in accordance with this
Agreement;
(g) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the transfer of
the Purchased Assets, or the consummation of the transactions contemplated by
this Agreement;
(h) Such other agreements, documents, instruments and writings as
are required to be delivered by Buyer at or prior to the Closing Date pursuant
to this Agreement or otherwise reasonably required in connection herewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
GPU Nuclear, jointly and severally with the other Sellers, and each of the
other Sellers, severally as to matters involving
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such Seller only and in accordance with their respective pro rata ownership
interests in the Purchased Assets as to all other representations and
warranties, hereby represent and warrant to Buyer as follows (all such
representations and warranties, except those regarding Sellers individually,
being made to the Knowledge of Sellers):
4.1 Organization; Qualification. Each of JCP&L and GPU Nuclear is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey and has all requisite corporate power and authority
to own, lease, and operate its properties and to carry on its business as is now
being conducted. Each of Met-Ed and Penelec is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has all requisite corporate power and authority to own, lease,
and operate its properties and to carry on its business as is now being
conducted. Sellers are duly qualified or licensed to do business as foreign
corporations and are in good standing in each jurisdiction in which the property
owned, leased or operated by them or the nature of the business conducted by
them makes such qualification necessary, except in each case in those
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not create a Material Adverse Effect. Sellers have heretofore
delivered to Buyer complete and correct copies of their Certificates or Articles
of Incorporation and Bylaws as currently in effect.
4.2 Authority Relative to this Agreement. Sellers have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action required on the part of
Sellers and no other corporate proceedings on the part of Sellers are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Sellers, andassuming that this Agreement constitutes a valid and binding
agreement of Buyer, subject to the receipt of Sellers' Required Regulatory
Approvals, constitutes the legal, valid and binding agreement of Sellers,
enforceable against Sellers in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to the enforcement of creditors rights generally or
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
4.3 Consents and Approvals; No Violation.
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(a) Except as set forth in Schedule 4.3(a), and subject to the
receipt of Sellers' Required Regulatory Approvals, neither the execution and
delivery of this Agreement by Sellers nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in the breach or violation
of any provision of the Certificates or Articles of Incorporation or Bylaws of
Sellers, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority, except
(x) where the failure to obtain such consent, approval, authorization or permit,
or to make such filing or notification, individually or in the aggregate, would
not create a Material Adverse Effect or (y) for those requirements which become
applicable to Sellers as a result of the specific regulatory status of Buyer (or
any of its Affiliates) or as a result of any other facts that specifically
relate to the business or activities in which Buyer (or any of its Affiliates)
is or proposes to be engaged; (iii) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Sellers are a party or by
which Sellers, or any of the Purchased Assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained or which would not,
individually or in the aggregate, create a Material Adverse Effect; or (iv)
constitute violations of any order, writ, injunction, decree, statute, rule or
regulation applicable to Sellers, or any of their assets, which violation,
individually or in the aggregate, would create a Material Adverse Effect.
(b) Except as set forth in Schedule 4.3(b) (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Sellers' Required Regulatory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of
anygovernmental or regulatory body or authority is necessary for the
consummation by Sellers of the transactions contemplated hereby, other than (i)
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not obtained or made, will not, individually or in the
aggregate, create a Material Adverse Effect or (ii) such declarations, filings,
registrations, notices, authorizations, consents or approvals which become
applicable to Sellers as a result of the specific regulatory status of Buyer (or
any of its Affiliates) or the result of any other facts that specifically relate
to the business or activities in which Buyer (or any of its Affiliates) is or
proposes to be engaged.
4.4 Reports. Since January 1, 1994, Sellers have filed or caused to be
filed with the SEC, the applicable state or local utility commissions or
regulatory bodies, the NRC and the FERC,
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as the case may be, all material forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by them with respect to the Purchased Assets or the operation thereof
under each of the Securities Act, the Exchange Act, the applicable state public
utility laws, the Federal Power Act, the Holding Company Act, the Atomic Energy
Act, the Energy Reorganization Act, and the Price-Anderson Act and the
respective rules and regulations thereunder, all of which complied in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder in effect on the date each such report was
filed, and there are no material misstatements or omissions in respect of such
reports; provided however, that Sellers shall not be deemed to be making any
representation or warranty to Buyer hereunder concerning the financial
statements of Sellers or any such Affiliate contained in any such reports.
4.5 Undisclosed Liabilities. Except as set forth in Schedule 4.5, the
Purchased Assets are not subject to any material liability or obligation
(whether absolute, accrued, contingent or otherwise) that has not been accrued
or reserved against in Sellers' financial statements as of the end of the most
recent fiscal quarter for which such statements are available or disclosed in
the notes thereto in accordance with generally accepted accounting principles
consistently applied.
4.6 Absence of Certain Changes or Events. Since January 1, 1998, except as
set forth in Schedule 4.6, there has not been: (a) any Material Adverse Effect;
(b) any damage, destruction or casualty loss, whether or not covered by
insurance, which, individually or in the aggregate, created a Material Adverse
Effect or (c) any agreement, commitment or transaction entered into by Sellers
that is material to the ownership or operation of the Purchased Assets and
remains in full force and effect on the date hereof.
4.7 Title and Related Matters. Except for Permitted Encumbrances, each
Seller and York Haven has good and marketable title to the Real Property to be
conveyed by it hereunder free and clear of all Encumbrances. The Real Property
constitutes all of the real property necessary to operate the Facilities as
currently operated. Except for Permitted Encumbrances, Sellers have good and
marketable title to each of the Purchased Assets not constituting Real Property
free and clear of all Encumbrances. The Sellers own the Purchased Assets (other
than the Real Property identified on Schedule 4.13(a) as being owned by York
Haven) in the respective percentage amounts set forth on Schedule 4.7(c).
4.8 Leases. Schedule 4.8 lists, as of the date of this Agreement, all real
property leases, easements, licenses and
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other rights in real property (collectively, the "Real Property Leases") to
which any Seller is a party and which (i) are to be transferred and assigned to
Buyer on the Closing Date, (ii) affect all or any part of any Real Property and
(iii) (A) provide for annual payments of more than $100,000 or (B) are material
to the ownership or operation of the Purchased Assets. Except as set forth in
Schedule 4.8, all such Real Property Leases are valid, binding and enforceable
in accordance with their terms, and are in full force and effect; there are no
existing material defaults by Sellers or any other party thereunder; and no
event has occurred which (whether with or without notice, lapse of time or both)
would constitute a material default by Sellers or any other party thereunder.
4.9 Insurance. Except as set forth in Schedule 4.9, all material policies
of fire, liability, worker's compensation and other forms of insurance owned or
held by Sellers and insuring the Purchased Assets are in full force and effect,
all premiums with respect thereto covering all periods up to and including the
date as of which this representation is being made have been paid (other than
retroactive premiums which may be payable with respect to comprehensive general
liability and worker's compensation insurance policies), and no notice of
cancellation or termination has been received with respect to any such policy
which was not replaced on substantially similar terms prior to the date of such
cancellation. Except as described in Schedule 4.9, as of the date of this
Agreement, Sellers have not been refused any insurance with respect to the
Purchased Assets nor has their coverage been limited by any insurance carrier to
which they have applied for any such insurance or with which they have carried
insurance during the last twelve months.
4.10 Environmental Matters. Except as disclosed in Schedule 4.10 or in the
"Phase I" or supplemental environmental site assessments prepared by Buyer's
environmental consultants and made available for inspection by Sellers:
(a) Sellers hold, and are in compliance with, all permits,
certificates, licenses and governmental authorizations under applicable
Environmental Laws ("Environmental Permits") required for Sellers to own and
operate the Purchased Assets, and Sellers are otherwise in compliance with
applicable Environmental Laws with respect to their ownership and operation of
the Purchased Assets except for such failures to hold or comply with required
Environmental Permits, or such failures to be in compliance with applicable
Environmental Laws, which, individually or in the aggregate, would not create a
Material Adverse Effect;
(b) None of Sellers have received any written request for
information, or been notified that they are a potentially
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responsible party, under CERCLA or any similar state law with respect to the
Site, except for such liability under such laws as would not create,
individually or in the aggregate, a Material Adverse Effect; and
(c) None of Sellers have entered into or agreed to any consent
decree or order with respect to or affecting the Purchased Assets are subject to
any outstanding judgment, decree, or judicial order relating to compliance with
any Environmental Law or to investigation or cleanup of Hazardous Substances
under any Environmental Law, except for such consent decree or order, judgment,
decree or judicial order that would not create, individually or in the
aggregate, a Material Adverse Effect.
(d) There are no underground storage tanks on the Real Property.
4.11 Labor Matters. Sellers have previously delivered to Buyer true,
correct and complete copies of all collective bargaining agreements to which
Sellers are a party or are subject and which relate to the Purchased Assets.
With respect to the ownership or operation of the Purchased Assets, except to
the extent set forth in Schedule 4.11 (which matters shall remain the sole
responsibility of Sellers): (a) Sellers are in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours; (b) none of Sellers have received notice of any
unfair labor practice complaint pending before the National Labor Relations
Board; (c) there is no labor strike, slowdown or stoppage actually pending or
threatened by any authorized representative of any union or other representative
of employees against or affecting Sellers; (d) none of Sellers have received
notice that any representation petition respecting the employees of Sellers has
been filed with the National Labor Relations Board; (e) no arbitration
proceeding arising out of or under collective bargaining agreements is pending
against Sellers; and (f) Sellers have not experienced any primary work stoppage
since at least December 31, 1994.
4.12 ERISA; Benefit Plans.
(a) Schedule 4.12(a) lists all deferred compensation,
profit-sharing, retirement and pension plans, including multi-employer plans (of
which none exist), and all material bonus and other employee benefit or fringe
benefit plans, including multi-employer plans (of which none exist), maintained
or with respect to which contributions are made by Sellers in respect to current
or former employees employed at the Purchased Assets ("Benefit Plans"). True,
correct, and complete copies of all such Benefit Plans have been made available
to Buyer.
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(b) Except as set forth in Schedule 4.12(b), Sellers and the ERISA
Affiliates have fulfilled their respective obligations under the minimum funding
requirements of Section 302 of ERISA and Section 412 of the Code with respect to
each Benefit Plan which is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA and to which Section 302 of ERISA applies, and each such
plan is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code. Except as set forth in Schedule 4.12(b),
neither Sellers nor any ERISA Affiliate has incurred any liability under
Sections 4062(b), 4063 or 4064 of ERISA to the Pension Benefit Guaranty
Corporation in connection with any Benefit Plan which is subject to Title IV of
ERISA, nor any withdrawal liability to any multi-employer pension plan under
Section 4201 et. seq. of ERISA or to any multi-employer welfare benefit plan,
nor is there or has there been any reportable event (as defined in Section 4043
of ERISA) with respect to any Benefit Plan except as set forth in Schedule
4.12(b). Except as set forth in Schedule 4.12(b), the IRS has issued a letter
for each Benefit Plan which is intended to be qualified determining that such
plan is exempt from United States Federal Income Tax under Sections 401(a) and
501(a) of the Code, and there has been no occurrence since the date of any such
determination letter (including but not limited to statutory or regulatory
changes to the requirements of Section 401(a) of the Code for which the remedial
amendment period has expired) which has or could have adversely affected such
qualification.
(c) None of Sellers nor any ERISA Affiliate or parent or successor
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any
transaction which may be disregarded under Section 4069 or Section 4212(c) of
ERISA. No Benefit Plan ERISA Affiliate Plan is a multi-employer plan.
(d) Each of Sellers that maintains a "group health plan" within the
meaning of Section 5000(b)(1) of the Code or Sections 607(1) and 733(a) of ERISA
and related regulations, has materially complied with all reporting, disclosure,
notice, election, coverage and other benefit requirements of Sections 4980B and
9801-9833 of the Code and Sections 601-734 of ERISA as and when applicable to
such plans.
4.13 Real Property; Plant and Equipment.
(a) Schedule 4.13(a) contains a description of, and exhibits
indicating the location of, the real property owned by Sellers or York Haven and
included in the Purchased Assets (the "Real Property"). For purposes of this
Agreement, all of the Real Property titled in the name of York Haven shall be
deemed to be owned by Sellers, and Sellers shall cause York Haven to convey such
Real Property to Buyer at the Closing, free and clear of all
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Encumbrances other than Permitted Encumbrances, as if such Real Property were
owned directly by Sellers. All Encumbrances on the Real Property (other than
Permitted Encumbrances) shall be released on or before the Closing Date.
Complete and correct copies of any current surveys in Sellers' possession or any
policies of title insurance currently in force and in the possession of Sellers
with respect to the Real Property have heretofore been delivered by Sellers to
Buyer.
(b) Schedule 4.13(b) contains a description of the major equipment
components and personal property comprising the Purchased Assets as of the date
hereof.
(c) Except for the exceptions listed in Schedule 4.13(c), the
Purchased Assets conform in all material respects to the Technical
Specifications and the Final Safety Analysis Report (FSAR) and are being
operated and are in material conformance with all applicable requirements under
the Atomic Energy Act, the Energy Reorganization Act, and the rules,
regulations, orders, and licenses issued thereunder.
4.14 Condemnation. Except as set forth in Schedule 4.14, neither the whole
nor any part of the Real Property or any other real property or rights leased,
used or occupied by Sellers in connection with the ownership or operation of the
Purchased Assets is subject to any pending suit for condemnation or other taking
by any Governmental Authority, and no such condemnation or other taking has been
threatened.
4.15 Certain Contracts and Arrangements.
(a) Except (i) as listed in Schedule 4.15(a) or the other schedules
to this Agreement ("Sellers' Agreements") or (ii) for contracts, agreements,
personal property leases, commitments, understandings or instruments in which
all obligations of Sellers will expire prior to the Closing Date, Sellers are
not a party to any written contract, agreement, personal property lease,
commitment, understanding or instrument which is material to the ownership or
operation of the Purchased Assets.
(b) Except as disclosed in Schedule 4.15(b), each of Sellers'
Agreements (i) constitutes the legal, valid and binding obligation of one or
more of Sellers, and constitutes the legal, valid and binding obligation of the
other parties thereto, (ii) is in full force and effect, and (iii) may be
transferred or assigned to Buyer at the Closing without consent or approval of
the other parties thereto, and will continue in full force and effect
thereafter, in each case without breaching the terms thereof or resulting in the
forfeiture or impairment of any material rights thereunder.
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(c) Except as set forth in Schedule 4.15(c), there is not, under any
of Sellers' Agreements, any default or event which, with notice or lapse of time
or both, would constitute a default on the part of any of the parties thereto,
except such events of default and other events as to which requisite waivers or
consents have been obtained or which would not, individually or in the
aggregate, create a Material Adverse Effect.
4.16 Legal Proceedings, etc. Except as set forth in Schedule 4.16 or in
any filing made by Sellers or any of their Affiliates pursuant to the Securities
Act, the Exchange Act or the Atomic Energy Act, there are no claims, actions,
proceedings or investigations pending or threatened against or relating to
Sellers before any court, governmental or regulatory authority or body which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Except as set forth in Schedule 4.16 or in any filing
made by Sellers or any of their Affiliates pursuant to the Securities Act, the
Exchange Act or the Atomic Energy Act, Sellers are not subject to any
outstanding judgment, rule, order, writ, injunction or decree of any court,
governmental or regulatory authority which, individually or in the aggregate,
could have a Material Adverse Effect.
4.17 Permits
(a) Sellers have all permits, licenses, franchises and other
governmental authorizations, consents and approvals, other than with respect to
permits under Environmental Laws referred to in Section 4.10 hereof or permits
issued by the NRC referred to in Section 4.18 hereof (collectively, "Permits"),
used in or necessary for the ownership and operation of the Purchased Assets as
presently conducted. Except as set forth in Schedule 4.17(a), Sellers have not
received any written notification that they are in violation of any of such
Permits, or any law, statute, order, rule, regulation, ordinance or judgment of
any governmental or regulatory body or authority applicable to it, except for
notifications of violations which would not, individually or in the aggregate,
have a Material Adverse Effect. Sellers are in compliance with all Permits,
laws, statutes, orders, rules, regulations, ordinances, or judgments of any
governmental or regulatory body or authority applicable to the Purchased Assets,
except for violations which, individually or in the aggregate, could not have a
Material Adverse Effect.
(b) Schedule 4.17(b) sets forth all material Permits and
Environmental Permits other than Transferable Permits (which are set forth on
Schedule 1.1(149) applicable to the Purchased Assets.
4.18 NRC Licenses.
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(a) Sellers have all permits, licenses, and other consents and
approvals issued by the NRC necessary to own and operate the Purchased Assets as
presently operated, pursuant to the requirements of the Atomic Energy Act and
the Energy Reorganization Act. Except as set forth in Schedule 4.18(a), Sellers
have not received any written notification that they are in violation of any of
such license, or any order, rule, regulation, or decision of the NRC with
respect to the Purchased Assets, except for notifications of violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Sellers are in compliance with the Atomic Energy Act, the Energy Reorganization
Act, and all orders, rules, regulations, or decisions of NRC applicable to them
with respect to the Purchased Assets, except for violations which, individually
or in the aggregate, could not have a Material Adverse Effect.
(b) Schedule 4.18(b) sets forth all material permits, licenses, and
other consents and approvals issued by the NRC applicable to the Purchased
Assets.
4.19 Regulation as a Utility. Each of JCP&L, Met-Ed and Penelec is an
electric utility company within the meaning of the Holding Company Act, a public
utility within the meaning of the Federal Power Act and an electric utility
within the meaning of the NRC regulations implementing the Atomic Energy Act.
Except as set forth on Schedule 4.19 or with respect to local tax and zoning
laws, Sellers are not subject to regulation as a public utility or public
service company (or similar designation) by the United States, any state of the
United States, any foreign country or any municipality or any political
subdivision of the foregoing.
4.20 Taxes. With respect to the Purchased Assets (i) all Tax Returns
required to be filed have been filed, and (ii) all material Taxes shown to be
due on such Tax Returns have been paid in full. Except as set forth in Schedule
4.20, no notice of deficiency or assessment has been received from any taxing
authority with respect to liabilities for Taxes of Sellers in respect of the
Purchased Assets, which have not been fully paid or finally settled, and any
such deficiency shown in such Schedule 4.20 is being contested in good faith
through appropriate proceedings. Except as set forth in Schedule 4.20, there are
no outstanding agreements or waivers extending the applicable statutory periods
of limitation for Taxes associated with the Purchased Assets for any period.
Schedule 4.20 sets forth the taxing jurisdictions in which Sellers own assets or
conduct business that require a notification to a taxing authority of the
transactions contemplated by this Agreement, if the failure to make such
notification, or obtain Tax clearances in connection therewith, would either
require Buyer to withhold
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any portion of the Purchase Price or would subject Buyer to any liability for
any Taxes of Sellers.
4.21 Year 2000 Qualification. Subject to the timely completion of the work
program contained in Schedule 7.1(s), all of the hardware, software and firmware
products (including embedded microcontrollors in non-computer equipment) which
are included in the Purchased Assets are Year 2000 Qualified based on
implementation of a program similar to that outlined in Nuclear Utility Year
2000 Readiness, NEI/NUSMG 97-07. For purposes of this Agreement, "Year 2000
Qualified" shall mean that all constituent software, controllers, central
processing units, and other computer equipment, including all components,
applications and modules thereof, are either "Year 2000 Compliant" or "Year 2000
Ready" as defined in NEI/NUSMG 97-07 and as restated below. Notwithstanding the
following definitions, an item required to be Year 2000 Qualified that does not
satisfy the definition of Year 2000 Compliant shall only be considered Year 2000
Ready (and consequently Year 2000 Qualified) if (i) the item maintains its
function as it crosses any key date even if there may be date errors or some
form of compensatory action required to maintain valid functional operation;
(ii) a deficiency can be addressed by pre-defined manual action; and (iii) the
integration of all manual actions required are confirmed to be reasonably within
the capability of the facility resources and can be accomplished without any
material risk of loss, damage or destruction to facility equipment or the
operation of the Facilities. As used herein (and as defined in NEI/NUSMG 97-07)
(i) the term "Year 2000 Compliant" means computer systems or applications that
accurately process date/time data (including but not limited to calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, the years 1999 and 2000, and leap-year calculations; and
(ii) the term "Year 2000 Ready" means a computer system or application that has
been determined to be suitable for continued use into the year 2000 even though
the computer system or application is not fully Year 2000 Compliant.
4.22 Qualified Decommissioning Funds.
(a) Each of Sellers' Qualified Decommissioning Funds is a trust,
validly existing and in good standing under the laws of the State of New York
with all requisite authority to conduct its affairs as it now does. Sellers have
heretofore delivered to Buyer a copy of the Decommissioning Indenture as in
effect on the date of this Agreement. Sellers agree to furnish Buyer with copies
of all amendments of the Decommissioning Indenture adopted after the date of
this Agreement promptly after each such amendment has been adopted. Each of
Sellers' Qualified Decommissioning Funds satisfies the requirements necessary
for
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such Fund to be treated as a "Nuclear Decommissioning Reserve Fund" within the
meaning of Code section 468A(a) and as a "nuclear decommissioning fund" and a
"qualified nuclear decommissioning fund" within the meaning of Treas. Reg.
Section 1.468A-1(b)(3). Each such Fund is in compliance in all material respects
with all applicable rules and regulations of the NRC, the PaPUC, the NJBPU and
the IRS. None of Sellers' Qualified Decommissioning Funds has engaged in any
acts of "self-dealing" as defined in Treas. Reg. Section 1.468A-5(b)(2). No
"excess contribution," as defined in Treas. Reg. Section 1.468A-5(c)(2)(ii), has
been made to Sellers' Qualified Decommissioning Funds which has not been
withdrawn within the period provided under Treas. Reg. Section 1.468A-5(c)(2)(i)
for withdrawals of excess contributions to be made without resulting in a
disqualification of the Funds under Treas. Reg Section 1.468A-5(c)(1). Sellers
have made timely and valid elections to make annual contributions to the
Qualified Decommissioning Funds since 1984. Sellers have heretofore delivered
copies of such elections to Buyer.
(b) Subject only to Sellers' Required Regulatory Approvals, Sellers
have all requisite authority to cause the assets of the Qualified
Decommissioning Funds to be transferred to Buyer in accordance with the
provisions of this Agreement.
(c) Sellers and/or the Trustee of each of the Qualified
Decommissioning Funds have filed or caused to be filed with the NRC, the IRS and
any state or local authority all material forms, statements, reports, documents
(including all exhibits, amendments and supplements thereto) required to be
filed by either of them. Sellers have delivered to Buyer a copy of the schedule
of ruling amounts most recently issued by the IRS for each of the Qualified
Decommissioning Funds, a copy of the request that was filed to obtain such
schedule of ruling amounts and a copy of any pending requests for revised ruling
amounts, in each case together with all exhibits, amendments and supplements
thereto. As of the Closing, Sellers will have timely filed all requests for
revised schedules of ruling amounts for the Qualified Decommissioning Funds in
accordance with Treas. Reg. Section 1.468A-3(i). Sellers shall furnish Buyer
with copies of such requests for revised schedules of ruling amounts, together
with all exhibits, amendments and supplementals thereto, promptly after they
have been filed with the IRS. Any amounts contributed to the Qualified
Decommissioning Funds while such requests are pending before the IRS and which
turn out to be in excess of the applicable amounts provided in the schedule of
ruling amounts issued by the IRS will be withdrawn from the Qualified
Decommissioning Funds within the period provided under Treas. Reg. Section
1.468A-5(c)(2)(i) for withdrawals of excess contributions to be made without
resulting in a disqualification
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of the Funds under Treas. Reg. Section 1.468A-5(c)(1). There are no interim rate
orders that may be retroactively adjusted or retroactive adjustments to interim
rate orders that may affect amounts that Buyer may contribute to the Qualified
Decommissioning Funds or may require distributions to be made from the Qualified
Decommissioning Funds.
(d) Sellers have made available to Buyer the balance sheets for each
of the Qualified Decommissioning Funds as of December 31, 1997 and as of the
last Business Day before Closing, and they present fairly as of December 31,
1997 and as of the last Business Day before Closing, the financial position of
each of the Qualified Decommissioning Funds in conformity with generally
accepted accounting principles applied on a consistent basis, except as
otherwise noted therein. Sellers have made available to Buyer information from
which Buyer can determine the Tax Basis of all assets in the Qualified
Decommissioning Funds as of the last Business Day before Closing. There are no
liabilities (whether absolute, accrued, contingent or otherwise and whether due
or to become due), including, but not limited to, any acts of "self-dealing" as
defined in Treas. Reg. Section 1.468A-5(b)(2) or agency or other legal
proceedings that may materially affect the financial position of each of the
Qualified Decommissioning Funds other than those, if any, that are disclosed on
Schedule 4.22.
(e) Sellers have made available to Buyer all contracts and
agreements to which the Trustee of each of the Qualified Decommissioning Funds,
in its capacity as such, is a party.
(f) Each of the Qualified Decommissioning Funds has filed all Tax
Returns required to be filed and all material Taxes shown to be due on such Tax
Returns have been paid in full. Except as shown in Schedule 4.22, no notice of
deficiency or assessment has been received from any taxing authority with
respect to liability for Taxes of each of the Qualified Decommissioning Funds
which have not been fully paid or finally settled, and any such deficiency shown
in such Schedule 4.22 is being contested in good faith through appropriate
proceedings. Except as set forth in Schedule 4.22, there are no outstanding
agreements or waivers extending the applicable statutory periods of limitations
for Taxes associated with each of the Qualified Decommissioning Funds for any
period.
(g) To the extent Sellers have pooled the assets of the Qualified
Decommissioning Funds for investment purposes in periods prior to Closing, such
pooling arrangement is a partnership for federal income tax purposes and Sellers
have filed all Tax Returns required to be filed with respect to such pooling
arrangement for such periods.
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(h) In the event Sellers retain any of the assets of the Qualified
Decommissioning Funds after the Closing Date pursuant to the provisions of
Section 6.12(c) hereof, the representations and warranties set forth in
paragraphs (a) through (g) of this Section 4.22 shall survive the Closing Date
and shall remain continuing obligations of Sellers and Sellers shall comply with
all the conditions therein until the assets of the Qualified Decommissioning
Funds are transferred to Buyer pursuant to Section 6.12(d)(iv) or expended in
full for Decommissioning the Facilities. Notwithstanding the foregoing, in the
case of any Decommissioning Funds, the assets of which are retained by Sellers
after the Closing pursuant to Section 6.12(c), Sellers shall be liable for a
breach of or a failure to comply with any of the representations, warranties or
conditions set forth in paragraphs (a) through (g) of this Section 4.22 that
occurs after the Closing only if such failure results from either (i) any action
taken by Sellers without the written consent of Buyer, or (ii) failure by
Sellers to take any action they are directed in writing by Buyer to take.
4.23 Nonqualified Decommissioning Funds.
(a) Each of Sellers' Nonqualified Decommissioning Funds is a trust
validly existing and in good standing under the laws of the State of New York
with all requisite authority to conduct its affairs as it now does. Each of
Sellers' Nonqualified Decommissioning Funds is in full compliance with all
applicable rules and regulations of the NRC, the PaPUC and the NJBPU.
(b) Subject only to Sellers' Required Regulatory Approvals, Sellers
have all requisite authority to cause the assets of the Nonqualified
Decommissioning Funds to be transferred to Buyer in accordance with the
provisions of this Agreement.
(c) Sellers and/or the Trustee of the Nonqualified Decommissioning
Funds have filed or caused to be filed with the NRC and any state or local
authority all material forms, statements, reports, documents (including all
exhibits, amendments and supplements thereto) required to be filed by either of
them.
(d) Sellers have made available to Buyer the balance sheets for the
Nonqualified Decommissioning Funds as of December 31, 1997 and as of the last
Business Day before Closing, and they present fairly as of December 31, 1997 and
as of the last Business Day before Closing, the financial position of the
Nonqualified Decommissioning Funds in conformity with generally accepted
accounting principles applied on a consistent basis,
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except as otherwise noted therein. Sellers have made available to Buyer
information from which Buyer can determine the Tax Basis as of the last Business
Day before Closing of all assets (other than cash) of the Nonqualified
Decommissioning Funds transferred to Buyer pursuant to Section 6.12(b). There
are no liabilities (whether absolute, accrued, contingent or otherwise and
whether due or to become due) including, but not limited to, agency or other
legal proceedings, that may materially affect the financial position of the
Nonqualified Decommissioning Funds other than those, if any, that are disclosed
on Schedule 4.23.
(e) Sellers have made available to Buyer all contracts and
agreements to which the Trustee of the Nonqualified Decommissioning Funds, in
its capacity as such, is a party.
(f) In the event Sellers retain any of the assets of the
Nonqualified Decommissioning Funds after the Closing Date pursuant to the
provisions of Section 6.12(c) hereof, the representations and warranties set
forth in paragraphs (a) through (e) of this Section 4.23 shall survive the
Closing Date and shall remain continuing obligations of Sellers and Sellers
shall comply with all the conditions therein until the assets of the
Nonqualified Decommissioning Funds are transferred to Buyer pursuant to Section
6.12(d)(iv) or expended in full for Decommissioning the Facilities.
Notwithstanding the foregoing, in the case of any Decommissioning Funds, the
assets of which are retained by Sellers after the Closing pursuant to Section
6.12(c), Sellers shall be liable for a breach of or a failure to comply with any
of the representations, warranties or conditions set forth in paragraphs (a)
through (g) of this Section 4.22 that occurs after the Closing only if such
failure results from either (i) any action taken by Sellers without the written
consent of Buyer, or (ii) failure by Sellers to take any action they are
directed in writing by Buyer to take.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
ARTICLE IV, THE PURCHASED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS, WHERE
IS," AND SELLERS ARE NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN
OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH PURCHASED ASSETS,
INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows (all such
representations and warranties, except those regarding Buyer, being made to the
Knowledge of Buyer):
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5.1 Organization. Buyer is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as is now being conducted. Buyer has
heretofore delivered to Sellers complete and correct copies of its Certificate
of Formation and Operating Agreement (or other similar governing documents), as
currently in effect.
5.2 Authority Relative to this Agreement. Buyer has full organizational
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action required on the part of
Buyer and no other corporate proceedings on the part of Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer, and
assuming that this Agreement constitutes a valid and binding agreement of
Sellers, subject to the receipt of Buyer Required Regulatory Approvals,
constitutes a valid and binding agreement of Buyer, enforceable against Buyer in
accordance with its terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally or general principles of equity.
5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3(a), and other than obtaining
Buyer Required Regulatory Approvals, neither the execution and delivery of this
Agreement by Buyer nor the purchase by Buyer of the Purchased Assets pursuant to
this Agreement will (i) conflict with or result in any breach of any provision
of the Certificate of Formation or Operating Agreement (or other similar
governing documents) of Buyer, (ii) require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority,
(iii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, agreement, lease or other instrument or
obligation to which Buyer is a party or by which any of its assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained or
which would not, individually or in the aggregate, have a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of Buyer ("Buyer Material Adverse
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Effect") or (iv) violate any law, regulation, order, judgment or decree
applicable to Buyer, which violations, individually or in the aggregate, would
create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to such Schedule are collectively referred to as the "Buyer's
Required Regulatory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of any Governmental Authority
is necessary for the consummation by Buyer of the transactions contemplated
hereby.
5.4 Regulation as a Utility. As of the date hereof, Buyer is not subject
to regulation as a public utility or public service company by the United
States, any State of the United States, any foreign country or any municipality
or any political subdivision of the foregoing; however, upon the receipt of
certain of the Buyer's Required Regulatory Approvals and the Closing, Buyer is
expected to be a public utility company within the meaning of the Federal Power
Act and may be an electric utility within the meaning of NRC regulations
implementing the Atomic Energy Act. In addition, as a result of certain such
filings and the Closing, Buyer may be a public utility under the Pennsylvania
Public Utility Code, but Buyer expects that any regulation of Buyer under the
Pennsylvania Public Utility Code as a public utility would be preempted by
federal law. Except as set forth in this Section 5.4, on Schedule 5.4, or with
respect to local tax and zoning laws, Buyer is not subject to regulation as a
public utility or public service company by the United States, any State of the
United States, any foreign country or any municipality or any political
subdivision of the foregoing.
5.5 Availability of Funds. Buyer has sufficient funds available to it or
has received binding written commitments from third parties (copies of which
have been provided to Sellers) to provide sufficient funds on the Closing Date
to pay the Purchase Price and to enable Buyer timely to perform all of its
obligations under this Agreement and Ancillary Agreements.
5.6 Legal Proceedings. There are no actions, suits or proceedings pending
against Buyer or its members before any court, arbitrator or governmental or
regulatory body or authority which, individually or in the aggregate, could have
a Buyer Material Adverse Effect. Neither Buyer nor its members is subject to any
outstanding judgments, rules, orders, writs, injunctions or decrees of any
court, arbitrator or governmental or regulatory body or authority which,
individually or in the aggregate, have a Buyer Material Adverse Effect.
5.7 WARN Act. Buyer does not intend to engage in a "plant closing" or
"mass layoff", as such terms are defined in the WARN Act within 60 days of the
Closing Date.
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ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets
(a) Except as described in Schedule 6.1 or the extent Buyer
otherwise consents in writing, during the period from the date of this Agreement
to the Closing Date, Sellers (i) shall operate the Purchased Assets in the
ordinary course consistent with Good Utility Practices; (ii) shall use
Commercially Reasonable Efforts to preserve intact the Purchased Assets and
preserve the goodwill and relationships with customers, employees, suppliers and
others having business dealings with them with respect thereto; (iii) shall
maintain the insurance coverage described in Section 4.9; (iv) shall comply with
all applicable laws, rules and regulations relating to the Purchased Assets,
including without limitation, all nuclear regulatory and Environmental Laws; and
(v) shall continue to implement in accordance with Good Utility Practice
Sellers' Year 2000 Qualification program as set forth on Schedule 7.1(s).
Without limiting the generality of the foregoing, and, except as contemplated in
this Agreement or as described in Schedule 6.1, or as required under applicable
law or by any Governmental Authority, prior to the Closing Date, without the
prior written consent of Buyer, Sellers will not with respect to the Purchased
Assets:
(i) make any material change in the levels of fuel inventory
customarily maintained by Sellers with respect to the Purchased Assets;
(ii) except for Permitted Encumbrances, sell, lease (as lessor),
pledge, encumber, restrict, transfer or otherwise dispose of, or grant any right
with respect to, any of the Purchased Assets, other than assets used, consumed
or replaced in the ordinary course of business consistent with Good Utility
Practices;
(iii) modify, amend or voluntarily terminate prior to the
expiration date thereof any of Sellers' Agreements, and leases listed in
Schedule 4.8 (or any other lease to the extent any such extension or amendment
thereof would require the lease to be disclosed on Schedule 4.8) or any material
Permit or Environmental Permits or waive any default by, or release, settle or
compromise any claim against, any other party thereto, other than (a) in the
ordinary course of business, to the extent consistent with Good Utility
Practices, (b) with cause, to the extent consistent with Good Utility Practices
or (c) as may be required in connection with Sellers' obligations to Buyer under
this Agreement;
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(iv) enter into any commitment for the purchase or sale of
nuclear fuel having a term that extends beyond December 31, 1999 or such other
date that the Parties mutually agree to be the date on which the Closing is
expected to occur;
(v) enter into any power sales agreement having a term that
extends beyond December 31, 1999 or such other date that the Parties mutually
agree to be the date on which the Closing is expected to occur;
(vi) amend in any material respect or cancel any liability or
casualty insurance policies related thereto, or fail to maintain by self
insurance or with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for such assets and
businesses;
(vii) enter into any commitment or contract for goods or services
not addressed in clauses (i) through (vii) above that will be delivered or
provided after December 31, 1999 or such other date that the parties mutually
agree to be the date on which the Closing is expected to occur that exceeds
$100,000 in the aggregate, unless such commitment or contract is terminable by
Sellers (or after the Closing Date by Buyer) without further liability, upon not
more than 60 days notice;
(viii) except as required by the terms of the IBEW Collective
Bargaining Agreement or regulatory requirements (a) hire any new employees, or
transfer any existing employees, other than to fill vacancies in existing
positions, (b) other than consistent with past practice, increase salaries or
wages of employees employed in connection with the Purchased Assets prior to
Closing, (c) take any action prior to Closing to effect a material change in the
IBEW Collective Bargaining Agreement or enter into any other collective
bargaining or representation agreement for employees, or (d) take any action
prior to the Closing to increase materially the aggregate benefits payable to
employees;
(ix) enter into any written or oral contract, agreement,
commitment or arrangement with respect to any of the transactions set forth in
the foregoing paragraphs (i) through (ix).
(b) A committee comprised of one or more senior representatives
designated by Sellers and one or more senior representatives designated by Buyer
(the "Transition Committee") will be established as soon as practicable after
the execution of this Agreement to permit Buyer to observe the operation of the
Purchased Assets and to facilitate the transfer of the Purchased
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Assets to Buyer at the Closing. The Transition Committee will be kept fully
apprised by GPU Nuclear of all TMI-1 management and operating developments. The
Transition Committee shall arrange for Buyer to assess TMI-1's management and
employees and shall have access to the management and board of directors of GPU
Nuclear. The Transition Committee shall be accountable directly to the
respective chief executive officers of Buyer and GPU Nuclear and shall from time
to time report its findings to the senior management of each of Sellers and
Buyer.
(c) Between the date of this Agreement and the Closing Date, in the
interest of cooperation between Sellers and Buyer and to permit informed action
by Buyer regarding its rights pursuant to Section 6.1(a), the parties agree that
at the sole responsibility and expense of Buyer, and subject to compliance with
all applicable NRC rules and regulations, Sellers will permit designated
employees ("Observers") of Buyer to observe all operations of Sellers that
relate to the Purchased Assets, and such observation will be permitted on a
cooperative basis in the presence of personnel of Sellers but not restricted to
the normal business hours of Sellers; provided, however, that such observers and
their actions shall not interfere with the operation of TMI-1. Buyer's Observers
may recommend or suggest actions be taken or not be taken by Sellers; provided,
however, that Sellers will be under no obligation to follow any such
recommendations or suggestions and Sellers shall be entitled, subject to this
Agreement, to conduct their business in accordance with their own judgment and
discretion. Buyer's Observers shall have no authority to bind or make agreements
on behalf of Sellers; to conduct discussions with or make representations to
third parties on behalf of Sellers; or to issue instructions to or direct or
exercise authority over Sellers or any of Sellers' officers, employees, advisors
or agents.
(d) Sellers shall advise Buyer regarding implementation or changes
in PJM rules or procedures which are reasonably likely to have a Material
Adverse Effect on TMI-1. Sellers agree that they will not take or cause to be
taken any action to reduce the current installed capacity credit PJM has
assigned to TMI-1 under PJM rules, regulations or policies in effect on the date
hereof; provided, however, that the foregoing shall in no way restrict or
prohibit Sellers from taking or causing to take any such action which generally
affects Sellers' generating facilities.
(e) This Agreement contemplates that the Closing shall occur after
TMI-1 has successfully completed the Refueling Outage and has returned to full
licensed capacity operation. Sellers shall conduct the Refueling Outage in
accordance with Good Utility Practice and all applicable NRC requirements,
including
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the work identified on Schedule 7.1(o) hereof. The Parties recognize, however,
that it may be possible to satisfy all of the conditions precedent to Closing
prior to the commencement of the Refueling Outage. In such event, the Parties
desire to proceed with the Closing prior to the Refueling Outage; provided,
however, that the Parties in their discretion are able to agree on acceptable
terms and conditions for the allocation of liabilities and obligations
associated with the Refueling Outage. Accordingly, as promptly as practicable
after the date of this Agreement, the Parties shall negotiate in good faith the
terms and conditions under which the Closing Date could be advanced to a date
prior to the Refueling Outage. The topics to be negotiated include, among other
things, the following:
(i) The work schedule contemplated for the Refueling Outage,
including the number of scheduled days that TMI-1 would be out of service;
(ii) The capital, operating and maintenance budgets for the
Refueling Outage;
(iii) Criteria to distinguish between delays in the work schedule
attributable to various factors (e.g., performance delays, equipment delays,
etc.) and the assignment of financial responsibility to Buyer or Sellers for
such delays;
(iv) A mechanism to adjust the Fuel Payments to reflect the
purchase of the Purchased Assets prior to the Refueling Outage;
(v) An amendment to the PPA to increase the amount of time during
which the PPA would be in effect during calendar year 1999 at the price set
forth therein for the year 2000;
(vi) The representation of both Parties on a joint committee to
monitor the conduct of the Refueling Outage; and
(vii) A provision for expedited, non-judicial resolution of
disputes related to the Refueling Outage.
Nothing herein shall require any of the Parties to consummate the transaction
contemplated by this Agreement prior to the Refueling Outage.
6.2 Access to Information.
(a) In addition to the rights granted by Sections 6.1 (b), (c) and
(d), between the date of this Agreement and the Closing Date, Sellers will,
during ordinary business hours and
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upon reasonable notice and subject to compliance with all applicable NRC rules
and regulations (i) give Buyer and Buyer Representatives reasonable access to
all books, records, plants, offices and other facilities and properties
constituting the Purchased Assets; (ii) permit Buyer to make such reasonable
inspections thereof as Buyer may reasonably request; (iii) furnish Buyer with
such financial and operating data and other information with respect to the
Purchased Assets as Buyer may from time to time reasonably request; (iv) furnish
Buyer a copy of each material report, schedule or other document filed or
received by them with respect to the Purchased Assets with the SEC, NRC, FERC,
PaPUC, NYPSC, the NJBPU or any other Governmental Authority having jurisdiction
over the Purchased Assets; provided, however, that (A) any such investigation
shall be conducted in such a manner as not to interfere unreasonably with the
operation of the Purchased Assets, (B) Sellers shall not be required to take any
action which would constitute a waiver of the attorney-client privilege and (C)
Sellers need not supply Buyer with any information that Sellers are legally
prohibited to supply. Sellers will provide Buyer with access to the Transferring
Employee Records, but Sellers shall not be required to provide access to other
employee records or medical information unless required by law or specifically
authorized by the affected employee.
(b) Buyer and Sellers acknowledge that all information furnished to
or obtained by Buyer or Buyer Representatives pursuant to this Section 6.2 shall
be subject to the provisions of the Confidentiality Agreement and shall be
treated as "Proprietary Information" (as defined in the Confidentiality
Agreement).
(c) For a period of seven (7) years after the Closing Date, each
Party and their respective Representatives shall have reasonable access to all
of the books and records of the Purchased Assets, including all Transferring
Employee Records or other personnel and medical records required by law, legal
process or subpoena, in the possession of the other Party or Parties to the
extent that such access may reasonably be required by such Party in connection
with the Assumed Liabilities and Obligations or the Excluded Liabilities, or
other matters relating to or affected by the operation of the Purchased Assets.
Such access shall be afforded by the Party or Parties in possession of such
books and records upon receipt of reasonable advance notice and during normal
business hours. The Party or Parties exercising this right of access shall be
solely responsible for any costs or expenses incurred by it or them pursuant to
this Section 6.2(c). If the Party or Parties in possession of such books and
records shall desire to dispose of any such books and records upon or prior to
the expiration of
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such seven-year period, such Party or Parties shall, prior to such disposition,
give the other Party or Parties a reasonable opportunity at such other Party's
or Parties' expense, to segregate and remove such books and records as such
other Party or Parties may select.
(d) Sellers agree (i) not to release any Person (other than Buyer)
from any confidentiality agreement now existing with respect to the Purchased
Assets, or waive or amend any provision thereof, and (ii) to assign any rights
arising under any such confidentiality agreement (to the extent assignable) to
Buyer.
(e) Notwithstanding the terms of the Confidentiality Agreement and
Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may
reveal or disclose Proprietary Information to any other Persons in connection
with Buyer's financing and risk management of the Purchased Assets, and, to the
extent that Sellers consent, which consent shall not be unreasonably withheld,
to existing and potential customers and suppliers, and to such Persons with whom
Buyer expects it may have business dealings regarding the Purchased Assets from
and after the Closing Date; provided, however, that all such Persons agree in
writing to maintain the confidentiality of the Proprietary Information on
substantially the same terms and conditions as the Confidentiality Agreement.
(f) Except as may be permitted in the Confidentiality Agreement or
during the course of Buyer's due diligence investigation of the Purchased Assets
prior to the date hereof, Buyer agrees that, prior to the Closing Date, it will
not contact any vendors, suppliers, employees, or other contracting parties of
Sellers or their Affiliates with respect to any aspect of the Purchased Assets
or the transactions contemplated hereby, without the prior written consent of
Sellers, which consent shall not be unreasonably withheld.
(g) Upon the other Party's prior written approval (which approval
shall not be unreasonably withheld or delayed) either Party may provide
Proprietary Information of the other Party to the SEC, NRC, FERC, PaPUC, NYPSC,
the NJBPU or any other Governmental Authority having jurisdiction over the
Purchased Assets or any stock exchange, as may be necessary to obtain Sellers'
Required Regulatory Approvals or Buyer's Required Regulatory Approvals,
respectively, or to comply generally with any relevant law, rule or regulation.
The disclosing Party shall seek confidential treatment for the Proprietary
Information provided to any such Governmental Authority and the disclosing Party
shall notify the other Party as far in advance as practical of its intention to
release to any Governmental Authority any such Proprietary Information.
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(h) Except as required by law, unless otherwise agreed to in writing
by Buyer, Sellers shall keep (i) all Proprietary Information confidential and
not disclose or reveal any Proprietary Information to any Person other than
Representatives of Sellers who are actively and directly participating in the
transactions contemplated hereby or who otherwise need to know the Proprietary
Information for such purpose and to cause those Persons to observe the terms of
this Section 6.2(g) and (ii) not to use Proprietary Information for any purpose
other than consistent with the terms of this Agreement. Sellers shall continue
to hold all Proprietary Information according to the same internal security
procedures and with the same degree of care regarding its secrecy and
confidentiality as currently applicable thereto. Sellers shall notify Buyer of
any unauthorized disclosure to third parties that it discovers, and shall
endeavor to prevent any further such disclosures. Sellers shall be responsible
for any breach of the terms of this Section 6.2(g) by Sellers or Sellers'
Representatives.
After the Closing Date, in the event that Sellers are requested
pursuant to, or required by, applicable law or regulation or by legal process to
disclose any Proprietary Information, Sellers shall provide Buyer with prompt
notice of such request or requirement in order to enable Buyer to seek an
appropriate protective order or other remedy, to consult with Sellers with
respect to taking steps to resist or narrow the scope of such request or legal
process, or to waive compliance, in whole or in part, with the terms of this
Section 6.2(g). Sellers agree not to oppose any action by Buyer to obtain a
protective order or other appropriate remedy after the Closing Date. In the
event that no such protective order or other remedy is obtained, or that Buyer
waives compliance with the terms of this Section 6.2(g), Sellers shall furnish
only that portion of the Proprietary Information which Sellers are advised by
counsel is legally required. In any such event Sellers shall use their
Commercially Reasonable Efforts to ensure that all Proprietary Information that
is so disclosed will be accorded confidential treatment.
(i) The Parties agree that the Confidentiality Agreement will
terminate in accordance with its terms, without further act or evidence by the
Parties.
6.3 Expenses. Except to the extent specifically provided herein, whether
or not the transactions contemplated hereby are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Buyer will be
responsible for (a) all costs and expenses associated with the
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obtaining of any title insurance policy and all endorsements thereto that Buyer
elects to obtain and (b) all filing fees under the HSR Act.
6.4 Further Assurances; Cooperation.
(a) Subject to the terms and conditions of this Agreement, each of
the Parties hereto will use Commercially Reasonable Efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the sale of the Purchased Assets pursuant to this Agreement, including
without limitation using Commercially Reasonable Efforts to ensure satisfaction
of the conditions precedent to each Party's obligations hereunder.
Notwithstanding anything in the previous sentence to the contrary, Sellers and
Buyer shall use Commercially Reasonable Efforts to obtain all Permits and
Environmental Permits necessary for Buyer to acquire and operate the Purchased
Assets. Neither of the Parties hereto will, without the prior written consent of
the other Party, take or fail to take any action, which would reasonably be
expected to prevent or materially impede, interfere with or delay the
transactions contemplated by this Agreement. Buyer further agrees that prior to
the Closing Date, neither it nor any of its members or their respective
Affiliates will enter into any other contract to acquire, nor acquire, electric
generation facilities or uncommitted generation capacity located in the PJM area
if the proposed acquisition of such additional electric generation facilities or
uncommitted generation capacity are reasonably likely to prevent or materially
interfere with the transactions contemplated by this Agreement; provided,
however, that nothing herein shall prohibit Buyer or its members or their
respective Affiliates from increasing capacity at any of their existing
generation facilities or increasing their percentage ownership of generation
facilities that are partially owned (to the extent of at least 40 percent) as of
the date hereof.
(b) From time to time after the Closing Date, without further
consideration, Sellers will, at their own expense, execute and deliver such
documents to Buyer as Buyer may reasonably request in order to more effectively
consummate the sale and purchase of the Purchased Assets or to more effectively
vest in Buyer good and marketable title to the Purchased Assets subject to the
Permitted Encumbrances. Seller shall cooperate with Buyer, at Buyer's expense,
in Buyer's efforts to cure or remove any Permitted Encumbrances that Buyer
reasonably deems objectionable. From time to time after the Closing Date,
without further consideration, Buyer will, at its own expense, execute and
deliver such documents to Sellers as Sellers may reasonably request in order to
evidence Buyer's assumption of the Assumed Liabilities and Obligations.
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(c) To the extent that Sellers' rights under any Sellers' Agreement
may not be assigned without the consent of another Person which consent has not
been obtained, this Agreement shall not constitute an agreement to assign the
same if an attempted assignment would constitute a breach thereof or be
unlawful, and Sellers, at their expense, shall use Commercially Reasonable
Efforts to obtain any such required consent(s) as promptly as possible. Sellers
and Buyer agree that if any consent to an assignment of any Sellers' Agreement
shall not be obtained or if any attempted assignment would be ineffective or
would impair Buyer's rights and obligations under the applicable Sellers'
Agreement so that Buyer would not in effect acquire the benefit of all such
rights and obligations, Sellers, to the maximum extent permitted by law and such
Sellers' Agreement, shall after the Closing appoint Buyer to be Sellers'
representative and agent with respect to such Sellers' Agreement, and Sellers
shall, to the maximum extent permitted by law and such Sellers' Agreement, enter
into such reasonable arrangements with Buyer as are necessary to provide Buyer
with the benefits and obligations of such Sellers' Agreement. Sellers and Buyer
shall cooperate and shall each use Commercially Reasonable Efforts after the
Closing to obtain an assignment of such Sellers' Agreement to Buyer.
(d) Sellers shall continue after the Closing Date to implement at
their expense Sellers' Year 2000 Qualification program as set forth on Schedule
7.1 (s). All such work and any additional work required to complete Year 2000
Qualification pursuant to such program shall be completed in accordance with
Good Utility Practice on or before the milestone dates set forth on such
Schedule 7.1 (s). Buyer shall cooperate with Sellers' personnel in such
activities, and Buyer shall be reimbursed for all reasonable costs thereof in
accordance with established accounting procedures or on an alternative cost
reimbursement basis as mutually agreed by the Parties.
(e) For a reasonable time after the Closing Date and in addition to
the services contemplated by the GPU Services Agreement, Buyer and Sellers agree
to provide services to each other as reasonably required to the extent necessary
to ensure the continuity of support for both TMI-1 and Sellers' other nuclear
facilities and the orderly completion of projects or other work in progress that
would be adversely affected if those services were interrupted. Such support by
one Party to the other will not be unreasonably withheld, provided that requests
for such support are made in a timely manner. The Party providing the requested
support will be reimbursed for all reasonable costs thereof in accordance with
established accounting procedures or on an alternative cost reimbursement basis
as mutually agreed by the Parties.
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6.5 Public Statements. Prior to the Closing Date, the Parties shall
consult with each other before issuing any public announcement, statement or
other disclosure with respect to this Agreement or the transactions contemplated
hereby and shall not issue any such public announcement, statement or other
disclosure prior to such consultation, except as may be required by law or stock
exchange rules.
6.6 Consents and Approvals.
(a) Sellers and Buyer shall each file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. The Parties
shall consult with each other as to the appropriate time of filing such
notifications and shall agree upon the timing of such filings, to respond
promptly to any requests for additional information made by either of such
agencies, and to cause the waiting periods under the HSR Act to terminate or
expire at the earliest possible date after the date of filing. Buyer will pay
all filing fees under the HSR Act but each Party will bear its own costs for the
preparation of any such filing.
(b) As promptly as practicable after the date of this Agreement and
after the receipt of any findings required to be made by any other Governmental
Authority as a condition to Buyer making the filing contemplated by this
paragraph, Buyer shall file with FERC an application requesting Exempt Wholesale
Generator status for Buyer, which filing may be made individually by Buyer or
jointly with Sellers, as reasonably determined by the Parties. Buyer shall be
solely responsible for the cost of preparing and filing this application, any
petition(s) for rehearing, or any reapplication(s).
(c) As promptly as practicable after the date of this Agreement,
Sellers and Buyer, as applicable, shall file with PaPUC, NYPSC, NJBPU, or any
other Governmental Authority having jurisdiction over the Purchased Assets,
applications requesting (i) a determination that allowing the Purchased Assets
to be an eligible facility under Section 32 of the Holding Company Act (1) will
benefit consumers, (2) is in the public interest, and (3) does not violate state
law, and (ii) a determination required by Section 32 of the Holding Company Act
to exempt PECO Energy Company from the prohibition against purchasing electric
energy or capacity at wholesale from an affiliated Exempt Wholesale Generator.
(d) As promptly as practicable after the date of this Agreement,
Buyer shall file with FERC an application requesting authorization under Section
205 of the Federal Power Act to sell
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electric generating capacity and energy at wholesale at market-based rates,
which filing may be made individually by Buyer or jointly with Sellers, as
reasonably determined by the Parties. Buyer shall be solely responsible for the
cost of preparing and filing this application, any petition(s) for rehearing, or
any reapplication(s).
(e) As promptly as practicable after the date of this Agreement,
Buyer and Sellers shall file with NRC an application requesting consent under
Section 184 of the Atomic Energy Act and 10 CFR Section 50.80 for the transfer
of the TMI-1 license from Sellers to Buyer, and any associated licenses
amendments or approvals. The Parties shall respond promptly to any requests for
additional information made by NRC and use their respective best efforts to
cause regulatory approval to be obtained at the earliest possible date after the
date of filing. Each Party will bear its own costs of the preparation of any
such filing.
(f) On or before November 1, 1998, Sellers shall file with NRC an
application requesting clarification of the dimensions of the Exclusion Area for
TMI-1 under Sellers' TMI-1 license. Sellers shall respond promptly to any
request for additional information made by NRC and shall use their respective
best efforts to cause such clarification to be obtained at the earliest possible
date after the date of filing. Sellers will bear all costs of the preparation of
any such filing.
(g) As promptly as practicable after the date of this Agreement,
Sellers and Buyer (or with respect to the Member Letters, Buyer's members), as
applicable, shall file with FERC, PaPUC, NYPSC, NJBPU, or any other Governmental
Authority having jurisdiction over the Purchased Assets, any other filings
required to be made with respect to the transactions contemplated hereby. The
Parties shall respond promptly to any requests for additional information made
by such agencies, and use their respective best efforts to cause regulatory
approval to be obtained at the earliest possible date after the date of filing.
Each Party will bear its own costs of the preparation of any such filing.
(h) Sellers and Buyer shall cooperate with each other and (i)
promptly prepare and file all necessary documentation, (ii) effect all necessary
applications, notices, petitions and filings and execute all agreements and
documents, (iii) use best efforts to obtain the transfer or reissuance to Buyer
of all necessary Transferable Permits, consents, approvals and authorizations of
all Governmental Authority and (iv) use best efforts to obtain all necessary
consents, approvals and authorizations of all other parties, in the case of each
of the foregoing clauses (i), (ii), (iii) and (iv), necessary or
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advisable to consummate the transactions contemplated by this Agreement
(including, without limitation, Sellers' Required Regulatory Approvals and Buyer
Required Regulatory Approvals) or required by the terms of any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument to which Sellers or Buyer is a party or by
which any of them is bound. Each of Sellers and Buyer shall have the right to
review in advance all characterizations of the information relating to the
transactions contemplated by this Agreement which appear in any filing made in
connection with the transactions contemplated hereby.
(i) Sellers and Buyer shall cooperate with each other and promptly
prepare and file notifications with, and request Tax clearances from, state and
local taxing authorities in jurisdictions in which a portion of the Purchase
Price may be required to be withheld or in which Buyer would otherwise be liable
for any Tax liabilities of Sellers pursuant to such state and local Tax law.
(j) As promptly as practicable after the date of this Agreement,
Sellers and Buyer, as applicable, shall file with the IRS the requests for
private letter rulings described in Sections 6.12(b), 6.12(c), 7.1(k) and
7.2(l). The Parties shall respond promptly to any requests for additional
information made by the IRS, and use their respective Commercially Reasonable
Efforts to cause the private letter rulings to be obtained at the earliest
possible date after the date of filing. Each of Sellers and Buyer shall
cooperate with one another to secure the private letter rulings described in
Sections 6.12(b), 6.12(c), 7.1(k) and 7.2(l) and each shall have the right to
review in advance all information included in the requests for private letter
rulings and supplemental submissions to the IRS. Each Party will bear its own
costs of the preparation of such requests.
(k) Buyer shall have the primary responsibility for securing the
transfer, reissuance or procurement of the Permits and Environmental Permits
(other than Transferable Permits) effective as of the Closing Date. Sellers
shall cooperate with Buyer's efforts in this regard and assist in any transfer
or reissuance of a Permit or Environmental Permit held by Sellers or the
procurement of any other Permit or Environmental Permit when so requested by
Buyer.
6.7 Fees and Commissions. Sellers and Buyer each represent and warrant to
the other that no broker, finder or other Person is entitled to any brokerage
fees, commissions or finder's fees in connection with the transaction
contemplated hereby by reason of any action taken by the Party making such
representation. Sellers and Buyer will pay to the other or otherwise discharge,
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and will indemnify and hold the other harmless from and against, any and all
claims or liabilities for all brokerage fees, commissions and finder's fees
incurred by reason of any action taken by the indemnifying party.
6.8 Tax Matters.
(a) All transfer and sales taxes incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne equally by
Buyer and Sellers. Buyer will file, to the extent required by applicable law,
all necessary Tax Returns and other documentation with respect to all such
transfer or sales taxes, and Sellers will be entitled to review such returns in
advance and, if required by applicable law, will join in the execution of any
such Tax Returns or other documentation. Prior to the Closing Date, Buyer will
provide to Sellers, to the extent possible, an appropriate exemption certificate
in connection with this Agreement and the transactions contemplated hereby, due
from each applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with Section
3.5 of this Agreement (other than PURTA, additional PURTA assessments and any
successor tax or fee described in Section 3.5(c)), Buyer shall prepare and
timely file all Tax Returns required to be filed after the Closing with respect
to the Purchased Assets, if any, and shall duly and timely pay all such Taxes
shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns
shall be subject to Sellers' approval, which approval shall not be unreasonably
withheld. Buyer shall make such Tax Returns available for Sellers' review and
approval no later than fifteen (15) Business Days prior to the due date for
filing such Tax Return. Within ten (10) Business Days after receipt of such Tax
Return, Sellers shall pay to Buyer their proportionate share of the amount shown
as due on such Tax Return determined in accordance with Section 3.5 of this
Agreement.
(c) Buyer and Sellers shall provide the other Parties with such
assistance as may reasonably be requested by the other Party in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each will retain and provide the requesting Party with any
records or information which may be relevant to such return, audit or
examination, proceedings or determination. Any information obtained pursuant to
this Section 6.8(c) or pursuant to any other Section hereof providing for the
sharing of information or review of any Tax Return or other schedule relating to
Taxes shall be kept confidential by the Parties hereto
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(d) In the event that a dispute arises between Sellers and Buyer as
to the amount of Taxes, or the amount of any allocation of Purchase Price under
Section 3.4, the Parties shall attempt in good faith to resolve such dispute,
and any amount so agreed amount shall be paid to the appropriate party. If such
dispute is not resolved 30 days thereafter, the Parties shall submit the dispute
to the Independent Accounting Firm for resolution, which resolution shall be
final, conclusive and binding on the Parties. Notwithstanding anything in this
Agreement to the contrary, the fees and expenses of the Independent Accounting
Firm in resolving the dispute shall be borne 50 percent by Sellers and 50
percent by Buyer. Any payment required to be made as a result of the resolution
of the dispute by the Independent Accounting Firm shall be made within ten days
after such resolution, together with any interest determined by the Independent
Accounting Firm to be appropriate.
6.9 Advice of Changes. Prior to the Closing Date, each Party will promptly
advise the other in writing with respect to any matter arising after execution
of this Agreement which, if existing or occurring at the date of this Agreement,
would have been required to be set forth in this Agreement, including any of the
Schedules hereto. If Sellers advise Buyer in writing of any change occurring
after the date of this Agreement but prior to Closing that is material to any
representation, warranty or covenant of Sellers under this Agreement, Buyer
shall have the right to terminate this Agreement pursuant to Section 9.1(e). If
Buyer fails to exercise its termination right, Sellers' written notice under
this Section 6.9 will be deemed to have amended this Agreement, including the
appropriate schedule, or to have qualified the representations and warranties
contained in Article IV. Sellers shall be entitled to amend, substitute or
otherwise modify any Sellers' Agreement to the extent that such Sellers'
Agreement expires by its terms prior to the Closing Date or is terminable
without liability to Buyer on or after the Closing Date, or if the terms and
conditions of such modified Sellers' Agreement constituting the Assumed
Liabilities and Obligations are on terms and conditions not less favorable to
Buyer than the original Sellers' Agreement. Nothing contained herein shall
relieve Sellers or Buyer of any breach of representation, warranty or covenant
under this Agreement existing as of the date hereof or any subsequent date as of
which such representation, warranty or covenant shall have been made.
6.10 Employees.
(a) Buyer will offer employment, effective on the Closing Date, to
all employees of Sellers who are covered by the IBEW Collective Bargaining
Agreement and are actively employed as of the Closing Date in positions relating
to the Purchased Assets except those who are assigned to TMI-2 ("Union
Employees").
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(b) (i) Buyer will offer employment, effective on the Closing Date,
to all employees of Sellers located at the Purchased Assets who are not covered
by the IBEW Collective Bargaining Agreement except those who are assigned to
TMI-2, and (ii) Buyer will be entitled to offer employment to any employee of
Sellers located in Sellers' Parsippany headquarters (collectively, the
"Non-Union Employees"). Each person who becomes employed by Buyer pursuant to
Section 6.10(a) or (b) shall be referred to herein as a "Transferred Union
Employee" or "Transferred Non-Union Employee", respectively, and collectively as
"Transferred Employees".
(c) All offers of employment made pursuant to Sections 6.10(a) or
(b) shall be made (i) in accordance with all applicable laws, rules and
regulations, and (ii) for Union Employees, in accordance with the IBEW
Collective Bargaining Agreement. Buyer shall not administer as a pre-condition
of employment any skills, aptitude, psychological profile or other
employment-related tests to any of Seller's employees.
(d) Schedule 6.10(d) sets forth the collective bargaining agreement,
and all amendments thereto, to which Sellers are a party with the IBEW in
connection with the Purchased Assets ("IBEW Collective Bargaining Agreement").
Transferred Union Employees shall retain their seniority and receive full credit
for service with Sellers in connection with entitlement to vacation and all
other benefits and rights under the IBEW Collective Bargaining Agreement and
under each compensation, retirement or other employee benefit plan or program
Buyer is required to maintain for Transferred Union Employees pursuant to the
IBEW Collective Bargaining Agreement. With respect to Transferred Union
Employees, on the Closing Date Buyer shall assume the IBEW Collective Bargaining
Agreement for the duration of its term as it relates to Transferred Union
Employees to be employed at TMI-1 in positions covered by the IBEW Collective
Bargaining Agreement and shall comply with all applicable obligations under the
IBEW Collective Bargaining Agreement. Buyer shall establish and maintain a
pension plan and other employee benefit programs for the Transferred Union
Employees for the duration of the term of the IBEW Collective Bargaining
Agreement which are consistent with Sellers' pension plans and other employee
benefit programs in effect for the Transferred Union Employees immediately prior
to the Closing Date (the "GPU Plans") for the duration of the IBEW Collective
Bargaining Agreement and comply with the obligations of the employer under the
IBEW Collective Bargaining Agreement and applicable law. Buyer further agrees to
recognize the IBEW as the collective bargaining agent for the Transferred Union
Employees.
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(e) As of the Closing Date, all Transferred Non-Union Employees
shall commence participation in welfare benefit plans of Buyer or its Affiliates
(the "Replacement Welfare Plans") that will provide benefits or coverage
substantially similar to the benefits or coverage provided to the Transferred
Non-Union Employees under the Sellers' plans and programs in effect for the
Transferred Non-Union Employees immediately prior to the Closing Date. Buyer
shall (i) waive all limitations as to pre-existing condition exclusions and
waiting periods with respect to the Transferred Non-Union Employees under the
Replacement Welfare Plans, other than, but only to the extent of, limitations or
waiting periods that were in effect with respect to such employees under the
welfare plans maintained by Sellers and that have not been satisfied as of the
Closing Date, and (ii) provide each Transferred Non-Union Employee with credit
for any co-payments and deductibles paid prior to the Closing Date in satisfying
any deductible or out-of-pocket requirements under the Replacement Welfare Plans
(on a pro-rata basis in the event of a difference in plan years).
(f) As of the Closing Date, Transferred Non-Union Employees shall be
offered employment on substantially the same terms and conditions under which
they are employed by Sellers and shall be given credit for all service with
Sellers under all deferred compensation, profit-sharing, 401(k), retirement and
pension plans, incentive compensation, bonus, fringe benefit and other employee
benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in
which they become participants. The Buyer Benefit Plans will provide benefits or
coverage substantially similar to the benefits or coverage provided under
Sellers' plans and programs in effect for the Transferred Non-Union Employees
immediately prior to the Closing Date. The service credit so given shall be for
purposes of eligibility and vesting, but not for level of benefits and benefit
accrual except to the extent the Buyer Benefit Plans otherwise provide.
(g) To the extent allowable by law, Buyer shall take any and all
necessary action to cause the trustee of any defined contribution plan of Buyer
or its Affiliates in which any Transferred Employee becomes a participant to
accept a direct "rollover" in cash (except as provided in the immediately
following sentence) of all or a portion of said employee's "eligible rollover
distribution" within the meaning of Section 402 of the Code from the GPU
Companies Employee Savings Plan for Non-Bargaining Employees or the Metropolitan
Edison Company Savings Plan for Bargaining Unit Employees (the "Sellers' Savings
Plans") if requested to do so by the Transferred Employee. Buyer agrees that the
assets so rolled over may include promissory notes evidencing loans from
Sellers' Savings Plans to Transferred Employees that are outstanding as of the
Closing Date. However,
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except as otherwise provided in Section 6.10(d), any defined contribution plan
of Buyer or its Affiliates accepting such a rollover shall not be required to
(x) make any further loans to any Transferred Employee after the Closing Date or
(y) permit any investment to be made in GPU common stock on behalf of any
Transferred Employee after the Closing Date.
(h) Sellers shall retain any obligation to make, and shall indemnify
Buyer in respect of, all severance payments to any Transferred Employee whose
employment is terminated by Buyer for any reason other than for cause or
disability within (i) the period from the Closing Date to the first anniversary
thereof, or (ii) the period from the first anniversary of the Closing Date to
the second anniversary thereof if prior to the first anniversary of the Closing
Date the Buyer has notified Sellers of its intent to terminate a specified
number of Transferred Employees during the period between such first and second
anniversaries (and Sellers' obligations under this subparagraph (ii) shall be
limited to such specified number of employees). All severance payments shall be
made pursuant to a severance program to be adopted by Sellers prior to the
Closing Date.
(i) Sellers shall be responsible, with respect to the Purchased
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act which
occurs prior to the Closing Date.
(j) Sellers are responsible for extending COBRA continuation
coverage to all employees and former employees, and qualified beneficiaries of
such employees and former employees, who become or became entitled to such COBRA
continuation coverage on or before the Closing Date, including those for whom
the Closing Date occurs during their COBRA election period. Buyer shall be
responsible for providing COBRA continuation coverage to all Transferred
Employees and qualified beneficiaries of such employees who become entitled to
such COBRA continuation coverage on or after the Closing Date.
(k) Sellers shall pay to all Transferred Employees all compensation,
bonus, vacation and holiday compensation, pension, profit sharing and other
deferred compensation benefits, workers' compensation or other employment
benefits to which they are entitled under the terms of the applicable
compensation or benefit programs at such times as are provided therein.
(l) Prior to the Closing Date Sellers will implement a program of
retirement protection benefits, as described below, that will be provided under
the pension plans of Sellers or
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Sellers' Affiliates to each Transferred Employee (i) who has at least five years
of "Creditable Service," as defined in Sellers' pension plans, as of the Closing
Date, and (ii) who will attain age 55 and complete at least 10 years (or 20
years, in the case of any Transferred Union Employee) of Creditable Service
after the Closing Date but before his or her employment with Buyer and all of
its Affiliates terminates for any reason. Employment with Buyer and its
Affiliates shall be treated as service with Sellers and Sellers' Affiliates for
purposes of the service requirements referred to in the preceding sentence. The
retirement protection benefits to be provided to each such Transferred Employee
shall consist of the right on the part of such employee to receive his or her
pension under Sellers' pension plans starting when the employee's employment
with Buyer and all of its Affiliates terminates, with the amount of the
employee's pension determined by using the plan's employer-subsidized early
retirement reduction factors instead of the full actuarial factors that would
otherwise apply in determining the amount of the employee's pension. In the case
of any such Transferred Employee who is a Non-Union Employee, the pension so
payable to the employee shall be based on his or her service and salary with
Sellers and Sellers' Affiliates prior to the Closing Date. In the case of any
such Transferred Employee who is a Union Employee and who first attains age 55
and completes at least 20 years of total Creditable Service on or prior to May
14, 2002 (and while still employed with Buyer or any of its Affiliates), the
pension so payable to the employee shall be based on his or her service with
Sellers and Sellers' Affiliates prior to the Closing Date but shall take into
account the employee's pay during his or her period of service with Buyer and
its Affiliates.
(m) In the case of (i) each Transferred Employee who has met the Age
and Service Requirements (as defined below) as of the Closing Date, and (ii)
each Transferred Employee who first meets the Age and Service Requirements after
the Closing Date but on or prior to the earlier of (A) the date on which his or
her employment with Buyer and all of its Affiliates terminates for any reason,
or (B) December 31, 2004 if such Transferred Employee is a Non-Union Employee,
or May 14, 2002 if such Transferred Employee is a Union Employee, Sellers will
cause such Transferred Employee to be provided with retiree coverage under the
health care plans and group term life insurance programs of Sellers or Sellers'
Affiliates on the same terms and conditions as would be applicable to the
employee if he or she actually retired from Sellers or any of their Affiliates,
under the retirement provisions of Sellers' pension plans, on the date of the
employee's termination of employment with Buyer and its Affiliates. For purposes
of the foregoing, "Age and Service Requirements" shall mean, in the case of any
Transferred Employee, the attainment of age 55 and the completion of 10 years
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of Creditable Service if the Transferred Employee is a Non-Union Employee, or 20
years of Creditable Service if the Transferred Employee is a Union Employee.
Employment with Buyer and its Affiliates shall be treated as service with
Sellers and Sellers' Affiliates for purposes of the foregoing service
requirements.
(n) Individuals who are otherwise "Union Employees" as defined in
Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who
on any date are not actively at work due to a leave of absence covered by the
Family and Medical Leave Act, or due to any other authorized leave of absence,
shall nevertheless be treated as "Union Employees" or as "Non-Union Employees,"
as the case may be, on such date if they are able (i) to return to work within
the protected period under the Family Medical Leave Act or such other leave
(which in any event shall not extend more than twelve (12) weeks after the
Closing Date), whichever is applicable, and (ii) to perform the essential
functions of their job, with or without a reasonable accommodation.
(o) All Transferred Employee Records shall be delivered promptly
after the Closing Date to Buyer.
6.11 Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of loss
or damage to the property included in the Purchased Assets shall be borne by
Sellers. Sellers shall replace or repair any damage to the Purchased Assets in
accordance with Good Utility Practices, except as otherwise provided in
paragraphs (b) or (c) below.
(b) If, before the Closing Date all or any portion of the Purchased
Assets are taken by eminent domain or is the subject of a pending or (to the
Knowledge of Sellers) contemplated taking which has not been consummated,
Sellers shall notify Buyer promptly in writing of such fact. If such taking
would create a Material Adverse Effect, Buyer and Sellers shall negotiate in
good faith to settle the loss resulting from such taking (including, without
limitation, by making a fair and equitable adjustment to the Purchase Price)
and, upon such settlement, consummate the transactions contemplated by this
Agreement pursuant to the terms of this Agreement. If no such settlement is
reached within sixty (60) days after Sellers have notified Buyer of such taking,
then Buyer or Sellers may terminate this Agreement pursuant to Section 9.1(g).
(c) If, before the Closing Date all or any portion of the Purchased
Assets are damaged or destroyed by fire or other casualty, Sellers shall notify
Buyer promptly in writing of such
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fact. If such damage or destruction would create a Material Adverse Effect and
Sellers have not notified Buyer of their intention to cure such damage or
destruction within fifteen (15) days after its occurrence, Buyer and Sellers
shall negotiate in good faith to settle the loss resulting from such casualty
(including, without limitation, by making a fair and equitable adjustment to the
Purchase Price) and, upon such settlement, consummate the transactions
contemplated by this Agreement pursuant to the terms of this Agreement. If no
such settlement is reached within sixty (60) days after Sellers have notified
Buyer of such casualty, then Buyer may terminate this Agreement pursuant to
Section 9.1(g).
6.12 Decommissioning Funds.
(a) Between the date hereof and the Closing Date, Sellers will make
additional cash deposits from time to time to the Qualified Decommissioning
Funds and the Nonqualified Decommissioning Funds such that, on the Closing Date,
Sellers shall have accumulated assets in the Decommissioning Funds with an
aggregate Fair Market Value of $320 million ("Total FMV"). Between the date
hereof and the Closing Date, Sellers shall make additional cash deposits to the
Qualified Decommissioning Funds equal to as much of the Total FMV as is eligible
to be contributed during such period to the Qualified Decommissioning Funds
under Code section 468A and applicable Treasury Regulations as they exist on the
Closing Date. On or before the Closing Date, Sellers shall make additional cash
deposits to the Nonqualified Decommissioning Funds such that the aggregate Fair
Market Value of the assets of the Nonqualified Decommissioning Funds equals the
difference between the Total FMV and the aggregate Fair Market Value of the
assets of the Qualified Decommissioning Funds. To the extent that the aggregate
Fair Market Value of the assets of the Qualified Decommissioning Funds as of the
Closing Date is greater than $260 million, Sellers' required Fair Market Value
asset accumulation to be contained in the Non-Qualified Decommissioning Fund of
$60 million (such that the Total FMV equals $320 million) shall be decreased by
$1.14 for every additional dollar that the Qualified Decommissioning Fund is
above $260 million. To the extent that the aggregate Fair Market Value of the
assets of the Qualified Decommissioning Funds as of the Closing Date is less
than $138 million, Sellers' required Fair Market Value asset accumulation to be
contained in the Non-Qualified Decommissioning Fund of $182 million (such that
the Total FMV equals $320 million) shall be increased by $1.14 for every
additional dollar that the Qualified Decommissioning Fund is below $138 million.
In the event the Closing Date occurs other than on December 31, 1999, the Total
FMV and the respective amounts of each Decommissioning Fund shall be adjusted up
or down as the case may be using an annual after-tax, net of expenses, rate of
return of four percent (4%).
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(b) At the Closing, Sellers shall cause all of the assets of the
Qualified Decommissioning Funds and all of the assets of the Nonqualified
Decommissioning Funds to be transferred to Buyer (or, if directed in writing to
do so by Buyer, to the trustee of any trust specified in such written
direction), provided that, prior to the Closing Date (i) with respect to the
Qualified Decommissioning Funds, the Parties have received rulings issued by the
IRS or an opinion of counsel satisfactory to each of the Parties to the effect
that the Parties and the Qualified Decommissioning Funds shall not recognize any
gain or otherwise take into account any income for federal income tax purposes
by reason of the transfer of the assets of the Qualified Decommissioning Funds
to Buyer and that the trust established by Buyer into which the assets of the
Qualified Decommissioning Funds are to be transferred at Closing will be treated
as a nuclear decommissioning reserve fund within the meaning of Code section
468A(a) and Treas. Reg. Section 1.468A-1(b)(3); and (ii) with respect to the
Nonqualified Decommissioning Funds, Buyer has received a ruling issued by the
IRS, or an opinion of counsel satisfactory to it, to the effect that Buyer will
not recognize any gain or otherwise take into account any income for federal
income tax purposes by reason of the transfer of the assets of the Nonqualified
Decommissioning Funds to Buyer.
(c) If any of the conditions specified in Section 6.12(b) above have
not been met as of the Closing Date with respect to either or both of the
Qualified Decommissioning Funds and Nonqualified Decommissioning Funds, the
assets of the Qualified Decommissioning Funds and/or the assets of the
Nonqualified Decommissioning Funds, as the case may be, shall not be transferred
to Buyer at the Closing, but instead shall be retained by Sellers in accordance
with the provisions of Section 6.12(d), provided that (i) the Parties have
received a ruling issued by the IRS to the effect that the assets of the
Decommissioning Funds that are to be so retained by Sellers will not be treated
as having been transferred to Buyer in a transaction taxable to Buyer for
federal income tax purposes; and (ii) the ruling described in the first sentence
of Section 7.2(k) has been issued by the IRS to Sellers, and such ruling
expressly provides that Sellers' retention of the assets of the applicable
Decommissioning Funds will not prevent Sellers from being allowed current
ordinary deductions for federal income tax purposes for any amounts realized by
Sellers, or otherwise recognized as income to Sellers, as a result of Buyer's
assumption of decommissioning liabilities with respect to the Facilities
pursuant to Section 2.3(a); and (iii) if the assets of the Qualified
Decommissioning Funds are to be so retained by Sellers, the Parties have
received a ruling issued by the IRS to the effect that the Qualified
Decommissioning Funds shall not be disqualified by reason of Sellers' sale of
TMI-1 to Buyer.
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(d) In the event Sellers retain any assets in the Decommissioning
Funds after Closing, Sellers shall undertake and implement the following
actions:
(i) Each of Sellers shall appoint Mellon Bank, N.A., or such
other entity as provided in writing by Buyer to Sellers, as trustee, to
hold the retained assets of the Decommissioning Funds in trust, pursuant
to the terms of the Decommissioning Trust Agreement. The retained assets
of the Decommissioning Funds shall be segregated from funds for other
nuclear plants of Sellers, for the exclusive purpose of Decommissioning
the Facilities and paying the administrative expenses (including taxes) of
the Decommissioning Funds. Sellers shall not amend, modify or change the
Decommissioning Trust Agreement nor appoint a successor trustee without
the prior written consent of Buyer. At the written request of Buyer,
Sellers shall amend, modify or change the Decommissioning Trust Agreement
in the manner specified in such written request. Notwithstanding anything
else to the contrary in the Agreement or in the Decommissioning Trust
Agreement, each of Sellers shall have the right to exercise the powers
specified in Code Section 675(4) in its sole discretion with respect to
the retained assets of the Decommissioning Funds.
(ii) Each of Sellers shall appoint one or more investment
managers, acceptable to Buyer, to manage the retained assets of the
Decommissioning Funds pursuant to the terms of the Investment Manager
Agreement until such assets either are transferred to Buyer or are
expended for Decommissioning the Facilities. Sellers shall not amend,
modify or change the Investment Manager Agreement nor appoint a successor
investment manager without the prior written consent of Buyer. At the
written request of Buyer, Sellers shall amend, modify or change the
Investment Manager Agreement in the manner specified in such written
request.
(iii) Each of Sellers shall provide Buyer promptly with all
information relating to Taxes or accounting treatment of the retained
assets of the Decommissioning Funds as Buyer shall request. Such
information shall include, but not be limited to, Trustee statements, Tax
Returns of the Qualified Decommissioning Funds and information from each
of Sellers' Tax Returns to verify the Taxes to be paid to Sellers by Buyer
pursuant to Section 8.1 hereof, and investment statements. Sellers shall
authorize and instruct the Trustee and investment manager to make the
books and records of the retained Decommissioning Funds available for
inspection by the Buyer at all reasonable times.
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(iv) If at any time after the Closing Date and prior to the
completion of Decommissioning of the Facilities, the conditions specified
in Section 6.12(b) can be met, the assets of the Decommissioning Funds so
retained by Sellers shall be transferred to Buyer (or, if directed in
writing to do so by Buyer, to the trustee of any trust specified in such
written direction) upon receipt of the rulings or opinions of counsel
referred to in Section 6.12(b)(i) or (ii) as applicable.
(v) If the assets of the Nonqualified Decommissioning Funds have
been retained by Sellers pursuant to Section 6.12(c), Sellers will cause
assets of the Nonqualified Decommissioning Funds to be transferred to the
Qualified Decommissioning Funds, if directed to do so by Buyer, provided
Buyer furnishes to Sellers assurances satisfactory to Sellers that such
transfers will not result in any adverse tax consequence to Sellers or
constitute a violation of any applicable law or regulation.
(vi) After the Closing Date, Sellers shall disburse monies from
the retained assets of the Decommissioning Funds as directed by Buyer to
pay for Decommissioning of the Facilities or administrative expenses
(including taxes) of the Decommissioning Funds. After the Closing Date,
Sellers shall not authorize or instruct the Trustee to disburse any monies
from the retained assets of the Decommissioning Funds except at the
direction of Buyer.
(vii) Each Seller severally and not jointly shall use all
Commercially Reasonable Efforts to obtain the release of any lien, claim
or attachment of any third party who files such lien, claim or attachment
against the retained assets of the Decommissioning Funds and each Seller
severally shall indemnify Buyer pursuant to Section 8.2 hereof, for any
such lien, claim or attachment. If requested by Buyer (but, in the case of
any Qualified Decommissioning Funds, only if permissible under Section
468A of the Code and the regulations issued thereunder), Sellers shall
grant a security interest in the retained assets of the Decommissioning
Funds in favor of Buyer;
(viii) Any assets retained by Sellers in respect of
Decommissioning of the Facilities after all Decommissioning activities
have been completed shall be paid to Buyer or expended as Buyer shall
direct.
(e) From and after the Closing Date, Buyer shall assume all
liabilities and obligations for the Decommissioning of the Facilities, and
Sellers shall have no further liabilities or obligations with respect to the
Decommissioning of the Facilities.
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6.13 Spent Fuel Fees. Between the date hereof and the Closing Date, and at
all times thereafter, Sellers will pay all Spent Fuel Fees and any other fees
associated with electricity generated at TMI-1 and sold prior to the Closing
Date, and Buyer shall have no liability or responsibility therefor. Buyer shall
pay and discharge all fees and expenses associated with the nuclear fuel
consumed in TMI-1 and sold from and after the Closing Date, and Sellers shall
have no liability or responsibility therefor. Buyer shall assume title to, and
responsibility for the storage and disposal of the spent nuclear fuel in TMI-1
as of the Closing Date. Sellers shall assign to Buyer the DOE Standard Spent
Fuel Disposal Contract and shall provide the required notice to DOE within 90
days of transfer of title to spent fuel.
6.14 Department of Energy Decontamination and Decommissioning Fees.
Sellers will continue to pay all Department of Energy Decontamination and
Decommissioning Fees relating to nuclear fuel purchased and consumed at TMI-1
prior to the Closing Date, including but not limited to all annual Special
Assessment invoices to be issued after the Closing Date by the Department of
Energy, as contemplated by its regulations at 10 CFR Part 766 implementing
Sections 1801, 1802, and 1803 of the Atomic Energy Act.
6.15 Cooperation Relating to Insurance and Price-Anderson Act. Sellers
shall cooperate with Buyer's efforts to obtain insurance, including insurance
required under the Price-Anderson Act with respect to the Purchased Assets.
Buyer will, to the extent available, obtain separate insurance on the Purchased
Assets. If, however, insurers do not agree to separately insure TMI-1 and TMI-2,
Sellers and Buyer shall agree on a reasonable allocation of insurance costs and
expenses between TMI-1 and TMI-2. In addition, Sellers agree to use reasonable
efforts to assist Buyer in making any claims against pre-Closing insurance
policies of Sellers that may provide coverage related to Assumed Liabilities and
Obligations. Buyer agrees that it will indemnify Sellers for their reasonable
out of pocket expenses incurred in providing such assistance and cooperation.
6.16 Tax Clearance Certificates. Sellers and Buyer shall cooperate and use
their best efforts to cause the tax clearance certificates described in Schedule
4.20 of this Agreement to be issued by the appropriate taxing authorities prior
to the Closing Date or as soon as practicable thereafter.
6.17 TMI-2 Monitoring Agreement. Sellers and Buyer shall enter into an
agreement substantially in the form of Exhibit H hereto to be effective at
Closing pursuant to which Buyer will provide ongoing post-defueling monitored
storage, maintenance and other services for TMI-2.
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6.18 TMI-2 Decommissioning. Prior to the date six months after Buyer makes
the written certification to the NRC regarding the permanent cessation of
operations at TMI-1 pursuant to 10 CFR 50.82(a)(1) and 50.4(b)(8) (or any future
comparable regulation or requirement), Buyer and Sellers shall attempt in good
faith to negotiate a commercially acceptable agreement pursuant to which Buyer
will perform certain decommissioning activities at TMI-2. Notwithstanding the
foregoing, Sellers shall retain ultimate safety-related decision-making
authority with respect to TMI-2 consistent with NRC requirements and applicable
guidance criteria for concluding either that no NRC review under 10 CFR 50.80 is
necessary, or upon such review, that there is no transfer of control of the
TMI-2 license.
6.19 Spent Fuel Acceptance. Buyer will permit Sellers, at no cost, to
utilize TMI-1 spent fuel acceptance allowances as determined by the Department
of Energy in connection with the decommissioning of Oyster Creek; provided,
however, Buyer will have no obligation to transfer such allowances to the extent
prohibited by applicable law or to the extent any such transfer would, in the
reasonable judgment of Buyer, have any adverse consequences to Buyer in respect
of its ownership or operation of the Purchased Assets. To the extent TMI-1 waste
acceptance priority allowances are utilized for Oyster Creek, Sellers will cause
the transfer to Buyer for use in shipment of TMI-1 spent fuel for disposal by
the Department of Energy an amount of spent fuel acceptance allowances equal to
the amount of TMI-1 allowances utilized for Oyster Creek.
6.20 Residual Waste Landfill. As promptly as is practicable following the
date hereof and in any event prior to the Closing Date, Sellers shall have (a)
closed the Residual Waste Landfill, (b) caused all residual wastes to be removed
therefrom to an off-Site landfill qualified to accept such residual wastes and
(c) submitted to the PaDEP an amended Closure and Post-Closure Plan in order to
obtain a Closure Certification from the PaDEP. Sellers further agree to use
Commercially Reasonable Efforts promptly to obtain such Closure Certification
and will comply with the terms and conditions of any PaDEP approved Closure and
Post-Closure Plan for the Residual Waste Landfill at Sellers' expense.
6.21 Easement, License and Attachment Agreement. Sellers and Buyer shall
in good faith negotiate as soon as practicable after the date hereof an
agreement containing the principal items referred to in Exhibit C hereto and
such other matters relating to the Easements as shall be customary for similar
agreements and reasonably acceptable to the Parties hereto.
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ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer. The obligations of Buyer to
purchase the Purchased Assets and to consummate the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated.
(b) No preliminary or permanent injunction or other order or decree
by any federal or state court or Governmental Authority which prevents the
consummation of the sale of the Purchased Assets contemplated herein shall have
been issued and remain in effect (each Party agreeing to cooperate in all
efforts to have any such injunction, order or decree lifted) and no statute,
rule or regulation shall have been enacted by any state or federal government or
Governmental Authority which prohibits the consummation of the sale of the
Purchased Assets;
(c) Buyer shall have received all of Buyer's Required Regulatory
Approvals, in form and substance reasonably satisfactory (including no material
adverse conditions) to it and such approvals shall be final and non-appealable;
(d) Sellers shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Sellers on or prior to the Closing
Date;
(e) The representations and warranties of Sellers set forth in this
Agreement that are qualified by materiality shall be true and correct as of the
Closing Date and all other representations and warranties shall be true and
correct in all material respects as of the Closing Date, in each case as though
made at and as of the Closing Date;
(f) Buyer shall have received certificates from an authorized
officer of each Seller, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have
been satisfied by such Seller;
(g) Buyer shall have received an opinion from each Seller's counsel
reasonably acceptable to Buyer, dated the Closing Date and reasonably
satisfactory in form and substance to Buyer and its counsel, substantially in
the form of Exhibit M hereto;
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(h) Sellers shall have delivered, or caused to be delivered, to
Buyer at the Closing, Sellers' closing deliveries described in Section 3.6,
including, without limitation, special warranty deeds from York Haven for any
Real Property titled in York Haven;
(i) Buyer shall have received from a title insurance company
reasonably acceptable to Buyer ALTA owner's title insurance policies on the Real
Property insuring title as described in Section 4.7, subject only to the
Permitted Encumbrances. Buyer shall provide Sellers with a copy of a preliminary
title report and an updated survey for the Real Property to the extent obtained
by Buyer;
(j) Since the date of this Agreement, no Material Adverse Effect
shall have occurred and be continuing;
(k) The IRS rulings or opinions of counsel applicable to Buyer set
forth in Sections 6.12(b) and/or (c), as the case may be, shall have been
received;
(l) Sellers shall have entered into the Easement, License and
Attachment Agreement, and such Agreement shall be in full force and effect.
(m) (1) Sellers shall have assigned the Cowanesque Reservoir
Agreements (other than the Excluded Liability portion thereof) and the York
Haven Dam Agreements to Buyer, and the Cowanesque Reservoir Agreements and the
York Haven Dam Agreements shall not have been amended and shall be in full force
and effect; and (2) the Sellers shall have obtained from the SRBC an amendment
to their groundwater pumping permit (Permit No. 19961102), as described in
Schedule 4.10, to increase the daily quantity of groundwater pumped from the
three on-site wells to an amount sufficient to satisfy normal operating
requirements for the Facilities, and such amended permit shall be final and
nonappealable;
(n) Any lease or other Encumbrance (other than non-financial
restrictions imposed by applicable law that are inherent to nuclear material)
relating to the nuclear fuel in the TMI-1 reactor core shall have been paid in
full by Sellers;
(o) Sellers shall have performed the maintenance, repair and
replacement work on the Facilities set forth on Schedule 7.1(o) in accordance
with the previously established schedule for the completion of such work, and
such work shall have been completed in accordance with Good Utility Practices
and in conformity with all applicable legal requirements;
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(p) Sellers shall have obtained from the NRC written confirmation
that the Exclusion Area set forth in Technical Specification 5.1 complies with
applicable NRC requirements or Sellers shall have undertaken, at their expense
and by an agreement in form and substance satisfactory to Buyer in its
discretion, to modify the Exclusion Area to conform to NRC requirements;
(q) (1) Sellers shall have proceeded with their plans to seek from
the NRC and shall have obtained from the NRC written confirmation of an increase
in the tube plugging limit applicable to TMI-1's steam generators to 20 percent
of the total number of tubes. Alternatively, NRC shall have approved an increase
in the tube plugging limit to such lesser amount as Buyer shall have approved in
its discretion as adequate in order for TMI-1 to operate at its currently
licensed capacity (2568 MWth) until the scheduled expiration of its NRC license
in 2014; and (2) Sellers shall have proceeded with their plans to seek from the
NRC and shall also have obtained from NRC written confirmation of approval of
the extension of the tube repair criteria currently limited in the Technical
Specifications to the prior refueling outage (referred to by the Parties as
"12R") and the current operating cycle for use in the Refueling Outage and
subsequent operating cycle. Alternatively, if such approval has not been
obtained, Buyer at its discretion shall determine the extent to which the
applicable tube repair criteria as provided for in the Technical Specifications
is acceptable;
(r) Sellers shall have obtained all approvals necessary from any
Governmental Authority having jurisdiction to subdivide , convey and operate the
Real Property separately from the parcels pertaining to TMI-2 and such approvals
shall be final and non-appealable;
(s) Sellers shall have completed in accordance with Good Utility
Practice all work required to be accomplished as of the milestone dates set
forth on Schedule 7.1(s) occurring prior to the Closing Date in order for the
Purchased Assets to be Year 2000 Qualified, and any work relating to subsequent
milestone dates or any additional work in order to complete Year 2000
Qualification shall be undertaken by Sellers at their expense pursuant to
Section 6.4(d);
(t) All radioactive waste stored or otherwise located on the Real
Property outside the area enclosed by the dikes referenced in Section 3.14 of
the TMI-1 Technical Specifications (the "Diked Area"), including, without
limitation, all radioactive filter cake waste that has been stored in a building
outside the Diked Area, shall have been shipped off-Site by Sellers for
permanent disposal, and all buildings outside the Diked Area shall have been
decontaminated in accordance with all applicable legal requirements;
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(u) All low-level radioactive waste that has been generated in the
operations of the Facilities more than 90 days prior to the Closing Date shall
have been shipped off-Site by Sellers for permanent disposal in accordance with
all applicable legal requirements, and all low-level radioactive waste generated
in the operations of the Facilities within 90 days prior to the Closing Date
shall have been properly bagged, tagged, packaged and/or stored by Sellers at
the Facilities in accordance with Good Utility Practice for handling low-level
radioactive waste;
(v) The lien of the Mortgage Indenture on the Purchased Assets shall
have been released; and
(w) The Total FMV of the Decommissioning Funds shall be $320
million, adjusted pursuant to Section 6.12(a) hereof,
7.2 Conditions to Obligations of Sellers. The obligation of Sellers to
sell the Purchased Assets and to consummate the other transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date (or the waiver by Sellers) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the sale of the
Purchased Assets contemplated herein shall have been issued and remain in effect
(each Party agreeing to use its best efforts to have any such injunction, order
or decree lifted) and no statute, rule or regulation shall have been enacted by
any state or federal government or Governmental Authority in the United States
which prohibits the consummation of the sale of the Purchased Assets;
(c) Sellers shall have received all of Sellers' Required Regulatory
Approvals, in form and substance reasonably satisfactory (including no material
adverse conditions) to them and such approvals shall be final and
non-appealable;
(d) All consents and approvals for the consummation of the sale of
the Purchased Assets contemplated hereby required under the terms of any note,
bond, mortgage, indenture, material agreement or other instrument or obligation
to which any Seller is party or by which any Seller, or any of the Purchased
Assets, may be bound, shall have been obtained, other than those which if not
obtained, would not, individually and in the aggregate, create a Material
Adverse Effect;
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(e) Buyer shall have performed and complied with in all material
respects the covenants and agreements contained in this Agreement which are
required to be performed and complied with by Buyer on or prior to the Closing
Date;
(f) The representations and warranties of Buyer set forth in this
Agreement that are qualified by materiality shall be true and correct as of the
Closing Date and all other representations and warranties shall be true and
correct in all material respects as of the Closing Date, in each case as though
made at and as of the Closing Date;
(g) Sellers shall have received a certificate from an authorized
officer of Buyer, dated the Closing Date, to the effect that, to such officer's
Knowledge, the conditions set forth in Sections 7.2(d), (e) and (f) have been
satisfied by Buyer;
(h) Effective upon Closing, Buyer shall have assumed, as set forth
in Section 6.10, all of the applicable obligations under the IBEW Collective
Bargaining Agreement as they relate to Transferred Union Employees;
(i) Sellers shall have received an opinion from Buyer's counsel
reasonably acceptable to Sellers, dated the Closing Date and satisfactory in
form and substance to Sellers and their counsel, substantially in the form of
Exhibit N hereto;
(j) Buyer shall have delivered, or caused to be delivered, to
Sellers at the Closing, Buyer's closing deliveries described in Section 3.7;
(k) Sellers shall have received from Buyer's members copies of all
required consents and approvals from Governmental Authorities relating to the
Member Letters, and the Member Letters shall not have been amended and shall be
in full force and effect;
(l) Sellers shall have received a ruling from the IRS to the effect
that Sellers will be allowed current ordinary deductions for federal income tax
purposes for any amounts treated as realized by Sellers, or otherwise recognized
as income to Sellers, as a result of Buyer's assumption of Decommissioning
liabilities with respect to TMI-1 pursuant to Section 2.3(f). In addition, the
IRS rulings or opinions of counsel applicable to Sellers set forth in Section
6.12(b) and/or (c), as the case may be, shall be received; and
(m) Buyer shall have entered into the Easement, License and
Attachment Agreement, and such Agreement shall be in full force and effect.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless Sellers, their
officers, directors, employees, shareholders, Affiliates and agents (each, a
"Sellers' Indemnitee") from and against any and all claims, demands, suits,
losses, liabilities, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and reasonable disbursements in
connection therewith) (each, an "Indemnifiable Loss"), asserted against or
suffered by any Sellers' Indemnitee relating to, resulting from or arising out
of (i) any breach by Buyer of any representations, warranties or covenants
contained in this Agreement, (ii) the Assumed Liabilities and Obligations, (iii)
any loss or damages resulting from or arising out of any Inspection, or the use
by Buyer of the non-exclusive license granted under Section 2.1(j) or (iv) any
Third Party Claims against a Sellers' Indemnitee arising out of or in connection
with Buyer's ownership or operation of TMI-1 and other Purchased Assets on or
after the Closing Date, (v) any Taxes asserted against Seller by reason of any
act of "self-dealing" as defined in Treas. Reg. Section 1.468A-5(b)(2) that is
determined to have occurred after the Closing, except for any acts of
self-dealing that constitute a breach by Sellers of this Agreement, or (vi) if
the Nonqualified Decommissioning Funds are retained by Sellers after the Closing
pursuant to Section 6.12(c), the amount of Taxes arising after the Closing Date
attributable to amounts required to be included in Sellers' income with respect
to income and net gains realized by the Nonqualified Decommissioning Funds
except to the extent such Taxes have not been paid to Sellers out of the
Nonqualified Decommissioning Funds, (vii) all Taxes attributable to any amounts
required to be included in Sellers' income by reason of any payments or
distributions made or deemed to have been made from the Qualified
Decommissioning Funds after the Closing, but only to the extent such amounts are
not offset by deductions allowable to Sellers with respect to such payments or
distributions, and only to the extent such payments or distributions are not
caused by any Sellers' breach of this Agreement; or (viii) if any of the
Decommissioning Funds are retained by Sellers after the Closing, any actions or
inaction by Sellers in connection with the administration of the Decommissioning
Funds pursuant to the Decommissioning Trust Agreement or under the Investment
Management Agreement (including any supplement or amendment thereto or
replacement thereof) as contemplated by Section 6.12(d) hereof or as Buyer may
otherwise direct in writing.
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(b) Sellers, severally with respect to the Owners in accordance with
their pro rata ownership interests in the Purchased Assets, and jointly and
severally with respect to GPU Nuclear, shall indemnify, defend and hold harmless
Buyer, its officers, directors, members, employees, shareholders, Affiliates and
agents (each, a "Buyer Indemnitee") from and against any and all Indemnifiable
Losses asserted against or suffered by any Buyer Indemnitee relating to,
resulting from or arising out of (i) any breach by Sellers of any
representations, warranties or covenants contained in this Agreement, (ii) the
Excluded Liabilities, (iii) noncompliance by Sellers with any bulk sales or
transfer laws as provided in Section 10.11, (iv) any Third Party Claims against
a Buyer Indemnitee arising out of or in connection with Sellers' ownership or
operation of the Purchased Assets on or prior to the Closing Date, (v) any Third
Party Claims against a Buyer Indemnitee arising out of or in connection with
Sellers' ownership or operation of the Excluded Assets, (vi) any Indemnifiable
Loss relating to TMI-2, (vii) all Taxes incurred, either by reason of any act of
Sellers after Closing that constitutes an act of "self-dealing" as defined in
Treas. Reg. Section 1.468A-5(b)(2) and that constitutes a breach of this
Agreement by any Seller or by reason of any act of any Seller that results in
the disqualification of the Qualified Decommissioning Funds under Treas. Reg.
Section 1.468A-5 and that constitutes a breach of this Agreement by any Seller
or (viii) any claims or attachments of any Seller against the Decommissioning
Funds after the Closing Date.
(c) Notwithstanding anything to the contrary contained herein:
(i) Any Person entitled to receive indemnification under this
Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to
mitigate all losses, damages and the like relating to a claim under these
indemnification provisions, including availing itself of any defenses,
limitations, rights of contribution, claims against third Persons and
other rights at law or equity. The Indemnitee's Commercially Reasonable
Efforts shall include the reasonable expenditure of money to mitigate or
otherwise reduce or eliminate any loss or expenses for which
indemnification would otherwise be due, and the Indemnitee shall advise
Indemnitor promptly of such expenditure (or provide Indemnitor with the
opportunity to pay such expenditures directly). The Indemnitor shall
promptly reimburse the Indemnitee for the Indemnitee's reasonable
expenditures in undertaking the mitigation (together with interest thereon
from the date of payment thereof to the date of repayment at the "prime
rate" as published in The Wall Street Journal).
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(ii) Any Indemnifiable Loss shall be net of (i) the dollar amount
of any insurance or other proceeds actually received by the Indemnitee or
any of its Affiliates with respect to the Indemnifiable Loss, and (ii)
income tax benefits to the Indemnitee, to the extent realized by the
Indemnitee, but such net amount shall be increased to give effect to the
Income Taxes attributable to the receipt of any indemnification payments
hereunder. Any Party seeking indemnity hereunder shall use best efforts to
make claims (including both costs of defense and indemnity) under
applicable insurance policies with respect to any such Indemnifiable Loss.
(iii) Sellers' liability and obligation to Buyer for an
Indemnifiable Loss relating to, resulting from or arising out of (A) a
breach of representation or warranty (other than with respect to Taxes and
Tax Returns, environmental matters or the matters set forth in Sections
4.22 and 4.23 hereof) shall be the amount thereof in excess of $250,000 in
the aggregate (cumulative) up to the amount of Ten Million Dollars
($10,000,000) and must be asserted by Buyer on or before the first
anniversary of the Closing Date, and (B) a breach of representation or
warranty with respect to environmental matters under Section 4.10 of the
type described in Section 2.4(g)(v) or (vi) hereof shall be the amount
thereof in excess of $250,000 in the aggregate (cumulative) up to the
amount of Ten Million Dollars ($10,000,000) and must be asserted by Buyer
on or before the second anniversary of the Closing Date. Nothing in this
subparagraph (iii) is intended to modify or limit Sellers' liability or
obligation hereunder for any other Indemnifiable Loss or to constitute an
assumption by Buyer of any Excluded Liability.
(d) The expiration or termination of any representation or warranty
shall not affect the Parties' obligations under this Section 8.1 if the
Indemnitee provided the Person required to provide indemnification under this
Agreement (the "Indemnifying Party") with proper notice of the claim or event
for which indemnification is sought prior to such expiration, termination or
extinguishment.
(e) Except to the extent otherwise provided in Article IX, the
rights and remedies of Sellers and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Sellers and Buyer may
have under this Agreement or otherwise for monetary relief, with respect to (i)
any breach of or failure to perform any covenant, agreement, or representation
or warranty set forth in this Agreement, after the occurrence of the Closing, or
(ii) the Assumed Liabilities and
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Obligations or the Excluded Liabilities, as the case may be. The indemnification
obligations of the Parties set forth in this Article VIII apply only to matters
arising out of this Agreement, excluding the Ancillary Agreements. Any
Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be
governed by the indemnification obligations, if any, contained in the Ancillary
Agreement under which the Indemnifiable Loss arises.
(f) Notwithstanding anything to the contrary herein, no Party
(including an Indemnitee) shall be entitled to recover from any other Party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments, losses, costs, or expenses under this Agreement any amount in excess
of the actual compensatory damages, court costs and reasonable attorney's and
other advisor fees suffered by such Party. Buyer and Sellers waive any right to
recover punitive, incidental, special, exemplary and consequential damages
arising in connection with or with respect to this Agreement. The provisions of
this Section 8.1(f) shall not apply to indemnification for a Third Party Claim.
8.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any claim
or of the commencement of any claim, action, or proceeding made or brought by
any Person who is not a Party to this Agreement or any Affiliate of a Party to
this Agreement (a "Third Party Claim") with respect to which indemnification is
to be sought from an Indemnifying Party, the Indemnitee shall give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
such notice shall not be given later than twenty (20) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and shall
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's expense and by such Indemnifying Party's own counsel, provided that the
counsel for the Indemnifying Party who shall conduct the defense of such Third
Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee
shall cooperate in good faith in such defense at such Indemnitee's own expense.
If an Indemnifying Party elects not to assume the defense of any Third Party
Claim, the Indemnitee may compromise or settle such Third Party Claim over the
objection of the Indemnifying Party, which settlement or compromise shall
conclusively establish the Indemnifying Party's liability pursuant to this
Agreement.
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(b) (i) If, within twenty (20) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims, the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2 (a) , the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party shall
fail to take reasonable steps necessary to defend diligently such Third Party
Claim within twenty (20) calendar days after receiving notice from the
Indemnitee that the Indemnitee believes the Indemnifying Party has failed to
take such steps, the Indemnitee may assume its own defense and the Indemnifying
Party shall be liable for all reasonable expenses thereof.
(ii) Without the prior written consent of the Indemnitee, the
Indemnifying Party shall not enter into any settlement of any Third Party Claim
which would lead to liability or create any financial or other obligation on the
part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party Claim
without leading to liability or the creation of a financial or other obligation
on the part of the Indemnitee for which the Indemnitee is not entitled to
indemnification hereunder and the Indemnifying Party desires to accept and agree
to such offer, the Indemnifying Party shall give written notice to the
Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer
within twenty (20) calendar days after its receipt of such notice, the
Indemnifying Party shall be relieved of its obligations to defend such Third
Party Claim and the Indemnitee may contest or defend such Third Party Claim. In
such event, the maximum liability of the Indemnifying Party as to such Third
Party Claim will be the amount of such settlement offer plus reasonable costs
and expenses paid or incurred by Indemnitee up to the date of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not be
given later than twenty (20) calendar days after the Indemnitee becomes aware of
such Direct Claim, and the Indemnifying Party shall have a period of twenty (20)
calendar days within which to respond to such Direct Claim. If the Indemnifying
Party does not respond within such twenty (20) calendar day period, the
Indemnifying Party shall be deemed to have accepted such claim. If the
Indemnifying Party rejects such
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claim, the Indemnitee will be free to seek enforcement of its right to
indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time subsequent
to the making of an indemnity payment in respect thereof, is reduced by
recovery, settlement or otherwise under or pursuant to any insurance coverage,
or pursuant to any claim, recovery, settlement or payment by, from or against
any other entity, the amount of such reduction, less any costs, expenses or
premiums incurred in connection therewith (together with interest thereon from
the date of payment thereof to the date or repayment at the "prime rate" as
published in The Wall Street Journal) shall promptly be repaid by the Indemnitee
to the Indemnifying Party.
(e) A failure to give timely notice as provided in this Section 8.2
shall not affect the rights or obligations of any Party hereunder except if, and
only to the extent that, as a result of such failure, the Party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.
ARTICLE IX
TERMINATION
9.1 Termination. (a) This Agreement may be terminated at any time prior to
the Closing Date by mutual written consent of Sellers and Buyer.
(b) This Agreement may be terminated by Sellers or Buyer, if (i) any
Federal or state court of competent jurisdiction shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise prohibiting
the Closing, and such order, judgment or decree shall have become final and
nonappealable or (ii) any statute, rule, order or regulation shall have been
enacted or issued by any Governmental Authority which, directly or indirectly,
prohibits the consummation of the Closing; or (iii) the Closing contemplated
hereby shall have not occurred on or before the day which is 24 months from the
date of this Agreement (the "Termination Date"); provided that the right to
terminate this Agreement under this Section 9.1(b) (iii) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing to occur on or
before such date.
(c) Except as otherwise provided in this Agreement, this Agreement
may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the
receipt of which is a
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condition to the obligation of Buyer to consummate the Closing as set forth in
Section 7.1(c), shall have been denied (and a petition for rehearing or refiling
of an application initially denied without prejudice shall also have been
denied) or shall have been granted but are not in form and substance reasonably
satisfactory to Buyer because such Approval contains conditions that would have
a material adverse effect on the operations or condition (financial or
otherwise) of the Purchased Assets or a material adverse effect on the business,
assets, operations or condition (financial or otherwise) of Buyer or its
members.
(d) This Agreement may be terminated by Sellers, if any of Sellers'
Required Regulatory Approvals applicable to Sellers, the receipt of which is a
condition to the obligation of Sellers to consummate the Closing as set forth in
Section 7.2(c), shall have been denied (and a petition for rehearing or refiling
of an application initially denied without prejudice shall also have been
denied) or shall have been granted but are not in form and substance reasonably
satisfactory to Sellers, because such Approval contains conditions that would
have a material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Sellers.
(e) This Agreement may be terminated by Buyer if there has been a
violation or breach by Sellers of any covenant, representation or warranty
contained in this Agreement which has resulted in a Material Adverse Effect and
such violation or breach is not cured by the earlier of the Closing Date or the
date thirty (30) days after receipt by Sellers of notice specifying particularly
such violation or breach, and such violation or breach has not been waived by
Buyer.
(f) This Agreement may be terminated by Sellers if there has been a
material violation or breach by Buyer of any covenant, representation or
warranty contained in this Agreement and such violation or breach is not cured
by the earlier of the Closing Date or the date thirty (30) days after receipt by
Buyer of notice specifying particularly such violation or breach, and such
violation or breach has not been waived by Sellers.
(g) This Agreement may be terminated by Buyer or Sellers in
accordance with the provisions of Sections 6.11(b) or (c).
9.2 Procedure and Effect of No-Default Termination. In the event of
termination of this Agreement by either or both of the Parties pursuant to this
Section 9, written notice thereof shall forthwith be given by the terminating
Party to the other Party, whereupon, if this Agreement is terminated pursuant to
any of Sections 9.1(a) through (d) and 9.1(g), the liabilities of the Parties
hereunder will terminate, except as otherwise expressly
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provided in this Agreement, and thereafter neither Party shall have any recourse
against the other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of Sellers
and Buyer.
10.2 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of any of the Parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the Party entitled to
the benefits thereof only by a written instrument signed by the Party granting
such waiver, but such waiver of such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent failure to comply therewith.
10.3 Survival of Representations, Warranties, Covenants and Obligations.
(i) The representations and warranties given or made by any
Party to this Agreement or in any certificate or other writing furnished in
connection herewith shall survive the Closing for a period of one (1) year after
the Closing Date and shall thereafter terminate and be of no further force or
effect, except that (a) all representations and warranties relating to Taxes and
Tax Returns shall survive the Closing for the period of the applicable statutes
of limitation plus any extensions or waivers thereof, (b) all representations
and warranties with respect to environmental matters shall survive the Closing
for a period of two (2) years after the Closing Date; (c) all representations
and warranties set forth in Sections 4.22 and 4.23 hereof shall survive the
Closing indefinitely, and (d) any representation or warranty as to which a claim
(including without limitation a contingent claim) shall have been asserted
during the survival period shall continue in effect with respect to such claim
until such claim shall have been finally resolved or settled. Each Party shall
be entitled to rely upon the representations and warranties of the other Party
or Parties set forth herein, notwithstanding any investigation or audit
conducted before or after the Closing Date or the decision of any Party to
complete the Closing.
(ii) The covenants and obligations of Sellers and Buyer set
forth in this Agreement, including without limitation the indemnification
obligations of the parties under Article VIII
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hereof, shall survive the Closing indefinitely, and the Parties shall be
entitled to the full performance thereof by the other Parties hereto without
limitation as to time or amount (except as otherwise specifically set forth
herein).
10.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided however, that notices of a change of address
shall be effective only upon receipt thereof):
(a) If to Sellers, to:
GPU Service, Inc.
300 Madison Ave.
P.O. Box 8699
Morristown, NJ 07962
Attention: David C. Brauer, Vice President
with a copy to:
Berlack, Israels & Liberman LLP
120 West 45th Street
New York, NY 10036
Attention: Douglas E. Davidson, Esq.
(b) if to Buyer, to:
AmerGen Energy Company, LLC
965 Chesterbrook Blvd., 63C-3
Wayne, PA 19087
Attention: Dickinson M. Smith, Chief Executive
Officer
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Attention: Howard L. Meyers, Esq.
10.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any Party
90
<PAGE>
hereto, including by operation of law, without the prior written consent of each
other Party, such consent not to be unreasonably withheld, nor is this Agreement
intended to confer upon any other Person except the Parties hereto any rights,
interests, obligations or remedies hereunder. No provision of this Agreement
shall create any third party beneficiary rights in any employee or former
employee of Sellers (including any beneficiary or dependent thereof) in respect
of continued employment or resumed employment, and no provision of this
Agreement shall create any rights in any such Persons in respect of any benefits
that may be provided, directly or indirectly, under any employee benefit plan or
arrangement except as expressly provided for thereunder. Notwithstanding the
foregoing, but subject to all applicable legal requirements, (i) Buyer or its
permitted assignee may assign, transfer, pledge or otherwise dispose of
(absolutely or as security) its rights and interests hereunder to a trustee,
lending institutions or other party for the purposes of leasing, financing or
refinancing the Purchased Assets, including such an assignment, transfer or
other disposition upon or pursuant to the exercise of remedies with respect to
such leasing, financing or refinancing, or by way of assignments, transfers,
pledges, or other dispositions in lieu thereof, and (ii) Buyer or its permitted
assignee may assign, transfer, pledge or otherwise dispose of its rights and
interests to cause Sellers to perform in accordance with the provisions of
Section 6.12(d) hereof in connection with any subsequent disposition by Buyer of
the Purchased Assets; provided, however, that no such assignment shall relieve
or discharge Buyer from any of its obligations hereunder. Sellers agree, at
Buyer's expense, to execute and deliver such documents as may be reasonably
necessary to accomplish any such assignment, transfer, pledge or other
disposition of rights and interests hereunder so long as Sellers' rights under
this Agreement are not thereby altered, amended, diminished or otherwise
impaired.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the Commonwealth of Pennsylvania (without giving
effect to conflict of law principles) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS
RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND
FEDERAL COURTS IN AND FOR CHESTER COUNTY, PENNSYLVANIA, WHICH COURTS SHALL HAVE
EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR
PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH
COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL
WITH
91
<PAGE>
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Interpretation. The articles, section and schedule headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the Parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.9 Schedules and Exhibits. Except as otherwise provided in this
Agreement, all Exhibits and Schedules referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, the
Ancillary Agreements and the Member Letters, including the Exhibits, Schedules,
documents, certificates and instruments referred to herein or therein, embody
the entire agreement and understanding of the Parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to Buyer pursuant to the terms of the Confidentiality Agreement.
This Agreement supersedes all prior agreements and understandings between the
Parties (including without limitation, the letter of intent between the Parties
dated July 17, 1998) other than the Confidentiality Agreement with respect to
such transactions.
10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything
in this Agreement to the contrary, Sellers will not comply with the provision of
the bulk sales laws of any jurisdiction in connection with the transactions
contemplated by this Agreement. Buyer hereby waives compliance by Sellers with
the provisions of the bulk sales laws of all applicable jurisdictions.
10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth
herein are United States (U.S.) dollars.
92
<PAGE>
10.13 Zoning Classification. Buyer acknowledges that the Real Properties
are zoned
as set forth in Schedule 10.13.
10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer
acknowledges that there is no community (municipal) sewage system available to
serve the Real Property. Accordingly, any additional sewage disposal planned by
Buyer will require an individual (on-site) sewage system and all necessary
permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities
Act"). Buyer recognizes that certain of the existing individual sewage systems
on the Real Property may have been installed pursuant to exemptions from the
requirements of the Facilities Act or prior to the enactment of the Facilities
Act and that soils and site testing may not have been performed in connection
therewith. The owner of the property or properties served by such a system, at
the time of any malfunction, may be held liable for any contamination,
pollution, public health hazard or nuisance which occurs as the result of such
malfunction.
93
<PAGE>
IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
GPU NUCLEAR, INC. JERSEY CENTRAL POWER &
LIGHT COMPANY
By: By:
--------------------------- -------------------------
Name: Terrance G. Howson Name: Terrance G. Howson
Title: Vice President & Treasurer Title: Vice President &
Treasurer
METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC
COMPANY
By By:
--------------------------- -------------------------
Name: Terrance G. Howson Name: Terrance G. Howson
Title: Vice President & Tresurer Title: Vice President &
Treasurer
AMERGEN ENERGY COMPANY, LLC
By:
--------------------------------
Name: Dickinson M. Smith
Title: Chief Executive Officer
Exhibit 12-A
Page 1 of 2
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $4,248,792 $4,143,379 $3,970,711 $3,822,459 $3,654,211
--------- --------- --------- --------- ---------
OPERATING EXPENSES 3,352,713 3,272,644 3,292,796 3,080,614 3,017,888
Interest portion
of rentals (A) 30,594 26,108 26,093 27,362 24,655
Fixed charges of
service company
subsidiaries (B) 2,424 3,121 3,695 3,666 3,637
--------- --------- --------- --------- ---------
Net expense 3,319,695 3,243,415 3,263,008 3,049,586 2,989,596
--------- --------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 5,264 5,583 10,672 14,671 11,827
Equity in undistributed
earnings/(losses) of
affiliates, net 72,012 (27,100) 33,981 (3,597) (1,014)
Other income/
(expense), net 48,366 5,585 23,490 215,007 (146,958)
Minority interest
net income (2,171) (1,337) (2,701) (922) -
--------- --------- --------- --------- ---------
Total other income
and deductions 123,471 (17,269) 65,442 225,159 (136,145)
--------- --------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $1,052,568 $ 882,695 $ 773,145 $ 998,032 $ 528,470
========= ========= ========= ========= =========
FIXED CHARGES:
Interest on funded
indebtedness $ 319,737 $ 249,026 $ 216,352 $ 192,488 $ 186,259
Other interest (C) 65,024 66,400 59,398 56,396 47,498
Preferred stock dividends
of subsidiaries on a
pretax basis (E) 18,045 19,500 24,008 26,756 30,314
Interest portion
of rentals (A) 30,594 26,108 26,093 27,362 24,655
--------- --------- --------- --------- ---------
Total fixed
charges $ 433,400 $ 361,034 $ 325,851 $ 303,002 $ 288,726
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO FIXED CHARGES 2.43 2.44 2.37 3.29 1.83
==== ==== ==== ==== ====
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS (D) 2.43 2.44 2.37 3.29 1.83
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Exhibit 12-A
Page 2 of 2
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) GPU has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded
such components from operating expenses.
(B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc. which
are accounted for as operating expenses in the consolidated income
statement. GPU has removed the fixed charges from operating expenses and
included such amounts in fixed charges as interest on funded indebtedness
and other interest for this statement.
(C) Includes dividends on subsidiary-obligated mandatorily redeemable
preferred securities of $28,888, $28,888, $28,888, $24,816 and $7,692 for
the years 1998, 1997, 1996, 1995 and 1994, respectively.
(D) GPU, Inc., the parent holding company, does not have any preferred stock
outstanding, therefore, the ratio of earnings to combined fixed charges
and preferred stock dividends is the same as the ratio of earnings to
fixed charges.
(E) Calculation of preferred stock dividends of subsidiaries on a pretax basis
is as follows:
</FN>
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes and
preferred stock dividends
of subsidiaries and
gain on preferred
stock reacquisition $637,213 $541,161 $471,302 $721,786 $270,058
Income before extraordinary
item in 1998 and preferred
stock dividends of
subsidiaries and gain
on preferred stock
reacquisition 397,124 347,625 304,583 457,080 184,380
Pretax earnings ratio 160.5% 155.7% 154.7% 157.9% 146.5%
Preferred stock dividends
of subsidiaries 11,243 12,524 15,519 16,945 20,692
Preferred stock dividends
of subsidiaries on
a pretax basis 18,045 19,500 24,008 26,756 30,314
</TABLE>
Exhibit 12-B
Page 1 of 2
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $2,069,648 $2,093,972 $2,057,918 $2,035,928 $1,952,425
--------- --------- --------- --------- ---------
OPERATING EXPENSES 1,607,589 1,658,382 1,729,532 1,653,387 1,622,399
Interest portion
of rentals (A) 11,838 10,614 10,666 12,354 10,187
--------- --------- --------- --------- ---------
Net expense 1,595,751 1,647,768 1,718,866 1,641,033 1,612,212
--------- --------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 2,424 2,319 6,647 7,824 4,143
Other income, net 13,227 1,919 7,202 14,889 21,995
--------- --------- --------- --------- ---------
Total other income
and deductions 15,651 4,238 13,849 22,713 26,138
--------- --------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 489,548 $ 450,442 $ 352,901 $ 417,608 $ 366,351
========= ========= ========= ========= =========
FIXED CHARGES:
Interest on funded
indebtedness $ 87,261 $ 89,869 $ 89,648 $ 92,602 $ 93,477
Other interest (B) 22,929 25,829 21,847 16,337 14,726
Interest portion
of rentals (A) 11,838 10,614 10,666 12,354 10,187
--------- --------- --------- --------- ---------
Total fixed
charges $ 122,028 $ 126,312 $ 122,161 $ 121,293 $ 118,390
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO FIXED CHARGES 4.01 3.57 2.89 3.44 3.09
==== ==== ==== ==== ====
Preferred stock
dividend requirement 10,065 11,376 13,072 14,457 14,795
Ratio of income before
provision for
income taxes to
net income (C) 165.2% 152.9% 147.6% 148.8% 152.3%
Preferred stock
dividend requirement
on a pretax basis 16,627 17,394 19,294 21,512 22,529
Fixed charges, as above 122,028 126,312 122,161 121,293 118,390
--------- --------- --------- --------- ---------
Total fixed charges
and preferred
stock dividends $ 138,655 $ 143,706 $ 141,455 $ 142,805 $ 140,919
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 3.53 3.13 2.50 2.92 2.60
==== ==== ==== ==== ====
</TABLE>
Exhibit 12-B
Page 2 of 2
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) The Company has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $10,700, $10,700 and $10,700 for the years 1998, 1997 and
1996, respectively.
(C) Represents income before provision for income taxes divided by net income
as follows:
</FN>
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes $367,520 $324,130 $230,740 $296,315 $247,961
Net Income 222,442 212,014 156,303 199,089 162,841
</TABLE>
Exhibit 12-C
Page 1 of 2
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $919,594 $943,109 $910,408 $854,674 $801,303
------- ------- ------- ------- -------
OPERATING EXPENSES 752,168 728,644 733,664 686,183 655,805
Interest portion
of rentals (A) 9,784 6,151 5,367 5,186 5,315
------- ------- ------- ------- -------
Net expense 742,384 722,493 728,297 680,997 650,490
------- ------- ------- ------- -------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 943 1,100 1,245 2,430 3,847
Other income/
(expense), net (13,539) 3,371 1,220 129,660 (98,953)
------- ------- ------ ------- -------
Total other income
and deductions (12,596) 4,471 2,465 132,090 (95,106)
------- ------- ------ ------- -------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $164,614 $225,087 $184,576 $305,767 $ 55,707
======= ======= ======= ======= =======
FIXED CHARGES:
Interest on funded
indebtedness $ 42,493 $ 43,885 $ 45,373 $ 45,844 $ 43,270
Other interest (B) 17,194 15,765 14,436 14,147 15,137
Interest portion
of rentals (A) 9,784 6,151 5,367 5,186 5,315
------- ------- ------- ------- -------
Total fixed
charges $ 69,471 $ 65,801 $ 65,176 $ 65,177 $ 63,722
======= ======= ======= ======= =======
RATIO OF EARNINGS
TO FIXED CHARGES 2.37 3.42 2.83 4.69 0.87
==== ==== ==== ==== ====
Preferred stock
dividend requirement 483 483 944 944 2,960
Ratio of income before
provision for
income taxes to
net income (C) 164.8% 170.3% 172.9% 162.0% 174.8%
Preferred stock
dividend requirement
on a pretax basis 796 823 1,632 1,529 5,174
Fixed charges, as above 69,471 65,801 65,176 65,177 63,722
------- ------- ------- ------- -------
Total fixed charges
and preferred
stock dividends $ 70,267 $ 66,624 $ 66,808 $ 66,706 $ 68,896
======= ======= ======= ======= =======
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 2.34 3.38 2.76 4.58 0.81
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Exhibit 12-C
Page 2 of 2
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<FN>
Notes:
(A) Met-Ed has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded
such components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $9,000, $9,000, $9,000, $9,000 and $3,200 for the years
1998, 1997, 1996, 1995 and 1994, respectively.
(C) Represents income before provision for income taxes divided by income
before extraordinary item/net income as follows:
</FN>
<CAPTION>
Twelve Months Ended December 31,
1998 1997 1996 1995 1994*
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes $ 95,143 $159,286 $119,400 $240,590 $ -
Income before extraordinary
item/Net Income 57,720 93,517 69,067 148,540 -
* For the twelve months ended December 31, 1994, the ratio was based on the
composite income tax rate for 1994.
</TABLE>
Exhibit 12-D
Page 1 of 2
<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $1,032,226 $1,052,936 $1,019,645 $ 981,329 $ 944,744
--------- --------- --------- --------- ---------
OPERATING EXPENSES 861,453 824,596 840,288 793,320 776,215
Interest portion
of rentals (A) 4,970 4,236 4,490 4,911 3,632
--------- --------- --------- --------- ---------
Net expense 856,483 820,360 835,798 788,409 772,583
--------- --------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 1,897 2,164 2,780 4,417 3,837
Other income/
(expense), net (6,429) 2,469 (825) 56,454 (71,287)
--------- --------- --------- --------- ---------
Total other income
and deductions (4,532) 4,633 1,955 60,871 (67,450)
--------- --------- --------- --------- ---------
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 171,211 $ 237,209 $ 185,802 $ 253,791 $ 104,711
========= ========= ========= ========= =========
FIXED CHARGES:
Interest on funded
indebtedness $ 47,729 $ 49,125 $ 49,654 $ 49,875 $ 46,439
Other interest (B) 17,385 17,526 16,300 17,616 11,913
Interest portion
of rentals (A) 4,970 4,236 4,490 4,911 3,632
--------- --------- --------- --------- ---------
Total fixed
charges $ 70,084 $ 70,887 $ 70,444 $ 72,402 $ 61,984
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO FIXED CHARGES 2.44 3.35 2.64 3.51 1.69
==== ==== ==== ==== ====
Preferred stock
dividend requirement 695 665 1,503 1,544 2,937
Ratio of income before
provision for
income taxes to
net income (C) 172.6% 175.0% 165.2% 163.4% 134.4%
Preferred stock
dividend requirement
on a pretax basis 1,200 1,164 2,483 2,523 3,946
Fixed charges, as above 70,084 70,887 70,444 72,402 61,984
--------- --------- --------- --------- ---------
Total fixed charges
and preferred
stock dividends $ 71,284 $ 72,051 $ 72,927 $ 74,925 $ 65,930
========= ========= ========= ========= =========
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 2.40 3.29 2.55 3.39 1.59
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Exhibit 12-D
Page 2 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
<TABLE>
<FN>
Notes:
(A) Penelec has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $9,188, $9,188, $9,188, $9,188 and $4,492 for the years
1998, 1997, 1996, 1995 and 1994, respectively.
(C) Represents income before provision for income taxes divided by income
before extraordinary item/net income as follows:
</FN>
<CAPTION>
Twelve Months Ended December 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Income before provision
for income taxes $101,127 $166,322 $115,358 $181,389 $42,727
Income before extraordinary
item/Net Income 58,590 95,023 69,809 111,010 31,799
</TABLE>
Exhibit 21(A)
JERSEY CENTRAL POWER & LIGHT COMPANY
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF
SUBSIDIARIES BUSINESS INCORPORATION
- ------------ -------- -------------
JCP&L CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE
Exhibit 21(B)
METROPOLITAN EDISON COMPANY
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF
SUBSIDIARIES BUSINESS INCORPORATION
- ------------ -------- -------------
YORK HAVEN POWER COMPANY HYDROELECTRIC GENERATING NEW YORK
STATION
MET-ED CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE
Exhibit 21(C)
PENNSYLVANIA ELECTRIC COMPANY
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF
SUBSIDIARIES BUSINESS INCORPORATION
------------ -------- -------------
NINEVEH WATER WATER SERVICE PENNSYLVANIA
COMPANY
THE WAVERLY ELECTRIC LIGHT ELECTRIC DISTRIBUTION PENNSYLVANIA
AND POWER COMPANY
PENELEC CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE
EXHIBIT 23-A
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
GPU, Inc. on Form S-8 (File Nos. 33-32325, 33-32326, 33-34661, 33-32327,
33-51037, 33-32328 and 33-51035), and Form S-3 (File Nos. 33-30765 and
33-10485) of our report dated February 3, 1999, on our audits of the
consolidated financial statements and financial statement schedule of GPU, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, which report is included in this
Annual Report on Form 10-K, for the year ended December 31, 1998.
PricewaterhouseCoopers LLP
New York, New York
March 30, 1999
EXHIBIT 23-B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Jersey Central Power & Light Company on Form S-3 (File Nos. 33-49463, 33-57905
and 33-57905-01) of our report dated February 3, 1999, on our audits of the
consolidated financial statements and financial statement schedule of Jersey
Central Power & Light Company and Subsidiary as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998, which
report is included in this Annual Report on Form 10-K, for the year ended
December 31, 1998.
PricewaterhouseCoopers LLP
New York, New York
March 30, 1999
EXHIBIT 23-C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Metropolitan Edison Company on Form S-3 (File Nos. 33-51001, 33-53673,
33-62967, 33-53673-01, 33-62967-01 and 33-62967-02) of our report dated February
3, 1999, on our audits of the consolidated financial statements and financial
statement schedule of Metropolitan Edison Company and Subsidiaries as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which report is included in this Annual Report on Form 10-K,
for the year ended December 31, 1998.
PricewaterhouseCoopers LLP
New York, New York
March 30, 1999
EXHIBIT 23-D
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Pennsylvania Electric Company on Form S-3 (File Nos. 33-49669, 33-53677,
33-62295, 33-53677-01, 33-62295-01 and 33-62295-02) of our report dated February
3, 1999, on our audits of the consolidated financial statements and financial
statement schedule of Pennsylvania Electric Company and Subsidiaries as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, which report is included in this Annual Report on Form 10-K,
for the year ended December 31, 1998.
PricewaterhouseCoopers LLP
New York, New York
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000040779
<NAME> GPU, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,804,895
<OTHER-PROPERTY-AND-INVEST> 2,299,943
<TOTAL-CURRENT-ASSETS> 1,062,409
<TOTAL-DEFERRED-CHARGES> 6,120,862
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 16,288,109
<COMMON> 331,958
<CAPITAL-SURPLUS-PAID-IN> 1,011,310
<RETAINED-EARNINGS> 2,199,121 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,464,648 <F2>
416,500 <F3>
66,478
<LONG-TERM-DEBT-NET> 3,825,584
<SHORT-TERM-NOTES> 368,607
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 561,183
2,500
<CAPITAL-LEASE-OBLIGATIONS> 2,593
<LEASES-CURRENT> 126,480
<OTHER-ITEMS-CAPITAL-AND-LIAB> 7,453,536
<TOT-CAPITALIZATION-AND-LIAB> 16,288,109
<GROSS-OPERATING-REVENUE> 4,248,792
<INCOME-TAX-EXPENSE> 238,241
<OTHER-OPERATING-EXPENSES> 3,352,713
<TOTAL-OPERATING-EXPENSES> 3,590,954
<OPERATING-INCOME-LOSS> 657,838
<OTHER-INCOME-NET> 119,446
<INCOME-BEFORE-INTEREST-EXPEN> 777,284
<TOTAL-INTEREST-EXPENSE> 389,232 <F4>
<NET-INCOME> 360,126 <F5>
0
<EARNINGS-AVAILABLE-FOR-COMM> 360,126
<COMMON-STOCK-DIVIDENDS> 258,058
<TOTAL-INTEREST-ON-BONDS> 177,483
<CASH-FLOW-OPERATIONS> 797,176
<EPS-PRIMARY> 2.83 <F5>
<EPS-DILUTED> 2.83 <F5>
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) OF
<F1> ($31,304).
<F2> INCLUDES REACQUIRED COMMON STOCK OF $77,741.
<F3> INCLUDES AMOUNT FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $330,000.
<F4> INCLUDES AMOUNT FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F4> PREFERRED SECURITIES OF $28,888 AND PREFERRED STOCK DIVIDENDS OF
<F4> SUBSIDIARIES OF $11,243.
<F5> INCLUDES MINORITY INTEREST NET (INCOME)/LOSS OF ($2,171) AND
<F5> AN AFTER-TAX CHARGE FOR AN EXTRAORDINARY ITEM OF $25,755
<F5> ($.20 PER SHARE).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000053456
<NAME> JERSEY CENTRAL POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,684,782
<OTHER-PROPERTY-AND-INVEST> 548,744
<TOTAL-CURRENT-ASSETS> 390,437
<TOTAL-DEFERRED-CHARGES> 958,159
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,582,122
<COMMON> 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769
<RETAINED-EARNINGS> 892,591 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,557,073
211,500 <F2>
37,741
<LONG-TERM-DEBT-NET> 1,173,532
<SHORT-TERM-NOTES> 53,300
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 69,044
<LONG-TERM-DEBT-CURRENT-PORT> 12
2,500
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 85,366
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,392,054
<TOT-CAPITALIZATION-AND-LIAB> 4,582,122
<GROSS-OPERATING-REVENUE> 2,069,648
<INCOME-TAX-EXPENSE> 164,445
<OTHER-OPERATING-EXPENSES> 1,607,589
<TOTAL-OPERATING-EXPENSES> 1,772,034
<OPERATING-INCOME-LOSS> 297,614
<OTHER-INCOME-NET> 33,380
<INCOME-BEFORE-INTEREST-EXPEN> 330,994
<TOTAL-INTEREST-EXPENSE> 108,552 <F3>
<NET-INCOME> 222,442
10,065
<EARNINGS-AVAILABLE-FOR-COMM> 212,377
<COMMON-STOCK-DIVIDENDS> 195,000 <F4>
<TOTAL-INTEREST-ON-BONDS> 87,261
<CASH-FLOW-OPERATIONS> 434,873
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE LOSS OF $425.
<F2> INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $125,000.
<F3> INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $10,700.
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000065350
<NAME> METROPOLITAN EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,286,388
<OTHER-PROPERTY-AND-INVEST> 222,936
<TOTAL-CURRENT-ASSETS> 207,604
<TOTAL-DEFERRED-CHARGES> 2,348,041
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,064,969
<COMMON> 66,273
<CAPITAL-SURPLUS-PAID-IN> 370,200
<RETAINED-EARNINGS> 250,586 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 687,059
100,000 <F2>
12,056
<LONG-TERM-DEBT-NET> 546,904
<SHORT-TERM-NOTES> 16,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 63,140
<LONG-TERM-DEBT-CURRENT-PORT> 30,024
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 27,135
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,582,251
<TOT-CAPITALIZATION-AND-LIAB> 4,064,969
<GROSS-OPERATING-REVENUE> 919,594
<INCOME-TAX-EXPENSE> 42,979
<OTHER-OPERATING-EXPENSES> 752,168
<TOTAL-OPERATING-EXPENSES> 795,147
<OPERATING-INCOME-LOSS> 124,447
<OTHER-INCOME-NET> (7,853)
<INCOME-BEFORE-INTEREST-EXPEN> 116,594
<TOTAL-INTEREST-EXPENSE> 58,874 <F3>
<NET-INCOME> 50,915 <F4>
483
<EARNINGS-AVAILABLE-FOR-COMM> 50,432
<COMMON-STOCK-DIVIDENDS> 85,000 <F5>
<TOTAL-INTEREST-ON-BONDS> 42,493
<CASH-FLOW-OPERATIONS> 173,548
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $16,520.
<F2> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES.
<F3> INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $9,000.
<F4> INCLUDES AN AFTER-TAX CHARGE FOR AN EXTRAORDINARY ITEM OF $6,805.
<F5> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000077227
<NAME> PENNSYLVANIA ELECTRIC COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,664,862
<OTHER-PROPERTY-AND-INVEST> 90,508
<TOTAL-CURRENT-ASSETS> 243,859
<TOTAL-DEFERRED-CHARGES> 2,525,578
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,524,807
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486
<RETAINED-EARNINGS> 376,006 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 767,304
105,000 <F2>
16,681
<LONG-TERM-DEBT-NET> 626,434
<SHORT-TERM-NOTES> 31,900
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 54,123
<LONG-TERM-DEBT-CURRENT-PORT> 50,012
0
<CAPITAL-LEASE-OBLIGATIONS> 2,593
<LEASES-CURRENT> 13,979
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,856,781
<TOT-CAPITALIZATION-AND-LIAB> 4,524,807
<GROSS-OPERATING-REVENUE> 1,032,226
<INCOME-TAX-EXPENSE> 45,150
<OTHER-OPERATING-EXPENSES> 861,453
<TOTAL-OPERATING-EXPENSES> 906,603
<OPERATING-INCOME-LOSS> 125,623
<OTHER-INCOME-NET> (3,816)
<INCOME-BEFORE-INTEREST-EXPEN> 121,807
<TOTAL-INTEREST-EXPENSE> 63,217 <F3>
<NET-INCOME> 39,640 <F4>
695
<EARNINGS-AVAILABLE-FOR-COMM> 38,945
<COMMON-STOCK-DIVIDENDS> 65,000 <F5>
<TOTAL-INTEREST-ON-BONDS> 47,729
<CASH-FLOW-OPERATIONS> 192,135
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $8,353.
<F2> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES.
<F3> INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $9,188.
<F4> INCLUDES AN AFTER-TAX CHARGE FOR AN EXTRAORDINARY ITEM OF $18,950.
<F5> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
EXHIBIT 99
GENERATION DIVESTITURE - 1998 PRO-FORMA FINANCIAL STATEMENTS
ACQUISITION OR DISPOSITION OF ASSETS
In October 1997, GPU announced its intention to begin a process to sell,
through a competitive bid process, up to all of the fossil-fuel and
hydroelectric generating facilities owned by the GPU Energy companies (Jersey
Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed),
Pennsylvania Electric Company (Penelec)). These facilities, comprised of 26
operating stations, support organizations and development sites, total
approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW) of
capacity and have a net book value of approximately $1.1 billion (JCP&L $272
million; Met-Ed $283 million; Penelec $508 million) at December 31, 1998.
In August 1998, after the completion of an auction process, Penelec and
New York State Electric & Gas Corporation (NYSEG) entered into definitive
agreements with Edison Mission Energy (Edison) to sell the Homer City Station
for a total purchase price of approximately $1.8 billion. The Homer City Station
is a 1,884 MW three unit coal-fired generation station located in Indiana
County, Pennsylvania. In March 1999, the sale of Homer City to EME Homer City
Generation, L.P., a subsidiary of Edison, was completed. Penelec and NYSEG each
owned a 50% interest in the station and shared equally in the net sale proceeds.
In November 1998, the GPU Energy companies entered into definitive
agreements with Sithe Energies and FirstEnergy Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a
total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed
$677 million; Penelec $604 million). Penelec's 20% undivided ownership interest
in the Seneca Pumped Storage Facility (Seneca) is being sold to FirstEnergy for
$43 million, which is included in this amount. The sales are expected to be
completed by mid-1999, subject to the timely receipt of the necessary regulatory
and other approvals. Sithe has agreed to assume the collective bargaining
agreements covering union employees and to fill bargaining positions on the
basis of seniority. Sithe has also agreed to use reasonable efforts to offer
positions to GPU Generation, Inc. (Genco) non-bargaining employees. The GPU
Energy companies have agreed to assume up to $20 million (JCP&L $7 million;
Met-Ed $9 million; Penelec $4 million) of employee severance costs for employees
not hired by Sithe.
In October 1998, the GPU Energy companies entered into definitive
agreements to sell Three Mile Island Unit 1 (TMI-1) to AmerGen Energy Company,
LLC (AmerGen), which is a joint venture between PECO Energy and British Energy.
Terms of the purchase agreements are summarized as follows:
- - The total cash purchase price is approximately $100 million, which
represents $23 million to be paid at closing, and $77 million for the
nuclear fuel in the reactor to be paid in five equal annual installments
beginning one year after the closing. The purchase price and closing payment
are subject to certain adjustments for capital expenditures and other items.
1
<PAGE>
- - AmerGen will make contingent payments of up to $80 million for the period
January 1, 2002 through December 31, 2010 depending on the actual energy
market clearing prices through 2010.
- - GPU will purchase the energy and capacity from TMI-1 from the closing
through December 31, 2001, at predetermined rates.
- - At closing, GPU will make additional deposits into the TMI-1 decommissioning
trusts to bring the trust totals up to $320 million and AmerGen will then
assume all liability and obligation for decommissioning TMI-1.
- - GPU will continue to own and hold the license for Three Mile Island Unit 2
(TMI-2). No liability for TMI-2 or its decommissioning will be assumed by
AmerGen. AmerGen will, however, maintain TMI-2 under contract with GPU.
- - AmerGen will employ all employees located at TMI-1 at closing, and will also
have the opportunity to offer positions to GPU Nuclear, Inc.'s headquarters
staff. GPU will be responsible for all severance payments associated with
these employees for a one-year period following closing. AmerGen will assume
the current collective bargaining agreement covering TMI-1 union employees.
The sale is subject to various conditions, including the receipt of
satisfactory federal and state regulatory approvals. Nuclear Regulatory
Commission approval of the TMI-1 license transfer to AmerGen, as well as certain
rulings from the Internal Revenue Service, will be necessary with respect to the
maintenance or transfer of the decommissioning trusts. There can be no assurance
as to the outcome of these matters.
The net proceeds from these generation asset sales will be used to
reduce the capitalization of the respective GPU Energy companies, repurchase
GPU, Inc. common stock, fund previously incurred liabilities in accordance with
the Pennsylvania settlement, and may also be applied to reduce short-term debt,
finance further acquisitions, and reduce acquisition debt of the GPUI Group.
Financial Statements and Pro Forma Financial Information
The following consolidated financial statements are filed with this
exhibit:
Actual (audited) and Pro Forma (unaudited) Consolidated Balance Sheets at
December 31, 1998 for:
GPU, Inc. and Subsidiaries
Jersey Central Power & Light and Subsidiary
Metropolitan Edison Company and Subsidiaries
Pennsylvania Electric Company and Subsidiaries
2
<PAGE>
Actual (audited) and Pro Forma (unaudited) Consolidated Statements of Income For
The Year Ended December 31, 1998 for:
GPU, Inc. and Subsidiaries
Jersey Central Power & Light and Subsidiary
Metropolitan Edison Company and Subsidiaries
Pennsylvania Electric Company and Subsidiaries
The following major assumptions were used in preparing the pro forma
financial statements of GPU, Inc., JCP&L, Met-Ed and Penelec:
Assumes an asset sale date of January 1, 1998.
A 41% effective tax rate.
Estimate of selling/transaction costs considering costs already incurred
and estimated future expenditures.
Replacement power for the facilities sold is assumed to have been
purchased at $21.80/MWH (the average 1998 Pennsylvania-New
Jersey-Maryland interchange rate).
Capacity is assumed to be priced at $70/MW day.
Assumes no change in rate structure during 1998 for Pennsylvania or New
Jersey (JCP&L Levelized Energy Adjustment Clause and Pennsylvania
deferral of above market nonutility generation still in effect).
All gains and losses on the sales have been deferred except for the
Federal Energy Regulatory Commission jurisdictional portion which is
credited to retained earnings.
TMI-1 decommissioning trust funds transferred to AmerGen and any gains
not subject to taxation.
The tax effect of the asset sales as it relates to depreciation has been
analyzed and is reflected in the pro forma entries. The tax effect of
other items (mainly employee benefits), which are expected to primarily
affect the balance sheet, are not reflected in the pro forma entries.
Pro forma entries are presented up to the point of receipt of cash
proceeds. No assumptions were made regarding the utilization of
proceeds, including Penelec First Mortgage Bond redemption and intended
re-issuance of unsecured debt in the second quarter of 1999. A general
statement on the use of proceeds is included in our general description
of the transactions at the beginning of the exhibit.
3
<PAGE>
Description of Pro-forma Adjustments
The Pro-forma financial statements reflect the following transactions:
1. The sale of the GPU Energy companies' assets as described above including
the recording of the gain on the sale, reversal of related accumulated
depreciation balances and deferral of the gain pending ratemaking
determination.
2. The reversal of tax balances from the balance sheet related to the
assets sold.
3. The recording of selling costs related to the sale (includes legal fees,
advisory fees, employee benefits, etc.).
4. The removal from the income statement of fuel, depreciation and
operations and maintenance expenses which would not have been incurred if
assets were sold at January 1, 1998.
5. The recording of the effect of purchasing power and capacity from
external sources which would have replaced the energy from the assets
sold.
6. The elimination of the income statement tax effects of the generation
assets sold assuming the sale was effective January 1, 1998.
4
<PAGE>
<TABLE>
<CAPTION>
GPU, Inc. and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-------------------------------------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
----------- ----------- -----------
Utility Plant:
<S> <C> <C> <C>
Utility plant in service $11,025,439 $(2,480,900) $ 8,544,539
Accumulated depreciation (4,460,341) 1,608,700 (2,851,641)
---------- ---------- -----------
Net utility plant in service 6,565,098 (872,200) 5,692,898
Construction work in progress 94,005 (26,300) 67,705
Other, net 145,792 (54,300) 91,492
---------- ---------- -----------
Net utility plant 6,804,895 (952,800) 5,852,095
---------- ---------- -----------
Other Property and Investments:
GPUI Group equity investments 682,125 - 682,125
Goodwill, net 545,262 - 545,262
Nuclear decommissioning trusts, at market 716,274 (174,600) 541,674
Other, net 356,282 - 356,282
---------- ---------- -----------
Total other property and investments 2,299,943 (174,600) 2,125,343
---------- ---------- -----------
Current Assets:
Cash and temporary cash investments 72,755 2,117,354 2,190,109
Special deposits 62,673 - 62,673
Accounts receivable:
Customers, net 286,278 - 286,278
Other 126,088 64,300 190,388
Unbilled revenues 144,076 - 144,076
Materials and supplies, at average cost or less:
Construction and maintenance 155,827 (116,600) 39,227
Fuel 42,697 (42,469) 228
Investments held for sale 48,473 - 48,473
Deferred income taxes 47,521 - 47,521
Prepayments 76,021 - 76,021
---------- ---------- -----------
Total current assets 1,062,409 2,022,585 3,084,994
---------- ---------- -----------
Deferred Debits and Other Assets:
Regulatory assets, net:
Competitive transition charge 1,023,815 - 1,023,815
Other regulatory assets, net 2,882,413 (72,900) 2,809,513
Deferred income taxes 2,004,278 573,900 2,578,178
Other 210,356 62,500 272,856
---------- ---------- -----------
Total deferred debits and other assets 6,120,862 563,500 6,684,362
---------- ---------- -----------
Total Assets $16,288,109 $ 1,458,685 $17,746,794
========== ========== ===========
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GPU, Inc. and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-------------------------------------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
<S> <C> <C> <C>
----------- ----------- -----------
Capitalization:
Common stock $ 331,958 $ - $ 331,958
Capital surplus 1,011,310 - 1,011,310
Retained earnings and accumulated
other comprehensive income/(loss) 2,199,121 (151,299) 2,047,822
---------- ---------- -----------
Total 3,542,389 (151,299) 3,391,090
Reacquired common stock, at cost (77,741) - (77,741)
---------- ---------- -----------
Total common stockholders' equity 3,464,648 (151,299) 3,313,349
Cumulative preferred stock:
With mandatory redemption 86,500 - 86,500
Without mandatory redemption 66,478 - 66,478
Subsidiary-obligated mandatorily redeemable
preferred securities 330,000 - 330,000
Long-term debt 3,825,584 - 3,825,584
---------- ---------- -----------
Total capitalization 7,773,210 (151,299) 7,621,911
---------- ---------- -----------
Current Liabilities:
Securities due within one year 563,683 - 563,683
Notes payable 368,607 - 368,607
Obligations under capital leases 126,480 (54,300) 72,180
Accounts payable 394,815 (25,200) 369,615
Taxes accrued 92,339 658,600 750,939
Interest accrued 81,931 - 81,931
Deferred energy credits 2,411 (107,500) (105,089)
Other 377,594 39,400 416,994
---------- ---------- -----------
Total current liabilities 2,007,860 511,000 2,518,860
---------- ---------- -----------
Deferred Credits and Other Liabilities:
Deferred income taxes 3,044,947 (131,700) 2,913,247
Unamortized investment tax credits 114,308 1,600 115,908
Three Mile Island Unit 2 future costs 483,515 - 483,515
Nonutility generation contract loss liability 1,803,820 - 1,803,820
Other 1,060,449 1,229,084 2,289,533
---------- ---------- -----------
Total deferred credits and other liabilities 6,507,039 1,098,984 7,606,023
---------- ---------- -----------
Total Liabilities and Capitalization $16,288,109 $ 1,458,685 $17,746,794
========== ========== ===========
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GPU, Inc. and Subsidiaries
Consolidated Statements of Income
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
---------------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues $4,248,792 $(163,000) $4,085,792
----------- ----------- -----------
Operating Expenses:
Fuel 407,105 (335,270) 71,835
Power purchased and interchanged 1,122,841 678,462 1,801,303
Deferral of energy and capacity costs, net (25,542) (107,500) (133,042)
Other operation and maintenance 1,106,913 (216,346) 890,567
Depreciation and amortization 522,094 (91,300) 430,794
Taxes, other than income taxes 219,302 - 219,302
----------- ----------- -----------
Total operating expenses 3,352,713 (71,954) 3,280,759
----------- ----------- -----------
Operating Income Before Income Taxes 896,079 (91,046) 805,033
Income taxes 238,241 (36,200) 202,041
----------- ----------- -----------
Operating Income 657,838 (54,846) 602,992
----------- ----------- -----------
Other Income and Deductions:
Allowance for other funds used during construction 916 - 916
Equity in undistributed earnings/(losses)
of affiliates 72,012 - 72,012
Other income, net 48,366 - 48,366
Income taxes (1,848) - (1,848)
----------- ----------- -----------
Total other income and deductions 119,446 - 119,446
----------- ----------- -----------
Income Before Interest Charges and
Preferred Dividends 777,284 (54,846) 722,438
Interest Charges and Preferred Dividends:
Long-term debt 318,396 - 318,396
Subsidiary-obligated mandatorily
redeemable preferred securities 28,888 - 28,888
Other interest 35,053 - 35,053
Allowance for borrowed funds used
during construction (4,348) - (4,348)
Preferred stock dividends of subsidiaries 11,243 - 11,243
----------- ----------- -----------
Total interest charges and preferred dividends 389,232 - 389,232
----------- ----------- -----------
Minority interest net income 2,171 - 2,171
----------- ----------- -----------
Income Before Extraordinary Item 385,881 (54,846) 331,035
Extraordinary item (net of income tax
benefit of $16,300) (25,755) - (25,755)
----------- ----------- -----------
Net Income $ 360,126 $ (54,846) 305,280
=========== =========== ===========
Basic- Earnings Per Average Common Share
Before Extraordinary Item $ 3.03 $ (0.43) $ 2.60
Extraordinary Item (0.20) - (0.20)
----------- ----------- -----------
Earnings Per Average Common Share $ 2.83 $ (0.43) $ 2.40
=========== =========== ===========
Average Common Shares Outstanding (In Thousands) 127,093 127,093 127,093
=========== =========== ===========
Diluted-Earnings Per Average Common Share
Before Extraordinary Item $ 3.03 $ (0.43) $ 2.60
Extraordinary Item (0.20) - (0.20)
----------- ----------- -----------
Earnings Per Average Common Share $ 2.83 $ (0.43) $ 2.40
=========== =========== ===========
Average Common Shares Outstanding (In Thousands) 127,312 127,312 127,312
=========== =========== ===========
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jersey Central Power & Light Company and Subsidiary
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
----------------------------------------------------
December 31, 1998
(In Thousands)
ASSETS Actual Adjustments Pro Forma
----------- ----------- -----------
Utility Plant:
<S> <C> <C> <C>
Utility plant in service $ 4,755,273 $ (606,800) $ 4,148,473
Accumulated depreciation (2,217,108) 403,100 (1,814,008)
----------- ----------- -----------
Net utility plant in service 2,538,165 (203,700) 2,334,465
Construction work in progress 48,126 (6,100) 42,026
Other, net 98,491 (13,500) 84,991
----------- ----------- -----------
Net utility plant 2,684,782 (223,300) 2,461,482
----------- ----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market 422,277 (48,300) 373,977
Other, net 126,467 - 126,467
----------- ----------- -----------
Total other property and investments 548,744 (48,300) 500,444
----------- ----------- -----------
Current Assets:
Cash and temporary cash investments 1,850 327,300 329,150
Special deposits 6,047 - 6,047
Accounts receivable:
Customers, net 152,120 - 152,120
Other 32,562 7,100 39,662
Unbilled revenues 56,391 - 56,391
Materials and supplies, at average cost or less:
Construction and maintenance 79,863 (71,100) 8,763
Fuel 13,144 (13,144) -
Deferred income taxes 20,812 - 20,812
Prepayments 27,648 - 27,648
----------- ----------- -----------
Total current assets 390,437 250,156 640,593
----------- ----------- -----------
Deferred Debits and Other Assets:
Other regulatory assets, net 753,885 (47,500) 706,385
Deferred income taxes 179,237 45,300 224,537
Other 25,037 15,600 40,637
----------- ----------- -----------
Total deferred debits and other assets 958,159 13,400 971,559
----------- ----------- -----------
<S> <C> <C> <C>
Total Assets $ 4,582,122 $ (8,044) $ 4,574,078
=========== =========== ===========
8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jersey Central Power & Light Company and Subsidiary
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
----------------------------------------------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
----------- ----------- -----------
Capitalization:
<S> <C> <C> <C>
Common stock $ 153,713 $ - $ 153,713
Capital surplus 510,769 - 510,769
Retained earnings and accumulated
other comprehensive income/(loss) 892,591 (25,400) 867,191
----------- ----------- -----------
Total common stockholder's equity 1,557,073 (25,400) 1,531,673
Cumulative preferred stock:
With mandatory redemption 86,500 - 86,500
Without mandatory redemption 37,741 - 37,741
Company-obligated mandatorily redeemable
preferred securities 125,000 - 125,000
Long-term debt 1,173,532 - 1,173,532
----------- ----------- -----------
Total capitalization 2,979,846 (25,400) 2,954,446
----------- ----------- -----------
Current Liabilities:
Securities due within one year 2,512 - 2,512
Notes payable 122,344 - 122,344
Obligations under capital leases 85,366 (13,500) 71,866
Accounts payable:
Affiliates 40,861 - 40,861
Other 80,233 (4,200) 76,033
Taxes accrued 5,559 70,800 76,359
Interest accrued 26,678 - 26,678
Deferred energy credits 2,411 (107,500) (105,089)
Other 104,408 39,400 143,808
----------- ----------- -----------
Total current liabilities 470,372 (15,000) 455,372
----------- ----------- -----------
Deferred Credits and Other Liabilities:
Deferred income taxes 670,961 (33,600) 637,361
Unamortized investment tax credits 50,225 - 50,225
Nuclear fuel disposal fee 141,270 - 141,270
Three Mile Island Unit 2 future costs 120,904 - 120,904
Other 148,544 65,956 214,500
----------- ----------- -----------
Total deferred credits and other liabilities 1,131,904 32,356 1,164,260
----------- ----------- -----------
<S> <C> <C> <C>
Total Liabilities and Capitalization $ 4,582,122 $ (8,044) $ 4,574,078
========== ========== ===========
9
</TABLE>
<PAGE>
<TABLE>
Jersey Central Power & Light Company and Subsidiary
Consolidated Statements of Income
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
------------------------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues $2,069,648 $ (109,700) $1,959,948
----------- ----------- -----------
Operating Expenses:
Fuel 86,431 (59,211) 27,220
Power purchased and interchanged:
Affiliates 57,643 (57,643) -
Others 658,742 154,100 812,842
Deferral of energy and capacity costs, net (25,542) (107,500) (133,042)
Other operation and maintenance 485,054 (53,446) 431,608
Depreciation and amortization 250,675 14,000 264,675
Taxes, other than income taxes 94,586 - 94,586
----------- ----------- -----------
Total operating expenses 1,607,589 (109,700) 1,497,889
----------- ----------- -----------
Operating Income Before Income Taxes 462,059 - 462,059
Income taxes 164,445 - 164,445
----------- ----------- -----------
Operating Income 297,614 - 297,614
----------- ----------- -----------
Other Income and Deductions:
Allowance for other funds used during construction 786 - 786
Other income, net 13,227 - 13,227
Income taxes 19,367 - 19,367
----------- ----------- -----------
Total other income and deductions 33,380 - 33,380
----------- ----------- -----------
Income Before Interest Charges 330,994 - 330,994
----------- ----------- -----------
Interest Charges:
Long-term debt 87,261 - 87,261
Company-obligated mandatorily
redeemable preferred securities 10,700 - 10,700
Other interest 12,229 - 12,229
Allowance for borrowed funds used
during construction (1,638) - (1,638)
----------- ----------- -----------
Total interest charges 108,552 - 108,552
----------- ----------- -----------
Net Income 222,442 - 222,442
Preferred stock dividends 10,065 - 10,065
----------- ----------- -----------
Earnings Available for Common Stock $ 212,377 $ - $ 212,377
=========== =========== ===========
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Metropolitan Edison Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
---------------------------------------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
----------- ----------- -----------
Utility Plant:
<S> <C> <C> <C>
Utility plant in service $ 2,247,627 $ (772,500) $ 1,475,127
Accumulated depreciation (1,008,438) 575,200 (433,238)
----------- ----------- -----------
Net utility plant in service 1,239,189 (197,300) 1,041,889
Construction work in progress 19,380 (11,700) 7,680
Other, net 27,819 (27,100) 719
----------- ----------- -----------
Net utility plant 1,286,388 (236,100) 1,050,288
----------- ----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market 211,194 (88,000) 123,194
Other, net 11,742 - 11,742
----------- ----------- -----------
Total other property and investments 222,936 (88,000) 134,936
----------- ----------- -----------
Current Assets:
Cash and temporary cash investments 442 481,977 482,419
Special deposits 1,062 - 1,062
Accounts receivable:
Customers, net 60,012 - 60,012
Other 41,895 8,700 50,595
Unbilled revenues 43,687 - 43,687
Materials and supplies, at average cost or less:
Construction and maintenance 24,727 (17,300) 7,427
Fuel 12,218 (12,218) -
Deferred income taxes 2,945 - 2,945
Prepayments 20,616 - 20,616
----------- ----------- -----------
Total current assets 207,604 461,159 668,763
----------- ----------- -----------
Deferred Debits and Other Assets:
Regulatory assets, net:
Competitive transition charge 680,213 - 680,213
Other regulatory assets, net 921,934 (5,000) 916,934
Deferred income taxes 714,202 143,400 857,602
Other 31,692 31,200 62,892
----------- ----------- -----------
Total deferred debits and other assets 2,348,041 169,600 2,517,641
----------- ----------- -----------
<S> <C> <C> <C>
Total Assets $ 4,064,969 $ 306,659 $ 4,371,628
=========== =========== ===========
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Metropolitan Edison Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-------------------------------------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
----------- ----------- -----------
Capitalization:
<S> <C> <C> <C>
Common stock $ 66,273 $ - $ 66,273
Capital surplus 370,200 - 370,200
Retained earnings and accumulated
other comprehensive income 250,586 (62,676) 187,910
----------- ----------- -----------
Total common stockholder's equity 687,059 (62,676) 624,383
Cumulative preferred stock 12,056 - 12,056
Company-obligated mandatorily redeemable
preferred securities 100,000 - 100,000
Long-term debt 546,904 - 546,904
----------- ----------- -----------
Total capitalization 1,346,019 (62,676) 1,283,343
----------- ----------- -----------
Current Liabilities:
Securities due within one year 30,024 - 30,024
Notes payable 79,540 - 79,540
Obligations under capital leases 27,135 (27,100) 35
Accounts payable:
Affiliates 75,933 - 75,933
Other 102,390 (7,700) 94,690
Taxes accrued 19,463 140,500 159,963
Interest accrued 16,747 - 16,747
Other 42,598 - 42,598
----------- ----------- -----------
Total current liabilities 393,830 105,700 499,530
----------- ----------- -----------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,010,982 (12,500) 998,482
Unamortized investment tax credits 27,157 600 27,757
Three Mile Island Unit 2 future costs 241,707 - 241,707
Nuclear fuel disposal fee 31,912 - 31,912
Nonutility generation contract loss liability 787,440 - 787,440
Other 225,922 275,535 501,457
----------- ----------- -----------
Total deferred credits and other liabilities 2,325,120 263,635 2,588,755
----------- ----------- -----------
<S> <C> <C> <C>
Total Liabilities and Capitalization $ 4,064,969 $ 306,659 $ 4,371,628
=========== =========== ===========
12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Metropolitan Edison Company and Subsidiaries
Consolidated Statements of Income
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
-----------------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues $ 919,594 $ (32,400) $ 887,194
----------- ----------- -----------
Operating Expenses:
Fuel 99,511 (99,511) -
Power purchased and interchanged:
Affiliates 17,766 (17,766) -
Others 220,095 242,700 462,795
Other operation and maintenance 247,189 (83,800) 163,389
Depreciation and amortization 109,148 (47,600) 61,548
Taxes, other than income taxes 58,459 - 58,459
----------- ----------- -----------
Total operating expenses 752,168 (5,977) 746,191
----------- ----------- -----------
Operating Income Before Income Taxes 167,426 (26,423) 141,003
Income taxes 42,979 (10,400) 32,579
----------- ----------- -----------
Operating Income 124,447 (16,023) 108,424
----------- ----------- -----------
Other Income and Deductions:
Allowance for other funds used during construction 130 - 130
Other income/(expense), net (13,539) - (13,539)
Income taxes 5,556 - 5,556
----------- ----------- -----------
Total other income and deductions (7,853) - (7,853)
----------- ----------- -----------
Income Before Interest Charges 116,594 (16,023) 100,571
----------- ----------- -----------
Interest Charges:
Long-term debt 42,493 - 42,493
Company-obligated mandatorily
redeemable preferred securities 9,000 - 9,000
Other interest 8,194 - 8,194
Allowance for borrowed funds used
during construction (813) - (813)
----------- ----------- -----------
Total interest charges 58,874 - 58,874
----------- ----------- -----------
Income Before Extraordinary Item 57,720 (16,023) 41,697
Extraordinary item (net of income tax
benefit of $4,708) (6,805) - (6,805)
----------- ----------- -----------
Net Income 50,915 (16,023) 34,892
----------- ----------- -----------
Preferred stock dividends 483 - 483
Earnings Available for Common Stock $ 50,432 $ (16,023) $ 34,409
=========== =========== ===========
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
------------------------------------------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
----------- ----------- -----------
Utility Plant:
<S> <C> <C> <C>
Utility plant in service $ 2,802,360 $(1,101,600) $ 1,700,760
Accumulated depreciation (1,175,842) 630,400 (545,442)
----------- ----------- -----------
Net utility plant in service 1,626,518 (471,200) 1,155,318
Construction work in progress 18,862 (8,500) 10,362
Other, net 19,482 (13,700) 5,782
----------- ----------- -----------
Net utility plant 1,664,862 (493,400) 1,171,462
----------- ----------- -----------
Other Property and Investments:
Nuclear decommissioning trusts, at market 82,803 (38,300) 44,503
Other, net 7,705 - 7,705
----------- ----------- -----------
Total other property and investments 90,508 (38,300) 52,208
----------- ----------- -----------
Current Assets:
Cash and temporary cash investments 2,750 1,308,077 1,310,827
Special deposits 2,632 - 2,632
Accounts receivable:
Customers, net 69,887 - 69,887
Other 28,893 48,500 77,393
Unbilled revenues 43,998 - 43,998
Materials and supplies, at average cost or less:
Construction and maintenance 39,452 (28,200) 11,252
Fuel 17,107 (17,107) -
Deferred income taxes 7,589 - 7,589
Prepayments 31,551 - 31,551
----------- ----------- -----------
Total current assets 243,859 1,311,270 1,555,129
----------- ----------- -----------
Deferred Debits and Other Assets:
Regulatory assets, net:
Competitive transition charge 343,602 - 343,602
Other regulatory assets, net 1,206,594 (20,400) 1,186,194
Deferred income taxes 951,471 385,200 1,336,671
Other 23,911 15,700 39,611
----------- ----------- -----------
Total deferred debits and other assets 2,525,578 380,500 2,906,078
----------- ----------- -----------
<S> <C> <C> <C>
Total Assets $ 4,524,807 $ 1,160,070 $ 5,684,877
=========== =========== ===========
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
---------------------------------------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Capitalization:
Common stock $ 105,812 $ - $ 105,812
Capital surplus 285,486 - 285,486
Retained earnings and accumulated
other comprehensive income 376,006 (63,223) 312,783
----------- ----------- -----------
Total common stockholder's equity 767,304 (63,223) 704,081
Cumulative preferred stock 16,681 - 16,681
Company-obligated mandatorily redeemable
preferred securities 105,000 - 105,000
Long-term debt 626,434 - 626,434
----------- ----------- -----------
Total capitalization 1,515,419 (63,223) 1,452,196
----------- ----------- -----------
Current Liabilities:
Securities due within one year 50,012 - 50,012
Notes payable 86,023 - 86,023
Obligations under capital leases 13,979 (13,700) 279
Accounts payable:
Affiliates 47,164 - 47,164
Other 47,795 (13,300) 34,495
Taxes accrued 32,755 447,300 480,055
Interest accrued 19,700 - 19,700
Other 37,272 - 37,272
----------- ----------- -----------
Total current liabilities 334,700 420,300 755,000
----------- ----------- -----------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,338,235 (85,600) 1,252,635
Unamortized investment tax credits 36,926 1,000 37,926
Three Mile Island Unit 2 future costs 120,904 - 120,904
Nuclear fuel disposal fee 15,956 - 15,956
Nonutility generation contract loss liability 1,016,380 - 1,016,380
Other 146,287 887,593 1,033,880
----------- ----------- -----------
Total deferred credits and other liabilities 2,674,688 802,993 3,477,681
----------- ----------- -----------
<S> <C> <C> <C>
Total Liabilities and Capitalization $ 4,524,807 $ 1,160,070 $ 5,684,877
=========== =========== ===========
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Electric Company and Subsidiaries
Consolidated Statements of Income
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
---------------------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues $1,032,226 $ (99,100) $ 933,126
----------- ----------- -----------
Operating Expenses:
Fuel 176,548 (176,548) -
Power purchased and interchanged:
Affiliates 2,729 (2,729) -
Others 233,395 281,600 514,995
Other operation and maintenance 275,107 (79,100) 196,007
Depreciation and amortization 109,800 (57,700) 52,100
Taxes, other than income taxes 63,874 - 63,874
----------- ----------- -----------
Total operating expenses 861,453 (34,477) 826,976
----------- ----------- -----------
Operating Income Before Income Taxes 170,773 (64,623) 106,150
Income taxes 45,150 (25,800) 19,350
----------- ----------- -----------
Operating Income 125,623 (38,823) 86,800
----------- ----------- -----------
Other Income and Deductions:
Other income/(expense), net (6,429) - (6,429)
Income taxes 2,613 - 2,613
----------- ----------- -----------
Total other income and deductions (3,816) - (3,816)
Income Before Interest Charges 121,807 (38,823) 82,984
----------- ----------- -----------
Interest Charges:
Long-term debt 47,729 - 47,729
Company-obligated mandatorily
redeemable preferred securities 9,188 - 9,188
Other interest 8,197 - 8,197
Allowance for borrowed funds used
during construction (1,897) - (1,897)
----------- ----------- -----------
Total interest charges 63,217 - 63,217
----------- ----------- -----------
Income Before Extraordinary Item 58,590 (38,823) 19,767
Extraordinary item (net of income tax
benefit of $11,592) (18,950) - (18,950)
----------- ----------- -----------
Net Income 39,640 (38,823) 817
Preferred stock dividends 695 - 695
----------- ----------- -----------
Earnings Available for Common Stock $ 38,945 $ (38,823) $ 122
=========== =========== ===========
16
</TABLE>
<PAGE>
